AERO SERVICES INTERNATIONAL INC, 10KSB, 1999-04-14

AERO SERVICES INTERNATIONAL INC
10KSB, 1999-04-14
PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS)

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U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-KSB

(Mark One)

[ X ]15,ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended September 30, 1998

[ ]15,TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission file number
Aero Services International, Inc.
(Name of small business issuer in its charter)

Louisiana 72-0385274
(State or other jurisdiction(I.R.S. Employer
of incorporation or organization)Identification No.)

660 Newtown-Yardley Road
Newtown, Pennsylvania 18940
(Address of principal executive offices)(Zip Code)

Issuer's telephone number (215) 860-5600

Securities registered under Section 12(b) of the Exchange Act:

Title of each class Name of each exchange on which registered

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock (without par value)
(Title of Class)

Series A Cumulative Convertible Preferred Stock (without par value)
Title of class

Check whether the registrant (l) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [X]

State issuer's revenues for the year ended September 30, 1998. $11,253,774

State the aggregate market value of the voting stock held by non-affiliates
as of September 30, 1998.

-Common Stock (without par value) $93,342
(1) See Note Below

- -Series A Cumulative Convertible
Preferred Stock $21,905
(2) See Note Below

(1)Based upon the average bid and asked prices of the Company's Common Stock
as of September 30, 1998.

(2)Based upon the average bid and asked price of the Company's Series A
Cumulative Convertible Preferred Stock as of September 30, 1998.

State the number of shares outstanding of each of the Company's classes of
common equity as of September 30, 1998:

-Common Stock (without par value) 6,998,052 shares.
PART I

Item 1. Description of Business

GENERAL DEVELOPMENT OF BUSINESS

Aero Services International, Inc. and subsidiaries ("the Company" or "Aero"),
founded in 1948, was incorporated in Louisiana under the name "Pan-Air
Corporation". Since 1976, the Company has conducted business primarily under
the name "Aero Services" and changed its name to "Aero Services Interna
tional, Inc." in 1980. The Company's corporate office is located at 660
Newtown-Yardley Road, Newtown, Pennsylvania, 18940, and its telephone number
is 215-860-5600.

The Company is primarily a supplier of ground support services for general
aviation aircraft at three airports located in Chicago, Illinois, Harrisburg,
Pennsylvania, and Morgantown, West Virginia, with its facilities more
commonly referred to as a "Fixed Base Operation" or "FBO". The Company
provides on demand "line services" for the general aviation fleet that
includes the fueling, ground handling and storage of aircraft along with the
subleasing of hangar and office space to tenants. In conjunction with its
general aviation activities the Company also provides, on a contractual
basis, ground support services for commercial airlines which would primarily
include fueling and de-icing.

CORPORATE REORGANIZATION

During fiscal 1994, Triton Energy Corporation ("Triton") the Company's
principal shareholder, sold all of its notes outstanding from Aero, common
stock and a large portion of Preferred A stock to Transtech Holdings Co.,
Inc. (Transtech). See Item 12 for additional information.

Transtech is a holding company owned and managed by individuals with
management experience and ownership (direct and indirect) of other FBOs.
Concurrent with the sale, R. Ted Brant, Bobby R. Adkins, and Maurice Lawruk
were named directors of Aero. At the same time, Transtech agreed to forgive
a portion of the debt ($2,723,000), eliminate accrual of interest on the debt
from Aero through November 1994, and to forebear for the three years
collection of the remaining $15,610,000 of principal debt to the extent that
payments would exceed 50% of the Company's available cash flow.

The new Board then reviewed the Company's financial status and determined
that the Company needed to improve its liquidity so that it would be in a
position to maintain payables on a satisfactory basis and have funds
available for acquisition of alternative FBOs. Accordingly, the Company sold
its Scottsdale, Arizona; Richmond, Virginia; Tri-City, Michigan; and
Youngstown, Ohio bases. These sales produced over $3,900,000 before
expenses. In April 1995 the Company purchased 100% of the stock of Mountain
State Flight Services, Inc., (Mountain State), a West Virginia corporation,
for $390,000. Mountain State operates a FBO at the Morgantown, WV airport.
R. Ted Brant was a shareholder and President of Mountain State.

On November 8, 1995, the Company sold its operating lease and purchase option
with Eagle Air to operate a FBO at Houston's Hobby Airport to TigerAir, a
corporation formed by Wallace Congdon. The purchase price was $250,000 in
the form of a promissory note. Simultaneous with the closing, Mr. Congdon
resigned his positions as President, Chief Operating Officer, and Director
of the Company.

On May 10, 1996 the Company sold, to Jason IV, owner of a competitor FBO on
the airport, its leasehold interest at New Orleans' Lakefront Airport for
$900,000. The Company received $300,000 cash at settlement and two
promissory notes for the balance. A note in the amount of $100,000, bearing
interest at the rate of 8% per annum was due and payable on April 30, 1997.
It was paid in February 1997. A note in the amount of $500,000 bearing
interest at the rate of 9% per annum is due and payable on March 31, 1999,
but was paid in November 1998.

In November 1997 the Company began operations at a new FBO located at
Harrisburg International Airport in Middletown, Pennsylvania under the terms
of a five year lease with the Commonwealth of Pennsylvania signed in July
1997.
On August 20, 1998 the members of the Board of Directors elected James R.
Affleck, Jr., a vice president of Aero, to be a Director of the Company in
order to fill a vacancy.

On September 3, 1998 the members of the Board of Directors elected Alice F.
Buford to be a Director of the Company in order to fill a vacancy.

On September 30, 1998 the Company held its annual meeting where all five
current members of the Board of Directors were re-elected to the Board for
a one year term, with Messrs. Brant and Lawruk, and Ms. Buford serving as
regular directors and Messrs. Adkins and Affleck as designated directors.

Management is exploring a possible opportunity to acquire an FBO similar to
its Harrisburg FBO which is not expected to require a large initial
investment. The Company is at the same time exploring investments in other
business opportunities not related to the aviation industry. To this end,
the Company, in conjunction with R. Ted Brant, Jr. formed a limited liability
company named the RTB/AS, L.L.C. in January, 1999. The express purpose of
this company is to invest in the auto racing industry. The Company's initial
investment was $832,000 and could eventually be approximately $12 million.

During 1998, the Company's Board of Directors approved a $500,000 line-of-
credit, increased to $1,500,000 as of March 1, 1999, for Brant Motor Sports,
Inc. Brant Motor Sports is involved in the auto racing business and promotes
race cars and sells advertising. (See Item 12 for additional information.)

BUSINESS OF ISSUER

The Company supplies ground support services to corporate and other general
aviation aircraft at facilities located at three airports in the United
States. The Company provides line services, subcontracts maintenance and
repairs of aircraft, and leases hangar and office space to various tenants.
The Company also provides ground support services (including fueling and de-
icing) to commercial airlines, air freight carriers and overnight courier
services at its locations.

Line Services

Line services are ground support services that facilitate the day-to-day
operation of aircraft. The primary line services rendered by the Company are
aircraft fueling, handling, cleaning, towing, tie-down and aircraft hangar
storage. In connection with these services, the Company provides amenities
for the passengers and crews of the aircraft, such as passenger and pilot
lounges, flight planning assistance and weather information facilities,
conference facilities, arranging of travel and hotel accommodations, aircraft
catering and ground transportation.

The Company's line service customers are primarily owners and operators of
corporate aircraft, including those based at the Company's facilities and
others that are transient. Although the business of providing line services
is highly competitive, the Company is the only such provider at one of the
airports where it maintains facilities. At the other location, the Company
operates one of two FBOs.

Hangar and Office Leasing

The Company leases hangar, ramp (tie down) and office space to customers
whose aircraft are based at its facilities and to various aviation related
businesses. Leases of hangar space vary in duration and are most often
associated with line service customers who operate corporate and private
aircraft. Office space tenants include corporate flight departments,
aircraft sales and charter operations, aircraft insurance agencies, airport
auto rental agencies, flight schools, and similar aviation related
businesses.
Commercial Airline Services

Commercial airline ground support services are provided to airlines and
regional air carriers on a contractual basis at one Company FBO. Services
provided include aircraft fueling and de-icing. In commercial airline
fueling, the Company receives a fee for transporting fuel owned by the
airline from a storage facility and pumping the fuel into the airline's
aircraft.

SUPPLIES

A major percentage, 62%, of the Company's sales during its last fiscal year
was derived from the sale of fuel. The availability to the Company of an
adequate supply of fuel, particularly jet fuel, is critical to the Company's
operations. The Company had purchased fuel exclusively from Exxon through
September 1998, but entered into a fueling agreement with Avfuel Corporation
beginning in October 1998. Management believes that the present allocations
of fuel and other supplies are adequate to meet overall demand for the
foreseeable future. Supplies could be interrupted, curtailed or allocated
in the event of a refinery shutdown, severe weather or war.

RESEARCH AND DEVELOPMENT: NEW PRODUCTS

The nature of the Company's business is service related with no amounts of
money devoted to research and development.

ENVIRONMENTAL PROTECTION

The Company's business involves the storage, handling and sale of aviation
fuel utilizing underground storage tanks ("USTs") at the one location that
was sold in March 1999. The other two locations use above ground storage
tanks. Accordingly, the operations of the Company are subject to a number
of federal, state and local environmental laws and regulations, which govern
the use of hazardous substances, including the storage and sale of aviation
fuels, and also including regulations of USTs.

In September 1988, the Environmental Protection Agency ("EPA") issued
regulations that required all newly installed USTs be protected from
corrosion, be equipped with devices to prevent spills and overfills, and have
a leak detection method that meets certain minimum requirements.

During 1998 and 1997, the Company incurred clean-up/remediation expenses of
$2,000 and $1,000 respectively, in complying with these EPA regulations. At
September 30, 1998, the Company's financial statements include accruals of
$360,000 for expected future clean-up/remediation costs for existing known
liabilities. While the Company believes that all EPA problems have been
identified and adequately accrued for, it realizes that future substantial
environmental liabilities are possible in order to remain in compliance and
it does not anticipate experiencing any competitive disadvantage because the
entire industry is subject to these regulations. The Company believes it has
adequate reserves for its environmental liabilities. (See Notes to
Consolidated Financial Statements, Note F4.)

The Company does not presently maintain insurance covering losses associated
with environmental contamination. The one state in which the Company
operates USTs has a state operated "trust fund" which could reimburse the
Company for certain clean-up costs and liabilities incurred from USTs. These
funds, which essentially provide insurance coverage for certain environmental
liabilities, are funded by taxes on USTs or fuels purchased within the state.
The coverage generally will provide up to $1,000,000 for the clean-up of
environmental contamination. The funds require the Company to pay
deductibles ranging from $5,000 to $50,000 per occurrence. The facility
which operates USTs was sold subsequent to year-end and an escrow of $390 was
withheld from the sales proceed to provide for any cleanup that my be
necessary when the tanks are removed.

The Company is subject to added exposure either because new situations of
contamination are discovered and/or because the regulatory environment
becomes more burdensome. Nonetheless, the Company has taken reasonable steps
currently available to accurately estimate future expenses required by
compliance with environmental regulations. Based on all information
available to date, and further based on existing regulations, the Company has
established sufficient accruals to meet its estimated identified obligations.

