AVIATION DISTRIBUTORS INC, 424B1, 1997-03-04

AVIATION DISTRIBUTORS INC
424B1, 1997-03-04
MACHINERY, EQUIPMENT & SUPPLIES

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<PAGE>
FILED PURSUANT TO RULE 424(B)(1)
REG. STATEMENT NO. 333-8061
PROSPECTUS

[LOGO]
1,200,000 SHARES

AVIATION DISTRIBUTORS, INC.

COMMON STOCK

All of the 1,200,000 shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Offering") are being offered by Aviation
Distributors, Inc., a Delaware corporation ("ADI" or the "Company").

Prior to this Offering, there has been no public market for the Common Stock
of the Company. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price of the Common Stock.

The Company has been approved for quotation on the Nasdaq Stock Market's
SmallCap Market (the "Nasdaq SmallCap Market") under the symbol "ADIN."

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

SEE "RISK FACTORS" BEGINNING AT PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
Per Share...................................... $5.00 $.45 $4.55
Total (3)...................................... $6,000,000 $540,000 $5,460,000
</TABLE>

(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. Excludes the value of warrants to purchase up to 120,000 shares of
Common Stock (the "Representative's Warrants") granted to the representative
of the several Underwriters (the "Representative"). See "Underwriting."

(2) Before deducting expenses of the offering payable by the Company estimated
at $710,000, including the Representative's non-accountable expense
allowance. See "Underwriting."

(3) The Company has granted to the Underwriters a 45-day option to purchase up
to 180,000 additional shares of Common Stock to cover over-allotments, if
any. To the extent that the option is exercised, the Underwriters will offer
the additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Company will be $6,900,000, $621,000 and
$6,279,000, respectively. See "Underwriting."

The shares of Common Stock are offered by the Underwriters subject to prior
sale, when, as and if delivered to and accepted by them, subject to certain
conditions. Delivery of the shares is expected against payment therefor on or
about March 7, 1997, at the offices of Cruttenden Roth Incorporated, Irvine,
California or through the facilities of the Depository Trust Company.

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

CRUTTENDEN ROTH
INCORPORATED
<PAGE>
THE DATE OF THIS PROSPECTUS IS MARCH 3, 1997
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS (i) ASSUMES NO EXERCISE OF
THE UNDERWRITERS' OVER-ALLOTMENT OPTION, (ii) GIVES EFFECT TO A 3,000 FOR 1
EXCHANGE OF THE COMMON STOCK OF THE COMPANY EFFECTED IN CONNECTION WITH THE
COMPANY'S REINCORPORATION IN THE STATE OF DELAWARE IN JULY 1996 AND (iii) GIVES
EFFECT TO A 0.85 FOR 1 REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK IN
AUGUST 1996. SEE "UNDERWRITING." INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."

THE COMPANY

Aviation Distributors, Inc. (the "Company") is a supplier of new and
overhauled aircraft parts to major commercial airlines worldwide. The Company
locates, acquires and supplies parts for all major aircraft. Additionally, the
Company enters into consignment and marketing agreements with major commercial
airlines, distributors and original equipment manufacturers ("OEMs"), which
allows the Company to offer a wide range of parts for sale without certain risks
and financing costs associated with owned inventory. The aircraft parts offered
by the Company include those manufactured by Airbus, Boeing, General Electric,
Lockheed, McDonnell Douglas, Pratt & Whitney and Rolls Royce. Sales have
increased from $2.8 million in 1992 to $7.2 million in 1993, $16.4 million in
1994, $22.7 million in 1995 and $24.9 million in 1996. The 1995 sales amount
includes one significant sale of two whole aircraft for $6.5 million. If the
opportunity exists, the Company may sell whole aircraft in the future.

The worldwide aircraft parts market is highly fragmented and parts are
supplied by many types of suppliers, including airlines, OEMs and numerous
distributors, fixed base operators, Federal Aviation Administration ("FAA")
certified facilities, traders and brokers. The Canaan Group Ltd., a management
consulting firm specializing in the aircraft and aerospace industry, estimated
that aircraft parts inventories valued at $45 billion existed in May 1995, with
a carrying cost of $10 billion annually and that 80% of such inventories were
owned by airlines. The Company believes that a portion of such inventory is
available for marketing, consignment and purchase.

The Company also believes that, based on other significant market trends,
its target market will continue to grow. According to Boeing's 1996 Market
Outlook, the worldwide fleet of commercial aircraft and air cargo aircraft is
expected to grow from 11,066 aircraft at the end of 1995 to 23,080 aircraft by
2015. In the long-term, the Company believes that a larger aircraft fleet will
necessitate a greater number of aircraft spare parts to supply such a fleet.
Furthermore, to reduce the high costs associated with excess aircraft parts
inventories, many airlines are reducing their parts inventories through bulk
sales to, and marketing and consignment agreements with, aircraft parts
suppliers. Additionally, airlines are decreasing the number of suppliers from
which parts are purchased in an effort to reduce purchasing costs and increase
quality and service. Finally, as a result of safety concerns regarding
unapproved parts, regulatory agencies are increasing emphasis on the tracking of
parts by requiring increased documentation for aircraft parts.

The Company's objectives are to take advantage of trends in the aircraft
parts market and to become a leading supplier of quality parts to airlines
worldwide. The Company's strategy is comprised of the following components:
providing excellent customer service, supplying quality parts, focusing sales
efforts on major commercial airlines, increasing access to inventory through
both consignment and purchases, and expanding its business globally. A key
component of the Company's business strategy is to implement a program to
effectively contain expenses.

The Company was established in October 1988, incorporated in February 1992
as a California corporation and reincorporated in July 1996 as a Delaware
corporation. The Company's executive offices are located at 1 Wrigley Drive,
Irvine, California 92618 and its telephone number at that address is (714)
586-7558.

3
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company........................ 1,200,000 shares

Common Stock to be outstanding after the Offering.......... 2,985,000 shares (1)

Use of proceeds............................................ To repay approximately $3.8
million of the amount
outstanding under the Company's
lines of credit, to repay an
aggregate of $400,000 lent to
the Company by certain of its
employees, to fund a portion of
a legal settlement entered into
by the Company and for general
corporate purposes, including
working capital. See "Use of
Proceeds."

Nasdaq SmallCap Market symbol.............................. ADIN
</TABLE>

- ------------------------
(1) Excludes an aggregate of 180,000 shares of Common Stock that may be sold by
the Company upon exercise of the Underwriters' over-allotment option. Also
excludes 120,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants and 150,000 shares of Common Stock issuable upon
the exercise of options granted pursuant to the 1996 Stock Option Plan
(defined herein). See "Underwriting" and "Management -- Employee Benefit
Plans."

4
<PAGE>
SUMMARY FINANCIAL DATA

The Summary Financial Data presented below are derived from the Consolidated
Financial Statements of the Company and are qualified in their entirety by, and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................................ $ 16,369 $ 22,652 $ 24,871
Cost of sales............................................................ 11,809 18,680 18,162
Gross profit............................................................. 4,560 3,972 6,709
Legal settlement expense................................................. -- -- 1,375
Selling and administrative expenses...................................... 3,958 3,757 4,486
Income from operations................................................... 602 215 848
Interest expense, net.................................................... 278 622 633
Net income (loss)........................................................ 208 (215) 315
Net income (loss) per share.............................................. 0.12 (0.12) 0.18
Shares used in computing net income (loss) per share..................... 1,785,000 1,785,000 1,785,000
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
AS ADJUSTED
ACTUAL (1)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 17 $ 589
Restricted cash....................................................................... 63 63
Working capital (deficit)............................................................. (271) 4,726
Total assets.......................................................................... 17,108 17,608
Total debt............................................................................ 12,283 8,033(2)
Total stockholders' equity............................................................ 468 5,218
</TABLE>

- ------------------------
(1) Adjusted for the sale of 1,200,000 shares of Common Stock by the Company in
the Offering and the application of the net proceeds therefrom as if the
Offering had occurred on December 31, 1996. See "Use of Proceeds."

(2) Does not include loans aggregating $400,000 made to the Company by certain
of its employees which occurred subsequent to December 31, 1996. The loans
will be paid from the proceeds of the Offering but are not required as an
adjustment to the Company's actual debt amount at December 31, 1996. See
"Certain Transactions."

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

5
<PAGE>
RISK FACTORS

PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, TOGETHER WITH OTHER INFORMATION SET FORTH
IN THIS PROSPECTUS.

FLUCTUATIONS IN OPERATING RESULTS

The Company's operating results are affected by many factors, including the
timing of orders from large customers, the timing of expenditures to purchase
inventory in anticipation of future sales, the timing of bulk inventory
purchases, the mix of available aircraft parts contained, at any time, in the
Company's inventory and many other factors largely outside the Company's
control. Given that a large portion of the Company's operating expenses are
relatively fixed, there can be no assurance that external factors such as those
described above will not have a material adverse impact on the Company's
operating results. Although the Company generated operating income of $848,000
for the fiscal year 1996, there can be no assurance that the Company will
continue to be profitable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

COMPETITION

The aircraft parts supply industry is highly competitive. Competition is
generally based on availability of product, reputation, customer service, price
and lead time. Some of the Company's competitors have access to greater
financial and other resources than the Company. There can be no assurance that
the Company will be able to effectively compete with such companies in the
future. See "Business -- Competition."

DEPENDENCE ON KEY PARTS SUPPLIERS

The Company is dependent on certain domestic and international OEMs for many
key parts and components. Many of these OEMs maintain their own parts
inventories and distribution services and compete with the Company. The Company
believes that these manufacturers will continue to adhere to their current
policy of supporting qualified independently-owned aircraft parts suppliers.
However, if the policies of such manufacturers should change or if certain OEMs
require scarce parts for their own distribution operations, the Company may
incur shortages in the supply of required parts and components. An inability of
the Company to maintain access to parts and components on commercially
reasonable terms would have a material adverse effect on the Company's business.

FOREIGN OPERATIONS

The Company's foreign activities, which account for a significant percentage
of the Company's total sales (62% for the year ended December 31, 1996), are
subject to the risks customarily associated with such activities. These include
controls, expropriation, nationalization and other economic, political and
regulatory policies of local governments as well as the laws and policies of the
United States affecting foreign trade and investment. To date, the Company has
not encountered any significant problems in its foreign activities; however
there can be no assurance that it will not encounter such problems in the
future. The Company currently incurs $0.75 in insurance expense per $100 in
foreign sales to help mitigate the risks associated with such activity.
Consequently, an increase in foreign sales will result in increased insurance
expense for the Company. All of the Company's sales were transacted in U.S.
dollars in fiscal year 1996. As of December 31, 1996 the Company had a minimal
amount of owned assets outside the United States.

REGULATION

Parts that are installed in aircraft are required to be certified by FAA
approved manufacturing and repair facilities prior to installation. The Company
does not operate repair stations and is not otherwise directly regulated by the
FAA. As a result of public concerns that have arisen regarding deregulation of
the aviation industry and inadequate aircraft maintenance procedures, there is a
possibility that new and more stringent FAA regulations could be adopted. There
can be no assurance that the Company will not become subject to direct
regulation by the FAA, or that any new regulations adopted by the FAA will not
have a material adverse effect on the Company's business.

6
<PAGE>
PRODUCT LIABILITY

The Company neither manufactures nor repairs aircraft parts and requires
that all of the parts that it sells be properly documented and traceable to
their original source. Although the Company has never been subject to product
liability claims, there is no guarantee that the Company could not be subject to
liability from its potential exposure relating to sales of faulty aircraft parts
in the future. The Company does not currently maintain product liability
insurance to protect it from such claims, but intends to obtain such insurance
in the future. There can be no assurance that such coverage will be obtained,
or, if obtained, that it will be adequate to fully protect the Company from any
liabilities it might incur. An uninsured loss could have a material adverse
effect upon the Company's financial condition.

CONCENTRATION OF CREDIT RISK

As part of its business strategy, the Company may, from time to time,
purchase high price items such as engines and whole aircraft on an opportunistic
basis. This activity can lead to a high proportion of net sales and trade
accounts receivables from a few customers. As of December 31, 1996, in
connection with a 1995 transaction involving the sale of whole aircraft, the
Company had a note receivable from one customer in the amount of approximately
$4.7 million, which is secured by an irrevocable letter of credit. See Note 5 of
Notes to Consolidated Financial Statements, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions." For the years ended December 31, 1994, 1995 and 1996, the Company
wrote off an aggregate of approximately $206,000 as uncollected accounts
receivable. See Note 14 of Notes to Consolidated Financial Statements.

FUTURE CAPITAL REQUIREMENTS

The Company expects its cash requirements to increase significantly in
future periods. The Company will require substantial funds to purchase inventory
on a bulk basis. Although the Company believes that the net proceeds from the
Offering, together with available cash from operations and borrowings under the
Credit Facilities, will be sufficient to meet its cash requirements for at least
the next twelve months, there can be no assurance that the Company will not
require additional financing during such period or that financing will be
available on acceptable terms, if at all. In addition, the $4.5 million Credit
Facility (defined herein) expires on March 31, 1997. Such Credit Facility may be
extended at the option of the Company to March 31, 1998. If the Company does not
elect to extend the expiration date of the $4.5 million Credit Facility, it will
be required to seek additional capital from alternative sources. There can be no
assurance that such additional capital will be available on a timely basis and
at acceptable terms, if at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

DEPENDENCE UPON KEY PERSONNEL

The Company believes that its continued success depends to a significant
extent on the management and other skills of Osamah Bakhit, the Chief Executive
Officer of the Company, as well as its ability to retain other key employees and
to attract skilled personnel in the future to manage the growth of the Company.
The Company has obtained a key man life insurance policy in the amount of $3
million on Mr. Bakhit and has entered into a long-term employment agreement with
Mr. Bakhit, who will own approximately 60% of the Company's outstanding Common
Stock following the completion of the Offering (approximately 56% if the
over-allotment option is exercised). The loss or unavailability of the services
of Mr. Bakhit could have a material adverse effect on the Company.

CONTROL BY PRINCIPAL STOCKHOLDER

Following the consummation of the Offering, Mr. Bakhit (the "Principal
Stockholder") will have majority control of the Company and the ability to
control the election of directors and the results of other matters submitted to
a vote of stockholders. Such concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. The Board of
Directors of the Company is expected to be initially comprised entirely of
designees of Mr. Bakhit. See "Principal Stockholder" and "Management."

7
<PAGE>
FUTURE SALES BY PRINCIPAL STOCKHOLDER; SHARES ELIGIBLE FOR FUTURE SALE

Immediately after the Offering, Mr. Bakhit will beneficially own
approximately 60% of the outstanding Common Stock (approximately 56% if the
over-allotment option is exercised). Subject to the restrictions set forth
below, Mr. Bakhit will be free to sell such shares and may determine to sell
them from time to time to take advantage of favorable market conditions or for
any other reason. Future sales of shares of Common Stock by the Company and its
stockholders could adversely affect the prevailing market price of the Common
Stock. The Company and Mr. Bakhit have entered into a lock-up agreement with
Cruttenden Roth Incorporated ("CRI"), as representative (the "Representative")
of the Underwriters, pursuant to which the Company and Mr. Bakhit have agreed,
subject to certain exceptions, not to, directly or indirectly, (i) sell, grant
any option to purchase or otherwise transfer or dispose of any Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock or
file a registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the foregoing or (ii) enter into any swap or
other agreement or transaction that transfers, in whole or in part, the economic
consequence of ownership of the Common Stock, without the prior written consent
of the Representative, for a period of 180 days after the date of this
Prospectus, with respect to the Company, and a period of 365 days after the date
of this Prospectus, with respect to Mr. Bakhit; provided that Mr. Bakhit will be
permitted to make a bonafide pledge of certain shares of Common Stock to secure
borrowings that are recourse to Mr. Bakhit and are incurred by Mr. Bakhit to
repay indebtedness owed by Mr. Bakhit to the Company (provided that such pledgee
agrees to be bound by the terms of such lock-up agreement). See "Certain
Transactions." After such time, 1,785,000 shares of Common Stock beneficially
held by Mr. Bakhit will be eligible for sale pursuant to Rule 144 promulgated
under the Securities Act. See "Shares Eligible for Future Sale" and
"Underwriting."

ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained. The initial public offering price of the Common Stock offered hereby
will be determined by negotiations among the Company and the Representative and
may not be indicative of the market price for the Common Stock after the
Offering. Among the factors to be considered in such negotiations are the
preliminary demand for the Common Stock, the prevailing market and economic
conditions, the Company's results of operations, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, an assessment of the Company's management, the
consideration of these factors in relation to the market valuation of comparable
companies in related businesses, the current condition of the markets in which
the Company operates and other factors deemed relevant. The market price for
shares of the Common Stock may be volatile and may fluctuate based upon a number
of factors, including, without limitation, business performance, news
announcements or changes in general economic and market conditions. See
"Underwriting."

DILUTION

The initial public offering price is substantially higher than the book
value per share of Common Stock. Investors purchasing shares of Common Stock in
the Offering will therefore incur immediate and substantial dilution of $3.25
per share in the net tangible book value of the Common Stock from the initial
public offering price. See "Dilution."

ABSENCE OF PAYMENT OF DIVIDENDS

The Company has never declared or paid cash dividends on the Common Stock.
The Company currently anticipates that it will retain all future earnings for
use in the operation and growth of its business and does not anticipate paying
any cash dividends in the foreseeable future. See "Dividend Policy."

8
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,200,000 shares of
Common Stock offered by the Company hereby are estimated to be $4.75 million
after deducting the estimated underwriting discounts and commissions and the
expenses of the Offering.

Of the net proceeds to the Company from the Offering, approximately $3.8
million will be used to repay a portion of the amount outstanding under two
revolving lines of credit (each, a "Credit Facility" and together, the "Credit
Facilities") held by Far East National Bank ("Far East Bank"), $400,000 will be
used to repay loans made to the Company by certain of its employees, $450,000
will be used to fund a portion of a legal settlement entered into by the
Company, and approximately $100,000 will be used for general corporate purposes,
including reducing the Company's vendor payables and providing working capital.
The Credit Facilities bear an interest rate of prime plus 1.0 to 1.5 percent and
provide for maximum borrowings of $6.5 million. The $4.5 million Credit Facility
matures on March 31, 1997, which may be extended at the option of the Company to
March 31, 1998. The $2.0 million Credit Facility matures on August 31, 1997. As
of January 31, 1997, $6.0 million was outstanding under the Credit Facilities.
The proceeds from the Credit Facilities were used for inventory purchases. See
"Certain Transactions" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

Pending the foregoing uses, the Company intends to invest the net proceeds
of the Offering in short-term, interest-bearing, investment grade securities.

DIVIDEND POLICY

Since inception, the Company has not declared or paid any cash dividends on
its capital stock. The Company currently intends to retain any future earnings
for funding growth and, therefore, does not anticipate paying any cash dividends
in the foreseeable future. Additionally, the Company's Credit Facilities contain
covenants restricting the payment of dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

9
<PAGE>
CAPITALIZATION

The following table sets forth the short-term debt and capitalization of the
Company at December 31, 1996 and as adjusted to give effect to the Offering and
the application of the net proceeds thereof. See "Use of Proceeds." This table
should be read in conjunction with the Company's Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total Short-Term Debt(1)............................................................. $ 8,263 $ 4,013
----------- -----------
----------- -----------
Long-Term Debt:
Note payable, net of current portion(2)............................................ 3,057 3,057
Mortgage, net of current portion(3)................................................ 921 921
Other, net of current portion(4)................................................... 42 42
----------- -----------
Total Long-Term Debt............................................................... $ 4,020 $ 4,020
----------- -----------
----------- -----------
Stockholder's Equity:
Common stock....................................................................... $ 18 $ 30
Additional paid in capital......................................................... 389 5,127
Retained earnings.................................................................. 61 61
----------- -----------
Total Stockholder's Equity....................................................... 468 5,218
----------- -----------
Total Capitalization............................................................. $ 4,488 $ 9,238
----------- -----------
----------- -----------
</TABLE>

- ------------------------
(1) Short-term debt includes the Credit Facilities that bear an interest rate of
prime plus 1.0 to 1.5 percent and current portions of long-term debt and
capitalized leases and a note payable executed by the Company in connection
with a legal settlement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".

