<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-K

            [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, 1997

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                 For the Transition Period from ______ to ______

                          Commission File Number 1-5483

                              WHITEHALL CORPORATION
             (Exact name of registrant as specified in its charter)

                DELAWARE                                      41-0838460
     (State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                       Identification No.)

          POST OFFICE BOX 29709                                  75229
             2659 NOVA DRIVE                                  (Zip Code)
              DALLAS, TEXAS
(Address of principal executive offices)

        Registrant's telephone number, including area code: 972-247-8747

           Securities registered pursuant to Section 12(b) of the Act:
                          COMMON STOCK, $0.10 PAR VALUE
                             NEW YORK STOCK EXCHANGE

           Securities registered pursuant to Section 12(g) of the Act:
                                      NONE

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 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 [ ]

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ___

THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT ON MARCH 24, 1998, WAS $83,181,305

On March 24, 1998, there were issued and outstanding 5,530,000 shares of the
registrant's Common Stock, $0.10 par value, excluding 2,161,312 shares of
treasury stock.

                       DOCUMENTS INCORPORATED BY REFERENCE


Portions of the definitive proxy statement for the annual meeting of
stockholders presently scheduled to be held on June 30, 1998, are incorporated
into Part III by reference.

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                                     PART I

ITEM 1.  BUSINESS

     A. General

     Whitehall Corporation ("Whitehall" or the "Company") is an independent
provider of maintenance and modification services for commercial, military and
freighter aircraft. The Company focuses primarily on two categories of
commercial customers: established traditional commercial carriers that view
outsourcing as a way to reduce operating expenses and increase their
competitiveness and new entrant, low-cost air carriers that rely on outsourcing
for scheduled heavy maintenance The Company operates two United States Federal
Aviation Administration ("FAA") and Joint Aviation Authority of the European
Economic Community ("JAA") certified repair stations that specialize in heavy
maintenance and modification of Boeing 707, 727, 737, McDonnell Douglas DC-8,
DC-9, DC-10 and Lockheed L-100, L-188 and C-130 aircraft. The Company offers its
customers a comprehensive range of aviation services, including scheduled "A,"
"B," "C" and "D" level inspections, block overhauls and repairs, corrosion
prevention and control programs and exterior stripping and painting.
Modification services provided by the Company include interior reconfiguration,
cargo conversions and avionics installations. Through a joint venture, the
Company also designs, and markets hushkits designed to reduce the noise created
by Boeing 737-100 and 737-200 series aircraft to levels which comply with
FAA-mandated Stage 3 noise reduction standards. The Company was incorporated
under the laws of Delaware in 1963 as a successor to a Minnesota corporation
organized in 1960.

     B. Significant Developments

     On March 24, 1998, the Company entered into a definitive merger agreement
(the "Merger Agreement") with Aviation Sales Company ("AVS") pursuant to which a
wholly-owned subsidiary of AVS will merge (the "Merger") with and into the
Company. As a result of the Merger, the Company will become a wholly owned
subsidiary of AVS. The Merger is expected to be accounted for as a pooling of
interests. Under the terms of the Merger Agreement, each share of the Company's
common stock outstanding at the effective time of the Merger will be converted
into the right to receive .5143 shares of common stock of AVS. Consummation of
the Merger, which is expected to occur at the end of the second quarter of 1998,
is subject to customary closing conditions, including, without limitation,
approval of the Company's and AVS's stockholders and successful completion of
regulatory review under the Hart-Scott-Rodino Antitrust Improvements Act. No
assurance can be given that the Merger will ultimately be consummated or that it
will be consummated on the terms set forth in the Merger Agreement.

     In July 1997, the Company purchased from Zantop International Airlines,
Inc. ("Zantop") certain assets (the "Acquired Assets") used in connection with
the operation of Zantop's third party aircraft maintenance business located in
Macon, Georgia. Among the Acquired Assets were all of the Zantop's leasehold
interests in the properties located at its Macon facility (the "Leased
Facilities"). The purchase price for the Acquired Assets was $1.5 million in
cash plus the assumption of certain liabilities, including approximately $4.3
million in future lease obligations relating to the Leased Facilities.

     In April 1997, the United States Air Force ("USAF") awarded the Company a
five-year contract (the "C-130 Contract") to perform Programmed Depot
Maintenance on its fleet of C-130 cargo aircraft stationed in the continental
United States. In June 1997, the C-130 Contract was cancelled at the convenience
of the U.S. government because the USAF elected to perform this work with
government personnel at two of its remaining USAF bases rather than outsourcing
it to private contractors. The C-130 Contract provides for reimbursement by the
USAF of costs incurred by the Company during its term. The Company has made a
claim for reimbursement and is currently negotiating a settlement with the USAF
for the claimed amount.

     In March 1997, the Company sold its electronics business to a private
investor group (the "Crystek Buyer") for approximately $2.7 million. The
transaction was structured as a sale by the Company of all of the outstanding
capital stock of Crystek Crystals Corporation, the Company's electronics
division operating subsidiary ("Crystek"). The Company received approximately 
$1.9 million in cash and two promissory notes aggregating $864,000. The
promissory notes are due in installments from 1998 through 2001 and bear
interest at a rate of 10% per annum. Under the terms of the agreement


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relating to the sale of Crystek (the "Crystek Agreement"), the Company agreed to
remediate certain environmental conditions on the real property owned by Crystek
(the "Crystek Property") and, if such environmental conditions are not
satisfactorily remediated by December 31, 1998, the Crystek Buyer has the right
to require the Company to repurchase the Crystek Property on the terms and
subject to the conditions set forth in the Crystek Agreement. In the event of
such a sale, the Crystek Buyer will have the right to lease the Crystek Property
from the Company.

     In November 1996, the Company sold its ocean systems business to a
newly-formed company, Hydroscience Technologies, Inc. ("HTI"), in exchange for
818,182 shares of preferred stock of HTI (the "HTI Preferred Stock") and the
limited assumption by HTI of potential warranty liabilities associated with such
business. The aggregate amount of HTI Preferred Stock received by the Company
was equal to the book value of the assets transferred by it to HTI. The HTI
Preferred Stock carries a liquidation preference of $5.50 per share. At the
Company's election, the HTI Preferred Stock is convertible into 45% of the
common stock of HTI. The Company has concluded that the value of its investment
in the HTI Preferred Stock has declined permanently. The entire amount was
written off in September 1997.

     C. Financial Information about Industry Segments

     During 1997, the Company operated in two business segments: aircraft
maintenance and electronics. During 1996, the Company also operated in the ocean
systems business. A table presenting selected financial information attributable
to each of the principal industry segments in which the Company operated is set
forth in Note N of the Notes to the Consolidated Financial Statements filed
under Item 8 in Part II of this Annual Report on Form 10-K.

     As described in Item 1(B) above, the Company sold its ocean systems
business in November 1996 and its electronics business in March 1997. As a
result, the Company operates exclusively in the aviation maintenance industry.

     D. Narrative Description of the Business

INDUSTRY OUTLOOK

     General. The Company believes that the total market for commercial airframe
heavy maintenance and modification services in North America is approximately
$2.3 billion annually. Approximately 65% of these services are currently being
performed by airlines themselves, with the remaining demand being outsourced to
independent providers such as the Company. As the commercial airline industry
continues to operate under intense competition and federal budgetary constraints
force reductions in military spending, management believes that both the private
and military sectors will increasingly view outsourcing as a logical and
effective way to reduce operating cost. Factors which management believes
indicate the strength of the demand for its services include (i) the projected
growth of worldwide air traffic, (ii) the proliferation of start-up airlines
which typically depend on outside facilities for maintenance, (iii) the desire
of established airlines to reduce costs by divesting themselves of large
segments of their maintenance operations and shifting these responsibilities to
third-party providers who are often able to provide these services more quickly
and less expensively; (iv) the growth of the worldwide air cargo industry which
the Company believes will foster the demand for passenger-to-freighter
modification services and (v) the current policy of the United States military
to promote outsourcing to the private sector many of the services that were
traditionally provided internally.

     Commercial Maintenance Market. The growth of the worldwide commercial
aircraft maintenance market is greatly affected by worldwide air travel.
According to Boeing's 1997 Current Market Outlook (the "Boeing Report"), world
air travel is expected to grow at a compound annual rate of 5.5% for the next
ten years. During that same period, the worldwide fleet of commercial airplanes
is expected to double. Further, deregulation of the aviation industry in the
United States and the European Economic Community, increased demand for low-fare
air travel and relatively low barriers to entry have led to the emergence of
several start-up airlines. Approximately 92% of the aircraft operators worldwide
have fleets of less than 30 aircraft. For these carriers, in-house maintenance
capabilities are not generally considered to be economically viable. In
addition, a number of established airlines have begun to view maintenance
outsourcing as a way to increase productivity of their assets, reduce operating
costs and better focus their resources on their core competencies of
transporting passengers and freight.

     Commercial Modification Market. The Company expects the airframe
modification business to experience growth over the next several years,
primarily due to the rapid expansion of the global air freight industry and the
phase in of federal noise control legislation requiring airlines to either
modify or remove from their U.S. fleet certain aircraft models


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by the end of 1999. As the worldwide freight transport market continues to grow,
so does the demand for dedicated cargo aircraft. According to the Boeing Report,
air cargo traffic is projected to increase at a compound annual rate of 6.6%
through 2016 and an additional 420 dedicated freighter aircraft are expected to
be added to the world fleet during that period. Because few cargo carriers are
willing to commit the capital to purchase newly built cargo aircraft, it is
expected that the majority of the dedicated freighter aircraft coming into
circulation in the next several years will be passenger aircraft which have been
modified and converted for cargo duty.

     The Airport Noise and Capacity Act of 1990 ("ANCA") requires the phaseout
of Stage 2 aircraft (defined as aircraft that comply with the Stage 2 noise
levels prescribed in Part 36 of the Federal Aviation Regulations) by December
31, 1999, subject to certain exceptions. The FAA regulations which implement the
ANCA require carriers to modify or reduce the number of Stage 2 aircraft
operated by 75% by the end of 1998 and 100% by the end of 1999. Alternatively, a
carrier could satisfy these compliance requirements by phasing in aircraft
meeting the stricter Stage 3 requirements (set forth in Part 36 of the Federal
Aviation Regulations) so that its fleet has at least 75% Stage 3 aircraft by the
end of 1998 and 100% of Stage 3 aircraft by the end of 1999. Certain types of
Stage 2 aircraft can be modified to meet Stage 3 requirements by installing a
hushkit to the aircraft's engine. AvAero Noise Reduction Joint Venture
("AvAero"), a joint venture in which the Company holds a 40% interest, designs
and markets FAA-certified hushkits for Boeing 737-100 and 737-200 series
aircraft. AvAero's other venturers are Avro Corp., which holds a 40% interest,
and WDW Aviation Management, Inc., which holds a 20% interest.

MILITARY MAINTENANCE AND MODIFICATION MARKET. The U.S. military has also turned
to outsourcing in an effort to reduce costs in a shrinking budgetary
environment. Currently, U.S. military and government civilian personnel perform
approximately 72% and 64% of the aircraft maintenance for the USAF and United
States Navy ("Navy"), respectively. Several factors suggest that a greater
percentage of this work may be outsourced in the future. Budget constraints have
lead to a reduction in the number of military and government civilian personnel
in each branch of the U.S. military. The Navy is considering closing three of
its six naval aviation depots, however the number of its aircraft to be
maintained is expected to be reduced by only 25%. The USAF has moved to
"privatize in place" rather than close down its Kelly and McClellen bases.
Private contractors have submitted proposals to perform the work on site at
these bases and to employ many of the former government workers. The reduction
in the government's internal capacity to provide military aircraft maintenance
and modification services has not been accompanied by a corresponding reduction
in demand for these services. The current U.S. policy favoring the rapid
deployment of forces as opposed to maintaining numerous overseas military bases
relies heavily on the ability to quickly airlift personnel and equipment to
areas requiring military or humanitarian intervention. Accordingly, the need for
maintenance, modification and life extension programs for a substantial portion
of the U.S. military air fleet is expected to continue. Under the so-called
"60-40 law," the military was limited in the amount of depot level aircraft
maintenance work it was permitted to transfer to the private sector to 40% of
its overall depot level maintenance requirements. On November 18, 1997, the
National Defense Authorization Act for Fiscal 1998 increased this amount to 50%.
Although the recent change in law and current trend towards outsourcing by the
U.S. military should result in greater opportunities for independent maintenance
providers such as the Company, there can be no assurance that the Company will
be successful in obtaining any future U.S. military contracts.

Principal Products And Services

     Commercial Maintenance Services. The principal services performed by the
Company are scheduled "A," "B," "C" and "D" level maintenance checks. Each
involves a different degree of inspection and the services performed at each
level vary depending upon the individual aircraft operator's FAA-certified
maintenance program. The "A" and "B" level checks involve the fewest required
procedures and often can be completed within a few days. The "C" and "D" level
checks are more comprehensive and usually take several weeks to complete,
depending upon the scope of the work to be performed.

