<PAGE>   1

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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

        (Mark One)

         [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

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

                For the Transition Period From _______ to _______

                         Commission File Number 0-20889

                                  AVTEAM, INC.
             (Exact name of Registrant as specified in its charter)

                Florida                                        65-0313187
     (State or other jurisdiction of                        (I.R.S. Employer
     incorporation or organization)                        Identification No.)

          3230 Executive Way                                     33025
           Miramar, Florida                                   (Zip Code)
(Address of principal executive offices)

       Registrant's telephone number, including area code: (954) 431-2359

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

           Securities registered pursuant to Section 12(g) of the Act:

                  Class A Common Stock, par value $.01 per share

       Indicate by check mark whether the Registrant (1) has filed all reports
required 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 requirements for the past 90 days. Yes [ ] No [X]

       Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

       As of May 1, 2000, (a) 11,000,218 shares of Class A Common Stock, par
value $.01 per share, of the Registrant (the "Class A Common Stock") were
outstanding and 439,644 shares of Class B Common Stock, par value $.01 per
share, of the Registrant were outstanding; (b) the number of shares of Class A
Common Stock held by non-affiliates was 6,413,397; and (c) the aggregate market
value of the Class A Common Stock (based on the closing price on the Class A
Common Stock on May 1, 2000 as quoted on the NASDAQ Stock Market's National
Market, which was $3.03 per share) held by non-affiliates was approximately
$19,400,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

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


<PAGE>   2



                                  AVTEAM, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                             ----
<S>                                                                                                          <C>
PART I

Item 1     Business........................................................................................  1

           Investor Considerations.........................................................................

Item 2     Properties...................................................................................... 11

Item 3     Legal Proceedings............................................................................... 11

Item 4     Submission of Matters to a Vote of
           Security Holders................................................................................ 11

PART II

Item 5     Market for the Registrant's Common
           Equity and Related Shareholder Matters.......................................................... 11

Item 6     Selected Financial Data......................................................................... 12

Item 7     Management's Discussion and Analysis
           Of Financial Condition and Results of Operations................................................ 13

Item 7A    Quantitative and Qualitative Disclosures
           About Market Risk............................................................................... 17

Item 8     Financial Statements and Supplementary Data..................................................... 17

Item 9     Changes in and Disagreements with Auditors on
           Accounting and Financial Disclosure............................................................. 17

PART III

Item 10    Directors and Executive Officers of the Registrant.............................................. 18

Item 11    Executive Compensation.......................................................................... 19

Item 12    Security Ownership of Certain
           Beneficial Owners and Management................................................................ 24

PART IV

Item 13    Exhibits, Financial Statement Schedules
           and Reports on Form 8-K......................................................................... 25
</TABLE>




                                       i
<PAGE>   3

                                     PART I

         This Annual Report on Form 10-K of AVTEAM, Inc. ("AVTEAM" or the
"Company") contains certain "forward-looking statements" within the meaning of
the federal securities laws and are not guarantees of future performance.
"Forward looking statements" include statements that express, or involve
discussions as to expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases, such as "will or should result," "are expected to," "will or should
continue," "is anticipated," "plans," "intends," "estimated," "projection" and
"outlook"). For a variety of reasons, the Company's actual results could differ
materially from any forward-looking statements made in this report. Among the
factors that could cause actual results to differ from predicted or expected
results are the following: the effects of increased indebtedness, interest rates
and bank fees, airline industry profitability, reduced availability of funds for
operations and expansion, the inability of the Company to retain highly skilled
employees, the loss of a major customer, the failure to attract sufficient
customers for its CFM56-3 repair services, difficulties in executing the
Company's plans to significantly expand CFM56 capability, the decline in overall
usage of the JT8D aircraft engine, increased fuel prices and interest charges, a
decline in the demand for aftermarket aircraft engines, engine parts and
airframe components, seasonal fluctuations, rescheduling or cancellation of
customer orders, which could materially adversely affect the Company's revenues;
the possibility that regulatory changes and unforeseen events could impact the
Company's ability to provide products and services to its customers; existing
competition from national and regional competitors, which could result in
pricing and other pressures on profitability and market share; and other risks
and uncertainties set forth in the Company's filings with the Securities and
Exchange Commission (the "SEC"), including the Company's Form 10-Q for the
quarter ended September 30, 1999, and this report. Consequently, the reader is
cautioned to consider all forward-looking statements in light of the risks to
which they are subject.

ITEM 1. BUSINESS

GENERAL

         AVTEAM is a global supplier of aftermarket commercial aircraft engines,
engine parts and aircraft components ("Engines and Components") and provides
aircraft engine maintenance, repair and overhaul ("MRO") service, serving over
700 customers, including other aftermarket suppliers, repair facilities,
aircraft operators and original equipment manufacturers ("OEMs"). The Company
has historically focused on the Pratt & Whitney JT8D series of engines, which
are the most widely used jet aircraft engines in the world and power
approximately 28% of the world's commercial aircraft. In 1997, AVTEAM expanded
its product line to include the CFM56 series of engines manufactured by CFM
International. The CFM56 series of engines had the highest production volume of
any engine series in 1999 and power nearly 40% of all single-aisle, narrow-body
aircraft ordered since 1987. The Company works with its worldwide network of
industry contacts to identify and evaluate Engines and Components and surplus
aircraft for potential acquisition. Engines and Components are either made
available for immediate resale or repaired by FAA-licensed repair facilities and
then resold. Surplus aircraft are purchased for eventual disassembly and sold as
parts by the Company. The Company resells Engines and Components to other
aftermarket suppliers, independent repair facilities, aircraft operators and
OEMs.

         On December 15, 1998, the Company, through its wholly-owned subsidiary,
AVTEAM Engine Repair Corp. ("AERC") completed the acquisition (the
"Acquisition") of substantially all of the assets and the assumption of certain
liabilities of M&M Aircraft Services, Inc. ("M&M"), for an aggregate purchase
price of $30 million and the issuance of 350,000 shares of the Company's Class A
Common Stock, par value $.01 per share ("Class A Common Stock"). For the year
1999, AERC had net revenue of approximately $50.7 million derived from MRO
services. As a result of this acquisition, the Company has begun to realize
synergies between its Engines and Components business and its engine MRO
business, including bringing to market on a more timely basis engines and engine
parts held for resale.

         Since its inception, the Company has substantially increased its
revenue base, broadened the range of products and services offered and taken
consistent steps to ensure the quality of its products and services. From $3.9
million in 1993, the Company's net sales reached $129.8 million in 1999. From
1998 to 1999, the Company's net sales grew 72.3%. In April 2000, the Company
received FAA certification for its new CFM56-3 engine repair facility, which the
Company believes will begin to generate revenue in the third quarter of 2000.





                                       1
<PAGE>   4

INDUSTRY OVERVIEW

         The Company believes that the annual worldwide aftermarket for Engines
and Components is approximately $8 - 10 billion, of which approximately $1
billion represents sales and leases of JT8D Engines and Components. The
aftermarket for Engines and Components is highly fragmented, with a limited
number of well-capitalized companies selling a broad range of products and
numerous smaller competitors serving distinct market niches. Aftermarket
suppliers compete to supply Engines and Components not only amongst themselves
but with OEMs, distributors and leasing companies. The Company believes that the
annual worldwide engine MRO market is approximately $8 - 10 billion annually,
and is expected to grow to $17 billion in 15 years. Airlines, such as Delta,
United, American, Lufthansa and Japan Airlines comprise the largest segment of
the market. The remainder is comprised of independent and OEM engine MRO
operators. Independent operators include AVTEAM Engine Repair Corp., Aerothrust,
Wood Group, Volvo, Pacific Gas Turbine and ST Aerospace. OEM's include General
Electric Aircraft Engine Services and Pratt and Whitney.

         The Company believes that the following factors will contribute to the
continued growth of the aftermarket for Engines and Components and the engine
MRO market: (i) growth in air transit activity; (ii) increase in the number of
older commercial aircraft used by small and medium sized operators; (iii)
aircraft operators' demand for full service suppliers; and (iv) increased
regulatory scrutiny.

         Growth in Air Travel is Fueling Demand for Quality Parts and Service.
Boeing forecasts that to accommodate expected passenger and cargo traffic, the
world airline fleet will need to more than double in size over the next 18
years. This increase, together with a continuation of the historical pattern
among airlines to maintain older aircraft and engines, is expected to result in
strong growth in the $8 - $10 billion market for high-quality aftermarket
products, and the $8 - $10 billion market for engine maintenance services. The
recent trend of rising fuel prices and declining airline industry profitability
may serve to reduce the expansion of the aftermarket.

         Increase in the Utilization of Older Commercial Aircraft. Increased
demand for air travel and the need for aircraft operators to reduce operating
and capital costs have prompted many airlines to extend the useful life of older
equipment. The installation of FAA-approved hushkits and extended life
maintenance programs have increased the useful life of aircraft utilizing JT8D
engines for many operators. In addition, many second-tier foreign and domestic
aircraft operators are increasing their fleets through the acquisition of less
expensive used aircraft, which typically require more maintenance and
replacement parts than new aircraft.

         Aircraft Operators' Demand for Full Service Suppliers. Cost
considerations are causing aircraft operators to reduce the size of their spare
parts inventories, while cost and quality concerns cause them to maintain
relationships with a more limited number of approved suppliers. As a result,
many airlines today require full service suppliers that provide a broad array of
products and services.

         Increased Regulatory Scrutiny. Increased regulatory scrutiny by the FAA
of the airline industry has created opportunities for aftermarket parts
suppliers and engine MRO operators with the infrastructure and quality systems
to satisfy increased regulatory standards. In September 1996, the FAA issued an
advisory circular recommending voluntary industry oversight and accreditation of
aftermarket parts suppliers. In response to regulatory scrutiny, aircraft
operators have increased their documentation requirements for products purchased
in the aftermarket. The Company believes that regulatory scrutiny will continue
to increase, forcing aftermarket suppliers and engine MRO operators to meet
higher quality standards, which may strain the resources of smaller service
providers.

BUSINESS STRATEGY

         The Company believes that its industry experience and capabilities
position it to capitalize on its market presence in the growing aftermarket for
Engines and Components and the engine MRO market. The Company intends to build
up its success and exploit favorable industry dynamics by focusing on the
following business strategy:

         -        Capitalize on Worldwide Sourcing Network

                  The Company believes that purchasing Engines and Components on
                  a timely basis and at favorable prices is critical. Although
                  there are developed channels for distribution of Engines and
                  Components by aftermarket suppliers, there is no consistent,
                  reliable and organized market for aftermarket suppliers to



                                       2
<PAGE>   5

                  acquire inventory. Accordingly, the Company has developed a
                  sourcing network of independent agents operating throughout
                  the world that assists management in identifying available
                  products and facilitates quick evaluation of products and
                  execution of purchasing decisions.

         -        Continue Commitment to Quality Leadership

                  The Company emphasizes adherence to high quality standards at
                  each stage of its operations (product acquisition,
                  documentation, inventory control, delivery, maintenance,
                  repair and overhaul). Of the approximately 2,500 distributors
                  offering parts to civil aviation purchasers, the Company was
                  the first aftermarket supplier to meet the voluntary
                  accreditation quality system of the Airline Suppliers
                  Association. The Company is also in the process of completing
                  the requirements for ISO 9000 certification and it anticipates
                  receiving a certificate by September 2000.

         -        Increase Direct Sales to Air Carriers by Offering a Broad
                  Array of Capabilities

                  The Company continues to focus its efforts on building direct
                  relationships with small to medium-sized air carriers. The
                  Company believes that such airline carriers rely on
                  aftermarket suppliers of Engines and Components and engine MRO
                  operators to perform many of their maintenance functions. The
                  Company believes that it enhances its competitive edge over
                  other aftermarket suppliers by offering a broad array of
                  related services including engine field services (such as
                  borescoping and hushkit installations), engine MRO including
                  the JT8D and CFM56-3 engine series, engine leasing, engine
                  management, and engine maintenance programs such as power by
                  the hour. With the acquisition of M&M, the Company has
                  expanded its service offerings to include engine MRO along
                  with its existing business of supplying aftermarket Engines
                  and Components.

         -        Broaden Product Line

                  The Company continues to expand its product line to include
                  higher thrust models of the JT8D series of engines and other
                  high thrust engines, such as the CFM56 engine manufactured by
                  CFM International. The CFM56 has been in service since 1982
                  and an aftermarket in this engine is beginning to emerge. The
                  installed base of these engines is expected to approximate the
                  size of the current installed base of the JT8D within the near
                  future. The Company acquired two CFM56 engines in 1997. One of
                  these engines was disassembled to provide the Company with its
                  initial inventory of CFM56 engine parts, and the other engine
                  was sold as a whole engine. In addition, in 1999, the Company
                  purchased selected parts for the CF6 series of engines
                  manufactured by General Electric. To further augment its CFM56
                  capabilities, the Company is in the process of expanding its
                  MRO operations to include the CFM56-3 series of engines. There
                  are approximately 2,000 aircraft in service that are powered
                  by the CFM56-3. In April 2000 the Company obtained its FAA
                  certification which permits the Company to commence the
                  maintenance and repair of CFM56-3 engines.

         -        Capitalize on Trend of Airlines Using Old Aircraft

                  The Company believes that the historical pattern among
                  airlines to maintain older aircraft should continue and result
                  in a viable market in the JT8D for years to come. The Company
                  believes that this trend will also provide a springboard for
                  the CFM56 engine as airlines ultimately upgrade older aircraft
                  types with the newer aircraft powered by the CFM56. In
                  addition, the Company's continued development of its on-wing
                  maintenance business will help airlines by extending the life
                  of older aircraft, subject to the recent trend of rising fuel
                  prices.

PRODUCTS

         The Company's product line includes Engines and Components for all
models of the Pratt & Whitney manufactured JT8D series of engines. Although
production of most models of the JT8D ceased in 1987, the JT8D engine continues
to power approximately 28% of the world's commercial aircraft. Although the
recent trend of rising fuel prices has reduced the usage of JT8D engines, the
Company believes that there will be continuing demand for JT8D products. The
Company has recently expanded its product line to include selected Engines and
Components for higher thrust engines, such as the CFM56 manufactured by CFM
International. Powering the next generation of



                                       3
<PAGE>   6

narrow-body aircraft, the CFM56 is manufactured by a General Electric/SNECMA
consortium and is now produced in greater numbers than any other aircraft
engine. Some 10,000 CFM56 engines have now been delivered to approximately 270
operators, and a backlog exists for more than 3,500 firm and optioned engine
orders. Since 1993, CFM56 engines have been selected to power nearly 55 percent
of aircraft ordered with a capacity of 100 passengers or more. The Company's
product line was recently expanded to include the CFM56-3 engine. The Company's
product line also includes selected airframe components for DC-9 and DC-10 and
Boeing 707 and 727 aircraft. The following chart indicates the Company's
estimate of the number of JT8D and CFM56 engines currently in service, as well
as the principal types of aircraft utilizing such engines.

<TABLE>
<CAPTION>
                                 JT8D                                      CFM56
                  ------------------------------------      -------------------------------------
                       Powers 28% of world fleet          Highest production quantities in the world
Manufacturer:                Pratt & Whitney                          CFM International

<S>                         <C>             <C>                     <C>           <C>
# in Service:          8,300           JT8D-7/17                10,000       CFM56-2/3/5/7
                       2,900           JT8D-200

# of Operators:          220           JT8D-7/17                   269       CFM56-2/3/5/7
                          50           JT8D-200

Aircraft:               B727, B737, DC-9, MD-80                B737, A319, A320, A321, A340
</TABLE>

         Engines and Components are classified within the industry as "factory
new", "new surplus", "overhauled", "serviceable" and "as removed". A new engine
or part is one that has never been installed. Factory new Engines or Components
are purchased from manufacturers or their authorized distributors. New surplus
parts are purchased from excess stock of airlines, repair facilities or other
suppliers. An overhauled Engine or Component is one that has been completely
disassembled, inspected, repaired, reassembled and tested by an FAA-licensed
repair facility. An Engine or Component is classified as serviceable if it is
repaired by an FAA-licensed repair facility rather than being completely
disassembled and overhauled. An Engine or Component may also be classified as
serviceable if it is removed by the operator while operating under an approved
maintenance program, is functional and meets the manufacturer's time and cycle
restrictions applicable to the part. A new, overhauled or serviceable
designation indicates that the engine or part can be immediately placed in
service on an aircraft. An Engine or Component in "as removed" condition
requires functional testing, repair or overhaul by an FAA-licensed repair
facility prior to being returned to service in an aircraft and is classified as
"non-serviceable."

         Engine Parts. The Company's inventory of engine parts consists
primarily of parts for the JT8D series of engines and includes a broad selection
of over 4,000 items. The Company obtains most of its components by purchasing
and disassembling engines. The Company prices individual components based upon
their classification, condition and general level of availability in the
aftermarket. Greater than 80% of the Company's engine parts inventory is
purchased in "as removed" condition and therefore requires inspection and
possible overhaul by FAA-licensed repair facilities prior to installation.
FAA-licensed repair facilities specialize in different inspection and overhaul
procedures. AVTEAM Engine Repair Corp. is an FAA-licensed repair facility. Also,
the Company has an approved vendor list consisting of over 50 FAA-licensed
repair facilities.

         The Company has designed and equipped a disassembly facility for JT8D
and CFM56 engines, with flexibility to accommodate substantial growth in volume
and expansion into other types of aircraft engines, and hired personnel to
conduct engine disassembly operations. As a result, the Company has
significantly improved aircraft engine disassembly turnaround time.

         Whole Engines. The Company purchases either serviceable engines for
immediate resale or non-serviceable engines that are repaired and/or overhauled
for the Company by FAA-licensed repair facilities and then resold. The Company
will continue to use AVTEAM Engine Repair Corp. to perform a substantial portion
of its engine MRO services. In most cases, the Company specifies the workscope
of repair based on the specifications of its customers. The Company uses engine
parts from its inventory to minimize the repair costs to benefit its customers.
Prices for engines depend on the level of thrust, condition, availability of the
engine type at time of sale and the buyer's circumstances. In the event that an
aircraft requires a replacement engine, a customer may be willing to pay a
premium for a serviceable engine that can be delivered immediately.



                                       4
<PAGE>   7

         Airframe Components. The Company's sales of airframe components have
consisted primarily of sales of rotable and expendable airframe components for
727, 707 and DC-9 aircraft. A rotable is a component which is removed
periodically as mandated by an operator's maintenance procedure or on an "as
needed" basis and is typically repaired or overhauled and reused an indefinite
number of times. Sales of rotable airframe components include avionics equipment
(for example, fuel and altitude indicators) and actuators (for example, devices
that perform certain mechanical functions). An expendable is a part sold as new
which cannot be repaired for further use (for example, a bolt or rivet). The
Company has increased its inventory of airframe components as part of its growth
strategy, as most recently evidenced by its procurement of DC-10 aircraft
material.

SERVICES

         Engine Overhaul Services. AVTEAM Engine Repair Corp. specializes in
engine MRO services for the JT8D series of engines, including the newer high
thrust JT8D-200 series and all series of the JT3D engine. AVTEAM Engine Repair
Corp. has expanded its engine MRO services to include the CFM56-3 engine series.
In April 2000 AERC obtained its FAA certification permitting the Company to
commence repair and overhaul of CFM56 engines.

         Field Services. The Company offers engine borescoping services, a
diagnostic procedure utilizing a video camera attached to the end of a thin tube
which is inserted into engine sections to analyze the condition of an engine
without disassembly. The service is performed by a Company technician certified
by the original equipment manufacturer ("OEM"). The Company also utilizes its
borescoping capabilities to evaluate substantially all engines which the Company
has the opportunity to purchase. The Company, through AVTEAM Aviation Field
Services, Inc. ("AAFS"), its subsidiary in Dallas, Texas, conducts expanded
borescope, repair and other service operations. AAFS has received FAA
certification to perform a broad range of on-wing maintenance services,
including the installation of hush-kits on JT8D engines and the repair and
replacement of a limited number of engine parts and components. In August 1997,
AAFS entered into an agreement with Southwest Airlines Co. whereby AAFS was
engaged on an exclusive basis to install hushkits on its Pratt & Whitney JT8D-9A
engines. As of May 1, 2000, 16 employees, all with extensive industry experience
performed these activities.

