<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                              ---------------------

                                   FORM 10-KSB

(MARK ONE)
( X )    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [FEE REQUIRED]

                   For the fiscal year ended December 31, 1999

                                       OR


(   )    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                         Commission File Number: 0-29028

                           AVIATION DISTRIBUTORS, INC.
                 (Name of small business issuer in its charter)

                DELAWARE                             33-0715685
   (State or other jurisdiction of        (I.R.S. Employer Identification No.)
   incorporation or organization)

           ONE CAPITAL DRIVE
         LAKE FOREST, CALIFORNIA                        92630
  (Address of Principal Executive Office)             (Zip Code)

         ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 586-7558

                   ------------------------------------------

           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 -- $.01 PAR VALUE
                                (TITLE OF CLASS)


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

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-KSB.   X
             -----

<PAGE>

Revenues of the registrant for the fiscal year ended December 31, 1999 were
$23,361,000.

The aggregate market value of the Common Stock held by non-affiliates of the
registrant on March 31, 2000 was approximately $2,325,000, based upon the
average of the bid and asked prices of the Common Stock, as reported by the
Bloomberg Financial Markets.

The number of shares of the Common Stock of the registrant outstanding as of
March 31, 1999 was 3,344,500.

           Transitional Small Business Disclosure Format (check one):

                 Yes                        No         X
                     -------------              ---------------

Documents incorporated by reference:

Items 10, 11, 12 and 13 of Part III are incorporated by reference from a portion
of the Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's 2000 Annual Meeting of Stockholders
and are incorporated by reference into Part III hereof.

<PAGE>

                                     PART I

All statements, other than statements of historical fact, included in this Form
10-KSB, including without limitation the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," are, or may be deemed to be, "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). Such forward-looking statements involve assumptions, known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Aviation Distributors, Inc. (the
"Company" or "ADI") to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements contained in this Form 10-KSB. Such potential risks and uncertainties
include, without limitation, competitive pricing and other pressures from other
aviation parts suppliers, aviation industry and economic conditions generally
and in the Company's primary markets, availability of capital, and other risk
factors detailed herein and in other of the Company's filings with the
Securities and Exchange Commission. The forward-looking statements are made as
of the date of this Form 10-KSB and the Company assumes no obligation to update
the forward-looking statements or to update the reasons that actual results
could differ from those projected in such forward-looking statements. Therefore,
readers are cautioned not to place undue reliance on these forward-looking
statements.

ITEM 1.      DESCRIPTION OF BUSINESS

INTRODUCTION

The Company is a supplier of new and overhauled aircraft parts to major
commercial airlines worldwide. The Company locates, acquires and supplies parts
for all major aircraft. Additionally, the Company engages in consignment and
marketing agreements with major commercial airlines, distributors and OEMs,
which allows the Company to offer a wide range of parts for sale without certain
risks and financing costs associated with owned inventory. Aircraft parts
offered by the Company include those manufactured by Airbus, Boeing, General
Electric, Lockheed, McDonnell Douglas, Pratt & Whitney and Rolls Royce.

The Company's sales decreased from $28.4 million in 1998 to $23.4 million in
1999 as a result of the restrictions on financing and the completion of fewer
large sales. The Company's sales increased from $21.3 million in 1995, to $23.9
million in 1996 and $39.0 million in 1997. Due to financing restrictions, 1998
sales decreased to $28.4 million.

INDUSTRY OVERVIEW AND TRENDS

The worldwide aircraft parts market is highly fragmented and parts are supplied
by many types of suppliers, including airlines, OEMs and numerous distributors,
fixed base operators, FAA-certified facilities, traders and brokers. The Canaan
Group Ltd., a management consulting firm specializing in the aircraft and
aerospace industry, estimated that aircraft parts inventories valued at $45
billion existed in May 1995, with a carrying cost of $10 billion annually, and
that 80% of such inventories were owned by airlines. The Company believes that a
portion of such inventory is available for marketing, consignment and purchase.
The Company also believes that, based on other significant market trends, its
target market will continue to grow.

MARKET GROWTH. According to Boeing's 1999 Market Outlook, the worldwide fleet of
commercial aircraft and cargo jet aircraft is expected to grow from 12,600
airplanes at the end of 1998 to 19,100 airplanes by 2008 and to 28,425 airplanes
by 2018. For the industry as a whole, profitability was attained in 1998.
Airlines will increase airplane size only moderately in the next decade, with
almost three-fourths of future deliveries comprised of single aisle airplanes.
The number of seats in passenger service will increase from 1.8 to nearly 4.2
million. The freighter fleet capacity is expected to grow by more than 280% by
2018. The Company believes such increase in the number of airplanes and the
increase in the number of flights is an indication that aircraft will be flown
more often and will need standard service checks more frequently. The Company
believes that these factors have resulted and will continue to result in
increased demand for aircraft parts worldwide.

REDUCTION IN AIRLINE INVENTORIES. Historically, airlines have controlled the
majority of the aircraft parts inventory. Today, many airlines are beginning to
reduce the size of their parts inventories in an effort to reduce
inventory-carrying costs. These inventory reductions have increased reliance by
many airlines on after-market suppliers to provide parts that are difficult to
obtain from manufacturers on a timely basis, if at all. Manufacturers' lead-time
for delivery of aircraft parts averages 30 to 60 days. As airlines continue to
demand time-responsive inventory procurement processes, responsibility for
inventory storage and handling has shifted to suppliers such as the Company. The
Company believes that its access to a large inventory of aircraft parts and its
ability to deliver such parts to its customers quickly and at a competitive
price enable it to provide the services sought by airlines in an effective
manner.


                                       1

<PAGE>

INCREASE IN CONSIGNMENT AND MARKETING BUSINESS. To reduce the high costs
associated with excess aircraft parts inventory, many airlines are selling their
parts inventories through consignment and marketing agreements with suppliers
such as the Company. Such agreements enable an airline to distribute its
inventory to a large number of prospective inventory buyers while enabling
suppliers such as the Company to offer an extensive aircraft parts inventory to
its customers with a relatively low capital cost.

REDUCTION IN NUMBER OF SUPPLIERS. In an attempt to increase quality and service,
reduce purchasing costs and streamline purchasing decisions, some airlines have
begun to form relationships with a few preferred suppliers. Over the last few
years, airlines have begun to reduce the number of aircraft parts suppliers with
which they do business. In the majority of cases to date, where the Company had
an established relationship with an airline, the Company was one of the parts
suppliers selected. The Company believes that due to its focus on cultivating
relationships with its customers and its reputation for service, quality and
reliability, airlines will continue to select the Company as one of their
preferred aircraft parts suppliers.

INCREASED EMPHASIS ON TRACEABILITY. Regulatory agencies have increased
documentation requirements for aircraft parts because of concern regarding
unapproved parts. In order for suppliers to trace all aircraft parts back to
their original source, suppliers have invested in sophisticated information
systems technology. The Company has developed and continues to maintain and
upgrade its information systems technology to ensure that all aircraft parts
bought and sold by the Company comply with applicable regulatory requirements.

BUSINESS STRATEGY

The Company's primary objectives are to be a leading quality supplier of
aircraft parts to airlines worldwide and to increase revenue from its business
through the application of a comprehensive business strategy combining various
customer service, marketing, operating and growth objectives. The Company's
marketing approach includes direct marketing to airlines and manufacturers,
advertising in trade directories and attending industry trade shows. Although
the Company concentrates the majority of its marketing efforts on commercial
airlines servicing the passenger market, it also seeks to foster business from
commercial airlines servicing the cargo market, as well as overhaul facilities
and OEMs.

CUSTOMER SERVICE. The Company intends to continue to market and develop its
ability to deliver parts quickly to customers at a preferred price and its
emphasis on implementing creative solutions to locate and deliver hard-to-find
aircraft parts. Additionally, the Company plans to continue to cultivate
relationships with its customers to assure that it retains its position on its
customers' preferred list of aircraft parts suppliers. The Company has
historically incurred high levels of selling and administrative expenses,
primarily travel and entertainment associated with establishing and maintaining
customer relationships. A key component of the Company's business strategy is to
implement a program to effectively contain such expenses.

EMPHASIS ON QUALITY. The Company will continue to emphasize its reputation for
quality, including its track record of consistently meeting FAA regulations by
maintaining and, if necessary, introducing safeguards to ensure the quality of
its aircraft parts. In addition, in October 1996 the Company became a full
distributor under the National Aerospace and Defense Contractors Accreditation
Program of the Performance Review Institute. Such safeguards include employing
three FAA-licensed Airframe and Powerplant Inspectors and contracting with three
FAA-licensed Designated Airworthiness Representatives and an outside quality
assurance consultant. Each of these specialists verifies the airworthiness of
aircraft parts bought and sold by the Company.

In March 1998, the Company attained its ISO 9002 Certification. The Company has
since undergone four surveillance audits, which resulted in the retention of the
certification. The Company is among a select group in its industry to have
achieved this status, which is a well-recognized symbol of quality operating
standards.

FOCUS ON MAJOR COMMERCIAL AIRLINES. The Company plans to continue targeting
major commercial airlines worldwide, many of which are currently customers of
the Company. Such airlines generally have larger aircraft fleets, which generate
a greater demand for aircraft parts than smaller airlines. Consequently,
relationships with major commercial airlines enable the Company to expend fewer
resources to generate comparable sales volume with margins of profitability
comparable to similar sales to several smaller airlines. Additionally, major
commercial airlines typically have greater financial resources than smaller
airlines, resulting in reduced credit risk to the Company and a greater
likelihood of timely payment. The Company's relationships with major commercial
airlines also provide the Company with increased access to such airlines'
aircraft parts inventories.

INCREASE ACCESS TO INVENTORY. The Company plans to increase its accessible
inventory by pursuing new consignment and marketing agreements with airlines,
manufacturers and overhaul facilities and purchasing large items, such as
engines, that can be broken down and sold as smaller parts for significantly
more than the "as - is" value. The Company will seek to secure aircraft parts
where it believes demand is greater than supply. Presently, the Company believes
that demand exceeds supply in the aircraft parts market for aircraft models over
five years old.


                                       2
<PAGE>

GLOBAL EXPANSION. The Company's goal is to service customers domestically and
worldwide and to become a major aircraft parts supplier for the fastest-growing
markets, particularly Europe. For the year ended December 31, 1999, 48.9% of the
Company's sales were to international customers. The Company plans to continue
to take advantage of the growing international market through the use of its
multilingual sales staff and by maintaining existing relationships and
establishing new relationships in the following regions: Pacific Rim/Far
East/South Pacific, Europe, Latin/South America, Middle East/Africa and North
America.

PRODUCTS AND SERVICES

GENERAL. The Company is in the business of selling a broad range of aircraft
parts from its owned inventory, on behalf of airlines and manufacturers pursuant
to consignment and marketing agreements, and from inventory owned by outside
parties and located by the Company at the time of receiving a customer order
(outside sourcing). For the year ended December 31, 1999, sales from
Company-owned inventory and outside sourcing represented approximately 8% and
92%, respectively, of the Company's net sales.

