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, 1997

  [ ]   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                      (I.R.S. Employer
           of                                    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 [  ]

            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]

            At August 12, 1997, the aggregate market value of common stock held
by non-affiliates of the Registrant was approximately $19,415,203.50.

            The  number of shares of the Registrant's Common Stock  outstanding
as of August 12, 1997 was 2,395,095.

                           DOCUMENTS INCORPORATED BY REFERENCE:

                Portions of the Proxy Statement for the Annual Meeting of
Stockholders to be held on September 22, 1997 are incorporated by reference in
                               Parts III and IV.
<PAGE>
                   INTERNATIONAL AIRLINE SUPPORT GROUP INC.
                          ANNUAL REPORT OF FORM 10-K
                        FOR THE YEAR ENDED MAY 31, 1997



                               TABLE OF CONTENTS

                                                                          PAGE

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

            Item 1. Business 1
            Item 2. Properties 7
            Item 3. Legal Proceedings 7
            Item 4. Submission of Matters to a Vote of Security Holders 7

           PART II...........................................................8

            Item 5. Market for the Registrant's Common Stock and Related
                  Stockholder Matters........................................8
            Item 6. Selected Financial Data 9
            Item 7. Management's Discussion and Analysis of Financial Condition
                  and Results of
                        Operations 10
            Item 8. Financial Statements and Supplementary Data 14
            Item 9.     Changes in and Disagreements with Accountants on
                        Accountingand Financial Disclosure..................14

           PART III.........................................................15

            Item 10. Directors and Executive Officers of the Registrant 15
            Item 11. Executive Compensation 15
            Item 12. Security Ownership of Certain Beneficial Owners and
                  Management................................................15
            Item 13. Certain Relationships and Related Transactions 15

           PART IV..........................................................16

            Item 14. Exhibits, Financial Statement Schedules and Reports on
                  Form 8-K..................................................16

           SIGNATURES.......................................................19


<PAGE>

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<PAGE>
                                    PART I

           ITEM 1. BUSINESS.

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

           General

            International  Airline Support Group, Inc.  (the  "Company")  is  a
worldwide supplier of spare  parts  to the aviation redistribution market.  The
Company sells spare parts to major commercial  passenger  airlines,  air  cargo
carriers,  maintenance  and  repair  facilities  and other redistributors.  The
parts sold by the Company include avionics, rotable and expendable airframe and
engine  components  for  commercial  aircraft,  including  Airbus,  Boeing  and
McDonnell-Douglas  aircraft and Pratt & Whitney and  Rolls-Royce  jet  engines.
During the year ended  May 31, 1997 ("fiscal 1997"), the Company supplied parts
to over 671 customers worldwide,  625 of whom were domestic customers and 46 of
whom were foreign customers.  Currently, the Company specializes in replacement
parts for McDonnell-Douglas MD-80 and  DC-9 aircraft.  Management believes that
the Company has one of the most extensive  inventories of aftermarket MD-80 and
DC-9 parts in the industry.

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

            The Company  believes that the annual worldwide market for aircraft
spare parts is approximately  $10  billion, of which approximately $1.3 billion
represents sales of aircraft spare parts  to the redistribution market and that
the Company's sales represented approximately  2%  of such market during fiscal
1997.  The redistribution market is highly fragmented, with a limited number of
large,  well  capitalized  companies selling a broad range  of  aircraft  spare
parts, and numerous smaller  competitors  serving  distinct market niches.  The
Company  believes that significant trends affecting the  redistribution  market
will continue  to  increase  its  overall  size  while  reducing  the number of
competitors.   Factors  causing  the  expansion  of  the  redistribution market
include  the increasing size and age of the world-wide airline  fleet  and  the
increasing  pressures  on  airlines  and  maintenance  and repair facilities to
control their costs.

           COMPANY STRATEGY

            The  Company's operating strategy has two components.   First,  the
Company intends to increase its revenues and operating income through continued
customer penetration  in  its  existing markets and expansion into new markets.
The Company intends to achieve this  by continuing to increase its share of the
market for spare parts for certain widely  operated aircraft models, including,
in particular, the DC-9 and the MD-80.  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  with  the  DC-9,  gives it a
competitive  advantage.   The  Company  intends  to  capitalize  on the limited
availability of spare parts for such aircraft models by acquiring  (i) pools of
inventory from airlines that cease to operate such aircraft or that  desire  to
reduce  their  levels of parts inventory and (ii) aircraft for parting out when
the purchase price justifies doing so. In this regard, the Company purchased an
inventory  of  MD-80   parts  from  an  airline  in  December  1996  for  total
consideration of approximately  $1.4  million.  This inventory became available
following the airline's decision to eliminate  the MD-80 aircraft type from its
fleet.  The Company believes that its knowledge of the fleets of DC-9 and MD-80
aircraft currently in operation and its worldwide  contacts  in  the commercial
aviation industry will permit it to acquire other inventory pools  and aircraft
for parting out on favorable terms in the future.

            The  second  component  of the Company's operating strategy  is  to
achieve revenue and earnings growth by acquiring other companies engaged in the
sale  of aircraft parts as well as companies  with  product  lines  that  would
complement   the  Company's  existing  redistribution  business.   The  Company
competes in a  fragmented  market  in  which  numerous  small  companies  serve
distinct  market  niches.   The  Company  believes  that  small  aircraft parts
redistributors,  many  of  which are family owned and capital constrained,  are
unable to provide the extensive  inventory  and  quality  control  necessary to
comply  with  applicable regulatory and customer requirements and will  provide
acquisition opportunities  for  the  Company.   The  Company believes that such
acquisitions  will permit it to expand its customer base  by  selling  aircraft
parts to airlines  and others that are not now customers, to expand its product
line with respect to  aircraft  in  which the Company currently specializes, to
strengthen its relationships with existing customers and to expand the types of
aircraft in which the Company specializes.

           INDUSTRY OVERVIEW

            GENERAL.  The Company believes  that  the world-wide aircraft fleet
is  both  growing  and  getting  older.  The World Jet Airplane  Inventory  for
calendar 1996 estimated that the combined aircraft fleets of aircraft operators
throughout the world at December 31, 1996 consisted of 12,814 jet aircraft, the
average age of which was 13.5 years.   A  significant number of the spare parts
used in these aircraft are supplied by different  types of companies, including
original equipment manufacturers ("OEMs") and numerous  redistributors, such as
the Company, fixed-base operators, FAA-certified overhaul  facilities,  traders
and  brokers.   Management  believes that the fragmented nature of the aircraft
spare  parts industry creates  opportunities  for  small  well-capitalized  and
financed  companies  with  proven  infrastructures  to exploit niche markets in
certain types of aircraft, such as the DC-9 and MD-80.

            From time to time economic factors prompt  many  airlines  to defer
aircraft  procurement  programs  and extend the useful life of older equipment.
Currently, many aircraft operators  are  (i)  operating under deferred delivery
schedules for new aircraft, pursuant to which  they  accept  new  aircraft  for
delivery but at a slower pace than originally ordered, and (ii) retaining their
older  aircraft.  As a result, the worldwide jet aircraft fleet is both growing
and increasing  in  age.   Certain U.S. and European operators have implemented
measures such as the installation  of  FAA-approved hush kits and extended-life
maintenance programs to extend the useful  lives  of  older  aircraft  in their
fleets.  In addition, many foreign and domestic start-up aircraft operators are
establishing  their  fleets  through  the acquisition of less expensive second-
generation  aircraft even though such older  aircraft  typically  require  more
maintenance and replacement parts than new aircraft.

