AVIATION GROUP INC, 424B1, 1997-08-14

AVIATION GROUP INC
424B1, 1997-08-14
AIR TRANSPORTATION, SCHEDULED

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<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
File Number 333-22727

PROSPECTUS SUPPLEMENT
(To Prospectus dated August 13, 1997)

AVIATION GROUP, INC.

1,334,463 SHARES OF COMMON STOCK

This Prospectus Supplement relates to the offer and sale by certain
selling securityholders ("Selling Shareholders") named herein under "Selling
Shareholders" of up to (i) 575,250 shares of common stock, $.01 par value per
share ("Common Stock") of Aviation Group, Inc. (the "Company"), (ii) a maximum
of 279,000 shares of Common Stock that may be issued upon exercise of
outstanding warrants, (iii) a maximum of 283,100 shares of Common Stock that
may be issued upon conversion or exchange of outstanding convertible or
exchangeable notes, (iv) a maximum of 43,478 shares of Common Stock that may be
issued upon repayment of outstanding notes, and (v) a maximum of 153,635 shares
of Common Stock that may be issued upon consummation of the Company's
acquisition of Casper Air Service (the "Casper Acquisition").

The Company will receive no part of the proceeds of any sales by the
Selling Shareholders. All expenses of registration incurred in connection with
this offering are being borne by the Company, but all selling and other
expenses incurred by Selling Shareholders will be borne by the Selling
Shareholders. None of the shares of Common Stock have been registered prior to
the filing of the Registration Statement of which this Prospectus is a part.
The outstanding shares of Common Stock were originally issued by the Company in
private transactions. See "Selling Shareholders."

The Selling Shareholders may from time to time sell all or a portion of
their shares of Common Stock in the over-the-counter market or on any national
securities exchange or automated interdealer quotation system on which the
Common Stock may hereafter be listed or traded, in negotiated transactions or
otherwise, at prices then prevailing or related to the then current market
price or at negotiated prices. The shares of Common Stock may be sold directly
or through brokers or dealers or in a distribution by one or more underwriters
on a firm commitment or best efforts basis. One Selling Shareholder, the
Casper Air Service Employee Stock Ownership Plan and Trust (the "ESOP"), may
distribute its shares of Common Stock to its participants. See "Plan of
Distribution." Each Selling Shareholder and any agent or broker-dealer
participating in the distribution of the Securities may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). Any commissions received by and any profit on the resale of
the shares of Common Stock may be deemed to be underwriting commissions or
discounts under the Securities Act.

Brokers or dealers effecting transactions in the shares of Common Stock
on behalf of the Selling Shareholders should confirm the registration thereof
under the securities laws of the states in which such transactions occur or the
existence of an exemption from registration.

The Common Stock has been approved for filing on the Boston Stock
Exchange and for quotation on the Nasdaq SmallCap Market System ("NASDAQ").

SEE "RISK FACTORS" ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS. _______________

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

The date of this Prospectus Supplement is August 13, 1997.
<PAGE> 2
USE OF PROCEEDS

The Company will not receive any of the proceeds from sales of any of
the shares of Common Stock by the Selling Shareholders.

SELLING SHAREHOLDERS

This Prospectus Supplement relates to the offer and sale from time to
time (i) by stockholders of the Company of up to 575,250 outstanding shares of
Common Stock, (ii) by the holders of outstanding warrants of a maximum of
279,000 shares of Common Stock that may be issued upon the exercise of the
warrants owned by them, (iii) by the holders of outstanding convertible or
exchangeable notes of a maximum of 283,100 shares of Common Stock that may be
issued upon conversion or exchange of the notes owned by them, (iv) by the
holders of the Company's 10% Bridge Notes of a maximum of 43,478 shares of
Common Stock that may be issued to them upon the repayment of the Bridge Notes,
and (v) by the owners of Casper Air Service, a Wyoming corporation ("CAS"), of
a maximum of 153,635 shares of Common Stock that may be issued to them upon the
consummation of the Casper Acquisition.

TRANSFER RESTRICTIONS

Company officers beneficially owning a total of 1,044,250 shares of
Common Stock, have signed lock-up agreements under which such holders have
agreed not to offer, sell, or otherwise dispose of their shares of Common
Stock that might otherwise be eligible for sale for a period of at least 24
months after the date of this Prospectus without the prior written consent of
the Underwriter.

Nonmanagement holders of 531,000 outstanding shares of Common Stock
and outstanding warrants exercisable for 279,000 shares of Common Stock have
agreed with the Underwriter to lock-up for a period of 12 months the shares of
Common Stock that they own or may acquire after the date of this Prospectus.
Additionally, if the Underwriter consents to an early release of such shares in
an aggregate quantity equal to at least 50% of such holders' shares, then the
lock up period on such remaining shares held by these holders shall
automatically extend to two years from the date of this Prospectus.

Holders of certain promissory notes totaling $1,260,000 as of March 31,
1997, that are convertible or exchangeable for up to 283,100 shares of Common
Stock have agreed to lock up their shares for two years from the date of this
Prospectus, provided however that such holders may sell shares earlier in
an amount sufficient to offset required Company principal payments, beginning
March 1998. In addition, the approximate 153,635 shares of Common Stock to be
issued to the former stockholders of CAS in the CAS acquisition have been
registered for resale and will not be restricted.

The terms of the Bridge Notes provide that the approximate 43,478
shares of Common Stock to be issued upon full payment of the Bridge Notes may
not be sold by the holder for one year after the closing of the Offering. The
Underwriter may not release or waive the prohibition on sale for the shares
issuable upon payment of the Bridge Notes.

Upon the expiration of all lock-up agreements, these shares will
become eligible for sale in the public market assuming the shares continue to
be registered for sale by the selling securityholders or, if not registered,
subject to the provisions of Rule 144.

The recipients of shares of Common Stock in the Casper Acquisition
will not be required to execute any lock-up agreement. The Underwriter has
no current plans or understandings to waive, shorten or modify the foregoing
lock-up arrangements. The Company will (i) amend this Prospectus Supplement if
these arrangements are waived for 10% or more of the shares of the Selling
Shareholders, and (ii) sticker this Prospectus Supplement if these arrangements
are waived for between 5% and 10% of the shares of the Selling Shareholders.

IDENTITY AND OWNERSHIP OF SELLING SHAREHOLDERS

The following table provides certain information with respect to the
Selling Shareholders, and the number of shares of Common Stock owned, offered
and to be owned after the offering by each Selling Stockholder, subject to
certain transfer restrictions. See "--Transfer Restrictions."

<TABLE>
<CAPTION>
MAXIMUM NUMBER OF SHARES OF COMMON
SHARES OF COMMON STOCK SHARES OF COMMON STOCK STOCK TO BE OWNED
SELLING SHAREHOLDERS OWNED BEFORE OFFERING(1) TO BE SOLD IN THE OFFERING AFTER THE OFFERING(10)
- -------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
Paul Lubomirski 44,250(2) 44,250 0

James J. McNamara and
Margarita McNamara 10,000 10,000 0

Anthony DeCaprio 5,000 5,000 0

American & International
Investment, Ltd. 35,000 35,000 0

Charles R. Kemp 20,000 20,000 0

Kelly Kemp 15,000 15,000 0

George L. Riggs IRA 10,000 10,000 0
</TABLE>

-2-
<PAGE> 3
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF SHARES OF COMMON
SHARES OF COMMON STOCK SHARES OF COMMON STOCK STOCK TO BE OWNED
SELLING SHAREHOLDERS OWNED BEFORE OFFERING(1) TO BE SOLD IN THE OFFERING AFTER THE OFFERING(10)
- -------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
John L. Caldwell 20,000 20,000 0

Andrew J. Corbett 5,000 5,000 0

Conrad H. C. Everhard 5,000 5,000 0

Edward Gray 5,000 5,000 0

Alfons Murk 40,000 40,000 0

Eugene L. Crance 10,000 10,000 0

Jarred W. Stiemke 10,000 10,000 0

Jackson Chang 10,000 10,000 0

Chung-Ming Lin and
Li-Shiang Lin 10,000 10,000 0
Gerald D. Wollert
Revocable Living Trust dated 4/4/90 10,000 10,000 0

Patricia Ewing Hendrick 15,571 15,571 0

Gregory A. Despot 8,730 8,730 0

Charles E. Weed 44,455(3) 44,455 0

Judy L. Chidlow 6,661 6,661 0

John L. Chidlow 5,995 5,995 0

Jesswalt, Inc. 3,330 3,330 0

Frank Scott Moran 2,664 2,664 0

Anne S. Couch 2,664 2,664 0

3650 Investment Corporation, L.C. 1,332 1,332 0

May H. Chidlow 699 699 0

Richard L. Morgan 100,000(4) 100,000 0

Steven A. Soares 5,000 5,000 0

Mark Osgood 20,000 20,000 0

James P. Leaderer 50,000 50,000 0

Theodore C. Aalbersberg 10,000 10,000 0

Bertram S. Mullan 10,000 10,000 0

Thomas and Mary Ruthven 5,000 5,000 0

Robert Pierot 10,000 10,000 0
</TABLE>

-3-
<PAGE> 4
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF SHARES OF COMMON
SHARES OF COMMON STOCK SHARES OF COMMON STOCK STOCK TO BE OWNED
SELLING SHAREHOLDERS OWNED BEFORE OFFERING(1) TO BE SOLD IN THE OFFERING AFTER THE OFFERING(10)
- -------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
Abraham Garfinkel 5,000 5,000 0

Delaware Charter Guarantee &
Trust Company TTEE FBO:
Chester S. Kucinski IRA 30,000 30,000 0

Michael Abdenour 10,000 10,000 0

Grigori Tsoukanov 5,000 5,000 0

Douglas F. Johnston 30,000 30,000 0

Michael and Gail Goldey 5,000 5,000 0

George L. Riggs, III 5,000 5,000 0

Delaware Charter Guarantee &
Trust Company TTEE FBO:
Douglas F. Johnston IRA 10,000 10,000 0

Carl Eric Mayer 5,000 5,000 0

Raymond J. Wiacek 10,000 10,000 0

John B. Mauro 5,000 5,000 0

Paine Webber Incorporated, solely
as custodian of William E. Cassidy IRA 5,000 5,000 0

Paine Webber Incorporated, solely
as custodian of Reata L. Cassidy IRA 5,000 5,000 0

Eugene L. Crance 5,000 5,000 0

Paul Taboada 24,750(5) 24,750 0

Steven Taub 10,000(5) 10,000 0

Kurt Gray 4,000(5) 4,000 0

Thomas K. Lin 2,000(5) 2,000 0

Eric Rainer Bashford Charitable Remainder
Unitrust dated August 3, 1996
(EIN 13-7096965) 42,490(5) 42,490 0

Robert A. Schneider 43,245(5) 43,245 0

Lois Schulman 33,240(5) 33,240 0

Shai Sasson 10,000(5) 10,000 0

Sid Borenstein 27,275(5) 27,275 0

Martha Plaza 2,000(5) 2,000 0

Patricia Ewing Hendrick 21,625(6) 21,625 0
</TABLE>

-4-
<PAGE> 5
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF SHARES OF COMMON
SHARES OF COMMON STOCK SHARES OF COMMON STOCK STOCK TO BE OWNED
SELLING SHAREHOLDERS OWNED BEFORE OFFERING(1) TO BE SOLD IN THE OFFERING AFTER THE OFFERING(10)
- -------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
Gregory A. Despot 67,681(6) 67,681 0

Judy L. Chidlow 9,251(6) 9,251 0

John H. Chidlow 36,103(6) 36,103 0

Jesswalt, Inc. 4,625(6) 4,625 0

Frank Scott Moran 3,700(6) 3,700 0

Anne S. Couch 3,700(6) 3,700 0

3650 Investment Corporation, L.C. 1,850(6) 1,850 0

May H. Chidlow 971(6) 971 0

Judd H. Chidlow 13,888(6) 13,888 0

Louisiana Economic Development Corp. 83,658(7) 83,658 0

Betsy B. Rouse 2,174(8) 2,174 0

Patrick H. & Lee M. Miller 4,346(8) 4,346 0

Edward J. Anderson 2,174(8) 2,174 0

J. Robert Wyatt 4,346(8) 4,346 0

Priscilla Goodwyn 2,174(8) 2,174 0

Sagax Fund II, Ltd. 8,698(8) 8,698 0

John H. & Maria Sultenfuss 2,174(8) 2,174 0

John S. Lemak 2,174(8) 2,174 0

Dorothy D. & Rush B. Winchester 2,174(8) 2,174 0

Robert C. Kohler, III 2,174(8) 2,174 0

Gary L. Covelli 2,174(8) 2,174 0

Isabel Maxwell 2,174(8) 2,174 0

Digital Data Networks, Inc. 2,174(8) 2,174 0

J. R. Sheldon & Co., Inc. 2,174(8) 2,174 0

Anthony DeCaprio 2,174(8) 2,174 0

Fred Werner 113,333(9) 113,333 0

Casper Air Service Employee Stock
Ownership Plan and Trust 40,302(9) 40,302 0
</TABLE>

- ---------------------
(1) Includes shares that may be purchased under outstanding warrants or
convertible or exchangeable notes.

(2) Paul Lubomirski serves as President of the Company's subsidiary, Pride
Aviation, Inc.

-5-
<PAGE> 6
(3) Charles Weed has served as a consultant to the Company since March 1996
and receives a consulting fee of $4,100 per month through February
1998. Mr. Weed is also a director of the Company. His shares include
(i) 9,000 shares purchasable, at $3.00 per share, pursuant to a
Convertible Note (as defined below) and (ii) 27,101 shares purchasable,
at $4.50 per share, pursuant to two Convertible Notes.

(4) Includes 80,000 shares purchasable, at $2.50 per share, upon the
exercise of the Morgan Warrants (as defined below). Mr. Morgan serves
as a director and consultant to the Company and receives a consulting
fee of $4,000 per month.

(5) Represents shares purchasable, at $1.00 per share, pursuant to the
Placement Warrants (as defined below).

(6) Represents shares purchasable, at $4.50 per share, pursuant to the
Convertible Notes.

(7) Represents shares purchasable, at $4.50 per share, pursuant to the
Exchangeable Note (as defined below).

(8) Represents shares issuable to the former holders of the Bridge Notes
(as defined below) upon payoff of the Bridge Notes, based on an initial
public offering price for the Company's Common Stock of $5.75 per
share.

(9) Represents shares issuable to the owners of CAS upon consummation of
the Casper Acquisition, based on an initial public offering price for
the Company's Common Stock of $5.75 per share.

(10) Assumes all shares are sold by each Selling Shareholder. The
referenced offering is not the underwritten public offering covered by
the accompanying Prospectus.

DESCRIPTION OF TRANSACTIONS

Outstanding Common Stock. As of the date of this Prospectus
Supplement, the Company had issued and outstanding 1,600,250 shares of Common
Stock. In connection with the Company's organization, on December 20, 1995,
the Company issued 1,000,000 shares of Common Stock to The Sanders Companies,
Inc. in exchange for the transfer to the Company of all of the outstanding
capital stock of TriStar Airline Services, Inc. and TriStar Aircraft Services,
Inc.

In a Regulation D offering completed in June 1996, the Company sold
500,000 shares of Common Stock, at $3.00 per share, to a total of 41
accredited and non-accredited investors.

In connection with the Company's acquisition of Pride Aviation Group,
Inc. ("Pride") on March 1, 1996, the Company issued 100,250 shares of Common
Stock to certain of the former beneficial owners of Pride, including Paul
Lubomirski, who remained an executive officer of Pride and is considered one of
the key employees of the Company, and Charles Weed, who became a director of
and consultant to the Company.

Convertible Notes. In connection with its acquisition of Pride, the
Company issued $857,000 in aggregate principal amount of its five-year, 10%
Convertible Notes ("Convertible Notes") to certain of the former beneficial
owners of Pride, including Charles Weed. The Convertible Notes require the
Company to pay quarterly payments of interest at a rate of ten percent (10%)
per annum. Commencing April 1, 1998, the Convertible Notes also require equal
quarterly installments of principal in an amount necessary to fully amortize
the notes by March 1, 2001, when all remaining principal and accrued interest
will be due. Each of the Convertible Notes is convertible at the option of the
holder into shares of Common Stock at a price of $4.50 per share. In addition,
the Company issued to Charles Weed, in consideration for cancellation of
accrued, unpaid consulting fees owed by Pride, a Convertible Note in the amount
of $27,000 that is convertible at $3.00 per share. The conversion rates are
subject to adjustment in the event of any stock dividend, split, combination or
reclassification of the outstanding Common Stock of the Company. The
Convertible Notes require the Company to treat all holders of the Convertible
Notes as pari passu members of the same class. Each of the Convertible Notes
(other than the $27,000 note held by Mr. Weed) is secured by a pledge of the
pro rata portion of outstanding stock of Pride that was owned directly or
beneficially by the holder of the Convertible Note immediately prior to the
Company's acquisition of Pride. Approximately 90% of the outstanding stock in
Pride is pledged by the Company to secure the Convertible Notes, subject to the
Company's prior pledge of approximately 50% of the Pride stock to secure the
Exchangeable Note. If the Company fails to make a required payment of
principal and interest after notice of default, the holder of the Convertible
Note may exercise any of its remedies with respect to the pledged stock. As of
the date of this Prospectus Supplement, none of the Convertible Notes have been
converted.

Exchangeable Note. At the time of its acquisition by the Company,
Pride owed certain debt to the Louisiana Economic Development Corporation (the
"LEDC"). To obtain the LEDC's consent to the Company's acquisition of Pride,
the Company granted to the LEDC the right to exchange the debt owed by Pride to
the LEDC. Pride issued a new promissory note (the "Exchangeable Note") in the
original principal amount of $408,000 that is exchangeable by the LEDC for
newly issued shares of the Company's Common Stock at a rate of $4.50 per share.
The Company also pledged

-6-
<PAGE> 7
approximately 50% of the outstanding stock in Pride to secure the debt. As of
April 1, 1997, the Exchangeable Note had a principal balance of approximately
$376,000 and was exchangeable for 83,600 shares of Common Stock. The
Exchangeable Note requires the payment by Pride of equal monthly installments
of principal and interest of $3,800, and one final installment of all remaining
principal and interest on March 1, 2001. The LEDC has not exercised its exchange
right as of the date of this Prospectus Supplement.

Placement Warrants. On March 1, 1996 and June 24, 1996, the Company
issued warrants to purchase an aggregate of 200,000 shares of Common Stock (the
"Placement Warrants") to RAS Securities Corp. ("RAS") upon the closings of the
private placement of 500,000 shares of Common Stock by the Company. RAS has
subsequently transferred these Placement Warrants to certain of its employees.
Each Placement Warrant entitles the holder to purchase one share of Common
Stock at a price of $1.00 per share, exercisable on or before February 28,
1999. As of the date of this Prospectus Supplement, none of the holders of the
Placement Warrants has exercised his or her Placement Warrants. The Placement
Warrants contain provisions that protect the holders against dilution by
adjustment of the exercise price and the number of shares of Common Stock
subject to the Placement Warrants in certain events, such as stock dividends
and distributions, stock splits, recapitalizations, mergers, or consolidations.
Holders of Placement Warrants do not possess any rights as stockholders of the
Company prior to exercise. Holders of Placement Warrants have been granted
certain registration rights.

Morgan Warrant. Effective June 30, 1996, the Company and Richard L.
Morgan, then a consultant to the Company, entered into a Warrant Agreement (the
"Morgan Warrant") pursuant to which Mr. Morgan has the right to purchase 80,000
shares of Common Stock at a price of $2.50 per share. The Warrant Agreement
expires February 28, 1999. Mr. Morgan has not exercised any of his rights
under the Morgan Warrant as of the date of this Prospectus Supplement. Mr.
Morgan was appointed a director of the Company in February 1997. The Morgan
Warrant contains provisions that protect Mr. Morgan against dilution by
adjustment of the exercise price and the number of shares of Common Stock
subject to the Morgan Warrant in certain events, such as stock dividends and
distributions, stock splits, recapitalizations, mergers or consolidations. The
Morgan Warrant does not grant any stockholder rights to the holder thereof
prior to exercise. The Morgan Warrant grants to Mr. Morgan certain
registration rights.

Bridge Notes Shares. In February 1997, the Company completed a
private offering of $500,000 in aggregate principal amount of its 10% Bridge
Notes (the "Bridge Notes"). The Bridge Notes are due in full on June 30, 1998
or within five days following the funding of the initial public offering by the
Company of its Common Stock. If the Company successfully completes an initial
public offering of its Common Stock by September 30, 1997, the terms of the
Bridge Notes require the Company to issue, as additional compensation to the
holders of the Bridge Notes, that number of shares of Common Stock which equals
$250,000 divided by the initial public offering price per share for the Common
Stock, at the time of repayment in full of the Bridge Notes. At an initial
public offering price of $5.75 per share, the holders of the Bridge Notes will
be issued an aggregate of 43,478 shares of Common Stock.

Casper Acquisition. On April 18, 1997, the Company entered into an
agreement to purchase all of the outstanding stock of CAS, which is held by
four shareholders. One of the shareholders is the Casper Air Service Employee
Stock Ownership Plan and Trust (the "ESOP"). The closing of this transaction
is expected to occur concurrently with the closing of the initial public
offering. The Company has agreed to pay or issue to CAS's shareholders
approximately $1,167,000 in cash and approximately $883,000 in value of Common
Stock, based on the initial public offering price. The ESOP and CAS's
controlling shareholder, Fred Werner, will receive their portions of the
purchase price 56% in cash and 44% in Common Stock. The other two shareholders
will receive only cash.

SALES BY AFFILIATES

Certain of the shares of Common Stock to be sold by the Selling
Shareholders are owned, or may be acquired, by executive officers or directors
of the Company. Paul Lubomirski, President of the Company's largest
subsidiary, Pride Aviation, Inc., owns 44,250 shares, or 3.4% of the shares
covered by this Prospectus Supplement. Charles Weed, a director of the
Company, owns or may acquire up to 44,455 shares, or 3.4% of the shares covered
by this Prospectus Supplement. Richard Morgan, a director of the Company, owns
or may acquire up to 100,000 shares, or 7.7% of the shares covered by this
Prospectus Supplement.

PLAN OF DISTRIBUTION

The Selling Shareholders may from time to time sell all or a portion
of their shares of Common Stock in the over-the-counter market or on any
national securities exchange or automated interdealer quotation system on which
the Common Stock may hereafter be listed or traded, in negotiated transactions
or otherwise, at prices then prevailing or related to the then current market
price or at negotiated prices. The shares of Common Stock may be sold directly
or through brokers or dealers or in a distribution by one or more underwriters
on a firm commitment or best efforts basis. The methods by which the shares of
Common Stock may be sold include (i) a block trade (which may involve crosses)
in which the broker or dealer engaged will attempt to sell the shares of Common
Stock as agent but may position and resell a portion of the block as principal
to facilitate the transaction, (ii) purchases by a broker or dealer as
principal and resales by such broker or dealer for its account pursuant to this
Prospectus Supplement and the accompanying Prospectus, (iii) ordinary brokerage

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<PAGE> 8
transactions and transactions in which the broker solicits purchasers or to or
through marketmakers, (iv) transactions in put or call options or other rights
(whether exchange-listed or otherwise) established after the effectiveness of
the Registration Statement of which this Prospectus is a part and (v) privately
negotiated transactions. In addition, any of the shares of Common Stock that
qualify for sale pursuant to Rule 144 under the Securities Act may be sold in
transactions complying with such Rule, rather than pursuant to this Prospectus
Supplement and the accompanying Prospectus. The ESOP may distribute its shares
to the ESOP's participants, based on the number of shares previously allocated
under the terms of the ESOP to the respective accounts of the participants.

In the case of sales of the shares of Common Stock effected to or
through broker-dealers, such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Shareholders or
the purchasers of the shares of Common Stock sold by or through such broker-
dealers, or both. The Company has advised the Selling Shareholders that the
anti-manipulative Regulation M under the Exchange Act may apply to their sales
in the market and has informed them of the need for delivery of copies of this
Prospectus Supplement and the accompanying Prospectus. The Company is not
aware as of the date of this Prospectus Supplement of any agreements between
any of the Selling Shareholders and any broker-dealers with respect to the sale
of the shares of Common Stock. The Selling Shareholders and any broker-dealers
or agents participating in the distribution of the Securities may be deemed to
be "underwriters" within the meaning of the Securities Act and any commissions
received by any such broker-dealers or agents and profit on any resale of
shares of Common Stock may be deemed to be underwriting commissions under the
Securities Act. The commissions received by a broker-dealer or agent may be in
excess of customary compensation. The Company will receive no part of the
proceeds from the sale of any of the shares of Common Stock by the Selling
Shareholders.

The Company will pay all costs and expenses incurred in connection
with the registration under the Securities Act of the shares of Common Stock
offered by the Selling Shareholders, including without limitation all
registration and filing fees, listing fees, printing expenses, fees and
disbursements of counsel and accountants for the Company. Each Selling
Shareholder will pay all brokerage fees and commissions, if any, incurred in
connection with the sale of the shares of Common Stock owned by the Selling
Shareholder. In addition, the Company has agreed to indemnify the Selling
Shareholders, other than the Trust, against certain liabilities, including
liabilities under the Securities Act.

There is no assurance that any of the Selling Shareholders will sell
any or all of the shares of Common Stock offered by them.

LEGAL OPINIONS

The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Bracewell & Patterson, L.L.P., Dallas, Texas.

-8-
<PAGE> 9

AVIATION GROUP, INC.
1,000,000 SHARES OF COMMON STOCK

AND

1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS

Aviation Group, Inc. (the "Company") is hereby offering 1,000,000
shares of its common stock, par value $0.01 per share (the "Common Stock") and
redeemable warrants to purchase an additional 1,000,000 shares of Common Stock
(the "Warrants"). The Common Stock and the Warrants (collectively, the
"Securities") are being offered separately and not as units, and each are
separately transferable. The initial public offering prices are $5.75 per share
of Common Stock and $0.10 per Warrant. Each Warrant is exercisable anytime after
two years from the date of this Prospectus and entitles the registered holder to
purchase one share of Common Stock at an exercise price equal to 120% of the
initial public offering price and expires five years following the date of this
Prospectus. The outstanding Warrants may be redeemed by the Company after two
years from the date of this Prospectus, with the prior consent of the
Underwriter, upon 30 days' written notice at $0.10 per Warrant, provided that
the closing bid quotations or sales prices of the Common Stock have averaged at
least 165% of the initial public offering price for a period of any 20
consecutive trading days ending on the tenth day prior to the day on which the
Company gives notice. See "Description of Securities."

Prior to this offering (the "Offering"), there has not been any public
market for the Securities, and there can be no assurance that any such market
will develop or, if developed, that it will be sustained. The initial public
offering prices of the Securities have been determined by negotiations between
the Company and Duke & Co., Inc., as the underwriter (the "Underwriter"). See
"Underwriting." The Common Stock and Warrants have been approved for listing on
the Boston Stock Exchange (the "BSE") and for quotation on the Nasdaq Stock
Market's SmallCap Market ("Nasdaq"). The Securities have not been listed for
trading as units.

THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AS
WELL AS IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION,"
COMMENCING ON PAGES 6 AND 15, RESPECTIVELY.

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

<TABLE>
<CAPTION>
==========================================================================================================================
Price to Underwriting Discounts Proceeds to
Public and Commissions (1) Company (2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . . . . . . . $ 5.75 $ 0.575 $ 5,175,000
- --------------------------------------------------------------------------------------------------------------------------
Per Warrant . . . . . . . . . . . . . . . . $ 0.10 $ 0.01 $ 90,000
- --------------------------------------------------------------------------------------------------------------------------
Total(3) . . . . . . . . . . . . . . . . . . $ 5.85 $ 0.585 $ 5,265,000
==========================================================================================================================
</TABLE>

(1) Excludes a non-accountable expense allowance to the Underwriter
equal to 3% of the offering proceeds, including proceeds from
over-allotments, and 100,000 warrants (the "Underwriter's
Warrants") to purchase up to 100,000 shares of Common Stock and
100,000 Warrants (the "Underlying Warrants"). The Underlying Warrants
will be identical to the Warrants offered to the public except that
the exercise price of the Underlying Warrants will be 165% of the
exercise price of the Warrants. The Company has agreed to indemnify
the Underwriter against certain liabilities, including liabilities
under the Securities Act of 1933 as amended, (the "Securities Act").
See "Underwriting."

(2) Before deducting expenses of this offering payable by the Company
estimated at $472,000 including a non-accountable expense allowance of
$176,000.

(3) The Company has granted to the Underwriter the right to purchase,
within 45 days from the date of this Prospectus, up to 150,000
additional shares of Common Stock and 150,000 additional Warrants on
the terms set forth above solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public will be
$6,727,500, the total Underwriting Discounts and Commissions will be
$672,750, the total Proceeds to Company, before the expenses of
this offering, will be $6,054,750. See "Underwriting."

The Common Stock and Warrants are being sold by the Underwriter
subject to prior sale, when, as and if delivered to and accepted by the
Underwriter, and subject to the right to reject any order, in whole or in
part, and subject to certain other conditions. It is expected that delivery of
the Common Stock and Warrants will be made against payment therefor at the
offices of Duke & Co., Inc., New York, New York, on or about August 19, 1997.

DUKE & CO., INC.

The date of this Prospectus is August 13, 1997.
<PAGE> 10
[Inside Front Cover]

AVIATION GROUP, INC.

Paint & Overhaul Services

[Color picture of two men in
protective clothing spray
painting underside of jet
aircraft wing] Professional aircraft painting
services performed by trained
personnel.

[Color picture of two Pride Aviation
plane hangars and two United Airlines
jet aircraft, one newly painted and
one surrounded by scaffolding with
old paint scheme, on ramp in front of
hangars]

The Company's FAA-certified
aircraft paint facility in
New Iberia, Louisiana [Color picture inside hanger
showing United Airlines jet
aircraft in process of being
painted]

The Company performs aircraft paint
services under a long-term contract
with United Airlines.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OR THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.

<PAGE> 11
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more
detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Except as otherwise indicated, the information
contained in this Prospectus does not assume the exercise of the Warrants, the
Underwriter's over-allotment option, the Underwriter's Warrants or currently
outstanding options or warrants. This Prospectus assumes an initial price to
public of $8.00 per share. In addition to the other information in this
Prospectus, prospective investors should carefully consider the information set
forth under the heading "Risk Factors."

