UNITED STATES
                       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 January 31, 2005

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

For the transition period from___________ to ____________

                         Commission File Number 0-21995

                          First Aviation Services Inc.
             (Exact name of registrant as specified in its charter)

           Delaware                                    06-1419064
           (State or other jurisdiction                (I.R.S. Employer
           of incorporation or organization)           Identification No.)

           15 Riverside Avenue
           Westport, Connecticut                       06880-4214
           (Address of principal executive offices)    (Zip Code)

        Registrant's telephone number, including area code (203) 291-3300


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

                                                    Name of each exchange
            Title of each class                     on which registered
            -------------------                     -------------------
            None                                    None

          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.01 par value

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 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days or for such short period that the registrant was subject to
such filing requirements.
Yes X   No
   ---    ---

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 the 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. X
          ---

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes    No X
                                        ---   ---
The aggregate market value of voting common and non-voting equity held by
non-affiliates as of July 31, 2004 was approximately $16.3 million.

The number of shares outstanding of the registrant's common stock as of April
12, 2005 was 7,327,206 shares.

                      Documents incorporated by reference:
         Portions of the Registrant's definitive Proxy Statement for the
              2005 Annual Meeting of Stockholders is incorporated
                    herein by reference into Part III hereof



<PAGE>


                          First Aviation Services Inc.
                                TABLE OF CONTENTS


Forward Looking Statements.....................................................3

                                     Part I

Item 1.  Business..............................................................3
Item 2.  Properties............................................................7
Item 3.  Legal Proceedings.....................................................7
Item 4.  Submission of Matters to a Vote of Security Holders...................8
Executive Officers of the Registrant...........................................8


                                     Part II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and
         Issuer Purchases of Equity Securities.................................9
Item 6.  Selected Financial Data..............................................10
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations........................................................11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...........23
Item 8.  Financial Statements and Supplementary Data..........................24
Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.................................................24
Item 9A. Controls and Procedures..............................................24
Item 9B. Other Information....................................................24


                                    Part III

Item 10. Directors and Executive Officers of the Registrant...................25
Item 11. Executive Compensation...............................................25
Item 12. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters..........................................25
Item 13. Certain Relationships and Related Transactions.......................25
Item 14. Principal Accountant Fees and Services...............................25


                                     Part IV

Item 15. Exhibits and Financial Statement Schedules...........................26
Signatures....................................................................30
Index to Consolidated Financial Statements and Supplementary Data.............F1
Exhibit Index.................................................................





                                       2
<PAGE>



                          First Aviation Services Inc.

                           Annual Report on Form 10-K
                   for the Fiscal Year Ended January 31, 2005

Forward-Looking Statements
--------------------------

     Certain  statements  discussed  in  Item  1,  "Business",  Item  3,  "Legal
Proceedings",  Item  7,  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations", Item 7, "Liquidity and Capital Resources",
and  elsewhere  in this Annual  Report on Form 10-K  constitute  forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995.  Forward-looking  statements are not statements of historical  facts,  but
rather reflect the Company's current  expectations  concerning future events and
results.  Such  forward-looking  statements,   including  those  concerning  the
Company's expectations, involve known and unknown risks, uncertainties and other
factors,  some of which are beyond  the  Company's  control,  that may cause the
Company's actual results,  performance or achievements,  or industry results, to
be materially  different from any future  results,  performance or  achievements
expressed   or  implied  by  such   forward-looking   statements.   Such  risks,
uncertainties  and other important  factors  include,  the Company's  ability to
obtain parts and  components  from its  principal  suppliers on a timely  basis,
depressed domestic and international market and economic conditions,  especially
those currently  facing the aviation  industry as a whole, the impact of changes
in fuel and other freight related costs,  relationships with its customers,  the
ability of the Company's  customers to meet their  financial  obligations to the
Company,  the ability to obtain and service supply chain  management  contracts,
changes in  regulations  or  accounting  standards,  the  ability to  consummate
suitable  acquisitions  and  expand,  the  loss  of the  use of  facilities  and
distribution  hub in Memphis,  significant  failure of our  computer  systems or
networks,  efforts to comply with Section 404 of the  Sarbanes-Oxley Act of 2002
and other  items that are  beyond the  Company's  control  and may cause  actual
results  to  differ  from  management's  expectations.   In  addition,  specific
consideration  should  be  given to the  various  factors  described  in Item 7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations",  and  elsewhere  in this  Annual  Report on Form 10-K.  The Company
undertakes no obligation to update any forward-looking  statements or cautionary
factors.

                                     PART I
                                     ------

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

General

     First Aviation Services Inc. ("First Aviation"), together with its wholly
owned subsidiaries, Aircraft Parts International, Ltd. ("API Ltd."), and API
Asia Pacific Inc. ("API Asia Pacific"), and its majority-owned subsidiary,
Aerospace Products International, Inc. ("API"), (collectively, the "Company"),
is one of the premier suppliers of services to the aviation industry worldwide.
The services the Company provides to the aviation industry include the sale of
aircraft parts and components, the provision of supply chain management
services, overhaul and repair services for brakes and starter/generators, and
the assembly of custom hoses.

     First Aviation was incorporated in the state of Delaware in 1995. The
Company's principal executive offices are located at 15 Riverside Avenue in
Westport, Connecticut 06880. Certain filings that First Aviation makes with the
U.S. Securities and Exchange Commission (including annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K) are available on
First Aviation's corporate website at www.favs.com. These public filings also
can be obtained by calling our investor relations department, or by e-mail at
first@firstaviation.com.

Industry Overview

     The market for aerospace parts and supplies consists of two market sectors,
the manufacturing parts sector and the aftermarket parts sector. These two
market sectors are related, but require different customer focus to satisfy the
needs of the market. The manufacturing parts sector caters to parts installed on
new aircraft or engine construction. Large original equipment manufacturers
("OEMs") sell directly to aircraft manufacturers and fabricators the parts and
supplies needed to manufacture new aircraft. The aftermarket parts sector caters
to the needs of aircraft and engines already in service and are typically out of
warranty, and out-of-production aircraft and engines, all of which need



                                       3
<PAGE>

maintenance, repair or modification. Typically, aircraft and engines that are
older or had more use require more parts and services. Furthermore, within the
aftermarket parts sector there is a market for new parts and supplies, as well
as used and refurbished parts and supplies. New and used parts and supplies can
be further categorized as consumables or repairable parts and supplies.
Therefore many companies that cater to the aftermarket parts sector sell new
parts and supplies, refurbished and repaired parts and supplies as well as
provide overhaul and repair services on parts and components, typically to the
same customers. Many suppliers and OEMs of parts and supplies have traditionally
relied on third-party distributors, such as the Company, to service the
aftermarket parts sector. Some of these suppliers now want to service this
market sector directly, but in many cases do not have the market expertise or
support infrastructure, so they turn to third party logistics ("3PL") providers
for assistance. Similarly, end-users want to outsource their buy-side supply
chain management needs and turn to 3PL providers for support. The Company
provides the aftermarket supply services including the sale of parts, repair
services and other supply chain services to end-users and suppliers.

     The Company believes that the current annual worldwide market for new and
used parts, components and consumable supplies for aircraft and engines is
approximately $25.0 - $35.0 billion. This market has leveled out and started to
increase after several years of decline. Of the worldwide market, an estimated
$2.5 billion is supplied to the general aviation category of the aftermarket
parts sector in which the Company principally operates, $5.0 billion goes
through distribution to all market categories, and the balance is supplied
direct to the end user. The aviation aftermarket parts sector includes passenger
and cargo airlines, fleet and corporate aircraft operators, certified repair
facilities, governments and military services, flight training schools, fixed
base operators ("FBOs"), business aviation, helicopter and recreational
operators. The aviation aftermarket parts sector is highly-fragmented, although
there are a limited number of large, well-capitalized companies, including
original equipment manufacturers ("OEMs"), and suppliers, selling a broad range
of parts and services, as well as numerous smaller competitors serving niche
markets.

     Aviation Aftermarket Parts Sector. The Company markets its supply chain
services, which includes parts sales and service contracts, to several distinct
categories of customers within the aftermarket parts sector. These categories
consist of airlines, corporate flight departments, independent airline
maintenance, repair and overhaul providers ("MROs"), large corporate MROs,
retail customers, OEMs and general aviation customers. The Company's products,
from more than 150 manufacturers and suppliers, constituting approximately
80,000 new and factory reconditioned parts and components are sold to
professional aircraft maintenance organizations, aircraft owners and operators,
including fleet operators, airlines, and FBOs. The parts and components supplied
to the marketplace by the Company are approved by the FAA and are generally
acquired from small, specialized manufacturers as well as major OEMs such as
Goodrich Aerospace, Champion, General Electric Lighting, Goodyear Tire and
Rubber, Lord Corporation, Marathon Power Technologies, Michelin Aircraft Tire,
Parker Hannifin, Scott Aviation, and Teledyne Continental Motors. The Company
adds value to commonly available products by offering immediate availability,
broad product lines, technical assistance and other value added supply chain
management services. Supply chain management services allow the Company to offer
parts and components to its customers to satisfy the customer's needs. The
Company services the aftermarket parts sector as a channel provider, whether it
acts as a supplier of parts provided by an OEM, or provides supply chain
management services to the OEM who chooses to sell directly to customers.
Services contracts are part of a continuum of product lines offered by the
Company. The terms and nature of supply chain management services are stipulated
in individualized contracts that are unique for each customer. The Company uses
its expertise gained in managing its own parts and supply business to manage its
customers' product in a seamless method to the end customer, and at less cost to
the Company's customer than if they serviced the market themselves. As part of
this process, the Company provides its internal resources, such as facilities,
personnel and systems to the customer. The Company either may supply its own
inventory for the customer, or hold its customers' inventory in its own
facility, without taking ownership of such inventory, and supply the inventory
on behalf of its customer. As an example, the Company may pick, pack and ship
product on behalf of its customer in return for a fee based upon the level of
services provided. In providing these services the Company may provide other
support services as well to its customers, including sales and billing, and the
use of the Company's call center.

     Competition. Competition in the aftermarket parts sector for parts and
supplies is generally based on availability of product, customer service, price,
and quality, including parts traceability to the OEM. The Company's major
competitors include Aviall, Inc., AAR Corporation, Cessna Aircraft Company and
Satair A/S. There also is substantial competition, both domestically and
overseas, from companies who focus on secondary or regional/niche markets.
Several of the Company's competitors have faced financial difficulties over the
last several years.

     Competition in supply chain management services comes from numerous
companies both within and outside of the aerospace industry, although many
competitors are specialized to a particular industry. The supply chain
management service provider market is fragmented and growing as a result of the
growing trend to outsource, a trend that is increasing due to economic
conditions and the need for companies to reduce their cost structures. Some



                                       4
<PAGE>

competitors in the distribution business pay up front fees and acquire their
customers' inventory in exchange for supply chain contracts, a strategy that the
Company has not pursued. The Company believes that it has an advantage in the
aerospace industry due to its experience, knowledge, focus, and contacts within
the industry.

     Increasing Consolidation. In order to reduce the costs associated with
carrying and managing inventory, satisfy governmental regulatory scrutiny,
streamline buying decisions and assure quality, aircraft and fleet operators are
seeking to reduce their number of suppliers, including parts and component
providers, and are using third parties to manage their parts and components
inventories. Operators also have become more sensitive to quick turnaround
times. As a result, the Company believes that aircraft and fleet operators
increasingly select larger, more sophisticated, technologically capable and
better-capitalized service providers that are capable of providing a range of
high quality, efficient and timely services, including supply chain management
services, at a reasonable price. Additionally, the increasing costs of
technology and inventory levels required to compete effectively has made entry
into and continued success in the industry more difficult and expensive. The
Company believes that well-capitalized, technologically sophisticated providers
capable of offering a wide range of services, like the Company, will benefit
from this consolidation trend. During the past few years, a number of service
providers have consolidated or combined their operations. A number have faced
moderate to severe financial difficulties. In addition, some OEMs have decided
to by-pass wholesale distributors and are distributing their products directly
to their customers. This is a trend that the Company believes will continue, and
is another reason for the Company's focus on services, as some potential
customers for the Company's supply chain management services include those OEMs
who have decided to sell their products themselves, directly to the end
customer.

     Industry Conditions. The aftermarket parts sector in which the Company
operates is affected by general economic conditions and specific market activity
like flight activity, flight training, and air travel for business and pleasure.
Revenues for the year ended January 31, 2005 were higher than the prior year due
to an improving economy, but were adversely effected by reduced levels of
specific market activity that were caused by higher fuel prices, and in the
latter half of the year adverse weather conditions in significant markets.
Recovery in the market environment has been increasing gradually. Overall
business activity in the aftermarket parts sector continues to be improving in
several customer segments the Company serves. Some categories have improved with
the economy, like general aviation and commercial airlines, but they are still
vulnerable to a downturn from terrorist acts and higher fuel prices. Flight
schools have not fully recovered to the level of pre-recession operating levels,
and certain flight zones remain restricted for general aviation flights.
Bankruptcies have and may continue to occur in the aerospace industry, which
have reverberating effects for all market sectors. The Company expects that the
current level of business activity in the aftermarket parts sector will
continue, but the timing of any further expansion remains uncertain. The Company
continues to look for new sources of revenue, to control its costs, and expand
its offering of services both within the aftermarket parts sector and beyond.

     Principal Suppliers

     API has five suppliers from whom approximately 40%, 45%, and 49% of its
total purchases were made during the years ended January 31, 2005, 2004 and
2003, respectively.

     The Company has entered into a service arrangement with an authorized Piper
distributor pursuant to which the Company provides services, including parts
supply services and logistics services, enabling the Company to continue to
service this customer base. This arrangement has mitigated the effect of the
December 31, 2003 termination of the Company's distributorship with New Piper
Aircraft, Inc.


                                       5
<PAGE>


Sales and Marketing

     New and serviceable parts, supplies and components are sold to professional
aircraft maintenance organizations, aircraft owners and operators, including
fleet operators and airlines, flight training schools, and FBOs. The Company
uses senior management, regional sales managers, inside salespersons, outbound
telephone salespersons, electronic commerce, independent contract
representatives, associated distributors, and foreign partners in its sales and
marketing efforts.

     The Company sells supply chain management services by identifying potential
customers and opportunities in the industry through contacts within the
industry, advertising and targeted marketing, recommendations from current
customers, and leads from regional sales managers. Lead times for the
procurement of new contracts is effected by the long-term nature of such
contracts, the relationship building with the customer that is required, and the
substantial change it often requires of the customer's existing business
infrastructure.

Customers

     The Company currently has approximately 7,000 customers. The Company is not
reliant upon any single customer.

Regulation

     Regulatory bodies such as the FAA, the Joint Airworthiness Administration,
the Department of Defense (the "DOD"), and governments around the world require
all aircraft and engines to follow defined maintenance programs to ensure
airworthiness and safety. For parts and components distributed by the Company,
including inventory managed by the Company under supply chain management
services, the programs are developed by the OEM or customer in coordination with
the regulatory body. The Company has received certifications from the FAA
covering its repair and overhaul facilities, and its hose shop. The DOD requires
that parties providing parts for branches of the U.S. armed services comply with
applicable government regulations, and the DOD continually reviews the
operations of the Company for compliance with applicable regulations. In
addition, the Company's Memphis, Tennessee facility is ISO/9002 certified and
subject to periodic reviews.

Environmental Matters and Proceedings

     The Company's operations are subject to federal, state and local
environmental laws and related regulation by government agencies, including the
United States Environmental Protection Agency, the United States Department of
Transportation, 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 potentially significant
compliance burdens and risks on the Company. The Company believes that it is in
material compliance with all federal, state, and local laws and regulations
governing its operations. The Company has not had and does not anticipate that
any material capital expenditures will be required during the next fiscal year
in order to maintain compliance with the federal, state and local laws and
regulations.

Employees

     As of January 31, 2005, the Company employed 196 persons on a full-time
basis. None of the Company's employees is covered by collective bargaining
agreements. The Company believes that its relationship with its employees is
good.



                                       6
<PAGE>


Geographic Areas

     Sales to unaffiliated foreign customers were approximately 22%, 22%, and
18% of net sales for the years ended January 31, 2005, 2004 and 2003,
respectively. The majority of these customers were located in Canada, Southeast
Asia, Latin America and Europe.

Products and Services

     The Company reports its revenue as one reportable  segment and believes it
is impracticable to breakout various products and services for reporting
purposes.

Item 2.  Properties
-------------------

           The Company leases all of its facilities, described below:


<TABLE>
<CAPTION>
                                                                                      Square               Lease
Location                      Entity               Description                        Footage            Expiration
--------                      ------               -----------                        -------            ----------
<S>                           <C>                  <C>                                <C>                   <C>
Westport, CT                  First Aviation       Executive offices                    3,000               2007

Memphis, TN                   API                  Distribution/sales                 157,000               2013

Calgary, Canada               API Ltd.             Sales                                5,600               2009

Montreal, Canada              API Ltd.             Sales                                7,270               2008

Clark Field, Pampanga,
Philippines                   API Asia Pacific     Distribution/sales                  22,235               2010

St. Charles, IL               API                  Sales                                1,000               2006
</TABLE>


Item 3.  Legal Proceedings
--------------------------

     The Company's business exposes it to possible claims for personal injury,
death or property damage that may result from a failure of certain parts
serviced by the Company or spare parts and components sold by it, or in
connection with the provision of its supply chain management services. The
Company takes what it believes to be adequate precautions to ensure the quality
of the work it performs and the traceability of the aircraft parts and
components that it sells. The OEMs that manufacture the parts, components and
supplies that the Company sells carry liability insurance on the products they
manufacture. In addition, the Company maintains what it believes is adequate
liability insurance to protect it from any claims.