            During  the last several years, several start-up, low-cost airlines
using DC-9s and/or MD-80s, including ValuJet Airlines, Inc. ("ValuJet"), Spirit
Airlines and Reno Air,  emerged as a result of the deregulation of the aircraft
industry and the availability  of  low-cost  aircraft.   The  start-up airlines
generally offer service on specific high-traffic, short-haul routes rather than
attempting  to  compete with the extensive hub-and-spoke systems  used  by  the
major carriers to  obtain  long-haul traffic.  Second generation aircraft (such
as the DC-9) are able to operate  profitably  on these high-traffic, short-haul
routes.   The  emergence  of  these  airlines has enhanced  the  value  of  the
Company's existing inventory because,  in  order to assure reliable operations,
such airlines need to maintain a minimum supply  of  spare  parts  or establish
relationships with spare parts suppliers.  Because of the Company's position as
a  primary  source  of  DC-9  and  MD-80 spare parts and because these airlines
generally lack the resources to maintain extensive supplies of spare parts, the
Company believes that it will continue  to be an active parts supplier for such
airlines.

            In  addition to the growth in  the  number  of  older  aircraft  in
service, cost and  availability  considerations  are causing airlines to reduce
the size of their spare parts inventories and, therefore,  to  utilize aircraft
spare  parts  sold  by  redistributors to provide parts that are no  longer  in
production.  As airlines  adopt  just-in-time  inventory procurement processes,
inventory storage and handling devolves to suppliers  such as the Company, thus
increasing  the percentage of parts sold by redistributors  relative  to  those
sold by parts manufacturers.  Furthermore, in order to reduce purchasing costs,
airlines have been reducing the number of "approved" suppliers.

            As  a  result  of these supplier reductions, there has been and the
Company  believes  there  will   continue   to   be   a  consolidation  in  the
redistribution market even as the redistribution market  is  expected  to grow.
The Company believes that only those redistributors with extensive inventories,
adequate  capital  and  the  ability  to  comply with applicable regulatory and
customer requirements regarding part quality  and  traceability will be able to
capitalize on these trends.  The Company currently maintains  an  inventory  of
over 52,790 line items consisting of more than 560,138 parts, which the Company
believes will enhance its ability to respond well to such market trends.

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

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

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

           OPERATIONS OF THE COMPANY

            INVENTORY  ACQUISITION.  The  Company  obtains  most  of  its parts
inventory  by  purchasing  excess  inventory  from  aircraft  operators  or  by
purchasing  aircraft  for  parting  out.   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.  A number of factors influence the relative importance to
the Company  during  a  particular  fiscal year of the two principal sources of
inventory.  For example, several low-cost  airlines commenced operations during
fiscal  1994  through  1996.   During this period,  the  Company  competed  for
aircraft with such airlines, which  often  use narrow-body aircraft such as the
DC-9.   Opportunities to purchase part-out aircraft  during  this  period  were
curtailed  by such competition, which caused the sales prices for such aircraft
to increase.   The  Company  acquires  aircraft  for parting out if its initial
estimate of the timing and value of parts sales for  such  aircraft would allow
the Company to recover the purchase price within 180 days through the sale of a
portion of the parts, and to sell the remaining parts for amounts  in excess of
the  purchase price over the subsequent five years.  More recently, the  growth
of low-cost airlines has slowed, creating more opportunities for the Company to
acquire aircraft at part-out prices.

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

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

            In addition to purchasing whole aircraft, the Company also acquires
spare parts by bidding on  the  inventory  of  companies  that  are eliminating
certain portions of their spare parts inventories due to the retirement  of  an
aircraft  type from their fleets, inventory reduction programs to reduce costs,
the downsizing  of their operations or the dissolution of their businesses as a
whole.  Major passenger  carriers  may eliminate a type of aircraft to simplify
maintenance of their fleet, to achieve  other  operational  efficiencies  or to
reduce carrying costs attributable to inventory.

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

            PRODUCT  LINES.   Historically,  the  Company  maintained  a  large
inventory of aftermarket parts for the DC-8 aircraft.  The DC-8, an early model
Stage 1 aircraft, has not been  produced  since  1982.   The FAA's enactment of
noise abatement restrictions in 1980 grounded all DC-8s powered  by JT3 and JT4
class  engines  in  use in the United States and required such aircraft  to  be
refitted with modern,  quieter  engines.   Because  of  the expense involved in
installing new engines, the use of DC-8 aircraft in the United States declined.
Certain devices known as "hush kits" were invented in order  to  bring  the JT3
engines  within  acceptable  noise  limits.  In late 1985, the FAA approved the
first hush kit for certain JT3 engines  and an additional hush kit was approved
for other JT3 engines in 1987.  The effect  of  these changes was to create new
demand for DC-8 parts because a DC-8 equipped with  a  hush  kit  is  among the
lowest  cost  aircraft  to  operate  per  ton  mile.   Accordingly, the Company
believes that the DC-8s will continue to be used by freight  carriers and other
operators  and  that  the sale of DC-8 parts will continue to be  a  source  of
revenues in the foreseeable future.  However, it is expected that sales of DC-8
parts will continue to  decline in correspondence with the decrease of DC-8s in
operation.

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

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

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

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

           CUSTOMERS

            GENERAL.  The Company's customer base includes  major passenger and
cargo operators, smaller aircraft operators, overhaul facilities, FAA-certified
repair facilities and other redistributors who may in turn resell to end users.
Management  believes  that  its  customer  relationships are important  to  the
Company's operational success.  The Company  has established relationships with
many domestic and foreign aircraft operators and maintains an adequate level of
inventory in order to service such customers in  a  timely  manner.  Management
believes that availability and timely delivery of quality spare  parts  are the
primary  factors  considered  by  customers  when making a spare parts purchase
decision.  The low-cost, start-up airlines and  cargo  airlines  are  among the
Company's  principal  customers.  The low-cost, start-up airlines are important
customers because the Company  is the primary source of spare parts for the MD-
80 and DC-9 model aircraft, which  are  favored  by  such airlines, and because
such airlines lack the resources to maintain extensive supplies of spare parts.
The cargo airlines are important customers because the  fleets of such airlines
consist  of  older  aircraft  of  the type for which the Company  maintains  an
extensive  inventory  of  parts and because  such  airlines  typically  do  not
maintain extensive supplies of spare parts.

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

            MAJOR CUSTOMERS.  In fiscal 1997, no customer accounted  for 10% or
more  of the Company's revenues.  The Company believes that it has no customer,
the loss  of  which  would  have  a  material  adverse  effect on the Company's
business, results of operations and financial condition.

            GEOGRAPHIC DISTRIBUTION OF CUSTOMERS.  The Company  sells  aircraft
and aircraft parts and leases aircraft to foreign and domestic customers.   The
Notes  to  the  Consolidated Financial Statements of the Company, which are set
forth elsewhere in this Annual Report on Form 10-K, provide certain information
with respect to the  geographic  areas in which the Company has derived revenue
during the three fiscal years ended on May 31, 1997.

           ADDITIONAL SERVICES

            AIRCRAFT AND ENGINE SALES  AND LEASING.  The Company has determined
that its spare parts sales opportunities are enhanced by providing its existing
and new customers with whole aircraft and  engines  through  sale transactions.
Such transactions allow the Company to expand its customer base for spare parts
and to reduce the cost basis in its aircraft.  The Company currently  owns five
aircraft, three of which are subject to leases expiring in the first quarter of
calendar  year  1999.   The  Company  expects  to  continue  to broker sales of
aircraft and engines when opportunities to do so arise.

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

           GOVERNMENT REGULATION

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

           PRODUCT LIABILITY

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

           COMPETITION

            The  aircraft  spare   parts   redistribution   market   is  highly
fragmented.  Customers in need of aircraft parts have access, through computer-
generated  inventory  catalogues,  to  a  broad  array  of suppliers, including
aircraft manufacturers, airlines and aircraft service companies.   The dominant
companies  in  the  aircraft  parts aftermarket are AAR Corp., The AGES  Group,
Aviation Sales Company and Banner  Aerospace,  Inc.  These companies are larger
than  the  Company  and  have greater financial resources.   The  Company  also
competes  with  numerous  smaller,   independent   dealers,   which   generally
participate  in  niche  markets.   Competition in the redistribution market  is
generally  based  on price, availability  and  quality  of  product,  including
traceability.