         Engine Management Services. The Company offers engine management
services to its customers. Services provided by the Company include managing
engine records, arranging for volume discounts and competitive bids for third
party services, preparing workscopes for the repair of engines, monitoring
engines through the entire repair process, providing cost-effective replacement
parts, and auditing repair invoices. By offering engine management services, the
Company is able to leverage the expertise it has developed in managing the
repair of engines which it has acquired.

         Engine and Aircraft Leasing Services. The Company offers operating
leases of aircraft engines. The Company intends to capitalize on the increasing
demand by aircraft operators for operating leases which are being used as an
alternative to traditional aircraft engine financing arrangements. By entering
into such leases, the Company will be better able to control its future supply
of engines and retain the potential benefit of the residual value of such
engines.

QUALITY ASSURANCE

         The Company adheres to stringent quality control standards and
procedures in the purchase and sale of its products. In November 1996, the
Airline Suppliers Association, an FAA-recognized independent quality assurance
organization, accredited the Company as an aftermarket supplier after the
completion of an extensive operational audit and numerous meetings with the
Company's management. The Company was the first aftermarket supplier to receive
such accreditation, and the Company believes that there are currently fewer than
25 accredited aftermarket suppliers who directly compete with the Company. The
Company is also in the process of completing the requirements for ISO 9000
Certification and expects to be certified by September 2000.

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

         -        Inspection procedures mandating that procured Engines and
                  Components be traceable to a source approved by the Company



                                       5
<PAGE>   8

         -        Detailed inspections of overhauled Engines and Components

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

         -        On-going quality review board meetings to oversee the total
                  quality assurance program

         In addition, as part of its total quality assurance program, the
Company has implemented a repair facility performance monitoring program which
requires each FAA-licensed repair facility used by the Company to perform a
self-audit of its operations on a regular basis and to submit to a facility
audit performed by the Company.

         The Company is committed to maintaining its quality standards. The
Company hosted a conference focusing on Suspected Unapproved Parts ("SUPs") for
members of the Airline Suppliers Association. The conference included
representatives from the FAA, Boeing and Pratt & Whitney. SUP's training is a
requirement of the ASA Quality System Standard, given the growing concern
associated with SUPs.

PURCHASING

         Historically, the Company's business is substantially dependent on its
purchasing activities because its net sales are directly influenced by the level
of inventory available for sale. Accordingly, senior management of the Company
takes a significant role in identifying, negotiating and acquiring surplus
aircraft and Engines and Components. Because the size of the Company's inventory
is critical to its results of operations and because there is no organized
market to procure surplus inventory, the Company's operations are materially
dependent on the success of management in identifying potential sources of
inventory and effecting timely purchases at acceptable prices. In order to
acquire inventory effectively, the Company's purchasing procedures include:

         -        Deploying field personnel to identify potentially available
                  surplus aircraft and Engines and Components

         -        Appointing representatives domestically and abroad to identify
                  purchase opportunities

         -        Purchasing for cash rather than seeking extended payment terms

         -        Maintaining a streamlined review process in order to make
                  timely offers

         -        Involving senior management in negotiating and closing
                  purchases

         The Company historically acquired its inventories primarily through the
purchase of surplus aircraft and engines and engine parts. Since 1996, the
Company has engaged in bulk purchases as an additional source of Engines and
Components. "Bulk" purchase opportunities often arise when airlines, in order to
reduce expenses or change fleet, sell large amounts of inventory in a single
transaction.

SALES AND MARKETING

         The majority of the Company's day-to-day sales are accomplished through
its sales force, which currently consists of 18 employees. Certain of these
employees are paid commissions based on the Engines and Components sold and the
value of engine MRO services performed. AVTEAM's sales force is supplemented by
eight consultants and representatives worldwide, who are paid based on actual
sales generated for the Company. These independent agents are selected based on
their broad industry contacts and their ability to attract and maintain
relationships with customers. The Company is a member of various trade and
business organizations, including the International Society of Transport
Aircraft Trading ("ISTAT") and the ASA, which provide appropriate industry
exposure.

         The Company advertises its available inventories held for sale on the
Inventory Locator System "ILS," an aviation parts information network which
enables approximately 2,300 buyers, including major airlines and repair
facilities, to access the Company's inventory. The Company is able to market all
available Engines and Components through the ILS and customers can locate the
Company's inventory noting quantities, part numbers, and condition. Customers
may request quotes for any specific part through direct electronic interface
with the Company. Pricing



                                       6
<PAGE>   9

information is not available on the ILS and the Company bases its pricing for
particular parts on its extensive industry knowledge. The Company usually quotes
its prices as a percentage of the current OEM list price.

         In order to promote its engine and component repair services, the
Company markets its ability to be a full service provider. Being a "one stop
shop" is attractive to aircraft operators, particularly since they desire to
reduce the number of suppliers utilized.

MANAGEMENT INFORMATION AND INVENTORY SYSTEMS

         The Company's management information systems include a customized
inventory information technology system which assists management in planning,
operating and controlling its business activities. The Company, through AVTEAM
Engine Repair Corp., recently acquired the business of M&M and is nearing the
completion of integrating the companies' management information systems. The
Company and AVTEAM Engine Repair Corp. have access to each other's databases
which allows for the free flow of customer and inventory data.

         Recent delays experienced by the Company in evaluating its inventory
carrying costs and inventory quantities have prompted the Company to review its
costing methodology as well as its inventory accounting system. The existing
process has proven to be excessively time consuming. Such review, will take
several months to complete.

         The Company's information systems contain the most current information
regarding each item in inventory. By accessing the information system, the
Company can document: (i) full traceability to the FAA-approved point of origin
for any part (whether to the OEM, an approved agent of the OEM or an
FAA-licensed repair facility); (ii) the aircraft or engine from which the part
originated; (iii) the availability and condition of parts in the Company's
inventory and, if at an FAA-licensed repair facility, when such parts are due to
be returned; (iv) the sales history regarding the type of parts sold to the
Company's customers (including dates and sales prices); (v) the status of
customer orders; and (vi) any relevant purchase commitments. The information
system also provides time and usage cycles for life-limited parts.

         The Company has increased the capacity of its management information
system to accommodate higher inventory levels and additional users. The Company
has upgraded its database management system to include a document scanning
system, thereby allowing for improved accuracy and faster retrieval of inventory
traceability documents that must accompany all sales for regulatory compliance.

         The Company prepared its computer systems and related software to
accommodate data sensitive information relating to the Year 2000. The additional
costs related to preparing such systems and software to be Year 2000-ready was
not material to the financial condition or results of operations of the Company.
In addition, the Company has found that its vendors and customers did not
experience any significant difficulties related to preparing their computer
systems and software to be Year 2000-ready.

REGULATION

         The aviation industry is highly regulated in the United States by the
FAA and in other countries by similar regulatory agencies. These regulations are
designed to insure that all aircraft and aviation equipment are continuously
maintained in proper condition for the safe operation of aircraft. The
inspection, maintenance and repair procedures for the various types of aircraft
and aviation equipment are prescribed by regulatory authorities and can be
performed only by FAA-licensed repair facilities utilizing certified
technicians. Compliance with the applicable FAA and OEM standards are required
prior to installation of a part on an aircraft.

         The Company's engine MRO operations are regulated by the FAA and
required to maintain certain certifications and documentation. The independent
facilities that repair and overhaul the Company's products and the aircraft
operators that ultimately utilize the Company's products are also subject to
extensive FAA regulation. Accordingly, the Company must comply with
airworthiness standards established by the FAA and the OEMs, together with
required documentation which enables these customers to comply with other
applicable regulatory requirements.

         When the Company expanded its services to include on-wing engine
maintenance consisting of the installation of hush-kits on JT8D engines and the
repair and replacement of a limited number of Engines and Components, AAFS
obtained FAA certification. All employees of AAFS hold FAA Airframe and
Powerplant licenses.

         In September 1996, the FAA issued an advisory circular to support the
implementation of a voluntary accreditation program for civil aircraft parts
suppliers. This accreditation program establishes quality standards applicable
to aftermarket suppliers, such as the Company, and designates FAA approved
organizations to perform quality assurance audits for initial accreditation of
aftermarket suppliers. Quality assurance audits are required on an



                                       7
<PAGE>   10
on-going basis to maintain accreditation. In November 1996, the Airline
Suppliers Association, an FAA-recognized independent quality assurance
organization, accredited the Company as an aftermarket supplier after the
completion of an extensive facilities audit and numerous meetings with the
Company's management. The FAA considers that obtaining civil aircraft parts
through accredited suppliers is a sound safety practice. Parts procured from an
accredited supplier convey assurance to the purchaser that the quality is as
stated and the appropriate documentation is on a file at the supplier's place of
business. Furthermore, accreditation provides assurance that the supplier has
implemented an appropriate quality assurance system and has demonstrated the
ability to maintain that system. The Company believes that ongoing quality
assurance audits and strict adherence to its quality assurance system is
essential to meeting the needs of its existing and future customers.

         Because the Company's sales consist largely of older series JT8D
engines and parts, regulations promulgated by the FAA governing noise emission
standards for older aircraft and the FAA's Aging Airplane Program Plan (the
"Aging Airplane Program") have a material impact on the market for the Company's
products. Substantially all of the aircraft powered by the JT8D engine must
install hush-kits pursuant to such noise emission standards or be phased out of
operation in the United States by December 31, 1999 and in the European Union by
April 1, 2002. The Aging Airplane Program requires aircraft operators to perform
structural modifications and inspections to address airframe fatigue and to
implement corrosion prevention and control programs, which increase the
operating and maintenance costs of JT8D-powered aircraft. Furthermore, the EPA
and the various agencies of the European Union have sought the adoption of
stricter standards limiting the emission of nitrous oxide from aircraft engines.
The Company believes that notwithstanding the substantial costs imposed by noise
emission standards and the Aging Airplane Program on older aircraft powered by
JT8D engines, estimated by the Company to average approximately $4 million per
aircraft and the recent escalation of fuel costs, certain aircraft operators
will continue to utilize older aircraft due to the substantially greater cost of
acquiring new replacement aircraft.

         The Company closely monitors the FAA and industry trade groups in an
attempt to understand how possible future regulations might impact the Company.

PRODUCT LIABILITY

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

CUSTOMERS

         The Company sells its products and provides its services primarily to
other aftermarket suppliers of Engines and Components, repair facilities, OEMs,
aircraft operators and others. While the Company sold Engines and Components to
more than 700 different customers during 1999, sales of products and services to
the Company's five largest customers accounted for 21%, 31% and 47% of the
Company's net sales during 1999, 1998 and 1997, respectively. In 1999, no
individual customer represented 10% or more of the Company's net sales. A small
number of customers may account for a significant portion of the Company's net
sales from period to period due to the substantial cost of acquiring Engines and
Components. In addition, a significant portion of the Company's net sales are
expected to continue to be concentrated in a small number of customers.

COMPETITION

         The aftermarket for Engines and Components is highly fragmented, with a
limited number of well-capitalized companies selling a broad range of products;
and numerous smaller competitors serving distinct market niches and is
characterized by intense competition. The Company believes that range and depth
of inventories, product documentation, product knowledge, quality, service and
price are the key factors in distinguishing the Company from other aftermarket
suppliers. Certain of the Company's competitors have substantially greater
financial, marketing and other resources than the Company. In addition, OEMs,
aircraft maintenance providers, leasing companies and FAA-licensed repair
facilities may vertically integrate into the supply industry, thereby
significantly increasing



                                       8
<PAGE>   11

competition. There are established competitors that provide many of the services
the Company intends to offer, many of whom have substantially greater financial,
marketing and other resources than the Company.

         Competition for large engine repair and overhaul business comes from
three primary sources: major commercial airlines, OEMs and other independent
engine service companies. Certain major commercial airlines own and operate
engine and aircraft maintenance service centers. The engine repair and overhaul
services provided by such airlines are primarily for their own engines, although
these airlines sometimes perform a limited amount of engine repair and overhaul
services to third parties. OEMs such as General Electric and Pratt & Whitney
maintain their own engine repair and overhaul facilities that perform work for
third parties. Other independent engine service organizations also compete for
the repair and overhaul business of other large engines.

BACKLOG

         The Company's backlog of unfilled orders for whole engines, engine
parts and airframe components at May 1, 2000 was approximately $3.1 million. A
substantial portion of the distribution backlog is typically scheduled for
delivery within 60 days. Additionally, at May 1, 2000, there were 56 engines in
the process of repair or overhaul with AVTEAM Engine Repair Corp. scheduled for
completion during the next six months. Variations in the size and delivery dates
of orders received by the Company, as well as changes in customers' delivery
requirements, may result in substantial backlog fluctuations from period to
period. Accordingly, the Company believes that backlog cannot be considered a
meaningful indicator of future financial results.

ENVIRONMENTAL MATTERS

         The Company's operations are subject to extensive, and frequently
changing, federal, state and local environmental laws and substantial related
regulation by government agencies, including the United States Environmental
Protection Agency (the "EPA") and the United States Occupational Safety and
Health Administration. Among other matters, these regulatory authorities impose
requirements that regulate the operation, handling, transportation, and disposal
of hazardous materials, the health and safety of workers, and require the
Company to obtain and maintain licenses and permits in connection with its
operations. This extensive regulatory framework imposes significant compliance
burdens and risks on the Company. Notwithstanding these burdens, the Company
believes that it is in material compliance with all federal, state and local
laws and regulations governing its operations.

         The Company is principally subject to the requirements of the Clean Air
Act of 1970 (the "CAA"), as amended in 1990; the Clean Water Act of 1977, as
amended; the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"); the Resource Conservation Recovery Act of 1976 (the
"RCRA"); and the Hazardous and Solid Waste Amendments of 1984 ("HSWA"). The
following is a summary of the material regulations that are applicable to the
Company.

         The CAA imposes significant requirements upon owners and operators of
facilities that discharge air pollutants into the environment. The CAA mandates
that facilities which emit air pollutants comply with certain operational
criteria and secure appropriate permits. Additionally, authorized states such as
Florida may implement various aspects of the CAA and develop their own
regulations for air pollution control. The engine test cell facility at the
Miami International Airport presently holds a valid EPA permit for its engine
test cell issued by Miami-Dade County, Florida.

         CERCLA, as amended by the Superfund Amendments and Reauthorization Act
of 1986 ("SARA"), is designed to respond to the release of hazardous substances.
CERCLA's most notable objectives are to provide criteria and funding for the
cleanup of sites contaminated by hazardous substances and impose strict
liability on parties responsible for such contamination namely, owners and
operators of facilities or vessels from which such releases or threatened
releases occur, and persons who generated, transported, or arranged for the
transportation of hazardous substances to a facility from which such release or
threatened release occurs.

         Ground water contamination was documented at the Company's engine test
cell facility and surrounding areas at the Miami International Airport prior to
the Company's occupation of the facility. A remediation plan for the impacted
ground water and surrounding area has been proposed by Miami-Dade County. Under
the terms of its lease of the engine test cell facility, Miami-Dade County has
agreed to indemnify the Company for all remediation and clean-up costs
associated with the pre-existing contamination unless such contamination
occurred as a result of the Company's operations. If Miami-Dade County were to
default in its indemnification obligations, the Company could potentially



                                       9
<PAGE>   12

incur liability under CERCLA or Florida law for hazardous substances released at
or from the engine test cell facility and for conditions in existence prior to
the Company's occupancy. To date, the Company has not been held liable for any
investigation or cleanup costs at either of these sites.

         RCRA and EPA's implementing regulations establish the basic framework
for federal regulation of hazardous waste. RCRA governs the generation,
transportation, treatment, storage and disposal of hazardous waste through a
comprehensive system of hazardous waste management techniques and requirements.
RCRA requires facilities such as the Company's that treat, store, or dispose of
hazardous waste to comply with enumerated operating standards. The Company
believes that its facilities are in material compliance with all currently
applicable RCRA requirements, hold all applicable permits required under RCRA,
and are operating in material compliance with the terms of all such permits.
Many states, including Florida, have created programs similar to RCRA for the
purpose of issuing annual operating permits and conducting routine inspections
of such facilities to ensure regulatory compliance.

         The Company is also subject to a variety of environmental-related
worker and community safety laws. The Occupational Safety and Health Act of 1970
("OSHA") mandates general requirements for safe workplaces for all employees. In
particular, OSHA provides special procedures and measures for the handling of
certain hazardous and toxic substances. In addition, specific safety standards
have been promulgated for workplaces engaged in the treatment, disposal or
storage of hazardous waste. Requirements under state law, in some circumstances,
may mandate additional measures for facilities handling materials specified as
extremely dangerous. The Company believes that its operations are in material
compliance with OSHA's health and safety requirements.

INSURANCE

         The Company is a named insured under various policies which include the
following coverage: (i) products liability; (ii) personal property, inventory
and business income at the Company's two principal facilities; (iii) commercial
general; (iv) hangarkeepers' liability (damages due to loss of aircraft
occurring while such aircraft is in the care, custody or control of the Company
for safekeeping, storage or repair); (v) employee benefit liability; (vi)
international commercial liability (including contractual liability) for bodily
injury or property damage; (vii) umbrella liability; (viii) directors' and
officers' liability coverage; and (ix) employment practices' liability coverage.
The Company believes that the extent of these coverages are consistent with
industry standards and adequate to insure against the various liability risks of
its business.

EMPLOYEES

         As of May 1, 2000, AVTEAM employed 372 full-time employees, of which 89
are employees of AVTEAM, Inc. and 283 are employees of AVTEAM Engine Repair
Corp. None of the Company's employees are represented by a union, and the
Company considers its relationship with employees to be good.


                                       10
<PAGE>   13

LIQUIDITY

         The Company may experience liquidity difficulties. The Company has a
Credit Agreement with a syndicate of lenders led by Bank of America, N.A., as
administrative agent (the "Lenders"), pursuant to which the Lenders have made
available to the Company a revolving credit facility in the maximum aggregate
amount of up to $ 70 million. The Credit Facility consists of (i) a working
capital revolving loan facility (the "Working Capital Facility") in the
aggregate principal amount of up to $ 45 million and (ii) an acquisition
revolving loan facility (the "Acquisition Facility") in the aggregate principal
amount of up to $ 25 million. At May 31, 2000, the Company had no availability
under either facility. See Management's Discussion and Analysis - "Liquidity and
Capital Resources."



INVESTOR CONSIDERATIONS

DEPENDENCE ON THE JT8D ENGINE

         The Company's business, financial condition and results of operations
are dependent upon the aftermarket for JT8D Engines and Components. Aircraft
utilizing JT8D engines have been in service since the early 1960s. Aircraft
utilizing older engines are generally more expensive to maintain and to operate,
due primarily to higher fuel usage. Noise and other regulations in many
countries also significantly increase the cost of operating aircraft utilizing
older engines. Specifically, most JT8D engines are required to be hush-kitted or
removed from service in the United States and the European Union by 1999 and
2002, respectively. A decline in passenger confidence in older aircraft could
also lead to a decline in the aftermarket for JT8D Engines and Components. Any
of these factors could cause the unanticipated retirement of aircraft utilizing
JT8D engines. Any significant decline in the aftermarket for JT8D engines would
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company has, however, recently expanded its
product line to include the CFM56 and CF6 series engines and parts and other
series and types of engines and airframe parts but has limited experience with
respect to the purchase and sale of such engines and parts. There can be no
assurance that the Company will have the same level of success with CFM56, CF6
and other series and types of engines and airframe parts that it has had with
JT8D Engines and Components. See "Business -- Regulation."

