International Airline Support Group Inc – ‘10-K’ for 5/31/01

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Annual Report   —   Form 10-K
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        10K Iasg                                              54    296K 
 5: EX-10       Employment Murnane                                    11±    50K 
 2: EX-10       Empolyment Dyer                                       11±    51K 
 4: EX-99       Auditor Consent                                        1      5K 
 3: EX-99       Miscellaneous Exhibit -- schedule2                     2      9K 

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------

 FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

[X]     Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act  of  1934  for  the  fiscal  year  ended  MAY  31,  2001                    
                          --------------

[  ]     Transition  Report  Pursuant  to  Section 13 or 15(d) of the Securities
Exchange  Act  of  1934  for  the transition period from ____________________ to
_______________________                                                         

Commission File Number 0-18352
                       -------

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

Delaware                                  59-2223025  
--------                                  ----------  
(State or Other Jurisdiction of                                           
Incorporation or Organization)          (I.R.S. Employer Identification No.)
------------------------------          ------------------------------------

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  7,  2001,  the  aggregate  market value of common stock held by
non-affiliates  of  the  Registrant  was  approximately  $1,728,924.            

     The  number  of  shares  of the Registrant's Common Stock outstanding as of
August  10,  2001  was  2,021,498.                                              

DOCUMENTS INCORPORATED BY REFERENCE:

     Portions  of  the  Proxy  Statement  for  the  2001  Annual  Meeting of the
Company's  Stockholders  are  incorporated  by  reference  in  Parts III and IV.

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INTERNATIONAL AIRLINE SUPPORT GROUP INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MAY 31, 2001

 TABLE OF CONTENTS
 -----------------

                                                                            PAGE
                                                                            ----

PART  I                                                                         

    Item  1.     Business                                                    1
    Item  2.     Properties                                                 12
    Item  3.     Legal  Proceedings                                         13
    Item  4.     Submission  of  Matters to a Vote of Security  Holders     13

PART  II                                                                        

Item  5.     Market  for  the  Registrant's  Common  Stock  and       
                 Related Stockholder  Matters                               14
    Item  6.     Selected  Financial  Data                                  15
Item  7.     Management's  Discussion  and  Analysis  of Financial    
                 Condition and Results  of Operations                       16
Item  7A.    Quantitative  and Qualitative Disclosures about Market   
                 Risk                                                       19
    Item  8.     Financial  Statements  and  Supplementary  Data            19
Item  9.     Changes  in  and  Disagreements  with Accountants on     
                 Accounting and Financial  Disclosure                       19

PART  III                                                                       

     Item  10.     Directors  and  Executive  Officers  of the Registrant     20
Item  11.     Executive  Compensation     20                          
Item  12.     Security  Ownership  of  Certain  Beneficial Owners     
                   and Management                                             20
     Item  13.     Certain  Relationships  and  Related  Transactions         20

PART  IV                                                                        

Item  14.     Exhibits,  Financial  Statement Schedules and Reports   
                   on Form 8-K                                                21

SIGNATURES                                                                      

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PART I

ITEM  1.     BUSINESS.                                                          
-------      --------                                                           

     THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
WITHIN  THE  MEANING  OF  SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED  (THE  "EXCHANGE ACT"), INCLUDING THE PLANS AND OBJECTIVES OF MANAGEMENT
FOR  THE  BUSINESS,  OPERATIONS  AND  FINANCIAL PERFORMANCE OF THE COMPANY.  THE
FORWARD-LOOKING  STATEMENTS AND ASSOCIATED RISKS SET FORTH IN THIS ANNUAL REPORT
MAY  INCLUDE  OR  RELATE  TO,  AMONG  OTHER THINGS, (I) INCREASING THE COMPANY'S
MARKET  SHARE  OF  PARTS FOR CERTAIN COMMERCIAL JET AND COMMUTER AIRCRAFT, WHILE
MAINTAINING  ITS POSITION AS A LEADING REDISTRIBUTOR OF PARTS FOR MD-80 AND DC-9
AIRCRAFT,  (II)  POTENTIAL  ACQUISITIONS  OF  ADDITIONAL INVENTORIES OF AIRCRAFT
SPARE PARTS AND THE ACQUISITION OF OTHER COMPANIES, ASSETS OR PRODUCT LINES THAT
WOULD COMPLEMENT OR EXPAND THE COMPANY'S EXISTING AIRCRAFT SPARE PARTS BUSINESS,
(III)  DEMAND  AMONG THE COMPANY'S PRINCIPAL CUSTOMERS, INCLUDING CARGO CARRIERS
AND REGIONAL COMMERCIAL AIRLINES, FOR THE COMPANY'S INVENTORY OF PARTS, (IV) THE
DEMAND  FOR  DC-9  AIRCRAFT,  WHICH  WILL DETERMINE THE SUCCESS OF THE COMPANY'S
JOINT  VENTURE'S  EFFORTS TO REMARKET ITS AIRCRAFT; (V) THE SIZE AND GROWTH RATE
OF  THE  AIRCRAFT  PARTS  REDISTRIBUTION  INDUSTRY  AND  THE AIRCRAFT AND ENGINE
LEASING  INDUSTRY, (VI) INCREASES OR CHANGES IN GOVERNMENT REGULATIONS REGARDING
THE  AVIATION  INDUSTRY,  (VII)  COMPETITION  FROM  OTHER  AIRCRAFT  PARTS      
REDISTRIBUTORS,  (VIII)  THE  EXPANSION OF THE COMPANY'S PRODUCT LINES, (IX) THE
AVAILABILITY  OF  CAPITAL  TO  OPERATE EFFECTIVELY, (X) THE COMPANY'S ABILITY TO
MANAGE  ITS DEBT AND COMPLY WITH THE FINANCIAL COVENANTS IN ITS CREDIT FACILITY,
AND  (XI)  OPERATION  OF  A  PART  135  AIR  CARRIER, IN WHICH THE COMPANY HAS A
SIGNIFICANT  INTEREST.  SEE  "CAUTIONARY  STATEMENTS"  HEREIN.                  

     THE  FORWARD-LOOKING  STATEMENTS  INCLUDED  HEREIN  ARE  BASED UPON CURRENT
EXPECTATIONS  THAT  INVOLVE  A  NUMBER  OF  RISKS  AND  UNCERTAINTIES.  THESE   
FORWARD-LOOKING  STATEMENTS  ARE  BASED  UPON  ASSUMPTIONS THAT THE COMPANY WILL
CONTINUE TO MANAGE ITS INVENTORY EFFECTIVELY, THAT COMPETITIVE CONDITIONS WITHIN
THE  AIRCRAFT  PARTS  REDISTRIBUTION  INDUSTRY  WILL  NOT  CHANGE  MATERIALLY OR
ADVERSELY,  THAT  DEMAND  FOR  AIRCRAFT SPARE PARTS WILL REMAIN STRONG, THAT THE
COMPANY  WILL  BE  ABLE  TO ENTER INTO NEW LEASES OF AIRCRAFT AS EXISTING LEASES
EXPIRE,  THAT  THE COMPANY'S JOINT VENTURE WILL BE ABLE TO REMARKET ITS AIRCRAFT
AS  THEY COME OFF LEASE ON FINANCIAL TERMS THAT WILL PERMIT THE JOINT VENTURE TO
SERVICE  ITS  INDEBTEDNESS,  THAT  THE COMPANY WILL BE ABLE TO PURCHASE AIRCRAFT
THAT  ARE  SUBJECT  TO  LEASES,  THAT THE AIR CARRIER IN WHICH THE COMPANY HAS A
SIGNIFICANT  INTEREST  WILL BE ABLE TO OPERATE PROFITABLY, THAT THE COMPANY WILL
HAVE ACCESS TO SUFFICIENT CAPITAL AT COMPETITIVE RATES, THAT THE COMPANY WILL BE
ABLE  TO  COMPLY  WITH  ITS  DEBT  COVENANTS  AND THAT THERE WILL BE NO MATERIAL
ADVERSE  CHANGE  IN  THE  COMPANY'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.  ASSUMPTIONS  RELATING  TO  THE  FOREGOING  INVOLVE  JUDGMENTS  WITH
RESPECT  TO,  AMONG  OTHER  THINGS,  FUTURE  ECONOMIC,  COMPETITIVE  AND  MARKET
CONDITIONS  AND  FUTURE  BUSINESS  DECISIONS,  ALL  OF  WHICH  ARE  DIFFICULT OR
IMPOSSIBLE TO PREDICT ACCURATELY AND MOST OF WHICH ARE BEYOND THE CONTROL OF THE
COMPANY.  ALTHOUGH  THE  COMPANY  BELIEVES  THAT  THE ASSUMPTIONS UNDERLYING THE
FORWARD-LOOKING  STATEMENTS  ARE  REASONABLE, ANY OF THE ASSUMPTIONS COULD PROVE
INACCURATE  AND,  THEREFORE,  THERE  CAN  BE  NO  ASSURANCE  THAT  THE  RESULTS 
CONTEMPLATED IN SUCH FORWARD-LOOKING INFORMATION WILL BE REALIZED.  IN ADDITION,
AS  DISCLOSED  ABOVE,  THE BUSINESS AND OPERATIONS OF THE COMPANY ARE SUBJECT TO
SUBSTANTIAL RISKS THAT INCREASE THE UNCERTAINTY INHERENT IN SUCH FORWARD-LOOKING
STATEMENTS.  ANY  OF THE OTHER FACTORS DISCLOSED ABOVE COULD CAUSE THE COMPANY'S
REVENUES  OR  NET  EARNINGS,  OR  GROWTH  IN REVENUES OR NET EARNINGS, TO DIFFER
MATERIALLY FROM PRIOR RESULTS.  FURTHERMORE, A CHANGE IN THE MARKET FOR AIRCRAFT
AND  ENGINE  PARTS  COULD RESULT IN THE COMPANY'S INVENTORY BEING OVERVALUED AND
COULD  REQUIRE  THE  COMPANY  TO WRITE DOWN ITS INVENTORY VALUATIONS IN ORDER TO
BRING  THEM  IN  LINE WITH THE REVISED FAIR MARKET VALUE.  THERE IS NO ASSURANCE
THAT  A  WRITE-DOWN WOULD NOT ADVERSELY AFFECT THE COMPANY'S BUSINESS, OPERATING
RESULTS OR FINANCIAL CONDITION OR ITS ABILITY TO COMPLY WITH ITS DEBT COVENANTS.
GROWTH  IN  ABSOLUTE  AMOUNTS  OF  COST  OF SALES AND GENERAL AND ADMINISTRATIVE
EXPENSES OR THE OCCURRENCE OF EXTRAORDINARY EVENTS COULD CAUSE ACTUAL RESULTS TO
VARY MATERIALLY FROM THE RESULTS CONTEMPLATED IN THE FORWARD-LOOKING STATEMENTS.
BUDGETING  AND  OTHER  MANAGEMENT  DECISIONS ARE SUBJECTIVE IN MANY RESPECTS AND
THUS  SUSCEPTIBLE  TO  INTERPRETATIONS  AND  PERIODIC  REVISIONS BASED ON ACTUAL
EXPERIENCE  AND BUSINESS DEVELOPMENTS, THE IMPACT OF WHICH MAY CAUSE THE COMPANY
TO  ALTER ITS MARKETING, CAPITAL EXPENDITURE OR OTHER BUDGETS, WHICH MAY IN TURN
AFFECT  THE  COMPANY'S  RESULTS  OF  OPERATIONS.  IN  LIGHT  OF  THE SIGNIFICANT
UNCERTAINTIES  INHERENT  IN THE FORWARD-LOOKING INFORMATION INCLUDED HEREIN, THE
INCLUSION  OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE
COMPANY  OR ANY OTHER PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE
ACHIEVED.                                                                       

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GENERAL                                                                         

     The  Company is a leading redistributor of aftermarket aircraft spare parts
used  primarily  for  McDonnell  Douglas  MD-80  and  DC-9 aircraft and commuter
turboprop  aircraft.  Management  believes  that the Company has one of the most
extensive  inventories  of  aftermarket MD-80, DC-9 and Embraer EMB-120 Brasilia
parts  in  the industry.  In addition, the Company provides aircraft spare parts
for  Airbus, Boeing, Lockheed and other McDonnell Douglas and commuter turboprop
aircraft.  The  aircraft  spare  parts  distributed  by  the  Company, including
avionics,  rotable  and expendable airframe and engine parts, are sold to a wide
variety  of  domestic and international air cargo carriers, major commercial and
regional  passenger  airlines,  maintenance  and  repair  facilities  and  other
redistributors.  The  wide  variety  of  aircraft spare parts distributed by the
Company  are  acquired  through  purchase  or  consignment  of  surplus  or bulk
inventories  from  airlines, purchases from other redistributors and disassembly
of  aircraft.                                                                   

     In  addition  to  being  a  provider  of  aircraft spare parts, the Company
leverages  its  industry  expertise  to  purchase,  sell  and lease aircraft and
engines.  The  Company  has  periodically acquired, leased and sold a variety of
narrow-body  commercial  jet  aircraft, such as Boeing 727 and 737 and McDonnell
Douglas MD-80 and DC-9 aircraft, as well as commuter turboprop aircraft, such as
Embraer  EMB-120  aircraft.  The  Company  currently  owns  nine Embraer EMB-120
aircraft,  five  of  which are leased and one of which is being disassembled for
parts.  The  Company derives revenue from lease payments and seeks to sell spare
parts  to  the  lessee both for the leased aircraft as well as other aircraft in
the  lessee's fleet.  Upon return of the aircraft, the Company either re-leases,
sells  or  disassembles  the  aircraft for parts in order to achieve the highest
utilization  of  the  asset.  The  Company  believes  that  its aircraft trading
activities  and  its  parts  redistribution business complement one another.  As
access  to  capital  in  the aircraft parts redistribution industry becomes more
difficult,  the  Company's  ability  to trade and to lease aircraft successfully
could  be  adversely  impacted.                                                 

The  Company  also  owns a 50% interest in a joint venture that owns 20 DC-9-41H
aircraft.  Sixteen  of  the  aircraft are leased to Scandinavian Airlines System
("SAS");  one  is  leased  to another European operator; and three are currently
being  held  for  lease.  The joint venture expects to derive revenue from lease
payments  with  respect  to  such  aircraft and from the re-lease or sale of the
aircraft  following the expiration of the leases with SAS.  The Company believes
that  its  investment in this joint venture complements its parts redistribution
and  aircraft sales and leasing businesses by providing a high quality source of
aircraft  for  further  releasing,  sales  and/or  parting out.  While the joint
venture  is actively pursuing the marketing of the aircraft as they are returned
off-lease,  there  can  be  no assurances that the aircraft will be successfully
re-leased.                                                                      

The  Company's  other business activities include providing advisory services to
air carriers on parts-inventory disposition and an equity interest in a regional
airline.  The  Company's  advisory  services  and  the  equity  interest  in the
regional  airline  complement  its  parts sales and aircraft trading and leasing
activities  by  enhancing  the  Company's  reputation  as  an industry expert in
commercial  jet  and  turboprop  parts  and  operations.                        

