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

                                    FORM 10-K

(Mark One)

_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended January 31, 2004

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

For the transition period from___________ to ____________

                         Commission File Number 0-21995

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

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

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

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


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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days or for such short period that the registrant was subject to
such filing requirements.
Yes _X_   No __


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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes __ No X --

The aggregate market value of voting common and non-voting equity held by
non-affiliates as of July 31, 2003 was approximately $11.3 million.

The number of shares outstanding of the registrant's common stock as of April
12, 2004 was 7,290,836 shares.

                      Documents incorporated by reference:
Portions of the  Registrant's  definitive  Proxy  Statement  for the 2004 Annual
Meeting of Stockholders is incorporated herein by reference into Part III hereof


<PAGE>

                          First Aviation Services Inc.
                                TABLE OF CONTENTS


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

                                     Part I

Item 1.  Business..............................................................3
Item 2.  Properties............................................................6
Item 3.  Legal Proceedings.....................................................7
Item 4.  Submission of Matters to a Vote of Security Holders...................7
Executive Officers of the Registrant...........................................7


                                     Part II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and
         Issuer Purchases of Equity Securities.................................8
Item 6.  Selected Financial Data...............................................9
Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations......  ........................................10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...........20
Item 8.  Financial Statements and Supplementary Data..........................20
Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.................................................20
Item 9A. Controls and Procedures..............................................21


                                    Part III

Item 10. Directors and Executive Officers of the Registrant...................21
Item 11. Executive Compensation...............................................21
Item 12. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters..........................................21
Item 13. Certain Relationships and Related Transactions.......................21
Item 14. Principal Accounting Fees and Services...............................21


                                     Part IV

Item 15. Exhibits, Consolidated Financial Statement Schedules and Reports on
         Form 8-K.............................................................22
Signatures....................................................................25
Index to Financial Statements and Supplementary Data..........................F1
Exhibit Index...................................................................


                                        2


<PAGE>



                          First Aviation Services Inc.

                           Annual Report on Form 10-K
                   for the Fiscal Year Ended January 31, 2004

Forward-Looking Statements

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

                                     PART I


Item 1.  Business

General

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

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

Industry Overview

         The market for aerospace parts and supplies consists of two market
sectors, the manufacturing parts sector and the aftermarket parts sector. These
two market sectors are related, but require different customer focus to satisfy
the needs of the market. The manufacturing parts sector caters to parts
installed on new aircraft or engine construction. Large original equipment
manufacturers ("OEMs") sell directly to aircraft manufacturers and fabricators
the parts and supplies needed to manufacture new aircraft. The aftermarket parts
sector caters to the needs of aircraft and engines already in service and are
typically out of warranty, and out-of-production aircraft and engines, all of
which need maintenance, repair or modification. Typically, aircraft and engines
that are older or had more use require more parts and services. Furthermore,
within the aftermarket parts sector there is a market for new parts and
supplies, as well as used and refurbished parts and supplies. New and used parts

                                        3

<PAGE>

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

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

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

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

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

                                        4

<PAGE>

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

         Industry Conditions. The aftermarket parts sector in which the Company
operates is affected by general economic conditions and specific market activity
like flight activity, flight training, and air travel for business and pleasure.
Results for the year ended January 31, 2004 improved over the prior year due to
an improving economy, but continue to be adversely effected by reduced levels of
specific market activity that were caused by the recession that began in late
2000 and increased after the terrorist acts that occurred on September 11, 2001.
Recovery in the market environment has been increasing gradually, but overall
business activity in the aftermarket parts sector continues to be depressed.
Some categories may improve with the economy, like general aviation and
commercial airlines, but they will still be vulnerable to a downturn from
terrorist acts. Flight schools have not fully recovered to the level of
pre-recession operating levels, and certain flight zones remain restricted for
general aviation flights. Bankruptcies have and may continue to occur in the
aerospace industry, which have reverberating effects for all market sectors. The
Company expects that the current level of business activity in the aftermarket
parts sector will continue, but the timing of any recovery remains uncertain.
The Company continues to look for new sources of revenue, to control its costs,
and expand its offering of services both within the aftermarket parts sector and
beyond.

Principal Suppliers

         API has five suppliers from whom approximately 45%, 49%, and 53% of its
total purchases were made during the years ended January 31, 2004, 2003 and
2002, respectively.

         As reported in the last quarterly report on Form 10-Q, filed with the
SEC on December 15, 2003, the Company was in discussions with a principal
supplier, New Piper Aircraft Inc., to renew the Company's distribution
agreement. The Company was not successful in renewing the distribution
agreement, which expired on December 31, 2003. However, the Company is in the
process of finalizing arrangements to provide supply chain management services
to the Piper fleet, which we expect should mitigate the effect of the
termination of the distribution agreement on net sales.

Sales and Marketing

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

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

                                        5

<PAGE>

Customers

         The Company currently has approximately 7,300 customers. The Company is
not reliant upon any single customer.

Regulation

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

Environmental Matters and Proceedings

         The Company's operations are subject to federal, state and local
environmental laws and related regulation by government agencies, including the
United States Environmental Protection Agency, the United States Department of
Transportation, and the United States Occupational Safety and Health
Administration. Among other matters, these regulatory authorities impose
requirements that regulate the operation, handling, transportation and disposal
of hazardous materials, the health and safety of workers, and require the
Company to obtain and maintain licenses and permits in connection with its
operations. This extensive regulatory framework imposes potentially significant
compliance burdens and risks on the Company. The Company believes that it is in
material compliance with all federal, state, and local laws and regulations
governing its operations. The Company has not had and does not anticipate that
any material capital expenditures will be required during the next fiscal year
in order to maintain compliance with the federal, state and local laws and
regulations.

Employees

         As of January 31, 2004, the Company employed 198 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.

Geographic Areas

         Sales to unaffiliated foreign customers were approximately 22%, 18%,
and 17% of net sales for the years ended January 31, 2004, 2003 and 2002,
respectively. The majority of these customers were located in Canada, Southeast
Asia, Latin America and Europe.


Item 2.  Properties

         The Company leases all of its facilities, described below:

<TABLE>
<CAPTION>


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

Memphis, TN                   API                  Distribution/sales                 157,000              2013

Calgary, Canada               API Ltd.             Sales                                5,600              2009

Montreal, Canada              API Ltd.             Sales                                7,270              2008

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

                                        6

<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, or in
connection with the provision of its supply chain management services. The
Company takes what it believes to be adequate precautions to ensure the quality
of the work it performs and the traceability of the aircraft parts and
components that it sells. The OEMs that manufacture the parts, components and
supplies that the Company sells carry liability insurance on the products they
manufacture. In addition, the Company maintains what it believes is adequate
liability insurance to protect it from any claims.

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

The Company previously disclosed a lawsuit, filed on June 28, 2000, by SMR
Technologies, Inc., as plaintiff, against API in the U.S. District Court for the
Western District of Tennessee, Western Division at Memphis, alleging breach of a
distribution agreement. This lawsuit was dismissed in March 2004 for lack of
subject matter jurisdiction. The plaintiff filed for breach of contract on June
28, 2000, and was awarded partial summary judgment in the amount of $77,000 plus
interest, totaling approximately $94,000. The plaintiff was then granted
permission in April 2003 to amend its pleadings for damages to sue for
approximately $13.1 million. In March 2004, API was able to have the entire
lawsuit dismissed. API has filed a motion to recover its costs. The plaintiff
has indicated it will re-file the case in state court with the appropriate
jurisdiction.


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

         None.


Executive Officers of the Registrant

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

         Michael C. Culver, 53, has served as President and Chief Executive
Officer of First Aviation since March 1995. Mr. Culver also serves as Chairman
of API. In 1985, Mr. Culver co-founded First Equity Group Inc. ("First Equity
Group"). First Equity Group's interests, in addition to the Company, include
First Equity Development Inc., an aerospace investment and advisory firm, Skip
Barber Racing School, LLC and Imtek, Inc. Mr. Culver serves on the Boards of
Skip Barber Racing School, LLC and Imtek, Inc.

         Robert G. Costantini, 44, became First Aviation's Chief Financial
Officer, Senior Vice President of Finance, and Corporate Secretary in October
2003. Prior to joining First Aviation, from 1999 to 2003, Mr. Costantini was
Chief Financial Officer of FocusVision Worldwide, Inc., a technology company
providing video transmission services. From 1986 to 1989 he was first Corporate
Controller, and from 1989 to 1999 he was Vice President - Finance for M.T.
Maritime Management Corp., a global maritime transportation company. Mr.
Costantini started his career with Peat Marwick, Mitchell & Co. Mr. Costantini
is a Certified Public Accountant, Certified Management Accountant, and a member
of the bar of New York and Connecticut.

         Paul J. Fanelli, 42, became President and CEO of First Aviation's
principal subsidiary Aerospace Products International Inc. on April 5, 2004. Mr.
Fanelli was hired February 16, 2004 as Senior Vice President and Chief Operating
Officer of API. From 2000 to 2003, Mr. Fanelli was President - Europe for
Brightpoint, Inc., a distributor of wireless voice and data products and a
supplier of outsourced services. Previously he was Chief Operating Officer from
1998 to 2000 for Brightpoint Europe, Middle East and Africa. Mr. Fanelli has
worked for Ericsson Mobile Communications, Texas Instruments, ITT Avionics and
started his career with Loral Electronics.

                                       7

<PAGE>


                                     PART II



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

         Market Information. First Aviation's common stock trades on The NASDAQ
Small Cap Market under the symbol FAVS. The table below sets forth the quarterly
high and low sales prices for the First Aviation's common stock as reported by
the NASDAQ Stock Market since February 1, 2002.

<TABLE>
<CAPTION>

                    Year Ended                                                    Year Ended
                 January 31, 2004                                              January 31, 2003
----------------------------------------------------          ---------------------------------------------------
<S>                        <C>            <C>                 <C>                      <C>            <C>
                           High            Low                                        High             Low
First Quarter              $3.72          $2.62               First Quarter           $5.15          $4.60
Second Quarter             $4.00          $2.95               Second Quarter          $5.15          $4.50
Third Quarter              $3.99          $3.36               Third Quarter           $4.75          $3.50
Fourth Quarter             $4.79          $3.36               Fourth Quarter          $5.33          $3.54
</TABLE>

         Holders. As of April 12, 2004, there were 19 holders of record of the
First Aviation's common stock.