IMPACT OF GOVERNMENT REGULATION

         The aviation industry is highly regulated by the Federal Aviation
Administration (the "FAA") and similar regulatory agencies of other countries.
Before Engines and Components are installed on an aircraft, they must meet
certain standards as to their condition and have appropriate documentation, and
aircraft must also meet standards with respect to noise, emissions and
maintenance. While the Company's aftermarket sale operations are not currently
regulated directly by the FAA, AERC, the Company's repair and overhaul facility,
and the aircraft operations that ultimately utilize the Company's products are
subject to extensive regulation. Through AVTEAM Aviation Field Services, Inc., a
subsidiary of the Company ("AAFS"), the Company provides services that also
require AAFS to have an FAA certification.

         In addition, the Company is currently subject to a voluntary FAA
accreditation program which establishes quality standards applicable to
aftermarket suppliers, such as the Company, and designates FAA-approved
organizations to perform quality assurance audits for initial and continued
accreditation of such aftermarket suppliers.

         Standards established by the FAA and other regulatory agencies relating
to the operation and maintenance of aircraft have significant effects on
aircraft operators and the composition of their fleets. Noise and emission
regulations, and additional maintenance requirements for older aircraft, may
increase the cost of operating aircraft utilizing JT8D engines, which could lead
to a decline in the demand for the products and services provided by the
Company.



                                       11
<PAGE>   14



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

POTENTIAL FLUCTUATIONS IN OPERATING RESULTS; DEPENDENCE ON AVIATION INDUSTRY

         The Company may experience significant fluctuations in its operating
results in the future, both on an annual and a quarterly basis, caused by
various factors, many of which are beyond the control of the Company. These
factors include: general economic conditions; specific economic conditions
affecting the commercial aviation industry; the availability, timing and price
of Engines and Components; the size and timing of customer sales; the mix of
products sold and services provided by the Company; and unanticipated engine
lease terminations or a default by a lessee, or parts or repair service
customer.

         The demand for aftermarket Engines and Components is believed to be
seasonal, with increased demand during the summer months. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Seasonality." In addition, the commercial aviation industry is cyclical and has
been subject to periodic fluctuations in its operating results. The aviation
industry has recently experienced a significant downturn or a "soft market".
During such a downturn, there may be reduced overall demand for Engines and
Components, lower selling prices for the Company's products, and increased
credit risk associated with doing business with industry participants. An
increase in the availability of Engines and Components coupled with limited
demand may also cause a downturn in the Company's operating results. Factors
such as fuel prices may affect the commercial aviation industry and the
aftermarket for older model Engines and Components. Increases in fuel prices and
interest costs may cause an airline to delay discretionary purchases of
maintenance services and related products. In addition, older, typically less
fuel-efficient aircraft (into which the Company's products are most often
placed) may be removed from service at an increased rate. Each of these factors,
individually or in the aggregate, may also have the effect of depressing airline
margins.

         The Company obtains its supply of Engines and Components principally by
purchasing surplus aircraft and parts inventory. There can be no assurance that
Engines and Components required by the Company's customers will be available on
acceptable terms or at the times required by the Company or that economic and
other factors which affect the aviation industry will not have a material
adverse effect on the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations,"
"Business -- Industry Overview," and "Recent Trends."




                                       12
<PAGE>   15


RISKS ASSOCIATED WITH AIRCRAFT ENGINE LEASES

         The Company leases Pratt & Whitney JT8D engines under operating leases
to a limited number of customers. The success of an operating lease depends on
the re-lease of engines on favorable terms on a timely basis and the ability to
sell engines at favorable prices at the end of the lease term. In addition, the
success of an operating lease depends in part upon having aircraft engines
returned to the Company in marketable condition as required by the lease for
such engines. Numerous factors, many of which are beyond the control of the
Company, may have an impact on the Company's ability to re-lease or sell Engines
and Components. These factors include general market conditions, regulatory
changes (particularly those imposing environmental, maintenance and other
requirements on the operation of aircraft engines), changes in the supply or
cost of aircraft engines and technological developments. Consequently, there can
be no assurance that the Company's estimated residual value for aircraft engines
will be realized. If the Company is unable to re-lease or sell its engines on
favorable terms on a timely basis upon expiration of the related lease, its
business, financial condition and results of operations may be adversely
affected. All engines currently leased by the Company are being leased, directly
or indirectly, to domestic passenger airlines which may be affected by numerous
factors, including the factors identified above and factors having an impact on
the airline industry generally. In the event that a lessee defaults in the
performance of its obligations, the Company may be unable to enforce its
remedies under a lease. The Company's inability to collect lease payments when
due or to repossess engines in the event of a default by a lessee could effect
our profitability and our ability to sell leases as well as have an adverse
effect on the Company's business, financial condition and results of operations.

MANAGEMENT OF GROWTH

         The rapid growth experienced by the Company to date has placed, and is
expected to continue to place, significant demands on the Company's
administrative, operational and financial resources. The Company recently
broadened its product line and services, including entry into the repair and
overhaul maintenance business through an acquisition. This expansion could
present further challenges to and demands upon the Company's resources. To date,
the Company has not begun generating revenue from CFM56-3 engine repairs. It is
therefore difficult to predict how these operations will be integrated by the
Company and accepted by the market. There can be no assurance that the Company
will be able to anticipate business demand accurately, attract and retain the
personnel required, manage or finance such growth successfully, and the failure
to do so could have a material adverse effect on the Company.

DEPENDENCE ON KEY PERSONNEL

         The Company's success is substantially dependent on the performance,
contributions and expertise of its executive officers and key employees. The
Company's success to date has been significantly dependent on the contributions
of Donald Graw, its President and Chief Executive Officer, and Jaime Levy, its
Executive Vice President, each of whom has entered into an employment agreement
with the Company expiring September 1, 2002. The Company does not carry
substantial key man life insurance on its executive officers. The Company is
also dependent on its ability to attract, retain and motivate additional




                                       13
<PAGE>   16



personnel, especially in management. The loss of the services of any of its
executive officers or other key employees or the Company's inability to attract,
retain or motivate the necessary personnel could have a material adverse effect
on the Company. See "Management."

CUSTOMER CONCENTRATION

         The Company sells its products and provides its services primarily to
other aftermarket suppliers of Engines and Components, repair facilities, OEMs,
aircraft operators and others. While the Company sold Engines and Components to
over 700 different customers during 1999, sales of products and services to the
Company's five largest customers accounted for 21%, 31% and 47% of the Company's
net sales during 1999, 1998 and 1997, respectively. While the Company has
recently reduced its reliance upon such customers, there can be no assurance
that a small number of customers in the future will not account for a
significant portion of the Company's net sales and revenues from period to
period due to the substantial cost of acquiring Engines and Components. The loss
of or significant curtailment of purchases by any of the Company's, significant
customers could have a material adverse effect upon the Company. See "Business -
Customers."

PRODUCT LIABILITY

         The commercial aviation industry periodically experiences catastrophic
losses which may exceed insurance policy limits. The Company currently has in
force aviation products insurance, with coverage limits for each occurrence and
in the aggregate which it believes to be in amounts and on terms that are
generally consistent with industry practice. To date, the Company has not
experienced any significant aviation-related claims, and has not experienced any
significant product liability claims related to its products or services.
However, an uninsured or partially insured claim, or a claim for which
third-party indemnification is not available, could have a material adverse
effect upon the Company. See "Business -- Insurance."

COMPETITION

         The aftermarket for Engines and Components is highly fragmented, with a
limited number of well-capitalized companies selling a broad range of products,
and numerous smaller competitors serving distinct market niches, and is
characterized by intense competition. The Company believes that the range and
depth of inventories, full product traceability, product knowledge, quality,
competitive prices and its broad array of products and services are key factors
in distinguishing the Company from other aftermarket suppliers. Certain of the
Company's competitors have substantially greater financial, marketing and other
resources than the Company. In addition, OEMs, aircraft maintenance providers,
leasing companies and FAA-licensed repair facilities may vertically integrate
into the aftermarket supply industry, thereby significantly increasing
competition. There are established competitors that provide many of the services
the Company intends to offer, many of whom have substantially greater financial,
marketing and other resources than the Company. In particular, OEM's have
aggressively entered the distribution and repair aftermarket. OEM's present
significant competitive threats because of their materially greater financial




                                       14
<PAGE>   17
resources and long-standing relationships with airlines. There can be no
assurance that the Company will continue to compete effectively against present
and future competitors or that competitive pressures will not have a material
adverse effect on the Company. See "Business -- Competition."

FACTORS INHIBITING TAKEOVER

         Certain provisions of the Articles and Bylaws may delay or prevent a
takeover attempt that a shareholder might consider in its best interest. These
provisions establish certain advance notice procedures for shareholder proposals
to be considered at the shareholders' meetings and provide that only the Board
of Directors may call special meetings of the shareholders. In addition, the
Board of Directors can authorize and issue shares of Preferred Stock, par value
$.01 per share (the "Preferred Stock"), issuable in one or more series, with
voting or conversion rights that could adversely affect the voting or other
rights of holders of the Class A Common Stock. The terms of the Preferred Stock
that might be issued could potentially prohibit the Company's consummation of
any merger, reorganization, sale of substantially all of its assets, liquidation
or other extraordinary corporate transaction without the approval of the holders
of the outstanding shares of such stock. Furthermore, certain provisions of the
Florida Business Corporation Act may have the effect of delaying or preventing a
change in control of the Company. See "Description of Capital Stock."





                                       15
<PAGE>   18
ITEM 2. PROPERTIES.

         The Company's primary operations are conducted at its headquarters in
Miramar, Florida. The Company's engine disassembly operation is located in
another facility in the same office park as its headquarters. In addition, the
Company operates a facility in Dallas, Texas where AAFS conducts field service
operations. AVTEAM Engine Repair Corp.'s facilities are located in Medley,
Florida. The Company currently leases all of its facilities.

<TABLE>
<CAPTION>
      -----------------------------------------------------------------------------------------------
                                                                 SQUARE      LEASE        MIN. ANNUAL
      SITE                                                       FOOTAGE   EXPIRATION     LEASE PMT.*
      -----------------------------------------------------------------------------------------------
<S>                                                               <C>        <C>          <C>
      Miramar, FL (headquarters and warehouse operations)         96,000     12/31/02       $581,000
      Miramar, FL (engine disassembly)                            18,500     12/31/00        112,000
      Dallas, TX                                                   5,300      6/30/03         50,000
      Medley, FL (headquarters and main repair facility)         133,000      5/31/05        681,000
      Medley, FL (repair facility)                                40,000      5/31/05        182,000
      Medley, FL (repair facility)                                18,000      5/31/05         88,000
      Medley, FL (repair facility)                                13,000      5/31/05         58,000
                                                           -------------                  ----------
      TOTAL:                                                     323,800                  $1,752,000
      -----------------------------------------------------------------------------------------------
</TABLE>

      *Minimum annual lease payment for 2000

ITEM 3. LEGAL PROCEEDINGS.

         Although the Company is a party to certain legal proceedings that have
occurred in the ordinary course of business, the Company does not believe such
proceedings to be of a material nature.

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

         There were no matters submitted to a vote of the Company's security
holders during the quarter ended December 31, 1999.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

         The following information relates to the Class A Common Stock, which
currently is listed on the NASDAQ Stock Market's National Market under the
symbol "AVTME". On May 25, 2000, a Nasdaq Listing Qualifications Panel held a
hearing to determine whether the Company's Class A Common Stock should continue
to be listed on the Nasdaq National Market. The hearing was requested by the
Nasdaq National Market because of the Company's failure to timely file this
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and its
Quarterly Report on Form 10-Q for the period ended March 31, 2000. On June 1,
2000, the Nasdaq Listing Qualifications Panel ruled that the Company's Class A
Common Stock should continue to be listed on the Nasdaq National Market provided
it files this Annual Report on Form 10-K on or before June 7, 2000 and files its
Quarterly Report on Form 10-Q for the period ended March 31, 2000 on or before
June 12, 2000. The Nasdaq Listing Qualifications Panel further ruled that the
Company's continued listing is dependent upon its timely filing of all periodic
reports for all reporting periods ending on or before March 31, 2001. If the
Company fails to adhere to any of these requirements, its Class A Common Stock
will be subject to immediate delisting. At May 1, 2000, there were approximately
29 shareholders of record of the Class A Common Stock. While the foregoing
number does not include beneficial holders of the Class A Common Stock, the
Company estimates that it has a total of approximately 1900 shareholders. The
high and low



                                       16
<PAGE>   19

sales prices of the Class A Common Stock for each quarter of 1999, as reported
by the Nasdaq Stock Market, are set forth below:

<TABLE>
<CAPTION>
                                                 1999
                                                 ----
                                         HIGH              LOW
                                         ----              ---
<S>                                     <C>               <C>
              First Quarter             $5.50             $4.31
              Second Quarter            $7.75             $4.63
              Third Quarter             $9.00             $6.75
              Fourth Quarter            $6.63             $4.25
</TABLE>

         The Company did not declare any cash dividends in 1999. See Note 9 to
the Notes to the Consolidated Financial Statements of the Company for
information concerning restrictions in the Company's credit agreements with
financial institutions regarding the payment of dividends and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."

ITEM 6. SELECTED FINANCIAL DATA.

                             SELECTED FINANCIAL DATA

                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                      ---------------------------------------------------------------------
                                                          1999          1998          1997           1996           1995
                                                      -----------   -----------   -----------    -----------    -----------
<S>                                                   <C>           <C>           <C>            <C>            <C>
STATEMENTS OF INCOME DATA:
Net sales .........................................   $   129,845   $    75,357   $   52,881   $    31,724    $    18,299
Cost of sales .....................................        99,580        55,515       38,385        22,641         11,848
                                                      -----------   -----------   ----------   -----------    -----------
Gross profit ......................................        30,265        19,842       14,496         9,083          6,451
Operating expenses ................................        17,688         8,862        7,312         4,312          5,162
                                                      -----------   -----------   ----------   -----------    -----------
Income from operations ............................        12,577        10,980        7,184         4,771          1,289
Offering expenses (1) .............................            --            --           --         1,154             --
Interest expense, net .............................         5,595         1,774          991           757            191
                                                      -----------   -----------   ----------   -----------    -----------
Income before income taxes ........................         6,982         9,206        6,193         2,860          1,098
Provision (credit) for income taxes (2) ...........         2,593         3,394        2,259          (370)            --
                                                      -----------   -----------   ----------   -----------    -----------
Net income (2) ....................................         4,389         5,812        3,934         3,230          1,098
Adjustments for pro forma provision for
  Income taxes (3) ................................            --            --           --        (1,538)          (417)
                                                      -----------   -----------   ----------   -----------    -----------
Pro forma net income (historical for 1997, 1998
   And 1999) (3) ..................................   $     4,389   $     5,812   $    3,934   $     1,692    $       681
                                                      ===========   ===========   ==========   ===========    ===========

Pro forma net income per common share (historical
  For 1997, 1998 and 1999) (2) ....................   $      0.38   $      0.52   $     0.65   $      0.34    $      0.17
                                                      ===========   ===========   ==========   ===========    ===========
Weighted average number of common shares
  Outstanding (4) .................................    11,448,201    11,120,725    6,073,694     5,000,000      4,000,000
                                                      ===========   ===========   ==========   ===========    ===========
Pro forma net income per common share - Assuming
  Dilution (historical for  1997, 1998 and 1999)(2)   $      0.38   $      0.52   $     0.52   $      0.33    $      0.17
                                                      ===========   ===========   ==========   ===========    ===========
Weighted average number of common equivalent
  Shares outstanding - diluted (4) ................    11,484,542    11,129,902    7,622,194     5,121,096      4,000,000
                                                      ===========   ===========   ==========   ===========    ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                      ---------------------------------------------------------------------
                                                          1999          1998          1997           1996           1995
                                                      -----------   -----------   -----------    -----------    -----------
<S>                                                   <C>           <C>           <C>            <C>            <C>
BALANCE SHEET DATA:
Working capital (5) ...............................   $    26,534   $    84,267   $   47,425   $    16,930    $     2,312
Inventory .........................................        79,746        84,057       24,480        14,505          8,563
Total assets ......................................       149,692       142,945       58,954        22,417         13,793
Total debt ........................................        66,551        64,653        4,446         3,048          3,287
Total shareholders' equity ........................        63,594        59,352       51,804        14,993          2,613
</TABLE>

-----------

(1)  Represents a one-time charge against earnings in the third quarter of 1996
     in the approximate amount of $1.2 million for the write-off of the costs
     associated with a public offering which was withdrawn in August 1996 due to
     market conditions.

(2)  The Company was an S corporation for federal and state income tax purposes
     for the taxable periods from January 1, 1994 through December 6, 1996. As a
     result, the net income of the Company was taxed, for federal and state
     income tax purposes, directly to the Company's shareholders rather than to
     the Company.

                                       17
<PAGE>   20

(3)  Assumes that the Company was subject to federal and state income taxes
     during the periods presented (at an effective tax rate of approximately
     38%).

(4)  See Note 3 of Notes to Consolidated Financial Statements.

(5)  Working capital for 1998 has been recalculated to be comparable with the
     1999 calculation.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

OVERVIEW

         AVTEAM is a global supplier of aftermarket commercial aircraft engines,
engine parts and aircraft components ("Engines and Components") serving over 700
customers, including other aftermarket suppliers, independent repair facilities,
aircraft operators and original equipment manufacturers ("OEMs"). The Company
has historically focused on the Pratt & Whitney JT8D series of engines, which
are the most widely used jet aircraft engines in the world and power
approximately 28% of the world's commercial aircraft. In 1997, AVTEAM expanded
its product line to include the CFM56 series of engines manufactured by CFM
International and DC-9 airframe parts. The CFM56 series of engines had the
highest production volume of any engine series in 1998 and power nearly 40% of
all single-aisle, narrow-body aircraft ordered since 1987. In 1998, the Company
acquired its first wide-body DC-10 aircraft which was disassembled and is being
sold as airframe parts and whole CF6 engines. The Company works with its
worldwide network of industry contacts to identify and evaluate Engines and
Components and surplus aircraft for potential acquisition. Engines and
Components are either made available for immediate resale or repaired by
FAA-licensed repair facilities and then resold. Surplus aircraft are purchased
for eventual disassembly and sold as parts by the Company. The Company resells
Engines and Components to other aftermarket suppliers, independent repair
facilities, aircraft operators and OEMs.

         On December 15, 1998, the Company, through its wholly-owned subsidiary,
AVTEAM Engine Repair Corp. ("AERC") completed the acquisition of substantially
all of the assets and the assumption of certain liabilities of M&M Aircraft
Services, Inc. ("M&M"). The Company believes that M&M was one of the largest
privately held independent aircraft engine maintenance, repair and overhaul
("MRO") operations in the world. As a result of this acquisition, the Company
has begun to realize synergies between its Engines and Components business and
its engine MRO business, including bringing to market on a more timely basis
engines and engine parts held for resale.

         Since its inception, the Company has substantially increased its
revenue base, broadened the range of products and services offered and taken
consistent steps to ensure the quality of its products and services. From $3.9
million in 1993, the Company's net sales reached $129.8 million in 1999. From
1998 to 1999, the Company's net sales grew 72.3%. In April 2000, The Company
received FAA certification for its new CFM56-3 engine repair facility, which the
Company believes will begin to generate revenue in the third quarter of 2000.