(2) This debt consists of a note payable to a financial institution used to
purchase a whole aircraft, secured by a customer note receivable.

(3) This debt consists of a mortgage for the Company's headquarters in Irvine,
California.

(4) Other debt consists of notes payable for equipment, inventory and
automobiles and capitalized amounts outstanding under various capitalized
leases associated with the Company's facilities.

10
<PAGE>
DILUTION

The net tangible book value of the Company's Common Stock as of December 31,
1996, was $468,000 or approximately $.26 per share. "Net tangible book value per
share" represents the amount of the Company's stockholders' equity, less
intangible assets, divided by the number of shares of Common Stock outstanding.
At December 31, 1996, the Company had no intangible assets. After giving effect
to the sale of the 1,200,000 shares of Common Stock offered by the Company
hereby and after deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company, the Company's pro forma net tangible
book value at December 31, 1996 would have been $5,218,000 or $1.75 per share.
This represents an immediate increase in pro forma net tangible book value of
$1.49 per share to the existing stockholder and an immediate dilution in net
tangible book value of $3.25 per share to new investors purchasing Common Stock
in the Offering. The following table illustrates the foregoing information with
respect to dilution to new shareholders on a per share basis:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 5.00
Net tangible book value per share before the Offering...................... $ .26
Increase per share attributable to new investors........................... 1.49
Pro forma net tangible book value per share after the Offering............... 1.75
---------
Dilution per share to new investors.......................................... $ 3.25
---------
---------
</TABLE>

The following table sets forth, on a pro forma basis as of December 31,
1996, the differences between the existing stockholder and the purchasers of
shares in the Offering with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholder.............................. 1,785,000 60% $ 407,000 6% $ .23
New investors (1)................................. 1,200,000 40 6,000,000 94 5.00
------------- ----- ------------- --------- -----
Total......................................... 2,985,000 100% $ 6,407,000 100% $ 2.15
------------- ----- ------------- --------- -----
------------- ----- ------------- --------- -----
</TABLE>

- ------------------------
(1) The underwriters have the option to purchase 180,000 shares of Common Stock
from the Company to cover over-allotments, if any, in connection with the
Company's sale of the Common Stock.

Assuming the underwriters exercise the over-allotment option, the percentage
of ownership held by the existing stockholder will be reduced to 56% and the
number of shares held by the new investors will increase to 1,380,000 or
44%.

11
<PAGE>
SELECTED FINANCIAL DATA

The selected financial data presented below as of and for the years ended
December 31, 1994, 1995 and 1996 have been derived from the Consolidated
Financial Statements as audited by Arthur Andersen LLP, independent public
accountants. The selected financial data presented below should be read in
conjunction with the Consolidated Financial Statements, including the Notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................................ $16,369 $22,652 $24,871
Cost of sales............................................................ 11,809 18,680 18,162
Gross profit............................................................. 4,560 3,972 6,709
Legal settlement expense................................................. -- -- 1,375
Selling and administrative expenses...................................... 3,958 3,757 4,486
Income (loss) from operations............................................ 602 215 848
Interest expense, net.................................................... 278 622 633
Net income (loss)........................................................ 208 (215) 315
Net income (loss) per share.............................................. 0.12 (0.12) 0.18
Shares used in computing net income (loss) per share..................... 1,785,000 1,785,000 1,785,000
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
AS ADJUSTED
ACTUAL (1)
----------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 17 $ 589
Restricted cash..................................................................... 63 63
Working capital (deficit)........................................................... (271) 4,726
Total assets........................................................................ 17,108 17,608
Total debt.......................................................................... 12,283 8,033(2)
Total stockholder's equity.......................................................... 468 5,218
</TABLE>

12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion includes the operations of the Company for each of
the periods discussed. This discussion and analysis should be read in
conjunction with "Selected Financial Data" and the Company's Consolidated
Financial Statements and the related notes thereto which are included elsewhere
in this Prospectus.

GENERAL

The Company's business as a supplier, distributor and seller of commercial
aircraft parts and supplies was established in October 1988. The Company was
incorporated in California in February 1992 and reincorporated in Delaware in
July 1996.

The Company's sales have increased from $2.8 million in 1992, to $7.2
million in 1993, $16.4 million in 1994, $22.7 million in 1995, and $24.9 million
in 1996. Of 1995 sales, approximately $6.5 million resulted from the sale of two
whole aircraft (with engines) to Royal Jordanian Airlines, which is located in
the Middle East. The sale agreement provided for monthly payments of $166,250
from August 1995 to August 1999 with an imputed interest rate of 9.5%, which
created a note receivable for $6.5 million at the date of sale. Royal Jordanian
Airlines provided an irrevocable letter of credit from a recognized financial
institution as collateral for the gross payments under the note receivable. Such
letter of credit mitigates potential risks associated with the note receivable.
Excluding the whole aircraft transaction, sales in 1995 would have been $16.2
million. If the opportunity exists, the Company may sell whole aircraft in the
future.

OVERVIEW

Net sales consist primarily of gross sales, net of allowance for returns and
other adjustments. Cost of sales consists primarily of product costs, freight
charges, commissions to outside sales representatives and an inventory provision
for damaged and obsolete products. Product costs consist of the acquisition
costs of the products and costs associated with repairs, maintenance and
certification.

Net sales and gross profit depend in large measure on the volume and timing
of sales orders received during the period and the mix of aircraft parts
contained in the Company's inventory. Sales and gross profit can be impacted by
the timing of bulk inventory purchases. In general, bulk inventory purchases
allow the Company to obtain large inventories of aircraft parts at a lower cost
than can ordinarily be obtained by purchasing such parts on an individual basis.
Thus, these bulk purchases allow the Company to receive larger gross margins on
its sale of aircraft parts since the cost of purchase is reduced.
Sales can be impacted by marketing and consignment agreements because such
agreements give the Company increased access to aircraft parts. Net profits are
impacted by marketing agreements because the Company does not incur costs
associated with carrying owned inventory due to the fact that a party who has
entered into a marketing agreement with the Company is responsible for storing
and maintaining the inventory to which the Company has access pursuant to such
marketing agreement. Generally, sales from consignment and marketing agreements
are not as profitable as sales from bulk inventory purchases.

The Company's owned inventory turned approximately 0.3 times during 1996, or
every 1,217 days. Inventory reserves are determined by analyzing the current and
future demand for the Company owned aircraft parts. Aircraft parts have long
lives, typically 30 years or more.

13
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996

The following table sets forth certain information relating to the Company's
operations for the years ended December 31, 1995 and 1996 (dollars in
thousands):

<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
Distributed services and inventory sales............... $ 21,545 95.0% $ 23,313 93.7%
Net sales on consignment and marketing agreements...... 1,107 5.0 1,558 6.3
--------- ----- --------- -----
Net sales.............................................. 22,652 100.0 24,871 100.0
Cost of sales.......................................... 18,680 82.5 18,162 73.0
--------- ----- --------- -----
Gross profit......................................... 3,972 17.5 6,709 27.0
Legal settlement expense............................... -- -- 1,375 5.5
Selling and administrative expenses.................... 3,757 16.6 4,486 18.1
--------- ----- --------- -----
Income from operations................................. 215 .9 848 3.4
Interest expense, net.................................. 622 2.7 633 2.5
Extraordinary item -- gain on extinguishment of debt... -- -- 130 .5
Net income (loss)...................................... (215) (0.9) 315 1.3
</TABLE>

DISTRIBUTED SERVICES AND INVENTORY SALES. Distributed services and
inventory sales represent sales of inventory located through outside parties and
sales of Company-owned inventory. Distributed services and inventory sales
increased from $21.5 million for the year ended December 31, 1995 to $23.3
million for the year ended December 31, 1996, an increase of $1.8 million or
8.4%. Distributed services and inventory sales, excluding the whole aircraft
transaction discussed above, for the year ended December 31, 1995, would have
been $15.0 million, compared to $23.3 million for the year ended December 31,
1996, an increase of $8.3 million or 55.3%. This increase was primarily due to
an increase in the Company's availability of aircraft parts as a result of bulk
inventory purchases during the last quarter of 1995 and 1996, the addition of
new sales personnel and emphasis on development of new domestic customers and
some larger international customers. See "General."

Sales from distributed services represented approximately 97.0% and 92.7% of
total distributed services and inventory sales for the years ended December 31,
1995 and 1996, respectively. Sales of Company owned inventory represented
approximately 3.0% and 7.3% of total distributed services and inventory sales
for the years ended December 31, 1995 and 1996, respectively. The increase in
the percentage of the sales of Company owned inventory is primarily due to the
bulk inventory purchases as discussed above.

NET SALES ON CONSIGNMENT AND MARKETING AGREEMENTS. Net sales on consignment
and marketing agreements represent total revenue, including commissions, related
to sales of inventory held on consignment and sales of inventory obtained
through marketing agreements. Net sales on consignment and marketing agreements
increased from $1.1 million for the year ended December 31, 1995 to $1.6 million
for the year ended December 31, 1996, an increase of $500,000 or 45.5%. This
increase was primarily due to an increase in the amount of aircraft parts
available for sale under these consignment and marketing agreements, the
addition of new sales personnel and emphasis on development of new domestic
customers and some larger international customers. See "Net sales."

NET SALES. Net sales increased from $22.7 million for the year ended
December 31, 1995 to $24.9 million for the year ended December 31, 1996, an
increase of $2.2 million or 9.7%. Net sales, excluding the whole aircraft
transaction discussed above, for the year ended December 31, 1995 would have
been $16.2 million, compared to $24.9 million for the year ended December 31,
1996, an increase of $8.7 million or 53.7%. This increase is primarily due to
additional sales personnel in 1996, continued efforts to strengthen
relationships with customers and the availability of additional parts as a
result of bulk inventory purchases. See "Distributed services and inventory
sales" and "Net sales on consignment and marketing agreements."

14
<PAGE>
The sales by region data presented below should be read in conjunction with
the Consolidated Financial Statements, including the Notes thereto included
elsewhere in this Prospectus. The following data consists of sales by region for
the years ended December 31, 1995 and 1996:

<TABLE>
<CAPTION>
AREA 1995 1996
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Pacific Rim.............................................................. 22.4% 19.4%
Europe................................................................... 15.7 25.3
Latin/South America...................................................... 17.4 10.7
Africa/Middle East....................................................... 34.8 6.5
Domestic................................................................. 9.7 38.1
--------- ---------
Total.................................................................. 100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>

For the year ended December 31, 1995, 90.3% of the Company's sales were to
international customers compared to 61.9% for the year ended December 31, 1996.
The decrease in the percentage of the Company's sales to international customers
was primarily due to the whole aircraft transaction during the third quarter of
1995, discussed above, specifically in the Africa/Middle East region. The sales
to international customers as a percentage of total sales has also decreased as
a result of the Company's purchase of bulk inventory, which is predominantly
sold domestically, and an emphasis on development of new domestic customers. The
Company expects that international sales will continue to account for a
significant portion of total sales, although the percentage may fluctuate from
year to year. The majority of the Company's international sales are insured
through an export credit insurance policy. Such insurance policy mitigates
potential risks associated with international sales.

COST OF SALES. Cost of sales decreased from $18.7 million for the year
ended December 31, 1995 to $18.2 million for the year ended December 31, 1996, a
decrease of $500,000 or 2.7%. This decrease was primarily the result of the
whole aircraft sale, at a cost of $5.5 million, during the third quarter of
1995, as discussed above. Cost of sales excluding the whole aircraft
transaction, discussed above, was $13.2 million for the year ended December 31,
1995, compared to $18.2 million for the year ended December 31, 1996, an
increase of $5.0 million or 37.9%. This increase in cost of sales is primarily
due to the increase in net sales. As a percentage of net sales, cost of sales
decreased from 82.5% in 1995 to 73.0% in 1996 as a result of higher costs in the
1995 period due to the whole aircraft transaction, which realized a cost of sale
percentage of 85%, and due to improved pricing on inventory parts during 1996 as
a result of bulk inventory purchases. See "General" and "Distributed services
and inventory sales."

GROSS PROFIT. Gross profit increased from $4.0 million, or 17.5% for the
year ended December 31, 1995 to $6.7 million or 27.0% for the year ended
December 31, 1996. The gross profit margin increased, in part, as a result of
the low profit margin of 15% realized in the year ended December 31, 1995 on the
whole aircraft sale discussed above. Gross profit margin also increased as a
result of bulk inventory purchases during the last quarter of 1995 and during
1996, the addition of new sales personnel, emphasis on development of new
domestic customers, (on which the Company realized margins of 27% for 1996
compared to 7% for 1995), and stronger relationships with some larger
international customers. See "General" and "Cost of sales."

LEGAL SETTLEMENT EXPENSE. A legal charge was recorded in the third quarter
of 1996 due to settlement negotiations relating to an action that was brought
against the Company, its wholly owned subsidiary, ADI Consignment Sales, Inc.
("ADICSI"), and Mr. Bakhit in February 1996. The action arose out of a
consignment agreement between ADICS and the customer whereby ADICS agreed to
hold certain aircraft parts inventory of such customer on consignment for sale.
The complaint generally alleged causes of action arising out of breach of
contract and fraud. All of the claims asserted in the lawsuit by the customer
were dismissed pursuant to a settlement agreement executed in November 1996 by
all of the parties to the litigation. In August 1996 the Company made a partial
settlement payment to such customer of $166,000, which was accrued during
December 1995 in accounts payable as it represented aircraft parts purchased
during 1995 under the contract in dispute.

15
<PAGE>
Although the Company believed it had meritorious defenses to this dispute,
counsel advised the Company that final judical resolution of such matter could
take several years. Consequently, in order to prevent future strain on the
Company's financial and human resource necessary to defend this dispute, to
avoid the uncertainties associated with litigation generally and to pursue the
Offering in a timely manner, the Company made a strategic business decision to
resolve this dispute and in November 1996 entered into a settlement agreement
with such customer, pursuant to which the Company will pay $1.2 million. The
Company has incurred approximately $175,000 of legal expenses related to this
contract dispute as of December 31, 1996. See "Liquidity."

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consisted primarily of management compensation, professional fees, consulting
expense and travel expense. The Company's selling and administrative expenses
increased from $3.8 million for the year ended December 31, 1995 to $4.5 million
for the year ended December 31, 1996, an increase of $700,000 or 18.4%. This
increase in expenditures for the year ended December 31, 1996 principally
reflects higher personnel costs necessary to respond to the Company's growth,
including salaries, taxes, insurance and commission expenses. As a percentage of
net sales, general and administrative expenses increased from 16.6% for the year
ended December 31, 1995 to 18.1% of net sales for the year ended December 31,
1996 primarily due to lower commission expense in the 1995 period as a result of
no sales commission paid on the whole aircraft transaction and a small
percentage of selling and administrative support required for the whole aircraft
transaction in the 1995 period. The Company currently anticipates a future
annual increase in general and administrative expenses of approximately $350,000
of which $109,000 relates to the Company's employment agreement with Mr. Bakhit
and the remainder relates to estimated bonuses that the Company anticipates
paying to certain members of senior management. This increase could be material
to the Company's financial condition.

INCOME FROM OPERATIONS. As a result of the above factors, income from
operations for the year ended December 31, 1996 increased $633,000 compared to
the year ended December 31, 1995. The increase primarily reflects higher gross
profit margins realized during 1996, somewhat offset by the legal settlement
expense discussed above. Income from operations at December 31, 1996, excluding
the legal settlement expense, would have been $2.2 million, an increase of $2.0
million or 930.2%. This increase was a result of the increase in gross profit of
$2.7 million. See "Gross profit" and "Legal settlement expense."

INTEREST EXPENSES, NET. Net interest expense increased from $622,000, or
2.7% of net sales at December 31, 1995 to $633,000, or 2.5% of net sales at
December 31, 1996. The increase in interest expense is due to an increase in
borrowings under the Company's lines of credit and notes to corporations secured
by inventory.

EXTRAORDINARY ITEM -- GAIN ON EXTINGUISHMENT OF DEBT. During 1996, the
Company extinguished a note payable early and realized an extraordinary gain,
net of tax of $90,000, of $130,000.

NET INCOME (LOSS). Net income (loss) increased from $(215,000) for the year
ended December 31, 1995 to $315,000 for the year ended December 31, 1996, an
increase of $530,000. This increase is attributable to the increase in gross
profit, somewhat offset by the legal settlement expense noted above. See "Gross
profit," "Legal settlement expense."

16
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1995

The following table sets forth certain information relating to the Company's
operations for the years ended December 31, 1994 and 1995 (dollars in
thousands):

<TABLE>
<CAPTION>
1994 1995
-------------------- --------------------
<S> <C> <C> <C> <C>
Distributed services and inventory sales................... $ 13,530 83.0% $ 21,545 95.0%
Net sales on consignment and marketing agreements.......... 2,839 17.0 1,107 5.0
--------- --------- --------- ---------
Net sales.................................................. 16,369 100.0 22,652 100.0
Cost of sales.............................................. 11,809 72.1 18,680 82.5
--------- --------- --------- ---------
Gross profit............................................... 4,560 27.9 3,972 17.5
Selling and administrative expenses........................ 3,958 24.2 3,757 16.6
--------- --------- --------- ---------
Income from operations..................................... 602 3.7 215 0.9
Interest expense, net...................................... 278 1.7 622 2.7
Net income (loss).......................................... 208 1.3 (215) (0.9)
</TABLE>

DISTRIBUTED SERVICES AND INVENTORY SALES. Distributed services and
inventory sales increased from $13.5 million for the year ended December 31,
1994 to $21.5 million for the year ended December 31, 1995, an increase of $8.0
million or 59.3%. This increase was primarily the result of the whole aircraft
sale for $6.5 million noted above. See "General."

The sales of Company-owned inventory represented approximately 1.0% and 3.0%
of total distributed services and inventory sales for the years ended December
31, 1994 and 1995, respectively. The increase in the percentage of the sales of
Company-owned inventory is primarily due to an increase in the Company's
availability of aircraft parts as a result of bulk inventory purchases during
the last quarter of 1995.

Sales of distributed services represented approximately 99.0% and 97.0% of
total distributed services and inventory sales for the years ended December 31,
1994 and 1995, respectively.

NET SALES ON CONSIGNMENT AND MARKETING AGREEMENTS. Net sales on consignment
and marketing agreements decreased from $2.8 million for the year ended December
31, 1994 to $1.1 million for the year ended December 31, 1995, a decrease of
$1.7 million or 61%. The decrease was due to the Company's efforts being focused
on the whole aircraft transaction during 1995 and due to the availability of
aircraft parts under consignment and marketing agreements.

NET SALES. Net sales increased from $16.4 million for the year ended
December 31, 1994 to $22.7 million for the year ended December 31, 1995, an
increase of $6.3 million or 38.4%. This increase was primarily the result of the
whole aircraft sale for $6.5 million noted above. Net sales, excluding the whole
aircraft transaction discussed above, for the year ended December 31, 1995,
would have been $16.2 million, a decrease of $200,000 or 1.2% compared to the
year ended December 31, 1994. This decrease was attributable to a reduction in
sales to smaller airlines in the Africa/Middle East region as a result of the
Company's emphasis on developing relationships with larger airlines. See
"General."

