UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)

    X        ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
---------
ACT OF 1934 (No Fee Required)
For the year ended January 31, 2002

             TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
---------
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from              to
                              --------------  ---------------

Commission File Number 0-2199

                         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)

                   Issuer's telephone number (203) 291-3300
                          (Office of the Secretary)

          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 issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act 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. X
                                                        ---

The aggregate market value of the voting stock held by non-affiliates as of
April 26, 2002 was approximately $15,642,604.

The number of shares outstanding of the registrant's common stock as of April
26, 2002 was 7,217,695 shares.

                     Documents incorporated by reference:
 First Aviation's Proxy Statement for the 2002 Annual Meeting of Stockholders
           is incorporated herein by reference into Part III hereof

<PAGE>

                          First Aviation Services Inc.

                            Annual Report on Form 10K
                       for the Year Ended January 31, 2002

                                     PART I

Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995.

Information included in this Annual Report on Form 10-K may contain
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. In evaluating such statements, as well as the
future prospects of the Company, specific consideration should be given to
various factors, including the Company's ability to obtain parts and
components from its principal suppliers on a timely basis, 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 to
obtain and service supply chain management contracts, the ability to
consummate suitable acquisitions, 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 discussed in this Annual Report on Form 10-K.

Item 1.  Business

General

         First Aviation Services Inc. ("First Aviation"), together with its
wholly owned subsidiaries, Aircraft Products 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 leading suppliers of aircraft parts and components to
the aviation industry worldwide, and is a provider of supply chain management
services, including third party logistics and inventory management services, to
the aerospace industry. The Company distributes the products of over 150 parts
and component manufacturers and suppliers, and provides the aerospace industry
third party logistics and inventory management services. In addition, the
Company performs brake and starter generator overhaul services, and is a Federal
Aviation Administration ("FAA") authorized hose assembly facility.

         The Company's executive offices are located at 15 Riverside Avenue in
Westport, Connecticut 06880. Further information about the Company can be found
on the worldwide web at www.firstaviation.com, or www.apiparts.com. The Company
can be reached via e-mail at first@firstaviation.com. The Chairman of the Board
of Directors is Aaron P. Hollander. The executive officers of the Company are
Michael C. Culver, Gerald E. Schlesinger and Michael D. Davidson.

Industry Overview

         The Company believes that the current annual worldwide market for new
and used parts, components and consumable supplies for aircraft and engines is
approximately $50.0 billion, of which $2.5 billion is supplied to the general
aviation sector in which the Company operates. The general aviation sector of
this market includes passenger and cargo airlines, fleet and corporate aircraft
operators, certified repair facilities, governments and military services, fixed
base operators ("FBOs"), business aviation, helicopter and recreational
operators. The aviation parts, components and consumable supplies market is
highly-fragmented, with a limited number of large, well-capitalized

                                       2

<PAGE>

companies, including original equipment manufacturers and suppliers, selling a
broad range of parts and components, and numerous smaller competitors serving
niche markets.

         Aviation Parts and Components Distribution Sales. The Company
distributes the products of more than 150 manufacturers and suppliers,
constituting approximately 80,000 new and factory reconditioned parts and
components that are sold to professional aircraft maintenance organizations,
aircraft operators, including fleet operators and airlines, and FBOs. The parts
and components distributed by the Company are approved by the FAA and are
acquired from small, specialized manufacturers as well as major original
equipment manufacturers such as Barry Controls, B.F. Goodrich Aerospace,
Champion, General Electric Lighting, Goodyear Tire and Rubber, Marathon Power
Technologies, Michelin Aircraft Tire, Parker Hannifin, Scott Aviation, Superior
Air Parts, Inc. ("Superior"), The New Piper Aircraft, Inc. and Teledyne
Continental Motors. Most of these manufacturers and suppliers are committed to
servicing aftermarket customers solely through wholesale distributors such as
API. Distributors add value to commonly available products by offering immediate
availability, broad product lines, technical assistance and other value added
services, such as logistics and inventory management services. API does not have
any long-term agreements or commitments from the original equipment
manufacturers or other suppliers from whom it purchases parts, and is dependent
upon these manufacturers for access to parts for resale.

         Third Party Logistics and Inventory Management Services. The Company
provides inventory and supply chain management services to the aerospace
industry.  In providing these services the Company uses its internal resources
and warehouse to manage and control its customers' product in a seamless method
to the end customer. As an example, the Company picks, packs, and ships the
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 and computer systems. The Company utilizes
either the customer's or the Company's inventory to fulfill the services
provided. The Company believes that the provision of these services will be one
of its fastest growing lines of revenue in the future.

         Competition. Competition in the parts and components distribution
market is generally based on availability of product, service, price, and
quality, including parts traceability. API's major competitors include Aviall,
Inc., AAR Corporation, Raytheon Aircraft, Cessna Aircraft Company and Satair
A/S. There also is substantial competition, both domestically and overseas, from
companies who focus on regional/niche markets, or on market segments of
secondary interest. Several of the Company's competitors have faced severe
financial difficulties recently.

         The supply chain management and logistics services market is fragmented
and growing as a result of the growing trend to outsource. Competition comes
from numerous companies both within and outside of the aerospace industry. Many
of the competitors are specialized to a particular industry or market group.
Some competitors pay up front fees and acquire their customers' inventory in
exchange for supply chain contracts, a practice that the Company generally does
not follow. The Company views such business as distribution. The Company
believes that it has an advantage in the aerospace industry due to its
experience, knowledge, focus and contacts within the industry. However, other
large providers of supply chain management and logistics services may enter the
aerospace industry.

         Increasing Consolidation. The Company believes that customers are
increasingly seeking the services of larger, more sophisticated, technologically
capable and better-capitalized service providers. In order to reduce the costs
associated with carrying and managing inventory, satisfy increased 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 those service providers that are capable of
providing a range of high quality, efficient and timely 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 will benefit from this consolidation trend. During the
past few years, a number of service providers have consolidated or combined
their operations. In addition, a number have faced severe financial
difficulties. Some original equipment manufacturers are trying to distribute
their products directly to customers, bypassing traditional distribution centers
like the Company. This is a trend that the Company believes will continue, thus
the Company's focus on growing its supply chain management services.

Industry Conditions. The civilian aerospace industry was significantly,
adversely affected by the terrorist acts that occurred on September 11, 2001.
Commercial airline flight activity decreased significantly and general aviation
aircraft were grounded for a period of time after September 11th. Many companies
in the industry, including some of the Company's competitors, suffered severe
financial difficulties as a result. The industry has been slow to recover from
the attacks and the repercussions that followed, and it cannot be determined
when or if the level of activity in the industry will fully recover. The Company
continues to be adversely impacted by this situation, though to a lesser extent
than others in the industry, due to the Company's broad customer base and range
of services provided.

                                       3

<PAGE>

Principal Suppliers

         API purchases the products that it distributes from more than 150
manufacturers and suppliers. API has five suppliers from whom approximately 53%
and 49% of its total purchases were made during the years ended January 31, 2002
and 2001, respectively.

Sales and Marketing

         Parts and Components Distribution. New and serviceable parts, supplies
and components are sold to professional aircraft maintenance organizations,
aircraft operators, including fleet operators and airlines, and FBOs. The
Company uses regional sales managers, inside salespersons, outbound telephone
salespersons, independent contract representatives, and associated distributors
in its sales and marketing efforts.

         Third party logistics and inventory management services. The Company
sells third party logistics and inventory management services to the aerospace
industry. Word-of-mouth and recommendations from current customers play a key
role in identifying opportunities.

Customers

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

Regulation

         Through regulatory bodies such as the FAA, the Joint Airworthiness
Administration and the Department of Defense (the "DOD"), governments around the
world require all aircraft and engines to follow defined maintenance programs to
ensure airworthiness and safety. Such programs are developed by the original
equipment manufacturer in coordination with the regulatory body. The Company has
certifications from the FAA covering its repair and overhaul facilities. 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. In
providing third party logistics and inventory management services it is the
customers' responsibility to obtain the necessary certifications for the
products that the Company manages and distributes.

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 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, 2002, the Company employed 183 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.

                                       4

<PAGE>

Geographic Areas

         Sales to unaffiliated foreign customers were approximately 17%, 13%,
and 9% of net sales for the years ended January 31, 2002, 2001 and 2000,
respectively. The majority of these customers were located in Canada,
Southeast Asia, Latin America and Europe.

Acquisition

         On August 10, 2001, the Company completed the acquisition of the
distribution business of Superior for approximately $4.6 million in cash.
Pursuant to the terms of the acquisition, the Company acquired the distribution
business of Superior, including four distribution centers, approximately $2.9
million of inventory and equipment, and was named a worldwide distributor for
Superior's product line of replacement parts for certain aircraft engines.

         The Company also entered into a service agreement with Superior.
Pursuant to the terms of this agreement, the Company provides Superior with a
variety of third party logistics and inventory management services for a fee
based upon the scope of the services provided. The service agreement has an
initial five-year term, and is renewable thereafter for two additional
three-year terms at the Company's option. Thereafter, the agreement
automatically renews annually unless notice is given by one party to the other
of its intention not to renew.

Discontinued Operations

         In February 2000 the Company established AeroV Inc. ("AeroV"). The
purpose of AeroV was to design a proprietary electronic procurement platform to
enable easy communication between the Internet and airlines' legacy systems, and
to reduce supply chain costs. In December 2000 the Board of Directors of the
Company reassessed its strategic position with respect to AeroV, and approved a
plan to sell or dispose of AeroV. The Company took a charge during the quarter
ended January 31, 2001 to write-off its investment in AeroV, and AeroV's results
of operations, cash flows, and the net loss on disposal of AeroV have been
condensed and are shown separately as a discontinued operation in the
accompanying consolidated financial statements.

         On November 1, 1999, the Company consummated the sale of the stock of
its former wholly owned subsidiary, National Airmotive Corporation ("NAC") to
Rolls-Royce North America, Inc. ("RRNA") for $73.0 million, subject to
adjustment, pursuant to a Stock Purchase Agreement between First Aviation
Services Inc. and Rolls-Royce North America, Inc. dated as of September 9,
1999 (the "Agreement"). During the quarter ending July 31, 2000 the sales price
was adjusted down by $2.050 million, pursuant to the Agreement, to reflect a
decrease in the amount of net assets sold. As a result of the sale, NAC's
results of operations, cash flows, and gain on sale have been condensed and
shown separately as a discontinued operation in the accompanying consolidated
financial statements.

Item 2.  Properties

         The Company operates within the following facilities:
<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            125,000                2013

Calgary, Canada              API Ltd.             Sales                           3,200                2003

Montreal, Canada             API Ltd.             Sales                           7,160                2003

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

                                       5

<PAGE>

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. 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 Company maintains what it believes is adequate liability insurance
to protect it from such 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
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.

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

         None.

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         Market Information. The Company's common stock trades on The NASDAQ
Stock Market under the symbol FAVS. The table below sets forth the quarterly
high and low sales prices for the Company's common stock as reported on the
NASDAQ Composite Tape since February 1, 2000.

<TABLE>
<CAPTION>
                 Year Ended                                                    Year Ended
              January 31, 2002                                              January 31, 2001
----------------------------------------------------          ---------------------------------------------------
<S>                       <C>             <C>                 <C>                    <C>             <C>
                            High             Low                                       High             Low
                            ----             ---                                       ----             ---
First Quarter             $ 4.88          $ 4.00              First Quarter          $ 6.94          $ 4.75
Second Quarter              4.98            4.37              Second Quarter           7.00            4.75
Third Quarter               4.96            4.06              Third Quarter            5.63            3.75
Fourth Quarter              5.20            4.09              Fourth Quarter           5.38            3.75

</TABLE>

         Holders.  As of April 10, 2002, there were 18 holders of record of the
Company's common stock.