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

-     Increase  Sales  to  Cargo  Carriers,  Regional  Commercial  Airlines and 
Commuter  Airlines                                                  
-     Broaden  Product  Line                                                    
-     Utilize  Consignment  Agreements  to  Acquire  Inventory                  
-     Seek  Additional  Bulk  Purchase  Opportunities                           
-     Continued  Commitment  to  Quality  and  Technological  Innovation        
-     Pursue  Strategic  Acquisitions                                           

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COMPANY  HISTORY                                                                

     The  Company  was founded in 1982 in Miami, Florida.  Initially the Company
focused  on  parting  out DC-8 aircraft and reselling the resulting spare parts.
Based  upon  the  Company's  success  in  parting out DC-8 aircraft, in 1991 the
Company  began purchasing and parting out DC-9 and MD-80 aircraft.  Beginning in
1992,  the  Company began purchasing and parting out Boeing 727 aircraft.  Since
its  founding,  the  Company has acquired over 50 aircraft for parting out.  The
Company  has also engaged in aircraft and engine trading throughout its history.
Beginning  in  fiscal 1999, the Company broadened its product lines by acquiring
significant  parts  inventories  for  McDonnell  Douglas  DC-10,  Boeing 747 and
Embraer  EMB-120  aircraft.  The  Company  also  expanded  its  aircraft trading
activities during fiscal 1999 and 2000, completing the purchase of eight and the
sale  of  two  EMB-120  aircraft.  During fiscal 2000, the Company established a
presence  in  Europe,  establishing  a sales office in France and a distribution
center  in  the  Netherlands.                                                   

INDUSTRY  OVERVIEW                                                              

     The  Company  believes  that the annual worldwide market for aircraft spare
parts  is  approximately  $11  billion,  of  which  approximately  $1.3  billion
represents  sales  of  aircraft  spare  parts to the redistribution market.  The
Company does not expect growth in the aircraft spare parts redistribution market
in  the  foreseeable  future.  The Company's customers include a wide variety of
domestic  and  international  air cargo carriers, major commercial, regional and
commuter  passenger  airlines,  maintenance  and  repair  facilities  and  other
redistributors.  As  a  result,  the  Company's  business can be impacted by the
economic  factors  that  affect the airline and air cargo industries.  When such
factors  adversely  affect  the  airline  and air cargo industries, they tend to
cause  reduced demand for aircraft spare parts, downward pressure on the pricing
for  aircraft  spare  parts  and  increased  credit  risk  associated with doing
business  with  airlines  and air cargo carriers.  Additionally, factors such as
the  price  of  fuel  affect the aircraft spare parts market for older aircraft,
since  older  aircraft  become less competitive with newer model aircraft as the
price  of fuel increases.  Because of the current economic environment, a number
of  companies  in  the  aircraft  parts redistribution industry have encountered
financial  difficulties.  Consequently, many of these companies have been forced
to sell inventory at reduced prices in order to generate cash, while many others
have  simply  gone  out  of  business  with  their  creditors  liquidating their
inventories.  The  net  effect  of  both  of these actions is to put significant
pricing  pressure  on  the  Company's  products.  The Company is not immune to a
decline in the aviation industry or the economic woes of some of our competitors
and  there  can  be  no  assurance  that  these factors will not have a material
adverse  effect  on  the  Company's business, financial condition and results of
operations.  However,  for  the  survivors  in  the  aircraft  spare  parts     
redistribution  industry,  the  Company  sees  the  following  opportunities:   

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

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

Modernization of Commuter Fleets.  Many of the larger regional commuter airlines
are  modernizing their fleets by retiring their turboprop aircraft and acquiring
short-range  commuter jet aircraft.  As a result, the retired commuter turboprop
aircraft  and  related  spare  parts  inventories  are available for purchase at
favorable  prices.  The Company believes that smaller regional commuter airlines
will  upgrade  their  fleets  by  replacing  the  small  turboprop aircraft they
currently  operate  with larger, more efficient turboprop aircraft being retired
by  the  larger  regional  commuter airlines.  Accordingly, the Company believes
that  small  regional commuter airlines are potential customers for the aircraft
and  related spare parts being retired by the larger regional commuter airlines.
The  Company  also  believes  that  there  is  a significant opportunity for the
redeployment  of  certain  types  of  the  commuter  turboprop aircraft as cargo
aircraft.                                                                       

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COMPANY  STRATEGY                                                               

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

Increase  Sales  to  Cargo  Carriers,  Regional Commercial Airlines and Commuter
Airlines. Cargo carriers, regional commercial airlines and commuter airlines are
among the Company's principal customers.  Cargo carriers are important customers
because  the fleets of such operators typically consist of older aircraft of the
type  for  which  the  Company  maintains  an  extensive  inventory  of  parts. 
Additionally,  such customers typically do not maintain extensive inventories of
spare  parts.  Regional commercial airlines are important customers because such
airlines  favor narrow-body aircraft, such as MD-80 and DC-9 aircraft, for which
the  Company  is a primary source of spare parts.  The smaller commuter airlines
are  important customers because their fleets consist primarily of the turboprop
aircraft  being  retired  by  the  larger  commuter  airlines.  The  Company has
acquired  an  extensive  inventory  of  aftermarket  parts  for  several popular
commuter  turboprop  aircraft  types.  The  Company  will  direct  its marketing
activities  to  broadening  its  customer  base  of cargo, regional and commuter
airlines  in  order to increase market share and leverage its core competencies.

     Broaden  Product  Line.  Historically,  the  Company  has  been  a  leading
distributor of MD-80 and DC-9 spare parts.  The Company has expanded its product
line  to include aftermarket parts for Airbus A-300, McDonnell Douglas DC-10 and
Boeing  747  aircraft  and  certain commuter aircraft including Embraer, Shorts,
Saab,  de  Havilland,  British  Aerospace  and  ATR  aircraft.  In addition, the
Company  intends  to  expand further its product line to include parts for other
aircraft  that  are likely to be converted to freighters, such as Boeing 767 and
757  aircraft.  As  fleets  of  these  aircraft  age  and  as air cargo carriers
transition  larger  portions  of their fleets to wide-body aircraft, the Company
will  seek  to  capitalize  on the demand for parts resulting from the aging and
continued  use  of  these aircraft models.  Several air cargo carriers currently
utilize  DC-10, 767, 747 and A-300 series aircraft, and the Company believes use
of  these  models  will  continue  to  increase.  The  Company  believes  that a
significant  number  of  these  aircraft types have been or will be converted to
cargo  use  and  that  its  relationship  with  cargo  carriers  will provide an
advantage  in supplying parts for these aircraft to such customers.  The Company
also  believes  that  there is a significant opportunity for the redeployment of
the  Embraer  EMB-120  and  ATR aircraft as cargo aircraft, as commuter carriers
convert  their  fleets  to small jet aircraft.  The Company has acquired service
bulletin  kits  that will permit the conversion of 20 EMB-120 aircraft to either
full  cargo  or quick-change configurations.  The Company has converted three of
the  eight  (non-partout)  EMB-120  aircraft  that  it  owns  to  full  cargo   
configuration.  The Company intends to convert its remaining EMB-120 aircraft if
customer  demand  for  the  EMB-120 cargo variant justifies the conversion cost.

     Utilize  Consignment Agreements to Acquire Inventory.  In recent years, the
Company  acquired  most  of  its  aircraft  parts  inventory by purchasing large
numbers  of  parts  in  bulk  from aircraft operators.  The Company has recently
begun  to  acquire  inventory  by  means  of strategic consignment arrangements.
Pursuant  to  a  consignment  arrangement,  an  aircraft  operator  or financial
institution  permits  the  Company  to  market and sell an inventory of aircraft
parts.  The  Company  receives  a  percentage  of the sales price of a consigned
part.  Consignment arrangements allow the Company to obtain parts inventory on a
favorable  basis  without  committing  its capital to purchasing inventory.  The
Company's margins on sales of consigned parts are, however, typically lower than
margins  realized  on  sales  of  parts  acquired by other methods.  The Company
believes  that  its market presence, experience in evaluating parts inventories,
sophisticated  management  information  systems and capital strength will enable
the  Company  to  enter  into  additional  consignment  arrangements.           

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Seek  Additional Bulk Purchase Opportunities.  The Company will continue to seek
opportunities  to  purchase  large spare parts inventories in bulk.  The Company
cannot  predict  when  such  opportunities will arise and such opportunities are
dependent  on  the  Company's  ability  to  successfully  access  capital.  Bulk
purchase  opportunities  arise  when  airlines,  in  order  to  reduce  capital 
requirements,  sell  large  amounts  of  inventory in a single transaction, when
inventories  of  aircraft  spare  parts  are  sold in conjunction with corporate
restructurings  or  reorganizations  or  when  an aircraft operator realigns its
aircraft  fleet,  reducing the number of or exiting a particular aircraft model.
Bulk  inventory  purchases  allow  the  Company  to  obtain large inventories of
aircraft  spare  parts  at  a  lower  cost  than  can  ordinarily be obtained by
purchasing  parts  on  an  individual  basis.  Therefore,  the Company typically
realizes  higher  gross margins on sales of parts acquired by bulk purchases, as
opposed  to  other  methods.  However,  bulk  inventory  purchases  require  a  
commitment  of  the  Company's  capital.  The  Company  believes that it has the
ability, due to its market presence, experience in evaluating parts inventories,
sophisticated  management  information systems and capital strength, to complete
large  bulk  purchase  opportunities to the extent such purchases are considered
favorable.                                                                      

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

     Pursue Strategic Acquisitions.  The Company competes in a fragmented market
in  which  numerous  small  companies serve distinct market niches.  The Company
believes  that  small  aftermarket  parts  redistributors,  many  of  which  are
family-owned  or  capital  constrained,  are  unable  to  provide  the extensive
inventory  and  quality  control  measures  necessary  to comply with applicable
regulatory and customer requirements, and will provide acquisition opportunities
for  the  Company.  Similarly,  the  Company  believes  that many small aircraft
leasing  companies are potential acquisition targets.  Acquisitions are expected
to  increase  the  Company's  customer  base,  expand its product line both with
respect  to  aircraft  in  which  the Company currently specializes and into new
aircraft  types, to strengthen its relationships with existing customers through
availability  of  additional  inventory  and  permit  the  Company to expand its
aircraft  trading  opportunities.  Any  opportunity  to  pursue  strategic      
acquisitions  is  dependent  upon  the  Company's ability to successfully access
capital.                                                                        

AIRCRAFT  SPARE  PARTS                                                          

     Aircraft  spare  parts  can  be  categorized by their ongoing ability to be
repaired  and  returned  to service.  The general categories are as follows: (i)
rotable;  (ii)  repairable  and  (iii) expendable.  A rotable is a part which is
removed  periodically  as dictated by an operator's maintenance program or on an
as-needed  basis  and  is  typically  repaired  or  overhauled  and  re-used  an
indefinite  number  of  times.  An  important subset of rotables is life limited
parts.  A life limited rotable has a designated number of allowable flight hours
and/or  cycles  (one take-off and landing generally constitutes one cycle) after
which it is rendered unusable.  A repairable is similar to a rotable except that
it  can  only be repaired a limited number of times before it must be discarded.
An  expendable is generally a part which is used and not thereafter repaired for
further  use.                                                                   

     Aircraft  spare parts' conditions are classified within the industry as (i)
factory  new,  (ii)  new  surplus, (iii) overhauled, (iv) serviceable and (v) as
removed.  A factory new or new surplus part is one that has never been installed
or used.  Factory new parts are purchased from manufacturers or their authorized
distributors.  New  surplus  parts  are purchased from excess stock of airlines,
repair  facilities  or  other  redistributors.  An  overhauled  part  has  been 
completely  disassembled,  inspected,  repaired,  reassembled  and  tested  by a
licensed  repair  facility.  An aircraft spare part is classified serviceable if
it is repaired by a licensed repair facility rather than completely disassembled
as  in  an overhaul.  A part may also be classified serviceable if it is removed
by  the  operator  from  an aircraft or engine while operating under an approved
maintenance  program  and  is  functional and meets any manufacturer or time and
cycle  restrictions  applicable  to the part.  With appropriate documentation, a
factory  new,  new surplus, overhauled or serviceable part designation indicates
that  the part can be immediately utilized on an aircraft.  A part in as removed

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condition requires functional testing, repair or overhaul by a licensed facility
prior  to  being  returned  to service in an aircraft.  The aircraft spare parts
sold by the Company include avionics, rotable and expendable airframe and engine
parts  for  commercial  aircraft.  Currently,  the  Company  specializes  in    
replacement parts for MD-80, DC-9 and commuter turboprop aircraft and management
believes  that  the  Company  has  one  of  the  most  extensive  inventories of
aftermarket  MD-80,  DC-9  and  EMB-120  parts  in the industry.  Currently, the
Company  has  approximately  230,000  inventory  line  items  (an  increase from
approximately  85,000  line  items  at  the end of fiscal 2000, primarily due to
consignment  inventories),  many of which represent multiple unit quantities and
relate  to  the  MD-80, DC-9 and EMB-120 aircraft.  Many of these parts, such as
avionics  and engine parts, can also be used by a wide variety of aircraft other
than  MD-80,  DC-9 and EMB-120 aircraft.  In addition to the Company's inventory
of  MD-80,  DC-9  and EMB-120 parts, the Company's inventory also includes spare
parts  for Boeing 727, 737 and 747 aircraft, Lockheed L-1011 aircraft, McDonnell
Douglas DC-8 and DC-10 aircraft, and Airbus, Shorts, Saab, de Havilland, British
Aerospace  and  ATR  aircraft  and  for  the Pratt & Whitney JT8D engine series.

OPERATIONS  OF  THE  COMPANY                                                    

     The Company's core business is buying and selling aircraft spare parts.  In
addition,  the  Company engages in the sale and leasing of aircraft and engines,
provides  advisory  services  to  air  carriers  and  through  a  minority-owned
subsidiary,  operates  a  regional  air  cargo  airline.                        

     Inventory  Acquisition.  The  Company  acquires parts inventory by means of
strategic  consignment  arrangements,  by  purchasing  individual  parts  from  
airlines,  repair  facilities  or  other  redistributors,  by  purchasing excess
inventory  from  aircraft  operators  or by purchasing aircraft for disassembly.
The  Company may also fill a customer order for a part not held in the Company's
inventory  by locating the part for the customer from another vendor, purchasing
the  part  and  then  reselling  the  part to the customer.  The Company obtains
inventory  on consignment from or purchases inventory in bulk from airlines that
are  eliminating  certain  portions  of  their  spare parts inventory due to the
retirement  of  an  aircraft  type  from  their  fleets,  implementing inventory
reduction  programs  to  reduce costs, downsizing their operations or ceasing to
conduct  business.                                                              

     Aircraft and Engine Sales and Leasing.  The Company has determined that its
spare  parts  sales  opportunities  are  enhanced  by providing existing and new
customers  with  whole aircraft and engines through sale and lease transactions.
Such  transactions allow the Company to expand its customer base for spare parts
and, through leasing, to reduce the cost basis in its aircraft and engines.  The
Company derives revenue from lease payments and seeks to sell spare parts to the
lessee  both  for  the leased aircraft as well as other aircraft in the lessee's
fleet.  Upon  return  of  the  aircraft,  the Company either re-leases, sells or
disassembles  the aircraft for parts in order to achieve the highest utilization
of  the  asset.  The  success  of  the  Company's  aircraft and engine sales and
leasing  is  dependent  on the Company's ability to successfully access capital.

     The Company currently owns nine Embraer EMB-120 aircraft, five of which are
leased  and one of which is being disassembled for parts.  Three of the aircraft
are  leased  to  NSA,  a regional airline in which the company has a significant
investment.  The  Company's  aircraft  leases  are  operating leases rather than
finance  leases  and  expire between September 2003 and February 2004.  Under an
operating  lease,  the  Company retains title to the aircraft or engine, thereby
retaining  the potential benefits and assuming the risk of the residual value of
the aircraft or engine.  Operating leases allow aircraft operators greater fleet
and financial flexibility due to their shorter-term nature, the relatively small
initial  capital  outlay  necessary  to obtain use of the aircraft or engine and
off-balance  sheet  accounting  treatment.  The  Company  currently  focuses  on
leasing  commuter  turboprop  aircraft,  particularly  the  EMB-120.            

     During  the second quarter of fiscal 1999, the Company entered into a joint
venture (the "Air 41 Joint Venture") for the acquisition of 20 DC-9-41H aircraft
from  SAS.  The  aircraft  were leased back to SAS and the leases had an average
term  of  39  months.  The  Company's  original  investment  in the Air 41 Joint
Venture  was approximately $1.4 million.  The aircraft were financed through the
joint  venture,  utilizing non-recourse debt to the partners.  The Company's Air
41  Joint  Venture  partner  is  AirCorp,  Inc.,  a privately held company.  The
Company is exploring opportunities for the aircraft after the end of the term of
the  leases  with  SAS.  In this regard, the Air 41 Joint Venture has engaged an
aircraft portfolio management firm to remarket the aircraft.  Such opportunities
include  releasing  the  aircraft  to  SAS,  leasing the aircraft to one or more
different  lessees,  selling the aircraft, parting out the aircraft, or directly

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placing  the  aircraft  into  either  passenger or cargo service.  SAS currently
leases  sixteen of the aircraft and has returned four of the aircraft to the Air
41  Joint  Venture.  One of the returned aircraft is currently leased to another
European  operator,  while  the  other three aircraft have not been re-leased or
sold.                                                                           

     Air  Carrier  Operations.  During  the  fourth  quarter of fiscal 2000, the
Company  acquired  a  small regional airline, North-South Airways, Inc. ("NSA"),
that  operated  three piston light twin and two light turboprop Part 23 aircraft
under  an  Air  Carrier  Certificate under Part 135 of the FAA regulations.  The
Company paid $125,000, plus certain contingent consideration, including assuming
the  debt relating to the aircraft, for the airline.  The Company expanded NSA's
fleet  with  the  addition  of cargo and passenger EMB-120 aircraft.  NSA leases
these  new aircraft from the Company.  During the second quarter of fiscal 2001,
NSA sold additional shares of stock raising approximately $1,000,000.  This sale
of  stock  reduced  the  Company's  ownership  interest  in  NSA  from  100%  to
approximately  35%.  Accordingly,  commencing  September 1, 2000, the Company is
accounting  for  its  investment  in  NSA  under  the  equity  method.          

SALES  AND  MARKETING;  CUSTOMERS                                               

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

During  fiscal  2000  the  Company established a presence in Europe by opening a
sales office in Nantes, France, and a distribution center at Schipohl Airport in
the  Netherlands.  The  distribution  center  is  managed for the Company by KLM
Aerospace  Logistics  Group,  which provides all shipping and logistics services
necessary  for  the  delivery  of  parts  to  the  Company's European customers.

