SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K

      [X]   Annual  Report  Pursuant  to  Section 13 or 15(d) of the Securities
            Exchange Act of 1934 for the fiscal year ended MAY 31, 1998

      [  ]  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)
        

        1954 Airport Road, Suite 200, 
              Atlanta, Georgia                       30341
        ----------------------------             --------------
        (Address of principal executive offices)   (Zip Code)


                                (770) 455-7575
              --------------------------------------------------  
             (Registrant's telephone number, including area code)

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


         Title of class                         Name of each exchange on which
                                                           registered
        -----------------                       ------------------------------
      Common Stock, $.001 par value                 American Stock Exchange

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

      Indicate by check mark whether the Registrant (1)  has  filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange  Act  of
1934  during  the  preceding  12  months  (or  for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X] No [  ]
                 
      At August 12, 1998, the aggregate market value  of  common  stock held by
non-affiliates of the Registrant was approximately $15,140,737.50.

      The number of shares of the Registrant's Common Stock outstanding  as  of
August 12, 1998 was 2,563,967.

                     DOCUMENTS INCORPORATED BY REFERENCE:

      Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be  held  on  September 21, 1998 are incorporated by reference in Parts III and
IV.

      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. [X]

<PAGE>
                   INTERNATIONAL AIRLINE SUPPORT GROUP INC.
                          ANNUAL REPORT OF FORM 10-K
                        FOR THE YEAR ENDED MAY 31, 1998




                               TABLE OF CONTENTS

                                                                          PAGE

PART I

      Item 1.     Business                                                  1
      Item 2.     Properties                                               12
      Item 3.     Legal Proceedings                                        12
      Item 4.     Submission of Matters to a Vote of Security Holders      12

PART II

      Item 5.     Market   for   the  Registrant's  Common  Stock  and  
                     Related Stockholder Matters                           13
      Item 6.     Selected Financial Data                                  14
      Item 7.     Management's Discussion  and  Analysis of Financial 
                     Condition and Results of Operations                   15
      Item 8.     Financial Statements and Supplementary Data              20
      Item 9.     Changes in and Disagreements with Accountants on 
                     Accounting and Financial Disclosure                   20

PART III

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

PART IV

      Item 14.    Exhibits, Financial Statement Schedules  and Reports
                     on Form 8-K                                           22

SIGNATURES

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<PAGE>
                                    PART I

ITEM 1. BUSINESS.

      THIS   ANNUAL  REPORT  ON  FORM  10-K  CONTAINS  CERTAIN  FORWARD-LOOKING
STATEMENTS WITHIN  THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED (THE  "EXCHANGE  ACT"),  INCLUDING THE PLANS AND OBJECTIVES OF
MANAGEMENT  FOR  THE  BUSINESS,  OPERATIONS AND  ECONOMIC  PERFORMANCE  OF  THE
COMPANY.  THE FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS SET FORTH IN THIS
ANNUAL REPORT MAY INCLUDE OR RELATE  TO, AMONG OTHER THINGS, (I) INCREASING THE
COMPANY'S MARKET SHARE OF PARTS FOR MD-80  AND  DC-9  AIRCRAFT,  (II) POTENTIAL
ACQUISITIONS  OF  ADDITIONAL  INVENTORIES  OF  AIRCRAFT  SPARE  PARTS  AND  THE
ACQUISITION  OF  OTHER COMPANIES, ASSETS OR PRODUCT LINES THAT WOULD COMPLEMENT
OR EXPAND THE COMPANY'S  EXISTING  AIRCRAFT  SPARE PARTS BUSINESS, (III) DEMAND
AMONG THE COMPANY'S PRINCIPAL CUSTOMERS, INCLUDING  CARGO CARRIERS AND REGIONAL
COMMERCIAL AIRLINES, FOR THE COMPANY'S INVENTORY OF PARTS,  (IV)  THE  SIZE AND
GROWTH RATE OF THE AIRCRAFT PARTS REDISTRIBUTION INDUSTRY AND THE AIRCRAFT  AND
ENGINE  LEASING  INDUSTRY,  (V)  INCREASES OR CHANGES IN GOVERNMENT REGULATIONS
REGARDING THE AVIATION INDUSTRY, (VI)  COMPETITION  FROM  OTHER  AIRCRAFT PARTS
REDISTRIBUTORS AND (VII) PROPOSED EXPANSION OF THE COMPANY'S PRODUCT LINE.  SEE
"CAUTIONARY STATEMENTS" HEREIN.

      THE  FORWARD-LOOKING  STATEMENTS  INCLUDED HEREIN ARE BASED UPON  CURRENT
EXPECTATIONS THAT INVOLVE A NUMBER OF RISKS  AND UNCERTAINTIES.  THESE FORWARD-
LOOKING STATEMENTS ARE BASED UPON ASSUMPTIONS THAT THE COMPANY WILL CONTINUE TO
MANAGE  ITS  INVENTORY  EFFECTIVELY,  THAT COMPETITIVE  CONDITIONS  WITHIN  THE
AIRCRAFT PARTS REDISTRIBUTION INDUSTRY WILL NOT CHANGE MATERIALLY OR ADVERSELY,
THAT DEMAND FOR AIRCRAFT SPARE PARTS WILL  REMAIN STRONG AND THAT THERE WILL BE
NO MATERIAL ADVERSE CHANGE IN THE COMPANY'S  BUSINESS,  FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.  ASSUMPTIONS RELATING TO THE FOREGOING INVOLVE JUDGMENTS
WITH  RESPECT,  AMONG  OTHER  THINGS,  TO  FUTURE  ECONOMIC COMPETITIVE  MARKET
CONDITIONS  AND  FUTURE  BUSINESS  DECISIONS,  ALL OF WHICH  ARE  DIFFICULT  OR
IMPOSSIBLE TO PREDICT ACCURATELY AND MOST OF WHICH  ARE  BEYOND  THE CONTROL OF
THE COMPANY.  ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE
FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE ASSUMPTIONS  COULD  PROVE
INACCURATE  AND,  THEREFORE,  THERE  CAN  BE  NO  ASSURANCE  THAT  THE  RESULTS
CONTEMPLATED   IN  SUCH  FORWARD-LOOKING  INFORMATION  WILL  BE  REALIZED.   IN
ADDITION, AS DISCLOSED  ABOVE,  THE  BUSINESS AND OPERATIONS OF THE COMPANY ARE
SUBJECT TO SUBSTANTIAL RISKS THAT INCREASE  THE  UNCERTAINTY  INHERENT  IN SUCH
FORWARD-LOOKING  STATEMENTS.   ANY  OF  THE OTHER FACTORS DISCLOSED ABOVE COULD
CAUSE THE COMPANY'S REVENUES OR NET EARNINGS,  OR  GROWTH  IN  REVENUES  OR NET
EARNINGS,  TO DIFFER MATERIALLY FROM PRIOR RESULTS.  GROWTH IN ABSOLUTE AMOUNTS
OF COST OF SALES  AND  GENERAL AND ADMINISTRATIVE EXPENSES OR THE OCCURRENCE OF
EXTRAORDINARY EVENTS COULD  CAUSE  ACTUAL  RESULTS  TO VARY MATERIALLY FROM THE
RESULTS CONTEMPLATED IN THE FORWARD-LOOKING STATEMENTS.   BUDGETING  AND  OTHER
MANAGEMENT  DECISIONS  ARE  SUBJECTIVE IN MANY RESPECTS AND THUS SUSCEPTIBLE TO
INTERPRETATIONS AND PERIODIC  REVISIONS BASED ON ACTUAL EXPERIENCE AND BUSINESS
DEVELOPMENTS, THE IMPACT OF WHICH MAY CAUSE THE COMPANY TO ALTER ITS MARKETING,
CAPITAL EXPENDITURE OR OTHER BUDGETS,  WHICH  MAY  IN TURN AFFECT THE COMPANY'S
RESULTS OF OPERATIONS.  IN LIGHT OF THE SIGNIFICANT  UNCERTAINTIES  INHERENT IN
THE   FORWARD-LOOKING  INFORMATION  INCLUDED  HEREIN,  THE  INCLUSION  OF  SUCH
INFORMATION  SHOULD  NOT  BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY
OTHER PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.

General

      The Company is a leading  redistributor  of  aftermarket  aircraft  spare
parts  used primarily for McDonnell Douglas MD-80 and DC-9 aircraft.  According
to the World Jet Inventory Year-End 1997 (the "World Jet Inventory"), MD-80 and
DC-9 aircraft  accounted  for  approximately  15% of the commercial aircraft in
service worldwide at December 31, 1997.  Management  believes  that the Company
has one of the most extensive inventories of aftermarket MD-80 and  DC-9  parts
in  the  industry.   In addition, the Company provides aircraft spare parts for
Boeing, Lockheed, Airbus  and  commuter  aircraft.   The  aircraft  spare parts
distributed by the Company, including avionics, rotable and expendable airframe
and engine parts, are sold to a wide variety of domestic and international  air
cargo  carriers,  major commercial and regional passenger airlines, maintenance
and repair facilities  and  other redistributors.  The wide variety of aircraft

                                       1
<PAGE>

spare  parts  distributed by the  Company  are  acquired  through  purchase  or
consignment of  surplus or bulk inventories from airlines, purchases from other
redistributors and disassembly of aircraft.

      In addition  to  being  a  provider  of aircraft spare parts, the Company
leverages  its industry expertise to purchase,  sell  and  lease  aircraft  and
engines.  The  Company  has periodically acquired, leased and sold a variety of
narrow-body commercial jet  aircraft,  such as Boeing 727 and 737 and McDonnell
Douglas MD-80 and DC-9 aircraft, and has  recently increased its focus on these
activities.  The Company currently leases three  Boeing  727 freighter aircraft
to  a  major  cargo carrier and two Pratt & Whitney JT8D series  engines  to  a
smaller cargo and  charter passenger carrier.  The Company derives revenue from
lease payments and seeks  to sell spare parts to the lessee both for the leased
aircraft as well as other aircraft  in  the lessee's fleet.  Upon return of the
aircraft, the Company either re-leases, sells  or disassembles the aircraft for
parts in order to achieve the highest utilization of the asset.

COMPANY HISTORY

      The  Company  was  founded  in 1982 and went public  in  April  of  1990.
Initially the Company focused on parting  out  DC-8  aircraft and reselling the
resulting spare parts.  Based upon the Company's success  in  parting  out DC-8
aircraft,  the Company began purchasing and parting out DC-9 and MD-80 aircraft
in 1991.  Beginning  in  1992,  the  Company  began  purchasing and parting out
Boeing  727 aircraft.  Since its founding, the Company  has  acquired  over  50
aircraft for parting out.

      In  1993,  the  Company commenced a diversification program that included
the development of an FAA-approved  maintenance  and  overhaul facility.  After
sustaining a $17.4 million loss in fiscal 1994, primarily  attributable  to the
operation of this facility and lack of focus on the Company's core business,  a
management  realignment  was  undertaken  pursuant to which Alexius A. Dyer III
became President of the Company.  Thereafter,  the Company sold the maintenance
and  overhaul  facility  and  returned  its  focus  to  the  redistribution  of
aftermarket  spare  parts.   This  successful  redirection  of  operations  was
followed  by  a  restructuring of the Company's capital  structure,  which  was
consummated on October  3,  1996  (the  "Restructuring").   The  redirection of
operations  returned  the  Company  to  profitability,  and  the  Restructuring
resulted  in  a  significant  reduction  in the Company's leverage and interest
expense. The Company's strengthened financial  condition  and profitability can
be  seen  through  the  expansion  of  its gross margin as a percent  of  total
revenues, which increased from 29% in fiscal 1995 to 40% in fiscal 1998 as well
as 14 consecutive profitable quarters following  the  Company's  refocus on its
aftermarket business.

INDUSTRY OVERVIEW

      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.   The
Company believes that this  market  will  continue to grow due to the following
factors:

      INCREASE IN THE NUMBER OF OLDER COMMERCIAL  AIRCRAFT.   Increased  demand
for  air  travel  and  the  need for aircraft operators to reduce operating and
capital costs have prompted many  airlines  to  extend the useful life of older
equipment.   The  installation  of  FAA-approved hush-kits  and  extended  life
maintenance  programs  have  also increased  the  useful  life  of  many  older
aircraft.  As a result, most aircraft types have had a longer service life than
originally  certified.   In  addition,   many  foreign  and  domestic  aircraft
operators  and  cargo  carriers  are  increasing   their   fleets  through  the
acquisition   of   less  expensive  used  aircraft.   As  older  aircraft   are
transitioned from major domestic passenger airlines to lower cost international
and regional domestic passenger airlines and cargo carriers, used aircraft have
enjoyed longer service  lives  than  originally  anticipated.   Older  aircraft
typically  require  more  maintenance  and replacement parts than new aircraft.
According to the World Jet Inventory, at  December 31, 1997, the average age of
the worldwide jet fleet was 13.6 years and the Company believes the average age
will increase in the future.

      LEASING.   The  Company believes that due  to  the  increasing  costs  of
commercial jet aircraft,  the  anticipated  growth  of  the  worldwide aircraft
fleet,  and  the  emergence  of new regional airlines, aircraft operators  will

                                       2
<PAGE>

increasingly turn to operating leases as an alternative method to finance their
aircraft  and  engine  needs.   The  Company  believes  that  leasing  of  used
commercial jet aircraft and engines  should grow due to the emphasis on airline
cost reduction, the desire of airlines  for fleet flexibility and the growth in
air travel.  In addition, several smaller  and  regional airlines have recently
chosen  to  lease  inventories of aircraft spare parts  in  order  to  preserve
capital while maintaining adequate spare parts support.

      REDUCTION IN NUMBER  OF  APPROVED  SUPPLIERS.   Cost considerations cause
many  aircraft operators to reduce the size of their spare  parts  inventories,
while efficiency  and quality concerns may cause aircraft operators to maintain
relationships with  a  more  limited  number  of  approved  suppliers.  Quality
concerns  are  causing  aircraft  operators to demand that their  suppliers  be
quality certified by organizations  such  as  the Airline Suppliers Association
("ASA") or the International Standards Organization  ("ISO")  and  at least one
major  commercial  airline  has  begun  to  demand  its suppliers carry product
liability  insurance.   In addition, as aircraft operators  adopt  just-in-time
inventory procurement processes,  inventory  storage is increasingly handled by
suppliers such as the Company.  The Company believes  that  these  trends  will
continue  in  the  future  and  will  benefit  well-positioned  aircraft  parts
suppliers such as the Company.

