<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-QSB

(Mark One)

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities 
     Exchange Act of 1934

                For the quarterly period ended March 31, 1998

[ ]  Transition report under Section 13 or 15(d) of the Securities Exchange
     Act of 1934

For the transition period from ____________ to ____________

Commission file number:     0-10124
                            -------


                              AVIATION GROUP, INC.
        (Exact name of Small Business Issuer as specified in its charter)


                   TEXAS                              75-2631373
     (State or Other Jurisdiction of               (I.R.S. Employer
      Incorporation or Organization)              Identification No.)


                             700 NORTH PEARL STREET
                                   SUITE 2170
                               DALLAS, TEXAS 75201
                    (Address of Principal Executive Offices)

                                  214/922-8100
                           (Issuer's Telephone Number)

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]


                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

        State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.

3,257,992 shares of Common Stock were outstanding as of May 1, 1998.

Transitional Small Business Disclosure Format (check one):

Yes [ ] No [X]




<PAGE>   2
                         PART I - FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS.

                      AVIATION GROUP, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        March 31,         June 30,
                                                                          1998              1997
                                                                      ------------      ------------
<S>                                                                   <C>               <C>         
ASSETS
Current Assets
     Cash and cash equivalents                                        $  2,224,000      $    188,000
     Accounts receivable, net                                            1,330,000           796,000
Inventory                                                                1,352,000           240,000
     Deferred income taxes                                                  20,000            40,000
     Prepaid expenses and other                                            469,000           710,000
                                                                      ------------      ------------
         Total Current Assets                                            5,395,000         1,974,000
                                                                      ------------      ------------

Property and equipment                                                   5,651,000         2,903,000
Less: accumulated depreciation                                          (1,057,000)         (583,000)
                                                                      ------------      ------------
                                                                         4,594,000         2,320,000
                                                                      ------------      ------------

Goodwill, net                                                            2,798,000           752,000
Other                                                                      315,000            65,000
                                                                      ------------      ------------
                                                                         3,113,000           817,000
                                                                      ------------      ------------
Total Assets                                                          $ 13,102,000      $  5,111,000
                                                                      ============      ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
     Current maturities of long-term obligations                      $    587,000      $    502,000
     Bridge notes                                                               --           436,000
     Other short-term borrowings                                           851,000           256,000
     Accounts payable                                                      988,000           769,000
     Accrued liabilities                                                 1,547,000           527,000
                                                                      ------------      ------------
         Total Current Liabilities                                       3,973,000         2,490,000
                                                                      ------------      ------------

Long-Term Liabilities
     Long-term debt, net of current maturities                           1,115,000         1,292,000
     Deferred income taxes                                                 352,000           100,000
                                                                      ------------      ------------
         Total Long-Term Liabilities                                     1,467,000         1,392,000
                                                                      ------------      ------------

Total Liabilities                                                        5,440,000         3,882,000
                                                                      ------------      ------------

Commitments and Contingencies

Shareholders' Equity
     Preferred Stock, $.01 par value, 5,000,000
         shares authorized, none outstanding                                    --                --
     Common Stock, $.01 per value, 10,000,000 shares
         authorized, 3,257,992 and 1,600,250 shares
         issued and outstanding                                             33,000            16,000
     Additional paid-in capital                                          8,924,000         1,951,000
     Retained earnings (deficit)                                        (1,295,000)         (738,000)
                                                                      ------------      ------------
         Total Shareholders' Equity                                      7,662,000         1,229,000
                                                                      ------------      ------------

Total Liabilities and Shareholders' Equity                            $ 13,102,000      $  5,111,000
                                                                      ============      ============
</TABLE>


        The accompanying notes are an integral part of these statements.


                                      -1-

<PAGE>   3
                      AVIATION GROUP, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  Three Months Ended                  Nine Months Ended
                                                                       March 31,                           March 31,
                                                            ------------------------------      ------------------------------
                                                                1998              1997              1998              1997
                                                            ------------      ------------      ------------      ------------
<S>                                                         <C>               <C>               <C>               <C>         
Revenue                                                     $  4,928,000      $  2,437,000      $ 14,150,000      $  6,664,000

Cost of Revenue                                                3,542,000         2,299,000        10,785,000         5,295,000
                                                            ------------      ------------      ------------      ------------

   Gross Profit                                                1,386,000           138,000         3,365,000         1,369,000
                                                            ------------      ------------      ------------      ------------

General and Administrative Expenses                            1,136,000           103,000         3,411,000         1,422,000
Depreciation and Amortization                                    201,000           100,000           531,000           291,000
                                                            ------------      ------------      ------------      ------------
                                                               1,337,000           203,000         3,942,000         1,713,000
                                                            ------------      ------------      ------------      ------------