     In  addition  to  directly marketing its inventory, the Company has created
and  sponsors an industry-wide internet parts locator service, which is found at
http:\\www.ipls.com.  The Company's internet service is a free service available
to  any  potential customer and lists all of the inventory available for sale by
the  Company.  In  order  to  increase  its  value  to  potential customers, the
Company's  Internet  service  also  lists  the  inventory of over 100 additional
aftermarket  parts redistributors, representing more than 1.2 million individual
parts.  Similarly,  the  Company  lists  its  inventory  in  the  Air  Transport
Association's  computerized  databank  ("AIRS")  and  with the Inventory Locator
Service  ("ILS")  proprietary  computerized  databank.  Buyers of aircraft spare
parts  can  access  any of the databases described above, as well as other parts
databases,  to  determine  the  companies  which  have  the  desired  inventory 
available.  Neither  the  Company's service, AIRS nor ILS list price information
relating  to  particular  parts.                                                

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

 The  Company's  customers  include  a  wide  variety  of  domestic  and
international  air  cargo  carriers,  major  commercial,  regional  and commuter
passenger  airlines, maintenance and repair facilities and other redistributors.
Management  believes  that  its  customer  relationships  are  important  to the
Company's  operational  success.  The  Company  maintains  an  adequate level of
inventory  in  order  to  service  its customers in a timely manner.  Management
believes  that  availability  and timely delivery of quality spare parts are the
primary  factors  considered  by  customers  when  making a spare parts purchase
decision.  Cargo  carriers,  regional  commercial airlines and commuter airlines
are  among  the  Company's  principal  customers.  Cargo  carriers are important
customers  because  the  fleets  of  such  operators  typically consist of older
aircraft  of  the type for which the Company maintains an extensive inventory of
parts and because such customers typically do not maintain extensive inventories
of  spare  parts.  Regional  commercial airlines are important customers because
such  airlines  favor narrow-body aircraft, such as MD-80 and DC-9 aircraft, for
which  the  Company  is  a  primary source of spare parts.  The smaller commuter

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airlines  are  important customers because their fleets consist primarily of the
turboprop  aircraft  being retired by the larger commuter airlines.  The Company
has  acquired  an  extensive  inventory of aftermarket parts for several popular
commuter  turboprop  aircraft  types                                            

     In  fiscal  2001,  no customer accounted for more than 10% of the Company's
total  revenue.  In fiscal 2000, one customer accounted for approximately 11% of
the Company's parts sales.  Excluding aircraft and engine sales, in fiscal 2000,
no  other  customer  accounted for more than 5% of the Company's total revenues.
Each aircraft or engine sale is unique and the Company does not rely on previous
customers  for  repeat business.  Currently, the Company believes that it has no
customer,  the  loss  of  which  would  have  a  material  adverse effect on the
Company's  business,  financial condition and results of operations.  In a given
period,  a  substantial portion of the Company's revenues may be attributable to
the  sale  of  one  or  more  aircraft or engines.  Such sales are unpredictable
transactions  dependent,  in  part,  upon  the  Company's ability to purchase an
aircraft  or  engine  at  an  attractive price and resell it within a relatively
brief  period of time.  The revenues from the sale of an aircraft or engine, the
timing  of  inventory  sales  or  a  lease transaction during a given period may
result  in  a customer being considered a major customer of the Company for that
period.  SAS  was  a  significant customer of the Air 41 Joint Venture providing
93%  and  100%  of  the  lease  revenue  during  fiscal  2001  and  fiscal 2000,
respectively.                                                                   

QUALITY  ASSURANCE                                                              

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

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

-     Inspection  procedures mandating that procured aircraft, engines and parts
be  traceable  to  a  source  approved  by  the  Company;           

-     Training  and  supervision  of  personnel  to properly carry out the total
quality  assurance  program;                                        

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

GOVERNMENT  REGULATION                                                          

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

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

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

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

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

     NSA  has  been  subject  to  FAA  regulation  since the commencement of its
business  activities.  Under  the  Federal Aviation Act of 1958, as amended, the
FAA  is concerned with safety and the regulation of flight operations generally,
including  equipment  used,  ground  facilities, maintenance, communications and
other  matters.  The  FAA can suspend or revoke the authority of air carriers or
their  licensed  personnel  for  failure  to comply with its regulations and can
ground  aircraft  if  questions  arise  concerning airworthiness.  NSA holds all
operating,  airworthiness and other FAA certificates that are currently required
for the conduct of its business, although these certificates may be suspended or
revoked  for  cause.                                                            

PRODUCT  LIABILITY                                                              

     The  commercial  aviation  industry  periodically  experiences catastrophic
losses.  As  a  redistributor,  the  Company  may  be  named as a defendant in a
lawsuit as a result of such catastrophic loss if a part sold by the Company were
installed  in  an  incident-related  aircraft.  In  this  regard,  the  Company 
maintains  product  liability  insurance  in  an  amount the Company believes is
sufficient.  While  the  Company  believes  that  it  has liability insurance to
protect  it  from  such claims, and while no lawsuit has ever been filed against
the  Company  based  upon  a product liability theory, no assurance can be given
that claims will not arise in the future or that such insurance coverage will be
adequate.  However,  an  uninsured  or  partially  insured claim, or a claim for
which  third-party  indemnification  is  not  available,  could  have a material
adverse  effect  on  the  Company's business, financial condition and results of
operations.  Additionally, there can be no assurance that insurance coverage 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.                                                    

     NSA has secured public liability and property damage insurance in excess of
minimum amounts required by the United States Department of Transportation.  The
Company  has also obtained all-risk hull insurance on Company-owned aircraft and
maintains  cargo  liability  insurance.                                         

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COMPETITION                                                                     

     The  aircraft spare parts redistribution market is highly competitive.  The
market  consists  of  a  limited  number of well-capitalized companies selling a
broad  range  of products and numerous small competitors serving distinct market
niches.  Certain  of  these  competitors  have  substantially greater financial,
marketing  and  other  resources  than  the  Company.  The Company believes that
current  industry  trends  will benefit larger, well-capitalized companies.  The
Company  believes  that range and depth of inventories, quality and traceability
of  products, service and price are the key competitive factors in the industry.
The  principal  companies  with  which the Company competes are AAR Corp., AGES,
Kellstrom  Industries  Inc.,  and  The  Memphis  Group  Inc.,  all  of which are
significantly larger than the Company.  Customers in need of aircraft parts have
access,  through  on-line  inventory  catalogues, to a broad array of suppliers,
including  aircraft  manufacturers,  airlines  and  aircraft services companies,
which may have the effect of increasing competition for, and lowering prices on,
parts  sales.                                                                   

     NSA  operates in highly competitive markets and competes with approximately
50  other  contract cargo carriers in the United States.  Accurate industry data
is  not  available  to  indicate  NSA's  position  within  its  marketplace, but
management  believes that NSA is currently one of the smaller contract carriers.
NSA's  competitors,  however,  typically  utilize  older  generation  and  less 
efficient  aircraft,  and are not as well capitalized as the Company.  Given the
growth  in  the  regional  freight  and  passenger  charter  markets expected by
management,  access  to capital will be critical to successfully compete in this
industry.                                                                       

EMPLOYEES                                                                       

     As  of  May  31,  2001, the Company had 29 employees.  The Company is not a
party  to  any  collective  bargaining  agreement.  The  Company  believes  its 
relations  with  its  employees  are  good.                                     

CAUTIONARY  STATEMENTS                                                          

     This Annual Report on Form 10-K contains certain forward-looking statements
within  the  meaning  of the Exchange Act, including the plans and objectives of
management  for  the  business,  operations  and  financial  performance  of the
Company.  The  forward-looking statements and associated risks set forth in this
Annual  Report  may  include  or  relate to, among other things, the factors set
forth  below,  together  with other information set forth in this Annual Report.

Reliance  on  Executive  Officers.  The  continued  success  of  the  Company is
dependent  to  a  significant degree upon the services of its executive officers
and  upon  the  Company's  ability  to  attract  and  retain qualified personnel
experienced in the various phases of the Company's business.  The ability of the
Company  to  operate  successfully  could  be  jeopardized if one or more of its
executive  officers were unavailable and capable successors were not found.  The
Company  does  not  maintain key man insurance on any of its executive officers.
The  Company has employment agreements with Alexius A. Dyer III, its Chairman of
the  Board,  President  and Chief Executive Officer, and George Murnane III, its
Executive Vice President and Chief Operating Officer.  The employment agreements
between  the Company and Messrs. Dyer and Murnane are individually terminable by
each  executive  officer  upon  a  change  of  control  of  the  Company.       

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

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Risks Associated with Leases.  The Company currently leases five Embraer EMB-120
aircraft to aircraft operators.  The Company also owns a 50% interest in a joint
venture  that  owns  20  DC-9-41H  aircraft, 17 of which are leased.  All of the
Company's and joint venture's leases are operating leases, as opposed to finance
leases.  The  success  of  an  operating  lease  depends in part upon having the
aircraft  and  engines returned in marketable condition as required by the lease
of  such  aircraft and engines.  In addition, the financial return from a leased
aircraft  or  engine  depends  in  part  on  the re-lease of the aircraft and/or
engines  on  favorable terms on a timely basis, the ability to sell the aircraft
or  engines at favorable prices or realize sufficient value from the disassembly
for  parts  of  the  aircraft or engines at the end of the lease term.  Numerous
factors,  many  of  which  are  beyond  the  control of the Company or the joint
venture,  may  have  an  impact  on  the Company's or joint venture's ability to
re-lease  or  sell  aircraft,  engines and parts.  These factors include general
market  conditions,  regulatory  changes  (particularly  those  imposing        
environmental,  maintenance  and other requirements on the operation of aircraft
and  engines),  changes  in  the  supply  or  cost  of  aircraft and engines and
technological  development.  Consequently,  there  can  be no assurance that the
Company's  or  joint  venture's estimated residual value for aircraft or engines
will  be  realized.  If  the Company or the joint venture is unable to re-lease,
sell its aircraft or engines on favorable terms or realize sufficient value from
the  disassembly  for  parts  of  the aircraft or engines on a timely basis upon
expiration  of  the related lease, its business, financial condition and results
of operations may be adversely affected.  In the event that a lessee defaults in
the  performance  of its obligations, the Company or joint venture may be unable
to  enforce  its  remedies  under  a  lease.  The  Company's  or joint venture's
inability to collect lease payments when due or to repossess aircraft or engines
in  the  event  of  a  default  by  a lessee could have an adverse effect on the
Company's  or  joint  venture's  business,  financial  condition  and results of
operations.  If  the  Company  was  to  acquire  an aircraft or engines and such
acquisitions  were  not  financed  by additional borrowing, it could result in a
reduction  of  the  Company's  liquidity.                                       

Risks  Regarding  the  Company's  Inventory.  The  Company acquires inventory by
purchasing  individual  parts  from  airlines,  repair  facilities  or  other   
redistributors,  by  purchasing  excess inventory from aircraft operators, or by
purchasing  aircraft  for disassembly.  The Company also obtains parts inventory
on consignment from airlines.  The Company's business is substantially dependent
on  its  ability  to  acquire  inventory by one of these methods because its net
sales  are  directly  influenced  by  the  level  and  composition  of inventory
available for sale.  Because the size and composition of the Company's inventory
is  critical  to  its  results  of  operations and because there is no organized
market  to  procure  surplus  inventory, the Company's operations are materially
dependent  on  the  success  of  management  in identifying potential sources of
inventory  and  obtaining  a consignment of the inventory on acceptable terms or
purchasing  it  at  acceptable prices.  There can be no assurance that inventory
will  be  available on acceptable terms or at the times required by the Company.
In addition, once acquired, the market value of the Company's inventory could be
adversely  affected  by factors beyond the Company's control, such as the sudden
availability  of  additional  inventory,  a  sudden  decline  in  demand for the
Company's  parts  due  to a decline in use of certain aircraft types, regulatory
changes  mandating  uneconomic improvements to items in inventory, or a decision
by  an  OEM to begin manufacturing new parts that would compete with aftermarket
parts.  Any  of  such  factors  could  result  in  the Company's inventory being
overvalued  and could require the Company to write down its inventory valuations
in  order to bring them in line with the revised fair market value.  The failure
to  identify  and acquire inventory in a timely fashion on acceptable terms or a
decline  in  the  value of the Company's inventory would have a material adverse
effect on the Company's business, financial condition and results of operations.

     Concentration  on  MD-80,  DC-9  and turboprop Aircraft.  The Company's net
sales  are  concentrated  in  the  aftermarket  for  MD-80,  DC-9  and turboprop
aircraft.  Neither the DC-9 nor the MD-80 is still in production, as is the case
for  many  of  the turboprop aircraft for which the company sells parts.        
Any decline in the use of MD-80, DC-9 or turboprop  aircraft by aircraft        
operators, the unscheduled removal from service of  large  numbers  of these    
aircraft types or the grounding of such aircraft by governmental  authorities   
for any reason could have a material adverse effect on the  Company's           
business, financial condition and results of operations.  In the                
event  these  aircraft are removed from service, demand for the Company's MD-80,
DC-9  and  turboprop  parts  could  decline  and  the  supply of spare parts may
increase,  which would have a material adverse effect on the Company's business,
financial  condition  and  results  of  operations.                             

Broadening  of Product Line.  The Company has recently expanded its product line
to  include  aftermarket parts for Airbus A-300, McDonnell Douglas DC-10, Boeing
747  aircraft and certain commuter turboprop aircraft including Embraer, Shorts,
Saab,  de  Havilland,  British  Aerospace  and  ATR  aircraft.  In addition, the
Company  intends  to broaden further its product line to include parts for other
aircraft  that  are likely to be converted to freighters, such as Boeing 767 and
757  aircraft.  The  Company has limited experience with respect to the purchase

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and  sale  of  spare parts for these aircraft models.  There can be no assurance
that  the  Company  will  have  the  same level of success in managing its parts
inventories  for  such  aircraft  that  it has had with parts for MD-80 and DC-9
aircraft.  The  failure  to  successfully  broaden its product line could have a
material  adverse  effect  on  the  Company's  ability  to  implement its growth
strategy.                                                                       

     Risks  Associated  with  Acquisitions.  One of the Company's strategies for
growth  is  to pursue acquisitions of aftermarket redistributors, small aircraft
leasing companies and regional air carriers.  There can be no assurance that any
such  acquisitions will be completed on reasonable terms, if at all.  Certain of
the  Company's competitors may also seek to acquire the same companies which the
Company  seeks  to  acquire.  This  may  increase the price and related costs at
which  the  Company  could  otherwise  have  acquired  such  companies,  perhaps
materially.  The  Company's  inability  to  complete  acquisitions on reasonable
terms  could  limit the Company's ability to grow its business.  Any opportunity
to  pursue  strategic  acquisitions  is  dependent upon the Company's ability to
successfully  access  capital.                                                  

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

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

Risks  Associated with Air Carrier Operations.  NSA, an air carrier in which the
Company  has  a  significant  investment, operates in an industry that typically
experiences  lower  average  margins than the Company's other operations.  NSA's
ability  to  operate profitably depends on its ability to control costs, many of
which  are  beyond its control.  Examples of costs that NSA is unable to control
are  fuel  costs,  which  are  affected  by  political  and  economic conditions
throughout  the  world,  and  the  costs  of regulatory compliance.  The Company
believes  that NSA's existing financial resources are sufficient to permit it to
implement  its  business  plan.  However,  if  NSA  requires  additional capital
resources  to  fund its operations, it may be unable to obtain them on favorable
terms,  if  at  all,  or  such  funds could dilute the Company's interest in NSA
unless  the  Company  matches such investment.  NSA's air carrier operations may
also  result  in demands on the Company's management time and liquidity that may
preclude  the  Company  from pursuing more profitable parts sales opportunities.

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 May 2004.  The
Company  leases approximately 29,500 square feet of warehouse facilities in Fort
Lauderdale,  Florida  pursuant to a lease expiring in June 2002.  All facilities
are  rented  at  competitive  rates for their location and utility.  The Company
believes  that  its  facilities  are  adequate for its needs for the foreseeable
future.                                                                         

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ITEM  3.     LEGAL  PROCEEDINGS.                                                
-------      ------------------                                                 

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

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

None.                                                                           

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 PART II

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

The  Company's Common Stock, which has been publicly traded since April 2, 1990,
is listed and traded on the American Stock Exchange under the symbol "YLF."  The
following  table  sets forth the high and low closing prices of the Common Stock
as  reported  on the American Stock Exchange for each quarter in fiscal 2001 and
2000.                                                                           

2001  Fiscal  Year             High             Low                             
------------------             ----             ---                             
First  Quarter          $  2.875          $    1.9375                           
Second  Quarter            1.875               1.00                             
Third  Quarter              1.30               0.75                             
Fourth  Quarter             1.06               0.75                             

2000  Fiscal  Year             High             Low                             
------------------             ----             ---                             
First  Quarter          $  4.625          $    4.25                             
Second  Quarter            4.4375              3.75                             
Third  Quarter             3.75                3.125                            
Fourth  Quarter            4.5                 2.625                            

     At  August  24,  2001,  there  were  106 holders of record of the Company's
Common  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  is  unlikely that the Company will pay dividends on the Common
Stock  in  the  foreseeable  future.                                            

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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, 2001,
have  been derived from the Company's audited consolidated financial statements.
The consolidated financial statements of the Company as of May 31, 2000 and 2001
and  for  the  three-year period ended May 31, 2001 and the accountant's reports
thereon  are  included  in  Item  8  of  this  Form  10-K.                      