                                       18
<PAGE>   21

RESULTS OF OPERATIONS

         The following table sets forth for the periods indicated certain items
contained in the Company's statements of operations expressed as a percentage of
net sales:

<TABLE>
<CAPTION>
                                          YEAR ENDED DECEMBER 31,
                                         --------------------------
                                         1999       1998       1997
                                         ----       ----       ----
<S>                                      <C>        <C>        <C>
Net sales .........................       100%       100%       100%
Cost of sales .....................        77         74         73
                                          ---        ---        ---
Gross profit ......................        23         26         27
Operating expenses ................        14         12         13
                                          ---        ---        ---
Income from operations ............         9         14         14
Interest expense, net .............         4          2          2
                                          ---        ---        ---
Income before income taxes ........         5         12         12
Provision (credit) for income taxes         2          4          4
                                          ---        ---        ---
Net income ........................         3%         8%         8%
                                          ===        ===        ===
</TABLE>


         The accompanying consolidated financial statements as of December 31,
1999 and for the year then ended include the accounts of the Company, AERC and
AAFS for the twelve months ended December 31, 1999 after elimination of
intercompany accounts and transactions.

Year Ended December 31, 1999 compared to Year Ended December 31, 1998

         Net Sales. Net sales increased 72.3% to $129.8 million in 1999 from
$75.4 million in 1998. This increase is primarily due to the operations of AERC
for a full year in 1999 as opposed to 15 days in 1998 and a 28.1% increase in
AVTEAM sales.

         Gross Profit. Gross profit increased 55.7% to $30.9 million in 1999
from $19.8 million in 1998. Gross margin decreased to 23.8% in 1999 from 26.3%
in 1998 principally because of a $5.3 million adjustment to the carrying value
of AVTEAM inventory as a result of certain quantities deemed excess. AERC's
gross profit increased to $13.8 million in 1999 from $666,000 for the 15 days in
1998. See Note 2 to the Consolidated Financial Statements - "Inventory."

         Operating Expenses. Operating expenses increased 99.6% to $17.7 million
in 1999 from $8.9 million in 1998. As a percentage of net sales, such expense
increased to 13.6% in 1999 from 11.8% in 1998. The expense increase is primarily
attributable to the operations of AERC for a full year in 1999 as opposed to 15
days in 1998. Also, goodwill was amortized for a full year in 1999.

         Net Interest Expense. Net interest expense increased 215.4% to $5.6
million in 1999 from $1.8 million in 1998. As a percentage of net sales, such
expense increased to 4.3% in 1999 from 2.4% in 1998. The increased interest
expense is a result of higher borrowing levels as a result of the M&M
acquisition and increased interest rates.

Year Ended December 31, 1998 compared to Year Ended December 31, 1997

         Net Sales. Net sales increased 42.5% to $75.4 million in 1998 from
$52.9 million for 1997. This increase is due to an increase in all business
segments, including a 47.1% increase in engine and airframe parts sales and a
15% increase in whole engine sales. The additional engine MRO revenue
contributed by AVTEAM Engine Repair Corp. for the last 15 days of 1998 amounted
to $3.3 million. The increase in available inventory for sale helped fuel the
growth in net sales.

         Gross Profit. Gross Profit increased 36.9% to $19.8 million in 1998
from $14.5 million for 1997. Gross margin decreased to 26.3% in 1998 from 27.4%
in 1997 principally due to lower margins on engine parts and airframe components
partially offset by increased margins on whole engine transactions. Total whole
engine transactions accounted for 40.6% of the Company's net sales for 1998 and
50.4% of the net sales for 1997.



                                       19
<PAGE>   22

         Operating Expenses. Operating expenses increased 21.2% to $8.9 million
for 1998 from $7.3 million for 1997. The expense increases are primarily
attributed to increased personnel expense resulting from additional staffing in
the Florida headquarters office, increased insurance expense as a result of
higher inventory levels and volume of shipments, additional occupancy costs
associated with the acquisition of an additional 50,000 square feet of rental
warehouse and office space, and increased investor relations expenses as a
result of being a publicly-owned company. Operating expenses as a percentage of
net sales decreased to 11.8% for 1998 from 13.8% for 1997. The decreases in
operating expenses as a percentage of net sales are primarily attributed to net
sales increasing at a higher rate than operating expenses.

         Net Interest Expense. Net interest expense increased 79.0% to $1.8
million for 1998 from $1.0 million for 1997. Net interest expense, as a
percentage of net sales, increased to 2.4% for 1998 from 1.9% for 1997. The
increased interest expense is as a result of higher average borrowing levels in
order to purchase additional inventory for sale and to finance the acquisition
of M&M Aircraft Services.

LIQUIDITY AND CAPITAL RESOURCES

         Historically, the Company's primary sources of liquidity have been from
financing activities and cash flow generated by operations. During the twelve
months of 1999, the operating activities of the Company provided approximately
$5.9 million in cash. This increase primarily resulted from net income net of
non-cash expenses of approximately $7.7 million and a decrease in inventory of
approximately $8.3 million offset by an increase in accounts receivable of
approximately $10.2 million. Net cash provided by financing activities, derived
primarily from borrowing on the credit agreement mentioned below, was $1.7
million during the twelve months of 1999.

THE COMPANY'S  CREDIT AGREEMENT

         On April 30, 1998, the Company, as borrower, and its subsidiaries, as
guarantors, entered into a Credit Agreement (the "Credit Agreement") with a
syndicate of lenders led by Bank of America, N.A., as administrative agent (the
"Agent" and collectively, the "Lenders"), pursuant to which the Lenders agreed
to make available to the Company a revolving credit facility in the maximum
aggregate principal amount of up to $70.0 million. The Credit Facility consists
of (i) a working capital revolving loan facility (the "Working Capital
Facility") in the aggregate principal amount of up to $45.0 million and (ii) an
acquisition revolving loan facility (the "Acquisition Facility") in the
aggregate principal amount of up to $25.0 million. The Working Capital Facility,
has been to the extent available, used by the Company to finance working
capital, capital expenditures and general corporate purposes. The Acquisition
Facility was fully utilized by the Company to finance the M&M acquisition.
Borrowings under the Credit Agreement are secured by a senior security interest
in all of the assets of the Company. The Company may borrow, repay and re-borrow
funds under the Credit Agreement until April 30, 2001. The Credit Agreement
requires the Company to make certain mandatory prepayments of principal and
interest. Beginning on January 31, 2000 and every three months thereafter, the
Company is required to make payments of $750,000 in order to reduce the
Acquisition Facility. The Credit Agreement contains certain restrictions,
including restrictions on (i) incurring debt, (ii) declaring or paying any
dividend or other distribution on account of any class of stock of the Company,
(iii) creating liens on the Company's properties or assets, (iv) entering into a
merger or other business combination or (v) a change in control (as defined in
the Credit Agreement). As of December 31, 1999, the Company had drawn an
aggregate of $38.0 million under the Working Capital Facility and $25.0 million
was drawn under the Acquisition Facility. At December 31, 1999 and March 31,
2000, the Company had additional availability of approximately $7.0 million and
$2.0 million respectively under the Working Capital Facility and no availability
under the Acquisition Facility. At May 31, 2000, the Company had no availability
under either facility.

         From time to time, AVTEAM utilizes all of its available borrowings
under its Working Capital Facility. AVTEAM is considering a number of options to
provide additional capital for its business activities including refinancing its
credit facility and raising additional capital through the sale of debt or
equity securities. Without additional capital, AVTEAM's business, financial
condition and results of operations could be materially adversely affected in
the future.






                                       20
<PAGE>   23

         On May 25, 2000, the Lenders informed the Company that it was in
default under certain provisions of the Credit Agreement. These provisions
included "Delivery of Annual Financial Statements for the Fiscal Year ended
December 31, 1999," "Delivery of Quarterly Financial Statements for Fiscal
Quarter ended March 31, 2000," "Delivery of the Borrowing Base Certificate as of
January 31, 2000, February 29, 2000 and March 31, 2000" and certain provisions
related to economic ratios. As a result of these defaults, the Lenders informed
the Company that beginning May 26, 2000, the loans and all other obligations
outstanding under the Credit Agreement would be subject to the per annum rate of
interest equal to the otherwise applicable rate plus two (2) percent. In
addition, on May 25, 2000, the Bank advised that overdrafts would not be honored
in the future. The Lenders have also engaged PriceWaterhouseCoopers LLP to
assist the Lenders with the Credit Agreement.

         On June 7, 2000, the Company obtained waivers of the provisions
referred to above and entered into a second amendment to the Credit Facility
(the "Second Amendment") whereby events of default were waived and certain
financial covenants under the Credit Agreement were amended for the year-ended
December 31, 1999 and subsequent periods. The Second Amendment waives all
financial covenants for the periods ended December 31, 1999, March 31, 2000, and
June 30, 2000. The Second Amendment requires the Company to deliver to the
Lenders monthly consolidated balance sheets and consolidated statements of
income, retained earnings, shareholders' equity and cash flows as well as
periodic reports detailing actual cash expenditures and cash flow projections.
The Second Amendment further gives the Agent the ability to determine, in its
reasonable discretion, which items may be considered "eligible receivables" and
"eligible inventory." In connection with the Second Amendment, the Lenders and
the Company entered in to a Lockbox Agreement whereby all of the Company's
proceeds received by its account debtors are to be placed in an account held by
the Agent for the benefit of the Lenders. These funds will be used to repay the
Company's obligations under the Credit Agreement. Such repayment would have the
effect of creating availability under the Working Capital Facility, subject to
satisfaction of all other relevant borrowing conditions.

OTHER EVENTS

         On December 15, 1998, the Company, through its wholly-owned subsidiary,
AVTEAM Engine Repair Corp., completed its acquisition of substantially all of
the assets and the assumption of certain liabilities of M&M for an aggregate
purchase price of $30 million and the issuance of 350,000 shares of Class A
Common Stock. Concurrent with the Acquisition, the Company made a debt repayment
of $3.4 million to M&M's lender. The Acquisition was financed from available
cash and AVTEAM's existing Credit Agreement.

         On May 17, 1999, the Company announced that it had retained Credit
Suisse First Boston to assist the Company in exploring possible alternatives to
improve shareholder value. A range of possible transactions including a sale,
recapitalization, refinancing, and establishment of strategic relationships with
other companies was examined. On October 18, 1999, the Company announced that it
would continue its present operating strategy.

         On November 15, 1999, the Company entered into an operating lease
agreement with a leasing company in order to obtain certain equipment and
tooling used in the repair and maintenance of CFM56-3 engines. This transaction
will result in an annual rental charge to operations of approximately $1.1
million.

RECENT TRENDS

         Sales in the first half of 2000 are expected to decline by
approximately 20% from prior year levels due to soft industry market conditions.
The Company believes that such market conditions result from increased fuel
prices and rising interest rates and their effect on the airline industry.
Market conditions have also been negatively impacted as a result of
deteriorating financial positions of certain competitors who have reduced engine
and component sales prices. The Company believes that many customers have been
recently delaying their purchase and MRO requirements, however, it is believed
to be unlikely that such delayed purchase decisions will continue much longer
since airlines must perform regular maintenance. The Company believes that its
gross margin percentage for the first half of 2000 will be approximately 30%
below that of the same period of 1999 and that the absence of or limited
availability of working capital will also negatively impact its operations.
Lower operating expenses through reduced personnel costs will serve to partially
offset the effect of lower gross margins and increased interest expense.





                                       21
<PAGE>   24
SEASONALITY

         Demand for Engines and Components has historically been seasonal, with
increased demand during the summer months. This seasonality exists because
aircraft engine performance is directly related to ambient temperature (as
temperatures rise it is more difficult for aircraft engines to perform
properly). As a result, certain aircraft engines are removed from service during
the summer months due to the failure of those particular aircraft engines to
comply with exhaust gas temperature limitations. Aircraft engines of the same
type and model can have different performance capabilities. The summer months
also include peak travel periods during which aircraft utilization levels are
high. The Company cannot predict the impact of the recent trends discussed above
on historical seasonal demand patterns. In addition, the timing of whole
aircraft engines sold, which have a substantially greater purchase price than
the installed parts and components, may cause significant fluctuations in the
Company's quarterly operating results. The Company has in the past and may in
the future experience substantial quarterly fluctuations in sales as a result of
these seasonal effects and the timing of whole engine sales.

IMPACT OF YEAR 2000

         In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company is exposed to market risk from changes in interest rates
which may adversely affect results of operations and financial condition. The
Company seeks to minimize the risks from these interest rate fluctuations
through regular operating and financing activities. The Company utilizes
variable-rate debt as described in Note 9 of Notes to Consolidated Financial
Statements.

         At December 31, 1999, the Company's variable rate debt had a carrying
value of $63.0 million. The fair value of the debt approximates the carrying
value because the variable rates approximate market rates. A 10% increase in the
period end interest rate would have a negative impact of approximately $704,000
on the Company's results of operations.

         These amounts are determined by considering the impact of the
hypothetical interest rates on the Company's borrowing costs. These analyses do
not consider the effects of the reduced level of overall economic activity that
could exist in the future. Further, in the event of a change of such magnitude,
management would likely take actions to further mitigate its exposure to the
change. However, due to the uncertainty of the specific actions that would be
taken and their possible effects, the sensitivity analysis assumes no changes in
the Company's financial structure.

         The Company's policy is to not use financial instruments for trading or
other speculative purposes and is not to be a party to any leveraged financial
instruments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The financial information required by Item 8 is included elsewhere in
this Annual Report (see Part IV, Item 14).


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

         None.



                                       22
<PAGE>   25

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

         (A) EXECUTIVE OFFICERS

         The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
          NAME                                         AGE       POSITION
          ----                                         ---       --------
<S>                                                    <C>       <C>
          Donald A. Graw........................       45        Chairman of the Board, President and Chief
                                                                 Executive Officer
          Jaime J. Levy.........................       44        Executive Vice President and Director
          Bryan Thomas McFarland................       46        Vice President - Business Development
          Mark S. Koondel.......................       53        Chief Financial Officer, Treasurer and
                                                                 Assistant Secretary
          Paula Sparks..........................       47        Vice President - Quality Assurance
</TABLE>

         DONALD A. GRAW joined the Company in January 1994 and has served as its
Chief Executive Officer, President and a member of its Board of Directors since
that time. Mr. Graw became Chairman of the Board of Directors in March 1998.
From February 1991 to November 1993, Mr. Graw served as Vice President and Chief
Operating Officer of Scamp Auto Rental I, Inc., a subsidiary of Dollar
Rent-A-Car System, Inc., with 42 retail locations throughout Florida. From July
1982 to October 1990, Mr. Graw was employed by Diversified Services, Inc., a
franchisee of Budget Rent-A-Car, starting as the Chief Financial Officer and
becoming the Executive Vice President in February 1989.

         JAIME J. LEVY joined the Company in July 1994 and has served as its
Executive Vice President and a member of its Board of Directors since that time.
From February 1991 to July 1994, Mr. Levy served as President of Turbine Engine
Sales Group, Inc. ("Turbine") which was acquired in July 1994 by Richard Preston
and Leon Sragowicz, co-founders of the Company. From March 1986 to January 1991,
Mr. Levy served as the Director of Sales and Marketing for BET Air, Inc., an
aviation surplus parts company.

         BRYAN THOMAS MCFARLAND joined the Company in July 1994 as the Vice
President -- Technical Operations and became Vice President -- Business
Development in February 1997. From August 1992 to July 1994, Mr. McFarland
served as Vice President -- Technical Operations of Turbine. Prior thereto, Mr.
McFarland served as the quality manager for International Aircraft Associates, a
customer sales manager for Aerothrust Corp. and a purchasing agent for Eastern
Airlines, Inc. Mr. McFarland holds an Airframe and Powerplant license issued by
the Federal Aviation Administration.

         MARK S. KOONDEL joined the Company in April 1996 as the Chief Financial
Officer and Treasurer. From November 1995 to April 1996, Mr. Koondel served as
the Controller of AEC One Stop Group, Inc., a pre-recorded music distributor.
From November 1992 to October 1995, Mr. Koondel served as the Vice President of
Finance of Buenos Aires Embotelladora, S.A., a publicly traded Pepsi-Cola
franchisee. From January 1985 to November 1992, Mr. Koondel served as the
Controller of Florida Coca-Cola Bottling Co., Inc. Prior thereto, Mr. Koondel
worked in public accounting with Main Hurdman and Coopers & Lybrand for a total
of seven years.

         PAULA SPARKS joined the Company in March 1997 as Vice President --
Quality Assurance. For more than 21 years prior thereto, Ms. Sparks was employed
by Pratt & Whitney, most recently as a Quality Assurance Manager. While at Pratt
& Whitney Overhaul and Repair, she was one of two holders of an Organizational
Designated Airworthiness Representative Certificate. Ms. Sparks is an active
member of the Quality Assurance Committee of the Airline Suppliers Association
and the American Society for Quality Control.

         Executive officers serve at the pleasure of the Board of Directors,
except as otherwise provided below. See "Executive Compensation - Employment
Agreements."




                                       23
<PAGE>   26

         (B) DIRECTORS

         The following information is set forth with respect to each person
currently serving as a director of the Company and expected to be nominated for
election as a director of the Company at its annual meeting of shareholders in
2000. Donald A. Graw and Jaime Levy, executive officers of the Company, are
directors and nominees. Reference is made to the information set forth above
under "Executive Officers" for a description of the business experience of
Messrs. Graw, and Levy.

         The following table sets forth certain information concerning each
person serving as a director and expected nominees.

<TABLE>
<CAPTION>
   NAME                             AGE      POSITION WITH THE COMPANY             DIRECTOR SINCE
   ----                             ---      -------------------------             --------------
<S>                                 <C>      <C>                                  <C>
   Donald A. Graw...............    45       Chairman of the Board, President     January 1994
                                             and Chief Executive Officer
   Jaime J. Levy................    44       Executive Vice President             July 1994
                                             and Director
   Eugene P. Lynch..............    38       Director                             December 1996
   Sanford Miller...............    47       Director                             March 1998
   James McLellan...............    66       Director                             December 1998
</TABLE>

----------

         EUGENE P. LYNCH joined the Company's Board of Directors in December
1996. Mr. Lynch is a Managing Director of The Clipper Group. Mr. Lynch currently
serves on the Board of Directors of David's Bridal, Inc., Owosso Corp.,
TravelCenters of America, Inc. and several other privately-held companies.

         SANFORD MILLER joined the Company's Board of Directors in March 1998.
From 1994 to present, Mr. Miller has been the Chairman of the Board and Chief
Executive Officer of Budget Group, Inc., owner of Budget Rent A Car Corporation.
Prior to 1994, Mr. Miller was a principal of various Budget Rent A Car
franchises. Mr. Miller served as president of the American Car Rent Association
in 1993. Mr. Miller is also a director of Peninsula Bank of Volusia County.

         JAMES MCLELLAN joined the Company's Board of Directors in December 1998
as a result of the acquisition of M&M Aircraft Services, Inc. Previously, Mr.
McLellan was one of three owners of M&M and had worked there for 16 years since
its founding.

         There are no family relationships among any of the Company's directors
and officers.

         (C) SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than ten percent of the Company's Class A Common Stock, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Officers, directors and greater than ten percent
shareholders are required by regulations promulgated by the SEC to furnish the
Company with copies of all Section 16(a) forms that they file.

         With reference to transactions during 1999, to the Company's knowledge,
based solely on review of the copies of such reports furnished to the Company
and written representations, all Section 16(a) forms required to be filed with
the SEC were filed.

ITEM 11. EXECUTIVE COMPENSATION.

