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

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

                                      FORM 10-K/A

    [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the fiscal year ended MAY 31, 1996

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

For the transition period from _______________ to __________________


                            Commission File Number 0-18352

                      INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
             -----------------------------------------------------------
                (Exact name of Registrant as specified in its charter)

              Delaware                           59-2223025
    -----------------------------------   --------------------------------------
    (State or other jurisdiction of        (I.R.S. Employer Identification No.)
    incorporation or organization)


 8095 N.W. 64th Street, Miami, Florida              33166
 --------------------------------------   --------------------------------------
(Address of principal executive offices)          (Zip Code)

                                    (305) 593-2658
                 ---------------------------------------------------
                 (Registrant's telephone number, including area code)


          Securities registered pursuant to Section 12(b) of the Act:  None

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

         Title of class               Name of each exchange on which registered
 ----------------------------------    -----------------------------------------
  Common Stock, $.001 par value                         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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K/A.  [ X]

    At August 15, 1996, the aggregate market value of common stock held by non-
affiliates of the Registrant was approximately $757,646.

    The number of shares of the Registrant's Common Stock outstanding as of
August 15, 1996 was 4,041,779.

                     DOCUMENTS INCORPORATED BY REFERENCE: [NONE]


<PAGE>

                       INTERNATIONAL AIRLINE SUPPORT GROUP INC.
                              ANNUAL REPORT OF FORM 10-K/A
                           FOR THE YEAR ENDED MAY 31, 1996



                                  TABLE OF CONTENTS

                                                                            PAGE

PART I........................................................................1

    Item 1.   Business........................................................1
    Item 2.   Properties......................................................9
    Item 3.   Legal Proceedings...............................................9
    Item 4.   Submission of Matters to a Vote of Security Holders.............9

PART II......................................................................10

    Item 5.   Market for the Registrant's Common Stock and Related
              Stockholder Matters............................................10
    Item 6.   Selected Financial Data........................................10
    Item 7.   Management's Discussion and Analysis of Financial Condition
              and Results of Operations......................................13
    Item 8.   Financial Statements and Supplementary Data....................20
    Item 9.   Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure.......................................20

PART III.....................................................................21

    Item 10.  Directors and Executive Officers of the Registrant.............21
    Item 11.  Executive Compensation.........................................22
    Item 12.  Security Ownership of Certain Beneficial Owners and
              Management.....................................................24
    Item 13.  Certain Relationships and Related Transactions.................25

PART IV......................................................................26

    Item 14.  Exhibits, Financial Statement Schedules and Reports on
              Form 8-K.......................................................26

SIGNATURES...................................................................32


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                                          ii

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                                        PART I

ITEM 1.  BUSINESS.

    ALL STATEMENTS CONTAINED HEREIN THAT ARE NOT HISTORICAL FACTS ARE BASED ON
CURRENT EXPECTATIONS.  THESE STATEMENTS ARE FORWARD LOOKING IN NATURE AND
INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES.  ACTUAL RESULTS MAY DIFFER
MATERIALLY.  AMONG THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY ARE THE FOLLOWING: BUSINESS CONDITIONS AND THE GENERAL ECONOMY,
COMPETITIVE FACTORS SUCH AS THE DEMAND FOR OLDER AIRCRAFT, THE COMPANY'S ABILITY
TO MAINTAIN INVENTORY THAT MEETS APPLICABLE REGULATORY STANDARDS AND CLIENT
DEMAND, THE AVAILABILITY OF NEW PARTS AND GENERAL RISKS OF INVENTORY
OBSOLESCENCE, THE ONGOING TREND FOR CUSTOMERS TO USE FEWER SUPPLIERS CAUSING A
LOSS OF CUSTOMERS, THE LOSS OF A PRINCIPAL CUSTOMER IN A GIVEN PERIOD IF THE
COMPANY IS UNABLE TO REPLACE SALES TO SUCH CUSTOMER AND THE OTHER RISK FACTORS
DESCRIBED IN THE COMPANY'S REPORTS FILED FROM TIME TO TIME WITH THE SECURITIES
AND EXCHANGE COMMISSION.  THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE
UNDUE RELIANCE ON ANY SUCH FORWARD LOOKING STATEMENTS, WHICH STATEMENTS ARE MADE
PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND, AS SUCH,
SPEAK ONLY AS OF THE DATE MADE.

GENERAL

    International Airline Support Group, Inc. (the "Company") is a worldwide
supplier of spare parts to the aviation redistribution market.  The Company
sells spare parts to major commercial passenger airlines, air cargo carriers,
maintenance and repair facilities and other redistributors.  The parts sold by
the Company include avionics, rotable and expendable airframe and engine
components for commercial aircraft, including Airbus, Boeing and
McDonnell-Douglas aircraft and Pratt & Whitney and Rolls-Royce jet engines.
During fiscal 1996, the Company supplied parts to over 771 customers worldwide,
approximately 676 of whom were domestic customers and approximately 95 of whom
were foreign customers.  Currently, the Company specializes in replacement parts
for McDonnell Douglas DC-9 aircraft.  Management believes that the Company has
one of the most extensive inventories of aftermarket DC-9 parts in the industry.

    The Company believes that the annual worldwide market for aircraft spare
parts is approximately $10 billion, of which approximately $1.3 billion
represents sales of aircraft spare parts to the redistribution market and that
the Company's sales represented approximately 2% of such market during fiscal
1996.  The redistribution market is highly fragmented, with a limited number of
large, well capitalized companies selling a broad range of aircraft spare parts,
and numerous smaller competitors serving distinct market niches.  The Company
believes that significant trends affecting the redistribution market will
continue to increase its overall size while reducing the number of competitors.
Factors causing the expansion of the redistribution market include the
increasing size and age of the world-wide airline fleet and the increasing
pressures on airlines and maintenance and repair facilities to control their
costs.

RECENT DEVELOPMENTS

    On July 12, 1996, the Company announced that it did not intend to pay the
scheduled $3.7 million principal installment due on its 12% Senior Secured Notes
due July 17, 1997 (the "Senior Notes"), pending redemption of the Senior Notes
in connection with a restructuring of its indebtedness (the "Restructuring").
The Company did not make the payment, which was due on July 17, 1996.  The
Restructuring was described in a Registration Statement on Form S-4 filed by the
Company with the Securities and Exchange Commission, on July 12, 1996, as
amended. Pursuant to the proposed restructuring, the Company offered to
exchange (the "Exchange Offer") 224.54 shares of its Common Stock, $.001 par
value per share, for each $1,000 principal amount of its 8% Convertible
Subordinated Debentures due August 31, 2003 (the "Convertible Debentures").
In connection with the restructuring, the Company also solicited
proxies from the holders of its Common Stock to approve a 1-for-27 reverse
stock split, to effect certain amendments to its Certificate of Incorporation
and to approve a stock option plan. 

    The Company consummated the Restructuring on October 3, 1996.  In addition
to the consummation of the Exchange Offer and the reverse stock split, the
Company redeemed $7,700,000 principal amount outstanding of the Senior Notes
with the proceeds of an advance pursuant to a credit agreement entered into
by the Company simultaneously with the consummation of the Restructuring.

<PAGE>
COMPANY STRATEGY

    The Company's operating strategy has two components.  First, the Company
intends to increase its revenues and operating income through continued customer
penetration in its existing markets and expansion into new markets.  The Company
intends to achieve this by continuing to increase its share of the market for
spare parts for certain widely operated aircraft models, including, in
particular, the DC-9 (which is no longer in production) and the MD-80.  Although
the MD-80 is still in production, many of the DC-9's parts are interchangeable
with the MD-80, which, given the Company's experience and knowledge with the
DC-9, gives it a competitive advantage.  The Company intends to capitalize on
the limited availability of spare parts for such aircraft models by acquiring
(i) pools of inventory from airlines that cease to operate such aircraft or that
desire to reduce their levels of parts inventory and (ii) aircraft for parting
out when the purchase price justifies doing so.  In this regard, the Company
purchased an inventory of DC-9 and MD-80 parts from Pt. Garuda Indonesia, an
Indonesian airline, in May 1996 for total consideration of approximately $2.6
million.  This inventory, which has an appraised fair market value in excess of
$7.5 million, became available following Garuda's decision to discontinue
operating DC-9 aircraft.  The Company believes that its knowledge of the fleets
of DC-9 and MD-80 aircraft currently in operation and its worldwide contacts in
the commercial aviation industry will permit it to acquire other inventory pools
and aircraft for parting out on favorable terms in the future.

    The second component of the Company's operating strategy is to achieve
revenue and earnings growth by acquiring other companies engaged in the sale of
aircraft parts as well as companies with product lines that would complement the
Company's existing redistribution business.  The Company competes in a
fragmented market in which numerous small companies serve distinct market
niches.  The Company believes that small aircraft parts redistributors, many of
which are family owned and capital constrained, are unable to provide the
extensive inventory and quality control necessary to comply with applicable
regulatory and customer requirements and will provide acquisition opportunities
for the Company.  The Company believes that such acquisitions will permit it to
expand its customer base by selling aircraft parts to airlines and others that
are not now customers, to expand its product line with respect to aircraft in
which the Company currently specializes, to strengthen its relationships with
existing customers and to expand the types of aircraft in which the Company
specializes.  The Company, however, is not presently in negotiations with
any such Company and has not entered into an agreement to acquire
any such company and there can be no assurance that the Company will be able to
do so.  Further, the Company will be unable to make acquisitions if the
Restructuring is not consummated.

HISTORY

    The Company became a supplier of aircraft parts in the early 1980s by
parting out DC-8 aircraft and reselling the resulting spare parts.  Based upon
the Company's success in parting out DC-8 aircraft, which ceased production in
1972, the Company began purchasing and parting out DC-9 aircraft in 1991.
Production of DC-9 aircraft ceased in 1982.  The DC-8 and DC-9 aircraft have
life expectancies that have exceeded the manufacturer's original estimates.
Beginning in 1992, the Company began purchasing and parting out Boeing 727
aircraft.  The Company has acquired thirty-eight DC-8, eight DC-9, and six
Boeing 727 aircraft for parting out since the Company began operations.  In
addition, the Company purchased the original testbed MD-80 from McDonnell
Douglas and parted it out.  The Company's extensive inventory of DC-9 parts also
enables it to sell parts to operators of the MD-80 because a substantial number
of DC-9 parts may be used on the MD-80.


                                          2

<PAGE>

    Traditionally, the Company obtained most of its parts inventory by parting
out high quality aircraft.  Although management expects that, if financing is
available, it may acquire additional aircraft for parting out, management
believes that the principal source of its inventory acquisitions during the next
fiscal year will be purchases of excess inventory from aircraft operators.  In
the past, the Company acquired aircraft for parting out only if its initial
estimate of the timing and value of parts sales for such aircraft would allow
the Company to recover the purchase price within 180 days through the sale of a
portion of parts, and to sell the remaining parts for amounts in excess of the
purchase price over the subsequent five years.  Aircraft that are available at
appropriate prices are increasingly difficult to locate because of, among other
things, the continued trend of start-up, low-cost airlines to use narrow-body
aircraft such as the DC-9.  However, the emergence of the start-up, low-cost
airlines has enhanced the value of the Company's existing inventory because in
order to assure reliable operations, such airlines need to maintain a minimum
supply of spare parts or establish relationships with spare parts suppliers.
Because of the Company's position as a primary source of spare parts for the
DC-9 aircraft and because the start-up airlines generally lack the resources to
maintain extensive supplies of spare parts, the Company believes that it will
continue to be an active parts supplier for such airlines.

    In addition to its DC-9 spare parts, the Company maintains inventories of
spare parts for the Boeing 727, 737 and 747 aircraft, the McDonnell Douglas
DC-8 and MD-80 aircraft and the Lockheed L1011 and L100/C130.  The Company also
generates additional revenues by brokering third party spare parts on behalf of
customers and by arranging for the repair or exchange of customers' spare parts
with FAA-certified repair facilities.

    Management believes that its customer relationships are important to the
Company's operational success.  The Company has established relationships with
many domestic and foreign aircraft operators and, subject to the availability of
financing, maintains an adequate level of inventory in order to service such
customers in a timely manner. Management believes that availability and timely
delivery of quality spare parts are the primary factors considered by customers
when making a spare parts purchase decision.

INDUSTRY OVERVIEW

    GENERAL.  The Company believes that the world-wide aircraft fleet is both
growing and getting older.  According to the World Jet Airplane Inventory for
calendar 1995, the combined aircraft fleets of aircraft operators throughout the
world at December 31, 1995 consisted of approximately 12,452 jet aircraft, the
average age of which was approximately 13.1 years.  A significant number of the
spare parts used in these aircraft are supplied by different types of companies,
including original equipment manufacturers ("OEMs") and numerous redistributors,
such as the Company, fixed-base operators, FAA-certified overhaul facilities,
traders and brokers.  Management believes that the fragmented nature of the
aircraft spare parts industry creates opportunities for small well-capitalized
and financed companies with proven infrastructures to exploit niche markets in
certain types of aircraft, such as the DC-9 and MD-80.

    Economic factors have prompted many airlines to defer aircraft procurement
programs and extend the useful life of older equipment.  Consequently, many
aircraft operators are postponing, deferring or canceling orders for new
aircraft and are retaining their older aircraft.  Certain U.S. and European
operators have implemented measures such as the installation of FAA-approved
hush kits and extended life maintenance programs to extend the useful lives of
older aircraft in their fleets.  In addition, many foreign and domestic start-up
aircraft operators are establishing their fleets through the acquisition of the
less expensive second generation aircraft even though such older aircraft
typically require more maintenance and replacement parts than new aircraft.

    Furthermore, increased competition in the airline industry has led to the
emergence of several start-up low-cost airlines which use DC-9s and MD-80s,
including ValuJet, Spirit Airlines and Reno Air.  The start-up airlines
generally offer service on specific high traffic, short-haul routes rather than
attempting to compete with the extensive hub-and-spoke systems used by the major
carriers to obtain long-haul traffic.  Second generation aircraft (such as the
DC-9) are able to operate profitably on these high-traffic, short-haul routes.

    In addition to the growth in the number of older aircraft in service, cost
and availability considerations are causing airlines to reduce the size of their
spare parts inventories and, therefore, to utilize aircraft spare parts sold by
redistributors to provide parts that are no longer in production.  As airlines
adopt just-in-time inventory procurement


                                          3

<PAGE>

processes, inventory storage and handling devolves to suppliers such as the
Company, thus increasing the percentage of parts sold by redistributors relative
to those sold by parts manufacturers.  Furthermore, in order to reduce
purchasing costs, airlines have been reducing the number of "approved"
suppliers.

    As a result of these supplier reductions, there has been and the Company
believes there will continue to be a consolidation in the redistribution market
even as the redistribution market is expected to grow.  The Company believes
that only those redistributors with extensive inventories, adequate capital and
the ability to comply with applicable regulatory and customer requirements
regarding part quality and traceability will be able to capitalize on these
trends.  The Company currently maintains an inventory of over 50,500 line items
consisting of more than 565,000 parts, which the Company believes will enhance
its ability to respond well to such market trends.

    AVAILABILITY OF REPLACEMENT PARTS.  Aircraft and parts manufacturers
typically provide their customers with replacement parts throughout the
production life of the aircraft.  Other sources for new aircraft parts include
authorized subcontractors for the OEMs, new parts distributors and aircraft
operators with excess inventories.  Once an aircraft is no longer in production,
a manufacturer will continue to supply spare parts to its customers for an
extended period of time, which varies among aircraft types.  For example, spare
parts for the DC-8 aircraft were available from the aircraft manufacturer until
1987, 15 years after the DC-8 model type ceased production.  However,
manufacturers generally have no obligation to supply or maintain parts for an
aircraft operator that was not the original purchaser of the aircraft.

    As OEMs cease manufacturing replacement parts, and as other sources of new
parts become increasingly scarce, aircraft operators must locate alternative
sources for quality aftermarket parts to maintain the reliable operation of
their aircraft.  Often, aircraft operators will opt for quality aftermarket
parts even when new parts are still in production.   Aftermarket aircraft parts
must meet the same FAA standards as new parts but generally cost less than new
parts, and are often more readily available.

    NOISE ABATEMENT REGULATIONS.  The FAA classifies aircraft in three groups,
Stage 1, Stage 2 and Stage 3, in order of decreasing noise characteristics.  In
1980 the FAA adopted a rule prohibiting the operation of Stage 1 aircraft in or
to the United States.  In response to a Congressional requirement, the FAA
submitted a report to Congress in April 1986 which presented various approaches
to encourage or require the replacement of Stage 2 aircraft with Stage 3
aircraft.  The FAA noise abatement regulations that were adopted require
aircraft operators to phase out their noisier aircraft gradually by either
replacing them with quieter Stage 3 aircraft or equipping them with hush kits to
comply with noise abatement regulations according to the following schedule:  by
December 31, 1994, each aircraft operator was required either to reduce the
number of Stage 2 aircraft it operated by 25% or operate a fleet composed of not
less than 55% Stage 3 aircraft; by December 31, 1996, each aircraft operator
must either reduce its Stage 2 aircraft by 50% or operate a fleet composed of
not less than 65% Stage 3 aircraft; by December 31, 1998 at least 75% of an
aircraft operator's Stage 2 aircraft must be eliminated, or its overall fleet
must be composed of 75% Stage 3 aircraft; and by December 31, 1999, 100% of the
fleet must be composed of Stage 3 aircraft, subject to certain waivers.