The Company's access to an extensive inventory is a result of its worldwide
relationships with airlines, manufacturers and suppliers of aircraft parts,
numerous consignment and marketing agreements with airlines and manufacturers,
and owned inventory of new and overhauled aircraft parts.

The general categories of aircraft parts are as follows: (i) rotable; (ii)
repairable; and (iii) expendable.

A rotable is a part that is removed periodically as dictated by an operator's
maintenance procedures or on an as-needed basis and is typically repaired or
overhauled and re-used an indefinite number of times. A subset of rotables is
life-limited parts. A life-limited rotable has a designated number of allowable
flight hours and/or cycles (one take-off and landing generally constitutes one
cycle) after which it is rendered unusable.

A repairable is similar to a rotable except that it can only be repaired a
limited number of times before it must be discarded. Typically, rotable and
repairable parts must be removed from an airplane and rebuilt or checked based
upon the number of hours in flight. Rotable and repairable parts must be
repaired at FAA-approved repair facilities.

An expendable is generally a part that is used and not thereafter repaired for
further use. Consequently, all expendable inventory is new. Expendable inventory
cannot be used for less than its useful life and then transferred to a new
airplane; once an expendable part is removed from an airplane, it must be
discarded.

Currently, the Company supplies aircraft parts for Boeing 737, 747, 757 and 767
series, Airbus 300 series, McDonnell Douglas 80, DC and MD series aircraft.
These aircraft parts represent a significant portion of the aircraft parts used
by major airlines, which represent the majority of the Company's current
customers. Although not required by the FAA to do so, the Company maintains on
staff three FAA-licensed Airframe and Powerplant Inspectors and contracts with
three FAA-licensed Designated Airworthiness Representatives, whose
responsibilities are to verify the airworthiness of aircraft parts bought and
sold by the Company. The Company believes that its strict adherence to FAA and
manufacturer guidelines has contributed to the Company's reputation in the
industry. The Company does not repair aircraft parts, and therefore is generally
not subject to the risks associated with the repair business.

Each sales person employed by the Company is responsible for making an appraisal
of a particular aircraft part's value and makes such appraisal based on industry
experience and practice after considering current manufacturers' list prices,
the condition of the part, the part's availability and lead time to manufacture
the part. The Company's return policy permits customers to return parts within
10 days of receipt, although, in certain instances the Company may accept
returned parts beyond the 10 day period. Additionally, the Company's terms to
customers are generally 30 days; the Company may extend payment terms in certain
circumstances.

The Company's owned inventory at December 31, 1999 is stored in the Company's
California warehouse. Any party who has entered into a marketing agreement with
the Company owns and is responsible for storing the inventory to which the
Company has access pursuant to such marketing agreement. The Company ships all
inventory to customers via national or international courier services. If an
aircraft part sought by a customer exists in the Company's owned inventory,
inventory on consignment, or inventory available through exclusive marketing
agreements (together, the "Accessible Inventory"), such part is generally
shipped to the customer the day the order is placed. The turn-around time is
generally up to one week from the time the order is placed if the Company has to
acquire a part from an outside party.

CLIENT SERVICES. Client services are conducted through the Company's
California-based multilingual direct sales force, whose primary responsibility
is to sell aircraft parts and manage customers. Sales personnel travel
extensively to develop strong personal relationships with the Company's
customers, improve communications and remain current on regional market data.
Salespeople are assigned to specific airlines and are supported by a group


                                       3
<PAGE>

of regional agents, who assist in countries such as Brazil, Chile, India,
Israel, Korea, Pakistan, and Turkey where local representation is critical to
purchase order processing and timely payment.

Each sales representative is supported by additional personnel who research and
locate parts ordered by the Company's customers. The Company's sales staff,
through its knowledge of the industry and its relationships throughout the
world, is able to develop and implement creative solutions to locate and deliver
hard-to-find aircraft parts, a quality that the Company believes sets it apart
from its competitors.

Upon the Company's receipt of an inquiry for a specific aircraft part from a
customer via telephone, e-mail or fax, the Company first checks its owned
inventory for availability of the part, then checks the Accessible Inventory. If
the part is not owned or part of the Accessible Inventory, the Company will
attempt to source the part through cultivated industry contacts or the Inventory
Locator Service ("ILS"), a domestic, industry-wide database of aircraft parts.
Even if the aircraft part is within the Company's owned or Accessible Inventory,
the Company attempts to achieve full market value for each part sold by
researching alternate sources for availability and competing prices for the part
prior to quoting the end user.

CONSIGNMENT AND MARKETING BUSINESS. In addition to supplying parts from owned
inventory, the Company has supplied parts through (i) consignment agreements,
pursuant to which the Company takes actual possession of a vendor's inventory,
and (ii) exclusive marketing agreements, pursuant to which the Company markets
vendors' inventory which remains in the vendors' possession. Through consignment
or marketing agreements with an aircraft parts supplier, the Company is able to
distribute its aircraft parts to a larger number of prospective inventory
buyers. This allows the Company's vendors to maximize the value of their
inventory while at the same time freeing up resources that can be focused on
their core business. Consignment and marketing arrangements also enable the
Company to offer for sale aircraft parts from a much larger inventory at minimal
capital cost to the Company.

When an inquiry is made with respect to a particular aircraft part, the Company
will query its inventory databases for availability before researching market
value. A party who has entered into a consignment or marketing agreement with
the Company (the "Contract Party") typically establishes an asking price for
each aircraft part subject to the agreement, but may allow the Company to lower
such price to assure a sale. If the Company feels it must offer a part for below
the price established by the Contract Party, it will first seek the Contract
Party's permission. In most instances, the Contract Party has entered into the
relationship with the Company because it believes the Company has the expertise
necessary to attract the best price for each aircraft part. Further, the Company
is paid a percentage of the sales price as compensation for its consignment and
marketing services. Consequently, the Contract Party, understanding that the
Company's own best interest is in achieving the highest price possible for the
sale of the part, will usually give consideration to a recommendation by the
Company to sell a particular aircraft part at a price below the Contract Party's
established price.

The Company has had consignment and marketing agreements with airlines and OEMs.
No single consignment or marketing agreement has been material to the Company's
business in the aggregate. Although the Company had no marketing or consignment
agreements at December 31, 1999, the Company is considering potential future
consignment and marketing agreements.

INVENTORY PURCHASES. The Company acquires aircraft parts by bidding on the
inventory of, (i) airlines that are eliminating certain portions of their parts
inventory due to retirement of an aircraft type from their fleet, downsizing of
operations, or the dissolution of their businesses and, (ii) OEMs and overhaul
facilities who seek to sell excess inventory. Management believes that its
primary source of aircraft parts for acquisition during the next few years will
be from such purchases.

SYSTEMS

Due to concerns regarding unapproved aircraft parts, regulatory authorities have
increased the level of documentation required for aircraft parts. End users have
in turn, extended this requirement to the suppliers of the parts. The
sophistication required to track the history of an inventory consisting of
thousands of aircraft parts is considerable and has required aircraft parts
suppliers to invest significantly in information systems technology. The high
cost of increased technology has made entry into and survival in the aircraft
parts supply market increasingly difficult and expensive. However, the Company
has previously invested in systems technology and intends to continue to
maintain and improve its information systems to allow it to effectively compete
in the aircraft parts supply market.

The most commonly used database available in the aircraft part supply industry
is ILS. ILS is an inventory locating service that assists in searching for and
locating aircraft parts. Once a potential purchaser locates a part owned by the
Company or available through the Company's Accessible Inventory, the purchaser
contacts the Company to confirm price, condition and availability information.
As of December 31, 1999, the Company listed approximately 400,000 items on ILS.
Additionally, ILS is one of the tools used by the Company to locate aircraft
parts that are not in the Company's Accessible Inventory.


                                       4
<PAGE>

The Company implemented a new software package during 1999. This new system is
an integrated accounting and business management software package. It will
create requests for quote sheets, quotations, sales orders, purchase orders,
repair orders and invoices. This database has provided improved part number
databases, inventory controls and additional linkage between accounting and
sales.

COMPETITION

The aircraft parts supply industry is highly competitive. The Company encounters
substantial competition from (i) direct competitors, such as The Ages Group, The
Memphis Group, AAR Corp. and Aviation Sales Company, and (ii) indirect
competitors, such as OEMs, which include aircraft manufacturers such as Boeing,
Airbus and McDonnell Douglas, as well as component manufacturers such as Bendix,
Menasco and Goodrich. Generally, competition is based on availability of
product, reputation, customer service, price and lead-time. Although many of the
Company's competitors have access to substantially greater financial and other
resources than the Company, the Company believes that by focusing on service,
product integrity and the cultivation of relationships with customers worldwide,
it is well equipped to compete effectively in its industry.

GOVERNMENT REGULATION

Both domestic and foreign entities regulate products sold by the Company. The
following discussion summarizes the required regulatory approvals and clearances
relating to the Company's products and highlights the Company's specific efforts
to conform to such requirements.

The FAA is charged with regulating the manufacture, repair and operation of all
aircraft and aircraft equipment operated within the United States. The FAA
monitors safety by promulgating regulations regarding proper maintenance of
aircraft and aircraft equipment. Similar regulations exist in foreign countries.
All aircraft and aircraft equipment must be monitored on a continual basis and
periodically inspected in order to ensure proper condition and maintenance.
Regulatory agencies specify maintenance, repair and inspection procedures for
aircraft and aircraft equipment. These procedures must be performed by certified
technicians in approved repair facilities on set schedules. All parts must
conform to prescribed regulations and be certified prior to installation on an
aircraft. When necessary, the Company uses FAA and/or Joint Aviation Authority
certified repair shops to repair or certify parts for distribution. Because
regulations are subject to modification, the Company carefully monitors the FAA
and industry trade organizations in order to assess any potentially adverse
impact on the Company caused by changes in regulations applicable to its
operations.

Documentation of spare parts is of paramount importance in the aircraft parts
industry. To ensure that all parts are properly documented and thus traceable to
their original source, the Company requires that its suppliers comply with all
documentation requirements set forth by regulatory agencies. Documentation may
include: (i) an invoice or purchase order from an approved supplier, (ii) a
"teardown" report noting actions taken during the last repair, (iii) a signed
maintenance release from a certified airline or repair facility that repaired
the aircraft spare part and a statement from an inspector verifying that the
part was repaired in accordance with proper workmanship, and using proper
materials and methods.

EMPLOYEES

As of March 15, 2000, the Company had 44 full-time and one part-time employee in
the United States. As of such date, the Company also has agents in Brazil,
Chile, India, Israel, Pakistan, Indonesia, South Africa and Turkey. None of the
Company's employees are covered by a collective bargaining agreement. The
Company considers its relations with its employees to be good.