      INCREASED  INVENTORY  CONSIGNMENT.   Certain  of  the Company's customers
adjust  inventory levels on a periodic basis by disposing  of  excess  aircraft
spare parts.  Traditionally, larger airlines have used internal sales agents to
manage such  dispositions.   The Company believes that major airlines and other
owners  of  aircraft  spare parts,  in  order  to  concentrate  on  their  core
businesses and to more effectively monetize their excess parts and inventories,
are  increasingly  entering   into   long-term   consignment   agreements  with
redistributors.  By consigning inventories through a redistributor  such as the
Company,  customers  are  able to offer their aircraft spare parts to a  larger
number of prospective inventory  buyers,  allowing the customer to maximize the
value of its inventory.  Consignment also enables a consignee to offer for sale
significant parts and inventory at minimal capital cost.

COMPANY STRATEGY

      The Company's strategy is to capitalize  upon  its  position as a leading
redistributor of MD-80 and DC-9 aircraft spare parts and to broaden its product
lines  to  include  other  high-use  aircraft  as the world fleet  grows.   Key
elements of the Company's strategy include:

      EXPAND AIRCRAFT AND ENGINE LEASING SERVICES.   The  Company believes that
airlines  are  becoming increasingly aware of the benefits of  financing  their
fleet equipment  on  an  operating  lease  basis,  including cost reduction and
flexibility regarding fleet size and composition.  The  Company  believes  that
leasing  commercial  aircraft  and  engines  offers  an  effective  use  of the
Company's  capital.   The Company derives revenue from lease payments and seeks
to sell spare parts to the lessee both for the leased aircraft as well as other
aircraft in the lessee's  fleet.   Upon  return  of  the  aircraft, the Company
either  re-leases,  sells or disassembles the aircraft for parts  in  order  to
achieve the highest utilization of the asset.

      BROADEN PRODUCT LINE.  The Company has recently expanded its product line
to include aftermarket  parts  for  Airbus  A-300  series  aircraft and certain
commuter  aircraft  including Shorts, de Havilland and British  Aerospace.   In
addition, the Company  intends  to expand its product line to include parts for
McDonnell Douglas DC-10 and Boeing  767  aircraft.  As fleets of these aircraft
age and as air cargo carriers transition larger  portions  of  their  fleets to
wide-body aircraft, the Company will seek to capitalize on the demand for parts
resulting  from  the aging and continued use of these aircraft models.  Several
air cargo carriers  currently utilize DC-10, 767 and A-300 series aircraft, and
the Company believes  use  of  these  models  will  continue  to increase.  The
Company believes that a significant number of these aircraft types have been or
will  be  converted to cargo use and that its relationship with cargo  carriers
will provide  an  advantage  in  supplying  parts  for  these  aircraft to such
customers.

      INCREASE SALES TO CARGO CARRIERS AND REGIONAL COMMERCIAL AIRLINES.  Cargo
carriers  and  regional  commercial airlines are among the Company's  principal
customers.  Cargo carriers  are  important customers because the fleets of such
operators typically consist of older aircraft of the type for which the Company
maintains  an  extensive  inventory of  parts.   Additionally,  such  customers
typically  do not maintain extensive  inventories  of  spare  parts.   Regional

                                    3
<PAGE>
commercial airlines are important customers because such airlines favor narrow-
body aircraft,  such  as  MD-80  and  DC-9 aircraft, for which the Company is a
primary  source  of  spare  parts.   The  Company  will  direct  its  marketing
activities to broadening its customer base  of  cargo  and regional airlines in
order to increase market share and leverage its core competencies.

      CAPITALIZE   ON  BULK  PURCHASE  OPPORTUNITIES.   While   there   is   no
predictability  as  to   when   opportunities  will  arise  to  purchase  large
inventories in bulk, such opportunities  periodically  become  available.  Bulk
purchase  opportunities  arise  when  airlines,  in  order  to  reduce  capital
requirements,  sell  large  amounts  of inventory in a single transaction, when
inventories of aircraft spare parts are  sold  in  conjunction  with  corporate
restructurings  or  reorganizations  or when an aircraft operator realigns  its
aircraft fleet, reducing the number of  or exiting a particular aircraft model.
Bulk  inventory purchases allow the Company  to  obtain  large  inventories  of
aircraft  spare  parts  at  a  lower  cost  than  can ordinarily be obtained by
purchasing spare parts on an individual basis, resulting  generally  in  higher
gross  margins  on  sales  of  such  parts.  Since fiscal 1996, the Company has
successfully  completed  two  large  bulk  inventory  purchases.   The  Company
believes that its market presence, experience  in  evaluating  bulk  purchases,
sophisticated  management information systems and capital strength will  enable
the Company to quickly  analyze  and complete large bulk purchase opportunities
to the extent that the economics of such purchases are considered favorable.

      INCREASE MARKET SHARE OF PARTS  FOR MD-80 AND DC-9 AIRCRAFT.  The Company
intends to increase its market share of  parts  for  MD-80  and  DC-9 aircraft.
According  to  the  World  Jet  Inventory,  MD-80  and  DC-9  aircraft together
accounted for approximately 15% of the commercial aircraft in service worldwide
at  December 31, 1997.  Although the DC-9 is no longer in production,  many  of
the DC-9's parts are interchangeable with the MD-80, which, given the Company's
experience  and  knowledge  of  the  DC-9,  gives it a competitive advantage in
selling parts into the MD-80 marketplace.  Boeing  has  indicated its intention
to  cease  production of the MD-80 around mid-1999 or when  current  production
commitments end.  The Company intends to capitalize on the limited availability
of new 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  disassembly when economically
justified.  The Company believes that its knowledge of the fleets of MD-80s and
DC-9s  currently  in  operation and its worldwide contacts  in  the  commercial
aviation industry will  permit it to acquire other inventory pools and aircraft
for disassembly on favorable terms in the future.

      CONTINUED  COMMITMENT  TO  QUALITY  AND  TECHNOLOGICAL  INNOVATION.   The
Company emphasizes adherence to high quality standards during each stage of its
operations  (product   acquisition,   documentation,   inventory   control  and
delivery).   In  August  1997,  the  ASA, an FAA-recognized independent quality
assurance organization, accredited the  Company as an aftermarket supplier.  In
addition,  the  Company  believes  it  was  one   of   the   first  aftermarket
redistributors  to  bar-code its inventory and it has created and  sponsors  an
industry-wide Internet parts locator service for its customers, which heightens
awareness of the Company,  enhances  its position in the industry and increases
sales of parts.

      PURSUE STRATEGIC ACQUISITIONS.   The  Company  competes  in  a fragmented
market  in  which  numerous small companies serve distinct market niches.   The
Company believes that small aftermarket parts redistributors, many of which are
family-owned or capital  constrained,  are  unable  to  provide  the  extensive
inventory  and  quality  control  measures  necessary to comply with applicable
regulatory   and   customer   requirements,   and  will   provide   acquisition
opportunities  for  the Company.  Acquisitions are  expected  to  increase  the
Company's customer base,  expand its product line both with respect to aircraft
in which the Company currently  specializes and into new aircraft types, and to
strengthen its relationships with  existing  customers  through availability of
additional inventory.

AIRCRAFT SPARE PARTS

      Aircraft spare parts can be categorized by their ongoing  ability  to  be
repaired  and  returned to service.  The general categories are as follows: (i)
rotable; (ii) repairable;  and  (iii) expendable.  A rotable is a part which is
removed periodically as dictated  by an operator's maintenance program or on an
as-needed  basis  and  is  typically repaired  or  overhauled  and  re-used  an

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<PAGE>

indefinite number of times.   An  important  subset of rotables is life limited
parts.   A life limited rotable has a designated  number  of  allowable  flight
hours and/or  cycles (one take-off and landing generally constitutes one cycle)
after which it  is  rendered  unusuable.   A repairable is similar to a rotable
except that it can only be repaired a limited number of times before it must be
discarded.  An expendable is generally a part  which is used and not thereafter
repaired for further use.

      Aircraft spare parts' conditions are classified  within  the  industry as
(i) factory new, (ii) new surplus, (iii) overhauled, (iv) serviceable,  and (v)
as  removed.   A  factory  new  or  new surplus part is one that has never been
installed or used.  Factory new parts are purchased from manufacturers or their
authorized distributors.  New surplus  parts are purchased from excess stock of
airlines, repair facilities or other redistributors.   An  overhauled  part has
been completely disassembled, inspected, repaired, reassembled and tested  by a
licensed repair facility.  An aircraft spare part is classified serviceable  if
it   is   repaired  by  a  licensed  repair  facility  rather  than  completely
disassembled  as  in an overhaul.  A part may also be classified serviceable if
it is removed by the  operator from an aircraft or engine while operating under
an approved maintenance program and is functional and meets any manufacturer or
time  and  cycle  restrictions   applicable  to  the  part.   With  appropriate
documentation,  a factory new, new  surplus,  overhauled  or  serviceable  part
designation indicates that the part can be immediately utilized on an aircraft.
A part in as removed  condition requires functional testing, repair or overhaul
by a licensed facility  prior to being returned to service in an aircraft.  The
aircraft  spare  parts sold  by  the  Company  include  avionics,  rotable  and
expendable airframe  and  engine parts for commercial aircraft.  Currently, the
Company specializes in replacement  parts  for  MD-80  and  DC-9  aircraft  and
management  believes that the Company has one of the most extensive inventories
of aftermarket  MD-80  and DC-9 parts in the industry.  As of May 31, 1998, the
Company had over 50,000  inventory line items, many of which represent multiple
unit quantities and relate to the MD-80 and DC-9 aircraft.  Many of these parts
such as avionics and engine  parts  can  also  be  used  by  a  wide variety of
aircraft  other  than  MD-80  and DC-9 aircraft.  In addition to the  Company's
inventory of MD-80 and DC-9 parts,  the Company's inventory also includes spare
parts for Boeing 727, 737 and 747 aircraft, Lockheed L-1011 aircraft, McDonnell
Douglas  DC-8 and DC-10 aircraft, Airbus,  Shorts,  de  Havilland  and  British
Aerospace aircraft and for the Pratt & Whitney JT8D engine series.

OPERATIONS OF THE COMPANY

      The  Company's  core business is the buying and selling of aircraft spare
parts.  In addition, the  Company  has  recently  expanded  its product line to
include  the  sale  and leasing of aircraft and engines.  The Company  believes
that the leasing of aircraft and engines will become a more significant part of
the  Company's  business  in  the  future  and  that  it  provides  significant
opportunities for expansion.

      INVENTORY ACQUISITION.   The  Company obtains most of its parts inventory
by  purchasing  individual  parts from airlines,  repair  facilities  or  other
redistributors, by purchasing  excess  inventory from aircraft operators ("bulk
inventory purchases") or by purchasing aircraft  for  disassembly.  The Company
may also fill a customer order for a part not held in the  Company's  inventory
by locating the part for the customer from another vendor, purchasing the  part
and  then reselling the part to the customer.  The Company makes bulk inventory
purchases by bidding on the inventory of companies that are eliminating certain
portions  of  their  spare parts inventory due to the retirement of an aircraft
type from their fleets,  inventory  reduction  programs  to  reduce  costs, the
downsizing  of  their  operations or the dissolution of their businesses  as  a
whole.

      AIRCRAFT AND ENGINE  SALES  AND LEASING.  The Company has determined that
its spare parts sales opportunities  are enhanced by providing existing and new
customers with whole aircraft and engines  through sale and lease transactions.
Such transactions allow the Company to expand its customer base for spare parts
and, through leasing, to reduce the cost basis  in  its  aircraft.  The Company
derives revenue from lease payments and seeks to sell spare parts to the lessee
both for the leased aircraft as well as other aircraft in  the  lessee's fleet.
Upon   return  of  the  aircraft,  the  Company  either  re-leases,  sells   or
disassembles the aircraft for parts in order to achieve the highest utilization
of the asset.

                                        5
<PAGE>
      The  Company  currently  leases  three Boeing 727 freighter aircraft to a
major cargo carrier and two JT8D engines  to  a  smaller  cargo  and  passenger
carrier.  All of the Company's aircraft leases are operating leases rather than
finance leases and expire between January and March 1999.  The Company's engine
leases  are  "evergreen" leases which, although they have no termination  date,
are cancelable  by either party upon specified notice, typically 30 to 90 days.
Under an operating  lease, the Company retains title to the aircraft or engine,
thereby retaining the  potential benefits and assuming the risk of the residual
value of the aircraft or  engine.   Operating  leases  allow aircraft operators
greater fleet and financial flexibility due to their shorter-term  nature,  the
relatively small initial capital outlay necessary to obtain use of the aircraft
or  engine  and off-balance sheet accounting treatment.  The Company focuses on
leasing to its  customers  older, narrow-body aircraft and the engines they use
for periods between six months to three years.  The Company believes that there
is an increasing demand by customers for operating leases, which are being used
as an alternative to traditional financing arrangements.

      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.   If the "core" unit cannot be repaired,
it is returned to the customer and the exchange  transaction is converted to an
outright sale at a sales price agreed upon at the time the exchange transaction
was  negotiated.   The  Company  continues to emphasize  exchange  transactions
because they are profitable and ensure  that  scarce  parts remain in stock for
future sales.

SALES AND MARKETING; CUSTOMERS

      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.

      In addition to directly marketing its inventory,  the Company has created
and sponsors an industry-wide internet parts locator service, which is found at
HTTP:\\WWW.IPLS.COM.   The  Company's  internet  service  is  a   free  service
available  to  any potential customer and lists all of the inventory  available
for  sale by the  Company.   In  order  to  increase  its  value  to  potential
customers,   the   Company's   Internet  service  also  contains  inventory  of
approximately 60 additional aftermarket  parts  redistributors.  Similarly, the
Company  lists  its inventory in the Air Transport  Association's  computerized
databank ("AIRS")  and  with  the Inventory Locator Service ("ILS") proprietary
computerized databank.  Buyers  of  aircraft  spare parts can access any of the
databases described above, as well as other parts  databases,  to determine the
companies  which  have the desired inventory available.  Neither the  Company's
service, AIRS or ILS list price information relating to particular parts.

      Market forces  establish  the  price  for aftermarket aircraft parts.  No
pricing service or price catalogue exists for  aftermarket  parts.  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  meet the same FAA standard as new
parts, cost less than the same new parts and are often more readily available.

      The  Company's  customers  include  a  wide  variety   of   domestic  and
international  air  cargo  carriers,  major  commercial  and regional passenger
airlines,   maintenance   and   repair  facilities  and  other  redistributors.
Management  believes  that its customer  relationships  are  important  to  the
Company's operational success.   The  Company  maintains  an  adequate level of
inventory  in  order  to service its 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.   Cargo  carriers  and  regional  commercial  airlines are among  the

                                      6
<PAGE>

Company's principal customers.  Cargo carriers are important  customers because
the fleets of such operators typically consist of older aircraft  of  the  type
for  which  the  Company  maintains an extensive inventory of parts and because
such customers typically do  not maintain extensive inventories of spare parts.
Regional commercial airlines are  important  customers  because  such  airlines
favor  narrow-body  aircraft,  such  as  MD-80  and DC-9 aircraft for which the
Company is a primary source of spare parts.