OPERATIONS OF THE COMPANY

    "PARTING OUT" AND INVENTORY ACQUISITION.  The purchase and dismantling of
an aircraft and the resale of the dismantled parts for use on other aircraft is
commonly called "parting out."  Traditionally, the Company obtained most of its
spare parts inventory by parting out high quality aircraft.  When the Company
acquires an aircraft for parting out, the aircraft is delivered to an inventory
storage facility.  The aircraft is then removed from the U.S. registry.  The
seller of the aircraft will often provide the Company with a computerized data
base listing all the parts and equipment on the aircraft which is verified by
the Company.  If a computerized listing of parts is not available, the Company
will conduct its own inventory of the aircraft to be parted out.  The parts and
equipment are catalogued and all the relevant information regarding the parts,
including each part's repair history, is entered into the Company's computer
database.  Management believes that it is essential that such information be
immediately available in order to facilitate sales by the Company's sales
personnel.  In certain instances, parts which are in high demand are pre-sold
prior to the delivery of the aircraft to the Company.  High value parts such as
engines and engine components are also often pre-sold.  Pre-selling allows the
Company to recover a significant amount of its investment within a short time
from the date of the aircraft delivery.


                                          4

<PAGE>

    An aircraft purchased for parting out is often in the same condition as the
aircraft that will utilize the spare parts. Sellers are usually motivated to
dispose of their aircraft at part out prices for a variety of reasons, including
the seller's need for immediate liquidity or inability to economically lease the
aircraft to third parties.  Additionally, such aircraft may require extensive
maintenance or overhaul or may require government-mandated improvements which
are uneconomical for the seller to perform.

    In addition to purchasing whole aircraft, the Company also acquires spare
parts by bidding on the inventory of companies that are eliminating certain
portions of their spare parts inventories due to the retirement of an aircraft
type from their fleets, the downsizing of their operations or the dissolution of
their businesses as a whole.  Management believes that its principal source of
inventory acquisitions during the next fiscal year will be from such sales.

    Modern aircraft design emphasizes the use of components that may be reused
repeatedly after inspection and overhaul.  Because of the reusable nature of
such "rotable" parts, sales of rotable parts offer greater profit potential than
the nonreusable "consumable" parts.  Vendors offer rotable parts in different
conditions, designated by industry standards.  A component may be sold in
"serviceable" condition, meaning that the unit may be installed on an aircraft
without further inspection.  "As removed - not for failure" designates a
component that was removed from an aircraft for some reason other than
malfunction and may be reinstalled after inspection.  The remaining condition,
"unserviceable," designates the need for the part to be overhauled prior to
inspection and installation.  The FAA requires rotable and other spare parts to
be inspected at FAA-certified repair facilities prior to installation on an
aircraft.  However, the FAA does not prohibit the sale of aftermarket parts that
have not been inspected and certified.

    PRODUCT LINES.  Historically, the Company maintained a large inventory of
aftermarket parts for the DC-8 aircraft.  The DC-8, an early model Stage 1
aircraft, has not been produced since 1972.  The FAA's enactment of noise
abatement restrictions in 1980 grounded all DC-8s powered by JT3 and JT4 class
engines in use in the United States and required such aircraft to be refitted
with modern, quieter engines.  Because of the expense involved in installing new
engines, the use of DC-8 aircraft in the United States declined.  Certain
devices known as "hush kits" were invented in order to bring the JT3 engines
within acceptable noise limits.  In late 1985, the FAA approved the first hush
kit for certain JT3 engines and an additional hush kit was approved for other
JT3 engines in 1987.  The effect of these changes was to create new demand for
DC-8 parts because a DC-8 equipped with a hush kit is among the lowest cost
aircraft to operate per ton mile.  Accordingly, the Company believes that the
DC-8s will continue to be used by freight carriers and other operators and that
the sale of DC-8 parts will continue to be a source of revenues in the
foreseeable future.  However, it is expected that sales of DC-8 parts will
continue to decline in correspondence with the decrease of DC-8s in operation.

    Because of the limited number of DC-8s in operation, the Company began
expanding its inventory to include parts for Stage 2 aircraft, such as the DC-9
aircraft.  Currently, the Company specializes in replacement parts for DC-9
aircraft.  The noise abatement regulations issued by the FAA require aircraft
operators to phase out their noisier Stage 2 jets by the year 2000 unless they
are retrofitted with hush kits to bring them into compliance with the Stage 3
noise requirements.  The Company believes that retrofitting with hush kits as
well as the extended life maintenance programs instituted by many aircraft
operators will increase the useful life of DC-9s.  In addition to the Company's
inventory of McDonnell Douglas DC-8 and DC-9 parts, the Company's inventory also
includes spare parts for the Boeing 727, 737, and 747 aircraft, the McDonnell
Douglas MD-80 aircraft and the Lockheed L1011 and L100/C130 aircraft and for the
Pratt & Whitney JT-8D engine series.  Many of the parts on the MD-80, which is
still in production, are interchangeable with similar parts for the DC-9.

    MARKETING.  The Company has developed a sales and marketing infrastructure
which includes well-trained and knowledgeable sales personnel, computerized
inventory management, listing of parts in electronic industry data bank
catalogues and a home page on the Internet.  Crucial to the successful marketing
of the Company's inventory is the Company's ability to make timely delivery of
spare parts in reliable condition.  The Company believes aircraft operators are
more sensitive to reliability and timeliness than price.

    The Company's account executives are experienced and knowledgeable about
the market segment in which the Company participates.  Account executives
understand maintenance requirements, parts for the aircraft type utilized


                                          5

<PAGE>


in their markets, as well as list prices and fair values of most items sold.
Furthermore, they are familiar with alternative sources for parts not
inventoried by the Company.

    Market forces establish the price for aftermarket aircraft parts.  No
pricing service or catalogue exists for aftermarket components.  Aftermarket
aircraft parts prices are determined by referencing new parts catalogues with
consideration given to existing supply and demand conditions.  Often, aircraft
operators will opt for quality aftermarket parts even when new parts are still
in production.  Aftermarket aircraft parts that meet the same FAA standards as
new parts cost less than the same new parts and are often more readily
available.

    In addition to directly marketing its inventory, the Company lists its
inventory in the Air Transport Association's computerized data bank ("AIRS") and
with the Inventory Locator Service ("ILS"), a proprietary computerized data
bank.  Both of these data bases are 24 hour electronic "marketplaces" where
aircraft parts transactions take place.

CUSTOMERS

    GENERAL.  The Company's customer base includes major passenger and cargo
operators, smaller aircraft operators, overhaul facilities, FAA-certified repair
facilities and other redistributors who may in turn resell to end users.
Certain aircraft operators often buy through competitors instead of directly
through the Company because of the operator's existing relationship with the
competitor or the competitor's ability to overhaul the part sought.

    In addition to selling parts, the Company also sells entire aircraft from
time to time.  In a given period, a substantial portion of the Company's
revenues may be attributable to the sale of aircraft.  Such sales are
unpredictable transactions, dependent, in part, upon the Company's ability to
purchase an aircraft at an attractive price
and resell it within a relatively brief period of time.
The revenues from the sale of aircraft during a given period may result in the
purchaser of the aircraft being considered a major customer of the Company for
that period.  The Company does not expect to make repeat aircraft sales to a
given customer; therefore, changes in the identity of major customers are
frequently due to the occurrence of aircraft sales.

    MAJOR CUSTOMERS.  In fiscal 1993 and 1994, Transafrik Corp., a cargo
carrier operating in Africa, accounted for a significant amount of the Company's
revenue.  Prior to fiscal 1993, no customer accounted for more than 10% of the
Company's net revenue, except for Transafrik.  In fiscal 1994, sales to
Transafrik declined significantly.  Transafrik accounted for less than one
percent of the Company's total revenue in fiscal 1995 and 1996, compared with
25%, 18% and 10% of total revenues in fiscal 1992, 1993 and 1994, respectively.
During fiscal 1995, the Company sought to reduce its vulnerability to a decrease
in sales to any single customer by focusing its marketing on the identification
and solicitation of new customers.  As a result, the Company obtained
approximately 240 new parts customers during fiscal 1995 and 242 new customers
during fiscal 1996.  In fiscal 1995, the Company instituted new compensation
policies for its parts sales force.  Pursuant to the new policies, all salesman
are paid strictly on commission, sales to new customers are encouraged and
commissions are not paid until accounts are collected. In addition, the Company
has continued to decrease its exposure to more volatile international markets.
Its domestic revenues as a percentage of total revenues has increased in each of
the last four fiscal years, to approximately 85% in fiscal 1996 from 72% in
fiscal 1995, 59% in fiscal 1994, and 40% in fiscal 1993.

    During fiscal 1996 and the first seven months of calendar year 1996, the
Company's parts sales to ValuJet represented approximately 21% and 25%,
respectively, of the Company's total revenues.  On June 17, 1996, ValuJet
entered into a consent decree with the FAA, pursuant to which ValuJet agreed to
ground all its aircraft until it demonstrates compliance with specified safety
and maintenance procedures.  The Company also conducts business with other
customers who provide services to ValuJet.  Management cannot estimate the
effect that the grounding of ValuJet has had or will have on sales to such other
customers.


                                          6

<PAGE>

    The following table lists the Company's customers which, based upon net
revenues, accounted for more than 10% of net revenues for fiscal 1995 and 1996:
<TABLE>
<CAPTION>

Customer                      Net Revenues (000's)      Percentage of Total Net Revenues
-------                       -------------------       ---------------------------------
1995:
----

<S>                              <C>                               <C>
Aeroservices Carabobo C.A.       $2,716                            10.9

Ajax Leasing Ltd.                 5,625                            22.5

1996:
---- 
ValuJet Airlines, Inc.            4,771                            20.6

</TABLE>



         GEOGRAPHIC DISTRIBUTION OF CUSTOMERS.  The Company sells aircraft and
aircraft parts and leases aircraft to foreign and domestic customers.  The
footnotes to the Consolidated Financial Statements of the Company, which are set
forth elsewhere in this Annual Report on Form 10-K, provide certain information
with respect to the geographic areas in which the Company has derived revenue
during the three fiscal years ended on May 31, 1996.

ADDITIONAL SERVICES

    AIRCRAFT AND ENGINE SALES AND LEASING.  The Company has determined that its
spare parts sales opportunities are enhanced by providing its existing and new
customers with whole aircraft and engines through sale transactions.  Such
transactions allow the Company to expand its customer base for spare parts and
to reduce the cost basis in its aircraft.  The Company currently owns four
aircraft.  As of May 31, 1996, one of the aircraft was subject to a
month-to-month operating lease.  The Company expects to continue to broker sales
of aircraft and engines when opportunities to do so arise.

    EXCHANGE TRANSACTIONS. An "exchange transaction" generally involves a high
value/high turnover rotable part which an operator frequently replaces when
performing aircraft maintenance.  In an exchange transaction, a customer pays an
exchange fee and returns a "core" unit to the Company within 14 days.  A "core"
unit is the same part which is being delivered to the customer by the Company,
but in need of overhaul.  The Company has the customer's core unit overhauled
and bills the customer for the overhaul charges and retains the overhauled core
unit in its inventory.  The Company continues to emphasize exchange transactions
because they are profitable and ensure that scarce parts remain in stock for
future sales.

    BROKERED TRANSACTIONS.  In a "brokered transaction" the Company fills a
customer order for a part not held in the Company's inventory.  The Company
locates the part for the customer from another vendor and then resells the part
to the customer.  During fiscal 1996, brokered transactions accounted for
approximately 13% of total revenues, as compared to approximately 19% of total
revenues during fiscal 1995.

GOVERNMENT REGULATION

    The aviation industry is highly regulated in the United States by the FAA
and in other countries by similar agencies.  While the Company's business is not
regulated, the aircraft spare parts which it sells to its customers must  be
accompanied by documentation that enables the customer to comply with applicable
regulatory requirements.  There can be no assurance that new and more stringent
government regulations will not be adopted in the future or that any such new
regulations, if enacted, would not have an adverse impact on the Company.


                                          7

<PAGE>

PRODUCT LIABILITY

    The Company's business exposes it to possible claims for personal injury or
death which may result from the failure of an aircraft spare part sold by it.
In this regard, the Company maintains liability insurance in the amount of
$10 million.  While the Company maintains what it believes to be adequate
liability insurance to protect it from such claims, and while no lawsuit has
ever been filed against the Company based upon a products liability theory, no
assurance can be given that claims will not arise in the future or that such
insurance coverage will be adequate.  Additionally, there can be no assurance
that insurance coverages can be maintained in the future at an acceptable cost.
Any such liability not covered by insurance could have a material adverse effect
on the financial condition of the Company.

COMPETITION

    The aircraft spare parts redistribution market is highly fragmented.
Customers in need of aircraft parts have access, through computer-generated
inventory catalogues, to a broad array of suppliers, including aircraft
manufacturers, airlines and aircraft service companies.  The dominant companies
in the aircraft parts aftermarket are AAR Corp., Aviation Sales Company and
Banner Aerospace.  These companies are larger than the Company and have greater
financial resources.  The Company also competes with numerous smaller,
independent dealers, which generally participate in niche markets.  The Company
believes that none of its competitors account for a significant amount of the
spare parts market for DC-8, DC-9 and MD-80 aircraft, the types of narrow-bodied
aircraft in which the Company specializes.  Competition in the redistribution
market is generally based on price, availability and quality of product,
including traceability.

EMPLOYEES

    As of August 15, 1996, the Company had approximately 25 employees.  Of
these, two are executive officers, six  are sales personnel, seven are
accounting, finance, data processing, and administrative personnel, one is a
quality assurance specialist and the remainder are inventory and warehouse
operations personnel.  The Company is not a party to any collective bargaining
agreement.  The Company believes its relations with its employees are good.


                                          8

<PAGE>

ITEM 2.  PROPERTIES.

         The Company's executive offices and operations are located at 8095
N.W. 64th Street, Miami, Florida.  On August 8, 1996, the Company entered into a
contract to sell its corporate offices and adjacent warehouse.  The Company
anticipates that the sale of its property will be consummated in the second
quarter of fiscal 1997, at which time the Company will relocate its facilities
into leased space that has not yet been identified.

    The Company's property, as well as substantially all the other assets of
the Company, are subject to the lien of holders of the Senior Notes and,
following the consummation of the Restructuring, will be subject to a lien
securing amounts advanced pursuant to the secured credit facility (the "Credit
Facility") that the Company expects to enter into in connection with the
Restructuring.

ITEM 3.  LEGAL PROCEEDINGS.

         The Company is not now a party to any litigation or other legal
proceeding.  The Company may become a defendant in legal proceedings in the
ordinary course of business.

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

         No matter was submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this Annual Report.


                                          9
<PAGE>



                                       PART II



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


    The Company's Common Stock has been publicly traded since April 2, 1990.
From April 2, 1990 through July 22, 1994, the Common Stock was listed and traded
on the Nasdaq/National Market System under the symbol IASG.  Effective July 22,
1994, the Nasdaq Qualifications Committee delisted the Company's Common Stock
from quotation on the Nasdaq/National Market System.  Since that time, the
Common Stock has been traded through the National Quotation Bureau's National
Daily Quotation Price Sheets (the "Pink Sheets").  The following table sets
forth the high and low closing prices of the Common Stock for the fiscal periods
indicated below as reported by Nasdaq/National Market System, prior to July 22,
1994, and the high and low bid quotations as reported by the National Quotation
Bureau thereafter.

    1995 Fiscal Year                           High          Low
    ----------------                           ----          ---

    First Quarter (through July 22)         $ 15/16        $ 5/16
    First Quarter (from July 22)                3/8           1/4
    Second Quarter                              3/8          1/16
    Third Quarter                             13/32          1/32
    Fourth Quarter                              1/2          5/32

    1996 Fiscal Year                           High          Low
    ----------------                           ----          ---

    First Quarter                            $ 7/16        $ 9/32
    Second Quarter                             9/32          5/32
    Third Quarter                              3/16           1/8
    Fourth Quarter                             7/32           1/8

    At May 31, 1996, there were 105 holders of record of the Company's Common
Stock and no holders of the Company's Preferred Stock.

    The Company has not paid dividends on the Common Stock.  The Company's
financial condition and the existence of defaults pursuant to the Senior Notes
and the Convertible Debentures make it unlikely that the Company will be able to
pay dividends on the Common Stock in the foreseeable future.  If the
Restructuring is consummated, covenants contained in the Credit Agreement will
prohibit the Company from paying dividends on the Common Stock as long as
indebtedness issued pursuant to the Credit Agreement remains outstanding.


ITEM 6.  SELECTED FINANCIAL DATA.