The sales by region data presented below should be read in conjunction with
the Consolidated Financial Statements, including the Notes thereto included
elsewhere in this Prospectus. The following data consists of sales by region for
the years ended December 31, 1994 and 1995:

<TABLE>
<CAPTION>
AREA 1994 1995
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Pacific Rim.............................................................. 19.2% 22.4%
Europe................................................................... 25.0 15.7
Latin/South America...................................................... 16.6 17.4
Africa/Middle East....................................................... 11.6 34.8
Domestic................................................................. 27.6 9.7
--------- ---------
Total.................................................................. 100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>

17
<PAGE>
For the year ended December 31, 1994, 72.4% of the Company's sales were to
international customers; for the year ended December 31, 1995, 90.3% of the
Company's sales were to international customers. The increase in the percentage
of the Company's sales to international customers is primarily the result of the
whole aircraft transaction discussed above, specifically in the Africa/Middle
East region. The Company expects that international sales will continue to
account for a significant portion of total sales, although the percentage may
fluctuate from period to period. The majority of the Company's international
sales are insured through an export credit insurance policy. Such insurance
policy mitigates potential risks associated with international sales. See
"General."

COST OF SALES. Cost of sales increased from $11.8 million for the year
ended December 31, 1994 to $18.7 million for the year ended December 31, 1995,
an increase of $6.9 million or 58.5%. This increase was primarily the result of
the whole aircraft sale, at a cost of $5.5 million, as noted above. Cost of
sales excluding the whole aircraft transaction discussed above was $13.2 million
for the year ended December 31, 1995. This represents an increase of $1.4
million or 11.9%, compared to the year ended December 31, 1994. The increase was
attributable to increased sales to certain of the Company's customers. See
"General."

GROSS PROFIT. Gross profit decreased from $4.6 million or 27.9% for the
year ended December 31, 1994, to $4.0 million or 17.5% for the year ended
December 31, 1995. The gross profit margin decreased, in part, as a result of
the whole aircraft sale noted above, on which the Company realized a 15% gross
profit margin. Gross profit margin excluding the whole aircraft transaction
discussed above, for the year ended December 31, 1995, would have been 18.4%, a
decrease of 9.5% compared to the year ended December 31, 1994. The decline was
attributable to increased discounts and reduced margins on sales to certain
customers. The Company will continue to offer discounts to obtain new customers
and accept lower margins on exceptionally large sales, e.g. whole aircraft. See
"General" and "Cost of sales."

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consist primarily of management compensation, professional fees, consulting
expense and travel expense. Selling and administrative expenses decreased
slightly from $4.0 million for the year ended December 31, 1994 to $3.8 million
for the year ended December 31, 1995, a decrease of $200,000 or 5%. The decrease
is due to the Company effectively managing its expenses.

INCOME FROM OPERATIONS. As a result of the above, income from operations
decreased from $602,000 for the year ended December 31, 1994 to $215,000 for the
year ended December 31, 1995, a decrease of $387,000 or 64.3%. The decrease
reflects the lower gross profit margins realized in 1995 compared to 1994. See
"Gross profit."

INTEREST EXPENSE, NET. Net interest expense increased from $278,000 or 1.7%
of net sales for the year ended December 31, 1994 to $622,000 or 2.7% of net
sales for the year ended December 31, 1995. The increase in interest expense was
due to an increase in the outstanding amounts of the Company's lines of credit,
notes to financial institutions and notes to corporations secured by inventory.

NET INCOME (LOSS). Net income decreased from $208,000 for the year ended
December 31, 1994 to a net loss of $(215,000) for the year ended December 31,
1995, a decrease of $423,000 or 203.4%. This decrease was attributable to a
decrease in gross profit and an increase in interest expense discussed above.
See "Gross profit" and "Interest expense, net."

LIQUIDITY AND CAPITAL RESOURCES

From inception to 1995, the Company was financed primarily with its cash
flow from operations and financing activities. The Company had cash and cash
equivalents of $251,000, $868,000 and $17,000 as of December 31, 1994, 1995 and
1996, respectively. The Company had restricted cash of $105,000, $301,000 and
$63,000 as of December 31, 1994, 1995 and 1996, respectively. For the periods
ended December 31, 1994, 1995 and 1996, $1.1 million, $3.1 million and $835,000,
respectively, of cash was provided by financing activities. Restricted cash was
required for one of the Credit Facilities until

18
<PAGE>
May 1996 and for letters of credit issued to certain vendors. As of December 31,
1996 the Company had a working capital deficit of $271,000, as a result of the
note payable for the legal settlement expense discussed above.

The Company's primary uses of cash, to date, have been for purchases of
inventory and the repayment of indebtedness. Cash flows used in investing
activities were $225,000, $1.8 million and $39,000 for 1994, 1995 and 1996,
respectively.

The Company's Credit Facilities provide working capital of up to $6.5
million with interest at prime plus 1.0 to 1.5 percent subject to an
availability calculation based on the eligible borrowing base. The eligible
borrowing base, currently reduced by a letter of credit for $150,000, includes
certain receivables and inventories of the Company. The $4.5 million Credit
Facility matures on March 31, 1997, which may be extended at the option of the
Company to March 31, 1998. The $2.0 million Credit Facility matures on August
31, 1997. The Company is currently in discussions with financial institutions
with respect to additional sources of financing. The Company used restricted
cash to repay a line of credit in the amount of $500,000 that expired during May
1996. The Company plans to pay approximately $3.8 million of the amount
outstanding under the Credit Facilities from the proceeds received from the
Offering. The Company determined to use the majority of the proceeds received
from the Offering to pay down the amount outstanding under the Credit Facilities
as an effort to decrease insurance and interest costs. The Company intends to
use $400,000 to repay loans made to the Company by certain of its employees. The
remaining proceeds received from the Offering, estimated at $550,000, are
anticipated to be used for legal settlement expenses and general corporate
purposes, including reducing the Company's vendor payables and providing working
capital. See "Use of Proceeds" and "Certain Transactions."

Far East Bank has a fully perfected security interest against all assets of
the Company in addition to a personal guarantee from Mr. Bakhit and his wife.
Far East Bank has indicated orally that it will consider terminating such
guarantee following consummation of the Offering.

The Credit Facilities provide for the suspension of the Credit Facilities
and repayment of all debt (i) in the event of a material adverse change in the
Company's financial condition, (ii) if the lender believes the prospect of
payment or performance of the indebtedness is impaired, or (iii) upon a change
of control. The $4.5 million Credit Facility requires the Company to have a
tangible net worth of at least $750,000 beginning October 31, 1996, which was
extended by the financial institution to begin on January 31, 1997. The
financial institution has indicated to the Company that it will regard the
subordinated employee loans in the amount of $400,000 as additional equity to
the Company. As such, it will be included in the calculation of the minimum
tangible net worth under the Credit Facility. The Company believes that it was
in compliance with the tangible net worth requirement at January 31, 1997. As of
December 31, 1996, the Company's tangible net worth was $468,000 and pro forma
for the Offering the Company's tangible net worth would have been $5.2 million.
In addition, the Credit Facilities require mandatory repayments from excess cash
flow. Substantially all of the Company's assets are pledged as collateral for
amounts borrowed. At December 31, 1995 and 1996 the Company was in compliance
with all of its requirements under the Credit Facilities.

The Company's long-term debt consists of the following: (i) note payable of
$4.7 million at December 31, 1996 to a financial institution, due in monthly
installments of $166,250 (principal and interest) to August 1999 with an
interest rate of 9.5 percent; (ii) note payable of $936,000 at December 31, 1996
to a financial institution, secured by a building, due in adjustable monthly
installments of $8,382 (principal and interest) to May 1999, with a balloon
payment due May 1999 and interest at Moody's A Bond Index (8.0% at December 31,
1996) plus .125 percent; (iii) note payable of $126,000 at December 31, 1996 to
a corporation, secured by specific inventory, due in monthly installments of
$50,000 (principal and interest) to March 1997, with an imputed interest rate of
10 percent; (iv) note payable of $900,000 at December 31, 1996 to a corporation,
due in an installment of $562,500, plus interest, on March 15, 1997 and
quarterly installments of $112,500, plus interest, commencing June 15, 1997 to
December 15, 1997, with an interest rate of 10 percent; (v) note payable of
$3,000 at

19
<PAGE>
December 31, 1996 to a corporation, secured by an automobile, due in monthly
installments of $192 (principal and interest) to March 1998, with an interest
rate of 7.9 percent; and (vi) note payable of $9,000 as of December 31, 1996 to
a corporation, secured by equipment, due in monthly installments of $347
(principal and interest) to February 2000, with an interest rate of 24 percent.

Subsequent to December 31, 1996 the Company borrowed an aggregate of
$400,000 from certain of its employees. The terms of the loans provide for an
annual interest rate of 14 percent payable monthly over the term of the loans
and repayment of principal upon the earlier of the consumation by the Company of
an initial public offering of its Common Stock or October 27, 1997.

In February 1996, an action was brought against the Company arising out of a
contract dispute between the Company and one of its customers. In August 1996,
the Company made a partial settlement payment to such customer in the amount of
$166,000, which was financed through additional borrowings under the Credit
Facilities. Although the Company believed it had meritorious defenses to this
dispute, counsel advised the Company that final judicial resolution of such
matter could take several years. Consequently, in order to pursue the Offering
in a timely manner, the Company made a strategic business decision to resolve
this dispute and in November 1996 entered into a settlement agreement with such
customer. Pursuant to such settlement agreement, the Company (i) paid such
customer $300,000, which was financed through additional borrowings under the
Credit Facilities, (ii) agreed to pay such customer an additional $450,000 on or
before December 31, 1996 (which has been extended to March 15, 1997), which the
Company intends to pay from a portion of the Offering Proceeds, and (iii)
executed a note in the amount of $450,000, guaranteed by an irrevocable letter
of credit, payable to such customer in quarterly installments of principal
$112,500 and interest (10%) commencing March 15, 1997 and maturing on December
15, 1997, which the Company anticipates will come from operating income. In the
event the Company does not satisfy its financial obligations under the
settlement agreement as set forth in clauses (ii) and (iii) above by March 15,
1997, a judgment will be entered against the Company for $1.2 million. In such
event, the Company will not receive credit towards such judgment amount for the
initial $300,000 payment set forth in clause (i) above as a penalty for its
failure to satisfy such financial obligations under the settlement agreement.

The Company expects its cash requirements to increase significantly in
future periods. The Company will require substantial funds to purchase inventory
on a bulk basis. In addition, the $4.5 million Credit Facility expires on March
31, 1997. Such Credit Facility may be extended at the option of the Company to
March 31, 1998. If the Company does not elect to extend the expiration date of
the $4.5 million Credit Facility, it will be required to seek capital from
alternate sources. There can be no assurance that such additional capital will
be available on a timely basis and at acceptable terms, if at all.

The contemplated repayment of indebtedness with the net proceeds of the
Offering is expected to significantly improve the Company's liquidity by
reducing the Company's interest expense, principal amount of the indebtedness
required to be repaid in the future and insurance costs associated with
international sales.

As part of its growth strategy, the Company intends to pursue acquisitions
of bulk inventories of aircraft parts. See "Business -- Business Strategy."
Financing for such acquisitions will be provided from operations and from
borrowings under the Credit Facilities. The Company may also issue additional
debt and/or equity securities in connection with one or more of these
acquisitions.

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BUSINESS

INTRODUCTION

The Company is a supplier of new and overhauled aircraft parts to major
commerical airlines worldwide. The Company locates, acquires and supplies parts
for all major aircraft. Additionally, the Company engages in consignment and
marketing agreements with major commerical airlines, distributors and OEMs which
allow the Company to offer a wide range of parts for sale without certain risks
and financing costs associated with owned inventory. Aircraft parts offered by
the Company include those manufactured by Airbus, Boeing, General Electric,
Lockheed, McDonnell Douglas, Pratt & Whitney and Rolls Royce. Sales have
increased from $2.8 million in 1992 to $7.2 million in 1993, $16.4 million in
1994, $22.7 million in 1995 and $24.9 million in 1996. The 1995 sales amount
included one significant sale of two whole aircraft for $6.5 million. If the
opportunity exists, the Company may sell whole aircraft in the future.

INDUSTRY OVERVIEW AND TRENDS

The worldwide aircraft parts market is highly fragmented and parts are
supplied by many types of suppliers, including airlines, OEMs and numerous
distributors, fixed base operators, FAA-certified facilities, traders and
brokers. The Canaan Group Ltd., a management consulting firm specializing in the
aircraft and aerospace industry, estimated that aircraft parts inventories
valued at $45 billion existed in May 1995, with a carrying cost of $10 billion
annually and that 80% of such inventories were owned by airlines. The Company
believes that a portion of such inventory is available for marketing,
consignment and purchase. The Company also believes that, based on other
significant market trends, its target market will continue to grow.

MARKET GROWTH. According to Boeing's 1996 Market Outlook, the worldwide
fleet of commercial aircraft and cargo jet aircraft is expected to grow from
11,066 aircraft at the end of 1995 to 23,080 aircraft by 2015, representing a
compound annual growth rate of 3.8%. Boeing estimates that revenue passenger
miles will exceed 4 trillion by 2015, an increase from less than 2 trillion in
1995. The Company believes such increase in revenue passenger miles is an
indication that aircraft will be flown more often and will need standard service
checks more frequently. Additionally, the growth rate of revenue passenger miles
for the international market will exceed the growth rate for the domestic market
and the majority of the Company's sales are from foreign commercial airlines and
foreign OEMs. The Company believes that these factors have resulted and will
continue to result in increased demand for aircraft parts worldwide.

REDUCTION IN AIRLINE INVENTORIES. Historically, airlines have controlled
the majority of the aircraft parts inventory. Today, airlines are beginning to
reduce the size of their parts inventories in an effort to reduce inventory
carrying costs. These inventory reductions have increased reliance by airlines
on aftermarket suppliers to provide parts that are difficult to obtain from
manufacturers on a timely basis, if at all. Manufacturers' lead time for
delivery of aircraft parts averages 30 to 60 days. As airlines continue to
demand time responsive inventory procurement processes, responsibility for
inventory storage and handling has shifted to suppliers such as the Company. The
Company believes that its access to a large inventory of aircraft parts and its
ability to deliver such parts to its customers quickly and at a preferred price
enable it to provide the services sought by airlines in an effective manner.

INCREASE IN CONSIGNMENT AND MARKETING BUSINESS. To reduce the high costs
associated with excess aircraft parts inventory, many airlines are selling their
parts inventories through consignment and marketing agreements with suppliers
such as the Company. Such agreements enable an airline to distribute its
inventory to a large number of prospective inventory buyers while enabling
suppliers such as the Company to offer an extensive aircraft parts inventory to
its customers with a relatively low capital cost.

REDUCTION IN NUMBER OF SUPPLIERS. In an attempt to increase quality and
service, reduce purchasing costs and streamline purchasing decisions, airlines
have begun to form relationships with

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a few preferred suppliers. Over the last few years, airlines have begun to
reduce the number of aircraft parts suppliers with which they do business. In
each case to date where the Company had an established relationship with an
airline, the Company was one of the parts suppliers selected. The Company
believes that due to its focus on cultivating relationships with its customers
and its reputation for service, quality and reliability, airlines will continue
to select the Company as one of their preferred aircraft parts suppliers.

INCREASED EMPHASIS ON TRACEABILITY. Regulatory agencies have increased
documentation requirements for aircraft parts because of concern regarding
unapproved parts. In order for suppliers to trace all aircraft parts back to
their original source, suppliers have invested in sophisticated information
systems technology. The Company has developed and intends to maintain and
upgrade its information systems technology to ensure that all aircraft parts
bought and sold by the Company comply with applicable regulatory requirements.

BUSINESS STRATEGY

The Company's primary objectives are to be a leading quality supplier of
aircraft parts to airlines worldwide and to increase income from its business
through the application of a comprehensive business strategy combining various
customer service, marketing, operating and growth objectives. The Company's
marketing approach includes direct marketing to airlines and manufacturers,
advertising in trade directories and attending industry trade shows and
conferences. Although the Company concentrates the majority of its marketing
efforts on commercial airlines servicing the passenger market, it also seeks to
foster business from commercial airlines servicing the cargo market, as well as
overhaul facilities and OEMs.

CUSTOMER SERVICE. The Company intends to continue to market and develop its
(i) access to an extensive aircraft parts inventory, (ii) ability to deliver
parts quickly to customers at a preferred price, and (iii) emphasis on
engineering and implementing creative solutions to locate and deliver hard-to-
find aircraft parts. Additionally, the Company plans to continue to cultivate
relationships with its customers to assure that it retains its position on its
customers' preferred list of aircraft parts suppliers. The Company has
historically incurred high levels of selling and administrative expenses,
primarily travel and entertainment, associated with establishing and maintaining
customer relationships. A key component of the Company's business strategy is to
implement a program to effectively contain such expenses.

EMPHASIS ON QUALITY. The Company will continue to emphasize its reputation
for quality, including its track record of consistently meeting FAA regulations
by maintaining and, if necessary, introducing safeguards to ensure the quality
of its aircraft parts. In addition, in October 1996 the Company became a full
distributor under the National Aerospace and Defense Contractors Accredidation
Program of the Performance Review Institute. Such safeguards include employing
two FAA-licensed Airframe and Powerplant Inspectors and contracting with two
FAA-licensed Designated Airworthiness Representatives and an outside quality
assurance consultant. Each of these specialists verifies the airworthiness of
aircraft parts bought and sold by the Company.

FOCUS ON MAJOR COMMERCIAL AIRLINES. The Company plans to continue targeting
major commercial airlines worldwide, many of which are currently customers of
the Company. Such airlines generally have larger aircraft fleets that generate a
greater demand for aircraft parts than smaller airlines. Consequently,
relationships with major commercial airlines enable the Company to expend fewer
resources to generate comparable sales volume and corresponding revenue with
margins of profitability comparable to sales to several smaller airlines.
Additionally, major commercial airlines typically have greater financial
resources than smaller airlines, resulting in reduced credit risk to the Company
and a greater likelihood of timely payment. The Company's relationships with
major commercial airlines also provide the Company with increased access to such
airlines' aircraft parts inventories, which are generally greater than those of
smaller airlines.

INCREASE ACCESS TO INVENTORY. The Company plans to increase its accessible
inventory by (i) entering into new consignment and marketing agreements with
airlines, manufacturers and

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<PAGE>
overhaul facilities, (ii) bulk purchasing from airlines and manufacturers of
aircraft parts, and (iii) purchasing large items, such as engines and whole
aircraft, on an opportunistic basis. The Company will seek to secure aircraft
parts where it believes demand is greater than supply. Presently, the Company
believes that demand exceeds supply in the aircraft parts market for aircraft
models ranging from five to thirty years old.

GLOBAL EXPANSION. The Company's goal is to service customers domestically
and worldwide, and to become a major aircraft parts supplier for the
fastest-growing markets, particularly the Far East. For the year ended December
31, 1996, 62% of the Company's sales were to international customers. The
Company plans to continue to take advantage of the growing international market
through the use of its multilingual sales staff and by maintaining existing
relationships and establishing new relationships in the following regions:
Pacific Rim/Far East/South Pacific, Europe, Latin/South America, Middle
East/Africa and North America.

PRODUCTS AND SERVICES

GENERAL. The Company is in the business of selling a broad range of
aircraft parts from its owned inventory, on behalf of airlines and manufacturers
pursuant to consignment and marketing agreements, and from inventory located
from outside parties. For the year ended December 31, 1996, sales from
Company-owned inventory, pursuant to consignment and marketing agreements, and
pursuant to outside sourcing represented approximately 7%, 6% and 87%,
respectively, of the Company's gross revenue. The Company's owned inventory
turned approximately 0.3 times during 1996, or every 1,217 days. Inventory
reserves are determined by analyzing the current and future demand for the
Company-owned aircraft parts. The Company's access to an extensive inventory is
a result of its worldwide relationships with airlines, manufacturers and
suppliers of aircraft parts, numerous consignment and marketing agreements with
airlines and manufacturers, and owned inventory of new and overhauled aircraft
parts. The general categories of aircraft parts 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 procedures or on an as-needed basis and is typically
repaired or overhauled and re-used an indefinite number of times. A 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. Typically, rotables and
repairables must be removed from an airplane and rebuilt or checked based upon
the number of hours in flight. Rotables and repairables must be repaired at
FAA-approved repair facilities.