      Excluding  aircraft  and  engine  sales,  in fiscal  1998,  no  customers
accounted for more than 5% of the Company's total  revenues.   Each aircraft or
engine sale is unique and the Company does not rely on previous  customers  for
repeat  aircraft  business.   Currently,  the  Company  believes that it has no
customer,  the  loss  of  which  would have a material adverse  effect  on  the
Company's business, financial condition  and results of operations.  In a given
period, a substantial portion of the Company's  revenues may be attributable to
the  sale  of one or more aircraft or engines.  Such  sales  are  unpredictable
transactions  dependent,  in  part,  upon  the Company's ability to purchase an
aircraft or engine at an attractive price and  resell  it  within  a relatively
brief period of time.  The revenues from the sale of an aircraft or engine, the
timing  of  inventory  sales  or a lease transaction during a given period  may
result in a customer being considered  a major customer of the Company for that
period.

QUALITY ASSURANCE

      The Company adheres to stringent quality control standards and procedures
in the purchase and sale of its products.   In  August 1997, the ASA accredited
the Company as an aftermarket supplier after the  completion  of  an  extensive
facilities  audit  and numerous meetings with the Company's management.   Parts
procured from an accredited supplier convey assurance to the purchaser that the
quality is as stated  and  the  appropriate  documentation  is  on  file at the
supplier's  place  of  business.  Furthermore, accreditation provides assurance
that the supplier has implemented  an  appropriate quality assurance system and
has demonstrated the ability to maintain that system.  In addition, many of the
Company's  customers  periodically audit the  Company's  operations  to  ensure
compliance with such customer's quality standards.

      Because aircraft  operators  require a readily available and identifiable
source  of  inventory  meeting  regulatory   requirements,   the   Company  has
implemented  a  total  quality  assurance  program.   This program consists  of
numerous quality procedures, including the following:

      <circle> Inspection procedures mandating that procured  aircraft, engines
            and parts be traceable to a source approved by the Company

      <circle> Training and supervision of personnel to properly  carry out the
            total quality assurance program

      <circle>  On-going  quality  review  board  meetings conducted by  senior
            management to oversee the total quality assurance program

GOVERNMENT REGULATION

      The aviation industry is highly regulated in the United States by the FAA
and in other countries by similar regulatory agencies.   These  regulations are
designed  to  ensure  that  all  aircraft, engines and aircraft components  are
continuously maintained in proper condition for the safe operation of aircraft.
Before  spare  parts are installed on  an  aircraft,  they  must  meet  certain
standards as to  their  condition  and  have  appropriate documentation.  Parts
owned or acquired by the Company may not meet currently  applicable  standards,
or standards may change in the future, causing parts already contained  in  the
Company's inventory to be scrapped or modified.  While the Company's operations
are  not  currently  regulated  directly by the FAA, the independent facilities
that repair and overhaul the Company's products and the aircraft operators that
ultimately utilize the Company's  products are subject to extensive regulation.
Accordingly,  the Company must consider  the  regulatory  requirements  of  its
customers and provide  them with parts that comply with airworthiness standards
established by the FAA and  OEMs,  together  with  required documentation which

                                      7
<PAGE>
enables   these   customers   to   comply  with  other  applicable   regulatory
requirements.   The  inspection, maintenance  and  repair  procedures  for  the
various types of aircraft,  engines  and  aircraft components are prescribed by
regulatory  authorities  and  can  be performed  only  by  FAA-licensed  repair
facilities utilizing certified technicians.  Compliance with applicable FAA and
OEM standards are required prior to installation of a part on an aircraft.  The
Company only utilizes FAA-licensed repair  facilities  to  repair  and  certify
aircraft, engines and aircraft components.

      In  September  1996,  the  FAA issued an advisory circular to support the
implementation of a voluntary accreditation  program  for  civil aircraft parts
suppliers.  This accreditation program establishes quality standards applicable
to  aftermarket  suppliers,  such as the Company, and designates  FAA  approved
organizations  such as ASA to perform  quality  assurance  audits  for  initial
accreditation of  aftermarket suppliers.  Quality assurance audits are required
on an on-going basis  to  maintain  accreditation.   In  addition,  many of the
Company's  customers  periodically  audit  the  Company's  operations to ensure
compliance with such customer's quality standards.  The Company  believes  that
ongoing  quality assurance audits and strict adherence to its quality assurance
system is  essential to meeting the needs of its existing and future customers.
In August 1997, the Company received accreditation from the ASA.

      Because  the Company's sales consist largely of parts for older aircraft,
regulations promulgated by the FAA governing noise emission standards for older
aircraft and the  FAA's  Aging  Aircraft  Program  Plan  (the  "Aging  Aircraft
Program")  may increase the cost of operating such aircraft and have a material
impact on the  market  for  the  Company's products.  All stage 2 aircraft must
install hush-kits pursuant to such noise emission standards or be phased out of
operation in the United States by  December  31, 1999 and in the European Union
by April 1, 2002.  The Aging Aircraft Program  requires  aircraft  operators to
perform  structural  modifications and inspections to address airframe  fatigue
and to implement corrosion  prevention and control programs, which increase the
operating and maintenance costs  of  older  aircraft.  Furthermore, the EPA and
the various agencies of the European Union have sought the adoption of stricter
standards limiting the emission of nitrous oxide  from  aircraft  engines.  The
Company  believes that notwithstanding the substantial costs imposed  by  noise
emission standards  and the Aging Aircraft Program on older aircraft, estimated
by the Company to average less than $4 million per aircraft on aircraft such as
the DC-9, certain aircraft  operators  will  continue to utilize older aircraft
due to the substantially greater cost of acquiring new replacement aircraft.

      The inability of the Company to supply its  customers with spare parts on
a  timely  basis,  or  any occurrence of the Company providing  products  which
subsequently fail, may adversely  affect  the  Company's relationships with its
customers  and  have  a  material  adverse effect on  its  business,  financial
condition and results of operations.  The core operations of the Company may in
the future be subject to FAA or other  regulatory  requirements.   The  Company
closely  monitors the FAA and industry trade groups in an attempt to understand
how possible future regulations might impact the Company.  There can also be no
assurance that new and more stringent government regulations, if enacted, would
not have a direct or indirect adverse effect on the Company.

      An important  factor  in  the  aircraft spare parts redistribution market
relates to the documentation and traceability  of  an aircraft spare part.  The
Company  requires  all  of its suppliers to provide adequate  documentation  as
dictated by the Company's  customers.   The  Company  utilizes  electronic data
scanning   and   storage   techniques   to  maintain  complete  copies  of  all
documentation.   Documentation  required  includes,  where  applicable,  (i)  a
maintenance release from a certified airline  repair  facility signed and dated
by a licensed airframe and/or power plant mechanic who  repaired  the  aircraft
spare part and an inspection to certify that the proper methods, materials  and
workmanship  were  used,  (ii) a "tear-down" report detailing the discrepancies
and corrective actions taken  during the last shop repair, and (iii) an invoice
or purchase order for an approved source.

PRODUCT LIABILITY

      The commercial aviation industry  periodically  experiences  catastrophic
losses.   As  a  redistributor,  the Company may be named as a defendant  in  a
lawsuit as a result of such catastrophic  loss  if  a  part sold by the Company
were installed in an incident-related aircraft.  In this  regard,  the  Company
maintains product liability insurance in the amount of $10 million.  While  the
Company  believes  this amount to be adequate liability insurance to protect it

                                     8
<PAGE>

from such claims, and  while no lawsuit has ever been filed against the Company
based upon a product liability  theory,  no  assurance can be given that claims
will not arise in the future or that such insurance  coverage will be adequate.
However, an uninsured or partially insured claim, or a  claim  for which third-
part indemnification is not available, could have a material adverse  effect on
the   Company's  business,  financial  condition  and  results  of  operations.
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 competitive.
The market consists of a limited number of well-capitalized companies selling a
broad range of products and numerous  small competitors serving distinct market
niches.   Certain of these competitors have  substantially  greater  financial,
marketing and  other  resources  than  the  Company.  The Company believes that
current industry trends will benefit larger,  well-capitalized  companies.  The
Company believes that range and depth of inventories, quality and  traceability
of products, service and price are the key competitive factors in the industry.
The  principal  companies with which the Company competes are AAR Corp.,  AGES,
Aviation Sales Company  and  Banner  Aerospace,  all of which are significantly
larger  than  the Company.  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 services companies,
which may have the effect of increasing competition  for,  and  lowering prices
on, parts sales.

EMPLOYEES

      As of May 31, 1998, the Company had 28 employees.  The Company  is  not a
party  to  any  collective  bargaining  agreement.   The  Company  believes its
relations with its employees are good.

YEAR 2000 ISSUES

      The  Company  has  evaluated its major software and computer systems  and
believes that it is Year 2000 compliant.  The Company believes that it will not
incur any material expenses  to ensure that its computer system and application
function beyond 1999.

CAUTIONARY STATEMENTS

      THIS  ANNUAL  REPORT  ON  FORM   10-K  CONTAINS  CERTAIN  FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE EXCHANGE  ACT,  INCLUDING  THE  PLANS  AND
OBJECTIVES  OF MANAGEMENT FOR THE BUSINESS, OPERATIONS AND ECONOMIC PERFORMANCE
OF THE COMPANY.   THE FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS SET FORTH
IN THIS ANNUAL REPORT MAY INCLUDE OR RELATE TO, AMONG OTHER THINGS, THE FACTORS
SET FORTH BELOW, TOGETHER  WITH  OTHER  INFORMATION  SET  FORTH  IN THIS ANNUAL
REPORT.

      RISKS REGARDING THE COMPANY'S INVENTORY.  The Company obtains most of its
parts inventory by purchasing individual parts from airlines, repair facilities
or   other   redistributors,  by  purchasing  excess  inventory  from  aircraft
operators, or  by  purchasing aircraft for disassembly.  The Company's business
is substantially dependent  on  its purchasing activities because its net parts
sales  are  directly influenced by  the  level  and  composition  of  inventory
available for  sale.   Because  the  size  and  composition  of  the  Company's
inventory  is  critical  to  its results of operations and because there is  no
organized market to procure surplus  inventory,  the  Company's  operations are
materially  dependent  on  the  success  of management in identifying potential
sources  of  inventory and effecting timely  purchases  at  acceptable  prices.
There can be no  assurance that inventory will be available on acceptable terms
or at the times required  by  the  Company.   In  addition,  once acquired, the
market value of the Company's inventory could be adversely affected  by factors
beyond  the  Company's  control,  such as the sudden availability of additional
inventory, a sudden decline in demand  for the Company's parts due to a decline
in  use  of  certain aircraft types, regulatory  changes  mandating  uneconomic
improvements to  items  in  inventory,  or  a  decision  by  an  OEM  to  begin

                                      9
<PAGE>

manufacturing new parts that would compete with aftermarket parts.  The failure
to identify and purchase inventory in a timely fashion at acceptable prices  or
a decline in the value of the Company's inventory would have a material adverse
effect   on   the  Company's  business,  financial  condition  and  results  of
operations.

      CONCENTRATION  ON MD-80 AND DC-9 AIRCRAFT.  The Company's net parts sales
are concentrated in the aftermarket for MD-80 and DC-9 aircraft, which aircraft
at December 31, 1997 accounted for approximately 15% of the commercial aircraft
in service worldwide according  to  the  World  Jet  Inventory.  The DC-9 is no
longer in production and Boeing has indicated its intention to cease production
of the MD-80 around mid-1999 or when current production  commitments  end.  Any
decline  in  the  use  of  MD-80  and  DC-9 aircraft by aircraft operators, the
unscheduled removal from service of large numbers of MD-80 and DC-9 aircraft or
the grounding of such aircraft by governmental authorities for any reason could
have a material adverse effect on the Company's  business,  financial condition
and  results  of  operations.  In addition, all DC-9 aircraft operated  in  the
United States and European  Union  will  need  to  be hush-kitted, relocated to
other  areas  or removed from service by 2000 or 2002,  respectively.   In  the
event these aircraft  are  removed from service, demand for the Company's MD-80
and DC-9 parts could decline  and the supply of spare parts may increase, which
would  have a material adverse effect  on  the  Company's  business,  financial
condition and results of operations.

      BROADENING  OF  PRODUCT  LINE.   The  Company  has  recently expanded its
product line to include aftermarket parts for Airbus A-300  series aircraft and
certain commuter aircraft including Shorts, de Havilland and  British Aerospace
aircraft.   In  addition,  the Company intends to broaden its product  line  to
include parts for McDonnell Douglas DC-10 and Boeing 767 aircraft.  The Company
has limited experience with respect to the purchase and sale of spare parts for
these aircraft models.  There  can  be  no assurance that the Company will have
the same level of success in managing its  parts  inventories for such aircraft
that  it  has  had  with  parts for MD-80 and DC-9 aircraft.   The  failure  to
successfully broaden its product  line  could have a material adverse effect on
the Company's ability to implement its growth strategy.

      EFFECTS OF THE ECONOMY ON THE OPERATIONS  OF  THE COMPANY.  The Company's
customers  consist  of a wide variety of domestic and international  air  cargo
carriers, major commercial  and  regional  passenger  airlines, maintenance and
repair  facilities  and  other  redistributors.   As  a result,  the  Company's
business can be impacted by the economic factors that affect  the  airline  and
air  cargo  industries.  When such factors adversely affect the airline and air
cargo industries,  they  tend  to  cause  downward  pressure on the pricing for
aircraft  spare  parts  and  increase  the  credit risk associated  with  doing
business with airlines and air cargo carriers.   Additionally,  factors such as
the  price  of fuel affect the aircraft spare parts market for older  aircraft,
since older aircraft  become  less competitive with newer model aircraft as the
price of fuel increases.  There  can  be  no  assurance that economic and other
factors which might affect the airline and air cargo industries will not have a
material  adverse  effect on the Company's business,  financial  condition  and
results of operations.

      FLUCTUATIONS IN OPERATING RESULTS.  The Company's operating results, both
on an annual and a quarterly basis, are affected by many factors, including the
timing of large orders  from  customers, the timing of expenditures to purchase
inventory  in  anticipation of future  sales,  the  timing  of  bulk  inventory
purchases, the mix  of  available aircraft spare parts contained at any time in
the Company's inventory,  the  timing  of  aircraft  or engine sales or leases,
unanticipated aircraft or engine lease terminations, default by any lessees and
many other factors largely outside the Company's control.   Since  the  Company
typically  does  not  obtain  long-term purchase orders or commitments from its
customers, it must anticipate the  future  volume  of  orders  based  upon  the
historic purchasing patterns of its customers and discussions with customers as
to their future requirements.  Cancellations, reductions or delays in orders by
a  customer  or  group of customers could have a material adverse effect on the
Company's  business,   financial  condition  and  results  of  operations.   In
addition, due to the value  of a single aircraft or engine sale relative to the
value of parts typically sold  by the Company, any concentration of aircraft or
engine sales in a particular quarter  may obscure existing or developing trends
in the Company's business, financial condition and results of operations.

