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

                                   FORM 10-K/A

                                 Amendment No. 1
 (Mark One)

 X   ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE ACT OF
___  1934 (No Fee Required) For the fiscal year ended January 31, 1999

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

                         Commission File Number 0-2199

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

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

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

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

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

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

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

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

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

The  aggregate  market  value of the voting stock held by  non-affiliates  as of
April 23, 1999 was approximately $39,383,295

The number of shares  outstanding of the  registrant's  common stock as of April
23, 1999 was 9,001,896 shares.

                    Documents incorporated by reference: None

<PAGE>

                                EXPLANATORY NOTE


The Registrant hereby amends and restates in its entirety its Annual Report on
Form 10-K for the year ended January 31, 1999 to correctly state the amount of
assets included in Footnote 14 - Segment Reporting, of the Financial Statements
of First Aviation Services Inc. and subsidiaries set forth on pages F1-F24.







<PAGE>


PART I

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

General

     First Aviation Services, Inc. ("First Aviation" or the "Company") is a
worldwide leader in providing services to aircraft operators of some of the most
widely used military, commercial, and general aviation aircraft engines in the
world, including the Lockheed Martin C-130 Hercules and P3C Orion aircraft and a
large variety of aircraft and helicopters powered by light turbine engines. The
Company's operations include repair and overhaul of gas turbine engines and
accessories, remanufacturing of engine components and accessories, and
redistribution of new and remanufactured parts and components. The Company has
become one of the leading suppliers of aircraft engine parts and other aircraft
parts and components to the general aviation industry worldwide, while at the
same time extending its third party logistics and inventory management services
to the commercial airline market.

     On April 29, 1999, the Company announced that it would explore ways of
enhancing shareholder value, including the potential sale of the Company's
subsidiary, NAC.

     First Aviation was formed in March 1995 to acquire all of the stock of
National Airmotive Corporation (NAC). The acquisition was completed on June 1,
1995, and was accounted for under the purchase method of accounting. Through
NAC, the Company provides repair and overhaul services for several aircraft
engine types, including: (i) engines manufactured by the Allison Engine Company
("Allison"), a subsidiary of Rolls Royce USA, that power the Lockheed Martin
C-130 "Hercules" cargo aircraft, the most popular cargo aircraft in the world,
(ii) the engines employed on most light helicopters, and (iii) industrial
turbine engines used primarily for power co-generation and gas transmission. NAC
is an industry leader in the remanufacture of serviceable engine parts and
components for use in engine overhauls.

     On March 5, 1997, Aircraft Parts International Combs, Inc., a majority
owned subsidiary of the Company ("API Combs"), completed the acquisition of
Aircraft Parts International ("API") from AMR Combs, Inc. ("AMR Combs"). The
acquisition was accounted for under the purchase method of accounting. API
distributes more than 100 major product lines of aircraft parts and components.
API Technologies, API's licensed repair station, offers brake and starter
generator overhaul services, and is an authorized hose assembly manufacturing
facility. Through API, the Company distributes and supplies aircraft engine
parts and components to the aviation industry worldwide.

     The API acquisition was an initial step in meeting the Company's goal of
participating in the consolidation of the aviation services industry. API
expanded the Company's services to the general aviation and airline market,
thereby allowing the Company to leverage its repair, overhaul and
remanufacturing expertise to a new customer base.

     The Company has benefited from certain industry trends that favor
independent repair and overhaul and aircraft providers including: (i) increased
outsourcing of repair and overhaul services by engine operators as they seek to
reduce operating costs and turnaround time, (ii) increasing consolidation among
repair and overhaul and parts providers as engine operators reduce the number of
providers used for these services, (iii) increased emphasis on the traceability
of aircraft parts which has, in turn, increased the required sophistication of
information systems used by parts distributors and engine overhaul shops, (iv)
growing demand for remanufactured parts as engine operators seek to lower costs
of repair and overhaul services, (v) increasing aviation activity which, in
turn, increases the demand for repair and overhaul services; and (vi) increased
demand by aircraft operators for third parties to manage and maintain parts and
component inventories so that aircraft operators may reduce their parts and
components inventories and the costs associated with managing inventory.

     The Company's executive offices are located at 15 Riverside Avenue in
Westport, Connecticut and can be reached via e-mail at first@firstaviation.com.
The executive officers of the Company are Michael C. Culver, Gerald E.
Schlesinger, John A. Marsalisi and Philip C. Botana. The information required to
be furnished with respect to these executive officers is set forth in, and
incorporated by reference from Part III Item 10 of this Annual Report on Form
10-K/A.


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

     Statements which are not historical facts in this report constitute forward
looking statements, within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward looking statements, including those concerning
the Company's expectations, all involve risk and uncertainties, which may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievement expressed or
implied by such forward looking statements. Such factors include, among others,
the Company's ability to obtain parts from its principal supplier on a timely
basis, the ability to consummate suitable acquisitions, the ability to expand
its remanufacturing capabilities, and other items that are beyond the Company's
control and may cause actual results to differ from management's expectations.



                                       3
<PAGE>


Industry Overview

     The Company believes that the current annual worldwide market for new and
used spare engine parts and spare aircraft parts is approximately $20.0 billion,
of which $1.3 billion is supplied to the general aviation market. The aviation
parts and component market is highly-fragmented with a limited number of large,
well-capitalized companies selling a broad range of aircraft spare parts, and
numerous smaller competitors serving niche markets. The Company, through API,
serves the general aviation sector of this market, airlines, fixed base
operators (FBOs), business aviation, helicopter and recreational operators.

     Aviation Parts Sales and Logistics. The Company, principally through API,
sells more than 100 product lines and 80,000 new and factory reconditioned parts
and components to professional aircraft maintenance organizations, aircraft
operators, including fleet operators, and FBOs. The parts are FAA approved and
are acquired from small, specialized manufacturers as well as major original
equipment manufacturers such as Allison, Champion Aviation Products, Goodyear,
Michelin, B.F. Goodrich, General Electric, Textron Lycoming, Teledyne
Continental, Parker Hannifin, AlliedSignal, Piper and Cessna. Most of the
aforementioned suppliers are committed to servicing aftermarket customers solely
through wholesale distributors such as API. Distributors add value to commonly
available products by offering immediate availability, broad product lines,
technical assistance and other value added services. API does not have any
long-term agreements or commitments from the original equipment manufacturers
from whom it purchases parts and is dependent on these manufacturers for access
to parts for resale. API also provides logistic services to aircraft operators.

     Competition in the parts and components distribution market is generally
based on price, availability of product and quality, including traceability. NAC
is an Allison Authorized Maintenance Center (an "AMC"). The Company's major
competitors include Allison, Rolls Royce and other AMC's. API's major
competitors include Aviall, Inc., AAR Corporation and Cessna Aircraft Company (a
subsidiary of Textron). There also is substantial competition, both domestically
and overseas, from companies who focus on regional/niche markets, or on market
segments of secondary interest. Examples of these companies include Satair A/S,
Superior Air Parts, Inc., Avteam and Omaha Aircraft Supply.

     NAC Sales of Remanufactured Engine Components and Accessories.
Traditionally, overhaul companies remanufactured select components from a
particular engine for reinsertion into the same engine. In recent years,
however, a market for rotable remanufactured parts has emerged, due primarily to
engine owners becoming more value-sensitive and more willing to purchase a
remanufactured part at a substantial discount to the cost of a new part. The
Company has increased its focus on the remanufacture of components and
accessories as a separate segment of its business, apart from its overhaul
business.

     NAC's significant competitors in this market include Standard Aero and
Dallas Airmotive. The Company believes that the primary competitive factors in
this marketplace are price, quality, engineering and availability. The Company
has engineered and developed a significant number of Engineering Authorities,
which are proprietary in nature. An Engineering Authority is an approved
procedure for repairing a particular part. Due to its advanced systems,
technology and years of expertise in Allison component remanufacturing, the
Company believes its competes favorably with regard to such factors.

     Engine Repair and Overhaul. The Company believes that the current annual
worldwide market for gas turbine engine repair and overhaul services is in
excess of $6.5 billion. Gas turbine engines are used to power aircraft and
marine vessels, and to generate electricity for industrial applications. Repair
and overhaul services are performed by engine operators, engine manufacturers,
and independent operators such as the Company. The engine repair and overhaul
market is highly fragmented with numerous service providers, competing primarily
on the basis of price, quality and turnaround time. The repair and overhaul of
aircraft engines and engine components is regulated by governmental agencies
throughout the world, including the U.S. Federal Aviation Administration (the
"FAA"), the Joint Airworthiness Administration (the "JAA") and the U.S.
Department of Defense (the "DOD"), and is supplemented by engine manufacturers'
guidelines which generally require that engines be overhauled and certain engine
components be replaced after a certain number of flight hours and/or cycles
(take-offs and landings). Many aircraft operators have recognized that
outsourcing of engine repair and overhaul services is an opportunity to reduce
operating costs and lower turnaround times. Outsourcing allows operators to
benefit from the expertise of service providers, such as the Company, who have
developed proprietary repair schemes and achieved economies of scale unavailable
to individual operators. As operators continue to become more cost and value
conscious, and as modern aircraft engines become increasingly more
sophisticated, the Company expects the trend to outsourcing to continue.

     Engine Repair and Overhaul. NAC is an AMC for Allison Models 250 and
T56/501. In the repair and overhaul market for Allison Models 250 and T56/501,
NAC competes primarily with other independent operators, including other AMC's
located throughout the world. Management believes that its most significant
competitors in this market include: Standard Aero of Winnipeg, Canada; Dallas
Airmotive in the United States; Hunting in the United Kingdom; and Singapore
Aerospace of Singapore, each of which is an AMC in one or more product lines. In
addition, OEM's may establish joint ventures to compete for large contracts that
are subject to bid. Certain international competitors of the Company have the
advantage of a monopoly



                                       4
<PAGE>

on their country's military contracts for repair and overhaul of the engines
serviced by the Company. In the market for repair and overhaul of other lines
serviced by the Company, including Pratt & Whitney Canada and McDonnell Douglas,
the Company competes against the original equipment manufacturers as well as
other independent operators. Many of the Company's competitors have financial
resources substantially greater than those of the Company, and have a longer and
more extensive record of repair and overhaul work relative to that of the
Company on the Pratt & Whitney Canada engine lines, and McDonnell Douglas
helicopter lines.

     Increasing Consolidation. The Company believes that customers are
increasingly seeking the services of larger, more sophisticated and
better-capitalized service providers. In order to reduce costs, satisfy
increased governmental regulatory scrutiny, streamline buying decisions and
assure quality, engine operators are seeking to reduce the number of providers
that are used both for repair and overhaul and parts supply services. As modern
aircraft engines become more sophisticated, so do the repairs, parts and
component requirements for such engines. At the same time, operators have become
more sensitive to quick turnaround times. As a result, the Company believes that
engine operators increasingly select those service providers that have made a
significant capital commitment toward developing proprietary repair schemes and
acquiring remanufacturing equipment and inventories and, therefore, are capable
of providing higher quality and more timely services than under-capitalized
competitors can offer. Additionally, the increasing costs of technology and
inventory levels required to compete effectively has made entry into and
continued success in the industry more difficult and expensive. The Company
believes that well-capitalized, technologically sophisticated providers capable
of offering a wide range of services will benefit from this consolidation trend.
During the past year, a number of service providers have consolidated or
combined their operations. This is a trend that the Company believes will
continue.

Computer-based Advanced Remanufacturing System (CARS)

     The Company has made substantial expenditures to develop CARS. CARS has
been in use for approximately four years. The system consists of two parts; an
automated inspection and routing system and a remanufacturing variable control
system. The Company has copyrighted its self-developed object-oriented software.

     CARS enables NAC to shorten turnaround times, increase output and improve
inventory management by allowing NAC to manage and control the process of
detailed parts inspection, material requisitioning, and work order scheduling
and release, and reduce costs by eliminating duplication of work and errors in
the ordering of parts. The system's database contains much of the information
required to perform engine inspection activities, including illustrated parts
catalogues. This has largely eliminated the need to update parts catalogues
manually and allows an engine inspector using a personal computer located at his
workstation to (i) refer to computer based parts manuals and catalogues to
identify needed parts, (ii) access and check on the availability in inventory of
needed parts, (iii) requisition needed parts from inventory and schedule the
time for delivery of the parts to repair and overhaul mechanics and (iv) create
and record an audit trail for all inspected parts and processes. These features
of the system have substantially reduced total detailed engine inspection time
required in the overhaul process.

Principal Supplier

     NAC principally services gas turbine engines manufactured by Allison. For
the year ended January 31, 1999 the Company derived more than 53% of its
revenues from the repair and overhaul of Allison engines and Allison part sales.
For the year ended January 31, 1998, the Company derived more than 66% of its
revenues from the repair and overhaul of Allison engines and Allison part sales.
Prior to that, the Company derived greater than 90% of its revenues from Allison
related services and parts sales. The decrease in reliance on Allison is due
principally to the acquisition and growth of API and the use of remanufactured
materials.

Sales and Marketing

     Overhauls and Repairs. NAC uses direct sales personnel and agents for all
product lines. The Vice Presidents of each of the product lines supervise their
sales professionals, whose sales efforts are supported by the quality assurance
and engineering departments to aid in customer support. Senior management plays
an active role in marketing several of the Company's product lines. NAC's
professionals provide cost effective solutions to maintaining engines, stressing
NAC's repair and overhaul engineering expertise, turnaround times and component
remanufacturing capabilities. The Company actively participates in many of the
major industry gatherings and air shows globally, and serves as host to groups
of engine operators at technical and other meetings.

     Parts Distribution. New and serviceable parts are sold to overhaul
customers, parts resellers, regional airlines, FBO's, and business aviation,
helicopter and recreational operators. The Company uses regional sales managers,
inside salespersons, outbound telephone salespersons, independent contract
representatives, and associated distributors in its sales and marketing efforts.


                                       5
<PAGE>

     ISO/9001and 9002 Certification. During the fiscal year ended January 31,
1998, the Company's Oakland, California facility became the first independent
repair and overhaul facility in the world to receive ISO/9001 certification. NAC
has also been certified by the DOD to the ISO/9001 Standard for performance of
work on DOD contracts. In March 1999, the Company's Memphis, Tennessee facility
obtained ISO/9002 certification.

Customers

     The Company provides repair and overhaul services and sells parts to more
than 300 customers, which include both foreign and U.S. militaries, air cargo
carriers, major industrial corporations and others.

     During the quarter ended October 31, 1998, NAC was awarded a contract by
the United States Navy for the repair and overhaul of the majority of the Navy's
Allison T-56 engine fleet that previously had been overhauled at the Kelly Air
Force Base. After the expiration of the initial one-year term of the contract,
the Navy may exercise options to extend the contract for four additional
one-year periods, depending upon its needs and NAC's performance under this
contract. Revenues over the first twelve months of the contract are estimated to
be approximately $11 million, and may be as high as $35 million. The total value
of the contract, assuming all options are exercised, is estimated to range from
approximately $65 million to $189 million. The Company commenced work under the
contract during the fourth quarter of the fiscal year ended January 31, 1999.

     During the years ended January 31, 1999, 1998 and 1997, respectively, the
Company's top 10 customers accounted for approximately 26%, 31% and 45% of
revenues. During the year ended January 31, 1999, purchases by the U.S.
Government accounted for approximately 11.7% of the Company's revenues. During
the year ended January 31, 1998, no single customer's purchases exceeded 10% of
the Company's revenues. During the year ended January 31, 1997, revenues from
System Control Technologies represented 12.3% of Company's operating revenues.