   Income (Loss) From Operations                                  49,000           (65,000)         (577,000)         (344,000)
                                                            ------------      ------------      ------------      ------------

Other Income (Expenses)
   Other Income (Expense)                                          4,000             8,000            19,000                --
   Interest Expense, net                                         (37,000)          (95,000)         (227,000)         (153,000)
                                                            ------------      ------------      ------------      ------------
                                                                 (33,000)          (87,000)         (208,000)         (153,000)
                                                            ------------      ------------      ------------      ------------

Income (Loss) Before Provision for Income Taxes                   16,000          (152,000)         (785,000)         (497,000)

Provision (Benefit) for Income Taxes                              14,000           (45,000)         (228,000)         (164,000)
                                                            ------------      ------------      ------------      ------------

Net Income (Loss)                                           $      2,000      $   (107,000)     $   (557,000)     $   (333,000)
                                                            ============      ============      ============      ============


Earnings (loss) per common share

       Basic                                                $       0.00      $      (0.06)     $      (0.18)     $      (0.18)
                                                            ============      ============      ============      ============

       Diluted                                              $       0.00      $      (0.06)     $      (0.18)     $      (0.18)
                                                            ============      ============      ============      ============


Weighted average shares outstanding

       Basic                                                   3,191,265         1,812,859         3,014,757         1,812,859
                                                            ============      ============      ============      ============

       Diluted                                                 3,191,265         1,812,859         3,058,261         1,812,859
                                                            ============      ============      ============      ============
</TABLE>


        The accompanying notes are an integral part of these statements.

                                      -2-
<PAGE>   4


                      AVIATION GROUP, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              For the Nine Months Ended March 31,
                                                                              -----------------------------------
                                                                                    1998              1997
                                                                                ------------      ------------
<S>                                                                             <C>               <C>          
Cash Flows From Operating Activities:
Net Income (Loss)                                                               $   (557,000)     $   (333,000)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating Activities:
   Depreciation and amortization                                                     531,000           291,000
   Accreted interest                                                                  64,000                --
   Deferred income taxes                                                            (208,000)           10,000
   (Increase) decrease in accounts receivable                                        171,000           (11,000)
   (Increase) decrease in inventories                                               (365,000)         (106,000)
   (Increase) decrease in prepaids and other current assets                         (149,000)          (39,000)
   Increase (decrease) in accounts payable                                          (116,000)           37,000
   Increase (decrease) in accrued liabilities                                        516,000            56,000
   Other                                                                            (250,000)         (343,000)
                                                                                ------------      ------------
   Total Adjustments                                                                 194,000          (105,000)
                                                                                ------------      ------------
Net Cash Provided (Used) by Operating Activities                                    (363,000)         (438,000)
                                                                                ------------      ------------

Cash Flows From Investing Activities:
   Cash paid in acquisition of Casper Air Service,
     net of cash acquired                                                         (1,145,000)               --
   Cash paid in acquisition of Aero Design et.al.,
     net of cash acquired                                                           (723,000)               --
   Proceeds of sale of property and equipment                                        748,000                --
   Payments for property and equipment additions                                    (677,000)         (335,000)
                                                                                ------------      ------------
Net Cash Used by Investing Activities                                             (1,797,000)         (335,000)
                                                                                ------------      ------------

Cash Flows From Financing Activities:
   Proceeds from short-term borrowings                                               700,000           155,000
   Repayments of short-term borrowings                                              (812,000)               --
   Borrowings under/(repayment of) Bridge Notes                                     (500,000)          290,000
   Principal payments on long-term debt                                             (765,000)          (47,000)
   Proceeds from exercise of warrants                                                  1,000                --
   Proceeds from issuance of common stock                                          5,572,000                --
                                                                                ------------      ------------
Net Cash Provided (Used) by Financing Activities                                   4,196,000           398,000
                                                                                ------------      ------------

Net Increase (Decrease) in Cash and Cash Equivalents                               2,036,000          (375,000)
Cash and Cash Equivalents at Beginning of Period                                     188,000           457,000
                                                                                ------------      ------------
Cash and Cash Equivalents at End of Period                                      $  2,224,000      $     82,000
                                                                                ============      ============

Supplemental Disclosure of Cash Paid for Interest and Income Taxes:
   Cash paid for interest                                                       $    202,000      $    162,000
   Cash paid for income taxes                                                             --                --

Supplemental Disclosure of Non-Cash Investing
 and Financing Activities:
   Issuance of common stock in connection with
     the acquisition of Casper Air Service                                      $    883,000                --
   Issuance of common stock in connection with
     the acquisition of Aero Design, Inc and
     Battery Shop, LLC                                                               547,000                --
   Conversion of LEDC note to Common Stock                                           370,000                --
</TABLE>



        The accompanying notes are an integral part of these statements.