      RISKS ASSOCIATED WITH LEASES.  The  Company currently leases three Boeing
727 freighter aircraft to a major cargo carrier  and  two  Pratt & Whitney JT8D
series engines to a smaller cargo and charter passenger carrier.   The  success

                                    10
<PAGE>

of  an  operating  lease  depends  in part upon having the aircraft and engines
returned to the Company in marketable  condition  as  required  by the lease of
such  aircraft and engines.  In addition, the financial return to  the  Company
from a  leased  aircraft  or engine depends in part on the re-lease of aircraft
and engines on favorable terms  on  a  timely  basis,  the  ability to sell the
aircraft or engines at favorable prices or realize sufficient  value  from  the
disassembly  for parts of the aircraft or engines at the end of the lease term.
Numerous factors, many of which are beyond the control of the Company, may have
an impact on the  Company's  ability  to re-lease or sell aircraft, engines and
parts.   These factors include general market  conditions,  regulatory  changes
(particularly  those imposing environmental, maintenance and other requirements
on the operation  of  aircraft  and  engines), changes in the supply or cost of
aircraft and engines and technological development.  Consequently, there can be
no  assurance  that the Company's estimated  residual  value  for  aircraft  or
engines will be  realized.   If  the  Company  is  unable to re-lease, sell its
aircraft  or engines on favorable terms or realize sufficient  value  from  the
disassembly  for  parts  of  the  aircraft  or  engines  on a timely basis upon
expiration of the related lease, its business, financial condition  and results
of  operations may be adversely affected.  In the event that a lessee  defaults
in the performance of its obligations, the Company may be unable to enforce its
remedies under a lease.  The Company's inability to collect lease payments when
due or  to  repossess aircraft or engines in the event of a default by a lessee
could have an adverse effect on the Company's business, financial condition and
results of operations.   If  the Company were to acquire an aircraft or engines
and such acquisitions were not  financed  by  additional  borrowing,  it  could
result in a reduction of the Company's liquidity.

      RISKS ASSOCIATED WITH ACQUISITIONS.  One of the Company's strategies  for
growth is to pursue acquisitions of aftermarket redistributors.  Currently, the
Company  has  no  acquisition agreements, understandings or commitments for any
acquisitions and, in  order  to consummate an acquisition, the Company would be
required to receive the consent  of  the  lender  under  its  Credit Agreement.
There  can  be  no  assurance  that any such acquisitions will be completed  on
reasonable terms, if at all.  Certain  of  the  Company's  competitors may also
seek  to acquire the same companies which the Company seeks to  acquire.   This
may increase  the  price and related costs at which the Company could otherwise
have acquired such companies,  perhaps  materially.  The Company's inability to
complete acquisitions on reasonable terms  could limit the Company's ability to
grow its business.

      The  Company  may  expend  significant funds  to  pursue  and  consummate
acquisitions.  Such use of funds would  reduce  the  Company's working capital.
In addition, the Company may fund acquisitions in whole  or  in part by issuing
equity  securities, and any such issuances, individually or in  the  aggregate,
may be diluted to holders of the Common Stock.  Acquisitions also may result in
the Company  incurring additional debt and amortizing costs related to goodwill
and other intangible  assets,  either  of  which  could have a material adverse
effect  on  the  Company's  business,  financial  condition   and   results  of
operations.

      The  Company  may experience difficulties in assimilating the operations,
services and personnel  of  acquired  companies and may be unable to sustain or
improve the historical revenue and earnings  levels  of acquired companies, any
of  which  may  materially adversely affect the Company's  business,  financial
condition and results  of  operations.   In  addition, to the extent it becomes
necessary for the Company to fund the working  capital requirements of acquired
companies, the Company's working capital available  for  its currently existing
operations would decrease.  Acquisitions involve a number  of additional risks,
including  the  diversion  of  management's  attention  from  ongoing  business
operations  and  the  potential  loss  of key employees of acquired  companies.
There  can  be  no assurance that the Company  can  successfully  implement  is
acquisition strategy.   The  failure  to  consummate acquisitions on reasonable
terms or the inability to successfully integrate and manage acquired operations
and personnel could have a material adverse  impact  on the Company's business,
financial condition and results of operations.

      RELIANCE ON EXECUTIVE OFFICERS.  The continued success  of the Company is
dependent  to a significant degree upon the services of its executive  officers
and upon the  Company's  ability  to  attract  and  retain  qualified personnel
experienced in the various phases of the Company's business.   The  ability  of
the  Company to operate successfully could be jeopardized if one or more of its
executive officers were unavailable and capable successors were not found.  The
Company  does  not maintain key man insurance on any of its executive officers.
The Company has employment agreements with Alexius A. Dyer III, its Chairman of
the Board, President  and  Chief Executive Officer, and George Murnane III, its

                                     11
<PAGE>

Executive  Vice  President  and   Chief   Financial  Officer.   The  employment
agreements between the Company and Messrs.  Dyer  and  Murnane are individually
terminable by each executive officer upon a change of control of the Company.

ITEM 2. PROPERTIES.

      The  Company's  executive  offices  and operations are  located  at  1954
Airport Road, Suite 200, Atlanta, Georgia 30341,  consisting  of  approximately
3,600 square feet of leased space pursuant to a lease expiring in January 2000.
The Company leases approximately 29,500 square feet of warehouse facilities  in
Fort  Lauderdale,  Florida  pursuant  to  a  lease  expiring in June 2002.  The
Company leases approximately 1,350 square feet of office  space  as a sales and
marketing office in Seattle, Washington pursuant to a lease expiring  in  March
2001.   All  facilities  are rented at competitive rates for their location and
utility.  The Company believes  that  its facilities are adequate for its needs
for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS.

      The Company is not now a defendant  in  any  material 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.

      None.
                                        12
<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.
Prior to April 21, 1997, sales of the Common Stock were  reported  through  the
National  Quotation  Bureau's National Daily Quotation Price Sheets.  Effective
April 21, 1997 the Common  Stock  was  listed  and traded on the American Stock
Exchange under the symbol "YLF."  The following  table  sets forth the high and
low bid quotations as reported by the National Quotation  Bureau  for the first
three quarters of fiscal 1997 and the high and low closing prices of the Common
Stock as reported on the American Stock Exchange thereafter, in each  case,  as
adjusted  to  give  effect  to  a  1-for-27  reverse stock split consummated on
October 3, 1996.

<TABLE>
<CAPTION>
1998 FISCAL YEAR               HIGH                    LOW
----------------               ----                    ---
<S>                            <C>                     <C>
First Quarter                $  8   1/4              $ 4   1/4
Second Quarter                 11                      7   5/8
Third Quarter                   8   1/2                5 15/16
Fourth Quarter                 10 11/16                6 15/16

1997 FISCAL YEAR               HIGH                    LOW
----------------               ----                    ---
First Quarter                $  5 29/32               $ 5 1/16
Second Quarter                  5 29/32                 3
Third Quarter                   3   5/8                 2  3/4
Fourth Quarter                  4   1/2                 3
</TABLE>

      At May 31, 1998, there were 112 holders of record of the Company's Common
Stock and no holders of the Company's Preferred Stock.

      The Company has never paid dividends on  the Common Stock.  The Company's
secured  credit facility prohibits the Company from  paying  dividends  on  the
Common Stock  as  long as indebtedness issued pursuant to such facility remains
outstanding.  It unlikely  that  the  Company  will pay dividends on the Common
Stock in the foreseeable future.

                                        13
<PAGE>

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,
1998, have been  derived  from  the  Company's  audited  consolidated financial
statements.  The consolidated financial statements of the Company as of May 31,
1997  and  1998  and  for  the  three-year period ended May 31,  1998  and  the
accountant's reports thereon are included in Item 8 of this Form 10-K.
<TABLE>
<CAPTION>


                                                 YEAR ENDED MAY 31,

                                              1994           1995           1996           1997           1998
                                             -------        -------        -------        -------       --------
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
<S>                                  <C>              <C>            <C>           <C>            <C>
Net sales                                     $16,747        $21,999       $21,410        $20,123        $25,648
Lease revenue                                   1,986          2,984         1,795          1,109          2,315
                                              -------         ------        ------         ------         ------
   Total revenues                              18,733         24,983        23,205         21,232         27,963

Total operating expenses                       34,932         23,343        18,528         17,423         23,186
                                              -------         ------        ------         ------         ------
Income (loss) from continuing                (16,199)          1,640         4,677          3,809          4,777
operations
Interest expense, net                          2,866           2,254         2,377          1,550          1,934
                                              -------         ------        ------         ------         ------
   Earnings (loss) before income
   taxes, equity in earnings (loss)
   of joint venture and                      (19,065)          (614)         2,300          2,259          2,843
   extraordinary item

Provision for income taxes (benefit)          (2,476)             --            14                       (2,820)
Equity in loss of joint venture                 (424)             --            --             --           --
                                              -------         ------        ------         ------         ------
Earnings (loss) before extraordinary item    (17,013)                        2,286          2,259          5,663

   Extraordinary loss on
   extinguishment of debt                       (363)             --            --          (531)           --
                                              -------         ------        ------         ------         ------
Net earnings (loss)                         $(17,376)       $  (614)       $ 2,286       $  1,728       $  5,663
                                             =======          =====         ======         ======         ======
PER SHARE DATA:
Earnings (loss) per common share -          $(113.65)        $(4.10)        $15.27          $1.37          $2.29
basic before effect of extraordinary
item
   Extraordinary item                          (2.43)             --            --         (0.32)             --
                                              -------         ------        ------         ------         ------
       Net earnings (loss)                  $(116.08)        $(4.10)        $15.27          $1.05          $2.29
                                             =======          =====         ======         ======      =========
   Weighted average shares
   outstanding used in basic                  149,696        149,696       149,696      1,646,629      2,471,025
   calculation
Earnings (loss) per common share -          $(113.65)        $(4.10)        $12.69          $1.25          $2.03
diluted before effect of
extraordinary item
   Extraordinary item                          (2.43)             --            --         (0.29)             --
                                              -------         ------        ------         ------         ------
Net earnings (loss)                         $(116.08)        $(4.10)        $12.69          $0.96          $2.03
                                             =======          =====         ======         ======         ======
   Weighted average shares
   outstanding used in diluted               149,696        149,696        242,288      1,806,938      2,793,414
   calculation
</TABLE>
                                                 14
<PAGE>                                      

<TABLE>
<CAPTION>
                                                        AT MAY 31,

                                   1994               1995         1996               1997             1998
                                 --------           --------     --------            -------         --------
                                                         (IN THOUSANDS)
BALANCE SHEET DATA:
<S>                          <C>             <C>            <C>              <C>             <C>
Working capital (deficit)       $(18,312)          $(13,489)    $(10,841)             $9,141          $10,228
Total assets                      25,553             14,511       16,132              21,287           23,636
Total debt                        26,173             20,336       18,144              13,749            9,648
Stockholders' equity (deficit)    (9,088)            (9,702)      (7,416)              4,660           10,808

</TABLE>

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

OVERVIEW

      The  Company  is  a  leading  redistributor of aftermarket aircraft spare
parts used primarily for McDonnell Douglas  MD-80 and DC-9 aircraft.  According
to the World Jet Inventory, MD-80 and DC-9 aircraft accounted for approximately
15%  of  the commercial aircraft in service worldwide  at  December  31,  1997.
Management  believes that the Company has one of the most extensive inventories
of aftermarket  MD-80 and DC-9 parts in the industry.  In addition, the Company
provides aircraft  spare  parts  for  Boeing,  Lockheed,  Airbus  and  commuter
aircraft.   The  aircraft  spare  parts  distributed  by the Company, including
avionics, rotable and expendable airframe and engine parts,  are sold to a wide
variety of domestic and international air cargo carriers, major  commercial and
regional  passenger  airlines,  maintenance  and  repair  facilities and  other
redistributors.   The wide variety of aircraft spare parts distributed  by  the
Company  is acquired  through  purchase  or  consignment  of  surplus  or  bulk
inventories  from  airlines, purchase from other redistributors and disassembly
of aircraft.

      In addition to  being  a  provider  of  aircraft spare parts, the Company
leverages  its  industry expertise to purchase, sell  and  lease  aircraft  and
engines.  The Company  has  periodically acquired, leased and sold a variety of
narrow-body commercial jet aircraft,  such  as  Boeing 727 and 737 aircraft and
McDonnell Douglas DC-9 aircraft and has recently  increased  its focus on these
activities.   The Company currently leases three Boeing 727 freighter  aircraft
to a major cargo  carrier  and  two  Pratt  &  Whitney JT8D series engines to a
smaller cargo and charter passenger carrier.  The  Company derives revenue from
lease payments and seeks to sell spare parts to the  lessee both for the leased
aircraft as well as other aircraft in the lessee's fleet.   Upon  return of the
aircraft, the Company either re-leases, sells or disassembles the aircraft  for
parts  in order to achieve the highest utilization of the asset.  To the extent
the Company's  emphasis on the purchase, lease and sale of aircraft and engines
increases, the Company's  revenue  mix,  cost components, interest expense and,
accordingly, net earnings will be affected.

THE RESTRUCTURING

      On October 3, 1996, the Company completed  the Restructuring. Pursuant to
the Restructuring, the Company (i) effected a 1-for-27  reverse  split  of  its
Common  Stock;  (ii) issued approximately 2,245,400 shares of its Common Stock,
after giving effect  to  the  reverse  split,  in exchange for the entire $10.0
million principal amount outstanding of, and related  accrued  interest on, its
Debentures; and (iii) redeemed its Senior Notes with the proceeds of an advance
under its Credit Agreement.

                                        15
<PAGE>


RESULTS OF OPERATIONS

      The following table sets forth, for the periods indicated, the percentage
of total revenues as included in the Consolidated Statements of Earnings of the
Company represented by net parts sales and lease revenues.