THE COMPANY

Aviation Group, Inc., a Texas corporation (the "Company"), is a
provider of services and products to airline companies and other aviation
firms. Although its primary market is the United States, the Company ultimately
aspires to compete in the global marketplace. In addition to growth of its
existing businesses, the Company seeks to grow via the acquisition of other
aviation service businesses that complement and strengthen the Company's
existing operations.

The Company was organized to consolidate the ownership of Tri-Star
Aircraft Services, Inc. ("TriStar Paint"), Tri-Star Airline Services, Inc.
("Airline Services") and Pride Aviation, Inc. ("Pride"). On December 20, 1995,
the Company acquired all the outstanding shares in TriStar Paint and Airline
Services in exchange for the issuance of 1,000,000 shares of Common Stock. On
March 1, 1996, in connection with the Company's acquisition of Pride, the
Company paid $486,000 cash and issued 10%, five-year Convertible Notes in the
aggregate principal amount of $857,000, and 100,250 shares of Common Stock.

The Company is currently organized into three divisions devoted to
Aviation Group's primary lines of business. These business segments are as
follows:

o Painting & Paint Stripping Services: The Overhaul & Service Division,
through TriStar Paint and Pride, provides painting and paint stripping
services for commercial and freight aircraft at their facilities
located in Dallas, Texas and New Iberia, Louisiana. Pride's primary
customer is United Airlines, Inc. TriStar Paint provides paint
services on a plane-by-plane bid basis to a variety of customers.

o Ground Handling & Services: Through Airline Services, the Ground
Handling & Services Division provides aircraft ground handling and
light catering services to a variety of passenger and freight airlines
at various airports, including DFW International, Los Angeles
International and San Francisco International, for customers such as
United Parcel Service, Southwest Airlines, United Airlines, Federal
Express and Northwest Airlines, among others.

o FBO Operations & Airport Management: In July 1996, the Company began
to operate its FBO Division. The Company's first fixed base operation,
located at Redbird Airport in Dallas, Texas provides fuel and light
maintenance services to general aviation, corporate and light freight
aircraft customers. There are presently over 1,700 operators of fixed
base operating stations ("FBO's") serving the United States. The
Company believes that acquiring or otherwise operating such businesses
in smaller, second-tier airports located near major urban areas across
the United States provides a significant opportunity.

The Company believes that airlines will increase the outsourcing of
their maintenance and service requirements to third party vendors in the
future. According to U.S. Department of Transportation statistics, the nine
major U.S. airlines expended 20% of their maintenance budgets with outsourcing
vendors in 1994. There are over 10,000 aviation maintenance and service vendors
worldwide. The Company believes that the aviation service industry is highly
fragmented. It also believes that its existing operations, enhanced by
additional growth and acquisitions of complementary businesses, will enable it
to provide quality customer service with financial, insurance, and other
operating economies-of-scale that major customers increasingly require. The
Company does not presently intend to operate as a commercial airline or as a
provider of commercial jet engine or airframe overhaul services.

The principal executive offices of the Company are located at 700
North Pearl Street, Suite 2170, Dallas, Texas 75201, telephone number (214)
922-8100.

3
<PAGE> 12
THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered . . . . . 1,000,000 shares

Warrants Offered . . . . . . . 1,000,000 Warrants

Common Stock Outstanding:
Before Offering (1) . . . . 1,600,250 shares

After Offering (1) . . . . 2,600,250 shares

Warrants Offered . . . . . . . 1,000,000 Warrants

Exercise Terms . . . . . . . Each Warrant entitles the holder to purchase,
anytime after two years from the date of this
Prospectus, one share of Common Stock for
120% of the initial public offering price.

Expiration Date . . . . . . Five years from the date of this Prospectus.

Redemption . . . . . . . . . Subject to redemption after two years from
the date of this Prospectus, with the prior
consent of the Underwriter at a price of
$0.10 per Warrant upon 30 days written
notice, provided that the average closing
bid quotations or sales prices of the Common
Stock equal or exceed 165% of the initial
public offering price for 20 consecutive
trading days ending on the tenth day prior
to the date on which the Company gives
notice of redemption. See "Description of
Securities - Warrants."

Estimated Net Proceeds (2) . . $4,793,000

Use of Proceeds . . . . . . . . Repayment of indebtedness, the cash portion
of the CAS acquisition, capital expenditures
for existing operations, acquisition of other
aviation service companies, facilities
improvements, working capital and other
corporate purposes.
Risk Factors . . . . . . . . . The Securities involve a high degree of risk
and immediate substantial dilution. See "Risk
Factors" and "Dilution."

Nasdaq Symbols:
Common Stock . . . . . . . . AVGP
Warrants . . . . . . . . . . AVGPW

Boston Stock
Exchange Symbols:
Common Stock . . . . . . . . AVGP
Warrants . . . . . . . . . . AVGPW
</TABLE>

- --------------
(1) Excludes approximately 197,113 shares to be issued upon payoff of the
Bridge Notes and consummation of the CAS acquisition, 150,000 shares
of Common Stock reserved for the Company's 1997 Stock Option Plan and
shares of Common Stock issuable upon the exercise of (i) the Warrants
offered hereby; (ii) the Underwriter's Warrants and the Underlying
Warrants; (iii) outstanding warrants to purchase up to 280,000 shares
of Common Stock; (iv) the Underwriter's over-allotment option; and (v)
outstanding promissory notes totaling $1,260,000, as of March 31,
1997, that are convertible or exchangeable for up to 283,100 shares of
Common Stock.

(2) After deducting underwriting discounts and other expenses of this
Offering, including the Underwriter's non-accountable expense
allowance, but excluding any exercise of the Underwriter's
over-allotment option.

4
<PAGE> 13
SUMMARY FINANCIAL INFORMATION

The summary financial information set forth below is derived from (i)
the combining financial statements of TriStar Paint and Airline Services for
the fiscal years ended September 30, 1994 and 1995 and the notes thereto and
(ii) the consolidated financial statements for the Company as of and for the
nine months ended June 30, 1996, and the notes thereto, and the nine months
ended March 31, 1997 and 1996, contained elsewhere in the Prospectus. This
information should be read in conjunction with the "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The pro forma
financial information included herein is presented for informational purposes
only and may not reflect the Company's future results of operations and
financial position or what the results of operations and financial position of
the Company would have been had the Pride and CAS acquisitions actually
occurred as of October 1, 1995.

<TABLE>
<CAPTION>
Actual Nine Pro Forma Pro Forma
Year Ended Year Ended Months Ended Nine Months Nine Months Nine Months Ended
September 30 September 30, June 30, Ended June 30 Ended March 31, March 31,
1994(1) 1995(1) 1996 1996(2) 1997(2) 1997 1996
----------- ------------ ------------ ------------- --------------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:

Revenue . . . . . . . . . . . . $1,770,000 $2,533,000 $3,881,000 $11,290,000 $12,224,000 $6,664,000 $2,123,000

Gross profit . . . . . . . . . 678,000 1,116,000 1,043,000 2,289,000 2,055,000 1,369,000 565,000
General and administrative
and depreciation and
amortization expenses . . . . 466,000 569,000 906,000 1,824,000 2,035,000 1,713,000 526,000
---------- ---------- ---------- ----------- ----------- ---------- ----------

Income (loss) from
operations . . . . . . . . . . 212,000 547,000 137,000 465,000 20,000 (344,000) 39,000
Interest expense and other,
net . . . . . . . . . . . . . 13,000 17,000 69,000 249,000 186,000 153,000 29,000
---------- ---------- ---------- ----------- ----------- ---------- ----------
Income (loss) before income
taxes . . . . . . . . . . . . 199,000 530,000 68,000 216,000 (166,000) (497,000) 10,000
Provision (benefit) for
income taxes . . . . . . . . . 61,000 188,000 34,000 84,000 (35,000) (164,000) 6,000
---------- ---------- ---------- ----------- ----------- ---------- -------
Net income (loss) . . . . . . . $ 138,000 $ 342,000 $ 34,000 $ 132,000 $ (131,000) $ (333,000) $ 4,000
========== ========== ========== =========== =========== ========== ==========

Pro forma net income (loss)
per common and common
equivalent share
(unaudited) (3) . . . . . . . $ 0.02 $ 0.08 $ (0.08) $ $(0.22) $ --
========= =========== =========== ========== ==========
Pro forma weighted average
common and common
equivalent shares
outstanding
(unaudited) (3) . . . . . . . $1,497,511 $1,651,146 $1,651,146 $1,497,511 $1,497,511
========== ========== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
March 31, 1997
------------------------------
June 30, Pro Forma
1996 Actual As Adjusted(4)
--------- ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
BALANCE SHEET DATA:

Working capital (deficit) . . . . . . . . . . . $ (126,000) $ (729,000) $ 4,128,000
Total assets . . . . . . . . . . . . . . . . . 4,524,000 4,919,000 12,521,000
Long-term debt, net of current portion . . . . 1,350,000 1,303,000 2,286,000
Total liabilities . . . . . . . . . . . . . . . 3,069,000 3,547,000 5,949,000
Shareholders' equity . . . . . . . . . . . . . $1,455,000 $1,372,000 $ 6,572,000
</TABLE>
- ----------------------------
(1) Represents combined statements of operations for the Company's
predecessors, TriStar Paint and Airline Services.

Represents the historical statement of operations for the nine month
periods ended June 30, 1996 and March 31, 1997, as adjusted on a pro
forma basis to give effect to the acquisitions of Pride and CAS as if
they had occurred at the beginning of those respective fiscal periods.
With respect to the CAS acquisition, the earnings per share
computation assumes 153,635 shares (i.e., at an initial public offering
price of $5.75) are issued. See "Unaudited Pro Forma Combined
Financial Information."

(3) See Note B "Summary of Significant Accounting Policies--Unaudited Pro
Forma Net Income (Loss) Per Common Share" in the Notes to Consolidated
Financial Statements for the Company for the period ended June 30,
1996.

(4) Adjusted to give effect to the CAS acquisition and the sale by the
Company of the 1,000,000 shares of Common Stock and the 1,000,000
Warrants offered hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."

5
<PAGE> 14
RISK FACTORS

In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors in evaluating
the Company and its business before purchasing the Securities offered hereby.

DEPENDENCE ON ONE CUSTOMER

Pride's contract with United Airlines, Inc. ("United") to provide
aircraft stripping and painting services accounted for approximately 77% of the
Company's revenues for the nine months ended March 31, 1997. On a pro forma
basis including CAS, the contract with United would have accounted for 42% of
the Company's revenues for the nine months ended March 31, 1997. The contract
with United expires in 1999, but is cancelable prior to that date by United
upon 90 days prior written notice. The Company is negotiating with United to
extend the contract for an additional five years, but there can be no assurance
that such extension can be obtained on reasonable terms. During the high travel
seasons of the summer months and the Thanksgiving and Christmas holiday
seasons, United curtails its aircraft deliveries to Pride. Although Pride
reduces its overhead to some extent during these periods, it experiences losses
during these periods. If United expands these curtailments, the Company's
results of operations may be materially adversely affected. Although Pride is
attempting to locate additional customers for these slack periods, there can be
no assurance that Pride will be able to obtain these customers. While the
Company's business strategy calls for it to broaden its customer base so that
it can become less dependent on United, any termination of the contract or
material curtailment of plane deliveries by United, including reductions as a
result of economic or competitive pressures on United, would adversely affect
the Company's business, financial conditions and results of operation. There
can be no assurance that United will continue to use Pride's stripping and
painting services.

GENERAL CUSTOMER RISKS RELATED TO THE AIRLINE INDUSTRY

The airline industry is significantly affected by general economic
conditions. Because a substantial portion of business and personal airline
travel is discretionary, the industry tends to experience adverse financial
results during general economic downturns. Economic and competitive conditions
since deregulation of the airline industry in 1978 have contributed to a number
of bankruptcies and liquidations among airlines. A worsening of current
economic conditions, or an extended period of recession nationally or
regionally, could have a material adverse effect on the Company's operations.
The Company will not have any control over these general economic conditions.

SEASONALITY

The Company's painting business is seasonal, which can adversely
affect the Company's results of operations from quarter to quarter. Typically,
customers will have fewer aircraft painted during the summer months and the
holiday season from approximately November 15 through January 1 of each year.

RISK OF FUTURE LOSSES FROM OPERATIONS

TriStar Paint and Airline Services, the Company's predecessors,
together earned net income of $138,000 and $342,000 for the fiscal years ended
September 30, 1994 and 1995, respectively. Pride experienced a net loss of
$81,000 in its fiscal year ended September 30, 1995. Although the Company
earned net income of $34,000 for the nine months ended June 30, 1996, the
Company experienced a net loss of $333,000 for the nine months ended March 31,
1997. This loss was primarily due to increases in goodwill and amortization
from the Pride acquisition, start up costs in the Company's FBO division, and
increased corporate overhead incurred to support anticipated future growth. As
of March 31, 1997, the Company had a negative working capital of $729,000 and
an accumulated earnings deficit of $595,000. There can be no assurance that the
Company will be profitable or that the Company's businesses will be successful
in the future.

NO ASSURANCE OF SUCCESSFUL ACQUISITIONS; UNSPECIFIED ACQUISITIONS

The Company intends to consider acquisitions of other companies that
could complement the Company's existing business, including acquisitions of
complementary service and product lines. The Company intends to employ up to
$1,143,000, or 24%, of the estimated net proceeds of this Offering for
acquisitions that have not yet been identified. There can be no assurance that
suitable acquisition candidates can be identified, or that, if identified,
adequate and acceptable financing sources will be available to the Company that
would enable it to consummate these transactions. The Company is currently
evaluating a number of acquisition opportunities. Other than the agreement to
acquire CAS, no commitments

6
<PAGE> 15
or binding agreements have been entered into to date and accordingly no
assurance can be given that any of the acquisitions currently being considered
will be consummated. There can be no assurance that the Company will be able to
integrate successfully any acquired companies or service or product lines into
its existing operations, which could increase the Company's operating expenses
in the short-term and materially and adversely affect the Company's results of
operations. Moreover, any acquisition by the Company may result in potentially
dilutive issuances of equity securities, the incurrence of additional debt, and
amortization of expenses related to goodwill and intangible assets, all of
which could adversely affect the Company's profitability. Acquisitions involve
numerous risks, such as the diversion of the attention of the Company's
management from other business concerns, the entrance of the Company into
markets in which it has had no or only limited experience, and the potential
loss of key employees of the acquired company, all of which could have a
material adverse effect on the Company's business, financial condition, and
results of operations. See "Business--Acquisitions of Complimentary
Businesses."

RISKS OF CAS'S BUSINESS

CAS's business exposes it to possible claims for personal injury,
death or property damage which may result from the failure or malfunction of
propellers, avionics systems, accessories and engines serviced by CAS, aircraft
chartered by CAS or aircraft parts sold by CAS. CAS currently has in force
aviation products, premises and hangarkeepers insurance which the Company
believes provides coverage in amounts and on terms that are generally
consistent with industry practice. During the last five years, CAS has not
experienced any material product liability claims related to its products.

Between December 1992 and June 1997, CAS experienced four crashes of
its charter aircraft, two of which involved fatalities. In three of the
crashes, the National Transportation Safety Board, in its inspections, found no
fault with CAS. The Board has made no finding yet with respect to the last
crash, which occurred in June 1997 and involved no fatalities. The Company
believes that CAS is adequately insured with respect to any losses and
liabilities arising from these crashes. The Company has determined that it will
discontinue CAS's charter operations after the acquisition of CAS, and redirect
the net proceeds from the sale of the charter aircraft to other operations of
CAS and the Company. Nevertheless, in the future, CAS may be subject to
material loss to the extent that a claim is made against CAS which is not
covered in whole or in part by insurance and for which any third party
indemnification is not possible. In addition, there can be no assurance that
insurance coverages will be maintained in the future at an acceptable cost.

CAS's inventory consists principally of new and remanufactured
aircraft parts held for sale to domestic and international customers. Before
any part may be installed in an aircraft, the part must meet certain standards
of condition established by the FAA or the equivalent regulatory agencies in
other countries. Parts must also be traceable to sources deemed acceptable by
such agencies. While the Company believes that all such regulations have been
met in the past, parts owned or acquired by CAS may not meet standards as they
change in the future, causing parts in CAS's inventory to be scrapped or
modified. Aircraft manufacturers may also develop new parts to be used in lieu
of parts already contained in CAS's inventory. As a consequence of these
factors, parts in CAS's inventory may fall in value.

DEPENDENCE ON ABILITY TO MANAGE GROWTH

The Company's ability to produce and market its services competitively
to the airline industry depends on its ability to implement and continually
expand its operational and financial systems, recruit sufficient qualified
employees and train, manage and motivate both current and new employees.
Failure to effectively manage the growth of the Company would have a material
adverse effect on the business of the Company.

ADDITIONAL FINANCINGS OR OFFERINGS

There can be no assurance that the proceeds from this offering and
cash flow from operations will be sufficient to enable the Company to implement
fully its business strategies. As a result, the Company may need to raise
additional funds through equity or debt financings. No assurance can be given
that such additional financings will be available on terms acceptable to the
Company, if at all. Further, any such financings may result in further dilution
to the Company's stock and higher interest expense and may not be on terms that
are favorable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

7
<PAGE> 16
DEPENDENCE ON KEY PERSONNEL

The Company's future success depends, in large part, on the efforts
and abilities of its management team, including Lee Sanders, Paul Lubomirski
and Tony Ramsaroop. The loss of the services of any of these managers could
have a material adverse affect on the business of the Company. The Company has
employment agreements with Messrs. Sanders, Lubomirski and Ramsaroop. Mr.
Sanders is currently the beneficial owner of 62.5% of the Company's outstanding
Common Stock and will beneficially own 38.5% of the Company's outstanding
Common Stock immediately following the Offering. See "Principal Shareholders."
The successful implementation of the Company's business strategies depends on
the hiring and retention of additional management and other personnel. There
can be no assurance that the Company will be able to identify and attract
additional qualified management and other personnel when needed or that the
Company will be successful in retaining such additional management and
personnel if added. Moreover, there can be no assurance that the additional
costs associated with the hiring of additional personnel will not adversely
affect the Company's results of operations. See "Management." The Company is
the beneficiary of a $1,000,000 key man life insurance policy on Messrs.
Sanders, Lubomirski and Ramsaroop.

EMPLOYEE COSTS

Although the Company believes that it will operate with lower
personnel costs than many established airline service providers, principally
due to lower base salaries and greater flexibility in the utilization of
personnel, there can be no assurance that the Company will continue to realize
these advantages for any extended period of time. None of the Company's
employees are represented by a labor union. If unionization of the Company's
employees occurs, the Company's costs could materially increase.

CONTROL BY EXISTING SHAREHOLDERS AND CERTAIN TRANSACTIONS

Upon the completion of this offering, the directors, officers, and
principal shareholders of the Company will beneficially own approximately 44.0%
of the Company's outstanding Common Stock. As a result, these persons will have
a significant influence on the affairs and management of the Company, as well
as on all matters requiring shareholder approval, including electing and
removing members of the Company's Board of Directors, causing the Company to
engage in transactions with affiliated entities, causing or restricting the
sale or merger of the Company, and changing the Company's dividend policy. Such
concentration of ownership and control could have the effect of delaying,
deferring, or preventing a change in control of the Company, even when such a
change of control would be in the best interest of the Company's other
shareholders. See "Management," "Principal Shareholders" and "Description of
Securities."

The Company currently has an employment agreement with Lee Sanders,
the Company's President and Chief Executive Officer, and consulting
arrangements with two of its directors, Richard Morgan and Charles Weed, . See
"Management-- Employment and Consulting Agreements." These arrangements with
the directors were entered into through arms-length negotiations prior to their
appointment as directors. The employment agreement with Mr. Sanders was not
negotiated on an arms-length basis but was entered into by the Company when he
was the sole beneficial owner of the Company. The Company believes that the
terms of each of the foregoing agreements are no less favorable to the Company
than those available from unaffiliated third parties. Although any future
amendments to these employment or consulting arrangements may involve conflicts
of interest, the Company intends to minimize them through requiring the
approval of the disinterested directors for any amendment. See
"Management--Executive Officers and Directors."

FUTURE PARTNERSHIP OR JOINT VENTURE LIABILITIES

In the future, the Company or a subsidiary may form partnerships or
joint ventures as a financing vehicle or to develop and/or manage new business
opportunities, including the raising of funds for such businesses. As a general
partner or joint venturer, the Company may be exposed to liability with respect
to claims asserted against such partnerships or ventures against which
liability the partnership or venture may have insufficient assets or insurance.
This liability could have a materially adverse effect on the Company.

COMPETITION

The airline services industry is highly competitive. Each of the
Company's subsidiaries is in direct competition with other companies. Although
TriStar Paint also serves as a subcontractor to several heavy maintenance
facilities for aircraft, most of these heavy maintenance facilities perform
aircraft stripping and painting services as an adjunct to their maintenance

<PAGE> 17
operations and, consequently, directly compete with the Company. In ground
handling and light catering services, the Company has numerous competitors. At
each major airport at which Airline Services provides such services, there are
numerous other companies providing similar services to other airlines and
competing directly with the Company. Because many of the Company's competitors
have greater resources than the Company, no guarantee or assurance can be given
that the Company will be able to compete successfully in providing its services
at a competitive but profitable price. See "Business--Competition."

ENVIRONMENTAL REGULATION; HAZARDOUS MATERIALS

The Company's operations are subject to a substantial amount of
government regulation. In particular, the Environmental Protection Agency
("EPA") and state and local regulatory authorities regulate, among other
things, emissions to air, discharges to water and the generation, use, storage,
transportation, treatment and disposal of the substances employed by the
Company in its aircraft stripping and painting operations. The Company's
facilities may require operating permits that are subject to revocation,
modification and renewal, violations of which may provide for substantial fines
and civil or criminal sanctions. The operation of any facility that handles
chemical substances entails risk of adverse environmental impact, including
exposure to such substances, and there can be no assurance that material costs
or liabilities will not be incurred to rectify any such damage. In addition,
potentially significant expenditures could be required in order to comply with
environmental, health and safety laws and regulations that may be adopted or
imposed in the future. See "Business--Regulation."

FAA REGULATIONS

The Federal Aviation Administration (the "FAA") regulates most of the
Company's business operations. The Company's stripping and painting business is
dependent upon continued compliance with the requirements of the FAA and
maintenance of the FAA's certifications of the Company's subsidiaries. These
certifications allow the Company's subsidiaries to perform their aircraft
stripping and painting services as well as other repair and maintenance
services at their facilities. CAS's operation, including charter aircraft,
parts sales and repair and maintenance operations, are subject to regulation by
the FAA and requires FAA's certificates. Loss of any necessary FAA
certifications could have a material adverse effect on the Company's operations
and financial condition. See "Business--Regulation."

ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop
after completion of this offering or, if developed, that it will be sustained.
There can be no assurance that the market price of the Common Stock will not
decline below the initial offering price. The securities of many emerging
companies have experienced significant price and volume fluctuations that are,
at times, unrelated or disproportionate to the operating performance of such
companies. Such fluctuations may be the result of changes in conditions
affecting the economy in general, analysts' reports, general trends in the
industry, and other events or factors beyond the company's control. These
conditions may have a material adverse effect on the market price of the Common
Stock.

ARBITRARY OFFERING PRICE

The public offering price of the Common Stock and Warrants has been
determined by negotiation between the Company and the Underwriter. Among the
factors considered in such negotiations were prevailing market conditions, the
history and prospects of the Company, the present state of the Company's
development, the industry in which it competes, an assessment of the Company's
management, the market price for securities of comparable companies at the time
of the offering, and other factors deemed relevant. See "Underwriting."

UNDERWRITER'S LIMITED UNDERWRITING EXPERIENCE; PENDING INVESTIGATION

While certain of the officers of the Underwriter have significant
experience in corporate financing and the underwriting of securities, the
Underwriter has previously underwritten only four public offerings. Accordingly,
there can be no assurance that the Underwriter's limited public offering
experience will not affect the Company's offering of the Common Stock and
Warrants and subsequent development of a trading market, if any, in such
securities. In addition, the Underwriter is aware that the Commission is
investigating certain of the Underwriter's trading practices and mark-ups in
connection with the securities of an issuer whose 1995 public offering was
underwritten by the Underwriter. There can be no assurance that this
investigation will not adversely and materially affect this Offering or
subsequent trading in the Common Stock and/or Warrants of the Company. See
"Underwriting."

EFFECT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK

The Company's Articles of Incorporation authorize the Board of
Directors of the Company to issue "blank check" Preferred Stock, the relative
rights, powers, preferences, limitations, and restrictions of which may be
fixed or altered from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without shareholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting, or other rights
that could adversely affect the voting power and other rights of the holders of
Common Stock. The Preferred Stock could be utilized, under certain
circumstances,

9
<PAGE> 18
as a method of discouraging, delaying, or preventing a change in control of the
Company that shareholders might consider to be in the Company's best interests.
Although the Company has no present intention of issuing any shares of
Preferred Stock, there can be no assurance that the Company will not do so in
the future. See "Description of Capital Stock-- Preferred Stock."

NO DIVIDENDS

Since its capitalization, the Company has paid no dividends on its
Common Stock. The Company does not presently intend to pay any dividends on its
Common Stock. Dividend payments in the future may only be made out of legally
available funds, and, if the Company experiences substantial losses, such funds
may not be available. See "Dividend Policy."

EFFECT OF UNDERWRITER'S WARRANTS

The Company has agreed to sell for nominal consideration to the
Underwriter or its designee warrants (the "Underwriter's Warrants") to
purchase (i) 10% of the number of shares of Common Stock sold in this offering
and (ii) warrants to purchase 10% of the number of shares of Common Stock sold
in this offering (the "Underlying Warrants"). The terms and conditions of the
Underlying Warrants are identical to those of the Warrants offered hereby,
except that the exercise price of the Underlying Warrants is 165% of the
exercise price of the Warrants. The Underwriter's Warrants will be
exercisable for a period of four years commencing one year after the date of
this Prospectus at an exercise price of 165% of the initial public offering
price. The Underwriter and its designees will have the opportunity to profit
from an increase in the price of the Company's Common Stock during the term of
the Underwriter's Warrants and are likely to exercise them at a time when
the Company, in all likelihood, would be able to obtain additional capital by
offering shares of its Common Stock on terms more favorable to the Company than
those provided by the exercise of such warrants. In addition, the existence of
such warrants may adversely affect the terms on which the Company can obtain
additional financing. See "Description of Securities" and "Underwriting."

LISTING AND MAINTENANCE CRITERIA FOR SECURITIES; PENNY STOCK RULES

The Common Stock and Warrants have been approved for listing on the
Boston Stock Exchange (the "BSE") and on the Nasdaq Stock Market's SmallCap
Market ("Nasdaq"). There can be no assurance that the Company in the future
will meet the requirements for continued listing on the Nasdaq or the BSE with
respect to the Common Stock or Warrants. If the Common Stock or the Warrants
fail to maintain such listings, the market value of the Common Stock and
Warrants likely would decline and purchasers in this offering likely would find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Common Stock and Warrants.

In addition, if the Company fails to maintain a Nasdaq listing for its
securities, and no other exclusion from the definition of a "penny stock" under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") is
available, then any broker engaging in a transaction in the Company's
securities would be required to provide any customer with a risk disclosure
document, disclosure of market quotations, if any, disclosure of the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market values of the Company's
securities held in the customer's accounts. The bid and offer quotation and
compensation information must be provided prior to effecting the transaction
and must be contained on the customer's confirmation. If brokers become subject
to the "penny stock" rules when engaging in transactions in the Securities,
they would become less willing to engage in such transactions, thereby making
it more difficult for purchasers in this offering to dispose of the Securities.
See "Financial Statements."

DILUTION

Purchasers of the Securities will suffer immediate and significant
dilution in net tangible value of the Common Stock. Based on the net tangible
book value of the Company's Common Stock at March 31, 1997, purchasers of the
Securities would have suffered, on a pro forma basis, a per share dilution of
68.7% per share. The exercise of outstanding warrants, options and convertible
or exchangeable notes will also have an additional dilutive effect on the
interests of the purchasers of the Securities. See "Dilution."

10
<PAGE> 19
SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock in the public
market following this offering or the prospect of such sales could adversely
affect the market price of the Common Stock. Upon completion of this offering,
the CAS acquisition and the payoff of the Bridge Notes, the Company will have
outstanding approximately 2,797,363 shares of Common Stock. Of these shares,
the 1,000,000 shares of Common Stock being offered hereby are immediately
eligible for sale in the public market without restriction, except for shares
purchased at any time by any "affiliate" of the Company, as such term is
defined in Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). In addition, the approximate 153,635 shares of Common Stock
to be issued to the former stockholders of CAS in the CAS acquisition have been
registered for resale and will not be restricted.

Company officers beneficially owning a total of 1,044,250 shares of
Common Stock have signed lock-up agreements under which such holders have agreed
not to offer, sell, or otherwise dispose of their shares of Common Stock that
might otherwise be eligible for sale for a period of at least 24 months after
the date of this Prospectus without the prior written consent of the
Underwriter.

Nonmanagement holders of 531,000 shares of Common Stock and outstanding
warrants, or options exercisable for 279,000 shares of Common Stock have agreed
with the Underwriter to lock-up for a period of 12 months the shares of Common
Stock that they own or may acquire after the date of this Prospectus.
Additionally, if the Underwriter consents to an early release of such shares in
an aggregate quantity equal to at least 50% of such holders' shares, then the
lock up period on such remaining shares held by these holders shall
automatically extend to two years from the date of this Prospectus.

The terms of the Bridge Notes provide that the approximate 43,478 shares
of Common Stock to be issued upon full payment of the Bridge Notes may not be
sold by the holder for one year after the closing of this Offering. The
Underwriter may not release or waive the prohibition on sale for the shares
issuable upon payment of the Bridge Notes.

Upon the expiration of all lock-up agreements, these shares will become
eligible for sale in the public market assuming the shares continue to be
registered for sale by the selling securityholders or, if not registered,
subject to the provisions of Rule 144.

NECESSITY TO MAINTAIN CURRENT PROSPECTUS

The shares of Common Stock issuable upon exercise of the Warrants and
the securities issuable upon exercise of the Underwriter's Warrants have
been registered with the Commission. The Company will be required, from time to
time, to file post-effective amendments to its registration statement in order
to maintain a current prospectus covering the issuance of such shares upon
exercise of the Warrants. The Company has undertaken to make such filings and
to use its best efforts to cause such post-effective amendments to become
effective. If for any reason a required post-effective amendment is not filed
or does not become effective or is not maintained, the holders of the Warrants
may be prevented from exercising their Warrants. See "Description of
Securities--Warrants."

STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS

Holders of the Warrants have the right to exercise the Warrants only
if the underlying shares of Common Stock are qualified, registered or exempt
from registration under applicable securities laws of the states in which the
various holders of the Warrants reside. The Company cannot issue shares of
Common Stock to holders of the Warrants in states where such shares are not
qualified, registered or exempt. The Company has, however, (i) obtained a
listing for the shares of Common Stock on the Boston Stock Exchange, which
provides an exemption from state securities law registration in many states and
(ii) registered the shares of Common Stock in certain states where
this exemption is not available. See "Description of Securities--Warrants."

CALLABLE WARRANTS AND IMPACT ON INVESTORS

The Warrants are subject to redemption by the Company in certain
circumstances. The Company's exercise of this right would force a holder of the
Warrants to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holder to do so, to sell the Warrants at the
then current market price when the holder might otherwise wish to hold the
Warrants for possible additional appreciation, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants in the event of a call for redemption. Holders who do not exercise
their Warrants prior to redemption by the Company will forfeit their right to
purchase the shares of Common Stock underlying the Warrants. The foregoing
notwithstanding, the Company may not call the Warrants at any time that a
current registration statement under the Securities Act of 1933, as amended, is
not then in effect. Any redemption of the Warrants

11
<PAGE> 20
shall require the written consent of the Underwriter. See "Description of
Securities--Warrants."

BROAD DISCRETION WITH RESPECT TO ALLOCATION OF NET PROCEEDS

The Company expects to use a portion of the net proceeds of the
Offering to make future acquisitions. The Company has not yet identified the
specific uses for such net proceeds and will, therefore, retain broad
discretion as to the allocation of a significant portion of the net proceeds of
the Offering. Pending such uses, the Company intends to invest the net
proceeds in short-term bank deposits or investment-grade securities. See "Use
of Proceeds."

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

This prospectus contains forward-looking statements including
statements regarding, among other items, the Company's business strategies,
continued growth in the Company's markets, and anticipated trends in the
Company's business and the industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. Such forward-looking
statements are based upon the Company's expectations and are subject to a
number of risks and uncertainties, many of which are beyond the Company's
control. Actual results could differ materially from such forward-looking
statements, as a result of the factors described under this "Risk Factors"
section and elsewhere herein, including among others, regulatory or economic
influences. In light of these risks and uncertainties, there can be no
assurance that any forward-looking information contained in this Prospectus
will in fact transpire or prove to be accurate. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this section.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,000,000 shares
of Common Stock and the 1,000,000 Warrants offered hereby are estimated to be
$4,793,000, after deducting underwriting discounts and commissions and
estimated offering expenses. The Company anticipates that the net proceeds of
this offering will be used substantially as follows:

<TABLE>
<CAPTION>
Percent of
Application of Net Proceeds Dollar Amount Net Proceeds
--------------------------- ------------- ------------
<S> <C> <C>
Repay indebtedness (1) $ 750,000 15.6%
Purchase of CAS and related costs (2) 1,400,000 29.2
Future acquisitions (3) 1,143,000 23.8
Enhance existing products and services (4) 500,000 10.5
Improve existing facilities (5) 250,000 5.2
Purchase of capital equipment (6) 250,000 5.2
General corporate purposes 500,000 10.5
---------- -----
Total $4,793,000 100.0%
========== =====
- -----------------------------
</TABLE>

(1) The Company intends to use approximately $500,000 of the net proceeds
to repay certain subordinated promissory notes privately issued by the
Company in February 1997 (the "Bridge Notes") and approximately
$250,000 of the net proceeds to repay certain bank indebtedness. The
Bridge Notes are due in full on June 30, 1998 or earlier in certain
circumstances, including within five days following the closing of
this Offering. Subject to successful completion of this Offering, in
connection with the full payment of the Bridge Notes, the Company has
agreed to issue to the holders of the Bridge Notes that number of
shares of Common Stock equal to the quotient of $250,000 divided by
the initial public offering price. The Company used the proceeds from
the issuance of the Bridge Notes for general corporate purposes and to
fund the costs of this Offering. The bank indebtedness is principally
composed of a revolving line of credit maturing in September 1997
having a principal balance of $248,000 as of March 31, 1997 and
bearing interest at prime plus 2%. This bank debt is secured by the
personal guaranty of Lee Sanders, the Company's Chief Executive
Officer, and a pledge of all of the stock, accounts receivable,
equipment and fixtures of TriStar Paint and Airline Services.

(2) These funds represent the cash portion of the purchase price of CAS,
and approximately $300,000 in legal, accounting, and other purchase
expenses. See "Acquisition of Casper Air Service."

(3) A key element of the Company's strategy involves growth through
acquisitions of other companies, assets or product lines that would
complement or expand the Company's existing business similar to the
CAS acquisition. The Company believes that acquisitions will enable
it to leverage its fixed costs of operations and further expand the
products and services which it can offer to its customers. No
commitments or binding agreements have been entered into as of the
date of this Prospectus and accordingly no assurance can be given that
any of the acquisitions currently being considered will be
consummated.

12
<PAGE> 21

(4) The Company intends to utilize approximately $500,000 of the proceeds
of this offering to fund anticipated internal growth in its
businesses, particularly the Ground Handling & Services Division. Such
funds will facilitate the entry into additional airports, the hiring
and training of additional support and operating personnel, and the
creation and implementation of formal national marketing and customer
service programs.

(5) These funds will be used primarily to improve and update existing
hangar facilities where the Company's Overhaul & Service Division
performs its paint services. Additionally, leasehold improvements
associated with expanded office and managerial space for the Ground
Handling & Services Division will also be funded with these proceeds.

(6) These funds will be utilized to purchase ground handling and other
support equipment for the Ground Handling & Services Division, along
with additional paint, scaffolding, environmental, and other support
equipment for the Overhaul & Services Division. Ongoing improvements
and additions to the Company's computerized accounting and management
systems will also be funded with these proceeds.

Pending the uses described herein, the foregoing represent the
Company's present intentions with respect to the allocation of the proceeds of
this offering based upon its present plans and business conditions. However,
changed business conditions and various other factors could result in the
application of the proceeds of this offering in a manner other than as
described in this Prospectus. In this regard, although the Company is not
currently a party to any binding agreement or commitment with respect to any
prospective acquisition, other than the CAS acquisition, the Company intends to
use portions of the net proceeds to finance acquisitions of complementary
businesses, products or technologies, or other assets, if attractive
opportunities arise. See "Risk Factors." Pending such uses, the Company intends
to invest the net proceeds of the offering in short-term bank deposits or
investment-grade securities.

13
<PAGE> 22
ACQUISITION OF CASPER AIR SERVICE, INC.

Effective April 18, 1997, the Company entered into an agreement to
acquire all of the outstanding stock of Casper Air Service, a Wyoming
corporation ("CAS"). The Company expects to consummate this transaction
concurrently with the closing of this offering. The Company has agreed to pay
or issue to CAS's four shareholders approximately $1,167,000 in cash and
approximately $883,000 in value of Common Stock, based on the initial public
offering price. The recipients of shares of the Common Stock may receive
additional cash consideration to the extent the fair market value of their
shares declines prior to the later of the date their shares are free of transfer
restrictions, one year after the date of this Prospectus or, for one
shareholder that is CAS's` Employee Stock Ownership Plan and Trust (the
"ESOP"), the date the ESOP receives a qualifying letter from the Internal
Revenue Service, if later. In connection with this offering, the Company has
registered these shares for resale by the recipients, and no transfer
restrictions will be imposed through any lock-up agreement with the
Underwriter. The controlling stockholder of CAS, Fred Werner, will agree to
serve as a consultant for 12 months for a fee of $6,000 per month for the first
six months and $4,000 per month for the last six months.

CAS is a full service FBO located at Natrona County International
Airport in Casper, Wyoming and has been in business continuously since 1946.
CAS offers aircraft line services, aircraft repair and maintenance, parts
distribution, aircraft charter flights and aircraft sales. CAS has been a
Cessna dealer since 1969. Far fewer new aircraft are being manufactured in the
1990's than in prior decades. Consequently, new aircraft sales in general and
by CAS have been depressed.

The aircraft line services offered by CAS include aircraft refueling,
de-icing, cleaning and heating, and weather information, refreshments, lounge
areas and ground transportation for pilots and passengers. CAS's FAA certified
service department provides maintenance and overhaul services for (i) both
piston and turbo-charged aircraft engines, including Pratt & Whitney,
Gulfstream Aerospace Commander, Bell Helicopter 206 Series, Garrett AiResearch,
Piper and Cessna engines, (ii) propellers, including those made by McCauley,
Hartzell, Dowdy, Sensanich and Kelvan, (iii) accessories, including aircraft
alternators, starters, turbo controllers, waste gates and magnetos, and (iv)
avionics systems. The engine maintenance operation began in 1965, while the
propeller, accessory and avionics overhaul operations were commenced in 1980,
1988 and 1993, respectively.

The parts department of CAS sells to customers located outside the
United States and outside the Rocky Mountain region as well as in connection
with its service operations. CAS is the fourth largest wholesaler of Cessna
parts in the United States. CAS tracks all orders, parts, inventory and
shipments through its automated inventory management system. Manufacturers of
the parts sold by the Company include Cessna, Gulfstream, Piper and Garrett
AiResearch, and these manufacturers regularly audit CAS's inventory to make
sure it has the parts needed to be designated as a service center for the
manufacturer's products.

CAS has offered charter flights since its inception in 1946. After not
having a fatal air crash between 1952 and 1992, CAS had two fatal crashes, and
two non-fatal crashes, between December 1992 and June 1997 of its chartered
aircraft. The National Transportation Safety Board, in its inspections, found
no fault with CAS. The Company has determined to discontinue the charter
operations of CAS following the acquisition. Charter revenues declined from
$2,696,000 in the fiscal year ended April 30, 1992 to $983,000 for the fiscal
year ended April 30, 1996.

At and for the fiscal year ended April 30, 1996, CAS had total assets
of $4,650,000, total liabilities of $4,092,000, net sales of $6,915,000 and net
loss of $226,000. At and for the nine months ended January 31, 1997, CAS had
total assets of $3,620,000, total liabilities of $2,788,000, net sales of
$6,570,000 and net income of $271,000. See "Unaudited Pro Forma Combined
Financial Information" for the revenue and income impact of the elimination of
CAS's aircraft charter operations for the twelve months and nine months ended
April 30, 1996 and January 31, 1997, respectively.

RECENT EVENTS

The CAS unaudited financial position at fiscal year ended April 30,
1997 and results of operations for the nine months and fiscal year ended
January 31, 1997 and April 30, 1997, respectively, are as follows:

STATEMENT OF OPERATIONS (UNAUDITED):

<TABLE>
<CAPTION> Nine Months Three Months Three Month
Ended Ended Ended
January 31, 1997 April 30, 1997 April 30, 1997
---------------- -------------- --------------
<S> <C> <C> <C>
Net Sales $6,570,000 $2,003,000 $8,573,000
---------- ---------- ----------
Gross profit 941,000 158,000 1,099,000
Operating expenses 580,000 131,000 711,000
---------- ---------- ----------
Operating income 361,000 27,000 388,000
Interest expense and other (net) 90,000 26,000 116,000
---------- ---------- ----------
Income before income taxes 271,000 51,000 272,000
Provision (benefit) for income taxes -- -- --
---------- ---------- ----------
Net income $ 271,000 $ 51,000 $ 272,000
========== ========== ==========

<CAPTION>
April 30, 1997
--------------
BALANCE SHEET DATA (UNAUDITED):
<S> <C>
Working capital $ 178,000
Total assets 3,625,000
Long-term debt, net of current portion 1,132,000
Total liabilities 2,793,000
Shareholders' equity $ 832,000
</TABLE>

14
<PAGE> 23
DILUTION

Dilution is determined by subtracting net tangible book value per
share after the offering from the amount of cash paid by investors for the
shares of Common Stock. Net tangible book value per share represents the book
value of the Company's total tangible assets less total liabilities, divided by
the number of outstanding shares of Common Stock.

The net tangible book value of the Common Stock at March 31, 1997, was
approximately $169,000, or $0.11 per share. After giving effect to the sale of
the 1,000,000 shares of Common Stock offered hereby (at the initial
public offering price of $5.75 per share, and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company) and the application of the net proceeds therefrom, and assuming no
other changes in the net tangible book value after March 31, 1997, the
Company's pro forma net tangible book value at March 31, 1997 would have been
approximately $4,751,000, or $1.80 per share. This represents an immediate
increase in pro forma net tangible book value of $1.69 per share to existing
shareholders and an immediate decrease in pro forma net tangible book value to
new investors of $3.95 per share. The following table illustrates the per share
dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share . . . . . . . . . . $5.75
Net tangible book value per share at March 31, 1997 . . . . . . $0.11
Increase per share attributable to new investors . . . . . . . . 1.69
Pro forma net tangible book value per share after this offering . . 1.80
-----
Dilution per share to new investors . . . . . . . . . . . . . . . . $3.95
=====
Percentage dilution . . . . . . . . . . . . . . . . . . . . . . . . 68.7%
=====
</TABLE>

The following table sets forth, as of March 31, 1997, the differences
between the existing shareholders, the investors in this offering, holders of
outstanding warrants or convertible or exchangeable notes and the recipients of
shares in the CAS acquisition with respect to the total consideration paid or
payable and the average price per share paid or payable:

Shares Purchased Total Consideration (6) Average
---------------------- ------------------------ Price
Number Percent Amount Percent Per Share
---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders (1) . . . . . . . . . 1,644,000 48.9% $2,052,000 19.8% $1.25

New investors (2) . . . . . . . . . . . . . 1,000,000 29.8 5,750,000 55.6 5.75

Exercise of outstanding
warrants (3) . . . . . . . . . . . . . . 280,000 8.3 400,000 3.9 1.43

Exercise of outstanding convertible . . .
or exchangeable notes (4) . . . . . . . . 283,000 8.4 1,260,000 12.2 4.45

Issuable in CAS acquisition (5) . . . . . 154,000 4.6 883,000 8.5 5.75
--------- ----- ----------- ----- ------

Total 3,361,000 100.0% $10,345,000 100.0% $ 3.08
========= ===== =========== ===== ======
</TABLE>

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

(1) Includes 31,250 shares to be issued to holders of the Bridge Notes,
at the initial public offering price of $5.75 per share.

(2) Assumes that the Warrants offered hereby, the Underwriter's Warrants
and the Underlying Warrants are not exercised.

(3) Includes (i) 200,000 shares of Common Stock issuable upon exercise of
warrants at an exercise price of $1.00 per share and (ii) 80,000
shares of Common Stock issuable upon exercise of warrants at an
exercise price of $2.50 per share.

(4) Includes (i) 190,500 shares of Common Stock issuable upon conversion
of convertible notes having an aggregate principal balance of $857,000
at a conversion rate of $4.50 per share, (ii) 83,600 shares of Common
Stock issuable upon exchange of an exchangeable note having an
aggregate principal balance of approximately $376,000 at

15
<PAGE> 24
March 31, 1997 at an exchange rate of $4.50 per share and (iii)
9,000 shares of Common Stock issuable upon conversion of a convertible
note having an aggregate principal balance of $27,000 at a conversion
rate of $3.00 per share.

(5) Represents the portion of the CAS purchase price to be delivered in
the form of the Company's Common Stock, at an initial public offering
price of $5.75 per share. See "Acquisition of Casper Air Service."

(6) These amounts reflect total consideration paid by securityholders and
do not reflect net amounts received by the Company.

DIVIDEND POLICY

The Company has never paid or declared any cash dividends on the
Common Stock and does not intend to pay cash dividends in the foreseeable
future. It is the current policy of the Company's Board of Directors to retain
any earnings to finance the operations of the Company's business.

CAPITALIZATION

The following table sets forth (i) the actual capitalization of the
Company at March 31, 1997, and (ii) the pro forma capitalization of the Company
as adjusted to give effect to the CAS acquisition and the sale of the 1,000,000
shares of Common Stock and 1,000,000 Warrants offered hereby (assuming no
exercise of the Underwriter's over-allotment option) based on the
initial public offering price of $5.75 per share and the application of the net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with information contained under the caption "Unaudited Pro Forma
Combined Financial Information" and the financial statements and notes thereto
of each of the Company and CAS included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
March 31, 1997 (Unaudited)
----------------------------------
Pro Forma
Actual as Adjusted
------ -----------
<S> <C> <C>
Short-term debt (line of credit and current portion of
long-term debt) . . . . . . . . . . . . . . . . . . . . . . $ 747,000 $ 1,304,000
========== ===========

Long-term debt, net of current portion . . . . . . . . . . . . . $1,303,000 $ 2,286,000
---------- -----------
Shareholders' equity:
Preferred Stock, $0.01 par value; 5,000,000 shares authorized;
none issued and outstanding . . . . . . . . . . . . . . . . -- --
Common Stock, $0.01 par value; 10,000,000 shares authorized;
1,600,250 issued and outstanding, actual; 2,753,885 issued
and outstanding, pro forma, as adjusted (1) . . . . . . . . 16,000 28,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . 1,951,000 7,349,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (595,000) (805,000)
---------- -----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . 1,372,000 6,572,000
---------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . $2,675,000 $ 8,858,000
========== ===========
</TABLE>

- -------------------------
(1) Excludes shares issuable upon payoff of the Bridge Notes, 150,000
shares reserved for issuance under the Company's 1997 Stock Option
Plan and shares of Common Stock issuable upon the exercise of
(i) the 1,000,000 Warrants offered hereby; (ii) the Underwriter's
Warrants and Underlying Warrants; (iii) outstanding warrants to
purchase up to 280,000 shares of Common Stock; (iv) the Underwriter's
over-allotment option; and (v) outstanding promissory notes that are
convertible or exchangeable for up to 283,100 shares of Common Stock,
as of March 31, 1997. See "Description of Securities" and
"Underwriting."

16
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company, through its three operating divisions, offers a broad
range of services to the aviation industry. The Company ultimately plans to
capture a larger market share of the services being outsourced by the airline
and corporate aircraft industry, including but not limited to, painting airline
and corporate aircraft, corrosion cleaning, ground handling services, light
catering, fueling, airport security and passenger service. The Company plans to
grow through mergers, acquisitions and internal growth.

On March 1, 1996, in connection with the Company's acquisition of
Pride, the Company paid $486,000 in cash and issued $857,000 in 10% five-year
Convertible Notes and 100,250 shares of Common Stock. Because the transaction
was accounted for as a purchase, the results of operations of Pride are
included in the accompanying financial statements beginning on the March 1,
1996 acquisition date. (See "Unaudited Pro Forma Combined Financial
Information" for summary pro forma financial results assuming Pride and CAS
were part of the Company's operations beginning October 1, 1995.)

SEASONALITY AND VARIABILITY OF RESULTS

The Company's Overhaul and Service Division experiences significant
seasonality and quarter-to-quarter variability in its stripping and painting
operations. The annual operating cycle generally reflects escalating strip and
paint revenues in the Company's third and fourth fiscal quarters and slower
sales in the Company's first and second fiscal quarters. The Company's painting
revenues are adversely affected during the airlines' peak traffic seasons of
the summer months and the November and December holidays. Currently, a
significant percentage of the Company's revenue is generated by the Overhaul
and Service Division. Management, therefore, is required to plan cash flow
accordingly.

RESULTS OF OPERATIONS

The following table sets forth a summary of changes in the major
categories, presented by division, of revenues, costs of goods sold and
operating expenses from each of the previous period's results. These historical
results are not necessarily indicative of results to be expected for any future
period.

<TABLE>
<CAPTION>
Nine Months Ended
Nine Months Year March 31,
Ended Ended --------------------------
June 30, 1996 September 30, 1995 1997 1996
------------- ------------------ ----------- ------------
<S> <C> <C> <C> <C>
OVERHAUL & SERVICE DIVISION(1):
Net revenues $ 3,395,000 $ 1,766,000 $5,576,000 $ 1,671,000
Cost of revenue (2,479,000) (1,061,000) (4,545,000) (1,258,000)
Operating and other expenses, net(4) (622,000) (211,000) (1,084,000) (262,000)
Interest income 2,000 0 0 2,000
Interest expense (39,000) (20,000) (50,000) (24,000)
----------- ----------- ----------- -----------
$ 257,000 $ 474,000 $ (103,000) $ 129,000
=========== =========== =========== ===========
Pre-tax income (loss)

GROUND HANDLING & SERVICES
DIVISION(2):
Net revenues $ 486,000 $ 767,000 $ 726,000 $ 452,000
Cost of revenue (359,000) (356,000) (379,000) (300,000)
Operating and other expenses, net (141,000) (152,000) (213,000) (102,000)
Interest income 0 0 0 0
Interest expense (1,000) 0 0 (1,000)
------------ ----------- ----------- -----------
Pre-tax income (loss) $ (15,000) $ 259,000 $ 134,000 $ 49,000
============ =========== =========== ===========
</TABLE>

17
<PAGE> 26
<TABLE>
<CAPTION>
Nine Months Ended
Nine Months Year March 31,
Ended Ended ----------------------------
June 30, 1996 September 30, 1995 1997 1996
------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C>
FBO OPERATIONS & AIRPORT
MANAGEMENT(3):
Net revenues See (3) below See (3) below $ 362,000 See (3) below
Cost of revenue (371,000)
Operating and other expenses, net (95,000)
Interest income 0
Interest expense (loss) 0
-----------
Pre-tax income (loss) $ (104,000)
===========

AVIATION GROUP - CORPORATE
OVERHEAD(5):
Operating and other expenses, net $ (143,000) $ (203,000) $ (321,000) $ (160,000)
Interest expense (31,000) 0 (103,000) (8,000)
----------- ----------- ----------- ------------
Pre-tax income (loss) $ (174,000) $ (203,000) $ (424,000) $ (168,000)
=========== =========== =========== ============

TOTAL COMPANY:
Net revenues $ 3,881,000 $ 2,533,000 $ 6,664,000 $ 2,123,000
Cost of revenue (2,838,000) (1,417,000) (5,295,000) (1,558,000)
Operating and other expenses, net (906,000) (566,000) (1,713,000) (524,000)
Interest income 2,000 0 0 2,000
Interest expense (71,000) (20,000) (153,000) (33,000)
----------- ----------- ----------- ------------
Pre-tax income (loss) $ 68,000 $ 530,000 $ (497,000) $ 10,000
=========== =========== =========== ============
</TABLE>

- -----------------------
(1) Overhaul & Service Division includes the operating results of TriStar
Paint only for the year ended September 30, 1995. The Company's
acquisition of Pride occurred on March 1, 1996. Accordingly, both
TriStar Paint and Pride operating results are included for the nine
months ended June 30, 1996 (including Pride operating results from
March 1, 1996 through June 30, 1996), and the nine months ended March
31, 1997.

(2) Ground Handling & Services Division represent the operating results
for all periods summarized of Airline Services, the Company's sole
existing subsidiary in this division.

(3) The Company's FBO Operations & Airport Management division was started
and began operations in July 1996. Accordingly, operating results for
this division are included herein for the nine months ended March 31,
1997 only.

(4) Includes goodwill and other related amortization expenses of $85,000
and $184,000 associated with the acquisition of Pride for the nine
months ended June 30, 1996 and the nine months ended March 31, 1997,
respectively.

(5) Includes operating expenses of the executive officers of the Company
and other indirect expenses not directly attributable to the
operations of the divisions.

Overhaul & Service Division

Net revenues consist primarily of gross revenues from stripping and
painting and other aircraft coating services to major passenger and freight
airlines and corporate aircraft. The Company also contracts with various heavy
maintenance bases throughout the United States to provide corrosion prevention
programs and light maintenance for aircraft undergoing heavy maintenance work
at these bases. Costs of revenues consist largely of direct and indirect labor,
direct material and supplies, insurance and other indirect costs applicable to
the completion of each contract. Operating expenses consist of all general and
administrative and operating costs not included in costs of sales, including
but not limited to facilities rent, indirect labor and other overhaul costs.

18
<PAGE> 27
This division of the Company has two locations, one at Acadiana
Regional Airport in New Iberia, Louisiana (Pride) and a second facility at
Redbird Airport in Dallas, Texas (TriStar Paint).

Ground Handling & Service Division

Net revenues consist primarily of gross revenues from a variety of
support services including aircraft interior cleaning, exterior washes,
lavatory and water services and light catering. Costs of revenues consist
largely of direct and indirect labor, direct material and supplies, and other
indirect costs. Operating expenses consist of all general and administrative
and operating costs not included in costs of sales.

Airline Services has had operations at Dallas-Fort Worth International
Airport since 1990, Dallas Love Field airport since 1986, San Francisco
International Airport since 1995 and Gulfport Biloxi Regional Airport since
1994. Additionally, the Company has recently executed new ground service
contracts with customers under which it has established operations in the Los
Angeles International Airport, Oakland Airport, and Kansas City Airport. See
"Business--Ground Handling & Service Division."

FBO Operations & Airport Management

The Company commenced its FBO operations in July 1996, upon the
commencement of business at its initial FBO site located at Redbird Airport in
Dallas, Texas. This division generates revenues from the sale of aviation fuel
and other services provided to general aviation customers located at the
Redbird Airport facility. Costs associated with this activity include primarily
fuel, facility rent, and direct labor. The Company initiated these operations
at its existing Dallas location with the intent to profitably operate the
business, but also to allow it to assemble its financial and managerial
resources to begin its acquisition activities in this division. The Company has
also entered into an agreement to acquire CAS, which operates an FBO in Casper,
Wyoming. See "Acquisition of Casper Air Service" and "Business--FBO & Airport
Management Division."

Aviation Group - Corporate Overhead

Operating expenses consist of all general and administrative and
operating costs to provide management to the Company's divisions, to support
expected growth, and to seek acquisition targets, not directly attributable to
the divisions' operations.

NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996

The Company's net revenue increased by $4,541,000, or 214%, for the
nine months ended March 31, 1997 compared to the nine months ended March 31,
1996. This increase in revenue resulted primarily from the acquisition of
Pride, which contributed net revenue totaling $5,266,000 for 1997 compared to
$767,000 for 1996.

Revenues from the Ground Handling & Services Division increased 61% to
$726,000 from $452,000 for the comparable nine months periods ended March 31,
1997 and 1996. This increase is attributable to increases in business with
existing customers and the addition of additional customers at the airports
served by the Company. No growth during these periods resulted from the
addition of new airport locations.

In July 1996, the Company began its FBO Operations with the opening of
its initial location at the Redbird Airport in Dallas, Texas. This facility
generates its revenues from the sale of aviation fuel and other general
services provided to general aviation customers based at, and flying into, the
Redbird Airport. Since inception, the Company has adjusted its fuel sales
prices to reflect increases and decreases of fuel prices, which represents its
largest operating cost. Competitive factors could, however, limit the Company's
ability to pass on significant fuel price increases, should such increases
occur. This operation continues in the start-up phase, incurring costs
implemented in anticipation of future internal and external growth. Such
expenditures should dissipate in the future.

The Company's costs of sales increased by $3,737,000 to $5,295,000 for
the nine months ended March 31, 1997 from $1,558,000 for the nine months ended
March 31, 1996. This increase in costs of sales resulted primarily from the
acquisition of Pride.

19
<PAGE> 28
The Company's operating expenses increased by $1,189,000 from
$1,713,000 for the nine months ended March 31, 1997 compared to $524,000 for
the nine months ended March 31, 1996. This increase in operating expenses
resulted primarily from the acquisition of Pride and management's merger and
acquisition search program. The Company has postured itself with management,
consultants, and systems to expand internally and through acquisitions. The
operating expenses generated by these efforts are reflected in Corporate
Overhead.

The Company's interest expense has increased primarily from the
acquisition of Pride and the sale of the Bridge Notes. For the nine months
ended March 31, 1997, interest expense increased by $120,000 from debt assumed
from Pride, from convertible notes executed to acquire the Pride stock and from
the Bridge Notes.

The decrease in Company pre-tax income of $507,000 for the
comparable nine month periods ended March 31, 1997 and 1996 resulted largely
from increases in corporate overhead of $161,000, losses associated with the
Company's start-up of its FBO operating division of $104,000, increase in
interest expense of $120,000, and goodwill and other amortization of $184,000
relating to the Company's acquisition of Pride.

NINE MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO THE FISCAL YEAR ENDED
SEPTEMBER 30, 1995

The Company changed its fiscal year end from September 30 to June 30
during 1996.

The Company purchased the stock of Pride on March 1, 1996, in a
transaction accounted for as a purchase. The results of operations of Pride are
included in the accompanying financial statements beginning March 1, 1996, and
accordingly, include only four months of operations for the Company's nine
month period ended June 30, 1996. Therefore, when comparing fiscal years 1996
and 1995, the financial information includes different operating entities.

The Company's net revenue increased by $1,348,000, or 53%, for the
nine months ended June 30, 1996 compared to the year ended September 30, 1995.
This increase in revenue resulted primarily from the acquisition of Pride,
which contributed net revenue totaling $2,520,000 for 1996 compared to $0 for
1995.

Revenues from Ground Handling for the nine month period ending June
30, 1996 are comparable on a pro-rated basis to the twelve month period ending
September 30, 1995. Gross margins decreased during the period, however, to 26%
in fiscal 1996 from 53% in fiscal 1995. This decrease is attributable to the
loss of a significant charter airline customer during the period whose contract
generated significant gross profits for Airline Services during the fiscal 1995
year. No revenue or operating cost changes during these periods were the result
of adding new airport locations.

The Company's costs of revenues increased by $1,421,000, to $2,838,000
for the nine months ended June 30, 1996 from $1,417,000 for the year ended
September 30, 1995. This increase in costs of revenues resulted primarily from
the acquisition of Pride. Cost of revenues also increased as a percentage,
relative to net revenue, to 73%, for the fiscal year ended June 30, 1996 from
56% for the fiscal year ended September 30, 1995. Pride, which has a multi-year
paint contract with United Airlines, earns lower gross margins than TriStar
Paint, which performs its services on a higher- margin, less predictable basis.

The Company's operating expenses increased by $340,000 to $906,000 for
the nine months ended June 30, 1996 from $566,000 for the year ended September
30, 1995. This increase in operating expenses resulted primarily from the
acquisition of Pride. The operating expenses generated by Aviation Group are
largely reflective of its acquisition efforts.

The Company's interest expense has increased primarily from the
acquisition of Pride. Interest expense increased by $51,000 from debt assumed
from Pride and from convertible notes executed to acquire the Pride stock.