ITEM 2.  DESCRIPTION OF PROPERTY

In February 1998, the Company leased a 36,079 square foot facility at One
Capital Drive, Lake Forest, California 92630 as its principal executive offices
and primary warehouse for $29,500 per month. The facility has approximately
14,293 square feet allocated to office space and 21,786 square feet of
warehouse. The lease expires January 31, 2005, with an option to extend the term
of the lease for one five-year period at the then market rate for the equivalent
space. The Company believes that its facility is adequately covered by
insurance.



ITEM 3.  LEGAL PROCEEDINGS

In October 1997, the Company, its founder, its directors, certain of its
officers, a former officer and director, its former auditor and its underwriter
were named as defendants in three civil suits filed as class actions on behalf
of


                                       5
<PAGE>

individuals claiming to have purchased ADI Common Stock during the period from
March 1997 to September 1997, and seeking damages for violation of Federal
securities laws. The suits were filed in the United States District Court for
the Central District of California and are captioned as follows: (i) NGUYEN V.
AVIATION DISTRIBUTORS, INC., ET AL., U.S. District Court, Central District of
California, Case No. SACV 97-795 (ANx); (ii) ALAN GREEN V. AVIATION
DISTRIBUTORS, INC., ET AL., U.S. District Court, Central District of California,
Case No. SACV 97-801 GLT (EEx); and (iii) SHARON TATE V. AVIATION DISTRIBUTORS,
INC., ET AL., U.S. District Court, Central District of California, Case No. SACV
97-838 (Eex).

In April 1998, the Company entered into a settlement in principle, which was
memorialized in a Memorandum of Understanding (the M.O.U.), with counsel for the
plaintiffs to settle the suits. The Federal Court approved this settlement
agreement on March 15, 1999. Terms of the settlement included cash consideration
of $740,000 and 210,000 shares of the Company's common stock, of which the
Company will issue 80,000 shares and the Company's founder, Osamah S. Bakhit,
contributed 130,000 shares. The Company recorded a legal settlement expense for
the year ended December 31, 1997 of $620,000, of which $480,000 was attributable
to the expected issuance of 80,000 shares of common stock and $140,000 of which
represented the Company's portion of the cash consideration. The 80,000 shares
were issued to the plaintiffs in 1999.

Both a Federal grand jury and the Securities and Exchange Commission have
commenced investigations into the allegations referred to above. The
investigations are continuing and the Company is unable, at this time, to
evaluate the possible outcome of the investigations or their impact on the
Company. The Company has incurred legal, accounting and consulting expense
relating to these investigations of $1.3 million and $156,000 for the years
ended December 31, 1998 and 1999, respectively.

The Company is involved in certain legal and administrative proceedings and
threatened legal and administrative proceedings arising in the normal course of
its business. While the outcome of such proceedings and threatened proceedings
cannot be predicted with certainty, management believes the ultimate resolution
of these matters individually or in the aggregate will not have a material
adverse effect on the Company.


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

None.

                                     PART II


ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

From March 3, 1997 to September 2, 1997, the Company's Common Stock was quoted
on the Nasdaq SmallCap Market under the symbol "ADIN." Effective September 2,
1997, trading in the Company's Common Stock was halted by Nasdaq, and on October
1, 1997 the Company's Common Stock was delisted from the Nasdaq SmallCap Market
based on a failure to comply with the requirements for audited financial
statements.

The following table sets forth, for the period from January 20, 1998 through
March 31, 2000, the high and low sales prices for the common stock, as reported
on the Nasdaq Over-The-Counter Bulletin Board. The prices represent quotations
between dealers, without adjustment for retail markup, mark down or commission,
and do not necessarily represent actual transactions.

<TABLE>
<CAPTION>

COMMON STOCK PRICE
------------------
                                  High              Low
                                  ----              ---
<S>                              <C>               <C>
       1998
    1st Quarter                     7                3
    2nd Quarter                   6 1/4             .95
    3rd Quarter                   2 1/8            5/16
    4th Quarter                  1 7/16            3/16

       1999
    1st Quarter                   1 1/4            9/32
    2nd Quarter                  1 3/16           11/32
    3rd Quarter                    9/16             1/4
    4th Quarter                  2 1/16            3/16

       2000
    1st Quarter                 2 11/16           31/32
</TABLE>


                                       6
<PAGE>

The Company has not paid any cash dividends on its Common Stock since its
incorporation and anticipates that, for the foreseeable future, earnings, if
any, will be retained for use in its business. As of March 31, 1999, the
approximate number of record holders of the Company's Common Stock was 32,
however, the Company believes the number of beneficial owners is approximately
250 persons.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

The following discussion includes the operations of the Company for each of the
periods discussed. This discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and the related notes
thereto, which are included elsewhere in this document. This discussion contains
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Although the Company believes that the expectations reflected in
such forward looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. Such forward looking statements
involve risks and uncertainties and actual results could differ from those
described herein and future results may be subject to numerous factors, many of
which are beyond the control of the Company.

GENERAL

The Company is a supplier of new and overhauled aircraft parts to major
commercial airlines worldwide. The Company locates, acquires and supplies parts
for all major aircraft. Additionally, the Company engages in consignment and
marketing agreements with major commercial airlines, distributors and OEMs,
which allow the Company to offer a wide range of parts for sale without certain
risks and financing costs associated with owned inventory. The Company was
established in October 1988, incorporated in California in February 1992 and
reincorporated in Delaware in July 1996.

The Company's sales have decreased from $28.4 million in 1998 to $23.4 million
in 1999 as a result of the restrictions on financing and the completion of fewer
large sales. Management believes the Company's revenues will increase in 2000
due to improved financing capabilities. In years prior to 1998, the Company's
sales had increased from $21.3 million in 1995, to $23.9 million in 1996 and
$39.0 million in 1997. Sales in 1998 decreased to $28.4 million due to financing
restrictions. Of 1995 sales, approximately $6.5 million resulted from the sale
of two whole aircraft (with engines) to Royal Jordanian Airlines. Excluding the
whole aircraft transaction, sales in 1995 would have been $14.8 million. If the
opportunity exists, the Company may sell whole aircraft in the future.

OVERVIEW

Net sales consist primarily of gross sales, net of allowance for returns and
other adjustments. Cost of sales consists primarily of product costs, freight
charges and an inventory provision for damaged and obsolete products. Product
costs consist of the acquisition costs of the products and costs associated with
repairs, maintenance and certification.

Net sales and gross profit depend in large measure on the volume and timing of
sales orders received during the period and the mix of aircraft parts contained
in the Company's inventory. The timing of bulk inventory purchases can impact
sales and gross profit. In general, bulk inventory purchases allow the Company
to obtain large inventories of aircraft parts at a lower cost than can
ordinarily be obtained by purchasing such parts on an individual basis. Thus,
these bulk purchases allow the Company to seek larger gross margins on its sale
of aircraft parts since the cost of purchase is reduced.

RESULTS OF OPERATIONS

The following table sets forth certain information relating to the Company's
operations for the years ended December 31, 1998 and 1999 (dollars in
thousands):


                                       7
<PAGE>

<TABLE>
<CAPTION>

                                                                   1998                       1999
                                                        ========================   ========================
<S>                                                       <C>          <C>           <C>          <C>
Net inventory sales                                       $ 28,186      99.1 %       $ 23,361     100.0 %
Net sales on consignment and marketing agreements              247       0.9                -         -
                                                        ----------- ------------   ----------- ------------
      Net sales                                             28,433     100.0           23,361     100.0
Cost of sales                                               22,597      79.5           17,607      75.4
                                                        ----------- ------------   ----------- ------------
      Gross profit                                           5,836      20.5            5,754      24.6
Selling and administrative expenses                          7,593      26.7            6,003      25.7
Non recurring expenses                                       1,311       4.6              156       0.7
                                                        ----------- ------------   ----------- ------------
       Loss from operations                                 (3,068)    (10.8)            (405)     (1.7)
Interest expense, net                                        2,297       8.1            1,716       7.3
Other (income) expense                                         144       0.5               (6)     (0.0)
Provision (benefit) for income taxes                           287       1.0              (83)     (0.4)
Extraordinary gain - payable restructuring                       0         -              242       1.0
                                                        ----------- ------------   ----------- ------------
      Net loss                                             $(5,796)    (20.4)%        $(1,790)     (7.7)%
                                                        =========== ============   =========== ============
</TABLE>


NET INVENTORY SALES. Net inventory sales represents sales of aircraft parts
purchased at the time of sale through outside parties (outside sourcing) and
sales of the Company's owned inventory. Net inventory sales decreased from $28.2
million for the year ended December 31, 1998 to $23.4 million for the year ended
December 31, 1999, a decrease of $4.8 million or 17.0%. This decrease was a
result of financing limitations and fewer large transactions.

NET SALES ON CONSIGNMENT AND MARKETING AGREEMENTS. Net sales on consignment and
marketing agreements represent revenue, including commission, from sales of
inventory held on consignment and sales of inventory obtained through marketing
agreements with larger airlines. These types of sales decreased from $247,000
for the year ended December 31, 1998 to $0 for the year ended December 31, 1999.
The decrease was a result of management's decision to terminate a marketing
agreement during 1998. Currently, the Company does not have any active marketing
or consignment agreements, but continues to explore possible opportunities.

NET SALES. Net sales decreased by $5.1 million, or 17.8%, as a result of
restrictions on financing and fewer large transactions.

The sales by region data presented below should be read in conjunction with the
Consolidated Financial Statements, including the Notes thereto included
elsewhere in this document. The following data consists of sales by region for
the years ended December 31, 1998 and 1999:


<TABLE>
<CAPTION>

                                         1998       1999
                                         ---------  ---------
<S>                                       <C>        <C>
               Pacific Rim                17.9 %     10.9 %
               Europe                     17.5       11.4
               Latin/South America        16.1       18.2
               Africa/Middle East          6.3        7.8
                                         ---------  ---------
                                          57.8 %     48.3 %
                                         =========  =========
</TABLE>


The Company's sales to international customers for the years ended December 31,
1998, 57.8%, and December 31, 1999, 48.3%, decreased as a result of large
transactions closed with domestic customers.

COST OF SALES. Cost of sales decreased from $22.6 million for the year ended
December 31, 1998 to $17.6 million for the year ended December 31, 1999, a
decrease of $5.0 million or 22.1%. This decrease was primarily the result of the
17.9% decrease in net sales. As a percentage of net sales, cost of sales
decreased from 79.5% in 1998 to 75.4% in 1999 due to improved pricing on
inventory parts during 1999 and from high margin sales of bulk purchased
inventory.

GROSS PROFIT. Gross profit of $5.8 million, or 20.5% of net sales for the
year ended December 31, 1998 compares to $5.8 million or 24.6% of net sales
for the year ended December 31, 1999. The increase in gross margin percent
maintained a comparable gross profit from 1998 to 1999 despite the decrease
in sales.

                                       8
<PAGE>

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consisted primarily of compensation, commission expense, professional fees,
consulting expense and travel expense. The Company's selling and administrative
expenses decreased from $7.6 million for the year ended December 31, 1998 to
$6.0 million for the year ended December 31, 1999, a decrease of $1.6 million or
21%. This decrease was principally due to cost reduction efforts and closing of
the Australia facility in February 1999.