                                                        [Enlarge/Download Table]

                                                                 YEAR ENDED MAY 31,                     
                                             -------------------------------------------------------    
                                            1997        1998        1999          2000           2001   
                                            ----        ----        ----          ----           ----   
                                              (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)           
OPERATING  DATA:                                                                                        
----------------                                                                                        
                                                                                                        
Net  sales                                $20,123     $25,648     $24,344     $   23,480     $   18,299 
Lease  and  service  revenue                1,109       2,315       3,328          2,724          2,631 
Lease revenue - related party                -           -           -              -               595 
                                           --------   ---------   ---------      --------      -------- 
    Total  revenue                         21,232      27,963      27,672         26,204         21,525 

Total  operating expenses                  17,423      23,186      24,406         24,247         20,705 
Equity  in  net  earnings  of                                                                           
  unconsolidated  joint  ventures             --         --         1,026          1,757          1,550 
                                           --------   ---------   ---------      --------      -------- 
Income  from  continuing  operations        3,809       4,777       4,292          3,714          2,370 

Interest  expense,  net                     1,550       1,934       1,302          1,657          1,800 
                                           --------   ---------   ---------      --------      -------- 
Earnings  before  income  taxes                                                                         
 and  extraordinary  item                   2,259       2,843       2,990          2,057            570 
Provision  (benefit)  for  income  taxes      --       (2,820)      1,036            800            227 

Earnings  before  extraordinary  item       2,259       5,663       1,954          1,257            343 

Extraordinary  loss  on  extinguishment                                                                 
  of debt                                    (531)        --          --            --             --   
                                           --------   ---------   ---------      --------      -------- 
Net  earnings                            $  1,728    $  5,663    $  1,954       $  1,257       $    343 
                                           ========   =========   =========      ========      ======== 

PER  SHARE  DATA:                                                                                       
-----------------                                                                                       

Earnings  per common share - basic                                                                      
  before effect of extraordinary item      $ 1.37      $ 2.29    $   0.77     $    0.57     $      0.16 
Extraordinary  item                         (0.32)        --          --            --              --  

Net  earnings                             $  1.05      $ 2.29    $   0.77     $    0.57     $      0.16 
                                          =======    =========     ========     ========         =======

Weighted average shares outstanding                                                                     
  used  in basic calculation            1,646,629   2,471,025   2,550,940     2,189,539       2,168,937 

Earnings per common share  -  diluted                                                                   
   before effect of extraordinary item      $1.25       $2.03       $0.72     $    0.55      $     0.16 
Extraordinary  item                         (0.29)       --           --            --              --  
Net  earnings                               $0.96     $  2.03       $0.72     $    0.55      $     0.16 
                                            =====     =======       =====     =========      ========== 

Weighted  average  shares  outstanding                                                                  
 used in diluted calculation            1,806,938   2,793,414   2,720,513     2,268,472       2,172,504 


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                                                        [Enlarge/Download Table]

                                        AT  MAY  31,                                     
                           1997         1998               1999        2000       2001   
                       -----------    ---------         ----------   ---------  ---------
                                                   (IN  THOUSANDS)                       
BALANCE  SHEET  DATA:                                                                    
---------------------                                                                    
                                                                                         
Working  capital        $  9,141    $   10,228        $    11,524   $   13,444  $  11,328
Total  assets             21,287        23,636             23,976       35,183     35,805
Total  debt               13,749         9,648              9,594       20,094     20,392
Stockholders'  equity      4,660        10,808             11,263       12,468     12,662


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 parts,
leasing  of  aircraft  and  engines and related services.  In addition, with the
minority  interest  in  NSA,  the Company is engaged in the operation of a small
regional  airline.  The Company's total revenue includes net parts sales revenue
and  lease  and  service  revenue.   Net  sales  revenue  includes  revenue from
individual 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  revenue  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  the  inventory  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 consideration for the sale price, the risk of ownership has
passed  to  the  buyer,  and  collectibility  is  reasonably assured.  Lease and
service  revenue  are  recognized  on an accrual basis, unless collectibility is
uncertain.                                                                      

RESULTS  OF  OPERATIONS                                                         

FISCAL  2001  COMPARED  WITH  FISCAL  2000                                      

     Net  sales  decreased  by  22.1% from $23.5 million in fiscal 2000 to $18.3
million  in fiscal 2001.  This decrease was primarily due to a decrease in parts
sales  and  aircraft  sales, which was partially offset by an increase in engine
sales.  The  decline  in  parts  sales  is  attributable  to the weaker economy,
pricing  pressure  from  our  competition, a higher percentage of turboprop part
sales  compared  to  jet  part  sales and a higher percentage of expendable part
sales  compared  to rotable part sales.  Turboprop parts on average tend to have
lower selling prices than equivalent jet parts, while expendable parts also tend
to  sell  for  less  than  rotable  parts.  During fiscal 2001, the Company sold
eleven  engines  and  no  aircraft  as compared to fiscal 2000, during which the
Company  sold  nine  engines  and  three  aircraft.  Lease  and  service revenue
increased 18.5% from $2.7 million in fiscal 2000 to $3.2 million in fiscal 2001,
due  primarily  to more assets being on lease during fiscal 2001.  Due primarily
to  the  decrease  in  parts  sales  and aircraft sales, partially offset by the
increase in engine sales and lease and service revenue, total revenue for fiscal
2001  decreased  17.9%  to  $21.5  million  from  $26.2 million for fiscal 2000.

     Cost  of  sales  decreased 19.0% from $17.4 million in fiscal 2000 to $14.1
million  in  fiscal  2001.  Cost  of  sales  as  a  percentage  of total revenue
decreased  from  66.2%  in  fiscal  2000  to  65.6%  in fiscal 2001.  The slight
decrease  in  the  cost of sales as a percentage of total revenue in fiscal 2001
compared  to  fiscal  2000  was  due  primarily  to a higher percentage of total
revenue  being provided by lease and service revenue which traditionally carries
a  much  lower  cost  of  sales.  The cost of sales on part sales increased from
fiscal  2000  to  fiscal  2001.  As  the  Company  enters  into more consignment

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agreements  and sells more parts on consignment, the Company anticipates that it
will  incur higher cost of sales as a percentage of revenues.  These higher cost
of  sales  should  be  partially  offset  by  lower  inventory  costs, including
interest.                                                                       

     Selling,  general  and  administrative  expenses  decreased  3.5% from $5.8
million in fiscal 2000 to $5.6 million in fiscal 2001.  This decrease was due   
primarily  to  lower commissions due to lower parts sales and lower professional
fees, partially offset by higher health care and insurance costs and an increase
in  the  Company's  provision  for  doubtful  accounts  in  fiscal  2001.       

     Depreciation was $1,092,000 in fiscal 2000 compared to $1,028,000 in fiscal
2001.  The  net  decrease from fiscal 2000 to fiscal 2001 was due primarily to a
change  in  the  leasing  portfolio  from  engines  to  aircraft, as the Company
depreciates  aircraft  over  a  longer  period  of  time  than  engines.        

     Equity in Net Earnings of Unconsolidated Joint Venture decreased 11.8% from
$1,757,000  for  fiscal  2000  compared  to $1,550,000 during fiscal 2001.  This
decrease  is primarily due to the losses from NSA, whose earnings are reflected 
under  the  equity  method  of  accounting.                                     

     Interest  expense  increased  17.2%  from  $1,708,000  in  fiscal  2000  to
$2,002,000  in  fiscal  2001.  The  increase in interest expense resulted from a
higher  outstanding average balance as the Company, among other things, financed
the  purchase of aircraft held for lease, and, while rates have been decreasing,
an  average  higher interest rate during fiscal 2001.  Interest and other income
for fiscal 2001 was $202,000 compared to other income of $51,000 in fiscal 2000.

     The  Company's  income  tax expense in fiscal 2001 was $227,000 compared to
$800,000  in  fiscal 2000.  Net earnings for fiscal 2001 were $343,000, or $0.16
per  share  -  basic and $0.16 per share - diluted, compared to net earnings for
fiscal  2000  of  $1,257,000,  or  $0.57 per share - basic and $0.55 per share -
diluted.                                                                        

     In  the third quarter of fiscal 1999, the Company began acquiring shares of
its  common  stock  in  connection  with a stock repurchase program announced in
December  1998.  During fiscal 2000, the Company repurchased 4,200 shares of its
common  stock  at  an  average  price of $4.39.  During fiscal 2001, the Company
repurchased  168,700  shares  of its common stock at an average price of $0.875.

FISCAL  2000  COMPARED  WITH  FISCAL  1999                                      

     Net  sales  decreased  by  3.6%  from $24.3 million in fiscal 1999 to $23.5
million  in fiscal 2000.  This decrease was primarily due to a decrease in parts
sales,  which  was partially offset by an increase in aircraft and engine sales.
During  fiscal  2000,  the Company sold nine engines as compared to fiscal 1999,
during  which  the  Company  sold  three  engines.  Lease  and  service  revenue
decreased 18.1% from $3.2 million in fiscal 1999 to $2.7 million in fiscal 2000,
due  primarily to fewer assets being on lease during fiscal 2000.  Due primarily
to  the  decrease in parts sales and lease and service revenue, partially offset
by  the  increase  in  aircraft  and engine sales, total revenue for fiscal 2000
decreased  5.3%  to  $26.2  million  from  $27.7  million  for  fiscal  1999.   

     Cost  of  sales  decreased  4.7% from $18.2 million in fiscal 1999 to $17.4
million  in  fiscal  2000.  Cost  of  sales  as  a  percentage  of total revenue
increased  from  65.8%  in  fiscal  1999  to  66.2%  in fiscal 2000.  The slight
increase  in  the  cost of sales as a percentage of total revenue in fiscal 2000
compared  to  fiscal  1999 was due primarily to an increase in the cost of parts
sold.  As  the  Company  enters  into more consignment agreements and sells more
parts  on consignment, the Company anticipates that it will incur higher cost of
sales  as  a  percentage  of  revenues.  These  higher  cost  of sales should be
partially  offset  by  lower  inventory  costs,  including  interest.           

     Selling,  general  and  administrative  expenses  increased 14.7% from $5.1
million in fiscal 1999 to $5.8 million in fiscal 2000.  This increase was due to
higher  expenses  related to legal and professional fees; travel, entertainment,
and  marketing  expenses;  health care costs; and outside commissions as outside
agents  were  involved in the sale of an aircraft and several engines, partially
offset  by  lower  compensation  expenses.  Another  factor  in  the increase in
selling,  general  and  administrative  expenses  was a $173,000 increase in the
Company's provision for doubtful accounts in fiscal 2000 as the Company recorded
no  provision  for  doubtful  accounts  in  fiscal  1999.                       

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     Depreciation was $1,147,000 in fiscal 1999 compared to $1,092,000 in fiscal
2000.  The  net  decrease  from  fiscal 1999 to fiscal 2000 was due primarily to
fewer  assets  being  on  lease  during  fiscal  2000.                          

     Equity  in Net Earnings of Unconsolidated Joint Venture for fiscal 1999 was
$1,026,000  compared  to  $1,757,000  during  fiscal  2000.  This  increase  was
primarily  due  to  a full year of earnings in fiscal 2000 versus nine months of
earnings  in fiscal 1999, a decrease in the interest expense of the Air 41 Joint
Venture  as  the  debt  associated  with  the acquisition is reduced, and higher
revenue  from  the  re-lease  of  one  of  the  aircraft.                       

     Interest  expense  increased  29.9%  from  $1,315,000  in  fiscal  1999  to
$1,708,000  in  fiscal  2000.  The  increase in interest expense resulted from a
higher  outstanding average balance as the Company, among other things, financed
the  purchase of aircraft held for lease.  Furthermore, interest rates increased
during  the  period.  Interest  and  other  income  for  fiscal 2000 was $51,000
compared  to  other  income  of  $13,000  in  fiscal  1999.                     

     The  Company's  income  tax expense in fiscal 2000 was $800,000 compared to
$1,036,000  in  fiscal  1999.  Income  taxes have been provided at the Company's
estimated  effective  tax  rate of approximately 39% for fiscal 2000 compared to
35%  for  fiscal  1999.                                                         

     Net  earnings  for  fiscal 2000 were $1,257,000, or $0.57 per share - basic
and  $0.55  per  share  -  diluted,  compared to net earnings for fiscal 1999 of
$1,954,000,  or  $0.77  per  share  -  basic  and  $0.72  per  share  - diluted.

     In  the third quarter of fiscal 1999, the Company began acquiring shares of
its  common  stock  in  connection  with a stock repurchase program announced in
December  1998.  During  fiscal  1999, the Company repurchased 467,325 shares of
its  common stock at an average price of $4.16.  During fiscal 2000, the Company
repurchased  4,200  shares  of  its  common  stock at an average price of $4.39.

LIQUIDITY  AND  CAPITAL  RESOURCES                                              

     The  Credit  Agreement originally entered into by the Company in October of
1996  provided  for  a  $3  million term loan and up to an $11 million revolving
credit.  The  Credit  Agreement  has been amended eleven times to create several
new  term  loan  facilities  and to increase the revolving credit to $14 million
(collectively  referred  to  as  the  "Credit  Facility").  In  the  most recent
amendment,  the maturity of the revolving credit facility and the term loan were
extended to December 2005, as well as providing an increase in availability as a
result  of the new term loan.  The interest rate that the Company is assessed is
subject  to  fluctuation  and may change based upon certain financial covenants.
As of May 31, 2001, the interest rate under the Credit Facility was the lender's
base  rate minus 0.25% (6.75%).  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 and in the
Amendments to the Credit Facility filed on various dates as listed below in Item
6.  Exhibits  and  Reports  on  Form  8-K.                                      

     Net  cash  (used  in) provided by operating activities for the fiscal years
ended May 31, 2000 and 2001 amounted to ($971,000) and $3,115,000, respectively.
The  change  from  net  cash used in operating activities for fiscal 2000 to net
cash provided by operating activities for fiscal 2001 was due primarily to large
expenditures  for  aircraft  held  in  inventory  during  fiscal  2000.         

     Net  cash used in investing activities for fiscal 2000 and 2001 amounted to
$8,685,000  and  $3,745,000  respectively.  For  fiscal 2001, the primary use of
funds for investing activities was capital expenditures for aircraft and engines
of  $6,088,000,  partially  offset  by  the  sale  of  engines held for lease of
$2,083,000.  For  fiscal  2000,  the  primary  use  of funds was the purchase of
aircraft  held  for  lease.                                                     

     Net  cash  (used  in)  provided by financing activities for fiscal 2000 and
2001  amounted  to $9,484,000 and ($20,000), respectively.  For fiscal 2001, the
Company  refinanced its term loan and revolver Credit Facility.  The primary use
of  cash in financing activities was the purchase of treasury stock for $149,000
and  the  payment  of  deferred debt costs of $168,000.  For fiscal 2000, net of
payments,  the  Company  borrowed  an  additional  $9.5 million under the Credit
Facility.                                                                       

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     At  May  31,  2001, the Company was permitted to borrow up to an additional
$4.0  million  pursuant  to  the  Credit Facility, $2.8 million of which is only
available  for the purchase of inventory.  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.       

     In  fiscal 2001, NSA, a regional carrier in which the Company has an equity
investment,  incurred significant losses.  Should these losses continue, NSA may
require  additional  capital  to  fund  its  operations,  which could dilute the
company's  ownership  unless  the  Company  invests  additional  funds.         

FLUCTUATIONS  IN  OPERATING  RESULTS                                            

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

RECENT  ACCOUNTING  PRONOUNCEMENT                                               

     In  June  2001,  the  Financial  Accounting  Standards  Board  approved the
issuance  of  SFAS  No. 141, "Business Combinations" and SFAS 142, "Goodwill and
Other  Intangible  Assets."  The  new  standards  require  that  all  business  
combinations  initiated  after  June  30,  2001  must be accounted for under the
purchase  method.  In addition, all intangible assets acquired that are obtained
through  contractual  or  legal  right, or are capable of being separately sold,
transferred, licensed, rented or exchanged shall be recognized as an asset apart
from goodwill.  Goodwill and intangibles with indefinite lives will no longer be
subject  to  amortization,  but  will  be  subject  to  an annual assessment for
impairment  by applying a fair value based test.  As the Company has no goodwill
or  other  intangibles  generated  as  a  result  of a business combination, the
adoption  of  these Standards is not expected to have an impact on the Company's
operations.                                                                     

ITEM  7A.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK     
--------   ----------------------------------------------------------------     

     The  Company's  major  market  risk exposure is to changing interest rates.
The Company's policy is to manage interest rate risk through the use of floating
rate  debt  instruments.  The Company has loans under a Credit Facility totaling
approximately  $20.4  million  at May 31, 2001.  The interest rate on the Credit
Facility, which fluctuates based on certain financial ratios of the Company, was
the  lender's  prime  rate  less  .25%  at  May  31, 2001 (6.75%).  An immediate
increase  of  10% in interest rates would increase the Company's annual interest
expense  by  approximately  $138,000.                                           

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.                                                          
The financial statements of Air 41 LLC a Delaware                       
limited liability company, in which the company owns an equity interest, are    
filed beginning on Page FA-1 of this Annual Report on Form 10-K pursuant to     
Regulation S-X, rule 3-09.  Such financial statements are incorporated by       
Reference into this item.                                                       

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

None.                                                                           

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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 2001
Annual  Meeting  of stockholders (the "2001 Proxy Statement") is incorporated by
reference  herein.                                                              

ITEM  11.  EXECUTIVE  COMPENSATION.                                             
--------   -----------------------                                              

     The information contained under the heading "Executive Compensation" in the
2001  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  2001  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 2001 Proxy Statement is incorporated
by  reference.                                                                  

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 PART IV

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

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

(a)  Financial Statements  of the Registrant      Page  or  Method  of  Filing  
--------------------------------------------     ----------------------------   

(1)  Index to Consolidated Financial  Statements                  F-1       

(2)  Report  of  Grant  Thornton  LLP                             F-2       

(3)  Consolidated  Financial  Statements  and  Notes                        
to  Consolidated Financial Statements  of  the                    
Company, including Consolidated Balance Sheets as                 
of May 31, 2001 and 2000 and related Consolidated                 
Statements of Earnings, Consolidated Cash Flows                   
and Consolidated  Stockholders'  Equity for each of               
the years in the three-year period ended May 31, 2001        F-3  