FINANCIAL CONDITION AND LIQUIDITY

Prior to January 1996, the Company financed its operations and capital
expenditures from a combination of cash generated from operations, bank loans,
leases and invested capital from the sole shareholder. In January 1996, the
Company commenced a private placement, generating net proceeds approximating
$1.2 million, to acquire the stock of Pride and for general working capital
purposes.

20
<PAGE> 29
Exclusive of the Pride acquisition, the Company made capital
expenditures during the fiscal nine months ended June 30, 1996 and nine months
ended March 31, 1997 of $12,000 and $335,000, respectively. The majority of
capital expenditures incurred during the aforementioned periods relate to
equipment purchases to enhance the existing operating facilities and
computerized systems.

As part of its growth strategy, the Company intends to pursue
acquisitions of related aviation businesses. Management believes financing for
such acquisitions will be provided from operations, bank financing and through
additional security offerings. See "Acquisition of Casper Air Service."

In February 1997, the Company completed a private offering of $500,000
of its 10% Bridge Note. The proceeds of this offering were used to fund the
costs of the Company's initial public offering, and for general working capital
and operating purposes. If the Company successfully completes this Offering by
September 30, 1997, the terms of these notes requires the Company to issue to
the holders that number of shares of Common Stock which equals $250,000 divided
by the initial public offering price. Accordingly, $250,000 of the proceeds has
been allocated to equity and credited to paid in capital and the notes payable
were recorded at a discounted amount of $250,000. The discount will be
amortized to interest expense over the shorter of the period through September
30, 1997 or the consummation date of the Offering. Unamortized discount at
March 31, 1997 totaled $210,000.

The Company intends to raise net proceeds from this offering
approximating $4.8 million. The proceeds will be used to repay the 10% Bridge
Notes, fund the cash portion of the CAS acquisition, the repayment of certain
indebtedness, capital expenditures for existing operations, facilities
improvements, acquisition of other aviation services companies and general
working capital for operations and other corporate purposes. The Company's
capital structure will be improved significantly as a result of completing this
offering. See "Use of Proceeds" and "Capitalization."

Pursuant to the existing United Airlines contract, the Company has a
commitment for an estimated total of $18 million of scheduled aircraft painting
and stripping work through 1999. This commitment is subject to the risks
outlined in "Risk Factors--Dependence on One Customer."

The Company believes that funds available under its existing credit
line and bank financing, together with cash generated from operations will be
adequate for its anticipated cash needs. Management feels the proceeds from the
offering will allow it to experience accelerated growth both internally and
through well planned acquisitions of aviation services companies. The Company
believes that the minimum net proceeds from this Offering, together with all
other sources of financing currently available to the Company, will be
sufficient to sustain the Company for at least 12 months.

21
<PAGE> 30
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following sets forth the Company's Unaudited Pro Forma
Consolidated Statements of Operations for the fiscal year (nine months) ended
June 30, 1996, and the nine month interim period ended March 31, 1997, and the
Company's Unaudited Pro Forma Consolidated Balance Sheet at March 31, 1997, in
each case giving effect to: (i) the acquisition in March 1996 of Pride, (ii)
the CAS acquisition to be closed concurrently with the closing of this
Offering, and (iii) this Offering and the application of the net proceeds
therefrom. Both the Pride and CAS acquisitions are accounted for using the
purchase method of accounting.

The Company's Unaudited Pro Forma Consolidated Statements of
Operations present such events in each case, as if each had been consummated at
the beginning and operated throughout the periods presented. The Company's
Unaudited Pro Forma Consolidated Balance Sheet presents the CAS acquisition as
if it had been consummated on March 31, 1997. Pride was a consolidated
subsidiary of the Company at March 31, 1997, and is accordingly included in the
Company's actual balance sheet for that period. The pro forma adjustments
relating to the allocation of the purchase price of CAS represent the Company's
preliminary determinations of the purchase accounting and other adjustments and
are based upon available information and certain assumptions the Company
considers reasonable under the circumstances. Final amounts could differ from
those set forth therein.

The Unaudited Pro Forma Consolidated Financial Information of the
Company is presented for illustrative purposes only and does not purport to
present the financial position or results of operations of the Company had the
Pride and CAS acquisitions and the Offering occurred on the dates indicated,
nor are they necessarily indicative of the results of operations which may be
expected to occur in the future.

The following unaudited pro forma consolidated financial information
should be read in connection with the more detailed information, including the
financial statements and notes thereto included elsewhere in this Prospectus.

22
<PAGE> 31
AVIATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FISCAL YEAR (NINE MONTHS)
ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
Pride Aviation
Fiscal Year Operations Casper Air Service Fiscal Year
(Nine Months) Five Months Operations for the (Nine Months)
Ended Ended Nine Months Ended
June 30, 1996 February 29, Ended April 30, Adjust- June 30, 1996
Actual 1996 1996(7) ments(1) Proforma
------------- -------------- ------------------ -------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $3,881,000 $2,874,000 $5,252,000 $(717,000) $11,290,000
Cost of revenue 2,838,000 2,117,000 4,688,000 (642,000) 9,001,000
---------- ---------- ---------- --------- -----------
Gross profit 1,043,000 757,000 564,000 (75,000) 2,289,000
---------- ---------- ---------- --------- -----------

General and administrative expenses 752,000 466,000 368,000 (172,000)(2) 1,414,000
Depreciation and amortization 154,000 60,000 164,000 32,000 (3) 410,000
---------- ---------- ---------- --------- -----------
906,000 526,000 532,000 (140,000) 1,824,000
---------- ---------- ---------- --------- -----------

Income (loss) from operations 137,000 231,000 32,000 65,000 465,000
---------- ---------- ---------- --------- -----------
Other income (expenses)
Interest income 2,000 -- 24,000 -- 26,000
Interest expense (71,000) (58,000) (165,000) 22,000 (4) (272,000)
Other, net -- 22,000 (21,000) (4,000) (3,000)
---------- ---------- ---------- --------- -----------
(69,000) (36,000) (162,000) 18,000 (249,000)
---------- ---------- ---------- --------- -----------

Income (loss) before provision
for income taxes 68,000 195,000 (130,000) 83,000 216,000
Provision for income taxes 34,000 -- -- 50,000 (6) 84,000
---------- ---------- ---------- --------- -----------

Net income (loss) $ 34,000 $ 195,000 $ (130,000) $ 33,000 $ 1,758,791
========== ========== ========== ========= ===========

Pro forma net income (loss) per
common and common equivalent
share (unaudited) $ 0.02 $ 0.08
========== ===========

Pro forma weighted average common
and common equivalent shares
outstanding (unaudited) (5) 1,497,511 1,651,146
========== ===========
</TABLE>

23
<PAGE> 32
AVIATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS NINE MONTHS ENDED MARCH 31, 1997

<TABLE>
<CAPTION>
Casper Air Service
Nine Months Operations for the Nine Months
Ended Nine Months Ended
March 31, 1997 Ended March 31, 1997
Actual January 31, 1997 Adjustments (1) Proforma
-------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenue $6,664,000 $6,570,000 $(1,010,000) $12,224,000
Cost of revenue 4,597,000 5,629,000 (755,000) 9,471,000
---------- ---------- ---------- -----------
Gross Profit 2,067,000 941,000 (255,000) 2,753,000
---------- ---------- ---------- -----------

General and administrative
expenses 2,120,000 421,000 (154,000) (2) 2,387,000
Depreciation and amortization 291,000 159,000 (104,000) (3) 346,000
---------- ---------- ---------- -----------
2,411,000 580,000 (258,000) 2,733,000
---------- ---------- ---------- -----------

Income (loss) from operations (344,000) 361,000 3,000 20,000
---------- ---------- ---------- -----------
Other income (expenses)
Interest income -- 19,000 -- 19,000
Interest expense (153,000) (169,000) 57,000 (265,000)
Other, net -- 60,000 -- 60,000
---------- ---------- ---------- -----------
(153,000) (90,000) 57,000 (186,000)
---------- ---------- ---------- -----------

Income (loss) before provision
for income taxes (497,000) 271,000 60,000 (166,000)
Provision (benefit) for income taxes (164,000) -- 129,000 (6) (35,000)
---------- ---------- ---------- -----------

Net income (loss) $ (333,000) $ 271,000 $ (69,000) $ (131,000)
========== ========== ========== ===========

Pro forma net income (loss)
per common and common
equivalent share (unaudited) $ (.22) $ (.08)
========== ===========

Pro forma weighted average common
and common equivalent shares
outstanding (unaudited) (5) 1,497,511 1,651,146
========== ===========
</TABLE>

24
<PAGE> 33
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

(1) Adjustments include the elimination of income and expenses associated
with the aircraft charter operations of CAS, which the Company does
not intend to continue after the acquisition of CAS. For the nine
months ended April 30, 1996 and January 31, 1997, respectively, the
charter department's operating results (and related adjustments to the
pro forma analysis included herein) were as follows:

<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
April 30, 1996 January 31,1997
-------------- ---------------
<S> <C> <C>
Revenues $ 717,000 $1,010,000
Cost of revenue (642,000) (755,000)
--------- ----------
Gross Profit 75,000 255,000
--------- ----------

General and administrative expenses (84,000) (71,000)
Depreciation and amortization (88,000) (139,000)
---------- ----------

Income from operations (97,000) 45,000

Other income (expenses)
Interest income -- --
Interest expense (58,000) (57,000)
Other, net 4,000 --
---------- ---------
(54,000) (57,000)
---------- ---------

Income (loss) before provision
for income taxes $ (151,000) $ (12,000)
========== ==========

</TABLE>

(2) Includes $88,000 and $83,000 of non-payroll benefits and other
compensation for the periods ended April 30, 1996 and January 31,
1997, respectively, incurred by CAS for the benefit of its
shareholders and management. These costs will not be incurred by the
Company on an ongoing basis after the closing of the CAS purchase
transaction.

(3) Includes additional amortization of goodwill (amortized over a 20-year
period) and depreciation expense from the Pride and CAS acquisitions
for the pro forma periods ended June 30, 1996 and March 31, 1997,
respectively, in the following amounts:

<TABLE>
<CAPTION>
Fiscal Year Interim
(Nine Months) Nine Months
Ended Ended
June 30, 1996 March 31, 1997
------------- --------------
<S> <C> <C>
Pride goodwill amortization and
related depreciation $ 85,000 *
CAS goodwill amortization and
related depreciation 35,000 $35,000
-------- -------
$120,000 $35,000
======== =======
</TABLE>
* Pride goodwill amortization and related depreciation for the
nine months ended March 31, 1997 of $193,000 is included in
actual operating results of the Company for the period then
ended.

(4) Includes additional interest of $36,000 on convertible notes issued in
connection with the Pride acquisition for the pro forma period ended
June 30, 1996.

(5) Includes 153,635 shares of Common Stock (at an initial public
offering price of $5.75 per share) issuable to the shareholders of
CAS upon the consummation of the CAS transaction.

25
<PAGE> 34
(6) Represents the adjustment to reflect the tax effects of the pro forma
adjustments.

(7) Reflects the nine months ended April 30, 1996. The results of
operations for the three months ended July 31, 1995 were extracted
from CAS's audited income statement for the fiscal year ended April
30, 1996 to provide a nine month period that is comparable to the
Company's nine month fiscal year ended June 30, 1996. The results of
operations for the three months ended July 31, 1995 were as follows:

<TABLE>
<S> <C>
Revenues $1,663,000
Cost of revenue 1,522,000
Gross Profit 141,000
General and administrative expenses 112,000
Depreciation and amortization 84,000
196,000
Income (loss) from operations (55,000)
Other income (expenses), net (41,000)
Income (loss) before provision of income taxes $ (96,000)
</TABLE>

26
<PAGE> 35
AVIATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997

<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------- -----------------------------------
Aviation Casper Air
Group, Inc. Service Adjustments As Adjusted
(March 31, 1997) (January 31, 1997) ------------- ------------
---------------- -----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash $ 82,000 $ 288,000 $(1,467,000) (1) $ 2,948,000
4,793,000 (4)
(748,000) (5)
Accounts receivable 655,000 614,000 -- 1,269,000
Inventory 249,000 1,311,000 -- 1,560,000
Aircraft held for sale -- -- 1,638,000 (2) 1,638,000
Deferred tax assets 163,000 -- (163,000) (6) --
Prepaid expenses and other 61,000 10,000 -- 71,000
---------- ---------- ----------- -----------
Total current assets 1,210,000 2,223,000 4,053,000 7,486,000
---------- ---------- ----------- -----------

Property and equipment, net 2,281,000 1,386,000 (712,000) (2) 2,955,000
---------- ---------- ----------- -----------

Other assets
Goodwill, net 937,000 -- 907,000 (3)(6) 1,844,000

Investment-CAS -- -- 2,350,000 (1) --
(2,350,000) (3)
Other 491,000 11,000 (266,000) (4) 236,000
---------- ---------- ----------- -----------
1,428,000 11,000 641,000 2,080,000
---------- ---------- ----------- -----------
$4,919,000 $3,620,000 $ 3,982,000 $12,521,000
========== ========== =========== ===========

LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdraft $ 130,000 $ -- $ -- $ 130,000
Current maturities of 209,000 329,000 -- $ 538,000
long-term debt 248,000 -- (248,000) (5) --
Short-term bank borrowings 290,000 -- 210,000 (5) --
Bridge Notes (500,000) (5)
-- 628,000 -- 628,000
Notes payable -- 138,000 -- 138,000
Floor plans payable 611,000 559,000 -- 1,170,000
Accounts payable 29,000 -- -- 29,000
Accrued interest 422,000 151,000 -- 573,000
Accrued liabilities -- -- 152,000 (6) 152,000
Deferred income taxes ---------- ---------- ----------- -----------
1,939,000 1,805,000 (386,000) 3,358,000
Total current liabilities ---------- ---------- ----------- -----------

Long-term liabilities
Long-term debt, net of 1,303,000 983,000 2,286,000
current maturities 305,000 -- -- 305,000
Deferred income taxes ---------- ---------- ----------- -----------
1,608,000 983,000 -- 2,591,000
---------- ---------- ----------- -----------

Stockholders' Equity
Preferred stock, $.01 par value,
5,000,000 shares authorized, -- -- -- --
none outstanding
Common stock, $.01 par value,
10,000,000 shares authorized,
2,797,363 shares issued and 16,000 19,000 (19,000) (3) 28,000
outstanding 2,000 (1)
10,000 (4)
1,951,000 2,697,000 (2,697,000) (3) 7,349,000
Additional paid-in capital 881,000 (1)
4,783,000 (4)
(266,000) (4)
(595,000) (395,000) 395,000 (3) (805,000)
Retained earnings (deficit) ---------- ---------- (210,000) (5) -----------
-----------

1,372,000 2,321,000 2,879,000 6,572,000
-- (569,000) 569,000 (3) --
Treasury stock -- (920,000) 920,000 (3) --
Unearned ESOP ---------- ---------- ----------- -----------
1,372,000 832,000 4,368,000 6,572,000
---------- ---------- ----------- -----------
$4,919,000 $3,620,000 $ 3,982,000 $12,521,000
========== ========== =========== ===========

</TABLE>

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<PAGE> 36
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

For purposes of preparing the Unaudited Pro Forma Consolidated Balance
Sheet, the assets and liabilities of CAS to be acquired or assumed by the
Company have been recorded at their estimated fair values. A final
determination of the required purchase price accounting adjustments and of the
fair value of the assets and liabilities acquired or assumed has not yet been
made. Accordingly, the purchase accounting adjustments made in connection with
the development of the unaudited pro forma financial information reflects the
Company's best estimate based upon currently available information.

The following adjustments have been made in connection with the
initial public offering and the CAS acquisition:

(1) Adjustment reflects an estimated purchase price and related
purchase costs for the CAS acquisition of $2,350,000. The
transaction will be funded by cash totaling $1,467,000 and
153,635 shares of the Company's Common Stock ($.01 par value)
at a per share price of $5.75.

(2) Upon purchasing CAS, the charter operations will be
discontinued. The 12 aircraft currently used in CAS's charter
division will be sold or liquidated by the Company. Based on a
third party offer and liquidation proceeds for nine of the
aircraft totaling $1,438,000, and an estimated value of
$200,000 for the remaining three aircraft in inventory,
management estimates the fair value of the 12 aircraft to be
$1,638,000. The adjustment reflects a reclassification of the
assets from property and equipment to "aircraft held for
sale." The aircraft held for sale have a historical net book
value of $712,000. The net book value of the remaining
property and equipment is estimated to approximate fair value.

(3) The adjustment reflects the elimination of the investment
account on the Company's balance sheet, the elimination of the
net equity on the balance sheet of CAS on the acquisition date
and the recording of net goodwill resulting from the
acquisition of approximately $907,000 (including tax
attributes).

(4) Reflects the net proceeds from the initial public offering of
1,000,000 shares of the Company's $0.01 par value Common
Stock.

(5) Upon completion of the initial public offering, management
plans to pay off its line of credit, with a current balance of
$248,000, and the Bridge Notes totaling $500,000.

(6) Reflects the deferred tax effects for differences between the
financial statement and tax bases of the net assets to be
acquired in the CAS acquisition (including the recording of
additional goodwill of $315,000).

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<PAGE> 37
BUSINESS

GENERAL

The Company was organized in December 1995 to consolidate the
ownership of Tri-Star Aircraft Services, Inc. ("TriStar Paint"), Tri-Star
Airline Services, Inc. ("Airline Services") and Pride Aviation, Inc. ("Pride").
At that time, the Company acquired all of the outstanding shares in TriStar
Paint and Airline Services from The Sanders Companies, Inc. ("Sanders
Companies") in exchange for the issuance of 1,000,000 shares of Common Stock to
Sanders Companies. Sanders Companies is wholly owned by the Company's President
and Chief Executive Officer, Lee Sanders. On March 1, 1996, in connection with
the Company's acquisition of Pride, the Company paid $486,000 cash and issued
10%, five-year Convertible Notes in the aggregate principal amount of $857,000
and 100,250 shares of Common Stock.

The Company is currently organized into three divisions devoted to
Aviation Group's primary lines of business. These business segments are as
follows:

The Company believes that airlines will increase the outsourcing of
their maintenance and service requirements to third party vendors in the
future. According to U.S. Department of Transportation statistics, the nine
major U.S. airlines expended 20% of their maintenance budget with outsourcing
vendors in 1994. There are over 10,000 maintenance and service vendors
worldwide in the aviation industry. The Company believes that the aviation
service industry is highly fragmented. It also believes that its existing
operations, enhanced by additional growth and acquisitions of complementary
businesses, will enable it to provide quality customer service with financial,
insurance, and other operating economies-of-scale that major customers
increasingly require. The Company does not presently intend to operate as a
commercial airline or as a provider of commercial jet engine or airframe
overhaul services.

The principal executive offices of the Company are located at 700
North Pearl Street, Suite 2170, Dallas, Texas 75201, telephone number (214)
922-8100.

INDUSTRY OVERVIEW

The airline industry is currently experiencing revenue growth along
with increased profitability. Several new airlines have commenced operation in
this expanding market. These airlines constitute potential customers for the
Company's services. Aviation activity is expected to increase significantly
over the next ten years. According to the 1997 Boeing Current Market Outlook,
global commercial air travel is expected to increase 75% through the year 2006,
while the

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<PAGE> 38
number of passenger and cargo aircraft deliveries is expected to
increase by 48%. According to the FAA, U.S. turbine powered general and
business aviation will increase 28% by the year 2006. Production of general
aviation aircraft rose by 10% in the first half of 1996, after a 16% increase
in 1995. The Company believes that the growth in aviation activity will
increase the demand for maintenance, repair, painting, ground handling and
other services provided by the Company.

Because of the high internal overheads and unionization of airline
labor forces, many airlines have found that it is more cost efficient to engage
independent contractors to perform maintenance, painting and ground handling
services. According to U.S. Department of Transportation statistics, the nine
major U.S. airlines expended 20% of their maintenance budget with outsourcing
vendors in 1994. Management expects the trend toward outsourcing these services
to continue in the airline industry.

The Company believes that the aviation service industry is highly
fragmented. There are presently over 1,700 operators of fixed base operating
stations ("FBO's") serving the United States. There are over 10,000 maintenance
and service vendors worldwide in the aviation industry.

OVERHAUL & SERVICE DIVISION

The Overhaul & Service Division, which includes Pride and TriStar
Paint, provides painting, paint stripping, and other aircraft coating services
to major passenger and freight airlines. The Company paints few corporate
aircraft and at present has no military aircraft contracts. This division's
operations include aircraft stripping and painting services, light aircraft
maintenance, and corrosion preventive cleaning programs.

The type and quality of paint and other supplies utilized by the
Company is generally dictated to the Company by its customers, subject to FAA
and EPA guidelines. In most cases, the Company's customers arrange for the
sources of paint supplies that it utilizes. The Company believes that there are
available numerous sources for the paint and other supplies utilized by the
Company.

The Company utilizes electrostatic paint equipment in its aircraft
painting activities and is a leader in the development of techniques for high
solids painting and non-methylene chloride stripping. Any research costs
incurred by the Company relating to these new techniques have been borne by the
Company's customers. Pride conducted a high solids paint test program for
Continental Airlines in February 1992 with most major aviation paint
manufacturers participating. Since 1993, most of the Company's painting has
been performed with high solids compliant coatings.

Beginning in late 1993, most stripping performed for major airlines by
the Company was with compliant non-methylene chloride material. Testing of a
non-acid stripper is ongoing for United Airlines for use on its aircraft.
Currently, the Company is capable of providing stripping and painting services
for most narrow-bodied aircraft in its Dallas, Texas facilities, including, but
not limited to, Boeing 727s, Boeing 737s and McDonnell Douglas DC-9s and
MD-80s. The three New Iberia, Louisiana hangar facilities are capable of
housing all aircraft except Boeing 747s.

Pride. Pride was incorporated in the State of Oklahoma in 1990. The
administrative offices along with its aircraft painting facilities are located
in New Iberia, Louisiana. In September 1990, Pride obtained its first
certificate from the Federal Aviation Administration ("FAA") to operate an
approved repair station at its facilities in New Iberia, Louisiana. Since that
time, the certificate has been expanded to permit Pride to conduct certain FAA
classes of inspections and light maintenance for a variety of jet aircraft.
Pride is also certified to perform structural repairs on certain equipment in a
variety of jet aircraft. Pride's painting facilities located in New Iberia,
Louisiana can house all narrow-bodied jets. Of a total of three hangars, one
hangar has been built to accommodate wide-bodied jets such as the Boeing 767
and McDonnell Douglas DC-10 aircraft.

The Company's primary customer, United Airlines, Inc. ("United"),
accounted for approximately 85% of the Overhaul & Service Division revenues for
the nine months ended March 31, 1997. In 1994, Pride entered into a five-year
Services Agreement (the "Services Agreement") with United which has been
amended several times and currently will expire in 1999 but is cancelable prior
to that date by United upon 90 days written notice. Under the Services
Agreement, Pride provides paint stripping and painting services for jet
aircraft owned or operated by United. United provides the specifications,
designs, stencils, decals and marks for the painting. The Services Agreement
contains a warranty by Pride to United that its services meet United's
specifications and are free from defects in workmanship. Pride must reimburse

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<PAGE> 39
United for costs of repair and certain expenses in connection with this
warranty. Pride must perform its services for United at its New Iberia,
Louisiana facilities. United schedules the jet aircraft to be painted by Pride
each calendar year by December 31 of the prior year. In addition to painting,
upon request from United, Pride will repair parts and components identified by
Pride as needing repair.

The Services Agreement contains fixed prices for each type of aircraft
painted by Pride. The prices are adjusted annually based on the Consumer Price
Index. The Services Agreement currently provides that Pride will paint Boeing
727, Boeing 737, Boeing 757, Boeing 767 and McDonnell Douglas DC-10 aircraft,
representing an estimated total of 588 aircraft. Through December 31, 1996,
Pride has completed 215 of the aircraft.

The Company, through Pride, has been negotiating a contract with
United for the painting of United's Boeing 747 commercial aircraft fleet. To
date, these negotiations are incomplete. If it obtains the contract, the
Company may construct a new aircraft hangar at its New Iberia, Louisiana
facilities. See "--Facilities."

The Company, through Pride, is currently working to obtain a long-term
contract to paint newly manufactured aircraft for Boeing Commercial Airplane
Group ("Boeing"). Boeing has conducted due diligence regarding Pride's
capabilities and expertise. Subject to the satisfaction of certain conditions,
Boeing has requested Pride to conduct a beta test by painting one of its jet
aircraft in June 1997. If Boeing awards a contract to Pride, the
Company intends to lease a hangar facility in Portland, Oregon in which to
perform this work for Boeing.

TriStar Paint. TriStar Paint's business began in March 1990, and
TriStar Paint was incorporated in the State of Texas during 1994. The Company
acquired all of the stock in TriStar Paint in December 1995. TriStar Paint is
in the business of providing stripping and painting services for airlines,
aircraft lessors, and aircraft brokers. TriStar Paint's painting facilities
located at Redbird Airport in Dallas, Texas can house most narrow-bodied jets
including, but not limited to, Boeing 727s and 737s and McDonnell Douglas DC-9s
and MD 80s.

TriStar Paint received its initial certificate from the FAA to operate
an approved repair station in February 1995. The certificate was subsequently
expanded to permit TriStar Paint to provide stripping and painting services to
a variety of aircraft and to provide certain FAA classes of inspections and
light maintenance on two types of aircraft.

TriStar Paint provides its painting and other services on a
plane-by-plane basis to its customers, versus Pride's long-term contract
arrangement with United. The Company believes that this arrangement gives it
flexibility to meet customer needs. TriStar Paint has provided stripping and
painting services, on a plane-by-plane bid basis, to Dee Howard Company,
Southwest Airlines, Northwest Airlines, TransWorld Airlines, Emery Air Freight,
Roadway Global Air and Zantop International Airlines. In addition, Dee Howard
Company and Zantop International Airlines provide heavy maintenance services to
airline companies, and TriStar Paint acts as a subcontractor in providing its
services to these customers.

TriStar Paint is also capable and qualified to perform certain
structural cleaning and anticorrosive maintenance programs, which involve
cleaning inside the skin of the aircraft. Years of particle accumulation are
removed and a preventative spray is applied to reduce the amount of future
corrosion and particle accumulation. Such services have historically been
provided on a subcontract basis to airline customers of major maintenance
facilities.

TriStar Paint bids against its competitors in providing painting and
cleaning services to its maintenance and airline customers. In addition to
providing stripping and painting services at its Redbird Airport facilities,
TriStar Paint will send its equipment and personnel to provide onsite services
at the facilities of maintenance companies. These subcontract services have
been provided at airport facilities in San Antonio, Texas, Macon, Georgia and
Alexandria, Louisiana.

GROUND HANDLING & SERVICE DIVISION

Airline Services. Through Airline Services, the Company engages in the
cleaning, handling, and light catering of aircraft in various airports located
within the continental United States. Airline Services' predecessor operations
began in December 1986. It was incorporated in the State of Texas in August
1994. The Company acquired all of the stock of Airline Services in December
1995.

31
<PAGE> 40
Airline Services provides its customers with a variety of support
services including aircraft interior cleaning, exterior washes, lavatory/water
services and light catering. Airline Services presently operates at the
following airports: Dallas-Fort Worth International, Dallas Love Field, San
Francisco International, Kansas City International, Los Angeles International
Airport and Gulfport-Biloxi Regional. Airline Services currently provides some
or all of these services at different locations for United Airlines, United
Parcel Service, Sunjet, Aviation Services International, Inc. on behalf of
Allegro Airlines, World Technology Services, Reno Air, Sun Country Airlines,
Northwest Airlines, Federal Express and other customers.

Interior cleaning is performed between flights at the airport. This
involves cleaning the inside of the cockpit, cabin and galleys, servicing the
lavatories, fresh water facilities and stocking the aircraft with magazines,
air sickness bags and emergency cards. All pricing for this service is based on
airline specifications. Exterior cleaning involves cleaning the exterior of the
aircraft during nighttime layovers. Typically, an aircraft's exterior will be
cleaned once during a two or three week cycle. Airline Services uses specially
designed equipment and pressure sprayers to clean the exteriors of the
aircraft. Similar to interior cleaning, all pricing for this service is based
on airline specifications. Airline Services presently has light catering
operations in Gulfport, Mississippi. Light catering consists of stocking soft
drinks, peanuts, pretzels, coffee, tea, beer, wine, liquor, cold sandwiches and
serving supplies on the aircraft. Pricing will depend on the type and quantity
of the products supplied.

General. The Company believes that its flexible workforce provides
customers with a quality, price competitive outsourcing service. The Company
obtains its contracts with its customers generally by competitive bid. The
Ground Handling & Service Division actively pursues new customers and
additional work from existing customers at those airports where it already has
a presence. In addition, the Company pursues work opportunities at other
airports, and with other airline customers, as such opportunities arise.

FBO & AIRPORT MANAGEMENT DIVISION

In July 1996, the Company began to operate a third business segment,
its FBO & Airport Management Division. The Company's first fixed-base
operation, located at Redbird Airport in Dallas, Texas, sells fuel and provides
light maintenance services, including for example fluid, tire and control
inspections, to general aviation and corporate aircraft at this location.

The Company believes that this division, which serves corporate and
other general aviation customers, may offset its current dependence on major
airlines for its painting, ground handling, and other services. The Company's
fixed base operation in Dallas, Texas is located at a general service airport
located within a ten minute drive of the Dallas, Texas central business
district. There are over 500 acres of land adjacent to this airport for
aviation, industrial, and distribution development, and the Company believes
that, as such development progresses, its Redbird FBO operation will benefit
from this growth by gaining additional aviation fuel and light service
customers.

The Company believes that there are significant opportunities for
growth, internally and via acquisition, in the FBO & Airport Management
Division. The Company recently hired additional management and executive
personnel with specific expertise in the FBO management and acquisition
business to assist it in the execution of its business strategy in this
division.

The Company has reached an agreement to acquire CAS, which operates an
FBO in Casper, Wyoming. See "Acquisition of Casper Air Service."

ACQUISITIONS OF COMPLEMENTARY BUSINESSES

A key element of the Company's strategy involves growth through
acquisitions of other companies, assets or product or service lines that would
complement or expand the Company's existing businesses. There are over 10,000
maintenance and service vendors worldwide in the aviation industry, and the
Company believes that the aviation service industry is highly fragmented. The
Company believes that acquisitions will enable it to leverage its fixed costs
of operations and further expand the products and services which it can offer
to its customers.