                                      -3-
<PAGE>   5
                      AVIATION GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 March 31, 1998
                                   (Unaudited)

NOTE A - BASIS OF PRESENTATION

         In the opinion of management, the accompanying balance sheets and
related interim statements of income and cash flows include all adjustments
(consisting only of normal recurring items) necessary for their fair
presentation in conformity with generally accepted accounting principles.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Examples include provisions for warranty claims and bad debts and
the length of assets' useful lives. Actual results may differ from these
estimates. Interim results are not necessarily indicative of results for a full
year. The information in this Form 10-QSB should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended June 30, 1997.

NOTE B - INITIAL PUBLIC OFFERING

         On August 19, 1997, the Company closed an initial public offering (the
"IPO") of its Common Stock and Redeemable Common Stock Purchase Warrants. The
Company sold through its underwriter 1,150,000 shares of Common Stock and
1,150,000 Common Stock Purchase Warrants, which resulted in net proceeds of
$5,189,000, net of approximately $1,539,000 of associated underwriting discounts
and offering expenses. The proceeds were used to repay the 10% Bridge Notes of
$500,000, to fund the cash portion of the Casper Air Service ("CAS") acquisition
of $1,167,000, and to repay approximately $700,000 of bank and other
indebtedness.

NOTE C - ACQUISITION OF CASPER AIR SERVICE

         Concurrent with the IPO in August 1997, the Company acquired all of the
outstanding common stock of Casper Air Service, a full-service Fixed Base
Operation ("FBO") in Casper, Wyoming. The purchase price of $2,519,000 included
$1,167,000 in cash compensation, 153,565 shares of Common Stock valued at
approximately $883,000 and transaction costs. The acquisition was accounted for
using the purchase method and the purchase price has been allocated to the net
assets acquired based on their estimated fair values. The excess of the purchase
price over the fair value of the net assets acquired (including tax attributes)
has been recorded as goodwill and is being amortized using the straight-line
method over 20 years.

         Casper Air Service is located at the Natrona County International
Airport in Casper, Wyoming and has been in business continuously since 1946. CAS
offers aircraft line services, aircraft repair and maintenance, parts
distribution and aircraft sales.

NOTE D - ACQUISITION OF AERO DESIGN, INC. AND BATTERY SHOP, LLC

         In March 1998, the Company acquired all of the outstanding common stock
of Aero Design, Inc. and all of the outstanding ownership interests of Battery
Shop, LLC, two sister companies involved in the manufacturing and overhaul of
replacement batteries for the aviation industry. The purchase price of
$1,300,000 included $753,000 in cash and 134,398 shares of Common Stock valued
at approximately $547,000. The acquisition was accounted for using the purchase
method and the purchase price has been allocated to the net assets acquired
based on their estimated fair values. The excess of the purchase price over the
fair value of the net assets acquired (including tax attributes) of $1,381,000
has been recorded as goodwill and is being amortized using the straight-line
method over 20 years.

         Aero Design, Inc. and Battery Shop, LLC are located outside Nashville,
Tennessee.


                                      -4-
<PAGE>   6
                     AVIATION GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                        
                                 March 31, 1998
                                  (Unaudited)


         The following unaudited pro forma consolidated results of operations
for the nine months ended March 31, 1998 assumes the Aero Design acquisition
occurred as of July 1, 1997:

<TABLE>
<S>                                                         <C>             
Revenues                                                    $     14,762,000
                                                            ================

Net Loss                                                            (541,000)
                                                            ================

Earnings per share -

         Basic                                                         (0.17)
                                                            ================

         Diluted                                                       (0.17)
                                                            ================
</TABLE>

NOTE E - EARNINGS (LOSS) PER COMMON SHARE

         In February 1997, the FASB issued SFAS No. 128, "Earnings per Share",
effective for financial statements issued for periods ending after December 15,
1997, which establishes standards for computing and presenting earnings per
share. The statement requires dual presentation of basic and diluted EPS on the
face of the income statement for entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation, to the numerator and denominator of the diluted EPS computation.
Basic EPS, except as noted below, excludes the effect of potentially dilutive
securities while diluted EPS reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised, converted
into, or resulted in the issuance of common stock that then shared in the
earnings of the entity. The Company has adopted SFAS 128.