         Dividends. The Company has not declared or paid any cash dividends or
distributions on its common stock since its inception. The Company 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. Any
payment of cash dividends in the future on the common stock will be dependent
upon the Company'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,
and restrictions, if any, under any current or future debt obligations, as well
as other factors that the Board of Directors deems relevant. In addition, API's
credit facility prohibits the payment of cash dividends except with the
applicable lender's consent.

                                       6

<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)           2002         2001         2000          1999         1998
                                                      -------------------------------------------------------------------
<S>                                                   <C>           <C>          <C>          <C>
Results of Operations Data (1):

   Net sales                                          $   105,696   $    97,550   $   82,999  $    61,015    $   44,003

   Gross profit                                            21,974        20,868       17,984       13,141         8,233

   Income (loss) from continuing operations                   292          (576)         167       (1,011)          397

   Net income (loss)                                  $     1,252   $    (1,830)  $   15,530  $    (1,714)   $    5,251
                                                      ===================================================================

   Basic income (loss) from continuing
     operations per common share                      $      0.04   $     (0.08)  $     0.02  $     (0.11)   $     0.05

   Basic net income (loss) per common share           $      0.17   $     (0.24)  $     1.74  $     (0.19)   $     0.62

   Weighted average shares outstanding                      7,198         7,721        8,909        8,973         8,432
                                                      ===================================================================

   Income (loss) from continuing operations
     -- assuming dilution per common share            $      0.04   $     (0.08)  $     0.02  $     (0.11)   $     0.04

   Net income (loss) per common share --
     assuming dilution                                $      0.17   $     (0.24)  $     1.72  $     (0.19)   $     0.60

   Weighted average shares outstanding --
     assuming dilution                                      7,209         7,721        9,006        8,973         8,698
                                                      ===================================================================

Balance Sheet Data:
   Working capital                                    $    56,874   $    42,673  $    57,445  $    40,665   $    44,266
   Total assets                                            80,544        80,714       86,392       79,319        68,913

   Current debt and obligations under
       capital leases                                         180        11,757          163       22,908            --
   Long-term debt and obligations under
       capital leases                                      14,800            --        7,900           --        13,866
   Other long-term liabilities                              1,041         1,188        1,156        1,292         1,041

   Total stockholders' equity                         $    49,018   $    47,832  $    54,143  $    44,381   $    45,957
</TABLE>

Notes to Selected Financial Data

    (1)  NAC was sold November 1, 1999 and AeroV was discontinued in December
         2000. As a result of the sale and discontinuance, NAC and AeroV have
         been accounted for as discontinued operations, and their results of
         operations were condensed and reported separately. All amounts
         presented have been restated to reflect NAC and AeroV as discontinued
         operations.

                                       7

<PAGE>

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

Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995.

Information included in this Annual Report on Form 10-K may contain
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. In evaluating such statements, as well as the future prospects of
the Company, specific consideration should be given to various factors,
including the Company's ability to obtain parts and components from its
principal suppliers on a timely basis, 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 to obtain and service supply chain
management contracts, the ability to consummate suitable acquisitions, 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 discussed in this Annual Report on Form
10-K.

         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. (Amounts in millions, except share amounts, and where specifically
noted.)

General

         The Company is one of the leading suppliers of aircraft parts and
components to the aviation industry worldwide, and is a provider of supply chain
management services, including third party logistics and inventory management
services, to the aerospace industry. The Company also performs overhaul and
repair services for brakes and starters/generators, and builds custom hose
assemblies.

         On December 17, 2001, the Company announced that it had settled
litigation previously initiated against Gulf Insurance Company for a cash
payment to the Company of approximately $1.0 million. The income was recorded
during the three months ended January 31, 2002.

         On December 6, 2001, the Company announced that it had been awarded a
contract with Gulfstream Aerospace Corporation ("Gulfstream") to provide
consulting services for Gulfstream's aftermarket customer support functions. The
services under the contract were provided and the associated revenues were
recorded during the quarter ended January 31, 2001. The net sales and gross
profit from the contract were not significant to sales and gross profit recorded
for the three months and year ended January 31, 2002.

         Results for the three and six months ended January 31, 2002 were
adversely impacted by the terrorist acts that occurred on September 11, 2001,
and the repercussions and industry slowdown that followed. For the period prior
to September 11th, the Company continued to report double digit sales growth
over the same period of the prior year. Subsequent to September 11th, and for
the remainder of the year ended January 31, 2002, although sales were down over
a broad range of product lines, the Company reported low sales growth.

         On August 10, 2001, the Company completed the acquisition of the
distribution business of Superior for approximately $4.6 million in cash.
Pursuant to the terms of the acquisition, the Company acquired the distribution
business of Superior, including four distribution centers, approximately $2.9
million of inventory and equipment, and was named a worldwide distributor for
Superior's product line of replacement parts for certain aircraft engines.

         The distribution agreement has an initial five-year term, and is
renewable thereafter for two additional three-year terms at the Company's
option. Thereafter, the agreement automatically renews annually unless notice is
given by one party to the other of its intention not to renew.

                                       8

<PAGE>

         In addition, the Company entered into a service agreement with
Superior. Pursuant to the terms of the service agreement, the Company will
provide Superior with a variety of third party logistics services for a fee
based upon the scope of the services provided. The service agreement has an
initial five-year term, and is renewable thereafter for two additional
three-year terms at the Company's option. Thereafter, the agreement
automatically renews annually unless notice is given by one party to the other
of its intention not to renew.  Results for the three months and year ended
January 31, 2002 include the impact of Superior from the date of its
acquisition.

         In March 2000 the Company established API Asia Pacific, a sales and
distribution center, at the former Clark Airfield in the Philippines. Costs
relating to the start up and subsequent operations of API Asia Pacific have been
included in selling, general and administrative expenses in the accompanying
consolidated statements of operations.

         In February 2000 the Company established AeroV. In December 2000 the
Board of Directors of the Company reassessed its strategic position with respect
to AeroV, and approved a plan to sell or dispose of AeroV. AeroV has been
accounted for as a discontinued operation and its results of operations and cash
flows, and the net loss on disposal of AeroV have been condensed and shown
separately in the accompanying consolidated financial statements. AeroV had no
significant sales during the year ended January 31, 2001.

         Prior to November 1, 1999, the Company owned NAC. NAC's operations
included the repair and overhaul of gas turbine engines and accessories, and the
remanufacturing of engine components and accessories. Pursuant to the Agreement,
RRNA acquired substantially all of the assets and assumed certain liabilities of
NAC, excluding income tax liabilities, debt, amounts due to parent (First
Aviation) and any contingent liabilities resulting from NAC's liquidation of its
former defined benefit plan for $73.0 million. During the year ended January 31,
2001, the sales price was adjusted down by $2.050 million to reflect a decrease
in the amount of net assets sold. The amount of the adjustment had been accrued
previously. As a result of the sale, NAC has been accounted for as a
discontinued operation. All amounts reported herein have been restated to
reflect NAC as a discontinued operation, and NAC's prior year results of its
operations, cash flows and gain on sale have been condensed and reported
separately in the accompanying consolidated financial statements.

         On May 15, 2001, the Company and RRNA reached an agreement releasing
the Company from any claim, course of action, or liability of any nature
whatsoever which has arisen, or thereafter may arise from any covenant,
negligence, representation, warranty, indemnity, transaction, failure, omission
or communication under the Agreement.

Critical Accounting Policies

         The Securities and Exchange Commission recently issued Financial
Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies" ("FRR 60"), suggesting companies provide additional
disclosure and commentary on those accounting policies considered most critical.
FRR 60 considers an accounting policy 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 US
requires the use of estimates and assumptions to determine certain assets,
liabilities, revenues and expenses. These estimates and assumptions are based
upon the best information available at the time the estimates or assumptions are
made. The estimates and assumptions could change significantly as the conditions
within and beyond management's control change. Therefore, actual results could
differ materially from the estimates. The most significant estimates made in
preparing the financial statements include the allowance for doubtful accounts
receivable, reserves for excess and obsolete inventories, deferred tax asset
valuations, the valuation of goodwill and other intangibles, and estimates made
relating to discontinued operations. The following is a discussion of the
critical accounting policies and the related 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 parts and components, the
provision of component overhaul and repair services, and the provision of supply
chain management services. Sales are recorded net of discounts, allowances and
commissions, and are recorded generally when the parts, components, and
overhauled and repaired items are shipped and title transfers to the customer,
or when supply chain management services have been provided. Shipping and
handling costs billed to customers are included in net sales.

                                       9

<PAGE>

Allowance for Doubtful Accounts

         The allowance for doubtful accounts receivable is established based on
estimates of the amount of uncollectible accounts receivable, utilizing
financial formulas based principally upon historical experience and the age of
the account. Collection of trade receivables may be 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 impact upon the estimated allowance.

Inventories

         Inventories generally consist of general aircraft parts and components
and are valued at the lower of cost or market, with cost determined using the
first-in, first-out method. Provisions are made in each period for the estimated
effect of excess and obsolete inventories based upon financial formulas that
take into account quantities and costs of inventory on hand, and historical and
projected sales and inventory movements, adjusted for known or estimated factors
such as new product lines, product return allowances and other resale outlets.
Actual excess and obsolete inventories may differ significantly from such
estimates, and such differences could have a significant negative impact on the
financial statements.

Goodwill and Other Intangibles

         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 and other
intangibles were recognized upon First Aviation's acquisition of API's business
in 1997 and upon the acquisition of Superior in 2001. There is a significant
amount of judgment used to estimate the fair value of assets acquired and
allocate the purchase price to the underlying assets and liabilities, including
the recognition of liabilities incurred directly as a result of the acquisition
as well as the amortization period, if any, used to determine amortization
expense. Most of the assumptions and estimates utilized in this process are
based upon known factors and exposures, historical information and management's
experience. The value of goodwill and intangibles is subject to future potential
adverse changes as a result of changes in the Company's financial condition and
results, industry and/or overall economic conditions, and other factors outside
of the Company's control.

         During the first quarter ended April 30, 2002, the Company will adopt
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets". This pronouncement includes new rules for measuring the
impairment of goodwill and intangible assets, and may have a significant impact
on the Company, as described under the heading "New Accounting Pronouncement".

Deferred 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 these
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.

Discontinued Operations

         Upon the sale or disposition of a subsidiary, management estimates what
it believes to be costs to be incurred upon and after the sale or disposal of
the subsidiary, including income taxes, that relate directly to the sale or
disposal transaction, or the operations of the former entity. Such estimates are
subject to change, and the changes may be significant.

                                      10

<PAGE>

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.