An expendable is generally a part which is used and not thereafter repaired
for further use. Consequently, all expendable inventory is new. Expendable
inventory cannot be used for less than its useful life and then transferred to a
new airplane; once an expendable part is removed from an airplane, it must be
discarded.

Currently, the Company supplies aircraft parts for Boeing 737, 747, and 767
series, Airbus 300 series, McDonnell Douglas 80, DC and MD series aircraft.
These aircraft parts represent a significant portion of the aircraft parts used
by major airlines, which represent the majority of the Company's current
customers. Although not required by the FAA to do so, the Company maintains on
staff two FAA-licensed Airframe and Powerplant Inspectors and contracts with two
FAA-licensed Designated Airworthiness Representatives, all of whom verify the
airworthiness of aircraft parts bought and sold by the Company. The Company
believes that its strict adherence to FAA and manufacturer guidelines has
contributed to the Company's growth in customer base and revenues. The Company
does not repair aircraft parts, and therefore is generally not subject to the
risks associated with the repair business.

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<PAGE>
Each sales person employed by the Company is responsible for making an
appraisal of a particular aircraft part's value and makes such appraisal based
on industry experience and practice after considering current manufacturers'
list price, the condition of the part, the part's availability and lead time to
manufacture the part. The Company carries its own inventory and also has access
to a much larger pool of inventory pursuant to its consignment and marketing
agreements. This gives the Company access to a broad assortment of aircraft
parts which helps the Company meet rapid delivery requirements. The Company's
return policy permits customers to return parts within 10 days of receipt.
Additionally, although the Company's payment terms are generally 30 days,
extended payment terms up to 60 days are provided in certain circumstances.

The Company's owned inventory and the inventory it holds on consignment is
stored in the Company's Irvine, California warehouse; a party who has entered
into a marketing agreement with the Company is responsible for storing the
inventory to which the Company has access pursuant to such marketing agreement.
All inventory is shipped to customers by the Company via national courier
services to a customer's U.S. office or, if a customer does not have a U.S.
office, to a representative of such customer located in the U.S. If an aircraft
part sought by a customer exists in the Company's owned inventory or in
inventory on consignment or inventory available through exclusive marketing
agreements (together, the "Accessible Inventory"), such part is generally
shipped to the customer the day the order is placed. The turn-around time is
generally up to one week from the time the order is placed if the Company has to
acquire a part from an outside party.

The Company also from time to time, on an opportunistic basis, purchases for
resale high price items, such as engines and whole aircraft.

CLIENT SERVICES. Client services are conducted through the Company's
Irvine-based multilingual direct sales force, as well as through its sales force
in the Company's overseas offices whose primary responsibility is to sell
aircraft parts and manage customers. Sales personnel travel extensively to
develop strong personal relationships with the Company's customers, improve
communications and remain current on regional market data. Salespeople are
assigned to specific airlines and are supported by a group of regional agents
who assist in countries such as Argentina, India, Indonesia, Israel, Malaysia,
New Zealand, Philippines, Singapore and Turkey where local representation is
critical to purchase order processing and timely payment. The Company also
maintains a two-person office in London to coordinate European sales and
support.

Each sales representative is supported by additional personnel who research
and locate parts ordered by the Company's customers. The Company's sales staff,
through its knowledge of the industry and its relationships throughout the
world, is able to engineer and implement creative solutions to locate and
deliver hard-to-find aircraft parts, a quality that the Company believes sets it
apart from its competitors.

Upon the Company's receipt from a customer of a telephone or fax inquiry for
a specific aircraft part, the Company first checks its owned inventory for
availability of the part, then checks the Accessible Inventory. If the part is
not owned or part of the Accessible Inventory, the Company will attempt to
source the part through cultivated industry contacts or the Inventory Locator
Service-TM- ("ILS"), a domestic, industry-wide database of aircraft parts. Even
if the aircraft part is within the Company's owned or Accessible Inventory, the
Company will assure that it is achieving full market value for each part sold by
researching alternate sources for availability and competing prices for the part
prior to quoting the end user.

Management plans to continue to grow the core business of sourcing aircraft
parts to end users, and to enhance the Company's relationships with existing
customers. This should allow new relationships to grow and increase the exposure
of its sales staff to the needs and desires of the customers. Coincident with
the growth of the core business, additional marketing and consignment
opportunities should continue to expand the Company's consignment and marketing
business.

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<PAGE>
CONSIGNMENT AND MARKETING BUSINESS. In addition to supplying parts from
owned inventory, the Company also supplies parts through (i) consignment
agreements, pursuant to which the Company takes actual possession of a vendor's
inventory, and (ii) exclusive marketing agreements, pursuant to which the
Company markets vendors' inventory which remains in the vendors' possession.
Through consignment agreements or marketing agreements with an aircraft parts
supplier such as the Company, customers, such as airlines and manufacturers, are
able to distribute their aircraft parts to a larger number of prospective
inventory buyers. This allows customers to maximize the value of their inventory
while at the same time freeing up resources that can be focused on their core
business. Consignment and marketing arrangements also enable the Company to
offer for sale aircraft parts from a much larger inventory at minimal capital
cost to the Company.

When an inquiry is made with respect to a particular aircraft part, the
Company will query its inventory databases for availability before researching
market value. A party who has entered into a consignment or marketing agreement
with the Company (the "Contract Party") typically establishes an asking price
for each aircraft part subject to the agreement, but may allow the Company to
lower such price to assure a sale. If the Company feels it must offer a part for
below the price established by the Contract Party, it will first seek the
Contract Party's permission. In most instances, the Contract Party has entered
into the relationship with the Company because it believes the Company has the
expertise necessary to attract the best price for each aircraft part. Further,
the Company is paid a percentage of the sales price as compensation for its
consignment and marketing services. Consequently, the Contract Party,
understanding that the Company's own best interest is in achieving the highest
price possible for the sale of the part, will usually give consideration to a
recommendation by the Company to sell a particular aircraft part at a price
below the Contract Party's established price.

In the past, the Company conducted certain of its consignment sales
activities through ADI Consignment Sales, Inc. ("ADICS"), a wholly-owned
subsidiary of the Company. Pursuant to consignment arrangements, ADICS sold
parts held on consignment to wholesalers of aircraft parts, including the
Company. The Company has discontinued consignment sales through ADICS and
intends to dissolve ADICS in the future and conduct its consignment sales
activities directly through the Company. The Company has several consignment and
marketing agreements with airlines and OEMs. No single consignment or marketing
agreement is material to the Company as a whole.

INVENTORY PURCHASES. The Company acquires aircraft parts by bidding on the
inventory of (i) airlines that are eliminating certain portions of their parts
inventory due to retirement of an aircraft type from their fleet, downsizing of
operations or the dissolution of their businesses and (ii) OEMs and overhaul
facilities who seek to sell excess inventory. Management believes that its
primary source of aircraft parts for acquisition during the next few years will
be from such purchases. The Company also purchases specific items from time to
time, such as engines and whole aircraft, on an opportunistic basis.

SYSTEMS

Due to concerns regarding unapproved aircraft parts, regulatory authorities
have increased the level of documentation required for aircraft parts. This
requirement has, in turn, been extended by end users to the suppliers of the
parts. The sophistication required to track the history of an inventory
consisting of thousands of aircraft parts is considerable and has required
aircraft parts suppliers to invest significantly in information systems
technology. The high cost of increased technology has made entry into and
survival in the aircraft parts supply market increasingly difficult and
expensive. However, the Company has previously invested in systems technology
and intends to continue to maintain its information systems to allow it to
effectively compete in the aircraft parts supply market.

The most commonly used database available in the aircraft part supply
industry is ILS. ILS is a service that assists in searching for and locating
aircraft parts. Once a potential purchaser locates a part owned by the Company
or available through the Company's Accessible Inventory, the purchaser contacts
the Company to confirm price, condition and availability information. As of
December 31,

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<PAGE>
1996, the Company listed approximately 252,000 items on ILS of which the Company
owned approximately 53,000 with the remaining 199,000 constituting the
Accessible Inventory. Additionally, ILS is one of the tools used by the Company
to locate aircraft parts to which it does not have direct access.

The Company also uses a software packages called Quick Quote-TM-. This
computer database creates requests for quote sheets, quotations, sales orders,
purchase orders, repair order and invoices. Quick Quote also provides extensive
part number databases and inventory control. The system, specifically designed
for the aircraft parts industry, is comprehensive and can originate and complete
a transaction without additional software. The Company also uses advanced
methods of electronic data exchange including Spec 2000, AIRS, BComm-TM-, and
the Internet. The Company is currently in the initial development stage of
creating a customized inventory identification and search system for the
Internet. Further, the Company offers customers a remote link directly into the
Company's databases to improve communications with each Contract Party.

COMPETITION

The aircraft parts supply industry is highly competitive. The Company
encounters substantial competition from (i) direct competitors such as The Ages
Group, The Memphis Group, AAR Corp. and Aviation Sales Company and (ii) indirect
competitors such as OEMs, which include aircraft manufacturers such as Boeing,
Airbus and McDonnell Douglas, as well as component manufacturers such as Bendix,
Menasco and Goodrich. Competition is generally based on availability of product,
reputation, customer service, price and lead time. Although some of the
Company's competitors have access to greater financial and other resources than
the Company, the Company believes that by focusing on service, product integrity
and the cultivation of relationships with customers worldwide, it is well
equipped to compete effectively in its industry.

GOVERNMENT REGULATION

Both domestic and foreign entities regulate products sold by the Company.
The following discussion summarizes the required regulatory approvals and
clearances relating to the Company's products and highlights the Company's
specific efforts to conform to such requirements.

The FAA is charged with regulating the manufacture, repair and operation of
all aircraft and aircraft equipment operated within the United States. The FAA
monitors safety by promulgating regulations regarding proper maintenance of
aircraft and aircraft equipment. Similar regulations exist in foreign countries.
All aircraft and aircraft equipment must be monitored on a continual basis and
periodically inspected in order to ensure proper condition and maintenance.
Regulatory agencies specify maintenance, repair and inspection procedures for
aircraft and aircraft equipment. These procedures must be performed by certified
technicians in approved repair facilities on set schedules. All parts must
conform to prescribed regulations and be certified prior to installation on an
aircraft. When necessary, the Company uses FAA and/or Joint Aviation Authority
certified repair shops to repair or certify parts for distribution. Because
regulations are subject to modification, the Company carefully monitors the FAA
and industry trade organizations in order to assess any potentially adverse
impact on the Company caused by changes in regulations applicable to its
operations.

Documentation of spare parts is of paramount importance in the aircraft
parts industry. To ensure that all parts are properly documented and thus
traceable to their original source, the Company requires that its suppliers
comply with all documentation requirements set forth by regulatory agencies.
Documentation may include: (i) an invoice or purchase order from an approved
supplier, (ii) a "teardown" report noting actions taken during the last repair,
(iii) a signed maintenance release from a certified airline or repair facility
that repaired the aircraft spare part and a statement from an inspector
verifying that the part was repaired in accordance with proper workmanship, and
using proper materials and methods.

EMPLOYEES

As of January 31, 1997, the Company had 50 full-time and two part-time
employees in the United States and two full-time employees in England. As of
such date, the Company also had a total of six

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agents in Chile, India, Italy, Malaysia, New Zealand and Turkey. None of the
Company's employees are covered by a collective bargaining agreement. The
Company considers its relations with its employees to be good.

FACILITIES

As of January 31, 1997, the Company owned one facility at One Wrigley Drive,
Irvine, California 92618, leased 5,000 square feet of additional warehouse space
at 4 Autry, Irvine, California 92618 on a month-to-month basis (subject to
termination upon 30-days notice) for $2,400 per month and leased a facility at 6
Market Street, Sleaford, Lincolnshire, England on a month-to-month basis for
L588 per month. The Company's owned facility in Irvine, California houses the
Company's corporate headquarters and consists of 16,000 square feet, 9,200 of
which are used for warehouse space, with the remaining space used for sales
administration and accounting offices. The Company's facility in England is used
as a sales office. The Company believes that its facilities are adequately
covered by insurance.

The Company anticipates that an additional 20,000-25,000 square feet of
warehouse space will be needed by August 1997 to accommodate new consignment and
Company-owned inventory. The Company is currently in the process of locating
such additional warehouse space.

LEGAL PROCEEDINGS

The Company is involved in certain legal and administrative proceedings and
threatened legal and administrative proceedings arising in the normal course of
its business. While the outcome of such proceedings and threatened proceedings
cannot be predicted with certainty, management believes the ultimate resolution
of these matters individually or in the aggregate will not have a material
adverse effect on the Company.

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MANAGEMENT

<TABLE>
<CAPTION>
EXECUTIVE AGE TITLE
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Osamah S. Bakhit 47 Chief Executive Officer, President and Director
Mark W. Ashton 46 Chief Financial Officer, Vice President, Finance
and Director
Jeffrey G. Ward 37 Executive Vice President
Dennis R. Lewis 54 Senior Vice President, Technical Operations
Victor Buendia 39 Vice President, Latin and South American Sales
Elizabeth Morgan 33 Vice President, Consignment and Domestic Sales
Laura M. Birgbauer 29 Chief Accounting Officer and Treasurer
Bruce H. Haglund 45 Secretary and Director
Daniel C. Lewis 47 Director
William T. Walker, Jr. 65 Director
</TABLE>

OSAMAH S. BAKHIT, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR. Mr.
Bakhit has over 15 years of aircraft experience. Currently, Mr. Bakhit oversees
the sales and operations of the Company. Prior to forming the Company in 1988,
Mr. Bakhit was CEO of Bakhit Enterprises, a company that purchased heavy
construction vehicles and material for General Enterprise Company. Mr. Bakhit
worked for General Enterprise Company in Amman, Jordan, where he managed overall
construction operations. His duties included supervising the construction of
Queen Alia International Airport in Jordan. Mr. Bakhit has a B.S. in chemistry
from the University of California, Irvine.

MARK W. ASHTON, CHIEF FINANCIAL OFFICER, VICE PRESIDENT, FINANCE AND
DIRECTOR. Mr. Ashton has over 4 years of aircraft experience and over 18 years
of general accounting and finance experience. Currently, Mr. Ashton oversees the
Company's finance and accounting departments. Prior to joining the Company in
1996, Mr. Ashton was Controller/Chief Accounting Officer for Optical Science
Company (1993-1996) and CR & R Inc. (1991-1993) where he oversaw accounting and
finance reporting and developed and implemented state-of-the art software
systems. Mr. Ashton has a B.S. in accounting/ finance from the University of
Southern California/California State University, Fullerton and an M.B.A. from
Pepperdine University.

JEFFREY G. WARD, EXECUTIVE VICE PRESIDENT. Mr. Ward has over 15 years of
aircraft experience and currently oversees and lends leadership to the extensive
sales team at ADI. Prior to joining the Company in 1993, Mr. Ward was a sales
representative for System Industries. He was a sales consultant to the aerospace
industry with key accounts including the U.S. military and major aerospace
manufacturers. Prior to System Industries, Mr. Ward was a sales representative
for Eastman Kodak Company. Mr. Ward also served in the United States Marine
Corps for seven years as a naval aviator. Mr. Ward has a B.A. in economics and
german from University of Virginia.

DENNIS R. LEWIS, SENIOR VICE PRESIDENT, TECHNICAL OPERATIONS. Mr. Lewis
joined ADI in 1994, and currently oversees the technical operations and quality
control of the Company. His 25 years of aviation experience includes serving as
Vice President of Marketing and Business Planning for Royal Aerospace and Vice
President of Operations and a pilot at Worldways Canada Ltd., where his duties
included managing the maintenance facility. Mr. Lewis holds several aviation
credentials, together with a technological diploma in mechanical engineering and
a teaching degree with the North York Board of Education, Canada.

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VICTOR BUENDIA, VICE PRESIDENT, LATIN AND SOUTH AMERICAN SALES. Mr. Buendia
has 4 years of aircraft experience. Mr. Buendia is responsible for all of the
Company's major Latin America accounts. Prior to joining the Company in 1992,
Mr. Buendia owned and operated his own business and brings valuable marketing,
communication and sales skills to ADI.

ELIZABETH MORGAN, VICE PRESIDENT, CONSIGNMENT AND DOMESTIC SALES. Ms.
Morgan has 12 years of experience in aircraft parts sales. Ms. Morgan is
responsible for the operations and sales of the Company's consignment sales.
Prior to joining the Company in 1994, Ms. Morgan was the Director of Marketing
for Pacific Airmotive, a division of UNC. In addition, Ms. Morgan has worked for
several other companies in aircraft sales.

LAURA M. BIRGBAUER, CHIEF ACCOUNTING OFFICER AND TREASURER. Ms. Birgbauer
has over four years of public accounting experience and is a Certified Public
Accountant. Currently, Ms. Birgbauer manages the Company's finance and
accounting departments and is responsible for financial reporting and the
Company's treasury. From 1991 to 1996, Ms. Birgbauer was an Experienced Senior
Auditor for Arthur Andersen LLP, where she supervised audit engagements and
prepared and reviewed financial reports. Ms. Birgbauer has a B.S. in accounting
from the University of Southern California.

BRUCE H. HAGLUND, SECRETARY AND DIRECTOR. Mr. Haglund has served as General
Counsel of the Company since 1992 and has served as Secretary and a director of
the Company from June 1996 to present. Since 1994, Mr. Haglund has been a
partner in the law firm Gibson, Haglund & Johnson. Prior to 1994, Mr. Haglund
was a principal in the law firm of Phillips, Haglund, Hadden & Jeffers. From
1984 to 1991, he was a partner at the law firm of Gibson & Haglund. Mr. Haglund
is also the Secretary and a member of the Board of Directors of GB Foods
Corporation and the Secretary of Metalclad Corporation, both public companies
traded on the Nasdaq SmallCap Market. Mr. Haglund has a J.D. from the University
of Utah College of Law.

DANIEL C. LEWIS, DIRECTOR. Mr. Lewis became a director of the Company in
March 1997. Mr. Lewis currently serves as a Senior Vice President of Booz-Allen
& Hamilton, Inc. ("Booz-Allen") where he heads the firm's worldwide engineering
manufacturing businesses of aerospace, automotive and industrials. At
Booz-Allen, Mr. Lewis is a member of the Commercial Leadership Team, Operating
Council, and is a former Director of the company. Prior to joining Booz-Allen,
Mr. Lewis was a materials manager in Warner-Lambert's consumer products group.
Prior to Warner-Lambert, Mr. Lewis was with Sundstrand working in the machine
tool and aerospace business. Mr. Lewis has a B.S. in industrial supervision and
a B.A. in applied science from Purdue University and an M.B.A. from Fairleigh
Dickinson University.

WILLIAM T. WALKER, JR., DIRECTOR. Mr. Walker became a director of the
Company in March 1997. Mr. Walker founded Walker Associates, a corporate finance
consulting firm for investment banking, in 1985 and has participated in or been
instrumental in completing over $250 million in public and private offerings
since its inception. Prior to forming Walker Associates, Mr. Walker served as
executive Vice President, Manager of Investment Banking, Member of the Board and
Executive Committee and Chairman of the Underwriting Committee for Bateman
Eichler Hill Richards, a New York Stock Exchange Member firm. Mr. Walker is also
a member of the Board of Directors of Fortune Petroleum Corporation and
Go-Video, Inc., both public companies traded on the American Stock Exchange. Mr.
Walker attended Stanford University.

BOARD OF DIRECTORS

The Board of Directors of the Company (the "Board of Directors") is
comprised of Messrs. Bakhit, Ashton, Haglund, Lewis and Walker. Messrs. Lewis
and Walker are neither officers nor employees of the Company. The Company has
three classes of directors which are elected for staggered terms of three years.
The initial terms of each class expire at the annual meetings of stockholders in
1997 (Class I), 1998 (Class II) and 1999 (Class III). Messrs. Haglund, Lewis and
Walker are Class I directors, Mr. Ashton is a Class II director and Mr. Bakhit
is a Class III director.