     In the normal conduct of its business, the Company also is involved in
various claims and lawsuits, none of which, in the opinion of the Company's
management, will have a material, adverse impact on the Company's consolidated
financial position. The Company maintains what it believes is adequate liability
and other insurance to protect it from such claims. However, depending on the
amount and timing, unfavorable resolution of any of these matters could have a
material effect on the Company's consolidated financial position, results of
operations or cash flows in a particular period.



                                       7
<PAGE>


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

         None.


Executive Officers of the Registrant
------------------------------------

     The Company's executive officers, their ages and backgrounds are as
follows:

     Michael C. Culver, 54, has served as President and Chief Executive Officer
of First Aviation since March 1995. Mr. Culver has also served as Chairman of
API since 1997. In 1985, Mr. Culver co-founded First Equity Group Inc. ("First
Equity Group"). First Equity Group's interests, in addition to the Company,
include First Equity Development Inc., an aerospace investment and advisory
firm, Skip Barber Racing School, LLC and Imtek, Inc. Mr. Culver serves on the
Boards of Skip Barber Racing School, LLC and Imtek, Inc.

     Robert G. Costantini, 45, became First Aviation's Chief Financial Officer,
Senior Vice President of Finance, and Corporate Secretary in October 2003. Prior
to joining First Aviation, from 1999 to 2003, Mr. Costantini was Chief Financial
Officer of FocusVision Worldwide, Inc., a technology company providing video
transmission services. From 1986 to 1989 he was first Corporate Controller, and
from 1989 to 1999 he was Vice President - Finance for M.T. Maritime Management
Corp., a global maritime transportation company. Mr. Costantini started his
career with Peat Marwick, Mitchell & Co. Mr. Costantini is a Certified Public
Accountant, Certified Management Accountant, and a member of the bar of New York
and Connecticut.

     Paul J. Fanelli, 43, became President and CEO of First Aviation's principal
subsidiary Aerospace Products International Inc. on April 5, 2004. Mr. Fanelli
was hired February 16, 2004 as Senior Vice President and Chief Operating Officer
of API. From 2000 to 2003, Mr. Fanelli was President - Europe for Brightpoint,
Inc., a distributor of wireless voice and data products and a supplier of
outsourced services. Previously he was Chief Operating Officer from 1998 to 2000
for Brightpoint Europe, Middle East and Africa. Mr. Fanelli has worked for
Ericsson Mobile Communications, Texas Instruments, ITT Avionics and started his
career with Loral Electronics.




                                       8
<PAGE>


                                     PART II



Item 5. Market for Registrant's  Common Equity,  Related Stockholder Matters and
--------------------------------------------------------------------------------
Issuer Purchases of Equity Securities
-------------------------------------

     Market Information. First Aviation's common stock trades on The NASDAQ
Small Cap Market under the symbol FAVS. The table below sets forth the quarterly
high and low sales prices for the First Aviation's common stock as reported by
the NASDAQ Stock Market since February 1, 2003.


<TABLE>
<CAPTION>
                    Year Ended                                                    Year Ended
                 January 31, 2005                                              January 31, 2004
----------------------------------------------------          ---------------------------------------------------
                           High            Low                                        High             Low
                           ----            ---                                        ----             ---
<S>                        <C>            <C>                 <C>                     <C>             <C>
First Quarter              $4.80          $3.90               First Quarter           $3.72           $2.62
Second Quarter             $5.00          $4.25               Second Quarter          $4.00           $2.95
Third Quarter              $4.72          $3.86               Third Quarter           $3.99           $3.36
Fourth Quarter             $4.60          $3.52               Fourth Quarter          $4.79           $3.36
</TABLE>

     Holders. As of April 22, 2005, there were 17 holders of record of the First
Aviation's common stock.

     Dividends. First Aviation did not pay a dividend in the fiscal years ended
January 31, 2005 and 2004. In January 2003, First Aviation paid a special cash
dividend of $1.00 per share. The total cash paid was $7.3 million. This is the
only cash dividend or distribution paid on First Aviation's common stock since
its inception. At this time, First Aviation anticipates that, for the
foreseeable future, all earnings will be retained for use in the Company's
business and no cash dividends will be paid on the common stock. In addition,
API's credit facility prohibits the payment of cash dividends from it to First
Aviation without the lender's consent. Any payment of cash dividends in the
future on the common stock will be dependent upon First Aviation's financial
condition, results of operations, current and anticipated cash requirements,
plans for expansion, the ability of its subsidiaries to pay dividends or
otherwise make cash payments or advances to it (as described above), and
restrictions, if any, under any current or future debt obligations, as well as
other factors that the Board of Directors deems relevant.

     Repurchases. In the fourth  quarter of the fiscal  year ended  January 31,
2005, First Aviation did not purchase any shares of its Common Stock.



                                       9
<PAGE>


Item 6.  Selected Financial Data
--------------------------------

     The selected financial data set forth below should be read in conjunction
with the "Consolidated Financial Statements", the "Notes to Consolidated
Financial Statements", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other financial information included
herein.

<TABLE>
<CAPTION>
                                                                        Year Ended January 31,
(Amounts in thousands, except per share amounts)       2005       2004         2003        2002       2001
                                                   ----------- ----------- ----------- ----------- ----------

Balance Sheet Summary:

<S>                                                <C>         <C>         <C>         <C>         <C>
Working capital                                    $   47,179  $   49,143  $   47,996  $   56,903  $  42,673
Cash per share outstanding (1)                           3.08        3.45        3.59        4.31       4.43
Total assets                                           65,199      64,982      65,041      80,544     80,714

Current debt and obligations under capital leases           -           -           4         180     11,757
Long-term debt                                         14,500      14,500      14,500      14,800          -
Other long-term liabilities                             1,041       1,041       1,041       1,041      1,188
Total stockholders' equity                         $   34,634  $   36,565  $   36,094  $   49,018  $  47,832
Book value per share outstanding (2)               $     4.73  $     5.02  $     4.98  $     6.79  $    6.65
Cash dividends paid per share                               -           -  $     1.00           -          -
Common shares outstanding                               7,322       7,284       7,251       7,214      7,185

Results of Operations Summary (3):

Net sales                                          $  124,249  $  105,777  $  101,737  $  105,696  $  97,550
Gross profit                                           20,724      19,536      18,473      19,016     18,543

Income (loss) from operations                          (2,142)       (121)     (1,577)        227     (2,300)

Income (loss) before income taxes                      (2,108)        (14)     (1,413)        486       (925)
Provision (benefit) for income taxes                      121         (25)      1,786        (194)      (349)
                                                   ----------- ----------- ----------- ----------- ----------
Income (loss) from continuing operations before
     accounting change                                 (2,229)         11      (3,199)        292       (576)
Cumulative effect of change in accounting                   -           -      (2,735)          -          -
                                                   ----------- ----------- ----------- ----------- ----------
Net income (loss)                                  $   (2,229) $       11  $   (5,934) $    1,252  $  (1,830)
                                                   =========== =========== =========== =========== ==========
Basic income (loss) per share from continuing
     operations                                    $    (0.31) $     0.00  $    (0.44) $     0.04  $   (0.08)

Basic net income (loss) per share                  $    (0.31) $     0.00  $    (0.82) $     0.17  $   (0.24)

Weighted average shares outstanding - basic             7,302       7,267       7,225       7,198      7,721
                                                   ----------- ----------- ----------- ----------- ----------
Income (loss) per share from continuing
     operations -- assuming dilution               $    (0.31) $     0.00  $    (0.44) $     0.04  $   (0.08)
Net income (loss) per share -- assuming dilution   $    (0.31) $     0.00  $    (0.82) $     0.17  $   (0.24)
Weighted average shares outstanding - assuming
     dilution                                           7,302       7,282       7,225       7,209      7,721
                                                   ----------- ----------- ----------- ----------- ----------
</TABLE>


                                       10
<PAGE>


Notes to Selected Financial Data

     (1)  Cash per share outstanding is calculated by taking the cash balance
          and dividing by common shares outstanding. The Company repurchased for
          treasury 1.2 million shares for $4.8 million during the year ended
          January 31, 2001. The Company believes this disclosure is pertinent to
          investors because it indicates the Company has financial resources to
          pursue its strategy. Cash per share outstanding does not represent
          funds that are available for management's discretionary use due to
          legal or functional requirements to conserve cash for capital
          replenishment, expansion, debt service, or other commitments and
          uncertainties.

     (2)  Book value per share outstanding is calculated by taking total
          stockholders' equity and dividing by common shares outstanding.

     (3)  During the year ended January 31, 2003 the Company recorded a charge
          of $0.8 million to increase its allowance for doubtful trade
          receivables, recorded an income tax charge of $2.0 million to
          establish a valuation allowance against its deferred income tax
          assets, recorded a net charge of $2.7 million upon adoption of a new
          accounting principle related to goodwill, and paid a special cash
          dividend of $1.00 per share. In fiscal year 2001, the Company
          discontinued its e-commerce subsidiary, AeroV Inc. ("AeroV"). As a
          result of the discontinuance, AeroV has been accounted for as
          discontinued operations, and the results of operations and were
          condensed and reported separately from continuing operations.


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

Cautionary Statements

Certain statements made in Item 1 "Business", Item 3, "Legal Proceedings", this
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations", "Liquidity and Capital Resources", and elsewhere in this Annual
Report on Form 10-K constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
are not statements of historical facts, but rather reflect the Company's current
expectations concerning future events and results. Such forward-looking
statements, including those concerning the Company's expectations, involve known
and unknown risks, uncertainties and other factors, some of which are beyond the
Company's control, that may cause the Company's actual results, performance or
achievements, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties, and other important
factors, include:

     o    The Company's  continued  ability to obtain parts and components  from
          its principal suppliers on a timely basis. The Company's  distribution
          services  business  is  dependent  upon  the  availability  of  parts,
          components  and  supplies  from its  suppliers.  API does not have any
          long-term  agreements or commitments from OEMs or other suppliers from
          whom it purchases parts, and is dependent upon these manufacturers for
          access to parts for resale.  A disruption in the Company's  ability to
          obtain parts, components and supplies, for any reason, and without the
          ability to find alternative  sources,  would have an adverse impact on
          the Company's business. In addition,  some OEM's, in an effort to find
          additional sources of income, are attempting to distribute directly to
          the customer and by-pass the Company as a distribution channel.

     o    Depressed domestic and international market and economic conditions,
          especially those currently facing the aviation industry as a whole.
          The Company is dependent upon the level of activity in the aviation
          industry, including commercial and recreational flying, and flight
          training schools. Continued depressed conditions in the aviation
          industry, as well as any downturn in economic conditions, will have an
          adverse impact on the Company's future results.

     o    The impact of changes in fuel and other freight related costs. Fuel is
          a significant cost in the aviation industry and increases in the cost
          of fuel or lack of availability of fuel could have an adverse impact
          on overall flight activity levels, and the Company's business.

     o    Relationships with its customers. An inability to maintain good
          relationships with its customers, or the inability to expand by
          establishing relationships with new customers, could have an adverse
          impact on the Company.


                                       11
<PAGE>


     o    The ability of the Company's customers to meet their financial
          obligations to the Company. The inability of the Company's customers
          to meet their obligations to the Company, or to meet their general
          financial obligations and face financial difficulty, would adversely
          impact the ability of the Company to collect on its receivables and
          generate future sales.

     o    The ability to obtain and service supply chain management contracts.
          Supply chain management contracts have a long lead-time and require
          extensive effort and focus to obtain. An inability to obtain such
          contracts, or to service the customer appropriately, for any reason,
          would have an adverse impact on the Company's future results.

     o    Changes in regulations or accounting standards. The Company is subject
          to regulations (including income tax laws) and accounting standards
          that could change in the future, and such changes could have an
          adverse impact on the Company's reported results.

     o    The ability to consummate suitable acquisitions and expand. An
          inability to expand through acquisitions or through other means of
          growth, including internationally, will have an adverse impact on the
          Company.


     o    The Company's  facilities and  distribution hub is in Memphis and most
          of its  inventory  is stored in  contiguous  warehouse  space.  Losing
          access or use of these facilities,  through security concerns, natural
          disasters or damage to the  buildings,  would  interrupt the Company's
          business,  which would  adversely  affect its business  and  operating
          results.

     o    The significant  failure of computer  sustems or networks that disrupt
          business or operations.  The Company's computer systems,  internal and
          external networks,  and suppliers are crucial to service customers and
          manage  operations.  Significant  disruptions or  malfunctions  of its
          computer  systems or networks could have a material  adverse effect on
          its business and results of operations. During 2005, the Company plans
          to install a new suite of enterprise  resource planning software using
          internal  resources and  consultants  for  implementation.  Failure to
          achieve effective  implementation could have a material adverse effect
          on its business and results of operations.


     o    The effort to comply  with  Section 404 of the  Sarbanes-Oxley  Act of
          2002 will result in  additional  expenses.  Financial  and  management
          resources  needed for the Company and its auditors to assess  internal
          control over financial reporting to comply with the Sarbanes-Oxley Act
          of 2002 and related  regulations are expected to be  significant,  and
          our  efforts  to comply  will  result in  additional  expenses.  These
          expenses may have an adverse impact on our business results.


                                       12
<PAGE>


The factors noted above are not all inclusive. All of the factors should be
considered carefully when reviewing the Company's current results and
forward-looking statements. The Company undertakes no obligation to update any
forward-looking statements or cautionary factors.

     The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Company's Consolidated
Financial Statements, including the Notes thereto, and selected financial data
of the Company included elsewhere in this Annual Report on Form 10-K.

General

     The Company is one of the premier suppliers of products and services to the
aerospace industry worldwide, including the provisioning and the supply of
aircraft parts and components, and supply chain management services. The Company
also builds custom hose assemblies, and performs overhaul and repair services
for brakes and starters/generators.

     The Company recorded an increase in revenues for the year ended
January 31, 2005. For the full year, despite higher revenues, the Company
experienced an operating loss resulting from declining gross margins, lower
freight billings, and increased expenses to effect significant changes in the
way the business is managed. The Company believes it maintains a strong balance
sheet, although cash levels decreased primarily due to the operating losses
experienced during the year, expenditures for equipment and enterprise software,
and making accelerated payments to obtain vendor price discounts. The Company
believes that its results show that it continues to take market share from its
competitors, as it managed to grow even though the industry outlook remains
cautious for growth.

     Results for the three months ended January 31, 2005 were mixed as the
Company increased revenue due to an improved economy, but experienced lower
gross margins. The Company also experienced higher expenses and charges,
primarily due to changes in operations initiated by management that are not
anticipated to recur.

     Recovery in the industry has been gradual, and overall business activity in
the aerospace industry continues to be influenced by several factors, including
higher fuel prices. Although the extent and timing of further increases in
market activity is uncertain, the Company continues to look for opportunities
for new markets and revenues, increased margins, improved cost controls, and
expanded service offerings.

     The Company has entered into a service arrangement with an authorized Piper
distributor pursuant to which the Company provides services, including parts
supply services and logistics services. This has mitigated the effect of the
December 31, 2003 termination of the Company's distributorship with New Piper
Aircraft, Inc.

     During the year ended January 31, 2003 the Company, due to the loss
incurred for the year, and in accordance with requirements of Statement of
Financial Accounting Standards No. ("FAS") 109, "Accounting for Income Taxes",
recorded a non-cash deferred income tax charge of $2.0 million to establish a
full valuation allowance against its net deferred income tax assets as it was
more likely than not that some portion or all of the deferred tax asset will not
be realized. The establishment of the valuation allowance is not a reflection of
the future or long-term profitability of the Company, and the Company expects
that it will reverse in future years if financial results increase sufficiently
to support the value of the assets.

     During the first quarter ended April 30, 2002, the Company adopted FAS No.
142, "Goodwill and Other Intangible Assets". Pursuant to FAS 142, goodwill is
not amortized but is tested periodically for impairment using discounted cash
flows and other fair value methodologies. Upon adoption of FAS 142, the Company
was required to perform transitional impairment tests relating to its goodwill
existing as of February 1, 2002, the date of adoption. As a result, upon
adoption of FAS 142, the Company took a non-cash charge of $2,735,000 net of
applicable income tax benefit of $922,000 or $0.38 per share, to write-off the
carrying value of its goodwill. No charge was required under previous generally
accepted accounting principles, which were based upon undiscounted cash flows.
The adoption of FAS 142 represented a change in accounting principle, and the
cumulative effect, net of the applicable income tax benefit, has been shown on a
separate line in the consolidated statements of operations.


                                       13
<PAGE>


Critical Accounting Policies

     The Company is required to provide additional disclosure and commentary on
those accounting policies considered most critical. An accounting policy is
deemed to be critical if it is important to the Company's financial condition
and results, and requires judgment and estimates on the part of management in
its application. The process of preparing financial statements in conformity
with accounting principles generally accepted in the United States requires the
use of judgments, estimates and assumptions to determine the measurement of
revenues and expenses, and the realizable value of certain assets and
liabilities. These estimates and assumptions are based upon information
available at the time the estimates or assumptions are made. The estimates and
assumptions could change significantly as conditions within and beyond
management's control change. Therefore, actual results could differ
significantly from the estimates. The most significant estimates made in
preparing the Company's financial statements include revenue recognition, the
determination of the allowance for doubtful trade receivables, the allowance for
excess and obsolete inventories, deferred income tax asset valuations, the
valuation of goodwill, and, in prior years, estimates made relating to
discontinued operations, including the determination of the amount of gain or
loss upon disposition. The following is a discussion of the critical accounting
policies and the related judgments, estimates and assumptions utilized in
preparing the Company's consolidated financial statements. A summary of
significant accounting policies is included in Note 2 to the consolidated
financial statements included in this Annual Report on Form 10-K.