     The "C" level check is an intermediate level service inspection that
typically includes a thorough cleaning of the aircraft's exterior, testing and
lubrication of its operational systems, filter servicing and limited cleaning
and servicing of the interior. Trained mechanics perform a visual inspection of
the external structure and internal structure through access panels. The "D"
level check includes all of the work accomplished in the "C" level check but
places a more detailed emphasis on the integrity of the systems and structural
functions. In the "D" level check, the aircraft is disassembled to the point
where the entire structure can be inspected and evaluated. Once the evaluation
and repairs are completed, the aircraft and its systems are reassembled to the
detailed tolerances demanded in each system's specifications. Depending upon the
type of aircraft and the FAA-certified maintenance program being followed,
intervals between "C" level checks can range from 1,000 to 5,000 flight hours
and intervals between "D" level checks can range from 10,000 to 25,000 flight
hours.




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     Structural inspections performed during "C" level and "D" level checks
provide Company personnel with detailed information about the condition of the
aircraft and the need to perform additional work or repairs not provided for in
the original workscope. Project coordinators and customer support personnel work
closely with the aircraft's customer service representative in evaluating the
scope of any additional work required and in the preparation of a detailed cost
estimate for the labor and materials required to complete the job. Upon receipt
of the customer representative's approval of the estimate, the Company releases
the requisitions and work orders into the work flow for the aircraft.

     Other maintenance services offered to commercial customers include
Supplemental Structure Inspections ("SSI's") and Corrosion Prevention and
Control Programs ("CPCP's"). SSI's are structural inspections which focus on
known problem areas and are required by most aircraft manufacturers. CPCP's are
also an outgrowth of manufacturer-required Aging Aircraft Programs and involve
the inspection and treatment of areas with known corrosion problems. These
additional inspections often supplement the "C" and "D" level check tasks.

     Commercial Modification Services. Each aircraft certified by the FAA is
constructed under a "Type Certificate." Anything which is done subsequently to
modify the aircraft from its original specifications requires the review,
flight-testing and approval of the FAA which is evidenced by the issuance of a
Supplemental Type Certificate ("STC") for that particular modification. Typical
modification services performed by the Company include refurbishing and
reconfiguring passenger seating, installing passenger amenities such as
telephones and video screens and converting traditional passenger cabins into
amenity filled "VIP" quarters.

     The process of converting a passenger plane to freighter configuration
entails completely stripping the interior; strengthening the load-bearing
capacity of the flooring; installing the bulkhead or cargo net; cutting into the
fuselage for the installation of a large cargo door; reinforcing the surrounding
structures for the new door; replacing windows with metal plugs; and fabricating
and installing the cargo door itself. The aircraft interior may also need to be
lined to protect cabin walls from pallet damage and the air conditioning system
may have to be modified. Conversion contracts also typically require "C" or "D"
level maintenance checks as these converted aircraft have often been out of
service for some time and maintenance is required for the aircraft to comply
with current FAA standards.

     The Company owns a 40% interest in AvAero, a joint venture that designs and
markets hushkits for Boeing 737- 100 and 737-200 series aircraft. The AvAero
hushkit weighs approximately 500 pounds at its heaviest configuration and fits a
wide range of engine models and aircraft weights. Major airlines have cited its
design simplicity, ease of installation, performance and absence of operational
restrictions as major factors in selecting the AvAero hushkit over competing
models. In January 1997, AvAero was selected by Southwest Airlines ("Southwest")
to provide hushkits for up to 34 of Southwest's Boeing 737 aircraft. The
agreement with Southwest provides for the delivery of 20 hushkits beginning in
June 1997 and an option to purchase an additional 14 hushkits.

     Additional modification services performed by the Company include cockpit
reconfiguration and the integration of Traffic Control and Avoidance Systems
("TCAS"), windshear detection systems and navigational aids.

     Military Maintenance and Modification Services. The Company provides
aircraft maintenance and modification services to the U.S. military and the
military branches of certain foreign governments. The Company specializes in
providing Programmed Depot Maintenance ("PDM") on large transport planes used to
move troops, supplies and equipment, such as the C-130 "Hercules." The PDM
program involves a nose to tail inspection and repair program. It begins with
the defueling of the aircraft and the stripping of its exterior paint. Trained
mechanics then perform a section-by-section structural examination of the entire
aircraft which can result in modifications to the airframe. Avionics are
inspected and repaired, replaced or modified as needed. Corrosion prevention and
control measures and various system overhauls or upgrades may also be performed.
At the completion of the overhaul, the aircraft is repainted.

     On April 15, 1997, the Company was awarded the C-130 Contract by the USAF.
It provided for the furnishing of PDM on the USAF's C-130 aircraft stationed in
the continental United States. In June 1997, the C-130 Contract was cancelled at
the convenience of the U.S. government because the USAF elected to perform this
work with government personnel at two of its remaining USAF bases rather than
outsourcing it to private contractors. The C-130 Contract provides for
reimbursement by the USAF of costs incurred by the Company during its term. The
Company has made a claim for reimbursement and is currently negotiating a
settlement with the USAF for the claimed amount.



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     The Company is currently performing C-130 PDM work for the government of
Mexico and continues to bid for similar work for aircraft owned and operated by
certain other foreign governments.

PRICING

     The Company's services are offered to commercial customers on a contract
basis. Customers are generally offered either time and material based
arrangements or flat rate fixed price arrangements. Under the time and materials
fee arrangement, customers receive a detailed price estimate and condition
report from the Company after a thorough inspection of the aircraft. Following
the approval by the customer of the estimate, the Company issues work orders and
requisitions for the customer's aircraft. Customer support personnel closely
monitor the progress of the aircraft and negotiate with the customer any
additional pricing, scheduling and logistical issues which arise during the
course of servicing. Most of the aircraft serviced by the Company are priced on
a time and material based arrangement.

     Under the flat rate fixed pricing contracts, the Company establishes a set
price prior to undertaking a maintenance or modification project based upon
estimates made either before or after inspection of the aircraft. The Company's
flat rate fixed price estimates made prior to inspection of an aircraft are
based upon standard labor and materials requirements and typically include
provisions for adjustments based upon condition of the aircraft.

     The U.S. military contracts for which the Company competes are awarded on a
competitive bid basis. The contracts are typically firm agreements to provide
specified aviation services at a fixed rate. They typically have terms of one
year subject to annual renewals at the option of the contracting agency.

MANAGEMENT INFORMATION SYSTEM

     The Company has developed an advanced integrated management information
system which allows management and customers to track the progress of every
aircraft being serviced on a real time basis. Bar coded work task cards are
tracked electronically and help coordinate the work of each assigned mechanic
and quality control inspector. The system can be accessed from any one of more
than 200 display stations located throughout the Company's Lake City and Macon
facilities. Project Coordinators can immediately access such detailed
information as the number of work-hours generated for any given project, a list
of all parts used or ordered and the identity of and tasks performed by each
mechanic and quality control inspector who has worked on an aircraft. This
information enables management to optimize the daily deployment of personnel,
materials and equipment among the various projects in service and to provide
customers with quick and accurate information about the status of their
aircraft.

COMPETITION

     The market for aircraft maintenance and modification services is highly
competitive and fragmented. In addition to several other independent maintenance
operators, the Company faces significant competition from major commercial
airlines that own and operate their own aircraft maintenance service centers. In
addition, the aircraft divisions of certain large original equipment
manufacturers ("OEM"s) have announced their intention to enter this market. Such
OEM's and airlines have substantially greater financial resources than the
Company. The Company does not have data available to determine its exact
relative market position. The Company believes that the most important bases for
competition in its industry are dependability of performance, prompt turnaround
time, price and flexibility. The Company considers its competitive strengths to
be the flexibility and experience of its labor force, its efficient facilities
and its reputation for quality and on-time delivery. The Company's principal
competitors for its commercial work include Tramco, Inc., Dee Howard Company,
Mobile Aerospace, Inc., Triad International Maintenance Corporation and Pemco
World Air Services, Inc. Its principal competitors for military contracts
include Boeing Military Aircraft, Lockheed-Martin Aeromod and Raytheon-E
Systems.

CUSTOMERS

     The Company's commercial services are offered to the airline industry at
large, and in particular, to owners and operators of aircraft who do not have
maintenance facilities of their own or whose facilities are unable to
accommodate an increasing workload. These customers have historically included
many start-up passenger airlines and air cargo companies. The Company's
customers also include large, established air carriers who have turned to
outsourcing




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portions of their maintenance operations in an effort to increase their
profitability. During 1997, AirTran Holdings, Inc. (formerly, Valujet, Inc.)
accounted for approximately 23% of the Company's consolidated net sales, and the
top three customers of the Company (including AirTran) accounted for
approximately 49% of such sales. During 1996, three customers accounted for
approximately 26%, 15%, and 14% of the Company's consolidated net sales. During
1995, two customers accounted for 30% and 21% of the Company's consolidated net
sales. None of the Company's customers are contractually obligated to provide
the Company with any minimum number of aircraft for servicing in the future.
There can be no assurance that the Company's larger historical customers will
continue to utilize the Company's services to the same extent as they have in
the past. The Company's commercial customers include Continental Airlines,
American Trans Air, AirTran, Ryan International/Emery Worldwide, Burlington Air
Freight, and US Airways. The Company has also performed services under
government contracts for the USAF, the U.S. Coast Guard and the Mexican Air
Force. The U.S. government accounted for approximately 5% and 2% of the
Company's 1997 and 1995 consolidated net sales, respectively. The Company made
no sales to the U.S. government in 1996.

REGULATION AND CERTIFICATION

     The maintenance, modification and operation of aircraft are strictly
regulated by the FAA and foreign aviation authorities which oversee such matters
as aircraft certification, inspection, maintenance, certification of personnel
and record keeping. FAA regulations are designed to insure that all aircraft and
aviation equipment are continuously maintained in proper condition to ensure
safe operation of the aircraft. Similar rules apply in most foreign countries.
All aircraft must be maintained under a continuous monitoring program and must
periodically undergo thorough inspection and maintenance. The inspection,
maintenance and repair procedures for the various types of aircraft are
prescribed by regulatory authorities and can be performed only by certified
repair facilities utilizing certified technicians. The Company operates FAA-
certified repair stations in Lake City, Florida and Macon, Georgia and has been
granted licenses from the FAA and several foreign regulatory counterparts,
including the JAA, to perform maintenance, repair and overhaul services on most
narrow-bodied aircraft and wide-bodied aircraft. The Company also employs a
dedicated staff of FAA-certified structural, electrical, avionics and Airframe
and Powerplant technicians.

     In addition to domestic and foreign governmental regulations, OEMs,
commercial airlines and other customers require that the Company satisfy certain
requirements relating to the quality of its services. The Coordinated Agency for
Supplier Evaluation ("CASE"), a consortium of United States air carriers,
reviews the operations of the Company on a regular basis for quality and
efficiency. The Company has completed several audits conducted by the FAA and
CASE and has continually met or exceeded the requirements imposed by its
customers and by OEMs.

     The Company's operations are also subject to a variety of worker and
community safety laws. The Occupational Safety and Health Act of 1970 ("OSHA")
mandates general requirements for safe workplaces for all employees. Specific
safety standards have been promulgated for workplaces engaged in the treatment,
disposal or storage of hazardous waste. The Company believes that its operations
are in material compliance with OSHA's health and safety requirements.

ENVIRONMENTAL MATTERS

     The Company's operations, like those of other companies engaged in similar
businesses, are subject to federal, state and local environmental laws and
regulation by government agencies, including the United States Environmental
Protection Agency ("EPA") and the Florida Department of Environmental Protection
("FDEP"). Among other matters, these regulatory authorities impose requirements
that regulate the emission, discharge, generation, management, transportation
and disposition of hazardous materials, pollutants and contaminants, govern
public and private response actions to hazardous or regulated substances which
may be or have been released to the environment, and require the Company to
obtain and maintain licenses and permits in connection with its operations. This
extensive regulatory framework imposes significant compliance burdens and risks
on the Company.

     The Company periodically reviews its reserves for potential environmental
liabilities. Such review includes an evaluation of currently available facts
with respect to each individual site and consideration of factors such as
existing technology, current laws and regulations and the Company's prior
experience in remediation of contaminated sites. As assessments and remediation
efforts progress at individual sites, the Company's environmental reserves and
remediation plans are reviewed and adjusted to reflect the additional legal and
technical information as it becomes available.

     The Company is taking remedial action pursuant to EPA regulations at the
Lake City, Florida facility.


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Environmental testing continues to be performed at this site and the Company is
monitoring the results of such tests to assess the impact and magnitude of the
Company's required remediation efforts. Based upon the most recent cost
estimates provided by the Company's environmental consultants, the Company
believes that the total remaining remediation and compliance costs at this
facility will be approximately $2.4 million. There are, however, other areas on
the property at Lake City that could also require remediation, although the
Company does not believe it is responsible for such areas. In the event
remediation efforts are required in such areas, the Company may be required to
share in the costs of such remediation in order to continue its operations at
Lake City. The Company is unable to estimate the potential amount of such costs
at this time.