Backlog

     As of January 31, 1999 and 1998, the total contract price of the backlog of
orders for repair and overhaul services was approximately $31.0 million and
$20.3 million respectively. Backlog is measured by reference to the open sales
orders for engines and modules located on the Company's premises. The Company
does not include engines and modules under contract or in shipment to NAC.

Regulation

     Through regulatory bodies such as the FAA and DOD, governments around the
world require all aircraft and engines to follow defined maintenance programs to
ensure airworthiness and safety. Such programs are developed by the original
equipment manufacturer in coordination with the regulatory body. The DOD's
regulatory program for engines used by the armed services is separate and apart
from the FAA procedures. The maintenance of industrial engines used in power
plants is relatively unregulated, except when such maintenance is performed for
the government. The Company has certifications from the FAA and the JAA covering
its repair and overhaul facilities. Under the authority of these certifications,
the Company is permitted to service all Allison engine lines, the Pratt &
Whitney Canada PT6 and its other product lines. The DOD requires that parties
servicing aircraft engines for branches of the U.S. armed services comply with
applicable government regulations, and the DOD continually reviews the
operations for compliance with applicable regulations.

     All aircraft must be maintained under a continuous condition-monitoring
program and periodically must undergo thorough inspection and maintenance. The
inspection, maintenance and repair procedures for the various types of aircraft
and equipment are prescribed by regulatory authorities and can be performed only
by certified repair facilities and/or certified technicians. Certification and
conformance is required prior to installation of any part on an aircraft.
Presently, whenever necessary with respect to a particular part, the Company
utilizes FAA certified repair stations to repair and certify parts to ensure
marketability. The operations of the Company may in the future be subject to new
and more stringent regulatory requirements. The Company believes it is in
material compliance with applicable regulations. See Item 3, "Legal
Proceedings".

Environmental Matters and Proceedings

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



                                       6
<PAGE>

The Company believes that it is in material compliance with all federal, state,
and local laws and regulations governing its operations. The Company does not
anticipate that any material capital expenditures will be required during fiscal
year 2000 in order to maintain compliance with the federal, state and local laws
and regulations.

     In October 1995, a committee comprised of a group of companies and
individuals responsible for the cleanup of the Petroleum Products Corporation
Superfund Site in Pembroke Park, Florida (the "Superfund Site") contacted NAC
and alleged that NAC was responsible for a share of the cleanup costs pursuant
to Comprehensive Environmental Response, Compensation and Liability Act of 1980.
NAC has been designated as a potentially responsible party by the EPA for costs
associated with cleanup of the Superfund Site, and as such, as with each of the
other potentially responsible parties, is potentially liable on a joint and
several basis for the entire cleanup cost for the Superfund Site. The committee
demanded that NAC pay approximately $70,000 to join the committee handling the
cleanup and threatened to add NAC as a defendant to an existing lawsuit
regarding the site if NAC declined to pay. The Committee alleges that NAC is
responsible to pay a portion of the cleanup costs due to its status as the
successor of Design Engineering Company ("DEC"), which the committee alleges
sent waste oil from property located in Miami, Florida (the "Miami Property") to
the Superfund Site between approximately 1969 and 1973. The Committee alleges
that DEC sent approximately 194,500 gallons of waste oil to the Superfund Site
and has estimated that the total cleanup costs for the Superfund Site allocable
to the Company could range from $0.75 to $1.25, per gallon. At this time, the
Company is unable to determine the accuracy of the Committee's cleanup cost
estimates or the likelihood that NAC will be required to contribute a portion of
such cleanup costs. In mid 1997 the Company advised the committee that it would
not join in funding cleanup of the site. Since then, neither the Company nor NAC
have received any communication from the committee. The Company will vigorously
contest the committee's allegations regarding the amount of waste oil allegedly
shipped by DEC to the Superfund Site.

     In February 1996, NAC and several other past and present owners/operators
of the Miami Property were served with a complaint filed in the Florida District
Court of the 11th Judicial Circuit in and for Dade County, Florida, wherein the
owners of certain property adjacent to the Miami Property allege that
contamination at the Miami Property has migrated to and/or impacted their
adjacent property. The complaint seeks unspecified damages for cleanup costs,
loss of property value and attorneys' fees. NAC has answered the complaint and
continues to contest the plaintiffs' allegations.

Employees

     As of January 31, 1999, approximately 510 persons were employed on a
full-time basis by the Company. None of the Company's employees are covered by
collective bargaining agreements. The Company believes that its relations with
its employees are good.




                                       7
<PAGE>

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

     The Company operates within the following facilities:

<TABLE>
<CAPTION>
                                                                                                 Square            Lease
Location                   Entity                    Description                                 Footage           Expiration
--------                   ------                    -----------                                 -------           ----------
<S>                        <C>                     <C>                                          <C>               <C>
Westport, CT               First Aviation          Executive offices                                2,000             2007

Oakland, CA (1)            NAC                     Allison engine repair and
                                                   overhaul shop and offices                      157,000             2015

Long Beach, CA             NAC                     Allison engine and Pratt
                                                   & Whitney PT6 repair and
                                                   overhaul, maintenance of
                                                   McDonnell Douglas helicopter
                                                   components                                      28,500             1999

San Leandro, CA            NAC                     Warehouse                                        8,900             1999

Houston, TX (2)            NAC                     Repair of industrial engines                    15,000            Owned

Memphis, TN                API                     Distribution/sales                              88,000             2013

Calgary, Canada            API, Ltd.               Sales                                            3,200             2003

</TABLE>

(1)  NAC owns the buildings at this location but leases the land on which the
     structures are located.

(2)  In November 1997, the Company purchased a 15,000 sq. foot facility in
     Houston Texas. The property includes a two bay test cell that the Company
     is in the process of outfitting with the appropriate test equipment. The
     facility will support the Company's capabilities in the industrial engine
     market. The test cell is expected to be fully operational in June 1999. The
     Company is presently using the facility to support staff in Houston who
     provide field and overhaul services to gas turbine users for engines
     manufactured by Allison Engine Co.





                                       8
<PAGE>

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

     In March 1999, the jury decided in favor of the Company in litigation
brought by John F. Risko, a former director and manager, initiated in June 1997
against the Company, National Airmotive Corporation, Aaron P. Hollander, Michael
C. Culver, First Equity Development Inc. and First Equity Group Inc. The
Plaintiff's allegations of wrongful termination, breach of contract, and various
actions of fraud, deceit and misrepresentation were dismissed. The plaintiff had
sought various damages as well as common shares of the Company. On a separate
count, the jury, in a split decision, awarded the plaintiff a cash bonus of
$200,000. During the quarter ended January 31, 1999, the Company, accrued $3.1
million for the costs of defending itself and its Directors against these
claims. The accrual includes legal fees incurred through January 31, 1999,
completion of the trial, expert testimony, out-of-pocket costs, and the costs of
an appeal. The Company is pursuing recovery of these costs in accordance with
the terms of a Directors and Officers Insurance Policy. The amount of recovery,
if any, is not ascertainable at this time. Any recovery will be reflected in
future periods.

     The Company's business exposes it to possible claims for personal injury,
death or property damage which may result from a failure of engines serviced by
the Company or spare parts sold by it. The Company takes what it believes to be
adequate precautions to ensure the quality of the work it performs and the
traceability of the aircraft spare parts which it sells. The Company maintains
what it believes is adequate liability insurance to protect it from such claims.

     The Company is also involved in various matters relating to compliance with
regulations governing services performed for U.S. military aircraft and
environmental regulations. Among the agencies which oversee the Company's
business activities are the Federal Aviation Administration, the Department of
Defense, the Environmental Protection Agency and the Defense Contract Audit
Agency. See also Item 1, "Business-Environmental Matters and Proceedings."

     The Company is involved in certain other claims and lawsuits relating to
personnel matters which are incidental to its operations. Management does not
believe that the ultimate resolution of any of the foregoing claims will have a
material adverse effect on the Company's business, financial condition or
results of operations.



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

None


                                       9
<PAGE>

                                     PART II

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

     Market Information. The Company's common stock trades on The NASDAQ Stock
Market under the symbol FAVS. The table below sets forth the quarterly high and
low sales prices for the Company's common stock as reported on the NASDAQ
Composite Tape since March 5, 1997, the date public trading commenced.

<TABLE>
<CAPTION>
             Fiscal Year Ended                     Fiscal Year Ended
             January 31, 1999                       January 31, 1998
 ------------------------------------    ---------------------------------------
                   High       Low                            High       Low
<S>                <C>        <C>        <C>                 <C>        <C>
 First Quarter     7 1/4      5 1/2      First Quarter       11 3/4     8
 Second Quarter    6 1/62     4 7/32     Second Quarter      11 1/8     8 1/4
 Third Quarter     5 7/8      4 1/8      Third Quarter       11         7 5/8
 Fourth Quarter    5          4 1/16     Fourth Quarter      8 3/4      5 7/8
</TABLE>


     Holders. As of April 23, 1999, there were approximately eighteen holders of
record of the Company's common stock.

     Dividends. The Company has not declared or paid any cash dividends or
distributions on its common stock since its inception. The Company anticipates
that, for the foreseeable future, all earnings will be retained for use in the
Company's business and no cash dividends will be paid on the common stock. Any
payment of cash dividends in the future on the common stock will be dependent
upon the Company's financial condition, results of operations, current and
anticipated cash requirements, plans for expansions, the ability of its
subsidiaries to pay dividends or otherwise make cash payments or advances to it,
and restrictions, if any, under any current or future debt obligations, as well
as other factors that the Board of Directors deems relevant. In addition, API's
and NAC's credit facilities prohibit the payment of cash dividends except with
the applicable lender's consent.


                                       10
<PAGE>

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

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


(All amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                             Twelve
                                                     Fiscal Year         Fiscal Year         Fiscal Year      Months
                                                        Ended               Ended               Ended         Ended
                                                     January 31,         January 31,         January 31,   January 31,
                                                         1999              1998 (1)              1997        1996 (2)
                                                    --------------      --------------      -------------- ------------
<S>                                                 <C>                 <C>                 <C>            <C>
Statement of Operations Data:
   Net sales                                        $ 153,740           $ 153,642           $ 104,236      $  92,857
   Cost of sales                                      126,456             130,433              89,426         81,199
                                                    ---------           ---------           ---------      ---------
   Gross profit                                        27,284              23,209              14,810         11,658
   Selling, general and administrative expenses        21,662              14,827               9,881          8,578
   Non-recurring charges (3)                            6,178                   -                   -              -
                                                    ---------           ---------           ---------      ---------
   Income (loss) from operations                         (556)              8,382               4,929          3,080
   Interest expense                                     1,830               1,842               3,470          3,249
   Interest Income                                        (15)               (357)                  -              -
   Other expense                                           42                  38                   -            801
                                                    ---------           ---------           ---------      ---------
   Income (loss) before taxes and                      (2,413)              6,859               1,459           (970)
     extraordinary items
   Income tax expense (benefit)                          (699)              1,500                   -             90
                                                    ---------           ---------           ---------      ---------
   Income (loss) before extraordinary item             (1,714)              5,359               1,459         (1,060)
   Extraordinary item (4)                                   -                (108)               (864)             -
                                                    ---------           ---------           ---------      ---------
   Net income (loss)                                $  (1,714)          $   5,251                $595      $  (1,060)
                                                    =========           =========           =========      =========

Dividends on preferred stock (5)                            -                  11                 132
                                                    ---------           ---------           ---------
Net income available to common stockholders         $  (1,714)          $   5,240           $     463
                                                    =========           =========           =========

Net income (loss) per common share:
   Basic net income per common share before
     extraordinary item                             $   (0.19)          $    0.63           $    0.37
   Extraordinary item                                    -                  (0.01)              (0.24)
                                                    ---------           ---------           ---------
   Basic net income per common share                $   (0.19)          $    0.62           $    0.13
                                                    =========           =========           =========

Weighted average shares outstanding                     8,973               8,432               3,557

   Net income (loss) per common share -
     assuming dilution - before extraordinary       $   (0.19)          $    0.61           $    0.26
     item
   Extraordinary item                                    -                  (0.01)              (0.17)
                                                    ---------           ---------           ---------

Adjusted net income per common share -
     assuming dilution                              $   (0.19)          $    0.60           $    0.09
                                                    =========           =========           =========
Weighted average shares outstanding and
     assumed conversions                                8,973               8,698               5,194

Balance Sheet Data:
   Working capital                                  $  47,093           $  53,735           $  37,487      $  31,413
   Total assets                                        97,089              82,523              62,372         60,384
   Short-term line of credit                            8,850                   -                   -              -
   Current portion of long-term debt                        -                   -               1,100          1,970
   Long-term debt, less current portion                13,907              13,866              32,794         27,005
   Other long-term liabilities                          1,443               1,041               2,119          3,601
   Series A Preferred Stock                                 -                   -               1,650          1,650
   Total stockholders' equity                       $  44,381           $  45,957           $   6,281      $   4,186
</TABLE>



                                       11
<PAGE>

Notes to Selected Financial Data

(1)  The financial information for the year ended January 31, 1998 includes the
     results of API, which was acquired on March 5, 1997. See "Management's
     Discussion and Analysis of Financial Condition and Liquidity and Capital
     Resources".

(2)  The historical data of NAC and the Company are not comparable in all
     respects. The financial information presented for the twelve months ended
     January 31, 1996 includes four months during which NAC was owned by its
     former shareholder (the "Predecessor"). This information also includes the
     eight months during which NAC was owned by the Company. The results of
     operations for this period are as follows:


<TABLE>
<CAPTION>
                                                        Predecessor        First Aviation       Twelve-months
                                                          2/1/95 -            6/1/95 -              Ended
                                                          5/31/95              1/31/96         January 31, 1996
                                                      ----------------    -----------------    ----------------
<S>                                                      <C>                 <C>                 <C>
Net sales                                                $   24,338          $  68,519           $   92,857
Cost of sales                                                23,809             57,390               81,199
                                                         ----------          ---------           ----------
Gross profit                                                    529             11,129               11,658
Selling general and administrative expenses                   3,229              5,349                8,578
                                                         ----------          ---------           ----------
Income (loss) from operations                                (2,700)             5,780                3,080
Interest expense                                                644              2,605                3,249
Other expense                                                   801                  -                  801
                                                         ----------          ---------           ----------
Income (loss) before tax and extraordinary item              (4,145)             3,175                 (970)
Income tax expense (benefit)                                 (1,210)             1,300                   90
                                                         ==========          =========           ==========
Net income (loss)                                        $   (2,935)         $   1,875           $   (1,060)
                                                         ==========          =========           ==========
</TABLE>

     Due to the change in ownership and equity structure, income (loss) per
     share data for these periods cannot be presented meaningfully.

(3)  During fiscal year ended January 31, 1999 the Company incurred certain
     non-recurring charges for (i) legal defense and related costs, $3,100; (ii)
     severance and termination costs, $1,168; (iii) facility exit costs of
     $1,110; (iv) fees and expenses of terminated acquisitions, $800.

(4)  Represents extraordinary charges of $108, or $0.01 per share, for
     prepayment penalties for the year ended January 31, 1998, and $864, or
     $0.24 per share, for the write-off of prepaid financing costs and early
     extinguishment charges for the year ended January 31, 1997, both in
     connection with early extinguishments of debt. See "Management's Discussion
     and Analysis of Financial Condition and Results of Operations - Liquidity
     and Capital Resources".

(5)  The calculation of net income per common share requires the deduction from
     net income of undeclared preferred stock dividends. Accumulated but
     undeclared preferred stock dividends were $132 for the fiscal year ended
     January 31, 1997. Net income per common share for all periods, except as
     shown, cannot be presented meaningfully due to the change in ownership and
     equity structure.