Revenue Recognition

     The Company's net sales consist of sales of services to the aviation
industry, including parts and components supply services, supply chain
management services, and component overhaul and repair services. Net sales are
recorded when parts and components are shipped and title transfers to the
customer, when supply chain management services have been provided to the
customer, or when overhauled and repaired items are completed and shipped back
to the customer. Shipping and handling billed to customers are included in net
sales. The terms and nature of supply chain management services are stipulated
in a long-term contract between the Company and the customer. The Company
provides its facilities, personnel and systems to provide the services at less
cost to the customer. In providing services where the Company distributes
inventory on behalf of its customer, the Company may use its own inventory or
hold its customers' inventory without taking ownership of such inventory. In
cases where the Company does not take ownership of its customers' inventory, net
sales generally are recognized as a fee based on the sales value of the product
shipped through the Company's facilities, and not the sales value of the product
itself. Alternatively, the Company, when providing services to handle customer's
inventory without taking ownership, can take a fee based on the cost of
providing services, and not on the sales value of the product.

Allowance for Doubtful Accounts

     The allowance for doubtful trade receivables is established based on
estimates of the amount of uncollectible trade receivables, utilizing financial
formulas based principally upon historical experience, the credit worthiness of
the customer, the age of the account, the estimated risk that the account can be
collected, and specific identification. Collection of trade receivables is
affected by aviation industry and market trends, overall economic trends and
conditions, and customers' credit issues and financial condition. Changes in any
of these factors may have a significant negative impact upon the estimated
allowance, and the Company's financial performance.

Allowance for Excess and Obsolete Inventories

     Inventories generally consist of aircraft parts and components, and are
valued at the lower of cost or market, using the first-in, first-out method.
Provisions were made in each period for the estimated effect of excess and
obsolete inventories based upon financial formulas that took into account
quantities, costs, the age of the inventory on hand, historical and projected
sales, and other inventory movements, adjusted for known or estimated factors
such as new product lines and product return allowances. During the three months
ended July 31, 2004, as a result of normal review procedures, the Company
adjusted the methodology for estimating the Allowance for Slow Moving and
Obsolete Inventory that makes the estimate more objective, and efficient to
calculate, by applying percentages based on historical experiences of inventory
in various age classifications, and eliminating the practice of making
adjustments based on historical and projected sales, or other inventory
movements due to new product lines and product return allowances. Actual excess
and obsolete inventories may differ significantly from such estimates, and such
differences could have a significant negative impact on the estimated allowance,
and the Company's financial performance.


                                       14
<PAGE>


Goodwill

     Goodwill arises from the excess of the purchase price paid over the
underlying fair value of assets acquired in transactions accounted for under the
purchase method of accounting for business combinations. Goodwill was recognized
upon First Aviation's acquisition of API's business in 1997 and upon the
acquisition of Superior's distribution business in 2001. A significant amount of
judgment is used to estimate the fair value of assets acquired and to allocate
the purchase price to the underlying assets and liabilities, including the
recognition of liabilities incurred directly as a result of the acquisition.
Most of the assumptions and estimates utilized in this process were based upon
known factors and exposures, historical information and management's experience.

Deferred Income Taxes

     The Company uses the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are estimated using the enacted tax rates and laws that are estimated to be
in effect when the differences are expected to reverse. The realization of the
assets is subject to estimates and judgments, and may change based upon a
variety of factors, including future profitability of the Company and tax law
changes. If an asset is not deemed more likely than not to be fully realizable,
a valuation allowance must be established against all or part of the asset. In
addition, FAS 109 requires the establishment of a valuation allowance under
certain conditions.

New Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 123 (revised 2004), "Share-Based Payment." SFAS No. 123(R) requires
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. The cost will be measured based on the fair
value of the instruments issued. SFAS No. 123(R) covers a wide range of
share-based compensation arrangements including share options, restricted share
plans, performance-based awards, share appreciation rights and employee share
purchase plans. SFAS No. 123(R) replaces SFAS No. 123 and supersedes APB Opinion
No. 25. As originally issued in 1995, SFAS No. 123 established as preferable the
fair-value-based method of accounting for share-based payment transactions with
employees. However, that Statement permitted entities the option of continuing
to apply the guidance in Opinion 25, as long as the footnotes to financial
statements disclosed what net income (loss) would have been had the preferable
fair-value-based method been used. The Company will be required to apply SFAS
No. 123(R) at the beginning of the first fiscal year beginning after June 15,
2005, and we plan to adopt it effective January 1, 2006.



Results of Operations

     The following table sets forth, for the periods indicated, the percentages
of the Company's net sales that certain income and expense items represent.


                                       15
<PAGE>


<TABLE>
<CAPTION>
                                                                           Year Ended January 31,
                                                       ---------------------------------------------------------------
                                                               2005                 2004                  2003
                                                       ---------------------------------------------------------------

<S>                                                            <C>                  <C>                   <C>
  Net sales                                                    100.0%               100.0%                100.0%
  Cost of sales                                                 83.3                 81.5                  81.8
                                                       -------------------- --------------------- --------------------
  Gross profit                                                  16.7                 18.5                  18.2
  Selling, general and administrative expenses                  16.1                 16.1                  17.4
  Corporate expenses                                             2.4                  2.5                   2.4
                                                       -------------------- --------------------- --------------------
  Income (loss) from operations                                 (1.8)                (0.1)                 (1.6)
  Interest income                                                0.1                  0.1                   0.3
  Interest and other expenses                                    -                    -                    (0.1)
                                                       -------------------- --------------------- --------------------
  Income (loss) before income taxes                             (1.7)                 0.0                  (1.4)
  (Provision) benefit for income taxes                          (0.1)                 0.0                  (1.7)
                                                       -------------------- --------------------- --------------------
  Income (loss) from continuing operations                      (1.8)                 0.0                  (3.1)
  Cumulative effect of accounting change                         -                    -                    (2.7)
                                                       -------------------- --------------------- --------------------
     Net income (loss)                                          (1.8)%                0.0%                 (5.8)%
                                                       -------------------- --------------------- --------------------
</TABLE>


Year ended January 31, 2005 compared to year ended January 31, 2004

Net sales

     Net sales for the year ended January 31, 2005 increased $18.5 million, or
17.5%, to $124.2 million from $105.8 million for the year ended January 31,
2004. Net sales increased in all customer sectors, as economic conditions
improved for the general economy as a whole for the year, leading to greater
flight activity than the previous year, and therefore increases in maintenance
and repairs. The increase in sales occurred across all geographic regions with
the most significant improvement in sales growth occurring in Asia and Latin
America at 31% and 38% respectively. European revenue growth, while positive,
lagged the other regions of the world at 10%.

     Freight revenue is a component of net sales and it represents freight
billed to customers. Freight revenue declined for year ended January 31, 2005 by
13% to $2.1 million from $2.4 million for the prior year ended January 31, 2004.
This decline was due primarily to increased customer incentives resulting from
promotional activities and industry competition. This had an adverse effect on
gross profit margin as explained below under the caption "Gross Profit".

Cost of sales

     Cost of sales consists of costs of inventory sold, direct costs to overhaul
and repair parts and components, and direct costs of providing services. Freight
costs for parts and components sold are also included in cost of sales. Costs of
sales for the year ended January 31, 2005 increased $17.3 million, or 20.0%, to
$103.5 million from $86.2 million for the year ended January 31, 2004. The
increase in cost of sales was due primarily to the increase in net sales of
parts and components. In addition, a $300,000 increase to inventory reserves was
recorded in the quarter ended July 31, 2004 as described under the caption
"Critical Accounting Policies" in the section "Allowance for Excess and Obsolete
Inventories".

     As a percentage of net sales, cost of sales increased for the twelve months
ended January 31, 2005, to 83.3% from 81.5%, for the twelve month period ended
January 31, 2004. The increase in the percentage of cost of sales compared to
net sales for the twelve months ended January 31, 2005 compared to the
comparable twelve month 2004 period, was due to the reasons described above, as
well as higher growth in sales of products and components supply services versus
supply chain management services contracts, the latter representing a larger
share of the revenue mix in the prior year period versus the current year
period.


Gross profit


                                       16
<PAGE>


     Gross profit for the twelve months ended January 31, 2005 increased $1.2
million or 6.1% to $20.7 million, compared to gross profit for the twelve months
ended January 31, 2004. Gross profit as a percentage of net sales decreased to
16.7% for the twelve month period ended January 31, 2005, from 18.5% for the
comparable twelve month period ended January 31, 2004. Gross profit margin for
the twelve month period ended January 31, 2005, decreased compared to the
comparable period of the prior year principally due to the accrual for an
increase in the inventory reserves, as mentioned above under the caption "Cost
of Sales", as well as an increase in the mix in sales of parts and components
supply services which have a lower gross profit margin relative to supply chain
management services. The increase in net freight expense, as described below,
contributed to the reduction in gross profit for the twelve months ended January
31, 2005 compared to the twelve months ended January 31, 2004.

     Gross profit is also impacted by net freight expense, which represents
freight expense recorded in cost of sales, less freight billed to customers in
net sales. Net freight expense decreased gross profit by 5.7% for the twelve
months ended January 31, 2005, compared to a decrease of 3.9% in the comparable
2004 period. The decrease was due primarily to increased customer incentives
from promotional activities offering customers reduced or zero freight on
shipments.

Selling, general and administrative expenses

     Selling, general and administrative expenses for the year ended January 31,
2005 increased $3.0 million, or 17.3%, to $20.0 million from $17.0 million for
the year ended January 31, 2004. The increases for the twelve months ended
January 31, 2005, over the twelve month period ended January 31, 2004, is due
primarily to increases in salaries and payroll costs related to additional sales
personnel, higher sales commissions, sales related travel expenses, severance
and relocation expense for personnel changes, increased legal fees, the
expiration of property tax incentives, and expenses incurred for the
implementation of a new customer initiative requiring additional temporary
warehouse personnel. Offsetting these increases were reductions to bad debt
expense from a reduction in the reserves for accounts receivable, and lower
depreciation expense. The reduction in the accounts receivable reserves that
resulted during normal review procedures was due to a change in the Company's
estimate for bad debts resulting from changes in estimated collections based on
improving customer payment trends, and the overall improving economy.


     Selling, General and Administrative expenses as a percentage of revenues
were 16.1% for the twelve months ended January 31, 2005, unchanged from the
twelve months ended January 31, 2004.



                                       17
<PAGE>


Corporate Expenses

     Corporate expenses for the twelve months ended January 31, 2005 increased
$268,000, or 10.2%, to $2.9 million, from the $2.6 million incurred during the
twelve months ended January 31, 2004. For the twelve months ended January 31,
2005 versus the prior year, the Company incurred an additional $324,000 in legal
expenses related to updating our corporate governance policies under new SEC and
NASDAQ exchange rules, responding to a dissident shareholder's proposal,
activities in connection with a proxy contest, and for the 2004 annual meeting.
Other increases in the twelve months ended January 31, 2005 versus the twelve
months ended January 31, 2004 related to salary and payroll expenses, travel
expenses, insurance charges, and consulting services related to changes in
management, which were partially offset by lower expenses in other categories
over the prior year period.

Interest income and interest and other expenses

     During the twelve months ended January 31, 2005, interest income from
investing the Company's cash in short term investments, decreased by $88,000 to
$66,000 over the comparable prior year period. The decrease in income was due to
lower cash balances to invest, and lower interest rates due to a revised
investment strategy minimizing market risk for the year ended January 31, 2005
over the twelve-month period ended January 31, 2004. Interest and Other Expenses
resulted in income of $10,000 for the twelve months ended January 31, 2005
versus expense in the amount of $5,000 in the comparable prior year period due
primarily to reductions in other expenses and less foreign exchange gains.

Provision for Income Taxes

     The Company recorded a provision for income taxes related to foreign income
tax expense estimates for operations in Canada and the Philippines. The Company
does not record a tax benefit for U.S. tax purposes on any operating losses
incurred due to the deferred tax valuation allowance recorded as it is more
likely than not that some portion or all of the deferred tax asset will not be
realized.

Net Income (Loss) and Net Income (Loss) per Share

     The Company had a net loss of $2.2 million or $0.31 per share for the
twelve months ended January 31, 2005, compared to net income of $11,000 for the
full year ended January 31, 2004. The net loss was due to the reasons described
in the preceding sections.


Year ended January 31, 2004 compared to year ended January 31, 2003

Net sales

     Net sales for the year ended January 31, 2004 increased $4.0 million, or
4.0%, to $105.8 million from $101.7 million for the year ended January 31, 2003.
Net sales increased primarily due to increased sales of parts and components to
general aviation customers, as economic conditions improved slightly for the
general economy as a whole for the year, leading to slightly more flight
activity than the previous year, and increases in maintenance and repairs. Sales
to airlines were still affected by depressed industry conditions, and continued
additional security measures that especially affected the commercial airline
markets. In addition, as a result of economic and industry conditions, the
Company previously had tightened its credit policies, and this further
contributed to the decline in airline sales. The majority of the increase in
sales occurred in the U.S. market, but a significant improvement in sales growth
occurred in Asia, Europe and Canada. Sales to the Latin America region continued
to decline, partially due to continued economic weakness in that region, as well
as maintaining previously tightened credit policies toward customers in that
region.

     Freight revenue is a component of net sales and it represents freight
billed to customers. Freight revenue for the year ended January 31, 2004
declined 15% to $2.4 million from $2.8 million for the year ended January 31,
2003. This was due to increased customer incentives resulting from promotional
activities and industry competition. This had an adverse effect on Gross Profit
as explained below in the section "Gross profit".

         Sales to Original Equipment Manufacturers (OEM's) also increased over
the prior year as the Company continues to increase sales of supply chain


                                       18
<PAGE>


management services. The increase in revenues from supply chain management
services, is due to expanded offerings to existing customers for the year. These
contracts often are based upon a fee relative to the services provided, so the
impact on sales is less than if the Company was also selling the product itself.
However, the Company's investment in its personnel, facilities and systems are
scalable, so as services contracts increase throughput the Company's capacity
utilization will improve.

Cost of sales

     Cost of sales consists of costs of inventory sold, direct costs to overhaul
and repair parts and components, and direct costs of providing services. Freight
costs for parts and components sold are also included in cost of sales. Costs of
sales for the year ended January 31, 2004 increased $3.0 million, or 3.6%, to
$86.2 million from $83.3 million for the year ended January 31, 2003. The
increase in cost of sales is due primarily to the increase in net sales of parts
and components. In addition, the increase in cost of sales was due to an
increase in freight expenses, and an increase in services contracts.

Gross profit

     Gross profit for the year ended January 31, 2004 increased $1.0 million, or
5.8%, to $19.5 million from $18.5 million for the year ended January 31, 2003.
Gross profit margin increased to 18.5% from 18.2%. The increase in gross profit
was due principally to the increase in net sales, due to the reasons described
above under Net sales. Adding to this increase, which also was the reason for
the increase in the gross profit margin, was an increase in gross profit from
services contracts, which have a higher gross margin, as explained below.

     A significant portion of the costs relating to services contracts are
indirect costs, including indirect personnel, warehouse and related, and
systems, and these costs are included in selling, general and administrative
expenses. Therefore, gross profit margins for services sales will be higher than
for product sales.

     Gross profit is also impacted by net freight expenses, which represents
freight expense recorded in cost of sales, less freight billed to customers in
net sales. Net freight expenses decreased gross profit by 3.9% for the year
ended January 31, 2004, compared to a decrease of 1.8% in the prior year ended
January 31, 2003, due primarily to increased customer incentives from
promotional activities offering customers reduced, or eliminated, freight on
shipments. These promotional activities related to e-commerce sales and matching
industry competitors offering freight incentives to customers.

Selling, general and administrative expenses

     Selling, general and administrative expenses for the year ended January 31,
2004 decreased $0.6 million, or 3.5%, to $17.0 million from $17.6 million for
the year ended January 31, 2003. The decrease is due principally to decreases in
charges for estimated bad debts, offset by increases in charges for legal fees
due to increased litigation, insurance rate increases, expiration of local
government property tax incentives, and increased advertising expenses.

Corporate expenses

     Corporate expenses for the year ended January 31, 2004 increased $0.2
million to $2.6 million from $2.4 million for the year ended January 31, 2003.
The increase was due principally to legal expenses related to general corporate
matters, and costs associated with the proxy contest conducted by a large
shareholder for the 2003 Annual Meeting.

Interest income and interest and other expenses

     Interest income of $0.2 million earned during the year ended January 31,
2004 was derived from investing the Company's cash in short term investments.
The decrease from the $0.3 million earned during the year ended January 31,
2003, was due principally to lower cash balances in fiscal year 2004 as a result
of a cash dividend paid by the Company on January 31, 2003. Interest and other
expense was nil for the year ended January 31, 2004, from $0.1 million for the
year ended January 31, 2003, due to exchange gains on foreign currency



                                       19
<PAGE>


transactions by the Canadian subsidiary offsetting expenses for interest and
other expenses that were essentially unchanged from the amounts recorded for
prior year ended January 31, 2003.