     In connection with the sale of Crystek, the Company was required to
perform, at its own expense, an environmental site assessment on the Crystek
Property. The Company is also required to remedy all recognized environmental
conditions identified in the assessment to bring the Crystek Property into
compliance with all applicable Federal, State and local environmental laws. If
the facility is not brought into compliance with such environmental laws by
December 31, 1998, the Crystek Buyer shall have the option of requiring the
Company to repurchase the Crystek Property. The Company has engaged independent
environmental consultants to review the potential environmental liabilities on
the Crystek Property. Such investigation and testing resulted in the
identification of likely environmental remedial actions. Based upon the cost
estimates provided by the consultants, the Company believes that the total
remediation and compliance costs for the Crystek Property will be approximately
$1.0 million.

     Actual costs required to be incurred by the Company in the future for
environmental compliance and remediation may vary from the Company's current
estimates of such costs, primarily because of the inherent uncertainties in
evaluating environmental exposures. These uncertainties include the extent of
remediation based on testing and evaluation not yet completed, the varying costs
and effectiveness of remediation methods and potential changes in environmental
laws, regulations or the interpretations thereof. No assurance can be given that
actual amounts ultimately required to be expended by the Company for
environmental compliance and remediation in the future will not be material.

MATERIALS

     The Company purchases components, parts and equipment from various
suppliers. The Company is not dependent upon any single supplier or group of
suppliers for any of the material it uses in its business and has encountered no
difficulties in purchasing sufficient quantities in the open market.

PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS

     The Company holds no material patents, franchises or concessions.

BACKLOG

     Although the Company has in prior years reported backlog in its Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q, management has
determined that the Company is not able to calculate and report with certainty
or reliability the backlog of orders which it believes to be firm. Though the
Company generally enters into written customer contracts, such contracts
generally define the obligations of the parties once an aircraft is delivered
for service but do not usually obligate the customer to deliver for service any
specific number of aircraft or to deliver an aircraft on any specific date. Any
estimate would also be subject to the difficulties of estimating the likelihood
of success of the Company's outstanding bids, the inability to predict services
to be provided in the future on aircraft delivered on a "drop-in" basis and the
fact that anticipated aircraft service dates often extend beyond a fiscal
period. Further estimates of the value of service to be rendered on any
particular aircraft are difficult to make until such time as the aircraft is
actually delivered for service and inspected.

EMPLOYEES

     As of December 31, 1997, the Company has approximately 1,152 full-time
employees. None of the Company's employees are covered by a collective
bargaining agreement. The Company believes that its relations with its employees
are generally good.




                                       -8-


<PAGE>   9

ITEM 2.  PROPERTIES

         The following are the locations and general character of the principal
plants and other materially important physical properties of the Company and its
subsidiaries:

<TABLE>
<CAPTION>
                                               Approximate
                              Approximate      Square Feet
     Industry Segment            Total          of Floor                                              Owned or
       and Location             Acreage           Space                    Description                 Leased
     ----------------         -----------      -----------                 ------------               ---------
<S>                                 <C>          <C>              <C>                                  <C>
CORPORATE OFFICES
         Dallas, Texas              5.2          80,000           Executive offices of the Company     Owned

AIRCRAFT MAINTENANCE
         Lake City, Florida       120.0         650,000           Offices and aircraft rebuilding      Lease expiring
                                                                  and modification facilities of           2022
                                                                  Aero Corporation

         Macon, Georgia             7.4         140,000           Offices and aircraft rebuilding      Lease expiring
                                                                  and modification facilities of           2018
                                                                  Aero Corporation
</TABLE>


     The Company leases approximately 70,000 sq. ft. of the Dallas, Texas
facility to HTI.

     The Company's aircraft depot located at the Lake City Municipal Airport in
Lake City, Florida spans 120 acres and includes seven maintenance hangars, two
runways, over 1.3 million square feet of ramp space, an FAA-certified control
tower and a fuel farm. The seven clear span steel hangars provide over 650,000
square feet of covered space and can comfortably house up to 18 narrow-bodied
aircraft. There is also covered nose dock space which allows for the sheltered
maintenance of up to four additional aircraft. Six hangars are used for heavy
maintenance and modification and one hangar is dedicated for aircraft striping
and painting. Each hangar has its own technical library, customer representative
offices, tool rooms, storage rooms and a production control center where all of
the paperwork associated with a project's workscope is maintained. Each of the
hangars are in close proximity to one another and to the Company's
administrative offices and hydraulic and sheetmetal shops. The Lake City
facility is operated by the Company under a lease from the City of Lake City
which expires in 2022. Since 1992, the Company has invested more than $9.2
million to renovate and improve the Lake City facility to the point where it is
now capable of accommodating nearly all narrow-bodied and wide-bodied aircraft
in current production.

     The Company's Macon facility consists of five buildings on the East ramp of
the Macon Municipal Airport in Macon, Georgia. With over 140,000 square feet
under roof, the Macon facility can house three DC-8 and three DC-9 aircraft in
its hangar bays. One of its three hangar bays can also accommodate a DC-10 or
A-300 size aircraft.

     The Company believes that its plants and other physical properties are
adequate for its intended operations

ITEM 3.  LEGAL PROCEEDINGS

     On May 10, 1991, an action was filed in the District Court of Dallas
County, Texas, by Lee D. Webster, former Chairman, Chief Executive Officer and
President of Whitehall, against the Company, each of its directors (other than
Mr. Webster) and Cambridge Capital Fund, L.P., alleging, among other things,
that ( i ) the defendants' actions, both individually and in concert,
constituted willful interference with Mr. Webster's employment relationship with
the Company and was the direct cause of Mr. Webster's termination as its
President and Chairman of the Board, and (ii) the defendants' actions forced Mr.
Webster into retirement without providing Mr. Webster with retirement benefits
which Mr. Webster was purportedly promised. On August 17, 1994, the defendants
were granted a partial summary judgment. On October 24, 1994, Mr. Webster filed
a third amended petition and alleged the following causes of action: tortuous
interference with contractual relations against Cambridge Capital Fund, L.P.,
and directors George F. Baker and John J. McAtee; intentional infliction of
emotional distress and breach of oral contracts. The third amended petition
sought compensatory and punitive damages in excess of $35 million.


                                       -9-


<PAGE>   10

On January 12, 1995, the Court entered an abatement on one of the breach of oral
contract claims against the Company and entered a summary judgment in the
defendants' favor on all remaining claims alleged by Mr. Webster. On February
26, 1996, the Court granted a summary judgment in favor of the defendants on Mr.
Webster's remaining claims and entered a take nothing final judgment which
dismissed all of Mr. Webster's claims with prejudice to refiling. On March 26,
1996, Mr. Webster appealed the final judgment to the Dallas, Texas Court of
Appeals. Oral argument was held on November 13, 1997. To date, no decision has
been reached by the court. Management intends to vigorously defend this appeal.

     The Company is also involved in certain legal proceedings in the normal
course of its business. After consultation with counsel, management is of the
opinion that the outcome of the above-mentioned proceedings will not have a
material effect on the financial position or results of operations of the
Company.

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

     There were no matters submitted for a vote of the Company's stockholders in
the fourth quarter of Fiscal 1997.

EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table lists the names and ages of all executive officers of
the Company, all positions and offices of the Company presently held by such
persons, the commencement of the period of continuous service as an executive
officer, and the business experience of each operating officer during the past 5
years.

<TABLE>
<CAPTION>
            Name                    Age     Offices with Company and Business Experience During Past 5 Years
            ----                    ---     ----------------------------------------------------------------
<S>                                 <C>     <C>
George F. Baker                     58      Chairman of the Board and Chief Executive Officer of the Company since April
                                            1991; President of the Company from October 1991 until April 1995; a Managing
                                            Partner of Cambridge Capital Fund, L.P. since its formation in 1988; a
                                            Managing Partner of Baker Nye Investments, L.P., since 1967.

John H. Wilson                      55      President of the Company since May 1995; Director of the Company since July
                                            1983.  Served as interim President of the Company from April 1991 until
                                            October 1991.  Director of Capital Southwest Corporation, Encore Wire
                                            Corporation, Norwood Promotional Products, Inc. and Palm Harbor Homes, Inc.
                                            and has been President of U. S. Equity Corporation since 1983.

Garlan Braithwaite                  63      Senior Vice President and Chief Financial Officer of the Company since August
                                            1997; President of Dragon Investment Corporation from 1990 to 1997.
</TABLE>

     There are no family relationships between any of the executive officers.

     Executive officers of the Company are not elected for a fixed term but
serve subject to the earlier of their resignation or removal by the Board of
Directors and until their respective successors are elected and qualified. The
Board of Directors is required to elect officers annually.




                                      -10-


<PAGE>   11

                                     PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock, $0.10 par value (the "Common Stock") is listed
on the New York Stock Exchange ("NYSE"), the principal market in which these
securities are traded. The Company's only listing agreement is with the NYSE. At
April 1, 1998, the Company had 605 stockholders of record.

     The table below shows the high and low sales prices of the Common Stock as
reported for the NYSE Composite Transactions for each quarter during the two
most recent calendar years. These historical prices have been adjusted to
reflect the 2 for 1 stock split declared January 29, 1997 in the form of a 100%
stock dividend to stockholders of record at the close of business on March 25,
1997.

<TABLE>
<CAPTION>
                 1st Quarter                2nd Quarter               3rd Quarter               4th Quarter
                 -----------                -----------               -----------               -----------
                High      Low             High      Low              High      Low             High      Low
                ----      ---             ----      ---              ----      ---             ----      ---
<S>           <C>       <C>             <C>       <C>              <C>       <C>             <C>       <C>   
1997          $22.88    $17.13          $20.88    $15.88           $24.94    $18.63          $20.25    $15.75
1996          $16.75    $13.75          $21.69    $15.75           $20.00    $15.69          $22.13    $18.50
</TABLE>

     The Company has not paid any cash dividends on its Common Stock, and its
policy is to retain earnings for use in its business.

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                  Years Ended December 31
                                                                  -----------------------
                                             1997             1996             1995            1994              1993
                                         -----------      -----------      -----------      -----------      -----------
                                                       (Dollar Amounts in Thousands Except Per Share Figures)
<S>                                      <C>              <C>              <C>              <C>              <C>        
SUMMARY OF OPERATIONS:
Net sales                                $    65,791      $    70,170      $    56,229      $    32,098      $    30,910
Cost of sales                                 64,197           59,809           48,385           27,586           26,455
Gross profit                                   1,594           10,361            7,844            4,512            4,455
Income (loss) before taxes                   (15,547)           6,523            3,838           (1,224)          (3,190)
Net income (loss)                            (11,937)           4,317            2,949           (1,224)          (1,868)
Net income (loss) per share*
     Basic                                     (2.16)            0.79             0.54            (0.23)           (0.34)
     Diluted                                   (2.16)            0.75             0.52            (0.23)           (0.34)

Weighted average shares outstanding*
     Basic                                 5,518,402        5,481,476        5,426,384        5,397,230        5,562,348
     Diluted                               5,518,402        5,735,118        5,642,304        5,397,230        5,562,348

Cash flow from (used in) operations           (4,545)          (4,084)          (1,802)           1,990           (2,001)
Capital expenditures                           3,739            4,438            1,668              467            2,313

YEAR-END POSITION:
Total assets                                  48,599           44,936           41,182           32,213           32,863
Working capital                                7,741           19,223           21,398           17,739           20,813
Current ratio                                    1.4              3.0              3.0              4.5              5.7
Property, plant and equipment -- net          17,567            9,654            6,869            6,384            7,099
Common shareholders' equity                   23,039           34,825           30,099           26,989           28,239
Per share outstanding*                          4.17             6.33             5.54             4.99             5.22

YEAR-END STATISTICS:
Common shares outstanding*                 5,530,000        5,505,400        5,439,800        5,412,600        5,412,000
Number of shareholders                           618              640              661              740              793
Number of employees                            1,152              752              682              512              528
Plant area (thousand sq. ft.)                    870              680              750              767              846
</TABLE>

*Adjusted to reflect the 2 for 1 stock split declared January 29, 1997.



                                      -11-


<PAGE>   12







ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OPERATING RESULTS

     Consolidated sales totaled $65,791,000 for 1997, a decrease of 6% from
sales of $70,170,000 in 1996. Consolidated sales in 1996 include approximately
$1.9 million of sales in the Ocean Systems segment, which was sold in November
1996. Sales in the Electronics segment decreased by $2,212,000 to $672,000 in
1997. In March of 1997, the Company sold the Electronics segment for $2.7
million, see Item 1B and Note L of the Notes to Consolidated Financial
Statements. Aircraft Maintenance segment sales decreased by $221,000 to
$65,119,000 in 1997, primarily as a result of hangar space that was reserved in
anticipation of the United States Air Force C-130 maintenance contract awarded
in April 1997, which was subsequently canceled at the convenience of the
government in June 1997. The C-130 contract provides for reimbursement by the
United States Air Force of costs incurred during its operation, and the Company
has recorded a claim against the government for these costs. This reduction in
anticipated revenue was partially offset by the acquisition of the Macon,
Georgia facility, which accounted for approximately $12 million of the segment's
sales. Sales are also affected by arrivals of planes later than their scheduled
time.