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

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

General

     On April 29, 1999, the Company announced that it would explore ways of
enhancing shareholder value, including the potential sale of the Company's
subsidiary, NAC.

     Net sales consist of revenues derived from the overhaul and repair of
aircraft engines, engine components and industrial turbines as well as the sales
of parts and components. Net sales generally are recorded when repaired or
overhauled engines and components are completed, tested and shipped. Net sales
of spare parts and components are recorded when parts are shipped. In the fiscal
years ended January 31, 1999, 1998 and 1997, revenues from the servicing, repair
and overhaul of gas turbine engines


                                       12
<PAGE>

and aircraft components accounted for approximately 54.4%, 59.8% and 81.8% of
net sales, respectively, with revenue from the sale of spare parts and
components accounting for the remaining 45.6%, 40.2%, and 18.2%, respectively of
net sales. The decrease in the percentage of revenues from servicing, repair and
overhaul, and the increase in percentage of revenues from the sale of spare
parts and components in the years ended January 31, 1999 and 1998 is due to the
acquisition and growth of API, which sells principally parts and components.

     During the fiscal year ended January 31, 1999, the Company announced that
it had initiated a plan to streamline operations at NAC, and recorded pre-tax
non-recurring charges of approximately $2.8 million in the first quarter. The
economic impact of the restructuring positively affected results beginning in
the third quarter. Annual savings from the plan approximated $3.0 million on a
pretax basis.

     In March 1997, the Company completed the acquisition of API. The adjusted
purchase price for API was $10.6 million in cash, including expenses of
approximately $0.5 million which were incurred in connection with the
acquisition. The acquisition was accounted for under the purchase method of
accounting as of the closing date. The purchase price, including acquisition
costs, was allocated to the assets and liabilities of API based upon their
relative fair values. The excess of purchase price paid over the value of the
net assets acquired was included in goodwill in the accompanying consolidated
balance sheets. The consolidated financial statements of the Company since March
5, 1997 reflect the impact of the results of operations of API as well as the
purchase price allocation.

     In conjunction with the acquisition, AMR Combs purchased 10,407 shares of
API Combs Series A Cumulative Convertible Preferred Stock, $0.001 par value, at
a price of $100 per share. Total proceeds to the Company were $1,041,000. This
transaction is accounted for as a minority interest in the consolidated balance
sheets. Dividends of $4.00 per share are payable quarterly on the preferred
stock. Dividends of $42,000 and $38,000 have been paid during the years ended
January 31, 1999 and 1998, respectively, and have been reflected in minority
interest in equity of its subsidiary in the consolidated statements of
operations.

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. The
results of API are included in the financial information for the fiscal years
ended January 31, 1999 and 1998 that is presented and discussed below.




<TABLE>
<CAPTION>
                                                        Fiscal Year           Fiscal Year           Fiscal Year
                                                           Ended                 Ended                 Ended
                                                      January 31, 1999      January 31, 1998      January 31, 1997
                                                      ----------------      ----------------      ----------------
<S>                                                         <C>                   <C>                   <C>
Net sales                                                   100.0%                100.0%                100.0%
                                                            -----                 -----                 -----
Cost of sales                                                82.3                  84.9                  85.8
                                                            -----                 -----                 -----
Gross profit                                                 17.7                  15.1                  14.2
Selling general and administrative expenses                  14.1                   9.7                   9.5
Non-recurring charge                                          4.0                   --                    --
                                                            -----                 -----                 -----
Income (loss) from operations                                (0.4)                  5.4                   4.7
Interest expense                                             (1.2)                  1.2                   3.3
Interest income                                               --                   (0.2)                  --
                                                            -----                 -----                 -----
Income (loss) before tax and extraordinary item              (1.6)                  4.4                   1.4
Income tax expense (benefit)                                 (0.5)                  1.0                   --
                                                            =====                 =====                 =====
Net income (loss) before extraordinary item                  (1.1)%                 3.4%                  1.4%
                                                            =====                 =====                 =====
</TABLE>



                                       13
<PAGE>

Fiscal year ended  January 31,  1999  compared to fiscal year ended  January 31,
1998

     Net sales for the fiscal year ended January 31, 1999 increased to $153.7
million from $ 153.6 million during the fiscal year ended January 31, 1998. Net
sales growth of $15.7 million at API was offset by a decline in net sales of
$15.6 million at NAC. The decrease in net sales at NAC was due to a decline of
9.8% in sales from engine overhaul and repair and a 32.8% decline in the sale of
parts. NAC continued to be adversely affected by the financial deterioration in
several countries in Asia and the Pacific Rim. During the fourth quarter of the
fiscal year ended January 31, 1999, NAC's revenues from repair and overhaul
increased by 1.2% as compared to the fourth quarter of the fiscal year ended
January 31, 1998 as the Company commenced performance under a contract with the
U.S. Navy.

     Costs of sales decreased by $3.9 million, or 3.0%, to $ 126.5 million from
the $130.4 million for the fiscal year ended January 31, 1998. As a percentage
of net sales, cost of sales decreased to 82.3% from 84.9% for the fiscal year
ended January 31, 1998. The decrease in the percentage of cost of sales to net
sales was due to the positive impact of the restructuring and improvements in
margins at both API and NAC.

     Total gross profits increased by $4.1 million to $27.3 million as compared
to $23.2 million recorded during the fiscal year ended January 31, 1998. Total
gross profits increased to 17.7% of net sales, as compared to 15.1% for the
fiscal year ended January 31, 1998. The increase was due to the positive impact
of the restructuring and an increase in the proportion of the Company's net
sales of parts and components relative to net sales from repair and overhaul
activities.

     Selling, general and administration expenses increased $6.9 million or 47%.
The increase is due to the costs associated with API's growth including the
operation of API's new facility, additional marketing costs to pursue new
business opportunities, legal and other costs. In addition, API is a
distribution and logistics business and, as is typical in such businesses,
incurs less direct labor costs and greater selling, general and administrative
costs than a company such as NAC, which requires a larger portion of direct
labor in the performance of engine repair and overhaul.

     During the year, the Company recorded certain non-recurring charges.
Included are the costs of employee severance and termination at NAC, $1.2
million, facility exit costs, $1.1 million, the costs incurred in connection
with the terminated acquisitions, $0.8 million, and the costs recorded in
connection with the defense of the Company and its Directors against claims made
by a former director and manager, $3.1 million.

     Interest expense of $1.8 million for the fiscal year ended January 31, 1999
is equal to the $1.8 million recorded during the fiscal year ended January 31,
1998. The Company sweeps all cash proceeds nightly in order to minimize interest
expense.

     Interest income decreased by $0.4 million as interest was received from a
customer in the prior year.

     Income taxes decreased by $2.2 million to a benefit of $0.7 million as
compared to a charge of $1.5 million in the fiscal year ended January 31, 1998.
The decline in the tax expense reflects the tax benefit associated with the net
loss of the Company.

     Net loss of $1.7 million represents a decline in income of $7.0 million
from the $5.3 million reported for the fiscal year ended January 31, 1998.

Fiscal year ended January 31, 1998 compared to fiscal year ended
January 31, 1997

     Net sales for the fiscal year ended January 31, 1998 increased $49.4
million, or 47.4%, to $153.6 million from $104.2 million during the fiscal year
ended January 31, 1997. The growth in net sales was due to the acquisition of
API and a 5.2% increase in net sales at NAC. The increase in net sales at NAC
was due to a 4.2% increase in sales from the performance of engine repair and
overhauls, and a 9.8% increase in parts sales. During the fourth quarter of
fiscal 1998, the Company was adversely impacted by the financial downturn that
affected several countries in Asia and the Pacific Rim. As a result of economic
conditions in these countries, especially Thailand, Malaysia, and Japan, the
Company has experienced a reduction in the level of anticipated inputs for
engine overhauls and sales of parts and components. It is management's opinion
that the situation will continue for the foreseeable future.

     Cost of sales increased $41.0 million, or 45.9%, to $130.4 million from
$89.4 million during the year ended January 31, 1988. The increase in cost of
sales was due principally to the acquisition of API, and the increase in sales
at NAC.

     Total gross profit increased to 15.1% of net sales, compared to 14.2% for
the last fiscal year. A significant portion of the increase is due to the
acquisition of API. API is a distribution business and, as is typical in such
businesses, incurs less direct



                                       14
<PAGE>

labor costs than a company such as NAC that performs engine repair and overhaul
services, which require a substantial amount of direct labor cost. Consequently,
gross profits at API are higher than those at NAC, and the addition of API gross
profits increased the Company's overall gross profit percentage.

     Selling, general and administration expenses increased $4.9 million, or
50.1%. This was due to the inclusion of API, offset by a reduction in expense at
NAC during the fiscal year ended January 31, 1998 compared to the prior fiscal
year. NAC's results for the fiscal year ended January 31, 1997 were negatively
impacted by a non-cash charge of $1.5 million for compensatory stock options and
a $0.2 million charge for bonus. These charges were not incurred during the
fiscal year ended January 31, 1998.

     Interest expense decreased from the prior fiscal year by $1.6 million or
46.9%. The decrease was due principally to the $22.6 million reduction in
outstanding debt that was paid down from the proceeds of the Offering.

     Interest income increased $0.4 million from the prior fiscal year as
interest was received from one of the Company's customers.

     During the fiscal year ended January 31, 1998, the Company incurred an
extraordinary charge, net of associated income tax benefits, of $0.1 million for
prepayment penalties associated with the early extinguishment of debt. This
compares to a net extraordinary charge of $0.9 million in the fiscal year ending
January 31, 1997 which also was due to an early extinguishment of debt.

     Income taxes for the year ended January 31, 1998 increased $1.5 million.
The increase reflects the profitability of the Company offset by a reduction in
the valuation allowance.

     Net income increased $4.7 million to $5.3 million for the fiscal year ended
January 31, 1998, compared to net income of $0.6 million for the fiscal year
ended January 31, 1997.


Liquidity and Capital Resources

     The Company's cash used in operations for the fiscal years ended January
31, 1999, 1998 and 1997 was $(3.0) million, $(2.2) million, and $(3.7) million,
respectively. Cash used for investing during these same periods, including
acquisitions, was $(6.0) million, $(13.0) million, and $(1.3) million,
respectively, while cash generated by financing activities was $8.9 million,
$15.4 million, and $5.1 million, respectively.

     First Aviation's aggregate capital expenditures for the fiscal years ended
January 31, 1999, 1998 and 1997 were $6.0 million, $2.4 million, and $1.0
million, respectively, exclusive of acquisition costs of API. Management
anticipates that capital expenditures for fiscal year 2000 will aggregate
approximately $5.7 million, exclusive of any costs of acquisitions. These
expenditures will be used to fund the purchases of tooling, test equipment, and
data processing equipment, the construction of a test cell and the expansion and
modernizations of the Company's distribution and logistics capabilities.
Management expects to fund these capital expenditures from cash flows from
operations and from borrowings.

     On April 23, 1998, API entered into a one year $10 million revolving credit
facility with Fleet National Bank. Advances under the credit facility bear
interest based upon certain market rates plus a premium. Borrowings are limited
to specific percentages of eligible accounts receivable and inventories at API.
The credit agreement contains a number of covenants, including restrictions on
mergers, consolidations and acquisitions, the incurrence of indebtedness,
transactions with affiliates, the creation of liens, and limitations on capital
expenditures. The credit agreement also requires API to maintain minimum levels
of net worth and specified interest expense coverage ratios, and currently
restricts the payment of dividends. Substantially all of API's trade
receivables, inventory and equipment are pledged as collateral under the
revolving credit facility. Borrowings under this facility amounted to $8.9
million at January 31, 1999 at an interest rate of 6.4%. On April 28, 1999,
Fleet National Bank extended the term of the revolving credit facility until
July 22, 1999 under the prevailing terms and conditions and committed to extend
the line through February 1, 1999.

     On March 5, 1997, the Company completed an initial public offering of
3,900,000 shares of common stock, $0.01 par value per share (the "Offering").
The Company received net proceeds of approximately $34.5 million after deducting
expenses of approximately $4.5 million. The Company utilized the net proceeds
from the Offering to complete the acquisition of API for $10.6 million in cash,
to pay down $22.6 million of the credit facility and term loans of NAC, and for
general working capital needs. The Company also retired the $1.8 million 15%
subordinated note due to Canpartners Investments IV, LLC ("Canpartners"), and
paid $231,000 of accumulated and unpaid dividends on the Company's Series A
Preferred Stock. The



                                       15
<PAGE>

preferred was converted into common stock as part of the Offering. In connection
with the retirement of the subordinated note, the Company recorded an
extraordinary after tax charge of $108,000 for prepayment penalties.

     In June 1996, NAC entered into a $40.0 million credit agreement. Borrowings
under this credit facility were used to retire the outstanding debt under NAC's
then-existing $30.0 million revolving credit line and term loan. Additionally,
the new facility provided funds needed to finance the Company's expansion plans
by enabling the Company to acquire an adequate supply of inventory, and to
finance receivables. Borrowings are limited to specific percentages of eligible
accounts receivable and inventories at NAC. In connection with the refinancing,
the Company recorded an extraordinary after tax charge of $864,000 for
prepayment penalties and the write-off of the unamortized balance of loan fees.

     Advances under the revolving portion of the credit facility bear interest
at LIBOR plus 3.0%. The revolving portion of the credit facility also allows for
the issuance of letters of credit up to an aggregate of $2.5 million. At January
31, 1999, borrowings under the revolving portion of the credit facility amounted
to $14.0 million and carried an interest rate of 7.45%. The original term of the
credit facility is through May 15, 1999. A termination of the facility prior to
that date requires the payment of a prepayment penalty of $400,000. Thereafter
the agreement automatically renews for additional one-year periods. The
agreement automatically renewed on February 16, 1999.

     The credit agreement contains a number of covenants, including restrictions
on mergers, consolidations and acquisitions, the incurrence of indebtedness,
transactions with affiliates, the creation of liens, limitations on capital
expenditures, and payment of management fees. The credit agreement also requires
NAC to maintain minimum levels of net worth, specified interest expense coverage
ratios and minimum backlog levels, and currently restricts the payment of
dividends from NAC to the Company without the lender's consent. Substantially
all of NAC's assets are pledged as collateral under the revolving line of
credit.

     At January 31, 1999, availability under the revolving credit facilities was
approximately $20 million.

     In connection with the API acquisition, First Aviation, API Combs and AMR
Combs entered into a Stockholders Agreement. Pursuant to this agreement, AMR
Combs agreed that it would not sell its shares of the Preferred Stock or the
shares of API Combs common stock into which such Preferred shares are
convertible (collectively the "API Acquisition Shares") for a minimum period of
three years. API Combs has the right to redeem the API Acquisition Shares at any
time. AMR Combs has the right to cause the Company to repurchase the API
Acquisition Shares commencing three years after the closing of the API
acquisition. The redemption price is equal to the fair market value of the API
Acquisition Shares 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
API Acquisition Shares, (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 Combs 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 Combs
to a third party, and (iv) piggyback and demand registration rights granted to
AMR Combs with respect to the API Acquisition Shares. The demand registration
rights are not exercisable until three years after the closing of the API
acquisition, and, if API Combs 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 Combs may elect to treat the demand as an exercise by
AMR Combs of its put option with respect to the API Acquisition Shares. The
Company has no plans to cause API Combs to conduct a public offering of its
securities.

     The Company believes that its cash flow from operations, combined with
borrowings available under its existing and new lines of credit, will be
sufficient to meet its current and anticipated cash operating requirements,
including scheduled interest and principal payments, capital expenditures,
preferred dividend requirements and working capital needs through the end of the
fiscal year ending January 31, 2000. The Company currently is in compliance with
all of its debt covenants.