         During the fiscal period ended June 30, 1997, the Company issued common
stock warrants with issuance and exercise prices below that of the price of the
Company's IPO common stock offering. Pursuant to Securities and Exchange
Commission requirements, the dilutive effect of these securities has been
included in the basic EPS calculation as if they were outstanding as of the
beginning of the periods presented with the dilutive effect measured using the
treasury stock method. As a result, the basic EPS calculation reflects an
increase in common shares for the assumed exercise of the warrants of 128,188
and 193,860 for the three months and nine months ended March 31, 1998,
respectively, and 212,609 for both the three months and nine months ended March
31, 1997. No adjustment was made for the assumed conversion of the Company's
convertible debt for any period presented since the effect would be
antidilutive.

NOTE F - SUBSEQUENT EVENT

         In April 1998, the Board of Directors elected to grant an additional
19,000 incentive stock options to officers and employees of the Company and
345,000 nonqualified stock options and warrants to officers, directors and
consultants of the Company. The exercise price on all the options and warrants
granted was the market price at the date of grant. In addition to the new option
grant, 109,000 previously issued options were cancelled and an equal number of
new options were granted. These new options were granted at an exercise price
equal to the market price at the date of grant, except for options for 50,000
shares which were granted at an exercise price of 110% of market price.

NOTE G - NEW PRONOUNCEMENTS

         In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 130, Reporting Comprehensive Income ("FAS 130"), and
Financial Accounting Standard No. 131, Disclosures about Segments of an
Enterprise and Related Information ("FAS 131"), which are effective for fiscal
years beginning after December 15, 1997. Effective July 1, 1998, the Company
will adopt FAS 130 and FAS 131.


                                      -5-
<PAGE>   7




         ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS

GENERAL

         Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") 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. All statements, other than
statements of historical facts, included in this MD&A regarding the Company's
financial position, business strategy, plans and objectives of management of the
Company for future operations are forward-looking statements. These
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in such
forward-looking statements, including those described below. Investors are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

         The Company, through its three operating divisions, offers a range of
services to the aviation industry. The Company ultimately plans to capture a
larger market share of the services being outsourced by the airline and
corporate aircraft industry, including but not limited to, airline and corporate
aircraft painting, corrosion cleaning, ground handling services, overhaul and
maintenance services, fueling, airport security and passenger service. The
Company plans to grow through mergers, acquisitions and internal growth.

Overhaul Services Division

         Net revenues from the Overhaul Services Division consist primarily of
gross revenues from stripping and painting and other aircraft coating services
to major passenger and freight airlines and corporate aircraft. The Company also
contracts with various heavy maintenance bases throughout the United States to
provide corrosion prevention programs and light maintenance for aircraft
undergoing heavy maintenance work at these bases. Costs of revenues consist
largely of direct and indirect labor, direct material and supplies, insurance
and other indirect costs applicable to the completion of each contract.
Operating expenses consist of all general and administrative and operating costs
not included in costs of sales, including but not limited to facilities rent,
indirect labor and other overhaul costs.

         This division of the Company has two locations, Acadiana Regional
Airport in New Iberia, Louisiana (Pride) and Portland International Airport in
Portland, Oregon (Pride Portland). During the quarter ended December 31, 1997,
all work previously performed at the Company's Redbird facility was transferred
to New Iberia.

Ground Services Division

         Net revenues from the Ground Services Division consist primarily of
gross revenues from a variety of support services including aircraft interior
cleaning, exterior washes, lavatory and water services and light catering. Costs
of revenues consist largely of direct and indirect labor, direct material and
supplies, and other indirect costs. Operating expenses consist of all general
and administrative and operating costs not included in costs of sales.

         Airline Services has had operations at Dallas-Fort Worth International
Airport since 1990, Dallas Love Field airport since 1986, San Francisco
International Airport since 1995 and Gulfport Biloxi Regional Airport since
1994. In 1997, the Company executed new ground service contracts with customers
under which it established operations in the Los Angeles International Airport,
Oakland Airport, Kansas City Airport and Fort Lauderdale International Airport.
During the third quarter of fiscal 1998, the Company closed its stations at San
Francisco International Airport, Los Angeles International Airport, and Fort
Lauderdale International Airport.



                                      -6-
<PAGE>   8



FBO & Airport Management Division

         The Company commenced its Fixed Base Operation ("FBO") operations in
July 1996, upon the commencement of business at its initial FBO site located at
Redbird Airport in Dallas, Texas. This division generates revenues from the sale
of aviation fuel and other services provided to general aviation customers
located at the Redbird Airport facility. Costs associated with this activity
include primarily fuel, facility rent, and direct labor. The Company initiated
these operations at its existing Dallas location with the intent to operate
profitably the business, but also to allow it to assemble its financial and
managerial resources to begin its acquisition activities in this division. In
August 1997, the Company acquired Casper Air Service ("CAS"), which operates a
full service FBO in Casper, Wyoming. Activities at CAS include fueling, parts
sales, maintenance and repair services for corporate and general aviation
aircraft.