(Provision) benefit for income taxes

     For the fiscal year ended January 31, 2004, the Company recorded a benefit
from income taxes of $25,000. The benefit was from a $93,000 credit from a U.S.
federal refund received that is offset by foreign income tax expense estimates
for operations in Canada and the Philippines. The accrual for the refund
received was offset in its entirety by the valuation reserve that had been
recorded by the Company during the prior year, but changes to U.S. federal
income tax regulations during the year just ended allowed the Company to carry
back the benefit to prior years, and receive a refund. The effective benefit
rate of 178.6% for the year ended January 31, 2004 is the result of the tax
benefit from the U.S. federal refund received, state tax benefits, and changes
in the deferred tax valuation allowance due primarily to depreciation expenses.

Income (loss) from continuing operations

     For the year ended January 31, 2004 the Company earned $11,000 from
continuing operations, compared to a loss of $3.2 million for the year ended
January 31, 2003. The increase in income is primarily the result of higher sales
and gross profit, and reductions in selling, general and administrative expenses
as described in the foregoing paragraphs, as well as the recording of the tax
valuation reserve in the prior year.

Net income (loss) and Net income (loss) per share

     The Company earned $11,000, which is $0.00 per share for the year ended
January 31, 2004, as compared to a net loss of $5.9 million, or $0.82 per share
for the year ended January 31, 2003. The net income and increase in net income
are due principally to the reasons described above.



Liquidity and Capital Resources

     The Company's liquidity requirements arise principally from its working
capital needs. In addition, the Company has liquidity requirements to fund
capital expenditures to support its current operations, and facilitate growth
and expansion. The Company funds its liquidity requirements with a combination
of cash on hand, cash flows from operations, and from borrowings.

     Cash and cash equivalents at any time may consist of a combination of
demand deposits, money market or short-term, high-grade bond funds, and
short-term certificates of deposit.

     The reduction in cash for the year ended January 31, 2005 was principally
the result of the operating loss, purchases of equipment and software, and
making accelerated payments to obtain vendor price discounts. The Company
believes it maintains a strong balance sheet.

     The Company's cash provided by (used in) operations for the years ended
January 31, 2005, 2004 and 2003 was $(1.5) million, $(0.6) million, and $3.4
million, respectively. Cash used in operations for the year ended January 31,
2005 was impacted by the operating losses, an increase in accounts receivable
due to the increase in sales for the year, and the reduction in payables
resulting from the Company pursuing vendor price discounts aggressively in the
fourth quarter. Cash used in investing activities for the years ended January
31, 2005, 2004 and 2003 was $(1.0) million, $(0.4) million, and $(0.9) million,
respectively. Cash used in investing activities for the years ended January 31,
2005, 2004, and 2003 was related to purchases of fixed assets. Cash provided by
(used in) financing activities for the years ended January 31, 2005, 2004 and
2003 was nil, $1,000, and $(7.7) million, respectively. Cash used in financing
activities for the year ended January 31, 2003 includes $7.3 million to pay
stockholders a special cash dividend of $1.00 per share, and $0.5 million to pay
down long-term debt and capital lease obligations.

     First Aviation's aggregate cash used for capital expenditures for the years
ended January 31, 2005, 2004 and 2003 was $1.0 million, $0.5 million, and $0.9
million, respectively. The increase in capital requirements in fiscal 2005 and
planned expenditures in fiscal 2006 is the result of current upgrades to the
Company's systems and equipment to handle current requirements and support the
Company's growth and expansion. For fiscal year 2006 the amount required for


                                       20
<PAGE>


capital expenditures currently is expected to range between $2.5 million and
$3.0 million. Management expects to fund these requirements from cash on hand,
cash flows from operations, and from borrowings.

     API has a $20 million revolving line of credit through a Commercial
Revolving Loan and Security Agreement (the "Facility"). Borrowings under this
Facility bear interest equal to the LIBOR rate plus 1.5% and are limited to
specified percentages of eligible trade receivables and inventories of API. The
Facility contains a number of covenants, including restrictions on mergers,
consolidations and acquisitions, the incurrence of indebtedness, transactions
with affiliates, the creation of liens, and limitations on capital expenditures.
Pursuant to the terms and conditions of the Facility, the payment of dividends
on API's common stock is prohibited, except with the lender's consent, and API
is required to maintain minimum levels of net worth and specified interest
expense coverage ratios. For the three months ended January 31, 2005, API failed
to maintain the specified interest expense coverage ratios, which were adversely
impacted by charges for the three months ended January 31, 2005 (charges which
the Company does not anticipate to recur). The Company obtained a waiver from
the borrower for the violation of the covenant. Substantially all of API's
domestic assets are pledged as collateral under the Facility, and First Aviation
guarantees all borrowings under the Facility. Borrowings under the Facility were
$14.5 million at January 31, 2005, at an interest rate of approximately 4.1%. Of
the $14.5 million, $10.5 million represented a draw on the Facility just prior
to January 31, 2005, and in February and March 2005 the Company repaid all of
the borrowings that were outstanding at year-end. The Company regularly draws
down on the Facility just prior to quarter end and year end, holds the cash, and
then repays the amount drawn shortly after the quarter end or year end. The
purpose of these draw downs is to indicate that the Company has access to cash
for potential acquisitions or other investment opportunities that may arise. An
additional total of approximately $2.0 million was available to borrow under the
Facility at January 31, 2005. During the quarter ended July 31, 2004, API
extended the maturity date of the Facility to July 1, 2006 from July 1, 2005.
The extension of the agreement was on the same terms and conditions as the prior
Facility. As a result of the extension, borrowings under the Facility continue
to be classified as long-term. Management believes that the carrying amount of
the Company's borrowings approximates fair market value because the interest
rate is variable and resets frequently.

     Based upon current and anticipated levels of operations, the Company
believes that its cash on hand and cash flow from operations, combined with
borrowings available under its line of credit, will be sufficient to meet its
current and anticipated cash operating requirements through the year ending
January 31, 2006, including scheduled interest payments, working capital needs,
capital expenditures and subsidiary preferred dividend requirements.

     On January 6, 2003, the Company announced that its Board of Directors, in
light of the Company's cash position, had approved a special cash dividend of
$1.00 per share. The dividend was paid on January 30, 2003. The total paid was
$7.3 million. The Company previously had not declared nor paid any cash
dividends or distributions on its common stock since its inception in 1997. In
addition, API's credit facility prohibits the payment of cash dividends from it
to First Aviation without the lender's consent. At this time, the Company
anticipates that all future earnings will be retained for use in the Company's
business. Any payment of cash dividends in the future on the Company's common
stock will be dependent upon the Company's financial condition, its results of
operations, current and anticipated cash requirements, plans for expansion, the
ability of its subsidiaries to pay dividends or otherwise make cash payments or
advances to it (as described above), and restrictions, if any, under any future
debt obligations, as well as any other factors that the Board of Directors deems
relevant.

     In a series of authorizations commencing November 3, 1999, the Company's
Board of Directors authorized a repurchase program of up to 2,118,817 shares of
the Company's common stock. The repurchases were made from time to time in open
market transactions, block purchases, and privately negotiated transactions or
otherwise at prices prevailing at the time of the repurchase.

     During the years ended January 31, 2002 and 2001, respectively, the Company
repurchased 1,100 and 1,023,398 shares of its common stock. No shares of common
stock have since been repurchased by the Company. Common stock reacquired to
date under the Company's share repurchase program totaled 2,024,498 shares at
January 31, 2005, with an aggregate cost of approximately $10.7 million, or
$5.29 per share. Approximately 94,000 shares still may be repurchased under this
program.

     The Company acquired API's domestic distribution business from AMR Combs,
Inc. ("AMR Combs") in 1997. In conjunction with this acquisition, AMR Combs
purchased preferred stock of API, convertible into ten percent of the common
stock of API as of the date of conversion, prior to any dilution (the "Preferred
Stock"). In addition, First Aviation, API and AMR Combs entered into a
Stockholders Agreement. Pursuant to this agreement, API has the right to redeem
the Preferred Stock at any time. AMR Combs has the right to cause the Company to
repurchase the Preferred Stock. The redemption price is equal to the fair market



                                       21
<PAGE>


value of the Preferred Stock as determined by an independent appraisal. The
Stockholders Agreement also contains certain other rights, including: (i) a
right of first refusal on the part of First Aviation with respect to any
proposed sale of the Preferred Stock; (ii) the right of First Aviation to
require AMR Combs to participate, on a pro rata basis, with it in the sale of
the capital stock of API to a third party; (iii) the right of AMR Combs to elect
to participate, on a pro rata basis, in the sale of the capital stock of API to
a third party; and (iv) piggyback and demand registration rights granted to AMR
Combs with respect to the Preferred Stock. The demand registration rights became
exercisable in March 2000. If API has not previously closed an underwritten
public offering of its common stock at the time AMR Combs elects to exercise its
demand registration rights, API may elect to treat the demand as an exercise by
AMR Combs of its put option with respect to the Preferred Stock. There are no
plans to cause API to conduct a public offering of its securities.

     On March 5, 1999, AMR Combs was acquired by Signature Flight Support, an
affiliate of BBA Group Plc.

Inflation

     The Company does not believe that the relatively moderate levels of
inflation that have been experienced in the United States have had a significant
impact on its revenues or operations.

Off-Balance Sheet Arrangements

     The Company has no material off-balance sheet arrangements as defined in
Item 303(a)(4)(ii) of Regulation S-K.


                                       22
<PAGE>


Contractual Obligations

The  following  table sets forth the  Company's  contractual  obligations  as of
January 31, 2005:


<TABLE>
<CAPTION>
                                                                         Payments due by period
                                                                  Less than          1-3         3-5      More than
(Amounts in thousands)                                 Total        1 year          years       years      5 years
                                                    ------------ -------------  ------------ ----------- ------------

<S>                                                 <C>          <C>            <C>          <C>         <C>
Long-Term Debt Obligations (1)                      $    14,500  $          -   $    14,500  $        -  $         -
Capital Lease Obligations                                     -             -             -           -            -
Operating Lease Obligations (2)                           5,178           927         1,698       1,178        1,375
Purchase Obligations (3)                                 15,841        15,841             -           -            -
Other Long-Term Liabilities (4)                           1,041             -             -           -        1,041
Total                                               $    36,560  $     16,768   $    16,198  $    1,178  $     2,416
</TABLE>

Notes to Contractual Obligations Data:

     (1)  Long-term debt consists of API's revolving line of credit
          through a Commercial Revolving Loan and Security Agreement as
          described in Liquidity and Capital Resources, above.

     (2)  Operating leases includes minimum rental payments under noncancellable
          operating leases of one year or longer.

     (3)  Purchase obligations represent cancelable open purchase orders in the
          normal course of business for parts inventory. Although such open
          purchase orders are generally cancelable, the Company intends to
          execute substantially all of them.

     (4)  Other long-term liabilities represent a minority interest in
          subsidiary consisting of preferred stock, at face value, in the
          Company's principal subsidiary, Aerospace Products International,
          Inc., which was purchased by AMR Combs Inc. and is now held by
          Signature Flight Support, an affiliate of BBA Group Plc., the acquirer
          of AMR Combs, Inc. as described in Liquidity and Capital Resources,
          above.


Item 7A.   Quantitative and Qualitative Disclosures about Market Risks
----------------------------------------------------------------------

     The Company's Canadian operations utilize the Canadian dollar as their
functional currency, while the Company's Asian operation utilizes the U.S.
dollar as its functional currency. The Company has transactions denominated in
Canadian dollars and Philippine pesos. The Company is exposed to market risk
from foreign exchange rates. Foreign currency transaction exposure principally
arises from the transfer of foreign currency to and/or from U.S. dollars from
one subsidiary to another within the Company, and from foreign currency
denominated trade receivables. Currency transaction and translation exposures
are not hedged. Foreign currency transaction gains and losses are included in
earnings, and gains or losses will increase in significance with the growth of
the Canadian operations. Unrealized currency translation gains and losses
resulting from the translation of foreign subsidiaries balance sheets to U.S.
dollars are not recorded as income or expense, but are recognized in the Balance
Sheet as other comprehensive income or loss as a component of Stockholder's
Equity. The Company does have risk principally relating to the translation of
accounts in which the Canadian dollar is the functional currency. Sensitivity
analysis of foreign currency exchange rate risk assumes an instantaneous 10%
change in the foreign currency exchange rates from their level at January 31,
2005, with all other variables held constant. A 10% strengthening of the
Canadian dollar versus the U.S. dollar would result in a decrease of
approximately $81,000 in the net liability position of financial instruments at
January 31, 2005. A 10% weakening of the Canadian dollar versus the U.S. dollar
would result in a increase of approximately $87,000 in the net liability
position of financial instruments at January 31, 2005. During the twelve months
ended January 31, 2005 the Company experienced a comprehensive gain of $136,000,
due to an increase in the value of the Canadian dollar relative to the U.S.
dollar. The Company did not experience any significant changes in market risk
during the twelve months ended January 31, 2005. Borrowings of the Company are
denominated in U.S. dollars. Management believes that the carrying amount of the
Company's borrowings approximates fair value because the interest rates are
variable and reset frequently.


                                       23
<PAGE>


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

     See Index to Financial Statements, which appears on page F-1 hereof.


Item 9.  Changes in and Disagreements with Accountants on Accounting and
------------------------------------------------------------------------
Financial Disclosure
--------------------

     No disclosure required.


Item 9A.   Controls and Procedures
----------------------------------

The Company's management evaluated, with the participation of the Company's
principal executive and principal  financial officers,  the effectiveness of the
Company's  disclosure controls and procedures (as defined in Rules 13a-15(e) and
l5d-15(e)  under the Securities  Exchange Act of 1934, as amended (the "Exchange
Act")),  as of  January  31,  2005.  Based on their  evaluation,  the  Company's
principal executive and principal financial officer concluded that the Company's
disclosure controls and procedures were effective as of January 31, 2005.

There has been no change in the Company's internal control over financial
reporting (as defined in Rules 13a-l5(f) and 15d-l5(f) under the Exchange Act)
that occurred during the Company's fourth fiscal quarter of the fiscal year
ended January 31, 2005, that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.


Item 9B.   Other Information
----------------------------

         No disclosure required.



                                       24
<PAGE>


                                    PART III
                                    --------


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

Other than information with respect to First Aviation's executive officers,
which is set forth after Item 4 of Part I of this Form 10-K, the information
required to be disclosed pursuant to this Item 10 is incorporated in its
entirety herein by reference to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days after the end of the Company's last fiscal year.


Item 11.   Executive Compensation
---------------------------------

The information required to be disclosed pursuant to this Item 11 is
incorporated in its entirety herein by reference to the Company's definitive
proxy statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A within 120 days after the end of the Company's last fiscal
year.


Item 12.   Security Ownership of Certain Beneficial Owners and Management, and
------------------------------------------------------------------------------
Related Stockholder Matters
---------------------------

The information required to be disclosed pursuant to this Item 12 is
incorporated in its entirety herein by reference to the Company's definitive
proxy statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A within 120 days after the end of the Company's last fiscal
year.


Item 13.   Certain Relationships and Related Transactions
---------------------------------------------------------

The information required to be disclosed pursuant to this Item 13 is
incorporated in its entirety herein by reference to the Company's definitive
proxy statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A within 120 days after the end of the Company's last fiscal
year.


Item 14.   Principal Accountant Fees & Services
-----------------------------------------------

The information required to be disclosed pursuant to this Item 14 is
incorporated in its entirety herein by reference to the Company's definitive
proxy statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A within 120 days after the end of the Company's last fiscal
year.


                                       25
<PAGE>


                                     PART IV
                                     -------


Item 15. Exhibits and Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------------------

(a) Documents filed as part of this report:

     (1)  Financial Statements: See Index to Consolidated Financial Statements,
          which appears on Page F-1 hereof.
     (2)  Financial Statement Schedule II -- Valuation and Qualifying Accounts,
          which appears on Page F-20 hereof. (All other schedules have been
          omitted because they are not applicable or the required information is
          shown in the Consolidated Financial Statements or the Notes to
          Consolidated Financial Statements.)
     (3)  Exhibits

Exhibit
Number                       Description of Exhibit
------                       ----------------------

3.1       Restated Certificate of Incorporation of the Company (filed as Exhibit
          3.1 to the Company's Registration Statement on Form S-1 (No.
          333-18647), as amended, filed on December 23, 1996, and incorporated
          herein by reference).

3.2       Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to
          the Company's Quarterly Report on Form 10-Q for the quarterly period
          ended October 31, 2001 (No. 0-21995), and incorporated herein by
          reference).

10.1      Form of Director Indemnification Agreement between the Company and
          each of its directors (filed as Exhibit 10.1 to the Company's
          Registration Statement on Form S-1 (No. 333-18647), as amended, filed
          on December 23, 1996, and incorporated herein by reference).

10.2      Asset Purchase Agreement, dated November 25, 1996, by and between AMR
          Combs and API (filed as Exhibit 10.9 to the Company's Amendment No. 1
          to Registration Statement on Form S-1 (No. 333-18647), as amended,
          filed on January 24, 1997, and incorporated herein by reference).

10.3 *    First Aviation  Services  Inc. Stock  Incentive Plan (filed as Exhibit
          10.14 to the Company's  Amendment No. 3 to  Registration  Statement on
          Form S-1 (No. 333-18647),  as amended, filed on February 24, 1997, and
          incorporated herein by reference).

10.4 *    First Aviation  Services  Inc. Employee  Stock Purchase Plan (filed as
          Exhibit  10.15  to  the  Company's  Amendment  No.  3 to  Registration
          Statement on Form S-1 (No. 333-18647),  as amended,  filed on February
          24, 1997, and incorporated herein by reference).