GOVERNMENT CONTRACTS

The Company does not have any contracts with the Government which are subject
to renegotiation of profits.

COMPETITION

The Fixed Base Operations industry is highly competitive with approximately
4,000 FBOs nationwide. Some of the Company's competitors are highly
experienced operators of networks with substantial resources, such as
Signature Flight Support which competes with the Company at Midway Airport,
Chicago. The nature of the business is such that the competition is not
necessarily confined to the same airport but extends to other airports, due
to the mobility of aircraft.

YEAR 2000

The Company has reviewed the potential impact of Year 2000 issues on its
business operations and has determined the following:

The main computers used by Aero and the software operated on the computer
require only minor corrections to become year 2000 compliant. Aero is
considering changing its computer operations to a PC based system using new
software that is year 2000 compliant. If Aero elects not to pursue the PC
based and year 2000 compliant software, Aero will cause its present system
to be year 2000 compliant by the Fall of 1999.

Aero has contacted its principal suppliers, especially the supplier of
aviation fuel to ascertain that those suppliers will be able to deliver
product in a timely fashion. The Company has not received written
confirmation as of the filing date of this report.

Aero has also been in contact with the managers of the airports where it
operates FBOs to determine that they will be able to continue to operate and
will be year 2000 compliant. The Company has not yet received written
confirmation.

The Company's main banks have confirmed in writing of their compliance and
or compliance status and the Company is awaiting written response from its
utility companies. At the time of the filing of this report, the Company has
no contingency plan relating to potential year 2000 issues. Aero does not
expect to incur any significant expense in becoming year 2000 compliant,
except the expense of converting its computer system if in fact it determines
that it should convert that system to a PC based system.

EMPLOYEES

As of September 30, 1998, the Company had approximately 71 full-time and 12
part-time employees. None of the employees is represented by a union.

Item 2. Description of Properties

The Company's corporate headquarters are located at 660 Newtown-Yardley Road
in Newtown, Pennsylvania. In addition, at the time of filing of this report,
the Company operates general aviation services facilities, commonly referred
to as FBOs located at two (2) airports in the U.S. under terms of agreements
that are combinations of leases or subleases and operating agreements between
the airport operator, which may be a city, county or other public body, and
the Company. The unexpired terms of the Company's FBO lease agreements are
ten (10) years with the City of Morgantown, and four (4) years with the
Commonwealth of Pennsylvania.

The Company's other principal properties are (1) leasehold improvements, such
as hangars and fuel storage facilities; (2) equipment, such as tugs, ground
support and other vehicles and shop equipment; and (3) inventories of fuel,
parts, and equipment. The Company considers that, in general, its physical
properties (including machinery and equipment) are well maintained, in good
operating condition and adequate for their purposes.

The Company presently has operations at the following airports:

City Airport

Morgantown, WV Morgantown Airport
Harrisburg, PA Harrisburg International Airport

Item 3. Legal Proceedings

The Company is subject to several complaints filed over the past several
years in different courts or administrative agencies on a variety of grounds.
These claims are encountered in the ordinary course of business, and in the
opinion of Management, the resolution of these matters, either individually
or in the aggregate, will not have a material adverse effect on the Company's
financial position, cash flow, and operations in excess of accruals already
recorded. Management believes that it has established adequate reserves for
all of these claims as to which the Company believes it has strong defenses
and intends to vigorously defend its position.

From December 1994 through December 1996, the Company received quarterly tax
assessments from the State of New York for periods from September 1991
through November 1993. These assessments resulted from an audit performed
in September 1994, and total $1,668,000 including penalties and interest.
The Company had ceased doing business in New York in November 1993. The
Company filed appeals of all the assessments as they were
received. All the appeals are still pending. However, the Company's
management decided to recognize in a prior year the potential liability in
full and the financial statements at September 30, 1998 include an
accrual for $1,668,000.

The Company is also exposed to a number of asserted and unasserted potential
claims encountered in the normal course of business. In the opinion of
management, the resolution of these matters, as well as those discussed above
or referenced elsewhere in this report, will not have a material adverse
effect on the Company's financial position, cash flow, and operations in
excess of what has already been recorded.

Item 4. Submission of Matters to a Vote of Security Holders

The annual meeting of the Company was held on September 22, 1998 at the
Ramada Inn in Harrisburg, Pennsylvania for the purpose of electing directors.
At the meeting it was indicated that a quorum was present for the Series A
Preferred shareholders but that a quorum was not present for the shareholders
holding common stock of the Company. In view of the quorum established for
the Series A Preferred shareholders, the Inspector of Election compiled
results of the balloting on the designated directors and certified that Bobby
Ray Adkins and James R. Affleck, Jr. were duly elected with the votes cast
as follows:

Bobby Ray Adkins - 94,947 yes votes, 0 nay votes
James R. Affleck, Jr. - 94,947 yes votes, 0 nay votes

There were no additional candidates proposed by the shareholders of Series
A Preferred.

Since there was no quorum present for the common shareholders the meeting was
adjourned until September 23, 1998 at the offices of Eckert Seamons Cherin
& Mellot, LLC in Harrisburg. On September 23, 1998 the meeting was called to
order by the Chairman and the Company's legal counsel advised that a quorum
was present for the common stock of the Company pursuant to Section 74 B3 of
the Louisiana Statutes, Annotated, Title 12. The only order of business was
the election of the three (3) regular directors. There were no additional
candidates proposed by the common shareholders. The Inspector of Elections
certified that R. Theodore Brant, Alice F. Buford, and Maurice A. Lawruk were
duly elected with the votes cast as follows:

R. Theodore Brant - 3,115,947 yes, 0 nay
Alice F. Buford - 3,115,947 yes, 0 nay
Maurice A. Lawruk - 3,115,947 yes, 0 nay
PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

(a) PRICE RANGE OF COMMON STOCK

The Company's common stock is traded in the "pink sheets" with the symbol AER
B.

The following table sets forth the high and low bid prices of the common
stock for the periods indicated. The bid prices represent inter-dealer
quotations, without retail mark-ups, mark-downs or commissions, and may not
represent actual transactions.

COMMON

HIGH LOW
Fiscal Year 1998:
First Quarter .01 .01
Second Quarter .01 .01
Third Quarter .01 .01
Fourth Quarter .01 .01

Fiscal Year 1997:
First Quarter .03 .02
Second Quarter .02 .02
Third Quarter .02 .02
Fourth Quarter .02 .01

(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS

As of September 30, 1998 there were approximately 625 record holders of the
Company's common stock. Included in the number of stockholders of record are
stockholders who have chosen to have their shares held in "nominee" or
"street" name. The Company does not know how many additional shareholders
this represents.

The Company has not paid cash dividends on its common stock, and the Board
of Directors of the Company has adopted a policy of retaining earnings, if
any, for operations and the expansion of the Company's business. Therefore,
the Company anticipates that it will not pay any cash dividends on its common
stock in the foreseeable future. The credit facility signed in December 1989
prohibits the payment of dividends without the prior written approval of the
lender. Further, cash dividends and certain other distributions on common
stock are prohibited unless all accrued dividends on the preferred stock have
been paid. The total dividends in arrears relating to preferred stock is
$3,036,407 at September 30, 1998.
Item 6. Management's Discussion and Analysis or Plan of Operation

Results of Operations

The following table presents, as a percentage of net sales, certain selected
financial data for the Company for the periods indicated.

YEAR ENDED
SEPTEMBER 30,

1998 1997

Net Sales 100.0% 100.0%
Cost of Sales 40.9 46.2
Departmental costs 50.0 37.0
Administrative costs 12.4 10.4
Interest expense1 5.3 21.3
Other income 2.4 2.1
Net loss (16.2) (12.8)

For a basis of comparison, the results of operations are presented for the
years ended September 30, 1998 and September 30, 1997. Income and expenses
not related to a specific location are shown as Corporate.

September 30, 1998
(Dollar amounts in thousands)

CHICAGO HARRISBURG MORGANTOWN CORPORATE

NET SALES $9,459 $ 737 $1,026 $ 32

COST AND EXPENSE
Cost of Sales 3,768 248 578 12
Departmental Costs 4,040 612 377 598
Administrative Costs 368 82 558 89
Interest Expense 177 - - 1,548
1,106 (205) 16 (3,015)
Other Income/(Expense) - - - 93

Net Income/(Loss) $1,106 $(205) $ 16 $(2,922)

September 30, 1997

(Dollar amounts in thousands)

CHICAGO MORGANTOWN CORPORATE
NET SALES $7,166 $ 883 $ 41

COST AND EXPENSE
Cost of Sales 3,161 532 41
Departmental Costs 2,250 385 358
Administrative Costs 350 50 445
Interest Expense 141 1 1,580
1,264 (85) (2,383)
Other Income/(Expense) - (291) 462

Net Income/(Loss) $1,264 $(376) $(1,921)
Description of the Years Ended September 30, 1998 and 1997

Sales for the year ended September 30, 1998 increased by $3,164,000 (39.1%)
as compared to 1997. Of that increase, $737,000 was provided by operations
begun during the year at Harrisburg International Airport. Fuel sales
increased $1,684,000 (32.4%), of which $436,000 was provided by Harrisburg.
Airline fuelings, known as into-plane fees, increased $868,000 (103.5%), of
which $213,000 was provided by Harrisburg. Although total sales at the
Company's Morgantown FBO increased 16.2%, the major increase has come at the
Chicago FBO, which increased sales by $2,292,000 (32.0%). These increases
are the result of a combination of aggressive marketing, the strong economy,
the addition of five new airline fueling contracts, and a base tenant in the
flight management business that continues to add to it's managed fleet,
thereby increasing the Company's fuel sales.

Cost of sales decreased to 40.9% in 1998 from 46.2% in 1997. More than half
of the decrease can be attributed to the increase in into-plane fees which
have no associated cost of sales, only departmental costs. The remainder of
the decrease is due to higher margins.

Departmental costs increased $2,340,000 (72%) with $1,191,000 of the increase
an additional real estate tax accrual at Chicago, and $612,000 of the
increase for Harrisburg. The balance of the increase is primarily in
salaries and related expenses that resulted from an increased workforce and
pay raises.

Administrative costs increased by $549,000 (65.0%) in 1998, with $55,000 of
the increase at Harrisburg, and an increase in company wide advertising of
$319,000. Many of the costs considered to be administrative increased, and
the total amount in 1998 equalled 12.4% of sales as compared to 10.4% in
1997.

Interest expense in 1998 was equal to that in 1997. Interest bearing debt
decreased $106,000 during 1998, and the Company recorded $1,460,000 of
interest expense on the debt owed to Transtech. The Company paid Transtech
$166,000 of interest and $147,000 of principal during 1998.

The Company does not presently maintain insurance covering losses associated
with environmental contamination. The one state in which the Company
operates USTs has a state operated "trust fund" which could reimburse the
Company for certain clean-up costs and liabilities incurred from USTs. These
funds, which essentially provide insurance coverage for certain environmental
liabilities, are funded by taxes on USTs or fuels purchased within the state.
The coverage generally will provide up to $1,000,000 for the clean-up of
environmental contamination. The fund requires the Company to pay a
deductible ranging from $5,000 to $50,000 per occurrence.