29
<PAGE>
The Board of Directors has (i) an Audit Committee that is responsible for
recommending to the Board of Directors the engagement of the independent
auditors of the Company and reviewing with the independent auditors the scope
and results of the audits, the internal accounting controls of the Company,
audit practices and the professional services furnished by the independent
auditors, and (ii) a Compensation Committee (the "Compensation Committee") that
is responsible for reviewing and approving all compensation arrangements for
officers of the Company, including compensation pursuant to the Executive
Compensation Plan (as defined herein), and for administering the 1996 Stock
Option Plan. See "Employment Agreements" and "Employee Benefit Plans -- 1996
Stock Option Plan."

DIRECTOR COMPENSATION

Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Directors who are not employees of the
Company will receive a fee of $1,000 for each board or committee meeting
attended in person and a fee of $500 for each board or committee meeting
attended via conference call. All directors are reimbursed for expenses incurred
in connection with attendance at board or committee meetings.

EXECUTIVE COMPENSATION

The following table sets forth compensation received in the year ended
December 31, 1996 by (i) the Company's Chief Executive Officer and (ii) the
Company's two other most highly compensated executive officers whose annualized
salary plus bonus exceeded $100,000 (collectively, the "Named Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------
OTHER ANNUAL
COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)
- ------------------------------------------------------------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Osamah S. Bakhit 1995 --(1) -- 21,000(2)
Chief Executive Officer and Director 1996 116,000 49,000 41,200(2)
Jeffrey G. Ward 1995 116,473 21,000 --
Executive Vice President 1996 181,482 15,000 --
Mark Ashton 1995 -- -- --
Vice President, Finance, and Chief Financial Officer 1996 59,423(3) -- --
</TABLE>

- ------------------------
(1) Mr. Bakhit did not receive a salary for 1995, but did borrow $328,718 from
the Company for personal use. See "Certain Transactions." In 1994, Mr.
Bakhit received an annual salary of $106,000.

(2) Compensation consists of automobile lease payments and automobile insurance
paid by the Company and certain other perquisites.

(3) Mr. Ashton's employment began June 3, 1996 and his compensation for 1996
represents the pro rata portion of his salary for the period June 3, 1996 to
December 31, 1996. Mr. Ashton's annual base salary is $120,000. See
"Employment Agreements."

EMPLOYMENT AGREEMENTS

The Company has entered into an amended and restated employment agreement
with Mr. Bakhit (the "Bakhit Agreement") pursuant to which Mr. Bakhit shall
serve as the Chairman of the Board, Chief Executive Officer and President. The
Bakhit Agreement provides for an annual base salary of $225,000. In addition,
the Company shall provide Mr. Bakhit with an automobile allowance and all
employee benefits established for Company employees. The Bakhit Agreement also
provides Mr. Bakhit with incentive compensation under the Executive Incentive
Compensation Plan (the "Executive Compensation Plan"), which provides for the
contribution to a senior management bonus

30
<PAGE>
pool of 7.5% of the Company's earnings before taxes (not to exceed $250,000
annually), to be allocated in accordance with the determination of the Board of
Directors. In addition, Mr. Bakhit is entitled to bonus compensation declared at
the discretion of the independent members of the Board of Directors from time to
time in an amount not to exceed two times Mr. Bakhit's annual base salary per
calendar year. Under the Bakhit Agreement, Mr. Bakhit was granted an option to
purchase 51,050 shares of Common Stock pursuant to the terms of the Company's
1996 Stock Plan (defined below) at an option price of $7 per share; the Company
plans to amend the Bakhit Agreement to make the exercise price of such options
equal to the price of the Common Stock offered hereby. This option vests six
months after the closing of the Offering.

The Bakhit Agreement contains nonsolicitation, noncompetition and
confidentiality provisions, which provisions are tied to Mr. Bakhit remaining
with the Company as a consultant upon certain events of termination. The Bakhit
Agreement provides for an initial term expiring on December 31, 2001. However,
the Bakhit Agreement will be automatically renewed for a new five-year term on
its expiration date unless canceled upon 90 days written notice by the Company
or by Mr. Bakhit or unless sooner terminated pursuant to the terms of the Bakhit
Agreement.

The Company has entered into an employment agreement with Mr. Ashton (the
"Ashton Agreement") pursuant to which Mr. Ashton shall serve as the Company's
Chief Financial Officer and Vice President, Finance. The Ashton Agreement
provides for an annual base salary of $120,000. In addition, the Company shall
provide Mr. Ashton all employee benefits established for Company employees. The
Ashton Agreement also provides Mr. Ashton with incentive compensation under the
Executive Compensation Plan in an amount to be determined by the Board of
Directors. Under the Ashton Agreement, Mr. Ashton was granted an option to
purchase 10,000 shares of Common Stock pursuant to the 1996 Stock Plan at an
option price of $7 per share; the Company plans to amend the Ashton Agreement to
make the exercise price of such options equal to the price of the Common Stock
offered hereby. This option vests ratably over a three-year period commencing
six months after the closing of the Offering.

The Ashton Agreement contains nonsolicitation and confidentiality
provisions. The Ashton Agreement provides for an initial term expiring on
December 31, 1999. However, the Ashton Agreement will be automatically renewed
for a new three-year term on the expiration date unless canceled upon 90 days
written notice by the Company or by Mr. Ashton or unless sooner terminated
pursuant to the terms of the Ashton Agreement.

The Company has entered into an employment agreement with Mr. Ward (the
"Ward Agreement") pursuant to which Mr. Ward shall serve as the Company's
Executive Vice President. The Ward Agreement provides for an annual base salary
of $120,000. In addition, the Company shall provide Mr. Ward all employee
benefits established for Company employees. The Ward Agreement also provides Mr.
Ward with incentive compensation under the Executive Compensation Plan in an
amount to be determined by the Board of Directors. Under the Ward Agreement, Mr.
Ward was granted an option to purchase 15,000 shares of Common Stock pursuant to
the 1996 Stock Plan at an option price of $7 per share; the Company plans to
amend the Ward Agreement to make the exercise price of such options equal to the
price of the Common Stock offered hereby. This option vests ratably over a
three-year period commencing six months after the closing of the Offering. In
addition, Mr. Ward is entitled to commission on sales to certain customers
identified in the Ward Agreement equal to 1.25% of such sales.

The Ward Agreement contains nonsolicitation and confidentiality provisions.
The Ward Agreement provides for an initial term expiring on December 31, 1999.
However, the Agreement will be automatically renewed for a new three-year term
on the expiration date unless canceled upon 90 days written notice by the
Company or by Mr. Ward or unless sooner terminated pursuant to the terms of the
Ward Agreement.

31
<PAGE>
EMPLOYEE BENEFIT PLANS

THE 1996 STOCK PLAN

On July 10, 1996, the Board of Directors adopted, and the then stockholder
approved, the Aviation Distributors Incorporated 1996 Stock Option and Incentive
Plan (the "1996 Stock Plan"), which provides for the grant of various types of
stock-based compensation to non-employee directors, selected employees and
independent contractors of the Company and its subsidiaries. The 1996 Stock Plan
provides for the issuance of a maximum of 264,500 shares of Common Stock
pursuant to awards under the 1996 Stock Plan.

The purposes of the 1996 Stock Plan are to promote the success of the
Company's business by providing incentives to those non-employee directors,
employees and independent contractors who are or will be responsible for such
success; to facilitate the ownership of Common Stock by such individuals,
thereby increasing their proprietary interests in the Company's business; and to
assist the Company in attracting and retaining non-employee directors, employees
and independent contractors with experience and ability.

The 1996 Stock Plan is designed to comply with the requirements of
Regulation G (12 C.F.R. Section207), the requirements for "performance-based
compensation" under Section 162(m) of the Internal Revenue Code of 1986, as
amended and the conditions for exemption from the short-swing profit recovery
rules under Rule 16b-3 of the Exchange Act. The summary that follows is subject
to the actual terms of the 1996 Stock Plan.

The 1996 Stock Plan provides for the granting of stock options ("Options"),
including incentive stock options ("ISOs") and non-qualified stock options
("NSOs"). Options granted under the 1996 Stock Plan may be accompanied by stock
appreciation rights ("SARs") or limited stock appreciation rights ("LSARs"), or
both ("Rights"). Rights may also be granted independently of Options. The Plan
also provides for the granting of restricted stock and restricted stock units
("Restricted Awards"), dividend equivalents and other stock- and cash-based
awards. The 1996 Stock Plan also permits the plan's administrator to make loans
to participants in connection with the grant of awards, on terms and conditions
determined solely by the plan administrator. All awards will be evidenced by an
agreement (an "Award Agreement") setting forth the terms and conditions
applicable thereto.

PLAN ADMINISTRATION

The 1996 Stock Plan is administered by the Board of Directors, and from and
after the consumation of the Offering, will be administered by the Compensation
Committee, the composition of which will at all times satisfy the provisions of
Rule 16b-3 (such Board or committee sometimes referred to herein as the "Plan
Administrator"). Members of the Compensation Committee are not entitled to
receive remuneration for administering the 1996 Stock Plan. The 1996 Stock Plan
provides that no member of the Board of Directors or the Compensation Committee
will be liable for any action or determination taken or made in good faith with
respect to the 1996 Stock Plan or any Option, Right, Restricted Award or other
award granted thereunder.

Subject to the terms of the 1996 Stock Plan, the Plan Administrator has the
right to grant awards to eligible recipients and to determine the terms and
conditions of Award Agreements, including the vesting schedule and exercise
price of such awards, and the effect, if any, of a change in control of the
Company on such awards.

SHARES SUBJECT TO THE 1996 STOCK PLAN

The 264,500 shares reserved for issuance under the 1996 Stock Plan may be
authorized but unissued shares of Common Stock or shares which have or may be
reacquired by the Company in the open market, in private transactions or
otherwise. Generally speaking, shares subject to an award which is forfeited,
cancelled, exchanged, surrendered or terminated, without distribution of the
shares subject thereto, will again be available for issuance under the 1996
Stock Plan.

32
<PAGE>
The 1996 Stock Plan provides that, in the event of changes in the Common
Stock by reason of a merger, reorganization, recapitalization, common stock
dividend, stock split or similar change, the Plan Administrator will make
appropriate adjustments in the aggregate number of shares available for issuance
under the 1996 Stock Plan, the purchase price to be paid or the number of shares
issuable upon the exercise thereafter of any Option previously granted and in
the purchase price to be paid or the number of shares issuable pursuant to other
awards. The Plan Administrator will have the discretion to make other
appropriate adjustments to awards to prevent dilution of shares or other
devaluations of such awards.

ELIGIBILITY

Discretionary grants of Options, Rights, Restricted Awards and dividend
equivalents, and loans in connection therewith may be made to any non-employee
director, employee or any independent contractor of the Company or its direct
and indirect subsidiaries and affiliates who is determined by the Plan
Administrator to be eligible for participation in the 1996 Stock Plan,
consistent with the purposes of the Plan; provided that, ISOs may only be
granted to employees of the Company and its subsidiaries and affiliates which
have participants in the 1996 Stock Plan.

EXERCISE OF OPTIONS

Options will vest and become exercisable over the exercise period, at such
times and upon such conditions as the Plan Administrator determines and sets
forth in the Award Agreement. The Plan Administrator may accelerate the
exercisability of any outstanding Option at such time and under such
circumstances as it deems appropriate. Options that are not exercised within ten
years from the date of grant, however, will expire without value. Options are
exercisable during the optionee's lifetime only by the optionee. The Award
Agreements will contain provisions regarding the exercise of Options following
termination of employment with or service to the Company, including terminations
due to the death, disability or retirement of an award recipient, or upon a
change in control of the Company. In addition to the terms and conditions
governing NSOs, ISOs awarded under the 1996 Stock Plan must comply with the
requirements set forth in Section 422 of the Code.

The purchase price of Common Stock subject to the exercise of an Option will
be as determined by the Plan Administrator and may be adjusted in accordance
with the antidilution provisions described in "Shares Subject to the 1996 Stock
Plan," above. Upon the exercise of any Option, the purchase price may be fully
paid in cash, by delivery of Common Stock previously owned by the optionee equal
in value to the exercise price, by means of a loan from the Company, or by
having shares of Common Stock with a fair market value (on the date of
exercise), equal to the exercise price withheld by the Company or sold by a
broker-dealer under qualifying circumstances (or in any combination of the
foregoing).

STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS

Unless the Plan Administrator determines otherwise, a SAR or LSAR (1)
granted in tandem with an NSO may be granted at the time of grant of the related
NSO or at any time thereafter or (2) granted in tandem with an ISO may only be
granted at the time of grant of the related ISO. A SAR will be exercisable only
to the extent the underlying Option is exercisable.

Upon exercise of a SAR the grantee will receive, with respect to each share
subject thereto, an amount equal in value to the excess of (1) the fair market
value of one share of Common Stock on the date of exercise over (2) the grant
price of the SAR (which in the case of a SAR granted in tandem with an Option
will be the exercise price of the underlying Option, and in the case of any
other SAR will be the price determined by the Plan Administrator).

Upon exercise of a LSAR, the grantee will receive, with respect to each
share subject thereto, automatically upon the occurrence of a change in control
of the Company, an amount equal in value to the excess of (1) the change in
control price (which in the case of a LSAR granted in tandem with an ISO will be
the fair market value) of one share of Common Stock on the date of such change
in control over (2) the grant price of the LSAR (which in the case of a LSAR
granted in tandem with an Option will be the exercise price of the underlying
Option, and which in the case of any other LSAR will be the price

33
<PAGE>
determined by the Plan Administrator). In the case of a LSAR granted to a
participant, however, who is subject to the reporting requirements of Section
16(a) of the Exchange Act (a "Section 16 Individual"), such Section 16
Individual will only be entitled to receive such amount if the LSAR has been
outstanding for at least six (6) months as of the date of the change in control.

With respect to SARs and LSARs that are granted in tandem with Options, each
such SAR and LSAR will terminate upon the termination or exercise of the
pertinent portion of the related Option, and the pertinent portion of the
related Option will terminate upon the exercise of any such SAR or LSAR.

RESTRICTED STOCK AND RESTRICTED STOCK UNITS

A Restricted Stock award is an award of Common Stock subject to such
restrictions on transferability and other restrictions as the Plan Administrator
may impose at the date of grant or thereafter. Restrictions on shares may lapse
at such times, under such circumstances or otherwise, as determined by the Board
of Directors or the Compensation Committee. Unless an Award Agreement provides
otherwise, a Restricted Stock recipient will have all of the rights of a
shareholder during the restriction period including the right to vote Restricted
Stock and the right to receive dividends.

If the recipient of an award of Restricted Stock terminates employment with
or service to the Company during the applicable restriction period, Restricted
Stock and any accrued but unpaid dividends or dividend equivalents that are at
that time still subject to restrictions will be forfeited (unless the Plan
Administrator has provided otherwise in an Award Agreement).

Recipients of Restricted Stock Units will receive cash or shares of Common
Stock, as determined by the Plan Administrator, upon expiration of the deferral
period specified for such Restricted Stock Units in the related Award Agreement.
Restricted Stock Units may also be subject to such restrictions as the Plan
Administrator imposes at the time of grant or thereafter, which restrictions may
lapse at the expiration of the deferral period (or at an earlier or later time
in the Plan Administrator's discretion).

Upon termination of employment with or service to the Company during any
applicable deferral period to which forfeiture conditions apply, or upon failure
to satisfy any other conditions precedent to the delivery of cash or Common
Stock pursuant to a Restricted Stock Unit award, all such units that are subject
to deferral or restriction will be forfeited (unless the applicable Award
Agreement or the Plan Administrator provides otherwise).

DIVIDEND EQUIVALENTS

Dividend equivalents may be granted which relate to Options, Rights or other
awards under the 1996 Stock Plan, or may be granted as freestanding awards. The
Board of Directors or the Compensation Committee may provide, at the grant date
or thereafter, that dividend equivalents will be paid or distributed to an
awardee when accrued with respect to Options, Rights or other awards under the
1996 Stock Plan, or will be deemed to have been reinvested in additional shares
of Common Stock (or such other investment vehicles as the Plan Administrator may
specify). Dividend equivalents which are not freestanding will be subject to all
conditions and restrictions applicable to the underlying awards to which they
relate.

OTHER STOCK- OR CASH-BASED AWARDS

The Plan Administrator may grant Common Stock as a bonus or in lieu of
Company commitments to pay cash under other plans or compensatory arrangements
of the Company. The Board of Directors and the Compensation Committee may also
grant other stock- or cash-based awards as an element of or supplement to any
other award under the 1996 Stock Plan. Such awards may be granted with value and
payment contingent upon the attainment of specified individual or Company (or
subsidiary) financial goals, or upon any other factors designated by the Plan
Administrator. The Plan Administrator may determine the terms and conditions of
such awards at the date of grant or thereafter.

AMENDMENT; TERMINATION

The Board of Directors or the Compensation Committee may terminate or amend
the 1996 Stock Plan at any time, except that stockholder approval is required
for any amendment which (i) increases the maximum number of shares of Common
Stock which may be issued under the 1996 Stock Plan

34
<PAGE>
(except for adjustments made to prevent share dilutions and award devaluations),
(ii) changes the class of individuals eligible to participate in the 1996 Stock
Plan, or (iii) extends the term of the 1996 Stock Plan or the period during
which any Option, Right, Restricted Award or other award may be granted or any
Option or Right may be exercised; but such approval is needed only to the extent
required by Rule 16b-3 with respect to the material amendment of any employee
benefit plan maintained by the Company. Termination or amendment of the 1996
Stock Plan will not affect previously granted Options, Rights, Restricted Awards
or other grants, which will continue in effect in accordance with their terms.

PAYMENT OF TAXES

The Company is authorized to withhold from any award granted, any payment
relating to an award under the 1996 Stock Plan (including from a distribution of
Common Stock), or any other payment to a grantee, amounts of withholding and
other taxes due in connection with the award, and to take such other action as
the Plan Administrator may deem advisable to enable the Company and grantees to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to the award. This authority includes the right to withhold
or receive Common Stock or other property and to make cash payments in respect
thereof in satisfaction of a grantee's tax obligations.

CERTAIN FEDERAL INCOME TAX EFFECTS

The following discussion of certain relevant federal income tax effects
applicable to Options, Rights, Restricted Awards and dividend equivalents
granted under the 1996 Stock Plan is a summary only, and reference is made to
the Code for a complete statement of all relevant federal tax provisions.
Holders of NSOs, ISOs, Rights and dividend equivalents should consult their tax
advisors before realization of any such awards, and holders of Common Stock
pursuant to awards hereunder should consult their tax advisors before disposing
of any shares of Common Stock acquired pursuant to such awards. Section 16
Individuals should note that somewhat different rules than those described below
may apply to them.

NON-QUALIFIED STOCK OPTIONS

A participant will generally not be taxed upon the grant of an NSO. Rather,
at the time of exercise of such NSO, the participant will recognize ordinary
income for federal income tax purposes in an amount equal to the excess of the
fair market value of the shares purchased over the Option price. The Company
will generally be entitled to a tax deduction at such time and in the same
amount that the participant recognizes ordinary income.

If shares acquired upon exercise of a NSO (or upon untimely exercise of an
ISO) are later sold or exchanged, then the difference between the sales price
and the fair market value of such Common Stock on the date that ordinary income
was recognized with respect thereto will generally be taxable as long-term or
short-term capital gain or loss (if the Common Stock is a capital asset of the
participant) depending upon whether the Common Stock has been held for more than
one year after such date.

INCENTIVE STOCK OPTIONS

A participant will not be taxed upon the grant of an ISO or upon its timely
exercise. Exercise of an ISO will be timely if made during its term and if the
participant remains an employee of the Company or a subsidiary at all times
during the period beginning on the date of grant of the ISO and ending on the
date three months before the date of exercise (or one year before the date of
exercise in the case of a disabled employee). Exercise of an ISO will also be
timely if made by the legal representative of a participant who dies (i) while
in the employ of the Company or a subsidiary or (ii) within three months after
termination of employment (or one year in the case of a disabled employee). The
tax consequences of an untimely exercise of an ISO will be determined in
accordance with the rules applicable to NSOs. (See "Certain Federal Income Tax
Effects -- Non-qualified Stock Options," above.)