Aviation Group - Corporate Overhead

         Operating expenses consist of all general and administrative and
operating costs to provide management to the Company's divisions, to support
expected growth, and to seek acquisition targets, not directly attributable to
the divisions' operations.

SEASONALITY AND VARIABILITY OF RESULTS

         The Company's Overhaul Services Division experiences significant
seasonality and quarter-to-quarter variability in its stripping and painting
operations. The annual operating cycle generally reflects escalating strip and
paint revenues in the Company's third and fourth fiscal quarters and slower
sales in the Company's first and second fiscal quarters. The Company's painting
revenues are adversely affected during the airlines' peak traffic seasons of the
summer months and the November and December holidays. Currently, the Overhaul
Services Division generates a significant percentage of the Company's revenue.
Management, therefore, is required to plan cash flow accordingly.

RESULTS OF OPERATIONS

         The following tables set forth a summary, for the periods indicated, of
the revenues and gross profits for each of the Company's major operating
divisions, as well as selected other financial statement data.

         Revenues. Net revenues for the three month period ended March 31, 1998
increased $2,491,000 or 102% from the three month period ended March 31, 1997.
Net revenues for the nine month period ended March 31, 1998 increased $7,486,000
or 112% from the nine month period ended March 31, 1997. The following tables
represent a summary of revenues by division for the periods noted:

<TABLE>
<CAPTION>
                                                  For the Three Months Ended March 31,
                                        --------------------------------------------------------
                                                  1998                            1997
                                        -------------------------      -------------------------
Revenues                                               % of Total                     % of Total
                                          Dollars       Revenues        Dollars        Revenues
                                        ----------     ----------      ----------     ----------
<S>                                     <C>                  <C>       <C>                  <C>  
Overhaul Services                       $2,734,000           55.5%     $2,028,000           83.2%
Ground Services                            342,000            6.9         285,000           11.7
FBO and Airport Management               1,852,000           37.6         124,000            5.1
                                        ----------     ----------      ----------     ----------
Total Revenues                          $4,928,000          100.0%     $2,437,000          100.0%
                                        ==========     ==========      ==========     ==========
</TABLE>


                                      -7-
<PAGE>   9


<TABLE>
<CAPTION>
                                                     For the Nine Months Ended March 31,
                                        ------------------------------------------------------------
                                                    1998                             1997
                                        ---------------------------      ---------------------------
Revenues                                                 % of Total                      % of Total
                                          Dollars         Revenues         Dollars         Revenues
                                        -----------     -----------      -----------     -----------
<S>                                     <C>                    <C>       <C>                    <C>  
Overhaul Services                       $ 7,800,000            55.1%     $ 5,576,000            83.7%
Ground Services                           1,056,000             7.5          726,000            10.9
FBO and Airport Management                5,294,000            37.4          362,000             5.4
                                        -----------     -----------      -----------     -----------
Total Revenues                          $14,150,000           100.0%     $ 6,664,000           100.0%
                                        ===========     ===========      ===========     ===========
</TABLE>

         Revenues for the Overhaul Services Division increased $706,000 or 35%
for the three months ended March 31, 1998 and $2,224,000 or 40% for the nine
months ended March 31, 1998 over the comparable period in the prior years. This
increase is due primarily to the contract with Boeing Aircraft to paint seven
Boeing 777 aircraft, which began in November 1997 and ran through February 1998.
The second phase of this contract was awarded to another vendor. Billings during
the third quarter of 1998 on the Boeing contract totaled approximately $959,000.
This increase in revenues was offset in the third quarter by a reduction in
revenues related to the loss of the United 757 line as of December 1997. In
April 1998, the Company entered into a three year agreement with Federal Express
to provide exterior painting services at the Company's facilities in Portland,
Oregon and New Iberia, Louisiana.

         Revenues for the Ground Services Division increased by $57,000 or 20%
for the three months ended March 31, 1998 and $330,000 or 45% for the nine month
period ended March 31, 1998 over the comparable period in the prior year. This
increase is related primarily to increased activity at new stations opened
during fiscal 1997, which include Kansas City, Los Angeles International Airport
and Oakland International Airport. Additional revenues were generated on an
increased level of activity at Dallas Fort Worth, Oakland and Alliance Airports.

         Revenues for the FBO and Airport Management Division increased by
$1,728,000 or 1,394% for the three months ended March 31, 1998 and $4,932,000 or
1,362% for the nine months ended March 31, 1998 over the comparable period in
the prior year. This increase is due principally to the acquisition of Casper
Air Service in August 1997. Casper Air Service contributed $1,678,000 and
$4,798,000 to revenues for the three months and nine months ended March 31,
1998, respectively.