The Company is currently evaluating a number of acquisition
opportunities. The Company desires to expand its existing aircraft parts,
ground service and FBO operations by acquiring similar businesses with whom it
currently competes

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<PAGE> 41
or who provide services at locations not presently served by the Company.
Additionally, the Company has reviewed certain acquisition opportunities of
aviation companies that specialize in the overhaul and service of replacement
and after-market parts. These parts, called "rotable parts," are removed by
airlines and major overhaul companies and subsequently rebuilt and refurbished
in accordance with FAA guidelines for future use. Other than the agreement to
acquire CAS, no commitments or binding agreements have been entered into date
and accordingly no assurance can be given that any of the acquisitions
currently being considered will be consummated.

FACILITIES

Dallas Facilities. TriStar Paint leases an aircraft maintenance hangar
at Redbird Airport in Dallas, Texas at an annual rental rate of $42,000. This
single bay, narrow body hangar measures 160 feet by 140 feet and allows a tail
clearance of 38 feet. It has additional office space.

The Company's Redbird FBO facility consists of approximately 4,000
square feet of space for pilots and other customers and adjacent ramp space for
the temporary parking and fueling of aircraft by Company personnel. The
facility is presently under lease for $37,200 per year until 2006.

The Redbird Airport has two runways, one approximately 6,450 feet by
150 feet and the other 3,800 feet by 150 feet. The long runway is load rated
for narrow body, military and commercial aircraft. Normal hours of operation
are 8:00 a.m. to 7:00 p.m., seven days a week.

New Iberia Facilities. Pride leases from the Iberia Parish Airport
Authority (the "Authority") four aircraft hangars and office space at Acadiana
Regional Airport in New Iberia, Louisiana. The Acadiana Regional Airport has a
200 foot by 8002 foot runway, load rated for all military and commercial
aircraft. Normal hours of operation for the tower are from 7:00 a.m. to 9:00
p.m., seven days a week, with call out service available from 9:00 p.m. to 7:00
a.m.

Pride leases aircraft maintenance Hangar 88 together with adjoining
corporate offices for an annual rental of $110,000. The initial term of this
lease expires on August 1, 2000. These facilities were constructed prior to
1960. This lease also covers a 3.369 acre automobile parking area. Hangar 88
is 160 feet wide by 185 feet deep with 40 foot hangar doors on both the east
and west side. A taxiway leading to both sides of the hangar allows this
building to house two narrow body aircraft at one time.

On land adjacent to the Hangar 88 complex, construction of a new
aircraft maintenance Hangar 88-C was completed in 1995 using $2,900,000 of bond
funds provided by the State of Louisiana. It is 185 feet wide by 223 feet deep,
with 40 foot hangar doors and a tail door which is an additional 20 feet in
height, and is capable of housing wide-bodied McDonnell Douglas DC-10 aircraft.
Hangar 88-C is leased by Pride for an initial term expiring October 1, 2023 at
an annual rental of $158,000. The Hangar 88 and 88-C complex constitute Pride's
major facilities at the Acadiana Regional Airport.

Pride also leases a smaller aircraft maintenance hangar for an annual
rental of $60,000. The initial term of the lease expires on February 1, 2001.
This hangar is used by Pride to paint Boeing 737 aircraft, which may be
completely enclosed within the hangar while being painted.

Finally, Pride leases another small aircraft maintenance hangar for
annual rental of $19,000. The initial term of this lease expires on February 1,
2003. Pride uses this hangar for painting of commuter airplanes and other small
aircraft.

Each of the four leases allows the Authority and Pride to agree to
extensions and requires rental escalations of 10% every five years. The leases
also require Pride to pay fuel fees of 16% of Pride's cost for aircraft fuel
and lubricating oils. Pride is usually able to charge these fuel fees to its
customers.

Pride has commenced discussions with the Authority for purposes of
obtaining funds from the State of Louisiana to build a larger hangar for the
housing and maintenance of Boeing 747 aircraft. The Iberia Parish is interested
in expanding the current facilities at the airport to create additional
employment in the Parish. There are numerous site locations available on the
airport grounds for future expansion. The State of Louisiana has appropriated
$4.2 million to pay part of the cost of construction of a hangar at Acadiana
Regional Airport if Company management elects to proceed with this project. The

33
<PAGE> 42
estimated total cost of the hangar is $8,500,000. The Company does not
presently intend to pursue this project unless it obtains a contract from
United to paint United's 747 aircraft fleet.

Dallas Office Space. The Company also occupies 5,900 square feet of
office space at 700 North Pearl Street, Suite 2170, Dallas, Texas, pursuant to
a sublease that expires in November 1998. The Company pays a monthly rental of
$4,400.

ADVERTISING AND MARKETING

To date, the Company has generated most of its revenues from direct
sales and customer referrals. In the future, the Company also intends to
utilize direct mailings, direct sales contacts and trade journal advertisements
as a secondary source of advertising and public relations. In March 1997, the
Company hired a full-time marketing representative who contacts directly the
maintenance and service executives of airlines and other aviation customers to
generate business for the Company. Additionally, the Company has recently begun
to market jointly its ground service capabilities along with the marketing
efforts of certain nonaffiliated equipment and product suppliers. The focus of
the effort is to obtain "turnkey" contracts for a combination of products and
services to be provided to airline customers jointly by the Company and these
product suppliers. Notwithstanding the highly competitive nature of the
industry, management of the Company believes that additional customers may be
obtained by the Company.

CUSTOMERS

TriStar Paint and Pride provide stripping and painting services to
major carriers in the airline industry. Pride's past and current customers
include United Airlines, Continental Airlines, Northwest Airlines and Piedmont
Airlines. TriStar Paint's past and current customers include Express One,
Roadway Global Air, Southwest Airlines and TransWorld Airlines. For the nine
months ended March 31, 1997, United accounted for approximately 77% of the
total revenues of the Company.

The Company has also performed stripping and painting services and
corrosion preventive cleaning programs as a subcontractor in major heavy
maintenance facilities at several locations in the United States. Customers
include Dee Howard Company in San Antonio, Texas, and Zantop International
Airlines, Inc. in Macon, Georgia.

Airline Services performs ground handling services and light catering
at several airports in the United States. Its primary customers consist of
United Airlines, Emery Air Freight, Sunjet, Northwest Airlines, Allegro
Airlines, Airborne Express, Southwest Airlines, UPS, Federal Express and
Aviation Service International, Inc. For the nine months ended March 31,
1997, the ground handling services and light catering accounted for
approximately 10.9% of the total revenues of the Company.

REGULATION

Environmental Regulation. The Resource Conservation and Recovery Act
of 1976, as amended ("RCRA"), is a federal statute providing a comprehensive
program for regulating the generation, treatment, storage and disposal of
hazardous waste. Federal regulations adopted by the United States Environmental
Protection Agency ("EPA") pursuant to RCRA govern waste handling activities
involving substances that are either listed as hazardous or have certain
specified hazardous characteristics (e.g., corrosive, ignitable). Under RCRA,
liability and stringent operating requirements are imposed on businesses that
generate hazardous waste.

Federal and state environmental laws include statutes intended to
allocate the cost of remedying past contamination among specifically identified
parties. The Comprehensive Environmental Response, Compensation and Liability
Act as amended ("CERCLA" or "Superfund"), 42 U.S.C. 9601 et. seq., imposes
strict and joint and several liability upon owners or operators of facilities
at, from, or to which a release of hazardous substances has occurred, upon
parties who generated hazardous substances that were released at such
facilities, and upon parties who arranged for the transportation or disposal of
hazardous substances to applicable facilities.

The day-to-day operations of the Company are also subject to
regulation under the Clean Air Act, as amended ("CAA"). In particular, the EPA
and state agencies have promulgated, or are required to promulgate, regulations
which affect or will affect the operations of the Company. These regulations
include New Source Performance Standards ("NSPS")

34
<PAGE> 43
and National Emission Standards for Hazardous Air Pollutants ("NESHAPs"). NSPS
and NESHAP rules may require additional controls on emissions of certain listed
hazardous air pollutants ("HAPs"). The CAA identifies chemicals that the
Company uses and/or processes, such as methylene chloride, phenol and methyl
ethyl ketone as HAPs for purposes of regulation. The CAA may also require the
Company to maintain operating permits for its facilities' air emissions. The
EPA has announced plans to impose more stringent standards for ozone and
particulate matter. Regulations promulgated to achieve these standards may
require additional controls on emissions of particulate matter and volatile
organic compounds.

The Company must comply with RCRA, CERCLA, CAA and other federal,
state and local environmental protection laws, and the regulations promulgated
thereunder, in its operations and facilities. These laws and regulations are
particularly applicable to the paints and paint stripping chemicals and
solvents used by the Company in its operations. The Company could be held
liable as a current or former operator for releases of hazardous substances at
its facilities. The Company could also incur liability for cleanup costs at
off-site facilities to which the Company shipped hazardous substances for
treatment, handling, storage, or disposal. Management of the Company believes
that the Company's operations and facilities are in material compliance with
all federal, state and local environmental laws and regulations and that the
Company's hazardous waste management practices minimize the potential for
release of hazardous substances into the environment. The Company has not
experienced any significant environmental regulatory problems in the past, and
to date, the Company has not been subject to any significant fines, penalties
or other liabilities under these laws and regulations. However, no assurance
can be given that such laws, regulations or interpretations thereof will not
necessitate significant expenditures by the Company or otherwise have a
material adverse impact on the Company's operations or financial condition in
the future.

Aviation Regulation. The FAA regulates all aspects of the airline and
aircraft industries. The Company's subsidiaries have certifications from the
FAA to operate aircraft repair stations. Such certifications are limited as to
the kinds of repair and maintenance activities that may be performed by the
Company's subsidiaries at their certified facilities. The FAA regularly
inspects these facilities for compliance with FAA regulations and guidelines.
Failure to comply with FAA regulations and guidelines could result in a loss of
certification. A loss of certification for a particular facility would prevent
that facility from performing any aircraft repair or maintenance operations.
The Company believes that its subsidiaries are in compliance in all material
respects with the FAA's regulations and guidelines. Nevertheless, no assurance
can be given that such regulations and guidelines or any FAA enforcement
actions may not have a material adverse effect on the Company's operations and
financial condition in the future.

COMPETITION

The airlines services industry is highly competitive. Each of the
Company's subsidiaries is in direct competition with other companies. Although
Leading Edge Corporation of Greenville, South Carolina is the Company's primary
competitor as a standalone aircraft paint contractor, many of the major airline
companies paint their own aircraft. In addition, although TriStar Paint also
serves as a subcontractor to several heavy maintenance facilities for aircraft,
many heavy maintenance facilities perform aircraft stripping and painting
services as an adjunct to their maintenance operations and, consequently,
directly compete with the Company. The owners of these heavy maintenance
facilities include Dee Howard Company, Pemco, Tramco, Inc. and Raytheon. The
Company's Ground Handling & Service Division has several competitors at each
major airport at which Airline Services provides services. There are many other
companies that provide similar services at numerous locations to airlines and
compete directly with the Company. Some of the Company's larger competitors
include AMR Services, a division of AMR Corp., Pedus, Intex and World Aviation
Services. These competitors provide interior and exterior aircraft cleaning
services and light catering services similar to those provided by the Company.

The Company's FBO & Airport Management Division currently has no
competitors at Redbird Airport in Dallas, Texas for the FBO services that it
provides. Although CAS has only one smaller competitor in the sale of fuel and
no competition in any of its other services at Natrona County International
Airport in Casper, Wyoming, it competes with many firms in the repair,
maintenance and sale of aircraft and distribution of parts. Competition in the
parts distribution market is generally based on price, availability of product
and quality, including traceability. The FBO industry has experienced
significant consolidation and elimination of FBO operations over the last 20
years. CAS and the Company have a number of large, well-capitalized competitors
who own or operate multiple FBO locations, including AMR Combs, Signature
Flight Support and Raytheon. The major competitors of CAS in the sale of parts
include Aviall, Inc., Aviation Service Corporation, Cooper Aviation Industries,
Inc. and many of the parts manufacturers themselves. In its propeller,
accessory, avionics and engine maintenance and overhaul business, CAS has
significant competitors, including AeroPropeller in Denver, Colorado

35
<PAGE> 44
and Weststar Aircraft in Grand Junction, Colorado. CAS believes that the
primary competitive factors in this marketplace are price, quality, engineering
and customer service. CAS's remote location in Casper, Wyoming in some cases
constitutes a competitive disadvantage.

EMPLOYEES

Pride generally employs between 160 and 200 employees. Airline
Services and TriStar Paint have an aggregate of approximately 120 employees, of
which seven are employed in the Dallas Redbird FBO Operations & Airport
Management Division. CAS had a total of 40 employees as of April 1, 1997.
Management believes its employee relations to be excellent. No employees are
covered by collective bargaining agreements. The Company anticipates that it
will hire additional employees in the next 12 months as revenues permit and as
its operations expand.

TRAINING

The Company provides formal classroom training to its employees with
respect to the safe handling of hazardous substances, occupational safety and
health, aircraft maintenance procedures and other safety and operational
procedures that are fundamental to its operations. On-the-job training is also
emphasized to ensure that classroom knowledge is transformed to operational
skills. Much of the Company's training program is mandated by the FAA and OSHA.

INSURANCE

The Company carries $200,000,000 of insurance for general aviation
liability and $200,000,000 of hangarkeeper insurance, as required by its
customers, and customary coverage for other business insurance. While the
Company believes its insurance is adequate, there can be no assurance that such
coverage will fully protect it against all losses which it might sustain.
Moreover, the Company's insurance for aircraft liability carries a deductible
requiring the Company to pay $20,000 of any loss or damage. The Company is the
beneficiary of a $1,000,000 key man life insurance policy on Messrs. Sanders,
Lubomirski and Ramsaroop.

FINANCING

On March 1, 1996, in connection with the acquisition of Pride, the
Company issued $857,000 in aggregate principal amount of five year, 10%
Convertible Notes to certain of the beneficial owners of Pride. The notes
require quarterly payments of interest and, commencing April 1, 1998, equal
quarterly installments of principal sufficient to amortize the balance of each
note by March 1, 2001. Holders of the notes may elect at any time to convert
the notes into shares of the Company's Common Stock at a conversion price of
$4.50 per share, subject to adjustment upon certain events. The cash portion of
the consideration paid for Pride was financed through the net proceeds from the
Company's sale of 500,000 shares of its Common Stock at $3.00 per share in a
Regulation D private offering. See "Description of Securities--Shares Eligible
for Future Sale."

At the time of its acquisition by the Company, Pride owed to the
Louisiana Economic Development Corporation (the "LEDC") approximately $508,000.
To obtain the LEDC's consent to the Company's acquisition of Pride, Pride
prepaid $100,000 of the debt using an advance from the net proceeds of the
private offering of the Company's Common Stock. The Company granted to the LEDC
the right to exchange the debt for newly issued shares of the Company's Common
Stock at a rate of $4.50 per share and a security interest in 50.15% of the
outstanding shares of Pride's stock to secure the debt. The remaining balance
of the debt to the LEDC is payable by Pride in equal monthly installments of
$3,800 and one final installment due March 1, 2001 in the amount of the unpaid
principal and interest.

The Company's subsidiaries, TriStar Paint and Airline Services, are
guarantors of a $250,000 revolving line of credit owed to Compass Bank (the
"SBA Debt") by The Sanders Companies, Inc. ("Sanders Companies"), the Company's
controlling stockholder. The SBA Debt existed prior to the Company's
organization in December 1995. As of March 31, 1997, a total of $248,000 was
owed on the SBA Debt. Repayment of a portion of the SBA Debt is guaranteed by
the Small Business Administration (the "SBA"). At March 31, 1997, all of the
loan proceeds from the SBA Debt had been used for the benefit of the Company's
subsidiaries. The SBA Debt is secured by a pledge of all of the outstanding
stock of The Sanders Companies, Inc., TriStar Paint and Airline Services and
the personal guaranty of Lee Sanders, the Company's President. Upon
consummation of this Offering, the Company will apply the proceeds from the
Offering to payoff the SBA Debt to the extent the proceeds of the SBA Debt were
used by the Company's subsidiaries. It is expected that the guaranties

36
<PAGE> 45
by TriStar Paint, Airline Services and Mr. Sanders and the pledge of the
Company's stock in TriStar Paint and Airline Services will be released and that
any remaining balance of the SBA Debt will be refinanced by Sanders Companies.

In February 1997, the Company sold $500,000 in aggregate principal
amount of its 10% Bridge Notes. The Bridge Notes are unsecured, bear interest
at the rate of 10% per annum payable quarterly beginning December 31, 1997 and
are subordinated in right of payment to all existing indebtedness of the
Company, including trade debt. The Company used the proceeds from the issuance
of the Bridge Notes for general corporate purposes and to fund the costs of
this Offering. The Bridge Notes are due in full on June 30, 1998 or earlier in
certain circumstances, including within five days following the closing of this
Offering. In connection with the full payment of the Bridge Notes after this
Offering, the Company has agreed to issue to the holders of the Bridge Notes
that number of shares of Common Stock equal to the quotient of $250,000 divided
by the initial public offering price.

The shares of Common Stock to be issued upon conversion of the
Convertible Notes, exchange of the LEDC debt or payoff of the Bridge Notes will
be subject to certain restrictions on their transfer. See "Description of
Securities--Shares Eligible for Future Sale."

The Company's hangar facilities are primarily financed on long term
operating leases. The material leases are described above under "Facilities."

LEGAL PROCEEDINGS

The Company is not involved in any material pending legal proceeding
other than ordinary routine litigation considered to be incidental to its
business.

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<PAGE> 46
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The names, current ages and positions of the executive officers and
directors of the Company are as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Lee Sanders (1) 37 President, Chief Executive Officer and Director
Paul Lubomirski 43 President of Pride
Victor Doyle 56 Vice President - Overhaul & Service Division
Tony Ramsaroop 33 Vice President - Ground Handling & Services Division
Wallace Congdon 71 Vice President - FBO & Airport Management Division
John Arcari 57 Vice President - Marketing and Development
Gary Cooper 42 Vice President, Chief Financial Officer and Treasurer
Charles E. Weed (1) 65 Director
Gordon Whitener (1)(2) 34 Director
Richard Morgan 39 Director
</TABLE>

- --------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee

The Board of Directors is classified into three classes of directors
pursuant to which the directors serve for staggered three-year terms. The terms
of office of Messrs. Morgan, Weed, Whitener and Sanders as directors expire at
the annual meetings of shareholders to be held in 1999, 1997, 1998 and 1999,
respectively. The classification of directors may have the effect of delaying,
deferring or preventing a change in control of the Company. Under its
agreements with the Company, the Underwriter has a right to designate a
director to serve on the Board. The directors will appoint another director,
who will not be an employee or consultant of the Company and who has not yet
been identified, within 90 days after the date of this Prospectus. Officers
serve at the discretion of the Board of Directors.

BUSINESS HISTORIES

Lee Sanders has served as the founder, Chief Executive Officer,
President and principal owner of the Company and its predecessors for more than
five years. As a result of his service for the Company and its predecessors,
Mr. Sanders has experience in managing businesses that provide aircraft
painting, aircraft interior modification and airline ground handling services.
He also brings a marketing background from his experiences in starting and
operating private businesses. Mr. Sanders is responsible for overseeing the
Company's marketing efforts, customer relations, production, finance,
acquisitions and overall planning and operations. Mr. Sanders is a graduate of
the University of Tennessee, with a Bachelor of Science in Business
Administration.

Paul Lubomirski was appointed as President of Pride in March 1996 and
has over 20 years of experience with industrial and marine paint applications
and has extensive knowledge of paint systems and electrostatic application
equipment. He has served as an officer and employee of Pride since its
incorporation in 1990. Mr. Lubomirski also brings a solid administrative
background from years of experience in operating private businesses and
organizing and conducting many training seminars. Mr. Lubomirski attended the
University of Hawaii where he majored in mechanical engineering. He directs the
stripping and painting operations of the Company. He has primary responsibility
for the Company's facilities and training programs applicable to the strip and
paint operations.

Victor Doyle was appointed as a Vice President of the Company in
December 1996 and has worked in various technical and managerial positions
within the aviation maintenance industry since 1966. He is currently a
consultant to the Company and will become a full-time employee upon completion
of this Offering. He is a trained aviation mechanic, is FAA licensed in
numerous mechanical and inspection specialties, and has significant expertise
in maintenance planning and production. He attended Parks College, in St.
Louis, Missouri, and has previous work experience with Braniff Airways and
Orion Air, Inc. From 1988 to 1992, he was employed as Regional Maintenance
Director for United Parcel Service. From 1992 to 1994, he was a regional
Director of Maintenance for Lockheed Aeromod Center, Inc. in Greenville, South
Carolina.

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<PAGE> 47
From 1994 until joining the Company in 1996, he was the Director of Marketing
and Customer Service for Dalfort Aviation, a private commercial aircraft
overhaul and maintenance company located in Dallas, Texas.

Tony Ramsaroop was appointed as a Vice President of the Company in
March 1996 and has extensive experience in the aviation industry including
technician, flight crew, inspector, flight instructor and airline station
manager. Mr. Ramsaroop has held management positions with the Company and its
predecessors since 1988. Previously, he was a flight engineer, aircraft
mechanic and Quality Assurance Supervisor with the United States Navy. He
directs the operations of the Company in ground handling and catering services.
He has primary responsibility for the Company's facilities and training
programs applicable to airline ground services and catering operations. He is a
graduate of Le Tourneau University.

Wallace Congdon was appointed as a Vice President of the Company in
February 1997 and has over forty-five years experience in the general aviation
industry, primarily in the management of fixed base operations ("FBO's") across
the United States for various employers. He is currently a consultant to the
Company and will become a full-time employee upon completion of this Offering.
He has specific management knowledge in the areas of fuel, light aircraft
maintenance, airport facilities management and leasing, aircraft sales, and
other FBO-related functions. From 1988 to 1993, he held various senior
management positions within Aero Services International, Inc., a major owner
and operator of FBO's and corporate jet aircraft. Since 1993 and prior to
joining the Company in 1996 to develop and implement its FBO & Airport
Management Division, he performed aviation and FBO management consulting
services for a variety of clients. Prior employers and senior management
positions include Hughes Aviation Services, the Ohio Aviation Company,
TigerAir, Inc., Aviall, Inc. and Western Skyways. He is a veteran of the United
States Navy, and has an undergraduate degree from Le Tourneau University.

Richard Morgan was appointed as a director of the Company on February
26, 1997. He also serves as a consultant to the Company. Mr. Morgan is self
employed, and has conducted business consulting, strategic planning, and
corporate finance services individually and in conjunction with others for
various corporate clients since 1984. Mr. Morgan was additionally Chief
Financial Officer of Search Capital Group, Inc. ("Search") from August 1985
through December 1994, when he voluntarily resigned. After Mr. Morgan's
departure, eight Search subsidiaries conducting business in the sub- prime,
used-automobile finance business filed for protection under Chapter 11 of the
Federal Bankruptcy Code in August 1995. Mr. Morgan holds a graduate degree in
business from Vanderbilt University.

Gary Cooper was appointed Treasurer and Vice President of the Company
on February 12, 1997. For the past five years, Mr. Cooper has owned and
operated his own public accounting firm in Dallas, Texas, and has additionally
taught various accounting and financial courses for certified public
accountants' continuing education programs. Additionally, Mr. Cooper has served
in financial management positions in various public companies prior to 1991.
Mr. Cooper is a Certified Public Accountant in the State of Texas, and holds a
degree in accounting from Middle Tennessee State University.

Charles E. Weed was elected a director of the Company in December 1996
and served as the President of Sunbelt Business Capital Incorporated
("Sunbelt") from August 1992 to February 1996. Mr. Weed is engaged in the
business of making private investments individually and also serves as a
consultant to the Company. Prior to August 1984, Mr. Weed was Chairman and
Chief Executive Officer of Michigan General, a large industrial conglomerate.
Between August 1984 and August 1992, he was retired and engaged in making
private investments.

Gordon Whitener was elected a director of the Company in December 1996
and has been President and Chief Executive Officer of Interface Americas of
LaGrange, Georgia, a subsidiary of Interface Inc. and one of America's largest
manufacturer's of commercial carpet since 1994. He is additionally a member of
Interface Inc.'s board of directors. From 1992 to 1994, Mr. Whitener held
various senior marketing and sales positions in the commercial carpet
manufacturing industry with companies including Interface and Collins & Aikman.
Mr. Whitener is a graduate of the University of Tennessee.

John Arcari was appointed as a Vice President of the Company in April
1997. From 1958 to 1987, he served in numerous line and management positions
with Pan American World Airways. From 1987 to 1990, he was vice president of
maintenance and engineering for Tower Air, a New York-based airline. From 1990
to 1993, he was president of Page Avjet, an aircraft heavy maintenance and
overhaul outsourcing company. From 1994 until his employment with the Company,
he was an independent consultant to aviation maintenance and service
outsourcing companies.

39
<PAGE> 48
No family relationships exist among the directors or executive
officers of the Company. None of the directors serve as members of the Board of
Directors of another company which is subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").

BOARD COMMITTEES

The Compensation Committee consists solely of Mr. Whitener. The
Compensation Committee recommends compensation for officers other than the
President, administers incentive compensation and benefit plans, including the
Company's 1997 Stock Option Plan, and recommends policies relating to such
plans.

The Audit Committee currently consists of Messrs. Weed, Sanders and
Whitener. The Audit Committee will meet periodically with management and the
Company's independent auditors and will review the results and scope of the
audit and other services provided by the Company's independent auditors, the
Company's accounting procedures, and the adequacy of the Company's internal
controls.

DIRECTORS' COMPENSATION

Directors are reimbursed for certain expenses in connection with
attendance at board and committee meetings.

EXECUTIVE COMPENSATION

The following table sets forth information, for the nine-month
transition period ended June 30, 1996 for the Company and the fiscal years
ended September 30, 1994 and 1995 for the Company's predecessors, TriStar Paint
and Airline Services, regarding the compensation of the Chief Executive Officer
of the Company and its predecessors. No executive officers of the Company or
its predecessors had compensation in excess of $100,000 for the periods
indicated.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Annual Compensation
-----------------------------
Other Annual
Name and Principal Position Year Salary Compensation
- --------------------------- -------- ------- ------------
<S> <C> <C> <C>
Lee Sanders, President and 1996 (1) $73,847 $8,676 (2)
Chief Executive Officer 1995 (3) 58,846
1994 (3) 32,354
</TABLE>
- --------------------
(1) The compensation shown for 1996 represents compensation for the
nine-month transition period ended June 30, 1996.
(2) Represents aggregate annual lease payments and insurance costs for an
automobile.
(3) Compensation paid by the Company's predecessors.

EMPLOYMENT AND CONSULTING AGREEMENTS

The Company engages Charles Weed as a consultant pursuant to a
consulting agreement between Mr. Weed and the Company which expires in February
1998. The Company pays Mr. Weed a fee of $4,100 per month.

Richard Morgan, Victor Doyle and Wallace Congdon serve as consultants
to the Company on a month-to-month basis. No written agreements exist with
Messrs. Morgan, Doyle and Congdon. Other than Mr. Morgan, the Company intends
to hire these consultants as full-time employees upon the closing of this
Offering. Mr. Morgan receives a fee of $4,000 per month in consideration for
financial, strategic planning and acquisition consulting services provided to
the Company. Mr. Congdon receives a fee of $1,500 per month in consideration
for his management of the Company's FBO & Airport Management Division and
acquisition consulting services relating to the CAS acquisition. Mr. Doyle
receives a fee of $1,200 per week in consideration for ground handling and
maintenance consulting services provided to the Company. All of the consultants
are reimbursed their expenses.

40
<PAGE> 49
The Company has an employment agreement with each of Paul Lubomirski,
John Arcari and Tony Ramsaroop, which expire in 1999, 2000 and 2000,
respectively. Immediately prior to the completion of this Offering, the
employment agreements with Messrs. Lubomirski and Ramsaroop will be extended
through at least the third anniversary of the date of this Prospectus. Mr.
Lubomirski and Mr. Arcari are paid annual salaries of $90,000 and $80,000,
respectively, and Mr. Ramsaroop is paid an annual salary of $60,000 until
completion of this Offering when his salary will increase to $70,000. Each
employment agreement contains a non-competition agreement for a period of three
years after any expiration or termination of the agreement. Each employee is
entitled to additional benefits, including disability insurance, life
insurance, and health and dental insurance. Mr. Ramsaroop and Mr Arcari are
eligible for additional bonuses as may be determined by the Board of Directors.
Mr. Lubomirski's employment agreement specifies a formula for bonus payments
that varies between 10% and 70% of his annual salary if Pride's net profit for
any fiscal year exceeds $600,000 during the term of his agreement. The bonus
will be 20%, 40% and 70% of his annual salary if the net profit exceeds
$700,000, $800,000 or $900,000, respectively for a fiscal year. Pursuant to the
Underwriting Agreement, the Company has agreed not to increase the compensation
paid to the five most highly paid employees of the Company in any year without
the consent of the Underwriter unless permitted by the terms of employment
contracts approved by the Underwriter.

The Company entered into an employment agreement with Lee Sanders in
March 1996. On April 15, 1997, the employment agreement was amended. The
amended employment agreement requires the Company to pay Mr. Sanders an annual
salary of $144,000 with increases at the end of each calendar year based on the
Consumer Price Index. Mr. Sanders is eligible for a bonus to be determined in
the sole discretion of the Board based on merit, the Company's financial
performance and other relevant criteria. The employment agreement expires on
April 15, 2000 but automatically extends for an additional year on April 15 of
each year unless either party affirmatively elects not to extend the term. The
employment agreement contains a non-competition agreement for three years after
any expiration or termination of the agreement. Mr. Sanders is entitled to
additional benefits, including disability insurance, life insurance, and health
and dental insurance. If the Company terminates Mr. Sanders' employment at any
time or if Mr. Sanders terminates his employment within one year after a change
in ownership or control of the Company, the Company is required to pay him
severance pay equal to the unpaid salary for the remainder of the term of the
agreement plus the total salary and bonus compensation paid to him during the
year period preceding the termination. A change in ownership or control of the
Company includes appointment of any person other than Mr. Sanders as President
or Chief Executive Officer or the removal of him from either of such positions,
any change in a majority of the Board members not approved by him, any transfer
or issuance of shares representing more than 25% of the beneficial ownership of
the Company if not approved in advance by Mr. Sanders, any material change in
his authority or duties and any breach by the Company of the employment
agreement not remedied within ten days after notice from him. Mr. Sanders has
approved the issuance of the shares of Common Stock in connection with this
Offering, the acquisition of CAS and the payoff of the Bridge Notes.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Texas Business Corporation Act (the "Corporation Act") permits the
indemnification of directors, employees, officers and agents of Texas
corporations. The Company's Articles of Incorporation and Bylaws provide that
the Company shall indemnify its directors and officers to the fullest extent
permitted by the Corporation Act. Under the Corporation Act, an officer or
director may be indemnified if he acted in good faith and reasonably believes
that his conduct (i) was in the best interests of the Company if he acted in
his official capacity or (ii) was not opposed to the best interest of the
Company in all other cases. In addition, the indemnitee may not have reasonable
cause to believe his conduct was unlawful in the case of a criminal proceeding.
In any case, he may not be found liable to the Company for improperly receiving
a personal benefit or for willful or intentional misconduct in the performance
of his duty to the Company. The Company must indemnify an officer or director
against reasonable expenses if he is successful, may indemnify for such
reasonable expenses unless he was found liable for willful or intentional
misconduct in the performance of his duty to the Company, and may advance
reasonable defense expenses if he undertakes to reimburse the Company if he is
later found not to satisfy the standard for indemnification of expenses.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.