If shares acquired pursuant to a timely exercised ISO are later disposed of,
the participant will, except as noted below with respect to a "disqualifying
disposition," recognize long-term capital gain or loss (if the Common Stock is a
capital asset of the employee) equal to the difference between the amount
realized upon such sale and the Option price. The Company, under these
circumstances, will not be entitled to any federal income tax deduction in
connection with either the exercise of the ISO or the sale of such Common Stock
by the participant.

35
<PAGE>
If, however, a participant disposes of shares acquired pursuant to the
exercise of an ISO prior to the expiration of two years from the date of grant
of the ISO or within one year from the date such stock is transferred to him
upon exercise (a "disqualifying disposition"), generally (i) the participant
will realize ordinary income at the time of the disposition in an amount equal
to the excess, if any, of the fair market value of the shares at the time of
exercise (or, if less, the amount realized on such disqualifying disposition)
over the Option exercise price, and (ii) if the Common Stock is a capital asset
of the participant, any additional gain recognized by the participant will be
taxed as short-term or long-term capital gain. In such case, the Company may
claim a federal income tax deduction at the time of such disqualifying
disposition for the amount taxable to the participant as ordinary income. Any
capital gain recognized by the participant will be long-term capital gain if the
participant's holding period for the shares at the time of disposition is more
than one year; otherwise it will be short-term.

The amount by which the fair market value of the Common Stock on the
exercise date of an ISO exceeds the Option price will be an item of adjustment
for purposes of the "alternative minimum tax" imposed by Section 55 of the Code.

EXERCISE WITH SHARES

According to a published ruling of the Internal Revenue Service, a
participant who pays the Option price upon exercise of a NSO, in whole or in
part, by delivering shares of Common Stock already owned by him will recognize
no gain or loss for federal income tax purposes on the shares surrendered, but
otherwise will be taxed according to the rules described above for NSOs. (See
"Certain Federal Income Tax Effects -- Non-qualified Stock Options," above.)
With respect to shares acquired upon exercise which are equal in number to the
shares surrendered, the basis of such shares will be equal to the basis of the
shares surrendered, and the holding period of the shares acquired will include
the holding period of the shares surrendered. The basis of additional shares
received upon exercise will be equal to the fair market value of such shares on
the date which governs the determination of the participant's ordinary income,
and the holding period for such additional shares will commence on such date.

The Treasury Department has issued proposed regulations that, if adopted in
their current form, would appear to provide for the following rules with respect
to the exercise of an ISO by surrender of previously owned shares of corporation
stock. If the shares surrendered in payment of the exercise price of an ISO are
"statutory option stock" (including stock acquired pursuant to the exercise of
an ISO) and if the surrender constitutes a "disqualifying disposition" (as would
be the case, for example, if, in satisfaction of the Option exercise price, the
Company withholds shares which would otherwise be delivered to the participant),
any gain realized on such transfer will be taxable to the optionee, as discussed
above. Otherwise, when shares of the Company's stock are surrendered upon
exercise of an ISO, in general, (i) no gain or loss will be recognized as a
result of the exchange, (ii) the number of shares received that is equal in
number to the shares surrendered will have a basis equal to the shares
surrendered and (except for purposes of determining whether a disposition will
be a disqualifying disposition) will have a holding period that includes the
holding period of the shares exchanged, and (iii) any additional shares received
will have a zero basis and will have a holding period that begins on the date of
the exchange. If any of the shares received are disposed of within two years of
the date of grant of the ISO or within one year after exercise, the shares with
the lowest basis will be deemed to be disposed of first, and such disposition
will be a disqualifying disposition giving rise to ordinary income as discussed
above.

RIGHTS

A grant of SARs or LSARs has no federal income tax consequences at the time
of such grant. Upon the exercise of SARs or LSARs (other than a Free Standing
LSAR), the amount of any cash and the fair market value as of the date of
exercise of any shares of Common Stock received is taxable to the participant as
ordinary income. With respect to a Free Standing LSAR, however, a recipient
should be required to include as taxable ordinary income on the change in
control date an amount equal to the amount of cash that could be received upon
the exercise of the LSAR, even if the LSAR is not exercised until a date
subsequent to the change in control date. The Company will generally be entitled
to a

36
<PAGE>
deduction at the same time and equal to the amount included in the participant's
income. Upon the sale of the shares acquired by the exercise of SARs or LSARs,
participants will recognize capital gain or loss (assuming such Common Stock was
held as a capital asset) in an amount equal to the difference between the amount
realized upon such sale and the fair market value of the Common Stock on the
date that governs the determination of the participant's ordinary income.

RESTRICTED AWARDS

In the case of a Restricted Award, a participant generally will not be taxed
upon the grant of such an award, but, rather, the participant will recognize
ordinary income in an amount equal to (i) the fair market value of Common Stock
at the time the shares become transferable or are otherwise no longer subject to
a substantial risk of forfeiture (as defined in the Code), minus (ii) the price,
if any, paid by the participant to purchase such Common Stock. The Company will
be entitled to a deduction at the time when, and in the amount that, the
participant recognizes ordinary income. However, a participant may elect (not
later than 30 days after acquiring such shares) to recognize ordinary income at
the time the restricted shares are awarded in an amount equal to their fair
market value at that time, notwithstanding the fact that such shares are subject
to restrictions and a substantial risk of forfeiture. If such an election is
made, no additional taxable income will be recognized by the participant at the
time the restrictions lapse. The Company will be entitled to a tax deduction at
the time when, and to the extent that, income is recognized by the participant.
However, if shares in respect of which such election was made are later
forfeited, no tax deduction is allowable to the participant for the forfeited
shares, and the Company will be deemed to recognize ordinary income equal to the
amount of the deduction allowed to the Company at the time of the election in
respect of such forfeited shares.

DIVIDEND EQUIVALENTS

A participant will not be taxed upon the grant of a dividend equivalent, but
will instead recognize ordinary income in an amount equal to the value of the
dividend equivalent at the time the dividend equivalent becomes payable to the
participant. The Company will be entitled to a deduction at such time and in
such amount as the participant recognizes ordinary income with respect to the
dividend equivalent.

1996 STOCK PLAN BENEFITS

On July 16, 1996, the Board of Directors approved grants of Options to 34
non-employee directors, employees and independent contractors of the Company at
an exercise price of $7 per share, which was equal to the median value of the
estimated range of the initial public offering price of the Common Stock on the
date of grant; the Board of Directors subsequently changed the exercise price of
such options to the price of the Common Stock offered hereby. The following
table provides information with respect to certain of such Option grants. The
size of any future grants to be made to individuals named or described in the
table cannot yet be determined.

<TABLE>
<CAPTION>
NAME AND POSITION OPTIONS GRANTED
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Osamah S. Bakhit 51,050
Chief Executive Officer and Director
Jeffrey G. Ward 15,000
Executive Vice President
Dennis R. Lewis 0
Senior Vice President, Technical Operations
Executive Officer Group 76,050
Non-Executive Director Group 10,000
Non-Executive Officer Employee Group 63,950
</TABLE>

37
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Delaware General Corporation Law ("GCL") provides that a company may
indemnify its directors and officers as to certain liabilities. The Company's
Certificate of Incorporation and Bylaws provide for the indemnification of its
directors and officers to the fullest extent permitted by law, and the Company
intends to enter into separate indemnification agreements with each of its
directors and officers to effectuate these provisions and to purchase directors
and officers liability insurance. The effect of such provisions is to indemnify,
to the fullest extent permitted by law, the directors and officers of the
Company against all costs, expenses and liabilities incurred by them in
connection with any action, suit or proceeding in which they are involved by
reason of their affiliation with the Company.

The Company's indemnification agreements with each of its officers,
directors and key employees contain provisions which are in some respects
broader than the specific indemnification provisions contained in the GCL. The
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as directors of officers (other than
liabilities arising from willful misconduct of a culpable nature) and to advance
their expenses incurred as a result of any proceeding against them, as to which
they could be indemnified. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

At present, the Company is not aware of any pending litigation involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.

38
<PAGE>
CERTAIN TRANSACTIONS

In January 1997, the Company borrowed an aggregate of $400,000 from Mr.
Ashton, Mr. Bakhit, Jim Gaulet, Steve Hayer, Elizabeth Morgan, Magda
Reichenberg, Leza Ann Waner and Mr. Ward, each an employee of the Company for
working capital (the "Employee Loans"). The Employee Loans bear an annual
interest rate of 14 percent, payable monthly, and mature on the earlier of
October 27, 1997 or the date the Company consummates an initial public offering
of its Common Stock. The Company expects to repay the $400,000 principal amount
outstanding on the Employee Loans with a portion of the proceeds from the
Offering. See "Use of Proceeds."

The Company loaned $328,718 to Mr. Bakhit for personal use in December 1995.
As of December 31, 1996, $328,718 principal amount was outstanding on the loan.
The loan is payable in quarterly principal installments of approximately $82,180
beginning March 1, 1997 and continuing through December 1, 1997. The loan bears
an annual interest rate of 6 percent. Interest on the unpaid principal balance
through December 30, 1996 is due and payable on December 30, 1996 and has been
paid by Mr. Bakhit; thereafter, interest is payable quarterly beginning March 1,
1997 and continuing through December 1, 1997 when all accrued and unpaid
interest is due and payable.

The Company loaned Mr. Bakhit $80,000 for personal use in December 1996. As
of December 31, 1996, $80,000 principal amount was outstanding on the loan. The
loan is payable in quarterly installments of $20,000 beginning March 1, 1997 and
continuing through December 1, 1997. The loan bears an annual interest rate of 6
percent and is payable quarterly beginning March 1, 1997 and continuing through
December 1, 1997 when all accrued and unpaid interest is due and payable. The
Company does not intend to make any further loans to its directors and executive
officers. In addition, after consummation of the Offering, management intends to
submit to the Board of Directors a formal policy limiting loans and advances to
and guarantees of debt of directors and executive officers.

Mr. Bakhit and his wife have personally guaranteed the Credit Facilities
with Far East Bank. Far East Bank has indicated orally that it will consider
terminating such guarantee following consummation of the Offering.

Pursuant to an Aircraft Purchase Agreement dated January 6, 1995 between the
Company and Air China Group Import and Export Trading Company ("Air China"), as
amended (the "Purchase Agreement"), the Company purchased two whole Boeing
707-320C aircraft (the "Aircraft") from Air China for an aggregate purchase
price of $5,500,000. The Company financed the purchase through a term loan with
State Street Bank.

Pursuant to an Aircraft Purchase Agreement dated August 8, 1995 (the "Sales
Agreement") between the Company and Alia-The Royal Jordanian Airline ("RJ"), the
Company sold two whole aircraft and four Pratt & Whitney JT3D-7 aircraft engines
to RJ for an aggregate sale price of $7,980,000 financed by RJ through a
revolving letter of credit with the Housing Bank of Jordan payable in 48 monthly
installments of $166,250.

The Company expects that transactions between the Company and its officers,
directors and affiliated persons in the future, if any, will be on terms as
favorable to the Company as such terms would be if negotiated between the
Company and persons unaffiliated with its officers, directors or affiliated
persons.

39
<PAGE>
PRINCIPAL STOCKHOLDER

The following table and the notes thereto set forth information, as of the
date of this Prospectus, relating to beneficial ownership (as defined in Rule
13d-3 of the Securities Exchange Act of 1934) of the Company's equity securities
by the Principal Stockholder and the Company's directors and executive officers
as a group:

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF SHARES BENEFICIAL OWNERSHIP
OF COMMON STOCK OF COMMON STOCK OF COMMON STOCK
PRIOR TO THE OFFERING(1) TO BE SOLD AFTER THE OFFERING(2)
------------------------- ---------------- -------------------------
NAME OF BENEFICIAL OWNERS NUMBER PERCENT NUMBER NUMBER PERCENT
- -------------------------------------- ----------- ------------ ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Osamah S. Bakhit(3)................... 1,785,000 100% -- 1,785,000 60%
All directors and executive officers
as a group (4 persons)............... 1,785,000 100% -- 1,785,000 60%
</TABLE>

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

(1) Does not include Common Stock that may be purchased pursuant to the exercise
of Options granted to Mr. Bakhit and to other directors and executive
officers. See "Management -- Employee Benefit Plans -- 1996 Stock Plan
Benefits."

(2) Assumes that the over-allotment options is not exercised. If the
Underwriters exercise the over-allotment option, the percentage of shares
held by Mr. Bakhit and all directors and officers as a group will be reduced
to 56%.

(3) The mailing address of Mr. Bakhit is c/o Aviation Distributors Incorporated,
One Wrigley Drive, Irvine, California 92618. Mr. Bakhit is the Chief
Executive Officer, President and a director of the Company.

SHARES ELIGIBLE FOR FUTURE SALE

Upon the consummation of the Offering, the Company will have 2,985,000
shares of Common Stock outstanding. Of these shares, the 1,200,000 shares sold
by the Company in the Offering will be freely tradeable without restriction or
further registration under the Securities Act, unless held by an "affiliate" of
the Company (as that term is defined below). Any such affiliate will be subject
to the resale limitations of Rule 144 adopted under the Securities Act. The
remaining 1,785,000 shares of Common Stock outstanding are "restricted
securities" for purposes of Rule 144 and are held by Mr. Bakhit, who is
considered an "affiliate" of the Company within the meaning of Rule 144.
Restricted securities may not be resold in a public distribution except in
compliance with the registration requirements of the Securities Act or pursuant
to an exemption therefrom, including the exemptions provided by Rule 144 or Rule
701.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell within any three-month period a number of shares beneficially
owned for at least two years that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock or (ii) the average weekly trading
volume of the outstanding shares of Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. However, a person (or persons whose shares
are aggregated) who is not an "affiliate" of the Company during the 90 days
preceding a proposed sale by such person and who has beneficially owned
"restricted securities" for at least three years is entitled to sell such shares
under Rule 144 without regard to the volume, manner of sale or notice
requirements. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly controls, or is controlled by, or is under common
control with such issuer.

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the

40
<PAGE>
Company by its employees, directors, officers, consultants or advisors before
the date the Company becomes subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended, pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such persons,
including the 1996 Stock Plan. Securities issued in reliance on Rule 701 are
restricted securities and, beginning 90 days after the date of this Prospectus,
may be sold by persons other than affiliates subject only to the manner of sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
its two-year minimum holding period requirements. Such securities will be
subject, however, to any lockup agreements related to such securities.

The Company and Mr. Bakhit have entered into a lock-up agreement with CRI,
pursuant to which the Company and Mr. Bakhit have agreed, subject to certain
exceptions, not to, directly or indirectly, (i) sell, grant any option to
purchase or otherwise transfer or dispose of any Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock or file a
registration statement under the Securities Act with respect to the foregoing or
(ii) enter into any swap or other agreement or transaction that transfers, in
whole or in part, the economic consequence of ownership of the Common Stock,
without the prior written consent of CRI, for a period of 180 days after the
date of this Prospectus, with respect to the Company, and a period of 365 days
after the date of this Prospectus, with respect to Mr. Bakhit; provided that Mr.
Bakhit will be permitted to make a bonafide pledge of certain shares of Common
Stock to secure borrowings that are recourse to Mr. Bakhit and are incurred by
Mr. Bakhit to repay indebtedness owed by Mr. Bakhit to the Company (provided
that such pledgee agrees to be bound by the terms of such lock-up agreement).
See "Certain Transactions."

Prior to the Offering, there has been no public market for the Common Stock.
No predictions can be made as to the effect, if any, that future sales of shares
of Common Stock, and options to acquire shares of Common Stock, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales may occur, could have a material
adverse effect on the market price of the Common Stock. See "Risk Factors --
Future Sales by Principal Stockholder; Shares Eligible for Future Sale."

41
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The following description of the capital stock of the Company and certain
provisions of the Company's Amended and Restated Certificate of Incorporation
(the "Certificate") and Bylaws ("Bylaws") is a summary and is qualified in its
entirety by the provisions of the Certificate and Bylaws, copies of which have
been filed as exhibits to the Registration Statement.

The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock, $.01 par value, and 3,000,000 shares of Preferred Stock, $.01 par
value.

COMMON STOCK

Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefore. See "Dividend Policy."
Holders of Common Stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably
in all assets remaining after payment of the Company's liabilities and the
liquidation preference, if any, of any outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights and no rights to convert their
Common Stock into any other securities and there are no redemption provisions
with respect to such shares. All of the outstanding shares of Common Stock are
fully paid and nonassessable. The rights, preferences and privileges of holders
of Common Stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future. The transfer agent for the Common Stock is
American Stock Transfer & Trust Company.

PREFERRED STOCK

The Board of Directors, without further action by the stockholders, may
issue shares of the Preferred Stock in one or more series and may fix or alter
the relative, participating, optional or other rights, preferences, privileges
and restrictions, including the voting rights, redemption provisions (including
sinking fund provisions), dividend rights, dividend rates, liquidation
preferences and conversion rights, and the description of and number of shares
constituting any wholly unissued series of Preferred Stock. The Board of
Directors, without further stockholder approval, can issue Preferred Stock with
voting and conversion rights which could adversely affect the voting power of
the holders of Common Stock. No shares of Preferred Stock presently are
outstanding and the Company currently has no plans to issue shares of Preferred
Stock. The issuance of Preferred Stock in certain circumstances may have the
effect of delaying or preventing a change of control of the Company without
further action by the stockholders, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price and the voting and other rights of the holders of Common
Stock.

CERTAIN CORPORATE PROVISIONS

Upon the consummation of this Offering, the Company will be subject to the
provisions of Section 203 of the GCL. In general, this statute prohibits a
publicly held Delaware corporation from engaging under certain circumstances in
a "business combination" with an "interested stockholder," for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless (i) prior to the date at which the stockholder became an
interested stockholder the Board of Directors approved either the business
combination or the transaction which resulted in the person becoming an
interested stockholder, (ii) the stockholder owned more than 85% of the
outstanding voting stock of the corporation (excluding shares held by directors
who are officers or held in certain employee stock plans) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent) held on or subsequent to the date of
the business combination. An "interested stockholder" is a person who, (i) owns
15% or more of the corporation's voting stock or (ii) is an affiliate or
associate of the

42
<PAGE>
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the prior three years. Section 203 defines a
"business combination" to include, without limitation, mergers, consolidations,
stock sales and asset based transactions and other transactions resulting in a
financial benefit to the interested stockholder.

Although the Company is a Delaware corporation, under Section 2115 of the
California Corporations Code, certain provisions of the California Corporations
Code may apply to the Company because of the residence of the Company's
stockholders and the extent of its business operations and assets in California.
These provisions include, among others, those pertaining to cumulative voting,
enforcement of certain rights by the California Attorney General, the directors'
standard of care, certain requirements for annual election and removal of
directors, limitations on sales of assets and mergers and stockholders' right to
inspect and copy the Company's stockholder's list. Certain of such provisions
may delay or prevent a change of control of the Company.

The Company's Certificate and Bylaws contain a number of provisions relating
to corporate governance and to the rights of stockholders. Certain of these
provisions may be deemed to have a potential "anti-takeover" effect in that such
provisions may delay or prevent a change of control of the Company. These
provisions include (a) the classification of the Board of Directors into three
classes, each class serving for staggered three years term, subject to removal
by the stockholders of the Company with or without clause; (b) a provision that
stockholder action may be taken only at stockholder meetings; (c) the authority
of the Board of Directors to issue series of Preferred Stock with such voting
rights and other powers as the Board of Directors may determine; (d) a provision
that a vote of not less than two-thirds of the outstanding shares entitled to
vote thereon is required for an amendment to the Bylaws and to amend provisions
of the Certificate relating to (i) the classification of the Board of Directors,
(ii) the calling of special stockholder meetings and (iii) the amendment of the
Bylaws; and (e) notice requirements in the Bylaws relating to nominations to the
Board of Directors and to the raising of business matters at stockholder
meetings. See also "Risk Factors -- Control by Principal Stockholder."