     Consolidated sales totaled $70,170,000 for 1996, an increase of 25% over
sales of $56,229,000 in 1995. Aircraft Maintenance segment sales increased by
$22,699,000 to $65,340,000 in 1996, primarily as a result of its continued
expansion into the third party commercial aircraft maintenance market. Sales in
the Ocean Systems segment decreased by $8,002,000 to $1,946,000 in 1996.
Revenues in the Ocean Systems segment decreased primarily as a result of
contract completions with no follow-on contract awards. In November 1996, the
Company sold substantially all of the assets of the Ocean Systems segment, see
Item 1B and Note D. Sales in the Electronics segment decreased by $756,000 to
$2,884,000 in 1996.

     Consolidated sales totaled $56,229,000 for 1995, an increase of 75% over
sales of $32,098,000 in 1994. Aircraft Maintenance segment sales increased by
$17,238,000 to $42,641,000 in 1995, primarily as a result of its continued
expansion into the third party commercial aircraft maintenance market. Sales in
the Ocean Systems segment increased by $6,126,000 to $9,948,000 in 1995.
Revenues in the Ocean Systems segment increased primarily as a result of new
product sales in the commercial geophysical market. Sales in the Electronics
segment increased by $767,000 to $3,640,000 in 1995.

     The Company recorded an operating loss of $9,996,000 in 1997 compared to an
operating profit of $5,705,000 in 1996. The Aircraft Maintenance segment
reported an operating loss of $9,764,000 in 1997 compared to an operating profit
of $7,026,000 in 1996 primarily due to the increase in environmental reserves
(see "Environmental Matters" above), an increase in the provision for obsolete
inventory, and an increase in the allowance for doubtful accounts. The allowance
was increased because of disputes with large customers (the ultimate outcome of
which can not be determined at this time) and certain customers in weak
financial condition, including two customers that went into bankruptcy. The
Electronics segment reported an operating loss of $6,000 in 1997 compared to an
operating profit of $557,000 in 1996. The Electronics segment was sold in March
1997. Corporate office general and administrative expenses decreased to $337,000
in 1997 compared to $968,000 in 1996. This decline was the result of lower
insurance and legal expense reserves, as well as a reduction in corporate staff
and staff expenses.

     The Company recorded an operating profit of $5,705,000 in 1996 compared to
an operating profit of $2,875,000 in 1995. The Aircraft Maintenance segment
reported an operating profit of $7,026,000 in 1996 compared to an operating
profit of $3,430,000 in 1995. The improved profitability in the Aircraft
Maintenance segment resulted primarily from the increase in sales. The Company
increased its sales to its three largest customers in 1996 over those same
customers in 1995, mainly because those customers had increased the size of
their fleets. The Ocean Systems segment reported an operating loss of $789,000
in 1996 compared to an operating profit of $419,000 in 1995. The decline in
sales was the primary reason for the 1996 operating loss in the Ocean Systems
segment. The Electronics segment reported an operating profit of $557,000 in
1996 compared to an operating profit of $796,000 in 1995. The decline in sales
was the primary reason for the lower 1996 operating profit in the Electronics
segment. Corporate office general and administrative expenses decreased to
$968,000 in 1996 compared to $2,128,000 in 1995 primarily as a result of
reductions in legal and insurance expenses.

     Other expense, net in 1997 includes the $4,500,000 writedown of the
Company's investment in Hydroscience


                                      -12-


<PAGE>   13







Technologies, Inc. (HTI) preferred stock (See Item 1B). Other income in 1996
includes interest earned of $307,000 and investment income of $440,000. Other
income in 1995 includes gains on sales of fixed assets of $650,000 and interest
earned of $671,000. Other income in 1994 includes gains on sales of fixed assets
of $512,000 and interest earned of $791,000.

     The Company recorded an income tax benefit of $3,610,000 in 1997. The
Company recorded net income tax expense of $2,206,000 for 1996 and $889,000 in
1995.




                                      -13-

<PAGE>   14



YEAR 2000 ISSUE

     The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using '00' as the year 1900 rather than the year 2000. If the Company's
systems are unable to recognize or properly treat the year 2000, critical
financial and operational information may be processed incorrectly. The Company
has not yet assessed the year 2000 compliance expense and related potential
effect on the Company's earnings.

LIQUIDITY AND CAPITAL RESOURCES

     During 1997, cash used in operating activities totaled $4,545,000 as
compared to $4,084,000 in 1996 and $1,802,000 in 1995.

     The Company made capital expenditures during 1997 of approximately
$3,739,000 compared to $4,438,000, and $1,668,000 in 1996 and 1995. The majority
of the capital expenditures in all years were made to renovate the Aero facility
in Lake City, Florida. All planned major expansions have been completed as of
December 31, 1997. Including in 1997 capital expenditures was the construction
of a building and the purchase of other items for the C-130 contract and the
completion of the refinishing of various hanger floors. However, the Company
will make capital and other expenditures during 1998 as conditions warrant.

     Cash and cash equivalents decreased from approximately $2,656,000 at
December 31, 1996, to $1,251,000 at December 31, 1997. During 1997, the Company
borrowed an additional $7,163,000 on its line of credit primarily to fund
working capital, the acquisition of the Macon, Georgia facility, and capital
expenditures of $3,739,000. At December 31, 1997, there was approximately
$2,287,000 available under the line of credit.

     The Company believes that, despite the losses generated in 1997 mainly
attributable to the increase in the accounts receivable reserve, the increase in
the environmental reserve, and the writedown of its investment in the HTI
Preferred Stock, its cash balances and line of credit facility are sufficient to
meet its short and long-term capital requirements. The Company intends to
continue to pursue opportunities for the acquisition of aircraft maintenance
facilities, and any future acquisitions may require additional capital. In order
to provide additional funds for the Company's growth strategies and for
operations over the long-term, the Company may incur, from time to time,
additional short and long-term bank indebtedness and may issue, in public or
private transactions, equity and debt securities. The availability and terms of
such securities may depend upon market and other conditions. There can be no
assurances that such potential financing will be available on terms acceptable
to the Company.


FORWARD-LOOKING STATEMENTS

     This Form 10-K includes certain forward-looking statements, including
statements made under Item 7, about anticipated results, liquidity and capital
resources and statements made under Item 1 concerning the anticipated growth of
worldwide air traffic and the expected trend toward greater outsourcing by
commercial air carriers and the US Military. Such forward-looking statements are
based upon known and unknown assumptions, risks, uncertainties, and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that could cause actual results to differ from such expectations include, but
are not limited to, those associated with general economic and business
conditions, aircraft and aerospace industry trends, availability of financing,
and the inability or failure to identify or consummate successful acquisitions
or to assimilate the operations of any acquired businesses with those of the
Company.







                                      -14-
<PAGE>   15
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                               Page
                                                                               ----
<S>                                                                             <C>
    Report of Independent Public Accountants                                    16
    Consolidated Balance Sheets at December 31, 1997 and 1996                   17
    Consolidated Statements of Operations for the Years Ended
    December 31, 1997, 1996 and 1995                                            19
    Consolidated Statements of Shareholders' Equity for the Years
    Ended December 31, 1997, 1996 and 1995                                      20
    Consolidated Statements of Cash Flows for the Years Ended
    December 31, 1997, 1996 and 1995                                            21
    Notes to Consolidated Financial Statements                                  22

    Schedule II -- Valuation and Qualifying Accounts                            38
</TABLE>








                                      -15-



<PAGE>   16
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Whitehall Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Whitehall
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the three years in the period ended December 31,
1997. These consolidated financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Whitehall Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.


                                             ARTHUR ANDERSEN LLP


Dallas, Texas,
March 25, 1998




                                      -16-


<PAGE>   17

                     WHITEHALL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                            ASSETS                      December 31,
                                               -----------------------------
                                                   1997             1996 
                                               ------------     ------------
<S>                                            <C>              <C>         
CURRENT ASSETS:
        Cash and cash equivalents              $  1,251,000     $  2,656,000
        Accounts receivable, net                 16,234,000       18,461,000
        Income taxes receivable                   2,590,000          458,000
        Inventories                               6,029,000        6,440,000
        Prepaid expenses and other                  636,000          656,000
        Current deferred income tax               1,053,000               --
        Notes receivable                            516,000               --
                                               ------------     ------------

                TOTAL CURRENT ASSETS             28,309,000       28,671,000

INVESTMENTS                                              --        4,611,000

PROPERTY, PLANT AND EQUIPMENT:
        Land                                        910,000          399,000
        Buildings                                 4,880,000        1,293,000
        Machinery and equipment                  13,718,000       11,790,000
        Leasehold improvements                   10,259,000        8,710,000
                                               ------------     ------------
                                                 29,767,000       22,192,000

        Accumulated depreciation                 12,200,000       12,538,000
                                               ------------     ------------
                                                 17,567,000        9,654,000

NOTES RECEIVABLE                                  2,723,000        2,000,000
                                               ------------     ------------

                TOTAL ASSETS                   $ 48,599,000     $ 44,936,000
                                               ============     ============
</TABLE>



      The accompanying notes are an integral part of these balance sheets.


                                      -17-


<PAGE>   18
                     WHITEHALL CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

<TABLE>
<CAPTION>
        LIABILITIES AND SHAREHOLDERS' EQUITY                                         December 31,
                                                                           --------------------------------
                                                                                1997                1996
                                                                           ------------        ------------
<S>                                                                        <C>                 <C>         
CURRENT LIABILITIES:
        Accounts payable and accrued liabilities                           $  6,618,000        $  6,239,000
        Bank line of credit                                                   9,713,000           2,550,000
        Current portion of long term debt                                       283,000             280,000
        Current portion of obligations under capital lease                       84,000                  --
        Accrued environmental costs                                           3,954,000             379,000
                                                                           ------------        ------------
                          TOTAL CURRENT LIABILITIES                          20,652,000           9,448,000

LONG-TERM DEBT, net of current portion                                          263,000             546,000

OBLIGATIONS UNDER CAPITAL LEASES                                              4,174,000                  --

OTHER NON-CURRENT LIABILITIES                                                   471,000             117,000

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
        Preferred stock, $5.00 par value:
         authorized 500,000 shares -- none issued                                    --                  --
        Common stock, $.10 par value: authorized
         20,000,000 shares, issued 7,691,312 and
         7,666,712 at December 31, 1997 and 1996                                770,000             767,000
        Additional paid-in capital                                            1,914,000           1,766,000
        Retained earnings                                                    36,500,000          48,437,000
                                                                           ------------        ------------
                                                                             39,184,000          50,970,000
        Less- treasury stock (2,161,312 shares
         at December 31, 1997 and 1996), at cost
                                                                            (16,145,000)        (16,145,000)
                                                                           ------------        ------------
                                                                             23,039,000          34,825,000
                                                                           ------------        ------------
                          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $ 48,599,000        $ 44,936,000
                                                                           ============        ============
</TABLE>

      The accompanying notes are an integral part of these balance sheets.



                                      -18-
<PAGE>   19

                     WHITEHALL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                           December 31,
                                                                           ------------
                                                           1997                1996                1995
                                                       ------------        ------------       ------------
<S>                                                    <C>                 <C>                <C>         
Net sales:
    Services                                           $ 65,119,000        $ 65,340,000       $ 42,641,000
    Products                                                672,000           4,830,000         13,588,000
                                                       ------------        ------------       ------------
                                                         65,791,000          70,170,000         56,229,000

Cost of sales:
    Services                                             63,786,000          56,033,000         37,510,000
    Products                                                411,000           3,776,000         10,875,000
                                                       ------------        ------------       ------------
                                                         64,197,000          59,809,000         48,385,000

    GROSS PROFIT                                          1,594,000          10,361,000          7,844,000

Selling, engineering and administrative expenses         11,590,000           4,656,000          4,969,000
                                                       ------------        ------------       ------------

    INCOME (LOSS) FROM OPERATIONS                        (9,996,000)          5,705,000          2,875,000

Other income (expense), net                              (5,551,000)            818,000            963,000
                                                       ------------        ------------       ------------

    INCOME (LOSS) BEFORE INCOME TAXES                   (15,547,000)          6,523,000          3,838,000

Provision for (benefit from) income taxes                (3,610,000)          2,206,000            889,000
                                                       ------------        ------------       ------------

    NET INCOME (LOSS)                                  $(11,937,000)       $  4,317,000       $  2,949,000
                                                       ============        ============       ============


NET INCOME (LOSS) PER SHARE
    Basic                                              $      (2.16)       $       0.79       $       0.54
                                                       ============        ============       ============
    Diluted                                            $      (2.16)       $       0.75       $       0.52
                                                       ============        ============       ============

WEIGHTED AVERAGE SHARES OUTSTANDING
      Basic                                               5,518,000           5,481,000          5,426,000
      Diluted                                             5,518,000           5,735,000          5,642,000
</TABLE>