10.5      Amended  and  Restated  Registration  Rights  Agreement,  dated  as of
          February 21, 1996,  by and between the Company and FAS Inc.  (filed as
          Exhibit  10.24  to  the  Company's  Amendment  No.  3 to  Registration
          Statement on Form S-1 (No. 333-18647),  as amended,  filed on February
          24, 1997, and incorporated herein by reference).

10.6      Sublease  Agreement,  dated as of December  31,  1996,  between  First
          Equity  and the  Company  (filed  as  Exhibit  10.30 to the  Company's
          Amendment No. 3 to Registration Statement on Form S-1 (No. 333-18647),
          as amended,  filed on February 24, 1997,  and  incorporated  herein by
          reference).

10.7 *    Amendment  No. 1 to the  First Aviation  Services Inc. Stock Incentive
          Plan (filed as exhibit  10.39 to Company's  Annual Report on Form 10-K
          for the year ended January 31, 1998 (No.  0-21995),  and  incorporated
          herein by reference).

10.8      Commercial  Revolving  Loan and  Security  Agreement,  dated March 30,
          2000,  by and  between  Hudson  United  Bank  and  Aerospace  Products
          International,  Inc.  (filed as Exhibit 10.43 to the Company's  Annual
          Report on Form 10-K for the year ended January 31, 2000 (No. 0-21995),
          and incorporated herein by reference).


                                       26
<PAGE>


10.9      Guaranty,  dated as of March 30, 2000, between First Aviation Services
          Inc. and Hudson  United Bank (filed as Exhibit  10.44 to the Company's
          Annual  Report on Form 10-K for the year ended  January  31, 2000 (No.
          0-21995), and incorporated herein by reference).

10.10     Second Amendment to Commercial Revolving Loan and Security Agreement
          dated as of April 27, 2001 between Hudson United Bank and Aerospace
          Products International, Inc. (filed as Exhibit 10.48 to the Company's
          Quarterly Report on Form 10-Q for the quarterly period ended April 30,
          2001 (No. 0-21995), and incorporated herein by reference).

10.11     Second Reaffirmation of Guaranty dated as of April 27, 2001 by First
          Aviation Services Inc. and in favor of Hudson United Bank (filed as
          Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
          quarterly period ended April 30, 2001 (No. 0-21995), and incorporated
          herein by reference).

10.12     Third Amendment to Commercial Revolving Loan and Security Agreement
          dated as of June 28, 2001 between Hudson United Bank and Aerospace
          Products International, Inc. (filed as Exhibit 10.48 to the Company's
          Quarterly Report on Form 10-Q for the quarterly period ended July 31,
          2001(No. 0-21995), and incorporated herein by reference).

10.13     Third Reaffirmation of Guaranty dated as of June 28, 2001 by First
          Aviation Services Inc. and in favor of Hudson United Bank (filed as
          Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
          quarterly period ended July 31, 2001(No. 0-21995) , and incorporated
          herein by reference).

10.14 *   Amendment  No. 2 to the  First Aviation  Services Inc. Stock Incentive
          Plan (filed as Exhibit 4.5 to the Company's  Form S-8 (No.  333-25915)
          on September 20, 2001, and incorporated herein by reference).

10.15     Letter,  effective  February  1, 2002,  by and  between  First  Equity
          Development  Inc. and its affiliates and First Aviation  Services Inc.
          regarding pursuit of acquisition opportunities (filed as Exhibit 10.23
          to the Company's Annual Report on Form 10-K for the year ended January
          31, 2002 (No. 0-21995), and incorporated herein by reference).

10.16     Engagement  Letter  between  First  Equity  Development  Inc.  and its
          affiliate,  FED  Securities  Inc.,  and First  Aviation  Services Inc.
          effective  February 1, 2002 (filed as Exhibit  10.40 to the  Company's
          Annual  Report on Form 10-K for the year ended  January  31, 2002 (No.
          0-21995), and incorporated herein by reference).

10.17     Fourth Amendment to Commercial Revolving Loan and Security Agreement
          dated as of July 31, 2002 between Hudson United Bank and Aerospace
          Products International, Inc. (filed as Exhibit 10.48 to the Company's
          Quarterly Report on Form 10-Q for the quarterly period ended July 31,
          2002 (No. 0-21995), and incorporated herein by reference).

10.18     Fourth Reaffirmation of Guaranty dated as of July 31, 2002 by First
          Aviation Services Inc. and in favor of Hudson United Bank (filed as
          Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
          quarterly period ended July 31, 2002 (No. 0-21995), and incorporated
          herein by reference).

10.19     Fifth Amendment to Commercial Revolving Loan and Security Agreement
          dated as of July 31, 2003 between Hudson United Bank and Aerospace
          Products International, Inc. (filed as Exhibit 10.19 to the Company's
          Quarterly Report on Form 10-Q for the quarterly period ended July 31,
          2003 (No. 0-21995), and incorporated herein by reference).

10.20     Fifth Reaffirmation of Guaranty dated as of July 31, 2003 by First
          Aviation Services Inc. and in favor of Hudson United Bank (filed as
          Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the
          quarterly period ended July 31, 2003 (No. 0-21995), and incorporated
          herein by reference).

10.21     Amendment No. 3 to the First Aviation  Services Inc.  Stock  Incentive
          Plan (filed as Exhibit 10.21 to the Company's Quarterly Report on Form
          10-Q for the quarterly period ended July 31, 2003 (No.  0-21995),  and
          incorporated herein by reference).


                                       27
<PAGE>


10.22 *   Employment Agreement, dated as of October 7, 2003, between the
          Company and Robert G. Costantini (filed as Exhibit 10.22 to the
          Company's Annual Report on Form 10-K for the year ended January 31,
          2004 (No. 0-21995), and incorporated herein by reference).

10.23 *   Form of Incentive Stock Option Award Agreement Letter Pursuant to
          the 1997 Stock Incentive Plan (filed as Exhibit 10.23 to the Company's
          Annual Report on Form 10-K for the year ended January 31, 2004 (No.
          0-21995), and incorporated herein by reference).

10.24 *   Officer Indemnification Agreement dated as of October 27, 2003
          between the Company and Robert G. Costantini (filed as Exhibit 10.24
          to the Company's Annual Report on Form 10-K for the year ended January
          31, 2004 (No. 0-21995), and incorporated herein by reference).

10.25 *   Employment Agreement, dated as of February 2, 2004, between
          Aerospace Products International, Inc. and Paul J. Fanelli (filed as
          Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
          ended January 31, 2004 (No. 0-21995), and incorporated herein by
          reference).

10.26 *   Amendment to Employment Agreement, dated as of April 5, 2004,
          between Aerospace Products International, Inc. and Paul J. Fanelli
          (filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K
          for the year ended January 31, 2004 (No. 0-21995), and incorporated
          herein by reference).

10.27 *   Relocation Agreement, dated as of February 16, 2004, between
          Aerospace Products International, Inc. and Paul J. Fanelli (filed as
          Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year
          ended January 31, 2004 (No. 0-21995), and incorporated herein by
          reference).

10.28     Sixth Amendment to Commercial Revolving Loan and Security Agreement,
          dated as of July 31, 2004, between Hudson United Bank and Aerospace
          Products International Inc. (filed as Exhibit 10.31 to the Company's
          Quarterly Report on Form 10-Q for the quarterly period ended July 31,
          2004 (No. 0-21995), and incorporated herein by reference).

10.29     Sixth Reaffirmation of Guaranty dated as of July 31, 2004, by First
          Aviation Services Inc. and in favor of Hudson United Bank (filed as
          Exhibit 10.32 to the Company's Quarterly Report on Form 10-Q for the
          quarterly period ended July 31, 2004 (No. 0-21995), and incorporated
          herein by reference).

10.30 *   Amendment dated May 14, 2004 to the Relocation Agreement dated
          February 16, 2004 between Aerospace Products International Inc. and
          Paul J. Fanelli (filed as Exhibit 10.33 to the Company's Quarterly
          Report on Form 10-Q for the quarterly period ended July 31, 2004 (No.
          0-21995), and incorporated herein by reference).


10.31 *   Compensation Arrangements with Certain Executive Officers

10.32 *   Compensation of Non-Employee Directors

10.33     Description of Amendement to Letter Regarding Pursuit of Acquistion
          Opportunities.

21.1      List of Subsidiaries.

23.1      Consent of Ernst & Young LLP.

31.1      Certification of Chief Executive Officer required by Rule 13a-14(a).

31.2      Certification of Chief Financial Officer required by Rule 13a-14(a).

32.1      Certification of  Chief  Executive  Officer required by Rule 13a-14(b)
          and 18 U.S.C. Section 1350 (furnished herewith).

32.2      Certification  of Chief Financial  Officer  required by Rule 13a-14(b)
          and 18 U.S.C. Section 1350 (furnished herewith).


                                       28
<PAGE>


     * Management contracts or compensatory plans or arrangements.






                                       29
<PAGE>


                                   SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.



Date: May 2, 2005

                               FIRST AVIATION SERVICES INC.



                               By:  /s/ Robert G. Costantini
                                    ------------------------
                                    Robert G. Costantini
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


Signature                   Title                                    Date
---------                   -----                                    ----



/s/ Aaron P. Hollander      Chairman of the Board                    May 2, 2005
--------------------------
Aaron P. Hollander



/s/ Michael C. Culver       Chief Executive Officer and              May 2, 2005
--------------------------  Director (Principal Executive Officer)
Michael C. Culver



/s/ Stanley J. Hill         Director                                 May 2, 2005
--------------------------
Stanley J. Hill




/s/ Robert L. Kirk          Director                                 May 2, 2005
--------------------------
Robert L. Kirk



/s/ Joseph J. Lhota         Director                                 May 2, 2005
--------------------------
Joseph J. Lhota


                                       30
<PAGE>


                          First Aviation Services Inc.

                        Consolidated Financial Statements

               For the years ended January 31, 2005, 2004 and 2003




                   Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm.......................F2

Consolidated Financial Statements:

Consolidated Balance Sheets...................................................F3
Consolidated Statements of Operations.........................................F4
Consolidated Statements of Stockholders' Equity...............................F5
Consolidated Statements of Cash Flows.........................................F6
Notes to Consolidated Financial Statements................................F7-F20

Schedule II -- Valuation and Qualifying Accounts.............................F20




                                       F1
<PAGE>


             Report of Independent Registered Public Accounting Firm





The Board of Directors and Stockholders
First Aviation Services Inc.


We have audited the accompanying consolidated balance sheets of First Aviation
Services Inc. as of January 31, 2005 and 2004, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended January 31, 2005. Our audits also included the
financial statement schedule listed in the Index at Item 15(a)2. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Conmpany's internal control over financial reporting. Accordingly we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Aviation
Services Inc. at January 31, 2005 and 2004, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 2005, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

As discussed in Note 9 to the consolidated financial statements, the Company
changed its method of accounting for goodwill effective February 1, 2002.


                                             /s/  Ernst & Young LLP



Stamford, Connecticut
March 31, 2005

                                       F2
<PAGE>


                          First Aviation Services Inc.

                           Consolidated Balance Sheets
                      (in thousands, except share amounts)

                                                               January 31,
Assets                                                       2005       2004
                                                          ---------- ----------
Current assets:
     Cash and cash equivalents                            $  22,584  $  25,144
     Trade receivables, net                                  14,563     13,499
     Inventories, net                                        24,156     22,344
     Prepaid expenses and other                                 900      1,032
                                                          ---------- ----------

Total current assets                                         62,203     62,019

Plant and equipment, net                                      2,996      2,963
                                                          ---------- ----------

Total Assets                                              $  65,199  $  64,982
                                                          ========== ==========

Liabilities and stockholders' equity Current liabilities:
     Accounts payable                                     $  10,495  $   9,561
     Accrued compensation and related expenses                1,205      1,116
     Other accrued liabilities                                2,424      1,260
     Income taxes payable                                       900        939
                                                          ---------- ----------

Total current liabilities                                    15,024     12,876

Long-term debt                                               14,500     14,500
Minority interest in subsidiary                               1,041      1,041
                                                          ---------- ----------

Total liabilities                                            30,565     28,417

Stockholders' equity
     Common stock, $0.01 par value, 25,000,000 shares
      authorized, 9,135,699 shares issued                        91         91
     Additional paid-in capital                              38,318     38,375
     Retained earnings                                        5,325      7,554
     Accumulated other comprehensive income                     374        238
                                                          ---------- ----------

                                                             44,108     46,258
     Less:  Treasury stock, at cost, 1,814,191 and
      1,851,606 shares, respectively                         (9,474)    (9,693)
                                                          ---------- ----------
     Total stockholders' equity                              34,634     36,565
                                                          ---------- ----------

Total liabilities and stockholders' equity                $  65,199  $  64,982
                                                          ========== ==========


See accompanying notes.


                                       F3
<PAGE>

                          First Aviation Services Inc.

                      Consolidated Statements of Operations
               (in thousands, except share and per share amounts)



                                                     Year ended January 31,
                                                --------------------------------
                                                   2005       2004       2003
                                                ---------- ---------- ----------

Net sales                                       $ 124,249  $ 105,777  $ 101,737
Cost of sales                                     103,525     86,241     83,264
                                                ---------- ---------- ----------
Gross profit                                       20,724     19,536     18,473

Selling, general and administrative expenses       19,973     17,032     17,656
Corporate expenses                                  2,893      2,625      2,394
                                                ---------- ---------- ----------
Loss from operations                               (2,142)      (121)    (1,577)
Interest income                                        66        154        273
Interest and other income (expense)                    10         (5)       (67)
Minority interest in subsidiary                       (42)       (42)       (42)
                                                ---------- ---------- ----------
Loss before income taxes                           (2,108)       (14)    (1,413)
(Provision) benefit for income taxes                 (121)        25     (1,786)
                                                ---------- ---------- ----------
Income (loss) from continuing operations before
 cumulative effect of accounting change            (2,229)        11     (3,199)

Cumulative effect of accounting change                  -          -     (2,735)
                                                ---------- ---------- ----------
Net income (loss)                               $  (2,229) $      11  $  (5,934)
                                                ========== ========== ==========

Basic net income (loss) per share, and net
 income (loss) per share -- assuming
 dilution:

Income (loss) from continuing operations before
 cumulative effect of accounting change         $   (0.31) $       -  $   (0.44)
Cumulative effect of accounting change                  -          -      (0.38)
                                                ---------- ---------- ----------
Basic net income (loss) per share, and net
 income (loss) per share -- assuming dilution   $   (0.31) $       -  $   (0.82)
                                                ========== ========== ==========

Weighted average shares outstanding -- basic    7,301,751  7,267,368  7,224,532
                                                ========== ========== ==========

Weighted average shares outstanding -- assuming
 dilution                                       7,301,751  7,281,598  7,224,532
                                                ========== ========== ==========

See accompanying notes.


                                       F4
<PAGE>

<TABLE>
<CAPTION>
                          First Aviation Services Inc.

                 Consolidated Statements of Stockholders' Equity
                      (in thousands, except share amounts)


                                       Common Stock                            Accumulated
                                   -------------------- Additional                Other
                                     Number              Paid-in    Retained  Comprehensive           Treasury
                                    of Shares   Amount   Capital    Earnings  Income (Loss) Sub-Total   Stock    Total
                                   ----------- -------- ---------- ---------- ------------- --------- --------- --------

<S>                                <C>         <C>      <C>        <C>        <C>            <C>      <C>       <C>
Balances at January 31, 2002        7,213,753  $    91  $  38,516  $  20,728  $       (193) $ 59,142  $(10,124) $49,018

Exercise of stock options to
 purchase common shares                10,800        -          -          -             -         -        63       63
Shares issued under qualified
 plans and to directors                26,157        -        (71)         -             -       (71)      172      101
Other comprehensive loss                    -        -          -          -            97        97         -       97
Dividends paid                              -        -          -     (7,251)            -    (7,251)        -   (7,251)
    Net loss                                -        -          -     (5,934)            -    (5,934)        -   (5,934)
                                   ----------- -------- ---------- ---------- ------------- --------- --------- --------

Balances at January 31, 2003        7,250,710       91     38,445      7,543           (96)   45,983    (9,889)  36,094
                                   ----------- -------- ---------- ---------- ------------- --------- --------- --------

Shares issued under qualified
 plans and to directors                33,383        -        (70)         -             -       (70)      196      126
Other comprehensive income                  -        -          -          -           334       334         -      334
    Net Income                              -        -          -         11             -        11         -       11
                                   ----------- -------- ---------- ---------- ------------- --------- --------- --------

Balances at January 31, 2004        7,284,093  $    91  $  38,375  $   7,554  $        238  $ 46,258  $ (9,693) $36,565
                                   ----------- -------- ---------- ---------- ------------- --------- --------- --------

Shares issued under qualified
 plans and to directors                37,415        -        (57)         -             -       (57)      219      162
Other comprehensive income                  -        -          -          -           136       136         -      136
    Net Loss                                -        -          -     (2,229)            -    (2,229)        -   (2,229)
                                   ----------- -------- ---------- ---------- ------------- --------- --------- --------

Balances at January 31, 2005        7,321,508  $    91  $  38,318  $   5,325  $        374  $ 44,108  $ (9,474) $34,634
                                   =========== ======== ========== ========== ============= ========= ========= ========
</TABLE>

See accompanying notes.


                                       F5
<PAGE>

                          First Aviation Services Inc.