For a discussion of provisions of the underwriting agreement with
regard to the indemnification of the Underwriter, see "Underwriting."

41
<PAGE> 50
EMPLOYEE STOCK OPTION PLAN

The Company's 1997 Stock Option Plan (the "Employee Option Plan") was
adopted by the Board of Directors and the Company's shareholders in February
1997. The purpose of the Employee Option Plan is to provide increased
incentives to key employees and directors of the Company to render services and
exert maximum effort for the business success of the Company. Pursuant to the
Employee Option Plan, the Company may grant incentive and nonstatutory
(nonqualified) stock options to key employees and directors of the Company. A
total of 150,000 shares of Common Stock have been reserved for issuance under
the Employee Option Plan.

The Board or the Compensation Committee has the authority to select
the key employees and directors of the Company to whom stock options are
granted (provided that incentive stock options only be granted to employees of
the Company). Subject to the limitations set forth in the Employee Option Plan,
the Board or the Compensation Committee has the authority to designate the
number of shares to be covered by each option, determine whether an option is
to be an incentive stock option or a nonstatutory option, establish vesting
schedules, specify the type of consideration to be paid to the Company upon
exercise and, subject to certain restrictions, specify other terms of the
options.

The maximum term of options granted under the Employee Option Plan is
ten years. The aggregate fair market value of the stock with respect to which
incentive stock options are first exercisable in any calendar year may not
exceed $100,000 per incidence. Options granted under the Employee Option Plan
are nontransferable and generally expire within three months after the
termination of an optionee's service to the Company. In general, if an optionee
is disabled, dies or retires from his or her service to the Company, such
option may be exercised up to three months following such disability or death
unless the board or Compensation committee determine to allow a longer period
for exercise.

The exercise price of incentive stock options must not be less than
the fair market value of the Common Stock on the date of grant. The exercise
price of incentive stock options granted to any person who at the time of grant
owns stock possessing more than 10% of the total combined voting power of all
classes of stock must be at least 110% of the fair market value of such stock
on the date of grant, and the term of those options cannot exceed five years.

On February 12, 1997, pursuant to the Employee Option Plan, the Board
authorized the grant of 15,000 options to Tony Ramsaroop, 15,000 options to
Gary Cooper, and 1,000 options to Paul Lubomirski. These options are incentive
stock options exercisable at the initial public offering price. The Board also
authorized the grant to Gordon Whitener of 10,000 non-statutory stock options
exercisable at $4.50 per share of Common Stock.

On April 28, 1997, the Board authorized the grant of a total of 24,500
incentive stock options to 14 of its officers and employees, including 3,000
each to Wallace Congdon, John Arcari and Victor Doyle. These options are
exercisable at the initial public offering price.

OPTION GRANTS

The Company did not grant stock options or stock appreciation rights
during the nine months ended June 30, 1996. The Company will not grant any
options having an exercise price of less than $5.75 per share or 85% of the
fair market value of the Common Stock on the date of grant, whichever is
greater.

See "--Employee Stock Option Plan" for information regarding option
grants made as of February 12, 1997 and April 28, 1997 to certain of the
Company's executive officers.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Effective March 1, 1996, in connection with the Company's acquisition
of Pride, the Company entered into a consulting agreement with Charles Weed, a
director of the Company. The Company is obligated to pay Mr. Weed a consulting
fee of $4,100 per month until February 1998. As one of the Sunbelt
shareholders, Mr. Weed was issued a 10% Convertible Note in the principal
amount of $52,000 in connection with the Company's acquisition of Pride. He
subsequently purchased an additional $70,000 of the Company's 10% Convertible
Notes from another holder. Effective March 1, 1996, the Company also issued to
Mr. Weed a convertible note in the principal amount of $27,000 in exchange for
unpaid consulting fees owed to him by Pride. This note has terms similar to the
Company's 10% Convertible Notes except that it is convertible at $3.00 (in lieu
of $4.50) per share. As of March 31, 1997, Mr. Weed held convertible notes
totaling $149,000 in principal amount. Mr. Weed is also a member and manager
of Sunbelt Business Capital, L.L.C.

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<PAGE> 51
("Sunbelt L.L.C."). In connection with the Pride acquisition, Sunbelt spun off
to its shareholders certain of its assets, including debt in the approximate
amount of $323,000 owed by Pride. The Company issued 56,000 shares to these
shareholders (including 8,354 shares to Mr. Weed) in exchange for the
cancellation of $168,000 of debt. The remainder of this debt was contributed by
these shareholders to Sunbelt L.L.C. Pride delivered a new promissory note
dated March 1, 1996 to evidence this debt in the approximate amount of $155,000
Sunbelt L.L.C. The note required payments of 27 equal monthly installments
6,400. On May 13, 1997, when the outstanding principal balance of the note was
$83,000, Sunbelt L.L.C. sold the note to Jerry R. Webb who at the same time
loaned an additional $200,000 to Pride. The entire $283,000 debt to Mr. Webb
was restructured and is evidenced by a new note payable in full on May 13,
1998, bearing interest at 18% per annum. The note requires monthly payments of
interest only. Mr. Weed and one other individual, who is not affiliated with
the Company, own participation interests of $83,000 and $100,000, respectively,
in the debt owed to Mr. Webb by Pride. On July 9, 1997, Jerry Webb advanced an
additional $144,000 against certain receivables, for which the Company promised
to pay Mr. Webb $150,000 on or before August 1, 1997.

Prior to the Company's organization, Lee Sanders, through his wholly
owned subsidiary, The Sanders Companies, Inc. (the "Sanders Companies"), owned
all of the outstanding capital stock of Airline Services and TriStar Paint.
Mr. Sanders is the President and Chief Executive Officer of the Company. Prior
to August 31, 1995, the Sanders Companies was the owner of the property and
equipment reflected on the combining financial statements for these entities
and charged each of these wholly-owned subsidiaries lease rent for the use of
such assets. In 1995, these assets were transferred from the Sanders Companies
at net book value, along with associated debt, to either Airline Services or
TriStar Paint, as appropriate. Lease rent charged by the Sanders Companies to
TriStar Paint and Airline Services for the year ended September 30, 1995
totaled $12,000.

Prior to the Company's organization in December 1995, Airline Services
and TriStar Paint were operated as part of a controlled group of companies with
other operations of the Sanders Companies and with no minority shareholders. As
of September 30, 1995, TriStar Paint had advanced funds to the Sanders
Companies in an amount totaling $165,000. These advances resulted from Airline
Services and TriStar Paint immediately transferring to the Sanders Companies
any payments received from their customers. Each of the subsidiaries of the
Sanders Companies, including TriStar Paint and Airline Services, maintained
zero balance bank accounts. As disbursements would clear each subsidiary's bank
account, cash would immediately be transferred from the bank account of the
Sanders Companies. These advances have ceased and will not occur in the future.

On September 30, 1995, TriStar Paint and Airline Services had
inter-company receivable balances from the Sanders Companies totaling $258,000
and $364,000, respectively. Effective on September 30, 1995, these companies
declared a dividend of these receivable balances to the Sanders Companies.
These balances resulted from transactions executed and recorded between the
Sanders Companies and its wholly-owned subsidiaries, Airline Services and
TriStar Paint, from the sharing of administrative expenses and advances to and
from each of the separate corporations.

In December 1995, the Sanders Companies contributed all of the
outstanding stock of Airline Services and TriStar Paint to the Company as its
initial capitalization in exchange for 1,000,000 shares of Common Stock. For
this purpose, the Company's stock was assigned a value of $3.00 per share,
based primarily on the combined historical earnings of TriStar Paint and
Airline Services, and arms-length negotiations with the principals of Pride
Aviation, Inc., for which an agreement to acquire was reached in January 1996,
and the placement agent for the Company's $1,500,000 private offering of Common
Stock that commenced in January 1996.

Prior to March 1, 1996, the Sanders Companies provided services and
allocated certain general and administrative expenses to the various companies
operating under its control, including the Company, TriStar Paint and Airline
Services. Such charges were allocated to the members of the control group based
upon the level of management and supervision time required, services provided
and certain other factors. Management of the Company believes that such
allocations are reasonable. These general and administrative expenses totaled
$77,000 for the nine months ended June 30, 1996. For the year ended September
30, 1995, these general and administrative expenses allocated to TriStar Paint
and Airline Services totaled $203,000.

The proceeds of this offering will be used to satisfy a $250,000
revolving line of credit with Compass Bank, the balance of which was $248,000
at March 31, 1997. This line of credit is personally guaranteed by Lee Sanders.
See "Business--Financing" for a discussion of the line of credit.

Neither Sanders Companies, the Company, Airline Services nor TriStar
Paint had any minority shareholders prior to March 1, 1996. Since that date,
the Board of Directors of the Company believes that all transactions between
the

43
<PAGE> 52
Company and any of its affiliates have been made on terms no less favorable to
the Company than would have been obtained from non-affiliated third parties.
Any future transactions between the Company and any of its affiliates will be
subject to approval by a majority of the independent disinterested members of
the Board of Directors or by a majority of the shareholders of the Company,
other than any interested shareholders, and will be made on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties. The Company will not make any loans to its officers, directors,
post-Offering 5% shareholders or affiliates, except for bonafide business
purposes.

44
<PAGE> 53

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 1, 1997 by (i)
each person who is known by the Company to be the beneficial owner of more than
5% of the Common Stock, (ii) each of the Company's directors, (iii) the
executive officer named in the Compensation Table, and (iv) all directors and
executive officers of the Company as a group. Except as otherwise indicated,
the Company believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable.

<TABLE>
<CAPTION>
Percent of Total (2)
Name and Address Number of Shares ------------------------------------
of Beneficial Owner Beneficially Owned (1) Before Offering After Offering
- ------------------- ---------------------- --------------- --------------
<S> <C> <C> <C>
Lee Sanders 1,000,000 (3) 62.5% 38.5%
700 North Pearl Street
Suite 2170
Dallas, Texas 75201

Richard Morgan 100,000 (4) 6.0 3.7
700 North Pearl Street
Suite 2170
Dallas, Texas 75201

Paul Lubomirski 44,250 2.8 1.7

Charles E. Weed 44,455 (5) 2.7 1.7

Gordon Whitener 10,000 (6) * *

All executive officers and
directors as a group (9 persons) 1,198,705 69.4 44.0
</TABLE>

- --------------------------------
* Less than 1%

(1) A person is deemed to be the beneficial owner of securities that can
be acquired within 60 days from the date set forth above through the
exercise of any option, warrant or convertible or exchangeable note.

(2) In calculating percentage ownership, all shares of Common Stock that
the named shareholder has the right to acquire upon exercise of any
option, warrant or convertible or exchangeable note are deemed to be
outstanding for the purpose of computing the percentage of Common
Stock owned by the shareholder, but are not deemed outstanding for the
purpose of computing the percentage of Common Stock owned by any other
shareholders. Percentages of shares beneficially owned are based upon
1,600,250 shares outstanding before this offering. Accordingly,
shares and percentages beneficially owned after the offering are based
on 2,600,250 shares before taking into account any shares issued in
connection with the CAS acquisition and the payoff of the Bridge
Notes.

(3) Represents shares owned of record by The Sanders Companies, Inc., a
corporation wholly owned by Mr. Sanders.

(4) Includes 80,000 shares purchasable at $2.50 per share pursuant to a
warrant expiring February 28, 1999.

(5) Includes 27,101 shares issuable, at $4.50 per share, upon the
conversion of convertible notes in the total principal amount of
$122,000 and 9,000 shares issuable, at $3.00 per share, upon the
conversion of a convertible note in the principal amount of $27,000.

(6) Represents shares purchasable, at $4.50 per share, under non-statutory
options expiring in 2004 granted under the Company's 1997 Stock Option
Plan.

45
<PAGE> 54
DESCRIPTION OF SECURITIES

The Company is a Texas corporation and its affairs are governed by its
Articles of Incorporation ("Articles of Incorporation"), its Bylaws ("Bylaws")
and by the Texas Business Corporation Act. The following description of the
Company's capital stock is qualified in all respects by reference to the
Articles of Incorporation and Bylaws, which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.

The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock, $0.01 par value, and 5,000,000 shares of preferred
stock, $0.01 par value ("Preferred Stock"). The Common Stock and Warrants are
being offered separately and not as units, and each are separately
transferable.

COMMON STOCK

As of April 1, 1997, the Company had 49 holders of its Common Stock.
The holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may, from time to time, determine, subject to
any preferences which may be granted to the holders of Preferred Stock. Holders
of Common Stock do not have cumulative voting rights and are entitled to one
vote per share on all matters on which the holders of Common Stock are entitled
to vote. The Common Stock is not entitled to preemptive rights and is not
subject to redemption or conversion. Upon liquidation, dissolution, or
winding-up of the Company, the assets (if any) legally available for
distribution to shareholders are distributable ratably among the holders of the
Common Stock after payment of all debt and liabilities of the Company and the
liquidation preference of any outstanding class or series of Preferred Stock.
All outstanding shares of Common Stock are, and the shares of Common Stock to
be issued pursuant to this offering will be, when issued and delivered, validly
issued, fully paid, and nonassessable. The rights, preferences, and privileges
of holders of Common Stock will be subject to the preferential rights of any
outstanding class or series of Preferred Stock that the Company may issue in
the future.

WARRANTS

In connection with this offering, the Company will issue 1,000,000
Warrants. The Warrants are subject to the terms and conditions of a Warrant
Agreement (the "Warrant Agreement") between the Company and the Company's
transfer agent, as Warrant Agent. The following description of the Warrants is
qualified in all respects by the Warrant Agreement, which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The shares of Common Stock underlying the Warrants, when issued upon exercise
thereof and payment of the purchase price, will be fully paid and
nonassessable.

Each Warrant entitles the holder to purchase one share of Common Stock
at any time after two years from the date of this Prospectus, until five years
following the date of this Prospectus for 120% of the initial public offering
price, subject to adjustment in certain circumstances, unless earlier redeemed,
at which time the Warrants will expire. The Warrants are redeemable in whole
and not in part by the Company, after two years from the date of this
Prospectus, upon 30 days' notice at a price of $0.10 per Warrant, provided that
the closing bid quotations or sale prices of the Common Stock have averaged at
least 165% of the initial public offering price for a period of any 20
consecutive trading days ending on the tenth day prior to the day on which the
Company mails the notice of redemption to the Warrant holders. In the event the
Company gives notice of its intention to redeem the Warrants, a holder would be
forced to either exercise his Warrant within 30 days of the notice of redemption
or accept the redemption price. The holders of the Warrants will have exercise
rights until the close of business on the date fixed for the redemption thereof.
The number and kind of securities or other property for which the Warrants are
exercisable are subject to adjustment upon the occurrence of certain events,
including mergers, reorganizations, stock dividends, stock splits, and
recapitalizations. Holders of Warrants have no voting, dividend, or other rights
as shareholders of the Company with respect to the shares underlying the
Warrants, unless and until the Warrants are exercised.

The Warrants may be exercised by filling out and signing the
appropriate form on the Warrants and mailing or delivering the Warrants to the
Warrant Agent in time to reach the Warrant Agent by the expiration date,
accompanied by payment in full of the exercise price for the Warrants being
exercised in United States funds (in cash or by check or bank draft payable to
the order of the Company). Common Stock certificates will be issued as soon as
practicable after exercise and payment of the exercise price as described
above.

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<PAGE> 55
The shares of Common Stock issuable upon exercise of the Warrants and
the securities issuable upon exercise of the Underwriter's Warrants have
been registered with the Commission. The Company will be required, from time to
time, to file post-effective amendments to its registration statement in order
to maintain a current prospectus covering the issuance of such shares upon
exercise of the Warrants. The Company has undertaken to make such filings and
to use its best efforts to cause such post-effective amendments to become
effective. If for any reason a required post-effective amendment is not filed
or does not become effective or is not maintained, the holders of the Warrants
may be prevented from exercising their Warrants.

UNDERWRITER'S WARRANTS

The Company has agreed, upon completion of this offering, to sell to
the Underwriter for $0.001 per Warrant, the Underwriter's Warrants to purchase
(i) 10% of the number of shares of Common Stock sold in this offering (excluding
the Underwriter's over-allotment option) and (ii) Underlying Warrants to
purchase the same number of shares of Common Stock at an exercise price equal to
165% of the exercise price of the Warrants. The Underwriter's Warrants will be
exercisable for a period of four years commencing one year after the date of
this Prospectus. In addition, the Company will provide certain demand and
piggyback registration rights in connection with the Underwriter's Warrants. See
"Underwriting."

EXISTING WARRANTS AND OPTIONS

Placement Warrants. On March 1, 1996 and June 24, 1996, the Company
issued warrants to purchase an aggregate of 200,000 shares of Common Stock (the
"Placement Warrants") to RAS Securities Corp. ("RAS") upon the closings of the
private placement of 500,000 shares of Common Stock by the Company. RAS has
subsequently transferred these Placement Warrants to certain of its employees.
Each Placement Warrant entitles the holder to purchase one share of Common
Stock at a price of $1.00 per share, exercisable on or before February 28,
1999. As of the date of this Prospectus, none of the holders of the Placement
Warrants has exercised his Placement Warrants. The Placement Warrants contain
provisions that protect the holders against dilution by adjustment of the
exercise price and the number of shares of Common Stock subject to the
Placement Warrants in certain events, such as stock dividends and
distributions, stock splits, recapitalizations, mergers, or consolidations.
Holders of Placement Warrants do not possess any rights as shareholders of the
Company prior to exercise. Holders of Placement Warrants have been granted
certain registration rights. Any shares to be issued upon exercise of the
Placement Warrants will be subject to certain transfer restrictions. For a
discussion of these restrictions, see "--Shares Eligible For Future Sale"
below.

Morgan Warrant. Effective June 30, 1996, the Company and Richard L.
Morgan entered into a Warrant Agreement (the "Morgan Warrant") pursuant to
which Mr. Morgan has the right to purchase 80,000 shares of Common Stock at a
price of $2.50 per share. The Warrant Agreement expires February 28, 1999. Mr.
Morgan has not exercised any of his rights under the Morgan Warrant as of the
date of this prospectus. The Morgan Warrant contains provisions that

47
<PAGE> 56
protect Mr. Morgan against dilution by adjustment of the exercise price and the
number of shares of Common Stock subject to the Morgan Warrant in certain
events, such as stock dividends and distributions, stock splits,
recapitalizations, mergers or consolidations. The Morgan Warrant does not grant
any shareholder rights to the holder thereof prior to exercise. The Morgan
Warrant grants to Mr. Morgan certain registration rights. Any shares to be
issued upon exercise of the Morgan Warrant will be subject to certain transfer
restrictions. For a discussion of these restrictions, see "-- Shares Eligible
for Future Sale" below.

Employee Stock Options. See "Management--Employee Stock Option Plan"
for a description of outstanding options granted under the 1997 Stock Option
Plan.

PREFERRED STOCK

The Board of Directors may, without further action of the shareholders
of the Company, issue shares of Preferred Stock in one or more series and fix
or alter the rights or preferences thereof, including the voting rights,
redemption provisions (including sinking fund provisions), dividend rights,
dividend rates, liquidation preferences, conversion rights, and any other
rights, preferences, privileges, and restrictions of any wholly unissued series
of Preferred Stock. The rights of holders of Common Stock will be subject to,
and may be adversely affected by, the rights of holders of any Preferred Stock
that may be issued in the future. No shares of Preferred Stock are outstanding,
and the Company has no present plans to issue any such shares. The issuance of
shares of Preferred Stock could adversely affect the voting power of holders of
Common Stock and could have the effect of delaying, deferring, or preventing a
change in control of the Company or other corporate action.

DEBT SECURITIES

In connection with the acquisition of Pride on March 1, 1996, the
Company issued $857,000 in aggregate principal amount of its five-year, 10%
Convertible Notes ("Convertible Notes") to the former shareholders of Pride as
a portion of the acquisition price payable to them for their shares in Pride.
The Convertible Notes require the Company to pay quarterly payments of interest
at a rate of ten percent (10%) per annum. Commencing April 1, 1998, the
Convertible Notes also require equal quarterly installments of principal in an
amount necessary to fully amortize the notes by March 1, 2001, when all
remaining principal and accrued interest will be due. Each of the Convertible
Notes is convertible at the option of the holder into shares of Common Stock at
a price of $4.50 per share. In addition, the Company issued to Charles Weed, in
consideration for cancellation of accrued, unpaid consulting fees owed by
Pride, a Convertible Note in the amount of $27,000 that is convertible at $3.00
per share. The conversion rates are subject to adjustment in the event of any
stock dividend, split, combination or reclassification of the outstanding
Common Stock of the Company. The Convertible Notes require the Company to treat
all holders of the Convertible Notes as pari passu members of the same class.
Each of the Convertible Notes (other than the $27,000 note held by Mr. Weed) is
secured by a pledge of the pro rata portion of outstanding stock of Pride that
was owned directly or beneficially by the holder of the Convertible Note
immediately prior to the Company's acquisition of Pride. All of the Company's
stock in Pride is pledged to secure the Convertible Notes, subject to the
Company's prior pledge of approximately 50% of the Pride stock to secure
certain of Pride's debt. If the Company fails to make a required payment of
principal and interest within ten (10) days after written notice of default is
received, the holder of the Convertible Note may exercise any of its remedies
with respect to the pledged stock.

In February 1997, the Company sold $500,000 in aggregate principal
amount of its 10% Bridge Notes. The Bridge Notes are unsecured and bear
interest at the rate of 10% per annum payable quarterly beginning December 31,
1997. The Company used the proceeds from the issuance of the Bridge Notes for
general corporate purposes and to fund the costs of this Offering. The Bridge
Notes are due in full on June 30, 1998 or earlier in certain circumstances,
including within five days following the closing of this Offering. Subject to
the closing of this Offering, upon the full payment of the Bridge Notes, the
Company has agreed to issue to the holders of the Bridge Notes that number of
shares of Common Stock equal to the quotient of $250,000 divided by the initial
public offering price.

CERTAIN ARTICLES OF INCORPORATION PROVISIONS

The Articles of Incorporation provides that the Company's directors
will not be personally liable for monetary damages to the Company or its
shareholders for an act or omission in the director's capacity as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its shareholders, (ii) for acts or omissions not in good

48
<PAGE> 57
faith or which involved intentional misconduct or a knowing violation of law,
(iii) for any transaction from which the director derived any improper personal
benefit, (iv) for acts or omissions for which the liability of a director is
expressly provided by statute or (v) an act related to an unlawful stock
repurchase or payment of a dividend. This provision in the Articles of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
nonmonetary relief would remain available under Texas law. This provision also
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.

TRANSFER AGENT, REGISTRAR AND WARRANT AGENT

Prior to the completion of this offering, the Company intends to
engage Continental Stock Transfer and Trust Company, New York, New York, to
serve as the stock transfer agent and registrar for the Common Stock. The
Company currently serves as its own stock transfer agent and registrar.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the CAS acquisition and the payoff
of the Bridge Notes, the Company will have approximately 2,797,363 shares of
Common Stock outstanding, excluding any exercise of currently outstanding
warrants and convertible or exchangeable notes. The 1,000,000 shares of Common
Stock to be sold in this offering will be freely transferable without
restriction or further registration under the Securities Act, except that any
shares purchased by affiliates of the Company will be subject to the
limitations of Rule 144 under the Securities Act. The 1,000,000 Warrants to be
sold in this offering will also be freely transferable without restriction or
further registration under the Securities Act, except that any Warrants
purchased by affiliates of the Company will be subject to the limitations of
Rule 144 under the Securities Act. In addition, the approximate 153,635 shares
of Common Stock to be issued to the former shareholders of CAS in the CAS
acquisition have been registered for resale and will not be restricted. All of
the Company's outstanding shares of Common Stock, warrants, options and
convertible or exchangeable notes are "restricted securities" as that term is
defined in Rule 144 under the Securities Act.

In general, under Rule 144 a minimum of one year must elapse between
the later of the date of the acquisition of restricted securities from the
issuer or its affiliates and a resale of the securities under Rule 144. If the
one- year test is met, a person (or persons whose shares are aggregated),
including persons who may be deemed "affiliates" of the Company, would be
entitled to sell within any three-month period a number of securities that does
not exceed the greater of 1% of the number of shares of Common Stock then
outstanding or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the date an order to sell is placed with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements, and to the availability of current public
information about the Company. In addition, a person who is not deemed to have
been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the securities proposed to be sold for at
least two years, would be entitled to sell such securities under Rule 144(k)
without regard to the requirements described above. Accordingly, all of the
Company's outstanding shares of Common Stock (except for the approximate
197,113 shares to be issued upon payoff of the 10% Bridge Notes and in the CAS
acquisition), warrants and convertible or exchangeable notes will be eligible
for sale under Rule 144 upon completion of this Offering, or shortly
thereafter, as a result of the one-year holding period.

Nonmanagement holders of 531,000 shares of Common Stock and
outstanding warrants exercisable for 279,000 shares of Common Stock have agreed
with the Underwriter to lock-up for a period of 12 months the shares of Common
Stock that they own or may acquire after the date of this Prospectus.
Additionally, if the Underwriter consents to an early release of such shares in
an aggregate quantity equal to at least 50% of such holders' shares, then the
lock up period on such remaining shares held by these shares held by these
holders shall automatically extend to two years from the date of this
Prospectus.

Holders of certain promissory notes totaling $1,260,000 as of March
31, 1997, that are convertible or exchangeable for up to 283,100 shares of
Common Stock have agreed to lock up their shares for two years from the date of
this Prospectus, provided however that such holders may sell shares earlier
only in an amount sufficient to offset required Company principal payments,
beginning March 1998. In addition, the approximate 153,635 shares of Common
Stock to be issued to the former stockholders of CAS in the CAS acquisition
have been registered for resale and will not be registered.

The terms of the Bridge Notes provide that the approximate 43,478
shares of Common Stock to be issued upon full payment of the Bridge Notes may
not be sold by the holder for one year after the closing of this Offering. The
Underwriter may not release or waive the prohibition on sale for shares
issuable upon payment of the Bridge Notes.

<PAGE> 58
In connection with this offering, the Company has registered all of
the Company's outstanding shares of Common Stock (except 55,000 shares) and all
shares of Common Stock issuable upon exercise of outstanding warrants (except
warrants exercisable for 43,490 shares), upon conversion or exchange of
outstanding convertible or exchangeable notes, upon payoff of the Bridge Notes
or upon consummation of the CAS acquisition. The selling shareholders, their
plan of distribution and other required disclosures are set forth in a
supplement to this Prospectus. So long as the Company maintains the
effectiveness of this registration and the selling shareholders comply with
prospectus delivery and other requirements for the public sale of registered
securities, the selling shareholders may resell their shares without
restrictions, except for any applicable lock-up agreement.

Prior to this offering, there has been no public market for the Common
Stock or Warrants. The Company can make no predictions as to the effect, if
any, that sales of shares of Common Stock or Warrants or the availability of
Common Stock or Warrants for sale will have on the market price prevailing from
time to time. Nevertheless, sales of substantial amounts of the Common Stock or
Warrants in the public market could adversely affect the market price of the
Common Stock or Warrants and could impair the Company's future ability to raise
capital through an offering of its equity securities.

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<PAGE> 59
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriter has agreed to purchase from the Company the following respective
numbers of shares of Common Stock and Warrants at the public offering price,
less the underwriting discounts and commissions, set forth on the cover page of
this Prospectus.

<TABLE>
<CAPTION>
Number of Shares
of Common Stock Number of Warrants
Underwriter to be Purchased to be Purchased
----------- ----------------- -----------------
<S> <C> <C>
Duke & Co., Inc. . . . . . . . . . . . . . 1,000,000 1,000,000
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the
Underwriter will purchase all Securities offered hereby if any are purchased.

The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Securities to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $0.575 per share of Common Stock and
$0.01 per Warrant. After the initial public offering, the public offering price,
concessions, and other selling terms may be changed by the Underwriter.

The Company has agreed to pay underwriting discounts and commissions
in the aggregate of 10% of the initial public offering price of the Securities
offered hereby. The Company also has agreed to reimburse the Underwriter's
expenses on a non-accountable basis in the amount of 3% of the gross proceeds
received from the sale of the Securities, including the over-allotment option.
Any such expenses in excess of the expense allowance will be borne by the
Underwriter. The Company has also agreed to pay to the Underwriter a commission
of 6% of the exercise price of any Warrants which are exercised in the future
pursuant to a solicitation by the Underwriter, subject to certain conditions,
including, among other things, that such exercising Warrantholder designates in
writing the Underwriter to receive such commission.

The Company has granted to the Underwriter an option, exercisable not
later than 45 days after the date of this Prospectus, to purchase (i) up to
150,000 additional shares of Common Stock and (ii) 150,000 additional Warrants
at the public offering price, less the underwriting discounts and commissions
set forth on the cover page of this Prospectus. The Underwriter may exercise
such option only to cover over-allotments, if any. To the extent that the
Underwriter exercises such option, the Company will be obligated, pursuant
to the option, to sell such Securities to the Underwriter. If purchased, the
Underwriter will offer for sale such additional shares of Common Stock and
Warrants on the same terms as those on which the 1,000,000 shares of Common
Stock and 1,000,000 Warrants are being offered.