    The selected consolidated financial data presented below for, and as of the
end of, each of the fiscal years in the five year period ended May 31, 1996 have
been derived from the Company's audited consolidated financial statements.  The
consolidated financial statements of the Company as of May 31, 1995 and 1996 and
for the three-year period ended May 31, 1996 and the accountant's reports
thereon are included in Item 8 of this Form 10-K.

                                          10
<PAGE>



 
<TABLE>
<CAPTION>


                                                             Year Ended May 31,
                                        ---------------------------------------------------------------
                                         1992          1993          1994          1995          1996
                                        -------       -------       -------       -------       -------
OPERATING DATA:                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                     <C>           <C>           <C>           <C>           <C>
Net sales                               $26,527       $32,032       $16,747       $21,999       $21,410
Lease revenue                                --         1,473         1,986         2,984         1,795
                                         -------       -------       -------       -------       -------
    Total revenues                      $26,527       $33,505       $18,733       $24,983       $23,205
Cost of sales                            16,311        21,494        22,104        17,712        13,208
Selling, general and
    administrative expenses               5,281         6,469         6,943         4,358         3,922
Provision (recovery) for
    doubtful accounts                       374           493         1,488          (335)          464
Depreciation and
    amortization                            201         1,000         2,474         1,401         1,153
Losses of service center
    subsidiary                               --            --         1,923           676            --
                                         -------       -------       -------       -------       -------
Unusual and nonreccuring
    items                                    --            --            --          (177)           --
                                         -------       -------       -------       -------       -------
Total operating expenses                 22,167        29,456        34,932        23,635        18,747
                                         -------       -------       -------       -------       -------
Income from continuing
    operations                            4,360         4,049       (16,199)        1,348         4,458
Interest expense                            871         2,569         2,953         2,564         2,192
Interest and other
    income, net                             (94)          (66)          (87)         (603)          (34)
                                         -------       -------       -------       -------       -------
Earnings (loss) before
    income taxes, equity in
    loss of joint
    venture and extraordinary
     item                               $ 3,583       $ 1,546      $(19,065)       $ (614)      $ 2,300
Provision for income taxes
    (benefit)                             1,370           510        (2,476)           --            14
Equity in loss
    of joint venture                       (229)          (59)         (424)           --            --
Extraordinary loss on
    extinguishment of debt                   --            --          (363)           --            --
                                         -------       -------       -------       -------       -------
Net earnings (loss)                      $1,984          $977      $(17,376)        $(614)       $2,286
                                         -------       -------       -------       -------       -------
                                         -------       -------       -------       -------       -------

</TABLE>
 

                                          11

<PAGE>

 
<TABLE>
<CAPTION>

                                                     1992         1993            1994           1995           1996
                                                     ----         ----            ----           ----           ----
PER SHARE DATA:
<S>                                               <C>            <C>            <C>            <C>            <C>
Primary earnings (loss) per
common and common
equivalent share

    Earnings (loss) before                           $ 0.52         $ 0.22         $(4.21)        $(0.15)        $ 0.57
    extraordinary item

    Extraordinary item                                   --             --          (0.09)            --             --
                                                     ------         -------        -------        -------        ------

         Net earnings (loss)                         $ 0.52         $ 0.22        $ (4.30)       $ (0.15)        $ 0.57
                                                     ------         ------        --------       --------        ------
                                                     ------         ------        --------       --------        ------

Weighted average shares
outstanding used in primary
calculation                                        3,849,852      5,312,046      4,041,779      4,041,779      4,041,779
                                                   ---------      ---------      ---------      ---------      ---------
                                                   ---------      ---------      ---------      ---------      ---------

Fully-diluted earnings (loss) per
common and common
equivalent share

    Earnings (loss) before                           $ 0.52         $ 0.22        $ (4.21)       $ (0.15)        $ 0.47
    extraordinary item

    Extraordinary item                                   --             --          (0.09)            --             --
                                                      ------         ------        --------          ----         ------

         Net earnings (loss)                         $ 0.52         $ 0.22        $ (4.30)       $ (0.15)        $ 0.47
                                                      ------         ------        --------       --------        ------
                                                      ------         ------        --------       --------        ------

Weighted average shares
outstanding used in fully-diluted
calculation                                        3,849,852      5,312,046      4,041,779      4,041,779      6,541,779
                                                   ---------      ---------      ---------      ---------      ---------
                                                   ---------      ---------      ---------      ---------      ---------
<CAPTION>


                                                                                  At May 31,
                                                      -------------------------------------------------------------------
                                                     1992           1993          1994            1995          1996
                                                     ----           ----          ----            ----          ----

BALANCE SHEET DATA:

Working capital (deficit)                            $2,938        $17,088       $(18,312)      $(13,489)      $(10,841)

Total assets                                         20,303         35,709         25,553         14,511         16,132

Short-term debt                                       7,296          4,905          3,531          1,812          3,695

Long-term debt in
technical default
classified as current                                    --             --         22,157         18,083         14,042

Long-term debt                                          309         18,579            485            440            407

Stockholder's equity
  (deficit)                                           7,080          8,173         (9,088)        (9,702)        (7,416)

</TABLE>


                                          12

<PAGE>


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

LIQUIDITY AND CAPITAL RESOURCES

    THE RESTRUCTURING.  As of September 27, 1996, the Company had entered into
Standstill Agreements with holders of approximately 100% of the outstanding
principal amount of the Senior Notes and had reached an agreement in principle
with the single largest holder of the Convertible Debentures and Dabney/Resnick,
Inc. ("D/R"), an investment banking and broker-dealer firm whose clients include
a substantial number of holders of the Convertible Debentures, providing for the
Restructuring.  The Company expects that consummation of the Restructuring will
result in the following:

    -    A reduction of its indebtedness from approximately $18.1 million to
         approximately $8.1 million and reclassification of long-term debt from
         a current to a long-term obligation.

    -    A capital structure that will permit the Company to implement its
         operating strategy.

    -    Reduced debt service obligations and a resulting cash flow adequate to
         fund such obligations and operations.

    -    An improved operating income to fixed charge ratio.

    If the Restructuring is not consummated, the Company's highly leveraged
financial position will result in the continuation of the defaults with respect
to the Senior Notes and the Convertible Debentures and may result in a number of
other serious financial and operational problems, including the following:
(i) the Company will experience a severe liquidity crisis; (ii) the Company will
be unable to invest adequate capital in its business or maintain its current
capital assets; (iii) the Company will have little, if any, ability to access
capital markets; (iv) the Company's senior management will be required to spend
an excessive amount of time and effort dealing with the Company's financial
problems, instead of focusing on the operation of its business; (v) the Company
may be unable to retain top managers and other key personnel and build the value
of its business; (vi) the Company may lose business if customers become
concerned about the Company's ability to supply quality replacement parts in a
timely manner or to comply with applicable regulatory requirements; and
(vii) suppliers to the Company may stop providing supplies or may provide
supplies only on shortened payment or cash terms.  If these problems occur, the
Company believes that the value of its business will deteriorate.

    Accordingly, if the Restructuring is not consummated, the Company will have
little choice but to devise alternative actions.  Considering the Company's
limited financial resources and the existence of unwaived defaults with respect
to the Senior Notes and the Convertible Debentures, there can be no assurance
that the Company would succeed in formulating and consummating an acceptable
alternative financial restructuring.  In such case, the Company most likely
would be forced to cease operations or to file for protection under Chapter 11
of the Bankruptcy Code.   In addition, because payment defaults currently exist
under the Senior Notes and Convertible Debentures, it is possible that creditors
of the Company could file an involuntary petition seeking to place the Company
in bankruptcy.  There can be no assurance that a bankruptcy proceeding would
result in a reorganization of the Company rather than a liquidation, or that any
reorganization would be on terms as favorable to the holders of the Convertible
Debentures, Senior Notes and Common Stock as the terms of the Restructuring.  If
a liquidation or a protracted reorganization were to occur, there is a risk that
there would be no cash or property available for distribution to holders of the
Convertible Debentures and the Common Stock and that the holders of Senior Notes
would incur a significant discount on their claims.

    THE COMPANY'S CURRENT FINANCIAL CONDITION.  At May 31, 1996, the Company's
total long-term debt amounted to $18.1 million, consisting primarily of $7.7
million principal amount of the Senior Notes, $10.0 million principal amount of
the Convertible Debentures and $.4 million principal amount of a mortgage loan
secured by its corporate headquarters.  The entire principal amount of the
Senior Notes and the Convertible Debentures was classified as current at May 31,
1996, because of the existence of defaults under the governing documents.  The
Senior Notes, which were issued during fiscal 1993, bear interest at the fixed
rate of 12% per annum, payable quarterly, and mature in 1997.  The Convertible
Debentures, which were issued during fiscal 1994, bear interest at the fixed
rate of 8% per annum, payable quarterly, are convertible into shares of the
Company's Common Stock at $4.00 per share and mature in 2003.

                                          13

<PAGE>


    On May 26, 1995, the Company received a notice of payment blockage from the
holder of a majority of the outstanding principal amount of the Senior Notes
(the "Majority Noteholder").  Citing a continuing Event of Default under the
agreement governing the Senior Notes as a result of the Company's noncompliance
with certain financial covenants, the Majority Noteholder demanded that the
scheduled interest payment which would otherwise have been payable on May 31,
1995 to holders of the Convertible Debentures not be paid.  As a result of the
Company's receipt of the notice of payment blockage, the Company did not make
its scheduled May 31, 1995 and August 31, 1995 interest payments due to holders
of the Convertible Debentures, totaling $400,000.  Pursuant to the terms of the
Senior Notes, the Company was prohibited from making any other payments with
respect to the Convertible Debentures prior to the expiration of the payment
blockage period on November 22, 1995.  Notwithstanding the expiration of the
payment blockage period, the Company did not pay the November 30, 1995 and the
February 29 and May 31, 1996 interest payments on the Convertible Debentures.
The Company does not intend to resume making payments of interest on the
Convertible Debentures.

    The Company did not make its scheduled July 17, 1995 principal payment on
the Senior Notes in the approximate amount of $1.8 million.  The Company cured
the default in part by making a principal payment of $1.45 million on the Senior
Notes on December 12, 1995.  The Company made an additional principal payment of
$.7 million on May 13, 1996, which cured such principal payment default and
prepaid, without penalty, approximately $.35 million of the $4.1 million
principal payment due on the Senior Notes on July 17, 1996.  The Company did not
make its July 17, 1996 principal payment on the Senior Notes, which was due in
the amount of approximately $3.7 million, pending redemption of the Senior Notes
in connection with the Restructuring.  If the Restructuring is not consummated,
the Company will be unable to make such principal payment, the only remaining
principal payment on the Senior Notes due during the current fiscal year, and
will continue to be unable to make interest payments on the Convertible
Debentures for the remainder of the current fiscal year.

    The failure to make the interest payments to the holders of the Convertible
Debentures and the principal payment to the holders of the Senior Notes due on
July 17, 1996 referred to above constituted an Event of Default under the
agreements governing the Senior Notes and Convertible Debentures.  Further, the
Company is in default in the observance of certain financial covenants
applicable to the Senior Notes and the Convertible Debentures.  If the Company
remains in default under the terms of the Senior Notes and Convertible
Debentures, the holders of such instruments could accelerate the debt, resulting
in principal of $17.7 million becoming immediately due and payable.  The Company
would have no ability to repay such indebtedness if it were to be accelerated.
The foregoing circumstances most likely would require the Company to cease
operations or to file for protection under Chapter 11 of the Bankruptcy Code.
In addition, if the holders of any of the Company's Senior Notes or Convertible
Debentures demand repayment or if the holders of the Senior Notes seek to
realize upon the collateral securing the Senior Notes, there is a substantial
likelihood that the Company will be forced to cease operations or to file for
protection under Chapter 11 of the Bankruptcy Code.

    At May 31, 1996, the Company had a working capital deficit of $10.8 million
and a current ratio of .5 to 1.0, compared to a working capital deficit of $13.5
million and a current ratio of .4 to 1.0 at May 31, 1995.  The $2.7 million
reduction in the working capital deficit was primarily the result of proceeds
from the sale of certain aircraft (that were previously leased), being used to
pay down current liabilities.  This is reflected in the Company's cash flows
which show cash flow provided by operating activities of approximately $2.1
million, but cash flows from financing activities using approximately $2.6
million.

    The Company does not have any bank lines of credit or other sources of
liquidity beyond cash flows from operating activities due to profitable
operations, if any, or further asset sales.  However, the Company does not
currently have any significant commitments for capital outlays.  The Company has
received a commitment from a major money-center bank for a Credit Facility
consisting of (i) a revolving line of credit in an amount equal to the lesser of
(a) $11.0 million and (b) an amount based on the sum of eligible accounts
receivables, eligible lease payment receivables and eligible inventory minus
revolver reserve and (ii) a term loan in an amount equal to the lesser of
(a) $3.0 million and (b) an amount based on a percentage of the forced
liquidation value of aircraft approved by the lender plus the revolver reserve.
It is a condition to the consummation of the Restructure that the Company
enter into the Credit Agreement.  The Company expects that it will have the
ability to borrow approximately $11.7 million under the Credit Agreement and it
expects to incur approximately $7.9 million of indebtedness under the Credit
Agreement upon consummation of the Restructuring.  The Company believes that
its remaining available borrowing will be adequate together with cash from
operations, to meet its projected expenditures.


                                          14

<PAGE>


RESULTS OF OPERATIONS

    OVERVIEW.

    The following table sets forth percentage relationships of expense items to
    total revenues for the periods indicated:
 
<TABLE>
<CAPTION>


                                                                    PERCENTAGE OF TOTAL REVENUES
                                                                         YEARS ENDED MAY 31,
                                                                         -------------------
                                                                    1994        1995        1996
                                                                    ----        ----        ----
<S>                                                                 <C>         <C>         <C>
Operating Data:

Net Sales                                                            89.4%       88.1%       92.3
Lease revenue                                                        10.6        11.9         7.7
                                                                     ----        ----         ---

    Total revenues                                                  100.0       100.0       100.0

Cost of sales                                                       118.0        70.9        56.9
Selling, general and administrative expenses                         37.1        17.4        16.9
Provision (recovery) for doubtful accounts                            7.9        (1.3)        2.0
Depreciation and amortization expense                                13.2         5.6         5.0
Losses of service center subsidiary                                  10.3         2.7          --
Unusual and nonrecurring item                                          -         (.7)          --
                                                                     ----        ----         ---
Total operating expenses                                            186.5        94.6        80.8
                                                                     ----        ----         ---
Income from operations                                              (86.5)        5.4        19.2
Interest expense                                                     15.8        10.3         9.4
Interest and other income, net                                        (.5)       (2.4)        (.1)
                                                                     ----         ---          --
Earnings (loss) before income taxes, equity in loss                (101.8)       (2.5)        9.9
 of joint venture and extraordinary item
Provision for income taxes (benefit)                                (13.2)         --         0.0
Equity in loss of joint venture                                      (2.3)         --          --
Extraordinary loss on extinguishment of debt                      (   1.9)         --          --
                                                                   ------          --          --
Net earnings (loss)                                               (  92.8)%    (  2.5)%       9.9%
                                                                  --------     -------        ---
                                                                  --------     -------        ---


</TABLE>
 


    Inventories are valued at the lower of cost or market.  The cost of
aircraft spare parts purchased individually or in lots, as opposed to whole
aircraft purchases, is determined on a specific identification basis.  As of May
31, 1996, such parts represented approximately 83% of the inventory cost value.
The cost of parts acquired through whole aircraft purchases is assigned to the
pool of parts (the aircraft) based on the purchase price of the aircraft.  As
parts are sold from the pool, the amount of cost amortized is based upon the
relationship of the cost basis of the pool to the estimated sales value of the
pool.  As parts sales  take place, the costs are charged to cost of sales based
on the estimated cost of sales percentage.  As of May 31, 1996, such parts
represented approximately 3% of the inventory cost value.  The revenue estimates
for the pool of parts (the aircraft) is determined by management based upon the
individual sales values of all the parts in the pool.  The revenue estimates are
then projected by quarter over a five-year period beginning with the date on
which management determines the aircraft is to be parted out.  Management
monitors its initial estimates and may make adjustments if warranted by market
conditions.  If the actual revenue exceeds the quarterly estimates, no
amortization adjustment is required.  The amortization schedule is established
to write the pool of parts to zero over a five-year period even though there may
be parts in the pool remaining for future sale after such period.

                                          15

<PAGE>


    Certain aircraft held for sale, which were previously leased, are accounted
for as inventory.  As of  May 31, 1996, such aircraft represented approximately
14% of the inventory cost value.

    FISCAL 1996 COMPARED WITH FISCAL 1995.