                                       16
<PAGE>

Year 2000

     The Company is currently working to resolve the potential impact of the
Year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs and systems that have
time-sensitive software may be unable to interpret dates beyond the year 1999.
This could result in miscalculations and/or system failures, causing disruptions
of operations controlled by such systems or devices.

     The Company and each of its operating subsidiaries have conducted
comprehensive reviews of their systems and have developed plans to address any
possible issues related to the impact of the Year 2000 problem on both
information technology ("IT") and non-IT systems (e.g., embedded technology).
These plans address the Year 2000 issue in multiple phases, including (i)
determining an initial inventory of the Company's systems, equipment, vendors,
customers and third party administrators that may be vulnerable to system
failures or processing errors as a result of Year 2000 issues, (ii) assessing
and prioritizing of inventoried items to determine risks associated with their
failure to be Year 2000 compliant, (iii) testing of systems and equipment to
determine Year 2000 compliance, and (iv) remediating and implementing systems
and equipment. For those systems which the Company determines are not currently
Year 2000 compliant, implementation of the required changes is expected to be
completed during the next fiscal year.

     As of January 31, 1999 all critical hardware and software systems utilized
by the Company had been tested and/or verified as either Year 2000 compliant or
appropriate remediation was taken or will be taken to effect compliance. Certain
non-critical software systems were determined not to be Year 2000 compliant and
had been or will be modified or converted to compliant systems. Conversion of
additional non-critical systems is in process. Testing systems utilized to
verify compliance include the posting to the systems of a date on or after
January 1, 2000 as though the date were effective. The Company has tested nearly
all of its critical IT and non-IT systems. Any necessary additional
modifications or replacements are scheduled to be completed during the first
three quarters of fiscal year 2000.

     The Company is in the process of contacting its major suppliers and vendors
to assess their status relating to Year 2000 readiness and/or compliance, and
the potential impact on operations if such third parties are not successful in
ensuring that their systems are Year 2000 compliant in a timely manner. The
Company could suffer potential business interruptions and/or incur costs,
damages or losses related thereto if other third parties, such as governmental
agencies (e.g., Federal Aviation Administration), are not Year 2000 compliant.
The Company is unable to determine at this time whether it will be materially
affected by the failure of any of its suppliers, vendors or other third parties
to be Year 2000 compliant.

     A failure by the Company, its major suppliers or vendors, or any third
party with which the Company interacts, to resolve a material Year 2000 issue
could result in the interruption in, or failure of, certain normal business
activities or operations and could materially and adversely affect the Company's
financial condition, results of operations and cash flows. The Company is
currently assessing those scenarios in which unexpected failures could have a
material adverse effect on the Company and anticipates that it will develop
contingency plans, as deemed appropriate, designed to deal with such scenarios.
Based on current plans and assumptions, the Company does not expect that the
Year 2000 issue will have a material adverse impact on the Company as a whole.
Due to the general uncertainty inherent in the Year 2000 issue, however, there
can be no assurance that all Year 2000 issues will be foreseen and corrected on
a timely basis, or that no material disruption to the Company's business
operations will occur. Further, the Company's expectations are based on the
assumption that there will be no general failure of external local, national or
international systems (including power, communications, postal, transportation,
or financial systems) necessary for the ordinary conduct of business.

     Costs associated with the Company's Year 2000 compliance effort, including
consulting costs and costs associated with internal resources used to modify
existing systems in order to achieve Year 2000 compliance, are charged to
expense as incurred. Management estimates that the expenditures relating to the
Company's Year 2000 compliance effort will total approximately $400,000. Through
January 31, 1999 management estimates that approximately $200,000 has been spent
addressing this issue. The remainder is expected to be spent over the next two
to three quarters. The Company does not separately track internal costs of the
Year 2000 compliance effort. The anticipated costs of the project and the dates
on which the Company believes it will complete the Year 2000 modifications and
assessments are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources. There can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area and the ability to locate and correct all relevant systems.
Management does not expect the financial impact of making the required system
changes to be material to the Company's overall consolidated financial position.


                                       17
<PAGE>

Inflation

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

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

     Trade receivables are denominated in U.S. dollars, and therefore, do not
carry any risk relating to foreign currency fluctuations. Risk relating to
receivables arising from export sales is limited through the use of letters of
credit or with the purchase of foreign credit insurance.

     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.



                                       18
<PAGE>

                                    PART III
                                    --------

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

     The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
Name                       Age              Positions
----                       ---              ---------
<S>                        <C>      <C>
Aaron P. Hollander         42       Chairman of the Board

Michael C. Culver          48       President, Chief Executive Officer and Director

John A. Marsalisi          43       Chief Financial Officer, Secretary and Director

Gerald E. Schlesinger      54       Senior Vice President

Philip C. Botana           54       Vice President

Joshua S. Friedman         43       Director

Robert L. Kirk             69       Director

Charles Ryan               48       Director
</TABLE>


     Aaron P. Hollander has served as Chairman of the Company since March 1995.
Mr. Hollander became a director of NAC in June 1995. In 1985, Mr. Hollander
co-founded First Equity Development Inc. ("First Equity"), an aerospace
investment and advisory firm, and has served as Co-Managing Director since that
time.

     Michael C. Culver has served as a Director and Chief Executive Officer of
the Company since March 1995. Mr. Culver became a director of NAC in June 1995
and Chairman in August 1996. In 1985, Mr. Culver co-founded First Equity, along
with Mr. Hollander, and has served as Co-Managing Director since that time.

     John A. Marsalisi has served as a Director and Chief Financial Officer and
Secretary of the Company since March 1995. He has been an officer of First
Equity since 1996. From 1991 to May 1996, Mr. Marsalisi was Director of Taxes
for Omega Engineering. Prior to joining Omega Engineering, Mr. Marsalisi was
Director of Taxes for the Entrepreneurial Services Group of Ernst & Young's
Stamford, Connecticut office. Mr. Marsalisi is a Certified Public Accountant.

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

     Philip C. Botana became a Vice President upon his employment by the Company
in June 1998. Prior to joining the Company, Mr. Botana served as Vice President
of Operations for Bombardier Aerospace-Business Jet Solutions from July 1997.
From 1994 to 1997, Mr. Botana was the President of Botana & Company, an aviation
consulting firm. Prior to 1994, Mr. Botana was a Senior Vice President of
Signature Flight Support.

     Joshua S. Friedman became a Director in March 1997. Mr. Friedman has been
an executive officer of Canyon Capital Management L.P. and various related or
predecessor entities ("Canyon Capital") since their inception in 1990. Canyon
Capital is a merchant banking and money management firm which Mr. Friedman
co-founded and which is an affiliate of Canpartners, a former subordinated
creditor and warrant holder of the Company. From 1984 to 1990, Mr. Friedman was
an Executive Vice President and Co-Director of Capital Markets of Drexel Burnham
Lambert Incorporated. Mr. Friedman currently serves as a member of the Board of
Directors of Sunterra Resorts, Inc., a publicly traded developer and operator of
timeshare resorts, and several privately held companies and charitable
organizations.

     Robert L. Kirk became a Director in March 1997. In 1998, Mr. Kirk retired
as the Chairman of British Aerospace Holdings, Inc., an international aerospace
corporation. Mr. Kirk had been Chairman since 1992. Mr. Kirk served as Chairman
and Chief Executive Officer of CSX Transportation, Inc., the railroad subsidiary
of CSX Corporation, from 1990 to 1992, and



                                       19
<PAGE>

was Chairman and Chief Executive Officer of Allied-Signal Aerospace Co. from
1986 to 1989. Mr. Kirk is a director of United Defense L.P., a defense
contractor, and Harsco Corporation, a diversified industrial company.

     Charles B. Ryan became a Director in March 1997. Since 1986, Mr. Ryan has
been the President and Chief Operating Officer of Nordam Group Inc., a
manufacturer and overhaul agency of airframe components, nacelles and thrust
reversers. Mr. Ryan has been associated with Nordam Group Inc. since 1976. Mr.
Ryan is also a Director of F&M Bank & Trust Company.


Board Committees

     The Board of Directors has established an Audit Committee, a Compensation
Committee and an Executive Committee. The Audit Committee is composed of Messrs.
Hollander and Ryan. The Audit Committee reviews the Company's annual audit
results and meets with the Company's independent auditors to review the
Company's internal controls and financial management practices. The Compensation
Committee is composed of Messrs. Hollander and Kirk. The primary function of the
Compensation Committee is to review and make recommendations to the Board with
respect to compensation of the Company's officers, including bonuses. The
Company's Executive Committee is composed of Messrs. Culver and Hollander. The
Executive Committee has and may exercise all of the powers and authority of the
Board of Directors in the management of the business affairs of the Company
except that it does not have the power and authority to: (i) amend the
Certificate of Incorporation or Bylaws of the Company; (ii) adopt an agreement
of merger or consolidation or to recommend to stockholders the sale, lease or
exchange of all or substantially all of the Company's property and assets; (iii)
recommend to stockholders a dissolution of the Company or a revocation of the
dissolution; or (iv) declare a dividend or authorize the issuance of stock of
the Company unless expressly authorized by a resolution of the Board of
Directors.


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

                           Summary Compensation Table

     The following table sets forth certain information for the fiscal years
ended January 31, 1999, 1998 and 1997, regarding compensation awarded to, earned
by, or paid to the Company's Chief Executive Officer and each of the other
executive officers of the Company whose compensation exceeded $100,000.

<TABLE>
<CAPTION>
                                                  Annual Compensation
                                                                                                        Long -Term
                                                                                                       Compensation
                                                                                                      -------------
                                                                       Annual Compensation              Securities
                                                                  ---------------------------           Underlying
Name and Principal Position          Year                         Salary               Bonus             Options
---------------------------          ----                         ------               -----             -------
<S>                              <C>                              <C>                                    <C>
Philip C. Botana                 FYE 1/31/99                       $87,500                                25,000
Vice President                   FYE 1/31/98                           N/A
                                 FYE 1/31/97                           N/A

Michael C. Culver                FYE 1/31/99                      $180,000
Chief Executive Officer          FYE 1/31/98                      $180,000
                                 FYE 1/31/97                       $23,000

John A. Marsalisi                FYE 1/31/99                      $155,000
Chief Financial Officer          FYE 1/31/98                      $155,000            $20,000              5,000
                                 FYE 1/31/97                       $20,000                                40,000

Gerald E. Schlesinger            FYE 1/31/99                      $190,000
Senior Vice President            FYE 1/31/98                       $99,167            $40,000             60,000
                                 FYE 1/31/97                           N/A

</TABLE>




                                       20
<PAGE>

                      Option Grants in the Last Fiscal Year

         The following table sets forth information  regarding the stock options
that were granted  during the last fiscal year to each of the officers  named in
the Summary Compensation Table.

<TABLE>
<CAPTION>
                                                           Individual Grants
                                        --------------------------------------------------------------------
                                        Percent of
                      Number of         Total Options
                      Securities        Granted to                                            Grant Date
                      Underlying        Employees in      Exercise of                         Present Value
Name                  Options Granted   Fiscal year       Base Price        Expiration date   Per Share (1)
----                  ---------------   -----------       ----------        ---------------   -------------

<S>                        <C>               <C>               <C>               <C>               <C>
Philip C. Botana           25,000            28.3%             $6                2008              $1.90

Michael C. Culver          None              N/A               N/A               N/A               N/A

John A. Marsalisi          5,000             5.7%              $6                2008              $1.90

Gerald E.                  10,000            11.3%             $6                2008              $1.90
Schlesinger
</TABLE>

(1)  Present value on the grant date was determined by using the Black-Scholes
     option-pricing model. The model as applied used the applicable grant date,
     the exercise price as shown in the table and the fair market value of the
     Company's Common Stock on the grant date. The model assumed (i) a risk-free
     return of 6.0%, (ii) a dividend yield of 0%, (iii) an average volatility
     factor of 0.516 and (iv) the exercise of all options on the final day of
     their 10-year terms. No discount from the theoretical value was taken to
     reflect the waiting period prior to vesting, the limited transferability of
     the options, and the likelihood of the options being exercised in advance
     of the final day of their terms. There is no assurance that the values
     actually realized upon the exercise of these options will be at or near the
     present values shown in the tables as of the date of grant. The
     Black-Scholes option pricing model is a widely used mathematical formula
     for estimating option values that incorporates various assumptions that may
     not hold true over the 10-year life of these options. For example,
     assumptions are required about the risk-free rate of return as well as the
     dividend yield and the volatility of the Common Stock over the 10-year
     period. Also, the Black-Scholes model assumes that an option holder can
     sell the option at any time at a fair price that includes a premium for the
     remaining time value of the option. However, an optionee can realize an
     option's value before maturity only by exercising and thereby sacrificing
     the option's remaining time value. Although the negative impact of this and
     other restrictions on the value of this type of option is well recognized,
     there is no accepted method for adjusting the theoretical option value for
     them. The values set forth in the table should not be viewed in any way as
     a forecast of performance of the Company's Common Stock, which will be
     influenced by future events and unknown factors.

                 Aggregated Option Exercises in the Fiscal Year
                        and Fiscal Year-End Option Values

     The following table sets forth the aggregate positions in stock options at
January 31, 1999 held by each of the officers named in the Summary Compensation
Table.

<TABLE>
<CAPTION>
                                  Number of Securities               Value of Unexcercised
                                 Underlying Unexercised              In-The-Money Options
                               Options at Fiscal Year End             at Fiscal Year End
          Name                  Exercisable/Unexercisable         Excercisable/Unexcercisable
          ----                  -------------------------         ---------------------------

<S>                                   <C>                                    <C>
Philip C. Botana                       None/25,000                            N/A

Michael C. Culver                       None/None                             N/A

John A. Marsalisi                     20,000/25,000                           N/A

Gerald E. Schlesinger                 12,500/47,500                           N/A
</TABLE>


                                       21
<PAGE>

Employment Contracts, Termination of Employment and Change in Control
Arrangements

     In December 1996, First Aviation entered into employment agreements with
Michael C. Culver and John A. Marsalisi. Mr. Culver's and Mr. Marsalisi's
employment agreements are each for terms of three years which expire on December
31, 1999, and provide for an annual base salary of $180,000 and $155,000,
respectively. In July 1997, First Aviation entered into a three-year employment
agreement with Gerald E. Schlesinger with a base salary of $170,000. On June 1,
1998, the Company entered into a three year employment agreement with Philip C.
Botana with a base salary of $150,000. Each agreement provides for base salaries
to be adjusted at the discretion of the Board of Directors. Each of the
employment agreements provides for: (i) benefits which are also generally
available to other employees of First Aviation in similar employment positions,
(ii) reimbursement of reasonable business related expenses, (iii) three weeks
paid vacation a year, and (iv) a severance payment, upon termination without
cause or for death or disability, equal to six months base salary. Each of the
agreements may be terminated by First Aviation without cause at any time upon 30
days notice or by the executive for any reason upon 30 days notice.

     Mr. Culver, Mr. Marsalisi, Mr. Schlesinger and Mr. Botana each have, as
part of their respective employment agreements, agreed not to compete with First
Aviation for a period of six months following the end of his employment by First
Aviation and not to solicit employees or customers of First Aviation for a
period of six months following the end of his employment with First Aviation.


Compensation Committee Interlocks and Insider Participation

     No member of the Compensation Committee is or has been an employee of the
Company.

Director Compensation

     Each of the Company's non-employee directors is entitled to receive an
annual fee of $20,000. The fees are payable quarterly in cash or stock. No
director of the Company receives any fees for attendance at meetings of the
Board of Directors or committees thereof, although members of the Board do
receive reimbursement for actual expenses of such attendance. Messrs. Hollander,
Kirk and Ryan have directed that their directors' fees are to be paid in stock.