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

                                        8


<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.

         For the year ended January 31, 2004, the Company recorded revenues of
$105.8 million, and reduced its Loss from Operations to $121,000 from a Loss
from Operations of $1.6 million, in the prior year. Interest income and a tax
refund reduced the Loss from Operations to above breakeven for the year with net
income of $11,000.

         Results for the year ended January 31, 2003 were significantly impacted
by non-cash charges, totaling $5.5 million, which had no impact on the Company's
cash flow from operations.

<TABLE>
<CAPTION>
                                                                         Year Ended January 31,
(Amounts in thousands, except per share amounts)        2004         2003          2002        2001         2000
                                                    ----------- -------------- ----------- ----------- --------------
Balance Sheet Summary:
<S>                                                     <C>          <C>           <C>          <C>         <C>
Working capital                                     $   49,143   $   47,996    $   56,903   $  42,673   $  57,445
Cash per share outstanding (1)                            3.45         3.59          4.31        4.43        6.16
Total assets                                            64,982       65,041        80,544      80,714      86,392

Current debt and obligations under capital leases            -            4           180      11,757         163
Long-term debt                                          14,500       14,500        14,800    -              7,900
Other long-term liabilities                              1,041        1,041         1,041       1,188       1,156
Total stockholders' equity                          $   36,565   $   36,094    $   49,018   $  47,832   $  54,143
Book value per share outstanding (2)                $     5.02   $     4.98    $     6.79   $    6.65   $    6.65
Cash dividends paid per share                            -       $     1.00         -            -           -
Common shares outstanding                                7,284        7,251         7,214       7,185       8,134

Results of Operations Summary (3):

Net sales                                           $  105,777   $  101,737    $  105,696   $  97,550   $  82,999

Gross profit                                            19,536       18,473        19,016      18,543      15,928

Income (loss) from operations                            (121)      (1,577)           227      (2,300)        (92)

Income (loss) before income taxes                         (14)      (1,413)           486        (925)        (23)
Provision (benefit) for income taxes                      (25)      (1,786)          (194)        349         190
                                                    ----------- -------------- ----------- ----------- --------------
Income (loss) from continuing operations before
     accounting change                                      11      (3,199)           292        (576)        167
Cumulative effect of change in accounting                   -       (2,735)             -           -           -
                                                    ----------- -------------- ----------- ----------- --------------
Net income (loss)                                   $       11    $ (5,934)     $   1,252    $ (1,830)   $ 15,530
                                                    =========== ============== =========== =========== ==============
Basic income (loss) per share from continuing
     operations                                     $     0.00    $  (0.44)     $    0.04    $  (0.08)   $   0.02

Basic net income (loss) per share                   $     0.00    $  (0.82)     $    0.17    $  (0.24)   $   1.74

Weighted average shares outstanding - basic              7,267       7,225          7,198       7,721       8,909
                                                    ----------- -------------- ----------- ----------- --------------
Income (loss) per share from continuing operations
     - assuming dilution                            $     0.00    $  (0.44)     $    0.04    $  (0.08)   $   0.02

Net income (loss) per share - assuming dilution     $     0.00    $  (0.82)     $    0.17    $  (0.24)   $   1.72
Weighted average shares outstanding - assuming
    dilution                                             7,282        7,225         7,209       7,721       9,006
                                                    ----------- -------------- ----------- ----------- --------------
</TABLE>

                                        9

<PAGE>

Notes to Selected Financial Data


(1)      Cash per share outstanding is calculated by taking the cash balance and
         dividing by common shares outstanding. The Company repurchased for
         treasury 1.2 million shares for $4.8 million, and 1.0 million shares
         for $5.8 million during the years ended January 31, 2001 and 2000,
         respectively.

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

(3)      During the year ended January 31, 2003 the Company recorded a charge of
         $0.8 million to increase its allowance for doubtful trade receivables,
         recorded an income tax charge of $2.0 million to establish a valuation
         allowance against its deferred income tax assets, recorded a net charge
         of $2.7 million upon adoption of a new accounting principle related to
         goodwill, and paid a special cash dividend of $1.00 per share. In
         fiscal year 2000 the Company sold its former wholly owned subsidiary,
         National Airmotive Corporation ("NAC") and in fiscal year 2001
         discontinued its e-commerce subsidiary, AeroV Inc. ("AeroV"). As a
         result of the sale and discontinuance, NAC and AeroV have been
         accounted for as discontinued operations, and their results of
         operations and gain or loss on disposition were condensed and reported
         separately from continuing operations.


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

Cautionary Statements

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

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

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

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

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

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

                                        10
<PAGE>


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

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

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

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

         The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements, including the Notes thereto, and selected
financial data of the Company included elsewhere in this Annual Report on Form
10-K. (Amounts in millions, except share and per share amounts, and where
specifically noted.)

General

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

         The Company recorded revenues for the year ended January 31, 2004
exceeding revenues last seen in Fiscal Year 2002. For the full year, the Company
was able to narrow its Loss from Operations as a result of slightly improving
margins due to supply chain management contracts, and cost controls on selling,
general and administrative expenses. The Company continues to maintain a large
cash position and a strong balance sheet, although cash levels decreased
primarily due to planned inventory buying at year end. The Company believes that
its results show that it continues to take market share from its competitors, as
it managed to grow even though the industry outlook remains cautious for growth.

         Results for the three months and year ended January 31, 2004 improved
as the economy showed improvement. Although revenues improved from the prior
year, the Company continues to be adversely impacted by the recession in the
aerospace industry that began in late 2000 and increased after the terrorist
acts that occurred on September 11, 2001. Recovery in the industry has been
minimal, and overall business activity in the aerospace industry continues to be
depressed. While improvement has been seen in the general aviation and
commercial airline categories, other categories continue to operate at
significantly reduced levels. The Company expects the current level of reduced
business activity in the industry will continue, and the timing of any recovery
in the industry is uncertain. The Company continues to look for new sources of
revenue, to control its costs, and expand its offerings.

         As reported in the last quarterly report on Form 10-Q, filed with the
SEC on December 15, 2003, the Company was in discussions with a principal
supplier, New Piper Aircraft Inc., to renew the Company's distribution
agreement. The Company was not successful in renewing the distribution
agreement, which expired on December 31, 2003. For the year ended January 31,
2004, sales of Piper parts represented approximately 10% of total net sales, the
loss of which could have a significant impact on future revenues. However, the
Company is in the process of finalizing arrangements to provide supply chain
management services to the Piper fleet, which we expect should mitigate the
effect of the termination of the distribution agreement on net sales.

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

                                        11

<PAGE>

         On July 24, 2002, the Company announced that it had entered into a
multi-year contract with Gulfstream Aerospace Corporation for the provision of
supply chain management services, effective July 1, 2002. Net sales from this
contract favorably impacted results beginning in the quarter ended October 31,
2002.

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


Critical Accounting Policies

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

Revenue Recognition

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

Allowance for Doubtful Accounts

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


Allowance for Excess and Obsolete Inventories

                                        12

<PAGE>

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

Goodwill

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

Deferred Income Tax Assets

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

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.

New Accounting Pronouncements

         In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities." FIN No. 46 requires variable
interest entities to be consolidated if the equity investment at risk is not
sufficient to permit an entity to finance its activities without support from
other parties or the equity investors lack certain specified characteristics of
a controlling financial interest. The Company believes that the adoption of FIN
No. 46 will not have a material impact on its results of operations or financial
condition.

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). The provision of SFAS No.
150 are effective for financial instruments entered into or modified after May
31, 2003, and otherwise are effective at the beginning of the first interim
period beginning after June 15, 2003. The Company determined that the adoption
of SFAS No. 150 did not have a material impact on its results of operation or
financial condition.

                                        13

<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.

<TABLE>
<CAPTION>

                                                                           Year Ended January 31,
                                                       -------------------------------------------------------------
                                                               2004                 2003                  2002
                                                       -------------------------------------------------------------
  <S>                                                             <C>                  <C>                   <C>

  Net sales                                                    100.0%               100.0%                100.0%
  Cost of sales                                                 81.5                 81.8                  82.0
                                                       --------------------- -------------------- ------------------
  Gross profit                                                  18.5                 18.2                  18.0
  Selling, general and administrative expenses                  16.1                 17.4                  16.0
  Corporate expenses                                             2.5                  2.4                   2.5
  Litigation (income)                                            -                    -                    (0.7)
                                                       --------------------- -------------------- ------------------
  Income (loss) from operations                                 (0.1)                (1.6)                  0.2
  Interest income                                                0.1                  0.3                   0.6
  Interest and other expenses                                    -                   (0.1)                 (0.3)
                                                       --------------------- -------------------- ------------------
  Income (loss) before income taxes                              0.0                 (1.4)                  0.5
  (Provision) benefit for income taxes                           0.0                 (1.7)                 (0.2)
                                                       --------------------- -------------------- ------------------
  Income (loss) from continuing operations                       0.0                 (3.1)                  0.3
  Gain from dispositions of subsidiaries                         -                    -                     0.9
  Cumulative effect of accounting change                         -                   (2.7)                  -
                                                       --------------------- -------------------- ------------------
     Net income (loss)                                           0.0%                (5.8)%                 1.2%
                                                       ====================== ==================== ===================

</TABLE>

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

Net sales

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

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

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

         The Company expects to continue to expand into new markets, especially
internationally, add additional product lines, and invest in new product
offerings.

Cost of sales

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

                                        14

<PAGE>

Gross profit

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

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

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

Selling, general and administrative expenses

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

Corporate expenses

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

Interest income and interest and other expenses

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

(Provision) benefit for income taxes

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

                                        15

<PAGE>

Income (loss) from continuing operations

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

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

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


Year ended January 31, 2003 compared to year ended January 31, 2002

Net sales

         Net sales for the year ended January 31, 2003 decreased $4.0 million,
or 3.7%, to $101.7 million from $105.7 million for the year ended January 31,
2002. Net sales decreased principally as a result of depressed economic and
industry conditions, and continued additional security measures that especially
affected the commercial airline and general aviation markets, including flight
training schools. The result was significantly less flight activity and
therefore less requirements for parts and components. In addition, as a result
of economic and industry conditions, the Company previously had tightened its
credit policies, and this further contributed to the decline in sales. Price
reductions by competitors seeking to maintain and/or 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 majority of
the decrease in sales occurred in the U.S. market, but continued weakness in
Asia and Latin America, due to economic weakness in those areas, also negatively
impacted sales. Canada and Europe experienced sales growth.