         The following table shows, for 1997, 1998 and 1999 the compensation
earned by the Named Executive Officers:



                                       24
<PAGE>   27

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                              LONG-TERM
                                                                                            COMPENSATION
                                                                                               AWARDS
                                                                                             SECURITIES
                 NAME AND PRINCIPAL                    ANNUAL COMPENSATION (1)           UNDERLYING OPTIONS/
                     POSITION(S)                  YEAR        SALARY($)    BONUS($)          SARS (#) (2)
                     -----------                  ----        ---------    --------          ------------
<S>                                               <C>          <C>         <C>           <C>
        Donald A. Graw                            1999         288,000           --            51,000
          Chairman of the Board,                  1998         260,000       67,600              --
          President and Chief Executive           1997         260,000      135,200            51,000
          Officer

        Jaime J. Levy                             1999         245,000           --            42,000
          Executive Vice President                1998         220,000       57,200              --
                                                  1997         220,000      114,400            42,000

        Bryan T. McFarland                        1999         150,000           --            20,000
          Vice President -                        1998         139,500       34,000              --
          Business Development                    1997         110,000       57,200            20,000

        Mark S. Koondel                           1999         140,000           --            18,000
          Chief Financial Officer                 1998         129,650       34,000              --
          and Treasurer (3)                       1997         115,000       40,000            18,000

        Dallas Cobb                               1999         133,000           --            14,000
          Vice President -                        1998         124,400       34,000              --
          Operations (4)                          1997         108,077       28,600            12,500
</TABLE>


(1)   Perquisites to each officer did not exceed the lesser of $50,000 or 10%
      of the total salary and bonus for such officer.

(2)   The 1997 options have an exercise price of $8.50 per share and the 1998
      options have an exercise price of $4.75 per share. Both grants become
      exercisable in increments of 35% after one year from the date of grant,
      35% after two years from the date of grant and 30% after three years from
      the date of grant. In the event of a merger, consolidation, acquisition of
      the Company's stock or acquisition of substantially all of the assets of
      the Company, these options become immediately vested.

(3)   Effective as of April 1996.

(4)   Resigned May 2000.


         The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during 1999 and
unexercised options held as of the end of 1999.

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

<TABLE>
<CAPTION>
                                                                            NUMBER OF SECURITIES
                                                                                 UNDERLYING                 VALUE OF
                                                                            UNEXERCISED OPTIONS     UNEXERCISED IN-THE-MONEY
                                                                                     AT                      OPTIONS
                                                                                 FY-END(#)                AT FY-END($)
                                           SHARES                          ---------------------   --------------------------
                                         ACQUIRED ON          VALUE             EXERCISABLE/              EXERCISABLE/
                    NAME                EXERCISE (#)       REALIZED ($)        UNEXERCISABLE              UNEXERCISABLE
                    ----                ------------       ------------        -------------              -------------
<S>                                     <C>                <C>                <C>                         <C>
       Donald A. Graw..............          --                  --           53,550 / 48,450                -- /--
       Jaime J. Levy...............          --                  --           44,100 / 39,900                -- /--
       Bryan Thomas McFarland......          --                  --           21,000 / 19,000                -- /--
       Mark S. Koondel.............          --                  --           18,900 / 17,100                -- /--
       Dallas Cobb.................          --                  --           13,650 / 12,850                -- /--
</TABLE>

DIRECTOR COMPENSATION

         In 1999, Messrs. Lynch and Miller each received options to acquire
10,000 shares of the Company's common stock at an exercise price of $7.19 as
consideration for their services as directors. In addition, the directors are
reimbursed for expenses for attending Board of Directors meetings and committee
meetings.

                                       25
<PAGE>   28


EMPLOYMENT AGREEMENTS

         As of September 1, 1999, Messrs. Graw and Levy entered into amended and
restated employment agreements (collectively, the "Graw and Levy Employment
Agreements") with the Company providing for employment as the President and
Chief Executive Officer and Executive Vice President, respectively. The Graw and
Levy Employment Agreements provide that Messrs. Graw and Levy will receive an
annual base salary of $350,000 and $300,000, respectively, for an initial term
of three years expiring September 1, 2002, as well as the right to participate
in the Option Plan and the Incentive Plan. The Graw and Levy Employment
Agreements contain confidentiality and noncompete covenants from Messrs. Graw
and Levy in favor of the Company. Upon termination without cause, Messrs. Graw
and Levy will be entitled to receive two years' annual base salary paid in one
lump sum. In the event of a change in control of the Company and Messrs. Graw or
Levy's employment is terminated by the Company or the employee under certain
circumstances, each of Messrs. Graw and Levy are to receive severance payments
including amounts equivalent to 2.99 and 2.5 times their respective annual base
salaries.

         On June 1, 1998, Mr. Koondel entered into an employment agreement (the
"Koondel Employment Agreement") with the Company providing for employment as the
Chief Financial Officer and Treasurer. On January 5, 1998, Mr. McFarland entered
into an employment agreement (the "McFarland Employment Agreement") with the
Company providing for employment as the Vice President - Business Development.
The Koondel and McFarland Employment Agreements provide that Messrs. Koondel and
McFarland will receive annual base salary of $130,000 and $140,000,
respectively, for a term of three years, as well as the right to participate in
the Option Plan and the Incentive Plan. The base salary is subject to increase
based on the individual performance of the executive and competitive practices
in the industry. The Koondel and McFarland Employment Agreements contain
confidentiality and noncompete covenants from Messrs. Koondel and McFarland in
favor of the Company. Upon termination without cause, Mr. McFarland will be
entitled to receive one year's annual base salary payable in bi-weekly
installments and Mr. Koondel will be entitled to receive nine month's annual
base salary payable in bi-weekly installments.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         In 1999, the Compensation Committee consisted of Messrs. Lynch and
Miller, neither of whom are employed by the Company. Each such person is a
"disinterested person" within the meaning of Rule 16b-3 under the Exchange Act.
There are no interlocks with other companies within the meaning of the SEC's
proxy rules.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

         The Company's executive compensation program is administered by the
Compensation Committee and the Board of Directors. The Compensation Committee
consists entirely of directors who are not employees of the Company to ensure
that executive compensation is determined in an objective manner. In addition,
the Compensation Committee's function is to administer the Option Plan and Key
Executive Annual Incentive Plan (the "Incentive Plan") and other key provisions
of the executive compensation program.

COMPENSATION PHILOSOPHY

         The Company is engaged in a highly competitive and dynamic industry,
and the Company's success depends in large part upon its ability to attract,
motivate, retain and reward executive officers. The Company's executive
compensation program has been designed to (i) align executive compensation with
shareholder interests, (ii) attract, motivate, retain and reward a highly
competent management team, (iii) link compensation to individual and Company
performance and (iv) achieve a balance between incentives for short-term and
long-term results. The Company's executive compensation package consists of the
payment of a base salary, the opportunity to be paid a cash bonus and the
issuance of stock options. The Board of Directors and the Compensation Committee
believe that this philosophy will motivate the Company's executives and,
thereby, reinforce the accomplishment of the Company's strategic and financial
goals.

         Executive compensation decisions in 1999 were largely based upon the
performance of the Company. The Board of Directors and the Compensation
Committee also took into consideration the President and Chief Executive
Officer's recommendation on executive officer compensation as well as various
qualitative and quantitative indicators of corporate and individual performance
in determining executive officer compensation.




                                       26
<PAGE>   29

ELEMENTS OF THE EXECUTIVE COMPENSATION PROGRAM

         BASE SALARIES

         The Company's salary levels for Donald Graw, Jaime Levy, Bryan Thomas
McFarland, Mark Koondel and Paula Sparks are determined in accordance with
written employment agreements between the Company and such executives. The
amounts being paid to the executive officers mentioned above and the other
executive officers of the Company result from negotiations between the Company
and such executive officers, and are believed to be competitive with amounts
paid to executives in similar positions by other similarly-situated public
companies in the business of supplying aftermarket aircraft engines, engine
parts and airframe components and engine maintenance, repair and overhaul
services. The Board of Directors and the Compensation Committee believe that the
emerging nature of the Company's business, coupled with the attendant risks,
require that the Company offer a competitive compensation package in order to
attract executive officers of the caliber required to enable the Company to
achieve its business objectives. Salary increases are designed to reflect
competitive practices in the industry, financial performance of the Company and
the individual performance of the executive.

         INCENTIVE PLAN

         The Company has adopted the Incentive Plan pursuant to which key
executives of the Company may receive bonus compensation based on the Company's
financial performance during fiscal year 2000. Under the Incentive Plan, the
Company's President and Executive Vice President and other executives designated
by the Compensation Committee are assigned a target award expressed as a
percentage of base salary in varying amounts (not to exceed 100% of base
salary). The actual award is subject to achievement by the Company of minimum
levels of pre-tax income. The Compensation Committee has the authority to
establish target awards and to determine final awards in the event that the
Company's pre-tax income is less than the levels established under the Incentive
Plan.

         LONG-TERM INCENTIVES

         The objective of the Company's long-term incentive program is to offer
opportunities for stock ownership in the Company through the issuance of stock
options. By encouraging stock ownership, the Company seeks to attract, retain,
motivate and reward qualified personnel and to encourage such persons to devote
their best efforts to the business and financial success of the Company. In
furtherance of this purpose, the Option Plan authorizes the granting of
incentive stock options and non-statutory stock options to purchase shares of
Class A Common Stock to officers, directors, consultants, and key employees of
the Company and its affiliates. Grant levels under the Option Plan consider such
factors as awards to officers of companies within the Company's peer group, the
executive's tenure, responsibilities and current stock and option holdings.

         CHIEF EXECUTIVE OFFICER COMPENSATION

         The Compensation Committee is responsible for recommending the
compensation of the Chief Executive Officer. Such compensation is determined in
the same manner as the compensation of the other executive officers of the
Company.

         SECTION 162(M) COMPLIANCE

         The Company does not presently anticipate that the compensation of any
of the Named Executive Officers will exceed the $1,000,000 non-performance based
compensation threshold of Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"). The Company and the Compensation Committee will
continue to monitor the compensation levels of the Named Executive Officers and
determine the appropriate response to Code Section 162(m), when and if
necessary. It is the Company's intention to bring the Company's stock option
program into compliance with Code Section 162(m), if necessary, to insure that
stock option grants are excluded from the compensation calculation for the
purposes of Code Section 162(m).




                                       27
<PAGE>   30

                       COMPARATIVE STOCK PERFORMANCE CHART

         The following graph compares the cumulative total shareholder return on
the Company's Class A Common Stock beginning October 31, 1997, with the
cumulative total return for the same period of the NASDAQ Composite Index and
the NASDAQ Industrial Index.




                                    [GRAPH]


<TABLE>
<CAPTION>
                               31-OCT-97    31-DEC-97   31-DEC-98    31-DEC-99
                               ---------    ---------   ---------    ---------
<S>                            <C>          <C>         <C>          <C>
         AVTEAM, IND.            100.00       104.60       45.67        63.35
         NASDAQ COMPOSITE        100.00        98.63      138.28       257.36
         NASDAQ INDUSTRIAL       100.00        96.33      103.29       177.87
</TABLE>






                                       28
<PAGE>   31

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.

         The following table sets forth, as of April 11, 2000, information with
respect to the beneficial ownership of the Company's Class A Common Stock by (i)
each director of the Company (each of whom are expected to be nominees for
election as directors at the Meeting), (ii) (A) the Company's Chairman,
President and Chief Executive Officer and (B) the other four most highly
compensated executive officers of the Company at the end of 1999 whose
compensation exceeded $100,000 (the persons referred to in (ii) (A)-(B) are
hereinafter collectively referred to as the "Named Executive Officers"), (iii)
the beneficial owners of more than 5% of the outstanding shares of Class A
Common Stock and (iv) all directors and executive officers of the Company as a
group.

<TABLE>
<CAPTION>
                                                      SHARES BENEFICIALLY OWNED
                                              -----------------------------------------
                                                   AMOUNT(1)             PERCENTAGE
                                              ------------------    -------------------
NAME AND ADDRESS OF BENEFICIAL OWNER          CLASS A    CLASS B    CLASS A(2)  CLASS B
------------------------------------          -------    -------    ----------  -------
<S>                                           <C>        <C>        <C>         <C>
Donald A. Graw(3) .......................     553,550          --       4.6%         --
Jaime J. Levy(4) ........................     352,100          --       3.1%         --
Bryan Thomas McFarland(5) ...............      21,000          --         *          --
Mark S. Koondel(6) ......................      18,900          --         *          --
Dallas Cobb(7) ..........................      13,650          --         *          --
Eugene P. Lynch(8) ......................      10,000          --         *          --
James L. McLellan(9) ....................     110,146          --       1.0%         --
Sanford Miller(8) .......................      50,000          --         *          --
Newberger Berman, LLC(10) ...............   1,207,928          --      10.7%         --
The Clipper Group(11) ...................   1,974,642     439,644      17.5%        100%
Dimensional Fund Advisors, Inc.(12) .....     759,000          --       6.7%         --
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP ...................................   1,083,646          --       9.6%         --
</TABLE>

----------

      *  Less than 1%.

(1)      Includes shares of Class A Common Stock which may be acquired pursuant
         to outstanding stock options exercisable within 60 days of the Record
         Date.
(2)      Based on 11,996,176 shares of Class A Common Stock issued and
         outstanding on the Record Date, plus shares of Class A Common Stock
         which may be acquired pursuant to outstanding stock options exercisable
         within 60 days of the Record Date.
(3)      Includes 53,550 shares of Class A Common Stock which may be acquired
         upon the exercise of outstanding stock options.
(4)      Includes 44,100 shares of Class A Common Stock which may be acquired
         upon the exercise of outstanding stock options.
(5)      Includes 21,000 shares of Class A Common Stock which may be acquired
         upon the exercise of outstanding stock options.
(6)      Includes 18,900 shares of Class A Common Stock which may be acquired
         upon the exercise of outstanding stock options.
(7)      Includes 13,650 shares of Class A Common Stock which may be acquired
         upon the exercise of outstanding stock options. Mr. Cobb resigned in
         May 2000.
(8)      Includes 10,000 shares of Class A Common Stock which may be acquired
         upon the exercise of outstanding stock options.
(9)      Such shares are being held in escrow to satisfy Mr. McLellan's
         indemnification obligations and are subject to reduction pursuant to
         the terms of that certain Asset Purchase Agreement dated October 12,
         1998 among the Company, AVTEAM Engine Repair Corp., M&M Aircraft
         Services, Inc. and its shareholders.
(10)     The address of this person is 605 Third Avenue, New York, NY 10158.
(11)     Includes shares beneficially owned by Clipper/Merchant Partners, L.P.,
         Clipper/Merban, L.P., Clipper Equity Partners I, L.P., Clipper/European
         Re, L.P., and Clipper Capital Associates, L.P. (whose address is 650
         Madison Avenue, New York, New York 10022). Clipper Capital Associates,
         L.P. is the general partner of all of The Clipper Group partnerships.
         The general partner of Clipper Capital Associates, L.P. is Clipper
         Capital Associates, Inc. Robert B. Calhoun is the sole shareholder and
         a director of Clipper Capital Associates, Inc. As a result, each of Mr.
         Calhoun, Clipper Capital Associates, L.P. and Clipper Capital
         Associates, Inc. is deemed to beneficially own all shares of Class A
         Common Stock and Class B Common Stock beneficially owned by The Clipper
         Group. Merchant Capital, Inc., an affiliate of Credit Suisse First
         Boston Corporation ("CSFBC"), is a 99% limited partner of
         Clipper/Merchant Partners, L.P. Credit Suisse Group, an affiliate of
         CSFBC, is an indirect 99% limited partner of Clipper/Merban, L.P. None
         of Merchant Capital, Inc., CSFBC and Credit Suisse Group is an
         affiliate of The Clipper Group or Clipper Capital Associates, L.P.
(12)     The address of this person is 1299 Ocean Avenue, 11th Floor, Santa
         Monica, CA 90401-1038.




                                       29
<PAGE>   32

                                     PART IV

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)  The balance sheets as of December 31, 1998 and December 31, 1999 and the
     related statements of income, shareholders' equity and cash flows for each
     of the three years in the period ended December 31, 1999 are filed as part
     of this report.

         (1)      Consolidated Financial Statements

                  Report of Independent Certified Public Accountants
                  Consolidated Balance Sheets
                  Consolidated Statements of Income
                  Consolidated Statements of Changes in Shareholders' Equity
                  Consolidated Statements of Cash Flows
                  Notes to Consolidated Financial Statements

         (2)      Consolidated Financial Statement Schedule
                  Schedule II - Valuation and Qualifying Accounts for the years
                  ended December 31, 1997, 1998 and 1999

         (3)      Exhibits:

EXHIBIT

NUMBER   EXHIBIT

2.1      Asset Purchase Agreement dated October 12, 1998, by and among AVTEAM,
         Inc., AVTEAM Engine Repair Corp., M&M Aircraft Services, Inc., James
         McLellan, Leon Sacco and Mark Schuldiner previously filed as an exhibit
         to Registrant's Current Report on Form 8-K, filed with the Commission
         on October 12, 1998 and incorporated herein by reference.

3.1      Third Amended and Restated Articles of Incorporation of Registrant
         previously filed as an exhibit to Registrant's Registration Statement
         on Form S-1, filed with the Commission on October 15, 1997 and
         incorporated herein by reference.

3.2      Second Amended and Restated By-Laws of Registrant previously filed as
         an exhibit to Registrant's Registration Statement on Form S-1, filed
         with the Commission on October 15, 1997 and incorporated herein by
         reference.

4.1      Specimen Certificate for the Class A Common Stock previously filed as
         an exhibit to Registrant's Registration Statement on Form S-1, filed
         with the Commission on March 24, 1997 and incorporated herein by
         reference.

10.1     Surplus Parts Supply Agreement dated June 12, 1995 between Registrant
         and United Technologies Corporation (confidential treatment of certain
         portions of Exhibit 10.02 was granted by the Commission) previously
         filed as an exhibit to Registrant's Registration Statement on Form S-1,
         filed with the Commission on March 24, 1997 and incorporated herein by
         reference.

10.2     AVTEAM Tax Allocation and Indemnification Agreement dated December 5,
         1996 between Registrant and Donald A. Graw previously filed as an
         exhibit to Registrant's Registration Statement on Form S-1, filed with
         the Commission on March 24, 1997 and incorporated herein by reference.

10.3     Lease Agreement dated December 28, 1994 between Registrant and Sunbeam
         Properties, Inc. and incorporated herein by reference.

10.4     Lease Agreement dated November 13, 1995 between Registrant and Sunbeam
         Properties, Inc. previously filed as an exhibit to Registrant's
         Registration Statement on Form S-1, filed with the Commission on March
         24, 1997 and incorporated herein by reference.



                                       30
<PAGE>   33

10.5     Indemnification Agreement between Registrant and Donald A. Graw
         effective as of April 12, 1996 previously filed as an exhibit to
         Registrant's Registration Statement on Form S-1, filed with the
         Commission on March 24, 1997 and incorporated herein by reference.

10.6     Indemnification Agreement between Registrant and Jaime J. Levy
         effective as of April 12, 1996 previously filed as an exhibit to
         Registrant's Registration Statement on Form S-1, filed with the
         Commission on March 24, 1997 and incorporated herein by reference.

10.7     Indemnification Agreement between Registrant and Mark S. Koondel
         effective as of April 12, 1996 previously filed as an exhibit to
         Registrant's Registration Statement on Form S-1, filed with the
         Commission on March 24, 1997 and incorporated herein by reference.

10.8     Indemnification Agreement between Registrant and Richard Preston
         effective as of April 12, 1996 previously filed as an exhibit to
         Registrant's Registration Statement on Form S-1, filed with the
         Commission on March 24, 1997 and incorporated herein by reference.

10.9     Indemnification Agreement between Registrant and Dallas Cobb effective
         as of March 20, 1996 previously filed as an exhibit to Registrant's
         Registration Statement on Form S-1, filed with the Commission on March
         24, 1997 and incorporated herein by reference.

10.10    Indemnification Agreement between Registrant and Bryan Thomas McFarland
         effective as of March 20, 1997 previously filed as an exhibit to
         Registrant's Registration Statement on Form S-1, filed with the
         Commission on March 24, 1997 and incorporated herein by reference.

10.11    Indemnification Agreement between Registrant and Eugene P. Lynch dated
         effective as of March 20, 1997 previously filed as an exhibit to
         Registrant's Registration Statement on Form S-1, filed with the
         Commission on March 24, 1997 and incorporated herein by reference.