NONRECURRING EXPENSES. The Company incurred $1.3 million and $156,000 during
1998 and 1999, respectively, of expenses related to its investigation of
allegations concerning its previously issued financial statements, restatement
of those financial statements, class action lawsuits and investigations by a
Federal grand jury and the Securities and Exchange Commission. See "Item 3 -
Legal Proceedings". These expenses primarily consist of legal, accounting and
consulting fees.

LOSS FROM OPERATIONS. The Company incurred a loss of $405,000 from operations
for the year ended December 31, 1999, compared to a loss from operations of
$3.1 million in 1998. Loss from operations for the 1999 period, excluding the
non-recurring expenses, was $249,000. The loss from operations for the 1998
period, excluding the non-recurring expenses and the legal settlement
expense, was $1.7 million. The increase in operating income is due to a
decrease in net sales, offset by improved margins, and the decrease in
selling and administrative expenses. See "Net distributed services and
inventory sales," "Gross profit" and "Selling and administrative expenses."

INTEREST EXPENSES, NET. Net interest expense decreased from $2.3 million, or
8.1% of net sales for the year ended December 31, 1998 to $1.7 million, or 7.3%
of net sales for the year ended December 31, 1999. The decrease in interest
expense was partly due to a decrease in borrowings under the Company's line of
credit during the 1999 period. The decrease was also due to approximately
$470,000 interest incurred on the note payable for the purchase of the CFM56
engine during 1998.

PROVISION FOR INCOME TAXES. The Company had a benefit from income taxes in 1999
due to income tax refunds received in excess of the benefit recorded in 1998.
The 1998 income tax benefit was a result of the Company providing for an
estimated refund.


YEAR 2000 COMPLIANCE

To become fully Year 2000 compliant, the Company successfully implemented a new
software system at a cost of approximately $120,000. The Company did not
separately track the internal costs incurred for the Y2K project. The company
did not incur any systems problems as a result of the successful implementation
of the new systems.


LIQUIDITY AND CAPITAL RESOURCES

The Company's operating activities used $3.0 million in 1998, with the principal
uses being the $5.8 million loss and net reductions of $3.2 million in inventory
purchase notes payable, offset by a $4.9 million reductions in accounts and
notes receivable. In 1999, operating activities used $3.7 million, comprised
primarily of the $1.8 million loss, net reductions of $1.1 million in inventory
purchase notes payable and by a $1.5 million net increase in accounts and notes
receivable.

In 1998, investing activities provided net cash of $880,000 principally
relating to a decrease in restricted cash due to a certificate of deposit
that was used as collateral on a letter of credit issued to a vendor that was
utilized in the second quarter of 1998. In 1999, investing activities used
net cash of $109,000, comprised primarily of a new system implementation.

Financing activities provided cash of $2.0 million in 1998 and $3.8 million in
1999. Net increases in line of credit borrowings were $2.7 million and $2.9
million in 1998 and 1999, respectively.

At December 31, 1999, the Company's Credit Facility provided for working capital
loans of up to the lesser of $21,000,000 (facility amount) or the advance rate
against qualified accounts receivable and inventory, with interest at the GMAC
Commercial Credit LLC, successor in interest to BNY Financial Corporation
(GMAC), Alternate Base Rate (8.5 percent at December 31, 1999) plus one percent.
The borrowing rate is subject to a premium of 0.5% per annum when the facility
is over advanced and a premium of 2.0% per annum when the Company is out of
covenant compliance. The terms of the credit agreement provide for a facility
non-use fee of 0.5% per annum of the difference between the facility amount and
the average monthly balance. GMAC has a fully perfected security interest
against all assets of the Company, except restricted cash, in addition to a
personal guarantee from the Company's founder and secured by 1,000,000 shares of
common stock pledged by the Company's founder. The Credit Facility matures on
December 1, 2002 (see Note 6 for subsequent amendment). The credit facility has


                                       9
<PAGE>

general financial covenants related to the Company's financial condition. At
December 31, 1999, the Company was not in compliance with certain covenants. The
Company has received a waiver for the non-compliance that sets forth revised
tangible net worth, operating ratios, capital expenditure and working capital
requirements for 2000.

The Credit Facility provides for the repayment of all debt and/or termination
of the Credit Facility (i) in the event the Company voluntarily files under
the federal bankruptcy laws or fails to dismiss, within 30 days, any petition
filed against it in any involuntary case under such bankruptcy laws, (ii) if
the lender believes the prospect of payment or performance of the indebtedness
is impaired, or (iii) upon a change of control. The $21.0 million Credit
Facility has certain financial covenants that require the Company to have: a
tangible net deficit of no more than $5.5 million at June 30, 2000, $4.5
million at September 30, 2000 and $ 3.4 million at December 31, 2000, an
EBITDA to cash interest ratio of 1.5 to 1 at June 30, 2000, 1.6 to 1 at
September 30, 2000 and 1.7 to 1 at December 31, 2000, capital expenditures
$192,000 and a working capital deficit of no more than $2.4 million at June
30, 2000, 1.3 million at September 30, 2000 and $0.4 million at December 31,
2000.

In October 1998 the Company assigned all tax refunds from governmental agencies
to GMAC and issued 126,600 warrants to purchase common stock of the Company at
$2.50 per share. In February 1999 the Company reduced the exercise price of the
warrants from $2.50 to $1.00 per share.

The Company's long-term debt at December 31, 1999 consists of the following: (i)
note payable of $1.0 million to GMAC, interest due monthly beginning January
2000, principal due in quarterly installments of $125,000 beginning December
2000, with an interest rate equal to the GMAC Alternate Base Rate plus 2.0%;
(ii) note payable of $833,333 to a corporation, secured by specific inventory,
(iii) note payable to a related party of $100,000 at an interest rate of 6.0%;
and (iv) notes payable for $10,359.


ITEM 7.  FINANCIAL STATEMENTS

The financial statements listed in the accompanying Index to Financial
Statements are attached hereto and filed as a part of this Report under Item 13.


                                       10
<PAGE>


                           AVIATION DISTRIBUTORS, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

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

Consolidated Balance Sheets as of December 31, 1998 and 1999  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  F-3

Consolidated Statements of Operations for the Years ended December 31, 1998 and 1999  .  .  .  .  .  .  .  .  .  .  .  .  .  .  F-4

Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1998 and 1999.  .  .  .  .  .  .  .  F-5

Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1999  .  .  .  .  .  .  .  .  .  .  .  .  .  .  F-6

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


                                      F-1

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Aviation Distributors, Inc.

We have audited the accompanying consolidated balance sheets of Aviation
Distributors, Inc. as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits 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 Aviation
Distributors, Inc. as of December 31, 1998 and 1999, and the consolidated
results of its operations and its consolidated cash flows for the years then
ended, in conformity with accounting principles generally accepted in the
United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $1,789,628 for the year ended December 31,
1999, and, as of that date, the Company's current liabilities exceeded its
current assets by $3,316,228 and its total liabilities exceeded its total assets
by $3,325,590. These factors, among others, as discussed in Note 2 to the
consolidated financial statements, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/ GRANT THORNTON LLP

Irvine, California
April 6, 2000


                                      F-2

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                               DECEMBER 31,
                                                                                ---------------------------------------
                                           ASSETS                                        1998               1999
                                                                                         ----               ----
<S>                                                                                 <C>               <C>
CURRENT ASSETS:
      Cash ....................................................................     $          -     $           -
      Restricted cash .........................................................            8,171                 -
      Accounts receivable, net of allowance for
       doubtful accounts of $620,000 and $250,000
       at December 31, 1998 and 1999, respectively ............................        4,767,470        7,548,474
      Other receivables .......................................................           69,238           44,739
      Inventories .............................................................        9,356,386        9,008,560
      Prepaid expenses ........................................................          529,965           85,554
      Income tax receivable ...................................................          392,979                -
      Current portion of notes receivable .....................................        1,276,750                -
      Deferred tax asset ......................................................          101,000          101,000
                                                                                    ------------      -----------
           Total current assets ...............................................       16,501,959       16,788,327
                                                                                    ------------      -----------
PROPERTY AND EQUIPMENT ........................................................        1,001,622        1,016,165
      Less - accumulated depreciation .........................................          355,715          466,998
                                                                                    ------------      -----------
                                                                                         645,907          549,167
                                                                                    ------------      -----------
Notes receivable from founder .................................................          408,718          408,718
Other assets ..................................................................           29,351          131,484
                                                                                    ------------      -----------
                                                                                         438,069          540,202
                                                                                    ------------      -----------
                                                                                    $ 17,585,935      $17,877,696
                                                                                    ============      ===========
                           LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
      Checks issued not yet presented for payment .............................     $    377,986      $   256,957
      Accounts payable ........................................................        3,120,953        2,587,403
      Accrued liabilities .....................................................          838,446          606,997
      Line of credit ..........................................................       12,791,538       15,677,982
      Current portion of long-term debt .......................................        1,911,057          965,388
      Current portion of capital lease obligations ............................           18,797            9,828
                                                                                    ------------      -----------
           Total current liabilities ..........................................       19,058,777       20,104,555
                                                                                    ------------      -----------
Long-term debt, net of current portion ........................................            9,672          978,304
                                                                                    ------------      -----------
Capital lease obligations, net of current portion .............................           30,323           19,427
                                                                                    ------------      -----------
Other long-term liability .....................................................          480,000                -
                                                                                    ------------      -----------
Deferred tax liability ........................................................          101,000          101,000
                                                                                    ------------      -----------
STOCKHOLDERS' DEFICIT:
      Preferred stock, par value of $.01, 3,000,000
       shares authorized; none issued and outstanding .........................                -                -
      Common stock, par value of $.01, 10,000,000
       shares authorized; 3,165,000 and 3,387,500 shares
       issued; 3,122,000 and 3,344,500 shares outstanding
       at December 31, 1998 and 1999, respectively ............................           31,650           33,875
      Additional paid in capital ..............................................        5,658,099        6,213,749
      Accumulated deficit .....................................................       (7,710,282)      (9,499,910)
      Treasury stock, 43,000 shares at cost ...................................          (73,304)         (73,304)
                                                                                    ------------      -----------
           Total stockholders' deficit ........................................       (2,093,837)      (3,325,590)
                                                                                    ------------      -----------
                                                                                    $ 17,585,935      $17,877,696
                                                                                    ============      ===========
</TABLE>


 The accompanying notes are an integral part of these consolidated statements.