The fixed base operations industry is highly competitive particularly
regarding fuel pricing. The flying range of business aircraft allows pilots
considerable discretion in selecting locations to purchase fuel. As a
consequence, the Company expends considerable effort in tracking competitive
pricing situations on a regular basis both at airports where the Company
operates facilities and other airports that are deemed to represent
competitive situations. Due to these competitive pressures the Company is
not always able to pass cost increases on to its customers (see Pages 6
through 7, Competition).

Liquidity and Capital Resources

Working capital deficiency decreased by $1,242,000 to ($13,096,000) at
September 30, 1998, because current assets increased by $7,596,000 but
current liabilities increased by $6,354,000. The major components of these
changes were an increase in cash of $110,000, an increase in prepaid
expense of $370,000, an increase in assets held for sale of $1,452,000,
a recognition of a $5,000,000 deferred tax asset, the reclassification
of the $330,000 sinking fund to current, an increase in accrued expense
due to affiliate of $1,236,000, an increase in accrued real estate taxes
of $1,191,000, and a reclassification of $3,500,000 of long term debt
to short term because it will be paid in 1999 from the proceeds of the
sale of the Chicago FBO. The increase in accrued expense due to affiliate
is all unpaid interest accrued during the year.

The lease with the City of Morgantown, West Virginia requires that the lessee
submit plans to invest $700,000 in new construction on the leased premises
if the average gross receipts match or exceed $225,000 per month, for a
consecutive four month period. Average sales per month during 1997 and 1998
were $74,000 and $86,000, respectively, therefore management does not foresee
any such investment being mandated in the near future.

The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.

On March 11, 1999 the Company sold its FBO at Chicago's Midway Airport to
Atlantic Aviation Flight Support, Inc. for $17,750,000 plus the assumption
of certain debt of approximately $1,013,000. From the proceeds of the sale,
three escrow funds were established. One is for $3,511,000 to pay the
industrial revenue bond, including interest, on or about April 15, 1999.
Another $3,020,000 is for payment of real estate taxes in arrears. The
Company has disputed this amount and has legal representation negotiating a
settlement with Cook County and the State of Illinois. Resolution of this
matter is expected within six months. A third escrow of $390,000 is being
held for possible EPA compliance when the underground fuel storage tanks are
removed within 18 to 24 months. Management is exploring a possible
opportunity to acquire an FBO similar to its Harrisburg FBO which is not
expected to require a large initial investment. The Company is at the same
time exploring investments in other business opportunities not related to the
aviation industry. To this end, the Company, in conjunction with R. Ted
Brant, Jr. formed a limited liability company named the RTB/AS, L.L.C. in
January, 1999. The express purpose of this company is to invest in the auto
racing industry. The Company's initial investment was $832,000 and could
eventually be approximately $12 million. Management is continuing its search
for business opportunities that could produce profits whereby the
approximately $34 million of net operating loss carryforward could be
utilized to produce maximum cash flow. However, there can be no assurance
the Company can be returned to profitability or maintained as a going
concern.

During 1998, the Company's Board of Directors approved a $500,000 line-of-
credit, increased to $1,500,000 as of March 1, 1999 for Brant Motor Sports,
Inc. Brant Motor Sports is involved in the auto racing business and promotes
race cars and sells advertising. (See Item 12 for additional information.)

The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.

The Company has not paid cash dividends on its common stock, and the Board
of Directors of the Company has adopted a policy of retaining earnings, if
any, for operations, resolution of liabilities and the reduction of
borrowing. Therefore, the Company anticipates that it will not pay any cash
dividends on its common stock in the foreseeable future. The credit facility
signed in December 1989 prohibits the payment of dividends without the prior
written approval of the lender (Transtech). Further, cash dividends and
certain other distributions on common stock are prohibited unless all accrued
dividends on the preferred stock have been paid. Dividends in arrears are
$3,036,407 at September 30, 1998.

Future Events Likely To Have Material Impact on the Relationship Between
Costs and Revenues

The Company has sold certain of its FBOs over the last six years. Also, the
Company relinquished potential EPA liabilities at one location. These sales
will result in lower revenues not necessarily accompanied by a proportional
decrease in costs, particularly general and administrative costs, many of
which are relatively fixed and do not vary as a direct function of sales
volume.

Impact of Inflation

The Company does not believe that inflation has had any material impact upon
its business or operations as the Company has generally been successful in
passing along normal inflationary increases in costs to its customers.
Unusual or excessively large increases in fuel could also be passed along,
subject to certain competitive situations, but overall demand would likely
be reduced.

Item 7. Financial Statements

The response to this item is submitted as a separate section of this report.

Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure

None.
PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(a) of the Exchange Act.

The Executive Officers and Directors of the Company are as follows:

Name Age Position

R. Ted Brant (2), (3) 52 Chairman of the
Board of Directors,
President and Chief
Executive Officer,
and Director

Maurice A. Lawruk 66 Director

Bobby R. Adkins (1) 52 Director and
Chief Operating
Officer

Alice F. Buford (2) 50 Director

James R. Affleck, Jr. (1) 58 Director and
Vice President,
Assistant Treasurer,
and
Assistant Secretary

Paul R. Slack 58 Chief Accounting Officer,
Controller,
Treasurer and Secretary

(1)Member of the Human Resources Committee

(2)Member of the Audit Committee

(3)Member of the Executive Committee

Except for directors elected by the Board to fill vacancies, all of the
directors are elected at the Annual Meeting and hold office for a period of
one year or until successors are elected and qualified. All of the above
named directors were elected at the September 22, 1998 Annual Shareholders
Meeting.

The officers of the Company are the Chief Executive Officer, Chief Operating
Officer, President, Secretary, Chief Accounting Officer, Treasurer, and such
other Vice Presidents as are elected by the Board. All of the officers are
elected by the Board and serve at the pleasure of the Board.

R. Ted Brant was elected to the Board of Directors on May 20, 1994 and was
appointed Chairman and Chief Executive Officer on May 31, 1994 to replace Mr.
John Pugh, who resigned. Mr. Brant was a director and Vice Chairman of
Piedmont Aviation Services, Inc. from 1992 through July 1998, when the
Company was sold, and President and Chief Executive Officer of Valley Air
Services, Inc., a position he has held since Valley's inception. He is also
President and Director of Transtech Holding Company, Inc. Mr. Brant has
experience in industrial, construction, and engineering management and holds
a B.S. degree in Mechanical Engineering from West Virginia University. On
November 20, 1995, Mr. Brant was elected President of the Company by the
Board to replace Wallace Congdon, who resigned.

Bobby R. Adkins was elected to the Board of Directors on May 20, 1994. He
was appointed as Chief Operating Officer in November 1995, a position
formerly held by Wallace Congdon. Mr. Adkins is Vice President Operations
of Transtech Holding Company, Inc., and has served as Secretary and Treasurer
of Valley Air Services, Inc. since 1989. Mr. Adkins holds Associate degrees
in Accounting, Business Administration, and Law Enforcement, and is a
licensed commercial pilot and certified flight instructor.

Maurice A. Lawruk was elected to the Board of Directors on May 20, 1994. Mr.
Lawruk is Vice President of Valley Air Services, Inc., and is on the Board
of Directors of Transtech Holding Company, Inc. Mr. Lawruk also serves as
Chairman of the construction company which he founded in 1967. Mr. Lawruk
previously served for eight years on the Pennsylvania Industrial Development
Authority.

Paul R. Slack joined the Company in December 1987 as Senior Internal Auditor
and was named Controller in May 1989. In February 1991, the Board appointed
Mr. Slack as Chief Accounting Officer and Controller. Subsequently, in
November 1991 Mr. Slack was appointed Assistant Secretary of the Company.
In May 1994, he was appointed Treasurer and, in March 1997 he was appointed
Secretary of the Company in addition to his other offices.

James R. Affleck, Jr. joined the Company in September 1987 as manager of
special projects. In May 1994 he was appointed Assistant Treasurer, and in
March 1997 was appointed Assistant Secretary and Vice-President. In August
1998 the members of the Board of Directors elected him to be a director to
fill a vacancy. Mr. Affleck's duties involve general oversight of cash
management, insurance, human resources and benefit programs and investor
relations.

Alice F. Buford was elected to the Board of Directors on September 3, 1998
to fill a vacancy. Ms. Buford is Secretary/Treasurer and fifty percent (50%)
owner in a real estate development/management company, Appalachian
Properties, Inc. Ms. Buford is also a shareholder and Secretary of Valley
Air Services, Inc., and is a shareholder of Transtech Holding Company, Inc.

Item 10. Executive Compensation

CASH COMPENSATION

The following table shows the cash compensation paid to or accrued to, or for
the benefit of, each of the executive officers of the Company whose aggregate
compensation exceeded $100,000 per annum for services rendered to the Company
during the year ended September 30, 1997:

I.SUMMARY COMPENSATION TABLE

Annual Compensation All Other
Name and Principal Position Year Salary Bonus Compensation
($) ($) ($)

1998 53,546 - -
R. Ted Brant, Chairman 1997 12,146 - -
of the Board of Directors, 1996 12,046 - -
Chief Executive Officer, (a)
and President (b)

(a)Appointed by the Board of Directors in May 1994.

(b)Appointed by the Board of Directors in November 1995.

COMPENSATION OF DIRECTORS

From October 1993 through May 1994, Directors, excluding those who were also
officers or employees of the Company, were eligible to receive $15,000
annually plus $1,000 per meeting attended as compensation for their services
as Directors. At the May 31, 1994 meeting the Board suspended indefinitely
any compensation for Directors, and none has been paid to, or accrued for,
any Director since that date.

<TABLE>

III. OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE

Aggregate Option/SAR Exercises in Last Fiscal Year, & FY-End Option/SAR Value

Value of Unexercised
Number of Unexercised In-the-Money
Options/SARs at FY-End (3) Options/SARs at FY-End (1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
R. Ted Brant -0- -0- 0/ $0.00/
Chairman, Board 0 $0.00
of Directors

Larry A. Ulrich (2) -0- -0- 120,000/ $0.00/ (3)
0 $0.00
</TABLE>

1.Market value of underlying securities at exercise, minus the exercise or
base price. "Spread" calculated by subtracting the exercise or base
price ($.1410) from the bid price of underlying securities ($.0625) as
of the fiscal year-end.

2.On April 1, 1994, Mr. Ulrich resigned as Vice President, Marketing and
entered into a one year consulting agreement with the Company.

3.Mr. Ulrich was granted 20,000 at an exercise price per share of $2.50
and 100,000 shares at an exercise price per share of $.83750.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

The following tables set forth, as of September 30, 1998, except as otherwise
indicated, information with respect to stock ownership of (i) each Director
of the Company, (ii) each person known by the Company to own beneficially
more than 5 percent of the shares of the Company's outstanding Common Stock,
(iii) each person known to the Company to own beneficially more than 5
percent of the shares of the Company's outstanding Series A preferred stock,
and (iv) all officers and directors of the Company as a group. This
information has been provided to the Company by the persons named below.