10.12    Indemnification Agreement dated as of March 30, 1998 between the
         Registrant and Sanford Miller previously filed as an exhibit to
         Registrant's Registration Statement on Form S-1, filed with the
         Commission on May 29, 1998 and incorporated herein by reference.

10.13    AVTEAM, Inc. 1996 Stock Option Plan previously filed as an exhibit to
         Registrant's Registration Statement on Form S-1, filed with the
         Commission on March 24, 1997 and incorporated herein by reference.

10.14    AVTEAM, Inc. Key Executive Annual Incentive Plan previously filed as
         all exhibit to Registrant's Registration Statement on Form S-1
         previously filed with the Commission on March 24, 1997 and incorporated
         herein by reference.

10.15    Stock Purchase Agreement dated December 6, 1996 between Registrant and
         The Clipper Group previously filed as all exhibit to Registrant's
         Registration Statement on Form S-1 previously filed with the Commission
         on March 24, 1997 and incorporated herein by reference.

10.16    Registration Rights Agreement dated December 6, 1996 between Registrant
         and The Clipper Group previously filed as an exhibit to Registrant's
         Registration Statement on Form S-1, filed with the Commission on March
         24, 1997 and incorporated herein by reference.

10.17    AVTEAM Tax Allocation and Indemnification Agreement dated December 5,
         1996 between Registrant and Jaime J. Levy previously filed as an
         exhibit to Registrant's Registration Statement on Form S-1, filed with
         the Commission on March 24, 1997 and incorporated herein by reference.

10.18    Lease Modification Agreement dated August 28, 1997 between Registrant
         and Sunbeam Properties, Inc. previously filed as an exhibit to
         Registrant's Registration Statement on Form S-1, filed with the
         Commission on October 15, 1997 and incorporated herein by reference.

10.19    Agreement for Purchase of Additional Securities dated August 21, 1997
         between Registrant and The Clipper Group previously filed as an exhibit
         to Registrant's Registration Statement on Form S-1, filed with the
         Commission on September 30, 1997 and incorporated herein by reference.



                                       31
<PAGE>   34

10.20    Indemnification Agreement between Registrant and Paula Sparks
         previously filed as an exhibit to Registrant's Registration Statement
         on Form S-1, filed with the Commission on October 15, 1997 and
         incorporated herein by reference.

10.21    Credit Agreement dated as of April 30, 1998 by and among the
         Registrant, AVTEAM Aviation Field Services, Inc., Bank of America, N.A.
         and certain lenders identified therein, previously filed on
         Registrant's Quarterly Report on Form 10-Q, filed with the Commission
         on May 15, 1998 and incorporated herein by reference.

10.22    Employment Agreement dated as of January 5, 1998 between the Registrant
         and Bryan T. McFarland previously filed as an exhibit to Registrant's
         Quarterly Report on Form 10-Q, filed with the Commission on May 15,
         1998 and incorporated herein by reference.

10.23    Employment Agreement dated as of March 24, 1997 between the Registrant
         and Paula Sparks previously filed with the Commission as an exhibit to
         Registrant's Quarterly Report on Form 10-Q, filed with the Commission
         on May 15, 1998 and incorporated herein by reference.

10.24    Registration Rights Agreement dated as of May 6, 1998 between the
         Registrant and the Equitable Life Assurance Society of the United
         States Separate Account No. 3 previously filed as an exhibit to
         Registrant's Registration Statement on Form S-1, filed with the
         Commission on May 29, 1998 and incorporated herein by reference.

10.25    Registration Rights Agreement dated as of May 6, 1998 between the
         Registrant and Credit Suisse First Boston Corporation previously filed
         as an exhibit to Registrant's Registration Statement on Form S-1, filed
         with the Commission on May 29, 1998 and incorporated herein by
         reference.

10.26    Registration Rights Agreement dated as of May 26, 1998 between the
         Registrant and the Baron Asset Fund previously filed as an exhibit to
         Registrant's Registration Statement on Form S-1, filed with the
         Commission on May 29, 1998 and incorporated herein by reference.

10.27    Registration Rights Agreement dated as of May 6, 1998 between the
         Registrant and the Baron Small Cap Fund previously filed as an exhibit
         to Registrant's Registration Statement on Form S-1, filed with the
         Commission on May 29, 1998 and incorporated herein by reference.

10.28    Indemnification Agreement dated as of December 1998 between the
         Registrant and James McLellan previously filed with the Commission as
         an exhibit to Registrant's Quarterly Report on Form 10-Q, filed with
         the Commission on May 17, 1999 and incorporated herein by reference.

10.29    Employment Agreement dated as of June 1, 1998 between the Registrant
         and Mark Koondel previously filed with the Commission as an exhibit to
         Registrant's Quarterly Report on Form 10-Q, filed with the Commission
         on May 17, 1999 and incorporated herein by reference.

10.30    Amended and Restated Executive Employment Agreement dated as of
         September 1, 1999 between the Registrant and Donald Graw previously
         filed with the Commission as an exhibit to Registrant's Current Report
         on Form 8-K, filed with the Commission on September 10, 1999 and
         incorporated herein by reference.

10.31    Amended and Restated Executive Employment Agreement dated as of
         September 1, 1999 between the Registrant and Jaime Levy previously
         filed with the Commission as an exhibit to Registrant's Current Report
         on Form 8-K filed with the Commission on September 10, 1999 and
         incorporated herein by reference.

10.32    First Amendment to Credit Agreement with Bank of America, N.A. and
         certain lenders identified therein dated as of October 28, 1998.*

10.33    Second Amendment to Credit Agreement with Bank of America, N.A. and
         certain lenders identified therein dated as of December 31, 1999.
         (exhibits not included).*

21.1     List of Subsidiaries of the Registrant*

23.1     Consent of Ernst & Young LLP, Independent Certified Public Accountants*



                                       32
<PAGE>   35

27.1     Financial Data Schedule for the Year Ended December 31, 1999*
------------

* Filed herewith.

(b)      Financial Statement Schedules:

SCHEDULE
 NUMBER           SCHEDULE

Schedule II       Valuation and Qualifying Accounts for the Years Ended
                  December 31, 1997, 1998 and 1999


(c)      Reports on Form 8-K

         The following reports on Form 8-K were filed during the quarter ended
         December 31, 1999:

         A report announcing the Company's expectations for third quarter
         revenues and its return to the Company's long-term operating strategy.




                                       33
<PAGE>   36

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Miramar, Florida on the 7th day of June, 2000.


                                    AVTEAM, Inc.




                                    By:         /s/ DONALD A. GRAW
                                        ----------------------------------------
                                                   Donald A. Graw
                                            Chairman of the Board, President
                                              and Chief Executive Officer


<TABLE>
<CAPTION>
                  NAME                                        TITLE                           DATE
                  ----                                        -----                           ----
<S>                                         <C>                                           <C>
         /s/   DONALD A. GRAW
--------------------------------------      Chairman of the Board, President,             June 7, 2000
         Donald A. Graw                     Chief Executive Officer
                                            (Principal Executive Officer)

         /s/   MARK S  KOONDEL
--------------------------------------      Chief Financial Officer,                      June 7, 2000
         Mark S. Koondel                    Treasurer, Assistant Secretary
                                            (Principal Financial and
                                            Accounting Officer)

         /s/   JAIME J. LEVY
--------------------------------------      Executive Vice President,                     June 7, 2000
         Jaime J. Levy                      Director



         /s/   EUGENE P. LYNCH
--------------------------------------      Director                                      June 7, 2000
         Eugene P. Lynch




--------------------------------------      Director                                      June  , 2000
         Sanford Miller



         /s/   JAMES McLELLAN
--------------------------------------      Director                                      June 7, 2000
         James McLellan
</TABLE>



                                       29
<PAGE>   37

                          AVTEAM, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                             PAGE
                                                                             ----
<S>                                                                          <C>
Report of Independent Certified Public Accountants   ......................  F-2

Consolidated Balance Sheets................................................  F-3

Consolidated Statements of Income..........................................  F-4

Consolidated Statements of Changes in Shareholders' Equity.................  F-5

Consolidated Statements of Cash Flows......................................  F-6

Notes to Consolidated Financial Statements.................................  F-7
</TABLE>



                                       F-1


<PAGE>   38




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
AVTEAM, Inc.

         We have audited the accompanying consolidated balance sheets of AVTEAM,
Inc. and Subsidiaries (the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
AVTEAM, Inc. and Subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.




                                        /s/  ERNST & YOUNG LLP

Miami, Florida
May 4, 2000,
except for the third paragraph of
Note 9, as to which the date is
June 7, 2000



                                       F-2


<PAGE>   39



                          AVTEAM, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                     ASSETS


<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,
                                                                                          ---------------------
                                                                                            1999         1998
                                                                                          --------     --------
<S>                                                                                       <C>          <C>
Current assets:
  Cash and cash equivalents .........................................................     $    382     $  1,745
  Trade accounts receivable, less allowance for doubtful accounts of $1,456 and $179,
    and allowance for sales returns of $921 and $570, in 1999 and 1998, respectively        21,891       12,823
  Inventory .........................................................................       79,746       84,057
  Prepaid expenses ..................................................................        1,375        1,382
  Deposits ..........................................................................          495          935
  Deferred tax asset ................................................................        3,666        1,558
                                                                                          --------     --------
Total current assets ................................................................      107,555      102,500
Revenue producing equipment, net ....................................................       10,846        8,579
Property and equipment, net .........................................................        4,583        4,433
Goodwill, net of amortization of $923 and $37 in 1999 and 1998, respectively.........       25,651       26,739
Other assets ........................................................................        1,057          694
                                                                                          --------     --------
         Total assets ...............................................................     $149,692     $142,945
                                                                                          ========     ========

                             LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable ..................................................................     $ 13,917     $ 12,280
  Accrued expenses ..................................................................        2,247        3,016
  Customer deposits .................................................................        1,398        2,513
  Notes payable to bank .............................................................       62,990           --
  Current portion of notes payable-lease financing ..................................          350          318
  Current portion of capital lease obligations ......................................          119          106
                                                                                          --------     --------
Total current liabilities ...........................................................       81,021       18,233
Capital lease obligations, net of current portion ...................................          123           81
Notes payable - lease financing .....................................................        2,969        3,348
Deferred income taxes................................................................        1,985        1,131
Notes payable to bank ...............................................................       59,990       60,800
Commitments and contingencies
Shareholders' equity:
  Preferred stock, $.01 par value, 20,000,000 shares authorized, no shares issued
    or outstanding in 1999 and 1998 .................................................           --           --
  Class A Common Stock, $.01 par value, 77,000,000 shares authorized, 10,996,176
    shares issued and outstanding in 1999, 11,015,739 shares issued and outstanding
    in 1998 .........................................................................          110          110
  Class B Common Stock, $.01 par value, 3,000,000 shares authorized, 439,644
    shares issued and outstanding in 1999 and 1998 ..................................            4            4
  Additional paid-in capital ........................................................       49,080       49,177
  Retained earnings .................................................................       14,400       10,061
                                                                                          --------     --------
         Total shareholders' equity .................................................       63,594       59,352
                                                                                          --------     --------
         Total liabilities and shareholders' equity .................................     $149,692     $142,945
                                                                                          ========     ========
</TABLE>


                             See accompanying notes.



                                       F-3


<PAGE>   40

                          AVTEAM, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                      ----------------------------------------------
                                                          1999              1998            1997
                                                      ------------      ------------      ----------
<S>                                                   <C>               <C>               <C>
Net sales .......................................     $    129,845      $     75,357      $   52,881
Cost of sales ...................................           99,580            55,515          38,385
                                                      ------------      ------------      ----------
     Gross profit ...............................           30,265            19,842          14,496
Operating expenses ..............................           17,688             8,862           7,312
                                                      ------------      ------------      ----------
Income from operations ..........................           12,577            10,980           7,184
                                                      ------------      ------------      ----------
Interest expense, net ...........................            5,595             1,774             991
                                                      ------------      ------------      ----------
Income before provision (credit) for income taxes            6,982             9,206           6,193
Provision (credit) for income taxes:
     Current ....................................            3,847             3,741           1,907
     Deferred ...................................           (1,254)             (347)            352
                                                      ------------      ------------      ----------
                                                             2,593             3,394           2,259
                                                      ------------      ------------      ----------
Net income ......................................     $      4,389      $      5,812      $    3,934
                                                      ============      ============      ==========
Net income per common share - basic .............     $       0.38      $       0.52      $     0.65
                                                      ============      ============      ==========
Weighted average number of common shares
     outstanding - basic ........................       11,448,201        11,120,725       6,073,694
                                                      ============      ============      ==========
Net income per common share - diluted ...........     $       0.38      $       0.52      $     0.52
                                                      ============      ============      ==========
Weighted average number of common equivalent
      shares outstanding - diluted ..............       11,484,542        11,129,902       7,622,194
                                                      ============      ============      ==========
</TABLE>


                             See accompanying notes.


                                       F-4


<PAGE>   41
                          AVTEAM, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                     CLASS A              CLASS B
                                            PREFERRED    CLASS A      COMMON    CLASS B   COMMON   ADDITIONAL
                                PREFERRED    STOCK       COMMON       STOCK     COMMON    STOCK     PAID-IN    RETAINED
                                  SHARES     AMOUNT      SHARES       AMOUNT    SHARES    AMOUNT    CAPITAL    EARNINGS     TOTAL
                                  ------     ------      ------       ------    ------    ------    -------    --------     -----
<S>                             <C>         <C>        <C>            <C>       <C>       <C>    <C>           <C>        <C>
Balance at December 31, 1996 ... 1,700,000   $ 17      5,000,000      $ 50         --      $-     $ 14,611      $    315   $ 14,993

  Issuance of Preferred Stock ..   714,286      7             --        --         --                4,993            --      5,000
  Issuance of Class A
    Common Stock for loans and
      inventory ................        --     --        327,772         3         --       -        2,291            --      2,294
  Issuance of Class A Common
   Stock, net of issuance costs
   of $987                              --     --      3,363,325        34         --       -       25,549            --     25,583
  Conversion of Preferred
   Stock to Class A and Class B
     Common Stock ............. (2,414,286)   (24)     1,974,642        20    439,644       4           --            --         --
  Net income ...................        --     --             --        --         --       -           --         3,934      3,934
                                ----------   ----     ----------      ----    -------     ----    --------      --------   --------
Balance at December 31, 1997 ...        --     --     10,665,739       107    439,644       4       47,444         4,249     51,804


  Issuance of Class A Common
     Stock for purchase of
     certain assets and
     liabilities of M&M
     Aviation Services, Inc.            --     --        350,000         3         --       -        1,733            --      1,736
Net income .....................        --     --             --        --         --       -           --         5,812      5,812
                                ----------   ----     ----------      ----    -------     ----    --------      --------   --------
Balance at December 31, 1998 ...        --     --     11,015,739       110    439,644       4       49,177        10,061     59,352
  Class A Common Stock
     released from escrow ......        --     --        (19,563)       --         --       -          (97)          (50)      (147)
Net income .....................        --     --             --        --         --       -           --         4,389      4,389
                                ----------   ----     ----------      ----    -------     ----    --------      --------   --------
Balance at December 31, 1999 ...        --   $ --     10,996,176      $110    439,644      $4     $ 49,080      $ 14,400   $ 63,594
                                ==========   ====     ==========      ====    =======     ====    ========      ========   ========
</TABLE>




                             See accompanying notes.



                                       F-5


<PAGE>   42
                          AVTEAM, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                                   --------------------------------
                                                                     1999        1998        1997
                                                                   --------    --------    --------
<S>                                                                <C>         <C>         <C>
OPERATING ACTIVITIES
Net income .....................................................   $  4,389    $  5,812    $  3,934
Adjustments to reconcile net income to net cash provided by
        (used in) operating activities:
     Depreciation and amortization .............................      3,120       1,764         562
     Bad debt expense ..........................................      1,076          --         136
     Deferred tax provision (credit) ...........................     (1,254)       (347)        352
     Changes in operating assets and liabilities, net of effects
     from purchase of M&M Aircraft Services, Inc. (1998 only):
        Trade accounts receivable ..............................    (10,144)     (4,646)       (857)
        Inventory ..............................................      8,827     (40,434)     (9,975)
        Prepaid expenses and deposits ..........................        447        (371)       (116)
        Due from affiliate .....................................         --          --         343
        Other assets ...........................................       (363)          4        (373)
        Accounts payable .......................................      1,637       6,837      (1,978)
        Accrued expenses/customer deposit ......................     (1,884)       (606)        598
        Due to shareholders and affiliates .....................         --          --        (292)
                                                                   --------    --------    --------
          Net cash provided by (used in) operating activities ..      5,851     (31,987)     (7,666)

INVESTING ACTIVITIES
Purchase of certain assets and liabilities of M&M Aircraft
        Services, Inc. .........................................         --     (34,196)         --
Purchases of revenue producing equipment .......................     (7,773)     (7,238)     (2,878)
Purchases of property and equipment ............................     (1,201)     (1,570)       (516)
Other ..........................................................         55          --          --
                                                                   --------    --------    --------
          Net cash used in investing activities ................     (8,919)    (43,004)     (3,394)

FINANCING ACTIVITIES
Payments on capital leases .....................................       (138)       (114)        (95)
Payments on notes payable - lease financing ....................       (347)     (2,626)       (129)
Net proceeds from (payments on) line of credit .................      2,190      60,800        (404)
Payments of shareholders' advances/loans .......................         --          --      (2,513)
Net proceeds from sale of preferred stock ......................         --          --       5,000

Net proceeds from sale of common stock .........................         --          --      27,877
                                                                   --------    --------    --------
          Net cash provided by financing activities ............      1,705      58,060      29,736
                                                                   --------    --------    --------
          Net (decrease) increase in cash and cash equivalents .     (1,363)    (16,931)     18,676
          Cash and cash equivalents at beginning of year .......      1,745      18,676          --
                                                                   ========    ========    ========
          Cash and cash equivalents at end of year .............   $    382    $  1,745    $ 18,676
                                                                   ========    ========    ========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid ..................................................   $  5,242    $  1,765    $  1,097
Income taxes paid ..............................................   $  4,215    $  3,774    $  2,810
                                                                   ========    ========    ========
SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES
Revenue producing equipment acquired under capital leases ......   $     --    $  2,147    $  4,274
                                                                   ========    ========    ========
Office furniture and equipment acquired under capital leases ...   $    193    $     --    $    265
                                                                   ========    ========    ========
Preferred shares converted to common shares ....................   $     --    $     --    $ 16,357
                                                                   ========    ========    ========
Stock issued in connection with acquisition ....................   $     --    $  1,736    $     --
                                                                   ========    ========    ========
Shares released from escrow in connection with acquisition .....   $    147    $     --    $     --
                                                                   ========    ========    ========
Transfer of revenue producing equipment to inventory ...........   $  4,516    $  7,114    $     --
                                                                   ========    ========    ========
</TABLE>


                             See accompanying notes.



                                       F-6


<PAGE>   43
                          AVTEAM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1999

1.       BUSINESS AND ACQUISITION

         AVTEAM, Inc. was incorporated in Florida in 1991 and is a global
supplier of aftermarket aircraft engines, engine parts and airframe components.
AVTEAM, Inc. supplies its products to other aftermarket suppliers, independent
repair facilities, aircraft operators and original equipment manufacturers.
Beginning in April 1997, AVTEAM, Inc., through its wholly-owned subsidiary,
AVTEAM Aviation Field Services, Inc. ("AAFS"), began providing certain on-wing
maintenance and repair and borescope services. On December 15, 1998, AVTEAM,
Inc., through its wholly-owned subsidiary, AVTEAM Engine Repair Corp., a Florida
corporation, completed its acquisition (the "Acquisition") of substantially all
of the assets and the assumption of certain liabilities of M&M Aircraft
Services, Inc., a Florida corporation, an FAA licensed aircraft engine
maintenance, repair and overhaul facility. The accompanying consolidated
financial statements as of December 31, 1999 and for the year then ended include
the accounts of AVTEAM, Inc., AVTEAM Engine Repair Corp. ("AERC") and AAFS,
collectively (the "Company") after elimination of intercompany accounts and
transactions.