           EMPLOYEES

            As of August  12,  1997, the Company had 25 employees.  The Company
is not a party to any collective  bargaining  agreement.   The Company believes
its relations with its employees are good.

           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  March  2002.  The
Company  consummated  the  sale  of its previous corporate offices and adjacent
warehouse in March 1997.

            The Company's property,  as  well  as  substantially  all the other
assets  of  the  Company,  are  subject  to  the lien securing amounts advanced
pursuant to the Company's secured credit facility.

           ITEM 3. LEGAL PROCEEDINGS.

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

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

            No matter was submitted to a vote of the Company's security holders
during the fourth quarter  of  the fiscal year covered by this Annual Report on
Form 10-K.

<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  from
June 1, 1995 through April 18,  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>
            1996 FISCAL YEAR
                                     HIGH                        LOW
                                     --------                   --------
<S>                          <C>     <C>            <C>          <C>
           First Quarter         $  11 13/16              $  7  19/32
           Second Quarter            7 19/32                 4   7/32
           Third Quarter             5 1/16                  3   3/8
           Fourth Quarter            5 29/32                 3   3/8

           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, 1997, there were 110 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.


<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,  1997  have been  derived  from  the  Company's  audited  consolidated
financial statements.   The consolidated financial statements of the Company as
of May 31, 1996 and 1997  and  for the three-year period ended May 31, 1997 and
the accountant's reports thereon are included in Item 8 of this Form 10-K.

<TABLE>
<CAPTION>
                                                              YEAR ENDED MAY 31,
                                       1993           1994           1995             1996          1997
                                     -------        -------         -------          ------        -------  
                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
           OPERATING DATA:
<S>                                  <C>             <C>           <C>             <C>           <C>
Net sales                            $32,032            $16,747    $21,999          $21,410       $20,123
  Lease revenue                        1,473              1,986      2,984            1,795         1,109
                                     -------           --------    -------           ------        ------

     Total revenues                   33,505             18,733     24,983           23,205        21,232

Total operating expenses              29,456             34,932     23,343           18,528        17,423
                                     -------           --------     -------          ------        ------

     Income (loss) from                4,049            (16,199)     1,640            4,677         3,809
     continuing operations

Interest expense, net                  2,503              2,866      2,254            2,377         1,550         
                                     -------           --------    -------           ------        ------

Earnings (loss) before                 1,546            (19,065)      (614)           2,300         2,259
    income taxes, equity
    in earnings (loss) of
    joint venture and
    extraordinary item

Provision for income                     510             (2,476)       --                14           --
taxes (benefit)

Equity in loss of joint                  (59)              (424)       --              --           --
venture
                                      -------           --------     -------          ------     ------

Earnings (loss) before                   977            (17,013)      (614)           2,286       2,259
 extraordinary item
                                      -------           --------     -------          ------     ------

Extraordinary loss on                     --               (363)        --              --         (531)
 extinguishment of debt
                                      -------           --------     -------          ------     ------
Net earnings (loss)                      $977           $(17,376)     $(614)          $2,286     $1,728
                                      =======           ========     =======          ======     ======                  

PER SHARE DATA:
Primary earnings (loss) per common
   and common equivalent
   shares 

Earnings (loss) before                  $6.59           $(113.65)    $(4.10)          $15.27      $1.25
extraordinary item

     Extraordinary item                   --               (2.43)       --              --        (0.29)
                                       -------           -------    -------          -------  ---------
        Net earnings (loss)              $6.59          $(116.08)    $(4.10)          $15.27      $0.96
                                       =======           =======    =======          =======  =========
Weighted average shares outstanding    148,054           149,696    149,696          149,696  1,806,938
   used in primary calculation

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

Earnings (loss) before                   $6.59          $(113.65)    $(4.10)          $12.69      $1.25
extraordinary item

      Extraordinary item                   --              (2.43)       --              --        (0.29)
                                       -------           -------    -------          -------  ---------
          Net earnings (loss)            $6.59          $(116.08)    $(4.10)          $12.69      $0.96
                                       =======           =======    =======          =======  =========     
Weighted average shares outstanding    148,054           149,696    149,696          242,228  1,806,938
used in fully-diluted  calculation
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                                      AT MAY 31,
<S>                          <C>             <C>            <C>              <C>             <C>

                                1993             1994           1995             1996          1997
                             -------          -------        -------          --------        -----
BALANCE SHEET DATA:
Working capital              $17,088         $(18,312)      $(13,489)        $(10,841)       $9,143
(deficit)

Total assets                  35,709           25,553         14,511           16,132        21,287

Total debt                    23,484           26,173         20,335           18,144        13,749

Stockholder's                  8,173           (9,088)        (9,702)          (7,416)        4,660
equity (deficit)
</TABLE>


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

           OVERVIEW

                    The Company  is  primarily engaged in the sale of aircraft,
aircraft engines, aircraft parts, leasing  of  aircraft  and  related services.
The  Company's  total  revenues  include  net  parts  sales revenues and  lease
revenue.   Net  parts  sales revenues includes revenues from  parts  sales  and
revenue  from  aircraft and  engine  sales.   Aircraft  and  engine  sales  are
unpredictable transactions,  dependent,  in part, upon the Company's ability to
purchase an aircraft or engine and resell  it  within a relatively brief period
of time.  In a given period, a substantial portion  of  the  Company's revenues
may be attributable to the sale of aircraft or engines.  Cost of sales consists
primarily  of  inventory, aircraft and engine costs and shipping  charges.  The
cost of aircraft  parts  is  determined  on a specific identification basis and
inventory is stated at the lower of cost or  market.   The  Company's operating
results are affected by many factors, including the timing of orders from large
customers, the timing of aircraft and engine sales, the timing  of expenditures
to  purchase  parts  inventory,  aircraft  and  engines  and  the mix of  parts
contained  in  the Company's inventory.  The Company does not obtain  long-term
purchase orders or commitments from its customers.

                    Revenue  from the sale of parts is recognized when products
are  shipped to the customer.   Revenue  from  aircraft  and  engine  sales  is
recognized when the Company has received the sale price and the buyer has taken
delivery  of  the  aircraft.   Lease revenue is recognized on an accrual basis,
unless collectability is uncertain.

                    On October 3,  1996,  the Company completed a restructuring
of its capital structure (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 $10,000,000 principal  amount
outstanding  of, and related accrued interest on, its 8% Convertible Debentures
due 2003 (the "Debentures"); and (iii) redeemed the entire $7,700,000 principal
amount outstanding  of  its  12%  Senior  Notes  due July 17, 1997 (the "Senior
Notes") with the proceeds of an advance under a credit  agreement  entered into
on  October  3,  1996 (the "Credit Agreement").  The terms of the Restructuring
and impact on the  Company's  liquidity  and capital resources are discussed in
the Company's Proxy Statement/Prospectus filed with the Securities and Exchange
Commission on August 29, 1996.

           RESULTS OF OPERATIONS

                    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.  Aircraft and engine sales  are unpredictable 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 1997, the  Company acquired
three  aircraft  and  sold or traded 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 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  4.9%  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 (recovery) 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-off's 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 $1.25 per share, compared to a net  earnings of $2,286,000,
or $15.27 per share, during fiscal 1996.   On  a  fully-diluted basis, earnings
per  share  were  $12.69  per share during fiscal 1996.   Net  earnings,  after
considering an extraordinary  loss,  were  $1,728,493  or  $.96  per share, for
fiscal 1997.