                                                      Year Ended January 31,
                                               ---------------------------------
                                                   2002        2001        2000
                                               ---------------------------------
Net sales                                        100.0%       100.0%      100.0%
Cost of sales                                     79.2         78.6        78.3
                                               -----------  ---------  ---------
Gross profit                                      20.8         21.4        21.7
Selling, general and administrative expenses      18.8         20.2        19.3
Corporate expenses                                 2.5          3.6         2.0
Litigation (income) expense                       (0.7)         -           -
Non-recurring charge                               -            -           0.5
                                               -----------  ---------  ---------
Income (loss) from operations                      0.2         (2.4)       (0.1)
Interest income                                    0.6          2.0         0.9
Interest expense and other                        (0.3)        (0.6)       (0.8)
                                               -----------  ---------  ---------
Income (loss) before (provision)
  benefit income taxes                             0.5         (1.0)        -
(Provision) benefit for income taxes              (0.2)         0.4         0.2
                                               -----------  ---------  ---------
Income (loss) from continuing operations           0.3         (0.6)        0.2
Income (loss) from discontinued operations, net    -           (1.9)        6.2
Gain from disposition of subsidiaries, net         0.9          0.6        12.3
                                               -----------  ---------  ---------
   Net income (loss)                               1.2%        (1.9)%      18.7%
                                               ===========  =========  =========

Year ended January 31, 2002 compared to year ended January 31, 2001

Net sales

         Net sales for the year ended January 31, 2002 increased $8.1 million,
or 8.4%, to $105.7 million from $97.6 million for the year ended January 31,
2001. Net sales increased principally as a result of a combination of factors,
including growth in international operations, especially Southeast Asia and
Europe, increased domestic market share, especially in the commercial airline
sector, the impact of the acquisition of Superior's distribution business and
growth in the Company's logistics services business. Price reductions by
competitors seeking to regain market share have and are expected to continue to
adversely affect the rate of growth and profit margins in the near term, as will
adverse industry conditions. The Company expects to continue to expand into new
markets, add additional product lines, and invest in new product offerings. The
Company also continues to seek new customers and opportunities in its logistics
and inventory management business.

Cost of sales

         Costs of sales for the year ended January 31, 2002 increased $7.0
million, or 9.2%, to $83.7 million from $76.7 million for the year ended January
31, 2001. The increase in cost of sales was due to the increase in net sales and
the reasons described below under the heading "Gross profit".

Gross profit

         Gross profit for the year ended January 31, 2002 increased $1.1
million, or 5.3%, to $22.0 million from $20.9 million for the year ended January
31, 2001. Gross margin decreased to 20.8% from 21.4%. The decline in gross
margin also was due to a combination of factors, including competitive
pressures, changes in product mix to

                                       11

<PAGE>

lower margin sales in the airline and Superior product lines, and an increase of
$0.5 million in inventory reserves. The increase in inventory reserves was a
result of the Company's normal review procedures.

Selling, general and administrative expenses

         Selling, general and administrative expenses for the year ended January
31, 2002 increased $0.2 million, or 0.6%, to $19.9 million from $19.7 million
for the year ended January 31, 2001. The slight increase, below the level of
growth of sales and gross profit, is attributable to the Company's overall focus
on profitability and controlling costs, and a reduction in personnel costs due
to the industry slowdown following the terrorists attacks last September.
Included in selling, general and administrative expenses for the year ended
January 31, 2002 was a $0.1 million one-time charge relating to a change in
the Company's estimate of recording bad debts to a more conservative
methodology.

Corporate expenses

         Corporate expenses for the year ended January 31, 2002 decreased $0.3
million to $2.6 million from $2.9 million for the year ended January 31, 2001.
The reduction was due principally to reduced other legal costs.

Litigation (income) expense

         During the three months and year ended January 31, 2002 the Company
settled its litigation against Gulf Insurance Company for a cash payment to the
Company of approximately $1.0 million. The litigation had been ongoing for
several years. The settlement, net of associated legal costs, has been
reclassified out of corporate expenses and shown separately. Prior year legal
costs, if significant, were reclassified out of corporate expenses and shown
separately as well.

Interest income and interest expense and other

         Interest income of $0.6 million earned during the year ended January
31, 2002 was derived from investing the Company's cash in short term
investments. The decrease from the $2.0 million earned during the year ended
January 31, 2001 was due principally to the marked decrease in interest rates
from fiscal year 2001 to fiscal year 2002. Interest expense and other of $0.3
million for the year ended January 31, 2002 decreased from $0.5 million for the
year ended January 31, 2001 for the same reason.

(Provision) benefit for income taxes

         The Company recorded a provision for income taxes on income from
continuing operations for the year ended January 31, 2002 of $0.2 million, for
an effective rate of 39.9%. For the year ended January 31, 2001, the Company
recorded a benefit on its loss from continuing operations of $0.3 million, for
an effective rate of 37.7%. The change in the effective rate for the year
January 31, 2002 over the prior year was due to changes in estimates and the
magnitude of permanent differences between book and taxable income or loss.

Income (loss) from continuing operations

         For the year ended January 31, 2002 the Company earned $0.3 million
from continuing operations, compared to a loss of $0.6 million for the year
ended January 31, 2001. The increase in income was due to growth in net sales
and gross profit, lower selling, general and administrative expenses as a
percentage of net sales, lower corporate expenses, due principally to decreased
other legal costs, and the legal settlement with Gulf Insurance Company, offset
by an increase in inventory reserves, an increase in the provision for bad
debts, and a decrease in net interest income for the year ended January 31,
2002.

Gain from disposition of subsidiaries, net

         During the year ended January 31, 2002, the Company reversed reserves
related to the sale of NAC and the disposal of AeroV that no longer were
required.  As a result, the Company recorded income of $1.0 million during the
year ended January 31, 2002, after associated income taxes of $0.6 million. The
income related principally to NAC. During the year ended January 31, 2001 the
Company finalized its income tax liabilities related to the sale of NAC. The
difference

                                       12

<PAGE>

between the estimated income tax liabilities and the actual liabilities
incurred, a $1.0 million credit, was recorded in the year ended January 31,
2001. Offsetting this gain was the net loss on the disposal of AeroV of $0.4
million.

Net income (loss)

         The Company had net income of $1.3 million for the year ended January
31, 2002, as compared to a net loss of $1.8 million for the year ended January
31, 2001. The increase in net income was due to the reasons described above.

Net income (loss) per common share

         No significant shares were repurchased during the year ended January
31, 2002. During the year ended January 31, 2001 the Company repurchased
1,023,398 shares of its common stock. The effect of these repurchases was to
decrease the weighted average shares outstanding and increase the net loss per
share by approximately $0.02 per share for the year ended January 31, 2001.

Year ended January 31, 2001 compared to year ended January 31, 2000

Net sales

         Net sales for the year ended January 31, 2001 increased $14.6 million,
or 17.5%, to $97.6 million from $83.0 million for the year ended January 31,
2000. Net sales increased as a result of international expansion, increased
domestic market share, and growth in the Company's repair and overhaul
activities and logistics services business. Price reductions by competitors
seeking to regain market share have and are expected to continue to affect the
rate of growth and profit margins in the near term, as will adverse economic
conditions. The Company expects to continue to expand into new markets, add
additional product lines, and invest in new product offerings, including the
logistics and inventory management businesses.

Cost of sales

         Costs of sales for the year ended January 31, 2001 increased $11.7
million, or 17.9%, to $76.7 million from $65.0 million for the year ended
January 31, 2000. The increase in cost of sales was due to the increase in net
sales.

Gross profit

         Gross profit for the year ended January 31, 2001 increased $2.9
million, or 16.0%, to $20.9 million from $18.0 million for the year ended
January 31, 2000. Gross margin decreased to 21.4% from 21.7%. During the fourth
quarter of the year ended January 31, 2000, the Company earned $1.0 million from
consulting services provided to one customer. Without this transaction the gross
margin for the year ended January 31, 2000 would have been 20.7%, and the gross
margin would have increased during the year ended January 31, 2001 by 0.7%. The
increase in gross margin is due to changes in product mix.

Selling, general and administrative expenses

         Selling, general and administrative expenses for the year ended January
31, 2001 increased $3.7 million, or 23.2%, to $19.7 million from $16.0 million
for the year ended January 31, 2000. The increase is attributable to the growth
in net sales and gross profit, and the Company's international expansion.

Corporate expenses

         Corporate expenses for the year ended January 31, 2001 increased $1.7
million to $3.4 million from $1.7 million for the year ended January 31, 2000.
During the year ended January 31, 2001 the Company incurred legal costs of
approximately $0.7 million relating to litigation previously initiated by the
Company for a copyright infringement suit against Oracle Corporation and Avanti
Systems, Inc., and a claim against Gulf Insurance Corporation ("Gulf"), the
Company's former provider of Directors and Officers insurance. The litigation
with Gulf

                                       13

<PAGE>

seeks reimbursement for costs incurred in the Company's successful defense
against claims made by John F. Risko, a former officer and director. During the
year ended January 31, 2000 retainer fees and other costs totaling
approximately $0.6 million were reclassified from Corporate expenses against
the gain on sale of NAC. Without these items, Corporate expenses would have
increased approximately 17.4%, which is consistent with the rate of net sales
growth of the Company.

Litigation (income) expense

         Litigation expense for the year ended January 31, 2001, consisted of
legal costs relating to the Company's litigation against Gulf Insurance Company.
Previously, these legal expenses had been included in corporate expenses. No
significant expenses were incurred during the year ended January 31, 2000 for
this matter.

Non-recurring charge

         During the year ended January 31, 2000, the Company recorded a
non-recurring charge of $0.4 million for the cost of litigation related to the
opening of a new sales facility in Montreal, Canada. No non-recurring charges
were recorded in the year ended January 31, 2001.

Interest income and interest expense and other

         Interest income of $1.9 million earned during the year ended January
31, 2001 was derived from investing the Company's cash in short term
investments. The increase of $1.2 million over the amount earned during the year
ended January 31, 2000 was due to higher daily average cash balances available
during the year ended January 31, 2001. Interest expense for the year ended
January 31, 2001 decreased to $0.5 million from $0.6 million for the year ended
January 31, 2000 as a result of cash management strategies.

Benefit for income taxes

         The Company recorded an income tax benefit of $0.3 million for the year
ended January 31, 2001, with an effective rate of 37.7%. The Company recorded an
income tax benefit of $0.2 million for the year ended January 31, 2000. The
benefit recorded for the year ended January 31, 2000 principally was the result
of a reduction of valuation reserves that positively impacted the effective
income tax rate.

Income (loss) from continuing operations

         For the year ended January 31, 2001, the Company had a loss of $0.6
million from continuing operations compared to net income of $0.2 million for
the year ended January 31, 2000. The decrease was due principally to increased
costs to support international expansion and domestic growth, an increase in
legal and retainer fees and a decrease in the amount of tax benefits realized,
offset by an increase in net interest income for the year ended January 31,
2001.

Income (loss) from discontinued operations, net

         For the year ended January 31, 2001, the Company experienced a net loss
from the discontinued operations of $1.8 million. This was due to the operations
of AeroV. For the year ended January 31, 2000, the Company had net income from
discontinued operations of $5.2 million. The income was due to the operations of
NAC prior to its sale on November 1, 1999.

Gain from disposition of subsidiaries, net

         During the year ended January 31, 2001 the Company finalized its income
tax liabilities related to the sale of NAC, which was consummated on November 1,
1999, and recorded during the year ended January 31, 2000, as described above.
The difference between the estimated income tax liabilities and the actual
liabilities incurred, a $1.0 million credit, was recorded in the year ended
January 31, 2001. Offsetting this gain was the net loss on the disposal of AeroV
of $0.4 million. During the year ended January 31, 2000 the Company recorded a
net gain of $10.2 million as a result of the sale of NAC.

                                       14

<PAGE>

Net income (loss)

         The Company had a net loss of $1.8 million for the year ended January
31, 2001, as compared to net income of $15.5 million for the year ended January
31, 2000. The decrease in net income was due to the reasons described above.