                                      F-3

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                   Year Ended December 31,
                                                                             ---------------------------------
                                                                                  1998              1999
                                                                                  ----              ----
<S>                                                                           <C>               <C>

NET DISTRIBUTED SERVICES AND INVENTORY SALES ............................     $ 28,185,451      $ 23,361,146
NET SALES ON CONSIGNMENT AND
 MARKETING AGREEMENTS ...................................................          247,120                 -
                                                                              ------------      ------------
TOTAL NET SALES .........................................................       28,432,571        23,361,146
COST OF SALES ...........................................................       22,596,436        17,606,921
                                                                              ------------      ------------
       Gross profit .....................................................        5,836,135         5,754,225
SELLING AND ADMINISTRATIVE EXPENSES .....................................        7,593,018         6,002,925
NON-RECURRING EXPENSES ..................................................        1,311,153           155,996
                                                                              ------------      ------------
       Loss from operations .............................................       (3,068,036)         (404,696)
OTHER (EXPENSE) INCOME:
       Interest expense .................................................       (2,560,930)       (1,850,661)
       Interest income ..................................................          263,796           133,866
       Loss on disposal of assets .......................................         (148,666)           (1,720)
       Other income .....................................................            5,064             8,246
                                                                              ------------      ------------
       Loss before provision
        for income taxes ................................................       (5,508,772)       (2,114,965)
PROVISION (BENEFIT) FOR INCOME TAXES ....................................          287,000           (82,877)
                                                                              ------------      ------------

NET LOSS BEFORE EXTRAORDINARY ITEM ......................................       (5,795,772)       (2,032,088)
EXTRAORDINARY ITEM - Gain on debt forgiveness ...........................                -           242,460
                                                                              ------------      ------------
       NET LOSS .........................................................     $ (5,795,772)     $ (1,789,628)
                                                                              ============      ============
Basic and diluted loss per share:
       Loss before extraordinary item ...................................     $      (1.85)     $      (0.64)
       Extraordinary item ...............................................                -              0.08
                                                                              ------------      ------------
       Net loss .........................................................     $      (1.85)     $      (0.56)
                                                                              ============      ============
Weighted average number of shares outstanding,
       basic and diluted ................................................        3,140,000         3,221,000
                                                                              ============      ============
</TABLE>


 The accompanying notes are an integral part of these consolidated statements.


                                      F-4

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>

                                                                           Common stock               Treasury stock
                                                                     ------------------------  ---------------------------
                                                                        Number                    Number
                                                                      of shares      Amount     of shares        Amount
                                                                      ----------     -------    ---------        ------
<S>                                                                    <C>           <C>        <C>         <C>
Balance at January 1, 1998 .......................................     3,165,000     $31,650          -     $         -

    Purchase of treasury stock ...................................             -           -     43,000         (73,304)

    Net loss .....................................................             -           -          -
                                                                      ----------     -------    ---------        ------
Balance at December 31, 1998  ....................................     3,165,000      31,650     43,000         (73,304)

    Stock issued in
      legal settlement ...........................................        80,000         800          -               -

    Fair value of stock
      options issued for debt forgiveness ........................             -           -          -               -

    Stock options exercised ......................................       142,500       1,425          -               -

    Net loss .....................................................             -           -          -               -
                                                                      ----------     -------    ---------   -----------
Balance at December 31, 1999  ....................................     3,387,500     $33,875     43,000     $   (73,304)
                                                                      ==========     =======    =========   ===========
<CAPTION>

                                                                                                             Total
                                                                       Additional                        stockholders'
                                                                         paid           Accumulated         equity
                                                                       in capital         deficit          (deficit)
                                                                       ----------         -------          ---------
<S>                                                                    <C>              <C>              <C>
Balance at January 1, 1998 .......................................     $ 5,658,099      $(1,914,510)     $ 3,775,239

    Purchase of treasury stock ...................................               -                -          (73,304)

    Net loss .....................................................               -       (5,795,772)      (5,795,772)
                                                                       -----------      -----------      -----------
Balance at December 31, 1998  ....................................       5,658,099       (7,710,282)      (2,093,837)

    Stock issued in
      legal settlement............................................         479,200                -          480,000

    Fair value of stock
      options issued for debt forgiveness ........................          42,250                -           42,250

    Stock options exercised ......................................          34,200                -           35,625

    Net loss .....................................................               -       (1,789,628)      (1,789,628)
                                                                       -----------      -----------      -----------
Balance at December 31, 1999  ....................................     $ 6,213,749      $(9,499,910)     $(3,325,590)
                                                                       ===========      ===========      ===========
</TABLE>




  The accompanying notes are an integral part of these consolidated statements.


                                      F-5

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                                  Year Ended December 31,
                                                                                                  -----------------------
                                                                                                   1998              1999
                                                                                                   ----              ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                           <C>               <C>
   Net loss ..............................................................................    $ (5,795,772)     $ (1,789,628)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
      Principal payments on note receivable ..............................................       1,776,493         1,276,750
      Borrowings on notes payable related to inventory purchases .........................       2,423,586         1,000,000
      Principal payments on notes payable
        related to inventory purchases....................................................      (4,552,354)       (1,443,417)
      Reduction in amount due on notes payable
        related to inventory purchases in exchange for
        reduction in accounts receivable..................................................      (1,057,573)         (643,788)
      Loss on disposition of property and equipment ......................................         148,666             1,720
      Depreciation and amortization ......................................................         327,606           196,722
      Gain on debt forgiveness............................................................               -          (242,460)
      Changes in assets and liabilities:
           Accounts receivable, net ......................................................       3,107,896        (2,781,004)
           Other receivables .............................................................         147,718            24,499
           Inventories ...................................................................          28,187           347,826
           Prepaid expenses ..............................................................        (185,682)          444,411
           Income tax receivable .........................................................               -           392,979
           Deferred tax asset ............................................................         192,000                 -
           Other assets ..................................................................         150,161          (102,133)
           Accounts payable ..............................................................         238,909          (213,216)
           Accrued liabilities ...........................................................          68,014          (198,492)
           Deferred tax liability ........................................................           8,000                 -
                                                                                              -------------     -------------
             Net cash used in operating activities .......................................      (2,974,145)       (3,729,231)
                                                                                              -------------     -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment ...................................................        (214,841)         (117,146)
   Decrease in restricted cash ...........................................................       1,095,273             8,171
                                                                                              -------------     -------------
            Net cash provided by (used in) investing activities ..........................         880,432          (108,975)
                                                                                              -------------     -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Borrowings on lines of credit .........................................................      31,249,446        22,144,770
   Principal payments on lines of credit .................................................     (28,523,015)      (19,258,327)
   Borrowings on long-term debt ..........................................................               -         1,125,000
   Principal payments of long-term debt ..................................................          (6,916)          (32,343)
   Principal payments of capital lease obligations .......................................         (26,671)          (19,865)
   Checks issued not yet presented for payment ...........................................        (606,045)         (121,029)
   Acquisition of treasury stock .........................................................         (73,304)                -
                                                                                              -------------     -------------
            Net cash provided by financing activities ....................................       2,013,495         3,838,206
                                                                                              -------------     -------------
Net increase (decrease) in cash ..........................................................         (80,218)                -
Cash at beginning of period ..............................................................          80,218                 -
                                                                                              -------------     -------------
Cash at end of period ....................................................................    $          -      $          -
                                                                                              ============      =============
SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid during the period for:
      Interest ...........................................................................    $  2,572,895      $  1,847,897
                                                                                              ============      =============
      Income taxes .......................................................................    $     84,615      $        800
                                                                                              ============      =============
</TABLE>

   Non-cash investing and financing activities:

   During 1999, the Company issued 80,000 shares of its common stock in
   connection with a legal settlement agreed to in 1998 (see Note 8). As a
   result, the Company reduced Other Long Term Liabilities by $480,000,
   increased Common Stock by $800 and Paid in Capital by $479,200.

  The accompanying notes are an integral part of these consolidated statements.


                                      F-6

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS

Aviation Distributors, Inc. ("ADI") and its subsidiary (the "Company")
established operations in 1988, incorporated in the state of California in 1992
and reincorporated in the state of Delaware in 1996. The Company is a supplier,
distributor and broker of commercial aircraft parts and supplies. The Company's
customers are located worldwide.

For the years ended December 31, 1998 and 1999, approximately 57.8% and 48.3%
respectively, of the Company's net sales were export sales. These export sales
by region were approximately as follows:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                -----------------
                                                                 1998       1999
                                                                 ----       ----
<S>                                                              <C>       <C>
Pacific Rim ..................................................   17.9%     10.9%
Europe........................................................   17.5      11.4
Latin/South America...........................................   16.1      18.2
Africa/Middle East............................................    6.3       7.8
                                                                 ----      ----
                                                                 57.8%     48.3%
                                                                 ====      ====
</TABLE>

ACCOUNTING ESTIMATES

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

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary ADI Consignment and Sales, Inc. The
Company's subsidiary is a non-operating entity; therefore, there were no
significant intercompany transactions.

RESTRICTED CASH

Restricted cash at December 31, 1998 consists of short-term certificates of
deposits held as security for letters of credit issued on behalf of the Company
by financial institutions.

INVENTORIES

Inventories, which consist primarily of aircraft parts, are stated at the lower
of cost or market with cost determined on a specific identification or first-in,
first-out basis. Expenditures required for the rectification of parts are
capitalized as inventory cost as incurred and are expensed with cost of sales as
the parts are sold. Inventory received from a vendor in exchange for Company
owned inventory is recorded at the historical cost of the items surrendered,
after any necessary reduction for impairment. Inventory received in settlement
of receivables is recorded at the lower of the receivable balance or the fair
value of the items received.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Depreciation expense is provided using
the straight-line method over the useful lives of the assets, ranging from five
to thirty years. Expenditures for repairs and maintenance are expensed as
incurred. Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. The carrying amounts of assets
sold or retired are removed from their accounts in the year of disposal, and any
resulting gain or loss is reflected in operations.

FINANCIAL INSTRUMENTS

At December 31, 1999 and 1998, the carrying value of the Company's financial
instruments (cash, accounts receivable, notes receivable, lines of credit, other
liabilities due in less than one year and notes payable) approximated their fair
values due to the relatively short maturity of the instruments or because the
interest rates on the instruments are comparable to market rates.


                                      F-7

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  (CONTINUED)


REVENUE RECOGNITION

Sales of aircraft parts are recognized as revenues when the product is shipped
and title has passed to the customer. The Company provides an allowance for
estimated product returns. Distributed services sales represent sales of
aviation parts obtained from outside sources at the point of sale, whereas
inventory sales represent sales from Company owned inventory. Net sales on
consignment and marketing agreements represent revenue related to inventories
owned by others in which the Company has entered into exclusive marketing and/or
consignment agreement to sell the third party parts.

INCOME TAXES

Deferred tax assets and liabilities are recorded for differences between the
financial statement and tax basis of the assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
recorded for the amount of income tax payable or refundable for the period
increased or decreased by the change in deferred tax assets and liabilities
during the period.

BASIC AND DILUTED NET LOSS PER SHARES

Basic net loss per share is based upon the weighted average number of common
shares outstanding. Diluted net loss per share is based on the assumption that
all convertible shares and stock options were converted or exercised, unless
such assumption would be antidilutive. Dilution is computed by applying the
treasury stock method. Under this method, options and warrants are assumed to be
exercised at the beginning of the period (or at the time of issuance, if later),
and as if funds obtained thereby were used to purchase common stock at the
average market price during the period.