    Net parts sales increased by 37% or $5.1 million, from $13.8 million in
fiscal 1995 to $18.9 million in fiscal 1996.  The increase in net parts sales is
attributable in part to the Company's sales to ValuJet Airlines, which
sales amounted to $4.8 million in fiscal 1996 compared to $1.4 million in 1995.
Additionally, an improved operating environment within the airline industry led
to increased parts sales to new and existing customers.  Aircraft sales
decreased to $2.5 million in fiscal 1996, compared to $8.1 million in fiscal
1995. Aircraft sales are unpredictable transactions and may fluctuate
significantly from year to year, dependent, in part, upon the Company's ability
to purchase an aircraft at an attractive price and resell it within a relatively
brief period of time, as well as the overall market for used aircraft.  During
fiscal 1996, the Company acquired one aircraft and sold three aircraft, as
compared to fiscal 1995, during which the Company sold eight aircraft and
acquired none.  Lease revenue deceased to $1.8 million in fiscal 1996 from $3.0
million in fiscal 1995, as certain leases that were in existence during the
prior year were terminated and not renewed (two of the aircraft under such
terminated leases were sold during fiscal 1996).  The increase in parts sales
was insufficient to offset the decrease in aircraft sales and lease revenue and,
as a result, total revenues for fiscal 1995 decreased 7% to $23.2 million from
$25.0 million for fiscal 1995.

    Fiscal 1996 lease revenues include $139,000 in revenues arising from a
fiscal 1995 transaction.  During fiscal 1995, the Company accepted lease
payments from a foreign customer in the customer's local currency because
conversion restrictions precluded the customer from obtaining and paying U.S.
dollars.  Due to uncertainties regarding when and at what rate the local
currency could be converted to U.S. dollars, the Company valued the local
currency at an estimated value of $200,000 as of May 31, 1995 (included in
cash), such amount being less than the then current U.S. equivalent amount at
the official exchange rate.  The Company subsequently was able to convert the
funds to U.S. dollars in the amount of $339,000, resulting in a gain of
$139,000, which is included in lease revenues during fiscal 1996.

    In addition, fiscal 1996 revenues were increased as a result of the
settlement of certain disputes with a customer.  Pursuant to the settlement, the
customer paid the Company $660,000 and the Company canceled a note receivable
from the customer.  The Company also released all claims it had against the
customer, which included, among other things, claims for the purchase price of
parts purchased by the customer on open account or pursuant to a consignment
arrangement.  The customer released certain claims it had against the Company as
part of the settlement.  The transaction resulted in a net gain to the Company
of approximately $345,000, consisting of the excess of cash received over the
net carrying value of the note receivable and cost of inventory.  The Company
recorded as net sales the cost of the inventory plus the amount of the net gain.

    As noted above, the Company's net parts sales to ValuJet Airlines amounted
to $4.8 million, or 21% of total revenues, and $1.4 million, or 6% of total
revenues, during fiscal 1996 and 1995, respectively.  On June 17, 1996, ValuJet
Airlines entered into a consent decree with the FAA, pursuant to which ValuJet
Airlines agreed to ground all of its aircraft until it demonstrated compliance
with specified safety and maintenance procedures.  Further, the
consent decree provided that ValuJet may operate no more than 15 aircraft when
it initially resumes operations, which is less than half of its fleet.
Valujet resumed operations on September 30, 1996 with service to four cities.
The failure of ValuJet eventually to resume operations to
substantially the level conducted prior to the grounding could have a
material adverse effect on the Company.  The Company also conducts business
with other customers who provide services to ValuJet.
Management cannot estimate the effect that the grounding of ValuJet has
had or will have on sales to such other customers.

    Cost of sales decreased 25.4% from $17.7 million in fiscal 1995 to $13.2
million in fiscal 1996, primarily as a result of lower sales.  In addition, cost
of sales as a percentage of total revenues also decreased from 70.9% to 56.9%
respectively.  The decrease in cost of sales as a percentage of total revenues
from fiscal 1995 to fiscal 1996 was primarily due to higher margin aircraft
sales in fiscal 1996 as compared to fiscal 1995.  Cost of aircraft sales was
34.8% of total revenues in fiscal 1996 compared to 98.6% in fiscal 1995.  The
cost of aircraft sales during fiscal 1995 was in excess

                                          16

<PAGE>


of normal levels as the result of the sale at cost of three DC-9 aircraft.  Cost
of parts sales as a percentage of total parts sales was 63.4% in fiscal 1996
compared to 66.0% in fiscal 1995.

    Selling, general and administrative expenses decreased $.5 million,
amounting to $3.9 million, or 16.9% of total revenues in fiscal 1996, compared
to $4.4 million, or 17.4% of total revenues in fiscal 1995, primarily as a
result of the Company's ongoing cost reduction program.

    Provision (recovery) for doubtful accounts was $464,000 in fiscal 1996
compared to $(335,000) in fiscal 1995.  During fiscal 1995, the Company,
primarily through litigation, recovered approximately $700,000 of accounts
receivable which had been written off or reserved during fiscal 1994.  The
recoveries were offset during fiscal 1995 by a provision for doubtful accounts
of $350,000.  During fiscal 1996, the Company instituted a policy whereby it
records a provision of approximately 2% of total revenues for estimated future
write-off's of accounts receivable.  There were no other significant provisions
or recoveries made during fiscal 1996.

    Depreciation and amortization were $1.2 million in fiscal 1996 compared to
$1.4 million in fiscal 1995.  Included in fiscal 1996 depreciation is a
writedown of $190,000 to the Company's headquarters facility to reduce its cost
to estimated market value.  On August 8, 1996, the Company entered into a
contract to sell its headquarters facility.  The Company anticipates that the
sale will be consummated in the second quarter of fiscal 1997.  The net
reduction from fiscal 1995 to fiscal 1996 was due primarily to a decrease in
depreciation of aircraft held for lease, resulting from the sale of certain of
the Company's aircraft which were previously held for lease during fiscal 1995.

    The Company incurred losses from its service center subsidiary of $676,000
in fiscal 1995.  The amounts recorded relate to the Company's wholly owned
subsidiary, International Airline Service Center, Inc., which ceased operations
in fiscal 1995.

    During fiscal 1995, the Company incurred unusual and nonrecurring items of
$177,000.  Included in these unusual and nonrecurring items is an expense of
$180,000 incurred in connection with the transactions between the Company and
Richard R. Wellman and Lynda Wellman and an affiliate of the Wellmans, and a
gain of $375,000 relating to settlement of litigation which had previously been
accrued in an amount in excess of the settlement amount.  There were no unusual
and nonrecurring items in fiscal 1996.

    Interest expense in fiscal 1996 was $2.2 million, compared to $2.6 million
in fiscal 1995.  The decrease in interest expense from fiscal 1995 to fiscal
1996 was due to a net reduction in total debt outstanding, to $18.1 million at
May 31, 1996 compared to $20.3 million at May 31, 1995.

    Interest and other income for fiscal 1996 was $34,000, compared to $.6
million in fiscal 1995.  Included in the fiscal 1995 amounts were several non-
recurring transactions, including approximately $340,000 of interest income
collected on notes receivable (such notes were retired during the first quarter
of fiscal 1996), a $66,000 gain on the sale of certain land located in Kentucky,
and approximately $120,000 received in connection with consulting and other
services provided to an insurance company.

    Although the Company had net operating loss carryforwards sufficient to
offset income, during fiscal 1996 it recorded a provision for income taxes of
$14,000.  The Company has fully exhausted its carryback benefits and recorded a
one hundred percent (100%) valuation allowance against the deferred tax asset
for net operating loss carryforwards.  The $14,000 provision recorded in fiscal
1996 relates to alternative minimum taxes and amendments of certain prior year
state and federal tax returns.

    Net earnings during fiscal 1996 were $2,286,000, or $.57 per share,
compared to a net loss of $614,000, or $.15 per share, during fiscal 1995.  On a
fully-diluted basis, earnings (loss) per share were $.47  and $(.15) per share
during fiscal 1996 and 1995, respectively.

                                          17

<PAGE>

    FISCAL 1995 COMPARED WITH FISCAL 1994.

    Total revenues for fiscal 1995 increased 33.4% from total revenues for
fiscal 1994, to $25.0 million from $18.7 million.  The increase in total
revenues is primarily attributable to an increase in aircraft sales, from $4.1
million in fiscal 1994 to $8.2 million in fiscal 1995.  During fiscal 1995, the
Company sold three DC-9 aircraft to a leasing company for $5.6 million pursuant
to a contract entered into during fiscal 1994.  Aircraft sales are unpredictable
transactions and may fluctuate significantly from year to year, dependant, in
part, upon the Company's ability to purchase an aircraft at an attractive price
and resell it within a relatively brief period of time.  Lease revenue increased
to $3.0 million in fiscal 1995 from $2.0 million in fiscal 1994.

    Cost of sales decreased 19.9% from $22.1 million in fiscal 1994 to $17.7
million in fiscal 1995, while cost of sales as a percentage of revenues
decreased from 118.0% in fiscal 1994 to 70.9% in fiscal 1995.  During fiscal
1994, the Company recorded charges to cost of sales totaling $9.5 million for
writedowns and valuation  adjustments to certain parts inventory and aircraft,
thus making a comparison of cost of sale percentages between fiscal 1994 and
fiscal 1995 not meaningful.  During fiscal 1995, the Company realized no profit
on the $5.6 million sale of three DC-9 aircraft to a leasing company because the
carrying value of such aircraft equaled the sales price.  Excluding the $5.6
million from sales and cost of sales during fiscal 1995, the Company's cost of
sales as a percentage of fiscal 1995 revenues was 60% compared to 64.0% and
61.2% in fiscal 1993 and 1992, respectively.

    Selling, general and administrative expenses ("SG&A") for fiscal 1995
decreased 37.2% to $4.4 million in fiscal 1995 compared to $6.9 million in
fiscal 1994.  As a percentage of revenues, SG&A expense was 17.4% in fiscal 1995
compared to 37.1% in fiscal 1994.  The reduction in SG&A expense of $2.6 million
from fiscal 1994 to fiscal 1995 was due to several factors, including reductions
in the number of management personnel and ongoing efforts to reduce operating
costs.  Payroll and commission costs were $1.3 million in fiscal 1995 compared
to $2.2 million in fiscal 1994.  Travel and entertainment costs were $261,000 in
fiscal 1995 compared to $610,000 in fiscal 1994.  Additionally, in the fourth
quarter of fiscal 1994 the Company accrued a charge of $825,000 in connection
with an unfavorable judgment arising from a lawsuit relating to commissions owed
on the sale of an aircraft in 1989.

    Provision (recovery) for doubtful accounts was $(335,000) in fiscal 1995
compared to $1.5 million in fiscal 1994.  During fiscal 1995, the Company,
primarily through litigation, recovered approximately $700,000 of accounts
receivable that had been written off or reserved during fiscal 1994.  The
recoveries were offset during fiscal 1995 by a provision for doubtful accounts
of $350,000.  During fiscal 1994, the Company wrote off approximately $900,000
of accounts receivable which were determined to be uncollectible, and reserved
additional funds for accounts that may not be collectible.

    Depreciation and amortization was $1.4 million in fiscal 1995 compared to
$2.5 million in fiscal 1994.  The net reduction from 1994 to 1995 was due
primarily to a decrease in depreciation of aircraft held for lease, as several
of the Company's aircraft that were being depreciated in fiscal 1994 were sold
either during the latter part of fiscal 1994 or during fiscal 1995.

    Loss of service center subsidiary was approximately $.7 million in fiscal
1995 compared to a loss of $1.9 million in fiscal 1994.

    Included in unusual and non-recurring items in fiscal 1995 is an expense of
$180,000 incurred in connection with the transactions between the Company and
Richard R. Wellman and Lynda Wellman and an affiliate of the Wellmans and a gain
of $375,000 relating to settlement of litigation which had previously been
accrued in an amount in excess of the settlement amount.

    Interest expense for fiscal 1995 was $2.6 million compared to $3.0 million
in fiscal 1994.  The decrease in interest expense is due to a net reduction in
total debt outstanding, from $26.2 million at May 31, 1994 to $20.3 million at
May 31, 1995.  During fiscal 1995, the Company repaid $4.7 million of the
principal due on the Senior Notes.

    Interest and other income was $.6 million in fiscal 1995 compared to
$88,000 in fiscal 1994.  Included in interest and other income during fiscal
1995 is approximately $340,000 interest income collected on notes receivable, a
$66,000 gain on the sale of certain land located in Kentucky, and approximately
$120,000 received in connection with consulting and other services provided to
an insurance company.


                                          18

<PAGE>


    The net loss for fiscal 1995 was $614,000, or $(.15) per share, compared to
a net loss of $17.4 million or $(4.30) per share for fiscal 1994.

                                          19

<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

    Information with respect to this Item is contained in the Company's
consolidated financial statements and financial statement schedules indicated in
the Index on Page F-1 of this Annual Report on Form 10-K and is incorporated
herein by reference.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE.

    None

                                          20
<PAGE>

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The following table sets forth the names, ages and positions of the
executive officers and directors of the Company as of May 31, 1996.  A summary
of the background and experience of each of these individuals is set forth
following the table.

 Name                     Age   Position Held                   Director Since
 ----                     ---   -------------                   --------------
 Alexius A. Dyer III(1)   40    Chairman of the Board,               1992
                                President and Chief Executive
                                Officer
 Kyle R. Kirkland (2)(3)  34    Director                             1992

 E. James                 50    Director                             1991
 Mueller(1)(2)(3)

----------
(1)  Member of Executive Committee
(2)  Member of Audit Committee
(3)  Member of Compensation Committee


     ALEXIUS A. DYER III has been the Chief Executive Officer of the Company and
Chairman of the Company's Board of Directors since February 1995.  Mr. Dyer has
been a director of the Company since 1992.  Mr. Dyer served as President of the
Company from February 1994 to February 1995.  From February 1991 to February
1994, Mr. Dyer served as Executive Vice President of Capital Markets of the
Company.  Additionally, during 1991, he served as the President and director of
the Company's subsidiary, Barnstorm Leasing, Inc., which was merged into the
Company in July 1992.

     KYLE R. KIRKLAND has been a director of the Company since July 1992.  Mr.
Kirkland was appointed to the Board in connection with the Company's issuance of
the Senior Notes.  Mr. Kirkland has served as the President of Kirkland Messina,
Inc., an investment banking firm, since March 1994.  Mr. Kirkland was employed
as Senior Vice President of D/R from June 1991 until February 1994.  Dabney
acted as the placement agent for the Senior Notes and the Convertible
Debentures.  Mr. Kirkland was employed as an investment banker with Canyon
Partners, Inc. and with Drexel Burnham Lambert, Inc. from March 1990 through
June 1991 and from July 1988 through March 1990, respectively.  Mr. Kirkland is
also a director of Steinway Musical Instruments, Inc.

     E. JAMES MUELLER has been a director of the Company since 1991.  Mr.
Mueller has been a principal with J.M. Associates, Inc., a business development
consulting firm, since January 1992.  From June 1978 through December 1991, Mr.
Mueller was the Vice President of Sales/Marketing of Air Cargo Associates, Inc.,
a Connecticut airline charter brokerage/sales corporation.  The Company has
entered into a commission agreement with J.M. Associates, Inc., pursuant to
which J.M. Associates, Inc. is compensated for originating transactions for the
Company.

COMMITTEES OF THE BOARD

     The Compensation Committee of the Board of Directors reviews all aspects of
compensation of executive officers of the Company and makes recommendations on
such matters to the full Board of Directors.  The Compensation Committee was
created by action of the Board of Directors after the end of the 1992 fiscal
year.  During the fiscal year ended May 31, 1996, the Compensation Committee met
two times.

     The Audit Committee makes recommendations to the Board concerning the
selection of outside auditors, reviews the financial statements of the Company
and considers such other matters in relation to the internal and external audit
of the financial affairs of the Company as may be necessary or appropriate in
order to facilitate accurate and timely financial reporting. The Audit Committee
also reviews proposals for major transactions.  During the fiscal year ended
May 31, 1996, the Audit Committee met one time.


                                      21

<PAGE>

     The Board of Directors also created an Executive Committee after the end of
the Company's 1992 fiscal year.  During the fiscal year ended May 31, 1996, the
Executive Committee did not meet.

     The Company does not maintain a standing nominating committee or other
committee performing similar functions.

     During the fiscal year ended May 31, 1996, the Board of Directors of the
Company met on five occasions.  Each of the directors attended in excess of 75%
of the meetings of the Board of Directors and 75% of all meetings held by all
committees of the Board on which he served.

ITEM 11.  EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

     The following sets forth certain information regarding the aggregate cash
compensation paid to or earned by the Company's Chief Executive Officer, Mr.
Alexius A. Dyer III, during fiscal 1994, 1995 and 1996.  At May 31, 1996, Mr.
Dyer was the sole executive officer of the Company.

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE


                                        Annual Compensation          Long Term Compensation Awards
                                        -------------------          -----------------------------
<S>                            <C>      <C>            <C>                   <C>
Name and Principal Position    Year     Salary ($)     Bonus ($)          Options/SARs (#)
---------------------------    ----     ----------     ---------          ----------------

Alexius A. Dyer III            1996        135,000        80,000(1)                    --
President and Chief            1995        133,108            --                  107,000
Executive Officer              1994        108,865        20,000                       --

</TABLE>
----------



(1)  Mr. Dyer's 1996 bonus consists of $80,000 paid to him upon execution of 
     his employment agreement and an additional amount to be earned by him 
     pursuant to the terms of his employment agreement and to be determined 
     by the Compensation Committee.