         Gross Profit. Gross profit for the three month period ended March 31,
1998 increased $1,247,000 or 904% from the three month period ended March 31,
1997. Gross profit for the nine month period ended March 31, 1998 increased
$1,996,000 or 146% from the nine month period ended March 31, 1997. The
following tables represent a summary of gross profit by division for the periods
noted:

<TABLE>
<CAPTION>
                                                  For the Three Months Ended March 31,
                                        --------------------------------------------------------
                                                  1998                            1997
                                        -------------------------      -------------------------
                                                         % of                           % of 
                                                        Division                       Division
                                          Dollars       Revenues          Dollars      Revenues
                                        ----------     ----------      -------------   ---------
<S>                                     <C>                  <C>       <C>                  <C> 
Overhaul Services                       $  835,000           30.5%     $       9,000        0.0%
Ground Services                            122,000           35.7            142,000       49.8
FBO and Airport Management                 429,000           23.2            (13,000)     (10.5)
                                        ----------                     -------------
Total Gross Profit                      $1,386,000           28.1%     $     138,000        5.7%
                                        ==========                     =============
</TABLE>


                                      -8-
<PAGE>   10


<TABLE>
<CAPTION>
                                                   For the Nine Months Ended March 31,
                                        --------------------------------------------------------
                                                  1998                            1997
                                        -------------------------      -------------------------
                                                         % of                              % of 
                                                        Division                         Division
                                          Dollars       Revenues           Dollars       Revenues
                                        -----------     ----------      -------------   ---------
<S>                                     <C>               <C>           <C>                <C>  
Overhaul Services                       $ 1,979,000       25.4%         $   1,031,000      18.5%
Ground Services                             260,000       24.6                347,000      47.8
FBO and Airport Management                1,126,000       21.3                 (9,000)     (2.5)
                                        -----------                     -------------
Total Gross Profit                      $ 3,365,000       23.8%         $   1,369,000      20.5%
                                        ===========                     =============              
</TABLE>

         Gross profit for the Overhaul Services Division increased $826,000 or
9,178% for the three months ended March 31, 1998 and increased $948,000 or 92%
for the nine months ended March 31, 1998 over the comparable period in the prior
year. The increase in gross profit for the third quarter is due primarily to
additional revenues and profits generated by the Boeing contract which were not
existent in the third quarter 1997, offset by the reduction in revenues
generated at Pride's New Iberia facility related to United 757 aircraft. The
increase in gross profit year to date is related primarily to the gross profit
obtained on the Boeing contract mentioned earlier.

         Gross profit for the Ground Services Division decreased by $20,000 or
14% for the three months ended March 31, 1998 and $87,000 or 25% for the nine
months ended March 31, 1998 over the comparable period in the prior year. This
decrease is related primarily to the expansion during fiscal 1997 into new
stations at Kansas City, Los Angeles International Airport, Oakland
International Airport and Fort Lauderdale International Airport during fiscal
1997 and in the first quarter of 1998 and the "start up" losses generated by
these new locations. These losses resulted from the investment in personnel and
resources needed to initiate and expand new services at the new airport
locations listed above.

         Gross profit for the FBO and Airport Management Division increased by
$442,000 for the three months ended March 31, 1998 and $1,135,000 for the nine
months ended March 31, 1998 over the comparable period in the prior year. This
increase is related primarily to acquisition of Casper Air Service in August
1997. Casper Air Service contributed $385,000 and $1,070,000 to gross profit for
the Company during the three months and nine months ended March 31, 1998,
respectively.

         Other Expenses. The following tables represent a summary of other 
expenses, and their percentage of gross revenues for the periods noted:

<TABLE>
<CAPTION>
                                                           For the Three Months Ended March 31,
                                              ------------------------------------------------------------
                                                           1998                            1997
                                              -----------------------------    ---------------------------
                                                                 % of Total                     % of Total
                                                 Dollars          Revenues         Dollars       Revenues
                                              --------------    -----------    --------------   ----------
<S>                                           <C>                      <C>     <C>                    <C>
General and Administrative                    $    1,136,000           23.1%   $     103,000          4.2
Depreciation and Amortization                        201,000            4.1          100,000          4.1
Interest Expense and Other                            33,000            0.7           87,000          3.6
Income (Loss) before Income Taxes                     16,000            0.3         (152,000)        (6.2)
Provision (Benefit) for Income Taxes                  14,000            0.3          (45,000)        (1.8)
                                              --------------                   --------------
Net Income (Loss)                             $        2,000            0.0%   $    (107,000)        (4.4%)
                                              ==============                   =============
</TABLE>