STOCK BASED COMPENSATION

The Company accounts for stock-based employee compensation as prescribed by APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and has adopted the
disclosure provisions of Statement of Financial Accounting Standards 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"). SFAS 123 requires pro
forma disclosures of net income and net income per share as if the fair value
based method of accounting for stock-based awards had been applied. Under the
fair value based method, compensation cost is recorded based on the value of the
award at the grant date and is recognized over the service period. See Note 11.

NOTE 2  - REALIZATION OF ASSETS

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company sustained substantial losses in
1998 and 1999; has used, rather than provided, cash in its operations; and has
deficits in working capital and stockholders' equity at December 31, 1998 and
December 31, 1999.

Recoverability of a major portion of the recorded asset amounts shown in the
accompanying balance sheets are dependent upon continued operations of the
Company. This in turn is dependent upon the Company's ability to meet its
financing requirements on a continuing basis, to maintain present financing, and
to succeed in its future operations.

Management has taken steps to revise its operations and financial requirements,
which it believes are sufficient to provide the Company with the ability to
continue in existence. Ongoing expenses have been reduced by salary reductions,
headcount reductions and other cost saving measures implemented. The class
action lawsuits have been settled. Settlement of legal issues will also allow
management to concentrate on managing, improving and expanding the business.

In addition, as described in Note 6 the Company has increased its
availability under its line of credit and extended the loan maturity date.

                                      F-8

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 - NOTES RECEIVABLE:

At December 31, 1998 the Company had a note receivable from a corporation of
$1,276,750, secured by an irrevocable letter of credit, due in monthly
installments of $166,250 (principal and interest) to August 1999 with an
interest rate of 9.5% (see Note 7). The note receivable and related payable were
collected and paid, respectively, during 1999.

NOTE 4 - NOTES RECEIVABLE FROM FOUNDER:

Mr. Osamah S. Bakhit is the founder of the Company and is currently a consultant
for the Company. The Company loaned $328,718 to Mr. Bakhit in December 1995 and
$80,000 in December 1996. The loans are in the form of notes, bearing interest
at 6 percent, payable in quarterly installments aggregating $102,180. Interest
on the notes has been satisfied through December 1999 through a reduction in a
vacation liability due to Mr. Bakhit; the Board of Directors of the Company has
approved the deferral of principal and additional interest payments to December
31, 2000.

NOTE 5 - PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>

Property and equipment, at cost, consists of the following:                               DECEMBER 31,
                                                                                 -----------------------------
                                                                                     1998               1999
                                                                                     ----               ----
<S>                                                                              <C>                <C>
Computer equipment and software.............................................     $   321,495        $   402,624
Furniture and fixtures......................................................         369,318            369,752
Leasehold improvements......................................................         164,910            107,740
Machinery and equipment.....................................................         100,448            100,448
Autos.......................................................................          45,451             35,601
                                                                                 -----------        -----------
                                                                                 $ 1,001,622        $ 1,016,165
                                                                                 ===========        ===========
</TABLE>


NOTE 6 - LINE OF CREDIT:

At December 31, 1999, the Company's Credit Facility provided for working capital
loans of up to the lesser of $21,000,000 (facility amount) or the advance rate
against qualified accounts receivable and inventory, with interest at the GMAC
Commercial Credit LLC, successor in interest to BNY Financial Corporation
(GMAC), Alternate Base Rate (8.5 percent at December 31, 1999) plus one percent.
The borrowing rate is subject to a premium of 0.5% per annum when the facility
is over advanced and a premium of 2.0% per annum when the Company is out of
covenant compliance. The terms of the credit agreement provide for a facility
non-use fee of 0.5% per annum of the difference between the facility amount and
the average monthly balance. GMAC has a fully perfected security interest
against all assets of the Company, except restricted cash, in addition to a
personal guarantee from and pledge of 1,000,000 shares of common stock owned by
the Company's founder. The Credit Facility matures on December 15, 2002. The
credit facility has general financial covenants related to the Company's
financial condition. At December 31, 1999, the Company was not in compliance
with certain covenants. The Company has received a waiver for the non-compliance
that sets forth revised tangible net worth, operating ratios, capital
expenditure and working capital requirements for each quarter of the year ending
December 31, 2000.

In October 1998, the Company assigned all tax refunds from governmental agencies
to GMAC as a pledge of additional collateral and issued 126,600 warrants to BNY
to purchase common stock of the Company at $2.50 per share, expiring on October
31, 2003. In February 1999, the Company reduced the exercise price of the
warrants from $2.50 to $1.00 per share.

On February 23, 2000 the Company amended its Credit Facility with GMAC to extend
the loan maturity date to December 1, 2010. Additionally, the 126,600 warrants
previously issued to GMAC were increased to provide GMAC with warrants equal to
9.9% of the outstanding stock of the Company or approximately 335,362 warrants.
The exercise price of the previously issued warrants was reduced from $1.00 to
$0.25 per share. The additional 208,762 warrants were issued at an exercise
price of $0.25 per share. The total warrants issued to GMAC expire on February
28, 2010.


                                      F-9

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The fair value of the new warrants and the repriced warrants issued to GMAC,
estimated at approximately $510,000, will be amortized to interest expense
beginning in 2000.

As a condition for the extension of the credit facility, the Company entered
into a $2,000,000 promissory note, due in a balloon payment on the earlier of
February 1, 2010 or if the Company's stock reaches a $6 per share value over
10 consecutive days or the occurrence of one of several other events, none of
which have occurred. The $2,000,000 will be amortized to interest expense
beginning in 2000. The note bears interest at GMAC's Alternate Base Rate and
interest is payable semi-annually.

Subsequent to December 31, 1999, the Company obtained an additional
$3,800,000 increase in its credit facility to finance the purchase of
inventory.

NOTE 7 - LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                                                                       DECEMBER 31,
                                                                                           ----------------------------------
                                                                                                1998                 1999
                                                                                                ----                 ----
<S>                                                                                        <C>                    <C>
Note payable to a financial institution, principal due in quarterly installments
  of $125,000 beginning December 2000, interest due monthly beginning January
  2000, secured by the assets of the Company, with an interest rate equal to the
  GMAC Alternate Base Rate plus two percent............................................    $             -        $ 1,000,000

Non-interest bearing note payable to a corporation, secured by specific
  inventory, due in monthly installments of $166,667 beginning December 1999,
  with the final $333,333 due March 31, 2000. The final payment on the note was
  not paid on March 31, 2000. The Company and the vendor are currently
  negotiating the payment terms, which have not yet been finalized.....................                  -            833,333

Note payable to a related party, unsecured, originally due February 2000, with
  an interest rate of 6%; the maturity date was extended to February 2001
  after December 31, 1999..............................................................                  -            100,000

Note payable to a financial institution, due in monthly installments of $166,250
  (principal and interest) to August 1999, secured by a note receivable (see Note 3),
  with an interest rate of 9.5 percent..................................................         1,276,750                  -

Non-interest bearing note payable to a corporation, secured by specific
  inventory, with an imputed interest rate of 9.5 percent, net of discount of
  $79,343 at December 31, 1998. Amounts owed under this note are payable in
  November 1999. The Company settled these amounts in 1999 by offsetting amounts
  due against certain accounts receivable owed to the Company by the corporation........           626,277                  -

Note payable to a corporation, secured by an automobile, due in monthly installments
  of $485, (principal and interest) to July 2001, with an interest rate of 8.15
  percent...............................................................................            13,511              9,038

Note payable to a corporation, secured by equipment, due in monthly installments
  of $347 (principal and interest) to February 2000, with an interest rate of 24
  percent...............................................................................             4,191              1,321
                                                                                             -------------        -----------
                                                                                                 1,920,729          1,943,692
Less - Current portion..................................................................         1,911,057            965,388
                                                                                             -------------        -----------
                                                                                             $       9,672        $   978,304
                                                                                             =============        ===========
</TABLE>


                                      F-10

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Future annual principal payments on long-term debt at December 31, 1999 are as
follows:

<TABLE>
<CAPTION>

                                YEAR ENDING
                                DECEMBER 31,
                                ------------
<S>                                                                                <C>
                                    2000.........................................  $    965,388
                                    2001.........................................       603,304
                                    2002.........................................       375,000
                                                                                   -------------
                                                                                   $  1,943,692
                                                                                   ============
</TABLE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES:

The Company leases equipment and facilities under noncancelable operating and
capital leases. As of December 31, 1999, the annual minimum lease commitments
are:

<TABLE>
<CAPTION>

                      YEAR ENDING
                      DECEMBER 31,                                 CAPITAL      OPERATING
                      ------------                                 -------      ---------
<S>                                                                <C>         <C>
                      2000..................................       $13,718     $   419,652
                      2001..................................        10,893         435,674
                      2002..................................         9,804         424,509
                      2003..................................           716         433,295
                      2004..................................             -         451,873
                      Thereafter............................             -          75,566
                                                                   --------     ----------
                                                                    35,131      $2,240,569
                                                                                ==========

                      Less - Amount representing interest..          5,876
                                                                   -------
                                                                    29,255
                      Less - Current portion...............          9,828
                                                                     -----
                                                                   $19,427
                                                                   =======
</TABLE>


Rent expense for the years ended December 31, 1998 and 1999 was $449,697 and
$376,423, respectively.

The Company neither manufacturers nor repairs aircraft parts and requires that
all of the parts that it sells are properly documented and traceable to their
original source. Although the Company has never been subject to product
liability claims, there is no guarantee that the Company would not be subject to
liability from its potential exposure relating to faulty aircraft parts in the
future. The Company maintains liability insurance to protect from such claims,
but there can be no assurance that such coverage will be adequate to fully
protect the Company from any liabilities it might incur. A loss above the
Company's policy limit could have a material adverse effect upon the Company's
financial condition.

EMPLOYMENT CONTRACTS

The Company has contracts with certain key employees and the Company's founder.
The contracts provide for all normal employee benefits, incentive compensation
under the Executive Incentive Compensation Plan and options to purchase shares
of common stock at an option price ranging from $0.25 to $5 per share. The
agreements expire from December 31, 2001 to December 31, 2002. All but one
contract will automatically renew for additional terms ranging from three to
five years unless cancelled upon 90 days written notice.

CLASS ACTION LAWSUITS AND GOVERNMENT INVESTIGATIONS

In August 1997, the Company's former independent auditors withdrew their
previously issued reports on the Company's financial statements for the years
ended December 31, 1994, 1995 and 1996 and the six months ended June 30, 1996
and resigned as the Company's auditors. These actions were the result of their
investigation of allegations regarding certain of the Company's accounting and
financing practices. The lack of required financial information resulted in the
subsequent halt in trading and delisting of the Company's common stock on the
Nasdaq SmallCap market in September 1997.


                                      F-11

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In October 1997, three separate class action lawsuits were filed against the
Company, its founder, directors and certain current and former officers and
directors, and others. In February 1998, a motion was approved to consolidate
all three class action lawsuits in Federal court.