                                       22
<PAGE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUE


     Shown below is information with respect to all unexercised options to
purchase the Company's Common Stock granted to Mr. Alexius A. Dyer, III, the
Company's sole executive officer at May 31, 1996, through the end of the fiscal
1996 under the Company's option plans.  No options were granted or exercised
during fiscal 1996.  At May 31, 1996, the exercise price of all such unexercised
options exceeded the market value of the underlying Common Stock.

                                   Number of Unexercised Options of
                                                FY-End
          Name                         Exercisable/Unexercisable
          ----                         -------------------------

Alexius A. Dyer III(1)                     174,667/33,333(2)

----------


(1)  All options granted under the prior stock option plan will be canceled in
     connection with the Restructuring.

(2)  Includes 66,667 shares of Common Stock that may be acquired pursuant to the
     vested portion of a Stock Purchase Warrant granted to Mr. Dyer on October
     15, 1993.  The exercise price is $3.00 per share.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The members of the Compensation Committee, Messrs. Kyle R. Kirkland and E.
James Mueller, have never been employees of the Company.  No interlocks existed
and no insiders participated in the Compensation Committee's deliberations or
decisions regarding fiscal year 1996 salaries.

COMPENSATION OF DIRECTORS

     The non-employee members of the Company's Board of Directors received a
$25,000 fee for their service on the Board during fiscal 1996 pursuant to a
Director's Compensation Plan that was adopted during fiscal 1995.  During fiscal
1995, the non-employee members of the Company's Board of Directors received a
$25,000 fee for their service on the Board during fiscal 1995 pursuant to the
Director's Compensation Plan.  During fiscal 1994, non-employee members of the
Board of Directors received options to purchase 15,000 shares of Common Stock
upon their appointment or election to the Board.  Such grants vest in increments
of 5,000 shares per year.  Additional grants of 15,000 shares are made upon
election to the Board after all previous grants have vested.  These additional
grants also vest in 5,000 share increments.  The exercise price of all grants is
the fair market value of the Common Stock at the date of grant.  All options
granted under the prior stock option plan will be canceled in connection with
the Restructuring.  Directors are also reimbursed for expenses incurred in
connection with the attendance of Board meetings.

                                       23

<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT

     The following table sets forth certain information regarding each person
known to the Company who may be considered a beneficial owner of more than 5% of
the outstanding shares of the Company's Common Stock as of May 31, 1996:

<TABLE>
<CAPTION>

                                                 Shares            Percentage of
 Name of Beneficial Owner                  Beneficially Owned    Outstanding Shares
 ------------------------                  ------------------    ------------------
 <S>                                       <C>                   <C>
 LYNDA WELLMAN(1)                                1,999,700                 49.48
 RICHARD R. WELLMAN(1)
 7540 Loch Ness Drive
 Miami Lakes, Florida  33014

 SUNLIFE INSURANCE COMPANY OF AMERICA(2)           514,865                  12.74
 11601 Wilshire Boulevard, 12th Floor
 Los Angeles, California 90025-1748


</TABLE>
----------

(1)  For purposes of the Securities Exchange Act of 1934, as amended (the
     "Exchange Act"), Mr. and Mrs. Wellman are deemed to be the beneficial
     owners of the Common Stock owned by the other.  Mr. and Mrs. Wellman
     executed an irrevocable proxy, in connection with their resignation of
     their positions with the Company on January 31, 1995, authorizing the Board
     of Directors of the Company to vote 1,980,000 shares of the Company's
     Common Stock owned by the Wellmans. The Wellmans affirmed the proxy in
     October 1995.  The proxy expires in January 1997.

(2)  Sun Life Insurance Company of America ("Sun Life"), a subsidiary of
     SunAmerica Corporation ("SunAmerica"), is the registered owner of
     exercisable warrants to purchase 514,865 shares of the Company's Common
     Stock at an exercise price of $5.3875.  Sun Life acquired the warrants in
     connection with its purchase of Senior Notes.  Under the Exchange Act,
     SunAmerica may be deemed the beneficial owner of the shares that may be
     acquired upon exercise of such warrants.


                                       24
<PAGE>


The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 1996 by the Company's
Chief Executive Officer, who is the only officer of the Company whose salary
exceeds $100,000, and each of the Company's directors and by all directors and
executive officers as a group:

<TABLE>
<CAPTION>
                                                       Shares
Name of Beneficial Owner or Identity Group(1)        Beneficially      Percentage of
---------------------------------------------           Owned       Outstanding Shares
                                                        -----       ------------------
<S>                                                   <C>           <C>>
Alexius A. Dyer III                                   175,667(2)                 4.32
E. James Mueller                                       15,000(3)                 *
Kyle R. Kirkland                                      107,237(4)                 2.65
All Directors and Executive Officers
     as a Group (3 persons)                           297,904                    7.37

</TABLE>

----------

*    Less than one percent of the shares of Common Stock outstanding.

(1)  The address for each person listed in this table is c/o International
     Airline Support Group, Inc., 8095 N.W. 64th Street, Miami, Florida 33166.

(2)  Includes 107,000 shares of Common Stock that may be obtained by Mr. Dyer
     upon exercise by him of options granted to him pursuant to the Employee
     Stock Option Plan and 67,667 shares of Common Stock that may be acquired
     pursuant to the vested portion of a Stock Purchase Warrant granted to Mr.
     Dyer on October 15, 1993.  The exercise prices for the options and warrants
     are $.19 and $3.00 per share, respectively.  The options will be canceled
     as part of the Restructuring and new options will be granted.

(3)  Represents shares that may be obtained by Mr. Mueller upon exercise by him
     of options granted to him pursuant to the Non-Employee Directors Stock
     Option Plan.  The exercise price is $4.625 per share.  The options will be
     canceled as part of the Restructuring and new options will be granted.

(4)  Represents shares that may be obtained by Mr. Kirkland upon exercise of
     options granted to him pursuant to the Non-Employee Directors Stock Option
     Plan and upon the exercise of warrants granted to him as an officer of the
     placement agent for the Senior Notes.  The exercise prices for the options
     and warrants are $5.125 and $5.3875 per share, respectively.  The options
     will be canceled as part of the Restructuring and new options will be
     granted.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The Company has engaged Kirkland Messina, Inc., an investment banking
firm, to act as the exclusive financial advisor and agent to the Company in
connection with the origination of the Credit Agreement.  Mr. Kyle R. Kirkland,
a director of the Company, is an executive officer of Kirkland Messina, Inc.
Kirkland Messina, Inc. will receive a fee of $250,000, $150,000 of which is
payable upon the closing of the Credit Agreement and the balance of which is
payable in equal installments over the next succeeding four fiscal quaters,
for its services pursuant to such engagement.  During fiscal 1996, the Company
paid commissions totaling $85,000 to J.M. Associates, Inc., a company
controlled by E. James Mueller, a director of the Company.  Under the terms
of a commission agreement, J.M. Associates, Inc. is entitled to 3-4% of
revenues originated by Mr. Mueller.

                                       25
<PAGE>

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


<TABLE>
<CAPTION>


 <S>                                                       <C>
 (A)      FINANCIAL STATEMENTS                             PAGE OR METHOD OF FILING

     (1)  Index to Consolidated Financial Statements       Page F-1

     (2)  Report of Grant Thornton LLP                     Page F-2

     (3)  Consolidated Financial Statements and Notes to   Page F-3
          Consolidated Financial Statements of the
          Company, including Consolidated Balance Sheets
          as of May 31, 1995 and 1996 and related
          Consolidated Statements of Operations,
          Consolidated Cash Flows and Consolidated
          Stockholders' Equity (Deficit) for each of the
          years in the three-year period ended May 31,
          1996


 (B)      FINANCIAL STATEMENTS SCHEDULES                   PAGE OR METHOD OF FILING

     (1)  Report of Grant Thornton LLP as to            Included in the report
          Consolidated Financial Statement 
          Schedules for  listed in (a)(2) below
          fiscal years ended May 31, 1996, 1995 
          and 1994

     (2)  Schedule II.  Valuation and Qualifying Accounts  Page S-1


</TABLE>

Schedules not listed above and columns within certain Schedules have been 
omitted because of the absence of conditions under which they are required or 
because the required material information is included in the Consolidated 
Financial Statements or Notes to the Consolidated Financial Statements 
included herein.

     (c)  EXHIBITS


 Exhibit
 Number   Description                        Page Number or Method of Filing
 ------   -----------                        -------------------------------

 2.1.1    Form of Standstill Agreement       Incorporated by reference to
          dated July 8, 1996 among the       Exhibit 2.1.1 to the Company's
          Registrant and the holders of      Registration Statement on Form
          the Registrant's 12% Senior        S-4 (File No. 333-08065), filed
          Secured Notes due 1997 who are     on July 12, 1996.
          signatories thereto.

 2.1.2    Form of Standstill Agreement       Previously filed.
          dated July 11, 1996 among the
          Registrant and the holders of
          the Registrant's 12% Senior
          Secured Notes due 1997 who are
          signatories thereto.



                                      26


<PAGE>

 Exhibit
 Number   Description                        Page Number or Method of Filing
 ------   -----------                        -------------------------------


 2.2      Form of Warrant Agreement          Incorporated by reference to
          Amendment No. 1, dated as of       Exhibit 2.2 to the Company's
          July 9, 1996, among the            Registration Statement on Form
          Registrant and the holders of      S-4 (File No. 333-08065), filed
          the Warrants, dated July 17,       on July 12, 1996.
          1992, who are signatories
          thereto.

 2.3      Letter, dated June 7, 1996, from   Incorporated by reference to
          BNY Financial Corporation to the   Exhibit 2.3 to the Company's
          Registrant with attached Term      Registration Statement on Form
          Sheet.                             S-4 (File No. 333-08065), filed
                                             on July 12, 1996.

 2.4      Form of Credit Agreement between   Filed herewith.
          BNY Financial Corporation and the
          Registrant

 3.1      Amended and Restated               Filed herewith.
          Certificate of Incorporation of    
          the Registrant.                    
                                             
                                             
                                             

 3.2      Restated and Amended Bylaws of     Filed herewith.
          the Registrant.                    
                                             

 4.1      Specimen Common Stock              Filed herewith.
          Certificate.                       
                                             

 4.2      Form of Warrant issued to          Incorporated by reference to
          holders of Senior Notes.           Exhibit 4-A to the Company's Form
                                             8-K dated July 17, 1992 (the
                                             "July 1992 Form 8-K").

 4.3      Form of 8% Convertible             Incorporated by reference to
          Subordinated Debentures due        Exhibit 4.3 to the 1993 Form
          August 31, 2003.                   10-K.


                                    27
<PAGE>


 Exhibit
 Number   Description                        Page Number or Method of Filing
 ------   -----------                        -------------------------------

 4.4      Form of 12% Senior Secured         Incorporated by reference to
          Notes.                             Exhibit 4.4 to the Company's
                                             Registration Statement on Form
                                             S-4 (File No. 333-08065), filed
                                             on July 12, 1996.

 10.1.1   Employment Agreement, dated as     Filed herewith.
          of December 1, 1995, between the   
          Registrant and Alexius A. Dyer     
          III, as amended on October
          3, 1996.
                                             
 10.1.2   Employment Agreement, dated as     Filed herewith.
          of October 3, 1996, between the   
          Registrant and George Murnane     
          III.

 10.2.1   1996 Long-Term Incentive and       Incorporated by reference to
          Share Award Plan.                  Appendix B to the Proxy
                                             statement/Prospectus included
                                             in the Company's Registration
                                             Statement on Form S-4 (FILE
                                             NO. 333-08065).

 10.2.2   401(k) Plan.                       Incorporated by reference to
                                             Exhibit 10-H to the Company's
                                             Annual Report in Form 10-K for
                                             the fiscal year ended May 31,
                                             1992 (the "1992 Form 10-K").

 10.2.3   Bonus Plan.                        Incorporated by reference to
                                             Exhibit 10.2.4 to the 1992
                                             Form 10-K.
  
 10.2.4   Cafeteria Plan.                    Incorporated by reference to
                                             Exhibit 10.2.5 of the 1993
                                             Form 10-K.

 10.2.5   Form of Option Certificate         Filed herewith.
          (Employee Non-Qualified Stock      
          Option Plan                        
                                             
 10.2.6   Form of Option Certificate         Filed herewith.
          (Incentive Stock Option).

 10.3.1   Form of Securities Purchase        Incorporated by reference to
          Agreement dated as of July 17,     Exhibit 10-A to the Registrant's
          1992 among Registrant and the      July 1992 Form 8-K.
          Purchasers listed therein, as
          amended.

 10.3.2   Consent, Amendment and Waiver      Incorporated by reference to
          dated as of September 8, 1993      Exhibit 10.9.2 to the 1993
          among Registrant and the parties   Form 10-K.
          listed therein.


                                   28
<PAGE>


 Exhibit
 Number   Description                        Page Number or Method of Filing
 ------   -----------                        -------------------------------

 10.4     Representative Indemnity           Incorporated by reference to
          Agreement between Registrant and   Exhibit 10.12 to the 1993
          its Directors and Executive        Form 10-K.
          Officers.

 10.5.1   Securities Purchase Agreement      Incorporated by reference to
          dated as of September 8, 1993      Exhibit 10.13 to the 1993
          among Registrant and the           Form 10-K.
          Purchasers listed therein.

 10.6     Form of Registration Rights        Incorporated by reference to
          Agreement dated as of September    Exhibit 10.14 to the 1993
          8, 1993, among Registrant and      Form 10-K.
          the Purchasers listed therein.

 10.7     Settlement Stipulation, dated      Incorporated by reference to
          January 31, 1995, among Admark     Exhibit 10.7.3 to the Company's
          International, Ltd., Plaintiff     Annual Report in Form 10-K for
          and Norville Trading Company       the fiscal year ended May 31,
          Ltd., International Airline        1995 (the "1995 Form 10-K").
          Support Group, Inc., and Richard

 10.8     Purchase Agreement, dated          Incorporated by reference to
          January 1995, among                Exhibit 10.1 to the Company's
          International Airline Support      Form 10-Q/A for the quarter ended
          Group, Inc., Richard R. Wellman,   August 31, 1994.
          Lynda Wellman, and Custom Air
          Holdings, Inc., including as an
          exhibit the "General Proxy"
          executed by Richard R. Wellman
          and Lynda Wellman.

 10.10    Assignment and Assumption          Incorporated by reference to
          Agreement, dated January 31,       Exhibit 10.2 to the Registrant's
          1995, between International        Form 10-Q/A for the quarter ended
          Airline Service Center, Inc. and   August 31, 1994.
          Express One International, Inc.

 10.11    Notice of Payment Blockage,        Incorporated by reference to
          dated May 25, 1995.                Exhibit 10.11 to the 1995
                                             Form 10-K.

 10.12    Form of Engagement Letter dated    Incorporated by reference to
          February 16, 1996, between the     Exhibit 10.12 to the Company's
          Registrant and Kirkland Messina,   Registration Statement on Form
          Inc. (filed herewith).             S-4 (File No. 333-08065), filed
                                             on July 12, 1996.

 10.13    Form of Depositary Agreement       Previosly filed.
          between the Registrant and First
          Union National Bank of North
          Carolina.

 10.14    Commission Agreement dated         Filed herewith.
          December 1, 1995 between the
          Registrant and J.M. Associates,
          Inc.

 10.15    Aircraft Parts Purchase Agreement, Incorporated by reference
          dated May 16, 1996, bwetween       to Exhibit 10.15 to the 
          Paxford Int'l, Inc. and the        Company's Registration
          Registrant.                        Statement on Form S-4
                                             (File No. 333-08065).

 11       Statement regarding computation    Previously filed.
          of per share earnings.


 21       Subsidiaries.                      Previously filed.

 27       Financial Data Schedule            Filed herewith.




                                 29
<PAGE>


 Exhibit
 Number   Description                        Page Number or Method of Filing
 ------   -----------                        -------------------------------

 99.1     Form of Consent and Letter of      Incorporated by reference to
          Transmittal for the Registrant's   Exhibit 99.1 to the Company's
          8% Convertible Subordinated        Registration Statement on Form
          Debentures due August 31, 2003.    S-4 (File No. 333-08065).
                                             

 99.2     Form of Notice of Guaranteed       Incorporated by reference to
          Delivery for the Registrant's 8%   Exhibit 99.2 to the Company's
          Convertible Subordinated           Registration Statement on Form
          Debentures due August 31, 2003.    S-4 (File No. 333-08065).
                                             

 99.3     Form of Proxy with respect to      Incorporated by reference to
          the solicitation of the holders    Exhibit 99.3  to the Company's
          of the Registrant's Common         Registration Statement on Form
          Stock.                             S-4 (File No. 333-08065).
                                             



                                       30

<PAGE>

     (d)  REPORTS ON FORM 8-K.

         The Company did not file a Current Report on Form 8-K during the last
quarter of the fiscal year covered by this Annual Report.






                                      31

<PAGE>

                                   SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report on Form 10-K/A to
be signed on its behalf by the undersigned, thereunto duly authorized this 10th
day of October, 1996.