(b)  Financial  Statements of AIR41 LLC            Page  or  Method  of  Filing 
---------------------------------------            ---------------------------- 

(1)  Index to Consolidated Financial  Statements                  FA-1      

(2)  Report  of  Grant  Thornton  LLP                             FA-2      

(3)  Financial  Statements  and  Notes                                      
to Financial Statements  of  the                                  
Company, including Consolidated Balance Sheets as                 
of May 31, 2001 and 2000 and related Consolidated                 
Statements of Earnings, Consolidated Cash Flows                   
and Consolidated  Stockholders'  Equity for each of               
the years in the three-year period ended May 31, 2001        FA-3 

(c)  Financial Statements Schedules               Page  or  Method  of  Filing  
   -------------------------------------        ----------------------------

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

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                                                      
--------                                              

                                                        [Enlarge/Download Table]

 EXHIBIT                                                                                    
 NUMBER  DESCRIPTION                PAGE NUMBER OR METHOD OF FILING                         
                                                                                            

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

 2.5     First                                                                              
         Amendment,                Incorporated by Reference.                               
         Waiver and Agreement,                                                              
         dated as of March 24,                                                              
         1997, between BNY Financial                                                        
         Corporation and the                                                                
         Registrant and related                                                             
         to the Credit Agreement.                                                           

 2.6     Second                    Incorporated by Reference.                               
         Amendment and Agreement,                                                           
         dated as of September  9,                                                          
         1997, between BNY Financial                                                        
         Corporation and the Registrant                                                     
         and related to the Credit                                                          
         Agreement.                                                                         

 2.7     Third                                                                              
         Amendment and              Incorporated by Reference.                              
         Agreement, dated as of                                                             
         October 15, 1997, between                                                          
         BNY Financial Corporation                                                          
         and the Registrant                                                                 
         and related to the Credit                                                          
         Agreement.                                                                         

 2.8     Fourth                                                                             
         Amendment and              Incorporated by Reference.                              
         Agreement, dated as of                                                             
         February 2, 1998, between                                                          
         BNY Financial Corporation                                                          
         and the Registrant and                                                             
         related to the Credit                                                              
         Agreement.                                                                         

 2.9     Fifth                                                                              
         Amendment,                  Incorporated by Reference.                             
         dated as of July 16, 1998,                                                         
         between BNY Financial                                                              
         Corporation and the                                                                
         Registrant and related                                                             
         to the Credit Agreement.                                                           

 2.10    Sixth                                                                              
         Amendment,                  Incorporated by Reference                              
         dated  as  of May 30, 1998,                                                        
         between   BNY Financial                                                            
         Corporation and the                                                                
         Registrant and related                                                             
         to the Credit Agreement.                                                           

 2.11    Seventh                                                                            
         Amendment,                   Incorporated by Reference.                            
         dated  as of October   28,                                                         
         1998, between BNY Financial                                                        
         Corporation and the Registrant                                                     
         and   related to the Credit                                                        
         Agreement.                                                                         

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 EXHIBIT                                                                                    
 NUMBER  DESCRIPTION                PAGE NUMBER OR METHOD OF FILING                         

 2.12    Eight                                                                              
         Amendment and Agreement      Incorporated by Reference.                            
         dated  as of December   8,                                                         
         1998, by and among BNY                                                             
         Financial Corporation and                                                          
         the Registrant and related                                                         
         to the Credit Agreement.                                                           

 2.13    Ninth                                                                              
         Amendment and Agreement      Incorporated by Reference.                            
         dated  as of July 1,                                                               
         1999, by and between the                                                           
         Registered and BNY Factoring                                                       
         LLC, as successor in interest                                                      
         to BNY Financial Corporation and                                                   
         related to the Credit Agreement.                                                   

 2.14    Tenth                                                                              
         Amendment and Agreement      Incorporated by Reference.                            
         dated  as of November 17,                                                          
         1999, by and between the                                                           
         Registered and GMAC Commercial                                                     
         Credit LLC, as successor in interest                                               
         By merger to BNY Financial Corporation                                             
         And related to the Credit Agreement.                                               

2.15     Eleventh                                                                           
         Amendment, Waiver and        Incorporated by Reference.                            
         Agreement dated as of                                                              
         January 5, 2001, by and between the                                                
         Registered and GMAC Commercial                                                     
         Credit LLC, as successor in interest                                               
         By merger to BNY Financial Corporation                                             
         And related to the Credit Agreement.                                               

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

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

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

 10.1.1  Second Amended and           Filed herewith                                        
         Restated Employment                                                                
         Agreement dated July, 25                                                           
         2001 between the Registrant                                                        
         and Alexius A. Dyer III.                                                           

 10.2.1  Amended and                  Filed herewith                                        
         Restated Employment                                                                
         Agreement dated July, 25                                                           
         2001 between the Registrant                                                        
         and George Murnane III.                                                            

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

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 EXHIBIT                                                                                    
 NUMBER  DESCRIPTION                PAGE NUMBER OR METHOD OF FILING                         

 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                   Incorporated  by  reference to Exhibit 10.2.5 of the   
         Plan.                       Company's  Annual Report on Form 10-K for the fiscal   
                                     year ended May 31, 1993.                               

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

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

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

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

 10.15   Operating                   Incorporated  by  reference  to Exhibit 10.14 to the   
         Air41    LLC,               Exhibit 10.15 to the 1999 Form 10-K                    
         dated as of                                                                        
         September 9,                                                                       
         1998,  by and                                                                      
         between                                                                            
         AirCorp, Inc.                                                                      
         and the                                                                            
         Company                                                                            

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

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

 10.18   Securities Purchase           Incorporated by reference to Exhibit 10.18 to the    
         Agreement, dated September,   Company's Quarterly report ending November 30, 2000. 
         18, 2000, among Diamond                                                            
         Aviation, Inc., the Registrant                                                     
         And the purchasers named therein.                                                  

 10.19   Stockholders Agreement, dated Incorporated by reference to Exhibit 10.18 to the    
         September 18, 2000, among     Company's Quarterly report ending November 30, 2000. 
         Diamond Aviation, Inc., and                                                        
         The stockholders therof.                                                           

 23      Consent of Auditors                    Filed herewith.                             


(b)     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.              

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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 28th day
of  August,  2001.                                                              

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 Executive Officer and 
----------------------                                                          
President  and  Director        
Alexius  A.  Dyer  III  (Principal  Executive  Officer)        August  28,  2001
----------------------   -------------------------------       -----------------

/s/  George  Murnane  III                                                   
---------------------------                                                     
George  Murnane  III     Executive  Vice  President, Chief Operating Officer and
--------------------     -------------------------------------------------------
                         Director                              August  28,  2001
                         --------                              -----------------

/s/  James  M.  Isaacson     Chief  Financial  Officer,  Treasurer          
--------------------------                                                      
James  M. Isaacson     and Secretary  (Principal Financial Officer and Principal
                       ---------------------------------------------------------
                       Accounting  Officer)                    August  28,  2001
                       --------------------                    -----------------

/s/  F.  Dixon  McElwee,  Jr.                                               
-------------------------------                                                 
F.  Dixon  McElwee,  Jr.     Director                          August  28,  2001
------------------------     --------                          -----------------

/s/  Ronald  R.  Fogleman                                                   
---------------------------                                                     
Ronald  R.  Fogleman         Director                          August  28,  2001
--------------------         --------                          -----------------

/s/  E.  James  Mueller                                                     
-------------------------                                                       
E.  James  Mueller            Director                         August  28,  2001
--------------------         --------                          -----------------

FINANCIAL  STATEMENTS  AND  REPORT                                    
OF  INDEPENDENT  CERTIFIED                                            
PUBLIC  ACCOUNTANTS                                                   

INTERNATIONAL  AIRLINE  SUPPORT                                       
GROUP,  INC.  AND  SUBSIDIARIES                                       

MAY  31,  2001,  2000  AND  1999                                      

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 REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

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

We  have  audited  the accompanying consolidated balance sheets of International
Airline  Support  Group,  Inc. and Subsidiaries as of May 31, 2001 and 2000, and
the  related  consolidated statements of earnings, stockholders' equity and cash
flows  for  each  of  the  three  years  ended  May  31,  2001.  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 auditing standards generally accepted
in  the  United  States  of  America.  Those  standards require that we plan and
perform  the  audit  to  obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a 
reasonable  basis  for  our  opinion.                                           

In  our  opinion,  the financial statements referred to above present fairly, in
all  material  respects,  the  consolidated  financial position of International
Airline  Support  Group, Inc. and Subsidiary as of May 31, 2001 and 2000 and the
consolidated  results of its operations and its consolidated cash flows for each
of  the three years ended May 31, 2001, in conformity with accounting principles
generally  accepted  in  the  United  States  of  America.                      

We  have  also  audited Schedule II of International Airline Support Group, Inc.
and Subsidiaries for each of the three years ended May 31, 2001. In our opinion,
this  schedule  presents  fairly,  in  all  material  respects,  the information
required  to  be  set  forth  therein.                                          

/s/  Grant  Thornton  LLP                                                       

Miami,  Florida                                                                 
August  2,  2001                                                                

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The  accompanying  notes  are  an  integral  part  of  these  statements.       

 F-4

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

ASSETS

                                                                [Download Table]

                                                      May  31,          
                                            --------------------------- 
                                              2001                 2000 
                                        -----------          -----------
                                                                        
Current  assets                                                         
     Cash  and  cash  equivalents     $     70,290        $     721,111 
     Accounts  receivable,  net  of                                     
      allowance  for  doubtful                                          
      accounts of  $301,424  in  2001                                   
      and  $172,722  in  2000            2,558,176            2,647,215 
     Inventories, including aircraft                                    
     and  engines available for sale    12,471,871           12,807,512 
     Deferred  tax  benefit              1,088,953            1,053,888 
     Other  current  assets                198,449              583,626 
     Current  portion  of  note                                         
      receivable  -  related  party         78,454                 -    
                                         ---------            --------- 
               Total current assets     16,466,193           17,813,352 

Property  and  equipment                                                
     Aircraft  in  operations                -                1,114,919 
     Aircraft and engines held for                                      
      lease                             13,973,285           12,832,298 
     Leasehold  improvements               166,991              176,594 
     Machinery  and  equipment           1,089,341            1,074,576 
                                         ---------            --------- 
                                        15,229,617           15,198,387 
     Less  accumulated  depreciation     2,643,867            2,263,110 
                                         ---------            --------- 

       Property and equipment, net      12,585,750           12,935,277 
                                         ---------            --------- 

Other  assets                                                           
     Investment  in  joint  ventures     5,559,057            3,860,136 
     Notes receivable - related party      725,714                -     
     Deferred  debt  costs,  net           232,373              228,066 
     Deferred  tax  benefit                 83,745              345,883 
     Deposits  and  other  assets          152,440                 -    
                                           -------            --------- 
                                         6,753,329            4,434,085 
                                         ---------            --------- 

                                  $     35,805,272     $     35,182,714 
                                  =     ==========     =     ========== 

                      LIABILITIES AND STOCKHOLDERS' EQUITY              

Current  liabilities                                                    
     Current  maturities  of                                            
      long-term  obligations      $      2,387,642       $    1,748,642 
     Accounts  payable                   1,965,179            1,359,998 
     Accrued  liabilities                  785,867            1,261,147 
                                           -------            --------- 
        Total  current  liabilities      5,138,688            4,369,787 

Long-term obligations, less current                                     
   maturities                           18,004,574           18,345,079 

Commitments  and  contingencies             -                    -      

Stockholders'  equity                                                   
    Preferred  stock  -  $.001  par                                     
     value;  authorized  2,000,000                                      
     shares; no  shares  outstanding                                    
     in  2001 and 2000, respectively        -                    -      
    Common  stock  -  $.001  par  value;                                
     authorized  20,000,000  shares;                                    
     issued  and  outstanding  2,661,723                                
     and 2,661,723 shares  in  2001                                     
     and  2000,  respectively                2,661                2,661 
     Additional  paid-in  capital       13,902,909           13,902,909 
     Retained  earnings                    871,230              527,769 
     Common  stock  in  treasury,  at                                   
      cost - 640,225 and 471,525 shares                                 
      in 2001 and 2000, respectively    (2,114,790)          (1,965,491)
                                        ----------           ---------- 
        Total  stockholders'  equity    12,662,010           12,467,848 

                                 $      35,805,272     $     35,182,714 
                                 =      ==========     =     ========== 

The accompanying notes are an integral part of these statements.                

F-3           

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INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF EARNINGS

                                                        [Enlarge/Download Table]


                                                                         Years  Ended  May  31,           
                                                          ---------------------------------------------   
                                                          2001                2000                1999    
                                                      -----------          ----------          ---------- 
                                                                                                          
Revenues                                                                                                  
     Net  sales                                  $     18,299,222    $     23,479,801     $    24,344,083 
     Lease  and  service  revenue                       2,630,435           2,724,365           3,327,859 
     Lease  revenue  -  related  party                    595,000               -                  -      
                                                      -----------          -----------         ---------- 
                    Total  revenues                    21,524,657          26,204,166          27,671,942 

Cost  of  sales                                        14,110,335          17,350,142          18,196,982 
Selling,  general  and  administrative  expenses        5,566,428           5,805,426           5,062,525 
Depreciation  -  property  and  equipment                  93,898              61,629              38,567 
Depreciation  -  aircraft  and  engines  held                                                             
   for  lease                                             934,241           1,030,187           1,108,345 
                                                      -----------          -----------         ---------- 
                    Total  costs                       20,704,902          24,247,384          24,406,419 

Equity  in  net  earnings  of  unconsolidated                                                             
  joint  ventures                                       1,550,496           1,757,114           1,026,359 
                                                        ---------           ---------           --------- 

                    Income from operations              2,370,251           3,713,896           4,291,882 

Interest  expense                                       2,001,886           1,707,998           1,314,503 
Interest and other income                                (202,169)            (51,185)            (13,082)
                                                         --------             -------             ------- 

                    Earnings  before  income  taxes       570,534           2,057,083           2,990,461 

Provision  for income taxes                               227,073             800,490           1,036,145 
                                                          -------             -------           --------- 

                    Net  earnings                   $     343,461     $     1,256,593     $     1,954,316 
                                                        =========          ==========         =========== 
Per  share  data:                                                                                         
     Earnings per common share - basic              $         .16     $           .57     $           .77 

     Weighted  average  shares  outstanding                                                               
      used  in  basic calculation                       2,168,937           2,189,539           2,550,940 
                                                        =========           =========           ========= 

     Earnings  per  common  share  -  diluted       $         .16     $          .55     $            .72 

     Weighted  average  shares  outstanding                                                               
      used  in  diluted calculation                     2,172,504          2,268,472            2,720,513 
                                                        =========          =========            ========= 


The accompanying notes are an integral part of these statements                 

 F-4

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INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                                        [Enlarge/Download Table]

                                                                     Unrealized          Retained       Common                 
                      Common  Stock                  Additional       Loss  on          Earnings       Stock in                
                       Number  of         Par          Paid-In         Equity         (Accumulated     Treasury,               
                         Shares          Value         Capital        Security           Deficit)      at  Cost        Total   
                         ------     --------------  -------------   ------------      ------------    ---------    ----------- 

                                                                                                                               
Balance  at  June  1,                                                                                                          
  1998                  2,562,667   $     2,562  $   13,511,610     $  (22,545)    $   (2,683,140)    $     -     $ 10,808,487 

Exercise  of  stock                                                                                                            
  options                  93,056            93         288,394           -                 -               -          288,487 

Tax benefit from exercise                                                                                                      
  of  stock options          -                -         136,085           -                 -               -          136,085 

Repurchase  of  common                                                                                                         
  stock                      -                -           -               -                 -        (1,946,780)    (1,946,780)

Sale  of  equity  security   -                -           -             22,545              -            -              22,545 

Net  earnings                -                -           -               -            1,954,316         -           1,954,316 
                         ---------     --------------  -----------   ------------    ------------    ---------     ----------- 

Balance  at  May  31,                                                                                                          
  1999                   2,655,723          2,655     13,936,089          -             (728,824)    (1,946,780)    11,263,140 

Exercise  of  stock                                                                                                            
  options                    6,000              6         19,557          -                 -             -             19,563 

Repurchase  of  stock                                                                                                          
  options                     -                 -        (52,737)         -                 -             -            (52,737)

Repurchase  of  common                                                                                                         
  stock                       -                 -           -             -                 -          (18,711)        (18,711)

Net  earnings                 -                 -           -             -             1,256,593         -          1,256,593 
                         ---------     --------------  -----------   ------------    ------------    ---------     ----------- 

Balance  at  May  31,                                                                                                          
  2000                   2,661,723           2,661    13,902,909          -               527,769   (1,965,491)     12,467,848 

Repurchase  of  common                                                                                                         
  stock                       -                 -          -              -                  -        (149,299)       (149,299)

Net  earnings                 -                 -          -              -               343,461         -            343,461 
                         ---------     --------------  -----------   ------------    ------------    ---------     ----------- 

Balance  at  May  31,                                                                                                          
  2001                   2,661,723     $     2,661  $ 13,902,909     $    -          $    871,230  $ (2,114,790)  $ 12,662,010 
                         =========     ===========    ==========     ============    ============   ============   =========== 

The  accompanying  notes  are  an  integral  part  of  this  statement.         