                                       -9-
<PAGE>   11

<TABLE>
<CAPTION>
                                                           For the Nine Months Ended March 31,
                                              ------------------------------------------------------------
                                                           1998                            1997
                                              -----------------------------    ---------------------------
                                                                 % of Total                     % of Total
                                                 Dollars          Revenues         Dollars       Revenues
                                              --------------    -----------    --------------   ----------
<S>                                           <C>                      <C>     <C>                   <C>  
General and Administrative                    $    3,411,000           24.1%   $   1,422,000         21.3%
Depreciation and Amortization                        531,000            3.8          291,000          4.4
Interest Expense and Other                           208,000            1.5          153,000          2.3
Income (Loss) before Income Taxes                   (785,000)          (5.6)        (497,000)        (7.5)
Provision (Benefit) for Income Taxes                (228,000)          (1.6)        (164,000)        (2.5)
                                              --------------                   -------------
Net Income (Loss)                             $     (557,000)          (3.9%)  $    (333,000)        (5.0%)
                                              ==============                   =============
</TABLE>

         The Company's general and administrative expenses increased $1,033,000
or 1,003% for the three months ended March 31, 1998 and $1,989,000 or 140% for
the nine months ended March 31, 1998 over the comparable prior year periods.
These increases are due to several factors. Corporate overhead accounted for
$122,000 of the increase for the three months ended March 31, 1998 and $569,000
of the increase for the nine months ended March 31, 1998. These increases relate
primarily to additions in management infrastructure, higher legal and accounting
costs of operating a publicly traded company and additional costs of managing
the Company's growth. The addition of Casper Air Service in August 1997
increased general and administrative expenses by $325,000 in the quarter ended
March 31, 1998 and $812,000 for the nine months ended March 31, 1998.

         The Company's depreciation and amortization expense increased by
$101,000 or 101% for the three months ended March 31, 1998 and $240,000 or 82%
for the nine months ended March 31, 1998 from the comparable period in the prior
year. This increase is related primarily to the acquisition of Casper Air
Service and the associated depreciation of fixed assets and amortization of
goodwill acquired.

         The Company's interest expense decreased $54,000 or 62% for the three
months ended March 31, 1998 and increased $55,000 or 36% for the nine months
ended March 31, 1998 over the comparable period in the prior year. The increase
of the nine month period is due principally to $64,000 of interest expense
accreted to the Bridge Notes during the first quarter of 1998 as a result of the
common stock payable to the Bridge Note holders upon completion of the initial
public offering. The decrease during the current quarter relates primarily
changes in the borrowing levels and associated interest rates between the third
quarter of fiscal 1998 when compared to fiscal 1997. Interest expense is
presented net of interest income of $17,000 and $60,000 for the three months and
nine months ended March 31, 1998, respectively.


FINANCIAL CONDITION AND LIQUIDITY

         The Company financed its operations and capital expenditures from a
combination of cash generated from operations, bank loans, leases and invested
capital.

         In February 1997, the Company completed a private offering of $500,000
of its 10% Bridge Notes. The proceeds of this offering were used to fund the
costs of the Company's initial public offering ("IPO") and for general working
capital and operating purposes. Upon the successful completion of the IPO in
August 1997, the terms of these notes required the Company to issue to the
holders that number of shares of Common Stock that equals $250,000 divided by
the initial public offering price. Accordingly, $250,000 of the proceeds has
been allocated to equity and credited to paid in capital and the notes payable
were recorded at a discounted amount of $250,000. The discount was amortized to
interest expense over the period from the completion of the Bridge Note offering
until August 19, 1997, which was the consummation date of the IPO. These notes
and the associated interest were repaid following the funding of the IPO.

         The Company realized approximately $5.2 million in net proceeds from
the IPO in August 1997. The proceeds have been used to repay the 10% Bridge
Notes of $500,000, to fund the cash portion of the CAS acquisition of
$1,167,000, 


                                      -10-
<PAGE>   12

to fund the cash portion of the Aero Design acquisition of $753,000,
and to repay approximately $700,000 of bank and other indebtedness.
Additionally, these proceeds have been and will be used in the future to fund
expenditures including, but not limited to, capital expenditures for existing
operations, facilities improvements, acquisition of other aviation services
companies and general working capital for operations and other corporate
purposes. The Company's capital structure has improved significantly as a result
of completing the IPO.

         As part of its growth strategy, the Company intends to pursue
acquisitions of related aviation businesses. Management believes financing for
such acquisitions will be provided from operations, bank financing and through
additional security offerings.