                      Consolidated Statements of Cash Flows
                                 (in thousands)

                                                        Year ended January 31,
                                                      --------------------------
                                                         2005     2004     2003
                                                      -------- -------- --------
Cash flows from operating activities
Net income (loss)                                     $(2,229) $    11  $(5,934)

Adjustments to reconcile net income (loss) to net
 cash from operating activities
    Non cash expense (income):
     Depreciation and amortization                      1,011    1,101    1,372
     Deferred income taxes                                  -        -    1,786
     Compensation paid through issuance of stock          162      121      104
     Cumulative effect of accounting change                 -        -    2,735
(Increase) decrease in working capital assets:
          Trade receivables                              (990)     416    2,418
          Inventories                                  (1,717)  (1,561)   2,399
          Prepaid expenses and other assets               150       10      421
Increase (decrease) in working capital liabilities:
          Accounts payable                                930     (775)  (1,140)
          Other accrued liabilities                     1,206      188     (685)
          Income taxes payable                            (32)     (70)     (87)
                                                      -------- -------- --------
Net cash provided by (used in) operating activities    (1,509)    (559)   3,389

Cash flows from investing activities
Purchases of plant and equipment and other assets      (1,039)    (484)    (925)
Proceeds from disposals of plant and equipment and
 other assets                                               3       70        -
                                                      -------- -------- --------
Net cash used in investing activities                  (1,036)    (414)    (925)

Cash flows from financing activities
Borrowings on revolving line of credit                 56,150   58,000   58,000
Repayments on revolving line of credit and capital
 lease obligations                                    (56,150) (58,004) (58,476)
Dividends paid                                              -        -   (7,251)
Repurchases of common stock for treasury and other          -        5       60
                                                      -------- -------- --------
Net cash provided by (used in) financing activities         -        1   (7,667)

Effect of exchange rate changes on cash and cash
 equivalents                                              (15)     103      103

                                                      -------- -------- --------
Net change in cash and cash equivalents               $(2,560) $  (869) $(5,100)
Cash and cash equivalents at the beginning of the
 year                                                  25,144   26,013   31,113
                                                      -------- -------- --------
Cash and cash equivalents at the end of the year      $22,584  $25,144  $26,013
                                                      ======== ======== ========

Supplemental cash flow disclosures
Cash paid for interest:                               $    46  $    61  $    54
                                                      ======== ======== ========
     Income taxes (refunded) paid, net                $   145  $   124  $  (322)
                                                      ======== ======== ========

See accompanying notes.


                                        F6
<PAGE>


                          First Aviation Services Inc.

                   Notes to Consolidated Financial Statements
               (in thousands, except share and per share amounts)

1.   Business and Basis of Presentation

First Aviation Services Inc. ("First Aviation"), through its wholly-owned
subsidiaries, Aircraft Products International, Ltd., API Asia Pacific, Inc., and
its majority-owned subsidiary, Aerospace Products International, Inc. ("API"),
(collectively the "Company"), is one of the premier suppliers of products and
services to the aerospace industry worldwide, including the provisioning of
aircraft parts and components, and supply chain management services. The Company
also performs overhaul and repair services for brakes and starter/generators,
and builds custom hose assemblies. The Company has its headquarters in Westport,
Connecticut.

The accompanying consolidated financial statements include the accounts of First
Aviation and its subsidiaries. Significant intercompany balances and
transactions have been eliminated in consolidation.

First Aviation was formed in March 1995 to acquire the capital stock of National
Airmotive Corporation ("NAC"). On March 5, 1997, the Company completed an
initial public offering of its common stock. A portion of the proceeds was used
to acquire API's business from AMR Combs, Inc. ("AMR Combs").

As described in Note 9, during the year ended January 31, 2003 the Company
changed its accounting for goodwill and, accordingly, reported the net
cumulative effect of the accounting change separately in the consolidated
statements of operations.


2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates, and the differences may be significant.

Net Sales, Cost of Sales, and Trade Receivables

The Company's net sales consist of sales of products and services, including
aircraft parts and components, component overhaul and repair services, and
supply chain management services. Net sales are recorded when parts and
components are shipped and title transfers to the customer, when overhaul and
repair services are completed and the item is shipped back to the customer, or
when supply chain management services have been provided to the customer.
Shipping and handling fees billed to customers are included in net sales. The
terms and nature of supply chain management services provided are stipulated in
a long-term contract between the Company and the customer. The Company provides
its facilities, personnel and systems to provide cost effective services to the
customer. In providing services where the Company distributes inventory on
behalf of its customer, the Company may use its own inventory or hold its
customers' inventory without taking ownership of such inventory. In cases where
the Company does not take ownership of its customers' inventory, net sales
generally are recognized as a fee based on the sales value of the product
shipped through the Company's facilities, and not the sales value of the product
itself. Alternatively, the Company, when providing services to handle customer's
inventory without taking ownership, can take a fee based on the cost of
providing services, and not on the sales value of the product.




                                       F7
<PAGE>


Cost of sales consists of costs of inventory sold, costs to overhaul and repair
parts and components, and direct costs of providing services. Freight costs for
parts and components sold are also included in cost of sales.

Sales to unaffiliated foreign customers were approximately 22%, 22% and 18% of
net sales for the years ended January 31, 2005, 2004 and 2003, respectively. The
majority of these customers were located in Canada, Southeast Asia, Latin
America, and Europe.

The Company provides credit in the form of trade accounts receivable to its
customers. The Company generally does not require collateral to support domestic
customer receivables. Receivables arising from export activities may be
supported by foreign credit insurance. The Company performs ongoing credit
evaluations of its customers and maintains allowances that management believes
are adequate for potential credit losses. During the year ended January 31,
2003, due to continued deteriorating economic conditions, especially in the
aerospace industry, the Company recorded a charge of $804 to increase its
allowance for doubtful accounts. The allowance for doubtful accounts was $806
and $1,418, at January 31, 2005 and 2004, respectively.

Shipping and Handling Revenues and Costs

Fees billed to customers associated with shipping and handling activities are
classified as revenue, and costs associated with shipping and handling, are
classified as part of cost of sales.

Stock Based Compensation and Stock Options Issued to Employees

In lieu of cash, the Company's directors elect to receive their compensation in
the form of the Company's stock. The value of stock issued is equivalent to the
compensation expense, and the number of shares issued is based upon the fair
market value per share at the date issued.

The Company generally grants stock options to its employees for a fixed number
of shares with an exercise price equal to the fair market value of the stock on
the date of grant. As permitted under Statement of Financial Accounting Standard
No. ("FAS") 123, "Accounting for Stock-Based Compensation", the Company has
elected to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for stock
awards to employees. No compensation expense was recognized during the years
ending January 31, 2005, 2004 and 2003 since all grants were issued at the fair
market value of the Company's common stock at the date of grant.

The Company is required to disclose the fair value, as defined, of options
granted to employees and the related compensation expense. The fair value of the
stock options granted was estimated at the date of grant using a Black-Scholes
option-pricing model. The Black-Scholes option-pricing model was developed for
use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected stock
price volatility. In management's opinion, because the Company's employee stock
options are not publicly traded, and have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.



                                       F8
<PAGE>



The fair value of each option issued was estimated at the date of grant using
the following assumptions for the years ended January 31:


                                   2005              2004              2003
                              --------------    --------------    --------------

Expected dividend yield            0.0%              0.0%              0.0%

Risk-free interest rate            3.6%              1.9%              2.5%

Expected volatility               32.3%             37.8%             37.4%

Expected life of option            5.0 years         5.0 years         5.0 years

Weighted-average fair value
   of options granted during
   the year                     $  1.55           $  1.15           $  1.77

Using the above noted assumptions and the weighted-average fair value of each
option granted, the following shows the Company's results if the fair value of
options issued had been recorded as an expense.


                                        2005          2004          2003
                                    ------------  ------------  ------------

Net income (loss) as reported       $    (2,229)  $        11   $    (5,934)

Pro forma net compensation expense
 for issuance of stock options               57            42           295
                                    ------------  ------------  ------------

Pro forma net loss                  $    (2,286)  $       (31)  $    (6,229)
                                    ============  ============  ============

Basic net income (loss) per share,
 and net income (loss) per share
 -- assuming dilution as reported   $    (0.31)   $      0.00   $     (0.82)
                                    ============  ============  ============

Pro forma basic net income (loss)
 per share, and net income (loss)
 per share -- assuming dilution     $    (0.31)   $      0.00   $     (0.86)
                                    ============  ============  ============



Cash and Cash Equivalents

Cash and cash equivalents at any time may consist of a combination of demand
deposits, money market or short-term, high-grade bond funds and short-term
certificates of deposit purchased with original maturities of less than three
months.

Inventories

Inventories generally consist of aircraft parts and components and are stated at
the lower of cost or market, using the first-in, first-out method. Provisions
are made in each period for the estimated effect of obsolete and slow moving
inventories. During the three months ended July 31, 2004, as a result of normal
review procedures, the Company adjusted the methodology for estimating the
Allowance for Slow Moving and Obsolete Inventory that makes the estimate more
objective, and efficient to calculate, by applying percentages based on
historical experiences of inventory in various age classifications, and
eliminating the practice of making adjustments based on historical and projected
sales, or other inventory movements due to new product lines and product returns
and allowances. Actual obsolete and slow moving inventories may differ
significantly from such estimates, and such differences could be material to the
financial statements. The allowance for obsolete and slow moving inventory was
$1,656 and $1,013, at January 31, 2005 and 2004, respectively.




                                       F9
<PAGE>


Fair Value of Financial Instruments

The carrying values of current assets and liabilities approximate fair value due
to the short-term maturities of these assets and liabilities. The carrying
amount of the Company's borrowings under its revolving credit agreements
approximates fair value, as these obligations have interest rates which vary in
conjunction with current market conditions. The carrying amount of the minority
interest in subsidiary represents API preferred stock, at face value, which
management believes adequately provides for its potential future repurchase.

Plant and Equipment

Plant and equipment are stated at cost, less an allowance for depreciation.
Additions and improvements that materially increase the productive capacity or
extend the useful life of an asset are added to the cost of the asset.
Expenditures for normal maintenance and repairs are charged to expense as
incurred.

Depreciation of plant and equipment is computed using the straight-line method
over the estimated useful lives of the assets, which range from 3 to 15 years.
Leasehold improvements generally are amortized over the shorter of the estimated
life of the improvement or the term of the related lease.

Goodwill

In prior years, goodwill consisted of the excess of the purchase price of API
and Superior over the fair value of the net assets acquired. As described in
Note 9, all goodwill was written off during the three months ended April 30,
2002 upon the required adoption of an accounting change. During the quarter
ended April 30, 2002, the Company adopted FAS 142, "Goodwill and Other
Intangible Assets". Pursuant to FAS 142, goodwill is not amortized but is tested
periodically for impairment using discounted cash flows and other fair value
methodologies.

Long-Lived Assets

During the year ended January 31, 2003, the Company adopted FAS 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". Under FAS 144, an
impairment loss must be recognized when the carrying amount of a long-lived
asset exceeds its fair value. In the event that the carrying amounts of
long-lived assets may be impaired, an assessment of recoverability must be
performed. The assessment process consists of comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying amount
to determine if a write-down is required. If this review process indicates that
the asset will not be recoverable, the carrying value of the asset must be
reduced to its estimated realizable value. The adoption of FAS 144 had no effect
on the consolidated financial position of the Company. No asset impairments were
recorded during the years ended January 31, 2005, 2004 and 2003.

Principal Suppliers

API has five suppliers of parts and components from which approximately 40%, 45%
and 49% of its total purchases were made during the years ended January 31,
2005, 2004 and 2003, respectively. Accounts payable to these vendors totaled
$1,803 and $2,152 at January 31, 2005 and 2004, respectively. An inability to
maintain timely access to parts and components from these vendors on
commercially reasonable terms would have a material adverse effect on the
Company's consolidated business, financial condition and results of operations.




                                       F10
<PAGE>
Income Taxes

The Company uses the liability method to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on 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 Company records valuation allowances
against deferred tax assets as it is more likely than not that some portion or
all of the deferred tax asset will not be realized. As described in Note 6,
during the year ended January 31, 2003 the Company recorded a charge of $1,993
to establish a valuation allowance against its deferred tax assets.

Accumulated Other Comprehensive Income (Loss)

The accumulated other comprehensive income (loss) arose from the translation of
accounts into U.S. dollars where the functional currency is the Canadian dollar.
The increase in other comprehensive income during the years ended January 31,
2005 and 2004, respectively, was due to an increase in the value of the Canadian
dollar relative to the U.S. dollar. Comprehensive income (loss) for the years
ended January 31, 2004, 2003 and 2002, respectively, was as follows:

<TABLE>
<CAPTION>

                                                         2005             2004             2003
                                                      ------------     ------------    --------------
<S>                                                   <C>              <C>             <C>
Net income (loss) as reported                         $   (2,229)      $       11      $  (5,934)

Pro forma net impact of foreign currency
  translation adjustments - gain (loss)                      136              334              97
                                                      ------------     ------------    --------------
Comprehensive income (loss)                           $   (2,093)      $      345      $  (5,837)
                                                      ============     ============    ==============
</TABLE>

<TABLE>
<CAPTION>

3.   Plant and Equipment

Plant and equipment consist of the following:
                                                                                              January 31,
                                                                                     2005                 2004
                                                                             ------------------    ---------------
<S>                                                                          <C>                   <C>
Machinery and equipment                                                      $         2,183       $         1,982
Buildings and leasehold improvements                                                   1,239                 1,236
Computer equipment, software, office furniture, fixtures and
     other office equipment                                                            6,628                 6,147
Construction-in-process                                                                  508                   153
                                                                             ------------------    ---------------
                                                                                      10,558                 9,518

Less:  accumulated depreciation                                                       (7,562)               (6,555)
                                                                             ------------------    ---------------
                                                                             $         2,996       $         2,963
                                                                             ==================    ===============
</TABLE>

<TABLE>
<CAPTION>

4.   Long-Term Debt

                                                                                              January 31,
                                                                                     2005                 2004
                                                                             ------------------    ---------------
<S>                                                                          <C>                   <C>
Long-term debt - revolving line of credit                                    $        14,500       $        14,500
                                                                             ===============       ===============

</TABLE>


                                       F11
<PAGE>

API has a $20,000 revolving line of credit through a Commercial Revolving Loan
and Security Agreement (the "Facility"). Borrowings under this Facility bear
interest equal to the LIBOR rate plus 1.5% and are limited to specified
percentages of eligible trade receivables and inventories of API. The Facility
contains a number of covenants, including restrictions on mergers,
consolidations and acquisitions, the incurrence of indebtedness, transactions
with affiliates, the creation of liens, and limitations on capital expenditures.
Pursuant to the terms and conditions of the Facility, the payment of dividends
on API's common stock is prohibited, except with the lender's consent, and API
is required to maintain minimum levels of net worth and specified interest
expense coverage ratios. For the three months ended January 31, 2005, API failed
to maintain the specified interest expense coverage ratio for the quarter. The
Company obtained a waiver from the borrower for the violation of the covenant.
Substantially all of API's domestic assets are pledged as collateral under the
Facility, and First Aviation guarantees all borrowings under the Facility.
Borrowings under the Facility were $14,500 at January 31, 2005, at an interest
rate of approximately 4.1%. Of the $14.5 million, $10.5 million represented a
draw on the Facility just prior to January 31, 2005, and in February and March
2005, the Company repaid all of the borrowings that were outstanding at
year-end. An additional total of approximately $2,000 was available to borrow
under the Facility at January 31, 2005. Effective July 31, 2004, API extended
the maturity date of the Facility to July 1, 2006 from July 1, 2005. The
extension of the agreement was on the same terms and conditions as the prior
Facility. As a result of the extension, borrowings under the Facility continue
to be classified as long-term. Management believes that the carrying amount of
the Company's borrowings approximates fair value because the interest rate is
variable and resets frequently.

5.   Stockholders' Equity

The Company has an Employee Stock Purchase Plan ("ESPP"). Under the ESPP,
250,000 shares of common stock have been reserved for issuance. With certain
limitations, the plan allows for eligible employees to purchase stock through
payroll deductions at 85% of the lower of the fair market value of the Company's
common stock as of the first day of each semi-annual offering period or the fair
market value of the stock at the end of the offering period. The Company issued
2,682 and 1,283 shares from treasury stock to employees under the ESPP during
the years ended January 31, 2005 and 2004, respectively. At January 31, 2005,
185,163 shares were available for purchase under the ESPP.

The Company also has a Stock Incentive Plan (the "Plan"). The Plan provides for
the grant of incentive stock options, nonqualified stock options, stock
appreciation rights, stock grants and stock purchase rights. The Company's
shareholders voted at the 2003 annual meeting to approve the increase in the
number of shares available under the Plan. On September 12, 2003, the Company
filed a registration statement on Form S-8 to register 200,000 additional shares
of common stock, for issuance pursuant to awards under the Plan. Subsequently, a
total of 1,200,000 shares of common stock have been reserved for issuance under
the Plan. Only employee stock options and shares issued to directors have been
issued under the Plan.