F-5 

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INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]


                                                                                       Years  Ended  May  31,              
                                                                         --------------------------------------------      
                                                                         2001                 2000                 1999    
                                                                      -----------          -----------          -----------
                                                                                                                           
Cash  flows  from  operating  activities:                                                                                  
     Net  earnings                                                  $     343,461     $     1,256,593     $     1,954,316  
     Adjustments  to  reconcile  net  earnings  to  net  cash                                                              
       provided  by  (used  in)  operating  activities,  net  of                                                           
       effects  of  deconsolidation  of  North-South:                                                                      
          Depreciation  and  amortization                               1,193,024          1,423,653            1,299,728  
          Gain on sale of aircraft and engines held for lease            (254,443)          (108,611)            (865,276) 
          Unrealized  loss  on  equity  securities                           -                  -                  22,545  
          Equity  in  net  earnings  of  joint  ventures               (1,550,496)        (1,757,114)          (1,026,359) 
          Stock  option  tax  benefits                                      -                 -                   136,085  
          Decrease  in  deferred  tax  benefit                            227,073            800,490              762,669  
          Provision  for  bad  debt                                       202,169            172,893                 -     
          Provision  for slow moving inventory                            143,290            107,518              376,000  
          Changes  in  assets  and  liabilities:                                                                           
               Accounts  receivable                                      (356,350)           (81,396)          (1,632,740) 
               Inventories                                              2,658,029         (1,783,971)             237,865  
               Other  current  assets                                     372,427           (449,352)              60,324  
               Other  assets                                             (152,440)            66,155               68,378  
               Accounts  payable  and  accrued  liabilities               289,379           (617,418)             (60,778) 
                                                                        ---------           ---------          ----------  
                   Net cash provided by (used in) operating activities  3,115,123           (970,560)           1,332,757  

Cash  flows  from  investing  activities:                                                                                  
     Distributions  received  from  joint  ventures                       334,000            360,000              240,000  
     Cash  acquired  in  acquisition                                         -                 4,754                 -     
     Cash  relinquished  upon  deconsolidation  of North-South            (18,922)              -                    -     
     Capital  expenditures, including aircraft and engines held                                                            
       for  lease                                                      (6,087,766)       (10,011,392)          (3,786,356) 
     Sale  of  investments                                                  -                  -                   92,194  
     Investment  in  joint  ventures                                     (203,095)           (89,450)          (1,587,213) 
     Proceeds  from  sale  of  aircraft and engines held for lease      2,083,000          1,176,000            5,875,000  
     Purchase stock of Diamond Aviation                                     -               (125,000)               -      
     Payments  received  on  notes  receivable                            146,835               -                   -      
                                                                        ---------           ---------          ----------  
          Net cash (used in) provided by investing activities          (3,745,948)        (8,685,088)             833,625  

Cash  flows  from  financing  activities:                                                                                  
     Net  (payments)  borrowings  under  revolving  line  of  credit   (3,056,764)         3,866,961            2,047,754  
     Borrowings  under  term  loans                                     6,151,172          7,300,000            2,576,000  
     Payments  under  term  loans                                      (2,795,913)        (1,630,600)          (4,677,963) 
     Purchase  of  treasury  stock                                       (149,299)           (18,711)          (1,946,780) 
     Repurchase  of  stock  options                                          -               (52,737)               -      
     Proceeds  from  the  exercise  of  stock options                        -                19,563              288,487  
     Payment  of  deferred  debt  costs                                  (169,192)              -                    -     
                                                                        ---------           ---------          ----------  
          Net cash (used  in) provided by financing activities            (19,996)          9,484,476          (1,712,502) 
                                                                          -------           ---------          ----------  
Net  (decrease)  increase  in  cash  and  cash  equivalents              (650,821)          (171,172)             453,880  

Cash and cash equivalents at beginning of year                            721,111            892,283              438,403  
                                                                        ---------           ---------          ----------  
Cash  and  cash  equivalents  at  end of year                        $     70,290      $     721,111        $     892,283  
                                                                     =  =========      =   =========        =   =========  
Supplemental  disclosures  of  cash  flow  information                                                                     
     Cash  paid  during  the  year  for:                                                                                   
           Interest                                                  $  1,791,728      $   1,501,503        $   1,161,687  
                                                                     =  =========      =   =========        =   =========  
          Income  taxes                                              $     -           $      20,000        $      58,298  
                                                                     =  =========      =   =========        =   =========  
                                                                     (continued)                                           


F-7   

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INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

Non-cash  investing  and  financing  activities:                                

     In  April  2000,  the  Company  purchased  all  of the outstanding stock of
North-South Airways, Inc. (North-South), formerly Diamond Aviation,             
for approximately $125,000 in cash and approximately $880,000                   
in assumed debt.  In conjunction with this acquisition, the Company recorded the
following  assets  and  liabilities:                                            

Cash                                            $      4,754
Accounts  receivable                            $     73,788
Aircraft  in  operations                        $  1,114,919
 Accounts  payable  and  accrued expenses        $   (114,758)
 Debt                                            $ (1,078,703)

 In September 2000, North-South sold  additional shares of stock raising
approximately $1,000,000.  This sale of stock  reduced  the Company's ownership 
interest commencing September 1, 2000 in North-South from  100%  to             
approximately 35%.  Accordingly, commencing September  1,  2000, the Company is 
accounting for its investment in North-South under  the  equity  method.        
As  of May 31, 2001, the Company had notes receivable  in  the  principal       
amount of $804,168 relating to loans provided to North-South, which are secured 
by  certain aircraft operated by the airline. In the prior  fiscal year, these  
notes receivable were eliminated in consolidation.                              

     In fiscal 2001, the Company reclassified certain aircraft held for lease to
aircraft  available  for  sale  with  a  net  book  value  of  $2,465,678.      

The  accompanying  notes  are  an  integral  part  of  these  statements.       

F-8             

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INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 MAY 31, 2001, 2000 AND 1999

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

     International  Airline Support Group, Inc. and Subsidiaries (the "Company")
is  primarily  engaged in the sale of aircraft, engines, aircraft parts, leasing
of  aircraft  and engines 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, and Embraer
EMB-120.                                                                        

a)     Basis  of  Presentation                                        
-----------------------                                 

          The  consolidated  statements  include  the  accounts of International
Airline  Support  Group and its wholly-owned subsidiaries.  The related entities
are  collectively  referred  to  as  the ("Company").  All material intercompany
transactions  and  balances  have  been  eliminated  in  the  consolidation.  In
September  2000,  North-South  Airways  (North-South)  sold additional shares of
stock  raising  approximately  $1,000,000.  This  sale  of  stock  reduced  the 
Company's  ownership  interest  in  North-South  from 100% to approximately 35%.
Accordingly,  commencing  September  1,  2000, the Company is accounting for its
investment  in  North-South  under  the  equity  method.                        

b)     Cash  and  Cash  Equivalents                                   
----------------------------                            

          The  Company  considers  all  highly  liquid investments with original
maturities  of  three  months  or  less  at  the  time  of  purchase  to be cash
equivalents.                                                                    

c)     Inventories                                                    
-----------                                             

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

d)     Property  and  Equipment                                       
------------------------                                

       Property  and  equipment  are  stated  at  cost,  less  accumulated
depreciation.  Depreciation  is provided for in amounts sufficient to relate the
cost  of  depreciable assets, less their estimated salvage values, to operations
over  their estimated life utilizing straight-line and accelerated methods.  The
estimated  lives  of  the depreciable assets range from 3 to 12 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.  The Company does not provide for depreciation expense on aircraft and
engines  classified  as  available  for  sale.                                  

e)     Deferred  Debt  Costs                                          
---------------------                                   

          The  deferred debt costs relate to the costs associated with obtaining
the  Senior  Secured  Revolving Credit Loan Facility and the Senior Secured Term
Loans.  These  costs are being amortized using the interest method over the life
of  the  respective  debt  issue.  Accumulated  amortization at May 31, 2001 and
2000,  was  $688,968  and  $524,083,  respectively.                             

                                                                     (continued)

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

f)     Earnings  Per  Share                                           
--------------------                                    

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

                                                                [Download Table]

                       Basic            Basic    Diluted     Diluted  
        Net  Earnings  Shares            EPS     Shares       EPS     
       --------------  ----------    ---------  ---------  -----------
                                                                      
2001  $     343,461      2,168,937  $     .16   2,172,504  $     .16  
2000  $   1,256,593      2,189,539  $     .57   2,268,472  $     .55  
1999  $   1,954,316      2,550,940  $     .77   2,720,513  $     .72  


          Included  in  diluted  shares are common stock equivalents relating to
options  of  3,567,  78,933,  and 169,573 for 2001, 2000 and 1999, respectively.
Stock options to purchase 529,947 shares of the Company's common stock at prices
ranging  from  $2.75  to $3.31 , which were outstanding during fiscal 2001, were
not  included  in  the  computation of diluted EPS because the options' exercise
prices were greater than the annual average market price of the Company's common
stock  and  thus  their  inclusion  would  be  anti-dilutive.                   

g)     Revenue  Recognition                                           
--------------------                                    

          Revenue from the sale of parts is recognized when products are shipped
to  the  customer.  Net  sales  is  comprised of gross sales less provisions for
estimated  customer  returns  and  discounts.  Revenue  from aircraft and engine
sales  is  recognized  when the Company has received consideration for the sales
price,  the  risk  of  ownership  has passed to the buyer, and collectibility is
reasonably  assured.  Lease  and  service  revenue  are recognized on an accrual
basis,  unless  collectibility  is  uncertain.                                  

          Included  in  net  sales  is  revenue from exchange transactions. This
revenue is generated from fees paid by the company's customers for the exchange 
of parts, and is recognized when the Company has fulfilled all of its           
obligations under  the  exchange  agreement.                                    

h)     Employee  Benefit  Plan                                        
-----------------------                                 

          In  fiscal  1992,  the Company established a contributory 401(K) plan.
The  plan  is a defined contribution plan covering all eligible employees of the
Company, to which the Company makes certain discretionary matching contributions
based  upon  the  level  of its employees' contributions.  The amount charged to
earnings  in fiscal 2001, 2000 and 1999 was insignificant.  The Company does not
provide  any  health  or  other  benefits  to  retirees.                        

i)     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.  The  carrying  value  of the debt under the Senior Facility
approximates  fair value as it is floating rate debt.  The carrying value of the
notes  receivable  - related party approximates fair value as the interest rates
on  the  notes  approximate  the  current  market  rates.                       

                                                                     (continued)

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

j)     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.  The  Company  provides  a valuation allowance
against its deferred tax assets when it believes that it is more likely than not
that  the  asset  will  not  be  realized.                                      

k)     Management  Estimates                                          
---------------------                                   

          The  preparation  of  the  financial  statements  in  conformity  with
accounting  principles  generally  accepted  in  the  United  States  of America
requires  management  to make estimates and assumptions that affect the reported
amounts  of  assets  and liabilities and the disclosure of contingent assets and
liabilities  at  the  date of the financial statements and revenues and expenses
during the reporting periods.  Actual results could differ from those estimates.

l)     New  Accounting  Pronouncement                                 
------------------------------                          

          In  June  2001,  the Financial Accounting Standards Board approved the
issuance  of  SFAS  No. 141, "Business Combinations" and SFAS 142, "Goodwill and
Other  Intangible  Assets."  The  new  standards  require  that  all  business  
combinations  initiated  after  June  30,  2001  must be accounted for under the
purchase  method.  In addition, all intangible assets acquired that are obtained
through  contractual  or  legal  right, or are capable of being separately sold,
transferred, licensed, rented or exchanged shall be recognized as an asset apart
from goodwill.  Goodwill and intangibles with indefinite lives will no longer be
subject  to  amortization,  but  will  be  subject  to  an annual assessment for
impairment  by applying a fair value based test.  As the Company has no goodwill
or  other  intangibles  generated  as  a  result  of a business combination, the
adoption  of  these Standards is not expected to have an impact on the Company's
operations.                                                                     

m)     Business  Segment  and  Geographic  Area  Information          
-----------------------------------------------------   

          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
Company's  revenues  are  derived primarily from customers located in the United
States  and  all  of  the  Company's long-lived assets are located in the United
States.  One  customer  accounted  for 12% of the Company's sales in fiscal 2000
and  another  customer  accounted for 11% of the Company's sales in fiscal 2000.
No  customers  accounted for more than 10% of the Company's sales in fiscal 2001
or  fiscal  1999.                                                               

n)     Accounting  for  Stock  Based  Compensation                    
-------------------------------------------             

          The  Company accounts for stock 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 grant.
The  Company's  employee  stock option plan is accounted for using the intrinsic
value method under APB 25.  The Company provides disclosure of certain pro forma
information  as  if  the  fair  value-based method had been applied in measuring
compensation  expense  (see  Note  H).                                          

o)     Reclassifications                                                        
-----------------                                                 

Certain  prior period amounts have been reclassified to conform with the current
year  presentation.                                                             

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NOTE  B  -  INVESTMENT  IN  NORTH-SOUTH  AIRWAYS                                

     In  April  2000,  the  Company  purchased  all  of the outstanding stock of
North-South Airways, Inc. (North-South), formerly Diamond  Aviation, a small    
regional  airline  located  in  Statesboro,  Georgia  that operates under an Air
Carrier  Certificate  under  Part 135 of the regulations of the Federal Aviation
Administration.  The Company purchased North-South for approximately $125,000 in
cash  and  approximately  $880,000  in  assumed  debt.  The acquisition has been
accounted  for  as  a  purchase and accordingly, the assets and liabilities have
been  recorded  at  their  estimated fair values at the date of acquisition.  No
goodwill  was  recorded  as  a  result  of  this  acquisition.  The  results  of
operations  of  North-South  are included in the accompanying consolidated      
statement  of  earnings  as  of the date of the acquisition.  In September 2000,
North-South sold additional  shares  of  stock  raising  approximately          
$1,000,000.  This  sale  of  stock  reduced the Company's ownership interest  in
North-South  from 100% to approximately  35%.  Accordingly, commencing September
2000,  the Company is accounting for its investment in North-South under        
the  equity  method,  and  the  accounts  of North-South are not included in the
consolidated  statements  as  of  May  31,  2001.                               

NOTE  C  -  INVESTMENT  IN  JOINT  VENTURES                                     

AIR41  Joint  Venture                                                 
---------------------                                                 

     On September 16, 1998, the Company entered into a joint venture (the "AIR41
Joint  Venture")  for  the acquisition of 20 DC-9-41H aircraft from Scandinavian
Airlines  System  ("SAS").  The  aircraft were leased back to SAS and the leases
had  an  average  term  of  39 months.  The Company's original investment in the
AIR41 Joint Venture was $1.4 million, which represents a 50% ownership interest.
The  Company's  AIR41  Joint  Venture partner is AirCorp, Inc., a privately held
company.  The  aircraft  purchases  were  financed  through  the  joint venture,
utilizing  non-recourse  debt  to the partners.  The AIR41 Joint Venture debt is
secured  by  the AIR41 aircraft.  In connection with this financing, the Company
had  to post a $1.5 million letter of credit.  As of May 31, 2001, the letter of
credit outstanding is, $1.15 million.  The Company and its joint venture        
partner  are  collectively guarantors on the AIR41 Joint Venture's obligation as
the  lessor of the aircraft.  The AIR41 Joint Venture is accounted for under the
equity method.  The owners of the AIR41 Joint Venture pay all expenses on behalf
of  the  AIR41 Joint Venture, which represent primarily aircraft maintenance and
improvements.  The  payment  of  these  expenses  is  accounted  for  as capital
contributions.  The  joint  venture partners are exploring opportunities for the
aircraft  after  the end of the term of the leases with SAS.  Such opportunities
include  releasing  the  aircraft  with SAS, leasing the aircraft to one or more
different lessee(s), selling the aircraft, parting out the aircraft, or directly
placing  the  aircraft  into  either passenger or cargo service. In fiscal 2001,
three  aircraft  came  off of lease and one was then leased to another unrelated
party.  In  fiscal  2002,  six  additional aircraft are scheduled to come off of
lease.  Currently,  the AIR41 Joint Venture has no further commitment related to
the  disposition of these aircraft upon the termination of the leases, although,
it  is  actively  marketing these aircraft.  A future impairment in the value of
these  aircraft  and/or  the  inability  of  the  AIR41 Joint Venture to sell at
favorable terms or re-lease these aircraft after they come off lease, could have
a  significant  negative  impact  on  the  value  of  the  Company's investment.

     If  the  Company  is  unable  to  re-lease  the  aircraft,  the AIR41 Joint
Venture's  lender  may provide notice of default and then would have the ability
to foreclose on all of the aircraft held by the AIR41 Joint Venture.  This event
could  have  a  significant  negative  impact  on  the  value  of  the Company's
investment.                                                                     

     In  fiscal  2001  and 2000, 93% and 100% of the AIR41 Joint Venture revenue
was  derived  from  SAS.                                                        

                                                                     (continued)

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NOTE  C  -  INVESTMENT  IN  JOINT  VENTURES                                     

North-South  Airways                                                  
--------------------                                                  

     In  April  2000,  the  Company  purchased  all  of the outstanding stock of
North-South Airways, Inc. (North-South), a small regional  airline that operates
under an Air Carrier Certificate under  Part 135 of the regulations of the      
Federal Aviation Administration.  In  September 2000, North-South sold          
additional shares of stock raising  approximately  $1,000,000.  This  sale  of  
stock reduced the Company's ownership  interest in North-South from 100% to     
approximately 35%.  Accordingly, commencing  September  2000,  the  Company  is 
accounting for its investment in North-South  under  the  equity  method.       