                              International Airline Support Group, Inc.,
                              a Delaware corporation


                         By:  /s/ Alexius A. Dyer III
                              -----------------------------------------
                              Alexius A. Dyer III
                              President


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K/A has been signed below by the following persons on behalf
of the Company and in the capacities and on the dates indicated.

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

/s/ Alexius A. Dyer III       President and Director          October 10, 1996
--------------------------    (Principal Executive Officer)
Alexius A. Dyer III        




                                       32
<PAGE>
           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
                         INDEX TO FINANCIAL STATEMENTS
 
   
<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                             ---------
<S>                                                                                                          <C>
Audited Consolidated Financial Statements
    Report of independent certified public accountants.....................................................        F-2
    Consolidated balance sheets as of May 31, 1995 and 1996................................................        F-3
    Consolidated statements of operations for the years ended May 31, 1994, 1995 and 1996..................        F-4
    Consolidated statements of stockholders' equity (deficit) for the years ended May 31, 1994, 1995 and
     1996..................................................................................................        F-5
    Consolidated statements of cash flows for the years ended May 31, 1994, 1995 and 1996..................        F-6
    Notes to consolidated financial statements.............................................................        F-7
</TABLE>
    
 
                                      F-1
   
    

<PAGE>

                        REPORT OF INDEPENDENT CERTIFIED
                              PUBLIC ACCOUNTANTS


The Board of Directors and Stockholders
International Airline Support Group, Inc.

We have audited the accompanying consolidated balance sheets of International 
Airline Support Group, Inc. and Subsidiaries as of May 31, 1995 and 1996, and 
the related consolidated statements of operations, stockholders' equity and 
cash flows for each of the three years in the period ended May 31, 1996.  
These financial statements are the responsibility of the Company's 
management.  Our responsibility is to express an opinion on these financial 
statements based on our audits.  

We conducted our audits in accordance with 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 
from material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above, present fairly, 
in all material respects, the consolidated financial position of 
International Airline Support Group, Inc. and Subsidiaries as of May 31, 1995 
and 1996 and the consolidated results of their operations and their 
consolidated cash flows for each of the three years in the period ended May 
31, 1996, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the 
Company will continue as a going concern.  As discussed in Note B, the 
Company is in default under its debt agreements which could result in the 
lenders demanding payment under the Company's long-term debt agreements, 
raising substantial doubt about its ability to continue as a going concern.  
Management's plans in regard to these matters are also described in Note B.  
The financial statements do not include any adjustments that might result 
from the outcome of this uncertainty.

We have also audited Schedule II of International Airline Support Group, Inc. 
and Subsidiaries for each of the three years in the period ended May 31, 
1996.  In our opinion, this schedule presents fairly, in all material 
respects, the information required to be set forth therein.  
   
GRANT THORNTON LLP
    
Miami, Florida
July 12, 1996


                                       F-2

<PAGE>

          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                              MAY 31, 1995 AND 1996


                                    ASSETS

<TABLE>
<CAPTION>
                                                                                 1995            1996
                                                                                 ----            ----
<S>                                                                          <C>             <C>
   
Current assets
   Cash and cash equivalents (Note A)                                         $  848,331      $  940,274
   Accounts receivable, net of allowance for doubtful accounts
    of approximately $619,000 in 1995 and $735,000 in 1996                     2,592,463       2,014,691
   Notes receivable                                                              313,490               -
   Inventories (Notes A, C and D)                                              6,497,270       9,277,315
   Deferred tax benefit - current, net of valuation allowance
    of $1,146,000 in 1995 and $960,000 in 1996 (Note F)                                -               -
   Other current assets                                                           31,480          68,798
    
                                                                             -----------     -----------
             Total current assets                                             10,283,034      12,301,078

Property and equipment (Notes A, D, E and R)
   Land                                                                          330,457               -
   Aircraft held for lease                                                     3,289,613       2,974,760
   Building and leasehold improvements                                           715,772          36,815
   Machinery and equipment                                                       940,948         972,507
                                                                             -----------     -----------
                                                                               5,276,790       3,984,082
   Less accumulated depreciation                                               1,980,927       2,051,620
   Land and building held for sale, net                                                -         750,000
                                                                             -----------     -----------
            Property and equipment, net                                        3,295,863       2,682,462
                                                                             -----------     -----------
Other assets
   Deferred debt costs, net (Note A)                                             931,932         762,431
   Deferred tax benefit, net of valuation allowance of
    $3,894,000 in 1995 and $3,011,000 in 1996 (Note F)                                 -               -
   Deferred restructuring fees                                                         -         334,860
   Deposits and other assets                                                           -          51,500
                                                                             -----------     -----------
                                                                                 931,932       1,148,791
                                                                             -----------     -----------

                                                                             $14,510,829     $16,132,331
                                                                             -----------     -----------
                                                                             -----------     -----------

                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities
   Current maturities of long-term obligations (Note D)                       $ 1,812,040     $ 3,695,108
   Long-term obligations in default classified as current (Notes B and D)      18,083,334      14,041,667
   Accounts payable                                                             1,650,078       2,171,496
   Accrued expenses (Note O)                                                    2,226,900       3,233,231
                                                                              -----------     -----------
            Total current liabilities                                          23,772,352      23,141,502

Long-term obligations, less current maturities (Notes B and D)                    440,377         406,760

Commitments and contingencies (Notes E, M and P)                                        -               -

Stockholders' equity (deficit) (Notes G and H)
   Preferred Stock - $.001 par value; authorized 500,000 shares;
    0 shares outstanding in 1995 and 1996.                                              -               -
   Common stock - $.001 par value; authorized 20,000,000 shares;
    issued and outstanding  4,041,779 shares in 1995 and 1996.                      4,042           4,042
   Additional paid-in capital                                                   2,654,332       2,654,332
   Accumulated deficit                                                        (12,360,274)    (10,074,305)
                                                                              -----------     -----------
           Total stockholders' deficit                                         (9,701,900)     (7,415,931)
                                                                              -----------     -----------

                                                                              $14,510,829     $16,132,331
                                                                              -----------     -----------
                                                                              -----------     -----------

</TABLE>

The accompanying notes are an integral part of these statements.


                                     F-3

<PAGE>

              INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

                            CONSOLIDATED STATEMENTS OF OPERATIONS

                           YEARS ENDED MAY 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>

                                                            1994                1995                1996
                                                       -------------       ------------        -------------
<S>                                                  <C>                 <C>                 <C> 
Revenues
    Net sales                                           $ 16,746,932        $ 21,998,869        $ 21,410,201
    Lease revenue                                          1,986,450           2,984,218           1,794,768
                                                       -------------       -------------       -------------
            Total revenues                                18,733,382          24,983,087          23,204,969

Cost of sales (Note N)                                    22,104,131          17,712,427          13,207,671
Selling, general and administrative 
 expenses (Notes N and O)                                  6,943,147           4,358,119           3,921,795
Provision (recovery) for doubtful accounts                 1,487,969            (334,571)            464,099
Depreciation and amortization                              2,475,071           1,400,832           1,153,477
Losses of service center subsidiary (Note Q)               1,922,086             675,860                   -
Unusual and nonrecurring items (Note P)                            -            (177,115)                  -
                                                       -------------       -------------       -------------
            Total operating costs                         34,932,404          23,635,552          18,747,042
                                                       -------------       -------------       -------------

            Income (loss) from operations                (16,199,022)          1,347,535           4,457,927

Interest expense                                           2,953,220           2,564,318           2,191,968
Interest and other income                                    (87,600)           (602,943)            (34,058)
                                                       -------------       -------------       -------------
            Earnings (loss) before income taxes, 
             equity in loss of joint venture, and 
             extraordinary item                          (19,064,642)           (613,840)          2,300,017

Provision for income taxes (benefit) (Note F)             (2,475,185)                  -              14,048
                                                       -------------       -------------       -------------
            Earnings (loss) before equity in loss of 
             joint venture and extraordinary item        (16,589,457)           (613,840)          2,285,969

Equity in loss of joint venture (Note J)                    (423,224)                  -                   -
                                                       -------------       -------------       -------------

            Earnings (loss) before extraordinary item    (17,012,681)           (613,840)          2,285,969

Extraordinary loss on the extinguishment of debt 
 (Note D)                                                   (363,022)                  -                   -
                                                       -------------       -------------       -------------
            Net earnings (loss)                        $ (17,375,703)        $  (613,840)       $  2,285,969
                                                       -------------       -------------       -------------
                                                       -------------       -------------       -------------
   
Per share data:
    Primary earnings (loss) per common and common
     equivalent shares
        Earnings (loss) before extraordinary item          $  (4.21)             $  (.15)             $  .57
        Extraordinary item                                     (.09)                   -                   - 
                                                           ---------           ---------            --------
            Net earnings (loss)                            $  (4.30)             $  (.15)             $  .57
                                                           ---------           ---------            --------
                                                           ---------           ---------            --------
    Weighted average shares outstanding used in 
     primary calculation                                  4,041,779            4,041,779           4,041,779
                                                       -------------       -------------       -------------
                                                       -------------       -------------       -------------
    

    Fully-diluted earnings (loss) per common and 
     common equivalent shares
        Earnings (loss) before extraordinary item           $ (4.21)             $  (.15)             $  .47
        Extraordinary item                                     (.09)                   -                   -
                                                           ---------           ---------            --------
            Net earnings (loss)                             $ (4.30)             $  (.15)             $  .47
                                                           ---------           ---------            --------
                                                           ---------           ---------            --------
   
    Weighted average shares outstanding used in 
     fully-diluted calculation                            4,041,779            4,041,779           6,541,779
                                                       -------------       -------------       -------------
                                                       -------------       -------------       -------------
    
</TABLE>


The accompanying notes are an integral part of these statements.


                                     F-4

<PAGE>

        INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                   Common Stock
                                            -------------------------          Additional         Retained
                                             Number of           Par            Paid-In           Earnings               
                                               Shares           Value           Capital           (Deficit)            Total
                                            -----------       --------       -------------     --------------    -------------
<S>                                       <C>               <C>             <C>               <C>               <C>           
Balance at June 1, 1993                       4,009,112       $  4,009        $  2,540,030      $   5,629,269     $  8,173,308
Issuance of common stock                         32,667             33             114,302                  -          114,335
Net loss                                              -              -                   -        (17,375,703)     (17,375,703)
                                            -----------       --------       -------------     --------------    -------------
Balance at May 31, 1994                       4,041,779          4,042           2,654,332        (11,746,434)      (9,088,060)
Net loss                                              -              -                   -           (613,840)        (613,840)
                                            -----------       --------       -------------     --------------    -------------
Balance at May 31, 1995                       4,041,779          4,042           2,654,332        (12,360,274)      (9,701,900)
Net earnings                                          -              -                   -          2,285,969        2,285,969
                                            -----------       --------       -------------     --------------    -------------
Balance at May 31, 1996                       4,041,779       $  4,042        $  2,654,332      $ (10,074,305)    $ (7,415,931)
                                            -----------       --------       -------------     --------------    -------------
                                            -----------       --------       -------------     --------------    -------------
</TABLE>


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


                                     F-5

<PAGE>

           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     YEARS ENDED MAY 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
                                                                            1994                1995               1996
                                                                        ------------        -----------        -----------
<S>                                                                  <C>                  <C>                <C> 
   
Cash flows from operating activities:
    Net earnings (loss)                                               $  (17,375,703)      $   (613,840)      $  2,285,969
    Adjustments to reconcile net earnings (loss) to net cash 
     provided by (used in) operating activities:
        Depreciation and amortization                                      2,865,610          1,693,301          1,372,979
        Depreciation - service center                                        284,452            196,322                  -
        Gain on sale of aircraft held for lease                                    -                  -           (864,795)
        Gain on Express One transaction                                            -            (70,631)                 -
        Loss on Wellman transaction                                                -             33,575                  -
        (Increase) decrease in deferred tax benefit                           69,000            (23,696)                 -
        Equity in loss of  joint venture                                     423,224                  -                  -
        Decrease (increase) in accounts receivable                           (83,108)         1,224,560            577,770
        Decrease in notes receivable                                         800,000            806,510            313,490
        Decrease (increase) in income tax refund                          (1,930,000)         1,930,000                  -
        (Increase) decrease in inventories                                 8,243,147          4,910,834         (3,030,045)
        (Increase) decrease in other current assets                          981,557            154,271            (37,318)
        (Increase) decrease in other assets                                 (112,999)           178,322            (51,500)
        Increase (decrease) in accounts payable and accrued expenses       5,012,896         (4,591,430)         1,527,750
        (Decrease) in income taxes payable                                  (211,666)                 -                  -
                                                                        ------------        -----------        -----------
            Net cash provided by (used in) operating activities           (1,033,590)         5,828,098          2,094,300
    

Cash flows from investing activities:
    Proceeds from maturity of restricted certificates of deposit             356,115                  -                  -
    Capital expenditures                                                  (3,635,919)          (135,936)          (875,281)
    Proceeds from sale of aircraft held for lease                          1,000,000                  -          1,450,000
                                                                        ------------        -----------        -----------
            Net cash provided by (used in) investing activities           (2,279,804)          (135,936)           574,719
   
Cash flows from financing activities:
    Net payments under line of credit                                     (1,000,000)                 -                  -
    Borrowings under notes and leases                                     10,000,000                  -                  -
    Increase in deferred restructuring costs                                       -                  -           (334,860)
    Increase in deferred debt costs                                         (341,326)                 -            (50,000)
    Repayments of debt obligations                                        (5,760,432)        (4,939,621)        (2,192,216)
                                                                        ------------        -----------        -----------
            Net cash (used in) provided by financing activities            2,898,242         (4,939,621)        (2,577,076)
                                                                        ------------        -----------        -----------
Net increase (decrease) in cash and cash equivalents                        (415,152)           752,541             91,943
Cash and cash equivalents at beginning of period                             510,942             95,790            848,331
                                                                        ------------        -----------        -----------
Cash and cash equivalents at end of period                              $     95,790        $   848,331        $   940,274
                                                                        ------------        -----------        -----------
                                                                        ------------        -----------        -----------
    
Supplemental disclosures of cash flow information (Note K):
    Cash paid during the year for:
        Interest                                                        $  2,736,233        $ 2,167,279        $ 1,206,028
                                                                        ------------        -----------        -----------
                                                                        ------------        -----------        -----------
        Income taxes                                                    $          -        $         -        $    36,910
                                                                        ------------        -----------        -----------
                                                                        ------------        -----------        -----------
</TABLE>


The accompanying notes are an integral part of these statements.


                                     F-6

<PAGE>

          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        MAY 31, 1994, 1995 AND 1996

NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
   
  International Airline Support Group, Inc. and Subsidiaries (the "Company")
  is primarily engaged in the sale of aircraft, aircraft parts, leasing of 
  aircraft and related services.  Since its inception in 1982, the Company has
  become a primary source of replacement parts for widely operated aircraft
  models which are no longer in production such as the McDonnell Douglas DC-8
  and DC-9.  The Company supplies parts to over 500 customers worldwide.  The 
  Company previously was engaged in other activities through the Company's 
  wholly-owned subsidiary, International Airline Service Center, Inc. ("Service
  Center"), which was an FAA certified repair facility engaged in the 
  performance of maintenance checks required by the FAA on narrow body aircraft
  (see Note Q).  The Company's other wholly-owned subsidiary, Brent Aviation, 
  Inc. d/b/a Custom Air Transport was previously engaged in the flight 
  operation of cargo aircraft (see Note P).
    
  a) Consolidation

  The accompanying consolidated financial statements include the accounts of 
  the Company and its wholly-owned subsidiaries.  All significant intercompany 
  transactions have been eliminated in consolidation.  Investments in 
  nonconsolidated entities are reported on the equity method.

  b) Cash and Cash Equivalents

  The Company considers all highly liquid investments with original 
  maturities of three months or less at the time of purchase to be cash 
  equivalents. Included as cash equivalents at May 31, 1996 is $1,100,000 in 
  certificates of deposit with a stated maturity of seven days.

  Cash balances in financial institution accounts are secured by the Federal 
  Deposit Insurance Corporation ("FDIC") for amounts up to $100,000, per 
  customer.  At May 31, 1996, the Company's uninsured cash balances 
  approximated $1,472,000.

  c) Inventories

  Inventories are stated at the lower of cost or market.  The cost of 
  aircraft parts is determined on a specific identification basis for those 
  parts purchased individually or in lots where specific identification is 
  practical.  For parts acquired through whole aircraft purchases, the costs 
  are assigned to pools which are amortized as part sales take place.  The
  amortization is based upon the actual sales, except in any periods where
  sales are lower than expected, the estimated sales per the initial sales 
  projection are used (which has a maximum life of 5 years).  The amount of 
  cost amortized is based upon the gross profit percentage as calculated from 
  the estimated sales value of the parts.  The sales value estimates are 
  monitored by management, and adjusted periodically as necessary.  Certain 
  aircraft, which were previously leased have been classified as held for sale 
  and are included in inventory.