All of the stock options vest ratably over two to five-year periods, beginning
one year after the date of the grant, and expire ten years after issuance. Since
the exercise price of all of the options granted during the years ended January
31, 2005, 2004 and 2003 was at or above the fair market value per share of the
Company's common stock at the dates of grant, no compensation expense relating
to stock options was recorded. At January 31, 2005, options for 223,350 shares
(after forfeitures) had been issued under the Plan. The following table is a
summary of activity related to stock options for the respective years ended
January 31,:

                                       F12
<PAGE>


<TABLE>
<CAPTION>
<S>                                   <C>         <C>               <C>          <C>               <C>          <C>
                                              2005                          2004                            2003
                                   ---------------------------    --------------------------    -----------------------------
                                                   Weighted-                     Weighted-                       Weighted-
                                     Number         Average        Number         Average         Number          Average
                                       Of          Exercise          Of           Exercise          Of            Exercise
                                   Options           Price         Options         Price          Options          Price
                                   -----------    ------------    ----------     -----------    ------------    -------------
Outstanding at
    beginning of year                 592,700     $    4.94         598,200      $    5.18         389,000      $    5.36

Granted                               101,100          4.49         115,000           3.21         220,000           4.82

Exercised                                   -           -                 -            -          (10,800)           4.31

Forfeited                            (470,450)         5.09        (120,500)          4.49               -           -
                                   -----------    ------------    ----------     -----------    ------------    -------------
Outstanding at end of year            223,350     $    4.41         592,700      $    4.94         598,200      $    5.18
                                   ===========    ============    ==========     ===========    ============    =============
Exercisable at end of year             90,866     $    4.50         314,368      $    5.59         258,864      $    5.14
                                   ===========    ============    ==========     ===========    ============    =============
</TABLE>


                                       F13
<PAGE>


The following table is a summary of information about stock options outstanding
at January 31, 2005:

<TABLE>
<CAPTION>

                              Options Outstanding                                           Options Exercisable
-----------------------------------------------------------------------------------------------------------------------
                                               Weighted-
    Range of               Number               Average             Weighted-                          Weighted-Actual
    Exercise                 Of                Remaining         Actual Average       Number of            Average
     Prices               Options          Contractual Life      Exercise Price        Options         Exercise Price
------------------    -----------------    ------------------    ----------------    -------------     ----------------
<C>     <C>              <C>                    <C>              <C>                      <C>          <C>
$3.83 - 5.00             223,350                8.0 years        $      4.41              90,886       $       4.50
------------------    -----------------    ------------------    ----------------    -------------     ----------------

</TABLE>

All of the Company's current directors elected to receive their compensation for
the years ended January 31, 2005, 2004 and 2003 paid in the form of shares of
the Company's common stock. The fair market value of the Company's common stock
at the date of issuance was charged to expense with a corresponding decrease to
treasury stock and additional paid-in capital. Such compensation expense totaled
$153, $121 and $104, and the number of shares issued was 34,733, 32,100 and
22,517 for the years ended January 31, 2005, 2004 and 2003, respectively. A
total of 152,137 shares have been issued to directors under the Plan.

At January 31, 2005, 663,713 shares were available to be issued under the Plan.

On January 6, 2003, the Company announced that its Board of Directors, in light
of the Company's cash position, had approved a special cash dividend of $1.00
per share. The dividend was paid on January 30, 2003. The total paid was $7,251.
The Company previously had not declared nor paid any cash dividends or
distributions on its common stock since its inception in 1997.

In a series of authorizations commencing November 3, 1999, the Company's Board
of Directors authorized a repurchase program of up to 2,118,817 shares of the
Company's common stock. The repurchases have been funded from a portion of the
proceeds from the sale of its previously owned subsidiary National Airmotive
Corp., and were made from time to time in open market transactions, block
purchases, privately negotiated transactions or otherwise at prices prevailing
at the time of the repurchase.

During the year ended January 31, 2002, the Company repurchased 1,100 shares of
its common stock. The aggregate share repurchases since the repurchase program
began totaled 2,024,498 shares through January 31, 2002. The aggregate cost of
the common shares repurchased was approximately $10,708, or $5.29 per share at
January 31, 2002. Approximately 94,000 shares still may be repurchased under
this program. In the fiscal year ended January 31, 2005, First Aviation did not
purchase any shares of its common stock.

In conjunction with the API acquisition, AMR Combs purchased 10,407 shares of
API Series A Cumulative Convertible Preferred Stock, $0.001 par value (the
"Preferred Stock"), at a price of $100 per share. Total adjusted proceeds to the
Company were $1,041. This transaction has been accounted for as minority
interest in subsidiary in the accompanying consolidated balance sheets.
Dividends are payable on a quarterly basis on the Preferred Stock at an annual
rate of $4.00 per share; accordingly, dividends of $42 were paid during each of
the years ended January 31, 2005, 2004 and 2003, respectively, and have been
reflected as minority interest in subsidiary in the accompanying consolidated
statements of operations. The Preferred Stock is convertible into ten percent of
the common stock of API as of the date of conversion, prior to any dilution to
the Preferred Stock.

Also in conjunction with the API acquisition, First Aviation, API and AMR Combs
entered into a Stockholders Agreement. Pursuant to this agreement, API has the
right to redeem the Preferred Stock at any time. AMR Combs has the right to
cause the Company to repurchase the Preferred Stock. The redemption price is
equal to the fair market value of the Preferred Stock as determined by an
independent appraisal. The Stockholders Agreement also contains certain other
rights, including: (i) a right of first refusal on the part of First Aviation
with respect to any proposed sale of the Preferred Stock; (ii) the right of
First Aviation to require AMR Combs to participate, on a pro rata basis, with it
in the sale of the capital stock of API to a third party; (iii) the right of AMR
Combs to elect to participate, on a pro rata basis, in the sale of the capital
stock of API to a third party; and (iv) piggyback and demand registration rights
granted to AMR Combs with respect to the Preferred Stock. The demand
registration rights became exercisable in March 2000. If API has not previously
closed an underwritten public offering of its common stock at the time AMR Combs
elects to exercise its demand registration rights, API may elect to treat the
demand as an exercise by AMR Combs of its put option with respect to the
Preferred Stock. There are no plans to cause API to conduct a public offering of
its securities.


                                      F14
<PAGE>

On March 5, 1999, AMR Combs was acquired by Signature Flight Support
Corporation, an affiliate of BBA Group Plc.


6.   Income Taxes

The provision (benefit) for income taxes on continuing operations is as follows:

<TABLE>
<CAPTION>

                                                                 Year ended January 31,
                                                    -------------------------------------------------
                                                        2005              2004             2003
                                                    --------------    --------------   --------------
<S>                                                 <C>               <C>              <C>
  Current:
       Federal & Foreign                            $      121        $       68       $        -
       State                                                 -                 -                -
                                                    --------------    --------------   --------------
                                                           121                68                -

  Deferred:
       Federal                                      $        -        $      (93)      $    1,760
       State                                                 -                 -               26
                                                    --------------    --------------   --------------
                                                             -               (93)           1,786
                                                    --------------    --------------   --------------

  Total provision (benefit)                         $      121        $      (25)      $    1,786
                                                    ==============    ==============   ==============
</TABLE>


A reconciliation between the income tax provision (benefit) computed at the U.S.
federal statutory rate and the effective rate reflected in the consolidated
statements of operations is as follows:

<TABLE>
<CAPTION>

                                                                  Year ended January 31,
                                                     -------------------------------------------------
                                                         2005              2004             2003
                                                     --------------    --------------   --------------
<S>                                                       <C>               <C>              <C>
Provision (benefit) at federal statutory rate             (34.0)%           (34.0)%          (34.0)%
State tax (benefit), net of federal                         -               (29.3)            (1.8)
Foreign tax provision, net of federal                       3.8             314.1              -
Non-deductible items                                        2.5             328.3              3.0
Prior year and other items                                  5.0          (2,743.4)            18.2
Deferred tax valuation allowance                           28.4           1,985.7            141.0
                                                     --------------    --------------   --------------
                                                            5.7%           (178.6)%          126.4%
                                                     ==============    ==============   ==============
</TABLE>

Deferred tax assets result from temporary differences in the recognition of
income and expenses for tax and financial statement purposes. These differences
are set forth below:

<TABLE>
<CAPTION>

                                                                           January 31,
                                                             -----------------------------------
                                                                    2005                 2004
                                                             ---------------      --------------
<S>                                                          <C>                  <C>
Financial statement accruals not currently deductible
  for income tax purposes
      Bad Debt                                               $         290       $          510
      Inventory reserve                                                596                  365
      Tax Deductible goodwill                                          709                  776
      Net operating loss carryforwards                               1,087                  590
      Other                                                  $         187       $           30
                                                             -------------       --------------
                                                                     2,869                2,271
Valuation allowance                                                 (2,869)              (2,271)
                                                             ---------------      --------------
Net deferred income tax assets                               $           -        $           -
                                                             ===============      ==============

</TABLE>


                                      F15
<PAGE>

For the fiscal year ended  January  31,  2005,  the Company  recorded a net
expense  from income taxes of $121.  The expense is foreign  income tax expense,
for operations in Canada and the Philippines. The effective rate of 5.7% for the
year ended January 31, 2005 is the result of the federal tax  benefits,  foreign
taxes,  state tax benefits and changes in the deferred tax valuation  allowance.
The Company also  increased the  valuation  allowance for the year ended January
31,  2005,  by $598,  against  deferred  tax  assets  resulting  from  temporary
differences.  The Company does not record a tax benefit for U.S. tax purposes on
any  operating  losses  incurred  due to the deferred  tax  valuation  allowance
recorded, as it is more likely than not that some portion or all of the deferred
tax asset will not be realized. The Company has net operating loss carryforwards
totaling approximately $2,605 for federal income tax purposes. The carryforwards
expire in 2023 and 2025.

For the fiscal year ended January 31, 2004, the Company recorded a net benefit
from income taxes of $25. The benefit was from a $93 credit from a U.S. federal
refund received that is offset by foreign income tax expense of $68, for
operations in Canada and the Philippines. The accrual for the refund received
was offset in its entirety by the valuation reserve that had been recorded by
the Company during the prior year, but changes to U.S. federal income tax
regulations during the fiscal year ended January 31, 2004 allowed the Company to
carry back the benefit to prior years, and receive a refund. The effective rate
of (178.6%) for the year ended January 31, 2004 is the result of the tax benefit
from the U.S. federal refund received, state tax benefits and changes in the
deferred tax valuation allowance due primarily to depreciation expenses. The
Company also increased the valuation reserve for the year ended January 31,
2004, by $278, against deferred tax assets resulting from temporary differences.

For the fiscal year ended January 31, 2003, the Company incurred a pre-tax loss
for the full fiscal year. The Company had incurred a cumulative loss over the
prior three years. This cumulative loss triggered certain provisions under FAS
109, "Accounting for Income Taxes", that required the Company to re-evaluate its
deferred income tax assets. As a result, the Company took a charge of $1,993 to
establish a valuation allowance against its deferred income tax assets since,
under the provisions of FAS 109, a greater emphasis is placed on three-year
cumulative losses as an indicator of the Company's ability to realize its
deferred income tax assets than the potential for future income. The Company
does not record a tax benefit for US tax purposes on operating losses incurred
due to the deferred tax valuation allowance, as it is more likely than not, some
portion or all of the deferred tax asset will not be realized. The valuation
allowance will be reversed in future years if financial results increase
sufficiently to support the net book value of the assets. The increase in the
deferred tax asset is due principally to the benefit from the Company's
write-off of its goodwill. Based upon a number of factors, including the nature
of the temporary differences and the timing of their reversal, the Company
believed that the utilization of the deferred tax benefit at January 31, 2002
was more likely than not; therefore, a valuation reserve was not provided in
that year.


7.   Employee Benefits Plan

API maintains a defined contribution savings plan, qualified under Section
401(k) of the Internal Revenue Code, that covers substantially all of its
full-time employees. The savings plan allows employees to defer up to 15 percent
of their salary, with the Company partially matching employee contributions.
Employees vest in the Company contribution ratably over three years. The Company
expensed $206, $167 and $195 related to the savings plan in the years ended
January 31, 2005, 2004 and 2003, respectively. Employees do not have an option
to invest in the Company's stock under the savings plan.


8.   Related Parties

The Company and First Equity Development Inc. ("First Equity"), the wholly-owned
subsidiary of First Equity Group, Inc., the majority stockholder of the Company,
have an agreement relating to the allocation of potential investment and
acquisition opportunities in the aerospace parts distribution and logistics
businesses. The agreement was approved by the independent members of the Board
of Directors on a month-to-month basis effective February 1, 2004. First Equity
Group, Inc. is beneficially owned by Mr. Aaron P. Hollander and Mr. Michael C.
Culver, respectively chairman of the board and chief executive officer of the
Company. Pursuant to the agreement, neither First Equity nor any of its


                                      F16
<PAGE>

majority-owned subsidiaries will consummate any acquisition of a majority
interest in any business anywhere in the world (a "Covered Acquisition"),
without first notifying the Company and providing the Company with the
opportunity to choose to effect the Covered Acquisition for its own account. The
Company's decision as to whether to effect the Covered Acquisition will be made
by the independent members of the Board of Directors of the Company. The
agreement can be terminated by either party upon 30 days written notice to the
other party. The agreement does not apply to any proposed acquisition by First
Equity of any business that generates less than 15% of its aggregate net sales
from aerospace parts distribution or logistics, or to any advisory services
performed by First Equity on behalf of third parties.

The Company and First Equity also had an advisory agreement, approved by the
independent members of the Board of Directors on a month-to-month basis
effective February 1, 2004. Pursuant to the terms of this agreement, First
Equity provided the Company with investment and financial advisory services
relating to potential acquisitions and other financial transactions. The
agreement could be terminated by either party upon 30 days' written notice to
the other party. The Company paid First Equity a $30,000 monthly retainer, and
reimbursed First Equity for its out-of-pocket expenses. In addition, upon the
successful completion of certain transactions, the Company would pay a fee to
First Equity (the "Success Fee"). The amount of any Success Fee would be
established by the independent members of the Board of Directors and would be
dependent upon a variety of factors, including, but not limited to, the services
provided and the size and the type of transaction. Up to one year's worth of
retainer fees paid could be applied as a credit against any Success Fee, subject
to certain limitations. During each of the years ended January 31, 2005, 2004,
and 2003 respectively, the Company paid First Equity retainer fees of $360,000,
and no Success Fee. The advisory agreement terminated on January 31, 2005.

The Company and First Equity had entered into an arrangement  whereby First
Equity  provides  the Company  with  various  additional  services to assist the
Company.  These  services  were not part of the  advisory  agreement,  described
above,  but derived from the work First  Equity  performs  under the  agreement.
Therefore, First Equity did not charge the Company additional fees in connection
with the provision of such  services  under the advisory  agreement  because the
services  were derived from the work First  Equity  performs  under the advisory
agreement  consistent  with  their  role  as  financial  advisor.  The  advisory
agreement  expired on January 31, 2005.  These services  included:  (i) detailed
financial  modeling  for  new  business  proposals,   (ii)  Board  of  Directors
presentation  analyses,  (iii) investor  relations  marketing and presentations,
(iv) various analyses for API, including  benchmarking,  financial analysis, and
competitive  market analysis,  and (v) other financial analyses for the Company,
including  stock  buy-back,  valuations,  and capital  structure  analyses.  The
Company's CEO and CFO had unlimited  access to these  resources when  requested.
These services also terminated with the expiration of the advisory  agreement on
January 31, 2005 as described above.

The Company subleases from First Equity approximately 3,000 square feet of
office space in Westport, Connecticut. The leased space is utilized by the
Company as its corporate headquarters. First Equity also utilizes space in the
same premises. The sublease, which became effective April 21, 1997, is for a
period of ten years, and is cancelable by either party with six months notice.
The Company has the option to renew the sublease for two additional five-year
periods. Lease payments under this sublease totaled approximately $84, $80, and
$83, for the years ended January 31, 2005, 2004, and 2003, respectively.

The Company and First Equity share certain common expenses that arise from
sharing office space in Westport, CT. The Company reimburses First Equity and
vice versa, for expenses each entity incurs related to the common usage of the
office space. The amounts are included in the Company's corporate expenses, and
include expenses such as telephone, computer consulting, office cleaning, office
supplies and utilities. The expenses are allocated based on base salaries of the
Company's and First Equity's personnel working in the shared space. Common
expenses are approved by the Company and First Equity, prior to expenditure,
when not of a recurring nature. The allocations are reviewed by the Company's
CFO and the Controller of First Equity each month. In addition, a member of the
Company's audit committee reviews the allocation of expenses, quarterly. Some
business development expenses, such as joint marketing expense and business
organizational dues, are shared on an equal basis. Management believes this
method of allocation is reasonable. In addition, the amounts reimbursed by the
Company are the actual costs incurred for the expense. The Company reimbursed
First Equity, $53, $67, and $96 in 2005, 2004 and 2003, respectively.

In order to simplify the administration of payroll, certain employees of the
Company who are authorized to perform services for both the Company and First
Equity are paid through the payroll of First Equity. Employees of the Company


                                      F17
<PAGE>

who work exclusively for the Company by agreement are paid through the payroll
of API, the Company's principal subsidiary.

The Company paid Imtek, an affiliate of First Equity, approximately $29 for
printing, insertion, and mailing services, for the year ended January 31, 2004,
approximately $37 for the year ended January 31, 2003 for printing, insertion
and mailing services, and reimbursed Imtek for actual expenses incurred. These
services were cancelled during the year ended January 31, 2004.

The Company paid Skip Barber Racing Inc., an affiliate of First Equity, during
the year ended January 31, 2004, $22 to reimburse such affiliate for the use of
the affiliates' in-house counsel, for services performed exclusively for the
Company.

In the years ended January 31, 2005 and 2004, the spouse of a former executive
of the Company's subsidiary API, was paid salary and bonus of approximately $59
and $110, respectively, as an employee of a subsidiary of the Company.