<TABLE>
<CAPTION>

                                                            YEAR ENDED MAY 31,
                                                  (IN THOUSANDS, EXCEPT FOR PERCENTAGES)
                     --------------------------------------------------------------------------------------
<S>                       <C>             <C>             <C>             <C>             <C>            <C>

                                    1996              %              1997              %            1998             %
                                    ----            ----           ------           ----          ------          ----            

Net parts sales                   $21,410           92.2%         $20,123           94.8%        $25,648          91.7%

Lease revenues                      1,795            7.8%           1,109            5.2%          2,315           8.3%
                                  -------         ------           ------          -----          ------         -----
Total revenues                    $23,205          100.0%         $21,232          100.0%        $27,963         100.0%
                                  =======          =====           ======          =====          ======        ======
</TABLE>

      The following table sets forth, for the periods indicated, the percentage
of  total  revenues  represented  by certain items included in the Consolidated
Statements of Earnings of the Company:

<TABLE>
<CAPTION>
                                                    YEAR ENDED MAY 31,
                                       -----------------------------------------
<S>                                   <C>             <C>             <C>
                                          1996             1997            1998
                                       ----------         -------       --------

Total revenues........................     100.0%          100.0%         100.0%
                                         -------           -----          -----

Cost of sales.........................      56.9            59.7           60.0

Selling, general and
administrative                            
expenses..............................      16.9            18.0           18.8

Provision for doubtful accounts ......       2.0             0.6            0.3


Depreciation..........................       4.0             3.7            3.8

Interest expense......................      10.4             7.6            5.9

Interest and other (income) expense...      (0.1)           (0.3)           1.0

Provision (benefit) for income
 taxes................................          *           -----         (10.1)

Extraordinary loss on debt
restructuring.........................      -----            2.5          -----
                                       ----------         -------       --------
Net earnings..........................       9.9%            8.1%          20.3%
                                       ==========         =======       ========

</TABLE>
------------------
*   Less than 0.1%.

FISCAL 1998 COMPARED WITH FISCAL 1997

      Total revenues for fiscal 1998  increased  31.7%  to  $28.0  million from
$21.2 million for fiscal 1997.  This increase was primarily due to an  increase
in  aircraft  and  engine  sales.   Aircraft and engine sales are unpredictable

                                      16
<PAGE>

transactions and may fluctuate significantly  from  year to year, dependent, in
part,  upon  the  Company's ability to purchase an aircraft  or  engine  at  an
attractive price and  resell  it  within  a relatively brief period of time, as
well as the overall market for used aircraft  or  engines.  During fiscal 1998,
the Company acquired two aircraft and sold four aircraft, as compared to fiscal
1997, during which the Company acquired three aircraft  and  sold two aircraft.
During fiscal 1998, the Company sold seven engines as compared  to fiscal 1997,
during  which the Company sold four engines.  Lease revenue increased  to  $2.3
million in  fiscal  1998 from $1.1 million in fiscal 1997, due primarily to the
Company's acquisition  and lease of three aircraft during the fourth quarter of
fiscal 1997 which were on lease for all of fiscal 1998.

      Cost of sales increased  32.3% from $12.7 million in fiscal 1997 to $16.8
million in fiscal 1998.  Cost of  sales  as  a  percentage  of  total  revenues
increased  from 59.7% in fiscal 1997 to 60.0% in fiscal 1998.  The increase  in
the cost of  sales  as  a  percentage  of total revenues was due primarily to a
change in the mix of sales as well as an  increase  in the cost of aircraft and
engine sales as a percent of revenues in fiscal 1998 compared to fiscal 1997.

      Selling,  general  and  administrative  expenses increased  38%  to  $5.3
million in fiscal 1998 compared to $3.8 million  in fiscal 1997.  This increase
was due primarily to expenses related to increased  revenues,  as  expenses for
fiscal  1998  amounted  to  18.8% of total revenues compared to 18.0% of  total
revenues in fiscal 1997, such  as  increased  rent  expense,  insurance  costs,
professional  fees,  investor  relations costs, marketing expenses and employee
compensation.

      Provision for doubtful accounts  was  $75,000  in fiscal 1998 compared to
$123,000  in  fiscal  1997.   This  decrease  in expense for  fiscal  1998  was
primarily  related to the recovery of a certain  doubtful  account  during  the
first quarter  of fiscal 1998.  In fiscal 1997, the Company instituted a policy
to record a provision of approximately 1% of net part sales.

      Depreciation was $1,060,000 in fiscal 1998 compared to $792,000 in fiscal
1997.  The net increase from fiscal 1997 to fiscal 1998 was due primarily to an
increase in depreciation  of  aircraft  held  for  lease,  resulting  from  the
aircraft acquired in the fourth quarter of fiscal 1997.

      Interest  expense  in  fiscal  1998  and  fiscal  1997  was $1.6 million.
Interest  and  other  expenses for fiscal 1998 was $286,000 compared  to  other
income of $61,000 in fiscal  1997.   Included in the interest and other expense
for fiscal 1998 is $400,000 in expenses  relating  to  the  withdrawn secondary
offering.

      The Company's benefit for income taxes for fiscal 1998  was $2.8 million,
primarily  due  to a reduction in the valuation allowance applied  against  its
deferred tax assets  and  the  utilization of net operating loss carryforwards.
The Company's income tax expense  in fiscal 1997 was zero primarily as a result
of the utilization of net operating  loss  carryforwards  to  offset taxes that
would otherwise have been payable.

      Net earnings for fiscal 1998 were $5,663,000, or $2.29 per  share - basic
and $2.03 per share - diluted, compared to net earnings before an extraordinary
loss  for fiscal 1997 of $2,259,000, or $1.37 per share - basic and  $1.25  per
share -diluted.   In connection with the Restructuring, the Company recorded an
extraordinary loss of $530,596 relating to the exchange of shares of its Common
Stock for the Debentures  during  fiscal 1997.  Net earnings, after considering
the extraordinary loss, were $1,728,000 or $1.05 per share - basic and $.96 per
share - diluted, for fiscal 1997.

FISCAL 1997 COMPARED WITH FISCAL 1996

      Net parts sales increased by 3% or $515,000, from $17.9 million in fiscal
1996 to $18.4 million in fiscal 1997.  Aircraft  and  engine sales decreased to
$1.7 million in fiscal 1997, compared to $3.5 million in  fiscal  1996.  During
fiscal  1997,  the  Company  acquired  three aircraft and sold two aircraft, as
compared  to fiscal 1996, during which the  Company  sold  three  aircraft  and
acquired one.  Lease revenue decreased to $1.1 million in fiscal 1997 from $1.8
million in fiscal  1996,  as  certain  leases that were in existence during the
prior  year  were  terminated  and not renewed.  Going  forward,  however,  the
Company's  lease  revenues  will  be   positively  affected  by  the  Company's

                                        17
<PAGE>
acquisition and lease of three aircraft  during  the  fourth  quarter of fiscal
1997.  Although  the  Company  was able to replace reduced sales to  one  large
customer, the increase in parts  sales  was insufficient to offset the decrease
in aircraft sales and lease revenues and,  as  a  result,  total  revenues  for
fiscal 1997 decreased 8.6% to $21.2 million from $23.2 million for fiscal 1996.

      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.

      Cost  of  sales decreased 3.9% from $13.2 million in fiscal 1996 to $12.7
million in fiscal  1997.  Cost  of  sales  as  a  percentage  of total revenues
increased from 56.9% in fiscal 1996 to 59.7% in fiscal 1997, respectively.  The
increase in cost of sales as a percentage of total revenues from fiscal 1996 to
fiscal  1997  was  primarily  due  to  lower  aircraft  and engine sales, which
typically  have a lower cost of sales. Cost of aircraft and  engine  sales  was
49.9% of aircraft  and  engine  revenues  in  fiscal  1997 compared to 45.5% in
fiscal 1996. Cost of parts sales as a percentage of total parts sales was 63.6%
in fiscal 1997 compared to 62.9% in fiscal 1996.

      Selling, general and administrative expenses decreased $94,000, amounting
to $3.8 million, or 18.0% of total revenues in fiscal 1997,  compared  to  $3.9
million, or 16.9% of total revenues in fiscal 1996.

      Provision  for  doubtful accounts was $123,000 in fiscal 1997 compared to
$464,000 in fiscal 1996.  During  fiscal  1996, the Company instituted a policy
whereby  it  records a provision of approximately  2%  of  total  revenues  for
estimated future  write-offs  of  accounts  receivable.  For  fiscal  1997, the
Company  revised  the  policy to record a provision of approximately 1% of  net
part sales.

      Depreciation was $792,000  in  fiscal 1997 compared to $934,000 in fiscal
1996. 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.
The sale of the building was consummated in March 1997. The net reduction  from
fiscal  1996  to fiscal 1997 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 1996.

      Interest  expense  in fiscal 1997 was  $1.6  million,  compared  to  $2.4
million in fiscal 1996. The  decrease  in  interest expense from fiscal 1996 to
fiscal  1997 was due to a net reduction in total  debt  outstanding,  to  $13.7
million at May 31, 1997 compared to $18.1 million at May 31, 1996. Interest and
other income  for  fiscal 1997 was $61,000, compared to $34,000 in fiscal 1996.
In connection with the  Restructuring,  the  Company  recorded an extraordinary
loss of $530,596 relating to the exchange of shares of its Common Stock for the
Debentures.

      The Company's income tax expense in fiscal 1997 was  zero  primarily as a
result  of the utilization of net operating loss carryforwards to offset  taxes
that would  otherwise  have been payable. The Company has continued to maintain
approximately a 100% valuation  allowance  against  its  existing  deferred tax
assets  due  to  the  Company's  previous financial problems and its relatively
short history of profitability. If  the  Company  remains profitable, and there
can  be  no  assurance of such profitability, the Company  expects  to  further
reduce the allowance  in the future. The fiscal 1996 expense of $14,000 related
to amendments of certain prior year state and federal tax returns.

      Net  earnings  before   an   extraordinary  loss  for  fiscal  1997  were
$2,259,000, or $1.37 per share - basic,  compared  to  a  net of $2,286,000, or
$15.27 per share - basic, during fiscal 1996.  On a diluted basis, earnings per
share  before  an  extraordinary  item were $1.25 and $12.69 per  share  during
fiscal  1997  and  1996, respectively.   Net  earnings,  after  considering  an

                                       18
<PAGE>

extraordinary loss,  were  $1,728,493  or  $1.05 per share - basic and $.96 per
share - diluted for fiscal 1997.

LIQUIDITY AND CAPITAL RESOURCES

      The Credit Agreement entered into by the  Company  in connection with the
Restructuring  provided  for a $3 million term loan and up to  an  $11  million
revolving credit facility.  During the fourth fiscal quarter of 1997 the Credit
Agreement was amended to create  a  new term loan facility of $3.75 million and
to  increase the revolving credit line  to  $13  million.   During  the  second
quarter  of  fiscal  1998, the Credit Agreement was amended twice to create two
additional term loan facilities in the amounts of $1.5 million and $1.6 million
and to add a $1.0 million  to  the  revolving credit line (the Credit Agreement
and amendments are collectively referred  to  as the "Credit Facility").  As of
August 12, 1998, the interest rate under the Credit  Facility, which fluctuates
based on certain financial ratios of the Company, was  lender's base rate minus
 .75%.  The revolving credit facility matures in October 2001 and the term loans
mature between March 2000 and October 2001.  The Credit  Facility is secured by
substantially all of the assets of the Company and availability  of amounts for
borrowing is subject to certain limitations and restrictions.  Such limitations
and  restrictions  are  discussed  in  the Company's Proxy Statement/Prospectus
filed with the Securities and Exchange Commission on August 29, 1996.

      Net cash provided by operating activities  for the fiscal years ended May
31,  1998  and 1997 amounted to $4.2 million and $582,000,  respectively.   For
fiscal 1998,  the  primary use of cash from operating activities, excluding the
purchase of two aircraft  that  were  subsequently  sold during the same fiscal
year, was an increase in inventories of $100,000.  The  primary  use of cash in
fiscal  1997 from operating activities was an increase in inventories  of  $2.4
million and a decrease in accounts payable and accrued expenses of $500,000.

      Net cash used for investing activities for the fiscal years ended May 31,
1998 and  1997 amounted to $574,000 and $5.4 million, respectively.  For fiscal
1998, the primary use of funds was the purchase of engines held for lease.  The
Company received  proceeds  from  the  sale  of  an  aircraft held for lease of
$667,000.  For fiscal 1997, the primary use of funds was  the purchase of three
aircraft,  which are on lease to a major cargo carrier.  The  Company  received
proceeds of $750,000 from the sale of its headquarters facility in Miami during
the fourth quarter of fiscal 1997.

      Net cash  used  in financing activities for the fiscal year ended May 31,
1998 amounted to $3.6 million.   Net  of  borrowings,  the  Company repaid $4.0
million  under  the  Company's  term loans and revolving line of  credit.   The
Company  received  $508,000  in proceeds  from  employees'  exercise  of  stock
options.  Net cash provided by  financing  activities for the fiscal year ended
May  31, 1997 amounted to $4.4 million.  The  Company  borrowed  $6.75  million
under  term loans.  During fiscal 1997, the Company repaid $8.1 million of debt
obligations   including   $7.7   million   of  Senior  Notes  pursuant  to  the
Restructuring.   For fiscal 1997, the Company  had  net  borrowings  under  the
Credit Facility of $7.4 million.

      At May 31, 1998,  the Company was permitted to borrow up to an additional
$6.5 million pursuant to  the  Credit  Facility.  The Company believes that its
working  capital  and  amounts available under  the  Credit  Facility  will  be
sufficient to meet the requirements of the Company for the foreseeable future.

FLUCTUATIONS IN OPERATING RESULTS

      The Company's operating results, both on an annual and a quarterly basis,
are  affected by many factors,  including  the  timing  of  large  orders  from
customers,  the timing of expenditures to purchase inventory in anticipation of
future sales,  the  timing  of  bulk  inventory purchases, the mix of available
aircraft spare parts contained at any time  in  the  Company's  inventory,  the
timing  of aircraft or engine sales or leases, unanticipated aircraft or engine
lease terminations,  default  by  any  lessees  and  many other factors largely
outside  the  Company's control. Since the Company typically  does  not  obtain
long-term purchase orders or commitments from its customers, it must anticipate
the future volume  of orders based upon the historic purchasing patterns of its
customers and discussions  with  customers  as  to  their  future requirements.
Cancellations,  reductions  or  delays  in  orders by a customer  or  group  of

                                       19
<PAGE>

customers  could  have a material adverse effect  on  the  Company's  business,
financial condition and results of operations. In addition, due to the value of
a single aircraft or  engine sale relative to the value of parts typically sold
by the Company, any concentration  of  aircraft or engine sales in a particular
quarter may obscure existing or developing  trends  in  the Company's business,
financial condition and results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

      In June 1997, the Financial Accounting Standards Board  issued  Statement
of  Financial  Accounting Standard No. 130 (SFAS 130), "Reporting Comprehensive
Income," and No.  131  (SFAS 131), "Disclosures About Segments of an Enterprise
and Related Information."   These  statements  are  effective  for fiscal years
commencing  after  December 15, 1997.  The Company will be required  to  comply
with the provisions  of  these statements in fiscal 1999.  The Company does not
expect these new standards  to  have  a  material  impact  on  its consolidated
financial statements and/or disclosures.