Amount of
Amount and Nature of
Nature of Percent Beneficial Percent of
Beneficial of Class Ownership Class of
Name and Ownership of of Series A Series A
Address of of Common Common Preferred Preferred
Beneficial Owner Stock (1) Stock Stock (1) Stock (2)

Transtech Holding
Company, Inc. 3,407,693 42.2% 93,947 (8) 34.9%
1331 12th Avenue
Suite 109
Gables Office Complex
Altoona, PA 16601

Triton Energy Corp. 538,372 (3) 6.7% 134,593 50.0%
Including
Pacific Basin Company
6688 N. Central Exp.
Suite 1400
Dallas, TX 75206

Robert L. Starer 901,000 (4) 11.0%
6555 Skyline Drive
Delray Beach, FL

F. P. Quinn Trading Co. 114,500 (5) 1.4% 28,625 10.6%
401 S. LaSalle Street
Suite #701
Chicago, IL 60605

Alinco S.A. 327,990 (6) 4.7%
c/o Faust, Rabbach &
Stanger
488 Madison Avenue
New York, NY 10022

Cesamar, S.A. 327,990 (6) 4.7%
c/o Faust, Rabbach &
Stanger
488 Madison Avenue
New York, NY 10022

Project Bond Limited 327,990 (6) 4.7%
c/o Faust, Rabbach &
Stanger
488 Madison Avenue
New York, NY 10022

All Directors and 20,000 (7) *
Officers as a group

*Less than 1%
(1)Except as otherwise noted, the shareholders listed exercise sole voting
and investment power, subject to the community property laws where
applicable.

(2)On or about June 30, 1988, the Series A preferred stockholders became
entitled (pursuant to the articles of incorporation of the Company), voting
separately as a class, to elect two (2) directors, to serve on the Board in
designated positions (the "Designated Positions") as a result of the
Company's failure to pay six quarterly dividends on the Series A Preferred
stock. Under the articles of incorporation, the holders of Series A
preferred stock cannot vote with common stockholders for the election of the
Company's regular directors while entitled to elect directors to serve in the
designated positions.

(3)Includes 134,593 shares of Preferred A which is convertible into 538,372
shares of common.

(4)Represents 900,000 shares of common stock that Mr. Starer has a right to
acquire pursuant to stock options, and 1,000 shares of common stock acquired
by Mr. Starer in open market purchases.

(5)Based upon information filed with the SEC by F.P. Quinn Trading Company
on Schedule 13G.

(6)Alinco S.A., Cesamar, S.A., and Project Bond Limited consider themselves
a "group" within the meaning of SEC Rule 13d.

(7)Includes outstanding vested stock options (20,000). Does not include
stock and conversion rights owned by Triton. This amount does not include
common stock owned by Transtech, whose principal owners include Ted Brant,
Chairman of the Board of Directors and Chief Executive Officer of the
Company, and Maurice Lawruk and Bob Adkins, both directors of the Company.

(8)During December 1998, Transtech Holding Company, Inc. purchased all of the
Series A Preferred shares previously held by Triton Energy Corp.
Item 12. Certain Relationships and Related Transactions.

EMPLOYMENT CONTRACTS

No employee of the Company had employment contracts during 1998 and 1997.

RELATED TRANSACTIONS

In May 1994 Triton Energy Corporation (Triton) sold the majority of its
equity in the Company to Transtech. (See Note D to the Consolidated
Financial Statements, Notes Payable-Affiliate.) At September 30, 1996,
Transtech owned 42.2% of the Company's common stock and 34.9% of the
Company's preferred stock. The Company is also indebted to Transtech in the
amount of $15,610,000 in the form of notes that were purchased from Triton.
During fiscal year 1997, the Company paid $248,000 of the loans, and
$1,470,000 of interest expense was recorded against these loans of which
$806,000 was paid. During fiscal year 1998 the Company paid $147,000 of
these loans, and $1,460,000 of interest expense was recorded against these
loans of which $166,000 was paid. At September 30, 1998 the Company has
$2,641,000 of accrued interest due to Transtech recorded on the financial
statements.

The Company provided accounting services to Transportech Inc., a wholly owned
subsidiary of Transtech, which operates one FBO through July 1998, when it
was sold. The Company received a monthly fee of nine hundred dollars.

In January 1996 the Company purchased a 40% interest in a company called
Peakwood, L.L.C. for $150,000. $115,000 of this amount was borrowed from the
following related parties: Transportech, a wholly owned subsidiary of
Transtech Holding Co., $20,000; Maurice Lawruk, Company Director, $40,000;
James Affleck, Company Assistant Treasurer, $34,000; R. Ted Brant, Company
Director and CEO, $15,000; Bobby Adkins, Company Director, $4,000; and Alice
Buford, a shareholder of Transtech, $2,000. The Company issued promissory
notes bearing an interest rate of 10% per annum with principal and interest
due in February 1997, at which time the Company exercised its option to
extend the payment date for one additional year. All interest due through
the renewal date was paid. In January 1998, all parties agreed to convert
the promissory notes to one year installment loans with unpaid interest added
to the principal and the balance to be paid in 12 monthly installments with
interest at 10%. The total unpaid balance at September 30, 1998 was $54,000.

In July 1996 the Company purchased a 1975 Cessna Citation 500 aircraft owned
by R. Ted Brant, the Chairman of the Board and Chief Executive Officer of the
Company for $708,000. As part of the purchase agreement the Company will
make monthly payments directly to Cessna Corporation on the existing loan,
the balance being $636,000 at September 30, 1998. In August 1997 one of the
airplane's engines required an overhaul which cost $240,000. Mr. Brant
increased the note with Cessna by $200,000 and personally paid the additional
$40,000, with the $240,000 being charged to a fixed asset account. At
September 30, 1998 the Company owed Mr. Brant $26,000.

The Company periodically uses an aircraft owned by Valley Air Services, Inc.
(Valley Air) for travel by its employees, primarily management. Valley Air
bills the Company an hourly rate based on flight time. The President and
Chief Executive Officer of Valley Air is R. Ted Brant. During 1997 the
Company was billed $93,000 for use of the aircraft and during 1998 the
Company was billed $124,000.

During fiscal year 1998, the Company's Board of Directors approved a $500,000
line-of-credit for a company called Brant Motor Sports, Inc., whose
principals include R. Ted Brant and Bobby Adkins. The interest rate is prime
less 1%. At September 30, 1998 advances against this credit line totalled
$405,000.

Brant Motor Sports, Inc. is involved in the auto racing business and promotes
race cars and sells advertising. The Company used Brant Motor Sports, Inc.
as a means of advertising and promotion during 1998, and had accrued $307,000
of advertising expense at September 30, 1998, for which the Company was
billed in December 1998. This amount was applied as a payment against the
line-of-credit at that time.
Item 13. Exhibits and Reports on Form 8-K.

(a) Exhibits. See Index of Exhibits annexed hereto.

(b) Reports on Form 8-K. None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

Dated:AERO SERVICES INTERNATIONAL, INC.

BY:
R. Ted Brant
Chairman of the Board of
Directors and Director

BY:
Paul R. Slack
Chief Accounting Officer
and Controller.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons in the capacities and on the
dates indicated.

Signature Title Date

Chairman of the
R. Ted Brant Board and
Director

Director
Maurice A. Lawruk

Director
Bobby R. Adkins

Director
James R. Affleck, Jr.

Director
Alice F. Buford

Those Directors above so indicated have signed the original of this document
which is on file with Company.

AERO SERVICES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
Form 10-KSB
Item 7

Index of Financial Statements

The following consolidated financial statements of the Company and its
subsidiaries required to be included in Item 7 are listed below:

Page

Independent Auditors' Report S-2

Consolidated Balance Sheet at S-3
September 30, 1998

Consolidated Statements of Operations S-5
for the years ended September 30, 1998
and 1997

Consolidated Statements of S-6
Stockholders' Deficit for the years
ended September 30, 1998 and 1997

Consolidated Statements of Cash Flows S-7
for the years ended September 30, 1998
and 1997

Notes to Consolidated Financial Statements S-9

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
Aero Services International, Inc.

We have audited the accompanying consolidated balance sheet of Aero Services
International, Inc. and subsidiaries as of September 30, 1998 and the related
consolidated statements of operations, stockholders' deficit, and cash flows
for each of the two years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstate-ment. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aero
Services International, Inc. and subsidiaries at September 30, 1998 and the
results of their operations and their cash flows for each of the two years
in the period then ended in conformity with generally accepted accounting
principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note B to the financial statements, the Company has suffered recurring losses
from operations and has significant deficiencies in working capital and
equity at September 30, 1998. These matters raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note B. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.

BDO SEIDMAN, LLP

November 10, 1998, except for Notes B, D and K, which are as of March 11,
1999
Philadelphia, Pennsylvania

Aero Services International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
September 30, 1998

(Dollar amounts in thousands)

ASSETS

CURRENT ASSETS
Cash $ 241
Customers receivables, less allowance for
doubtful accounts of $26 393
Notes receivable 500
Notes receivable - affiliate 98
Inventories 37
Assets held for sale at net book value 1,452
Prepaid expenses and other current assets 271
Sinking fund 330
Deferred taxes 5,000

TOTAL CURRENT ASSETS 8,322

PROPERTY AND EQUIPMENT
Transportation equipment 969
Machinery and equipment 189
Furniture and fixtures 91
Leasehold improvements 253

1,502
Less: Accumulated depreciation
and amortization 360

PROPERTY AND EQUIPMENT, NET 1,142

OTHER ASSETS 110

TOTAL ASSETS $9,574

The accompanying notes are an integral part of these statements.

Aero Services International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET - CONTINUED
September 30, 1998

(Dollar amounts in thousands)

LIABILITIES

CURRENT LIABILITIES
Current maturities of long term debt-affiliate $ 8,529
Current maturities of long term debt-other 1
Notes payable 115
Accounts payable-trade 549
Accrued expenses
Property, payroll, and other taxes 1,759
Other 1,278
Affiliate 2,667
Notes payable - Industrial Revenue Bond 3,500
Property taxes - Chicago 3,020

TOTAL CURRENT LIABILITIES 21,418

LONG TERM DEBT, less current maturities
Affiliate 7,499
Other 55
TOTAL LONG TERM DEBT 7,554

OTHER LONG TERM LIABILITIES 214

COMMITMENTS AND CONTINGENCIES

REDEEMABLE PREFERRED STOCK
Series A Cumulative Convertible Preferred
Stock - no par value - authorized 500,000
shares - issued and outstanding 269,185
(redemption value - $6,670) 6,586

STOCKHOLDERS' DEFICIT
Preferred stock - authorized, 250,000 shares
of no par value, none issued -
Common stock - authorized, 15,000,000 shares
of no par value; issued 7,070,052;
outstanding 6,998,052 shares 8,702
Additional paid-in capital 3,146
Accumulated deficit (37,809)
(25,961)

Less: Common stock in treasury
(72,000 shares at cost) 237

TOTAL STOCKHOLDERS' DEFICIT (26,198)

TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 9,574

The accompanying notes are an integral part of these statements.