         Partially offsetting the decline in sales of parts and components was
an increase in sales relating to supply chain management contracts due to new
customers and expanded service offerings. However, as these contracts often are
based upon a fee relative to the services provided, the impact on sales is less
than if the Company was selling the product itself.

Cost of sales

         Cost of sales consists of costs of inventory sold, direct costs to
overhaul and repair parts and components, and direct costs of providing
services. Freight costs also are included in cost of sales. Costs of sales for
the year ended January 31, 2003 decreased $3.4 million, or 3.9%, to $83.3
million from $86.7 million for the year ended January 31, 2002. The decrease in
cost of sales is consistent with the decrease in net sales. In addition, the
decrease in cost of sales was impacted by a shift in mix toward more supply
chain management services contracts, which have a higher margin, as described
below under Gross profit.

Gross profit

         Gross profit for the year ended January 31, 2003 decreased $0.5
million, or 2.9%, to $18.5 million from $19.0 million for the year ended January
31, 2002. Gross margin increased to 18.2% from 18.0%. The decline in gross
profit was due principally to the decrease in net sales, due to the reasons
described above under Net sales. Offsetting this decrease, which also was the
reason for the increase in the gross margin, was an increase in gross profit
from services contracts, which have a higher gross margin, as explained below.

         A significant portion of the costs relating to services contracts are
indirect costs, including indirect personnel, warehouse and related, and
systems, and these costs are included in selling, general and administrative
expenses. Therefore, gross margins for services sales will be higher than for
product sales. As net sales of services increase, the trend of increased gross
profit and gross margin from the current year compared to the prior year will
continue, along with smaller increases in selling, general and administrative
expenses. For the year ended January 31, 2003, gross profit from services sales
doubled that of the prior year.

                                       16

<PAGE>


         Services contracts are part of a continuum of product lines offered by
the Company to its customers, and represent a growth opportunity for the
Company. The Company considers its business to be distributing parts and
components and providing services to manage and/or distribute its customers'
parts and components.

Selling, general and administrative expenses

         Selling, general and administrative expenses for the year ended January
31, 2003 increased $0.8 million, or 4.5%, to $17.7 million from $16.9 million
for the year ended January 31, 2002. The increase is due principally to
increased charges for estimated bad debts, and an increase in indirect costs
related to services contracts. As stated in gross profit, indirect costs
relating to services sales are classified as part of selling, general and
administrative expenses. As net sales from services increase, selling, general
and administrative costs also will increase, though generally at a lower rate.

Corporate expenses

         Corporate expenses for the year ended January 31, 2003 decreased $0.2
million to $2.4 million from $2.6 million for the year ended January 31, 2002.
The reduction was due principally to less personnel related costs.

Interest income and interest and other expenses

         Interest income of $0.3 million earned during the year ended January
31, 2003 was derived from investing the Company's cash in short term
investments. The decrease from the $0.6 million earned during the year ended
January 31, 2002, was due principally to the marked decrease in interest rates
from fiscal year 2002 to fiscal year 2003. Interest and other expense of $0.1
million for the year ended January 31, 2003 decreased from $0.3 million for the
year ended January 31, 2002, principally for the same reason.

(Provision) benefit for income taxes

         For the first three quarters of the fiscal year ended January 31, 2003,
the Company's results showed pre-tax income before the cumulative effect of the
accounting change. As a result of the pre-tax loss incurred by the Company in
the fourth quarter, the Company incurred a pre-tax loss before the effect of the
accounting change for the full fiscal year. After considering this loss, the
Company had incurred a cumulative loss over the prior three years. This
cumulative loss triggered certain provisions under FAS 109 that required the
Company to re-evaluate its deferred income tax assets. As a result, the Company
took a charge of $2.0 million to establish a valuation allowance against its
deferred income tax assets since, under the provisions of FAS 109, a greater
emphasis is placed on three-year cumulative losses as an indicator of the
Company's ability to realize its deferred income tax assets than the potential
for future income. The requirement to establish the valuation allowance is not
an indication of management's evaluation of the Company's future or long-term
profitability, performance or financial condition of the Company. The valuation
allowance will be reversed in future years if financial results increase
sufficiently to support the value of the assets. The difference between the
effective rate for the year January 31, 2003 as compared to the statutory rate
of 34% is due principally to changes in the valuation allowance.

Income (loss) from continuing  operations before cumulative effect of accounting
change

         For the year ended January 31, 2003 the Company incurred a loss of $3.2
million from continuing operations, compared to income of $0.3 million for the
year ended January 31, 2002. The decrease in income principally was due to lower
sales and gross profit, significant charges to increase the Company's allowance
for bad debts, and the charge taken to establish a valuation allowance against
the Company's deferred income tax assets.

Cumulative effect of accounting change

         As previously described, during the year ended January 31, 2003, the
Company adopted FAS 142 and recorded a net charge of $2.7 million upon adoption.
There was no accounting change during the year ended January 31, 2002.

                                        17

<PAGE>

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

         The Company incurred a net loss of $5.9 million, or $0.82 per share for
the year ended January 31, 2003, as compared to net income of $1.3 million, or
$0.17 per share for the year ended January 31, 2002. The net loss and decrease
in net income principally were due to the reasons described above.

Liquidity and Capital Resources

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

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

         The reduction in cash for the year ended January 31, 2004 principally
was the result of planned inventory buying by the Company on cash basis terms,
thus increasing inventory levels at year end without an increase in accounts
payable. The Company continues to maintain a large cash position and a strong
balance sheet.

         The Company's cash provided by (used in) operations for the years ended
January 31, 2004, 2003 and 2002 was $(0.6) million, $3.4 million, and $1.9
million, respectively. Cash used in operations for the year ended January 31,
2004 was impacted by an increase in inventory due to a planned increase in
inventory buying in the fourth quarter, and payments that lowered accounts
payable balances, which was partially offset by reductions in receivables. Cash
used in investing activities for the years ended January 31, 2004, 2003 and 2002
was $(0.4) million, $(0.9) million, and $(5.7) million, respectively. Cash used
in investing activities for the years ended January 31, 2004 and 2003 was
related to purchases of fixed assets. Cash used in investing activities for the
year ended January 31, 2002 includes $5.0 million related to the acquisition of
the distribution business of Superior Air Products. Cash provided by (used in)
financing activities for the years ended January 31, 2004, 2003 and 2002 was $1
thousand, $(7.7) million, and $3.1 million, respectively. Cash used in financing
activities for the year ended January 31, 2003 includes $7.3 million to pay
stockholders a special cash dividend of $1.00 per share, and $0.5 million to pay
down long-term debt and capital lease obligations. In the year January 31, 2002,
the Company had borrowed cash to fund a portion of its acquisition of the
distribution business of Superior.

         First Aviation's aggregate cash used for capital expenditures,
excluding the acquisition of the distribution business of Superior, for the
years ended January 31, 2004, 2003 and 2002 was $0.4 million, $0.9 million, and
$0.7 million, respectively. The decrease over the three years is due to the
discontinuance of subsidiaries, NAC and AeroV, and 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 2005 the
amount required for capital expenditures currently is expected to range between
$0.6 million and $1.0 million. Management expects to fund these requirements
from cash on hand, cash flows from operations, and from borrowings.

         API has a $20 million revolving line of credit through a Commercial
Revolving Loan and Security Agreement (the "Facility"). Borrowings under this
Facility bear interest equal to the LIBOR rate plus 1.5% and are limited to
specified percentages of eligible trade receivables and inventories of API. The
Facility contains a number of covenants, including restrictions on mergers,
consolidations and acquisitions, the incurrence of indebtedness, transactions
with affiliates, the creation of liens, and limitations on capital expenditures.
Pursuant to the terms and conditions of the Facility, the payment of dividends
on API's common stock is prohibited, except with the lender's consent, and API
is required to maintain minimum levels of net worth and specified interest
expense coverage ratios. Substantially all of API's domestic assets are pledged
as collateral under the Facility, and First Aviation guarantees all borrowings
under the Facility. Borrowings under the Facility were $14.5 million at January
31, 2004, at an interest rate of approximately 2.6%. An additional total of
approximately $3.1 million was available to borrow under the Facility at January
31, 2004. In February 2004, the Company repaid $13.5 million of the debt
outstanding. During the quarter ended July 31, 2003, API extended the maturity
date of the Facility to July 1, 2005 from July 1, 2004. The extension of the
agreement was on the same terms and conditions as the prior Facility. As a
result of the extension, borrowings under the Facility continue to be classified
as long-term. Management believes that the carrying amount of the Company's
borrowings approximates fair market value because the interest rate is variable
and resets frequently.

         Based upon current and anticipated levels of operations, the Company
believes that its cash on hand and cash flow from operations, combined with
borrowings available under its line of credit, will be sufficient to meet its
current and anticipated cash operating requirements through the year ending
January 31, 2005, including scheduled interest payments, working capital needs,
capital expenditures and subsidiary preferred dividend requirements.

                                        18

<PAGE>

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

         In a series of authorizations commencing November 3, 1999, the
Company's Board of Directors authorized a repurchase program of up to 2,118,817
shares of the Company's common stock. The repurchases were 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 share repurchase program totaled
2,024,498 shares at January 31, 2002, with an aggregate cost of approximately
$10.7 million, or $5.29 per share. Approximately 94,000 shares still may be
repurchased under this program.

         The Company acquired API's domestic distribution business from AMR
Combs, Inc. ("AMR Combs") in 1997. In conjunction with this acquisition, AMR
Combs purchased preferred stock of API, convertible into ten percent of the
common stock of API as of the date of conversion, prior to any dilution (the
"Preferred Stock"). In addition, First Aviation, API and AMR Combs entered into
a Stockholders Agreement. Pursuant to this agreement, API has the right to
redeem the Preferred Stock at any time. Subject to certain terms and conditions,
AMR Combs has the right to cause the Company to repurchase the Preferred Stock.
The redemption price is equal to the fair market value of the Preferred Stock as
determined by an independent appraisal. The Stockholders Agreement also contains
certain other rights, including: (i) a right of first refusal on the part of
First Aviation with respect to any proposed sale of the Preferred Stock; (ii)
the right of First Aviation to require AMR Combs to participate, on a pro rata
basis, with it in the sale of the capital stock of API to a third party; (iii)
the right of AMR Combs to elect to participate, on a pro rata basis, in the sale
of the capital stock of API to a third party; and (iv) piggyback and demand
registration rights granted to AMR Combs with respect to the Preferred Stock.
The demand registration rights became exercisable in March 2000. If API has not
previously closed an underwritten public offering of its common stock at the
time AMR Combs elects to exercise its demand registration rights, API may elect
to treat the demand as an exercise by AMR Combs of its put option with respect
to the Preferred Stock. There are no plans to cause API to conduct a public
offering of its securities.