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 22 of this Annual Report on Form 10-K and  is incorporated
herein by reference.

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

      None.
                                         20
<PAGE>
                                   PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      The information contained under the heading "Information as to  Directors
and  Executive  Officers"  in the Company's definitive proxy statement for  its
annual meeting of stockholders  to  be  held  on  September 21, 1998 (the "1998
Proxy Statement") is incorporated by reference herein.

ITEM 11.  EXECUTIVE COMPENSATION.

      The information contained under the heading "Executive  Compensation"  in
the 1998 Proxy Statement is incorporated herein by reference.

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

      The  information  contained  under  the headings "Directors and Executive
Officers"  and  "Principal  Stockholders"  in  the   1998  Proxy  Statement  is
incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      The  information  contained  under the heading "Executive  Compensation--
Certain Transactions" in the 1998 Proxy Statement is incorporated by reference.

                                        21
<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  Page F-3
                   to Consolidated Financial Statements of the
                   Company, including Consolidated Balance Sheets as
                   of May 31, 1998 and 1997 and related Consolidated
                   Statements of Earnings, Consolidated Cash Flows
                   and Consolidated Stockholders' Equity (Deficit)
                   for each of the years in the three-year period
                   ended May 31, 1998

(b)   FINANCIAL STATEMENTS SCHEDULES                                 PAGE OR METHOD OF FILING
                   (1)  Schedule II.  Valuation and Qualifying       Page S-1
                   Accounts
</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
<TABLE>
<CAPTION>

               Exhibit
               NUMBER            DESCRIPTION                                       PAGE NUMBER OR METHOD OF FILING
               ------            -----------                                       ----
<S>            <C>               <C>                                               <C>

               2.4               Credit Agreement between BNY Financial            Incorporated by reference to
                                 Corporation and the Registrant, as amended.       Exhibit 2.4 to Amendment No. 2 to
                                                                                   the Company's Registration Statement
                                                                                   on Form S-4 filed on August 29, 1996
                                                                                   (File No. 333-08065).

               3.1               Amended and Restated Certificate of Incorporation Incorporated by reference to Exhibit
                                 of the Registrant.                                3.1 to the Company's Annual Report
                                                                                   on Form 10-K for the fiscal year
                                                                                   ended May 31, 1996 (the "1996
                                                                                   Form 10-K").

                                        22
<PAGE>
               3.2               Restated and Amended Bylaws of the Registrant.    Incorporated by reference to Exhibit
                                                                                   3.2 to the 1996 Form 10-K.

               4.1               Specimen Common Stock Certificate.                Incorporated by reference to Exhibit
                                                                                   4.1 to the 1996 Form 10-K.

               10.1.1            Employment Agreement, dated as of December 1,     Incorporated by reference to Exhibit
                                 1995, between the Registrant and Alexius A. Dyer  10.1.1 to the 1996 Form 10-K
                                 III, as amended on October 3, 1996.

               10.1.2            Employment Agreement dated as of October 3, 1996, Incorporated by reference to
                                 between the Registrant and George Murnane III.    Exhibit 10.1.2 to the Company's
                                                                                   Quarterly Report for the quarter
                                                                                   ended February 28, 1997.

               10.2.1            1996 Long-Term Incentive and Share Award Plan.    Incorporated by reference to
                                                                                   Appendix B to the Proxy
                                                                                   Statement/Prospectus included in the
                                                                                   Company's Registration Statement on
                                                                                   Form S-4 (File No. 333-08065), filed
                                                                                   on July 12, 1996.

               10.2.2            401(k) Plan.                                      Incorporated by reference to Exhibit
                                                                                   10-H to the Company's Annual Report
                                                                                   on 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 Company's Annual
                                                                                   Report on Form 10-K for the fiscal
                                                                                   year ended May 31, 1993.

               10.2.5            Form of Option Certificate (Employee Non-         Incorporated by reference to
                                 Qualified Stock Option).                          Exhibit 10.2.5 to the 1996
                                                                                   Form 10-K.

               10.2.6            Form of Option Certificate (Director Non-         Incorporated by reference to
                                 Qualified Stock Option).                          Exhibit 10.2.6 to the 1996
                                                                                   Form 10-K.

               10.2.7            Form of Option Certificate (Incentive Stock       Incorporated by reference to
                                 Option).                                          Exhibit 10.2.7 to the 1996
                                                                                   Form 10-K.

               10.14             Commission Agreement dated December 1, 1995       Incorporated by reference to
                                 between the Registrant and J.M. Associates, Inc.  Exhibit 10.14 to the 1996 Form 10-K.

                                        23
<PAGE>

               10.15             Aircraft Parts Purchase Agreement, dated May 16,  Incorporated by reference to
                                 1996, between Paxford Int'l, Inc. and the         Exhibit 10.15 to the Company's
                                 Registrant.                                       Registration Statement on Form S- 4
                                                                                   (File No. 333-08065) filed on July
                                                                                   12, 1996.

               10.16             Contract for Sale and Purchase dated January 10,  Incorporated by reference to Exhibit
                                 1997 between the Registrant and American          10.16 to the Company's Annual Report
                                 Connector Corporation                             on Form 10-K for the fiscal year
                                                                                   ended May 31, 1997 (the "1997
                                                                                   Form 10-K").


               10.17             Office Lease Agreement dated January 31, 1997     Incorporated by reference to Exhibit
                                 between the Registrant and Globe Corporate        10.17 to the 1997 Form 10-K.
                                 Center, as amended.

               10.18             Lease Agreement dated March 31, 1997 between the  Incorporated by reference to Exhibit
                                 Registrant and Port 95-4, Ltd.                    10.18 to the 1997 Form 10-K.

               11                Statement regarding computation of per share      Filed herewith.
                                 earnings.

               21                Subsidiaries.                                     Filed herewith.

               23                Consent of Grant Thornton LLP to incorporation by Filed herewith.
                                 reference.

               27                Financial Data Schedule.                          Filed herewith.
</TABLE>

      (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.

                                         24
<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 to
be signed on its behalf by the undersigned, thereunto duly authorized this 18th
day of August, 1998.


                                 International Airline Support Group, Inc.,
                                 a Delaware corporation


                                  By:  /S/  A.A. DYER III
                                     --------------------------------------
                                     Alexius A. Dyer III
                                     Chairman of the  Board,  Chief  Executive
                                     Officer and President


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

<TABLE>
<CAPTION>
                                  TITLE                                   DATE
SIGNATURE                        ---------------                          ---------------
-------------------
<S>                               <C>                                     <C>

/S/ A.A. DYER III                 Chairman of the Board, Chief Executive  August 18, 1998
Alexius A. Dyer III               Officer and President and Director
                                  (Principal Executive Officer)

/S/ GEORGE MURNANE III            Executive Vice President, Chief         August 18, 1998
George Murnane III                Financial Officer and Director
                                  (Principal Financial Officer)

/S/ JAMES M. ISAACSON             Vice President of Finance, Treasurer    August 18, 1998
James M. Isaacson                 and Secretary  (Principal Accounting
                                  Officer)

/S/ KYLE R. KIRKLAND              Director                                August 18, 1998
Kyle R. Kirkland

/S/ E. JAMES MUELLER              Director                                August 18, 1998
E. James Mueller
</TABLE>

                                     25
<PAGE>



















                     [THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>



           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                         INDEX TO FINANCIAL STATEMENTS


                                                                  PAGE
                                                                  ----
Report of independent certified public accountants                 F-2

Consolidated balance sheets as of May 31, 1998 and 1997            F-3

Consolidated statements of earnings for the years ended 
  May 31, 1998, 1997 and 1996                                      F-4

Consolidated statements of stockholders' equity (deficit)
  for the years ended May 31, 1998, 1997 and 1996                  F-5

Consolidated statements of cash flow for the years 
  ended May 31, 1998, 1997 and 1996                                F-6

Notes to consolidated financial statements                         F-7

Schedule II - Valuation and qualifying accounts                    S-1


                                     F-1
<PAGE>













                        REPORT OF INDEPENDENT CERTIFIED
                              PUBLIC ACCOUNTANTS



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 Subsidiary as of May 31, 1998 and 1997, and the
related consolidated statements of earnings, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended May 31, 1998.  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 of
material  misstatement.  An audit includes examining, on a test basis, evidence
supporting  the  amounts and disclosures in the financial statements.  An audit
also  includes  assessing   the  accounting  principles  used  and  significant
estimates made by management,  as  well  as  evaluating  the  overall financial
statement presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In  our opinion, the financial statements referred to above present fairly,  in
all material  respects,  the  consolidated  financial position of International
Airline Support Group, Inc. and Subsidiary as  of May 31, 1998 and 1997 and the
consolidated results of its operations and its consolidated cash flows for each
of  the  three  years  in  the period ended May 31, 1998,  in  conformity  with
generally accepted accounting principles.

We have also audited Schedule  II  of International Airline Support Group, Inc.
and Subsidiary for each of the three  years  in  the period ended May 31, 1998.
In our opinion, this schedule presents fairly, in  all  material  respects, the
information required to be set forth therein.




Fort Lauderdale, Florida
July 15, 1998
                                           F-2
<PAGE>

           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS

                             MAY 31, 1998 AND 1997


                                    ASSETS
<TABLE>
<CAPTION>
                                                                  1998        1997
                                                               ---------  ----------
<S>                                                          <C>         <C>
Current assets
  Cash and cash equivalents (Note A)                           $ 438,403    $ 465,725
  Accounts receivable, net of allowance for doubtful accounts
    of approximately $514,000 in 1998 and $610,000 in 1997     1,179,760    1,354,030
  Inventories (Notes A, C and D)                              11,744,924   11,645,284
  Deferred tax benefit - current, net of valuation allowance
    of $0 in 1998 and $772,000 in 1997 (Note F)                1,202,345           -
  Other current assets                                           194,618       98,285
                                                              ----------   ----------
         Total current assets                                 14,760,050   13,563,324

Investments (Note A)                                              92,194           -

Property and equipment (Notes A, D and E)
  Aircraft held for lease                                      7,347,954    6,914,458
  Leasehold improvements                                          65,881       21,567
  Machinery and equipment                                        931,092      908,590
                                                              ----------   ----------
                                                               8,344,927    7,844,615
  Less accumulated depreciation                                1,969,138    1,186,444
                                                              ----------   ----------

         Property and equipment, net                           6,375,789    6,658,171
                                                              ----------   ----------

Other assets
  Deferred debt costs, net (Note A)                              513,222      638,012
  Deferred tax benefit, net of valuation allowance of
    $0 in 1998 and $1,814,000 in 1997 (Note F)                 1,760,565       72,663
  Deposits and other assets                                      134,533      355,000
                                                              ----------   ----------
                                                               2,408,320    1,065,675
                                                              ----------   ----------
                                                            $ 23,636,353 $ 21,287,170
                                                              ==========   ==========

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Current maturities of long-term obligations (Note D)       $ 1,351,805  $ 1,542,488
  Accounts payable                                               247,982      645,480
  Accrued liabilities (Note L)                                 2,932,016    2,234,350
                                                              ----------   ----------
         Total current liabilities                             4,531,803    4,422,318

Long-term obligations, less current maturities (Note D)        8,296,063   12,204,583

Commitments and contingencies (Note E)                             -            -

Stockholders' equity (Note G)
  Preferred stock - $.001 par value; authorized 2,000,000 
    shares; no shares outstanding in 1998 and 1997, 
    respectively                                                   -            -
  Common stock - $.001 par value; authorized 20,000,000 
    shares; issued and outstanding  2,562,667 and 2,395,095
    shares in 1998 and 1997, respectively                          2,562        2,395
  Additional paid-in capital                                  13,511,610   13,003,686
  Unrealized loss on equity security                             (22,545)         -
  Accumulated deficit                                         (2,683,140)  (8,345,812)
                                                              ----------   ----------
         Total stockholders' equity                           10,808,487    4,660,269
                                                              ----------   ----------
                                                            $ 23,636,353 $ 21,287,170
                                                              ==========   ==========
</TABLE

The accompanying notes are an intergral part of these statements.
                                             F-3
<PAGE>

           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF EARNINGS

                    YEARS ENDED MAY 31, 1998, 1997 AND 1996



</TABLE>
<TABLE>
<CAPTION>
                                                      1998        1997         1996
                                                  ----------  -----------  ------------
<S>                                            <C>           <C>           <C>
Revenues
  Net sales                                   $   25,647,782 $ 20,123,196 $  21,410,201
  Lease revenue                                    2,314,830    1,108,702     1,794,768
                                                  ----------  -----------  ------------
         Total revenues                           27,962,612   21,231,898    23,204,969

Cost of sales                                     16,781,517  12,679,915     13,207,671
Selling, general and administrative expenses       5,269,523   3,828,020      3,921,795
Provision for doubtful accounts                       74,648     123,399        464,099
Depreciation                                       1,060,397     791,517        933,976
                                                  ----------  -----------  ------------
         Total operating costs                    23,186,085  17,422,851     18,527,541
                                                  ----------  -----------  ------------

         Income from operations                    4,776,527   3,809,047      4,677,428

Interest expense                                   1,647,770   1,610,590      2,411,469
Interest and other (income) expense                  286,018     (60,632)       (34,058)
                                                  ----------  -----------  ------------

         Earnings before income taxes and
           extraordinary loss                      2,842,739   2,259,089      2,300,017

Provision (Benefit) for income taxes (Note F)     (2,819,933)      -             14,048
                                                  ----------  -----------  ------------

         Earnings before extraordinary loss        5,662,672   2,259,089      2,285,969

Extraordinary loss on debt restructuring (Note B)      -         530,596          -
                                                  ----------  -----------  ------------
         Net earnings                            $ 5,662,672 $ 1,728,493    $ 2,285,969
                                                  ==========  ==========   ============

Per share data:
  Earnings per common share - basic
    before effect of extraordinary item               $ 2.29     $  1.37        $ 15.27
     Extraordinary item                                  -          (.32)           -
                                                  ----------  -----------  ------------
         Net earnings                                 $ 2.29      $ 1.05        $ 15.27
                                                  ==========  ==========   ============
  Weighted average shares outstanding used in
     basic calculation                             2,471,025   1,646,629        149,696
                                                  ==========  ==========   ============