                    In February 1997, the Financial Accounting Standards  Board
issued  Statement  of  Financial  Accounting  Standards  No. 128, "Earnings per
Share" ("SFAS No. 128").  SFAS 128 establishes new standards  for computing and
presenting earnings per share ("EPS").  Specifically, SFAS No. 128 replaces the
presentation  of  primary  EPS with a presentation of basic EPS, requires  dual
presentation of basic and diluted  EPS  on the face of the income statement for
all entities with a complex capital structure  and requires a reconciliation of
the numerator and denominator of the diluted EPS  computation.  SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997; earlier application is not permitted.  At this  time,  management has not
determined  the  impact  of  SFAS  No.  128  on the earnings per share  amounts
presented in the Consolidated Statement of Operations  set  forth  elsewhere in
this Annual Report on Form 10-K.

                    FISCAL 1996 COMPARED WITH FISCAL 1995.

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

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

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

                    Cost of sales decreased  25.4% from $17.7 million in fiscal
1995 to $13.2 million in fiscal 1996, primarily as a result of lower sales.  In
addition, cost of sales as a percentage of total  revenues  also decreased from
70.9% to 56.9% in fiscal 1995 and fiscal 1996, respectively.   The  decrease in
cost of sales as a percentage of total revenues from fiscal 1995 to fiscal 1996
was primarily due to higher margin aircraft sales in fiscal 1996 as compared to
fiscal  1995.   Cost of aircraft sales was 34.8% of aircraft sales revenues  in
fiscal 1996 compared  to  98.6%  in  fiscal  1995.   The cost of aircraft sales
during fiscal 1995 was in excess of normal levels as the  result of the sale at
cost  of  three  DC-9 aircraft.  Cost of parts sales as a percentage  of  total
parts sales was 63.4% in fiscal 1996 compared to 66.0% in fiscal 1995.

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

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

                    Depreciation  was $934,000 in fiscal 1996 compared to  $1.1
million in fiscal 1995.  Included in fiscal 1996 depreciation is a writedown of
$190,000 to the Company's headquarters facility to reduce its cost to estimated
market value.  The net reduction from  fiscal  1995  to  fiscal  1996  was  due
primarily  to  a decrease in depreciation of aircraft held for lease, resulting
from the sale of  certain  of the Company's aircraft which were previously held
for lease during fiscal 1995.

                    The  Company   incurred  losses  from  its  service  center
subsidiary of $676,000 in fiscal 1995.   The  amounts  recorded  relate  to the
Company's  wholly owned subsidiary, International Airline Service Center, Inc.,
which ceased operations in fiscal 1995.
                    Interest  expense in fiscal 1996 was $2.4 million, compared
to $2.9 million in fiscal 1995.   The  decrease in interest expense from fiscal
1995 to fiscal 1996 was due to a net reduction  in  total  debt outstanding, to
$18.1 million at May 31, 1996 compared to $20.3 million at May 31, 1995.

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

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

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

                    Net earnings during fiscal 1996  were $2,286,000, or $15.27
per  share,  compared  to a net loss of $614,000, or $4.10  per  share,  during
fiscal 1995.  On a fully-diluted  basis,  earnings (loss) per share were $12.69
and $(4.10) per share during fiscal 1996 and 1995, respectively.

           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.  During the  fourth fiscal quarter of 1997 the
Credit  Agreement  was  amended to create a new term  loan  facility  of  $3.75
million (collectively referred  to  as  the  "Credit  Facility").   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, 1997 and 1996 amounted  to  $582,000  and  $2.1  million,
respectively.  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 year
ended May 31, 1997 amounted to $5.4 million.  The primary usage  of  the  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 provided by investing activities for  fiscal  1996  amounted  to $575,000.
The primary source of such funds was proceeds of $1.45 million from the sale of
aircraft held for lease.

                    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 under which the  Company's  five  aircraft and certain
engines are pledged as collateral.  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.  Net cash used in financing activities for the
fiscal year ended May 31, 1996 amounted to $2.6 million dollars.

                    At  May 31, 1997, the Company was permitted to borrow up to
an additional $2.9 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.  As of August 12, 1997, the Company was permitted to borrow
up to an additional $4.4 million.

           ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

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

                    None
<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 22,
1997 (the "1997 Proxy Statement") is incorporated by reference herein.

           ITEM 11. EXECUTIVE COMPENSATION.

           EXECUTIVE COMPENSATION

                    The  information  contained  under  the  heading "Executive
Compensation" in the 1997 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 1997 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 1997 Proxy Statement is incorporated
by reference.
<PAGE>
                                     PART IV


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

(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               Page F-3
          Notes to Consolidated Financial Statements
          of the Company, including Consolidated
          Balance Sheets as of May 31, 1997 and 1996
          and related Consolidated Statements of
          Operations, Consolidated Cash Flows and
          Consolidated Stockholders' Equity
          (Deficit) for each of the years in the
          three-year period ended May 31, 1997

(b)       FINANCIAL STATEMENTS SCHEDULES              PAGE OR METHOD OF FILING
    (1)   Report of Grant Thornton LLP as to           Included in the report
          Consolidated Financial Statement Schedules   listed in (a)(2) above
          for fiscal years ended May 31, 1997, 1996
          and 1995
    (2)   Schedule II.  Valuation and Qualifying              Page S-1
          Accounts


           SCHEDULES NOT LISTED ABOVE AND COLUMNS WITHIN CERTAIN SCHEDULES HAVE
BEEN OMITTED BECAUSE OF THE ABSENCE OF CONDITIONS UNDER WHICH THEY ARE REQUIRED
OR  BECAUSE  THE  REQUIRED MATERIAL INFORMATION IS INCLUDED IN THE CONSOLIDATED
FINANCIAL STATEMENTS OR NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED
HEREIN.

                    (C)   Exhibits




Exhibit
NUMBER  DESCRIPTION                                PAGE NUMBER OR METHOD OF
                                                   FILING
2.4    Credit Agreement between BNY Financial      Incorporated by reference
       Corporation and the Registrant, as amended. to 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         Incorporated by reference
       Incorporation of the Registrant.            to Exhibit 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").
3.2    Restated and Amended Bylaws of the          Incorporated by reference
       Registrant.                                 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           Incorporated by reference
       December 1, 1995, between the Registrant    to Exhibit 10.1.1 to the 
       and Alexius A. Dyer III, as amended on      1996 Form 10-K
       October 3, 1996.
10.1.2 Employment Agreement dated as of            Incorporated by reference
       October 3, 1996, between the Registrant     to Exhibit 10.1.2 to the
       and George Murnane III.                     Company's Quarterly Report
                                                   for the quarter ended
                                                   February 28, 1997.
                                                     
10.2.1 1996 Long-Term Incentive and Share          Incorporated by reference
       Award Plan.                                 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        Incorporated by reference
       Non-Qualified Stock Option).                to Exhibit 10.2.5 to the
                                                   1996 Form 10-K.
10.2.6 Form of Option Certificate (Director        Incorporated by reference
       Non-Qualified Stock Option).                to Exhibit 10.2.6 to the
                                                   1996 Form 10-K.
10.2.7 Form of Option Certificate (Incentive       Incorporated by reference
       Stock Option).                              to Exhibit 10.2.7 to the
                                                   1996 Form 10-K.
10.14  Commission Agreement dated December 1,      Incorporated by reference
       1995 between the Registrant and J.M.        to Exhibit 10.14 to the 
       Associates, Inc.                            1996 Form 10-K.
10.15  Aircraft Parts Purchase Agreement,          Incorporated by reference
       dated May 16, 1996, between Paxford Int'l,  to Exhibit 10.15 to the
       Inc. and the Registrant.                    Company's Registration
                                                   Statement on Form S- 4
                                                   (File No. 333-08065) filed
                                                    on July 12, 1996.
10.16  Contract for Sale and Purchase dated        Filed herewith.
       January 10, 1997 between the Registrant and
       American Connector Corporation
10.17  Office Lease Agreement dated January        Filed herewith.
       31, 1997 between the Registrant and Globe
       Corporate Center, as amended.
10.18  Lease Agreement dated March 31, 1997        Filed herewith.
       between the Registrant and Port 95-4, Ltd.
11     Statement regarding computation of per      Filed herewith.
       share earnings.
21     Subsidiaries.                               Filed herewith.
23     Consent of Grant Thornton LLP to            Filed herewith.
       incorporation by reference.
27     Financial Data Schedule.                    Filed herewith.