9.   Accounting Change

During the quarter ended April 30, 2002, the Company adopted FAS 142, "Goodwill
and Other Intangible Assets". Pursuant to FAS 142, goodwill is not amortized but
is tested periodically for impairment using discounted cash flows and other fair
value methodologies. Upon adoption of FAS 142, the Company was required to
perform transitional impairment tests relating to its goodwill and other
intangibles existing as of February 1, 2002, the date of adoption. As a result,
upon adoption of FAS 142, the Company took a one-time, non-cash charge of
$2,735, net of applicable income tax benefit of $922, or $0.38 per share, to
write-off the carrying value of its goodwill. No charge was required under
previous generally accepted accounting principles, which were based upon
undiscounted cash flows.

The adoption of FAS 142 represented a change in accounting principle, and the
cumulative effect, net of the applicable income tax benefit, has been shown on a
separate line in the consolidated statements of operations. The effective rate
of the income tax benefit on the charge was approximately 25%. The difference
between the effective income tax rate and the statutory rate was due to
differences in book and income tax bases of the assets.


10.  Interest and Other Income (Expense)

The components relate to interest expense on external debt, realized and
unrealized foreign exchange gain (loss) on Canadian dollar transactions by the
Canadian operations, and other charges.

<TABLE>
<CAPTION>

                                                                             Year ended January 31,
                                                           ------------------------------------------------------------
                                                                 2005                 2004                  2003
                                                           -----------------    ------------------    -----------------
<S>                                                        <C>                  <C>                   <C>
            Interest expense                               $        (64)        $        (67)         $        (64)
            Foreign exchange gain (loss)                             74                   98                    (6)
            Other income (expense)                                    -                  (36)                    3
                                                           -----------------    ------------------    -----------------
                                                           $         10         $         (5)         $        (67)
                                                           =================    ==================    =================

</TABLE>


11.  Net Income (Loss) per Share

The following sets forth the denominator used in the computation of basic
earnings per share and earnings per share - assuming dilution.


                                      F18
<PAGE>

<TABLE>
<CAPTION>

                                                                               Years ended January 31,
                                                                  ---------------------------------------------------
                                                                      2005             2004               2003
                                                                  --------------  ---------------    ----------------
<S>                                                                   <C>             <C>                <C>
   Denominator for basic net income (loss) per share -
     weighted average shares                                          7,301,751       7,267,368          7,224,532

   Effect of dilutive warrants and employee stock options                  N/A           14,230                N/A
                                                                  --------------  ---------------    ----------------

   Denominator for net income (loss) per share - assuming
     dilution - adjusted weighted average shares and
     assumed conversions                                              7,301,751       7,281,598          7,224,532
                                                                  ==============  ===============    ================

</TABLE>

For the years ended January 31, 2005 and 2003, the denominator used in the
calculation of loss per share from continuing operations - assuming dilution,
was the same as the denominator used for basic loss per share because the effect
of warrants and options would have been antidilutive. The number of potential
shares of common stock that were excluded from the computation of diluted
earnings per share because their effect was anti-dilutive for the years ended
January 31, 2005 and 2003, were 7,396 and 15,320 shares, respectively.


12.  Commitments and Contingencies

Commitments

The Company leases certain warehouse facilities, equipment and office space.
Certain of the Company's operating leases have options which allow the Company,
at the end of the initial lease term, to renew the leases for periods ranging
from three to five years. Certain lease agreements also contain escalation
clauses that are based on the consumer price index. Future minimum rental
payments under operating leases that have initial noncancelable lease terms in
excess of one year as of January 31, 2005 are as follows:


  Year ending January 31, 2006                    $   922
  Year ending January 31, 2007                        922
  Year ending January 31, 2008                        776
  Year ending January 31, 2009                        635
  Year ending January 31, 2010                        543
  Thereafter                                        1,375
                                              -------------------
                                                  $ 5,173
                                              ===================


Future minimum rental payments for the years ended January 31, 2006 through
January 31, 2007 are net of sublease income of $5. Rental expense under
noncancelable operating leases amounted to $1,148, $1,031, and $982 for the
years ended January 31, 2005, 2004 and 2003, respectively.

Contingencies

In the ordinary course of business, the Company is subject to many levels of
governmental inquiry and investigation. Among the agencies that oversee the
Company's business activities are the Federal Aviation Administration, the
Department of Transportation and the Environmental Protection Agency. The
Company does not anticipate that any action as a result of such inquiries and
investigations would have a material adverse affect on its consolidated
financial position, results of operations or its ability to conduct business.

In the normal conduct of its business, the Company also is involved in various
claims and lawsuits, none of which, in the opinion of the Company's management,
will have a material adverse impact on the Company's consolidated financial
position. The Company maintains what it believes is adequate liability and other
insurance to protect it from such claims. However, depending on the amount and
timing, unfavorable resolution of any of these matters could have a material
effect on the Company's consolidated financial position, results of operations
or cash flows in a particular period.


                                      F19
<PAGE>


13.  Quarterly Financial Information (unaudited)

<TABLE>
<CAPTION>

                                                            First           Second          Third          Fourth
                                                           Quarter          Quarter        Quarter         Quarter
                                                           -------          -------        -------         -------
Year ended January 31, 2005
<S>                                                       <C>              <C>             <C>            <C>
Net sales                                                 $    30,215      $  31,072       $  32,050      $  30,912

Gross profit                                                    5,612          4,769           5,352          4,991

Net income (loss)                                               (410)          (833)           (130)          (856)

Basic and diluted net income (loss) per share             $    (0.06)      $  (0.11)       $  (0.02)      $  (0.12)



                                                            First           Second          Third          Fourth
                                                           Quarter          Quarter        Quarter         Quarter
                                                           -------          -------        -------         -------
Year ended January 31, 2004

Net sales                                                 $    25,605      $  25,278       $  27,756      $  27,138

Gross profit                                                    4,875          4,807           5,106          4,748

Net income (loss)                                                 120          (220)              17             94

Basic and diluted net income (loss) per share             $      0.02      $  (0.03)       $    0.00      $    0.01


Schedule II - Valuation and Qualifying Accounts

                            First Aviation Services Inc. and Consolidated Subsidiaries
                                              (amounts in thousands)

                                                Balance at
                                               beginning of                                     Balance as of
                                                  period         Additions       Deductions     end of period
                                              ---------------- --------------- --------------- -----------------
Description:

Year ended January 31, 2003
   Allowance for doubtful accounts            $ 707                  1,302            353 (a)    $ 1,656
Year ended January 31, 2004
   Allowance for doubtful accounts            $ 1,656                  106            344 (a)    $ 1,418
Year ended January 31, 2005
   Allowance for doubtful accounts            $ 1,418                  (79)(c)        533 (a)     $ 806



Year ended January 31, 2003
   Slow moving and obsolete inventory         $ 885                    442            330 (b)      $ 997
Year ended January 31, 2004
   Slow moving and obsolete inventory         $ 997                     41             25 (b)    $ 1,013
Year ended January 31, 2005
   Slow moving and obsolete inventory         $ 1,013                  754            111 (b)    $ 1,656

(a) Write off of uncollectible accounts, net of recoveries.

(b) Write off of excess and obsolete inventory.

(c) Net reversal of excess reserve balance for doubtful accounts.

</TABLE>

                                      F20
<PAGE>


                          First Aviation Services Inc.
                                  EXHIBIT INDEX

Exhibit
Number                       Description of Exhibit
------                       ----------------------

3.1       Restated Certificate of Incorporation of the Company (filed as Exhibit
          3.1 to the Company's Registration Statement on Form S-1 (No.
          333-18647), as amended, filed on December 23, 1996, and incorporated
          herein by reference).

3.2       Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to
          the Company's Quarterly Report on Form 10-Q for the quarterly period
          ended October 31, 2001 (No. 0-21995), and incorporated herein by
          reference).

10.1      Form of Director Indemnification Agreement between the Company and
          each of its directors (filed as Exhibit 10.1 to the Company's
          Registration Statement on Form S-1 (No. 333-18647), as amended, filed
          on December 23, 1996, and incorporated herein by reference).

10.2      Asset Purchase Agreement, dated November 25, 1996, by and between AMR
          Combs and API (filed as Exhibit 10.9 to the Company's Amendment No. 1
          to Registration Statement on Form S-1 (No. 333-18647), as amended,
          filed on January 24, 1997, and incorporated herein by reference).

10.3 *    First  Aviation  Services Inc.  Stock Incentive Plan (filed as Exhibit
          10.14 to the Company's  Amendment No. 3 to  Registration  Statement on
          Form S-1 (No. 333-18647),  as amended, filed on February 24, 1997, and
          incorporated herein by reference).

10.4 *    First  Aviation  Services Inc. Employee  Stock Purchase Plan (filed as
          Exhibit  10.15  to  the  Company's  Amendment  No.  3 to  Registration
          Statement on Form S-1 (No. 333-18647),  as amended,  filed on February
          24, 1997, and incorporated herein by reference).

10.5      Amended  and  Restated  Registration  Rights  Agreement,  dated  as of
          February 21, 1996,  by and between the Company and FAS Inc.  (filed as
          Exhibit  10.24  to  the  Company's  Amendment  No.  3 to  Registration
          Statement on Form S-1 (No. 333-18647),  as amended,  filed on February
          24, 1997, and incorporated herein by reference).

10.6      Sublease  Agreement,  dated as of December  31,  1996,  between  First
          Equity  and the  Company  (filed  as  Exhibit  10.30 to the  Company's
          Amendment No. 3 to Registration Statement on Form S-1 (No. 333-18647),
          as amended,  filed on February 24, 1997,  and  incorporated  herein by
          reference).

10.7 *    Amendment  No. 1 to  the First Aviation  Services Inc. Stock Incentive
          Plan (filed as exhibit  10.39 to Company's  Annual Report on Form 10-K
          for the year ended January 31, 1998 (No.  0-21995),  and  incorporated
          herein by reference).

10.8      Commercial  Revolving  Loan and  Security  Agreement,  dated March 30,
          2000,  by and  between  Hudson  United  Bank  and  Aerospace  Products
          International,  Inc.  (filed as Exhibit 10.43 to the Company's  Annual
          Report on Form 10-K for the year ended January 31, 2000 (No. 0-21995),
          and incorporated herein by reference).

10.9      Guaranty,  dated as of March 30, 2000, between First Aviation Services
          Inc. and Hudson  United Bank (filed as Exhibit  10.44 to the Company's
          Annual  Report on Form 10-K for the year ended  January  31, 2000 (No.
          0-21995), and incorporated herein by reference).

10.10     Second Amendment to Commercial Revolving Loan and Security Agreement
          dated as of April 27, 2001 between Hudson United Bank and Aerospace
          Products International, Inc. (filed as Exhibit 10.48 to the Company's
          Quarterly Report on Form 10-Q for the quarterly period ended April 30,
          2001 (No. 0-21995), and incorporated herein by reference).


<PAGE>


10.11     Second Reaffirmation of Guaranty dated as of April 27, 2001 by First
          Aviation Services Inc. and in favor of Hudson United Bank (filed as
          Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
          quarterly period ended April 30, 2001 (No. 0-21995), and incorporated
          herein by reference).

10.12     Third Amendment to Commercial Revolving Loan and Security Agreement
          dated as of June 28, 2001 between Hudson United Bank and Aerospace
          Products International, Inc. (filed as Exhibit 10.48 to the Company's
          Quarterly Report on Form 10-Q for the quarterly period ended July 31,
          2001(No. 0-21995), and incorporated herein by reference).

10.13     Third Reaffirmation of Guaranty dated as of June 28, 2001 by First
          Aviation Services Inc. and in favor of Hudson United Bank (filed as
          Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
          quarterly period ended July 31, 2001(No. 0-21995) , and incorporated
          herein by reference).

10.14 *   Amendment  No. 2 to the  First Aviation  Services Inc. Stock Incentive
          Plan (filed as Exhibit 4.5 to the Company's  Form S-8 (No.  333-25915)
          on September 20, 2001, and incorporated herein by reference).

10.15     Letter,  effective  February  1, 2002,  by and  between  First  Equity
          Development  Inc. and its affiliates and First Aviation  Services Inc.
          regarding pursuit of acquisition opportunities (filed as Exhibit 10.23
          to the Company's Annual Report on Form 10-K for the year ended January
          31, 2002 (No. 0-21995), and incorporated herein by reference).

10.16     Engagement  Letter  between  First  Equity  Development  Inc.  and its
          affiliate,  FED  Securities  Inc.,  and First  Aviation  Services Inc.
          effective  February 1, 2002 (filed as Exhibit  10.40 to the  Company's
          Annual  Report on Form 10-K for the year ended  January  31, 2002 (No.
          0-21995), and incorporated herein by reference).

10.17     Fourth Amendment to Commercial Revolving Loan and Security Agreement
          dated as of July 31, 2002 between Hudson United Bank and Aerospace
          Products International, Inc. (filed as Exhibit 10.48 to the Company's
          Quarterly Report on Form 10-Q for the quarterly period ended July 31,
          2002 (No. 0-21995), and incorporated herein by reference).

10.18     Fourth Reaffirmation of Guaranty dated as of July 31, 2002 by First
          Aviation Services Inc. and in favor of Hudson United Bank (filed as
          Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
          quarterly period ended July 31, 2002 (No. 0-21995), and incorporated
          herein by reference).

10.19     Fifth Amendment to Commercial Revolving Loan and Security Agreement
          dated as of July 31, 2003 between Hudson United Bank and Aerospace
          Products International, Inc. (filed as Exhibit 10.19 to the Company's
          Quarterly Report on Form 10-Q for the quarterly period ended July 31,
          2003 (No. 0-21995), and incorporated herein by reference).

10.20     Fifth Reaffirmation of Guaranty dated as of July 31, 2003 by First
          Aviation Services Inc. and in favor of Hudson United Bank (filed as
          Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the
          quarterly period ended July 31, 2003 (No. 0-21995), and incorporated
          herein by reference).

10.21     Amendment No. 3 to the First Aviation  Services Inc.  Stock  Incentive
          Plan (filed as Exhibit 10.21 to the Company's Quarterly Report on Form
          10-Q for the quarterly period ended July 31, 2003 (No.  0-21995),  and
          incorporated herein by reference).

10.22 *   Employment Agreement, dated as of October 7, 2003, between the
          Company and Robert G. Costantini (filed as Exhibit 10.22 to the
          Company's Annual Report on Form 10-K for the year ended January 31,
          2004 (No. 0-21995), and incorporated herein by reference).

10.23 *   Form of Incentive Stock Option Award Agreement Letter Pursuant to
          the 1997 Stock Incentive Plan (filed as Exhibit 10.23 to the Company's
          Annual Report on Form 10-K for the year ended January 31, 2004 (No.
          0-21995), and incorporated herein by reference).

<PAGE>


10.24 *   Officer Indemnification Agreement dated as of October 27, 2003
          between the Company and Robert G. Costantini (filed as Exhibit 10.24
          to the Company's Annual Report on Form 10-K for the year ended January
          31, 2004 (No. 0-21995), and incorporated herein by reference).

10.25 *   Employment Agreement, dated as of February 2, 2004, between
          Aerospace Products International, Inc. and Paul J. Fanelli (filed as
          Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
          ended January 31, 2004 (No. 0-21995), and incorporated herein by
          reference).

10.26 *   Amendment to Employment Agreement, dated as of April 5, 2004,
          between Aerospace Products International, Inc. and Paul J. Fanelli
          (filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K
          for the year ended January 31, 2004 (No. 0-21995), and incorporated
          herein by reference).

10.27 *   Relocation Agreement, dated as of February 16, 2004, between
          Aerospace Products International, Inc. and Paul J. Fanelli (filed as
          Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year
          ended January 31, 2004 (No. 0-21995), and incorporated herein by
          reference).

10.28     Sixth Amendment to Commercial Revolving Loan and Security Agreement,
          dated as of July 31, 2004, between Hudson United Bank and Aerospace
          Products International Inc. (filed as Exhibit 10.31 to the Company's
          Quarterly Report on Form 10-Q for the quarterly period ended July 31,
          2004 (No. 0-21995), and incorporated herein by reference).

10.29     Sixth Reaffirmation of Guaranty dated as of July 31, 2004, by First
          Aviation Services Inc. and in favor of Hudson United Bank (filed as
          Exhibit 10.32 to the Company's Quarterly Report on Form 10-Q for the
          quarterly period ended July 31, 2004 (No. 0-21995), and incorporated
          herein by reference).

10.30 *   Amendment dated May 14, 2004 to the Relocation Agreement dated
          February 16, 2004 between Aerospace Products International Inc. and
          Paul J. Fanelli (filed as Exhibit 10.33 to the Company's Quarterly
          Report on Form 10-Q for the quarterly period ended July 31, 2004 (No.
          0-21995), and incorporated herein by reference).


10.31 *   Compensation Arrangements with Certain Executive Officers

10.32 *   Compensation of Non-Employee Directors

10.33     Description of Amendment to Letter Regarding Pursuit of Aquisition
          Opportunities

21.1      List of Subsidiaries.

23.1      Consent of Ernst & Young LLP.

31.1      Certification of Chief Executive Officer required by Rule 13a-14(a).

31.2      Certification of Chief Financial Officer required by Rule 13a-14(a).

32.1      Certification  of Chief Executive  Officer  required by Rule 13a-14(b)
          and 18 U.S.C. Section 1350 (furnished herewith).

32.2      Certification  of Chief Financial  Officer  required by Rule 13a-14(b)
          and 18 U.S.C. Section 1350 (furnished herewith).


     * Management contracts or compensatory plans or arrangements.