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

Inflation

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

Off -Balance Sheet Arrangements

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

                                        19

<PAGE>



Contractual Obligations

<TABLE>
<CAPTION>

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

<S>                                                     <C>           <C>          <C>            <C>          <C>
Long-Term Debt Obligations (1)                      $   14,500   $        -     $  14,500    $      -    $      -

Capital Lease Obligations                                    -            -             -           -           -

Operating Lease Obligations (2)                          5,747          961         1,508       1,365       1,913

Purchase Obligations (3)                                15,324       15,324             -           -           -

Other Long-Term Liabilities (4)                          1,041            -             -           -       1,041

Total                                               $   36,612   $   16,285     $  16,008    $  1,365    $  2,954

</TABLE>

Notes to Contractual Obligations Data:

(1)  Long-term  debt  consists  of API's $20  million  revolving  line of credit
     through a Commercial  Revolving Loan and Security Agreement as described in
     the Liquidity and Capital Resources, above.

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

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

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


Item 7A.   Quantitative and Qualitative Disclosures about Market Risks

         The Company's Canadian operations utilize the Canadian dollar as their
functional currency, while the Company's Asian operation utilizes the U.S.
dollar as its functional currency. The Company has transactions denominated in
Canadian dollars and Philippine pesos. Foreign currency transaction exposure
principally arises from the transfer of foreign currency to and/or from U.S.
dollars from one subsidiary to another within the Company, and from foreign
currency denominated trade receivables. Currency transaction and translation
exposures are not hedged. Foreign currency transaction gains and losses are
included in earnings, and gains and losses will increase in significance with
the growth of the Canadian operations. Unrealized currency translation gains and
losses resulting from the translation of foreign subsidiaries balance sheets to
U.S. dollars are not recorded as income or expense, but are recognized in the
Balance Sheet as other comprehensive income or loss as a component of
Stockholders Equity. The Company does have risk principally relating to the
translation of accounts in which the Canadian dollar is the functional currency.
During the year ended January 31, 2004, the Company experienced an increase in
other comprehensive income of $334,000, due to an increase in the value of the
Canadian dollar relative to the U.S. dollar.

         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.

                                        20


<PAGE>

Item 9A.   Controls and Procedures

The Company's management evaluated, with the participation of First Aviation's
principal executive and principal financial officers, the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
l5d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), as of January 31, 2004. Based on their evaluation, First Aviation's
principal executive and principal financial officer concluded that the Company's
disclosure controls and procedures were effective as of January 31, 2004.

There has been no change in the Company's internal control over financial
reporting (as defined in Rules 13a-l5(f) and 15d-l5(f) under the Exchange Act)
that occurred during the Company's fourth fiscal quarter of the fiscal year
ended January 31, 2004, that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.


                                    PART III


Item 10.  Directors and Executive Officers of the Registrant

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


Item 11.   Executive Compensation

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


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

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


Item 13.   Certain Relationships and Related Transactions

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


Item 14.   Principal Accounting Fees & Services

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

                                        21

<PAGE>



                                     PART IV


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

(a) Documents filed as part of this report:

     (1)  Financial Statements:  See Index to Consolidated Financial Statements,
          which appears on Page F-1 hereof.

     (2)  Financial  Statement Schedule II - Valuation and Qualifying  Accounts,
          which  appears on Page F-22  hereof.  (All other  schedules  have been
          omitted because they are not applicable or the required information is
          shown  in  the  Consolidated  Financial  Statements  or the  Notes  to
          Consolidated Financial Statements.)

     (3)  Exhibits

Exhibit
Number                       Description of Exhibit

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

3.2        Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to
           the Company's Quarterly Report on Form 10-Q for the quarterly period
           ended October 31, 2001, and incorporated herein by reference).

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

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

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

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

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

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

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

10.8       Commercial Revolving Loan and Security Agreement, dated March 30,
           2000, by and between Hudson United Bank and Aerospace Products
           International, Inc. (filed as Exhibit 10.43 to the Company's Annual
           Report on Form 10-K for the year ended January 31, 2000, and
           incorporated herein by reference).

                                        22

<PAGE>


10.9       Guaranty, dated as of March 30, 2000, between First Aviation Services
           Inc. and Hudson United Bank (filed as Exhibit 10.44 to the Company's
           Annual Report on Form 10-K for the year ended January 31, 2000, and
           incorporated herein by reference).

10.10      Second Amendment to Commercial Revolving Loan and Security Agreement
           dated as of April 27, 2001 between Hudson United Bank and Aerospace
           Products International, Inc. (filed as Exhibit 10.48 to the Company's
           Quarterly Report on Form 10-Q for the quarterly period ended April
           30, 2001, and incorporated herein by reference).

10.11      Second Reaffirmation of Guaranty dated as of April 27, 2001 by First
           Aviation Services Inc. and in favor of Hudson United Bank (filed as
           Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
           quarterly period ended April 30, 2001, and incorporated herein by
           reference).

10.12      Third Amendment to Commercial Revolving Loan and Security Agreement
           dated as of June 28, 2001 between Hudson United Bank and Aerospace
           Products International, Inc. (filed as Exhibit 10.48 to the Company's
           Quarterly Report on Form 10-Q for the quarterly period ended July 31,
           2001, and incorporated herein by reference).

10.13      Third Reaffirmation of Guaranty dated as of June 28, 2001 by First
           Aviation Services Inc. and in favor of Hudson United Bank (filed as
           Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
           quarterly period ended July 31, 2001, and incorporated herein by
           reference).

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

10.15      Letter, effective February 1, 2002, by and between First Equity
           Development Inc. and its affiliates and First Aviation Services Inc.
           regarding pursuit of acquisition opportunities (filed as Exhibit
           10.23 to the Company's Annual Report on Form 10-K for the year ended
           January 31, 2002, and incorporated herein by reference).

10.16      Engagement  Letter between First Equity  Development Inc. and its
           affiliate,  FED Securities Inc., and First Aviation Services Inc.
           effective  February  1,  2002  (filed  as  Exhibit  10.40  to the
           Company's  Annual  Report on Form 10-K for the year ended January
           31, 2002, and incorporated herein by reference).

10.17      Fourth Amendment to Commercial Revolving Loan and Security Agreement
           dated as of July 31, 2002 between Hudson United Bank and Aerospace
           Products International, Inc. (filed as Exhibit 10.48 to the Company's
           Quarterly Report on Form 10-Q for the quarterly period ended July 31,
           2002, and incorporated herein by reference).

10.18      Fourth Reaffirmation of Guaranty dated as of July 31, 2002 by First
           Aviation Services Inc. and in favor of Hudson United Bank (filed as
           Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
           quarterly period ended July 31, 2002, and incorporated herein by
           reference).


10.19      Fifth Amendment to Commercial Revolving Loan and Security Agreement
           dated as of July 31, 2003 between Hudson United Bank and Aerospace
           Products International, Inc. (filed as Exhibit 10.19 to the Company's
           Quarterly Report on Form 10-Q for the quarterly period ended July 31,
           2003, and incorporated herein by reference).

10.20      Fifth Reaffirmation of Guaranty dated as of July 31, 2003 by First
           Aviation Services Inc. and in favor of Hudson United Bank (filed as
           Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the
           quarterly period ended July 31, 2003, and incorporated herein by
           reference).


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

10.22  *   Employment Agreement, dated as of October 7, 2003, between the
           Company and Robert G. Costantini.

                                        23

<PAGE>

10.23  *   Form of Incentive Stock Option Award Agreement Letter Pursuant to
           the 1997 Stock Incentive Plan.


10.24  *   Officer Indemnification Agreement dated as of October 27, 2003
           between the Company and Robert G. Costantini.

10.25  *   Employment Agreement, dated as of February 2, 2004, between
           Aerospace Products International, Inc. and Paul J. Fanelli.

10.26  *   Amendment to Employment  Agreement,  dated as of April 5, 2004,
           between Aerospace Products  International,  Inc. and Paul J. Fanelli.

10.27  *   Relocation Agreement, dated as of February 16, 2004, betweeen
           Aerospace Products International, Inc. and Paul J. Fanelli.

21.1       List of Subsidiaries.

23.1       Consent of Ernst & Young LLP.

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

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

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

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



     *  Management contracts or compensatory plans or arrangements.


(b) Reports on Form 8-K

         None, except that a Current Report on Form 8-K dated December 15, 2003
         was furnished, announcing under Item 12, the Company's third quarter
         results for the quarterly period ended October 31, 2003.


                                        24


<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 April 29, 2004.


                                        FIRST AVIATION SERVICES INC.


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


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



 /s/ Aaron P. Hollander           Chairman of the Board          April 29, 2004
 --------------------------
 Aaron P. Hollander



 /s/ Michael C. Culver            Chief Executive Officer        April 29, 2004
 --------------------------       and Director (Principal
 Michael C. Culver                Executive Officer)



 /s/ Stanley J. Hill              Director                       April 29, 2004
 --------------------------
 Stanley J. Hill




 /s/ Robert L. Kirk               Director                       April 29, 2004
 --------------------------
 Robert L. Kirk



 /s/ Joseph J. Lhota              Director                       April 29, 2004
 --------------------------
 Joseph J. Lhota


                                    25

<PAGE>





                          First Aviation Services Inc.

                        Consolidated Financial Statements

               For the years ended January 31, 2004, 2003 and 2002




                   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-F21

Schedule II - Valuation and Qualifying Accounts..............................F22


                                       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, 2004 and 2003, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended January 31, 2004. Our audits also included the
financial statement schedule listed in the Index at Item 15(a)2. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with 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. at January 31, 2004 and 2003, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 2004, 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.

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


                                          /s/  Ernst & Young LLP



Stamford, Connecticut
April 2, 2004

                                       F2


<PAGE>



                          First Aviation Services Inc.