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


                                      -19-
<PAGE>   20
 
                     WHITEHALL CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                     Preferred Stock     Common Stock         Additional                        Treasury Stock
                                     --------------- ---------------------     Paid-in       Retained     -------------------------
                                     Shares  Amount   Shares      Amount       Capital       Earnings       Shares        Amount
                                     ------  ------  ---------   ---------   -----------   ------------   ----------   ------------
<S>                                  <C>     <C>     <C>         <C>         <C>           <C>            <C>          <C>  
Balance, December 31, 1994              --    $--    3,786,956   $ 379,000   $ 1,200,000   $ 41,555,000   (1,080,656)  $(16,145,000)

         Exercise of Stock Options      --     --       13,600       1,000       160,000             --           --             --

         Net income                     --     --           --          --            --      2,949,000           --             --
                                       ---    ---    ---------   ---------   -----------   ------------   ----------   ------------

Balance, December 31, 1995              --     --    3,800,556     380,000     1,360,000     44,504,000   (1,080,656)   (16,145,000)

         Exercise of Stock Options
         (adjusted for stock split)     --     --       65,600       7,000       406,000             --           --             --


         2 for 1 stock split effected
         in the form of a 100% stock
         dividend                       --     --    3,800,556     380,000            --       (384,000)  (1,080,656)            --



         Net income                     --     --           --          --            --      4,317,000           --             --
                                       ---    ---    ---------   ---------   -----------   ------------   ----------   ------------

Balance, December 31, 1996              --     --    7,666,712     767,000     1,766,000     48,437,000   (2,161,312)   (16,145,000)

         Exercise of stock options      --     --       24,600       3,000       148,000             --           --             --

         Net loss                       --     --           --          --            --    (11,937,000)          --             --
                                       ---    ---    ---------   ---------   -----------   ------------   ----------   ------------

Balance, December 31, 1997              --    $--    7,691,312   $ 770,000   $ 1,914,000   $ 36,500,000   (2,161,312)  $(16,145,000)
                                       ===    ===    =========   =========   ===========   ============   ==========   ============
</TABLE>



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


                                      -20-
<PAGE>   21

                     WHITEHALL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                                 ------------
                                                                    1997             1996            1995
                                                                ------------     -----------       -----------
<S>                                                             <C>              <C>               <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                               $(11,937,000)    $ 4,317,000      $2,949,000
Adjustments to reconcile net income (loss) to cash
used in operating activities--
       Depreciation and amortization                               1,342,000       1,096,000       1,097,000
       Gain on sale of fixed assets                                       --         (11,000)       (650,000)
       Writeoff of preferred stock of Hydroscience
          Technologies, Inc.                                       4,500,000              --              --
       Investment (income) loss                                      111,000        (440,000)        329,000
       Changes in operating assets and liabilities
       (excluding disposition and net of acquisition)--
          Accounts receivable, net                                 1,822,000      (1,064,000)    (10,409,000)
          Income taxes receivable                                 (2,132,000)       (458,000)             --
          Federal income tax liability                                    --      (1,186,000)      1,186,000
          Deferred income taxes                                   (1,053,000)             --        (390,000)
          Inventories                                               (686,000)     (3,246,000)       (833,000)
          Prepaid expenses and other                                 (13,000)         70,000        (144,000)
          Accounts payable and accrued liabilities                     4,000      (2,619,000)      5,006,000
          Environmental reserve                                    3,175,000        (246,000)             --
          Other liabilities                                          322,000        (297,000)         57,000
                                                                ------------    ------------    ------------
              Total adjustments                                    7,392,000      (8,401,000)     (4,751,000)
                                                                ------------    ------------    ------------

                 CASH USED IN OPERATING ACTIVITIES                (4,545,000)     (4,084,000)     (1,802,000)

CASH FLOWS FROM INVESTING ACTIVITIES:
    Cash paid in acquisition                                      (1,500,000)             --              --
    Capital expenditures                                          (3,739,000)     (4,438,000)     (1,668,000)
    Notes receivable                                                (375,000)             --         500,000
    Proceeds from sale of fixed assets                                    --          11,000         735,000
    Proceeds from sale of segment                                  1,720,000              --              --
                                                                ------------    ------------    ------------

              CASH USED IN INVESTING ACTIVITIES                   (3,894,000)     (4,427,000)       (433,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net increase in line of credit                                 7,163,000       2,550,000              --
    Net change in long term debt                                    (283,000)        826,000              --
    Issuance of common stock from exercise of stock options          151,000         409,000         161,000
                                                                ------------    ------------    ------------

              CASH PROVIDED BY FINANCING ACTIVITIES                7,031,000       3,785,000         161,000
                                                                ------------    ------------    ------------

Net decrease in cash and cash equivalents                         (1,405,000)     (4,726,000)     (2,074,000)
Cash and cash equivalents at beginning of period                   2,656,000       7,382,000       9,456,000
                                                                ------------    ------------    ------------
Cash and cash equivalents at end of period                      $  1,251,000    $  2,656,000    $  7,382,000
                                                                ============    ============    ============

SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
    Income taxes                                                $    143,000    $  3,720,000    $         --
    Interest                                                         677,000          61,000              --

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

    Promissory notes received for sale of Electronics segment   $    864,000    $         --    $         --
    Disposition of Ocean Systems segment inventory and fixed 
      assets in exchange for Hydroscience Technologies, Inc.
      preferred stock:
       Inventory                                                $         --    $  3,943,000    $         --
       Fixed assets, net                                                  --         557,000              --
       Investment in Hydroscience Technologies, Inc. 
        preferred stock                                                   --      (4,500,000)             --
</TABLE>

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


                                      -21-
<PAGE>   22

                     WHITEHALL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A -- ACCOUNTING POLICIES AND PRACTICES

Consolidation: The consolidated financial statements of Whitehall Corporation
and subsidiaries (the "Company") include the accounts of all subsidiaries after
elimination of intercompany accounts and transactions.

Use of Estimates: Generally accepted accounting principles require management to
make estimates and assumptions that affect the reported amount 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 period. Actual results could differ from those estimates.

Reclassifications: Certain reclassifications have been made to 1996 and 1995
amounts to conform with the 1997 presentation.

Long-term Contracts: Revenue on long-term contracts in 1996 and 1995 is
recognized using the percentage of completion or unit of delivery method. On
contracts where the percentage of completion method is applied, revenue is
accrued in the proportion that costs incurred bear to management's estimate of
total contract costs. Any known or anticipated losses are provided for
currently.

Concentration of Credit Risk: Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of temporary
cash investments and accounts receivable. The Company places its temporary cash
investments with creditworthy financial institutions and, thus, limits the
amount of credit exposure to any one entity. The Company's customer base is
comprised primarily of U.S. airlines and air transport companies.

Cash Equivalents: Cash equivalents consist of highly liquid debt instruments
purchased with an original maturity of three months or less.

Inventories: Inventories are carried at average cost, not in excess of market.

Property, Plant and Equipment: Property, plant and equipment is stated at cost.
Provisions for depreciation and amortization have been computed generally using
the straight-line method over the estimated useful lives of the assets.

Long-Lived Assets: The Company periodically reviews its long-lived assets for
impairment. If this review indicates that the carrying amount of an asset may
not be recovered through future operations or sale, the carrying value of the
asset will be reduced to its fair value. In 1997, the Company recorded an
impairment loss on its investment in preferred stock (see Note D).

Research and Development: Research and development costs are included in
selling, engineering and administrative expenses and amounted to approximately
$41,000 in 1996, and $45,000 in 1995. There were no research and development
costs incurred in 1997.

Federal Income Taxes: The Company accounts for income taxes using an asset and
liability approach for financial accounting and income tax reporting. Deferred
tax liabilities and assets are recognized for the estimated future tax effects
attributable to temporary differences and carryforwards and are adjusted
whenever tax rates or other provisions of income tax statutes change.

The Company and all subsidiaries file a consolidated Federal income tax return.
Deferred federal income taxes have been provided for temporary differences
between tax and financial reporting resulting primarily from depreciation
provisions, allowances and expense accruals.


                                      -22-
<PAGE>   23
Earnings (Loss) Per Share: Effective January 1, 1997, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." SFAS No. 128 simplifies the computation of earnings per share (EPS) by
replacing the presentation of primary EPS with a presentation of basic EPS.
Basic EPS is calculated by dividing the income (loss) available to common
shareholders by the weighted average number of common shares outstanding during
the period. Options and other potentially dilutive securities are excluded from
the calculation of basis EPS. Diluted EPS includes options and other potentially
dilutive securities that are excluded from basic EPS to the extent that these
securities are not anti-dilutive. Options were not included in the 1997
computation of diluted EPS because they are anti-dilutive.

The following is a reconciliation between basic and diluted EPS for the years
ended December 31, 1997, 1996, and 1995:


<TABLE>
<CAPTION>
                                             1997                            1996                            1995
                                 -----------------------------   -----------------------------   -----------------------------
                                     Loss           Shares          Income          Shares          Income          Shares
                                  (Numerator)    (Denominator)    (Numerator)    (Denominator)    (Numerator)    (Denominator)
                                 -------------   -------------   -------------   -------------   -------------   -------------
<S>                              <C>             <C>             <C>             <C>             <C>             <C>
Basic EPS                        $ (11,937,000)      5,518,000   $   4,317,000       5,481,000   $   2,949,000       5,426,000
Effect of dilutive options                  --              --              --         254,000              --         216,000
                                 -------------   -------------   -------------   -------------   -------------   -------------
Diluted EPS                      $ (11,937,000)      5,518,000   $   4,317,000       5,735,000   $   2,949,000       5,642,000
                                 =============   =============   =============   =============   =============   =============
</TABLE>


In accordance with SFAS No. 128, the earnings (loss) per share for all prior
periods have been restated.

Joint Venture Investment: See Note D.

Treasury Shares: During 1991, the Board of Directors authorized the repurchase
of up to 1,000,000 shares of the Company's common stock. An additional
authorization of 500,000 shares was made by the Board of Directors in March
1993. As of December 31, 1997, a total of 1,257,800 shares have been purchased
under these authorizations. The Company did not acquire any treasury stock
during 1995, 1996 or 1997.

Environmental Costs: Environmental expenditures that relate to current
operations are expensed. Remediation costs that relate to existing conditions
caused by past operations are accrued when it is probable that these costs will
be incurred and can be reasonably estimated. Environmental costs are included in
selling, engineering and administrative expenses in the accompanying
consolidated statements of operations.

Other Income (Expense): Other expense for 1997 includes the $4.5 million
writedown of the Company's investment in the preferred stock of Hydroscience
Technologies, Inc. Other income, net in 1996 and 1995 includes interest earned
of $307,000 and $671,000, respectively, and gains on sales of fixed assets of
$11,000 and $650,000, respectively.

Employee Benefits: The Company offers no significant post-employment or
post-retirement benefits.

New Accounting Pronouncements: During 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 129, "Disclosure of Information About Capital
Structure," which establishes standards for disclosing certain information about
an entity's capital structure. The statement is effective for years ending after
December 15, 1997, and its adoption did not have any impact on the Company's
financial statements.

During 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a company's financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. This Statement does not require a specific format
for that financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. This statement requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS No. 130 is effective for periods beginning
after December 15, 1997.

During 1997, FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This Statement is effective for financial
statements for periods beginning after December 15, 1997. As the Company is
operating


                                      -23-
<PAGE>   24


in only one segment as of December 31, 1997, and plans to focus solely on the
aircraft maintenance industry, this statement is not expected to have an impact
on the Company's financial statements.

NOTE B -- ACCOUNTS RECEIVABLE, NET

Accounts receivable were as follows:


<TABLE>
<CAPTION>
                                                                December 31,
                                                          -------------------------
                                                             1997          1996
                                                          -----------   -----------
<S>                                                       <C>           <C>        
         Commercial accounts:
             Accrued sales not billed                     $ 5,574,000   $ 6,578,000
             Billed                                        10,842,000    10,916,000
                                                          -----------   -----------
                                                           16,416,000    17,494,000

         Receivables from foreign governments                  14,000       206,000
         Receivables from United States Government, net     2,750,000       184,000
                                                          -----------   -----------

                                                            2,764,000       390,000

         Advances to joint venture (see Note D)               901,000     1,095,000

         Less -- allowance for doubtful accounts            3,847,000       518,000
                                                          -----------   -----------

                                                          $16,234,000   $18,461,000
                                                          ===========   ===========
</TABLE>


Accrued sales not billed will be billed on the basis of contract terms and
deliveries. All accrued amounts at December 31, 1997, are expected to be billed
and collected in 1998.



 In April 1997, the Company was awarded the United States Air Force C-130
 maintenance contract, which was subsequently canceled in June 1997 at the
 convenience of the government, based on no fault or issue with the Company. The
 C-130 contract provides for reimbursement by the United States Air Force of
 costs incurred during its operation, and the Company has recorded a $2.8
 million net receivable from the government for these costs, which is the
 Company's best estimate of the amount it will collect for the claim it has
 made. The Company is currently negotiating a termination settlement with the
 government.