         The Company, in conjunction with the growth by acquisition strategy
outlined above, incurred corporate general and administrative expenses totaling
$248,000 and $890,000 for the three months and nine months ended March 31, 1998
respectively. These general and administrative expenses relate primarily to the
management infrastructure required to seek out and evaluate potential
acquisition candidates and manage the anticipated growth of the business, as
evidenced by the March 1998 acquisition of Aero Design, Inc and Battery Shop,
LLC. The Company currently has other acquisition candidates identified. While
this level of expense is high relative to the current revenues of the Company,
management believes that it has created an infrastructure capable of managing
the Company's growth in the future without a proportionate growth in
administrative expenses.

         The Company, through its subsidiary Pride Aviation, Inc., has entered
into a letter of intent with the Iberia Parish Airport Authority to enter into a
lease for a proposed wide body aircraft painting hangar to be constructed in New
Iberia, Louisiana. Pride Aviation, Inc. intends to execute a lease requiring
monthly rent payments not exceeding $35,000 payable upon completion of the
hangar's construction.

         The Company believes that funds available under its existing credit
facilities, together with cash generated from operations and proceeds from the
IPO will be adequate for its anticipated cash needs. Management expects that the
proceeds from the IPO will allow it to experience accelerated growth both
internally and through well-planned acquisitions of aviation services companies.



                                      -11-

<PAGE>   13
                           PART II - OTHER INFORMATION
                            ITEM 1. LEGAL PROCEEDINGS

         The Company is not involved in any material pending legal proceeding
other than ordinary routine litigation considered to be incidental to its
business.

                         ITEM 2. CHANGES IN SECURITIES.

(c)      For the quarter ended March 31, 1998, the Company issued a total of
         21,975 shares of Common Stock pursuant to the exercise of outstanding
         warrants in unregistered transactions. These shares were issued in
         reliance upon the exemption from registration under the Securities Act
         of 1933, as amended, provided by Section 4(2) thereof. The 21,975
         shares were issued, on a cashless basis, in exchange for the exercise
         and surrender of a total of 24,750 warrants. The warrants were
         exercisable at $1.00 per share.

(d)      The Company completed its initial public offering on August 19, 1997.
         The offering commenced on August 13, 1997, which was the effective date
         of the Form SB-2 Registration Statement (File No. 333-22727) for the
         offering (the "Registration Statement").

         The following table shows the amount of net offering proceeds to the
         Company used for each of the purposes listed below through March 31,
         1998.


<TABLE>
<CAPTION>
                                           Direct or indirect payments to
                                            directors, officers, general
                                           partners of the Company or their
                                          associates; to persons owning 10%
                                            or more of any class of equity              
                                              securities of the Company;                Direct or indirect
                                           and to affiliates of the Company             payments to others
                                           --------------------------------             ------------------
<S>                                                        <C>                                 <C>      
Purchase and installation of
machinery and equipment                                             --                          $  244,500     
                                                                                                               
Acquisition of other                                                                                           
business(es) and related costs                              $   80,000                           2,324,000     
                                                                                                               
                                                                                                               
Repayment of indebtedness                                       83,000                           1,092,000     
                                                                                                               
                                                                                                               
Working capital                                                     --                             823,200     
                                                                                                               
Temporary money                                                                                                
market investments                                                  --                             541,900     
                                                            ----------                          ----------     
                                                                                                               
         Total:                                             $  163,000                          $5,025,600     
                                                            ==========                          ==========     
</TABLE>


                    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits.

         The following documents are included as exhibits to this Form 10-QSB
and are filed herewith unless otherwise indicated.

      Exhibit   Description
      -------   -----------

        10.1    Aircraft Painting Services Agreement dated April 24, 1998
                between Federal Express Corporation and Pride Aviation, Inc.

        11.1    Statement regarding computation of per share earnings

        27.1    Financial Data Schedule


(b)      Reports on Form 8-K

         The Company has filed a Form 8-K/A Current Report dated February 4,1998
which amended the previously reported consummation of the acquisition of CAS as
of August 19, 1997.




<PAGE>   14

                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

         Date:  May 14, 1998.

                                   AVIATION GROUP, INC.



                                   By:   /s/ Richard Morgan
                                       ---------------------------------------
                                       Richard Morgan, Chief Financial Officer

<PAGE>   15
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
      Exhibit   Description
      -------   -----------
        <S>     <C>                                                      
        10.1    Aircraft Painting Services Agreement dated April 24, 1998
                between Federal Express Corporation and Pride Aviation, Inc.

        11.1    Statement regarding computation of per share earnings

        27.1    Financial Data Schedule
</TABLE>