  Earnings per common share - diluted
    before effect of extraordinary item               $ 2.03      $ 1.25        $ 12.69
     Extraordinary item                                  -          (.29)           -
                                                  ----------  -----------  ------------
         Net earnings                                 $ 2.03      $  .96        $ 12.69
                                                  ==========  ==========   ============
  Weighted average shares outstanding used in 
     diluted calculation                           2,793,414   1,806,938        242,288
                                                  ==========  ==========   ============
</TABLE>

The accompanying notes are an intergral part of these statements.
                                              F-4
<PAGE>

           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                              Unrealized
                                COMMON STOCK     Additional   Loss on
                              Number of   Par       Paid-In   Equity     Accumulated
                              SHARES     VALUE      CAPITAL   SECURITY     DEFICIT         TOTAL
                             --------- -------    ---------   -------- -------------- -------------
<S>                         <C>        <C>      <C>          <C>        <C>            <C>
Balance at June 1, 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)

1 - for - 27 reverse Stock
  Split (Note B)            (3,892,084) (3,892)        -          -          -              (3,892)

Issuance of Common Stock in
  exchange for extinguishment
  of Subordinated Debentures
  (Note B)                   2,245,400   2,245   11,224,755       -          -          11,227,000

Costs incurred related to
  stock issuance (Note B)        -         -       (875,401)      -          -            (875,401)

Net earnings                     -         -           -          -        1,728,493     1,728,493
                             --------- -------    ---------   -------- -------------- -------------

Balance at May 31, 1997      2,395,095   2,395   13,003,686       -       (8,345,812)    4,660,269

Exercise of stock options      167,572     167      507,924       -          -             508,091

Unrealized loss on equity
  security                       -         -           -       (22,545)      -             (22,545)

Net earnings                     -         -           -          -        5,662,672      5,662,672
                             --------- -------    ---------   -------- -------------- -------------

Balance at May 31, 1998      2,562,667 $ 2,562 $ 13,511,610  $ (22,545) $ (2,683,140)  $ 10,808,487
                             ========= ======= ============  ========== =============  ============
</TABLE>














The accompanying notes are an intergral part of this statement.
                                              F-5
<PAGE>

           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                    YEARS ENDED MAY 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                         1998        1997       1996
                                                     ---------    --------   ---------
<S>                                                <C>          <C>         <C>
Cash flows from operating activities:
  Net earnings                                     $ 5,662,672 $ 1,728,493 $ 2,285,969
  Adjustments to reconcile net earnings to net cash
    provided by operating activities:
     Depreciation and amortization                   1,159,731   1,010,302   1,372,979
     Gain on sale of aircraft held for lease          (267,109)       -       (864,795)
     Loss on restructuring                                -        530,596        -
     (Increase) in deferred tax benefit             (2,890,247)    (66,428)       -
     Decrease in accounts receivable                   374,270     640,461     577,770
     Decrease in notes receivable                         -           -        313,490
     (Increase) in inventories                         (99,640) (2,433,481) (3,030,045)
     (Increase) in other current assets                (95,833)    (29,487)    (37,318)
     Decrease (increase) in other assets               220,467    (303,500)    (51,500)
     Increase (decrease) in accounts payable and
       accrued liabilities                             104,669    (494,754)   1,527,750
                                                     ---------    --------    ---------

         Net cash provided by operating activities   4,168,980     582,202    2,094,300

Cash flows from investing activities:
  Capital expenditures                              (1,126,085) (6,197,955)    (875,281)
  Purchase of investments                             (114,729)       -            -
  Proceeds from sale of aircraft held for lease        667,000        -       1,450,000
  Proceeds from sale of land and building                 -        750,000         -
                                                     ---------    --------    ---------

         Net cash (used in) provided by
                investing activities                  (573,814) (5,447,955)     574,719

Cash flows from financing activities:
  Net borrowings (payments) under line of credit    (2,391,856)  7,397,930         -
  Borrowings under term loans                        3,100,000   6,750,000         -
  Payments under term loans                         (4,807,347)   (403,331)        -
  Proceeds from the exercise of stock options          508,091        -            -
  Increase in deferred restructuring costs                -       (540,641)   (334,860)
  Increase in deferred debt costs                      (31,376)   (675,785)    (50,000)
  Repayments of debt obligations                          -     (8,136,969) (2,192,216)
                                                     ---------    --------    ---------
         Net cash (used in) provided by 
                financing activities                (3,622,488)  4,391,204  (2,577,076)
                                                     ---------    --------    ---------
Net increase (decrease) in cash and 
                cash equivalents                       (27,322)   (474,549)      91,943

Cash and cash equivalents at beginning of year         465,725     940,274      848,331
                                                     ---------    --------    ---------
Cash and cash equivalents at end of year             $ 438,403   $ 465,725    $ 940,274
                                                     =========   =========    =========
Supplemental disclosures of cash flow
  information (Note I):
  Cash paid during the year for:
     Interest                                      $ 1,505,630 $ 1,321,259  $ 1,206,028
                                                     =========   =========    =========
     Income taxes                                    $ 139,995   $   1,400    $  36,910
                                                     =========   =========    =========

</TABLE>

The accompanying notes are an intergral part of these statements.
                                              F-6
<PAGE>
           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MAY 31, 1998, 1997 AND 1996


NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT
        ACCOUNTING POLICIES

   International Airline Support Group, Inc. and Subsidiary (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 such as the McDonnell Douglas MD-80 and DC-9.

   a) 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 in cash and cash equivalents  at  May  31, 1998 and May 31, 1997 is
   $225,496   and  $90,564,  respectively  of  restricted   cash   representing
   maintenance reserves received on certain aircraft held for lease.

   b) INVENTORIES

   Inventories are stated at the lower of cost or market.  The cost of aircraft
   and aircraft parts is determined on a specific identification basis.

   c) 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 3 to 7 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.

   d) DEFERRED DEBT COSTS

   The deferred debt costs relate to  the  costs  associated with obtaining the
   Senior Secured Revolving Credit Loan Facility and  the  Senior  Secured Term
   Loans.  These costs are being amortized using the interest method  over five
   years,  the life of the respective debt issue.  Accumulated amortization  at
   May 31, 1998 and 1997, was $238,927 and $87,773, respectively.

   e) EARNINGS PER SHARE

   The Company  adopted  Financial  Accounting  Standards  No.  128  (FAS 128),
   "Earnings Per Share" in fiscal 1998.  FAS 128 requires dual presentation  of
   basic  and  diluted  earnings  per  share  on  the  face of the statement of
   earnings as well as the restatement of prior periods presented.

   Basic  net earnings per share equals net earnings divided  by  the  weighted
   average  shares outstanding during the year.  The computation of diluted net
   earnings per  share  includes  dilutive  common  stock  equivalents  in  the
   weighted   average  shares  outstanding.   The  reconciliation  between  the
   computations is as follows:

                                   Basic        Basic    Diluted   Diluted
               NET EARNINGS       SHARES         EPS     SHARES      EPS
               ------------      ---------    ------   ---------   -------
      1998     $ 5,662,672       2,471,025    $ 2.29   2,793,414    $ 2.03
      1997     $ 1,728,493       1,646,629    $ 1.05   1,806,938     $ .96
      1996     $ 2,285,969         149,696   $ 15.27     242,288   $ 12.69

                                                                    (continued)
                                     F-7
<PAGE>
           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MAY 31, 1998, 1997 AND 1996

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

   e) EARNINGS PER SHARE - Continued

   Included in diluted shares are common stock equivalents relating  to options
   and  convertible  debt  of  322,389, 160,309, and 92,592 for 1998, 1997  and
   1996, respectively.

   Basic  and  diluted  earnings  per  share  for  1997  are  $1.05  and  $.96,
   respectively, after the effect of  the  extraordinary  charge of $530,596 or
   $.29 per share related to the loss on debt restructuring (Note B).

   f) 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 the
   buyer has taken delivery and acceptance  of  the aircraft.  Lease revenue is
   recognized on an accrual basis, unless collectibility is uncertain.

   g) 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 1998, 1997 and 1996 were insignificant.
   The Company does not provide any health or other benefits to retirees.

   h) 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.

   i) 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  of  assets and
   liabilities at each year end.

   j) 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
   the date of the  financial  statements  and revenues and expenses during the
   reporting periods.  Actual results could differ from those estimates.

   k) NEW ACCOUNTING PRONOUNCEMENT

   In June 1997, the Financial Accounting Standards  Board  issued Statement of
   Financial  Accounting Standard No. 130 (SFAS 130), "Reporting  Comprehensive
   Income,"  and  No.  131  (SFAS  131),  "Disclosures  About  Segments  of  an
   Enterprise  and  Related  Information."  These  statements are effective for
   fiscal  years  commencing  after  December 15, 1997.  The  Company  will  be
   required to comply with the provisions  of  these statements in fiscal 1999.
   The Company does not expect these new standards to have a material impact on
   its consolidated financial statements and/or disclosures.

                                                                    (continued)
                                    F-8
<PAGE>
           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MAY 31, 1998, 1997 AND 1996

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

   l) INVESTMENTS

   Investments at May 31, 1998 represent equity  securities, and are classified
   as available-for-sale as of May 31, 1998. Investments  classified as 
   available-for-sale are recorded at fair value and any temporary  difference 
   between an investment's costs and its fair value is presented as a  separate
   component of stockholders' equity.

   m) RECLASSIFICATIONS

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

NOTE B - RESTRUCTURING OF CAPITAL

   On October 3, 1996, the Company  completed  a  restructuring  of its capital
   structure.  Pursuant to the restructuring, the Company effected  a  1-for-27
   reverse split  of its common stock, issued approximately 2,245,400 shares of
   common stock in  exchange  for  the  entire  $10  million  principal  amount
   outstanding and related accrued interest of its 8% Convertible Debentures of
   $1,227,000,   and   redeemed   the  entire  $7.7  million  principal  amount
   outstanding of its 12% Senior Notes  with the proceeds of an advance under a
   credit agreement entered into on October  3,  1996 with the Bank of New York
   (See Note D).  Consummation of the restructuring  cured  all  defaults  with
   respect  to  the  Debentures  and  the  Senior Notes. Upon completion of the
   restructuring, costs incurred related to  the  restructuring and issuance of
   common stock of $875,401 were recorded as an offset to paid in capital.  The
   transaction  resulted  in an after tax charge of $530,596,  which  has  been
   recorded as an extraordinary item.

NOTE C - INVENTORIES

   Inventories at May 31, 1998 and 1997 consisted of the following:

                                                       1998         1997
                                                    ----------  -----------
      Aircraft parts                              $ 11,294,924 $ 10,758,867
      Aircraft and engine available for sale           450,000      886,417
                                                    ----------  -----------
                                                  $ 11,744,924 $ 11,645,284
                                                    ==========  ===========
NOTE D - LONG-TERM OBLIGATIONS

   Long-term obligations at May 31, 1998 and 1997 consisted of the following:

                                                          1998         1997
                                                    ----------  -----------
      Senior Secured Revolving Credit Loans         $ 5,006,075 $ 7,397,931

      Senior Secured Term Loan - A                    2,081,793   2,766,669

      Senior Secured Term Loan - B                    2,560,000   3,580,000


                                         F-9
                                                                 (continued)
<PAGE>
           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MAY 31, 1998, 1997 AND 1996


   NOTE D - LONG-TERM OBLIGATIONS - Continued

                                                          1998         1997
                                                     ----------  -----------
      Notes payable due in equal monthly 
        installments through October 1997, bearing
        interest at 9.5% to 11.5% collateralized by
        equipment                                    $     -     $     2,471
                                                     ----------  -----------
                                                      9,647,868   13,747,071

      Less:  Current maturities                       1,351,805    1,542,488
                                                     ----------  -----------
                                                    $ 8,296,063 $ 12,204,583
                                                      =========   ==========


   In October 1996 the Company entered into a Credit Agreement with the Bank of
   New York, which provides  for a $3 million term loan (Term Loan-A) and up to
   an  $11  million  revolving credit.   The  Credit  Facility  is  secured  by
   substantially all of  the  assets of the Company and availability of amounts
   for  borrowing is subject to  certain  limitations  and  restrictions.   The
   interest  rate  on  the  Credit  Facility, which fluctuates based on certain
   financial ratios of the Company, was  the  lender's  prime rate less .25% at
   May  31, 1998 (8.25%).  The revolving line of credit was  increased  to  $13
   million  in March 1997.  As of May 31, 1998, the available line of credit is
   approximately  $6,500,000.   The credit agreement includes certain covenants
   which provide, among other things,  restrictions relating to the maintenance
   of  consolidated  net  worth  and  other financial  ratios,  as  well  as  a
   restriction on the payment of dividends.

   In March 1997, the Company entered into  a  Second  Term  Loan (Term Loan-B)
   with  the  Bank  of  New  York  under the Credit Facility for an  additional
   $3,750,000.  The Term Loan is collateralized  by  certain aircraft purchased
   by the Company with the proceeds from the loan.

   During fiscal 1998, the Credit Agreement was amended  twice  to  create  two
   additional  term  loan  facilities  in  the amounts of $1.5 million and $1.6
   million and to add $1 million (for capital  expenditures)  to  the revolving
   credit  line.  The two additional term loans were repaid in full  in  fiscal
   1998.

   The scheduled  maturities  of long-term obligations in each of the next four
   years until maturity subsequent  to  May  31,  1998  are as follows:  1999 -
   $1,351,805, 2000 - $2,256,664, 2001 -$766,660, and 2002 - $5,272,739.

NOTE E - COMMITMENTS AND CONTINGENCIES

   LEASES

   The Company leases warehouse facilities as well as certain  equipment  under
   long-term operating lease agreements.  Rental expense under these leases for
   the  years  ended  May  31,  1998, 1997 and 1996 was approximately $280,000,
   $36,000 and $53,000, respectively.   At  May  31,  1998,  the future minimum
   payments  on  non-cancellable  operating  leases  are  as follows:   1999  -
   $286,861, 2000 - $276,500, 2001 -$205,977, and 2002 - $210,961.

   The Company currently leases aircraft and engines to customers  under  long-
   term  operating  lease agreements.  In addition to minimum base rentals, the
   lease agreement requires  additional  rent  based  upon  aircraft and engine
   usage.   The net investment in aircraft and engines held for  or  leased  to
   customers  was  approximately  $6,230,200 and $6,124,000 at May 31, 1998 and
   1997, respectively.  Future minimum rentals at May 31, 1998, under the long-
   term operating lease agreements is $1,098,878 in 1999.

                                                                    (continued)
                                      F-10
<PAGE>
           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MAY 31, 1998, 1997 AND 1996

   NOTE E - COMMITMENTS AND CONTINGENCIES - Continued

   LITIGATION

   The Company is subject to certain  legal  proceedings  which  arise  in  the
   ordinary  course  of  business.  In the opinion of management, the amount of
   ultimate liability, if  any,  is not likely to have a material effect on the
   financial position of the Company.  However, as the outcome of litigation or
   other legal claims is difficult  to  predict,  significant  changes  in  the
   estimated exposures could occur.