Net income (loss) per common share

         During the year ended January 31, 2001, the Company repurchased
1,023,398 shares of its common stock. The effect of these repurchases was to
decrease the weighted average shares outstanding and increase the net loss per
share by approximately $0.02 per share. During the year ended January 31, 2000,
the Company repurchased 1,000,000 shares of its common stock. Because these
repurchases were made during the last quarter of the fiscal year the impact on
the weighted average shares outstanding was minimal, and the effect on the net
income per share was approximately $0.02 per share.

Liquidity and Capital Resources

         The Company's liquidity requirements arise principally from its working
capital needs, which have increased due to growth and expansion. In addition,
the Company has liquidity requirements to fund capital expenditures to support
its growth and expansion, and maintain its current operations. The Company funds
its liquidity requirements with a combination of cash on hand, cash flows from
operations and from borrowings. The Company has been using cash management
techniques to minimize its interest expense on borrowings.

         The Company invests its cash and cash equivalents principally in
certificates of deposit and commercial paper with maturities when purchased of
three months or less.

         The Company's cash provided by (used in) operations for the years ended
January 31, 2002, 2001 and 2000 was $1.9 million, $(14.1) million, and $2.9
million, respectively. Cash flow from operations for the year ended January 31,
2002 was positively impacted by net income, including the legal settlement, the
reduction in trade receivables and inventory (excluding inventory acquired in
investing activities), and the receipt of a federal income tax refund, partially
offset by a reduction in accounts payable. Cash used in operating activities for
the year ended January 31, 2001 included approximately $8.7 million of payments,
including net income tax payments, relating to the sale of NAC. Cash provided by
(used in) investing activities during these same periods was $(5.7) million,
$(3.0) million, and $67.9 million, respectively. Cash used in investing
activities for the year ended January 31, 2002 includes $5.0 million related to
the acquisition of Superior, while cash provided by investing activities for the
year ended January 31, 2000 included $73.0 million of proceeds from the sale of
NAC. Cash provided by (used in) financing activities for the years ended January
31, 2002, 2001 and 2000 was $3.1 million, $(1.1) million, and $(20.8) million,
respectively. Cash used in financing activities for the year ended January 31,
2000 includes $13.9 million to repay NAC's outstanding debt and $5.9 million for
repurchases of common stock for treasury under the Company's repurchase program.

         First Aviation's aggregate cash used for capital expenditures,
excluding the acquisition of Superior, for the years ended January 31, 2002,
2001 and 2000 were $0.7 million, $3.0 million, and $5.1 million, respectively.
The decrease over the three years is due to less capital requirements as a
result of heavy spending in prior years to upgrade the Company's systems and
equipment to handle the Company's growth and expansion. For fiscal year 2003 the
amount required for capital expenditures currently is expected to remain
relatively level with that required in fiscal year 2002. Management expects to
fund these requirements from cash on hand, cash flows from operations and from
borrowings.

         In June 2001, API entered into an extension of its $20 million
commercial revolving loan and security agreement. Borrowings under this credit
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
credit agreement 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. The credit agreement also requires API to maintain minimum levels
of net worth and specified interest expense coverage ratios, and restricts the
payment of dividends on API's common stock. Substantially all of API's domestic
assets are pledged as collateral under this credit

                                       15

<PAGE>

facility, and First Aviation guarantees all borrowings under the facility. The
Agreement expires July 1, 2003. Borrowings under the facility totaled $14.8
million at January 31, 2002 at an interest rate of 3.36%. Approximately $3.5
million was available under the facility at January 31, 2002. This agreement
replaces a prior agreement that contained substantially the same terms and
conditions.

         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 funded from a portion
of the proceeds from the sale of NAC, and 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. Common
shares reacquired to date under the Company's previously announced share
repurchase program totaled 2,024,498 shares at January 31, 2002, with an
aggregate cost of approximately $10,708, or $5.29 per share. Approximately
94,000 shares still may be repurchased under this program.

         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. Subject to certain terms
and conditions, and commencing three years after the closing of the API
acquisition, AMR Combs has the right to cause the Company to repurchase the
Preferred Stock. The Company has the ability to delay this right, under certain
conditions, for an additional two years. 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.

         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, including scheduled
interest payments, working capital needs, capital expenditures and preferred
dividend requirements through the year ending January 31, 2003. The Company
is in compliance with all of its debt covenants.

New Accounting Pronouncement

         In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
("FAS 141"), effective for all business combinations initiated after June 30,
2001, and No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"), effective
for fiscal years beginning after December 15, 2001. There was no financial
impact to the Company upon compliance with the requirements of FAS 141 as of
July 1, 2001.

         The Company will adopt FAS 142 as of February 1, 2002, the beginning of
its new fiscal year. Under the new rules, goodwill and certain intangible assets
no longer will be amortized but will be subject to annual impairment tests in
accordance with the pronouncement. Other intangible assets will continue to be
amortized over their useful lives. Application of the non-amortization
provisions of FAS 142 will not have a significant impact on the Company's
results of operations. Upon adoption of FAS 142 the Company is required to
perform impairment tests relating to its goodwill and other intangibles existing
at the date of adoption. The Company has not yet determined what the effect of
these tests will be on the earnings and financial position of the Company.
However, the impairment tests under FAS 142 are much different and more rigorous
than those previously required under generally accepted accounting principles,
especially when the book value of a company is in excess of its market value,
which is the case for the Company. The Company believes that there is no
impairment of value, and that the principle reason for the lower market value of
the Company is due to the illiquidity of the Company's stock, which depresses
the value of each share. Under the more stringent requirements of FAS 142,
however, the Company may be required to take a non-cash charge to write-off or
write down its goodwill and other intangibles. This charge would occur in the
first quarter

                                       16

<PAGE>

ending April 30, 2002. Total goodwill and other intangibles at January 31, 2002
was $3,885. The amount of the non-cash charge could be as much as the total
amount of the net asset, or approximately $0.32 per share after applicable
income taxes. Any such charge would be accounted for as a cumulative effect of a
change in accounting principle during the quarter ended April 30, 2002, and
would not affect continuing operations or operating income.

Inflation

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

Item 7A.   Quantitative and Qualitative Disclosures about Market Risks

         The Company's Canadian operations utilize the Canadian dollar as the
functional currency. The Company's Asian operation utilizes the U.S. dollar as
its functional currency. Foreign currency transaction gains and losses are
included in earnings. Foreign currency transaction exposure arises primarily
from the transfer of foreign currency from one subsidiary to another within the
FAvS group, and to foreign currency denominated trade receivables. The Company
has transactions denominated in Canadian dollars and Philippine pesos. Currency
transaction and translation exposures are not hedged, and transaction gains and
losses have not been significant. Unrealized currency translation gains and
losses are recognized upon translation of the foreign subsidiaries' balance
sheets to U.S. dollars.

         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.

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

         None.

                                    PART III
                                    --------

Item 10.  Directors and Executive Officers of the Registrant

         Information regarding the directors of First Aviation is set forth
under the caption "Directors" in the Company's Proxy Statement for its 2002
Annual Meeting of Stockholders, which is incorporated herein by reference.
Information regarding compliance with Section 16 (a) of the Exchange Act is set
forth under the caption "Section 16 (a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement for its 2002 Annual Meeting of
Stockholders.

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

         Michael C. Culver,  51, has served as President and Chief Executive
Officer of the Company since March 1995. Mr. Culver also serves as Chairman of
API. In June 1995 Mr. Culver became a director of NAC. In August 1996 he became
NAC's Chairman and in June 1997 he became its Chief Executive Officer. Mr.
Culver's relationship

                                       17

<PAGE>

with NAC terminated with the Company's sale of NAC on November 1, 1999. 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., a printing company. Mr. Culver serves on the Boards
of Skip Barber Racing School, LLC and Imtek.

         Gerald E. Schlesinger, 57, became Senior Vice President upon his
employment by the Company in June 1997. From November 1993 to June 1997, Mr.
Schlesinger was affiliated with the SK Group and served as its Managing
Principal. The SK Group provides consulting and management advisory services to
its clients. Prior to November 1993, Mr. Schlesinger served as Executive
Vice-President, CFO and CIO for Butler Aviation.

         Michael D. Davidson, 42, became the Chief Financial Officer in April
2002. He became Secretary to the Company's Board of Directors in October 2001.
Previously he served as the Company's Controller since his employment in
February 1998. Prior to joining First Aviation, from 1996 to 1998, Mr. Davidson
served as Chairman of Access Ambulance Company, Inc. From 1993 to 1998 he was
engaged as a principal in a consulting firm specializing in turnaround and
management consulting, restructuring and bankruptcy, and from 1993 to 1995 also
was the Executive Director of Stamford Emergency Medical Services, Inc. Prior to
1993 Mr. Davidson worked for the Dyson-Kissner-Moran Corporation, a leveraged
buyout firm, and spent nearly ten years with Ernst & Young LLP. Mr. Davidson is
a Certified Public Accountant.

Item 11. Executive Compensation

         Information regarding compensation of the Company's directors and
executive officers is set forth under the caption "Compensation of Directors and
Executive Officers" in the Company's Proxy Statement for its 2002 Annual Meeting
of Stockholders, which is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         Information regarding share ownership by certain beneficial owners and
the Company's directors and executive officers is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement for its 2002 Annual Meeting of Stockholders, which is
incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

         Information regarding certain relationships and related transactions of
the Company is set forth under the caption "Certain Relationships and Related
Transactions" in the Company's Proxy Statement for its 2002 Annual Meeting of
Stockholders, which is incorporated herein by reference.

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1)  Financial Statements and Schedules

         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-21 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.)

                                       18

<PAGE>

(b)      Form 8-K -- None

(c)      Exhibits
         --------

<TABLE>
<CAPTION>
Exhibit
Number                 Description of Exhibit
------                 ----------------------
<S>           <C>
3.1(a)        Restated Certificate of Incorporation of the Company

3.2(d)        Amended and Restated Bylaws of the Company

10.1(a)       Form of Director Indemnification Agreement between the Company and each of its directors

10.9(a)       Asset Purchase Agreement, dated November 25, 1996, by and between AMR Combs and API

10.14(a)      Stock Incentive Plan

10.15(a)      Employee Stock Purchase Plan

10.20         Employment Agreement, dated as of December 2, 1999, by and between Michael C. Culver and the Company

10.23         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

10.24(a)      Amended and Restated Registration Rights Agreement,  dated as of February 21,  1996, by and between the Company and
              FAS Inc.

10.30(a)      Sublease Agreement, dated as of December 31, 1996, between First Equity and the Company

10.39(b)      Amendment to the First Aviation Services Stock Incentive Plan

10.40         Engagement Letter between First Equity Development Inc. and its affiliate,  FED Securities Inc.,  and First
              Aviation Services Inc. effective February 1, 2002.

10.42         Employment Agreement dated December 2, 1999 by and between Gerald E. Schlesinger and the Company

10.43         Commercial Revolving Loan and Security Agreement dated March 30, 2000 by and between Hudson United Bank and
              Aerospace Products International, Inc.

10.44         Guaranty, dated as of March 30, 2000, between First Aviation Services Inc. and Hudson United Bank

10.45         Executive Change of Control Agreement dated as of December 2, 1999 by and between First Aviation Services Inc.
              and Gerald E. Schlesinger

10.48(c)      Third Amendment to Commercial Revolving Loan and Security Agreement dated as of June 28, 2001 between Hudson
              United Bank and Aerospace Products International, Inc.