                    (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.
<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, 1997.


                                                 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.

           Signature              Title                                Date

           /S/ A.A. DYER III      Chairman of the Board, Chief       August 18,
           Alexius A. Dyer III    Executive Officer and President    1997
                                  and Director
                                  (Principal Executive Officer)

           /S/ GEORGE MURNANE III Executive Vice President,          August 18,
           George Murnane III     Chief Financial Officer            1997
                                  and Director 
                                  (Principal Financial Officer)

           /S/ JAMES M. ISAACSON  Vice President of Finance,         August 18,
            James M. Isaacson     Treasurer  and Secretary           1997
                                  (Principal Accounting Officer)

           /S/ KYLE R. KIRKLAND    Director                          August 18,
           Kyle R. Kirkland                                          1997

           /S/ E. JAMES MUELLER    Director                          August 18,
           E. James Mueller                                          1997

<PAGE>
           INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
                          INDEX TO FINANCIAL STATEMENTS


PAGE

           Report of independent certified public accountants              F-2

           Consolidated balance sheets as of May 31, 1997 and 1996         F-3

           Consolidated statements of operations for the years ended 
           May 31, 1997, 1996 and 1995                                     F-4

           Consolidated statements of stockholders' equity (deficit) 
           for the years ended May 31, 1997, 1996 and 1995                 F-5

           Consolidated statements of cash flows for the years ended
           May 31, 1997, 1996 and 1995                                     F-6

           Notes to consolidated financial statements                      F-7
<PAGE>
                                      F-2


        FINANCIAL STATEMENTS AND REPORT
           OF INDEPENDENT CERTIFIED
              PUBLIC ACCOUNTANTS

         INTERNATIONAL AIRLINE SUPPORT
         GROUP, INC. AND SUBSIDIARIES

          MAY 31, 1997, 1996 AND 1995




                        REPORT OF INDEPENDENT CERTIFIED
                              PUBLIC ACCOUNTANTS


Board of Directors
International Airline Support
  Group, Inc.

We  have  audited the accompanying consolidated balance sheets of International
Airline Support  Group,  Inc. and Subsidiaries as of May 31, 1997 and 1996, and
the  related  consolidated  statements   of  operations,  stockholders'  equity
(deficit)  and  cash flows for each of the three  years  in  the  period  ended
May  31, 1997.  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 Subsidiaries as of May 31, 1997 and 1996 and
the consolidated results of its  operations and its consolidated cash flows for
each of the three years in the period  ended  May  31, 1997, in conformity with
generally accepted accounting principles.

We have also audited Schedule II of International Airline  Support  Group, Inc.
and Subsidiaries for each of the three years in the period ended May  31, 1997.
In  our  opinion, this schedule presents fairly, in all material respects,  the
information required to be set forth therein.




Fort Lauderdale, Florida
July 21, 1997





<PAGE>

                                      F-3


          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                             MAY 31, 1997 AND 1996


                                    ASSETS
<TABLE>
<CAPTION>
                                                                    1997        1996
                                                                --------    --------
<S>                                                             <C>        <C> 
Current assets
  Cash and cash equivalents (Note A)                           $ 465,725   $ 940,274
  Accounts receivable, net of allowance for doubtful accounts
    of approximately $610,000 in 1997 and $735,000 in 1996     1,354,030   2,014,691
  Inventories (Notes A, C and D)                              11,645,284   9,277,315
  Deferred tax benefit - current, net of valuation allowance
    of $772,000 in 1997 and $960,000 in 1996 (Note F)                 -           -
  Other current assets                                            98,285      68,798
                                                                --------    --------
         Total current assets                                 13,563,324  12,301,078

Property and equipment (Notes A, D, E)
  Aircraft held for lease                                      6,914,458   2,974,760
  Leasehold improvements                                          21,567      36,815
  Machinery and equipment                                        908,590     972,507
                                                                --------    --------
                                                               7,844,615   3,984,082
  Less accumulated depreciation                                1,186,444   2,051,620
  Land and building held for sale, net                                -      750,000
         Property and equipment, net                           6,658,171   2,682,462
                                                                --------    --------

Other assets
  Deferred debt costs, net (Note A)                              638,012     762,431
  Deferred tax benefit, net of valuation allowance of
    $1,814,000 in 1997 and $3,011,000 in 1996 (Note F)            72,663          -
  Deferred restructuring fees                                         -      334,860
  Deposits and other assets                                      355,000      51,500
                                                                --------    --------
                                                               1,065,675   1,148,791
                                                                --------    --------


                                                            $ 21,287,170 $16,132,331
                                                                ========   =========   


                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities
  Current maturities of long-term obligations (Note D)       $ 1,542,488 $ 3,695,108
  Long-term obligations in default classified as current              -   14,041,667
  Income tax payable                                             156,096      72,249
  Accounts payable                                               486,854   2,171,496
  Accrued liabilities (Note M)                                 2,234,350   3,160,982
                                                                --------    --------
         Total current liabilities                             4,419,788  23,141,502

Long-term obligations, less current maturities (Notes D)      12,207,113     406,760

Commitments and contingencies (Notes E)                               -           -

Stockholders' equity (deficit) (Notes G and H)
  Preferred Stock - $.001 par value; authorized 2,000,000 
  shares and 500,000 shares; no shares outstanding in 1997 
  and 1996 respectively                                               -           -
  Common stock - $.001 par value; authorized 20,000,000 
  shares; issued and outstanding  2,395,095 
  and 4,041,779 shares in 1997 and 1996 respectively               2,395       4,042
  Additional paid-in capital                                  13,003,686   2,654,332
  Accumulated deficit                                         (8,345,812)(10,074,305)
                                                                --------    --------
         Total stockholders' equity (deficit)                  4,660,269  (7,415,931)
                                                                --------    --------
                                                            $ 21,287,170 $16,132,331
                                                              ==========  ==========

</TABLE>

<PAGE>

                                      F-4


          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                    YEARS ENDED MAY 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                     1997        1996          1995
                                                  ----------   ----------   -----------
<S>                                               <C>          <C>          <C>                  
Revenues
  Net sales                                   $   20,123,196 $ 21,410,201 $  21,998,869
  Lease revenue                                    1,108,702    1,794,768     2,984,218
                                                  ----------   ----------   -----------
         Total revenues                           21,231,898   23,204,969    24,983,087

Cost of sales                                     12,679,915  13,207,671     17,712,427
Selling, general and administrative expenses       3,828,020   3,921,795      4,358,119
Provision (recovery) for doubtful accounts           123,399     464,099       (334,571)
Depreciation                                         791,517     933,976      1,108,363
Unusual and nonrecurring items (Note N)                   -           -        (177,115)
Losses of service center subsidiary (Note O)              -           -         675,860
                                                   ----------   ----------   -----------
         Total operating costs                    17,422,851  18,527,541     23,343,083

         Income from operations                    3,809,047   4,677,428      1,640,004

Interest expense                                   1,610,590   2,411,469      2,856,787
Interest and other income                           (60,632)    (34,058)       (602,943)
                                                  ----------   ----------   -----------
         Earnings (loss) before income taxes and
           extraordinary loss                      2,259,089   2,300,017       (613,840)

Provision for income taxes (Note F)                       -       14,048          -
                                                  ----------   ----------   -----------
         Earnings (loss) before extraordinary loss 2,259,089   2,285,969       (613,840)

Extraordinary loss on debt restructuring (Note B)    530,596          -           -