The Certificate provides that the Company is subject to the provision of
Section 302 of the GCL. In general, this statute allows any court of equitable
jurisdiction in the State of Delaware, upon proper application by the Company or
any of its creditors or stockholders, to order a meeting of creditors or
stockholders whenever a compromise or arrangement is proposed between the
Company and its creditors or the Company and its stockholders. Any compromise,
arrangement or reorganization of the Company that is approved by a majority in
number representing three-fourths in value of the creditors or stockholders, as
the case may be, and sanctioned by the court to which the application was made
shall be binding on all of the creditors or stockholders, as the case may be,
and the Company.

43
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom CRI is acting as
Representative, have severally agreed to purchase from the Company and the
Company has agreed to sell to the Underwriters, the respective number of shares
of Common Stock set forth opposite each Underwriter's name below:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Cruttenden Roth Incorporated............................................... 710,000
Cleary Gull Reiland & McDevitt Inc......................................... 70,000
Donald & Co. Securities, Inc............................................... 70,000
Frederick & Company, Inc................................................... 70,000
Josephthal Lyon & Ross Incorporated........................................ 70,000
C.L. King & Associates, Inc................................................ 70,000
Pennsylvania Merchant Group Ltd............................................ 70,000
Van Kasper & Company....................................................... 70,000
-----------------
Total.................................................................. 1,200,000
-----------------
-----------------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent, including
the absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions, and letters from the Company and its
respective counsel and the Company's independent certified public accountants.
The nature of the Underwriters' obligation is such that they are committed to
purchase and pay for all the shares of Common Stock if any are purchased.

The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock directly to the public at the
initial public offering price set forth on the cover page of this Prospectus and
to certain securities dealers at such price less a concession not in excess of
$.25 per share. The Underwriters may allow, and such selected dealers may
reallow, a discount not in excess of $.10 per share to certain brokers and
dealers. After the initial public offering of the shares, the public offering
price and other selling terms may be changed by the Representative. No change in
such terms shall change the amount of proceeds to be received by the Company as
set forth on the cover page of this Prospectus.

The Company has granted an option to the Underwriters, exercisable for a
period of 45 days after the date of this Prospectus, to purchase up to an
additional 180,000 shares of Common Stock at the public offering price set forth
on the cover page of this Prospectus, less the underwriting discounts and
commissions. The Underwriters may exercise this option only to cover
over-allotments, if any. To the extent that the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares of Common Stock in approximately
the same proportion as set forth in the above table.

The Company has agreed to issue to the Representative, for a total of $120,
warrants (the "Representative's Warrants") to purchase up to 120,000 shares of
Common Stock at an exercise price per share equal to 135% of the initial public
offering price. The Representative's Warrants are exercisable for a period of
four years beginning one year from the date of this Prospectus. The holders of
the Representative's Warrants will have no voting, dividend, or other
stockholder rights until the Representative's Warrants are exercised. In
addition, the Company has granted certain rights to the holders of the
Representative's Warrants to register the Representative's Warrants and the
Common Stock underlying the Representative's Warrants under the Securities Act.

The Company has agreed to pay the Representative a non-accountable expense
allowance equal to 3% of the aggregate Price to Public (including with respect
to shares of Common Stock underlying the over-allotment option, if and to the
extent it is exercised) set forth on the front cover of this Prospectus for
expenses in connection with this offering, of which the sum of $30,000 has been
paid. The

44
<PAGE>
Representative's expenses in excess of such allowance will be borne by the
Representative. To the extent that the expenses of the Representative are less
than the non-accountable expense allowance, the excess may be deemed to be
compensation to the Representative.

The Representative has advised the Company that it does not expect any sales
of the shares of Common Stock offered hereby to be made to discretionary
accounts controlled by the Underwriters.

Prior to this offering, there has been no established trading market for the
Common Stock. Consequently, the initial public offering price for the Common
Stock offered hereby has been determined by negotiation among the Company and
the Representative. Among the factors considered in such negotiations were the
preliminary demand for the Common Stock, the prevailing market and economic
conditions, the Company's results of operations, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, an assessment of the Company's management, the
consideration of these factors in relation to the market valuation of comparable
companies in related businesses, the current condition of the markets in which
the Company operates, and other factors deemed relevant. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to this
offering at or above the initial public offering price.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons against certain liabilities under the
Securities Act or will contribute to payments the Underwriters and their
controlling persons may be required to make in respect thereof.

LEGAL MATTERS

Certain legal matters with respect to the Common Stock have been passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles,
California. Certain legal matters relating to the Offering will be passed upon
for the Underwriters by Milbank, Tweed, Hadley & McCloy, Los Angeles,
California.

EXPERTS

The consolidated balance sheets of the Company as of December 31, 1996 and
1995 and the related consolidated statements of operations, stockholder's equity
and cash flows for the years ended December 31, 1994, 1995 and 1996 included in
this Prospectus and elsewhere in the registration statement of which this
Prospectus is a part have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in such registration statement and the exhibits and
schedules thereto. For further information with respect to the Company or such
Common Stock, reference is made to such registration statement and the schedules
and exhibits filed as a part thereof. Statements contained in this Prospectus
regarding the contents of any contract or any other document are not necessarily
complete and, in each instance, reference is hereby made to the copy of such
contract or other document filed as an exhibit to such registration statement.
Such registration statement, including exhibits thereto, may be inspected
without charge at the Securities and Exchange Commission's principal office in
Washington, D.C., and at the following regional offices of the Commission:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and at Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of all or any part thereof may be obtained from the Public
Reference Section, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the prescribed fees.

45
<PAGE>
The Commission also maintains a site on the World Wide Web at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year.

46
<PAGE>
AVIATION DISTRIBUTORS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996.......................... F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and
1996................................................................................. F-4
Consolidated Statements of Stockholder's Equity for the years ended December 31, 1994,
1995 and 1996........................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996................................................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholder of
Aviation Distributors, Inc.:

We have audited the accompanying consolidated balance sheets of AVIATION
DISTRIBUTORS, INC. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of operations,
stockholder's equity and cash flows for the years ended December 31, 1994, 1995
and 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Aviation Distributors, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1994, 1995 and
1996 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Orange County, California
February 12, 1997
(except with respect to the matter
discussed in Note 17, as to which
the date is February 28, 1997)

F-2
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996
1995 -----------
------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 867,721 $ 16,985
Restricted cash.......................................................... 301,175 63,458
Accounts receivable, net of allowance for doubtful accounts of $48,607
and $150,000 at December 31, 1995 and 1996, respectively................ 4,437,112 5,815,681
Other receivables........................................................ 141,287 66,251
Inventories.............................................................. 2,209,262 3,704,911
Current portion of notes receivable...................................... 1,466,224 1,615,528
Current portion of notes receivable from officer......................... 65,744 408,718
Deferred tax asset....................................................... 52,826 537,000
Prepaid expenses......................................................... 51,700 69,724
------------ -----------
Total current assets................................................... 9,593,051 12,298,256
------------ -----------
PROPERTY AND EQUIPMENT 1,663,378 1,784,853
Less -- Accumulated depreciation......................................... 170,140 278,686
------------ -----------
1,493,238 1,506,167
------------ -----------
Notes receivable, net of current portion................................... 4,674,491 3,056,855
Notes receivable from officer, net of current portion...................... 262,974 --
Other assets............................................................... 19,131 246,596
------------ -----------
4,956,596 3,303,451
------------ -----------
$ 16,042,885 $17,107,874
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Checks issued not yet presented for payment.............................. $ 574,888 $ 935,440
Accounts payable......................................................... 2,185,188 2,590,222
Accrued liabilities...................................................... 370,833 226,510
Income tax payable....................................................... -- 553,000
Lines of credit.......................................................... 4,667,784 5,583,475
Current portion of long-term debt........................................ 1,815,220 2,661,540
Current portion of capital lease obligations............................. 26,178 18,867
------------ -----------
Total current liabilities.............................................. 9,640,091 12,569,054
------------ -----------
Long-term debt, net of current portion..................................... 6,168,356 3,985,205
------------ -----------
Capital lease obligations, net of current portion.......................... 53,240 34,372
------------ -----------
Deferred tax liability..................................................... 28,192 51,000
------------ -----------
STOCKHOLDER'S EQUITY:
Preferred stock, par value of $.01, 3,000,000 shares authorized; none
issued and outstanding.................................................. -- --
Common stock, par value of $.01, 10,000,000 shares authorized; 1,785,000
shares issued and outstanding........................................... 17,850 17,850
Additional paid in capital............................................... 389,150 389,150
Retained earnings (deficit).............................................. (253,994) 61,243
------------ -----------
Total stockholder's equity............................................. 153,006 468,243
------------ -----------
$ 16,042,885 $17,107,874
------------ -----------
------------ -----------
</TABLE>

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

F-3
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996
1994 1995 --------------
-------------- --------------
<S> <C> <C> <C>
DISTRIBUTED SERVICES AND INVENTORY SALES......................... $ 13,530,167 $ 21,544,983 $ 23,313,484
NET SALES ON CONSIGNMENT AND MARKETING AGREEMENTS................ 2,838,800 1,107,327 1,557,843
-------------- -------------- --------------
TOTAL NET SALES.................................................. 16,368,967 22,652,310 24,871,327
COST OF SALES.................................................... 11,809,104 18,679,924 18,162,412
-------------- -------------- --------------
Gross profit................................................. 4,559,863 3,972,386 6,708,915
LEGAL SETTLEMENT EXPENSE......................................... -- -- 1,375,000
SELLING AND ADMINISTRATIVE EXPENSES.............................. 3,957,897 3,757,073 4,485,514
-------------- -------------- --------------
Income from operations....................................... 601,966 215,313 848,401
OTHER EXPENSES (INCOME):
Interest expense............................................... 281,260 867,030 1,187,252
Interest income................................................ (2,835) (245,332) (554,262)
Other expense (income)......................................... 12,603 (88,232) (11,744)
-------------- -------------- --------------
Income (loss) before provision (benefit) for income taxes and
extraordinary item.......................................... 310,938 (318,153) 227,155
PROVISION (BENEFIT) FOR INCOME TAXES............................. 102,460 (103,320) 41,918
-------------- -------------- --------------
Income (loss) before extraordinary item.......................... 208,478 (214,833) 185,237
EXTRAORDINARY ITEM -- Gain on extinguishment of debt, net of
applicable income taxes of $90,000.............................. -- -- 130,000
-------------- -------------- --------------
Net income (loss)............................................ $ 208,478 $ (214,833) $ 315,237
-------------- -------------- --------------
-------------- -------------- --------------
Income (loss) per share:
Income (loss) before extraordinary item...................... $ .12 $ (.12) $ .11
Extraordinary item........................................... -- -- .07
-------------- -------------- --------------
Net income (loss) per share...................................... $ .12 $ (.12) $ .18
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average shares outstanding.............................. 1,785,000 1,785,000 1,785,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

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

F-4
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL RETAINED TOTAL
NUMBER PAID EARNINGS STOCKHOLDER'S
OF SHARES AMOUNT IN CAPITAL (DEFICIT) EQUITY
----------- --------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.......... 1,785,000 $ 17,850 $ 279,150 $ (247,639) $ 49,361
Capital contribution................ -- -- 110,000 -- 110,000
Net income.......................... -- -- -- 208,478 208,478
----------- --------- -------------- ---------------- -------------
Balance at December 31, 1994.......... 1,785,000 17,850 389,150 (39,161) 367,839
Net loss............................ -- -- -- (214,833) (214,833)
----------- --------- -------------- ---------------- -------------
Balance at December 31, 1995.......... 1,785,000 17,850 389,150 (253,994) 153,006
Net income.......................... -- -- -- 315,237 315,237
----------- --------- -------------- ---------------- -------------
Balance at December 31, 1996.......... 1,785,000 $ 17,850 $ 389,150 $ 61,243 $ 468,243
----------- --------- -------------- ---------------- -------------
----------- --------- -------------- ---------------- -------------
</TABLE>

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

F-5
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................................... $ 208,478 $ (214,833) $ 315,237
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Extraordinary item -- gain on extinguishment of debt................. -- -- (220,000)
Sale in exchange for note receivable................................. -- (6,617,406) --
Principal payments of notes receivable............................... -- 482,691 1,462,332
Borrowings on notes payable related to inventory purchases........... -- 7,463,356 1,145,029
Principal payments on notes payable related to inventory purchases... -- (482,691) (2,642,332)
Reduction in amount due on notes payable related to inventory
purchases........................................................... -- -- (561,105)
Legal settlement..................................................... -- -- 1,200,000
Principal payments on note payable related to legal settlement....... -- -- (300,000)
Non-cash portion of nonrecurring loss on settlement.................. 230,075 -- --
Loss on sale of property and equipment............................... -- -- 48,898
Depreciation and amortization of debt discounts...................... 91,972 87,628 231,209
Changes in assets and liabilities:
Accounts receivable, net........................................... (1,650,155) (707,814) (1,378,569)
Other receivables.................................................. (250,601) 109,314 75,036
Inventories........................................................ (199,540) (1,833,509) (1,495,649)
Deferred tax asset................................................. -- (52,826) (484,174)
Other assets....................................................... (70,071) (20,285) (239,489)
Checks issued not yet presented for payment........................ 680,632 (105,744) 360,552
Accounts payable................................................... 29,273 908,668 405,034
Accrued liabilities................................................ 34,769 327,167 (144,323)
Income tax payable................................................. 105,330 (105,330) 553,000
Deferred tax liability............................................. -- 28,192 22,808
----------- ----------- -----------
Net cash used in operating activities............................ (789,838) (733,422) (1,646,506)
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................................... (120,086) (1,257,103) (196,857)
Advances on notes receivable........................................... -- (6,000) --
Borrowings given on note receivable from officer....................... -- (328,718) (80,000)
(Increase) decrease in restricted cash................................. (105,000) (196,175) 237,717
----------- ----------- -----------
Net cash provided by (used in) investing activities.............. (225,086) (1,787,996) (39,140)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on lines of credit.......................................... 1,072,250 8,988,103 21,359,968
Principal payments on lines of credit.................................. -- (6,769,388) (20,444,277)
Borrowings on long-term debt........................................... 68,233 1,848,276 --
Principal payments of long-term debt................................... (9,272) (909,076) (54,602)
Principal payments of capital lease obligations........................ (9,120) (19,965) (26,179)
Contributed capital.................................................... 10,000 -- --
----------- ----------- -----------
Net cash provided by financing activities........................ 1,132,091 3,137,950 834,910
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents..................... 117,167 616,532 (850,736)
Cash and cash equivalents at beginning of period......................... 134,022 251,189 867,721
----------- ----------- -----------
Cash and cash equivalents at end of period............................... $ 251,189 $ 867,721 $ 16,985
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................................. $ 275,210 $ 786,725 $ 1,156,696
Income taxes......................................................... 1,600 32,632 20,000

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital contribution of inventory from an officer, valued at officer's
historical cost....................................................... 100,000 -- --
Capital lease obligations for purchase of new equipment................ 32,000 74,779 --
</TABLE>

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

F-6
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS

Aviation Distributors, Inc. ("ADI") and its subsidiaries (the "Company")
established operations in 1988, incorporated in the state of California in 1992
and reincorporated in the state of Delaware in 1996. The Company is a supplier,
distributor and broker of commercial aircraft parts and supplies. The Company
distributes aircraft components for commercial airlines worldwide.

For the years ended December 31, 1994, 1995 and 1996, approximately 72.4%,
90.3% and 61.9%, respectively, of the Company's net sales were export sales.
These export sales by region were approximately as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Pacific Rim.......................................................................... 19.2% 22.4% 19.4%
Europe............................................................................... 25.0 15.7 25.3
Latin/South America.................................................................. 16.6 17.4 10.7
Africa/Middle East................................................................... 11.6 34.8 6.5
--- --- ---
72.4% 90.3% 61.9%
--- --- ---
--- --- ---
</TABLE>

ACCOUNTING ESTIMATES

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

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, ADICSI and Aviation Distributors
(Europe) Ltd. All significant intercompany transactions have been eliminated in
consolidation.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt instruments with a maturity of
less than 90 days to be cash equivalents.

RESTRICTED CASH

Restricted cash consists of short term certificates of deposits held as
security for letters of credit issued on behalf of the Company by financial
institutions and one of the Company's lines of credit.

INVENTORIES

Inventories, which consist primarily of aircraft parts, are stated at the
lower of cost or market with cost determined on a first-in, first-out basis.
Expenditures required for the rectification of parts are capitalized as
inventory cost as incurred and are expensed as the parts associated with the
rectification are sold.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Depreciation expense is provided
using various methods over the estimated useful lives of the assets, ranging
from five to thirty years. Expenditures for repairs and maintenance are expensed
as incurred. Expenditures for major renewals and betterments that

F-7
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
extend the useful lives of property and equipment are capitalized. The carrying
amounts of assets which are sold or retired and the related accumulated
depreciation are removed from the accounts in the year of disposal, and any
resulting gain or loss is reflected in operations.

REINCORPORATION

On July 12, 1996, the Company reincorporated in the State of Delaware,
increasing its authorized number of shares of Common Stock to 10,000,000, $.01
par value, and increasing the number of shares of Common Stock outstanding to
2,100,000. All share and per share data have been retroactively restated in the
accompanying financial statements to give effect to the above items.

Effective July 12, 1996, the Company also authorized the issuance of up to
3,000,000 shares of preferred stock, $.01 par value.

STOCK SPLIT

On August 16, 1996 the Company approved a .85 for one stock split. All share
and per share data have been retroactively restated in the accompanying
financial statements to give effect to this stock split.

FINANCIAL INSTRUMENTS

At December 31, 1996, the carrying values of the Company's financial
instruments (cash and cash equivalents, notes receivable and notes payable)
approximated their fair values as the interest rates on such financial
instruments are comparable to market rates.

The Company had an outstanding irrevocable letter of credit in the amount of
$1,700,000 as of December 31, 1996. This letter of credit had a term of 17
months and collateralized the Company's obligation to a third party for the
purchase of inventory. The fair value of this letter of credit is estimated to
be the same as the contract value based on the nature of the fee arrangements
with the issuing banks. As of January 31, 1997, the Company's irrevocable letter
of credit was cancelled concurrently with the Company paying off the obligation.

REVENUE RECOGNITION

Sales of aircraft parts are recognized as revenues when the product is
shipped and title has passed to the customer. The Company provides an allowance
for estimated product returns.

Distributed services and inventory sales represent sales of inventory
located through outside parties and sales of company owned inventory. Net sales
on consignment and marketing agreements represent revenue related to sales of
inventory held on consignment and sales of inventory obtained through marketing
agreements.

INCOME TAXES

The Company accounts for income taxes using the liability method as
prescribed by Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current
year's presentation.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1995, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used be reviewed for impairment whenever events or changes in

F-8
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
circumstances indicate that the carrying amount of an asset may not be
recoverable based on the estimated future cash flows (undiscounted and without
interest charges). SFAS No. 121 also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less costs to sell. The Company adopted SFAS No. 121 as of
January 1, 1996, and it had no effect on the financial statements.

NOTE 2 -- NOTES RECEIVABLE FROM OFFICER:
Notes receivable from officer consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Amount due in quarterly principal installments of $82,180, plus interest at six percent,
commencing on March 1, 1997 and continuing through December 1, 1997.................... $ 328,718 $ 328,718
Amount due in quarterly principal installments of $20,000, plus interest at six percent,
commencing on March 1, 1997 and continuing through December 1, 1997.................... -- 80,000
----------- -----------
328,718 408,718
Less -- Current portion................................................................. 65,744 408,718
----------- -----------
$ 262,974 $ --
----------- -----------
----------- -----------
</TABLE>

This officer, who is also the Company's sole stockholder, did not draw a
salary during 1995.