10.49(c)      Third Reaffirmation of Guaranty dated as of June 28, 2001 by First Aviation Services Inc. and in favor of Hudson
              United Bank.
</TABLE>

                                       19

<PAGE>

21.1          List of Subsidiaries

Exhibit
Number                   Description of Exhibit
------                   ----------------------
23.1          Consent of Ernst & Young LLP, independent auditors

27.1          Financial Data Schedules for the years ended January 31, 2002,
              2001 and 2000

     (a)   Incorporated by reference and filed as an Exhibit to the Company's
           Registration Statement on Form S-1 (No.  333-18647),  as amended.
     (b)   Incorporated by reference and filed as an Exhibit to the Company's
           Annual Report on Form 10-K for the year ended January 31, 1998.
     (c)   Incorporated by reference and filed as an Exhibit to the Company's
           Quarterly Report on Form 10-Q for the quarterly period ended July
           31, 2001.
     (d)   Incorporated by reference and filed as an Exhibit to the Company's
           Quarterly Report on Form 10-Q for the quarterly period ended October
           31, 2001.

                            [Signature page follows]

                                       20

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has fully caused this report to be signed
on its behalf by the undersigned thereunto duly authorized on May 1, 2002.

                              FIRST AVIATION SERVICES INC.

                              By:  /s/ Michael D. Davidson
                                   -----------------------
                                   Michael D. Davidson
                                   Chief Financial Officer
                                   (Principal Financial and Accounting Officer)

<TABLE>
<CAPTION>
       Signature                            Title                                                    Date
       ---------                            -----                                                    ----
       <S>                                  <C>                                                      <C>
       /s/ Aaron P. Hollander               Chairman of the Board                                    May 1, 2002
       --------------------------
       Aaron P. Hollander

       /s/ Michael C. Culver                Chief Executive Officer and                              May 1, 2002
       --------------------------
       Michael C. Culver                    Director (Principal Executive Officer)

       /s/ Stanley J. Hill                  Director                                                 May 1, 2002
       --------------------------
       Stanley J. Hill

       /s/ Robert L. Kirk                   Director                                                 May 1, 2002
       --------------------------
       Robert L. Kirk

       /s/ Joseph J. Lhota                  Director                                                 May 1, 2002
       --------------------------
       Joseph J. Lhota

       /s/ John A. Marsalisi                Director                                                 May 1, 2002
       --------------------------
       John A. Marsalisi
</TABLE>

                                       21

<PAGE>

                          First Aviation Services Inc.

                       Consolidated Financial Statements

              For the years ended January 31, 2002, 2001 and 2000

                   Index to Consolidated Financial Statements

Report of Independent Auditors............................................... 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............................. F21

                                       F1

<PAGE>

                         Report of Independent Auditors

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, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended January 31, 2002. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Aviation
Services Inc. as of January 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended January 31, 2002, in conformity with accounting principles generally
accepted in the United States. 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.

                                             /s/  Ernst & Young LLP

Stamford, Connecticut
April 12, 2002

                                       F2

<PAGE>

                          First Aviation Services Inc.

                           Consolidated Balance Sheets
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                         January 31,
                                                                    2002            2001
                                                                -------------   -------------
<S>                                                              <C>            <C>    <C>
Assets
Current assets:
   Cash and cash equivalents                                     $    31,113     $    31,855
   Trade receivables, net                                             15,396          15,860
   Inventories, net                                                   23,016          21,803
   Deferred and refundable income taxes                                1,212           3,388
   Prepaid expenses and other                                          1,822           1,461
                                                                -------------   -------------

Total current assets                                                  72,559          74,367

Plant and equipment, net                                               4,100           4,638
Goodwill and other intangibles, net                                    3,885           1,709
                                                                -------------   -------------

                                                                 $    80,544     $    80,714
                                                                =============   =============

Liabilities and stockholders' equity
Current liabilities:
   Accounts payable                                              $    11,464     $    13,496
   Accrued compensation and related expenses                           1,195           1,111
   Other accrued liabilities                                           1,553           3,210
   Income taxes payable                                                1,293           2,120
   Current debt and obligations under capital leases                     180          11,757
                                                                -------------   -------------

Total current liabilities                                             15,685          31,694

Long-term debt and obligations under capital leases                   14,800             147
Minority interest in subsidiary                                        1,041           1,041
                                                                -------------   -------------

Total liabilities                                                     31,526          32,882

Stockholders' equity
   Common stock, $0.01 par value, 25,000,000 shares authorized,
     7,213,753 and 7,184,704 shares outstanding, respectively             91              91
   Additional paid-in capital                                         38,516          38,625
   Retained earnings                                                  20,728          19,476
   Accumulated other comprehensive loss                                 (193)              -
                                                                -------------   -------------

                                                                      59,142          58,192
   Less: Treasury stock, at cost                                     (10,124)        (10,360)
                                                                -------------   -------------
   Total stockholders' equity                                         49,018          47,832
                                                                -------------   -------------

Total liabilities and stockholders' equity                       $    80,544     $    80,714
                                                                =============   =============
</TABLE>

See accompanying notes.

                                       F3

<PAGE>

                          First Aviation Services Inc.

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

<TABLE>
<CAPTION>
                                                                        Year ended January 31,
                                                               ----------------------------------------
                                                                   2002         2001           2000
                                                               ------------  ------------  ------------

<S>                                                             <C>           <C>           <C>
Net sales                                                       $  105,696    $   97,550    $   82,999
Cost of sales                                                       83,722        76,682        65,015
                                                               ------------  ------------  ------------

Gross profit                                                        21,974        20,868        17,984
Selling, general and administrative expenses                        19,854        19,733        16,014
Corporate expenses                                                   2,628         2,934         1,652
Litigation (income) expense                                           (735)          501             -
Non-recurring charge                                                     -             -           410
                                                               ------------  ------------  ------------

Income (loss) from operations                                          227        (2,300)          (92)
Interest income                                                        592         1,955           723
Interest expense and other                                            (291)         (538)         (612)
Minority interest in subsidiary                                        (42)          (42)          (42)
                                                               ------------  ------------  ------------

Income (loss) before (provision) benefit for income taxes              486          (925)          (23)
(Provision) benefit for income taxes                                  (194)          349           190
                                                               ------------  ------------  ------------

Income (loss) from continuing operations                               292          (576)          167

Income (loss) from discontinued operations, net                          -        (1,847)        5,170

Gain from disposition of subsidiaries, net                             960           593        10,193
                                                               ------------  ------------  ------------

Net income (loss)                                               $    1,252    $   (1,830)   $   15,530
                                                               ============  ============  ============

Basic net income (loss) per common share:

  Income (loss) from continuing operations                      $     0.04    $    (0.08)   $     0.02
  Income (loss) from discontinued operations, net                        -         (0.24)         0.58
  Gain from disposition of subsidiaries, net                          0.13          0.08          1.14
                                                               ------------  ------------  ------------

Basic net income (loss) per common share                        $     0.17    $    (0.24)   $     1.74
                                                               ============  ============  ============

Weighted average common shares outstanding -- basic              7,197,941     7,720,520     8,908,756
                                                               ============  ============  ============

Net income (loss) per common share -- assuming dilution:

  Income (loss) from continuing operations                      $     0.04    $    (0.08)   $     0.02
  Income (loss) from discontinued operations, net                        -         (0.24)         0.57
  Gain from disposition of subsidiaries, net                          0.13          0.08          1.13
                                                               ------------  ------------  ------------
Net income (loss) per common share -- assuming dilution         $     0.17    $    (0.24)   $     1.72
                                                               ============  ============  ============

Weighted average common shares outstanding -- assuming dilution  7,208,725     7,720,520     9,005,677
                                                               ============  ============  ============
</TABLE>

See accompanying notes.

                                       F4

<PAGE>

                          First Aviation Services Inc.

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

<TABLE>
<CAPTION>
                                               Common Stock
                                         ------------------------

                                                                                                Accumulated
                                                                     Additional                    Other
                                            Number                    Paid-in      Retained    Comprehensive
                                           of Shares      Amount      Capital      Earnings         Loss         Sub-Total
                                         -------------  ---------  -------------  -----------  --------------  ------------

<S>                                      <C>            <C>        <C>            <C>          <C>             <C>
Balances at January 31, 1999                9,001,896    $    90    $    38,515    $   5,776    $          -    $   44,381

Exercise of stock options to purchase
  common shares                               110,000          1              -            -               -             1
Shares issued under qualified plans and
 to directors                                  22,101          -            100            -               -           100
Common shares repurchased                  (1,000,000)         -              -            -               -             -
  Net income                                        -          -              -       15,530               -        15,530
                                         -------------  ---------  -------------  -----------  --------------  ------------

Balances at January 31, 2000                8,133,997         91         38,615       21,306               -        60,012
                                         -------------  ---------  -------------  -----------  --------------  ------------

Shares issued to directors                      1,702          -             10            -               -            10
Common shares repurchased                  (1,023,398)         -              -            -               -             -
Proceeds from issuance of common
  stock from treasury, and shares issued
  under qualified plans and to directors
  from treasury                                72,403          -              -            -               -             -
Net loss                                            -          -              -       (1,830)              -        (1,830)
                                         -------------  ---------  -------------  -----------  --------------  ------------

Balances at January 31, 2001                7,184,704         91         38,625       19,476               -        58,192
                                         -------------  ---------  -------------  -----------  --------------  ------------

Shares issued under qualified plans and
 to directors                                  30,149          -           (109)           -               -          (109)
Common shares repurchased                      (1,100)         -              -            -               -             -
Other comprehensive loss                            -          -              -            -            (193)         (193)
Net income                                          -          -              -        1,252               -         1,252
                                         -------------  ---------  -------------  -----------  --------------  ------------

Balances at January 31, 2002                7,213,753    $    91    $    38,516    $  20,728    $       (193)   $   59,142
                                         =============  =========  =============  ===========  ==============  ============

<CAPTION>
                                              Treasury
                                                Stock        Total
                                            ------------  ------------

<S>                                         <C>           <C>
Balances at January 31, 1999                 $        -    $   44,381

Exercise of stock options to purchase
  common shares                                       -             1
Shares issued under qualified plans                   -           100
Common shares repurchased                        (5,869)       (5,869)
  Net income                                          -        15,530
                                            ------------  ------------

Balances at January 31, 2000                     (5,869)       54,143
                                            ------------  ------------

Shares issued to directors                            -            10
Common shares repurchased                        (4,834)       (4,834)
Proceeds from issuance of common
  stock from treasury, and shares issued
  under qualified plans and to directors
  from treasury                                     343           343
Net loss                                              -        (1,830)
                                            ------------  ------------

Balances at January 31, 2001                    (10,360)       47,832
                                            ------------  ------------

Shares issued under qualified plans                 241           132
Common shares repurchased                            (5)           (5)
Other comprehensive loss                              -          (193)
Net income                                            -         1,252
                                            ------------  ------------

Balances at the end of January 31, 2002      $  (10,124)   $   49,018
                                            ============  ============
</TABLE>
See accompanying notes.

                                       F5

<PAGE>

                          First Aviation Services Inc.