 NOTE C -- INVENTORIES

 The components of inventories were as follows:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                          -------------------------
                                                             1997          1996
                                                          -----------   -----------
<S>                                                       <C>           <C>        
         Finished goods                                   $     --       $1,175,000
         Work in process                                        --            5,000
         Raw materials                                     6,029,000      5,260,000
                                                          ----------     ----------
                                                          $6,029,000     $6,440,000
                                                          ==========     ==========
</TABLE>

Costs included in inventories include raw materials and related labor and
overhead costs.

NOTE D -- INVESTMENTS

In November 1996, the Company sold substantially all of the assets related to
its Ocean Systems segment to Hydroscience Technologies, Inc. ("HTI") in exchange
for 818,182 shares of HTI Preferred Stock, which carries a liquidation
preference of $5.50 per share. At the Company's election, the HTI Preferred
Stock is convertible after December 31, 1997, into 45% of HTI's Common Stock.
(See Note P for pro forma information related to this transaction.) Although the
purchaser of Ocean


                                      -24-
<PAGE>   25

Systems provided additional capital and new management, the continuing decline
in defense spending and other concerns caused management to reevaluate this
preferred stock in 1997. Management has concluded that the value of its
investment has declined permanently. The entire amount was written off in 1997.

During 1994, the Company obtained 40% ownership of a joint venture involved in
the development of aircraft-related technology for an initial investment of
$1,000. The Company accounts for its investment in the joint venture under the
equity method. In 1994, the Company obtained a promissory note for an advance of
$2,000,000 to the joint venture. The principal balance of the promissory note
accrues interest at a maximum rate of 5% per annum and the principal balance
with accrued interest is due January 5, 1999. The note is secured by certain
assets of the joint venture. During 1997 and 1996, the Company advanced an
additional $815,000 and $75,000 to the joint venture. These advances are
included in accounts receivable.

Summarized balance sheet information for the joint venture as of December 31,
1997 and 1996 is as follows:

<TABLE>
<CAPTION>
                                           1997          1996
                                       -----------    ----------
<S>                                    <C>               <C>
Current assets                        $14,358,000    $ 6,578,000
Noncurrent assets                       2,782,000      3,818,000
Current liabilities                    12,489,000      5,176,000
Noncurrent liabilities                  2,000,000      2,000,000
</TABLE>

Summarized financial information for the joint venture for the years ended
December 31, 1997, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>
                             1997             1996              1995
                        ------------      ------------     ------------
<S>                     <C>               <C>              <C>         
Net sales               $ 17,810,000      $ 11,520,000     $  5,244,000
Gross profit               3,578,000         4,104,000        1,501,000
Net income (loss)           (569,000)        1,044,000         (710,000)
</TABLE>

NOTE E -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities were as follows:

<TABLE>
<CAPTION>
                                                    December 31,
                                            -------------------------
                                               1997           1996
                                            -----------    ----------
<S>                                         <C>            <C>        
Accounts payable                            $5,617,000     $5,403,000
Salaries, wages and payroll taxes            1,001,000        836,000
                                            ----------     ----------
                                            $6,618,000     $6,239,000
                                            ==========     ==========
</TABLE>


NOTE F - LONG-TERM DEBT

The Company entered into a long-term note and a credit facility during 1996 with
a bank. The credit facility consists of a $12,000,000 line of credit agreement
and a $3,000,000 standby letter of credit agreement. Advances under the line of
credit agreement accrue interest at the prime interest rate (8.5% at December
31, 1997). The Company also pays an annual commitment fee of 1/4 of 1 % on the
unused portion of the line of credit. At December 31, 1997, the unused and
available portion of the line of credit was $2,287,000. The line of credit
expires on June 30, 1998. Management is confident that this line will be renewed
or comparable financing can be obtained at June 30, 1998, for at least another
one-year period.

The credit facility is unsecured and contains certain financial covenants
related to working capital, consolidated net income and consolidated tangible
net worth, among other restrictions. The Company was in violation of certain
covenants as of December 31, 1997; however, these covenants have been waived by
the bank.


                                      -25-
<PAGE>   26
The long-term note consists of the following:

<TABLE>
<CAPTION>
                                                                           1997           1996
                                                                        ----------     ----------
<S>                                                                     <C>            <C>
Note payable with interest at 7.98%, payable in monthly
installments of $23,611 principal plus interest (7.98%) on the
outstanding balance to maturity in November 1999, at which
time the remaining principal balance is due, secured by property
valued at $850,000.                                                     $  546,000     $  826,000

Less: amounts payable within one year                                      283,000        280,000
                                                                        ----------     ----------
                                                                        $  263,000     $  546,000
                                                                        ==========     ==========
</TABLE>


This debt was incurred to finance the acquisition of certain fixed assets. The
total future debt principal payments are $283,000 in 1998, $263,000 in 1999, and
zero thereafter.

A $1,700,000 standby letter of credit was issued, pursuant to the standby letter
of credit agreement, in order to comply with the annual financial assurances
required by the Florida Department of Environmental Protection and related to
the environmental remediation being performed at the Company's Lake City,
Florida facility (see Note O). The standby letter of credit agreement has an
annual commitment fee of 1% of the amount of the letter of credit.

NOTE G -- SHAREHOLDERS' EQUITY

On January 29, 1997, the Board of Directors declared a 2 for 1 stock split to be
effected in the form of a 100% stock dividend to shareholders of record at the
close of business March 25, 1997. The dividend resulted in $384,000 being
transferred from retained earnings to common stock. This amount represents the
par value of the new stock. All share and per share amounts have been adjusted
to recognize this dividend.

On March 17, 1997, the shareholders approved an amendment to the Company's
Restated Certificate of Incorporation increasing the number of authorized shares
of Common Stock from 5,000,000 shares to 20,000,000 shares.



NOTE H -- INCOME TAXES

Federal and state income tax expense (benefit) consisted of the following:

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                   -----------------------
                            1997                            1996                         1995
                            ----                            ----                         ----
                   Current         Deferred         Current       Deferred      Current        Deferred
                 -----------     -----------      -----------     --------    -----------     -----------
<S>              <C>             <C>              <C>             <C>         <C>             <C>
Federal          $(2,016,000)    $(1,053,000)     $ 2,086,000     $    --     $ 1,279,000     $  (390,000)
State               (541,000)         --              120,000          --            --            --
                 -----------     -----------      -----------     -------     -----------     -----------
                 $(2,557,000)    $(1,053,000)     $ 2,206,000     $    --     $ 1,279,000     $  (390,000)
                 ===========     ===========      ===========     =======     ===========     ===========
</TABLE>

The provision (benefit) for income taxes differs from the amount computed by
applying the federal income tax rate to income before income taxes. The
following table summarizes the reasons for this difference:


<TABLE>                                                                    
<CAPTION>
                                                                  Year Ended December 31,
                                                       ----------------------------------------------
                                                          1997             1996              1995
                                                       ------------     ------------     ------------
<S>                                                    <C>              <C>              <C>        
Income tax provision (benefit) at statutory rate       $ (5,286,000)    $  2,217,000     $  1,315,000
State taxes (benefit)                                      (541,000)         120,000             --
Alternative minimum tax                                        --               --            (12,000)
Change in deferred tax allowance                          2,425,000         (158,000)        (515,000)
Other items -- net                                         (208,000)          27,000          101,000
                                                       ------------     ------------     ------------
                                                       $ (3,610,000)    $  2,206,000     $    889,000
                                                       ============     ============     ============
</TABLE>
                                      -26-
<PAGE>   27

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1997 and
1996 are as follows:

<TABLE>
<CAPTION>
                                                              1997           1996
                                                           ----------     ----------
<S>                                                        <C>               <C>
Deferred tax assets:
   Short-term-
   Expense accruals not deducted for tax purposes          $2,166,000     $  520,000
                                                           ----------     ----------
         Total short-term                                   2,166,000        520,000

   Long-term-
         Writedown of investment                            1,800,000           --
         Other                                                 68,000         37,000
                                                           ----------     ----------
         Total deferred tax assets                          4,034,000        557,000
   Less- Valuation allowance                               (2,609,000)      (184,000)
                                                           ----------     ----------
         Net deferred tax asset                            $1,425,000     $  373,000

Deferred tax liabilities-
   Short-term-
       Costs deducted for tax purposes                     $     --       $   24,000
   Long-term-
       Difference for depreciation of property, plant,
           and equipment                                      372,000        349,000
                                                           ----------     ----------
         Total deferred tax liability                      $  372,000     $  373,000

Net deferred tax asset                                     $1,053,000     $     --
                                                           ==========     ==========
</TABLE>

The Company has established a valuation allowance to offset the deferred tax
assets that have resulted from items that will only be deductible when such
items are actually incurred. The valuation allowance will be maintained until it
is more likely than not that these deferred tax assets will be realized.

NOTE I -- STOCK OPTION PLANS

In May 1992, the stockholders approved the Whitehall Corporation Incentive Stock
Option Plan ("Incentive Plan") and the Whitehall Corporation Non-Employee
Directors Stock Option Plan ("Directors Plan"). The Incentive Plan provides for
the grant of incentive stock options for up to 650,000 shares of Common Stock to
key employees. The Directors Plan provides for the grant of incentive stock
options for up to 130,000 shares of Common Stock to non-employee Directors of
the Company. Under the Plans, the exercise price for stock options will not be
less than the fair market value of the optioned stock at the date of grant.
Stock options expire ten years from the date of grant and generally vest over a
five-year period with one-fifth of the shares becoming exercisable on each of
the five anniversaries of the date of grant. As December 31, 1997, 1996, and
1995 there were 347,100, 218,600, and 196,200 options exercisable, respectively.
The option period under both Plans may not be more than ten years from the date
the option is granted.


                                      -27-

<PAGE>   28
Transactions involving the Plans are summarized as follows:

<TABLE>
<CAPTION>
                                                 Shares
                                                --------
   <S>                                          <C>    
   Options outstanding, December 31, 1994       444,000

     Granted ($14.13 per share)                  20,000
     Canceled                                      --
     Exercised ($5.63-$7.75 per share)          (27,200)
                                                -------
   Options outstanding, December 31, 1995       436,800


     Granted ($17.75-$19.53 per share)          130,000
     Canceled                                      --
     Exercised ($5.81-$7.75 per share)          (65,600)
                                                -------
    Options outstanding, December 31, 1996      501,200

     Granted ($16.375 per share)                 40,000

     Canceled ($7.75-$17.75 per share)          (16,600)
     Exercised ($5.81-$7.75 per share)          (24,600)
                                                -------
    Options outstanding, December 31, 1997      500,000
                                                =======
</TABLE>

The Company accounts for its stock option plans in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock option awards. In 1996, the Company adopted SFAS No. 123,
which requires that options be priced using the fair value method, and has
elected the disclosure only alternative. The fair value of each stock option
grant is estimated on the date of grant using the Black-Scholes option pricing
model. Using the fair value method to determine compensation costs, the
Company's pro forma net income and net income per share would be:

<TABLE>
<CAPTION>
                                                 1997                 1996               1995
                                                 ----                 ----               ----
<S>                                      <C>                  <C>                <C>           
Net income: As Reported                  $  (11,937,000)      $    4,317,000     $    2,949,000
               Pro Forma                    (11,940,000)           3,355,000          2,829,000
Net income per share: As Reported        $        (2.16)      $         0.75     $         0.52
               Pro Forma                          (2.16)                0.59               0.50

The following assumptions were used:

Risk free interest rate                            5.86%                7.03%              7.24%
Expected dividend yield                            --                   --                 --
Expected life of options                       10 years             10 years           10 years
Expected volatility                               37.44%               38.19%             38.33%
</TABLE>

The weighted average fair value of the stock options granted during 1997, 1996
and 1995 was $ 9.91, $11.22 and $9.11, respectively. The weighted average
exercise prices of the stock options outstanding and exercisable in 1997, 1996,
and 1995 are:

<TABLE>
<CAPTION>
                                            1997         1996         1995
                                            ----         ----         ----
<S>                                      <C>          <C>          <C>     
Outstanding at beginning of the year     $  10.12     $   6.80     $   6.38
         Granted                            16.38        18.30        14.13
         Exercised                           6.10         6.24         5.90
         Canceled                           16.79         --           --

Outstanding at end of year                  10.26        10.12         6.80
Exercisable at end of year               $   7.95     $   6.67     $   6.47
</TABLE>

Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the



                                      -28-
<PAGE>   29

resulting pro forma compensation cost may not be representative of that to
be expected in future years.

NOTE J -- SAVINGS PLAN

The Company implemented a voluntary 401(k) savings plan for eligible employees
(as defined by the Plan document) effective September 1, 1992. The Company
contributed $50 per enrolling employee in 1995. The Company contributes 50% of
employee contributions up to 1.5% of the employee's base salary. The Company may
make future matching contributions at its discretion. Company contributions
totaled approximately $86,000 in 1997, $40,000 in 1996, and $25,000 in 1995.
The Company's contributions vest over a six-year period.