Aero Services International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 30,

(Dollar amounts in thousands, except per share amounts)

1998 1997

NET SALES $11,254 $ 8,090

COST AND EXPENSES
Cost of sales 4,606 3,734
Departmental costs 5,627 3,287
Administrative costs 1,394 845
Interest expense-affiliate 1,534 1,531
Interest expense-other 191 191

13,352 9,588

(2,098) (1,498)

Other income, net 93 465

LOSS BEFORE TAXES (2,005) (1,033)
Deferred tax benefit 5,000 -

NET INCOME (LOSS) 2,995 (1,033)

Preferred dividends (258) (258)

Accretion of preferred stock (34) (39)

Net income (loss) applicable to common
stockholders $ 2,703 $(1,330)

Net income (loss) per share
Basic $ 0.39 $ (0.19)
Dilutive $ 0.37 $ (0.19)

Weighted average shares outstanding:
Basic 6,998,052 6,998,052
Dilutive 8,074,792 6,998,052

The accompanying notes are an integral part of these statements.

Aero Services International, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the years ended September 30, 1998 and 1997

(Dollar amounts in thousands except for share data)

<TABLE>
Additional
Common Stock (Accumulated Treasury Stock Paid-In
Shares Amount Deficit) Shares Amount Capital Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 7,070,052 $8,702 $(39,771) 72,000 $237 $3,735 $(27,571)
Accretion of redeemable preferred stock - - - - - (39) (39)
Dividends in arrears on preferred stock - - - - - (258) (258)
Net loss for the year - - (1,033) - - - (1,033)

Balance at September 30, 1997 7,070,052 8,702 (40,804) 72,000 237 3,438 (28,901)
Accretion of redeemable preferred stock - - - - - (34) (34)
Dividends in arrears on preferred stock - - - - - (258) (258)
Net income for the year - - 2,995 - - - 2,995

Balance at September 30, 1998 7,070,052 $8,702 $(37,809) 72,000 $237 $3,146 $(26,198)

</TABLE>

The accompanying notes are an integral part of these statements.

Aero Services International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30,

(Dollar amounts in thousands)

1998 1997

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss) $2,995 $(1,033)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 384 314
Provision for losses on accounts receivable 10 4
Provision for obsolete and slow-moving,
excess and damaged inventory 6 -
Gain on sale of fixed assets - 1
Change in assets and liabilities:
Increase in accounts receivable (84) (7)
Increase in notes receivable-affiliate (98) -
Decrease in other receivables 157 107
(Increase) decrease in inventory (28) 9
Decrease in prepaid expenses (190) (42)
Increase in deferred taxes (5,000) -
Decrease in other assets 132 206
Increase in sinking fund (330) -
Increase in accounts payable-trade (476) 55
Increase (decrease) in accrued property,
payroll, and other taxes 1,735 (15)
Increase in accrued expenses-affiliate 1,236 747
Decrease in accrued expenses-other (15) (239)
Decrease in other long term liabilities (19) (19)
Other - 5

Net cash provided by operating activities 415 93

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (199) (410)

Net cash (used in) investing activities (199) (410)

(continued)

The accompanying notes are an integral part of these statements.

Aero Services International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the years ended September 30,

(Dollar amounts in thousands)

1998 1997

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long term debt-affiliate $ 112 $ 23
Proceeds from issuance of long term debt-banks - 66
Proceeds from issuance of notes payable-other 91 406
Principal payments under capital lease (11) (4)
Principal payments of notes payable-affiliate (279) (248)
Principal payments of notes payable-other (9) (105)
Principal payments of long term debt-affiliate - (36)
Principal payments of long term debt-bank - (4)
Principal payments of long term debt-other (10) (40)

Net cash provided (used in) by financing activities (106) 58

Net increase (decrease) in cash and cash equivalents 110 (259)
Cash and cash equivalents at beginning of year 131 390

Cash and cash equivalents at end of year $ 241 $ 131

Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 444 $1,053
Income Taxes - -

Supplemental Schedule of Non-cash Investing and Financing Activities
Dividends in arrears on the Company's preferred stock were accrued in the
amount of $258 in both 1998 and 1997. Accretion on the Company's preferred
stock was accrued in the amount of $34 in 1998 and $39 in 1997.

The accompanying notes are an integral part of these statements.
NOTE A - NATURE OF BUSINESS

Aero Services International, Inc. (the Company) operates Fixed Base
Operations ("FBOs") which provide ground support services to corporate and
other general aviation aircraft at three airports in the United States, as
well as similar services to air carriers at two of its locations. Revenue
is derived from the sale of products, including fuel, oil, and aircraft
replacement parts; from services such as aircraft maintenance, ground
handling, and the pumping of fuel owned by others; and from the rental of
hangar and office space. There was one customer who contributed more than
10% of sales during fiscal year 1998. That customer contributed 12.75% of
total sales. The Company is sometimes referred to herein as "Aero."

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the Company's significant accounting policies follows:

1.Basis of Presentation

The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.

At September 30, 1998, the Company had a working capital deficiency of
$13,096, stockholders' deficit of $26,198, and had incurred a loss before
income tax benefit of $2,005.

On March 11, 1999 the Company sold its FBO at Chicago's Midway Airport for
$17,750. Net proceeds at settlement were $10,800 with funds held in escrow
to pay off the industrial revenue bond of $3,500 and $3,020 held pending
resolution of negotiations to reduce the Company's real estate tax liability
with Cook County. Another $390 is being held for any possible EPA cleanup
that may be required when the fuel farm is replaced. The proceeds from the
sale should enable the Company to reduce its debt and provide capital for
additional investments. Management is exploring a possible opportunity to
acquire an FBO similar to its Harrisburg FBO which is not expected to require
a large initial investment. The Company is at the same time exploring
investments in other business opportunities not related to the aviation
industry. To this end, the Company, in conjunction with R. Ted Brant, Jr.,
the Company's Chairman of the Board of Directors, formed a limited
liability company named the RTB/AS, L.L.C. in January, 1999.
The express purpose of this company is to invest in the auto racing industry.
The Company's initial investment was $832 and a majority of the net proceeds
from the sale of the Company's Chicago FBO is expected to be invested in this
Company also. Management is continuing its search for business opportunities
that could produce profits whereby the approximately $34 million of net
operating loss carryforward could be utilized to produce maximum cash flow.
However, there can be no assurance the Company can be returned to
profitability or maintained as a going concern. See Note J for additional
information regarding the Company's relationship with Brant Motor Sports,
Inc.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

2.Use of 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 period.
Actual results could differ from those estimates.

3.Impairment of Long-Lived Assets

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" during the year ended
September 30, 1996. SFAS 121 establishes accounting standards for the
impairment of long-lived assets and certain identifiable intangibles to be
disposed of. The Company reviews the carrying values of its long-lived and
identifiable intangible assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may
not be recoverable based on undiscounted estimated future operating cash
flows. Based on the operating results of Mountain State Flight Services,
Inc. for the years ended September 30, 1996 and 1997, the Company decided
that the goodwill, relating to the acquisition of Mountain States, was
impaired. At September 30, 1997, the remaining balance of the goodwill which
amounted to $294 was charged to operations and is included in departmental
costs.

4.Recent Accounting Pronouncements

SFAS 133 "Accounting for Derivative Instruments and Hedging activities
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 is effective for all periods beginning
after December 15, 1997. The Company had no derivative instruments as of
September 30, 1998.

5.Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Beckett Aviation, Inc. and Mountain State
Flight Services, Inc., which was dissolved as a separate corporation on
December 31, 1997. All material intercompany accounts and transactions have
been eliminated in consolidation.

6.Inventories

Aircraft parts and accessories, fuel, and supplies, are stated at the lower
of cost or market, principally on a moving average unit cost basis. The cost
of high value items is determined by specific identification. Provisions are
made for obsolete and slow moving, excess quantity and damaged inventory.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

7.Property, Equipment, Depreciation and Amortization

Expenditures for new property and equipment, and significant improvements to
existing assets are capitalized at cost. Maintenance and repairs are
expensed as incurred. When assets are sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts, and
any gain or loss on the disposition is reflected in current operations.
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
principally on the straight-line basis. Leasehold improvements are amortized
over the estimated service lives of the improvements or the remaining lives
of the respective leases, whichever is shorter. The estimated service lives
used are as follows:

Transportation equipment 7 years
Machinery and equipment 5-10 years
Furniture and fixtures 5-10 years
Leasehold improvements 1-22 years

At September 30, 1998 fixed assets with a total cost of $4,691 and
accumulated depreciation of $3,197 are segregated on the balance sheet as
Assets Held for Sale. For further details see Note K - Subsequent Events.

The Company's fixed assets are pledged as collateral for the loan agreement
with Transtech Holding Company. See Note D - Financing Arrangements.

Maintenance and repairs expense for 1998 and 1997 was $313 and $281,
respectively.

8.Revenue Recognition

All revenue is recognized as services are provided.

9.Departmental Costs

Departmental costs are specific expenses such as salaries, employee benefits
and supplies, as well as expenditures such as rent, real estate taxes,
amortization, utilities and insurance costs.

10.Income (loss) Per Common Share

Basic net income (loss) per share includes no dilution and is calculated by
dividing net income by the weighted average number of common shares
outstanding for the period. Dilutive net income (loss) per share reflects
the potential dilution of securities that could share in the net income of
the Company through the exercise of stock options and the conversion of
preferred stock.

11.Accrued Property, Payroll, and Other Taxes

Included in this total at September 30, 1998 is $1,668 for a New York motor
fuels tax assessment which has been appealed.

12.Note Receivable

At September 30, 1998 the note receivable for $500 resulted from the sale of
the Company's facility in New Orleans in 1996 and was paid in November 1998.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

13.Deferred Taxes

The deferred tax benefit was recorded at September 30, 1998 as a result of
the sale of the Company's FBO at Chicago in March 1999. It is expected that
the gain on the sale of approximately $17,100 will be offset by the net
operating loss carryforwards exceeding $34,000.

14.Concentration of Credit Risk and Par Value of Financial Instruments

Financial instruments that are potentially subject to credit risk consist
principally of cash equivalents and trade receivables. Cash equivalents are
placed with high credit quality financial institutions. At September 30,
1998, no customer receivable exceeded 5% of total assets. The Company
generally requires no collateral from its customers.

The carrying amount of cash, customer receivables, other receivables,
accounts payable and accrued expenses approximates fair value because of the
short maturity of these instruments.

The fair value of the debt with affiliate is impracticable to determine due
to the related party nature of the instruments. The fair value of the
Industrial Revenue Bond is also impractical to determine.