                           Consolidated Balance Sheets
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>

                                                                          January 31,
Assets                                                                  2004           2003
                                                                  -----------    -----------
Current assets:
<S>                                                                  <C>            <C>
     Cash and cash equivalents                                       $25,144        $26,013
     Trade receivables, net                                           13,499         13,739
     Inventories, net                                                 22,344         20,617
     Prepaid expenses and other                                        1,032          1,033
                                                                  -----------    -----------

Total current assets                                                  62,019         61,402

Plant and equipment, net                                               2,963          3,639
                                                                  -----------    -----------

                                                                     $64,982        $65,041
                                                                  ===========    ===========

Liabilities and stockholders' equity
Current liabilities:
     Accounts payable                                                 $9,561        $10,324
     Accrued compensation and related expenses                         1,116          1,060
     Other accrued liabilities                                         1,260          1,009
     Income taxes payable                                                939          1,009
     Current obligations under capital leases                              -              4
                                                                  -----------    -----------

Total current liabilities                                             12,876         13,406

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

Total liabilities                                                     28,417         28,947

Stockholders' equity
     Common stock, $0.01 par value, 25,000,000 shares authorized,
          9,135,699 shares issued                                         91             91
     Additional paid-in capital                                       38,375         38,445
     Retained earnings                                                 7,554          7,543
    Accumulated other comprehensive income (loss)                        238            (96)
                                                                  -----------    -----------

                                                                      46,258         45,983
     Less:  Treasury stock, at cost, 1,851,606 and 1,884,989
          shares, respectively                                        (9,693)        (9,889)
                                                                  -----------    -----------
     Total stockholders' equity                                       36,565         36,094
                                                                  -----------    -----------

Total liabilities and stockholders' equity                           $64,982        $65,041
                                                                  ===========    ===========

</TABLE>

See accompanying notes.


                                       F3

<PAGE>



                          First Aviation Services Inc.

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

<TABLE>
<CAPTION>


                                                                                             Year ended January 31,
                                                                                        --------------------------------
                                                                                             2004       2003       2002
                                                                                        ---------- ---------- ----------

<S>                                                                                      <C>        <C>        <C>
Net sales                                                                                $105,777   $101,737   $105,696
Cost of sales                                                                              86,241     83,264     86,680

                                                                                        ---------- ---------- ----------
Gross profit                                                                               19,536     18,473     19,016

Selling, general and administrative expenses                                               17,032     17,656     16,896
Corporate expenses                                                                          2,625      2,394      2,628
Litigation income                                                                               -          -       (735)

                                                                                        ---------- ---------- ----------
Income (loss) from operations                                                                (121)    (1,577)       227
Interest income                                                                               154        273        592
Interest and other expenses                                                                    (5)       (67)      (291)
Minority interest in subsidiary                                                               (42)       (42)       (42)

                                                                                        ---------- ---------- ----------
Income (loss) before income taxes                                                             (14)    (1,413)       486
(Provision) benefit for income taxes                                                           25     (1,786)      (194)

                                                                                        ---------- ---------- ----------
Income (loss) from continuing operations before cumulative
    effect of accounting change                                                                11     (3,199)       292

Gain from dispositions of subsidiaries                                                          -          -        960
Cumulative effect of accounting change                                                          -     (2,735)         -

                                                                                        ---------- ---------- ----------
Net income (loss)                                                                             $11    $(5,934)    $1,252
                                                                                        ========== ========== ==========

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

Income (loss) from continuing operations before cumulative
    effect of accounting change                                                             $0.00     $(0.44)     $0.04
Gain from dispositions of subsidiaries                                                          -          -       0.13
Cumulative effect of accounting change                                                          -      (0.38)         -

                                                                                        ---------- ---------- ----------
Basic net income (loss) per  share, and net income (loss) per
    share - assuming dilution                                                               $0.00     $(0.82)     $0.17
                                                                                        ========== ========== ==========

Weighted average shares outstanding - basic                                             7,267,368  7,224,532  7,197,941
                                                                                        ========== ========== ==========

Weighted average shares outstanding - assuming dilution                                 7,281,598  7,224,532  7,208,725
                                                                                        ========== ========== ==========


See accompanying notes.

</TABLE>


                                       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   Sub-    Treasury
                                         of Shares  Amount  Capital   Earnings Income (Loss)   Total    Stock    Total
                                         ---------- ------ ---------- -------- ------------- -------- --------- --------

<S>                 <C> <C>              <C>          <C>    <C>      <C>                <C> <C>      <C>       <C>
Balances at January 31, 2001             7,184,704    $91    $38,625  $19,476            $-  $58,192  $(10,360) $47,832

Shares issued to directors                  30,149      -       (109)       -             -     (109)      241      132
Common shares repurchased                   (1,100)     -          -        -             -        -        (5)      (5)
Other comprehensive loss                         -      -          -        -          (193)    (193)        -     (193)
    Net income                                   -      -          -    1,252             -    1,252         -    1,252
                                         ---------- ------ ---------- -------- ------------- -------- --------- --------

Balances at January 31, 2002             7,213,753     91     38,516   20,728          (193)  59,142   (10,124)  49,018
                                         ---------- ------ ---------- -------- ------------- -------- --------- --------

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

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

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

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

See accompanying notes.

</TABLE>

                                       F5

<PAGE>




                          First Aviation Services Inc.

                      Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>



                                                                                                 Year ended January 31,
                                                                                              --------------------------
                                                                                                 2004     2003     2002
                                                                                              -------- -------- --------
Cash flows from operating activities
<S>                                                                                               <C>  <C>       <C>
Net income (loss)                                                                                 $11  $(5,934)  $1,252

Adjustments to reconcile net income (loss) to net cash from operating
      activities - non cash expense (income):
     Depreciation and amortization                                                              1,101    1,372    1,399
     Deferred income taxes                                                                          -    1,786        -
     Compensation paid through issuance of stock                                                  121      104      112
     Gain from dispositions of subsidiaries                                                         -        -     (960)
     Cumulative effect of accounting change                                                         -    2,735        -
(Increase) decrease in working capital assets:
          Trade receivables                                                                       416    2,418      467
          Inventories                                                                          (1,561)   2,399    1,708
          Prepaid expenses and other assets                                                        10      421      (73)
Increase (decrease) in working capital liabilities:
          Accounts payable                                                                       (775)  (1,140)  (2,032)
          Other accrued liabilities                                                               188     (685)       -
          Income taxes payable                                                                    (70)     (87)       -

                                                                                              -------- -------- --------
Net cash provided by (used in) operating activities                                              (559)   3,389    1,873

Cash flows from investing activities
Purchases of plant and equipment and other assets                                                (484)    (925)    (683)
Proceeds from disposals of plant and equipment and other assets                                    70        -        -
Purchase of assets from Superior, including acquisition costs                                       -        -   (5,028)

                                                                                              -------- -------- --------
Net cash used in investing activities                                                            (414)    (925)  (5,711)

Cash flows from financing activities
Net borrowings (repayments) on long-term debt and capital lease
      obligations                                                                                  (4)    (476)   3,076
Dividends paid                                                                                      -   (7,251)       -
Repurchases of common stock for treasury and other                                                  5       60       20

                                                                                              -------- -------- --------
Net cash provided by (used in) financing activities                                                 1   (7,667)   3,096

Effect of exchange rate changes on cash and cash equivalents                                      103      103        -

                                                                                              -------- -------- --------
Net change in cash and cash equivalents                                                         $(869) $(5,100)   $(742)
Cash and cash equivalents at the beginning of the year                                         26,013   31,113   31,855

                                                                                              -------- -------- --------
Cash and cash equivalents at the end of the year                                              $25,144  $26,013  $31,113
                                                                                              ======== ======== ========

Supplemental cash flow disclosures
Cash paid for:
     Interest                                                                                     $61      $54     $130
                                                                                              ======== ======== ========

     Income taxes (refunded) paid, net                                                           $124    $(322)   $(748)
                                                                                              ======== ======== ========


See accompanying notes.
</TABLE>

                                       F6

<PAGE>




                          First Aviation Services Inc.

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

1.   Business and Basis of Presentation

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

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

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

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


2.   Summary of Significant Accounting Policies

Use of Estimates

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

Net Sales, Cost of Sales, and Trade Receivables

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


                                       F7

<PAGE>




Cost of sales consists of costs of inventory sold, costs to overhaul and repair
parts and components, and direct costs of providing services.

Sales to unaffiliated foreign customers were approximately 22%, 18% and 17% of
net sales for the years ended January 31, 2004, 2003 and 2002, respectively. The
majority of these customers were located in Canada, Southeast Asia, Latin
America, and Europe.

The Company provides credit in the form of trade accounts receivable to its
customers. The Company generally does not require collateral to support domestic
customer receivables. Receivables arising from export activities may be
supported by foreign credit insurance. The Company performs ongoing credit
evaluations of its customers and maintains allowances that management believes
are adequate for potential credit losses. During the year ended January 31,
2003, due to continued deteriorating economic conditions, especially in the
aerospace industry, the Company recorded a charge of $804 to increase its
allowance for doubtful accounts. The allowance for doubtful accounts was $1,418
and $1,656, at January 31, 2004 and 2003, respectively.

Shipping and Handling Revenues and Costs

Fees billed to customers associated with shipping and handling activities are
classified as revenue, and costs associated with shipping and handling, are
classified as part of cost of sales. Previously, shipping and handling costs
were included in selling, general and administrative expenses. For the year
ended January 31, 2003 the Company first classified costs associated with
shipping and handling as part of cost of sales. These costs have been
reclassified to cost of sales for the prior period presented.

Stock Based Compensation and Stock Options Issued to Employees

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

The Company generally grants stock options to its employees for a fixed number
of shares with an exercise price equal to the fair market value of the stock on
the date of grant. As permitted under Statement of Financial Accounting Standard
No. ("FAS") 123, "Accounting for Stock-Based Compensation", the Company has
elected to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for stock
awards to employees. No compensation expense was recognized during the years
ending January 31, 2004, 2003 and 2002 since all grants were issued at the fair
market value of the Company's common stock at the date of grant.