NOTE K - ACQUISITION

In July 1997, the Company acquired an aircraft maintenance company in Macon,
Georgia for approximately $6.7 million in cash and assumed liabilities. This
acquisition involved the purchase of inventories, equipment, and certain
intangible assets. This acquisition was accounted for using the purchase method
of accounting. Accordingly, operations of the acquired business are included in
the accompanying consolidated financial statements for the period subsequent to
the effective date of the acquisition. See Note P for pro forma information for
this acquisition as if it had occurred at the beginning of the fiscal year.

The preliminary estimated fair values assigned to assets acquired and
liabilities assumed is summarized as follows:



<TABLE>
<S>                     <C>        
Assets acquired         $ 6,700,000
Liabilities assumed      (5,200,000)
                        -----------

Cash purchase price     $ 1,500,000
                        ===========
</TABLE>

NOTE L - SALE OF ELECTRONICS SEGMENT

In March 1997, the Company entered into an agreement to sell its Electronics
segment to a group of private investors for approximately $2.7 million. The
purchase consideration consists of approximately $1.9 million in cash and
$864,000 in promissory notes bearing interest at a rate of 10% per annum. See
Note P for pro forma information related to this transaction.

NOTE M--LEASES

In 1997, the Company assumed capital leases for land and buildings in the
acquisition of the aircraft maintenance facility in Macon, Georgia. Both leases
carry an interest rate of 8.25% and expire in 2018. There were no capital leases
in 1996. The following leased property included in the accompanying balance
sheets is under capital leases:

<TABLE>
<S>                                           <C>        
Land                                          $   588,000
Buildings                                       3,702,000
                                              -----------
Total leased property under capital lease       4,290,000
Less: Accumulated depreciation                    (89,000)
                                              -----------
                                              $ 4,201,000
                                              ===========
</TABLE>

The aggregate future minimum rental commitments as of December 31, 1997, for all
noncancellable operating leases and capital leases are as follows:

<TABLE>
<CAPTION>
                              Capital Leases  Operating Leases     Total
                              --------------  ----------------  -----------
<S>                            <C>              <C>             <C>        
1998                           $   432,000      $    58,000     $   490,000
1999                               432,000           58,000         490,000
2000                               432,000           42,000         474,000
2001                               432,000           26,000         458,000
2002 and thereafter              7,092,000          539,000       7,631,000
                               -----------      -----------     -----------
                                 8,820,000          723,000       9,543,000

Amount related to interest      (4,562,000)            --        (4,562,000)
                               -----------      -----------     -----------
Total lease obligation         $ 4,258,000      $   723,000     $ 4,981,000
                               ===========      ===========     ===========
</TABLE>


                                      -29-
<PAGE>   30

Total rental expense amounted to approximately $281,000 in 1997, $305,000 in
1996, and $105,000 in 1995.

NOTE N -- INDUSTRY SEGMENTS AND MAJOR CUSTOMERS

The Company operated in two segments during 1997: Aircraft Maintenance and
Electronics. The Aircraft Maintenance segment rebuilds, modifies and maintains
turboprop and jet aircraft. The Electronics segment manufactures and distributes
quartz crystals and oscillators.

Operating profit represents total revenue less operating expenses, excluding
general corporate expenses and interest expense. Identifiable assets are those
assets used in each segment. Corporate assets are principally cash, prepaid
items and capital assets.

Information about the Company's operations in the different segments is
summarized as follows:

<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                                      -----------------------
                                                                                  1997          1996          1995
                                                                                --------      --------      --------
                                                                                           (In thousands)
<S>                                                                             <C>           <C>           <C>     
Sales:
   Aircraft Maintenance                                                         $ 65,119      $ 65,340      $ 42,641
   Electronics                                                                       672         2,884         3,640
   Ocean Systems                                                                    --           1,946         9,948
                                                                                --------      --------      --------

                                                                                $ 65,791      $ 70,170      $ 56,229
                                                                                ========      ========      ========

Operating profit and income (loss) before taxes:
   Aircraft Maintenance                                                         $ (9,764)     $  7,026      $  3,430
   Electronics                                                                        (6)          557           796
   Ocean Systems                                                                    --            (789)          419
                                                                                --------      --------      --------
                                                                                  (9,770)        6,794         4,645

Corporate:
   Writedown of investment                                                        (4,500)         --            --
   Interest income                                                                   112           307           671
   Investment income (loss)                                                         (111)          440          --
   Gain (loss) on sale of assets                                                    (314)           11           650
   General and administrative expenses                                              (337)         (968)       (2,128)
   Interest expense                                                                 (627)          (61)         --
                                                                                --------      --------      --------

   Income (loss) before taxes$                                                  $(15,547)     $  6,523      $  3,838
                                                                                ========      ========      ========

Identifiable assets:
   Aircraft Maintenance                                                         $ 38,803      $ 32,507      $ 24,078
   Electronics                                                                      --           2,216         2,627
   Ocean Systems                                                                    --            --           6,518
   Corporate                                                                       9,796        10,213         7,959
                                                                                --------      --------      --------

                                                                                $ 48,599      $ 44,936      $ 41,182
                                                                                ========      ========      ========

Depreciation and amortization:
   Aircraft Maintenance                                                         $  1,179      $    776      $    813
   Electronics                                                                      --              50            27
   Ocean Systems                                                                    --             193           219
   Corporate                                                                         163            77            38
                                                                                --------      --------      --------

                                                                                $  1,342      $  1,096      $  1,097
                                                                                ========      ========      ========
</TABLE>



                                      -30-
<PAGE>   31


<TABLE>
<CAPTION>
                              Year Ended December 31,
                              -----------------------
                            1997       1996       1995
                            ------     ------     ------
                                  (In thousands)
<S>                         <C>        <C>        <C>   
Capital expenditures:
   Aircraft Maintenance     $3,679     $3,395     $1,441
   Electronics                --          100         46
   Ocean Systems              --            5        181
   Corporate                    60        938       --
                            ------     ------     ------

                            $3,739     $4,438     $1,668
                            ======     ======     ======
</TABLE>

The Company has three customers in the Aircraft Maintenance segment that account
for 23%, 16%, and 10% of 1997 consolidated net sales. The Company has three
customers in the Aircraft Maintenance segment that account for 26%, 15%, and 14%
of 1996 consolidated net sales. The Company has two customers in the Aircraft
Maintenance segment that accounted for 30% and 21% of 1995 consolidated net
sales. The United States government accounted for approximately 5% of
consolidated net sales in 1997, and 2% of consolidated net sales in 1995. The
Company made no sales to the United States government in 1996.

NOTE O -- COMMITMENTS AND CONTINGENCIES

Environmental Matters

The Company's operations, like those of other companies engaged in similar
businesses, are subject to extensive and evolving federal, state, and local
environmental laws and regulations. The measurement of environmental liabilities
is based on an evaluation of currently available facts with respect to each
individual site and considers factors such as existing technology, presently
enacted laws and regulations, and prior experience in remediation of
contaminated sites. As assessments and remediation progress at individual sites,
these liabilities are reviewed and adjusted to reflect the additional technical
and legal information as it becomes available. In order to comply with present
federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, the Company will be required to
fund remediation efforts, which could result in potentially substantial
operating costs and capital expenditures.

The Company is taking remedial action pursuant to Environmental Protection
Agency ("EPA") regulations at the Lake City, Florida facility. Ongoing testing
is being performed and new information is being gathered to continually assess
the impact and magnitude of the required remediation efforts on the Company.
Based upon the most recent cost estimates provided by environmental consultants,
the Company believes that the total remaining remediation and compliance costs
for this facility will be approximately $2.4 million, which has been accrued at
December 31, 1997.

Additionally, there are other areas on the Lake City property that could also
require remediation. The Company believes it 



                                      -31-
<PAGE>   32



is not responsible for these areas; however, it may be required to take part in
the remediation process to continue its operations at that location. No estimate
of any such costs to the Company is available at this time.

In connection with the sale of Crystek (see Note L), Whitehall was required to
perform, at its own expense, an environmental site assessment at the Crystek
facility. The Company is also required to remedy all recognized environmental
conditions identified in the assessment to bring the Crystek facility into
compliance with all applicable Federal, State, and local environmental laws. If
the facility is not brought into compliance with environmental laws by December
31, 1998, the buyer shall have the option of requiring the Company to repurchase
the property. The Company has engaged environmental consultants to review
potential environmental liabilities at the Crystek facility. Such investigation
and testing resulted in the identification of likely environmental remedial
actions. Based upon the cost estimates provided by the consultants, the Company
believes that the total remediation and compliance costs for this facility will
be approximately $1.0 million, which has been accrued at December 31, 1997.

Future information and developments will require the Company to continually
reassess the expected impact of the environmental matters discussed above.
Actual costs to be incurred in future periods may vary from the estimate, given
the inherent uncertainties in evaluating environmental exposures. These
uncertainties included the extent of required remediation based on testing and
evaluation not yet completed and the varying costs and effectiveness of
remediation methods.

To comply with the financial assurances required by the Florida Department of
Environmental Protection (FDEP), the Company requested and a bank issued a
$1,700,000 standby letter of credit in favor of the FDEP. This letter of credit
meets all conditions required by the FDEP.

Legal Matters

On May 10, 1991, an action was filed in the District Court of Dallas County,
Texas, by Lee D. Webster, former Chairman, Chief Executive Officer and President
of Whitehall, against the Company, each of its directors (other than Mr.
Webster) and Cambridge Capital Fund, L.P., alleging, among other things, that 
(i) the defendants' actions, both individually and in concert, constituted
willful interference with Mr. Webster's employment relationship with the Company
and was the direct cause of Mr. Webster's termination as its President and
Chairman of the Board, and (ii) the defendants' actions forced Mr. Webster into
retirement without providing Mr. Webster with retirement benefits which Mr.
Webster was purportedly promised. On August 17, 1994, the defendants were
granted a partial summary judgment. On October 24, 1994, Mr. Webster filed a
third amended petition and alleged the following causes of action: tortuous
interference with contractual relations against Cambridge Capital Fund, L.P.,
and directors George F. Baker and John J. McAtee; intentional infliction of
emotional distress and breach of oral contracts. The third amended petition
sought compensatory and punitive damages in excess of $35 million. On January
12, 1995, the Court entered an abatement on one of the breach of oral contract
claims against the Company and entered a summary judgment in the defendants'
favor on all remaining claims alleged by Mr. Webster. On February 26, 1996, the
Court granted a summary judgment in favor of the defendants on Mr. Webster's
remaining claims and entered a take nothing final judgment which dismissed all
of Mr. Webster's claims with prejudice to refiling. On March 26, 1996, Mr.
Webster appealed the final judgment to the Dallas, Texas Court of Appeals. Oral
argument was held on November 13, 1997. To date, no decision has been reached by
the court. Management intends to vigorously defend this appeal.

The Company is also involved in certain legal proceedings in the normal course
of its business. After consultation with counsel, management is of the opinion
that the outcome of the above-mentioned proceedings will not have a material
effect on the financial position or results of operations of the Company.

NOTE P -- PRO FORMA INFORMATION

The unaudited pro forma financial information presented below is for the years
ended December 31, 1997 and 1996. The unaudited pro forma financial information
gives effect to the sale of the Ocean Systems and Electronics segments and the
purchase of the Macon facility as if such transactions had occurred as of
January 1, 1996:

<TABLE>
<CAPTION>
                             1997              1996
                             ----              ----
<S>                      <C>               <C>         
Net sales                $ 76,153,000      $ 81,719,000
Net income (loss)         (12,841,000)        3,506,000
Net income per share            (2.33)             0.64
</TABLE>



                                      -32-
<PAGE>   33

The pro forma financial information does not purport to represent what the
results of operations of the Company would have actually been if the
aforementioned transactions had occurred on January 1, 1996, nor does it project
the results of operations for any future periods.

 NOTE Q -- RELATED PARTY TRANSACTIONS

 As of December 31, 1997, two former officers of the Company were indebted to
 the Company in the aggregate amount of approximately $363,000. This amount is
 classified as accounts receivable and is fully reserved.
 These receivables will be written off in 1998.

 NOTE R -- SUBSEQUENT EVENT

 On March 24, 1998, the Company entered into a definitive agreement with
 Aviation Sales Company (AVS). Under the terms of the agreement, the Company
 will exchange its common stock for common stock of AVS. This transaction is
 expected to be accounted for as a pooling of interests.




                                      -33-


<PAGE>   34


NOTE S -- SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>

                                                      Quarter Ended
                                                      ------------- 

                                  Mar. 31        June 30        Sept. 30          Dec. 31          Total
                                  -------        -------        --------          -------          ----- 
                                                            (In thousands, except for per share data)

<S>                              <C>             <C>             <C>              <C>              <C>     
1997:
    Net sales                    $ 13,551        $ 19,035        $ 14,256         $ 18,949         $ 65,791
    Gross profit (loss)             2,560           3,524          (6,955)           2,465            1,594
    Net income (loss)               1,135           1,329          (8,231)          (6,170)         (11,937)
    Net income (loss) per
         common share:
         Basic                   $   0.21        $   0.24        ($  1.49)        ($  1.12)        $  (2.16)
         Diluted                 $   0.20        $   0.23        ($  1.49)        ($  1.12)        $  (2.16)



1996:
    Net sales                    $ 20,187        $ 20,221        $ 16,318         $ 13,444         $ 70,170
    Gross profit                    3,092           2,879           2,197            2,193           10,361
    Net income                      1,063           1,129           1,187              938            4,317
    Net income per
         common share:*
         Basic                   $   0.19        $   0.21        $   0.22         $   0.17         $   0.79
         Diluted                 $   0.19        $   0.20        $   0.21         $   0.16         $   0.75


          *Restated to give effect to 100% stock dividend to stockholders' of record at the close of business 
on March 25, 1997.