                                       22
<PAGE>

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

     The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of April 23, 1999, (i) by each person
who is known by the Company to own beneficially 5% or more of the outstanding
shares of common stock, (ii) each of the Company's directors, (iii) each of the
executive officers named in the Summary Compensation Table, and (iv) all
directors and executive officers as a group. Except as indicated in the
footnotes to the table, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where applicable,
and are located at 15 Riverside Avenue Westport, Connecticut 06880.


<TABLE>
<CAPTION>
Name and Address                                    Amount and Nature of
of  Beneficial Owner                                Beneficial Ownership                             Percent of Class
--------------------                                --------------------                             ----------------
<S>                                                      <C>                                               <C>
First Equity Group Inc. (1)                              3,747,018                                         41.6%

Aaron P. Hollander (1)                                   3,747,018                                         41.6%

Michael C. Culver (1)                                    3,747,018                                         41.6%

The Wynnefield Group (2)
     One Penn Plaza, Suite 4720
     New York, NY  10119                                 1,586,792                                         17.6%

Canpartners Investments IV, LLC (3)
     9665 Wilshire Boulevard
     Suite 200
     Beverly Hills, California 90212                     1,293,335                                         14.4%

Wellington Management Company, LLP (4)
     75 State Street
     Boston, MA  02109                                     882,000                                          9.8%

John A. Marsalisi                                            8,062                                             *

Gerald E. Schlesinger                                          983                                             *
     Aircraft Parts International
     3778 Distriplex Drive North
     Memphis, TN  38118

Philip C. Botana
     Aircraft Parts International
     3778 Distriplex Drive North
     Memphis, TN  38118                                      1,000                                             *

Joshua S. Friedman (5)                                          --                                             *

Robert L. Kirk                                              10,803                                             *

Charles B. Ryan                                             45,353                                             *

All directors and executive
     officers as a group (9 persons)                     3,809,849                                         42.4%
</TABLE>

* less than 1%

(1)  Aaron P. Hollander and Michael C. Culver own, in the aggregate, all of the
     outstanding shares of First Equity Group Inc.

(2)  Based upon a Schedule 13D dated, April 15, 1999 and the Company's
     knowledge, The Wynnefield Group is composed of the Wynnefield Partners
     Small Cap Value, L.P., Channel Partnership II L.P., Wynnefield Small Cap
     Value Offshore Fund, Ltd., and the Wynnefield Small Cap Value, L.P. I.

(3)  Based upon a Schedule 13G dated February 12,1998 and the Company's
     knowledge, Canpartners Incorporated is a Managing Member of Canpartners.
     Mr. Friedman, Mitchell R. Julis and R. Christian B. Evenson are the sole
     shareholders and directors of Canpartners Incorporated and such individuals
     may be deemed to share beneficial ownership of the shares shown as owned by
     Canpartners. Such persons disclaim beneficial ownership of such shares.

(4)  Based upon a Schedule 13G dated January 13, 1998 and the Company's
     knowledge

(5)  Excludes 1,293,335 shares shown as owned by Canpartners. Mr. Friedman is a
     Vice-President of Canpartners and is a shareholder and director of
     Canpartners Incorporated, a Managing Member of Canpartners, and as such may
     be deemed to have voting and investment power over such shares. Mr.
     Friedman disclaims any beneficial ownership of such shares.




                                       23
<PAGE>

            Section 16 (a) Beneficial Ownership Reporting Compliance

         Section 16 (a) of the Exchange Act  requires the  Company's  directors,
executive  officers  and ten percent  shareholders  to file  initial  reports of
ownership and reports of changes in ownership of the Company's common stock with
the Securities and Exchange  Commission.  Directors,  executive officers and ten
percent  shareholders  are  required to furnish  the Company  with copies of all
Section 16 (a) forms that they file.  Based upon a review of these filings,  the
Company  believes that all filings were made on a timely basis during the fiscal
year ended January 31, 1999.

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

         In March 1999,  a jury  decided in favor of the  Company in  litigation
brought by a former director and manager of the Company,  initiated in June 1997
against the Company, National Airmotive Corporation, Aaron P. Hollander, Michael
C. Culver, First Equity Development Inc. ("First Equity") and First Equity Group
Inc.  During the quarter  ended  January 31,  1999,  the  Company,  accrued $3.1
million  for the costs of  defending  itself  and its  Directors  against  these
claims.  The accrual  includes  legal fees  incurred  through  January 31, 1999,
completion of the trial, expert testimony, out-of-pocket costs, and the costs of
an appeal.  The Company is pursuing  recovery of these costs in accordance  with
the terms of a Directors and Officers  Insurance Policy. The amount of recovery,
if any, is not  ascertainable  at this time.  Any recovery  will be reflected in
future periods. See Item 3 - "Legal Proceedings".

         On December 20,  1996,  the Company and First  Equity,  an affiliate of
First Equity Group,  entered into an agreement  allocating  potential investment
and acquisition  opportunities in the global aircraft engine repair and overhaul
market. Pursuant to the agreement,  First Equity agreed that commencing with the
consummation of the Offering, neither First Equity nor any of its majority-owned
subsidiaries  will, as a principal,  consummate  any  acquisition  of a majority
interest in any business  that is engaged in the repair and overhaul of military
and commercial aircraft engines 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 directors of the Company that have no affiliation with First Equity.  The
agreement  will  remain in effect  for a  five-year  term,  subject  to  earlier
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 the repair
and overhaul of military and commercial  aircraft  engines,  nor to any advisory
services performed by First Equity on behalf of third parties.

         During the  quarter  ended  October 31,  1998,  the  Company,  upon the
authorization of the independent members of the Board of Directors, entered into
an  advisory  agreement  with a related  party,  First  Equity.  Pursuant to the
agreement,  First  Equity is to provide the  Company  investment  and  financial
advisory  services  relating  to  potential  acquisitions  and  other  financial
transactions.  The agreement runs through February 1, 2000 but may be terminated
by either party upon 30-days written notice to the other. Under the terms of the
agreement,  the  Company  will  pay a fee to  First  Equity  for the  successful
completion of certain transactions (the "Success Fee"), and will reimburse First
Equity for its  out-of-pocket  expenses.  The amount of the  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 scope of
the  services  to be  provided,  the  size  and  type  of  acquisition,  and the
successful  completion of a transaction.  The agreement  requires the Company to
pay First Equity a $30,000 monthly  retainer  effective  February 1, 1998, which
can be  applied  as a  credit  against  the  Success  Fee,  subject  to  certain
limitations.  During the year ended  January 31,  1999,  the Company  paid First
Equity retainer fees totaling $360,000,  all of which can be applied against the
Success Fee.

         The Company subleases from First Equity approximately 3,000 square feet
of office space in Westport,  Connecticut.  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.   Monthly  payments  under  this  sublease  were
approximately $8,700 and $5,000 respectively, for the fiscal years ended January
31, 1999 and 1998.

         The Company  believes that the terms of the advisory  agreement and the
sublease  agreement  between  the  Company  and  First  Equity  are at  least as
favorable  as the terms  which would have been  obtained by the Company  from an
unaffiliated third-party.

                                       24
<PAGE>

                                     PART IV
                                     -------


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

(a)(1) Financial Statements and Schedules
       ----------------------------------

       See Index to Consolidated Financial Statements, which appears on Page
       F-1 hereof

   (2) Financial Statement Schedule II - Valuation and Qualifying Accounts,
       which appears on Page F-24 hereof.

(b)    Form 8-K
       --------
       No reports on Form 8-K were filed by the registrant during the
       fourth quarter of fiscal 1999.

(c)    Exhibits


<TABLE>
<CAPTION>
Exhibit
Number                       Description of Exhibit

<S>      <C>
3.1+        Restated Certificate of Incorporation of the Company

3.2+        Restated Bylaws of the Company

10.1+       Form of Director Indemnification Agreement between the Company and
            each of its directors

10.2+       Loan and Security Agreement, dated June 13, 1996, by and between NAC
            and Fleet Capital Corporation

10.3+       Amendment Number One to Loan and Security Agreement, dated September
            1, 1996, by and between NAC and Fleet

10.9+       Asset Purchase Agreement, dated November 25, 1996, by and between
            AMR Combs and API Combs

10.10+      Authorized Maintenance Center Agreement, effective as of November
            14, 1994, by and between NAC and Allison Engine Company (Model
            T56/501)

10.12+      Employment Agreement, dated as of December 20, 1996, by and between
            John Marsalisi and the Company

10.14+      Stock Incentive Plan

10.15+      Employee Stock Purchase Plan

10.16+      Lease, dated January 23, 1991, by and between NAC and the City of
            Oakland (main building lease)

10.17+      First Supplement to lease, dated November 22, 1991, by and between
            NAC and the City of Oakland (main building lease)

10.18+      Lease, dated January 23, 1991, by and between NAC and the City of
            Oakland (test cells lease) Energy Resources, as amended

10.20+      Employment Agreement, dated as of December 20, 1996, by and between
            Michael C. Culver and the Company

10.21+      Investment Advisory Services Agreement Relating to the API Combs
            Acquisition, dated as of September 30, 1996, by and between First
            Equity and First Aviation

10.22+      Investment Advisory Services Agreement Relating to the Offering,
            dated as of September 30, 1996, by and between First Equity and
            First Aviation



                                       25
<PAGE>

10.23+      Letter, dated as of December 20, 1996, by and between First Equity
            and First Aviation regarding pursuit of acquisition opportunities

10.24+      Amended and Restated Registration Rights Agreement, dated as of
            February 21, 1996, by and between the Company and FAI

10.27+      Authorized Maintenance Center Agreement, effective as of November
            30, 1994, by and between NAC and Allison Engine Company (Model 250)

10.28+      Authorized Maintenance Center Agreement, effective as of December
            31, 1995, by and between NAC and Allison Engine Company (Model
            570/571)

10.29+      Registration Rights Agreement, dated as of February 21, 1997, by and
            between the Company and Canpartners

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

10.32f      Letter, dated as of November 13, 1997 by and between Allison Engine
            Co. and National Airmotive Corporation regarding the extension of
            the A250 Authorized Maintenance Agreement until March 31,1998

10.33f      Letter, dated as of November 14, 1997 by and between Allison Engine
            Co. and National Airmotive Corporation regarding the extension of
            the T56/501 Engine Authorized Maintenance Agreement until March
            31,1998

10.34n      Letter, dated as of March 5, 1998, by and between Allison Engine Co.
            and National Airmotive Corporation regarding the extension of the
            A250 Engine Authorized Maintenance Agreement until April 30, 1998

10.35n      Letter, dated as of March 13, 1998, by and between Allison Engine
            Co. and National Airmotive Corporation regarding the extension of
            the T56/501 Engine Authorized Maintenance Agreement until April 30,
            1998

10.36n      Letter, dated as of March 19, 1998, by and between National
            Airmotive Corporation and Allison Engine Corporation wherein
            National Airmotive elects to extend the Authorized Maintenance
            Center Agreement, effective November 30, 1994, by and between NAC
            and Allison Engine Company (Model 250)

10.37n      Letter, dated as of April 22, 1998, by and between National
            Airmotive Corporation and Allison Engine Corporation wherein
            National Airmotive elects to extend the Authorized Maintenance
            Center Agreement, effective November 30, 1994, by and between NAC
            and Allison Engine Company (Model T56/501)

10.38n      Loan and Security Agreement, dated April 23, 1998 by and between API
            and Fleet National Bank

10.39n      Amendment to the First Aviation Services Stock Incentive Plan

10.40(o)    Advisory Agreement between First Aviation Services Inc. and First
            Equity Development Inc., dated September 23, 1998.

10.41       Employment Agreement dated June 1, 1998 by and between Philip C.
            Botana and the Company.

21.1+       List of Subsidiaries

23.1        Consent of Ernst & Young LLP, independent auditors

27.1        Financial Data Schedules for the years ended January 31, 1999, 1998
            and 1997

</TABLE>


+    Incorporated by reference and filed as an Exhibit to the Company's
     Registration Statement on Form S-1 (No. 333-18647), as amended.

f    Incorporated by reference and filed as an Exhibit to the Company's
     Quarterly Report on Form 10Q for the quarter ended October 31, 1997.

n    Incorporated by reference and filed as an Exhibit to the Company's Annual
     Report on Form 10K for the year ended January 31, 1998.

(o)  Incorporated by reference and filed as an Exhibit to the Company's
     Quarterly Report on Form 10Q for the quarter ended October 31, 1998.


                                       26
<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 June 7, 1999.


                                                   FIRST AVIATION SERVICES INC.


                                                   By:  /s/ John A. Marsalisi
                                                        ------------------------
                                                   John A. Marsalisi
                                                   Chief Financial Officer


<TABLE>
<CAPTION>
        Signature                           Title                                                    Date
        ---------                           -----                                                    ----
     <S>                                    <C>                                                      <C>
       /s/ Aaron P. Hollander               Chairman of the Board                                    June 7, 1999
       --------------------------
       Aaron P. Hollander


       /s/ Michael C. Culver                Chief Executive Officer and
       ---------------------------          Director (Principal Executive Officer)                   June 7, 1999
       Michael C. Culver

       /s/ John A. Marsalisi                Chief Financial Officer and                              June 7, 1999
       --------------------------
       John A. Marsalisi                    Director (Principal Financial and
                                            Accounting Officer)

       /s/ Joshua S. Friedman               Director                                                 June 7, 1999
       --------------------------
       Joshua S. Friedman


       /s/ Robert L. Kirk                   Director                                                 June 7, 1999
       --------------------------
       Robert L. Kirk


       /s/ Charles B. Ryan                  Director                                                 June 7, 1999
       --------------------------
       Charles B. Ryan

</TABLE>



                                       27
<PAGE>

e


                          First Aviation Services Inc.

                        Consolidated Financial Statements
               For the years ended January 31, 1999, 1998 and 1997




                                    Contents

<TABLE>
<S>                                                                    <C>
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-F7
Notes to Consolidated Financial Statements................................F8-F23

Schedule II - Valuation and Qualifying Accounts..............................F24



                                      F1
<PAGE>






                         Report of Independent Auditors


The Board of Directors and Stockholders
First Aviation Services Inc.

We have audited the accompanying balance sheets of First Aviation Services Inc.
as of January 31, 1999 and 1998, and the consolidated statements of operations,
stockholders' equity, and cash flows for the three years ended January 31, 1999.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Aviation
Services Inc. as of January 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for the three years ended January 31, 1999 in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.


                                      /s/  Ernst & Young LLP

Stamford, Connecticut
March 24, 1999,
except for Note 6, as to which the date is
April 28, 1999


                                      F2
<PAGE>


                          First Aviation Services Inc.