A  condensed  summary of the companies two joint venture operations  follows:   

                                   2001                   2000
                                   ------------          -------------

Current  assets                  $     874,008         $     120,860  
Non-current  assets                 68,880,311            72,899,986  
                                  ----------            ----------

Total  assets                    $  69,754,319         $  73,020,846  
                               =  ==========         =  ==========

Current  liabilities             $  18,856,938         $  23,257,194  
Non-current  liabilities            39,256,148            40,978,361  
                                  ----------           -----------

Total  liabilities               $  58,113,086         $  64,235,555  
                               =  ==========         =  ==========

Revenues                         $  15,740,127         $  14,528,175  
                               =  ==========         =  ==========

Net  earnings                    $   2,689,251         $   3,506,556  
                               =   =========         =   =========

     All  revenues  of  the joint ventures were derived from entities other than
members  of  the  consolidated  group.                                          

     Included  in  the Company's consolidated retained earnings is approximately
$4,442,000 and $2,783,000 relating to the Company's share in the net earnings of
the  joint  ventures  as  of  May  31,  2001  and  2000  respectively.          

NOTE  D  -  INVENTORIES                                                         

    Inventories  at  May  31,  2001  and  2000  consisted  of  the  following:

                               2001                   2000
                            -------------          -------------

Aircraft  parts                 $     6,644,053        $     7,382,143      
Aircraft and engines                                        
  available for sale            5,827,818              5,425,369

                         $     12,471,871        $    12,807,512
                         =     ==========        =    ==========

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NOTE  E  -  LONG-TERM  OBLIGATIONS                                              

     Long-term  obligations at May 31, 2001 and 2000 consisted of the following:

                                            2001                  2000
                                          ------------          ------------

Senior Secured Revolving Credit Loans    $     7,952,726     $      11,009,490  
  Term  loans                               12,439,490             9,084,231
                                            ----------             ---------
                                            20,392,216            20,093,721

        Less:  Current  maturities           2,387,642             1,748,642
                                             ---------             ---------
                                      $     18,004,574     $      18,345,079
                                      =     ==========     =      ==========

     In  October 1996, the Company entered into a Credit Agreement with the Bank
of  New  York, which provided for a $3 million term loan (Term Loan-A) and up to
an  $11  million  revolving  credit.  The  Credit  Facility  is  secured  by    
substantially  all  of the assets of the Company and availability of amounts for
borrowing  is  subject  to certain limitations and restrictions such as accounts
receivable and inventory levels.  The interest rate on the Credit Facility which
fluctuates  based  on  certain  financial ratios of the Company, was the lenders
prime  rate less .25% (6.75% at May 31, 2001).  The revolving line of credit was
increased to $13 million in March 1997 and to $14 million in fiscal 1998.  As of
May  31,  2001,  the  available line of credit is approximately $1.2 million and
approximately $4 million is available for the purchase of inventory.  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.

     During  fiscal  2000,  the  Credit Agreement was amended twice to create an
additional  term loan facility (term loans E) in the amount of $7.3 million, due
August  1,  2003,  to  finance  the  purchase  of  three  aircraft.             

     During  fiscal 2001, the Company entered into a loan with another financial
institution  to  borrow  $1.7 million to finance a purchase an aircraft.        
The principal on the  loan is due in 84 monthly payments of $22,071 commencing  
January 2001.  The interest  rate  on  the  loan  is  fixed  at  9.02%  per     
annum.  The  loan  is collateralized  by  the  aircraft.                        

   During  fiscal  2001,  the  Credit  Agreement  was  amended  whereas  the
outstanding  term loans were consolidated into one single term loan facility and
the  termination  date  was  extended  to  December  31,  2005.                 

     The  scheduled maturities of long-term obligations in each of the next five
years  until  maturity  subsequent  to  May  31,  2001  are  as follows:  2002 -
$2,387,642,  2003  -  $2,224,080,  2004  - $2,236,066, 2005 - $2,249,179, 2006 -
$10,301,001,  and  thereafter  -  $994,248.                                     

NOTE  F  -  COMMITMENTS  AND  CONTINGENCIES                                     

Leases                                                                
------                                                                

     The  Company  leases warehouse facilities, office space, as well as certain
equipment  under  long-term  operating  lease  agreements.  Rental expense under
these  leases  for the years ended May 31, 2001, 2000 and 1999 was approximately
$269,000,  $279,000  and  $286,900,  respectively.  At  May 31, 2001, the future
minimum  payments  on  non-cancellable  operating leases are as follows:  2002 -
$274,061,  2003  -  $51,043,  and  2004  -  $52,244.                            

                                                                     (continued)

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NOTE  F  -  COMMITMENTS  AND  CONTINGENCIES  -  Continued                       

Leases  -  Continued                                                  
------                                                                

     The  Company  currently  leases  aircraft  and  engines  to customers under
long-term  operating lease agreements.  In addition to minimum base rentals, the
lease  agreements  often  require additional rent based upon aircraft and engine
usage.  The  net  investment  in  aircraft  and  engines  held  for or leased to
customers  was  approximately  $12,321,202  and  $11,513,000 at May 31, 2001 and
2000,  respectively,  net  of  accumulated  depreciation  of  $1,652,082  and   
$1,319,298,  respectively.  At  May 31, 2001, the future rental income under the
long-term  operating  leases  are  approximately as follows:  2002 - $2,100,000,
2003  -  $2,100,000,  and  2004  -  $795,000.                                   

NOTE  G  -  INCOME  TAXES                                                       

     The  provision  for income taxes for the years ended May 31, 2001, 2000 and
1999  is  as  follows:                                                          

                                  2001                2000                1999
                              ----------          ----------          ----------
Current  provision:                                                   
             Federal           $     -             $     -          $     76,138
           State                   -                   -                   -
                                 -------              -------            -------
                                   -                   -                   -
                                     -                   -                76,138
          Deferred  provision    227,073              800,490            960,007
                                 -------              -------            -------
                               $ 227,073           $  800,490       $  1,036,145
                               =========           ==========       ============

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

                                               2001                 2000
                                              -----------          -----------
Deferred  tax  assets-  current:                            
             Bad  debt  reserve             $     108,000       $     62,000
             Inventory  capitalization            197,000            358,000
             Accrued  payroll                      95,000             86,000
             Accrued  vacation                     35,000             14,000
             Reserve  for  inventory              654,000            534,000
                                                  -------            -------

                                          $     1,089,000       $  1,054,000
                                          =     =========       =  =========

Deferred  tax  (liabilities)                                
benefits  -  non-current:                                 
              AIR41 Joint Venture          $     (281,000)     $     (281,000)
Depreciation  and                                 
               amortization                    (4,139,000)         (3,879,000)
Net  operating  loss                              
              carryforward  -  federal         3,846,000           3,923,000
Net  operating  loss                              
              carryforward  -  state             426,000             388,000
             Minimum  tax  credit  - federal     264,000             222,000
              Other,  net                         (32,000)            (27,000)
                                                   -------             -------
                                          $       84,000      $      346,000
                                          =       ======      =      =======

     The  Company's  policy  is  to  record  a  valuation  allowance against its
deferred tax assets if the Company believes that it is more likely than not that
it  will not recognize the deferred tax benefits.  Based on the Company's recent
earnings  history  and  management's  estimate  of  future  profits, the Company
believes  that  it  is  more  likely  than  not that its future profits will be 
sufficient  to  realize  these  benefits.                                       

                                                                     (continued)

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NOTE  G  -  INCOME  TAXES  -  Continued                                         

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

                                                2001        2000        1999
                                               -------     -------     -------

        Statutory  federal  rate                34.0%       34.0%      34.0%
Equity in net loss of unconsolidated                        
         joint venture                         3.9          -          -
Tax  expense(benefit)  from  net                            
         Operating loss  carryforward           -           .7         -
       State  income  taxes                     1.9          -         1.7
        Other                                     -          4.2       (1.1)
                                              -------     -------     ------
        Effective  tax  rate                    39.8%       38.9%      34.6%
                                                ======      ======      ======

     The  Company  has net operating loss carryforwards for federal tax purposes
of  approximately  $11.3  million.  The  net operating losses expire as follows:
2010  - $3,800,000, 2012 - $491,000 and 2020 - $7,020,000.  The Company also has
a  federal  minimum  tax credit carryover of approximately $264,000 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  H  -  STOCK  OPTIONS                                                      

Under  the  terms  of  the  Company's  1996  Stock Option Plan (the "Plan"), the
Company  has  967,782  shares  of  common  stock  reserved.  As of May 31, 2001,
245,207 shares are available to be issued under the Plan.  The exercise price of
all  options  granted by the Company to the employees equals the market price at
the  date  of  the  grant.  No  compensation  expense  has been recognized.  The
options, other than those issued to the executive officers, vest immediately and
expire  10  years  from  the  date  of  the  grant.                             

     On December 3, 1998, the Company's Board of Directors approved and ratified
the  repricing  of  certain unexercised employee stock options granted under the
Company's  stock option plans.  As a result, options granted to purchase 131,173
shares  of the Company's common stock were repriced from $4.50 - $6.94 per share
to  $3.31  per  share.  The 131,173 shares are reflected in both the granted and
cancelled  captions  in  the  accompanying  table for fiscal year ending May 31,
1999.  The  pro  forma effect on earnings from this repricing is included in the
pro  forma  net  earnings  shown  below.                                        

     Had  compensation  expense for the issuance of stock options under the Plan
been  determined  based  on  the  fair  value  of the options at the grant dates
consistent  with the method of SFAS 123, the Company's net earnings and earnings
per  share  would  have  been  changed  to  the  pro  forma  amounts  below.    

                            2001                 2000                 1999
                           -----------          -----------          -----------
Net  earnings                                                         
        As  reported   $     343,461     $     1,256,593     $     1,954,316
        Pro  forma     $     317,361     $     1,222,093     $     1,743,076

Basic  earnings  per  share                                           
        As  reported   $         .16     $           .57     $           .77
        Pro  forma     $         .15     $           .56     $           .68

Diluted  earnings  per  share                                         
        As  reported   $         .16     $           .55     $           .72
        Pro  forma     $         .15     $           .54     $           .64

                                                                     (continued)

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NOTE  H  -  STOCK  OPTIONS  -  Continued                                        

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

     The fair value of each option grant is estimated on the date of grant using
the  binomial  option-pricing  model  with  the  following  weighted-average    
assumptions  used  for  grants  in  fiscal  2001,  2000  and 1999, respectively:
dividend  yield of 0.0 percent for all years; expected volatility of 95 percent,
40  percent  and 40 percent; risk-free interest rates of 6 percent; 6.50 percent
and  5.50  percent;  and  expected  holding  periods  of  4  years.             

     A  summary of the status of the Company's fixed stock options as of May 31,
2001,  2000  and  1999, and changes during the years ending on those dates is as
follows:                                                                        

                                                        [Enlarge/Download Table]

                                       May  31, 2001                    May 31, 2000             May  31,  1999   
                                         Weighted  -                    Weighted  -              Weighted  -      
                                         Average                        Average                  Average          
                                         Exercise                       Exercise                 Exercise         
                        Shares              Price         Shares        Price        Shares       Price           
                        -------         ---------       ----------    ----------     -------    -------------     
                                                                                                                  
Outstanding  at                                                                                                   
  beginning  of year     529,947     $     3.13          593,154        $ 3.12        563,210     $     3.42      
     Granted              30,000           1.25           25,000          3.44        254,173           3.31      
     Exercised              -               -             (6,000)         3.26        (93,056)          3.10      
     Cancelled              -               -            (82,207)         3.10       (131,173)          4.78      
     Outstanding  at     --------     ----------        ---------      -------       --------      ---------      
       end  of  year     559,947     $     3.03          529,947        $ 3.13        593,154     $     3.12      
                         ========      =========        =========      =======       ========      =========      

 Options  exercisable                                                                                             
   at  end  of  year     559,947                         447,185                      437,174                     
     Weighted-average                                                                                             
       fair  value  of                                                                                            
       options                                                                                                    
       granted  during                                                                                            
       the year       $     0.87                      $     1.38                   $     1.28                     

     The  following  information applies to options outstanding at May 31, 2001:                                  

                                         Options  Outstanding                       Options  Exercisable          
                                         --------------------                       --------------------          
                                               Weighted  -                                                        
                                                Average                                                           
                                                Remaining           Weighted  -                    Weighted  -    
         Ranges  of                            Contractual          Average                        Average        
     Exercise  Prices          Shares             Life              Exercise Price     Shares      Exercise  Price
    ------------------      -----------      --------------         --------------    ---------   ----------------
       $  1.25                 30,000          9.5  years     $     1.25               30,000     $     1.25      
     $2.75  -  $3.44          529,947          6.35  years          3.13              529,947           3.13      
                              -------                                                 -------                     
     $1.25  -  $3.44          559,947                                                 559,947                     
                              =======                                                 =======                     


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NOTE  I  -  STOCK  REPURCHASE                                                   

     In  the  third  quarter  of 1999, the Company began acquiring shares of its
common stock in connection with a stock repurchase program approved by the Board
of  Directors  in  December  1998.  During  fiscal 2001, fiscal 2000 and the six
months  ended  May  31, 1999, the Company repurchased 168,700, 4,200 and 467,325
shares,  respectively  of  its common stock for a total expenditure of $149,299,
$18,711  and  $1,946,780,  respectively.  The  Company does not currently have a
formal  plan in place to purchase any additional shares; however, the Company is
authorized  by  the  Board to make further purchases if deemed to be in the best
interests  of  the  Company.  Any  such  purchases  must be also approved by the
Company's  lender.                                                              

NOTE  J  -  RELATED  PARTY  TRANSACTIONS                                        

     Under  the commission agreement entered into with the Company during fiscal
1994,  an  outside director is entitled to 3-4% of revenues generated from sales
to  customers brought in by the director.  The Company paid the outside director
approximately  $60,000,  $60,000  and  $96,000 for the years ended May 31, 2001,
2000  and  1999.  This  agreement  can  be canceled by either party at any time.

     The  Company  paid  an individual who was a director of the Company through
fiscal  2000, $86,000 during fiscal 1999 for services rendered to the Company in
connection  with the identification and evaluation of acquisition opportunities.

     An  executive  of the Company's partner in the AIR41 Joint Venture was also
an  executive  of  one  of  the Company's significant customers until the fourth
quarter  of fiscal 2000.  Total sales to this significant customer were $826,000
million  and  $1.6 million in fiscal 2000 and 1999, respectively.  As of May 31,
2000,  the  accounts receivable from this significant customer was approximately
$157,000, respectively.  During fiscal 1999, the Company purchased three engines
from  the  Company's  joint  venture  partner for $3,120,000.  The Company makes
advances  to  the  AIR41 Joint Venture on behalf of the Company's partner in the
AIR41 Joint Venture.  As of May 31, 2001 and 2000, the outstanding advances were
$156,568  and  $95,075, respectively, which are included in accounts receivable.

   The  notes  receivable  -  related  party  represents  amounts  due  from
North-South.  The  notes  receivable  are  collateralized  by  certain  of      
North-South's  aircraft  and  accrue  interest at a rate of 9.5% per annum.  The
future  principal  payments  on  the  notes  receivable  are as follows:  2002 -
$78,454,  2003  -  $77,357,  2004  -  $576,244,  and  2005  -  $72,113.         

     The  Company  is  currently  leasing  three aircraft to North-South.  Total
lease  and  service income recognized by the Company related to these leases was
approximately  $595,000  in  fiscal  2001.  In addition, during fiscal 2001, the
Company  sold  inventory  to  North-South  representing  sales  of approximately
$248,000.  The  Company  performs  certain  services  on  behalf of North-South.
Accordingly,  the  Company  charges  North-South  $5,000  per  month  for  these
services, which is reflected as an offset to selling, general and administrative
expenses.  As  of  May  31,  2001,  the amount due from North-South was $79,862,
which  is  included  in  accounts  receivable  as  of  May  31,  2001.          

     An  executive  officer  and  board member of the Company are members of the
Board  of  Directors  of  one  of  the  Company's  customers.  The  Company both
purchases  and  sells  inventory to this customer.  Total sales to this customer
were  $77,450,  $80,000 and $33,847 in fiscal 2001, 2000 and 1999, respectively.
As  of  May  31,  2001  and 2000, the accounts receivable from this customer was
approximately  $18,000  and  $20,000,  respectively.  Total  purchases from this
customer  were approximately $1.1 million, $1.6 million and $1.2 million in     
fiscal 2001, 2000 and 1999, respectively.  In fiscal 1999, the Company received 
$250,000 of consulting  income from this customer.  As of May 31, 2001 and      
2000, the Company has  a  payable  to  this  customer  of  approximately        
$330,000  and  $104,000, respectively.                                          

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NOTE  K  -  ACCRUED  LIABILITIES                                                

     Accrued  liabilities  at  May  31, 2001 and 2000 consisted of the following
items:                                                                          

                           2001                 2000
                          -----------          -----------

Customer  deposits           $     158,612     $     189,554          
Accrued  payroll                   377,760           555,101          
Accrued  property  taxes           118,499            88,795          
Other                              130,996           427,697          
                         -------           -------
                   $     785,867     $   1,261,147
                   =     =======     =   =========

NOTE  L  -  EMPLOYMENT  AGREEMENTS                                              

     In October 1996, the Company entered into employment agreements with two of
its  executive  officers with a term of five years.  Subsequent to May 31, 2001,
the  agreements  were extended through October 2005.  The agreements provide the
officers  with  a  certain  minimum  annual  salary  plus bonus.  The agreements
provide  the officers with an option to terminate their agreements and receive a
lump  sum payment equal to the officer's average annual compensation paid by the
Company  for  the most recent two years upon a change in control of the Company.