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


                                       F8

<PAGE>



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


                                       2004         2003         2002
                                   --------- ------------ ------------

Expected dividend yield                 0.0%         0.0%         0.0%

Risk-free interest rate                 1.9%         2.5%         4.0%

Expected volatility                    37.8%        37.4%        41.9%

Expected life of option                 5.0 years    5.0 years    4.0 years

Weighted-average fair value
 of options granted during
 the year                            $ 1.15       $ 1.77       $ 1.64

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


                                              2004      2003     2002
                                           -------- --------- --------

Net income (loss) as reported                  $11   $(5,934)  $1,252

Pro forma net compensation expense for
 issuance of stock options                      42       295      122
                                           -------- --------- --------

Pro forma net income (loss)                   $(31)  $(6,229)  $1,130
                                           ======== ========= ========

Basic net income (loss) per share, and net
 income (loss) per share - assuming
 dilution as reported                       $ 0.00   $ (0.82)  $ 0.17

Pro forma basic net income (loss) per
 share, and net income (loss) per share -
 assuming dilution                          $ 0.00   $ (0.86)  $ 0.16
                                           ======== ========= ========


Cash and Cash Equivalents

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

Inventories

Inventories generally consist of aircraft parts and components and are stated at
the lower of cost or market, using the first-in, first-out method. Provisions
are made in each period for the estimated effect of obsolete and slow moving
inventories. Actual obsolete and slow moving inventories may differ
significantly from such estimates, and such differences could be material to the
financial statements. The allowance for obsolete and slow moving inventory was
$1,013 and $997, at January 31, 2004 and 2003, respectively.

Fair Value of Financial Instruments

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


                                       F9


<PAGE>

Plant and Equipment

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

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

Goodwill

In prior years, goodwill consisted of the excess of the purchase price of API
and Superior over the fair value of the net assets acquired. As described in
Note 9, all goodwill was written off during the three months ended April 30,
2002 upon the required adoption of an accounting change. Amortization expense
was $65 for the year ended January 31, 2002.

Long-Lived Assets

During the year ended January 31, 2003, the Company adopted FAS 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". Under FAS 144, an
impairment loss must be recognized when the carrying amount of a long-lived
asset exceeds its fair value. In the event that the carrying amounts of
long-lived assets may be impaired, an assessment of recoverability must be
performed. The assessment process consists of comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying amount
to determine if a write-down is required. If this review process indicates that
the asset will not be recoverable, the carrying value of the asset must be
reduced to its estimated realizable value. The adoption of FAS 144 had no effect
on the consolidated financial position of the Company. No asset impairments were
recorded during the years ended January 31, 2004, 2003 and 2002.

Principal Suppliers

API has five suppliers of parts and components from which approximately 45%, 49%
and 53% of its total purchases were made during the years ended January 31,
2004, 2003 and 2002, respectively. Accounts payable to these vendors totaled
$2,152 and $2,531 at January 31, 2004 and 2003, 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.

Income Taxes

The Company uses the liability method to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company records valuation allowances
against deferred tax assets as deemed necessary. As described in Note 6, during
the year ended January 31, 2003 the Company recorded a charge of $1,993 to
establish a valuation allowance against its deferred tax assets.


                                       F10

<PAGE>




Accumulated Other Comprehensive Income (Loss)

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


                                              2004     2003     2002
                                             ------ --------- --------

Net income (loss) as reported                  $11   $(5,934)  $1,252

Pro forma net impact of foreign currency
 translation adjustments - gain (loss)         334        97     (193)
                                             ------ --------- --------

Comprehensive net income (loss)               $345   $(5,837)  $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:
                                                         January 31,
                                                        2004     2003
                                                     -------- --------

 Machinery and equipment                              $1,982   $2,025
 Buildings and leasehold improvements                  1,236    1,219
 Computer equipment, software, office furniture,
   fixtures and other office equipment                 6,147    5,681
 Construction-in-process                                 153      184
                                                     -------- --------
                                                       9,518    9,109

 Less:  accumulated depreciation                      (6,555)  (5,470)
                                                     -------- --------
                                                      $2,963   $3,639
                                                     ======== ========

In years ending prior to January 31, 2004, certain equipment had been pledged as
collateral under capital leases. Amortization of these assets was included in
depreciation and amortization.


                                       F11


<PAGE>




4.   Obligations Under Capital Leases and Long-Term Debt

                                                        January 31,
                                                     -----------------
                                                        2004     2003
                                                     -------- --------

Current obligations under capital leases             $     -  $     4
                                                     ======== ========

Long-term debt - revolving line of credit            $14,500  $14,500
                                                     ======== ========


API has a $20,000 revolving line of credit through a Commercial Revolving Loan
and Security Agreement (the "Facility"). Borrowings under this Facility bear
interest equal to the LIBOR rate plus 1.5% and are limited to specified
percentages of eligible trade receivables and inventories of API. The Facility
contains a number of covenants, including restrictions on mergers,
consolidations and acquisitions, the incurrence of indebtedness, transactions
with affiliates, the creation of liens, and limitations on capital expenditures.
Pursuant to the terms and conditions of the Facility, the payment of dividends
on API's common stock is prohibited, except with the lender's consent, and API
is required to maintain minimum levels of net worth and specified interest
expense coverage ratios. Substantially all of API's domestic assets are pledged
as collateral under the Facility, and First Aviation guarantees all borrowings
under the Facility. Borrowings under the Facility were $14,500 at January 31,
2004, at an interest rate of approximately 2.6%. An additional total of
approximately $3.1 million was available to borrow under the Facility at January
31, 2004. In February 2004, the Company repaid $13,500 of the debt outstanding.
Effective July 31, 2003, API extended the maturity date of the Facility to July
1, 2005 from July 1, 2004. The extension of the agreement was on the same terms
and conditions as the prior Facility. As a result of the extension, borrowings
under the Facility continue to be classified as long-term. Management believes
that the carrying amount of the Company's borrowings approximates fair value
because the interest rate is variable and resets frequently.

For the year ended January 31, 2003, the Company had leased certain equipment
under leases that had been classified as capital leases. The obligations under
the capital leases were recorded at the net present value of the future minimum
lease payments. All such obligations due within one year from the balance sheet
date are therefore classified as current. Interest expense on the obligations
was recorded as incurred.


5.   Stockholders' Equity

The Company has an Employee Stock Purchase Plan ("ESPP"). Under the ESPP,
250,000 shares of common stock have been reserved for issuance. With certain
limitations, the plan allows for eligible employees to purchase stock through
payroll deductions at 85% of the lower of the fair market value of the Company's
common stock as of the first day of each semi-annual offering period or the fair
market value of the stock at the end of the offering period. The Company issued
1,283 and 3,640 shares from treasury stock to employees under the ESPP during
the years ended January 31, 2004 and 2003, respectively. At January 31, 2004,
187,845 shares were available for purchase under the ESPP.

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

                                       F12


<PAGE>


All of the stock options vest ratably over two to five-year periods, beginning
one year after the date of the grant, and expire ten years after issuance. Since
the exercise price of all of the options granted during the years ended January
31, 2004, 2003 and 2002 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, 2004, options for 753,500 shares
(after forfeitures) had been issued under the Plan. The following table is a
summary of activity related to stock options for the respective years ended
January 31,:

                     2004                 2003                 2002
              -------------------- -------------------- --------------------
                         Weighted-            Weighted-            Weighted-
                Number    Average    Number    Average    Number    Average
                  Of     Exercise      Of     Exercise      Of     Exercise
               Options     Price    Options     Price    Options     Price
              ---------- --------- ---------- --------- ---------- ---------
Outstanding
 at beginning
 of year        598,200    $ 5.18    389,000    $ 5.36    375,500    $ 6.16

Granted         115,000      3.21    220,000      4.82    198,500      4.36

Exercised             -         -    (10,800)     4.31          -         -

Forfeited      (120,500)     4.49          -         -   (185,000)     5.90
              ---------- --------- ---------- --------- ---------- ---------

Outstanding
 at end of
 year           592,700     $4.94    598,200     $5.18    389,000     $5.36
              ========== ========= ========== ========= ========== =========

Exercisable
 at end of
 year           314,368     $5.59    258,864     $5.14    155,249     $6.57
              ========== ========= ========== ========= ========== =========



The following table is a summary of information about stock options outstanding
at January 31, 2004:

<TABLE>
<CAPTION>

                      Options Outstanding                            Options Exercisable
---------------------------------------------------------------  ----------------------------
 <S>             <C>                <C>              <C>        <C>           <C>
                                  Weighted-
   Range of        Number          Average         Weighted-                Weighted-Actual
   Exercise          Of           Remaining     Actual Average   Number of   Average Exercise
    Prices         Options      Contractual     Exercise Price    Options         Price
                                     Life
--------------- -------------  ---------------  ---------------  ---------  -----------------
  $2.74 - 6.00       542,700      7.6 years              $4.47    264,368              $4.75
         10.00        50,000      3.4 years              10.00     50,000              10.00
--------------- -------------  ---------------  ---------------  ---------  -----------------

$2.74 - $10.00       592,700      7.2 years              $4.94    314,368              $5.59
=============== =============  ===============  ===============  =========  =================
</TABLE>

All of the Company's current directors elected to receive their compensation for
the years ended January 31, 2004, 2003 and 2002 paid in the form of shares of
the Company's common stock. The fair market value of the Company's common stock
at the date of issuance was charged to expense with a corresponding decrease to
treasury stock and additional paid-in capital. Such compensation expense totaled
$121, $104 and $109, and the number of shares issued was 32,100, 22,517 and
25,452 for the years ended January 31, 2004, 2003 and 2002, respectively. A
total of 117,404 shares have been issued to directors under the Plan.


At January 31, 2004, 329,096 shares were available to be issued under the Plan.

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

In a series of authorizations commencing November 3, 1999, the Company's Board
of Directors authorized a repurchase program of up to 2,118,817 shares of the
Company's common stock. The repurchases have been funded from a portion of the
proceeds from the sale of 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.

                                       F13

<PAGE>

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

In conjunction with the API acquisition, AMR Combs purchased 10,407 shares of
API Series A Cumulative Convertible Preferred Stock, $0.001 par value (the
"Preferred Stock"), at a price of $100 per share. Total adjusted proceeds to the
Company were $1,041. This transaction has been accounted for as minority
interest in subsidiary in the accompanying consolidated balance sheets.
Dividends are payable on a quarterly basis on the Preferred Stock at an annual
rate of $4.00 per share; accordingly, dividends of $42 were paid during each of
the years ended January 31, 2004, 2003 and 2002, respectively, and have been
reflected as minority interest in subsidiary in the accompanying consolidated
statements of operations. The Preferred Stock is convertible into ten percent of
the common stock of API as of the date of conversion, prior to any dilution to
the Preferred Stock.