         Net earnings (loss)                      $ 1,728,493 $ 2,285,969    $ (613,840)
                                                  ==========   ==========   ===========
Per share data:
  Primary earnings (loss) per common and common
    equivalent share
     Earnings (loss) before extraordinary item        $ 1.25      $ 15.27     $ (4.10)
     Extraordinary item                                 (.29)        -            -
                                                  ----------   ----------   -----------
         Net earnings (loss)                          $  .96      $ 15.27     $ (4.10)
                                                  ==========   ==========   ===========
  Weighted average shares outstanding used in 
   primary calculation                             1,806,938      149,696     149,696
                                                  ==========   ==========   ===========

  Fully-diluted earnings (loss) per common and common
    equivalent share
     Earnings (loss) before extraordinary item        $ 1.25      $ 12.69     $ (4.10)
     Extraordinary item                                 (.29)        -           -
                                                  ----------   ----------   -----------
         Net earnings (loss)                          $  .96      $ 12.69     $ (4.10)
                                                  ==========   ==========   ===========
  Weighted average shares outstanding used in 
    fully-diluted calculation                      1,806,938      242,288     149,696
                                                  ==========   ==========   ===========

</TABLE>

<PAGE>

                                      F-5


          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)


                                       COMMON STOCK    Additional
                             Number of         Par      Paid-In Accumulated
<TABLE>
<CAPTION>
                              SHARES      VALUE       CAPITAL        DEFICIT         TOTAL
                             ---------  --------     ---------    ----------     ---------
<S>                          <C>        <C>        <C>          <C>             <C>                   
Balance at June 1, 1994      4,041,779   $ 4,042   $ 2,654,332 $ (11,746,434) $ (9,088,060)

Net loss                         -         -           -           (613,840)      (613,840)
                             ---------  --------     ---------    ----------     ---------
Balance at May 31, 1995      4,041,779     4,042     2,654,332   (12,360,274)   (9,701,900)

Net earnings                        -         -           -        2,285,969     2,285,969
                             ---------  --------     ---------    ----------     ---------

Balance at May 31, 1996      4,041,779     4,042     2,654,332   (10,074,305)   (7,415,931)

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
                             =========  ========     =========    ==========     =========


</TABLE>
          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          MAY 31, 1997, 1996 AND 1995




<PAGE>

The accompanying notes are an integral part of these statements.

                                      F-6


          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                    YEARS ENDED MAY 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                         1997        1996        1995
                                                     ---------   ---------   --------
<S>                                                <C>          <C>         <C>                 
Cash flows from operating activities:
  Net earnings (loss)                              $ 1,728,493 $ 2,285,969 $ (613,840)
  Adjustments to reconcile net 
  earnings (loss) to net cash
  provided by (used in) operating activities:

     Depreciation and amortization                 1,010,302   1,372,979   1,693,301
     Depreciation - service center                        -           -      196,322
     Gain on sale of aircraft held for lease              -    (864,795)          -
     Gain on Express One transaction                      -           -     (70,631)
     Loss on Wellman transaction                          -           -       33,575
     Loss on restructuring                           530,596          -           -
     (Increase) in deferred tax benefit             (66,428)          -     (23,696)
     Decrease in accounts receivable                 640,461     577,770   1,224,560
     Decrease in notes receivable                         -      313,490     806,510
     Decrease in income tax refund                        -           -    1,930,000
     (Increase) decrease in inventories          (2,433,481) (3,030,045)   4,910,834
     (Increase) decrease in other current assets    (29,487)    (37,318)     154,271
     (Increase) decrease in other assets           (303,500)    (51,500)     178,322
     (Decrease) increase in accounts payable 
       and accrued expenses                        (494,754)  1,527,750   (4,591,430)
                                                    ---------   ---------   --------

         Net cash provided by operating activities   582,202   2,094,300   5,828,098

Cash flows from investing activities:
  Capital expenditures                           (6,197,955)   (875,281)   (135,936)
  Proceeds from sale of aircraft held for lease           -    1,450,000          -
  Proceeds from sale of land and building            750,000          -           -
                                                    ---------   ---------   --------

  Net cash provided by (used in) 
  investing activities                            (5,447,955)    574,719   (135,936)

Cash flows from financing activities:
  Net borrowings under line of credit              7,397,930          -           -
  Borrowings under term loans                      6,750,000          -           -
  Payments under term loans                        (403,331)          -           -
  Increase in deferred restructuring costs         (540,641)   (334,860)          -
  Increase in deferred debt costs                  (675,785)    (50,000)          -
  Repayments of debt obligations                 (8,136,969) (2,192,216)  (4,939,621)
                                                   ---------   ---------   --------
Net cash (used in) provided by
  financing activities                            4,391,204  (2,577,076)  (4,939,621)

Net increase (decrease) in cash and 
  cash equivalents                                 (474,549)     91,943      752,541

Cash and cash equivalents at beginning of year       940,274     848,331      95,790
                                                   ---------   ---------    --------

Cash and cash equivalents at end of year           $ 465,725   $ 940,274   $ 848,331
                                                   =========   =========   =========


Supplemental disclosures of cash flow 
  information (Note J):
  Cash paid during the year for:
     Interest                                    $ 1,321,259 $ 1,206,028 $ 2,167,279
                                                   =========   =========   =========
     Income taxes                                $     1,400 $    36,910 $      -
                                                   =========   =========   =========

</TABLE>
          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          MAY 31, 1997, 1996 AND 1995




<PAGE>

The accompanying notes are an integral part of these statements.

                                      F-7


          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MAY 31, 1997, 1996 AND 1995


NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT
        ACCOUNTING POLICIES

   International  Airline  Support Group, Inc. and Subsidiaries (the "Company")
   is primarily engaged in the  sale  of  aircraft,  aircraft parts, leasing of
   aircraft and related services.  Since its inception in 1982, the Company has
   become  a primary source of replacement parts for widely  operated  aircraft
   models such  as  the McDonnell Douglas MD-80 and DC-9.  The Company supplies
   parts to over 600 customers worldwide.

   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 as cash equivalents at May 31, 1996  is  $1,100,000 in certificates
   of deposit with a stated maturity of seven days.  Included  in cash and cash
   equivalents  at  May  31,  1997  is  $90,564 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 as of May 31, 1996  relate  to  the costs associated
   with   obtaining   the   Company's  Senior  Secured  Notes  and  Convertible
   Subordinated Debentures.   However,  in  Fiscal 1997, these obligations were
   settled and accordingly, the remaining unamortized  balance  of the deferred
   debt  costs were written off to amortization expense and extraordinary  loss
   on debt restructuring.

   The deferred  debt  costs  as of May 31, 1997 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, 1997 and 1996, was approximately $87,773
   and $1,307,000, respectively.










                                                                    (continued)

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

   e) EARNINGS PER SHARE

   Primary earnings (loss)  per  share  is  computed  by  dividing net earnings
   (loss)  by  the  weighted  average  number of common shares outstanding  and
   common stock equivalents.  Stock options  and warrants are considered common
   stock equivalents unless their inclusion would  be  antidilutive.   For  the
   purpose  of  computing  common  stock  equivalents  for  stock  options  and
   warrants,  the  modified  treasury  stock  method was not used as the effect
   would  be antiditulive.  The Company's Convertible  Subordinated  Debentures
   ("Debentures")  are  not considered common stock equivalents for the purpose
   of computing primary earnings  per  share  as  the  effective  yield  on the
   securities  exceeded  66-2/3%  of  the average Aa corporate bond rate at the
   time of issuance.

   Earnings per share for fiscal 1997 is  computed  using  the  treasury  stock
   method.   Fully  diluted  earnings  (loss) per shares is computed for fiscal
   1996  as  if the Debentures were converted  into  common  stock  as  of  the
   beginning of  the  period  (see Note D).  Stock options and warrants are not
   considered common stock equivalents  for  the  purpose  of  computing  fully
   diluted  earnings (loss) per share as the effect would be antidilutive under
   the modified  treasury  stock  method.  The Debentures and stock options and
   warrants are not considered common stock equivalents in fiscal year 1995 due
   to the net losses for those periods.