NOTE F - INCOME TAXES

   The  provision  (benefit) for income taxes for the years ended May 31, 1998,
   1997 and 1996 is as follows:

                                           1998          1997       1996
                                       ------------  ----------- ----------
      Current provision:
        Federal                         $ 69,906       $ 72,663    $ 14,048
        State                               -              -           -
                                       ------------  ----------- ----------
                                          69,906         72,663      14,048
      Deferred provision              (2,889,839)       (72,663)       -
                                       ------------  ----------- ----------
                                    $ (2,819,933)      $   -       $ 14,048
                                       ============  =========== ==========

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

                                                          1998        1997
                                                   ----------- -----------
       Deferred tax (benefits) - current:
         Reserve for overhaul costs                 $ (82,000)  $ (103,000)
         Bad debt reserve                            (193,000)    (257,000)
         Inventory capitalization                    (191,000)    (187,000)
         Accrued payroll                             (358,000)    (131,000)
         Accrued vacation                             (15,000)     (15,000)
         Reserve for inventory                       (363,000)     (79,000)
                                                   ----------- -----------
                                                 $ (1,202,000)  $ (772,000)
                                                  ===========   ===========


                                                          1998        1997
                                                   ----------- -----------
       Deferred tax liabilities 
         (benefits) - non-current:
         Depreciation and amortization              $ 553,000   $ (647,000)
         Aircraft - capitalized maintenance            36,000       36,000
         Restructuring charges                         (2,000)    (135,000)
         Net operating loss carryforward - federal (1,806,000)    (759,000)
         Net operating loss carryforward - state     (307,000)    (177,000)
         Minimum tax credit - federal                (227,000)    (196,000)
         Other, net                                    (8,000)      (8,000)
                                                   -----------  -----------
                                                 $ (1,761,000) $(1,886,000)
                                                  ===========   ===========


                                         F-11
                                                                    (continued)

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

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MAY 31, 1998, 1997 AND 1996

   NOTE F - INCOME TAXES - Continued

   The Company recorded a valuation  allowance  equal  to  the  amount  of  the
   deferred  tax  benefits  at  May  31,  1997.   In  fiscal  1998, the Company
   completely  relieved the $2,586,000 valuation allowance and they  determined
   that it was more  likely  than  not  that  the  Company  would recognize the
   deferred  tax  benefits based on the Company's recent earnings  history  and
   management's estimate  that  future  profits  will  be sufficient to realize
   these benefits.

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

                                           1998       1997       1996
                                          -----      ----        ----

      Statutory federal rate               34.0%     34.0%       34.0%
      Tax benefit from net operating
        loss carryforward                (134.2)    (30.7)      (33.4)
      Other                                 1.0      (3.3)         -
                                          -----      ----        ----
      Effective tax rate                  (99.2)%      -%         0.6%
                                         ======      ====        ====


   The Company has net operating loss carryforwards for federal tax purposes of
   approximately $5.3 million.  The net operating losses  will  expire in years
   2010 and 2011. The amount of the prior year net operating loss  carryforward
   was an estimate based on the estimated amount of taxable income generated by
   the  cancellation of indebtedness (COD) incurred in the Company's  financial
   restructuring in fiscal year 1997.  Subsequently, it was determined that the
   COD income  was  a  nominal  amount resulting in a larger net operating loss
   carryforward which had the effect  of  creating a tax benefit in fiscal 1998
   of approximately $1,109,000.  The Company  also  has  a  federal minimum tax
   credit carryover of approximately $227,000 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 - 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.  However, upon
   the completion of the restructuring  of  the  Company's  capital  in October
   1996,  the  Company  terminated  this plan and the stockholders concurrently
   approved a New Stock Option Plan, pursuant to which 598,782 shares of common
   stock  were reserved.  In fiscal 1997,  options  were  granted  to  purchase
   598,609 shares of common stock at exercise prices ranging from $2.75 - $3.00
   per share  and  expire 10 years from the date of the grant.  In fiscal 1998,
   the stockholders  approved  the  issuance of an additional 115,000 shares of
   common stock under this plan.  These  shares  were  issued in fiscal 1998 at
   exercise prices ranging from $4.50 - $6.64 per share  and  expire  10  years
   from  the  date  of the grant.  Prior to May 31, 1996, the Company accounted
   for  such  options  under   APB  Opinion  25  and  related  Interpretations.
   Commencing June 1, 1996, the  Company  accounts  for  non-qualified  options
   issued  to  non-employees  under  SFAS  123,  "Accounting  for  Stock  Based
   Compensation."

   The exercise price of all options granted by the Company in fiscal 1998  and
   fiscal  1997  equals  the  market  price  at  the  date  of  the  grant.  No
   compensation expense has been recognized.

                                                                    (continued)
                                    F-12
<PAGE>
           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MAY 31, 1998, 1997 AND 1996

   
   NOTE G - STOCK OPTIONS - Continued

   Had compensation cost for the Stock Option Plan and non-qualified options to
   employees  been  determined  based  on the fair value of the options at  the
   grant  dates consistent with the method  of  SFAS  123,  the  Company's  net
   earnings  and  earnings  per  share would have been changed to the pro forma
   amounts below.

                                           1998         1997       1996
                                       -----------  ----------   ---------
            Net earnings
               As reported             $ 5,662,672 $ 1,728,493 $ 2,285,969
               Pro forma               $ 5,400,656 $ 1,150,122 $ 2,285,969

            Basic earnings per share
               As reported             $      2.29 $      1.05 $     15.27
               Pro forma               $      2.19 $       .70 $     15.27

            Diluted earnings per share
               As reported             $      2.03 $       .96 $     12.69
               Pro forma               $      1.93 $       .63 $      9.43


   The above pro forma disclosures  may not be representative of the effects on
   reported net earnings for future years  as certain options vest over several
   years and the Company may continue to grant options to employees.

   The fair value of each option grant is estimated  on the date of grant using
   the  binomial  option-pricing  model  with  the  following  weighted-average
   assumptions  used for grants in fiscal 1998 and fiscal  1997,  respectively:
   dividend yield  of  0.0  percent  for  all  years; expected volatility of 40
   percent  and 30 percent; risk-free interest rates  of  6  percent  and  6.25
   percent; and expected holding periods of 4 years.

   A summary  of  the status of the Company's fixed stock options as of May 31,
   1998 and 1997, and  changes  during  the  years  ending on those dates is as
   follows:

                              MAY  31, 1998                   MAY  31, 1997
                              -------------                   -------------
                                Weighted -                      Weighted -
                                Average                         Average
                     SHARES     EXERCISE PRICE        SHARES    EXERCISE PRICE
                   ---------    --------------      ----------  --------------

   Outstanding at
   beginning of year 598,609        $ 2.99            269,500        $  .70
   Granted           137,173          4.82            598,609          2.99
   Exercised        (167,572)         3.03               -
   Expired              -                                -
   Cancelled          (5,000)         3.00           (269,500)          .70
                   ---------                        ----------  

   Outstanding at
   end of year       563,210          3.42            598,609          2.99
                   =========                        ==========  
   Options 
   exercisable at 
   end of year       415,012                          392,430
   Weighted-average
   fair value of 
   options granted
   during the year  $   1.90                        $     .97


                                            F-13
                                                                    (continued)
<PAGE>
           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MAY 31, 1998, 1997 AND 1996

   NOTE G - STOCK OPTIONS - Continued

   The following information applies to options outstanding at May 31, 1998:

                        OPTIONS OUTSTANDING             OPTIONS  EXERCISABLE
                        -------------------             --------------------
                             Weighted -
                              Average
                             Remaining    Weighted -              Weighted -
    Ranges of               Contractual    Average                 Average
 EXERCISE PRICES    SHARES     LIFE    EXERCISE PRICE   SHARES  EXERCISE PRICE 
 ---------------   -------    -----    --------------  -------- --------------

   $2.75 - $3.00   431,537     8.44       $ 2.99        283,339     $ 2.99
   $4.50 - $5.94   119,673     9.05         4.62        119,673       4.62
   $6.94 - $6.94    12,000     9.79         6.94         12,000       6.94
                   -------                              -------
                   563,210     8.60         3.42        415,012       3.57
                  ========                              =======

NOTE H - 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, 1998, 1997 and
   1996.

                                                      (IN THOUSANDS)
                                           1998         1997         1996
                                        --------    --------     --------

            United States               $ 25,419    $ 18,067     $ 19,800
            Africa and Middle East         1,042         402          623
            Europe                           375         319          177
            Latin America                    517         408        2,454
            Canada                            95         133           -
            Asia                             515       1,903          151
                                        --------    --------     --------
                                        $ 27,963    $ 21,232     $ 23,205
                                        ========    ========     ========

   No  customer accounted for more than 10% of the Company's  sales  in  fiscal
   1998  and  1997.   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 1998 and 1997.  No other  customer  accounted for
   more than 10% of the Company's sales in fiscal 1996.

                                              F-14
<PAGE>
           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MAY 31, 1998, 1997 AND 1996
   
   NOTE I - SUPPLEMENTAL CASH FLOW DISCLOSURE

   In  fiscal  1997, the Company completed a restructuring of its capital  (See
   Note B).  In  conjunction  with this restructuring, the Company incurred the
   following noncash financing activity:

            Decrease in Subordinated Debentures   $ 10,000,000
            Decrease in Accrued Interest             1,224,755
            Decrease in Common Stock                     2,245
            Increase in Paid in Capital            (10,892,140)
            Decrease in Deferred Restructuring Fees   (334,860)

   In fiscal 1997, the Company  exchanged  an aircraft with a net book value of
   $237,552  for  certain inventory.  No gain  or  loss  was  recorded  on  the
   exchange.

   The net change in  inventory  in  fiscal  1998 and 1997, as derived from the
   change in balance sheet amounts, has been adjusted for the following items:

                                            1998          1997        1996
                                          ------     ---------   ---------
            Net increase in inventory  $  99,640   $ 2,367,969 $ 2,780,045
            Write-down of aircraft          -             -        250,000
            Transfer of aircraft from
              inventory to held for lease   -          303,064        -
            Exchange of aircraft held
              for lease for inventory       -         (237,552)       -
                                          ------     ---------   ---------

            Cash flow impact from
              change in inventory      $  99,640   $ 2,433,481 $ 3,030,045
                                       =========   =========== ===========

NOTE J - RELATED PARTY TRANSACTIONS

   Under  a  commission agreement entered into with  the  Company  in  1994,  a
   director is  entitled  to 3-4% of revenues generated from sales to customers
   brought in by the director.   The  Company paid commissions of approximately
   $96,000, $6,000 and $85,000 for the years ended May 31, 1998, 1997 and 1996.

   In connection with obtaining the Credit Agreement with the Bank of New York,
   the Company agreed to pay the placement  agent  a  $250,000 placement fee. A
   director of the Company was a principal of the placement  agent.  In  fiscal
   1997,  the  Company  paid  the placement agent $200,000 of this fee, and the
   remaining $50,000 was paid in  fiscal 1998.  In addition, during fiscal 1998
   the Company paid this director $86,000  for services rendered to the Company
   in   connection   with   identification   and  evaluation   of   acquisition
   opportunities.

NOTE K - FOURTH QUARTER ADJUSTMENTS

   In  fiscal  1998,  the  Company recorded a fourth  quarter  tax  benefit  of
   approximately $1,100,000  as  a  result of adjusting the Company's estimated
   deferred tax assets.

   In  fiscal  1997, the Company recorded  a  fourth  quarter  tax  benefit  of
   approximately  $102,000 as a result of adjusting the estimated effective tax
   rate used during the year.

                                                                    (continued)
                                        F-15
<PAGE>
          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MAY 31, 1998, 1997 AND 1996
   
   NOTE K - FOURTH QUARTER ADJUSTMENTS - Continued

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

NOTE L - ACCRUED LIABILITIES

   Accrued liabilities consist of the following items:

                                                     1998          1997
                                                ---------     ---------
            Customer deposits                   $ 110,902     $ 361,153
            Accrued repair costs                  582,319       507,161
            Accrued legal costs                   209,550        10,000
            Accrued interest                           -          9,014
            Accrued payroll                     1,019,883       559,270
            Accrued property taxes                 13,270        28,695
            Accrued commissions                        -        167,741
            Accrued offering expenses             129,032          -
            Reserve for repair of leased aircraft 698,818       579,143
            Other                                 168,242        12,173
                                                ---------     ---------
                                              $ 2,932,016   $ 2,234,350
                                                =========     =========

NOTE M - EMPLOYMENT AGREEMENTS

   In October 1996, the Company entered into employment agreements  with two of
   its  executive officers for a period of five years.  The agreements  provide
   the employees  with  a  certain  minimum  annual  salary  plus  bonus.   The
   agreements   provide  the  employees  with  an  option  to  terminate  their
   agreements and  receive  a  lump sum payment equal to the employee's average
   annual compensation paid by the Company for the most recent two years upon a
   change in control of the Company.

                                           F-16

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

                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS

                    YEARS ENDED MAY 31, 1996, 1997 AND 1998


<TABLE>
<CAPTION>
            COLUMN A                                 COLUMN B          COLUMN C             COLUMN D    COLUMN E
          ------------                              ---------   --------------------       ----------  ----------
                                                                      ADDITIONS
                                                                --------------------

                                                    Balance at  Charged to  Charged                    Balance at
                                                    Beginning   Costs and   to Other                   End of
           DESCRIPTION                              OF PERIOD    EXPENSES   ACCOUNTS       DEDUCTIONS  PERIOD
          ------------                              ---------   ---------   --------       ----------  ----------

YEAR ENDED MAY 31, 1996
-----------------------
<S>                                                 <C<         <C>         <C>          <C>          <C>   
   Reserves deducted from assets to which they apply:
     Allowance for possible losses on
       accounts receivable                          $ 619,185   $ 482,375   $   -        $ 366,874(a) $ 734,686
                                                     ========    ========    =========    ==========   ========
YEAR ENDED MAY 31, 1997
-----------------------

   Reserves deducted from assets to which they apply:
     Allowance for possible losses on
       accounts receivable                          $ 734,686   $ 123,375   $   -        $ 247,585(a) $ 610,476
                                                     ========    ========    =========    ==========   ========

YEAR ENDED MAY 31, 1998
-----------------------

   Reserves deducted from assets to which they apply:
     Allowance for possible losses on
       accounts receivable                          $ 610,476    $ 74,648   $   -        $ 171,124(a) $ 514,000
                                                     ========    ========    =========    ==========   ========

</TABLE>

(a)  Write-off of accounts receivable against the reserve.

                                                  S-1
<PAGE>