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

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


6.   Income Taxes

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

                                             Year ended January 31,
                             -------------------------------------------------
                                 2004              2003             2002
                             --------------    --------------   --------------

  Current:
       Federal & Foreign     $       68        $        -       $      236
       State                          -                 -              (42)
                             --------------    --------------   --------------
                                     68                 -              194

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

  Total provision (benefit)  $      (25)       $    1,786       $      194
                             ==============    ==============   ==============


                                       F14


<PAGE>




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:

                                               Year ended January 31,
                                               -----------------------
                                                   2004    2003  2002
                                               --------- ------- -----


Provision (benefit) at federal statutory rate    (34.0)% (34.0)% 34.0%
State tax (benefit), net of federal               (29.3)   (1.8) (7.9)
Foreign tax provision, net of federal             314.1       -     -
Non-deductible items                              328.3     3.0  13.8
Prior year and other items                     (2,743.4)   18.2     -
Deferred tax valuation allowance                1,985.7   141.0     -
                                               --------- ------- -----
                                                (178.6)%  126.4% 39.9%
                                               ========= ======= =====

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,
                                                       ---------------
                                                         2004    2003
                                                       ------- -------

Financial statement accruals not currently
    deductible for income tax purposes, tax goodwill
     basis in excess of book, and
     net operating loss carryforwards                  $2,271  $1,993
                                                       ------- -------
                                                        2,271   1,993
Valuation allowance                                    (2,271) (1,993)
                                                       ------- -------
Net deferred income tax assets                         $    -  $    -
                                                       ======= =======

For the fiscal year ended January 31, 2004, the Company recorded a net benefit
from income taxes of $25. The benefit was from a $93 credit from a U.S. federal
refund received that is offset by foreign income tax expense of $68, for
operations in Canada and the Philippines. The accrual for the refund received
was offset in its entirety by the valuation reserve that had been recorded by
the Company during the prior year, but changes to U.S. federal income tax
regulations during the current fiscal year just ended allowed the Company to
carry back the benefit to prior years, and receive a refund. The effective rate
of (178.6)% for the year ended January 31, 2004 is the result of the tax benefit
from the U.S. federal refund received, state tax benefits and changes in the
deferred tax valuation allowance due primarily to depreciation expenses. The
Company also increased the valuation reserve for the year ended January 31,
2004, by $278, against deferred tax assets resulting from temporary differences.
The Company has net operating loss carryforwards totaling approximately $1,235
for federal income tax purposes. The carryforwards expire in 2023 and 2024.

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

                                       F15

<PAGE>


7.   Employee Benefits Plan

API maintains a defined contribution savings plan, qualified under Section
401(k) of the Internal Revenue Code, that covers substantially all of its
full-time employees. The savings plan allows employees to defer up to 15 percent
of their salary, with the Company partially matching employee contributions.
Employees vest in the Company contribution ratably over three years. The Company
expensed $167, $195 and $171 related to the savings plan in the years ended
January 31, 2004, 2003 and 2002, respectively. Employees do not have an option
to invest in the Company's stock under the savings plan.


8.   Related Parties

Effective February 1, 2002, the Company and First Equity Development Inc.
("First Equity"), the wholly-owned subsidiary of First Equity Group, Inc., the
majority stockholder of the Company, entered into a two-year agreement relating
to the allocation of potential investment and acquisition opportunities in the
aerospace parts distribution and logistics businesses. The agreement was
approved by the independent members of the Board of Directors, and was renewed
on a month-to-month basis effective February 1, 2004. Pursuant to the agreement,
First Equity agreed that neither First Equity nor any of its majority-owned
subsidiaries would consummate any acquisition of a majority interest in any
business anywhere in the world (a "Covered Acquisition"), without first
notifying the Company and providing the Company with the opportunity to choose
to effect the Covered Acquisition for its own account. The Company's decision as
to whether to effect the Covered Acquisition will be made by the independent
members of the Board of Directors of the Company. The agreement is subject to
early termination in the event First Equity reduces its ownership interest in
the Company to less than 10% of the Company's outstanding voting securities. The
agreement does not apply to any proposed acquisition by First Equity of any
business that generates less than 15% of its aggregate net sales from aerospace
parts distribution or logistics, nor to any advisory services performed by First
Equity on behalf of third parties.

Effective February 1, 2002, the Company entered into a two-year advisory
agreement with First Equity. The advisory agreement was approved by the
independent members of the Board of Directors, and was renewed on a
month-to-month basis effective February 1, 2004. Pursuant to the terms of this
agreement, First Equity provides the Company with investment and financial
advisory services relating to potential acquisitions and other financial
transactions. The Company pays First Equity a $30 monthly retainer, and
reimburses First Equity for its out-of-pocket expenses. In addition, upon the
successful completion of certain transactions, the Company will pay a fee to
First Equity (the "Success Fee"). The amount of any Success Fee will be
established by the independent members of the Board of Directors and will be
dependent upon a variety of factors, including, but not limited to, the services
provided and the size and the type of transaction. Up to one year's worth of
retainer fees paid can be applied as a credit against any Success Fee, subject
to certain limitations. During each of the years ended January 31, 2004 and
2003, respectively, the Company paid First Equity retainer fees of $360, and no
Success Fee. During the year ended January 31, 2002 the Company paid First
Equity retainer fees of $340, as First Equity voluntarily reduced the amount of
its retainer fees for the four months ended January 31, 2002, and no Success
Fee. The agreement can be terminated by either party upon 30 days written
notice to the other party.

The Company and First Equity have entered into an arrangement whereby First
Equity provides the Company with various additional services to assist the
Company. These services are not part of the advisory agreement, described above,
but derive from the work First Equity performs under the agreement. Therefore,
First Equity does not charge the Company additional fees in connection with the
provision of such services. These services include (i) detailed financial
modeling for new business proposals, (ii) Board of Directors presentation
analyses, (iii) investor relations marketing and presentations, (iv) various
analyses for API, including benchmarking, financial analysis, and competitive
market analysis, and (v) other financial analyses for the Company, including
stock buy-back, valuations, and capital structure analysis. The Company's CEO
and CFO have unlimited access to these resources when requested.

                                       F16

<PAGE>

The Company subleases from First Equity approximately 3,000 square feet of
office space in Westport, Connecticut. The leased space is utilized by the
Company as its corporate headquarters. First Equity also utilizes space in the
same premises. The sublease, which became effective April 21, 1997, is for a
period of ten years, and is cancelable by either party with six months notice.
The Company has the option to renew the sublease for two additional five-year
periods. Lease payments under this sublease totaled approximately $80, $83, and
$91, for the years ended January 31, 2004, 2003, and 2002, respectively.

The Company and First Equity share certain common expenses that arise from
sharing office space in Westport, CT. The Company reimburses First Equity and
vice versa, for expenses each entity incurs related to the common usage of the
office space. The allocation of such expenses is based on a methodology approved
by the Audit Committee of the Board of Directors on a pre-determined basis. The
amounts are included in the Company's corporate expenses, and include expenses
such as telephone, computer consulting, office cleaning, office supplies and
utilities. Common expenses are approved by the Company and First Equity, prior
to expenditure, when not of a recurring nature. The allocations are reviewed by
the Company's CFO and the Controller of First Equity each month. In addition, a
member of The Company's audit committee reviews the allocation of expenses
quarterly. Some business development expenses, such as joint marketing expenses
and business organizational dues, are shared on an equal basis. In addition, the
amounts of expenses are reimbursed by the Company to First Equity in the amount
of the actual costs incurred for Company expenses, without a markup of any kind.
These expenses average approximately $5 per month.

In order to simplify the administration of payroll, certain employees of the
Company who are authorized to perform services for both the Company and First
Equity are paid through the payroll of First Equity. Employees of the Company
who work exclusively for the Company by agreement are paid through the payroll
of API, the Company's principal subsidiary.

The Company paid Imtek, an affiliate of First Equity, approximately $29 for
printing, insertion, and mailing services, for the year ended January 31, 2004
and approximately $37 per year in each of the years ended January 31, 2003 and
2002, respectively, for printing, insertion and mailing services, and reimbursed
Imtek for actual expenses incurred. These services were cancelled during the
year ended January 31, 2004.

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

In the year ended January 31, 2004, a family member of an executive of the
Company was paid salary and bonus of approximately $110 as an employee of a
subsidiary of the Company.


9.   Accounting Change

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

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


                                       F17

<PAGE>

10.  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 Company also entered into a
five-year service agreement with Superior whereby the Company provides Superior
with a variety of supply chain management services for a fee based on the scope
of services provided. 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. 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 four distribution centers and
consolidate facilities. Approximately $386 of the accruals were paid prior to
the year ended January 31, 2002. Substantially all of the remaining accruals
were utilized during the year ending January 31, 2003.

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



11.  Gain from Dispositions of Subsidiaries

Details of the gain from dispositions of subsidiaries, are as follows:

                                              Year ended January 31,
                                             -------------------------
                                              2004    2003       2002
                                             ------  ------   --------

Gain from dispositions of subsidiaries:
       AeroV                                    $-      $-       $191
       NAC                                       -       -        769
                                             ------  ------   --------

                                                $-      $-       $960
                                             ======  ======   ========

AeroV

In February 2000 the Company established AeroV. The purpose of AeroV was to
design a proprietary electronic procurement platform to enable electronic
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 AeroV.

In connection with the disposition of AeroV, the Company had accrued $660
pre-tax for certain transaction, legal and other costs directly relating to the
disposition. 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, for a net credit of $191,
was included in gain from dispositions of subsidiaries in the year ended January
31, 2002. At January 31, 2002, $56 of the accruals remained. The accruals were
completely utilized during the year ended January 31, 2003.

NAC

On November 1, 1999, the Company consummated the sale of the stock of NAC to
Rolls-Royce North America, Inc. ("RRNA") 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"). During the year ended January 31, 2001, the sales price was
adjusted down to $70,950 to reflect a decrease in the net book value of the net
assets sold. The difference was repaid to RRNA and had been accrued previously.
NAC's operations included the repair and overhaul of gas turbine engines and
accessories, and the remanufacturing of engine components and accessories.