  At May 31, 1995 and 1996, approximately 80% and 97%, respectively, of the 
  ending inventory (including aircraft held for sale) was costed under the 
  specific identification method, and the remaining 20% and 3%, respectively, 
  was costed under the pooling method.

  d) Property and Equipment

  Property and equipment are stated at cost, less accumulated depreciation.
  Depreciation is provided for in amounts sufficient to relate the cost of
  depreciable assets to operations over their estimated life utilizing 
  straight-line and accelerated methods.  The estimated lives of the 
  depreciable assets range from 5 to 31.5 years.  Overhaul costs on aircraft
  held for lease are capitalized and depreciated over the estimated service
  life of the overhaul.  For income tax purposes, accelerated methods of
  depreciation are generally used.  Deferred income taxes are provided for the
  difference between depreciation expense for tax and financial reporting 
  purposes.

                                     F-7

<PAGE>

          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       MAY 31, 1994, 1995 AND 1996


NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
         - Continued

  e) Deferred Debt Costs
   
  Deferred debt costs principally relate to the costs associated with 
  obtaining the Company's Senior Secured Notes and Convertible Subordinated 
  Debentures.  These costs are being amortized using the interest method over 
  the life of the respective debt issue.  Accumulated amortization at May 31, 
  1995 and 1996, was approximately $1,094,000 and $1,307,000, respectively.
    
  f) Earnings Per Share
   
  Primary earnings (loss) per share is computed by dividing net earnings (loss)
  by the weighted average number of common shares outstanding and common 
  stock equivalents.  Stock options and warrants are considered common stock 
  equivalents unless their inclusion would be anti-dilutive.  For the purpose 
  of computing common stock equivalents for stock options and warrants, the 
  modified treasury stock method was not used as the effect would be 
  antidilutive. The Company's Convertible Subordinated Debentures 
  ("Debentures") are not considered common stock equivalents for the purpose 
  of computing primary earnings per share as the effective yield on the 
  securities exceeded 66-2/3% of the average Aa corporate bond rate at the 
  time of issuance.
    
   
  Fully diluted earnings (loss) per shares is computed for 1996 as if the 
  Debentures were converted into common stock as of the beginning of the 
  period (see Note D).  Stock options and warrants are not considered common 
  stock equivalents for the purpose of computing fully diluted earnings 
  (loss) per share as the effect would be antidilutive under the modified 
  treasury stock method.  The Debentures and stock options and warrants are 
  not considered common stock equivalents in fiscal years 1994 and 1995 due 
  to the net losses for those periods.
    
  g) Revenue Recognition

  Revenue from the sale of parts is recognized when products are shipped to 
  the customer.  Revenue from the sale of aircraft is recognized when all 
  consideration has been received and the buyer has taken delivery and 
  acceptance of the aircraft.  Lease revenue is recognized on an accrual basis,
  unless collectibility is uncertain.

  h) Employee Benefit Plan
   
  In fiscal 1992, the Company established a contributory 401(K) plan.  The 
  plan is a defined contribution plan covering all eligible employees of the 
  Company, to which the Company makes certain discretionary matching 
  contributions based upon the level of its employees' contributions.  The 
  amount charged to earnings in fiscal 1994, 1995 and 1996 were insignificant.
  The Company does not provide any health or other benefits to retirees.
    
  i) Stock Options

  Options granted under the Company's Stock Option Plans are accounted for 
  under APB 25, "Accounting for Stock Issued to Employees," and related 
  interpretations. In November 1995, the Financial Accounting Standards Board 
  issued Statement 123, "Accounting for Stock-Based Compensation," which will 
  require additional proforma disclosures for companies that will continue to 
  account for employee stock options under the intrinsic value method specified 
  in APB 25. The Company plans to continue to apply APB 25 and the only effect 
  of adopting Statement 123 in fiscal 1997 will be the new disclosure 
  requirement.


                                     F-8

<PAGE>

          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       MAY 31, 1994, 1995 AND 1996


NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
          - Continued

  j) Fair Value of Financial Instruments

  The carrying value of cash and cash equivalents, trade receivables, and 
  accounts payable approximate fair value due to the short term maturities of 
  these instruments.

  k) Reclassifications

  Certain amounts in the prior year financial statements have been 
  reclassified to conform to the current year presentation.

  l) Income Taxes

  Income taxes are provided based on earnings reported for tax return 
  purposes in addition to a provision for deferred income taxes.  Deferred 
  income taxes are provided in order to reflect the tax consequences in future 
  years of differences between the financial statement and tax basis on assets 
  and liabilities at each year end.

  m) Management Estimates

  The preparation of the financial statements in conformity with generally 
  accepted accounting principles requires management to make estimates and 
  assumptions that affect the reported amounts of assets and liabilities at
  May 31, 1995 and 1996 and revenues and expenses during the periods then ended.
  The actual outcome of the estimates could differ from these estimates made in
  the preparation of the financial statements.

  n) Land and Building Held for Sale
   
  The land and building (the "property") held for sale represents the Company's 
  corporate offices and adjacent warehouse located in Miami, Florida. 
  Subsequent to May 31, 1996, the Company entered into a contract to sell the 
  property, with an expected sales date in November 1996.  As of May 31, 1995 
  and 1996, the net book value of the property was approximately $963,000 and 
  $750,000, respectively.  As of May 31, 1996, the property was written down 
  to its market value, less estimated selling expenses.  Included in 
  depreciation expense for the year ended May 31, 1996 is approximately 
  $190,000 relating to this write down.
    
NOTE B - GOING CONCERN

  Primarily as a result of the net losses experienced in fiscal 1994 and 
  1995, and the classification of certain debt obligations as current, the 
  Company has a significant deficit in working capital and stockholders' 
  equity.  Currently, the Company is not in compliance with certain financial 
  and other covenants under the loan agreements relating to the 12% Senior 
  Secured Notes ("Notes"), issued July 1992, and the 8% Convertible 
  Subordinated Debentures ("Debentures"), issued September 1993 (see Long-Term 
  Obligations Note D).  The Notes are secured by substantially all of the 
  assets of the Company and the Debentures are subordinated in right of payment
  to the Notes.

  Excluding amounts scheduled to be repaid in fiscal 1997 under the terms of 
  the agreements, $14,041,667 is subject to accelerated maturity and, as such, 
  has been classified as a current liability in the Consolidated Balance Sheets 
  at May 31, 1996.  The Company has presented a restructuring proposal to the 
  holders of the Notes and the Debentures which is described in a Registration 
  Statement filed on Form S-4 filed by the Company with the Securities and 
  Exchange Commission on July 12, 1996 (see Note R).  However, there can be no 
  assurance that the Company will be able to consummate a restructuring of its 
  indebtedness.  If the lenders were to accelerate maturity, the Company would 
  not have sufficient funds to repay the debt obligations.


                                     F-9

<PAGE>
          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       MAY 31, 1994, 1995 AND 1996

NOTE B - GOING CONCERN - Continued
   
  As a result of the above factors, there exists substantial doubt about the 
  Company's ability to continue in existence.
    
NOTE C - INVENTORY

  Inventories at May 31, 1995 and 1996 consisted of the following:

                                          1995          1996
                                      -----------   -----------

      Aircraft parts                  $ 4,063,352   $ 7,938,049
      Aircraft available for sale       2,433,918     1,339,266
                                      -----------   -----------
                                      $ 6,497,270   $ 9,277,315
                                      -----------   -----------
                                      -----------   -----------
NOTE D - LONG-TERM OBLIGATIONS

  Long-term obligations at May 31, 1995 and 1996 consisted of the following:

                                                      1995          1996
                                                  -----------   -----------

     12% Senior Secured Notes                     $ 9,850,000   $ 7,700,000

     8% Convertible Subordinated Debentures        10,000,000    10,000,000
   
     Mortgage note payable to bank                    455,420       429,260
    
     Notes payable due in equal monthly
      installments through October  1997,
      bearing interest at 9.5% to 11.5%
      collateralized by equipment                      16,363         8,000

     Capitalized lease obligations (Note E)            13,968         6,275
                                                  -----------    ----------
   
                                                   20,335,751    18,143,535
    
     Less:  Current maturities and long-term
             obligations in default classified
             as current                            19,895,374    17,736,775
                                                  -----------    ----------

                                                  $   440,377    $  406,760
                                                  -----------    ----------
                                                  -----------    ----------

  In July 1992, the Company issued $18.0 million of five (5) year 12% Senior 
  Secured Notes ("Notes") due July 1997.  In September of 1993, the note 
  agreement was amended, to require a payment of $3,450,000 with the proceeds 
  from the issuance of the Convertible Subordinated Debentures ("Debentures") 
  and subsequent sinking fund payments of $3,233,333 in July 1994 and 1995 and 
  $4,041,667 in July 1996 and 1997.

  In connection with this extinguishment, the Company recorded as an 
  extraordinary item the loss on retirement of debt.  Such costs included a 6%
  prepayment penalty as well as that portion of the deferred debt issuance 
  costs associated with the Notes retired.  In May 1996, the Company prepaid, 
  without penalty $383,334 of the amount due in July 1996.  The notes are 
  secured by substantially all the assets of the Company.  Warrants to purchase
  1,093,528 shares of common stock were issued to the Noteholders at an 
  exercise price of $5.38.  The warrants have a five year term and carry 
  restrictions regarding exercise and registration of the underlying shares.  
  The security purchase agreement contains restrictive covenants requiring the 
  Company to maintain a minimum net worth as well as certain financial ratios, 
  restricts dividends and limits capital expenditures, indebtedness, liens, 
  certain business activities and inventory purchases.  The Company is in 
  default of the loan agreement.

                                     F-10

<PAGE>

          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       MAY 31, 1994, 1995 AND 1996

NOTE D - LONG-TERM OBLIGATIONS - Continued

  In September 1993, the Company issued $10.0 million in Convertible 
  Subordinated Debentures ("Debentures"), due August 2003, through a private 
  placement offering.  The Debentures may be redeemed in whole or in part after
  August 1996, upon 30 days notice by the Company.  The Debentures are 
  convertible to the Company's common stock at a price of $4.00 per share 
  (2,500,000 shares).  The Debentures conversion options carry restrictions 
  regarding conversion and registration of the underlying shares.  The 
  Debenture holders have certain demand and piggy-back registration rights on 
  the underlying shares.  The Debentures have a fixed annual interest rate of 
  8%, with such interest payable quarterly.  The securities purchase agreement 
  contains restrictive covenants requiring the Company to maintain a certain 
  level of consolidated net worth and certain financial ratios related to 
  interest expense coverage.  The Company is in default of the loan agreement.

  In May 1995, the Company received a notice of payment blockage from the 
  holder of a majority of the Notes.  The payment blockage prevented the 
  Company from any scheduled interest payment on the Debentures, through 
  November 1995.  Irrespective of the payment blockage, the Company has not 
  made any of the scheduled interest payments on the Debentures since February
  1995.  Included in the May 31, 1995 and 1996, financial statements is 
  $200,000 and $1,000,000 representing accrued interest on the Debentures.

  In September 1992, the Company entered into a promissory note and mortgage 
  and security agreement with a bank.  The promissory note is payable in equal 
  monthly installments of $2,180 plus interest through September 1997 when the 
  remaining balance is due.  The note has an interest rate of 1% above the 
  bank's prime rate.  The note is secured by a first mortgage on the land and 
  building in Miami, Florida (see Note A).  This property also has a junior 
  mortgage in favor the holders of the notes.

  The scheduled maturities of long-term obligations in each of the next five 
  years subsequent to May 31, 1996 are as follows: 1997 - $3,695,108, 1998 - 
  $4,448,426, 1999 - $0, 2000 - $0, 2001 -$0 and thereafter $10,000,000.  
  However, the Company is in default under the terms of the securities purchase
  agreement for the Notes and the Debentures.  If the holders were to demand 
  repayment, $14,041,667, which is scheduled to be paid subsequent to May 31, 
  1997, would be due immediately.

NOTE E - LEASES

  The Company conducts a portion of its operations utilizing leased equipment 
  which has been capitalized. Following is a schedule of future minimum rental 
  payments under capital leases together with the present value of future 
  minimum rentals as of May 31, 1996.

        Future minimum lease payments                         $ 7,890
        Less amount representing interest                       1,615
                                                              -------
        Present value of  future minimum lease payments         6,275
        Current maturities                                      5,092
                                                              -------

        Long term obligations under capital leases             $1,183
                                                              -------
                                                              -------

  Capitalized equipment leases are accounted for and amortized as 
  company-owned equipment. The following is a schedule of leased equipment 
  under capital leases:

                                                 1995          1996
                                             ----------    ----------

        Equipment                            $  298,279    $  298,279
        Less:  Accumulated amortization         279,863       292,244
                                             ----------    ----------

                                             $   18,416    $    6,035
                                             ----------    ----------
                                             ----------    ----------

                                     F-11
<PAGE>

          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       MAY 31, 1994, 1995 AND 1996

NOTE E - LEASES - Continued

  The Company leased warehouse and hangar facilities as well as  certain 
  equipment under long-term operating lease agreements.  Rental expense under 
  these leases for the years ended May 31, 1994, 1995 and 1996 was 
  approximately $242,000, $220,000 and $53,000, respectively.  At May 31, 1996, 
  there are no future minimum payments on non-cancellable operating leases.

  The Company currently leases an aircraft to a customer under a month to 
  month operating lease.  In addition to minimum base rentals, the lease 
  agreement requires additional rent based upon aircraft usage.  The net 
  investment in aircraft held for or leased to customers was $2,210,202 and 
  $1,849,143 at May 31, 1995 and 1996, respectively.

NOTE F - INCOME TAXES

  The provision for income taxes for the years ended May 31, 1994, 1995 and 
  1996 is as follows:

                                   1994            1995            1996
                              -------------      ---------      ----------
      Current provision:
        Federal               $ (2,544,185)      $       -      $   14,048
        State                            -               -               -
                              ------------       ---------      ----------
                                (2,544,185)              -          14,048
      Deferred provision            69,000               -               -
                              ------------       ---------      ----------
                              $ (2,475,185)      $       -      $   14,048
                              ------------       ---------      ----------
                              ------------       ---------      ----------

  The tax effect of the Company's temporary differences and carryforwards is 
  as follows:

<TABLE>
<CAPTION>
                                                                  1995             1996
                                                             -------------     -------------
       <S>                                                   <C>               <C>
       Deferred tax (benefits) - current: 
         Reserve for overhaul costs                          $   (545,000)     $   (332,000)
         Bad debt reserve                                        (233,000)         (276,000)
         Inventory capitalization                                (188,000)         (145,000)
         Accrued payroll                                          (37,000)                -
         Accrued legal settlement costs                          (116,000)           (1,000)
         Accrued vacation                                         (16,000)          (15,000)
         Accrued - other                                          (11,000)           (4,000)
         Accrued repair costs                                           -          (187,000)
                                                             ------------      ------------

                                                             $ (1,146,000)     $   (960,000)
                                                             ------------      ------------
                                                             ------------      ------------
</TABLE>

<TABLE>
<CAPTION>
                                                                   1995              1996
                                                             ------------      -------------

       <S>                                                   <C>              <C>
       Deferred tax liabilities (benefits) - non-current:
         Depreciation                                        $    226,000      $    (17,000)
         Aircraft - capitalized maintenance                        36,000            36,000
         Restructuring charges                                   (702,000)         (160,000)
         Accrued interest income                                 (106,000)                -
         Net operating loss carryforward - federal             (2,941,000)       (2,467,000)
         Net operating loss carryforward - state                 (277,000)         (260,000)
         Minimum tax credit - federal                            (122,000)         (135,000)
         Other, net                                                (8,000)           (8,000)
                                                             ------------      ------------

                                                             $ (3,894,000)     $ (3,011,000)
                                                             ------------      ------------
                                                             ------------      ------------

</TABLE>


                                     F-12

<PAGE>

          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       MAY 31, 1994, 1995 AND 1996

NOTE F - INCOME TAXES - Continued

  The Company has recorded valuation allowances equal to the amount of the 
  deferred tax benefits at May 31, 1995 and 1996. The valuation allowance has 
  decreased by $1,069,000 in fiscal 1996.

  The following table summarizes the differences between the Company's 
  effective tax rate and the statutory federal rate as follows:

                                                         1994     1995    1996
                                                         ----     ----    ----

      Statutory federal rate                            (34.0)%  (34.0)%  34.0%
      Operating losses with no current tax benefit       19.6     34.0     -.
      Tax benefit from net operating loss carryforward    -.       -.    (33.4)
                                                        ------   ------  ------

      Effective tax rate                                (14.4)%    -.      0.6%
                                                        ------   ------  ------
                                                        ------   ------  ------


  The Company has net operating loss carryforwards for federal and state 
  purposes of approximately $7.3 and $7.2 million, respectively.  The net 
  operating losses will expire at various points through the year 2010.  The 
  Company has a federal minimum tax credit carryover of approximately $135,000 
  which may be utilized in future years to the extent that the regular tax 
  liability exceeds the alternative minimum tax.  Certain provisions of the tax 
  law may limit the net operating loss and credit carryforwards available for 
  use in any given year in the event of a significant change in ownership 
  interest.