NOTE C - INVENTORIES

Inventories at September 30, 1998 were comprised of:

Aircraft parts and accessories, oil and
supplies less reserves for obsolete
and slow-moving, excess quantity and
damaged items of $17 $16

Fuel 21

$37
NOTE D - FINANCING ARRANGEMENTS

Long-Term Debt Schedule at September 30, 1998

Affiliate - Unsecured demand notes bearing interest
at prime +2% (10.25% at September 30, 1998). $ 8,305

Affiliate - Installment note bearing interest
at prime (8.25% at September 30,
1998). Quarterly payments of $300 plus
interest beginning October 1999, and
is collateralized by a first priority
interest, mortgage, assignment or lien on certain
real property, leasehold interests, equipment,
accounts receivable, and inventory. 6,910

Industrial revenue bond bearing interest
at a floating rate (3.5% at September 30,
1998). Interest is payable monthly and
principal is due December 2014, but will be
paid in April 1999 from proceeds of sale
of Chicago FBO. 3,500

Installment note bearing interest at 9.70%,
requiring monthly payments of $9 including
interest until August 2007. 636

Affiliate - Various unsecured term notes bearing
interest at 10.00%, requiring monthly payments
of $11, including interest, until February 1999. 54

Other notes payable 294
19,699

Less: Current maturities of long term debt 12,145

$ 7,554
NOTE D - FINANCING ARRANGEMENTS - Continued

Maturities of Long-Term Debt

Annual maturities of long-term debt at September 30, 1998 are as follows:

Year ending
September 30,
1999 12,145
2000 1,270
2001 1,271
2002 1,269
2003 1,256
Thereafter 2,488
$19,699

CHICAGO INDUSTRIAL REVENUE BOND

The Company's subsidiary, Beckett Aviation, Inc. ("Beckett"), is obligated
on outstanding industrial revenue bonds and notes in the amount of $3,500 at
September 30, 1998. On November 3, 1997, The First National Bank of Chicago
and First Bank National Association replaced Barclays Bank International
Limited as the issuer of an irrevocable letter of credit in the amount of
$3,632 to expire on November 15, 2002. CSX Corporation, the original
guarantor under the bonds and notes, continues to unconditionally guarantee
the obligations. However, at the closing on the sale of the Chicago FBO,
funds were held in escrow for the payment of this bond. Payment is expected
to be made by April 15, 1999.

NOTE E - INCOME TAXES

The Company follows the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". FAS 109 requires the
recognition of future tax benefits, such as net operating loss carry forwards
(NOL's), to the extent that realization of such benefits are more likely than
not. At September 30, 1998, the Company had NOL carryforwards for tax
purposes expiring as follows:

2002 $ 1,066
2003 680
2004 5,468
2005 5,641
2006 6,050
2007 4,424
2008 3,056
2009 2,955
2010 2,768
2011 1,193
2012 911
$34,212

As a result of the sale of it's Chicago FBO, the Company will realize a gain
of approximately $17,000. Accordingly, the Company has recognized a $5,000
deferred tax asset at September 30, 1998 which represents the utilization of
a portion of the NOL carryforwards to offset the net tax due on the gain.

NOTE F - COMMITMENTS AND CONTINGENT LIABILITIES
(See also NOTE D regarding the Arapahoe County Industrial Revenue Bonds.)

1. Lease Commitments

Ground operations are conducted from leased premises which include buildings
and hangar facilities. The lease arrangements expire on various dates
through 2008, with certain options for renewal. The terms of the leases
provide for monthly payments of a fixed amount with certain escalation
clauses and in some locations additional variable amounts based on fuel
flowage or other factors.

Future minimum lease payments for all non-cancelable operating leases having
a term in excess of one year at September 30, 1998 after considering the sale
of the Chicago facility, are as follows:

Year ending
September 30,
1999 $ 617
2000 317
2001 270
2002 211
2003 132
Thereafter 490
$2,037

Rental expense for all operating leases for each of the years ended September
30, 1998 and 1997 were $917 and $531, respectively.

The Company subleases office space under short-term and long term agreements
to various aviation tenants. Such sublease agreements generally provide for
a minimum monthly rent and certain renewal options. Sublease rental income
included in net sales was $125 and $101, for the years ended September 30,
1998 and 1997.

2. Letters of Credit

(See Note D - Financing Arrangements regarding letters of credit.)

3. Litigation

From December 1994 through December 1996, the Company received quarterly tax
assessments from the State of New York for periods from September 1991
through November 1993. These assessments resulted from an audit performed
in September 1994, and totaled $1,668 including penalties and interest. The
Company had ceased doing business in New York in November 1993. The
Company filed appeals of all the assessments as they were received. All the
appeals are still pending. However, the Company's management decided to
recognize the potential liability in full in a prior year and the financial
statements at September 30, 1998 include an accrual for $1,668.
NOTE F - COMMITMENTS AND CONTINGENT LIABILITIES - Continued

4. Environmental Matters

The Company's business involves the storage, handling and sale of fuel, and
the provision of mechanical maintenance and refurbishing services which
involve the use of hazardous chemicals. Accordingly, the Company is required
to comply with federal, state and local provisions which have been enacted
to regulate the discharge of material into the environment or otherwise
relate to the protection of the environment.

The Company is presently responsible for ongoing remediation of underground
contamination at one previously owned location in Milwaukee, Wisconsin. On
March 27, 1998 the Company was notified by the Arizona Department of
Environmental Quality that the remediation requirements of the Scottsdale
project had been met and the case closed. At another previously owned
location on the Raleigh-Durham Airport in North Carolina, the Company is one
of several former operators of fuel tanks at the facility responsible for
sharing remediation costs. The Company reached a settlement agreement with
the airport authority there during fiscal year 1996 which limits the
Company's liability to $85 with payments to the authority not to exceed $20
in any calendar year. The Company has been billed and paid $38 through
September 30, 1998.

At September 30, 1998 the Company has included in its financial statements
an accrual for environmental remediation of $360. Based on estimates by the
engineering firms conducting the remediation projects, the Company has
sufficient reserves should any additional problems arise during remediation.
The Company, in addition, is reimbursed by the Wisconsin Petroleum
Environmental Cleanup Fund in excess of 95% of remediation expenses. During
1998 the Company received a refund for previous expenditures at the Wisconsin
site totalling $20. This refund was recorded as other income in the
financial statements at September 30, 1998. The accrual of $360 has not been
reduced by any expected future reimbursements from Wisconsin.

NOTE G - SAVINGS PLAN

The Company has an "Employees Tax Sheltered Retirement Plan." Employees who
have completed one year with a minimum of 1000 hours of service are eligible
to participate. To participate the employee must make contributions to the
plan through salary reduction pursuant to Section 401(K) of the Internal
Revenue Code. The Company matches contributions in an amount equal to 25%
of the first 2% contributed by the employee. Employees are immediately 100%
vested in their contributions, but 100% vesting in the Company's
contributions does not occur until after one year as a plan member. The
Company's contributions to the plan for the years ended September 30, 1998
and 1997 were not significant.
NOTE H - REDEEMABLE PREFERRED STOCK AND STOCK WARRANTS

Series A Cumulative Convertible Preferred Stock

During fiscal 1986, the Company completed a public offering of 422,000 units,
each unit consisting of one share of Series A Cumulative Convertible
Preferred Stock ("Series A preferred stock") and two common stock purchase
warrants ("warrants"). Under the terms of the offering, the holders of the
Series A preferred stock are entitled to receive cumulative cash dividends
at the annual rate of $.96 per share and to preference in liquidation over
common stockholders of $13.50 per share, plus accrued and unpaid dividends.
Dividends are cumulative from date of issue and payable quarterly, except in
certain instances in which the Company is not required or may decline to pay
such dividends. Each share of Series A preferred stock is convertible into
four shares of common stock at an initial price of $3.375 per share, subject
to adjustment.

The Series A preferred stock is subject to mandatory redemption at the rate
of 7-1/2% of the issue in each of the years 1996 through 2005, with the
remainder to be redeemed on August 1, 2006. The mandatory redemption price
is $13.50 per share plus accrued and unpaid dividends. The excess of the
mandatory redemption price over the net proceeds received by the Company is
accreted during the period in which the stock is outstanding. Periodic
accretion based on the interest method is charged to additional paid-in
capital. The first redemption was due on August 1, 1996, but no redemption
was made. The Louisiana Business Corporation Law provides that a corporation
may redeem shares of its capital stock subject to redemption out of surplus
or stated capital so long as any such redemption would not reduce stated
capital below the aggregate allocated value of issued shares remaining after
the redemption and so long as sufficient net assets remain to satisfy amounts
payable upon liquidation with respect to any remaining issued shares having
a preferential right to participate in assets upon liquidation. Also, the
terms of the issue state that the Company may not redeem any shares unless
full accrued dividends have been paid on all outstanding shares, and also,
if such redemption would reduce working capital below $9,000 or cash below
$1,500. At September 30, 1998 the Company had accrued and unpaid dividends
totalling $3,036, a working capital deficit of $13,096, and a cash balance
of $241. The Company's obligation to redeem shall be cumulative.

The Company has the option, subject to payment of full dividends, to redeem
the Series A preferred stock in whole or in part at $13.50 per share for the
year ended August 1, 1994 and thereafter.

Triton Energy Corporation was the holder of 228,540 shares of outstanding
Series A preferred stock at September 30, 1993, but sold 93,947 shares to
Transtech Holding Company in May 1994.

If the Company fails to (i) pay six quarterly dividends or (ii) make two
scheduled mandatory redemptions, then the holders of the Series A preferred
stock, voting as a class, are entitled to elect two additional members to the
Board of Directors. As of September 30, 1990, the Company had failed to pay
six quarterly dividends, and therefore the holders of the Series A preferred
stock, voting as a class, were entitled to, and did elect two members to the
Board of Directors. These directors resigned during 1993 and were replaced
at the annual shareholders meeting held May 17, 1995. No dividends were paid
in 1998 or 1997.

There are also certain restrictions against the payment of dividends and
certain other distributions on common stock and against the acquisition of
common stock by the Company unless all accrued dividends have been paid and
all required mandatory redemptions effected.

At September 30, 1998, the Company has reserved 1,076,740 shares of common
stock for the conversion of outstanding Series A preferred stock.

NOTE H - REDEEMABLE PREFERRED STOCK AND STOCK WARRANTS - Continued

The following is a schedule of the changes in Redeemable Preferred Stock for
the years ended September 1998 and 1997.

Series A
Shares Amount

Balance September 30, 1996 269,185 $5,997

Accretion of Series A
Preferred Stock - 39

Dividends in Arrears - 258

Balance September 30, 1997 269,185 6,294

Accretion of Series A
Preferred Stock - 34

Dividends in Arrears - 258

Balance September 30, 1998 269,185 $6,586

Stock Options

The Company maintains a Stock Option Plan (the "Plan"), which provides for
the granting of stock options to officers and other key employees of the
Company at the discretion of the Board of Directors. Stock appreciation
rights in the same amounts have been granted to holders of stock options and
can be exercised by surrendering related stock options. At September 30,
1998 the Company has 450,000 options and related stock appreciation rights
outstanding and reserved for issuance under the Plan. There were no awards
granted in 1998 or 1997. The options and related stock appreciation rights
generally vest over three years and expire 10 years after granting. At
September 30, 1998, fully vested options exercisable totalled 290,000 with
an average exercise price of $0.55 per share.

Prior to establishment of the Plan, the Company on December 10, 1987, granted
non-qualified stock options to Robert L. Starer, then President and Chief
Executive Officer, to acquire 1,000,000 shares of common stock at a price of
$2.00 per share. During fiscal year 1998, 200,000 of these options expired.
As of September 30, 1998, the Company has reserved 800,000 shares in
connection with Mr. Starer's options.