         The Acquisition was made pursuant to an Asset Purchase Agreement dated
October 12, 1998 by and among AVTEAM, AVTEAM Engine Repair Corp., the Seller and
the shareholders of the Seller. The consideration in the acquisition consisted
of $30 million in cash, debt repayment of $3.4 million and the issuance of
350,000 shares of Class A Common Stock. Under the provisions of an escrow
agreement, in 1999 a combination of 19,563 shares of Class A Common Stock valued
at $119,000 and $28,000 in cash totaling $147,000 was returned to the Company.

         Including the fair value of the common shares issued, fees and other
expenses, the total cost of the acquisition amounted to approximately $35.7
million. The Acquisition was accounted for as a purchase and accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on estimates of their underlying fair values. The excess of the purchase
price over the fair value of net assets acquired of $26.6 million is classified
as goodwill and is being amortized over 30 years.

         The following is a summary of the purchase price allocated to M&M (U.S.
Dollars in millions):

<TABLE>
<S>                                                                 <C>
                  Net working capital ...........................   $   5.9
                  Property, plant and equipment .................       2.5
                  Revenue producing assets ......................        .5
                  Other assets ..................................        .2
                  Excess of purchase price over the fair value of
                      net assets acquired .......................      26.6
                                                                    -------
                                                                    $  35.7
                                                                    =======
</TABLE>

         The following unaudited pro forma data presents a summary of 1998 and
1997 consolidated results of operations of the Company as if the Acquisition had
occurred at the beginning of the periods presented (U.S. Dollars in millions,
except share data):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                         -------------------------------
                                                              1998              1997
                                                         -------------     -------------
<S>                                                      <C>               <C>
         Net sales .................................     $       119.1     $        79.0
         Net income ................................     $         6.0     $         1.6
         Net income per share - basic ..............     $        0.52     $        0.26
         Weighted average number of shares - basic .         1,455,383         6,423,694
         Net income per share - diluted ............     $        0.52     $        0.21
         Weighted average number of shares - diluted         1,464,560         7,972,194
</TABLE>






                                       F-7



<PAGE>   44

                          AVTEAM, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)

2.       SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

         The Company classifies as cash equivalents all highly liquid
investments with a maturity of three months or less at the time of purchase.

INVENTORY

         Inventory of aircraft engines is stated at the lower of specific cost
(including overhaul costs) or market. Initially, cost of sales of engine parts
from disassembled engines are recognized based on margins realized from recently
sold, similar groups of engine parts. Once the remaining parts have been fully
inspected and their condition has been determined, the cost of subsequent sales
of engine parts from that engine are determined using the relationship of the
remaining costs of that engine to estimated sales. Cost of sales for individual
engine parts and airframe components purchased for resale are reflected based on
the specific identification method. Cost of sales of airframe components are
recognized using margins based on the relationship of cost to revenue estimates
as determined by the Company through the analysis of the market price of such
airframe components.

         AERC's inventories are valued at the lower of cost or market, based on
the specific identification method and by the first-in, first-out method. Work
in process inventory includes parts inventory, valued at the lower of cost or
market and labor and overhead, valued at actual cost.

         The Company reviews its inventory for excess quantities. Based on its
fourth quarter 1999 review, it determined that there were excess quantities
amounting to approximately $4.7 million. Such amounts have been charged to cost
of sales in the fourth quarter of 1999.

REVENUE RECOGNITION

         Revenues from the sale of engine parts and airframe components are
recognized when shipped.

         Revenues from the sale of aircraft engines are recognized when title
and risk of ownership are transferred to the customer, which generally is upon
shipment or customer pick-up. In certain instances prior to shipment or customer
pick-up, certain customers request the Company to hold aircraft engines until
the customer determines the most economical means of taking possession. The
Company records revenues under such circumstances only if: (1) payment is
received or is receivable within 30 days; (2) title and risk of ownership is
transferred to the customer; (3) the customer's request that the transaction be
on a bill-and-hold basis is in writing; (4) there is a fixed schedule for
delivery of the engines that is within 30 days of the sale; (5) the Company does
not have any specific performance obligations; (6) the engines are segregated
from other engines and are not subject to being used to meet other customer's
needs; and (7) the engines are ready for shipment.

         The Company enters into consignment arrangements in which it warehouses
items, determines sales prices, arranges for shipment to customers, and collects
accounts receivable. The Company reflects sales under such arrangements in net
sales and the cost of such sales in cost of sales, since the Company bears the
risk of ownership once the items are sold.

         Revenues from engine overhaul and repair services are recognized at the
time of performance test acceptance of engines and/or completion of services.

WARRANTIES AND PRODUCT RETURNS

         The Company, other than for services performed by AERC, does not
provide service warranties in addition to those provided by overhaul facilities
and as a result does not record accruals for warranties. The Company has
established programs which, under specific conditions, enable its customers to
return inventory. The effect of these returns is estimated based on a percentage
of sales and historical experience and sales are recorded net of a provision for
estimated returns. AERC's warranty costs are accrued based on management's
estimates of such costs and historical sales percentages.



                                       F-8


<PAGE>   45

                          AVTEAM, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)

ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE

         The Company buys inventory from certain of its customers and
periodically offsets amounts owed to customers for inventory purchases against
the accounts receivable for sales to such customers. For the years ended
December 31, 1999, 1998 and 1997, accounts payable totaling $1,363,000,
$5,451,000 and $5,709,000 respectively, were offset against accounts receivable.

PROPERTY AND EQUIPMENT

         Property and equipment (including assets under capital leases) are
carried at cost and are depreciated using accelerated and straight-line methods
over the lesser of the lease terms or the estimated useful lives of the assets.
The lives used are as follows:

         Office furniture and equipment...............     3-7  years
         Machinery and equipment......................     5-7  years
         Leasehold improvements.......................     3-10 years

REVENUE PRODUCING EQUIPMENT

         Revenue producing equipment is comprised of engines leased to users on
a short-term basis. Such engines are carried at cost and are depreciated using
the straight-line method over periods between five and ten years. Four of such
engines are the subject of a sale/leaseback arrangement. The proceeds under the
arrangement are recorded as a financing obligation and will be reduced by
payments under the lease over its five-year term. The lease agreement provides
the Company with an option to terminate the lease and to repurchase the engines
at any time after one year at varying rates based on the original sales price.

CONCENTRATION OF CREDIT RISK

         Accounts receivable are primarily from domestic and foreign passenger
airlines, freight and package carriers, charter airlines, aircraft leasing
companies and service providers to such companies. The Company performs ongoing
evaluations of its trade accounts receivable customers, monitors its exposure
for credit losses and sales returns and generally does not require collateral.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RECLASSIFICATION

         Certain amounts appearing in the 1998 consolidated financial statements
have been reclassified to conform with the 1999 presentation.











                                       F-9


<PAGE>   46

                          AVTEAM, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)

3.       NET INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income
and pro forma net income per share:

<TABLE>
<CAPTION>
                                                         1999            1998           1997
                                                     -----------     -----------     ----------
<S>                                                  <C>             <C>             <C>
Numerator:
    Net income .................................     $ 4,389,000     $ 5,812,000     $3,934,000
                                                     ===========     ===========     ==========
Denominator:
    Denominator for basic net income
    Per share - weighted average shares ........      11,448,201      11,120,725      6,073,694

Effect of dilutive securities:
    Convertible preferred stock ................              --              --      1,546,849
    Employee stock options .....................          36,341           9,177          1,651
                                                     -----------     -----------     ----------
Dilutive potential common shares ...............          36,341           9,177      1,548,500
                                                     -----------     -----------     ----------
    Denominator for diluted earnings per share -
    Adjusted weighted - average shares and
    Assumed conversions ........................      11,484,542      11,129,902      7,622,194
                                                     ===========     ===========     ==========
Pro forma net income per common share - basic ..     $      0.38     $      0.52     $     0.65
                                                     ===========     ===========     ==========
Pro forma net income per common share - diluted      $      0.38     $      0.52     $     0.52
                                                     ===========     ===========     ==========
</TABLE>


4.       INCOME TAXES

         The Company accounts for income taxes under FASB Statement No. 109,
"Accounting for Income Taxes (FASB 109)". Deferred income tax assets and
liabilities are determined based upon differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.

         The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
                                    YEARS ENDED DECEMBER 31,
                                -------------------------------
                                  1999        1998        1997
                                -------      ------     -------
<S>                             <C>          <C>        <C>
         Current ............   $ 3,847      $3,741     $ 1,907
         Deferred ...........    (1,254)       (347)        352
                                -------      ------     -------
         Total ..............   $ 2,593      $3,394     $ 2,259
                                =======      ======     =======
</TABLE>



                                      F-10


<PAGE>   47
                          AVTEAM, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

         Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred income taxes as of December 31, 1999 and
1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                   DECEMBER 31,
                                              --------------------
                                                1999         1998
                                              -------      -------
<S>                                           <C>          <C>
       Deferred tax assets:
         Allowance for doubtful accounts      $   378      $    78
         Allowance for sales returns ....         251          206
         Inventory ......................       1,614           --
         Depreciation ...................      (1,417)        (867)
         Warranty provision .............          57          250
         Goodwill amortization ..........        (568)        (264)
         Compensation ...................          63           --
         Uniform inventory capitalization       1,303        1,024
                                              -------      -------
         Total deferred tax assets.......       3,666        1,558

       Deferred tax liabilities:
         Depreciation....................     $ 1,417      $   867
         Goodwill amortization...........         568          264
                                              -------      -------
         Total deferred tax liabilities..     $ 1,985      $ 1,131
                                              =======      =======
</TABLE>

         The reconciliation of the expected income tax expense at federal
statutory rates is as follows:

<TABLE>
<CAPTION>
                                                         YEAR ENDED      YEAR ENDED     YEAR ENDED
                                                        DEC 31, 1999    DEC 31, 1998   DEC 31, 1997
                                                        ------------    ------------   ------------
<S>                                                     <C>             <C>            <C>
         Tax at federal statutory rate ............         34.00%         34.00%         34.00%
         State income taxes, net of federal benefit          2.22           2.33           2.35
         Other, including permanent differences ...           .92            .54            .13
                                                            -----          -----          -----
                                                            37.14%         36.87%         36.48%
                                                            =====          =====          =====
</TABLE>


5.       INVENTORY

         Inventory consists of the following (in thousands):

<TABLE>
<CAPTION>
                                          YEAR ENDED DECEMBER 31,
                                          -----------------------
                                           1999            1998
                                          -------         -------
<S>                                       <C>             <C>
         Parts ..................         $58,819         $48,853
         Whole Engines & Aircraft          18,168          31,044
         Work in Process ........           2,570           3,924
         Other ..................             189             236
                                          -------         -------
                                          $79,746         $84,057
                                          =======         =======
</TABLE>




                                      F-11


<PAGE>   48


                          AVTEAM, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6.       REVENUE PRODUCING EQUIPMENT AND PROPERTY AND EQUIPMENT

         At December 31, 1999 and 1998, revenue producing equipment is net of
accumulated depreciation of $1,228 and $488, respectively.

         Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                                ------------------------
                                                                  1999             1998
                                                                -------          -------
<S>                                                             <C>              <C>
         Office furniture and equipment ...............         $ 1,753          $ 1,316
         Machinery and equipment ......................           3,075            2,816
         Leasehold improvements .......................           2,159            1,470
                                                                -------          -------
                                                                  6,987            5,602
         Less accumulated depreciation and amortization          (2,404)          (1,169)
                                                                =======          =======
                                                                $ 4,583          $ 4,433
                                                                =======          =======
</TABLE>


7.       COMMITMENTS AND CONTINGENCIES

         On April 1, 1995, the Company entered into a lease agreement for new
warehouse and office space under an operating lease which was to originally
expire on June 30, 2000. Effective January 1, 1998, the Company leased
additional warehouse and office space and together with the original space
extended the lease term to December 31, 2002. In addition, effective January 1,
1996, the Company signed a lease agreement for additional warehouse and office
space under an operating lease which expires on December 31, 2000. On June 1,
1997, AERC began leasing their new office and operating facilities under a
noncancelable operating lease that expires May 31, 2005. The lease contains two
consecutive options to extend for a period of forty-eight consecutive months
each.

         On November 15, 1999, the Company entered into a 7-year operating lease
agreement with a leasing company in order to obtain certain equipment and
tooling used in the repair and maintenance of CFM56 engines. This transaction
will result in an annual rental charge to operations of approximately $1.1
million.

         Future minimum lease payments by year and in the aggregate under
operating leases are as follows (in thousands):

<TABLE>
<S>                                                 <C>
                  2000............................  $  3,558
                  2001............................     3,403
                  2002............................     3,433
                  2003............................     2,780
                  2004............................     2,707
                  Thereafter......................     3,448
                                                     -------
                                                     $19,329
                                                     =======
</TABLE>

         Rent expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $2,226,000, $1,129,000 and $449,000, respectively.

         The Company has entered into various capital leases for office
furniture, computer equipment, and warehouse and transportation equipment
expiring in various years through 2001. Equipment under capitalized lease
obligations had an original cost of approximately $482,000 at December 31, 1999
and $377,000 at December 31, 1998 and accumulated amortization was approximately
$254,000 and $202,000 at December 31, 1999 and 1998, respectively.




                                      F-12


<PAGE>   49


                          AVTEAM, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

         Future minimum lease payments by year and in the aggregate under these
capital leases were as follows at December 31, 1999 (in thousands):

<TABLE>
<S>                                                                       <C>
         2000 ...................................................         $ 141
         2001 ...................................................           102
         2002 ...................................................            38
         Thereafter .............................................             6
                                                                          -----
         Total minimum lease payments ...........................           287
         Less amounts representing interest at 15.7% ............           (45)
                                                                          -----
         Present value of net minimum lease payments
         under capital leases (including current portion of $119)         $ 242
                                                                          =====
</TABLE>

         Although the Company is a party to certain legal proceedings that have
occurred in the ordinary course of business, the Company does not believe such
proceedings to be of a material nature.

8.       RELATED PARTY TRANSACTIONS

         On September 5, 1995, the Company entered into an agreement (the
"Parati Agreement") with Parati Corporation ("Parati"), a corporation
wholly-owned by the former Chairman of the Board of Directors of the Company,
which provided that Parati would purchase up to $10 million of certain
aftermarket engines and up to $40 million of new engines and that the Company
would oversee, disassemble and handle all of the operational and administrative
aspects related to such engines. The Parati Agreement further provided that all
proceeds from the sale of engines or parts would be divided equally between
Parati and the Company after payment to Parati of amounts equal to Parati's
investment in such engines less overhaul costs incurred by the Company on behalf
of Parati. Overhaul costs were incurred on a component basis and were not
incurred until a customer was interested in purchasing a component upon its
overhaul. The Company was reimbursed for overhaul costs through a reduction of
the Company's payable to Parati regardless of whether such parts were sold. In
1997 and 1996 the Company recorded sales under this agreement of approximately
$495,000 and $1,925,000, respectively, with a gross profit of approximately
$247,000 and $395,000. On August 21, 1997, the Company issued 38,664 shares of
Class A Common Stock as payment for the remaining inventory valued at $270,647
and terminated the Parati Agreement.

         The Company purchased accounting services totaling $41,000, $46,000 and
$38,000 for each of the three years 1999, 1998 and 1997, respectively, from a
firm that is owned in part by a shareholder of the Company.

         Management believes that compensation received from or paid to related
parties under the Parati Agreement and in connection with purchased accounting
services, described above, materially approximate those which would have been
received from or paid to non-affiliated third parties.

9.       NOTES PAYABLE TO BANK AND NOTES PAYABLE - LEASE FINANCING

         On February 20, 1997, the Company replaced its existing credit facility
with a new credit facility with Bank of America, N.A. (formerly NationsBank,
N.A.) which provided working capital of up to $20.0 million with interest at
either the lender's prime rate or LIBOR plus 2.75% per annum, as determined by
the Company at the time of each advance, subject to its availability calculation
based on the eligible borrowing base. The eligible borrowing base included
certain receivables and inventories of the Company. The credit facility also
permitted the bank to issue letters of credit on behalf of the Company of up to
$5.0 million, and the aggregate principal amount of any letters of credit so
issued will reduce amounts available under the credit facility. The credit
facility contained provisions which: (I) restrict the Company's ability to make
capital expenditures and dispose of assets; (II) limit the payment of dividends
or other distributions to stockholders; (III) limit incurrence of additional
indebtedness, and; (IV) prohibit the repurchase, redemption or retirement of any
of the Company's stock. This credit facility was replaced on April 30, 1998.




                                      F-13


<PAGE>   50
                          AVTEAM, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9.       NOTES PAYABLE TO BANK AND NOTES PAYABLE - LEASE FINANCING (CONTINUED)

         On April 30, 1998, the Company, as borrower, and AAFS, as guarantor,
entered into a new Credit Agreement (the "Credit Agreement") with a syndicate of
lenders led by Bank of America, N.A., as administrative agent (the "Lenders"),
pursuant to which the Lenders agreed to make available to the Company a
revolving credit facility (the "Revolving Credit Facility") in the maximum
aggregate principal amount of up to $70.0 million. The Revolving Credit Facility
consists of (i) a working capital revolving loan facility (the "Working Capital
Revolving Loan Facility") in the aggregate principal amount of up to $45.0
million and a (ii) an acquisition revolving loan facility (the "Acquisition
Revolving Loan Facility") in the aggregate principal amount of up to $25.0
million. The Working Capital Revolving Loan Facility is being used by the
Company to finance working capital, capital expenditures and general corporate
purposes. The Acquisition Revolving Loan Facility was used by the Company to
finance the acquisition of M&M. Borrowings under the Credit Agreement are
secured by a senior security interest in all of the assets of the Company. The
Company may borrow, repay and re-borrow funds under the Credit Agreement until
April 30, 2001. Borrowings are subject to its availability calculation based on
the eligible borrowing base. The eligible borrowing base includes certain
receivables and inventories of the Company. The Credit Agreement requires the
Company to make certain mandatory prepayments of principal and interest. The
Credit Agreement contains certain restrictions, including restrictions on (i)
incurring debt, (ii) declaring or paying any dividend or other distribution on
account of any class of stock of the Company, (iii) creating liens on the
Company's properties or assets, (iv) entering into a merger or other business
combination or (v) a change in control (as defined in the Credit Agreement). As
of December 31, 1999, the Company has drawn an aggregate of $38.0 million under
the Working Capital Revolving Loan Facility and $25.0 million under the
Acquisition Revolving Loan Facility. At December 31, 1999, the Company had
additional availability of approximately $7.0 million under the Working Capital
Revolving Loan Facility. The weighted average interest rate under the Company's
Credit Agreement was 8.97% and 8.56% at December 31, 1999 and 1998 respectively.
Beginning on January 31, 2000 and every three months thereafter, the Company is
required to make payments of $750,000 in order to reduce the Acquisition
Revolving Loan Facility.