In April 1998, the Company entered into a settlement in principle, which is
memorialized in a Memorandum of Understanding (the M.O.U.), with counsel for the
plaintiffs to settle the suits. Terms of the settlement included cash
consideration of $740,000 and 210,000 shares of the Company's common stock, of
which the Company will issue 80,000 shares and the Company's founder, Osamah S.
Bakhit, contributed 130,000 shares. The Company recorded a legal settlement
expense for the year ended December 31, 1997 of $620,000, of which $480,000 was
attributable to the expected issuance of 80,000 shares of common stock and
$140,000 of which represented the Company's portion of the cash consideration.
The Federal Court approved this settlement agreement on March 15, 1999 and the
80,000 shares of common stock were issued to the plaintiffs in 1999.

Both a Federal grand jury and the Securities and Exchange Commission have
commenced investigations into the allegations referred to above. The
investigations are continuing and the Company is unable, at this time, to
evaluate the possible outcome of the investigations or their impact on the
Company.

NOTE 9 - CREDIT RISK AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Substantially all of the Company's sales are to airlines, other aircraft
operators and other aircraft parts suppliers. Credit risk with respect to trade
accounts receivable is generally diversified due to the large number of
customers and their dispersion worldwide. The Company also performs credit
evaluations on its customers throughout the year.

The Company distributes products in the United States and abroad to commercial
airlines, air cargo carriers, distributors, maintenance facilities and other
aerospace companies. The Company's credit risk consists of accounts receivable
denominated in U.S. dollars from customers in the aircraft industry. The Company
performs periodic credit evaluations of its customers' financial condition and
provides an allowance for doubtful accounts as required. The Company has
purchased insurance to reduce the risk of collection of a portion of amounts
receivable from qualifying foreign customers. The Company, at times, offers
extended payments terms.

For the years ended December 31, 1998 and 1999, activity with respect to the
Company's allowance for doubtful accounts is summarized as follows:

<TABLE>
<CAPTION>

                  YEAR ENDING DECEMBER 31,                               1998             1999
                  ------------------------                               ----             ----
<S>                                                                  <C>               <C>
                  Beginning balance............................      $ 300,000         $  620,000
                  Charged to expense...........................        828,504            214,976
                  Amounts written off..........................       (508,504)          (584,976)
                                                                     ---------         -----------
                  Ending balance...............................      $ 620,000         $  250,000
                                                                     =========         ==========
</TABLE>


                                      F-12

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 - INCOME TAXES:

The components of the provision (benefit) for income taxes consist of the
following:

<TABLE>
<CAPTION>

                                                                           1998           1999
                                                                           ----           ----
<S>                                                                     <C>             <C>
                  Current:
                     Federal.........................................   $  50,000       $(44,402)
                     State...........................................      37,000        (38,475)
                                                                        ---------       --------
                                                                           87,000        (82,877)
                                                                        ---------       --------
                   Deferred:
                     Federal.........................................     159,000              -
                     State...........................................      41,000              -
                                                                        ---------       --------
                                                                          200,000              -
                                                                        ---------       --------
                                                                        $ 287,000       $(82,877)
                                                                        =========       ========
</TABLE>

The reconciliation of income tax expense computed at the U.S. Federal statutory
rate to income tax expense is as follows:


<TABLE>
<CAPTION>

                                                                              1998            1999
                                                                              ----            ----
<S>                                                                      <C>               <C>
                  Tax at U.S. Federal statutory rates................    $ (1,873,000)     $ (636,653)
                  State income taxes, net of federal effect..........        (331,000)       (114,223)
                  Change in valuation allowance......................       2,310,000         694,397
                  Permanent differences..............................          20,000          47,926
                  Other, net.........................................         161,000         (74,324)
                                                                         ------------       ---------
                                                                            $ 287,000       $ (82,877)
                                                                            =========       =========
</TABLE>

Deferred income taxes arise as a result of differences in the methods used to
determine income for financial reporting versus income for tax reporting
purposes. Significant components of the Company's deferred tax assets and
liabilities are as follows:

<TABLE>
<CAPTION>

                                                                           1998             1999
                                                                           ----             ----
<S>                                                                    <C>              <C>
                  Depreciation.......................................  $  (101,000)     $ (101,000)
                                                                        ----------      ----------
                    Gross deferred tax liabilities...................     (101,000)       (101,000)
                                                                        ----------      ----------
                  Inventory reserve..................................       59,000          87,000
                  Allowance for doubtful accounts....................      249,000         107,000
                  Operating accruals and capitalized inventory costs.      252,000         342,000
                  Legal settlement...................................      256,000               -
                  Net operating loss carryforwards...................    2,218,000       3,175,000
                                                                        ----------      ----------
                    Gross deferred tax assets........................    3,034,000       3,711,000
                                                                        ----------      ----------
                    Deferred tax assets valuation allowance..........   (2,933,000)      3,610,000
                                                                        ----------      ----------
                                                                       $         -      $       -
                                                                       ===========      =========
</TABLE>


The Company has federal and state net operating loss carryforwards of
approximately $2,835,000 and $340,000, respectively, which expire between years
2001 and 2014.


                                      F-13

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11 - STOCK BASED COMPENSATION PLANS

In July 1996 the Company adopted the Aviation Distributors, Inc. 1996 Stock
Option and Incentive Plan (the "Plan"). This plan provides for the granting
of incentive or non-qualified stock options to employees, non-employee
directors and independent contractors at the sole discretion of the board of
directors. Stock appreciation rights, as defined, may accompany options
issued under the Plan. Additionally, the Plan provides for the issuance of
restricted stock, dividend equivalents and other stock and cash based awards
and loans to participants in connection with the options or other plan
provisions at the discretion of the board of directors. Options currently
outstanding become exercisable in zero to four years from the grant date and
expire 10 years after the grant date. The options are exercisable at not less
than the market value of the Company's stock on the date of the grant. The
initial number of shares available under the Plan for issuance was 264,500. A
total of 932,500 non-qualified options have been granted outside the Plan
since the Plan's inception. The board of directors has approved an amendment
to the Plan to increase the allowable shares under the Plan to 1,000,000
shares, subject to shareholder approval at the annual shareholders meeting
during 2000.

Stock option activity for years ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>

                                                                                   NUMBER    WEIGHTED AVERAGE
                                                                                  OF SHARES   EXERCISE PRICE
                                                                                  ---------   --------------
<S>                                                                               <C>            <C>
                  Outstanding at December 31, 1997............................      163,400       $ 5.00
                  Granted.....................................................       80,000         5.00
                  Forfeited...................................................      (12,700)        5.00
                                                                                 ----------       ------
                  Outstanding at December 31, 1998............................      230,700         5.00
                  Granted.....................................................    1,619,000         0.85
                  Exercised...................................................     (142,500)        0.25
                  Forfeited...................................................      (33,650)        5.00
                                                                                 ----------       ------
                  Outstanding at December 31, 1999............................    1,673,550       $ 1.39
                                                                                 ==========       ======
</TABLE>

<TABLE>
<CAPTION>

                                                                                      1998        1999
                                                                                      ----        ----
<S>                                                                               <C>            <C>
                  Number of options exercisable at year end..................        97,542      475,964
                  Weighted average exercise price of options
                       exercisable at year end...............................        $ 5.00       $ 1.51
                  Weighted average fair value of options granted
                       during the year.......................................        $ 2.13       $ 0.60
</TABLE>


The fair value of each option grant is estimated on the date of grant using the
Black Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999 and 1998, respectively: dividend yield of 0
percent for all years; expected volatility of 133 and 52 percent; risk-free
interest rates of 6.0 and 5.5 percent; and expected lives of one to nine years.

During 1999, the Company issued 142,500 options to non-employees at an exercise
price of $0.25. All of these options were exercised in 1999. The options issued
to non-employees are included in the above stock option table, but excluded from
the calculation of pro forma compensation expense below.


                                      F-14

<PAGE>

                           AVIATION DISTRIBUTORS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Additional information regarding options outstanding at December 31, 1999 is as
follows:

<TABLE>
<CAPTION>

                                           Options Outstanding                 Options Exercisable
                                -------------------------------------------   ---------------------------
                                                Weighted        Weighted                      Weighted
                                   Number        Average         Average         Number        Average
                                Outstanding   Remaining Life  Exercise Price   Exercisable  Exercise Price
                                -----------  --------------- ---------------  ------------ --------------
<S>                              <C>         <C>             <C>              <C>          <C>
         $ 0.25                    350,000           10.0         $ 0.25      350,000       $ 0.25
         $ 1.00 -   $ 1.22       1,126,500            9.7           1.12            -            -
         $ 5.00                    197,050            7.4           5.00      125,964         5.00
                                -----------  ------------ -------------- ------------  -----------
                                 1,673,550            9.5         $ 1.39      475,964       $ 1.51
                                ===========  ============ ============== ============  ===========
</TABLE>


Had compensation cost been determined based on the basis of fair value pursuant
to Statement of Financial Accounting Standards 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION (SFAS 123), the Company's net loss and loss per share would have
been increased to the pro forma amounts indicated below.

<TABLE>
<CAPTION>

                                                     Year Ended December 31,
                                                     -----------------------
                                                      1999             1998
                                                      ----             ----
<S>                                               <C>              <C>
         Net loss
               As reported                        $ 1,789,628      $ 5,795,722
               Pro forma                          $ 2,095,011      $ 5,891,850

         Diluted loss per share
               As reported                             $ 0.56           $ 1.85
               Pro forma                               $ 0.65           $ 1.88
</TABLE>

NOTE 12 - EXTRAORDINARY ITEM

During 1999, the Company negotiated a reduction in payables to certain vendors.
Three of the vendors either were granted stock options or warrants (total of
182,500) in connection with the forgiveness of the payables. The Company
recorded an extraordinary gain in connection with this debt forgiveness of
$242,460 which is net of the value of the options/warrants issued to the vendors
($42,250), as determined by the Black Scholes Option - Pricing Model.


                                      F-15

<PAGE>

                           AVIATION DISTRIBUTORS, INC.


                                    PART III


ITEM 8.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

<TABLE>
<CAPTION>

EXECUTIVE                          AGE                            TITLE
---------                          ---                            -----
<S>                                <C>   <C>
William D. King                       58 Chief Executive Officer, Chairman and Director
Gary L. Joslin                        62 Chief Financial Officer and Director
Osamah S. Bakhit                      50 Founder, Marketing and Sales Advisor
Jeffrey G. Ward                       40 Executive Vice President
Bruce H. Haglund                      48 Secretary, Director, Chairman of the Audit Committee
John B. Jacobs                        35 Senior Vice President
William T. Walker, Jr.                68 Director and Member of the Audit Committee
Saleem S. Naber                       70 Director
</TABLE>


WILLIAM D. KING, CHIEF EXECUTIVE OFFICER, CHAIRMAN AND DIRECTOR. Mr. King
became Chief Executive Officer, Chairman and a Director of the Company in
January 2000. Prior to his involvement with the Company, Mr. King held
various executive positions from 1969 to 1994, when he retired as President
of Electrical and Mechanical groups of JWP, Inc. Mr. King holds an MBA from
Harvard University's Graduate School of Business Administration and a
Bachelor of Science degree from the University of North Carolina. Mr. King is
also a member of the Executive Committee of the Company.