                           Consolidated Balance Sheets
                      (in thousands, except share amounts)


                                                                                            January 31,
                                                                                      1999              1998
                                                                                      ----------------------
Assets
Current assets:
    Cash and cash equivalents                                                        $   149          $   237
    Trade receivables, net of allowance for doubtful accounts of $608 and
       $346, respectively                                                             28,056           27,841
    Inventories, net                                                                  51,757           43,311
    Deferred income taxes                                                              2,638            2,381
    Prepaid expenses and other                                                         1,851            1,624
                                                                                   ---------        ---------

Total current assets                                                                  84,451           75,394

Plant and equipment, net                                                              10,729            5,027
Goodwill, net                                                                          1,840            1,873
Other assets                                                                              69              229
                                                                                   ---------        ---------
                                                                                     $97,089          $82,523

Liabilities and stockholders' equity Current liabilities:
    Accounts payable                                                                 $17,873          $14,106
    Accrued compensation and related expenses                                          2,667            2,146
    Accrued litigation costs                                                           2,840                -
    Other accrued liabilities                                                          3,045            2,631
    Income taxes payable                                                               2,083            2,776
    Short term line of credit                                                          8,850                -
                                                                                   ---------        ---------

Total current liabilities                                                             37,358           21,659

Long-term debt, less current portion                                                  13,907           13,866
Minority interest                                                                      1,041            1,041
Obligations under capital leases                                                         402                -
                                                                                   ---------        ---------

Total liabilities                                                                     52,708           36,566

Stockholders' equity:
    Common stock, $0.01 par value, 25,000,000 shares authorized, 9,001,896 and
       8,928,925, shares issued and outstanding at January 31, 1999 and 1998,
       respectively                                                                       90               89
    Additional paid-in capital                                                        38,515           38,378
    Retained earnings                                                                  5,776            7,490
                                                                                   ---------        ---------
Total stockholders' equity                                                            44,381           45,957
                                                                                   ---------        ---------
                                                                                     $97,089         $82,523
                                                                                     =======         =======
</TABLE>


See accompanying notes.



                                      F3
<PAGE>


                          First Aviation Services Inc.
                      Consolidated Statements of Operations
                      (in thousands, except share amounts)


<TABLE>
<CAPTION>
                                                            Year ended          Year ended         Year ended
                                                            January 31,         January 31,        January 31,
                                                               1999                1998               1997
                                                          ---------------    ----------------    -------------
<S>                                                          <C>                <C>                 <C>
Net sales                                                    $ 153,740          $ 153,642           $ 104,236
Cost of sales                                                  126,456            130,433              89,426
                                                             ---------          ---------           ---------
Gross profit                                                    27,284             23,209              14,810
Selling, general and administrative expenses                    21,662             14,827               9,881
Non-recurring charges                                            6,178                  -                   -
                                                             ---------          ---------           ---------
Income (loss) from operations                                     (556)             8,382               4,929
Interest expense                                                 1,830              1,842               3,470
Interest income                                                    (15)              (357)                  -
Minority interest in subsidiary                                     42                 38                   -
                                                             ---------          ---------           ---------
Income (loss) before provision for income taxes and
   extraordinary item                                           (2,413)             6,859               1,459
Provision (benefit) for income taxes                              (699)             1,500                   -
                                                             ---------          ---------           ---------
Income (loss) before extraordinary item                         (1,714)             5,359               1,459
Extraordinary item:
Loss on early extinguishment of debt                                 -               (108)               (864)
                                                             ---------          ---------           ---------
Net income (loss)                                               (1,714)             5,251                 595
Dividends on preferred stock                                         -                 11                 132
                                                             ---------          ---------           ---------
Net income (loss) available to common stockholders           $  (1,714)         $   5,240           $     463
                                                             =========          =========           =========

Basic net income per common share:
Income (loss) before extraordinary item available
   to common stockholders                                    $   (0.19)         $    0.63           $    0.37
Extraordinary item                                                   -              (0.01)              (0.24)
                                                             ---------          ---------           ---------
Basic net income (loss) per common share                     $   (0.19)         $    0.62           $    0.13
Shares used in the calculation of basic net income
   (loss) per common share                                   8,972,953          8,432,234           3,556,665
Net income per common share - assuming dilution:
Income (loss) before extraordinary item available
   to common stockholders                                    $   (0.19)         $    0.61           $    0.26
Extraordinary item                                                   -              (0.01)              (0.17)
                                                             ---------          ---------           ---------
Net income (loss) per common share - assuming
   dilution                                                  $   (0.19)         $    0.60           $    0.09
Shares used in the calculation of net income (loss) per
   common share - assuming dilution                          8,972,953          8,698,400           5,194,456
                                                             =========          =========           =========
</TABLE>

See accompanying notes


                                      F4
<PAGE>

                          First Aviation Services Inc.

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

<TABLE>
<CAPTION>
                                                            Preferred Stock                       Common Stock
                                                    ---------------------------------   ---------------------------------
                                                      Number of                           Number of
                                                       Shares             Amount            Shares            Amount
                                                    --------------    ---------------   ---------------    --------------
<S>                                                        <C>        <C>                  <C>             <C>
Balances at January 31, 1996                               33,000     $      1,650         3,556,665       $         36
   Issuance of options to purchase common stock
                                                                -                -                 -                  -
   Net income                                                   -                -                 -                  -
                                                    --------------    ---------------   ---------------    --------------

Balances at January 31, 1997                               33,000            1,650         3,556,665                 36
   Payment of preferred stock dividends
   Conversion of preferred stock                          (33,000)          (1,650)          165,000                  1
   Issuance of common stock in initial public
     offering                                                   -                -         3,900,000                 39
   Exercise of warrants to purchase common stock
                                                                -                -         1,293,335                 13
   Shares issued under qualified plans                          -                -            13,925                  -
   Net income                                                   -                -                 -                  -
                                                    --------------    ---------------   ---------------    --------------

Balances at January 31, 1998                                    -                -         8,928,925                 89
   Exercise of stock options to purchase common
     shares                                                     -                -            40,000                  1
   Shares issued under qualified plans                          -                -            32,971                  -
   Net income (loss)                                            -                -                 -                  -
                                                    --------------    ---------------   ---------------    --------------

   Balances at January 31, 1999                                 -     $          -         9,001,896       $         90
                                                    ==============    ===============   ===============    ==============

                                                        Additional
<CAPTION>

                                                         Paid-in           Retained
                                                         Capital           Earnings            Total
                                                      ---------------   ---------------    --------------
<S>                                                   <C>               <C>                <C>
Balances at January 31, 1996                          $        625      $      1,875       $      4,186
   Issuance of options to purchase common stock
                                                             1,500                 -              1,500
   Net income                                                    -               595                595
                                                      ---------------   ---------------    --------------

Balances at January 31, 1997                                 2,125             2,470              6,281
   Payment of preferred stock dividends                                         (231)              (231)
   Conversion of preferred stock                             1,649                 -                  -
   Issuance of common stock in initial public
     offering                                               34,438                 -             34,477
   Exercise of warrants to purchase common stock
                                                                57                 -                 70
   Shares issued under qualified plans                         109                 -                109
   Net income                                                    -             5,251              5,251
                                                      ---------------   ---------------    --------------

Balances at January 31, 1998                                38,378             7,490             45,957
   Exercise of stock options to purchase common
     shares                                                      -                 -                  1
   Shares issued under qualified plans                         137                 -                137
   Net income (loss)                                             -            (1,714)            (1,714)
                                                      ---------------   ---------------    --------------

   Balances at January 31, 1999                       $     38,515      $      5,776       $     44,381
                                                      ===============   ===============    ==============
</TABLE>
See accompanying notes.


                                      F5
<PAGE>

                          First Aviation Services Inc.

                      Consolidated Statements of Cash Flows
                                 (in thousands)


<TABLE>
<CAPTION>
                                                            Year ended          Year ended         Year ended
                                                            January 31,         January 31,        January 31,
                                                               1999                1998               1997
                                                          ---------------    ----------------    -------------
<S>                                                               <C>                <C>              <C>
Cash flows from operating activities Net income (loss)         $ (1,714)           $ 5,251              $ 595
Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities:
     Depreciation and amortization                                  867                908              1,047
     Extraordinary item, loss on early
       extinguishment of debt                                         -                  -                538
     Compensation expense on stock options issued                     -                  -              1,500
     Deferred income taxes                                         (257)               448                  -
     Changes in assets and liabilities:
       Trade receivables                                           (215)            (2,142)             3,457
       Inventories                                               (8,446)            (1,041)            (5,116)
       Prepaid expenses and other assets                            (67)               819               (957)
       Accounts payable                                           3,767             (4,153)            (3,063)
       Accrued litigation costs                                   2,840                  -                  -
       Accrued compensation and related expenses,
         and other accrued liabilities                              935             (3,154)              (106)
       Income taxes payable                                        (693)               874                  -
       Other noncurrent liabilities                                   -                  -             (1,642)

Net cash used in operating activities                            (2,983)            (2,190)            (3,747)

Cash flows from investing activities
Purchase of assets from former owners, including
   acquisition costs                                                  -            (10,636)                 -
Purchases of plant and equipment                                 (6,055)            (2,375)              (957)
Payment for license rights and other intangibles                      -                  -               (375)
Proceeds from disposals of plant and equipment                       14                  -                  -
                                                           ------------      -------------       ------------

Net cash used in investing activities                            (6,041)           (13,011)            (1,332)
</TABLE>


See accompanying notes.


                                      F6
<PAGE>


                          First Aviation Services Inc.

                Consolidated Statements of Cash Flows (continued)
                                 (in thousands)


<TABLE>
<CAPTION>
                                                            Year ended          Year ended         Year ended
                                                            January 31,         January 31,        January 31,
                                                               1999                1998               1997
                                                          ---------------    ----------------    -------------
<S>                                                            <C>               <C>                 <C>
Cash flows from financing activities
Net borrowings / (repayments) on revolving line of
   credit                                                      $     41          $ (15,628)          $  5,393
Net borrowings on short term line of credit                       8,850                  -                  -
Principal payments on capital lease obligations                     (93)                 -                  -
Proceeds from borrowings on term loans                                -                  -              3,000
Repayments of term loans                                              -             (2,650)            (2,117)
Repayments of subordinated note                                       -             (1,750)            (1,197)
Sale of preferred stock of subsidiary                                 -              1,041                  -
Payment of dividends on preferred stock                               -               (231)                 -
Proceeds from issuance of common stock in initial
   public offering                                                    -             39,000                  -
Expenses relating to initial public offering                          -             (4,523)                 -
Proceeds from exercise of common stock warrants and
   issuance of stock under employee stock purchase
   plan                                                             138                179                  -
                                                                 ------         ----------           --------

Net cash provided by (used in) financing activities               8,936             15,438              5,079
                                                                 ------         ----------           --------

Net change in cash and cash equivalents                            (88)               237                   -
Cash at the beginning of the period                                237                  -                   -
                                                                 ------         ----------             --------

Cash and cash equivalents at the end of  the period            $   149        $       237            $      -
                                                                ======         ==========             ========
Supplemental cash flow disclosures:
Cash paid for:
Interest                                                        $1,563         $    1,748             $  3,148
                                                                ======         ==========             ========

Income taxes                                                    $  730         $       -              $    545
                                                                ======         ==========             ========

Acquisition of equipment through capital lease                  $ 495          $       -              $      -
                                                                ======         ==========             ========
</TABLE>



See accompanying notes.


                                      F7
<PAGE>


                          First Aviation Services Inc.

                 Notes to 1999 Consolidated Financial Statements
                      (in thousands, except share amounts)

1. Business and Basis of Presentation

First Aviation Services Inc., through its subsidiaries, National Airmotive
Corporation ("NAC") and Aircraft Parts International Combs, Inc. ("API")
(collectively, "First Aviation" or the "Company"), repairs and overhauls
commercial and military aircraft engines and industrial turbines, and sells and
distributes aircraft parts and components. The Company is headquartered in
Westport, Connecticut. Customers of the Company include passenger and cargo
airlines, foreign governments, U.S. and foreign military services, fleet
operators, fixed base operators, certified repair facilities and industrial
companies.

The accompanying consolidated financial statements include the accounts of First
Aviation Services Inc. 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 NAC. The
acquisition was accounted for under the purchase method of accounting as of the
closing date. The purchase price, including acquisition costs, was allocated to
the assets and liabilities of NAC based on their relative fair values.

In connection with the allocation of the purchase price, and in order to
implement plans and actions designed to streamline operations, the Company
recorded a reorganization accrual to cover the estimated costs of employee
separations and other employee incentive programs. The Company also recorded
accruals for various liabilities, including pension plan termination (Note 10),
environmental matters (Note 13), and legal matters. The remaining accruals as of
January 31, 1999 and 1998 totaled $250 (primarily environmental) and $391,
respectively, and are included in other accrued liabilities in the accompanying
consolidated balance sheets.

On March 5, 1997, the Company completed an initial public offering of 3,900,000
shares of common stock, $0.01 par value per share (the "Offering"). The Company
received net proceeds of approximately $34.5 million after deducting expenses of
approximately $4.5 million. The net proceeds were used for, among other things,
the repayment of term and subordinated debt, a paydown of the Company's credit
facility (for a total debt reduction of $22.6 million), payment of accrued
dividends on preferred stock ($0.2 million), and the acquisition of API from AMR
Combs Inc. ("AMR Combs") ($10.6 million - see below).

Immediately prior to the closing of the Offering, the following transactions
were completed: (i) all outstanding shares of the Series A Preferred Stock of
the Company were converted into 165,000 shares of common stock at the offering
price, (ii) all outstanding warrants to purchase 1,293,335 shares of the
Company's common stock were exercised in full, (iii) the Company's certificate
of incorporation was amended to increase the authorized common stock of the
Company to 25,000,000 shares, and (iv) a 6.4549-to-1 stock split with respect to
common stock was effected. Accordingly, all common share amounts have been
restated to give effect to the 6.4549-to-1 stock split.

With the closing of the Offering, the Company acquired certain assets and
assumed certain liabilities of API from AMR Combs for an adjusted purchase price
of $10.6 million, including expenses of approximately $523 that were incurred in
connection with the acquisition. The acquisition was accounted for under the
purchase method of accounting as of the closing date. The purchase price,
including acquisition costs, was allocated to the assets and liabilities of API
based upon their relative fair values. The excess of purchase price paid over
the value of the net



                                      F8
<PAGE>

1. Business and Basis of Presentation (continued)

assets acquired is included in goodwill in the accompanying consolidated balance
sheets. The consolidated financial statements of the Company since March 5, 1997
reflect the impact of the results of operations of API as well as the purchase
price allocation.

In conjunction with the API acquisition, AMR Combs purchased from API 10,407
shares of API Series A Cumulative Convertible Preferred Stock, $0.001 par value
(the "Preferred Stock"), at a price of $100 per share. Total adjusted proceeds
to the Company were $1,041. This transaction has been accounted for as minority
interest in the accompanying consolidated balance sheets. Dividends are payable
on a quarterly basis on the Preferred Stock at an annual rate of $4.00 per
share. Dividends of $42 and $38 were paid during the years ended January 31,
1999 and 1998, respectively, and have been reflected in minority interest in
subsidiary in the accompanying consolidated statements of operations.

In connection with the API acquisition, First Aviation, API and AMR Combs
entered into a Stockholders Agreement. Pursuant to this agreement, AMR Combs
agreed that it would not sell its shares of the Preferred Stock or the shares of
API common stock into which such Preferred shares are convertible (collectively
the "API Acquisition Shares") for a minimum period of three years. API has the
right to redeem the API Acquisition Shares at any time. AMR Combs has the right
to cause the Company to repurchase the API Acquisition Shares commencing three
years after the closing of the API acquisition. The redemption price is equal to
the fair market value of the API Acquisition Shares 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 API Acquisition Shares; (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 API Acquisition
Shares. The demand registration rights are not exercisable until three years
after the closing of the API acquisition, and, 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 API Acquisition
Shares. There are no plans to cause API to conduct a public offering of its
securities.

The following unaudited summary, on a pro-forma basis, presents the consolidated
results of operations as if the acquisition of API had taken place as of
February 1, 1996.

<TABLE>
<CAPTION>
                                                       Years Ended January 31,
                                                       1998                1997
                                                 -----------------    ----------------
<S>                                                 <C>                  <C>
Net Sales                                           $  156,867           $  143,545
Net income                                               5,248                  494
Net income available to common stockholders              5,237                  362
Basic net income per common share                   $     0.62           $     0.10
Net income per common share - assuming
   dilution                                         $     0.60           $     0.07
</TABLE>


                                      F9
<PAGE>

2.  Summary of Significant Accounting Policies

Use of Estimates

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

Net Sales

Sales are recorded net of discounts, allowances and commissions. Net sales
related to the repair and overhaul of engines are recorded upon completion of
repair and overhaul services, including testing and shipment. Net sales for
parts and engine components sold are recorded when the product is shipped.