NOTE  M  -  QUARTERLY  FINANCIAL  INFORMATION  (UNAUDITED)                      

                                                        [Enlarge/Download Table]

                   First             Second             Third           Fourth                           
  Year            Quarter            Quarter            Quarter         Quarter          Total           
-----------      ----------         ---------          ---------       ---------       ---------         
             (In  Thousands,  Except  for  Per  Share  Information)                                      

 2001                                                                                                    
 ----                                                                                                    
                                                                                                         
Revenues                  $     6,770       $     4,675          $   5,221     $   4,859       $  21,525 
 Operating income                 623               727                476           544           2,370 
 Net  earnings  available                                                                                
  for common shareholders          70               117                 30           126             343 
 Earnings  per  share  -  basic   .03               .05                .01           .06             .16*
 Earnings  per  share                                                                                    
  -  diluted                      .03               .05                .01           .06             .16*

 2000                                                                                                    
 ----                                                                                                    
 Revenues                 $     8,999       $     6,207          $   5,359    $   5,639        $  26,204 
 Operating  income              1,297             1,118                622          677            3,714 
 Net  earnings  available                                                                                
  for  common  shareholders       597               454                116           90            1,257 
 Earnings per share - basic       .27               .21                .05          .04              .57 
 Earnings per share - diluted     .25               .20                .05          .04              .55*


     *     Difference  of  $.01  when  adding  the quarters is due to use of the
average  quarterly  stock  prices  in the quarterly earnings per share - diluted
calculations,  while the full year earnings per share - diluted calculation uses
the  average  yearly  stock  price.                                             

FINANCIAL STATEMENTS AND                                            
REPORT OF INDEPENDENT CERTIFIED                                     
PUBLIC ACCOUNTANTS                                                  

AIR 41 LLC                                                          

May 31, 2001 and 2000                                               

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C O N T E N T S     

                              Page

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS    1                         

FINANCIAL STATEMENTS                                                            

BALANCE SHEETS                                  2                   

STATEMENTS OF EARNINGS                          3                   

STATEMENT OF MEMBERS' CAPITAL                   4                   

STATEMENTS OF CASH FLOWS                        5                   

NOTES TO FINANCIAL STATEMENTS              6 - 10                   

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REPORT OF INDEPENDENT CERTIFIED                                                 
PUBLIC ACCOUNTANTS                                                              

Board of Directors                                                              
AIR 41 LLC                                                                      

We have audited the accompanying balance sheets of AIR 41 LLC (the "Company")   
as of May 31, 2001 and 2000, and the related statements of earnings, members'   
capital and cash flows for the years then ended.  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 auditing standards generally         
accepted in the United States of America.  Those standards require that we      
plan and perform the audit to obtain reasonable assurance about whether the     
financial statements are free of material misstatement.  An audit includes      
examining, on a test basis, evidence supporting the amounts and disclosures     
in the financial statements.  An audit also includes assessing the accounting   
principles used and significant estimates made by management, as well as        
evaluating the overall financial statement presentation.  We believe that       
our audits provide a reasonable basis for our opinion.                          

In our opinion, the financial statements referred to above present fairly, in   
all material respects, the financial position of AIR 41 LLC as of May 31, 2001  
and 2000 and the results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the       
United States of America.                                                       

/s/ Grant Thornton LLP                                                          

Miami, Florida                                                                  
August 2, 2001                                                                  

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AIR 41 LLC            
BALANCE SHEETS            
May 31,           

ASSETS            

                                                                [Download Table]

                                                    2001               2000     
                                                -----------        -----------  
                                                                                
Aircraft, net                                $   67,692,589     $   71,573,610  

Deferred debt costs, net of accumulated                                         
  amortization of $413,821 and $225,848 as                                      
  of May 31, 2001 and 2000, respectively            137,244            222,739  
Other assets                                         75,000             -       
                                                -----------        -----------  
                                Total assets   $   67,904,833     $   71,796,349
                                             =  ===========     =  ===========  

                       LIABILITIES AND MEMBERS' CAPITAL                         

Current liabilities                                                             
     Accounts payable and accrued expenses   $      172,204     $      262,955  
     Deferred revenue                               600,000            600,000  
     Current portion of long-term debt           33,149,983         22,234,761  
                                                -----------        -----------  
                   Total current liabilities     33,922,187         23,097,716  

Long-term debt, net of current portion           22,948,658         40,978,361  

Commitment and contingencies                          -                 -       

Members' capital                                  3,635,584          3,353,327  
Retained earnings                                 7,398,404          4,366,945  
                                                -----------        -----------  

                  Total members' capital         11,033,988          7,720,272  
                                                -----------        -----------  

                  Total  liabilities and                                        
                     members' capital        $   67,904,833     $   71,796,349  
                                             =  ===========     =  ===========  

The accompanying notes are an integral part of these statements.                

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AIR 41 LLC                
STATEMENTS OF EARNINGS                

Years Ended May 31,                 

                                                        [Enlarge/Download Table]


                                                   2001            2000            1999   
                                               -----------     -----------     -----------
                                                                                          
Rental revenue                              $   13,949,000  $   14,475,000  $   10,200,000

Expenses                                                                                  
     Interest expense                            5,348,029       5,770,912       4,522,184
     Depreciation and amortization expense       4,901,512       5,189,861       3,625,098
                                               -----------     -----------     -----------
                                                10,249,541      10,960,773       8,147,282
                                               -----------     -----------     -----------

                    Net earnings            $    3,699,459  $    3,514,227  $    2,052,718
                                            =  ===========  =  ===========  =  ===========


The accompanying notes are an integral part of these statements.                

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AIR 41 LLC            

STATEMENT OF MEMBERS' CAPITAL           

Years Ended May 31, 2001 and 2000           

                                                                [Download Table]


                              Members'       Retained                    
                              Capital        Earnings           Total    
                            -----------     -----------      ----------- 
                                                                         
Balance at May 31, 1999  $    3,174,426  $    1,572,718   $    4,747,144 
Capital contributions           178,901           -              178,901 
Net earnings                      -           3,514,227        3,514,227 
Distributions                     -            (720,000)        (720,000)
                            -----------     -----------      ----------- 
Balance at May 31, 2000       3,353,327       4,366,945        7,720,272 
Capital contributions           282,257           -              282,257 
Net earnings                      -           3,699,459        3,699,459 
Distributions                     -            (668,000)        (668,000)
                            -----------     -----------      ----------- 
Balance at May 31, 2001  $    3,635,584  $    7,398,404   $   11,033,988 
                         =  ===========  =  ===========   =  =========== 


The accompanying notes are an integral part of these statements.                

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AIR 41 LLC            
STATEMENTS OF CASH FLOWS            

Years Ended May 31,             

                                                                [Download Table]

                                                    2001               2000    
                                                -----------        ----------- 
                                                                               
Net cash flows from operating activities:                                      
    Net earnings                             $    3,699,459     $    3,514,227 
    Adjustments to reconcile net earnings                                      
    to cash provided by operating activities:                                  
       Depreciation and amortization              4,901,512          5,189,861 
       Changes in assets and liabilities:                                      
         Other assets                               (75,000)             -     
         Accounts payable and accrued expenses      (90,751)           (20,715)
                                                -----------        ----------- 
     Net cash provided by operating activities    8,435,220          8,683,373 

Cash flows from investing activities:                                          
    Additions to aircraft                          (832,518)          (162,721)
                                                -----------        ----------- 
     Net cash used in investing activities         (832,518)          (162,721)

Cash flows from financing activities:                                          
    Principal payments on long-term debt         (7,926,491)        (7,918,179)
    Proceeds from long-term debt                    812,010              -     
    Capital contributions                           282,257            178,901 
    Distributions                                  (668,000)          (720,000)
    Payment of debt costs                          (102,478)           (61,374)
                                                -----------        ----------- 
     Net cash used in financing activities       (7,602,702)        (8,520,652)
                                                -----------        ----------- 

Net change in cash and cash equivalents               -                  -     

Cash and cash equivalents at beginning of period      -                  -     
                                                -----------        ----------- 

Cash and cash equivalents at end of period   $        -         $        -     
                                             =  ===========     =  =========== 

Supplemental disclosure of cash flow information:                              
     Cash paid during the year for:                                            
         Interest                            $    5,317,279     $    5,813,845 
                                             =  ===========     =  =========== 
         Taxes                               $        -         $        -     
                                             =  ===========     =  =========== 


The accompanying notes are an integral part of these statements.                

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AIR 41 LLC            

NOTES TO FINANCIAL STATEMENTS             

May 31, 2001 and 2000             

NOTE A - SIGNIFICANT ACCOUNTING POLICIES                                        

Basis of Presentation                                                 
---------------------                                                 

    The statements include the accounts of AIR 41 LLC (the "Company") which is
equally owned by International Airline Support Group ("IASG") and Aircorp, Inc. 

Nature of Operations                                                  
--------------------                                                  

   The Company is the owner and lessor of twenty McDonnell Douglas aircraft.
The aircraft are leased primarily to Scandinavian Airline Systems ("SAS"), a    
company based in Sweden.  As of May 31, 2001, sixteen of the twenty aircraft    
are leased to SAS which represents approximately 93% of the rental revenue      
for the year ended May 31, 2001.                                                

Cash Flow                                                             
---------                                                             

All monthly rental income from operations is paid directly to the     
Company's lender.  The lender applies the portion of the rental income to       
the respective monthly principal and interest due on the Company's debt and     
the remaining portion is distributed back to the members of the Company.        
Accordingly, the Company does not retain any cash.                              

Aircraft and Depreciation                                             

The aircraft is recorded at cost less accumulated depreciation.       
Depreciation is computed using the straight-line method over an estimated       
economic life of twelve years with an estimated salvage value equal to 25%      
of the original asset cost.  Major improvements to aircraft are capitalized     
when incurred and depreciated over the useful life of the improvement.          
The Company evaluates the carrying value of the aircraft based upon changes     
in market and other physical and economic conditions and will record write-     
downs to recognize a loss in the value of the aircraft when management          
believes that, based on expected future cash flows, the recoverability of the   
Company's investment has been impaired.  The Company does not record            
depreciation expense during the period the aircraft are not in service.         

Operating Leases                                                      

The aircraft leases are accounted for as operating leases and have an 
average original term of 39 months.  Lease rental revenues are recognized in    
equal installments over the terms of the related leases.                        

                                                                     (continued)
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NOTE A - SIGNIFICANT ACCOUNTING POLICIES - Continued                            

Operating Leases - Continued                                            

   Currently, the Company has no further commitment related to the disposition
of these aircraft upon the termination of the leases, although, the Company is  
actively marketing these aircraft.  A future impairment in the value of these   
aircraft and/or the inability of the Company to sell or re-lease these aircraft,
after they come off lease, could have a significant negative impact on the      
Company's operations.                                                           

Deferred Debt Costs                                                     
-------------------                                                     

  Deferred debt costs represent costs incurred related to the loan with Finova
Capital Corporation.  These costs are amortized using the effective interest    
rate method.                                                                    

Income Taxes                                                            
------------                                                            

  Income taxes on earnings are payable personally by the members pursuant to
an election under section 701 of the Internal Revenue Code and the Company is   
not taxed as a Corporation. Accordingly, no provision has been made for federal 
income taxes in these financial statements.                                     

Revenue Recognition                                                     
-------------------                                                     

  Rental income is recognized on a straight-line basis over the term of each
lease and when collection is reasonably assured.                                

Deferred Revenue                                                        
----------------                                                        

Lease revenues received in advance, but not yet earned, are deferred and
recognized as rental revenue when earned.                                       

Use of Estimates                                                        

  In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to   
make estimates and assumptions that effect the reported amounts of assets and   
liabilities and the disclosure of contingent assets and liabilities at the date 
of the financial statements and revenue and expenses during the reporting       
period.  Actual results could differ from those estimates.                      

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NOTE B - AIRCRAFT                                                               

Net Investment in Aircraft                                              
--------------------------                                              

The Company's net investment in aircraft as of May 31, consisted of the 
following:                                                                      

                                 2001                 2000
                                -----------          -----------
Aircraft at cost                $    80,947,795      $    80,115,277    
Less:  Accumulated depreciation     (13,255,206)          (8,541,667)   
                                -----------          -----------

       Aircraft, net        $    67,692,589      $    71,573,610
                            =    ==========      =    ==========

The above aircraft balance of $80,947,795 at May 31, 2001 represents seventeen  
aircraft on lease and three aircraft available for lease.                       

NOTE C - FUTURE MINIMUM RENTAL INCOME                                           

 The following is a schedule by year of future minimum rental income under
the leases as of May 31, 2001:                                                  

Year           Amount                                             
------        ----------                                            
2002     $   10,644,000                                           
2003          4,884,000                                           
-    ---------                                  
Total     $   15,528,000                                            
=   ==========                                  

In September 1998, the Company entered into a lease agreement with      
Scandinavian Airline Systems ("SAS") to lease twenty McDonnell Douglas DC-9-41  
aircraft.  The monthly lease payments are $60,000 per aircraft and the average  
original lease term was 39 months.  The operational responsibility for the      
aircraft rests with the lessee, and at its cost must maintain, service, repair  
and overhaul the aircraft so as to keep the aircraft in good repair condition   
and appearance and airworthy in all respects and to the same standard as        
lessee maintains, services, repairs and overhauls other commercial jet aircraft 
which it owns or leases.  However, the Company is responsible for the cost      
related to any Airworthiness Directives over a certain amount, as defined in    
the Lease Agreement.                                                            

  Title to the aircraft remains with the lessor throughout the lease period,
however, the lessee is responsible for the insurance on the aircraft.           

IASG and Aircorp, Inc. collectively have guaranteed the Company's       
obligation as the lessor of the aircraft.                                       

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NOTE D - DEBT                                                                   

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

                             2001               2000
                            -----------        -----------
Note payable                 $    56,098,641    $    63,213,122     
Less:  Current maturities         33,149,983         22,234,761     
                            -----------        -----------
                        $    22,948,658    $    40,978,361
                        =    ==========    =    ==========

In September 1998, the Company entered into a loan agreement with Finova
Capital Corporation in the amount of $76 million.  In connection with this      
financing, each of the Company's members posted a $1.5 million letter of        
credit.  The annual interest rate on the loan is fixed at 8.63% and the loan    
is collateralized by the twenty aircraft as well as the interest in the SAS   
leases (see Note B).  During the original terms of the leases, the Company is   
required to repay principal and interest on the debt based on 95% of the rental 
income received from the lease of the aircraft.  Once an aircraft lease expires,
the remaining principal on the aircraft is due to Finova Capital Corporation.   
If the aircraft is re-leased, the repayment terms of the debt on the aircraft   
is modified in accordance with the new lease terms.  If the aircraft is sold,   
the remaining principal due on the aircraft is repaid in full with the proceeds 
from the aircraft sale.  In fiscal 2001, Finova Capital Corporation financed    
maintenance to certain of the aircraft totaling approximately $812,000, which   
has been added to the total outstanding principal on the loan.  In fiscal 2002, 
six aircraft are due to come off lease.  Accordingly, the remaining principal   
due on these six aircraft as of May 31, 2001 is classified as part of current   
portion of long-term debt on the accompanying May 31, 2001 Balance Sheet.       
If any of these six aircraft are re-leased, the repayment terms of the debt on  
the re-leased aircraft will be modified so that the principal will be due over  
the term of the new lease.  This loan represents non-recourse debt to IASG and  
Aircorp, Inc.  Currently, the Company has no further commitment related to the  
disposition of these aircraft upon the termination of these leases, although it 
is actively marketing these aircraft.                                           

 A future impairment in the value of the aircraft or should the Company be
unable to re-lease the aircraft, the Company may be forced to sell the aircraft 
at unfavorable terms.  In addition, if the Company is unable to re-lease the    
aircraft, the Company's lender may provide notice of default and then would     
have the ability to foreclose on all the aircraft.  Either of these events      
could have a significant negative impact on the Company's operations.           

The following is a schedule of the future principal payments as of May 31, 2001:

2002  $     33,149,983                                              
2003        22,948,658                                              
----------                                  
$     56,098,641                                        
================                                        

NOTE E - RELATED PARTY TRANSACTIONS                                             

Funding of Expenses                                                             

The members pay all expenses on behalf of the Company, which represent primarily
aircraft maintenance and improvements.  The payment of these expenses is        
accounted for by the Company as capital contributions.                          

Allocation of Expenses                                                          

Certain management and accounting expenses of the Company are absorbed by IASG  
and have not been allocated to the Company.  These expenses are deemed to be    
insignificant.                                                                  

Aircraft Lease                                                                  

In fiscal 2001 and 2000, the Company leased one of its aircraft to an entity    
controlled by the owner of Aircorp, Inc., a member of the Company.  Total       
rental income from this related party was $850,000 and $75,000 for the years    
ended May 31, 2001 and 2000, respectively.                                      

AIR 41 LLC                                                                      
FA-9                      

Dates Referenced Herein   and   Documents Incorporated by Reference

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		7/12/96		25					8-K,  S-4,  SC 13E4
		5/31/96		25					10-K/A,  10-K405
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