</TABLE>

The fourth quarter of 1997 net loss and loss per share reflect approximately
$6.5 million of adjustments to accrue additional environmental reserves,
increase the allowance for bad debts, and increase the allowance for obsolete
inventory.






                                      -34-



<PAGE>   35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE


          None.

                                    PART III



 ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



          Information with respect to the Executive Officers of the Registrant
 is contained in Part I of this Annual Report under the caption "Executive
 Officers of the Registrant." Information with respect to the Directors of the
 Registrant is contained in the definitive proxy statement under the captions
 "Election of Directors," "Nominees for Election as Directors," "Security
 Ownership of Certain Beneficial Owners," "Security Ownership of Management" and
 "Compliance with Section 16(a) of the Securities Exchange Act of 1934" and is
 incorporated herein by reference.



 ITEM 11.  EXECUTIVE COMPENSATION



          "Executive Compensation" in the definitive proxy statement is
incorporated herein by reference.



 ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



           "Security Ownership of Certain Beneficial Owners" and "Security
 Ownership of Management" in the definitive proxy statement are incorporated
 herein by reference.



 ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



          "Certain Relationships and Related Transactions" in the definitive
 proxy statement are incorporated herein by reference.


                                     PART IV



 ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



          (a) 1. The following consolidated financial statements of the Company
                 and its subsidiaries are included in Item 8:

                  Consolidated Balance Sheets at December 31, 1997 and 1996

                  Consolidated Statements of Income for the years ended December
                    31, 1997, 1996 and 1995

                  Consolidated Statements of Stockholders' Equity for the years
                    ended December 31, 1997, 1996 and 1995

                  Consolidated Statements of Cash Flows for the years ended
                    December 31, 1997, 1996 and 1995

                  Notes to Consolidated Financial Statements



              2. The following consolidated financial statement schedule of the
                 Company and its subsidiaries is included herewith on page 38:

                 Schedule II       -Valuation and qualifying accounts



              All other schedules for which provision is made in the applicable
              accounting regulation of the Securities and Exchange Commission
              are not required under the related instructions or are
              inapplicable, and therefore have been omitted.




                                      -35-
<PAGE>   36
        3.  Exhibits

Exhibit      Incorporated by Reference to        Description
-------      ----------------------------        -----------

  (3)        Form 10-K December 31, 1987         a. Restated Certificate of 
             Form 10-K December 31, 1996         b. Amendment to  Restated 
                                                    Certificate of Incorporation
                                                    Incorporation
             Form 10-K December 31, 1992         c. Restated bylaws

  (10)       MATERIAL CONTRACTS              

             Form 10-K December 31, 1987         a. Resolutions adopted by the 
                                                    Compensation Committee of
                                                    the Board of Directors of
                                                    Whitehall Corporation on
                                                    March 14, 1988, approved by
                                                    the full Board of Directors
                                                    on March 22, 1988, relating
                                                    to benefits payable to
                                                    survivors of Mr. Lee D.
                                                    Webster.

             Filed herein                       b.  Whitehall Corporation 
                                                    Management Security 
                                                    Agreements

             Form 10-K December 31, 1992        c.  Whitehall Corporation
                                                    Incentive Stock Option Plans

                                                d.  Whitehall Corporation
                                                    Non-Employee Directors Stock
                                                    Option Plan, as amended by
                                                    Amendment No. 1 thereto

                                                e.  Lease between Aero
                                                    Corporation and City of Lake
                                                    City, Florida dated December
                                                    30, 1992

             Form 10-K December 31, 1996        f.  Line of Credit Agreement
                                                    between Comerica Bank
                                                    and Whitehall Corporation
                                                    dated January 24, 1996

             Filed herein                       g.  Asset Contribution
                                                    Agreement, dated November 7,
                                                    1996, by and between
                                                    Hydroscience, Inc. and
                                                    Hydroscience Technologies,
                                                    Inc.

                                                h.  Asset Purchase Agreement,
                                                    dated July 8, 1997, by and
                                                    among Aero Corp Macon, Inc.,
                                                    as buyer, Zantop
                                                    International Airlines,
                                                    Inc., as seller, and the
                                                    Zantop shareholders, party
                                                    to the agreement

                                                i.  Lease Agreement, dated May 
                                                    1, 1993 by and between the
                                                    Macon-Bibb County Industrial
                                                    Authority and Zantop
                                                    International Airlines, Inc.

                                                j.  Stock Purchase Agreement,
                                                    dated February 13, 1997, by
                                                    and among Crystek
                                                    Acquisition Corporation, as
                                                    buyer, and Whitehall
                                                    Corporation, as seller

                                                k.  First Amendment to Stock
                                                    Purchase Agreement, dated
                                                    March 31, 1997, by and among
                                                    Crystek Acquisition
                                                    Corporation, Whitehall
                                                    Corporation and Crystek Real
                                                    Estate Corporation



(21)         --                                 SUBSIDIARIES OF THE REGISTRANT

(23)         --                                 CONSENT OF INDEPENDENT PUBLIC
                                                ACCOUNTANTS

(27)         --                                 FINANCIAL DATA SCHEDULE

         The Registrant will furnish, upon request, a copy of any Exhibit upon
         the payment of its reasonable

                                      -36-

<PAGE>   37
   
         expenses for duplicating and mailing such Exhibit.

         (b) Reports on Form 8-K



         The Company has not filed a report on Form 8-K during the last quarter
of the period covered by this report.

                                   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.

                                                     WHITEHALL CORPORATION



                                                     By   /s/ G.F. BAKER
                                                       ------------------------
                                                     George F. Baker
                                                     Chairman of the Board

Date:  April 7, 1998

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

<TABLE>
<CAPTION>

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

<S>                                         <C>                                    <C> 
/s/     G.F. BAKER                          Chairman of the Board                  April 7, 1998
----------------------------------          (Principal executive officer)
        George F. Baker                      


/s/     JOHN H. WILSON                      President                              April 7, 1998
----------------------------------
        John H. Wilson

/s/     GARLAN BRAITHWAITE                  Senior Vice President and              April 7, 1998
----------------------------------          Chief Financial Officer
        Garlan Braithwaite                   


/s/     BRUCE C. CONWAY                     Director                               April 7, 1998
----------------------------------
        Bruce C. Conway


/s/     ARTHUR H. HUTTON                    Director                               April 7, 1998
----------------------------------
        Arthur H. Hutton


/s/     JOHN J. MCATEE                      Director                               April 7, 1998
----------------------------------
        John J. McAtee, Jr.


/s/     J.S. PARKER                         Director                               April 7, 1998
----------------------------------
        Jack S. Parker


/s/     LEWIS S. WHITE                      Director                               April 7, 1998
----------------------------------
        Lewis S. White
</TABLE>




                                      -37-

<PAGE>   38
                                                                     SCHEDULE II

                     WHITEHALL CORPORATION AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS




<TABLE>
<CAPTION>
                                                                  Additions
                                                                  ---------
                                         Balance at         Charges         Charged to                       Balance at
                                         Beginning       to Costs and     Other Accounts    Deductions         End of
             Description                 of Period         Expenses        (Describe)       (Describe)         Period
             -----------                ------------     ------------     ------------     ------------     ------------
<S>                                     <C>              <C>              <C>              <C>              <C>         
YEAR ENDED
DECEMBER 31, 1997:
Reserves and allowances deducted
    from asset accounts-
   Allowance for uncollectible
       accounts                         $    518,000     $  5,076,000     $         --     $  1,747,000(1)  $  3,847,000
   Allowance for obsolete inventory               --        1,220,000               --               --(4)     1,220,000
                                        ------------     ------------     ------------     ------------     ------------

         Totals                         $    518,000     $  6,296,000     $         --     $  1,747,000     $  5,067,000
                                        ============     ============     ============     ============     ============

Accrued environmental cost              $    379,000     $  3,400,000     $    400,000(3)  $    225,000(2)  $  3,954,000
                                        ============     ============     ============     ============     ============

YEAR ENDED
DECEMBER 31, 1996:
Reserves and allowances deducted
    from asset accounts-
   Allowance for uncollectible
       accounts                         $    732,000     $         --     $         --     $    214,000(1)  $    518,000
   Allowance for obsolete inventory          300,000               --               --          300,000(4)            --
                                        ------------     ------------     ------------     ------------     ------------

         Totals                         $  1,032,000     $         --     $         --     $    514,000          518,000
                                        ============     ============     ============     ============     ============

Accrued environmental cost              $    625,000     $         --     $         --     $    246,000(2)  $    379,000
                                        ============     ============     ============     ============     ============

YEAR ENDED
DECEMBER 31, 1995:
Reserves and allowances deducted
   from asset accounts-
   Allowance for uncollectible
       accounts                         $    858,000     $    748,000     $         --     $    874,000(1)  $    732,000
   Allowance for obsolete inventory               --          300,000               --               --          300,000
                                        ------------     ------------     ------------     ------------     ------------

         Totals                         $    858,000     $  1,048,000     $         --     $    874,000     $  1,032,000
                                        ============     ============     ============     ============     ============

Accrued environmental cost              $    736,000     $    416,000     $         --     $    527,000(2)  $    625,000
                                        ============     ============     ============     ============     ============
</TABLE>


(1) Uncollectible accounts written off, net of recoveries.
(2) Environmental clean up costs incurred.
(3) Purchase accounting.
(4) Reserve adjustment.




                                      -38-
<PAGE>   39
                                 EXHIBIT INDEX
<TABLE>
<CAPTION>

Exhibit      Incorporated by Reference to        Description
-------      ----------------------------        -----------
<S>          <C>                                 <C>
  (3)        Form 10-K December 31, 1987         a. Restated Certificate of 
             Form 10-K December 31, 1996         b. Amendment to  Restated 
                                                    Certificate of Incorporation
                                                    Incorporation
             Form 10-K December 31, 1992         c. Restated bylaws

  (10)       MATERIAL CONTRACTS              

             Form 10-K December 31, 1987         a. Resolutions adopted by the 
                                                    Compensation Committee of
                                                    the Board of Directors of
                                                    Whitehall Corporation on
                                                    March 14, 1988, approved by
                                                    the full Board of Directors
                                                    on March 22, 1988, relating
                                                    to benefits payable to
                                                    survivors of Mr. Lee D.
                                                    Webster.

             Filed herein                       b.  Whitehall Corporation 
                                                    Management Security 
                                                    Agreements

             Form 10-K December 31, 1992        c.  Whitehall Corporation
                                                    Incentive Stock Option Plans

                                                d.  Whitehall Corporation
                                                    Non-Employee Directors Stock
                                                    Option Plan, as amended by
                                                    Amendment No. 1 thereto

                                                e.  Lease between Aero
                                                    Corporation and City of Lake
                                                    City, Florida dated December
                                                    30, 1992

             Form 10-K December 31, 1996        f.  Line of Credit Agreement
                                                    between Comerica Bank
                                                    and Whitehall Corporation
                                                    dated January 24, 1996

             Filed herein                       g.  Asset Contribution
                                                    Agreement, dated November 7,
                                                    1996, by and between
                                                    Hydroscience, Inc. and
                                                    Hydroscience Technologies,
                                                    Inc.

                                                h.  Asset Purchase Agreement,
                                                    dated July 8, 1997, by and
                                                    among Aero Corp Macon, Inc.,
                                                    as buyer, Zantop
                                                    International Airlines,
                                                    Inc., as seller, and the
                                                    Zantop shareholders, party
                                                    to the agreement

                                                i.  Lease Agreement, dated May 
                                                    1, 1993 by and between the
                                                    Macon-Bibb County Industrial
                                                    Authority and Zantop
                                                    International Airlines, Inc.

                                                j.  Stock Purchase Agreement,
                                                    dated February 13, 1997, by
                                                    and among Crystek
                                                    Acquisition Corporation, as
                                                    buyer, and Whitehall
                                                    Corporation, as seller

                                                k.  First Amendment to Stock
                                                    Purchase Agreement, dated
                                                    March 31, 1997, by and among
                                                    Crystek Acquisition
                                                    Corporation, Whitehall
                                                    Corporation and Crystek Real
                                                    Estate Corporation



(21)         --                                 SUBSIDIARIES OF THE REGISTRANT

(23)         --                                 CONSENT OF INDEPENDENT PUBLIC
                                                ACCOUNTANTS

(27)         --                                 FINANCIAL DATA SCHEDULE
</TABLE>

         The Registrant will furnish, upon request, a copy of any Exhibit upon
         the payment of its reasonable