During 1995, the FASB adopted Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," which has
recognition provisions that establish a fair value based method of accounting
for stock-based employee compensation plans and established fair value as the
measurement basis for transactions in which an entity acquires goods or
services from nonemployees in exchange for equity instruments. SFAS 123 also
has certain disclosure provisions. Adoption of the recognition provisions
of SFAS 123 with regard to these transactions with nonemployees was required
for all such transactions entered into after December 15, 1995, and the
Company adopted these provisions as required. The recognition provision with
regard to the fair value based method of accounting for stock-based employee
compensation plans is optional. The Company has decided to continue to apply
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees," for its stock-based employee compensation arrangements.
APB 25 uses what is referred to as an intrinsic value based method of
accounting. The disclosure provisions of SFAS 123 are effective for fiscal
years beginning after December 15, 1995. The Company will provide the
disclosures when required.
NOTE I - RELATED PARTIES

In May 1994 Triton Energy Corporation (Triton) sold the majority of its
equity in the Company to Transtech. (See Note D, Long Term Debt-Affiliate.)
At September 30, 1998, Transtech owned 42.2% of the Company's common stock
and 34.9% of the Company's preferred. The Company is also indebted to
Transtech in the amount of $15,215, in the form of notes that were purchased
from Triton. During fiscal year 1997, the Company paid $248 of the demand
loans, and $1,470 of interest expense was recorded against these loans of
which $806 was paid. During fiscal year 1998 the Company paid $147 of the
demand loans, and $1,460 of interest expense was recorded against these loans
of which $166 was paid. At September 30, 1998 the Company has $2,641 of
accrued interest due to Transtech recorded on the balance sheet.

In July 1996 the Company purchased a 1975 Cessna Citation 500 aircraft owned
by R. Ted Brant, the Chairman of the Board and Chief Executive Officer of the
Company for $708. As part of the purchase agreement the Company will make
monthly payments directly to Cessna Corporation on the existing loan, the
balance being $636 at September 30, 1998. In August 1997 one of the
airplane's engines required an overhaul which cost $240. Mr. Brant increased
the note with Cessna by $200 and personally paid the additional $40, with the
$240 being charged to a fixed asset account. At September 30, 1998 the
Company owed Mr. Brant $26.

The Company periodically uses an aircraft owned by Valley Air Services, Inc.
(Valley Air) for travel by its employees, primarily management. Valley Air
bills the Company an hourly rate based on flight time. The President and
Chief Executive Officer of Valley Air is R. Ted Brant. During 1997 the
Company was billed $93 for use of the aircraft and during 1998 the Company
was billed $124.

In January 1996 the Company purchased a 40% interest in a company called
Peakwood, L.L.C. for $150. (See Note B-11, Other Assets.) $115 of this
amount was borrowed from the following related parties: Transportech, a
wholly owned subsidiary of Transtech Holding Co., $20; Maurice Lawruk,
Company Director, $40; James Affleck, Company Assistant Treasurer, $34; R.
Ted Brant, Company Director and CEO, $15; Bobby Adkins, Company Director, $4;
and Alice Buford, a shareholder of Transtech, $2. The Company issued
promissory notes bearing an interest rate of 10% per annum with principal and
interest due in February 1997, at which time the Company exercised its option
to extend the payment date for one additional year. All interest due through
the renewal date was paid. In January 1998, all parties agreed to convert
the promissory notes to one year installment loans with unpaid interest added
to the principal and the balance to be paid in 12 monthly installments with
interest at 10%. The total unpaid balance at September 30, 1998 was $54.

The Company provided accounting services to Transportech, Inc., a wholly
owned subsidiary of Transtech and operator of one FBO, through July 1998, at
which time the company was sold. Aero received a monthly fee of $1 for these
services.

During fiscal year 1998, the Company's Board of Directors approved a $500
line-of-credit, later increased to $1,500 in March 1999, for a company called
Brant Motor Sports, Inc., whose principals include R. Ted Brant and Bobby
Adkins. The interest rate is prime less 1%. At September 30, 1998, advances
against this credit line totalled $405.

Brant Motor Sports, Inc. is involved in the auto racing business and promotes
race cars and sells advertising. The Company used Brant Motor Sports, Inc.
as a means of advertising and promotion during 1998, and charged operations
$307 of advertising expense at September 30, 1998. This amount was applied
as a payment against the line-of-credit.
NOTE J - SUBSEQUENT EVENTS

In October 1998, the Company entered into a fuel supply agreement with Avfuel
Corporation (Avfuel) whereby Avfuel will be the exclusive fuel provider at
the Company's FBOs for a period of seven years. In addition, the Company
borrowed $1,000 from Avfuel. Under the terms of the note, Aero must make
monthly payments equal to $0.045 per gallon for each gallon of jet aviation
fuel delivered by Avfuel to Aero under the fuel supply agreement during the
preceding month. Each of the monthly payments shall be funded by means of
a financing rebate issued by Avfuel at the rate of $0.045 per gallon of jet
aviation fuel delivered to Aero during the previous month. At the end of
each 12 month period, Aero must make an annual payment equal to the amount,
if any, by which the aggregate of the monthly payments of the preceding 12
months was less than $180. The note carries an interest rate of prime plus
1.75% and has a maturity date of September 15, 2006.

In January 1999 the Company, in conjunction with R. Ted Brant, Jr. formed a
limited liability company named RTB/AS, L.L.C. The purpose of this company
is to invest in the auto racing industry. The Company's initial investment
was $832, and could eventually be $12 million.

On March 11, 1999 the Company sold its FBO at Chicago's Midway Airport to
Atlantic Aviation Flight Support, Inc. for $17,750 plus the assumption of
certain debt of approximately $1,013. The sale will generate a gain of about
$17,100. From the proceeds of the sale, three escrow funds were established.
One is for $3,511 to pay the industrial revenue bond, including interest, on
or about April 15, 1999. Another $3,020 is for payment of real estate taxes
in arrears. The Company has disputed this amount and has legal
representation negotiating a settlement with Cook County and the State of
Illinois. Resolution of this matter is expected within six months. A third
escrow of $390 is being held for possible EPA compliance when the underground
fuel storage tanks are removed. This event is expected to occur within 18
to 24 months.

Following is a pro-forma statement of operations for the year ended September
30, 1998 giving effect to the sale of the Chicago facility as if it had
occurred on October 1, 1997. The pro-forma statement of operations is
presented for informational purposes only and does not purport to be
indicative of the results of operations that would actually have been
obtained if the transaction had occurred in the period indicated below.

Aero Services International, Inc.
Consolidated Statement of Operations
(Dollar amounts in thousands, except share and per share amounts)

For the year ended September 30, 1998
Pro Forma Pro Forma
Reported Unaudited Unaudited
NET SALES $11,254 ($9,459) $1,795

COST AND EXPENSES
Cost of sales 4,606 (3,768) 838
Departmental costs 5,627 (4,040) 1,587
Administrative costs 1,394 (368) 1,026
Interest expense - affiliate 1,534 1,534
Interest expense - other 191 (177) 14
13,352 (8,353) 4,999

(2,098) (1,106) (3,204)
Other income, net 93 93

LOSS BEFORE TAXES (2,005) (1,106) (3,111)
Deferred tax benefit 5,000 5,000

NET INCOME (LOSS) 2,995 (1,106) 1,889

Preferred dividends (258) (258)
Accretion of preferred stock (33) (33)

Net income (loss) applicable
to common stockholders $ 2,704 ($1,106) $1,598

Net income per share - basic $ 0.39 $ 0.23

INDEX OF EXHIBITS

The following is a list of exhibits filed as part of this Annual Report on
Form 10-K. Where so indicated by footnote, exhibits which were previously
filed are incorporated by reference.

Seq. Page No.

(3.1) Amended and Restated Articles of Incorporation (1) *
(3.2) By-laws (1) *
(3.3) First Amendment to the Amended and Restated *
Articles of Incorporation. (2)

(3.4) Second Amendment to the Amended and Restated *
Articles of Incorporation. (9)

(3.5) Third Amendment to the Amended and Restated *
Articles of Incorporation. (5)

(3.6) Fourth Amendment to the Amended and Restated *
Articles of Incorporation. (9)

(4.1) Preferred Stock Purchase Agreement dated *
August 27, 1989, between Registrant and
Signal Hill. (5)

(4.2) Warrant Agreement dated August 31, 1987, between *
Registrant and Signal Hill. (5)

(4.3) Shareholders Agreement by, among and between *
Triton Energy Corporation, Pacific Basis Company,
Dibo Attar, Signal Hill, N. V., Robert L. Starer
and the Company dated December 27,1988. (21)

(4.4) Stand-Still Agreement by and among Triton *
Energy Corporation, Trenk Development Corporation, Dibo
Attar, Robert L. Starer and the Company dated
December 16, 1988. (10)

(4.5) Mutual Release and Settlement Agreement between *
Triton Energy Corporation, Pacific Basin, G. Thomas
Graves, Dibo Attar, Robert L. Starer, William R.
Dimeling, John E. Ardell, III, James N.C. Moffat, III
dated December 9, 1988. (10)

(10.1) Hangar, Hangar Site and Commercial Aviation Sales and *
Support Services Agreement at Chicago Midway Airport
between the City of Chicago and CSX Beckett Aviation,
Inc., dated February 15, 1984. (3)

(10.2) Sublease by and between the Company and Beckett *
for the Chicago FBO location. (4)

(10.3) Sublease by and between the Company and Beckett *
for the Chicago FBO location. (4)

(10.4) Loan Agreement between the Company and Whitney *
National Bank, dated September 14, 1986. (6)

(10.5) Security Agreement between the Company and *
Whitney National Bank, dated September 18,
1986. (6)

(10.6) Asset Purchase Agreement between the Company, *
National Weather Corporation, and Universal
Weather and Aviation, Inc. dated July 15,
1986. (6)

(10.7) Agency Operating Agreement between the Company *
and The Airmen, Inc., dated April 9, 1986
(Downtown Airport, Kansas City, MO). (6)

(10.8) First Amendment to Agency Operating Agreement *
between the Airmen, Inc., and the Company,
dated July 8,1986. (6)

(10.9) Option Agreement between Arthur D. Stevens and *
the Company, dated April 9, 1986. (6)

(10.10) Asset Purchase Agreement between KFO Associates *
and the Company dated September 22, 1987. (11)

(10.11) Lease between Robert L. Starer and Merle A. *
Starer and the Company dated May 1, 1988. (11)

(10.12) Asset Purchase Agreement between PHH Aviation *
Services, Inc., and the Company dated June 1,
1988. (8)

(10.13) Beckett Stock Agreement between PHH Group, Inc. *
and the Company dated June 1, 1988. (8)

(10.14) Pledge and Security Agreement between PHH Group *
Inc., and the Company dated June 1, 1988. (8)

(10.15) Agreement for the Purchase and Sale of Assets *
between Van Dusen Airport Services Company,
Limited Partnership and the Company dated
April 18, 1988. (8)

(10.16) Agency Operating Agreement between Van Dusen Airport *
Services Company, Limited Partnership and the Company
dated April 18, 1988. (8)

(10.17) Escrow Agreement between Van Dusen Airport Services *
Company, Limited Partnership and the Company dated
April 22, 1988. (8)

(10.18) Asset Purchase and Sale Agreement between Page Avjet *
Corporation and the Company dated April 22, 1987. (7)

(10.19) Termination Agreement between Airmen, Inc. and the *
Company dated July 10, 1989. (12)