The Company has agreed, upon completion of this offering, to sell to
the Underwriter or its designees, for $0.001 per warrant, Underwriter's
Warrants to purchase (i) 10% of the number of shares of Common Stock sold in
this offering (excluding the over-allotment option) and (ii) Underlying
Warrants to purchase the same number of shares of Common Stock. The terms and
conditions of the Underlying Warrants are identical to those of the Warrants
offered hereby, except that the exercise price of the Underlying Warrants is
165% of the exercise price of the Warrants. The Underwriter's Warrants will
be exercisable for a four-year term, commencing one year after the date of
this Prospectus, at an exercise price equal to 165% of the initial public
offering price of the Securities offered hereby. The Underwriter's Warrants
will be restricted for a period of one year from sale, transfer, assignment, or
hypothecation except to the Underwriter and persons who are officers or
partners of the Underwriter. The number of shares of Common Stock and
Underlying Warrants covered by the Underwriter's Warrants and the exercise
price are subject to adjustment upon certain events to prevent dilution. The
Underwriter's Warrants to purchase Common Stock may be exercised in a
cashless manner through the surrender and exchange of Underwriter's Warrants
having a value (based on the market price of the Common Stock that may be
purchased) equal to the total exercise price for the Common Stock being
purchased.

The Underwriter's Warrants will give the holders an opportunity to
profit from a rise in the market price of the Common Stock to the extent that
the market price exceeds the exercise price of the Underwriter's Warrants.
Any profit

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<PAGE> 60
realized by the Underwriter upon the sale of the Underwriter's Warrants or
the securities issuable thereunder may be deemed to be additional underwriting
compensation. If the Underwriter's Warrants are exercised, the interest of
the Company's shareholders will be diluted. It may be more difficult for the
Company to raise additional capital while the Underwriter's Warrants are
outstanding, and the holders of the Underwriter's Warrants may be expected
to exercise them when the Company, in all likelihood, would be able to obtain
needed additional capital by a new offering of securities on terms more
favorable than those provided for by the Underwriter's Warrants.

The Company has granted to the holders of the Underwriter's
Warrants and the underlying securities certain rights with respect to
registration under the Securities Act of the securities underlying the
Underwriter's Warrants. For a period of four years commencing one year
following the date of this Prospectus, the holders of not less than a majority
of the Common Stock issued or issuable upon exercise of the Underwriter's
Warrants and Underlying Warrants may require the Company to effect up to two
registrations under the Securities Act with respect to the Underwriter's
Warrants, the Underlying Warrants and the Common Stock underlying the
Underwriter's Warrants and the Underlying Warrants, and the Company is
required to use its best efforts to effect such registration. In addition,
subject to certain limitations, in the event the Company proposes to register
any of its securities under the Securities Act during the seven-year period
following the date of this Prospectus, the holders of the Underwriter's
Warrants and the underlying Common Stock are entitled to notice of such
registration and may elect to include the Underwriter's Warrants, the
Underlying Warrants and the Common Stock underlying the Underwriter's
Warrants and Underlying Warrants held by them in such registration. The
Company is obligated to pay the expenses of these registrations, except for
underwriting discounts and commissions and except that the Company's
out-of-pocket expenses associated with the second registration initiated upon
the request of the holders of the Common Stock issued or issuable upon exercise
of the Underwriter's Warrants and Underlying Warrants will be reimbursed by
the holders whose shares are included in such registration. The registration of
securities pursuant to the registration rights applicable to the
Underwriter's Warrants may impede future financing.

Company officers beneficially owning a total of 1,044,250 shares of
Common Stock have signed lock-up agreements under which such holders have agreed
not to offer, sell, or otherwise dispose of 90% of their shares of Common Stock
(939,825 shares) that might otherwise be eligible for sale for a period of 24
months after the date of this Prospectus without the prior written consent of
the Underwriter.

Nonmanagement holders of 531,000 shares of Common Stock and
outstanding warrants exercisable for 279,000 shares of Common Stock have agreed
with the Underwriter to lock-up for a period of 12 months the shares of Common
Stock that they own or may acquire after the date of this Prospectus.
Additionally, if the Underwriter consents to an early release of such shares in
an aggregate quantity exceeding 50% of such holders' shares, then the lock up
period on such remaining shares held by these holders shall automatically extend
to two years from the date of this Prospectus.

Holders of certain promissory notes totaling $1,260,000 as of March 31,
1997, that are convertible or exchangable for up to 283,100 shares of Common
Stock have agreed to lock up their shares for two years from the date of this
Prospectus, provided however that such holders may sell shares earlier in
an amount sufficient to offset required Company principal payments, beginning
March 1998. In addition, the approximate 153,635 shares of Common Stock to be
issued to the former stockholders of CAS in the CAS acquisition have been
registered for resale and will not be registered.

The terms of the Bridge Notes provide that the approximate 43,478
shares of Common Stock to be issued upon full payment of the Bridge Notes may
not be sold by the holder for one year after the closing of this Offering. The
Underwriter may not release or waive the prohibition on sale for the shares
issuable upon payment of the Bridge Notes.

Pursuant to the Underwriting Agreement, for a period of five years
from the effective date of the Registration Statement of which this Prospectus
forms a part, the Underwriter has the right to nominate, and the Company has
agreed to use its best efforts to cause the election of, a person to serve
on the Company's board of directors. In the alternative, the Underwriter may
appoint a designee to serve as an observer at all meetings of the Company's
board of directors. Such observer shall be paid the same cash compensation and
be entitled to the same reimbursement of expenses as the independent directors
sitting on the Company's board of directors.

Pursuant to the Underwriting Agreement, for a period of five years from
the effective date of the Registration Statement of which this Prospectus forms
a part, the Company has agreed not to change its current independent public
accountants, Arsement, Redd, & Morella, L.L.C., without the Underwriter's
consent.

Pursuant to the Underwriting Agreement, for a period of five years
from the effective date of the Registration Statement of which this Prospectus
forms a part, the Company has agreed to maintain keyman life insurance in the
amount of $1,000,000 on each of the lives of Messrs. Sanders, Lubomirski and
Ramsaroop.

Pursuant to the Underwriting Agreement, the employment agreements with
Messrs. Sanders, Lubomirski and Ramsaroop will be extended through at least the
third anniversary of the date of this Prospectus and the Company has agreed not
to increase the compensation paid to the five most highly paid employees of the
Company in any year without the consent of the Underwriter unless permitted
by the terms of employment contracts approved by the Underwriter.

The Underwriting Agreement contains covenants of indemnity between the
Underwriter and the Company against certain civil liabilities, including
liabilities under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers, and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission ("Commission") such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

The Underwriter has advised the Company that the Underwriter does
not intend to confirm sales to any account over which it exercises
discretionary authority.

Prior to this offering, there has been no public market for the
Company's Common Stock or the Warrants. The initial public offering price for
the Securities has been determined by negotiations between the Company and the
Underwriter. Among the factors considered in such negotiations were
prevailing market conditions, the history and prospects of the Company, the
present state of the Company's development, the industry in which it competes,
an assessment of the

52
<PAGE> 61
Company's management, the market price for securities of comparable companies
at the time of the offering, and other factors deemed relevant.

LEGAL OPINIONS

The validity of the issuance of the Common Stock and Warrants offered
hereby will be passed upon for the Company by Bracewell & Patterson, L.L.P.,
Dallas, Texas. Certain legal matters in connection with the issuance of the
Common Stock and Warrants offered hereby will be passed upon for the
Underwriter by Jackson & Walker, L.L.P., Dallas, Texas.

EXPERTS

The consolidated financial statements of Aviation Group, Inc. and
subsidiaries and the financial statements of Pride Aviation, Inc., included in
this prospectus and elsewhere in the registration statement, to the extent and
for the periods indicated in their reports, have been audited by Arsement, Redd
& Morella, L.L.C., independent public accountants, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.

The combined financial statements of Tri-Star Aircraft Services, Inc.
and Tri-Star Airline Services, Inc. (Predecessor) for the year ended September
30, 1995, have been included herein and in the registration statement, in
reliance upon the report of James Smith & Company, a Professional Corporation,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

The consolidated financial statements of Casper Air Service and
subsidiary as of April 30, 1996 and for the two years ended April 30, 1996,
included in this prospectus and in the registration statement, have been
audited by McGladrey & Pullen, LLP, independent certified public accountants,
and are included herein upon the authority of said firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act with respect to the Securities being offered pursuant to this
Prospectus. This Prospectus does not contain all information set forth in the
Registration Statement and exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 25049 and at the regional offices of the Commission
located at 500 West Madison Street, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained at prescribed rates from the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 25049. The Commission
maintains a World Wide Web site (http://www.sec.gov) that contains reports,
proxy, and information statements and other information regarding registrants,
such as the Company, that file electronically with the Commission. Statements
contained in this Prospectus concerning the provisions of any documents are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.

The Company will be subject to the informational requirements of the
Exchange Act and in accordance therewith will file reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference
facilities of the Commission described above. The Company intends to furnish to
its shareholders annual reports containing financial statements audited by
independent certified public accountants following the end of each fiscal year.

53
<PAGE> 62
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AVIATION GROUP, INC. AND SUBSIDIARIES

Independent Auditors' Report dated October 7, 1996 by Arsement, Redd & Morella, L.L.C. A-1
Independent Auditor's Report dated December 22, 1995 by James Smith & Company A-2
Consolidated balance sheets as of June 30, 1996 and March 31, 1997 (unaudited) A-3
Consolidated statements of operations for the nine months ended June 30, 1996, for the year ended
September 30, 1995 (Predecessor) and for the nine month periods ended March 31, 1996
and 1997 (unaudited) A-4
Consolidated statements of changes in shareholders' equity for the nine months ended June 30, 1996,
for the year ended September 30, 1995 (Predecessor) and for the nine month period ended
March 31, 1997 (unaudited) A-5
Consolidated statements of cash flows for the nine months ended June 30, 1996, for the year ended
September 30, 1995 (Predecessor) and for the nine month periods ended March 31, 1996
and 1997 (unaudited) A-6
Notes to consolidated financial statements A-7

FINANCIAL STATEMENTS OF PRIDE AVIATION, INC.

Independent Auditors' Report dated October 7, 1996 by Arsement, Redd & Morella, L.L.C. P-1
Balance sheet as of September 30, 1995 P-2
Statements of operations for the year ended September 30, 1995 and five months ended February 29, 1996 (unaudited) P-3
Statements of changes in shareholders' equity (deficit) for the year ended September 30, 1995 and
five months ended February 29, 1996 (unaudited) P-4
Statements of cash flows for the year ended September 30, 1995 and five months ended February 29, 1996
(unaudited) P-5
Notes to financial statements P-6

CONSOLIDATED FINANCIAL STATEMENTS OF CASPER AIR SERVICE AND SUBSIDIARY

Independent Auditors' Report dated March 27, 1997 by McGladrey & Pullen, LLP C-1
Consolidated balance sheets as of April 30, 1996 and January 31, 1997 (unaudited) C-2
Consolidated statements of income for the fiscal years ended April 30, 1996 and 1995 and the nine months
ended January 31, 1997 and 1996 (unaudited) C-3
Consolidated statements of stockholders' equity for the fiscal years ended April 30, 1996 and 1995 and
the nine months ended January 31, 1997 (unaudited) C-4
Consolidated statements of cash flows for the fiscal years ended April 30, 1996 and 1995 and the nine
months ended January 31, 1997 and 1996 (unaudited) C-6
Notes to consolidated financial statements C-8

</TABLE>

<PAGE> 63

INDEPENDENT AUDITORS' REPORT

To Aviation Group, Inc.
Dallas, Texas

We have audited the accompanying consolidated balance sheet of Aviation Group,
Inc. (a Texas corporation) and subsidiaries as of June 30, 1996, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for the nine months then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aviation Group, Inc. and
subsidiaries as of June 30, 1996, and the results of their operations and cash
flows for the nine months then ended in conformity with generally accepted
accounting principles.

Arsement, Redd & Morella, L.L.C.

October 7, 1996
Lafayette, Louisiana

A-1

<PAGE> 64

INDEPENDENT AUDITORS' REPORT

To the Shareholders of
Tri-Star Aircraft, Inc. and
Tri-Star Airline Services, Inc.

We have audited the accompanying combined statements of income, changes in
shareholders' equity and cash flow of Tri-Star Aircraft, Inc. and Tri-Star
Airline Services, Inc. (Texas corporations) (the Predecessor) for the year
ended September 30, 1995. These financial statements are the responsibility of
the Predecessor's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

Our audit was conducted in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the combined statements of income, changes in shareholder's
equity and cash flow present fairly, in all material respects, the results of
operations of the Predecessor for the year ended September 30, 1995, in
conformity with generally accepted accounting principles.

JAMES SMITH & COMPANY
A Professional Corporation

December 22, 1995
Dallas, Texas

A-2

<PAGE> 65

AVIATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
June 30, March 31,
1996 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 457,000 $ 82,000
Accounts receivable 644,000 655,000
Inventory 143,000 249,000
Deferred tax assets 11,000 163,000
Prepaid expenses and other 22,000 61,000
----------- -----------
Total Current Assets 1,277,000 1,210,000
----------- -----------

Property and Equipment 2,409,000 2,744,000
Less: accumulated depreciation (220,000) (463,000)
----------- -----------
2,189,000 2,281,000
Other Assets
Goodwill, net 975,000 937,000
Other 83,000 491,000
----------- -----------
1,058,000 1,428,000
----------- -----------
$ 4,524,000 $ 4,919,000
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdraft $ -- $ 130,000
Current maturities of long-term debt 209,000 209,000
Bridge notes -- 290,000
Short-term bank borrowings 223,000 248,000
Accounts payable 574,000 611,000
Accrued interest 36,000 29,000
Due to affiliates 2,000 --
Accrued liabilities 359,000 422,000
----------- -----------
Total Current Liabilities 1,403,000 1,939,000
----------- -----------

Long-Term Liabilities
Long-term debt, net of current maturities 1,350,000 1,303,000
Deferred income taxes 316,000 305,000
----------- -----------
1,666,000 1,608,000
----------- -----------

Shareholders' Equity
Preferred Stock, $.01 par value, 5,000,000 -- --
shares authorized, none outstanding
Common Stock, $.01 par value, 10,000,000
shares authorized, 1,600,250 shares issued
and outstanding 16,000 16,000
Additional paid-in capital 1,701,000 1,951,000
Retained earnings (deficit) (262,000) (595,000)
----------- -----------
1,455,000 1,372,000
----------- -----------
$ 4,524,000 $ 4,919,000
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

A-3

<PAGE> 66

AVIATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31,
June 30, September 30, (unaudited)
1996 1995 1997 1996
----------- ----------- ----------- -----------
(Nine Months) (Predecessor) (Predecessor)
<S> <C> <C> <C> <C>
Revenue $ 3,881,000 $ 2,533,000 $ 6,664,000 $ 2,123,000

Cost of Revenue 2,838,000 1,417,000 5,295,000 1,558,000
----------- ----------- ----------- -----------

Gross Profit 1,043,000 1,116,000 1,369,000 565,000
----------- ----------- ----------- -----------

General and Administrative Expenses 752,000 553,000 1,422,000 469,000
Depreciation and Amortization 154,000 16,000 291,000 57,000
----------- ----------- ----------- -----------
906,000 569,000 1,713,000 526,000
----------- ----------- ----------- -----------

Income (Loss) From Operations 137,000 547,000 (344,000) 39,000
----------- ----------- ----------- -----------

Other Income (Expenses)
Interest Income 2,000 -- -- 2,000
Interest Expense (71,000) (20,000) (153,000) (33,000)
Other, net -- 3,000 -- 2,000
----------- ----------- ----------- -----------
(69,000) (17,000) (153,000) (29,000)
----------- ----------- ----------- -----------

Income (Loss) Before Provision for Income
Taxes 68,000 530,000 (497,000) 10,000

Provision (Benefit) for Income Taxes 34,000 188,000 (164,000) 6,000
----------- ----------- ----------- -----------

Net Income (Loss) $ 34,000 $ 342,000 $ (333,000) $ 4,000
=========== =========== =========== ===========

Pro forma earnings (loss) per common and
common equivalent share (unaudited) $ 0.02 $ (0.22) $ --
=========== =========== ===========

Pro forma weighted average common and
common equivalent shares outstanding
(unaudited) 1,497,511 1,497,511 1,497,511
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

A-4

<PAGE> 67

AVIATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Common Stock Retained
-------------------------- Paid In Earnings
Shares Amount Capital (Deficit) Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
Predecessor combined balances at
September 30, 1994 (1) $ 1,000 $ 50,000 $ 162,000 $ 213,000

Net Income -- -- -- 342,000 342,000

Contribution from The Sanders
Companies, Inc. (Note I) -- -- 151,000 -- 151,000

Dividend to The Sanders
Companies, Inc.(Note I) -- -- -- (787,000) (787,000)

----------- ----------- ----------- ----------- -----------
Predecessor combined balances at
September 30, 1995 (1) 1,000 201,000 (283,000) (81,000)

Restatement to reflect combination
of entities under common control
(Note A) 1,000,000 9,000 (9,000) -- --
----------- ----------- ----------- ----------- -----------

Balance, September 30, 1995
as restated 1,000,000 10,000 192,000 (283,000) (81,000)

Dividend to The Sanders
Companies, Inc. (Note I) -- -- -- (13,000) (13,000)

Issuance of shares in connection 500,000 5,000 1,209,000 -- 1,214,000
private offering

Issuance of shares in connection
with acquisition of Pride Aviation, Inc. 44,250 500 132,500 -- 133,000

Issuance of shares in connection
with settlement of long-term debt 56,000 500 167,500 -- 168,000

Net Income 34,000 34,000
----------- ----------- ----------- ----------- -----------

Balance, June 30, 1996 1,600,250 16,000 1,701,000 (262,000) 1,455,000

Bridge Notes Warrants (Note O) -- -- 250,000 -- 250,000

Net Loss (unaudited) -- -- -- (333,000) (333,000)
----------- ----------- ----------- ----------- -----------

Balance, March 31, 1997 (unaudited) 1,600,250 $ 16,000 $1,951,0000 $ (595,000) $ 1,372,000
=========== =========== =========== =========== ===========
</TABLE>

(1) The Predecessor entities, TriStar Aircraft Services, Inc. and TriStar
Airline Services, Inc. had 10,000 and 1,000 shares of common stock outstanding,
respectively, at both September 30, 1994 and 1995.

The accompanying notes are an integral part of these statements.

A-5

<PAGE> 68

AVIATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Nine Months Nine Months Ended
Ended Year Ended March 31,
June 30, September 30, (Unaudited)
1996 1995 1997 1996
----------- ----------- ----------- -----------
(Predecessor)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 34,000 $ 342,000 $ (333,000) $ 4,000
----------- ----------- ----------- -----------

Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating Activities:
Depreciation and amortization 154,000 16,000 291,000 57,000
Accreted interest -- -- 40,000 --
Deferred income taxes 47,000 36,000 (163,000) 6,000
(Increase) decrease in accounts receivable (123,000) 147,000 11,000 (230,000)
(Increase) decrease in inventories (42,000) -- (106,000) (39,000)
(Increase) decrease in prepaids and other current assets 29,000 (25,000) 6,000 23,000
Increase (decrease) in accounts payable (214,000) (87,000) 37,000 (43,000)
Increase (decrease) in interest payable 36,000 -- (7,000) 15,000
Increase (decrease) in accrued liabilities (20,000) -- 63,000 44,000
Other (14,000) 11,000 (40,000) (29,000)
----------- ----------- ----------- -----------

Total Adjustments (147,000) 98,000 110,000 (196,000)
----------- ----------- ----------- -----------

Net Cash Provided (Used) by Operating Activities (113,000) 440,000 (223,000) (192,000)
----------- ----------- ----------- -----------

Cash Flows From Investing Activities:
Cash paid for acquisition of Pride Aviation, Inc. (506,000) -- -- (506,000)
Cash paid for acquisition targets -- -- (78,000) --
Cash payments for the purchase of equipment (12,000) (64,000) (335,000) (4,000)
----------- ----------- ----------- -----------

Net Cash Used by Investing Activities (518,000) (64,000) (413,000) (510,000)
----------- ----------- ----------- -----------

Cash Flows From Financing Activities:
Bank overdraft -- 29,000 130,000 48,000
Proceeds from short-term borrowings 80,000 170,000 25,000 80,000
Repayments of short-term borrowings (27,000) -- -- (27,000)
Proceeds from issuance of Bridge Notes and Warrants -- -- 500,000 --
Proceeds from issuance of long-term debt -- 194,000 76,000 --
Advances (to)/from related parties -- (685,000) (45,000) 50,000
Payment of Initial Public Offering costs -- -- (266,000) --
Proceeds from issuance of common stock 1,214,000 -- -- 700,000
Deferred financing costs -- -- (36,000) --
Principal payments on long-term debt (179,000) (84,000) 123,000 (149,000)
----------- ----------- ----------- -----------

Net Cash Provided (Used) by Financing Activities 1,088,000 (376,000) 261,000 702,000
----------- ----------- ----------- -----------

Net Increase (Decrease) in Cash and Cash Equivalents 457,000 -- (375,000) --

Cash and Cash Equivalents at Beginning of Period -- -- 457,000 --
----------- ----------- ----------- -----------

Cash and Cash Equivalents at End of Period $ 457,000 $ -- $ 82,000 $ --
=========== =========== =========== ===========

Supplemental Disclosure of Cash Paid for Interest and
Income Taxes:
Cash paid for interest $ 35,000 $ 20,000 $ 120,000 $ 18,000
Cash paid for income taxes -- -- -- --

Supplemental Disclosure of Non-cash Investing
and Financing Activities:
Issuance of common stock in connection with
the acquisition of Pride Aviation, Inc. $ 133,000 -- -- $ 133,000

Issuance of long-term debt in connection with the
the acquisition of Pride Aviation, Inc. $ 857,000 -- -- $ 857,000

Common stock issued to retire long-term debt $ 168,000 -- -- --

Contribution from The Sanders Companies, Inc. -- $ 151,000 -- $ 151,000
Dividend - to The Sanders Companies, Inc. -- $ 787,000 -- $ 787,000
</TABLE>

The accompanying notes are an integral part of these statements.

A-6

<PAGE> 69

AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995

NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

Aviation Group, Inc. (the "Company") (a Texas corporation) was formed
on December 4, 1995 for the purposes of combining certain aircraft
service operations formerly owned by The Sanders Companies, Inc.
("Sanders") and to acquire additional aircraft servicing related
businesses. Sanders is 100% owned by Lee Sanders, president and chief
executive officer of the Company. On February 21, 1996, the Company
acquired Pride Aviation, Inc. ("Pride") in a business combination
accounted for as a purchase. Pride operates a Federal Aviation
Administration ("FAA") approved repair station and provides aircraft
painting and maintenance services (See Note C).

On December 20, 1995, the Company entered into an Exchange Agreement
(the "Exchange") whereby Sanders contributed all of the outstanding
common stock of Tri-Star Airline Services, Inc. ("Airline") and
Tri-Star Aircraft Services, Inc. ("Aircraft") (collectively the
"Tri-Star Companies" or "Predecessor") to the Company in exchange for
100% of the common stock (1,000,000 shares) of the Company. The
Exchange was accounted for similar to a pooling of interest with no
change in historical basis of assets and liabilities as Sanders
controlled 100% of the stock of the companies prior to and subsequent
to the transaction. Prior to the Exchange, the Tri-Star Companies were
operated as members of a controlled group with other operations of
Sanders. For periods prior to the Exchange, the continuing operations
of the Companies have been separated from the controlled group.

The Company's primary business includes the operation of FAA approved
repair stations in New Iberia, Louisiana and Dallas, Texas which
provide painting and paint stripping services to the commercial
airline and corporate and private aircraft industry. The Company also
provides refueling services and light maintenance services in Dallas,
Texas and snack catering and aircraft cleaning services at various
commercial airports in the United States.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The accompanying consolidated financial statements present the
combined results of the Predecessor for all periods through December
31, 1995, and the consolidated results of the Company and its
subsidiaries subsequent to that date. The Company changed its fiscal
year end during 1996 from September 30 to June 30. All intercompany
balances and transactions have been eliminated in consolidation.

Interim Period Financial Statements
The unaudited financial statements as of March 31, 1997 and for the
nine months ended March 31, 1997 and 1996, reflect, in the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position and
results of operations for the respective periods. Operating results
for the interim periods are not necessarily indicative of the results
for full years.

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 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.

Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.

A-7

<PAGE> 70

AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Accounts Receivable
The Company uses the allowance method in accounting for losses on
accounts receivable. Provision for losses on trade receivable is made
in amounts estimated to be adequate to cover anticipated bad debts.
Accounts receivable are charged against the allowance when it is
determined by management that payment will not be received. Any
subsequent receipts are credited to the allowance. Bad debt expense
charged to operations for the nine months ended June 30, 1996 and the
year ended September 30, 1995 was $16,000 and $47,000, respectively.
The allowance for doubtful accounts was $30,000 at June 30, 1996.

Inventory
Inventories are stated at the lower of cost or market, with cost
determined by the average costing method.

Goodwill
Goodwill represents the cost in excess of fair value of the net assets
(including tax attributes) acquired in the Pride acquisition. Goodwill
is being amortized on a straight line basis over a 20 year period.
Amortization expense and accumulated amortization totaled $17,000 at
June 30, 1996.

Property and Equipment
Property and equipment are stated at cost. Depreciation has been
provided using straight line and double declining balance methods over
the estimated useful lives of the assets which range from 5 to 30
years.

Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income.

Unaudited Pro Forma Net Income (Loss) Per Common Share
The Company's historical capital structure prior to 1996 is not
comparable to its current structure due to the Exchange discussed in
Note A and the issuance of common stock, warrants and convertible debt
during the fiscal period ended June 30, 1996 in connection with a
private placement of the Company's common stock and the acquisition of
Pride. Accordingly, historical net income (loss) per common share is
not considered meaningful and has not been presented herein.

Pro forma net income (loss) per common share is computed based on the
weighted average number of common shares outstanding and gives effect
to certain adjustments described below. During the fiscal period ended
June 30, 1996, the Company issued common stock, warrants and
convertible debt with issuance and exercise prices below that of the
expected initial public offering ("IPO") price of the Company's common
stock of $5.75 per share. Pursuant to Securities and Exchange
Commission requirements, the dilutive effect of these securities has
been included in the calculation as if they were outstanding as of the
beginning of the periods presented and the dilutive effect of the
common stock and warrants was measured using the treasury stock
method. No adjustment was made for the assumed conversion of the
Company's convertible debt and the Bridge Notes Warrants since the
effect would be antidilutive for the periods presented.

NOTE C - ACQUISITION OF PRIDE AVIATION, INC.

On February 21, 1996, the Company entered into an agreement to acquire
99% of the outstanding common stock of Pride for cash of $486,000,
issuance of $857,000 of 10% Convertible Notes, issuance of 44,250
shares of the Company's common stock valued at approximately $133,000.
At the closing of the acquisition, Pride

A-8

<PAGE> 71

AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995

NOTE C - ACQUISITION OF PRIDE AVIATION, INC., continued

had approximately $906,000 of long-term debt and $947,000 of other
liabilities. The acquisition was accounted for using the purchase
method. Accordingly, the purchase price was allocated to the net
assets acquired based on their estimated fair values. The transaction
was closed in early March 1996 and the results of operations of Pride
are included in the accompanying financial statements beginning March
1, 1996. The excess of the purchase price over the fair value of the
net assets acquired (including tax attributes) of $991,000 has been
recorded as goodwill and is being amortized using the straight-line
method over 20 years.

Supplemental Pro Forma Results of Operations (Unaudited)
The following unaudited pro forma summary presents the consolidated
results of operations for the nine months ended June 30, 1996 as if
the Pride acquisition had occurred as of the beginning of the
Company's fiscal year (October 1, 1995). The summarized information
does not purport to be indicative of what would have occurred had the
acquisition actually been made as of such date or of results which may
occur in the future.

<TABLE>
<S> <C>
Revenues $ 6,755,000
Net Income $ 72,000
Net income per common share $ .05
</TABLE>

Adjustments made in arriving at pro forma unaudited results of
operations included, increased interest expense on acquisition debt,
additional depreciation expense, amortization of goodwill and related
tax adjustments.

NOTE D - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at June 30, 1996:

<TABLE>
<S> <C>
Machinery and equipment $1,659,000
Leasehold improvements 530,000
Furniture, fixtures and office equipment 114,000
Vehicles 106,000
----------
2,409,000
Less: accumulated depreciation (220,000)
----------
$2,189,000
==========
</TABLE>

Depreciation expense charged to operations for the nine months ended
June 30, 1996 and the year ended September 30, 1995 was $137,000 and
$16,000, respectively.

NOTE E - SHORT-TERM BANK BORROWINGS

The Company has a $250,000 line of credit facility with Compass Bank
("Line of Credit") which is guaranteed by the U. S. Small Business
Administration. The Line of Credit was effectively assumed by Tri-Star
Aircraft Services, Inc. with the transfer of assets and liabilities in
connection with the Exchange discussed in Note A.

The Line of Credit bears interest at a rate of prime plus 2% (10.75%
at June 30, 1996) and extends through September 30, 1997. Borrowings
under the Line of Credit are determined on a borrowing base formula
which is based on a percentage of qualifying accounts receivable of
the Company and Sanders. Borrowings outstanding under the Line of
Credit totaled $223,000 at June 30, 1996.

The Line of Credit is secured by the accounts receivable, equipment,
furniture and fixtures and capital stock of Sanders and the Tri-Star
Companies. Sanders, as primary maker, remains the liable for
borrowings under the Line of Credit. The Line of Credit is also
secured by the personal guaranty of Lee Sanders.

A-9

<PAGE> 72

AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995

NOTE E - SHORT-TERM BANK BORROWINGS, continued

The Line of Credit Agreement contains restrictive covenants which
among other things prohibits the creation of debt, corporate mergers,
sale of assets and other certain other transactions unless consent is
received from the bank. Management believes the Company and Sanders
were in compliance with the terms of the Line of Credit agreement at
June 30, 1996 and March 31, 1997.