                      Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                        Year ended January 31,
                                                                            ----------------------------------------------
                                                                                 2002            2001            2000
                                                                            --------------  --------------  --------------

<S>                                                                        <C>               <C>             <C>
Cash flows from operating activities
Income (loss) from continuing operations                                     $        292    $       (576)   $        167

Adjustments to reconcile income (loss) from continuing operations
  to net cash provided by (used in) operating activities:
  Depreciation and amortization                                                     1,399           1,251             846
  Deferred income taxes                                                                 -            (148)          1,354
  Stock compensation                                                                  112              72              50
  Changes in assets and liabilities:
    Trade receivables                                                                 467          (2,050)         (4,251)
    Inventories                                                                     1,708          (7,661)         (1,941)
    Other assets                                                                      (73)         (1,662)            210
    Accounts payable                                                               (2,032)          5,232           3,990
    Other accrued liabilities                                                           -          (7,812)          2,233
                                                                            --------------  --------------  --------------

Cash provided by (used in) operating activities - continuing operations             1,873         (13,354)          2,658
Cash provided by (used in) operating activities - discontinued operations               -            (730)            218
                                                                            --------------  --------------  --------------

Net cash provided by (used in) operating activities                                 1,873         (14,084)          2,876

Cash flows from investing activities
Purchase of assets from Superior, including acquisition costs                      (5,028)              -               -
Proceeds from sale of NAC                                                               -               -          73,000
Purchases of plant and equipment and other assets - continuing operations            (683)         (1,529)         (1,592)
Purchases of plant and equipment - discontinued operations                              -          (1,494)         (3,530)
                                                                            --------------  --------------  --------------

Net cash provided by (used in) investing activities                                (5,711)         (3,023)         67,878

Cash flows from financing activities
Net borrowings (repayments) on debt and capital lease obligations                   3,076           3,411         (14,981)
Repurchases of common stock for treasury                                               (5)         (4,834)         (5,869)
Other                                                                                  25             281              51
                                                                            --------------  --------------  --------------

Net cash provided by (used in) financing activities                                 3,096          (1,142)        (20,799)
                                                                            --------------  --------------  --------------

Net change in cash and cash equivalents                                      $       (742)   $    (18,249)   $     49,955
Cash and cash equivalents at the beginning of the year                             31,855          50,104             149
                                                                            --------------  --------------  --------------

Cash and cash equivalents at the end of the year                             $     31,113    $     31,855    $     50,104
                                                                            ==============  ==============  ==============

Supplemental cash flow disclosures
Cash paid for:
  Interest                                                                   $        130    $        455    $        575
                                                                            ==============  ==============  ==============

  Income taxes (refunded) paid, net                                          $       (748)   $      4,196    $         90
                                                                            ==============  ==============  ==============

  Acquisition of equipment through incurrence of capital lease obligation    $          -    $        315          -
                                                                            ==============  ==============  ==============
</TABLE>

See accompanying notes.

                                       F6

<PAGE>

                          First Aviation Services Inc.

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

1.   Business and Basis of Presentation

First Aviation Services Inc. ("First Aviation"), through its wholly-owned
subsidiaries, Aircraft Products International, Ltd., ("API Ltd."), API Asia
Pacific Inc., ("API Asia Pacific"), and its majority-owned subsidiary, Aerospace
Products International, Inc. ("API"), (collectively the "Company"), is one of
the leading suppliers of aircraft parts and components to the aviation industry
worldwide, and is a provider of supply chain management services, including
third party logistics and inventory management services, to the aerospace
industry. 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 4, on August 10, 2001 the Company acquired the distribution
business of Superior Air Parts, Inc. ("Superior"). As described in Note 10, in
prior years the Company sold NAC, and, during the last quarter of the prior
fiscal year, the Company approved a plan to dispose of AeroV Inc. ("AeroV"), its
former e-commerce subsidiary. Accordingly, NAC and AeroV have been accounted for
as discontinued operations and their results of operations, cash flows and the
net gain or loss on operations and on disposition have been condensed and
reported separately in the accompanying consolidated financial statements.

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.

Net Sales and Trade Receivables

The Company's net sales consist of sales of parts and components, the provision
of component overhaul and repair services, and the provision of supply chain
management services. Sales are recorded net of discounts, allowances and
commissions, and are recorded generally when the parts, components, and
overhauled and repaired items are shipped and title to the parts transfers to
the customer, or when supply chain management services have been provided.

Sales to unaffiliated foreign customers were approximately 17%, 13% and 9% of
net sales for the years ended January 31, 2002, 2001 and 2000, 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. The allowance for doubtful accounts
was $707 and $947, respectively, at January 31, 2002 and 2001.

                                       F7

<PAGE>

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 a part of selling, general and administrative expenses. The costs
of shipping and handling included in selling, general and administrative expense
was $3,937, $3,729 and $3,129 for the years ended January 31, 2002, 2001 and
2000, respectively.

Stock Based Compensation

The Company recognizes compensation expense on stock option grants to employees
to the extent a difference exists between the exercise price of the stock option
and the fair market value per share at the date of grant. No compensation
expense was recognized during the years ending January 31, 2002, 2001 and 2000
since all grants were issued at the fair market value of the Company's common
stock at the date of the grant. The Company also recognizes expense on common
stock issued to its directors as compensation. The amount of shares issued is
based upon the fair market value per share at the date issued.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposits, money market funds,
short-term certificates of deposit, and short-term commercial paper with
maturities of three months or less when purchased.

Inventories

Inventories generally consist of aircraft parts and components and are stated at
the lower of cost or market, with cost determined using the first-in, first-out
method. Provisions are made in each period for the estimated effect of excess
and obsolete inventories. Actual excess and obsolete 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
$885 and $376, respectively, at January 31, 2002 and 2001.

Fair Value of Financial Instruments

The carrying value of current assets and liabilities approximates fair value due
to the short-term maturities of these assets and liabilities.

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 ranges from 3 to 15 years.
Leasehold improvements are amortized over the shorter of the estimated life of
the improvement or the term of the related lease.

Goodwill and Other Intangibles

The excess of the purchase price of API over the fair value of the net assets
acquired is amortized using the straight-line method over a thirty-year period.
Accumulated amortization was $322 and $257, respectively at January 31, 2002 and
2001. The net goodwill associated with the acquisition of API was $1,643 at
January 31, 2002. The remaining balance relates to the acquisition of Superior.

Long-lived Assets

The Company records impairment losses on long-lived assets when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. No asset impairments relating to continuing operations
were recorded during the years ended January 31, 2002, 2001 and 2000,
respectively.

Principal Suppliers

API has five suppliers of parts, components and supplies from whom approximately
53%, 49% and 45% of its total purchases were made during the years ended January
31, 2002, 2001 and 2000, respectively. Accounts payable to these vendors totaled
$3,956 and $5,140 at January 31, 2002 and January 31, 2001, 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.

                                       F8

<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.

Accumulated Other Comprehensive Loss

The accumulated other comprehensive loss rose from the translation of accounts
into U.S. dollars where the functional currency is Canadian dollar. In prior
years the amount of the translation was not significant. The increase during the
year ended January 31, 2002 was due to a decrease in the value of the Canadian
dollar relative to the US dollar. Comprehensive income for the year ended
January 31, 2002 was $1,059.

Reclassifications

Certain amounts in the accompanying consolidated financial statements have been
reclassified to conform to the current year's presentation.

3.   Plant and Equipment

Plant and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                                           January 31,
                                                                                    2002                2001
                                                                             ------------------  -----------------
<S>                                                                          <C>                 <C>
Machinery and equipment                                                      $       1,183       $       1,502
Buildings and leasehold improvements                                                 1,759               1,033
Computer equipment, software, office furniture, fixtures and
     other office equipment                                                          5,276               4,802
Construction-in-process                                                                 36                  53
                                                                             ------------------  -----------------
                                                                                     8,254               7,390

Less:  accumulated depreciation                                                     (4,154)             (2,752)
                                                                             ------------------  -----------------
                                                                             $       4,100       $       4,638
                                                                             ==================  =================
</TABLE>

Certain equipment has been pledged as collateral under capital leases.

4.   Acquisition of Superior

On August 10, 2001 the Company completed the acquisition of the distribution
business of Superior for $4,614 in cash. Pursuant to the terms of the
acquisition, the Company acquired the distribution business of Superior,
including four distribution centers, approximately $2,945 of inventory and
equipment, and was named a worldwide distributor for Superior's product line of
replacement parts for certain aircraft engines. The purchase price was allocated
to the assets acquired, principally inventory, based upon their relative fair
values. The excess of the purchase price paid over the fair value of the assets
acquired, approximately $2,242, was allocated to goodwill and other intangibles
in the accompanying consolidated balance sheets. In addition, the Company
recorded approximately $573 of accruals to cover the estimated costs to complete
the acquisition and execute its plan to close the five distribution centers and
consolidate facilities. Approximately $386 of the accruals were paid prior to
the year ended January 31, 2002. The accruals remaining at January 31, 2002 will
be utilized in the next fiscal year.

The distribution agreement has a five-year term, and is renewable, at the
Company's option, for two additional three-year terms. Thereafter, the agreement
automatically renews unless notice is given by one party to the other of its
intention not to renew.

The Company also entered into a service agreement with Superior. Pursuant to the
terms of this agreement, the Company provides Superior with a variety of third
party logistics services for a fee based upon the scope of the services
provided. The service agreement has an initial five-year term, and is renewable
thereafter for two additional three-year terms at the Company's option.
Thereafter, the agreement automatically renews annually unless notice is given
by one party to the other of its intention not to renew.

The net incremental sales and gross profit from the Superior acquisition were
not significant to consolidated results for the year ended January 31, 2002.

                                       F9

<PAGE>

5.   Current and Long Term Debt and Obligations Under Capital Leases

<TABLE>
<CAPTION>
                                                                       January 31,
                                                         ----------------------------------------
                                                                2002                  2001
                                                         -------------------    -----------------
<S>                                                        <C>                  <C>
Current

Revolving line of credit                                   $         -            $    11,500
Current portion of obligations under capital leases                180                    257
                                                         -------------------    -----------------
                                                           $       180            $    11,757
                                                         ===================    =================
Long Term

Revolving line of credit                                   $    14,800            $         -
Obligations under capital leases                                     -                    147
                                                         -------------------    -----------------
                                                           $    14,800            $       147
                                                         ===================    =================
</TABLE>

In June 2001, API entered into an extension of its $20,000 commercial revolving
loan and security agreement with a bank. Borrowings under this credit 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 credit
agreement 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.
The credit agreement also requires API to maintain minimum levels of net worth
and specified interest expense coverage ratios, and restricts the payment of
dividends on API's common stock. Substantially all of API's domestic assets are
pledged as collateral under this credit facility, and First Aviation guarantees
all borrowings under the facility. The Agreement expires July 1, 2003 whereupon
amounts due under the facility will be payable. This agreement replaced a prior
agreement that contained substantially the same terms and conditions. Fees on
the unused line have not been significant. Borrowings under the facility totaled
$14,800 at January 31, 2002 at an interest rate of 3.36%. The Company had
approximately $3.5 million of unused availability under the facility at January
31, 2002.

Management believes that the carrying amount of the Company's borrowings
approximates fair value because the interest rate is variable and resets
frequently.

The Company leases certain equipment under leases that have been classified as
capital leases. The obligations under the capital leases are recorded at the net
present value of the future minimum lease payments. Obligations due over one
year from the balance sheet date are classified as long term. Interest expense
on the obligations is recorded as incurred.

6.   Stockholders' Equity

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 NAC, 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 years ended January 31, 2002 and 2001, respectively, the Company
repurchased 1,100 and 1,023,398 shares of its common stock. The aggregate share
repurchases since the repurchase program began totaled 2,024,498 and 2,023,398
shares at January 31, 2002 and 2001, respectively. The aggregate cost of the
common shares repurchased was approximately $10,708 and $10,703, or $5.29 per
share both at January 31, 2002 and 2001, respectively. Approximately 94,000
shares still may be repurchased under this program.

Certain of the Company's directors elected to receive their compensation for the
years ended January 31, 2002, 2001 and 2000, in the form of shares of the
Company's common stock. The fair value of the Company's common stock at the date
of issuance was charged to expense with a corresponding increase to treasury
stock and additional paid-in capital. Such compensation expense totaled $112,
$72 and $50, respectively, for the years ended January 31, 2002, 2001 and 2000.