   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  all
   consideration  has been received  and  the  buyer  has  taken  delivery  and
   acceptance of the  aircraft.   Lease  revenue  is  recognized  on an accrual
   basis, unless collectibility is uncertain.

   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 1997, 1996 and 1995 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
   May 31, 1997 and  1996  and  revenues  and  expenses during the periods then
   ended.   The  actual  outcome  of  the  estimates could  differ  from  these
   estimates made in the preparation of the financial statements.


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

   k) LAND AND BUILDING HELD FOR SALE

   The  land  and  building  (the "property") held  for  sale  represented  the
   Company's  corporate  offices  and  adjacent  warehouse  located  in  Miami,
   Florida.  As of May 31,  1996,  the  property  was written down to $750,000.
   Included  in  depreciation  expense  for  the year ended  May  31,  1996  is
   approximately $190,000 relating to this write  down.   In  fiscal  1997, the
   Company sold the property for approximately $750,000, after related  selling
   expenses.

   l) NEW ACCOUNTING PRONOUNCEMENT

   In  February  1997, the Financial Accounting Standard Board issued Statement
   of Financial Accounting  Standards  No. 128, "Earnings per Share" ("SFAS No.
   128").   SFAS 128 establishes new standards  for  computing  and  presenting
   earnings per  share  ("EPS").   Specifically,  SFAS  No.  128  replaces  the
   presentation  of primary EPS with a presentation of basic EPS, requires dual
   presentation of  basic  and  diluted EPS on the face of the income statement
   for  all  entities  with  a  complex   capital   structure  and  requires  a
   reconciliation  of  the  numerator  and  denominator  of   the  diluted  EPS
   computation.  SFAS No. 128 is effective for financial statements  issued for
   periods   ending  after  December  15,  1997;  earlier  application  is  not
   permitted.   At  this time, management has not determined the impact of SFAS
   No. 128 on the earnings  per  share  amounts  presented  in the accompanying
   statements of operations.

   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 - INVENTORY

   Inventories at May 31, 1997 and 1996 consisted of the following:

                                                    1997         1996
                                               ----------  ----------
         Aircraft parts                      $ 10,758,867 $ 7,938,049
         Aircraft available for sale              886,417   1,339,266
                                               ==========  ==========
                                             $ 11,645,284 $ 9,277,315



NOTE D - LONG-TERM OBLIGATIONS

   Long-term obligations at May 31, 1997 and 1996 consisted of the following:

                                                        1997         1996
                                                     --------  ----------
         12% Senior Secured Notes                       $ -   $ 7,700,000
         8% Convertible Subordinated Debentures           -    10,000,000
         Mortgage note payable to bank                    -       429,260
         Senior Secured Revolving Credit Loans       7,397,931        -
         Senior Secured Term Loan - A                2,766,669        -
         Senior Secured Term Loan - B                3,580,000        -
         Notes payable due in equal monthly 
           installments through October 1997,
           bearing interest at 9.5% to 11.5%
           collateralized by equipment                   2,471      8,000

         Capitalized lease obligations                   2,530      6,275
                                                      --------   --------
                                                    13,749,601 18,143,535

         Less:  Current maturities and 
         long-term obligations in
         default classified as current               1,542,488 17,736,775
                                                      --------  ---------
                                                  $ 12,207,113 $  406,760
                                                    ==========  =========

      In October 1996 the Company entered into a Credit Agreement with the Bank
   of  New  York,  which  provides  for a $3 million term loan 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 is the
   higher  of the prime rate plus 2% or the federal funds effective  rate  plus
   2.5% per  annum.   The revolving line of credit was increased to $13 million
   in  March 1997. As of  May  31,  1997,  the  available  line  of  credit  is
   $2,912,260.   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  with the Bank
   of New York for an additional $3,750,000. The Term Loan is collateralized by
   certain aircraft purchased by the Company with the proceeds from  the  loan.
   The  interest  rate  is  the higher of the prime rate plus 2% or the federal
   funds effective rate plus 2.5% per annum.










                                                                    (continued)

NOTE D - LONG-TERM OBLIGATIONS - Continued

   In July 1992, the Company  issued  $18.0 million of five (5) year 12% Senior
   Secured Notes ("Notes") due July 1997.   In  October  1996, the Company paid
   the remaining outstanding principal on these Notes.

   In  September  1993,  the  Company  issued  $10.0  million  in   Convertible
   Subordinated  Debentures ("Debentures"), due August 2003, through a  private
   placement offering.   The  Debentures  were  redeemed in whole on October 3,
   1996  as  part  of  the Company's restructuring of  capital  (see  Note  B).
   Pursuant to the restructuring,  the  Company  issued approximately 2,245,400
   shares  of  common stock in exchange for the entire  $10  million  principal
   amount outstanding and the related accrued interest of $1,227,000.

   In September  1992,  the Company entered into a promissory note and mortgage
   and security agreement  with  a  bank.  In fiscal 1997, the Company sold the
   land and building in Miami, and with  the  proceeds  from the sale, paid the
   remaining balance on the promissory note.

   The scheduled maturities of long-term obligations in each  of  the next five
   years subsequent to May 31, 1997 are as follows: 1998 - $1,542,488,  1999  -
   $1,516,664, 2000 - $2,256,664, 2001 -$766,660, and 2002 - $7,662,124.

NOTE E - LEASES

   The  Company  leases  warehouse  and  hangar  facilities  as well as certain
   equipment under long-term operating lease agreements.  Rental  expense under
   these  leases  for  the  years  ended  May  31,  1997,  1996  and  1995  was
   approximately $36,000, $53,000 and $220,000, respectively.  At May 31, 1997,
   the  future  minimum  payments  on  non-cancellable  operating leases are as
   follows: 1998 - $244,669, 1999 - $249,625, 2000 - $236,167,  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  $6,124,000 and $1,849,000 at May 31, 1997 and
   1996, respectively.

NOTE F - INCOME TAXES

   The provision for income taxes for  the  years  ended May 31, 1997, 1996 and
   1995 is as follows:

                                             1997        1996        1995
                                          ---------   ----------   ---------
      Current provision:
        Federal                            $ 72,663     $ 14,048    $    -
        State                                  -            -            -
                                          ---------   ----------   ---------
                                             72,663       14,048         -
      Deferred provision                    (72,663)        -            -

                                           $   -        $ 14,048    $    -
                                          =========    =========   =========







                                                                    (continued)

NOTE F - INCOME TAXES - Continued

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

                                                     1997        1996
                                                 -----------  -----------
  Deferred tax (benefits) - current:
         Reserve for overhaul costs              $ (103,000) $ (332,000)
         Bad debt reserve                          (257,000)   (276,000)
         Inventory capitalization                  (187,000)   (145,000)
         Accrued payroll                           (131,000)          -
         Accrued legal settlement costs                   -      (1,000)
         Accrued vacation                           (15,000)    (15,000)
         Accrued - other                                  -      (4,000)
         Accrued repair costs                             -    (187,000)
         Reserve for inventory                      (79,000)          -
                                                 -----------  -----------

                                                 $ (772,000) $ (960,000)

                                                         1997        1996
                                                  -----------  -----------
  Deferred tax liabilities 
     (benefits) - non-current:
         Depreciation and amortization           $ (647,000)  $ (17,000)
         Aircraft - capitalized maintenance          36,000      36,000
         Restructuring charges                     (135,000)   (160,000)
         Net operating loss carryforward - federal (759,000) (2,467,000)
         Net operating loss carryforward - state   (177,000)   (260,000)
         Minimum tax credit - federal              (196,000)   (135,000)
         Other, net                                  (8,000)     (8,000)
                                                -----------  -----------
                                               $ (1,886,000)$(3,011,000)

   The  Company  has recorded valuation allowances equal to the amount  of  the
   deferred tax benefits at May 31, 1996 and 1997.  The valuation allowance has
   decreased by $1,385,000 in fiscal 1997.