GARY L. JOSLIN, CHIEF FINANCIAL OFFICER AND DIRECTOR. Mr. Joslin, who became
Chief Financial Officer and Director in April 1998, served as a management and
financial consultant prior to joining ADI. Previously, he served as a senior
financial executive in the wholesale and retail segments of the building
materials and equipment industry for companies ranging in size from $70 million
to $450 million, including Prime Source, Inc. He also served in numerous
financial positions with Wickes Companies, a multi-billion-dollar conglomerate
involved in retailing, wholesaling, and manufacturing. Mr. Joslin holds a
Bachelor of Science degree in Accounting from California State University - Long
Beach and is a licensed CPA. Mr. Joslin is also a member of the Executive
Committee of the Company.

OSAMAH S. BAKHIT, MARKETING AND SALES ADVISOR. Mr. Bakhit, the founder of the
Company, was Chief Executive Officer, President, Chairman and a Director of the
Company from its inception until his resignation as an officer and Director of
the Company in November 1997. He is no longer an executive officer of the
Company, but consults with the Company on a full-time basis as a marketing and
sales advisor. Mr. Bakhit has over 16 years of aircraft experience. Prior to
forming the Company in 1988, Mr. Bakhit was CEO of Bakhit Enterprises, a company
that purchased heavy construction vehicles and material for General Enterprise
Company. Mr. Bakhit worked for General Enterprise Company in Amman, Jordan,
where he managed overall construction operations. His duties included
supervising the construction of Queen Alia International Airport in Jordan. Mr.
Bakhit attended the University of California, Irvine.

JEFFREY G. WARD, EXECUTIVE VICE PRESIDENT. Mr. Ward has over 16 years of
aircraft experience and currently oversees and lends leadership to the extensive
sales team at ADI. Prior to joining the Company in 1993, Mr. Ward was a sales
representative for System Industries. He was a sales consultant to the aerospace
industry with key accounts including the U.S. military and major aerospace
manufacturers. Prior to System Industries, Mr. Ward was a sales representative
for Eastman Kodak Company. Mr. Ward also served in the United States Marine
Corps for seven years as a naval aviator. Mr. Ward has a B.A. in Economics and
German from the University of Virginia.

BRUCE H. HAGLUND, SECRETARY AND DIRECTOR. Mr. Haglund has served as General
Counsel of the Company since 1992 and has served as Secretary and a director of
the Company from June 1996 to present. He has served as a Director of the
Company since 1989. Mr. Haglund is a principal in the law firm of Gibson,
Haglund & Paulsen in Orange County, California where he has been engaged in the
private practice of law since 1980. He is also a member of the Boards of
Directors of Metalclad Corporation, HydroMaid International, Inc., Renaissance
Golf Products, Inc. and VitriSeal, Inc. Mr. Haglund has a J.D. from the
University of Utah College of Law. Mr. Haglund is also the Chairman of the Audit
Committee of the Board and a member of the Executive Committee of the Company.


                                       11

<PAGE>

JOHN B. JACOBS, SENIOR VICE PRESIDENT. Mr. Jacobs has over 11 years of
management experience in aircraft material sales and leasing. Prior to joining
the Company in July 1999, he was vice president of Airmotive, Inc., an
international aircraft parts redistributor, where he held various sales
positions for over nine years. He has been active in the aircraft industry since
1988. Mr. Jacobs oversees sales, marketing and operations for the company. Mr.
Jacobs holds a Bachelor of Arts degree in International Marketing and Management
from California State University, Fullerton.

WILLIAM T. WALKER, JR., DIRECTOR. Mr. Walker became a director of the Company in
March 1997. Mr. Walker founded Walker Associates, a corporate finance consulting
firm for investment banking, in 1985 and has participated in or been
instrumental in completing over $250 million in public and private offerings
since its inception. Prior to forming Walker Associates, Mr. Walker served as
executive Vice President, Manager of Investment Banking, Member of the Board and
Executive Committee and Chairman of the Underwriting Committee for Bateman
Eichler Hill Richards, a New York Stock Exchange Member firm. Mr. Walker is also
a member of the Board of Directors of Fortune Petroleum Corporation and
Go-Video, Inc., both public companies traded on the American Stock Exchange. Mr.
Walker attended Stanford University. Mr. Walker is also a member of the Audit
Committee of the Board.

SALEEM S. NABER, DIRECTOR. Mr. Naber, who became Chief Executive Officer,
President and a Director of the Company in April 1998. Mr. Naber resigned as an
officer of the Company in January 2000 and is now exclusively a Director of the
Company. Mr. Naber has over 40 years of experience in the aerospace industry,
primarily with Lucas Aerospace and Western Gear Corporation, acquired by Lucas
in 1988. His responsibilities with Lucas ranged from Design Engineer of
Precision Products to President of Lucas Western, Inc., the $400 million U.S.
division of Lucas. Mr. Naber's most recent post before joining the Company was
Managing Director of Lucas Aerospace, Aircraft Systems Division, the position he
held when he resigned in 1996. Mr. Naber received a Bachelor of Science degree
in Electrical Engineering from the University of California - Berkeley and
pursued post-graduate courses at the University of Southern California and the
University of California, Los Angeles. Mr. Naber is also a member of the Audit
Committee.


COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT

Section 16 (a) of the Securities Exchange Act requires the Company's officers,
Directors, and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the SEC and NASDA. Officers, Directors, and greater than 10%
beneficial owners are required by SEC regulation to furnish the Company with
copies of all Section 16 (a) forms they file. The Company believes that all
filing requirements were complied with applicable to its Officers, Directors,
and greater than 10% beneficial owners.

ITEM 9.  EXECUTIVE COMPENSATION

The Company incorporates herein by reference the information concerning
executive compensation contained in the 1999 Proxy Statement.


ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Company incorporates herein by reference the information concerning security
ownership of certain beneficial owners and management contained in the 1999
Proxy Statement.

ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company incorporates herein by reference the information concerning certain
relationships and related transactions contained in the 1999 Proxy Statement.

                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   The following documents are filed as part of this report on Form 10-KSB:

         1. Financial Statements for the periods ended December 31, 1998 and
1999:

                           Independent Auditors' Reports


                                       12

<PAGE>

                           Balance Sheets
                           Statements of Operations
                           Statements of Stockholders' Equity
                           Statements of Cash Flows
                           Notes to Financial Statements

         2.  Exhibits

The following exhibits are being filed with this Annual Report on Form 10-KSB
and/or are incorporated by reference therein in accordance with the designated
footnote references:

<TABLE>
<CAPTION>

<S>      <C>
          3.1 Amended and Restated Certificate of Incorporation of the Registrant. (1)
          3.2 Bylaws, as amended, of the Registrant. (1)
          3.3 Amendment to Amended and Restated Certificate of Incorporation of the Registrant. (1)
          4.1 Specimen Common Stock Certificate. (1)
          9.1 Voting Trust Agreement, dated November 17, 1997, by and among Osamah Bakhit, Aviation Distributors, Inc.,
              and Dirk O. Julander, as trustee. (2)
         10.2 1996 Stock Option and Incentive Plan. (1)
         10.3 Aircraft Purchase Agreement, dated August 8, 1995, by and between Alia The Royal Jordanian Airlines and
              Aviation Distributors, Inc. (1)
         10.4 Credit and Security Agreement, dated June 25, 1997, by and between Aviation Distributors, Inc. and BNY
              Financial Corporation. (3)
         10.5 Amendment dated December 15, 1999 between the Company and GMAC Commercial Credit LLC to June 25, 1997 Credit and
              Security Agreement between the Company and BNY Financial Corporation, including related Common Stock Purchase
              Warrant for 335,362 shares dated February 28, 2000 issued to GMAC Commercial Credit LLC.
         10.6 Amended and Restated Employment Agreement, dated as of July 16, 1996, by and between Osamah S. Bakhit and
              Aviation Distributors, Inc. (1)
         10.7 Employment Agreement, dated as of January 5, 2000, by and between William D. King and Aviation
              Distributors, Inc.
         10.8 Employment Agreement, dated as of July 16, 1996, by and between Jeffrey G. Ward and Aviation
              Distributors, Inc. (1)
         10.9 Amendment to Employment Agreement, dated November 17, 1997, by and between Osamah S. Bakhit and Aviation
              Distributors, Inc. (3)
        10.10 Amendment to Employment Agreement, dated November 17, 1997, by and between Mark W. Ashton and Aviation
              Distributors, Inc. (3)
        10.11 Lease, dated as of July 9, 1997, by and between Olen Properties Corp. and Aviation Distributors, Inc. (3)
        10.12 Amended and Restated Promissory Note from Osamah S. Bakhit to Aviation Distributors, Inc., dated as of
              December 31, 1995. (1)
        10.13 Settlement Agreement dated as of November 1, 1996. (1)
        10.14 Form of Indemnity Agreement. (1)
        10.15 Promissory Note between Aviation Distributors, Inc. and Osamah S. Bakhit, dated December 31, 1996. (1)
        10.16 Employment Agreement dated as of June 1, 1998 by and between Gary L. Joslin and Aviation Distributors, Inc.
</TABLE>


               (1)  Filed with the Company's Registration Statement on Form SB-2
                    dated March 3, 1997.
               (2)  Filed with the Company's Current Report on Form 8-K dated
                    August 29, 1997.
               (3)  Filed with the Company's Form 10-KSB dated April 20, 1998.

(b)      Reports on Form 8-K.

                  None


                                       13

<PAGE>

                            SUPPLEMENTAL INFORMATION

An annual report and an information statement shall be furnished to the security
holders of the Company subsequent to the filing of this Form 10-KSB. The Company
shall furnish copies of the annual report to security holders and the proxy
statement to the Securities and Exchange Commission when it is sent to the
security holder.


                                       14

<PAGE>

                                   SIGNATURES

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

                                          AVIATION DISTRIBUTORS, INC.

                                          By:     /s/ William D. King
                                              ----------------------------------
                                                  William D. King
                                                  Chief Executive Officer
Date:  April 11, 2000

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

Signatures                                   Title                                      Date
----------                                   -----                                      ----
<S>                                         <C>                                       <C>
         /s/ William D. King                Chief Executive Officer                   April 11, 2000
---------------------------------           Chairman and Director
           William D. King                  (Principal Executive Officer)


         /s/ Gary L. Joslin                 Chief Financial Officer                   April 11, 2000
---------------------------------           and Director (Principal
           Gary L. Joslin                   Accounting Officer)


         /s/ Bruce H. Haglund               Director                                  April 11, 2000
---------------------------------
           Bruce H. Haglund
</TABLE>


                                       15