                                      F10

<PAGE>

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 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. For the years ended January 31, 2002 and 2001,
the Company issued 4,697 and 8,690 shares to employees under the ESPP,
respectively. At January 31, 2002, 192,768 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 and stock purchase rights. A total of 1,000,000 shares of
common stock have been reserved for issuance under the Plan. Only stock options
have been issued under the Plan. All of the stock options vest over two to
four-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, 2002, 2001 and 2000 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,
2002, options for 536,000 shares had been issued, leaving 464,000 shares
available under the Plan. The following table is a summary of activity related
to stock options for the respective year ended January 31:

<TABLE>
<CAPTION>
                                          2002                           2001                           2000
                                ---------------------------    ---------------------------    -------------------------
                                                Weighted-                      Weighted-                     Weighted-
                                  Number         Average         Number         Average         Number        Average
                                    Of           Exercise          Of           Exercise          Of         Exercise
                                 Options          Price          Options         Price          Options        Price
                                ----------    -------------    ----------    -------------    ----------   ------------
<S>                              <C>          <C>              <C>           <C>               <C>          <C>
Outstanding at
    Beginning of year             375,500      $     6.16        252,500      $     7.05        361,950     $    5.96

Granted                           195,500            4.36        180,500            5.08        102,500          4.50

Exercised                               -            -                 -            -          (110,000)         0.01

Forfeited                        (185,000)           5.90        (57,500)           6.72       (101,950)         8.21
                                 ----------    -------------    ----------    -------------    ----------   ------------

Outstanding at end of year        386,000      $     5.37        375,500      $     6.16        252,500     $    7.05
                                 ==========    =============    ==========    =============    ==========   ============
Exercisable at end of year        155,000      $     6.57        132,000      $     7.94         93,000     $    9.22
</TABLE>

The following table is a summary of information about stock options outstanding
at January 31, 2002:

<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
------------------    ------------    -------------------     -----------------    --------------    -----------------
<S>                       <C>               <C>                <C>                   <C>              <C>
$    4.31                 137,500           9.2 years          $      4.31                -                 N/A
  4.50 - 6.00             198,500           7.8 years                 4.96           105,249          $      4.95
     10.00                 50,000           5.4 years                10.00            50,000                10.00
------------------    ------------    -------------------     -----------------    --------------    -----------------
$4.31 - $10.00            386,000           8.0 years          $      5.37           155,249          $      6.57
</TABLE>

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 valuation 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 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.

                                      F11

<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:

                                   2002              2001             2000
                               --------------   --------------   -------------

Expected dividend yield           0.0%             0.0%             0.0%

Risk-free interest rate           4.0%             5.0%             5.15%

Expected volatility              41.9%            49.3%            39.8%

Expected life of option           4.0 years        4.0 years        4.0 years

Weighted-average fair value
   of options granted during
   the year                    $  1.64          $  2.24          $  1.81

Using the above noted assumptions and the weighted average fair value of each
option granted during the years ended January 31, 2002, 2001 and 2000,
respectively, the pre-tax additional pro forma compensation expense that would
have been recorded was approximately $317, $247 and $155, or $0.04, $0.03 and
$0.02 per share, respectively.

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 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, and, accordingly, dividends of $42 were paid during each of the years
ended January 31, 2002, 2001 and 2000, 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.

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. Subject to certain terms and
conditions, and commencing three years after the closing of the API acquisition,
AMR Combs has the right to cause the Company to repurchase the Preferred Stock.
The Company has the ability to delay this right, under certain conditions, for
an additional two years. 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.

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

                                      F12

<PAGE>

7.   Income Taxes

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

                                            Year ended January 31,
                               ------------------------------------------------
                                   2002              2001             2000
                               --------------    --------------   -------------

Current:
     Federal                   $      236        $     (201)       $     236
     State                            (42)                -               30
                               --------------    --------------   -------------
                                      194              (201)             266

Deferred:
     Federal                   $        -        $     (191)       $    (370)
     State                              -                43              (86)
                               --------------    --------------   -------------
                                        -              (148)            (456)
                               --------------    --------------   -------------
Total provision (benefit)      $      194        $     (349)       $    (190)
                               ==============    ==============   =============

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,
                                              ---------------------------------------
                                                  2002          2001         2000
                                              ------------  ------------  -----------
<S>                                               <C>          <C>        <C>
Provision (benefit) at federal statutory rate     34.0%        (34.0)%       (34.0)%
State tax provision (benefit), net of federal     (7.9)          3.1        (161.0)
Change in valuation allowance                      -             -        (1,065.0)
Foreign losses with no income tax benefit          -             -           385.0
Non-deductible items and other                    13.8          (6.8)         48.9
                                              ------------  ------------  -----------
                                                  39.9%        (37.7)%      (826.1)%
                                              ============  ============  ===========
</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:

                                                        January 31,
                                             --------------------------------
                                                   2002             2001
                                             ---------------   --------------
Financial statement accruals not currently
deductible for income tax purposes, and net
operating loss carryforwards                   $    1,264       $    2,080
                                             ---------------   --------------
                                                    1,264            2,080
Valuation allowance                                     -                -
                                             ---------------   --------------
Net deferred income tax assets                 $    1,264       $    2,080
                                             ===============   ==============

Based upon a number of factors, including the nature of the temporary
differences and the timing of their reversal, the Company believes that the
utilization of the deferred tax benefit at January 31, 2002 and 2001 was more
likely than not, and therefore, a valuation reserve was not provided. The
decrease in the deferred tax asset is due principally to the utilization of the
benefit by the discontinued operations. At January 31, 2002 the Company had a
net operating loss carryforward of approximately $1,200 for federal income tax
purposes. The carryforward expires in 2022.

8.   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 $171, $143 and $102 related to the savings plan in the years ended
January 31, 2002, 2001 and 2000, respectively. Employees do not have an option
to invest in the Company's stock under the savings plan.

                                      F13

<PAGE>

9.   Related Parties

Upon the authorization of the independent members of the Board of Directors, the
Company entered into an advisory agreement with a related party, First Equity
Development Inc. ("First Equity"). The advisory agreement, which was effective
February 1, 2000, had a two-year term. 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 Company paid First Equity a $30 monthly retainer. In addition, upon the
successful completion of certain transactions, the Company would pay a fee to
First Equity (the "Success Fee"), and would reimburse First Equity for its
out-of-pocket expenses. 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 to be provided
and the size and type of transaction. Up to one year's worth of retainer fees
paid can be applied as a credit against any Success Fee, subject to certain
limitations. During the year ended January 31, 2002 the Company paid First
Equity retainer fees of $340. (First Equity voluntarily reduced the amount of
the retainer fees due over the four months ended January 31, 2002.) During each
of the years ended January 31, 2001 and 2000, the Company paid First Equity
retainer fees of $360, for an aggregate total over the three years of $1,060.
Upon the consummation of the sale of NAC (Note 10), the Company paid First
Equity a Success Fee of $945. The Success Fee was net of $360 of retainer fees
previously paid and expensed by the Company. The gross amount of the fee was
charged against gain from disposition of subsidiaries, net, while the amount
previously expensed was credited against corporate expenses in the fourth
quarter of the year ended January 31, 2000. The agreement could be terminated by
either party upon 30-days written notice to the other party. Effective February
1, 2002 the Company renewed the advisory agreement with First Equity for two
years under substantially the same terms and conditions.

In 1997 the Company entered into a ten-year sublease with First Equity for
office space. The lease is cancelable upon six months notice by either party.
The Company has the option of renewing the sublease for two additional five-year
periods. Lease payments under the lease totaled approximately $91, $95 and $102,
respectively, for the years ended January 31, 2002, 2001 and 2000.

In addition, the Company paid an affiliate of First Equity approximately $84
for printing and mailing services.

10.  Discontinued Operations

Details of the results of operations of discontinued operations and net gain
from disposition of subsidiaries are as follows:

<TABLE>
<CAPTION>
                                                                        Year ended January 31,
                                                      ------------------------------------------------------------
                                                            2002                 2001                  2000
                                                      -----------------    ------------------    -----------------
<S>                                                   <C>                  <C>                  <C>
Income (loss) from discontinued operations, net:
       AeroV                                          $          -         $     (1,847)         $          -
       NAC                                                       -                    -                 5,170
                                                      -----------------    ------------------    -----------------
                                                      $          -         $     (1,847)         $      5,170
                                                      =================    ==================    =================

Gain from disposition of subsidiaries, net:
       AeroV                                          $        191         $       (386)         $          -
       NAC                                                     769                  979                10,193
                                                      -----------------    ------------------    -----------------
                                                      $        960         $        593          $     10,193
                                                      =================    ==================    =================
</TABLE>

                                      F14

<PAGE>

E-Commerce Initiative

In February 2000 the Company established AeroV Inc. ("AeroV"). The purpose of
AeroV was to design a proprietary electronic procurement platform to enable easy
communication between the Internet and airlines' legacy systems, in order to
reduce supply chain costs. In December 2000 the Board of Directors of the
Company reassessed its strategic position with respect to AeroV, and approved a
plan to sell or dispose of AeroV. The Company took a pre-tax charge of $1,245
during the three months ended January 31, 2001 to write-off its investment in
AeroV. AeroV had no significant sales during the year ended January 31, 2001.
The net loss of $1,847 from the operations of AeroV for the year ended January
31, 2001, which included the asset impairment charge, was net of a benefit for
income taxes of $1,100. In addition, during the year ended January 31, 2001 the
Company took a charge of $386, net of a benefit for income taxes of $199, to
dispose of the operations of AeroV.

In connection with the disposition of AeroV, the Company accrued for certain
costs directly relating to the disposition. Transaction, legal and other costs
relating to the disposition ($660) were included in other accrued liabilities at
January 31, 2001 in the accompanying consolidated balance sheets. During the
year ended January 31, 2002, $306 was charged against the accruals and the
Company reversed $298 of accruals no longer needed. This reversal, net of a
provision for income taxes of $107, was included in gain from disposition of
subsidiaries. At January 31, 2002, $56 of the accruals remained. The accrual
remaining at January 31, 2002 will be utilized in the next fiscal year.

Sale of NAC

On November 1, 1999, the Company consummated the sale of the stock of NAC to
Rolls-Royce North America, Inc. for $73,000 in cash, subject to adjustment,
pursuant to a Stock Purchase Agreement between First Aviation Services Inc. and
Rolls-Royce North America, Inc. dated as of September 9, 1999 (the "Agreement").
NAC's operations included the repair and overhaul of gas turbine engines and
accessories, and the remanufacturing of engine components and accessories. NAC
has been accounted for as a discontinued operation for all years presented in
the accompanying consolidated financial statements and its results of operations
and cash flows through the date of sale, and the net gain on the sale have been
reported separately.

Pursuant to the Agreement, Rolls-Royce North America, Inc. ("RRNA") acquired
substantially all of the assets and assumed certain liabilities of NAC,
excluding income tax liabilities, debt, amounts due to parent (First Aviation)
and any contingent liabilities resulting from NAC's liquidation of its
former defined benefit plan. During the year ended January 31, 2001, the sales
price was adjusted down by $2,050 to reflect a decrease in the amount of net
assets sold. The amount paid had been accrued previously.

Summarized results of operations information for NAC are as follows.