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

                                            1997     1996     1995
                                           -----    -----     -----
      Statutory federal rate                34.0%    34.0%   (34.0)%
      Operating losses with no current 
         tax benefit                          -.       -.     34.0
      Tax benefit from net operating loss 
         carryforward                      (30.7)   (33.4)      -.
      Other                                 (3.3)     -.        -.
                                           -----    -----     -----

      Effective tax rate                     -. %     0.6%      -. %
                                           =====    =====     =====


   The Company has net operating loss carryforwards for federal tax purposes of
   approximately $2.0 million.  The net operating losses will expire at various
   points through the  year 2010.  The Company has a federal minimum tax credit
   carryover of approximately $195,000 which may be utilized in future years to
   the extent that the regular  tax  liability  exceeds the alternative minimum
   tax.  Certain provisions of the tax law may limit the net operating loss and
   credit carryforwards available for use in any  given  year in the event of a
   significant change in ownership interest.


NOTE G - COMMON AND PREFERRED STOCK

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

   In  October  1996,  the  Company  amended  the Articles of Incorporation  to
   authorize the issuance of up to 2,000,000 shares of preferred stock. No such
   stock has been issued.

NOTE H - STOCK OPTIONS

   The Stockholders in October 1989 approved a  Stock  Option  Plan pursuant to
   which  350,000  shares of the Company's common stock were reserved  for  the
   grant  of  options  to  employees  and  directors  of  the  Company  or  its
   subsidiaries.  The issuance of the options and the form of the options shall
   be at the discretion of the Company's Compensation Committee.  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.   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 equals  the  market
   price at the date of the grant. No compensation expense has been recognized.

   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 income
   and earnings per share would have been changed  to  the  pro  forma  amounts
   below. Disclosure of such amounts is not required for the fiscal year  ended
   May 31, 1995 and accordingly is not presented below.

                                                1997         1996
                                             ----------- -----------
            Net income
               As reported                   $ 1,728,493 $ 2,285,969
               Pro forma                     $ 1,150,122 $ 2,285,969
            Primary earnings per share
               As reported                   $       .96 $     15.27
               Pro forma                     $       .63 $     15.27

   The above pro forma disclosures may not be representative of the effects  on
   reported  net  income  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  1997  and  fiscal 1996, respectively:
   dividend  yield  of  0.0 percent for all years; expected  volatility  of  30
   percent; risk-free interest  rates  of  6.25  percent;  and expected holding
   periods of 4 years.




                                                                    (continued)

NOTE H - STOCK OPTIONS - Continued

   A summary of the status of the Company's fixed stock options  as  of May 31,
   1997  and  1996,  and  changes during the years ending on those dates is  as
   follows:

                                 MAY  31,  1997                  MAY 31,  1996
                                    Weighted -                    Weighted-
                                      Average                       Average

                                  SHARES  EXERCISE PRICE  SHARES EXERCISE PRICE
                                --------  --------------  ------ --------------
   Outstanding at beginning of 
   year                          269,500   $   .70       295,000   $       .65
   Granted                       598,609      2.99          -
   Exercised                        -                       -
   Expired                          -                       -
   Cancelled                    (269,500)      .70       (25,500)          .19
                                ---------   ------      --------       -------
   Outstanding at end of year    598,609      2.99       269,500           .70

   Options exercisable at end of
     year                        392,430                 269,500
   Weighted-average fair value 
     of options granted during
     the year                      $ .97              $     -

   The following information applies to options outstanding at May 31, 1997:

                            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   598,609   9.4 years   $     2.99     392,430   $      2.98

NOTE I - SALES TO MAJOR CUSTOMERS/FOREIGN AND DOMESTIC

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

      The information with respect to sales and lease  revenue,  by  geographic
   area, is presented in the table below for the years ended May 31, 1997, 1996
   and 1995.

                                            (IN THOUSANDS)
                                             1997     1996     1995
                                           -------  -------  -------
                    United States         $ 18,067 $ 19,800 $ 18,048
                    Africa and Middle East     402      623    1,204
                    Europe                     319      177    1,350
                    Latin America              408    2,454    4,347
                    Canada                     133       -        34
                    Asia                     1,903      151      -
                                           -------  -------  -------
                                          $ 21,232 $ 23,205 $ 24,983
                                           =======  =======  =======

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

      No customer accounted for more than 10% of the Company's sales in  fiscal
   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 both fiscal 1997 and 1995.  No other customer accounted for more than 10%
   of the Company's sales in fiscal 1996.

      The  Company  had  sales  to  a  Venezuelan  customer which accounted for
   approximately 11% of net sales in fiscal 1995. There  were  no sales to this
   customer  in fiscal 1997 or fiscal 1996.  Additionally, the Company  sold  3
   aircraft to  a  United States customer which represented 23% of net sales in
   fiscal 1995.  The  Company  did  not  have  any  sales  to  this customer in
   previous fiscal years.

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

NOTE J - 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 1997 and 1996,  as  derived  from  the
   change in balance sheet amounts, has been adjusted for the following items:

                                                    1997         1996
                                                 ----------   ----------
            Net increase in inventory           $ 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                         $ 2,433,481  $ 3,030,045
                                                ===========   ==========



NOTE K - RELATED PARTY TRANSACTIONS

      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 will be paid in fiscal 1998.

NOTE L - FOURTH QUARTER ADJUSTMENTS

      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.

      In 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 M - ACCRUED LIABILITIES

      Accrued liabilities consist of the following items:

                                                     1997        1996
                                                 --------    --------
            Customer deposits                   $ 361,153   $ 367,669
            Accrued repair costs                  507,161     187,157
            Accrued legal costs                    10,000          -
            Accrued interest                        9,014   1,165,468
            Accrued payroll                       559,270     399,886
            Accrued property taxes                 28,695      31,144
            Accrued commissions                   167,741     167,741
            Reserve for repair of leased aircraft 579,143     480,308
            Other                                  12,173     361,609
                                                 --------    --------
                                              $ 2,234,350 $ 3,160,982

NOTE N - WELLMAN TRANSACTION

      In January 1995, the Company  entered  into  an agreement with the former
   Chairman and former Secretary of the Company whereby the Company transferred
   all of the outstanding stock of Brent Aviation, a  wholly-owned  subsidiary,
   to  an  affiliate  of  the former employees.  In addition, the Company  also
   transferred certain spare  parts, components, inventory and equipment for B-
   727  series  aircraft,  and  a  McDonnell   Douglas   DC-4   aircraft.    In
   consideration,  the Company received $230,000 and agreed to lease a B-727 to
   the affiliate on a month-to-month basis.

      In addition, the  employees  resigned  from  all positions as officers or
   directors, granted a proxy to the Company enabling  the  Company's directors
   to  vote  1.98  million shares of common stock held by the employees  for  a
   period of two years,  and agreed not to compete or interfere with any of the
   businesses of the Company and its remaining subsidiaries for a period of two
   years.  The Company further  agreed  to  pay the former Secretary one year's
   salary as severance.  The Company also agreed  to  terminate  its  leasehold
   interest  in  a  facility located at Grayson County, Texas Airport, allowing
   Brent Aviation to lease such facility for its operations.



NOTE O - DISPOSAL OF SERVICE CENTER OPERATIONS

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

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

NOTE P - 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.


          INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS

                    YEARS ENDED MAY 31, 1995, 1996 AND 1997


<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
<S>                                            <C>          <C>          <C>          <C>          
YEAR ENDED MAY 31, 1995

   Reserves deducted from assets to which they apply:
     Allowance for possible losses on
       accounts receivable                      $ 940,214   $ 406,147   $   -        $ 727,176 (a) $ 619,185

YEAR ENDED MAY 31, 1996

   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



</TABLE>
(a)  Write-off of accounts receivable against the reserve.

<PAGE>