(10.20) Agreement of Employment between Larry A. Ulrich and *
the Company dated August 10, 1989. (12)

(10.21) Lease between Robert L. Starer and Merle A. Starer *
and the Company dated November 1, 1989. (12)

(10.22) Promissory Note from Robert L. Starer to the Company *
and dated January 4, 1989. (12)

(10.23) Promissory Note from Larry A. Ulrich to the Company *
dated October 26,1989. (12)

(10.24) Amended and Restated Loan Agreement between the *
Company and Whitney National Bank of New Orleans dated
December 19, 1989. (12)

(10.25) Fee Agreement between the Company and Triton Energy *
Corporation dated December 19, 1989. (12)

(10.26) Replacement Letter of Credit in favor of Sovran Bank *
N.A., as trustee and for the account of Beckett
Aviation, Inc. dated May 31, 1990. (13)

(10.27) Letter Agreement between Denver Jetcenter, Inc. and *
the Company, dated May 6, 1990. (13)

(10.28) Letter Agreement between Owners Jet of Texas, Inc. *
and the Company dated June 6, 1990. (13)

(10.29) Settlement Agreement and General Release between *
Mach I Aviation, Ltd., and the Company, dated
June 29, 1990. (13)

(10.30) Agreement for the Purchase and Sale of Assets between *
Pan Am Management System, Inc. and the Company
dated July 12, 1990. (13)

(10.31) Letter Agreement between Angel Air, Inc. and the *
Company, dated August 10, 1990. (13)

(10.32) Assignment of Lease to Springfield Air Center by *
the Company, dated November 30, 1990. (13)

(10.33) Employment Agreement between John Pugh and the *
Company, dated November 21, 1990. (13)

(10.34) Schedule of Borrowings from Triton Energy *
Corporation evidenced by a Series of
Promissory Notes. (13)

(10.35) Replacement Letter of Credit in favor of Sovran *
Bank N.A., as trustee and for the account of
Beckett Aviation, Inc., dated September 15, 1991. (14)

(10.36) Agreement for the Purchase and Sale of Assets *
between Beaufort Aviation, Inc. and the Company,
dated March 18, 1991. (14)

(10.37) Agreement for the Purchase and Sale of Interest in *
Joint Venture between Aviation Providers
International, inc. and the Company, dated March 8,
1991. (14)

(10.38) Agreement for the Purchase and Sale of Assets *
between Flightcraft, Inc. and the Company, dated
May 17, 1991. (14)

(10.39) Lease Agreement between Triton Fuel Group, Inc. and *
the Company dated February 8, 1991. (14)

(10.40) Settlement Agreement and General Release between *
Grant Thornton and the Company, dated September 13,
1991. (14)

(10.41) Amendment to Employment Agreement between Larry A. *
Ulrich and the Company, dated January 14, 1992. (15)

(10.42) Schedule of Borrowings from Triton Energy Corporation *
evidenced by a Series of Promissory Notes. (15)

(10.43) Agreement for the Purchase and Sale of Westchester *
dated September 15, 1993. (20)

(10.44) Agreement for the Purchase and Sale of Raleigh-Durham *
dated July 31, 1993. (20)

(10.45) Agreement for the Purchase and Sale of Morristown *
dated September 15, 1993. (20)

(10.46) Agreement for the Purchase and Sale of Cleveland *
dated August 20, 1993. (20)

(10.47) Schedule of Borrowings from Triton Energy Corporation *
evidenced by a Series of Promissory Notes. (20)

(10.48) Amendment to Employment Agreement between Larry A. *
Ulrich and the Company, dated April 8, 1993. (20)

(10.49) Agreement for the Purchase and Sale of Denver dated *
May 5, 1993. (21)

(10.50) Agreement for the Purchase and Sale of Raleigh-Durham *
Avionics Division dated November 12, 1993. (21)

(10.51) Consulting Agreement between Larry A. Ulrich and *
Aero Services International, Inc. dated April 1, 1994. (21)

(10.52) Revolving Credit Loan Agreement between Aero Services *
International, Inc. and Transtech Holding Co., Inc.
dated May 13, 1994. (21)

(10.53) Revolving Promissory Note in the amount of $300,000.00 *
to Aero Services International, Inc. from Transtech
Holding Co., Inc. dated May 13, 1994. (21)

(10.54) Agreement for the Purchase and Sale of Scottsdale dated *
July 19, 1994. (21)

(10.55) Schedule of Borrowings from Avfuel Corporation *
evidenced by Promissory Notes dated
September 15, 1994. (21)

(10.56) Agreement for the Purchase and Sale of Richmond *
dated September 27, 1994. (21)

(10.57) Settlement Agreement between Aero Services International, *
Inc., Transtech Holding Company, Inc., Avfuel Corporation
and Exxon Company, U.S.A. dated September 1994. (21)

(10.58) Aviation Dealer Products Sales Agreement between Exxon *
Company, U.S.A. and Aero Services - Houston dated
September 12, 1994. (21)

(10.59) Aviation Dealer Products Sales Agreement between Exxon *
Company, U.S.A. and Aero Services - Chicago dated
May 20, 1994. (21)

(10.60) Aviation Dealer Products Sales Agreement between Exxon *
Company, U.S.A. and Aero Services - Youngstown dated
May 20, 1994. (21)

(10.61) Agreement for the Purchase and Sale of Tri-City dated *
September 15, 1994. (22)

(10.62) Revolving Promissory Note between Mountain State Flight *
Services and Aero Services International, Inc. dated
December 23, 1994. (22)

(10.63) Asset purchase agreement between Aero Services *
International, Inc. (Seller) and Winner Aviation Corporation
(Purchaser) dated February 7, 1995. (23)

(10.64) Stock Purchase Agreement between Aero Services *
International, Inc. and Mountain State Flight Services,
Ltd. dated March 31, 1995. (23)

(10.65) Transfer Agreement between Aero Services International, *
Inc. and TigerAir, Inc. dated November 8, 1995.

(10.66) Non-Recourse Assignment and Assumption Agreement *
between Aero Services International, Inc. and TigerAir,
Inc. dated November 8, 1995.

(10.67) Promissory Note from TigerAir, Inc. to the Company dated *
November 8, 1995.

(10.68) Line of Credit Note from TigerAir, Inc. to the Company *
dated November 8, 1995.

(10.69) Security Agreement between Aero Services International, Inc.*
and TigerAir, Inc. dated November 8, 1995.

(10.70) Operating Agreement of Peakwood, L.L.C. between Aero *
Services International, Inc. and Peakwood Capital
Corporation dated January 11, 1996.

(10.71) Asset Purchase Agreement between Aero Services *
International, Inc. and Jason IV Aviation, Inc. dated May
10, 1996.

(10.72) Promissory Note from Jason IV Aviation, Inc. to the *
Company dated April 1, 1996.

(10.73) Promissory Note from Jason IV Aviation, Inc. to the Company *
dated April 1, 1996.

(10.74) Security Agreement between Aero Services International, *
Inc. and Jason IV Aviation, Inc. dated May 10, 1996.

(10.75) Guaranty and Suretyship Agreement between Orlando E. *
Panfile and Aero Services International, Inc. dated May
10, 1996.

(10.76) Pledge Agreement between Orlando E. Panfile and Aero *
Services International Inc. dated May 10, 1996.

(10.77) Bill of Sale, Assignment and Assumption Agreement *
between Aero Services International, Inc. and Jason IV
Aviation, Inc. dated May 7, 1996.

(10.78) Lease Agreement between the City of Morgantown and *
Mountain State Flight Services dated September 1, 1996.

(28.1) Triton Energy Corporation's Form 10-K for Year Ended *
May 31, 1991; Form 10-Q for the Quarter Ended August
31, 1991; and Prospectus for Common Offering, dated
October 9, 1991. (14)

(28.2) Triton Energy Corporation's Form 10-K for Year Ended *
May 31, 1992; Form 10-Q for Quarter Ended August 31,
1992. (15)

(28.2) Triton Energy Corporation's Form 10-Q for Quarter Ended *
November 30, 1991. (16)

(28.3) Triton Energy Corporation's Form 10-Q for Quarter Ended *
February 29, 1992. (17)

(28.4) NOT USED *

(28.5) Triton Energy Corporation's Form 10-Q for Quarter Ended *
November 30, 1992. (18)

(28.6) Triton Energy Corporation's Form 10-Q for Quarter Ended *
February 28, 1993. (19)

* THESE ARE DOCUMENTS INCORPORATED BY REFERENCE.

1. Incorporated herein by reference from the Company's Registration
Statement No. 20070425-A on Form S-18 filed December 19, 1980.

2. Incorporated herein by reference from the Company's Registration
Statement No. 33-7152 on Form S-2 filed August 22, 1986.

3. Incorporated by reference from the Company's Annual Report on
Form 10-K dated December 27, 1985, File No. 0-10094.

4. Incorporated by reference from the Company's Current Report on
Form 8-K dated February 14,1986, File No. 0-10094.

5. Incorporated by reference from the Company's Current Report on
Form 8-K dated September 18, 1987, File No. 0-10094-0.

6. Incorporated by reference from the Company's Annual Report on
Form 10-K dated December 23,1986, File No. 0-10094-0.

7. Incorporated by reference from the Company's Current Report Form
8-K dated May 27,1987, File No. 0-10094-0.

8. Incorporated by reference from the Company's Current Report Form
8-K dated June 3, 1988, File No. 0-10094-0.

9. Incorporated by reference from the Company's Current Report on
Form 8-K dated July 21, 1988, File No. 0-10094-0.

10. Incorporated by reference from the Company's Current Report on
Form 8-K dated December 27,1988, File No. 0-10094-0.

11. Incorporated by reference from the Company's Annual Report on
Form 10-K dated December 29, 1988, File No. 0-10094-0.

12. Incorporated by reference from the Company's Annual Report on
Form 10-K dated December 29, 1989, File No. 1-10190.

13. Incorporated by reference from the Company's Annual Report on
Form 10-K dated December 29, 1990, File No. 1-10190.

14. Incorporated by reference from the Company's Annual Report on
Form 10-K dated December 18, 1991, File No. 1-10190.

15. Incorporated by reference from the Company's Annual Report on
Form 10-K dated January 11, 1993, File No. 1-10190.

16. Incorporated by reference from the Company's Current Report on
Form 10-Q dated February 5, 1992, File No. 1-10190.

17. Incorporated by reference from the Company's Current Report on
Form 10-Q dated May 14, 1992, File No. 1-10190.

18. Incorporated by reference from the Company's Current Report on
Form 10-Q dated February 5, 1993, File No. 1-10190.

19. Incorporated by reference from the Company's Current Report on
Form 10-Q dated May 13, 1993, File No. 1-10190.

20. Incorporated by reference from the Company's Annual Report on
Form 10-K dated January 12, 1994, File No. 1-10190.

21. Incorporated by reference from the Company's Annual Report on
Form 10-K dated December 28, 1994, File No. 1-10190.

22. Incorporated by reference from the Company's Current Report on
Form 10-Q dated February 3, 1995, File No. 1-10190.

23. Incorporated by reference from the Company's Annual Report on
Form 10-KSB dated February 29, 1996, File No. 1-10190.

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