         At December 31, 1999 the Company was not in compliance with certain
financial covenants of the Credit Agreement. On May 26, 2000, the Lenders
informed the Company that it was in default under certain provisions of the
Credit Agreement. These provisions included "Delivery of Annual Financial
Statements for the Fiscal Year ended December 31, 1999," "Delivery of Quarterly
Financial Statements for Fiscal Quarter ended March 31, 2000," "Delivery of the
Borrowing Base Certificate as of January 31, 2000, February 29, 2000 and March
31, 2000" and certain provisions related to economic ratios. As a result of
these defaults, the Lenders informed the Company that beginning May 26, 2000,
the loans and all other obligations outstanding under the Credit Agreement would
be subject to the per annum rate of interest equal to the otherwise applicable
rate plus two (2) percent while in default. In addition, on May 25, 2000, the
Bank advised that overdrafts would not be honored in the future. [On June 7,
2000, the Company obtained waivers of the provisions referred to above and
entered into a second amendment to the Credit Facility (the "Second Amendment"),
whereby events of default were waived and certain financial covenants under the
Credit Agreement were amended for the year-ended December 31, 1999 and
subsequent periods.]  The Second Amendment waives all financial covenants for
the periods ended December 31, 1999, March 31, 2000, and June 30, 2000 and
increases interest rates by 0.25%. The Second Amendment requires the Company to
deliver to the Lenders monthly consolidated balance sheets and consolidated
statements of income, retained earnings, shareholders' equity and cash flows as
well as periodic reports detailing actual cash expenditures and cash flow
projections. The Second Amendment further gives the Agent the ability to
determine, in its reasonable discretion, which items may be considered "eligible
receivables" and "eligible inventory." In connection with the Second Amendment,
the Lenders and the Company entered into a Lockbox Agreement whereby all of the
Company's proceeds received by its account debtors are to be placed in an
account held by the Agent for the benefit of the Lenders.

































         On July 25, 1997, the Company entered into an agreement with Bank of
America Leasing and Capital LLC ("BALC") whereby the Company sold three Pratt &
Whitney JT8D engines to BALC for approximately $4.3 million and subsequently
leased-back such engines for a period of five years at fixed monthly payments.
On April 23, 1998, the Company added an additional two JT8D engines to this
agreement. Net proceeds were approximately $2.1 million. The Company, at its
option, may repurchase any of these engines at a predetermined percentage of the
original leased amount. This transaction is accounted for as a financing,
wherein the aircraft engines remain on the books of the Company and are
depreciated. The proceeds from the sale of these engines were used by the
Company to reduce the outstanding balance of its credit facility with Bank of
America. On February 18, 1998, the Company repurchased one of the engines in
order to sell it to a third party leasing company. The aggregate annual
maturities under this agreement are approximately as follows: 2000, $654,000;
2001, $654,000; 2002, $1,567,000, and; 2003, $1,317,000. The weighted average
interest rate was 9.44% for both December 31, 1999 and 1998, respectively.

10.      SEGMENT FINANCIAL DATA

         The Company operates in various segments of the aviation services
industry. The Company's operations have been aggregated primarily on the basis
of products or services into three reportable segments:

         AVTEAM sells whole engines, whole aircraft, engine parts and airframe
components.

         AVTEAM Aviation Field Services (AAFS) provides on-wing maintenance and
repairs including hush-kit installation and engine borescoping.

         AVTEAM Engine Repair Corp. (AERC) performs maintenance, repair and
overhaul services for certain aircraft engines.

         The accounting policies of the segments are the same as those
described in the significant accounting policies footnote. Intersegment sales
are principally accounted for at prices charged independent third parties.



                                      F-14

<PAGE>   51
                          AVTEAM, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

         The Company evaluates performance based on several factors, of which
income before provision for income taxes is the primary financial measure.
Operating segment information for the years ended December 31 follows (in
thousands of dollars):

<TABLE>
<CAPTION>
         In Thousands of Dollars                   TOTAL REVENUES
                                        -------------------------------------
                                          1999          1998          1997
                                        ---------      --------      --------
<S>                                     <C>            <C>           <C>
         AVTEAM ...................     $  89,899      $ 70,165      $ 52,202
         AAFS .....................         5,704         3,370         1,148
         AERC .....................        50,679         3,418            --
         Eliminations .............       (16,437)       (1,596)         (469)
                                        ---------      --------      --------
         Consolidated .............     $ 129,845      $ 75,357      $ 52,881
                                        =========      ========      ========
</TABLE>

<TABLE>
<CAPTION>
                                      INCOME BEFORE PROVISION FOR INCOME TAXES
                                      ----------------------------------------
                                          1999          1998          1997
                                        ---------      --------      --------
<S>                                     <C>            <C>           <C>
         AVTEAM (a) ...............     $   5,721      $ 10,287      $  7,632
         AAFS .....................           952           269          (448)
         AERC .....................         7,132           544            --
         Eliminations .............          (342)          (83)           --
         General corporate expenses          (886)          (37)           --
         Interest expense .........        (5,595)       (1,774)         (991)
                                        ---------      --------      --------
                                        $   6,982      $  9,206      $  6,193
                                        =========      ========      ========
</TABLE>

(a) Corporate overhead is included in AVTEAM and is not allocated.

<TABLE>
<CAPTION>
                                                    EXPORT SALES
                                        -------------------------------------
                                          1999          1998          1997
                                        ---------      --------      --------
<S>                                     <C>            <C>           <C>
         AVTEAM ...................     $  15,886      $  3,072      $  3,613
         AAFS .....................           653           190            --
         AERC .....................        13,161         1,145            --
                                        ---------      --------      --------
                                        $  29,700      $  4,407      $  3,613
                                        =========      ========      ========
</TABLE>

<TABLE>
<CAPTION>
                                               CAPITAL EXPENDITURES
                                        -------------------------------------
                                          1999          1998          1997
                                        ---------      --------      --------
<S>                                     <C>            <C>           <C>
         AVTEAM ...................     $   7,939      $ 10,796      $  3,133
         AAFS .....................           158            95           261
         AERC .....................         1,157            64            --
                                        ---------      --------      --------
                                        $   9,254      $ 10,955      $  3,394
                                        =========      ========      ========
</TABLE>

<TABLE>
<CAPTION>
                                                DEPRECIATION EXPENSE
                                        -------------------------------------
                                          1999          1998          1997
                                        ---------      --------      --------
<S>                                     <C>            <C>           <C>
         AVTEAM ...................     $   1,520      $  1,656      $    516
         AAFS .....................            76            43            46
         AERC .....................           638            28            --
                                        ---------      --------      --------
                                        $   2,234      $  1,727      $    562
                                        =========      ========      ========
</TABLE>














<TABLE>
<CAPTION>
                                                    LONG-LIVED ASSETS
                                                  -------------------
                                                    1999        1998
                                                  -------     -------
<S>                                              <C>         <C>
                           AVTEAM ..............  $14,349     $11,479
                           AAFS ................      467         318
                           AERC ................    4,245       3,089
                                                  -------     -------
                                                  $19,061     $14,886
                                                  =======     =======
</TABLE>



                                      F-15


<PAGE>   52

                          AVTEAM, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                TOTAL ASSETS
                          ------------------------
                             1999           1998
                          ---------      ---------
<S>                       <C>            <C>
         AVTEAM .....     $ 137,146      $ 133,671
         AAFS .......         1,656          1,396
         M&M ........        29,905         19,295
         Eliminations       (19,015)       (11,417)
                          ---------      ---------
         Consolidated     $ 149,692      $ 142,945
                          =========      =========
</TABLE>

11.      ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying value of cash, accounts receivable, short-term borrowings
and notes payable-lease financing in the accompanying financial statements
approximate their fair value because of the short-term maturity of these
instruments, and in the case of notes payable and notes payable-lease financing
because such instruments bear variable interest rates which approximate market.

12.      EMPLOYMENT AGREEMENTS

         Effective September 1, 1999 the Company entered into Amended and
Restated Employment Agreements (collectively, the "Employment Agreements") with
two key executives. Prior agreements would have expired December 6, 1999. The
Employment Agreements amend and extend the key executives' original employment
agreements with the Company dated January 1, 1994, as amended, through September
1, 2002. The Employment Agreements provide that the two key executives will
receive an annual base salary of $350,000 and $300,000, respectively, subject to
cost of living adjustments as well as the right to participate in the Company's
1996 Stock Option Plan (See Note 16 and the Incentive Plan as defined below).

         The Company adopted a Key Executive Annual Incentive Plan (the
"Incentive Plan"), pursuant to which key executives of the Company may receive
bonus compensation based on the Company's performance during fiscal year 2000,
as determined by the Compensation Committee of the Board of Directors (the
"Committee"). Under the Incentive Plan, the Company's President and Chief
Executive Officer and Executive Vice President and other key executives
designated by the Committee are assigned a target award expressed as a
percentage of base salary in varying amounts (not to exceed 100% of the base
salary for the President and Chief Executive Officer and the Executive Vice
President and 50% for other key executives). The actual award is subject to
achievement by the Company of minimum levels of pre-tax income. The Committee
has the authority to select participants other than the President and Chief
Executive Officer and the Executive Vice President, to establish target awards
and to determine final awards in the event that the Company's operating income
is less than the level's established under the Incentive Plan during any year
the Incentive Plan remains in effect.

13.      SIGNIFICANT CUSTOMERS

         In 1999 and 1998 no single customer accounted for more than 10% of net
sales. In 1997 one customer accounted for 19% of 1997 net sales and a second
customer accounted for 12% of 1997 net sales.

14.      CONSIGNMENT SALES

         The Company had an agreement with an airline to sell certain consigned
inventory on behalf of the airline. Net sales related to this agreement include
approximately $882,000 and $1,295,000 for the years ended December 31, 1997 and
1996, respectively. Such consigned inventory was purchased by the Company during
1998.



                                      F-16


<PAGE>   53


                          AVTEAM, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15.      SHAREHOLDERS' EQUITY

         On August 21, 1997, the Company issued and sold to The Clipper Group in
a private placement transaction an aggregate of 494,642 shares of Class A
Preferred Stock and 219,644 shares of Class B Preferred Stock for an aggregate
purchase price of $5,000,002. Pursuant to the Company's Second Amended and
Restated Articles of Incorporation, all of such shares of Class A Preferred
Stock have been automatically converted into an aggregate of 494,642 shares of
Class A Common Stock and all of such shares of Class B Preferred Stock were
converted into an aggregate of 219,644 shares of Class B Common Stock upon the
Company's initial public offering. The Clipper Group has transferable
registration rights for their shares of Common Stock.

         Also, on August 21, 1997, the Company issued 327,772 shares of Class A
Common Stock valued at $2,294,404 to the Chairman of the Board of Directors of
the Company as payment for a $1,322,479 non-interest bearing note and a $701,278
interest bearing note included in notes payable to shareholders at June 30,
1997, and as payment for the purchase of the remaining inventory valued at
$270,647 under the Parati Agreement in connection with the termination of the
Parati Agreement.

         On October 30, 1997, the Company, through an initial public offering,
sold 3.033 million shares of Class A Common Stock. The proceeds before deduction
of expenses amounted to $23,960,700. A portion of the proceeds was used to repay
the outstanding balance owed under the Company's existing Credit Facility, to
repay loans to shareholders and to pay officers' accrued compensation.

         Also on October 30, 1997, the Company granted to employees a total of
250,000 options to purchase Class A Common Stock at $8.50 per share under the
Company's 1996 Stock Option Plan. The options vest over a three-year period and
are exercisable over a period of ten years. At December 31, 1997, 350,000 shares
of Class A Common Stock remain reserved for issuance under future option grants.

         On November 28, 1997, the Company issued 330,325 additional shares of
Class A Common Stock pursuant to the exercise of the over-allotment option
granted to the underwriters. Net proceeds before deduction of expenses amounted
to approximately $2,611,000.

         On December 15, 1998, in connection with the purchase of certain assets
and liabilities of M&M Aircraft Services, Inc., the Company issued 350,000
additional shares of Class A Common Stock. In 1999, 19,563 shares were returned
to the Company and retired.

16.      STOCK OPTIONS

         The Company, under its 1996 Stock Option Plan, may grant a maximum of
600,000 options to purchase Class A Common Shares at prices not less than 100%
of the fair market value at the date of option grant. At the Company's annual
meeting held on May 20, 1999, the shareholders approved an increase in the
number of options eligible for grant to 1,000,000. Also at the same meeting the
shareholders approved the 1999 Nonemployee Directors Stock Option Plan which
permits the Company to grant a maximum of 100,000 options. On May 21, 1999,
30,000 options were granted in accordance with the 1999 Nonemployee Directors
Stock Option Plan to three non-employee directors at an exercise price of $7.19.
Such options vest immediately and expire over a ten-year period.

         On June 2, 1999, the Company notified all employee option holders that
in event of the merger, consolidation, acquisition of the Company's stock or
acquisition of substantially all the assets of the Company, the options held
will immediately vest.

         On February 11, 1999, 271,800 options were granted to the Company's
employees of which 257,600 options are outstanding as of December 31, 1999. The
option exercise price is $4.75 per share. These options vest over a three-year
period at rates of 35%, 35% and 30% and expire over a ten-year period. A total
of 519,900 options remain available for future grants.



                                      F-17


<PAGE>   54

                          AVTEAM, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

         On October 31, 1997, the date of its initial public offering, the
Company granted a total of 250,000 options to all of its employees of which
222,500 options are outstanding as of December 31, 1999. The option exercise
price is $8.50 per share. Such options follow the same vesting schedule as those
granted February 11, 1999 and expire over a ten-year period.

         The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for the
stock option plan. Had compensation cost for the Company's plan been determined
based on the fair value at the grant date for awards consistent with the
provisions of SFAS No. 123, the Company's net earnings would have been changed
to the pro forma amounts indicated below (in thousands):

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                      ------------------------------------------
                                                        1999              1998             1997
                                                      -------           -------          -------
<S>                                   <C>             <C>               <C>              <C>
       Net income                     As reported     $ 4,389           $ 5,812          $ 3,934
                                      Pro forma       $ 3,770           $ 5,075          $ 3,861

       Earnings per common share -    As reported     $   .38           $   .52          $   .65
              Basic                   Pro forma       $   .33           $   .46          $   .64

       Earnings per common share -    As reported     $   .38           $   .52          $   .52
              assuming dilution       Pro forma       $   .33           $   .46          $   .51
</TABLE>

         The assumptions used in this calculation for each grant is as follows:

<TABLE>
<CAPTION>
                                                 OCTOBER 1997       FEBRUARY 1999        MAY 1999
                                                 ------------       -------------        --------
<S>                                              <C>                <C>               <C>
           Fair value*....................           $8.21              $2.79             $4.30
           Dividend yield.................               0%                 0%                0%
           Expected volitility............           1.849%             0.639%            0.657%
           Risk-free interest rate........               5%               5.5%              5.5%
           Expected life..................          5 years            5 years           5 years
</TABLE>

           *Using the Black-Scholes option-pricing model

         A summary of the Company's stock option activity is as follows:

<TABLE>
<CAPTION>
                                                                    Weighted
                                                                     Average
                                                      Number of     Exercise
                                                        Shares       Price
                                                        ------       -----
<S>                                     <C>
         Options outstanding at January 1, 1997..           --            --
         Granted at market price ................      250,000      $   8.50
         Exercised ..............................           --            --
         Canceled ...............................           --            --
                                                      --------
         Options Outstanding at December 31, 1997      250,000      $   8.50
         Granted at market price ................           --            --
         Exercised ..............................           --            --
         Canceled ...............................      (23,400)           --
                                                      --------
         Options outstanding at December 31, 1998      226,600      $   8.50
         Granted at market price ................      271,800      $   4.75
         Granted at market price ................       30,000      $   7.19
         Exercised ..............................           --            --
         Canceled ...............................      (18,300)     $   5.59
                                                      --------
         Options outstanding at December 31, 1999      509,100      $   6.53
                                                      ========
</TABLE>


         The following table summarizes information about stock options
outstanding at December 31, 1999.


              Options Outstanding
--------------------------------------------------
                                        Remaining
                       Number          Contractual       Options
Exercise Price      Outstanding           Life          Exercisable
--------------      -----------        -----------      -----------

$8.50                222,500               7.83           155,750

$4.75                257,600               9.11            90,160

$7.19                 90,000               9.62            90,000



                                      F-18


<PAGE>   55


                          AVTEAM, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17.      UNAUDITED QUARTERLY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                              QUARTER ENDED
                                         -------------------------------------------------------
                                         MARCH 31,     JUNE 30,     SEPTEMBER 30,   DECEMBER 31,
                                           1999          1999            1999          1999
                                          -------       -------       ----------    ----------
<S>                                       <C>           <C>           <C>           <C>
Net sales .........................       $29,292       $35,488       $   30,835    $   34,230
Gross profit ......................         8,652         9,276            9,180         3,157
Net income (loss) .................         2,024         2,253            2,245        (2,133)

Net income (loss) per common share:
        Basic .....................          0.18          0.20             0.20         (0.19)
        Diluted ...................          0.18          0.20             0.20         (0.19)
</TABLE>


<TABLE>
<CAPTION>
                                                              QUARTER ENDED
                                         -------------------------------------------------------
                                         MARCH 31,     JUNE 30,     SEPTEMBER 30,   DECEMBER 31,
                                           1999          1999            1999          1999
                                          -------       -------       ----------    ----------
<S>                                       <C>           <C>           <C>           <C>
Net sales .........................       $13,117       $21,100       $   14,765    $   26,375
Gross profit ......................         3,885         5,328            4,294         6,335
Net income ........................         1,352         1,736            1,058         1,666

Net income per common share:
        Basic .....................          0.12          0.16             0.10          0.15
        Diluted ...................          0.12          0.16             0.10          0.15
</TABLE>






                                      F-19


<PAGE>   56




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
AVTEAM, Inc.

         We have audited the consolidated financial statements of AVTEAM, Inc.
and Subsidiaries as of December 31, 1999 and 1998, and for each of the three
years in the period ended December 31, 1998, and have issued our report thereon
dated May 4, 2000, except for the third paragraph of Note 9, as to which the
date is June 7, 2000 (included elsewhere in this Form 10-K). Our audits also
included the financial statement schedule listed in Item 14(a) of this Form
10-K. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.

         In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

                                     /s/  ERNST & YOUNG LLP

Miami, Florida
May 4, 2000




                                       S-1

<PAGE>   57
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                          AVTEAM, INC. AND SUBSIDIARIES
                                DECEMBER 31, 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              Balance at   Charged to
                                                              Beginning     Costs and                    Balance at
                       Description                             of Year       Expenses     Deductions     End of Year
                       -----------                             -------       --------     ----------     -----------
<S>                                                            <C>          <C>           <C>             <C>
Year Ended December 31, 1997 Deducted from asset accounts:
  Allowance for doubtful accounts ........................       $189         $  136         $  51(1)        $  274
  Allowance for sales returns ............................        211            428           211(2)           428
                                                                 ----         ------         -----           ------
         Total ...........................................       $400         $  564         $ 262           $  702
                                                                 ====         ======         =====           ======
Year Ended December 31, 1998 Deducted from asset accounts:
  Allowance for doubtful accounts ........................       $274         $   --         $  95(1)        $  179
  Allowance for sales returns ............................        428            570           428(2)           570
                                                                 ----         ------         -----           ------
         Total ...........................................       $702         $  570         $ 523           $  749
                                                                 ====         ======         =====           ======
Year Ended December 31, 1999 Deducted from asset accounts:
  Allowance for doubtful accounts ........................       $179         $1,085         $(192)(3)       $1,456
  Allowance for sales returns ............................        570            921           570 (2)          921
                                                                 ----         ------         -----           ------
         Total ...........................................       $749         $1,997         $ 369           $2,377
                                                                 ====         ======         =====           ======
</TABLE>

1)       Uncollectable amounts written off, net of recoveries

2)       Application of credit memos against reserve.

3)       Recoveries of previously uncollected accounts, net of uncollectable
         accounts written off.



                                       S-2


<PAGE>   58



                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT                                                                          SEQUENTIALLY
NUMBER                  EXHIBIT                                                 NUMBERED PAGE
------                  -------                                                 -------------
<S>      <C>                                                                    <C>
10.32    First Amendment to Credit Agreement with Bank of America, N.A. and
         certain lenders identified therein dated as of October 28, 1998.

10.33    Second Amendment to Credit Agreement with Bank of America, N.A. and
         certain lenders identified therein dated as of December 31, 1999.

21.1     List of Subsidiaries of Registrant

23.1     Consent of Ernst & Young LLP, Independent Certified Public Accountants

27.1     Financial Data Schedule for the year ended December 31, 1999
</TABLE>