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 generally are
supported by letters of credit or foreign credit insurance. The Company performs
ongoing credit evaluations of its customers and maintains allowances which
management believes are adequate for potential credit losses.

Combined sales to agencies of the U.S. government represented approximately 12%,
9% and 16% of net sales for the years ended January 31, 1999, 1998 and 1997,
respectively. The combined accounts receivable from agencies of the U.S.
government represented 19% and 10% of total trade receivables as of January 31,
1999 and 1998, respectively.

The Company has no foreign operations; however, export sales to unaffiliated
customers were approximately 24%, 31% and 32% of net sales for the years ended
January 31, 1999, 1998 and 1997, respectively. The majority of export sales
activities were to the following geographic areas: Middle East, Far East,
Central America, Canada, and Europe.

Stock Based Compensation

For the year ended January 31, 1997, the Company implemented the disclosure
provisions of Financial Accounting Standards Board ("FASB") Statement No. 123,
"Accounting for Stock-Based Compensation". The Company accounts for stock option
grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and, accordingly, recognizes
compensation expense to the extent a difference exists between the exercise
price and the fair market value per share at the date of grant.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposits and money market funds.

Inventories

Inventories are stated at the lower of cost or market, with cost determined
using the first-in, first-out ("FIFO") and specific identification methods.
Costs include direct material, direct labor and applicable manufacturing
overhead. A significant portion of the Company's inventory consists of new,
overhauled, serviceable and repairable aircraft engine parts that are purchased
principally from Allison Engine Company ("Allison"), a subsidiary of Rolls Royce
Ltd., and also from other parts resellers and customers. Inventory also consists
of general aircraft parts. Before any



                                      F10
<PAGE>

2.  Summary of Significant Accounting Policies (continued)

Inventories

part may be installed in an aircraft, it must meet certain standards of
condition established by the Federal Aviation Administration, the U.S.
Department of Defense, or the equivalent regulatory agencies in other countries,
depending on whose engines the Company is servicing. Specific regulations vary
from country to country, although regulatory requirements in other countries
generally coincide with applicable U.S. requirements. Parts also must be
traceable to sources deemed acceptable by such agencies. Parts owned or acquired
by the Company may not meet applicable standards prior to remanufacturing, or
standards may change in the future, causing parts which already are contained in
the Company's inventory to be scrapped or to require modification. Aircraft
engine manufacturers also may develop new parts to be used in lieu of parts
already contained in the Company's inventory.

Provisions are made in each period for the estimated effect of excess and
obsolete inventories. Actual excess and obsolete inventories may differ
significantly from such estimates, and such differences could be material to the
financial statements.

Plant and Equipment

Plant and equipment are stated at cost, less allowance for accumulated
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 lives of the assets, which range from 3 to 30 years.
Leasehold improvements are amortized over the shorter of the estimated life of
the improvement or the terms of the related lease.

Noncurrent Assets

During the year ended January 31, 1997, the Company implemented the provisions
of FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". The Company records impairment
losses on long-lived assets when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.

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.

Segments

Effective January 1, 1998, the Company adopted the FASB's Statement of Financial
Accounting Standards No. 131 Disclosures about Segments of an Enterprise and
Related Information (Statement 131). Statement 131 establishes standards for the
way public business enterprises report information about operating segments in



                                      F11
<PAGE>

2.  Summary of Significant Accounting Policies (continued)

Segments

annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. Statement 131
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of Statement 131 did not
affect results of operations or financial position, but did affect the
disclosure of segment information. See Note 14.

Major Suppliers

Allison historically has been a major supplier to the Company, and NAC is an
Authorized Maintenance Center for Allison's product lines. During the years
ended January 31, 1999, 1998 and 1997, NAC purchased $34,661, $46,407 and
$47,254, respectively, in parts and engine components from Allison. At January
31, 1999 and 1998, accounts payable to Allison totaled $6,001 and $4,460,
respectively. NAC is also an authorized distributor for Bendix, AC and several
suppliers of accessories that compliment the Allison commercial engine. NAC has,
from time to time, experienced difficulty in obtaining certain parts because of
parts shortages and inventory fluctuations at Allison. The shortage or
unavailability of Allison parts can and has from time to time caused delays in
the timely completion of repair and overhaul production schedules. Such delays
may adversely affect NAC's relationship with its customers and could adversely
affect NAC's commitments to customers and its work-in-process inventory levels.
An inability to maintain timely access to Allison parts and components on
commercially reasonable terms would have a material adverse effect on the
Company's consolidated business, financial condition and results of operations.

Goodwill

The excess of purchase price over the fair value of the net assets acquired is
amortized under the straight-line method over a thirty-year period. Accumulated
amortization was $126 and $92, respectively at January 31, 1999 and 1998.

Net Income Per Common Share

In 1997 the FASB issued Statement No. 128, "Earnings Per Share". Statement 128
replaced the calculation of primary and fully diluted earnings per share with
basic earnings per share and earnings per share - assuming dilution. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Earnings per share -
assuming dilution is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to Statement 128
requirements.

Reclassifications

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



                                      F12
<PAGE>

3. Inventories

Inventories consist of the following:

                                                             January 31,
                                                           1999        1998
                                                          -----------------

Parts held for manufacturing or resale                   $ 37,320    $ 31,025
Work-in-process                                            11,628       8,099
Finished goods                                              4,663       6,566
                                                           ------      ------
                                                           53,611      45,690
Less: allowance for obsolete and slow moving inventory     (1,854)     (2,379)
                                                           ------      ------
                                                         $ 51,757    $ 43,311
                                                           ======      ======


4. Plant and Equipment

Plant and equipment consist of the following:

                                                               January 31,
                                                            1999       1998
                                                          --------------------

Machinery and equipment                                   $ 4,073    $ 3,147
Building and other leasehold improvements                   2,521      1,934
Office furniture, fixtures and equipment                    3,988      1,202
Construction-in-process                                     3,188        821
                                                           ------     ------
                                                           13,770      7,104
Less: accumulated depreciation                             (3,041)    (2,077)
                                                           ------     ------
                                                         $ 10,729    $ 5,027
                                                           ======     ======


5. Related Parties

During the quarter ended October 31, 1998, the Company, upon the authorization
of the independent members of the Board of Directors, entered into an advisory
agreement with a related party, First Equity Development Inc. ("First Equity").
Pursuant to the agreement, First Equity is to provide the Company investment and
financial advisory services relating to potential acquisitions and other
financial transactions. The agreement may be terminated by either party upon
30-days written notice to the other. Under the terms of the agreement, the
Company will pay a fee to First Equity for the successful completion of certain
transactions (the "Success Fee"), and will reimburse First Equity for its
out-oFpocket expenses. The amount of the 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 scope of the services to
be provided, the size and type of acquisition, and the successful completion of
a transaction. The agreement requires the Company to pay First Equity a $30,000
monthly retainer effective February 1, 1998, which can be applied as a credit
against the Success Fee, subject to certain limitations. During the year ended
January 31, 1999 the Company paid First Equity retainer fees totaling $360,000,
all of which can be applied against the Success Fee, which were expensed (Note
9).



                                      F13
<PAGE>

5. Related Parties (continued)

In 1997 the Company entered into a ten-year sublease with an affiliate for
office space. The lease is cancelable upon six months notice by either party.
The Company has the option of renewing the sublease for two additional five-year
periods. Lease payments under the lease totaled $98 and $50, respectively, for
the years ended January 31, 1999 and 1998. During 1996 the Company leased office
space from the same affiliate under a month-to-month sublease. Annual lease
payments totaled $36 for the year ended January 31, 1997.

Fees under a terminated management agreements totaled $100 and $170,
respectively, for the years ended January 31, 1998 and 1997, and were included
in selling, general, and administrative expenses in the accompanying
consolidated statements of operations.


6. Short Term Line of Credit and Long Term Debt

Short Term Line of Credit
                                                      January 31,
                                                  1999          1998
                                                -----------------------
Short term line of credit                       $ 8,850        $   -
                                                =======        =======


On April 23, 1998, API entered into a one year $10 million revolving credit
facility with Fleet National Bank. Advances under the credit facility bear
interest based upon certain market rates plus a premium. Borrowings are limited
to specified percentages of eligible accounts receivable and inventories at API.
The credit agreement contains a number of covenants, including restrictions on
mergers, consolidations and acquisitions, the incurrence of indebtedness,
transactions with affiliates, the creation of liens, and limitations on capital
expenditures. The credit agreement also requires API to maintain minimum levels
of net worth and specified interest expense coverage ratios, and currently
restricts the payment of dividends. Substantially all of API's trade
receivables, inventory and equipment are pledged as collateral under the
revolving credit facility. Borrowings under this short term credit line bore
interest at 6.4% at January 31, 1999. On April 28, 1999, Fleet National Bank
extended the term of the revolving credit facility until July 22, 1999, and
committed to further extend the line through February 2, 2000, under the
prevailing terms and conditions.



                                      F14
<PAGE>



6. Short Term Line of Credit and Long Term Debt (continued)

Long-term debt
                                                            January 31,
                                                         1999       1998
                                                        -------------------
Borrowings under revolving line of credit               $13,907     $13,866
                                                        =======     =======

During the year ended January 31, 1997, NAC entered into a credit agreement that
provides for borrowings up to a total of $40,000, principally through a
revolving credit facility. Initial borrowings under this agreement were used to
retire borrowings under the Company's previous revolving line of credit and term
loan, and to reduce the Company's subordinated note by $1,000. In connection
with this refinancing the Company recorded an extraordinary charge, net of
associated income tax benefit, of $864 for prepayment penalties and the
write-off of unamortized loan fees.

Borrowings under the revolving credit facility bear interest at the LIBOR rate
plus 3% (7.45% and 8.15% at January 31, 1999 and 1998, respectively). Borrowings
are limited to specified percentages of eligible accounts receivable and
inventories of NAC. The original term of the credit agreement is through May 15,
1999. Thereafter, the agreement automatically renews for additional one-year
periods, and may be terminated without penalty. The agreement automatically
renewed on February 16, 1999.

The credit agreement also allows for the issuance of letters of credit not to
exceed an aggregate of $2,500. Such letters of credit reduce the availability of
borrowings under the facility. At January 31, 1999 and 1998, NAC was
contingently liable for $1,991 and $1,819, respectively, under letters of
credit, with $31 and $31, respectively of cash being restricted as security
against an outstanding letter of credit. The restricted cash has been classified
in prepaid and other assets in the accompanying consolidated balance sheets.

The credit agreement contains a number of covenants and provisions imposed on
NAC, including restrictions on mergers, consolidations and acquisitions, the
incurrence of indebtedness, transactions with affiliates, the creation of liens,
limitations on capital expenditures, and payment of management fees. The credit
agreement also requires NAC to maintain minimum levels of net worth, certain
interest expense coverage ratios and minimum backlog levels, and currently
restricts the payment of dividends from NAC to the Company without the lender's
consent. Substantially all of NAC's assets are pledged as collateral under the
revolving line of credit.

The Company used $22,600 of the proceeds from the Offering to retire its term
loans and a subordinated note payable, and reduce the Company's outstanding
borrowings under its revolving line of credit. In connection with the retirement
of the subordinated note, the Company recorded an extraordinary charge during
the year ended January 31, 1998 of $108, net of associated income tax benefit,
for prepayment penalties.

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

7. Stockholders' Equity

The preferred stock that was converted to common as part of the Offering bore
cumulative annual dividends of $4.00 per share. Total cumulative dividends which
had been earned but not yet declared at January 31, 1997 were $220.
Subsequently, $11 of dividends were earned. The total cumulative unpaid
dividends of $231 were paid from the proceeds of the Offering.


                                      F15
<PAGE>

7. Stockholders' Equity (continued)

On December 20, 1996, the Board of Directors approved a 6.4549 to 1 stock split
of issued and outstanding common stock, to be effected as a stock dividend.
Common shares in the accompanying consolidated financial statements have been
retroactively adjusted to reflect the stock split. The Directors also adopted an
Employee Stock Purchase Plan and a Stock Option Plan.

Certain of the Company's directors elected to receive their compensation for the
years ended January 31, 1999 and 1998 in the form of shares of the Company's
common stock. The fair value of the shares at the date of issuance is charged to
expense with a corresponding credit to additional paid-in capital.

In connection with the issuance of the subordinated note on June 1, 1995, the
Company issued to the debtholder warrants to purchase up to 1,832,225 shares of
the Company's common stock at $.0545 per share. In connection with certain debt
transactions completed in 1996, the number of shares eligible for purchase under
this warrant was reduced to 1,293,335.
The warrants were exercised in full in connection with the Offering.

Under the Employee Stock Purchase Plan, 250,000 shares of common stock have been
reserved for issuance. The plan allows for eligible employees to purchase stock
at 85% of the lower of the fair market value of the Company's common stock as of
the first day of each semi-annual offering period or the fair market value of
the stock at the end of the offering period. The initial offering period
commenced in May 1997 and ran through December 31, 1997. For the fiscal
year-ended January 31, 1999, the Company issued 20,194 shares to employees under
the Plan. In January 1998, the Company issued 10,643 shares to employees under
the plan.

The Stock Option Plan provides for the grant of incentive stock options,
nonqualified stock options, stock appreciation rights and stock purchase rights.
A total of 800,000 shares of common stock have been reserved for issuance under
this plan. During the year ended January 31, 1999, 88,250 options were granted
to various employees of the Company at exercise prices ranging from $5.00 to
$6.00 per share. Options for 57,700 were forfeited during the year. During the
year ended January 31, 1998, 222,300 options were granted to various employees
of the Company at an exercise price of $10.00 per share. These options vest over
two to four-year periods, beginning one year after the date of the grant, and
expire ten years after issuance. Options for 900 shares were forfeited during
the year. Since the exercise price of all of the options granted was at or above
the fair market value per share at the date of grant, no compensation expense
relating to stock options was recorded during the years ended January 31, 1999
and 1998. In January 1997, the Company granted a key employee options to acquire
150,000 shares of the Company's common stock. These options carry an exercise
price of $0.01 per share, were fully vested at the date of issuance, and expire
ten years from the date of grant. In addition to the option grant, the employee
also received a bonus of $200. To account for the stock option grant and the
bonus the Company recorded a pre-tax charge of approximately $1,700 for
compensation expense during the fiscal year ended January 31, 1997, with a
$1,500 credit to additional paid-in capital. During the year ended January 31,
1999, options to acquire 40,000 shares were exercised. No options were exercised
during the years ended January 31, 1998 and 1997. Under the Stock Option Plan,
361,950 and 371,400 options were outstanding at January 31, 1999 and 1998,
respectively.

Under the provisions of FASB No. 123, the Company is required to disclose the
fair value, as defined, of options granted to employees and the related
compensation expense. The fair value of the stock options granted was estimated
at the date of grant using a Black-Scholes option pricing model. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. In
management's opinion, because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the



                                      F16
<PAGE>

7. Stockholders' Equity (continued)

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.

The fair value of the options granted during the years ended January 31, 1999
and 1998 was determined using a risk-free interest rate of 6.0% and 6.4%, a
dividend yield of 0%, an average volatility factor of 0.516 and 0.533, and
weighted average expected lives of two to four years, respectively. Under these
assumptions the weighted average fair value of each option granted during the
years ended January 31, 1999 and 1998, is approximately $1.90 and $3.76, and the
additional pro forma compensation that would be recorded is approximately $246
and $176, or $0.03 and $0.02 per share, respectively. The weighted average
remaining contractual life of these stock options is approximately 8.74 years.