NOTE G - COMMON AND PREFERRED STOCK

  In July 1993, the Company amended the Articles of Incorporation to 
  authorize the issuance of up to 500,000 shares of preferred stock.  No such
  stock has been issued.

  In June 1993, the Company issued 32,667 shares of common stock to an 
  individual in exchange for certain aircraft parts included in the Company's 
  inventory.

NOTE H - STOCK OPTIONS

  The Stockholders in October 1989 approved a Stock Option Plan pursuant to 
  which 350,000 shares of the Company's common stock were reserved for the 
  grant of options to employees and directors of the Company or its 
  subsidiaries. The issuance of the options and the form of the options shall 
  be at the discretion of the Company's Compensation Committee.  Information 
  with respect to stock options under the plan is as follows:


                                             Number of Shares
                                --------------------------------------------
                                 Reserved       Outstanding       Available
                                ----------     -------------     -----------
      Balance June 1, 1994        315,000         150,500          164,500
      Granted                           -         265,000         (265,000)
      Expired                           -         (54,000)          54,000
      Canceled                          -         (66,500)          66,500
                                ---------      ----------         --------

      Balance May 31, 1995        315,000         295,000           20,000
      Granted                           -               -                -
      Expired                           -               -                -
      Canceled                          -         (25,500)          25,500
                                ---------      ----------         --------

      Balance May 31, 1996        315,000         269,500           45,500
                                ---------      ----------         --------
                                ---------      ----------         --------


                                     F-13

<PAGE>

          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       MAY 31, 1994, 1995 AND 1996

NOTE H - STOCK OPTIONS - Continued
   
    

  Effective in December 1994, the outstanding employee stock options were 
  canceled and new options were issued through an Incentive Stock Option 
  Agreement.  Options were granted to purchase 265,000 shares at an exercise 
  price of $.19, which equaled the fair market value of the Company's stock on 
  the effective date of the grant.  All options granted were fully vested at 
  May 31, 1995, and expire in December 1999.  Included in the above table are 
  options granted to directors to purchase 30,000 shares at exercise prices 
  ranging from $4.625 to $4.875 per share.

  In April 1992, the Company granted a lender options to purchase 100,000 and 
  50,000 shares with exercise prices of $4.875 and $4.625, respectively.  The 
  options expire in October 1996.

  In connection with the settlement of a legal dispute arising from a loan to 
  the Company, in April 1992, the Company issued an option to the lender to 
  purchase 200,000 shares at $3.25 per share, which approximated the market 
  price on the date of the grant.

NOTE I - SALES TO MAJOR CUSTOMERS/FOREIGN AND DOMESTIC

  The Company sells aircraft and aircraft parts, and leases aircraft to 
  foreign and domestic customers.  Most of the Company's sales take place on an
  unsecured basis, and a majority of the sales are to aircraft operators.

  The information with respect to sales and lease revenue, by geographic 
  area, is presented in the table below for the years ended May 31, 1994, 1995 
  and 1996.

                                                 (IN THOUSANDS)

                                          1994        1995        1996
                                       ---------   ---------   ----------

          United States                $  10,978   $  18,048   $  19,800
          Africa and Middle East           4,636       1,204         623
          Europe                             374       1,350         177
          Latin America                    2,178       4,347       2,454
          Canada                             558          34           -
          Asia                                 9           -         151
                                       ---------   ---------   ---------
                                       $  18,733   $  24,983   $  23,205
                                       ---------   ---------   ---------
                                       ---------   ---------   ---------

  The Company had part sales to a domestic customer which accounted for 
  approximately 21% of net sales in fiscal 1996 and less than 10% of net sales 
  in fiscal 1995.  The Company did not have any sales to this customer in 
  fiscal 1994.  However, this customer has been the subject of intense scrutiny 
  by the FAA since the crash of one of its aircraft in early May 1996. On June 
  17, 1996, the customer entered into a consent decree with the FAA. Pursuant 
  to the consent decree, the customer agreed to ground all of its aircraft 
  until it demonstrates compliance with specified safety and maintenance 
  procedures.  The customer has not yet resumed operations.    Additionally, 
  the Company has customers which in turn do business with this customer.  
  There is no way to estimate the sales volumes to these other customers which 
  may also be impacted by the aforementioned events.  No other customer 
  accounted for more than 10% of the Company's sales in fiscal 1996.

                                                                    (continued)


                                     F-14

<PAGE>

          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       MAY 31, 1994, 1995 AND 1996



NOTE I - SALES TO MAJOR CUSTOMERS/FOREIGN AND DOMESTIC - Continued

  The Company had sales to a Venezuelan customer which accounted for 
  approximately 11% of net sales in fiscal 1995 and less than 10% in fiscal 
  year 1994.  Additionally, the Company sold 3 aircraft to a United States 
  customer which represented 23% of net sales in fiscal 1995.  The Company did 
  not have any sales to this customer in previous fiscal years.  The Company 
  had sales to one African customer which accounted for less than 10% of net 
  sales during the years ended May 31, 1996 and 1995, and 10% of net sales 
  during the year ended May 31, 1994.

  The Company's allowance for doubtful accounts is based on management's 
  estimates of the creditworthiness of its customers, and, in the opinion of 
  management is believed to be set in an amount sufficient to respond to normal 
  business conditions. Should such conditions deteriorate or any major credit 
  customer default on its obligations to the Company, this allowance may need 
  to be increased which may have an adverse impact upon the Company's earnings.

NOTE J - INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

  The Company had a 50% interest in A.P. Number 1, Inc., a joint venture 
  corporation created to purchase, sell and lease aircraft and engines.  In 
  fiscal 1993, the Company advanced $5,000 and executed as co-maker, together 
  with the Company's Joint Venture partner, a promissory note for $2,900,000 
  due October 31, 1993.  The promissory note was also signed as co-maker by the 
  then Chairman of the Company personally.  The proceeds of the loan were 
  advanced to the joint venture without any specific terms regarding repayment 
  of principal or payment of interest, and the funds were used to purchase 
  three aircraft.

  The joint venture's operations were not successful, and the joint venture 
  was not able to make the required payments under the terms of the note.  The 
  Company was in default under the terms of the note due to nonpayment of 
  principal and interest and in February 1994, the Company agreed upon a 
  settlement with the lender, whereby the lender received title to the three 
  (3) aircraft and $500,000 from the Company.

  All remaining liabilities have been satisfied and the joint venture has 
  been dissolved.  The Company's loss relating to the joint venture, as shown 
  in the statement of operations for fiscal 1994, includes its share of the 
  joint venture operating losses ($280,000) and its loss upon dissolution 
  ($143,224).

NOTE K - SUPPLEMENTAL CASH FLOW DISCLOSURE

  During fiscal 1994, the Company acquired approximately $1,140,000 in 
  equipment under a leasing arrangement which was classified as a capital lease
  obligation at May 31, 1994.

  The net change in inventory in fiscal 1995 and 1996, as derived from the 
  change in balance sheet amounts, has been adjusted for the following items:

<TABLE>
<CAPTION>

                                                                  1995            1996
                                                              -------------   -----------
    <S>                                                       <C>             <C>

    Net increase (decrease) in inventory                      $ (2,222,504)   $ 2,780,045
    Write-down of aircraft                                               -        250,000
    Transfer of aircraft from held for lease to inventory       (2,688,330)             -
                                                              ------------    -----------

         Cash flow impact from change in inventory            $ (4,910,834)   $ 3,030,045
                                                              ------------    -----------
                                                              ------------    -----------

</TABLE>

  In fiscal 1994, the Company issued 32,667 shares of common stock in 
  exchange for certain inventory.


                                     F-15

<PAGE>

            INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                         MAY 31, 1994, 1995 AND 1996


NOTE L - RELATED PARTY TRANSACTIONS

  During the year ended May 31, 1994, the Company sold an aircraft for $400,000 
  to a business partner of an outside director of the Company based upon 
  management's best estimate of the aircraft's fair market value.  The Company 
  recorded a loss of approximately $106,000 on this transaction.
   
  In fiscal 1994, the Company paid approximately $54,000 to a director under 
  a consulting agreement which originated in fiscal 1993. In 1994, the 
  consulting agreement was terminated and a commission agreement was entered 
  into.  This consulting agreement, which originated in fiscal 1993, was 
  terminated in 1994, and a commission agreement was entered into.  Under the 
  commission agreement, the director is entitled to 3-4% of revenues 
  generated from sales to customers brought in by the director. In fiscal 
  1995 and 1996, the Company paid commissions of approximately $33,000 and 
  $85,000, respectively.
    
  In connection with the issuance of the Senior Secured Notes, the Company's 
  placement agent received a $720,000 placement fee, together with a warrant to 
  purchase 273,382 shares of common stock at $5.3875 per share.  In connection 
  with the issuance of the Convertible Subordinated Debentures, this same 
  placement agent received a $600,000 placement fee.  A director of the Company 
  was an employee of the placement agent.

  In fiscal 1994, the Company rented a condominium unit from an entity 
  controlled by an officer/director.  Total rent paid in fiscal 1994 was 
  approximately $9,000.

NOTE M - FOURTH QUARTER ADJUSTMENTS

  The Company recorded a fourth quarter adjustment in 1994 in the amount of 
  approximately $2,476,000 which related to reducing certain estimated tax 
  benefits recorded in the third quarter, for which a 100% valuation allowance 
  was established at year-end.  Also, an adjustment was made for $110,000 
  reversing an inventory part included erroneously twice in inventory in the 
  first, second, and third quarters.  Also in the fourth quarter, certain 
  charges recorded initially as restructuring charges in the third quarter were 
  re-classified to cost of goods sold.

  The Company recorded a fourth quarter adjustment in 1996 in the amount of 
  approximately $385,000 which related to capitalizing the costs incurred as a 
  result of the planned restructuring (see Note R).  Approximately $306,000 of 
  these costs were expensed in the first three quarters of fiscal 1996.

NOTE N - COST OF SALES

  In the third quarter of fiscal 1994, the Company adopted a restructuring 
  program designed to reduce costs, improve liquidity, and increase stockholder 
  value.  The restructuring program included the termination of the Company's 
  President, other reductions in personnel, the sale of certain fixed assets 
  and an intensive review of the Company's product lines and inventories.  

  Cost of sales for fiscal 1994 includes charges aggregating $9.6 million 
  relating to the following:

    1.  Reductions of approximately $2.0 million in the carrying amount of the 
        Company's inventory part pools resulting from changes in sales 
        estimates and related inventory values, reflecting the deteriorating 
        economic conditions in the industry.

    2.  In March 1994, the Company entered into an agreement to sell three 
        aircraft upon completion of certain repairs and maintenance that was 
        expected to be completed in fiscal 1995.  The Company recorded a 
        provision of approximately $2.4 million at May 31, 1994, for the 
        estimated excess of the final cost of the repairs and maintenance 
        over the sales price, after overhauling the aircraft to meet the 
        customer's contract specifications.

                                                                     (continued)


                                     F-16

<PAGE>

            INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                         MAY 31, 1994, 1995 AND 1996

NOTE N - COST OF SALES - Continued

    3.  Writedowns approximating $3.1 million relating to weak current market 
        conditions and the review of realizability of Company assets performed 
        during the Company's restructuring program.

    4.  Losses totaling approximately $2.1 million relating to the sale of a 
        leased aircraft and the write-off of another aircraft due to a default 
        by the lessee under the terms of the lease.  In June 1995, the Company 
        recovered this aircraft.

NOTE O - ACCRUED LIABILITIES

  Accrued liabilities consist of the following items:

<TABLE>
<CAPTION>
                                              1995             1996
                                           ----------      ----------
<S>                                     <C>             <C>
  Customer deposits                        $  426,453     $   367,669
  Accrued repair costs                        224,406         187,157
  Accrued legal costs                          60,000               -
  Accrued interest                            399,030       1,165,468
  Accrued payroll                             282,834         399,886
  Accrued property taxes                        2,730          31,144
  Accrued commissions                         159,536         167,741
  Reserve for repair of leased aircraft       570,940         480,308
  Other                                       100,971         433,858
                                           ----------      ----------
                                           $2,226,900      $3,233,231
                                           ----------      ----------
                                           ----------      ----------
</TABLE>

NOTE P - WELLMAN TRANSACTION

  In January 1995, the Company entered into an agreement with the former 
  President and former Secretary of the Company whereby the Company transferred 
  all of the outstanding stock of Brent Aviation, a wholly-owned subsidiary, to 
  an affiliate of the former employees.  In addition, the Company also 
  transferred certain spare parts, components, inventory and equipment for 
  B-727 series aircraft, and a McDonnell Douglas DC-4 aircraft.  In 
  consideration, the Company received $230,000 and agreed to lease a B-727 to 
  the affiliate on a month-to-month basis.
   
  In addition, the employees resigned from all positions as officers or 
  directors, granted a proxy to the Company enabling the Company's directors to 
  vote 1.98 million shares of common stock held by the employees for a period 
  of two years, and agreed not to compete or interfere with any of the 
  businesses of the Company and its remaining subsidiaries for a period of two 
  years.  The Company further agreed to pay the former Secretary one year's 
  salary as severance.  As of May 31, 1995, $95,000 of the accrued severance 
  was unpaid and was recorded in accrued liabilities.  In fiscal 1996, this 
  liability was paid in full.  The Company also agreed to terminate its 
  leasehold interest in a facility located at Grayson County, Texas Airport, 
  allowing Brent Aviation to lease such facility for its operations.  
    
NOTE Q - DISPOSAL OF SERVICE CENTER OPERATIONS
   

  In June 1994, the Company's Board of Directors unanimously voted to cease 
  operations and to sell or otherwise dispose of the Company's wholly-owned 
  subsidiary, International Airline Service Center, Inc. ("IASC"), which was 
  an FAA certified repair facility engaged in the performance of maintenance 
  check required by the FAA on narrow body aircraft, following the sale of 
  certain of the Company's aircraft being serviced under contract by IASC.

    
                                                                     (continued)
                                     F-17

<PAGE>

            INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                         MAY 31, 1994, 1995 AND 1996

NOTE Q - DISPOSAL OF SERVICE CENTER OPERATIONS - Continued

  During the third quarter of 1995, IASC fulfilled its obligations to service 
  the aircraft and ceased operations.  On January 31, 1995, IASC entered into 
  an agreement with a third party, pursuant to which IASC assigned its interest 
  in a certain equipment lease with a net book value of $826,965 at May 31, 
  1995, to the third party, and the third party assumed IASC's interests and 
  obligations under such lease.  IASC's interest in the lease as of May 31, 
  1995 was $897,596.  Thus a gain of $70,631 was recognized as a result of the 
  transaction.  Pursuant to the transaction, IASC disposed of substantially all 
  of its operating assets.  

  As of May 31, 1995, IASC had an insignificant amount of assets and 
  liabilities recorded on its books.

NOTE R - SUBSEQUENT EVENTS
   
  Subsequent to May 31, 1996, the Company entered into a contact to sell its 
  premises in Miami, Florida for $850,000 in cash, less applicable selling 
  costs. As the premises were written down to the estimated net realizable 
  value as of May 31, 1996, no gain or loss is expected to be recognized upon 
  completion on this transaction.  The write down is included in depreciation 
  expense in fiscal 1996.
    
  On July 12, 1996, the Company announced that it did not intend to pay the 
  scheduled $3.7 million principal installment due on the Notes on July 17, 
  1996, pending redemption of the Senior Notes in connection with a 
  restructuring of its indebtedness.  The debt restructuring is described in a 
  Registration Statement on Form S-4 filed by the Company with the Securities 
  and Exchange Commission, also on July 12, 1996.  Pursuant to the proposed 
  restructuring, the Company would offer to exchange (the "Exchange Offer") 
  224.54 shares of its Common Stock for each $1,000 principal amount of the 
  Convertible Debentures.  In connection with the restructuring, the Company 
  also intends to solicit proxies form the holders of its Common Stock to 
  approve a 1-for-27 reverse stock split, to effect certain amendments to its 
  Certificates of Incorporation and to approve a stock option plan.  
  Consummation of the restructuring is subject to certain conditions.

  The Company also announced that, on July 11, 1996, the holder of a majority 
  of the outstanding principal amount of the Notes (the "Majority Noteholders") 
  executed a "Standstill Agreement" with the Company pursuant to which such 
  holder agreed that it would refrain (to the extent provided therein) from 
  exercising any rights or remedies it may have with respect to the Event of 
  Default with respect to the Notes that will occur upon the Event of Default 
  with respect to the Notes that will occur upon the Company's failure to pay 
  the July 17, 1996 installment of principal.

  The obligations of the Majority Noteholder pursuant to the Standstill 
  Agreement terminate on the earlier of (i) the 120th day following the date of 
  the Standstill Agreement; (ii) the consummation of the restructuring; and 
  (iii) the occurrence of certain specified events, including, among other 
  things, the exercise by any creditor of the Company of any remedies against 
  the Company with respect to the Company's obligations to such creditor and 
  the first date on which, in the reasonable determination of the Majority 
  Noteholder, any one of the conditions precedent to the restructuring is no 
  longer capable of being satisfied.


                                     F-18