                                       F18

<PAGE>

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 previous liquidation of its former qualified defined retirement
benefit plan (the "NAC Plan").

The Company recorded a net gain from the disposition of NAC during the year
ended January 31, 2000. Included in the net gain on disposition the Company
accrued $3,700 for estimated transaction and other costs directly relating to
the sale, excluding the estimated sales price adjustment. In addition, the
Company accrued $600 for estimated liabilities under the NAC Plan, whose
liquidation had been audited by the Pension Benefit Guarantee Corporation, and
who had challenged the amount paid to liquidate the NAC Plan (collectively, the
"Accruals").

First Aviation had been liable, without limitation, for any and all income taxes
that might have been imposed upon NAC for all taxable periods ending on or prior
to the date of sale.

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 any
exposure from the liquidation of the NAC Plan.

During the year ended January 31, 2002, the Company reversed $1,242 of the
Accruals that were deemed unnecessary. The net credit of $769, after applicable
income taxes of $473, was included in gain on dispositions of subsidiaries. At
January 31, 2002, $57 of the Accruals remained relating to the sale of NAC. The
Accruals were completely utilized during the year ended January 31, 2003.


12.  Net Income (Loss) per Share

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

                                       Years ended January 31,
                                --------------------------------------
                                       2004         2003         2002
                                ------------ ------------ ------------

 Denominator for basic net
  income (loss) per share -
  weighted average shares         7,267,368    7,224,532    7,197,941

 Effect of dilutive warrants
  and employee stock options         14,230          N/A       10,784
                                ------------ ------------ ------------

 Denominator for net income
  (loss) per share - assuming
  dilution - adjusted weighted
  average shares and assumed
  conversions                     7,281,598    7,224,532    7,208,725
                                ============ ============ ============

For the year ended January 31, 2003, the denominator used in the calculation of
loss per share from continuing operations - assuming dilution, was the same as
the denominator used for basic loss per share because the effect of warrants and
options would have been antidilutive.


                                       F19

<PAGE>

13.  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, 2004 are as follows:


         Year ending January 31, 2005                    $   931
         Year ending January 31, 2006                        746
         Year ending January 31, 2007                        757
         Year ending January 31, 2008                        729
         Year ending January 31, 2009                        636
         Thereafter                                        1,913
                                                     -------------------
                                                         $ 5,712
                                                     ===================


Future minimum rental payments for the years ended January 31, 2005 through
January 31, 2006 are net of sublease income of $35. Rental expense under
noncancelable operating leases amounted to $1,031, $982, and $918 for the years
ended January 31, 2004, 2003 and 2002, respectively.

Contingencies

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

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

During the fourth quarter ended January 31, 2002, the Company settled litigation
previously initiated against Gulf Insurance Company for a cash payment to the
Company of $950. The income was shown separately net of associated legal
expenses on the consolidated statements of operations for the year ended January
31, 2002.


                                       F20


<PAGE>



<TABLE>
<CAPTION>

14.  Quarterly Financial Information (unaudited)


                                                              First           Second          Third          Fourth
                                                             Quarter          Quarter        Quarter         Quarter
Year ended January 31, 2004                                  -------          -------        -------         -------
<S>                                                       <C>              <C>             <C>            <C>
Net sales                                                 $    25,605      $  25,278       $  27,756      $  27,138

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

Net income (loss)                                                 120          (220)              17             94

Basic and diluted net income (loss) per share             $      0.02      $  (0.03)       $    0.00      $    0.01
</TABLE>



<TABLE>
<CAPTION>

                                                             First           Second          Third          Fourth
                                                             Quarter         Quarter        Quarter         Quarter (1)
                                                           -------          -------        -------       -----------
Year ended January 31, 2003

<S>                                                       <C>              <C>             <C>            <C>
Net sales                                                 $    24,998      $  26,165       $  26,611      $  23,963

Gross profit                                                    4,674          4,924           5,131          3,744

Income (loss) before cumulative effect of
    accounting change                                              78          (145)             121        (3,253)

Cumulative effect of accounting change                        (2,735)              -               -              -

Net income (loss)                                             (2,657)          (145)             121        (3,253)

Basic income (loss) per share before cumulative
    effect of accounting change                           $      0.01      $  (0.02)       $    0.02      $  (0.45)
Basic and diluted net income (loss) per share             $    (0.37)      $  (0.02)       $    0.02      $  (0.45)

</TABLE>


(1) Fourth quarter results include the impact of a non-cash charge of $804 to
increase the allowance for doubtful trade receivables, and a non-cash income tax
charge of $1,993 to establish a valuation allowance against the Company's
deferred income tax assets. See Notes 2 and 6 for further explanation.

                                       F21


<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
                                              ---------------- --------------- --------------- -----------------

Description:
<S>                                          <C>                     <C>               <C>          <C>
Year ended January 31, 2002
   Allowance for doubtful accounts            $ 947                    310            550(a)       $ 707
Year ended January 31, 2003
   Allowance for doubtful accounts            $ 707                  1,302            353(a)     $ 1,656
Year ended January 31, 2004
   Allowance for doubtful accounts            $ 1,656                  106            344(a)     $ 1,418



Year ended January 31, 2002
   Slow moving and obsolete inventory         $ 376                  1,089            580(b)      $ 885
Year ended January 31, 2003
   Slow moving and obsolete inventory         $ 885                    442            330(b)      $ 997
Year ended January 31, 2004
   Slow moving and obsolete inventory         $ 997                     41             25(b)    $ 1,013


</TABLE>

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


                                       F22



<PAGE>




                          First Aviation Services Inc.
                                  EXHIBIT INDEX



Exhibit
Number                       Description of Exhibit

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

3.2        Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to
           the Company's Quarterly Report on Form 10-Q for the quarterly period
           ended October 31, 2001, and incorporated herein by reference).

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

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

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

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

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

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

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

10.8       Commercial Revolving Loan and Security Agreement, dated March 30,
           2000, by and between Hudson United Bank and Aerospace Products
           International, Inc. (filed as Exhibit 10.43 to the Company's Annual
           Report on Form 10-K for the year ended January 31, 2000, and
           incorporated herein by reference).

10.9       Guaranty, dated as of March 30, 2000, between First Aviation Services
           Inc. and Hudson United Bank (filed as Exhibit 10.44 to the Company's
           Annual Report on Form 10-K for the year ended January 31, 2000, and
           incorporated herein by reference).

10.10      Second Amendment to Commercial Revolving Loan and Security Agreement
           dated as of April 27, 2001 between Hudson United Bank and Aerospace
           Products International, Inc. (filed as Exhibit 10.48 to the Company's
           Quarterly Report on Form 10-Q for the quarterly period ended April
           30, 2001, and incorporated herein by reference).


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10.11      Second Reaffirmation of Guaranty dated as of April 27, 2001 by First
           Aviation Services Inc. and in favor of Hudson United Bank (filed as
           Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
           quarterly period ended April 30, 2001, and incorporated herein by
           reference).

10.12      Third Amendment to Commercial Revolving Loan and Security Agreement
           dated as of June 28, 2001 between Hudson United Bank and Aerospace
           Products International, Inc. (filed as Exhibit 10.48 to the Company's
           Quarterly Report on Form 10-Q for the quarterly period ended July 31,
           2001, and incorporated herein by reference).

10.13      Third Reaffirmation of Guaranty dated as of June 28, 2001 by First
           Aviation Services Inc. and in favor of Hudson United Bank (filed as
           Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
           quarterly period ended July 31, 2001, and incorporated herein by
           reference).

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

10.15      Letter, effective February 1, 2002, by and between First Equity
           Development Inc. and its affiliates and First Aviation Services Inc.
           regarding pursuit of acquisition opportunities (filed as Exhibit
           10.23 to the Company's Annual Report on Form 10-K for the year ended
           January 31, 2002, and incorporated herein by reference).

10.16      Engagement  Letter between First Equity  Development Inc. and its
           affiliate,  FED Securities Inc., and First Aviation Services Inc.
           effective  February  1,  2002  (filed  as  Exhibit  10.40  to the
           Company's  Annual  Report on Form 10-K for the year ended January
            31, 2002, and incorporated herein by reference).

10.17      Fourth Amendment to Commercial Revolving Loan and Security Agreement
           dated as of July 31, 2002 between Hudson United Bank and Aerospace
           Products International, Inc. (filed as Exhibit 10.48 to the Company's
           Quarterly Report on Form 10-Q for the quarterly period ended July 31,
           2002, and incorporated herein by reference).

10.18      Fourth Reaffirmation of Guaranty dated as of July 31, 2002 by First
           Aviation Services Inc. and in favor of Hudson United Bank (filed as
           Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
           quarterly period ended July 31, 2002, and incorporated herein by
           reference).


10.19      Fifth Amendment to Commercial Revolving Loan and Security Agreement
           dated as of July 31, 2003 between Hudson United Bank and Aerospace
           Products International, Inc. (filed as Exhibit 10.19 to the Company's
           Quarterly Report on Form 10-Q for the quarterly period ended July 31,
           2003, and incorporated herein by reference).

10.20      Fifth Reaffirmation of Guaranty dated as of July 31, 2003 by First
           Aviation Services Inc. and in favor of Hudson United Bank (filed as
           Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the
           quarterly period ended July 31, 2003, and incorporated herein by
           reference).


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

10.22  *   Employment  Agreement,  dated as of October 7, 2003,  between the
           Company and Robert G. Costantini.

10.23  *   Form of Incentive Stock Option Award Agreement Letter Pursuant to
           the 1997 Stock Incentive Plan.

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<PAGE>


10.24  *   Officer  Indemnification  Agreement  dated as of October 27, 2003
           between the Company and Robert G. Costantini.

10.25  *   Employment  Agreement,  dated as of  February  2,  2004,  between
           Aerospace Products International, Inc. and Paul J. Fanelli.

10.26  *   Amendment  to  Employment  Agreement,  dated as of April 5, 2004,
           between  Aerospace  Products  International,  Inc.  and  Paul  J.
           Fanelli.

10.27  *   Relocation Agreement, dated as of February 16, 2004, between
           Aerospace Products International, Inc. and Paul J. Fanelli.

21.1       List of Subsidiaries.

23.1       Consent of Ernst & Young LLP.

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

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

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

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




     * Management contracts or compensatory plans or arrangements.




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