8. Income Taxes

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

<TABLE>
<CAPTION>
                                           Year ended         Year ended         Year ended
                                           January 31         January 31,        January 31,
                                              1999               1998               1997
                                           ----------         -----------        -----------
<S>                                        <C>                 <C>                <C>
Current:
    Federal                                $     (46)          $   2,221          $      -
    State                                       (396)                 36                 -
                                           ----------          ---------          --------
                                                (442)              2,257                 -
Deferred:
    Federal                                     (543)             (1,014)                -
    State                                        286                 257                 -
                                           ---------           ---------          --------
                                                (257)               (757)                -
                                           ----------          ----------         --------
                                           $    (699)          $   1,500          $      -
                                           ==========          =========          ========
</TABLE>


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


<TABLE>
<CAPTION>
                                           Year ended         Year ended         Year ended
                                           January 31,        January 31,        January 31,
                                              1999               1998               1997
                                           ----------         -----------        -----------
<S>                                           <C>                   <C>               <C>
Provision (benefit) at statutory rate         (34.0%)               34.0%             34.0%
State tax provision, net of federal benefit     7.4                  5.5               6.6
Change in valuation allowance                   -                  (47.4)            (40.6)
Provision (benefit) for contingencies         (10.4)                29.1               -
Other, net                                      8.0                  0.7               -
                                               ----                 ----              ----
                                              (29.0%)               21.9%              0.0%
                                              =====                 ====               ===
</TABLE>



                                      F17
<PAGE>

8. Income Taxes (continued)

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

<TABLE>
<CAPTION>
                                                                                  January 31,        January 31,
                                                                                     1999               1998
                                                                                  ----------         -----------
<S>                                                                                 <C>              <C>
Financial statement accruals not currently deductible for
    income tax purposes                                                             $  3,758         $    3,482
Differences in the financial statement and income tax bases of
    fixed assets                                                                          770              1,212
Net operating loss and tax credit carry forwards                                          928                  -
Attributes subject to IRC Section 382                                                       -                251
Other                                                                                     436                690
                                                                                      -------           --------
                                                                                        5,892              5,635
Valuation allowance                                                                    (3,254)            (3,254)
                                                                                      -------           --------
Net deferred tax assets                                                             $  2,638         $     2,381
                                                                                    ========            ========
</TABLE>

The Company believes that based on a number of factors, including the nature of
the temporary differences, the timing of their utilization and the level of tax
operating losses, realization of deferred tax assets is not considered to be
more likely than not, and, therefore, a valuation allowance has been provided.
The Company will continue to assess the realizability of the deferred tax assets
in future periods and make such adjustments to the valuation allowance as it
considers appropriate. As of January 31, 1999, the Company had a federal net
operating loss carryforward of $1,900 which will expire in 2019.

Prior to the Offering, the Company filed a consolidated federal tax return with
its parent company, First Equity Group, Inc. The Company's federal income tax
provision had been based on the tax sharing agreement between the companies
which stipulated that the Company was liable for federal taxes as if it filed on
a separate company basis, subject to certain limitations and adjustments. Income
taxes payable during that period represented an intercompany liability under the
tax sharing agreement. As a result of the Offering, the Company now files its
own tax return and no longer files a consolidated federal income tax return with
First Equity Group, Inc.


9. Non-Recurring Charges

Legal defense and related costs                               $    3,100
Severance and termination                                          1,168
Facility exit costs                                                1,110
Fees and expenses of terminated acquisitions                         800
                                                              ----------

     Total non-recurring charges                              $    6,178
                                                              ==========


During the fourth quarter, the Company recorded a $3.1 million pre-tax charge
for costs incurred in connection with the defense of the Company and its
Directors from the claims brought on by a former director and manager. The
charge includes legal fees incurred through the conclusion of the trial, and out
of pocket costs, including expert testimony and the cost of defending against an
appeal by the plaintiff. The Company is pursuing recovery




                                      F18
<PAGE>

9. Non-Recurring Charges (continued)

of these costs in accordance with the terms and conditions of a Directors and
Officers Insurance policy maintained by the Company. The amount of recovery, if
any, is not ascertainable at this time.

On April 6, 1998, the Company announced that it had initiated a plan to
streamline and restructure operations at NAC in order to reduce costs and
improve operating efficiencies. In connection with this plan, the Company
recorded a $0.9 million pretax charge. An additional $0.3 million charge was
recorded in the fourth quarter. As of January 31, 1999, payments of $0.9 million
have been made related to a 92-person reduction in NAC's workforce. The balance
was paid during the first quarter of fiscal 2000.

In relation to the NAC restructuring, the Company recorded other non-recurring
pre-tax charges of $1.1 million. These charges principally relate to the
reduction of the Company's facilities. During the year ended January 31, 1999,
approximately $0.4 million had been charged to this accrual. Management expects
the remaining balance to be utilized during the first half of the fiscal year
ended January 31, 2000.

In conjunction with the April announcement, the Company provided an allowance of
$0.9 million to recognize the realizable value of certain assets. This allowance
was eliminated during the fourth quarter of fiscal 1999 upon a redetermination
of recoverable value.

The Company recorded a pre-tax charge of $0.8 million in connection with the
terminated acquisition of a distribution company. Costs incurred included legal,
advisory and accounting fees, bank charges, travel and lodging.


10. Employee Benefits Plans

Profit Sharing

The Company maintains a discretionary, non-qualified profit sharing plan
covering a substantial number of its employees. The Company recorded profit
sharing expense of $313, $342 and $355 in the years ended January 31, 1999, 1998
and 1997, respectively.

Defined Contribution Plans

The Company maintains 401(k) savings plans that cover substantially all
full-time employees. The plans allow 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 $654, $642 and $531 in the years ended January 31, 1999, 1998 and 1997,
respectively, related to the plans.

Pension Plans

Prior to June 1, 1995 substantially all employees of NAC were covered by a
qualified noncontributory defined benefit retirement plan. In October, 1996, NAC
purchased $3,923 in guaranteed annuities for all retirees who were receiving
benefits from the plan and announced the termination of the plan.

The pension plan was liquidated according to regulatory guidelines on July 28,
1997. A portion of the excess of the net assets remaining after settlement of
liabilities, $102, was contributed to NAC's 401(k) plan. The remaining balance
of $308 reverted back to the Company.


                                      F19
<PAGE>


11.  Earnings per Share

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

<TABLE>
<CAPTION>
                                                                                Years ended January 31,
                                                                         1999             1998             1997
                                                                    ---------------  ---------------   --------------
<S>                                                                  <C>              <C>               <C>
Numerator:
   Income (loss) before extraordinary item                            $   (1,714)      $      5,359      $   1,459
   Preferred stock dividends                                                    -               (11)          (132)
                                                                    ---------------  ---------------   --------------

   Numerator for earnings per share - net income (loss) available
     to common stockholders before extraordinary item                     (1,714)             5,348          1,327


   Effect of extraordinary item, net of associated income tax
     benefit                                                                  --               (108)          (864)
                                                                     -------------   ---------------   --------------

   Numerator for earnings per share - net income (loss) available
     to common stockholders                                           $   (1,714)      $      5,240      $     463
                                                                     ===============  ===============   ==============


Denominator:
   Denominator for basic earnings per share - weighted average
     shares                                                            8,972,953          8,432,234      3,556,665

   Effect of dilutive warrants and employee stock options                    -              266,166      1,637,791
                                                                    ---------------  ---------------   --------------

   Denominator for earnings per share - assuming dilution  -
     adjusted weighted average shares and assumed conversions          8,972,953          8,698,400      5,194,456
                                                                    ==============  ===============   ==============

</TABLE>


Stock options to purchase shares of common stock at an exercise price of $5 to
$6 per share for the year ended January 31, 1999 and at exercise prices ranging
from $5 to $10 per share for the year ended January 31, 1998 were issued to
employees during the respective fiscal years but were not included in the
computation of earnings per share - assuming dilution because the exercise price
of the options was greater than the average market price of the common stock
during the applicable period and, therefore, the effect would be antidilutive.

12. Commitments and Contingencies

Commitments

The Company leases certain land, plant facilities, equipment and office space.
Many 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
which 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, 1999 are as follows:

Fiscal year 2000                                       $  1,095
Fiscal year 2001                                          1,116
Fiscal year 2002                                            617
Fiscal year 2003                                            616
Fiscal year 2004                                            591
Thereafter                                                5,764
                                                       --------
                                                       $  9,799


                                      F20
<PAGE>


12. Commitments and Contingencies (continued)

Commitments

Rental expense under all short-term and noncancelable operating leases amounted
to $1,524, $1,551 and $933, net of sublease rental income of $-, $116 and $299
for the years ended January 31, 1999, 1998 and 1997, respectively.

Contingencies

In the ordinary course of business, the Company is subject to many levels of
governmental inquiry and investigation. Among the agencies which oversee the
Company's business activities are the Federal Aviation Administration, the
Department of Defense, the Department of Justice, the Environmental Protection
Agency and the Defense Contract Audit 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 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 results
of operations or cash flows in a particular period.

13. Environmental

Liabilities are recorded when environmental claims for remedial efforts are
probable and the cost can be reasonably estimated. As of January 31, 1999 and
1998, the Company had provided for environmental remediation costs in the amount
of $250 and $262, respectively, and such amounts are included in other accrued
liabilities in the accompanying consolidated balance sheet. Environmental
expenditures that relate to current operations are expensed as incurred.

The Company potentially is a responsible party to certain properties that are
contaminated and will require remediation. The exact extent of the Company's
liability, if any, has not yet been determined but, in the opinion of
management, these matters will not have a material adverse impact on the
Company's consolidated financial position or its results of operations. However,
depending on the amount and timing, unfavorable resolution of any of these
matters could have a material effect on the Company's consolidated results of
operations or cash flows in a particular period.

14. Segment Reporting

First Aviation Services' reportable segments are managed separately and reflect
the activities of NAC and API. These companies are two distinct entities; NAC
specializes in the repair, overhaul and remanufacture of gas turbine engines and
engine components, and API is a wholesale distributor of aircraft parts and
components and provides logistics services.
Both units have unique business and marketing strategies and are managed
separately.

The accounting policies of the segments are the same as those outlined in Note 2
- Summary of Significant Accounting Policies. The Company does not allocate
Corporate expenses, assets, depreciation and interest expense or income. Assets,
revenues, profit and loss are separately reported by business unit. The Company
primarily evaluates performance of the business segments based on revenues and
profitability.



                                      F21
<PAGE>

14. Segment Reporting (continued)

The following tables present information by operating segment (in thousands)


<TABLE>
<CAPTION>

                                                            Year ended       Year ended      Year ended
                                                            January 31,      January 31,     January 31,
                                                               1999             1998            1997
                                                          ---------------    -----------   -------------
<S>                                                         <C>                <C>           <C>
Revenues
     NAC                                                    $ 94,074           $109,639      $104,236
     API                                                      59,666             44,003             -
                                                            --------           --------      --------
Total revenue                                               $153,740           $153,642      $104,236
                                                            ========           ========      ========

Gross profit
     NAC                                                    $ 15,588           $ 14,976      $ 14,810
     API                                                      11,696              8,233             -
                                                            --------           --------      --------
Total gross profit                                          $ 27,284           $ 23,209      $ 14,810
                                                            ========           ========      ========

Other non-recurring charges
     NAC                                                    $  5,378           $      -      $      -
     API                                                         800                  -             -
                                                            --------           --------      --------
Total non-recurring charges                                 $  6,178           $      -      $      -
                                                            ========           ========      ========

Extraordinary item
     NAC                                                    $      -           $    108      $    864
     API                                                           -                  -             -
                                                            ========           ========      ========
Total extraordinary item                                    $      -           $    108      $    864

Assets
     NAC                                                    $ 66,436           $ 62,370      $ 62,372
     API                                                      27,850             18,484             -
     Corporate                                                 2,803              1,669             -
                                                            --------           -------       --------
Total assets                                                $ 97,089           $ 82,523      $ 62,372
                                                            ========           ========      ========

Long-lived asset additions
     NAC                                                    $  3,842           $  2,375      $    957
     API                                                       2,158             10,636             -
     Corporate                                                    55                  -             -
                                                            --------            -------      --------
Total long-lived asset additions                            $  6,055           $ 13,011      $    957
                                                            ========           ========      ========

Depreciation and amortization
     NAC                                                    $    333           $    585      $  1,047
     API                                                         499                245             -
     Corporate                                                    35                 78             -
                                                            --------            -------      --------
Total depreciation and amortization                         $    867           $    908      $  1,047
                                                            ========           ========      ========

</TABLE>



                                      F22
<PAGE>

15. Quarterly Financial Information (unaudited)

<TABLE>
<CAPTION>
                                                First Quarter     Second Quarter     Third Quarter       Fourth Quarter
<S>                                              <C>                <C>               <C>                  <C>
Fiscal year ended January 31, 1999

Net sales                                        $34,624            $37,237             $39,331             $42,548
Gross profit                                       5,410              6,473               7,055               8,346
Non-recurring charges                              2,777                  -                   -               3,401

Net income (loss)                                $(1,751)           $   709             $   803             $(1,475)
                                               ============       ===========         ============        ============

Basic net income (loss) per share                $(0.20)            $ 0.08              $ 0.09              $ (0.16)
                                               ------------       -----------         ------------        ------------
Net income (loss) per share - assuming
   dilution                                      $(0.20)            $ 0.08              $ 0.09              $ (0.16)
                                               ============       ===========         ============        ============

Fiscal year ended January 31, 1998

Net sales                                        $35,847            $38,575             $39,543             $39,677
Gross profit                                       5,294              6,054               6,759               5,102
Net income before extraordinary item               1,120              1,558               1,647               1,034
Extraordinary item - loss on early
   extinguishment of debt, net of
   associated income tax benefit                    (108)                 -                   -                   -

Net income                                       $ 1,012            $ 1,558             $ 1,647             $ 1,034
                                               ============       ===========         ============        ============
Basic net income per share before
   extraordinary item                            $ 0.17             $ 0.17              $ 0.18              $  0.12
Extraordinary item                                (0.02)                 -                   -                    -
                                               ============       ===========         ============        ============
Basic net income per share                       $ 0.15             $ 0.17              $ 0.18              $  0.12
                                               ============       ===========         ============        ============
Net income per share - assuming dilution,
   before extraordinary item                     $ 0.16             $ 0.17              $ 0.18              $  0.11
Extraordinary item                                (0.01)                 -                   -                    -
                                               ============       ===========         ============        ============
Net income per share - assuming dilution         $ 0.15             $ 0.17              $ 0.18              $ 0.11
                                               ============       ===========         ============        ============
</TABLE>


                                      F23
<PAGE>


Schedule II - Valuation and Qualifying Accounts


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

<TABLE>
<CAPTION>

                                      Balance at                                   Balance as
                                     beginning of                                  of end of
                                        period        Additions     Deductions       period
                                     -------------- -------------- -------------- -------------
<S>                                     <C>           <C>            <C>            <C>
Description
Year ended January 31, 1997
   Allowance for doubtful accounts        278             75             75             278

Year ended January 31, 1998
   Allowance for doubtful accounts        278             74              6             346

Year ended January 31, 1999
   Allowance for doubtful accounts        346            497            235             608




Year ended January 31, 1997
   Slow moving and obsolete             2,788              -            427           2,361
    inventory

Year ended January 31, 1998
   Slow moving and obsolete             2,361             18              -           2,379
    inventory
Year ended January 31, 1999
   Slow moving and obsolete             2,379          1,149          1,674           1,854
    inventory
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