                                             Nine months ended
                                              October 31, 2000
                                       ------------------------------

Net sales                                $         85,400

Earnings before interest and taxes                  7,458
Net interest expense                                1,251
                                       ------------------------------
Earnings before income taxes                        6,207
Provision for income taxes                         (1,037)
                                       ------------------------------

Net income                               $          5,170
                                       ==============================

As a result of the sale, the Company recorded a gain on disposition during the
year ended January 31, 2000 of $10,193, net of estimated income taxes of $5,829.
In addition, included in the net gain on disposition the Company accrued for
estimated costs relating to the sale. Transaction costs and other costs directly
relating to the sale, approximately $3.7 million, excluding the estimated sales
price adjustment and liabilities under NAC's liquidated pension plan (see
below), were charged against gain from disposition of subsidiaries.

                                      F15

<PAGE>

On July 28, 1997, the Company replaced NAC's qualified defined benefit
retirement plan (the "NAC Plan") with a defined contribution savings plan,
qualified under Section 401(k) of the Internal Revenue Code. The Company
previously had purchased guaranteed annuities for all retirees who were
receiving benefits under the NAC Plan and provided for distributions in cash or
rollovers to an IRA or other qualified retirement plan for all other
participants in the NAC Plan. The Company used an outside consulting firm for
assistance in calculating the amount of benefits or distributions due, and in
liquidating the NAC Plan. The Company believed that the NAC Plan was liquidated
according to regulatory guidelines.

In 1998, the Pension Benefit Guarantee Corporation ("PBGC") audited the
liquidation of the NAC Plan. The PBGC disagreed with certain of the assumptions
used by the consultants in calculating benefits due to the participants. As a
result, the PBGC assessed NAC approximately $500, excluding interest. In June
1999, the PBGC rejected the NAC's appeal and confirmed its finding. NAC also was
liable for interest on the assessment, which the Company estimated to be
approximately $100. Accordingly, the Company previously accrued $600 pre-tax
during the year ended January 31, 2000 to cover the liability related to this
matter. The charge previously was classified against gain from disposition of
subsidiaries.

Pursuant to the Agreement but prior to the amendment described below, First
Aviation had been liable, subject to certain limitations, for any losses
incurred by NAC related to environmental matters. NAC was liable for the initial
$1 million of such losses (the "Environmental Threshold"). Any losses above the
Environmental Threshold would have been shared, with First Aviation assuming 80%
of the losses. First Aviation's maximum liability for such losses could not
exceed $5 million in the aggregate. First Aviation had liability for only those
claims for losses where notice of the claim was submitted on or prior to the
third anniversary of the closing date.

First Aviation also had been liable, subject to certain limitations, for certain
non-income tax and non-environmental related losses (as specified in the
Agreement) that may have been incurred by NAC subsequent to the sale. NAC was
liable for the initial $1 million of such losses (the "Basic Threshold"). Any
losses above the Basic Threshold would have been borne by First Aviation. First
Aviation's maximum liability for such losses could not exceed $5 million in the
aggregate. First Aviation had no liability for any claims for losses not
submitted prior to March 1, 2001.

With respect to income taxes, First Aviation had been liable, without
limitation, for any and all income taxes that may be imposed upon NAC for all
taxable periods ending on or prior to the closing date.

Both First Aviation and RRNA were liable, without limitation, for any losses
incurred relating to any breach of any representation or warranty made in the
Agreement, and for any loss that occurs relating to matters specifically
retained by the parties.

On February 28, 2001, the day prior to the expiration of most of the Company's
representations and warranties under the Agreement, RRNA filed a $10 million
claim for indemnification with the American Arbitration Association. The claim
sought indemnification under provisions of the Agreement relating to
environmental and non-environmental covenants and representations. Pursuant to
the terms of the Agreement, the Company's liability for indemnification claims
had been limited to $5 million for environmental and $5 million for
non-environmental claims (with limited exceptions related to taxes and other
specified items).

On May 15, 2001, the Company and RRNA reached an agreement releasing the Company
from any claim, cause of action or liability of any nature whatsoever which has
arisen, or thereafter may arise from any covenant, negligence, representation,
warranty, indemnity, transaction, failure, omission or communication under the
Agreement, and the arbitration was discontinued. In addition, RRNA assumed all
rights and responsibilities, including legal fees and other costs from the
settlement date forward, relating to litigation previously initiated by the
Company and NAC against Oracle Corporation and Avanti Systems, Inc., relating to
a copyright infringement suit, and any exposure from the liquidation of NAC's
former defined benefit plan.

During the year ended January 31, 2001, the Company paid $5,175 of estimated
income tax liabilities that arose as a result of the sale. The difference
between the estimated income tax liabilities and the actual income tax
liabilities reported, a gain of $979, was included in gain from disposition of
subsidiaries for the year ended January 31, 2001. During the years ended January
31, 2002 and 2001, $245 and $2,469 was charged against the accruals, principally
for compensation and legal expenses. During the year ended January 31, 2002, the
Company reversed $1,241 of accruals that no longer were needed. The net credit,
after applicable income taxes of $472, was included in gain on disposition of
subsidiaries. At January 31, 2002 and 2001, respectively, $57 and $1,549 of
accruals remained relating to the sale of NAC. The accrual remaining at January
31, 2002 will be utilized in the next fiscal year.

                                      F16

<PAGE>

11.  Net Income (Loss) per Common Share

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

<TABLE>
<CAPTION>
                                                                            Years ended January 31,
                                                               ---------------------------------------------------
                                                                   2002              2001               2000
                                                               --------------  ---------------    ----------------
<S>                                                                <C>             <C>                 <C>
Denominator for basic net income (loss) per common share --
  weighted average shares                                          7,197,941       7,720,520           8,908,756

Effect of dilutive warrants and employee stock options                10,784               -              96,921
                                                               --------------  ---------------    ----------------

Denominator for net income (loss) per common share --
  assuming dilution -- adjusted weighted average shares
  and assumed conversions                                          7,208,725       7,720,520           9,005,677
                                                               ==============  ===============    ================
</TABLE>

For the year ended January 31, 2001, the denominator used in the calculation of
net loss per common share from continuing operations -- assuming dilution, was
the same as the denominator used for basic loss per common share because the
effect of warrants and options would have been antidilutive.

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, 2002 are as follows:

         Year ending January 31, 2003       $       778
         Year ending January 31, 2004               586
         Year ending January 31, 2005               564
         Year ending January 31, 2006               564
         Year ending January 31, 2007               592
         Thereafter                               2,965
                                           --------------
                                            $     6,049
                                           ==============

Future minimum rental payments for the year ended January 31, 2003 are net of
sublease income of $140. Rental expense under noncancelable operating leases
amounted to $918, $830, and $515 for the years ended January 31, 2002, 2001 and
2000, respectively.

Contingencies

On December 17, 2001 the Company announced that it had settled litigation
previously initiated against Gulf Insurance Company for a cash payment to the
Company of $950. The income was recorded during the three months ended January
31, 2002.

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.

                                      F17

<PAGE>

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 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.

13.  Quarterly Financial Information (unaudited)

<TABLE>
<CAPTION>
                                                            First      Second        Third       Fourth
                                                           Quarter     Quarter      Quarter      Quarter
                                                          ---------   ---------    ---------    ---------
<S>                                                      <C>         <C>          <C>          <C>
Year ended January 31, 2002

Net sales                                                $  25,571   $  27,564    $  26,953    $  25,608

Gross profit                                                 5,209       5,689        5,662        5,414

Income (loss) from continuing operations                        87          70         (490)         625

Net income (loss)                                               87         777         (490)         878

Basic income (loss) per share from continuing
    operations                                           $    0.01   $    0.01    $   (0.07)   $    0.09
Basic net income (loss) per common share                 $    0.01   $    0.11    $   (0.07)   $    0.12

Income (loss) per share from continuing operations --
    assuming dilution                                    $    0.01   $    0.01    $   (0.07)   $    0.09
Net income (loss) per common share -- assuming
    dilution                                             $    0.01   $    0.11    $   (0.07)   $    0.12

Year ended January 31, 2001

Net sales                                                $  22,335   $  24,039    $  26,221    $  24,955

Gross profit                                                 4,760       5,354        5,606        5,148

Income (loss) from continuing operations                        13         (71)         (29)        (489)

Net income (loss)                                             (116)       (362)         613       (1,965)

Basic income (loss) per share from continuing
    operations                                           $       -   $   (0.01)    $      -    $   (0.07)
Basic net income (loss) per common share                 $   (0.01)  $   (0.04)    $   0.08    $   (0.26)

Income (loss) per share from continuing
    operations -- assuming dilution                      $       -   $   (0.01)    $      -    $   (0.07)

Net income (loss) per common share - assuming dilution   $   (0.01)  $   (0.04)    $   0.08    $   (0.26)
</TABLE>

                                      F18

<PAGE>

14.  New Accounting Pronouncement (unaudited)

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations ("FAS 141"),
effective for all business combinations initiated after June 30, 2001, and No.
142, Goodwill and Other Intangible Assets ("FAS 142"), effective for fiscal
years beginning after December 15, 2001. There was no financial impact to the
Company upon the adoption of FAS 141 on July 1, 2001.

The Company will adopt FAS 142 as of February 1, 2002, the beginning of its new
fiscal year. Under the new rules, goodwill and certain intangible assets no
longer will be amortized but will be subject to annual impairment tests in
accordance with the pronouncement. Other intangible assets will continue to be
amortized over their useful lives. Application of the non-amortization
provisions of FAS 142 will not have a significant impact on the Company's
results of operations. Upon adoption of FAS 142 the Company is required to
perform impairment tests relating to its goodwill and other intangibles existing
at the date of adoption. The Company has not yet determined what the effect of
these tests will be on the earnings and financial position of the Company.
However, the impairment tests under FAS 142 are much different and more rigorous
than those previously required under generally accepted accounting principles,
especially when the book value of a company is in excess of its market value,
which is the case for the Company. The Company believes that there is no
impairment of value, and that the principle reason for the lower market value of
the Company is due to the illiquidity of the Company's stock, which depresses
the value of each share. Under the more stringent requirements of FAS 142,
however, the Company may be required to take a non-cash charge to write-off
or write down its goodwill and other intangibles. This charge would occur in the
first quarter ending April 30, 2002. Total goodwill and other intangibles at
January 31, 2002 was $3,885. The amount of the non-cash charge could be as much
as the total amount of the net asset, or approximately $0.32 per share after
applicable income taxes. Any such charge would be accounted for as a cumulative
effect of a change in accounting principle during the quarter ended April 30,
2002, and would not affect continuing operations or operating income.

                                      F19

<PAGE>

Schedule II -- Valuation and Qualifying Accounts

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

<TABLE>
<CAPTION>
                                              Balance at
                                             beginning of                                     Balance as of
                                                period         Additions       Deductions     end of period
                                            ---------------- --------------- --------------- ----------------
<S>                                              <C>              <C>            <C>           <C>
Description:

Year ended January 31, 2000
   Allowance for doubtful accounts               $ 312             597             89 (a)       $     820
Year ended January 31, 2001
   Allowance for doubtful accounts               $ 820             243            116 (a)       $     947
Year ended January 31, 2002
   Allowance for doubtful accounts               $ 947             310            550 (a)       $     707

Year ended January 31, 2000
   Slow moving and obsolete inventory            $ 304             155             45 (b)       $     414
Year ended January 31, 2001
   Slow moving and obsolete inventory            $ 414               7             45 (b)       $     376
Year ended January 31, 2002
   Slow moving and obsolete inventory            $ 376           1,089            580 (b)       $     885
</TABLE>

   (a)  Write off of uncollectible accounts.
   (b)  Write off of excess and obsolete inventory.

                                      F20