NOTE 3 -- AIRCRAFT TRANSACTIONS:
During 1995, the Company purchased commercial aircraft and engines which
were subsequently sold in exchange for a note receivable (see Note 5) secured by
an irrevocable letter of credit provided by the customer. The Company purchased
the aircraft through proceeds from a note payable (see Note 8) to a financial
institution which is secured by the customer note receivable. This transaction
represents approximately 28 percent of the Company's 1995 sales (see Note 13).

NOTE 4 -- ACCOUNTS RECEIVABLE:
The Company distributes products in the United States and abroad to
commercial airlines, air cargo carriers, distributors, maintenance facilities
and other aerospace companies. The Company's credit risks consist of accounts
receivable denominated in U.S. dollars from customers in the aircraft industry.
The Company performs periodic credit evaluations of its customers' financial
conditions and provides an allowance for doubtful accounts as required. The
Company, at times, offers extended payment terms of up to one year on its
receivables.

The Company insures the majority of its international customers through an
export credit insurance policy. The policy has an aggregate limit of $5 million,
a one-time annual deductible of $35,000 for any claim(s) for the period, a
premium rate of $.75 per $100 of insured receivables and the policy expires on
November 1, 1997. This policy covers 90% of the insured balance.

The Company also insures certain of its domestic customer accounts under
another policy.

F-9
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 -- NOTES RECEIVABLE:
Notes receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Note receivable from a corporation, secured by a $7,980,000 Irrevocable
Letter of Credit, due in monthly installments of $166,250 (principal and
interest) to August 1999 with an interest rate of 9.5 percent (see Note
3)....................................................................... $ 6,134,715 $ 4,672,383
Note receivable from an individual........................................ 6,000 --
------------- -------------
6,140,715 4,672,383
Less -- Current portion................................................... 1,466,224 1,615,528
------------- -------------
$ 4,674,491 $ 3,056,855
------------- -------------
------------- -------------
</TABLE>

NOTE 6 -- PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Buildings................................................................. $ 1,087,834 $ 1,131,142
Computer equipment and software........................................... 236,417 292,087
Machinery and equipment................................................... 172,072 256,354
Furniture and fixtures.................................................... 81,822 95,419
Auto...................................................................... 85,233 9,851
------------- -------------
$ 1,663,378 $ 1,784,853
------------- -------------
------------- -------------
</TABLE>

NOTE 7 -- LINES OF CREDIT:
The Company has revolving lines of credit with a financial institution,
summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Revolving line of credit, interest at prime rate (8.25 percent at December 31, 1996)
plus 1.5 percent, due monthly, principal due March 31, 1997, secured by
substantially all of the Company's assets, except cash, maximum borrowings are
$4,500,000......................................................................... $ 3,181,671 $ 3,734,322
Revolving line of credit, interest at prime rate (8.25 percent at December 31, 1996)
plus one percent, due monthly, principal due August 31 1997, secured by
substantially all of the Company's assets, except cash, maximum borrowings are
$2,000,000......................................................................... 1,284,200 1,849,153
Revolving line of credit, interest at 7.5 percent due monthly, principal due May 7,
1996, secured by restricted cash at December 31, 1995 of $201,913, maximum
borrowings were $500,000........................................................... 201,913 --
------------- -------------
$ 4,667,784 $ 5,583,475
------------- -------------
------------- -------------
</TABLE>

These lines of credit are personally guaranteed by the stockholder who is
also an officer of the Company.

F-10
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- LINES OF CREDIT: (CONTINUED)
The $4.5 million line has a financial covenant that requires the Company to
have a tangible net worth of at least $750,000 beginning October 31, 1996, which
was extended by the financial institution to begin on January 31, 1997.

As of December 31, 1996, the Company's tangible net worth was $468,000.
Additionally, the financial institution has agreed to include the $400,000
promissory notes discussed in Note 16 in tangible net worth solely for the
purpose of computing the net worth covenant. In the opinion of management, the
Company will meet this covenant as of January 31, 1997.

The weighted average borrowings outstanding under the Company's lines of
credit arrangements during 1994, 1995 and 1996 were approximately $1,904,000,
$3,555,000 and $5,407,000, respectively. Maximum amounts outstanding at the end
of the months during 1994, 1995 and 1996 were $2,449,069, $4,667,784 and
$5,926,020, respectively. The weighted average interest rates during 1994, 1995
and 1996 were approximately 12.0%, 10.7% and 9.7%, respectively. The weighted
average interest rates at December 31, 1994, 1995 and 1996 were approximately
12.5%, 9.8% and 9.6%, respectively.

In February 1997, the financial institution agreed to extend the $4.5
million line of credit to March 31, 1998.

F-11
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 -- LONG-TERM DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Long-term debt consists of the following:
Note payable to a financial institution, due in monthly installments of $166,250
(principal and interest) to August 1999 with an interest rate of 9.5 percent.
(see Note 3)..................................................................... $ 6,134,715 $ 4,672,383
Note payable to a financial institution, secured by a building, due in adjustable
monthly installments of $8,382 as of December 31, 1996 (principal and interest)
to May 1999, with a balloon payment, interest at Moody's A Bond Index (8.0% at
December 31, 1996) plus .125 percent............................................. 950,585 936,480
Non-interest bearing note payable to a corporation, secured by specific inventory,
due in semi-annual installments of $125,000 to December 1998, with an imputed
interest rate of 10 percent, net of discount of $154,050 on original sales value
of inventory of $1,000,000 at December 31, 1995. In December 1996, the remaining
unamortized balance of this note ($625,000) was extinguished in exchange for a
cash payment of $405,000 resulting in an extraordinary gain before tax of
$220,000......................................................................... 845,950 --
Note payable to a corporation, due in an installment of $562,500, plus interest at
10 percent, on March 15, 1997 and quarterly installments of $112,500, plus
interest commencing June 15, 1997 to December 15, 1997 (see Note 11)............. -- 900,000
Note payable to a corporation, secured by specific inventory, due in monthly
installments to March 1997, with an imputed interest rate of 10 percent, net of
discount of $1,947............................................................... -- 126,053
Note payable to a corporation, secured by an automobile, due in monthly
installments of $1,892 (principal and interest) to August 1997, with an interest
rate of 8 percent................................................................ 35,319 --
Note payable to a corporation, secured by an automobile, due in monthly
installments of $192 (principal and interest) to March 1998, with an interest
rate of 7.9 percent.............................................................. 4,703 2,701
Note payable to a corporation, secured by equipment, due in monthly installments
of $347 (principal and interest) to February 2000, with an interest rate of 24
percent.......................................................................... 12,304 9,128
------------- -------------
7,983,576 6,646,745
Less -- Current portion............................................................. 1,815,220 2,661,540
------------- -------------
$ 6,168,356 $ 3,985,205
------------- -------------
------------- -------------
</TABLE>

F-12
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 -- LONG-TERM DEBT: (CONTINUED)
Future annual principal payments on long-term debt at December 31, 1996 are
as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------
<S> <C>
1997..................... $ 2,661,540
1998..................... 1,797,209
1999..................... 2,187,321
2000..................... 675
-------------
$ 6,646,745
-------------
-------------
</TABLE>

NOTE 9 -- INCOME TAXES:
The components of the provision (benefit) for income taxes consist of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal............................................ $ 77,721 $ (77,100) $ 366,000
State.............................................. 29,209 (6,056) 112,000
----------- ------------ ------------
106,930 (83,156) 478,000
----------- ------------ ------------

Deferred:
Federal............................................ (3,334) (14,164) (360,000)
State.............................................. (1,136) (6,000) (76,082)
----------- ------------ ------------
(4,470) (20,164) (436,082)
----------- ------------ ------------
Total:........................................... $ 102,460 $ (103,320) $ 41,918
----------- ------------ ------------
----------- ------------ ------------
</TABLE>

At December 31, 1995 current income tax benefit consists primarily of an
estimated income tax receivable and the difference between the Company's
estimated and actual 1994 income tax liability.

The reconciliation of income tax expense computed at U.S. Federal statutory
rates to income tax expense (benefit) is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1994 1995 1996
----------- ------------ -----------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rates................... $ 105,719 $ (108,173) $ 77,233
State income taxes, net of federal effect............. 19,085 (18,898) 13,943
Net operating losses.................................. -- -- (95,711)
Permanent differences................................. (22,344) 23,751 23,409
Other, net............................................ -- -- 23,044
----------- ------------ -----------
$ 102,460 $ (103,320) $ 41,918
----------- ------------ -----------
----------- ------------ -----------
</TABLE>

F-13
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 -- INCOME TAXES: (CONTINUED)
Deferred income taxes arise as a result of differences in the methods used
to determine income for financial reporting versus income for tax reporting
purposes. Significant components of the Company's deferred tax assets and
liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------

<S> <C> <C>
Depreciation........................................................ $ (28,192) $ (51,000)
----------- -----------
Gross deferred tax liabilities.................................... (28,192) (51,000)
----------- -----------
Inventory reserve................................................... 29,840 57,000
Allowance for doubtful accounts..................................... 19,442 60,000
Operating accruals.................................................. 3,544 50,000
Legal settlement.................................................... -- 360,000
State taxes......................................................... -- 10,000
Net operating loss carryforwards.................................... 82,528 --
----------- -----------
Gross deferred tax assets......................................... 135,354 537,000
----------- -----------
Deferred tax assets valuation allowance........................... (82,528) --
----------- -----------
$ 24,634 $ 486,000
----------- -----------
----------- -----------
</TABLE>

NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
The Company leases equipment and facilities under noncancelable operating
and capital leases. As of December 31, 1996, the annual minimum lease
commitments are:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, CAPITAL OPERATING
------------- ----------- -----------
<S> <C> <C>
1997................................................................ $ 26,366 $ 17,359
1998................................................................ 24,108 14,319
1999................................................................ 13,420 687
2000................................................................ 2,825 --
----------- -----------
66,719 $ 32,365
-----------
-----------
Less -- Amount representing interest................................ 13,480
-----------
53,239
Less -- Current portion............................................. 18,867
-----------
$ 34,372
-----------
-----------
</TABLE>

Rent expense for the years ended December 31, 1994, 1995 and 1996 was
$181,572, $135,568 and $64,055, respectively.

In 1996, the Company entered into an agreement to purchase approximately
$7.0 million of inventory from a vendor. Under the terms of the agreement, the
Company will remit 36 monthly installments of $195,000. As of December 31, 1996,
the Company had not received, nor paid for any inventory under this agreement.

The Company supplies certain parts to its customers through various
consignment agreements, under which the Company takes possession of a vendors
inventory and exclusive marketing agreements, under which the Company markets
the vendors inventory which remains in the vendors possession. These agreements
are generally entered into on a long-term basis.

The Company neither manufacturers nor repairs aircraft parts and requires
that all of the parts that it sells are properly documented and traceable to
their original source. Although the Company

F-14
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- COMMITMENTS AND CONTINGENCIES: (CONTINUED)
has never been subject to product liability claims, there is no guarantee that
the Company could not be subject to liability from its potential exposure
relating to faulty aircraft parts in the future. The Company maintains liability
insurance in the amount of $2 million to protect it from such claims, but there
can be no assurance that such coverage will be adequate to fully protect the
Company from any liabilities it might incur. An uninsured loss could have a
material adverse effect upon the Company's financial condition.

EMPLOYMENT AGREEMENTS

The Company has entered into an employment agreement with the Chief
Executive Officer (CEO) providing for a base salary of $225,000, an automobile
allowance, incentive compensation under the Executive Incentive Compensation
Plan, and bonus compensation from time to time on an amount determined by the
independent members of the Board of Directors not to exceed two times his base
salary per calendar year. The CEO was also granted 51,050 shares of common stock
at an option price of $7 per share. The agreement expires on December 31, 2001
and will be automatically renewed for a new five-year term on the expiration
date unless cancelled upon 90 days written notice.

The Company has also entered into an employment agreement with an officer
providing for an annual base salary of $120,000, all normal employee benefits,
incentive compensation under the Executive Incentive Compensation Plan and
options to purchase 10,000 shares of common stock at an option price of $7 per
share. The agreement expires on December 31, 1999 and will be automatically
renewed for a new three-year term on the expiration date unless cancelled upon
90 days written notice.

The Company has also entered into an employment agreement with an officer
providing for an annual base salary of $120,000, all normal employee benefits,
incentive compensation under the Executive Incentive Compensation Plan and
options to purchase 15,000 shares of common stock at an option price of $7 per
share. In addition, this officer is entitled to commission on sales to certain
customers identified in the agreement equal to 1.25% of such sales. The
agreement expires on December 31, 1999 and will be automatically renewed for a
new three year term on the expiration date unless cancelled upon 90 days written
notice.

NOTE 11 -- LEGAL SETTLEMENT
In February 1996, an action was brought against the Company arising out of a
dispute relating to an agreement between the Company and a customer. The
plaintiff claimed, among other things, damages of $3,518,000, interest, attorney
fees and punitive damages. At December 31, 1995, the Company believed they had
adequately accrued in the amount of $166,000 their potential liability, based
upon discussions with legal counsel indicating substantial defenses to the
remaining claims from this customer. The Company also filed a counterclaim
against this customer for breach of contract, fraud and negligent
misrepresentation. Although the Company believed it had meritorious defenses to
this dispute, in August 1996, counsel advised the Company that final judicial
resolution of such matter could take several years. Consequently, in order to
pursue an initial public offering in a timely manner, during the third quarter
of 1996 the Company made a strategic business decision to resolve this dispute.
On November 1, 1996 this case was settled for $1.2 million. Included in the
legal settlement expense as of December 31, 1996 is the $1.2 million settlement
charge plus $175,000 of legal costs.

Pursuant to such settlement agreement, the Company (i) paid such customer
$300,000 upon execution of settlement agreement, (ii) agreed to pay such
customer an additional $450,000 on or before December 31, 1996, which has been
extended to March 15, 1997, and (iii) executed a note guaranteed by an
irrevocable letter of credit in the amount of $450,000 payable to such customer
in

F-15
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11 -- LEGAL SETTLEMENT (CONTINUED)
quarterly installments including 10% interest commencing March 15, 1997. In the
event the Company does not satisfy its obligations under the settlement
agreement by March 15, 1997, a judgment will be entered against the Company for
$1.2 million. In such event, the Company will not receive credit towards such
judgment amount for the initial $300,000 payment set forth in clause (i) above.

NOTE 12 -- NONRECURRING LOSS ON SETTLEMENT:
On April 8, 1994, the Company entered into an agreement to settle various
asserted claims made by one of its key officers to avoid the cost and the
uncertainties of litigation. Under the terms of the settlement, the Company paid
$112,000 in cash and transferred the common stock of ADI Manufacturing, Inc., a
former subsidiary that manufactured aircraft hardware, to this officer. ADI
Manufacturing Inc.'s results of operations were not material to the Company's
financial statements. The common stock was valued at the book value of net
assets transferred. In return, the key officer agreed to drop all claims against
the Company and to resign as an officer of the Company. Management believes this
separation is in the best interest of the Company. The amount charged to
operations during 1994 relating to this settlement was $376,075, which is
included in selling and administrative expenses.

NOTE 13 -- CONCENTRATION OF CREDIT RISK:
Concentrations of credit risk with respect to trade accounts receivable are
generally diversified due to the large number of customers and their dispersion
worldwide. During 1995, as a result of the aircraft transaction (see Note 3),
the Company had one large customer that accounted for 28 percent of net sales
for the year. The note receivable related to this large customer represented 38
and 27 percent of total assets at December 31, 1995, and 1996, respectively.

The Company had two large customers in 1994 which accounted for
approximately 22 percent of net sales, and approximately 30.5 percent of trade
accounts receivable at December 31, 1994.

The Company performs ongoing credit evaluations and insures a large portion
of its accounts receivable through an export credit insurance policy for the
majority of the international customers.

NOTE 14 -- VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1994, 1995 and 1996, activity with respect
to the Company's allowance for doubtful accounts is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- ---------- ------------
<S> <C> <C> <C>
Beginning balance....................................... $ -- $ 12,207 $ 48,607
Charged to expense...................................... 19,707 86,400 250,048
Amounts written off..................................... (7,500) (50,000) (148,655)
--------- ---------- ------------
Ending balance.......................................... $ 12,207 $ 48,607 $ 150,000
--------- ---------- ------------
--------- ---------- ------------
</TABLE>

NOTE 15 -- STOCK-BASED COMPENSATION PLANS

STOCK OPTION PLAN

On July 10, 1996, the Company adopted the Aviation Distributors, Inc. 1996
Stock Option and Incentive Plan (the "Plan") which provides for the issuance of
up to a maximum of 264,500 shares of the Company's common stock to employees,
non-employee directors and independent contractors at the sole discretion of the
board of directors. The Plan provides for the issuance of incentive stock
options and non-qualified stock options. Options issued under the Plan may be
accompanied by stock

F-16
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15 -- STOCK-BASED COMPENSATION PLANS (CONTINUED)
appreciation rights, as defined. Additionally, the Plan provides for the
issuance of restricted stock, dividend equivalents and other stock and cash
based awards and loans to participants in connection with the options or other
plan provisions at the discretion of the board of directors.

On July 16, 1996, the Company's board of directors granted 150,000 options
under the Plan at an exercise price of $7.00 per share (estimated fair market
value at date of grant).

The Company accounts for the Plan under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for the plan been
determined consistent with FASB Statement No. 123, the Company's net income and
income per share would have been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Net income:.....................................................................
As reported................................................................... $ 315,237
Pro forma..................................................................... 199,521
Income per share:...............................................................
As reported................................................................... $ .18
Pro forma..................................................................... .11
</TABLE>

A summary of the status of the Company's stock option plan at December 31,
1996 is as follows:

<TABLE>
<CAPTION>
1996
------------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Outstanding at beginning of year.............................. -- $ --
Granted....................................................... 150,000 7.00
Outstanding at end of year.................................... 150,000 $ 7.00
----------- -------
----------- -------
Exercisable at end of year.................................... -- --
Weighted average fair value of options granted................ $ 5.04
</TABLE>

All of the 150,000 options outstanding at December 31, 1996 have an exercise
price of $7, with a weighted average exercise price of $7 and a weighted average
remaining life of 5 years.

The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted-average assumptions used
for grants in 1996: risk-free rate of 6.58%; no expected dividend yield;
expected life of 5 years; expected volatility of zero (required for public
companies only).

NOTE 16 -- PROMISSORY NOTES
Subsequent to December 31, 1996 the Company borrowed an aggregate of
$400,000 from certain of its employees pursuant to Promissory Notes. The
Promissory Notes provide for an interest rate of 14 percent payable monthly over
the term of the loans and repayment of principal upon the earlier of the
consumation by the Company of an initial public offering of its Common Stock or
October 27, 1997.

NOTE 17 -- SUBSEQUENT EVENT
On February 28, 1997, the Company's Board of Directors approved a resolution
changing the exercise price of the 150,000 stock options granted to date, to the
offering price of the Common Stock in the Company's initial public offering.

F-17
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 9
Dividend Policy........................................................... 9
Capitalization............................................................ 10
Dilution.................................................................. 11
Selected Financial Data................................................... 12
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 13
Business.................................................................. 21
Management................................................................ 28
Certain Transactions...................................................... 39
Principal Stockholder..................................................... 40
Shares Eligible for Future Sale........................................... 40
Description of Capital Stock.............................................. 42
Underwriting.............................................................. 44
Legal Matters............................................................. 45
Experts................................................................... 45
Additional Information.................................................... 45
Index to Financial Statements............................................. F-1
</TABLE>

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UNTIL MARCH 28, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

1,200,000 SHARES

[LOGO]

AVIATION DISTRIBUTORS, INC.

COMMON STOCK

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

PROSPECTUS

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

CRUTTENDEN ROTH
INCORPORATED

MARCH 3, 1997

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