NOTE F - LONG-TERM DEBT

Long-term debt consisted of the following at June 30, 1996:

<TABLE>
<S> <C>
Convertible notes payable, payable in quarterly installments totaling
$72,000 beginning April 1, 1998, bearing interest at 10%, maturing
March 1, 2001 and secured by the Company's shares of common stock of
Pride Aviation, Inc. The notes are convertible into shares of common
stock of the Company at conversion prices ranging from $3.00 to $4.50
per share, subject to adjustment for certain equity transactions. $ 884,000

Convertible notes payable to Louisiana Economic Development
Corporation dated March 1, 1996, payable in 60 monthly installments of
$3,800, including interest at 7.38% and one final installment of the
remaining unpaid balance on March 1, 2001. The note is secured by
pledge of certain shares of common stock, accounts receivable,
inventory and equipment of Pride Aviation, Inc. The note is
convertible into shares of common stock of the Company at a price of
$4.50 per share, subject to adjustment for certain equity
transactions. 386,000

Note payable to Sunbelt Business Capital, L.L.C., payable in monthly
installments of $6,400, including interest at 12%, due June 1998 and
secured by certain accounts receivable and equipment. 135,000

Note payable to Schwing Insurance Agency, payable currently, with
interest at 7.5% on the unpaid balance. 72,000

Note payable to Fidelity Bank, payable in monthly installments of
$1,000 including interest at prime plus 2.5% (10.75% at June 30,
1996), maturing August 1997 and secured by certain machinery and
equipment. 20,000

Note payable to Compass Bank, payable in monthly installments of
$1,600 including interest at prime plus 2.25% (10.5% at June 30,
1996), maturing September 1997 and secured by accounts receivable,
equipment, keyman life insurance policy, and personal guaranty and
pledge of stock of The Sanders Companies, Inc. by Lee Sanders. 27,000

Various notes payable to finance companies, due in monthly
installments totaling 23,000 $1,300, including interest at rates
ranging from 9.5% to 13.25%, maturing from April 1997 to March 1998
and secured by certain vehicles. 23,000
Other 12,000
-----------
Total long-term debt 1,559,000
Less: current maturities of long-term debt (209,000)
-----------
Net long-term debt $ 1,350,000
===========
</TABLE>

A-10

<PAGE> 73

AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995

NOTE F - LONG TERM DEBT, continued

The Company's notes payable to Fidelity Bank and Compass Bank and the
notes payable to finance companies were originally made by Sanders.
This debt was effectively assumed by the Tri-Star Companies with the
transfer of assets and liabilities in connection with the Exchange
discussed in Note A. Sanders remains liable under the note agreements
as the primary maker.

Maturities of long-term debt for each of the next five years are as
follows:

NOTE G - LEASES

The Company leases various equipment and office and hanger facilities
under cancelable and noncancelable rental arrangements. Rental
expenses from operating leases and monthly rentals for the nine months
ended June 30, 1996 and year ended September 30, 1995, were $252,000
and $42,000, respectively.

Minimum future lease payments for non-cancelable operating leases
for the next 5 years and thereafter are as follows:

<TABLE>
<CAPTION>
June 30,
<S> <C> <C>
1997 $ 348,000
1998 322,000
1999 330,000
2000 334,000
2001 215,000
Thereafter 4,865,000
----------
$6,414,000
==========

</TABLE>

NOTE H - COMMITMENTS AND CONTINGENCIES

The Company, in connection with the production of revenue, produces
chemical waste which is temporarily stored on the Company's premises.
Costs for disposal are expensed by the Company as waste is produced.
The provision for disposal of waste on hand totaled $16,000 as of June
30, 1996, and is included in accrued liabilities in the accompanying
balance sheet.

One of the Company's subsidiaries is partially self-insured for
employee medical claims. Insurance with independent insurance carriers
is maintained to cover medical claims in excess of self-insured
limits. The Company's self insured limits vary by month and policy
year and are based on various factors including the number of
employees and dependants covered and certain experience factors. In
addition to aggregate annual and monthly limitations, the Company's
exposure is further limited to $30,000 per employee per year.

NOTE I - SHAREHOLDERS' EQUITY

Private Offering
In March 1996, the Company issued 500,000 shares of common stock at a
price of $3.00 per share in a private offering and raised
approximately $1,214,000, net of sales commissions and offering costs
totaling $286,000.

A-11

<PAGE> 74

AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995

NOTE I - SHAREHOLDERS' EQUITY, continued

In connection with the private offering, the Company issued warrants
to the placement agent to purchase 200,000 shares of the Company's
common stock at a price equal to $1.00 per share, expiring February
28, 1999. The Company also issued warrants to an investment banking
advisor, for services provided in connection with the offering, to
purchase 80,000 shares of the Company's common stock at a price equal
to $2.50 per share, expiring February 28, 1999. The exercise price and
number of shares issuable under the warrants are subject to adjustment
for certain equity transactions and other circumstances. The warrants
also contain a "cashless" exercise feature whereby the warrants may be
surrendered in exchange for a number of shares to be determined based
on the difference between the exercise price and the market price for
the Company's common stock.

The holders of the Company's common stock and warrants have certain
registration rights, including the right to require the Company to
file a registration statement to register their securities with the
Securities and Exchange Commission, upon request of a majority of the
holders of the Company's common stock and warrants.

Debt Retirement
During March 1996, the Company issued 56,000 shares of common stock to
retire $168,000 of the outstanding principal amount of indebtedness
owed to Sunbelt Business Capital, L.L.C. (See Note F).

Dividend to/Contribution from The Sanders Companies, Inc.
Through September 30, 1995, the Tri-Star Companies had advanced
$787,000 to Sanders. These advances were declared and classified as
dividends since Sanders did not intend to repay the advances.

The Company's Tri-Star Companies subsidiaries were included in the
consolidated tax return of Sanders for the years ended December 31,
1995 and 1994. The contribution from Sanders for the year ended
September 30, 1995 represents the current tax expense generated by the
Tri-Star Companies for that fiscal year. The tax expense was treated
as a contribution from Sanders since Sanders did not intend to require
the Company to pay it for the expense. The dividend to Sanders for the
nine month period ended June 30, 1996 represents the tax benefit
generated by the Tri-Star Companies for the three month period ended
December 31, 1995. The tax benefit was treated as a dividend to
Sanders since Sanders does not intend to pay the Company for the
benefit.

NOTE J - RELATED PARTY TRANSACTIONS

For periods prior to the Exchange and through March 1, 1996, Sanders
provided services and allocated certain general and administrative
expenses to the companies operating under the controlled group,
including the Tri-Star Companies. Such charges were allocated to the
members of the controlled group based upon the level of management and
supervision time required, services provided and certain other
factors. Management of the Company believes that such allocations are
reasonable. These charges are included in general and administrative
expenses and totaled $77,000 and $203,000 for the period ended June
30, 1996 and year ended September 30, 1995, respectively. One of the
subsidiaries of the Sanders controlled group was not profitable for
the year ended September 30, 1995, and subsequently ceased operations.
The amount of corporate overhead allocated to this subsidiary by
Sanders during the year ended September 30, 1995 was $144,000. Had
this subsidiary not operated in the year ended September 30, 1995, the
Company's corporate overhead allocation would have increased by
$97,000.

A-12

<PAGE> 75

AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995

NOTE J - RELATED PARTY TRANSACTIONS, continued

In connection with the Pride acquisition, on March 1, 1996, the
Company entered into consulting agreements with two former
shareholders of Pride. The consulting agreements provide for the
payment of monthly fees and reimbursement of certain expenses with
terms ranging from 12 to 24 months. Fees paid under these arrangements
totaled $40,000 for the period ended June 30, 1996 with $24,000
capitalized as other assets (See Note O) and $16,000 included in
general and administrative expenses. Minimum future payments over the
remaining terms of these arrangements are $92,000 and $24,000 for the
fiscal years ending June 30, 1997 and 1998, respectively.

As of June 30, 1996, the Company owed $2,000 to Sanders for net
payments made by Sanders on behalf of the Company. Such amount is
reflected as "Due to affiliate" in the accompanying balance sheet.

NOTE K - PROVISION FOR INCOME TAXES

The Company's Tri-Star Companies subsidiaries were included in the
consolidated tax return of Sanders for the periods prior to and
through the date of the Exchange. Sanders did not require its
subsidiaries to pay for their share of the consolidated tax expense or
reimburse the subsidiaries for tax benefits generated. Accordingly,
for periods prior to the Exchange, the tax expense (benefits) for the
Tri Star Companies were computed as if it were a separate taxpayer and
the resulting amount treated as an equity transaction with Sanders.
(See Note I). The Company will file a separate consolidated tax return
for the period ended June 30, 1996.

The provision for income taxes consist of the following components:

<TABLE>
<CAPTION>
Nine Months Year
Ended Ended
June 30, 1996 September 30, 1995
------------- ------------------

<S> <C> <C>
Current provision (benefit) (See Note I) $(13,000) $151,000
Deferred taxes 47,000 37,000
-------- --------
Provision for income taxes $ 34,000 $188,000
======== ========
</TABLE>

Deferred taxes are principally due to differences in the basis and
depreciable lives for property and equipment for book and tax purposes
and unused net operating loss carryforwards.

Deferred tax assets and liabilities consisted of the following at June
30, 1996:

<TABLE>
<S> <C>
Assets
Net operating loss carryforward $ 257,000

Liabilities
Property and equipment (536,000)
Other (26,000)
---------
Net deferred tax liability $(305,000)
=========

</TABLE>

The net deferred tax amounts are presented on the balance sheet as
follows:

<TABLE>
<S> <C>
Current deferred tax asset $ 11,000
Long-term deferred tax liability (316,000)
---------
$(305,000)
=========
</TABLE>

A-13

<PAGE> 76

AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995

NOTE K - PROVISION FOR INCOME TAXES, continued

The following is a reconciliation of taxes computed at the federal
statutory rate to the provision for income taxes included in the
financial statements:

<TABLE>
<CAPTION>
Nine Months Year
Ended Ended
June 30, 1996 September 30, 1995
------------- ------------------
<S> <C> <C>
Taxes computed by applying federal
statutory rate $ 23,000 $ 180,000
State income taxes, net of federal benefits 15,000 -
Expenses not deductible for tax purposes 6,000 8,000
Effect of graduated tax rates and other (10,000) -
-------- ---------
Provision for income taxes $34,000 $ 188,000
======= =========
</TABLE>

For income tax purposes, the Company has available at June 30, 1996,
unused federal and state net operating loss carryforwards of
approximately $823,000 and $135,000, respectively, which may be
applied against future taxable income of the Company's subsidiary
(Pride), subject to certain annual limitations, expiring in various
years from 2005 to 2009. The Company believes that it is more likely
than not that the net operating loss carryforwards will be utilized in
the future and accordingly, no valuation allowance has been recorded.

NOTE L - PROVISION FOR WARRANTY CLAIMS

The Company generally warrants its products and services against
defects in material and workmanship based on contract terms with
customers. The Company records an estimated liability for warranty
claims, based on actual claims experience, at the time the products
and services are provided and revenue is recognized. The Company's
warranty liability totaled $101,000 as of June 30, 1996, and is
included in accrued liabilities in the accompanying balance sheet.
Warranty claims, which are netted against revenue, totaled $38,000 and
$0 for the period ended June 30, 1996 and year ended September 30,
1995, respectively

NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain of the Company's financial instruments, including cash
equivalents, accounts receivable, short-term bank borrowings and
accounts payable, the carrying amounts approximate fair value due to
their short maturities.

The carrying amount reported for long-term debt approximates fair
value based on current interest rates for debt with similar terms and
maturities.

NOTE N - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Substantially all of the Company's accounts receivable at June 30,
1996, result from sales to third party companies in the airline
industry. This concentration of customers may impact the Company's
overall credit risk, either positively or negatively, in that these
entities may be similarly affected by changes in economic or other
conditions. The Company believes that the risk is mitigated by the
size, reputation and nature of its customers. Although, the Company
generally does not require collateral or other security to support
customer receivables, it may have certain rights, such as the ability
to place liens on aircraft serviced, in the event of non-payment by
its customers.

During the period ended June 30, 1996, the Company derived
approximately 62% of its revenues from United Airlines. Receivables
due from United Airlines totaled approximately $202,000 at June 30,
1996.

A-14

<PAGE> 77

AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995

NOTE N - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS, continued

Revenues for the year ended September 30, 1995, included $1,627,000,
from major two major customers which represents 64% of total revenues.

NOTE O - SUBSEQUENT EVENTS (unaudited)

Acquisition Agreement
On July 10, 1996, the Company entered into an agreement to acquire
certain aircraft refueling operations from a third party for $170,000.
Under the terms of the agreement, the Company would acquire the
seller's interest in a fuel farm held under an operating lease
arrangement and acquire certain refueling contract rights and
refueling equipment. The Company originally paid $50,000 as a down
payment for the acquisition. As of March 31, 1997, the transaction had
not closed pending certain required regulatory approvals and $40,000
of the Company's down payment had been returned. If such approvals
are not granted, the Company's remaining down payment will be returned
and the agreement canceled.

New Aircraft Hangar and Contract Proposals
The Company has been pursuing efforts to obtain a contract with United
Airlines ("United") for the painting of United's Boeing 747 commercial
aircraft fleet. The Company currently provides painting services for
United's non-747 fleet. Subsequent to June 30, 1996, the Company
submitted a Request For Proposal ("RFP") to United for the painting of
its Boeing 747 fleet. In conjunction with these efforts, the Company
has pursued and obtained commitments for approximately $4,200,000 in
Louisiana state and federal grants toward the construction and
operation of a new aircraft hangar at the Company's New Iberia,
Louisiana location. Approximately $4,300,000 in additional financing
will be required to fund the hangar's $8,500,000 estimated cost. As of
June 30, 1996, the Company has capitalized approximately $24,000 in
costs (See Note J) associated with arranging financing commitments for
the project.

There presently exists no binding agreement between the Company and
United to paint United's 747 fleet. The Company is not obligated to
construct the hangar or fund its $8.5 million cost. There can be no
assurance that if the United 747 paint contract is obtained that
sufficient or suitable financing can ultimately be arranged.

Financing
In February 1997, the Company completed a private offering of $500,000
of its 10% unsecured, subordinated bridge notes. The proceeds of this
offering are being used to fund costs of the Company's initial public
offering ("IPO") and general working capital purposes. If the Company
successfully completes the IPO by September 30, 1997, the terms of
these notes require the Company to issue to the holders that number of
shares of Common Stock which equals $250,000 divided by the initial
public offering price. Accordingly, $250,000 of the proceeds has been
allocated to equity and credited to paid in capital, and the notes
payable were recorded at a discounted amount of $250,000. The discount
will be amortized to interest expense over the shorter of the period
through September 30, 1997 or the consummation date of the initial
public offering. Unamortized discount at March 31, 1997 totaled
$210,000.

On May 15, 1997, when the outstanding principal balance of the
Company's note to Sunbelt Capital, L.L.C., was $83,000, Sunbelt
Business Capital, L.L.C. sold the note to Jerry R. Webb who at the
same time loaned an additional $200,000 to the Company. The entire
$283,000 debt to Mr. Webb was restructured and restated in the form of
a new note payable in full on May 13, 1998, bearing interest at 18%
per annum. The note requires monthly payments of interest only. One of
the Company's directors, Mr. Charles Weed, and one other individual,
who is not affiliated with the Company, own participation interests of
$83,000 and $100,000, respectively, in the debt owed to Mr. Webb by
the Company. On July 9, 1997, Jerry Webb advanced an additional
$144,000 against certain receivables, for which the Company promised
to pay Mr. Webb $150,000 on or before August 1, 1997.

A-15

<PAGE> 78

AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and September 30, 1995

NOTE O - SUBSEQUENT EVENTS (unaudited), continued

Stock Options
The Company's Board and shareholders approved a 1997 Employee Stock
Option Plan (the "Plan") in February 1997. The Company may grant
options under the Plan to key employees and directors of the Company.
The Board has authorized the grant of options to purchase 26,000
shares of Common Stock exercisable at the initial public offering
price and 10,000 shares of Common Stock exercisable at $4.50 per
share.

Acquisition of Casper Air Service
Effective April 18, 1997, the Company entered into an agreement to
acquire all of the outstanding stock of Casper Air Service, a Wyoming
corporation ("CAS"). The Company expects to consummate this transaction
concurrently with the closing of its initial public offering. CAS is a
full-service FBO located in Casper, Wyoming and has been in business
continuously since 1946. For the nine months ended January 31, 1997.
CAS had net income of $271,000 and sales of approximately $6,570,000.
The Company has agreed to pay the CAS shareholders approximately
$1,167,000 in cash and approximately $883,000 in value of Common
Stock, based on the initial public offering price.

A-16

<PAGE> 79
INDEPENDENT AUDITORS' REPORT

To Pride Aviation, Inc.
New Iberia, Louisiana

We have audited the accompanying balance sheet of Pride Aviation, Inc. as of
September 30, 1995, and the related statements of operations, changes in
shareholders' equity (deficit) and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pride Aviation, Inc. as of
September 30, 1995, and the results of its operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.

Arsement, Redd & Morella, L.L.C.

October 7, 1996
Lafayette, Louisiana

P-1

<PAGE> 80

PRIDE AVIATION, INC.
BALANCE SHEET
September 30, 1995

ASSETS
<TABLE>
Current Assets
<S> <C>
Cash and cash equivalents $ 1,000
Accounts receivable 366,000
Inventory 126,000
Note receivable 13,000
Other current assets 39,000
-----------
Total Current Assets 545,000
-----------

Plant and Equipment, net of accumulated
depreciation of $869,000 704,000
-----------

Other Assets
Deposits and other 142,000
-----------

$ 1,391,000
===========

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Bank overdraft $ 74,000
Note payable to shareholder 265,000
Current maturities of long-term debt 315,000
Accounts payable 796,000
Accrued expenses 331,000
-----------
Total Current Liabilities 1,781,000
-----------

Long-term Liabilities
Long-term debt, net of current maturities 685,000
-----------

Shareholders' Equity (Deficit)
Common stock, $1.00 par value 50,000 shares
authorized, 10,000 shares issued and outstanding. 10,000
Additional paid-in capital 1,480,000
Accumulated deficit (2,565,000)
-----------
(1,075,000)
-----------
$ 1,391,000
===========
</TABLE>

P-2

The accompanying notes are an integral part of these statements.

<PAGE> 81

PRIDE AVIATION, INC.
STATEMENTS OF OPERATIONS
Years Ended September 30, 1995 and Five Months Ended
February 29, 1996

<TABLE>
<Caption
Year Five Months
Ended Ended
September 30, February 29,
1995 1996
------------- -----------
(Unaudited)
<S> <C> <C>
Revenue $ 6,519,000 $ 2,874,000

Cost of Revenue 4,302,000 2,117,000
----------- -----------

Gross Profit 2,217,000 757,000

General and Administrative Expenses 1,957,000 466,000
Depreciation and Amortization 174,000 60,000
----------- -----------

Income From Operations 86,000 231,000
----------- -----------

Other Income (Expenses)
Other income -- 22,000
Interest expense (167,000) (58,000)
----------- -----------
(167,000) (36,000)
----------- -----------

Net Income (Loss) $ (81,000) $ 195,000
=========== ===========
</TABLE>

P-3

The accompanying notes are an integral part of these statements.

<PAGE> 82

PRIDE AVIATION, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Years Ended September 30, 1995 and Five Months Ended
February 29, 1996

<TABLE>
<CAPTION>
Common Paid in Accumulated
Stock Capital Deficit
----------- ----------- -----------
<S> <C> <C> <C>
Balance, September 30, 1994 $ 6,000 $ 1,480,000 $(2,484,000)

Net Loss -- -- (81,000)

Issuance of stock 4,000 -- --
----------- ----------- -----------

Balance, September 30, 1995 10,000 1,480,000 (2,565,000)

Net Income (Unaudited) -- -- 195,000

Contribution from shareholder (Unaudited) -- 95,000 --
----------- ----------- -----------

Balance, February 29, 1996 (Unaudited) $ 10,000 $ 1,575,000 $(2,370,000)
=========== =========== ===========
</TABLE>

P-4

The accompanying notes are an integral part of these statements.

<PAGE> 83

PRIDE AVIATION, INC.
STATEMENTS OF CASH FLOWS
Years Ended September 30, 1995 and Five Months Ended
February 29, 1996

<TABLE>
<CAPTION>
Year Five Months
Ended Ended
September 30, February 29,
1995 1996
------------- -----------
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (81,000) $ 195,000
----------- -----------
Adjustments to Reconcile Net Loss to Net Cash
Provided (Used) by Operating Activities:
Depreciation and amortization 184,000 60,000
Interest paid with refinancing 36,000 --
(Increase) decrease in accounts receivable 61,000 (67,000)
(Increase) decrease in inventories (14,000) 8,000
(Increase) decrease in other current assets (36,000) 10,000
Increase (decrease) in accounts payable 200,000 15,000
Increase (decrease) in accrued liabilities 59,000 65,000
Increase (decrease) in interest payable (13,000) 5,000
Other -- 9,000
----------- -----------
Total Adjustments 477,000 105,000
----------- -----------
Net Cash Provided (Used) by Operating Activities 396,000 300,000
----------- -----------
Cash Flows From Investing Activities:
Cash payments for the purchase of equipment (209,000) (41,000)
Collection of notes receivable -- 13,000
----------- -----------
Net Cash Used by Investing Activities (209,000) (28,000)
----------- -----------
Cash Flows From Financing Activities:
Bank overdraft (7,000) (2,000)
Proceeds from short-term borrowings 2,047,000 --
Repayments on short-term borrowings (2,125,000) --
Proceeds from issuance of long-term debt 588,000 --
Principal payments on long-term debt (693,000) (93,000)
Advances to shareholder -- (177,000)
Proceeds from issuance of common stock 4,000 --
----------- -----------
Net Cash Provided (Used) by Financing Activities (186,000) (272,000)
----------- -----------
Net Decrease in Cash and Cash Equivalents -- --
Cash and Cash Equivalents at Beginning of Period 1,000 --
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,000 $ --
=========== ===========

Supplemental Disclosure of Cash Paid for
Interest and Income Taxes:
Cash paid for interest $ 145,000 $ 54,000
Cash paid for income taxes -- --
Supplemental Disclosure of Non-cash
Financing and Investing Activities:
Interest paid with refinancing of long-term debt $ 36,000 $ --
</TABLE>

P-5

The accompanying notes are an integral part of these statements.

<PAGE> 84

PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)

NOTE A - ORGANIZATION AND NATURE OF BUSINESS

Pride Aviation, Inc. (an Oklahoma corporation) (the "Company"),
located in New Iberia, Louisiana, was established as a F.A.A. repair
station for specialized aircraft maintenance services including paint
stripping and painting operations on certain types of aircraft.

In February 1996, the shareholders sold the company to Aviation Group,
Inc. ("Aviation Group") for cash of $486,000, 44,250 shares of the
Aviation Group, Inc. stock and assumption of the Company's long-term
debt and other liabilities. The accompanying statements include
statements of operations, changes in shareholders' deficit and cash
flows for the five month period through the effective date of the
sale, February 29, 1996. Subsequent to February 29, 1996, the
financial position and results of operations of the Company are
included with the consolidated financial statements of Aviation Group,
Inc. The accompanying financial statements were prepared on the
historical cost basis of accounting and do not reflect any purchase
accounting adjustments arising from the sale to Aviation Group, Inc.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.

Accounts Receivable

The Company uses the allowance method in accounting for losses on
accounts receivable. Management believes that all accounts receivable
as of September 30, 1995 and February 29, 1996 were fully collectible;
therefore, no allowance for doubtful accounts was recorded. Bad debt
expense charged to operations was $2,000 for the year ended September
30, 1995 and $0 (unaudited) for the five months ended February 29,
1996.

The Company grants credit to customers, many of whom are in the
airline industry.

Inventory

Inventories are stated at the lower of cost, with cost determined by
the average costing method.

Machinery and Equipment

Machinery and equipment are stated at cost. Depreciation has been
provided using straight line and double declining balance methods over
the estimated useful lives of the assets which range from 3 to 40
years.

P-6

The accompanying notes are an integral part of these statements.

<PAGE> 85

PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Income Taxes

The Company accounts for income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income.

Reclassifications

Certain reclassifications have been made to the prior year statements
to conform to the current year presentation.

NOTE C - PLANT AND EQUIPMENT

Plant and equipment consisted of the following at September 30, 1995:

<TABLE>
<S> <C>
Machinery and equipment $ 869,000
Leasehold improvements 465,000
Furniture, fixtures and office equipment 66,000
Vehicles 16,000
Construction in progress 157,000
-----------
1,573,000
Less: accumulated depreciation (869,000)
-----------
$ 704,000
===========
</TABLE>

NOTE D - NOTE RECEIVABLE

The Company has a note receivable owed from Industrial Helicopters,
Inc. in the original amount of $40,000. The note is non-interest
bearing and is secured by equipment.

P-7

The accompanying notes are an integral part of these statements.

<PAGE> 86

PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)

NOTE E - LONG-TERM DEBT
<TABLE>
<S> <C>

Long-term debt consisted of the following at September 30, 1995:

Note payable to Louisiana Economic Development Corporation, payable in
60 monthly installments of $11,675, including interest at 7.28%,
secured by pledge of stock and personal guaranty of Frank Rice,
assignment of life insurance, accounts receivable, inventory and
equipment $ 533,000

Note payable to Sunbelt Business Capital, Inc., payable in monthly
installments of $13,285 including interest at 12%, secured by personal
guaranty of the shareholders, accounts receivable, inventory and
equipment 372,000

Note payable to Schwing Insurance Agency, payable in monthly
installments of $3,825 including interest at 7.5%. 72,000

Other 23,000
----------
1,000,000
Less: current maturities of long-term debt (315,000)
----------
Net long-term debt $ 685,000
==========
</TABLE>

Maturities of long-term debt for each of the next five years are as follows:

<TABLE>
<S> <C>
September 30,
1996 $302,000
1997 249,000
1998 235,000
1999 130,000
2000 66,000
</TABLE>

P-8

The accompanying notes are an integral part of these statements.

<PAGE> 87

PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)

NOTE F - OPERATING LEASES

The Company leases various equipment and office and hanger facilities
under cancelable and noncancelable rental arrangements.

Rental expenses from operating leases and monthly rentals were as
follows:

<TABLE>
<CAPTION>
Year Five Months
Ended Ended
September 3 February 29,
1995 1996
----------- --------------
(Unaudited)
<S> <C> <C>
Rent expense $ 401,000 $ 205,000
=========== ===========
</TABLE>

The Company is committed to several operating leases for its hangars
and certain equipment. Minimum future lease payments of all
non-cancelable operating leases for the next five years are as
follows:

<TABLE>
<S> <C>
September 30,
1996 $ 383,000
1997 383,000
1998 384,000
1999 388,000
2000 305,000
Thereafter 5,036,000
----------
$6,879,000
==========
</TABLE>

NOTE G - COMMITMENTS AND CONTINGENCIES

The Company, in connection with the production of revenue, produces
chemical waste which is temporarily stored on the Company's premises.
Costs for disposal are expensed by the Company as waste is produced.
The provisions for disposal of waste on hand was as follows and are
included in other liabilities ccompanying balance sheet.

<TABLE>
<CAPTION>
Year Five Months
Ended Ended
September 3 February 29,
1995 1996
----------- --------------
(Unaudited)
<S> <C> <C>
Provision for waste disposal $ 25,000 $ 18,000
========= =========

</TABLE>

P-9

The accompanying notes are an integral part of these statements.

<PAGE> 88

PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)

NOTE H - RELATED PARTY TRANSACTIONS

Frank Rice

Frank Rice was President of the Company and owned approximately 50.1%
of the Company's common stock prior to the sale to Aviation Group. The
Company had the following transaction with Frank Rice during the
periods ending September 30, 1995 and February 29, 1996.

Note Payable to Shareholder

The Company had notes payable to Frank Rice totaling $265,000 as of
September 30, 1995, payable on demand with interest at 18%. Interest
expense related to this note was $33,000 during the year ended
September 30, 1995. At September 30, 1995, the Company had $9,000 due
to Frank Rice which is included in accounts payable in the
accompanying balance sheet.

Transfer of Alexandria Assets (Unaudited)

Effective after the fiscal year ended September 30, 1995, the Company
transferred its Alexandria, Louisiana operations to Frank Rice. The
agreement provided for among other things, the assignment of all
receivables, payables, fixed assets and leases associated with the
Alexandria location to Frank Rice in exchange for Frank Rice's
forgiveness of the $265,000 note payable above and the Company's
forgiveness of certain advances made to Frank Rice on behalf of the
Alexandria operations. The excess of the amount of note payable
forgiven over the net book value of the assets transferred and the
advances forgiven totaled $95,000 and was recorded as a "Contribution
from shareholder" in the accompanying statement of changes in
shareholders' equity.

Sunbelt Business Capital

Sunbelt Business Capital was a shareholder of the Company prior to the
sale to Aviation Group. Charlie Weed, a consultant to the Company, was
also the President of Sunbelt Business Capital.

Consulting Fees

The amount of consulting fees incurred from Charlie Weed and Sunbelt
Business Capital for the year ended September 30, 1995 and the five
months ended February 29, 1996 was as follows:

Year Five Months
Ended Ended
September 30, February 29,
1995 1996
----------- ------------
(Unaudited)
Charlie Weed $ 74,000 $ 30,000
======== ========
Sunbelt Business Capital $ 7,000 $ --
======== ========

P-10

The accompanying notes are an integral part of these statements.

<PAGE> 89

PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)

NOTE H - RELATED PARTY TRANSACTIONS, continued

Of the total amount of consulting fees for the year ended September
30, 1995, approximately $33,000 was included in accounts payable at
September 30, 1995.

Financing

The Company had a note payable to Sunbelt Business Capital in the
amount of $372,000 as of September 30, 1995. In addition, the Company
had a $300,000 line of credit facility with Sunbelt Business Capital
which bore interest at 18% and expired on May 1, 1995. Interest
expense related to the notes and line of credit was as follows:

Year Five Months
Ended Ended
September 30, February 29,
1995 1996
-------- --------
(unaudited)
<S> <C> <C>
Interest expense $ 77,000 $ 18,000
======== ========

</TABLE>

NOTE I - INCOME TAXES

No provision or benefit for income taxes is recognized in the
financial statements for the year ended September 30, 1995 and the
five months ended February 29, 1996, due to the existence of net
operating losses and unrecognized net operating loss carryforwards.

Deferred tax assets consisted of the following at September 30, 1995:

Net operating losses $ 953,000
Valuation allowance on deferred tax asset (953,000)
------------

Net deferred tax asset $ --
============

For income tax purposes, the Company had available at September 30,
1995, unused operating loss carryforwards of $2,500,000, which were
available to be applied against future taxable income expiring in
various years from 2005 to 2009.

P-11

The accompanying notes are an integral part of these statements.

<PAGE> 90

PRIDE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and February 29, 1996 (unaudited)

NOTE J - PROVISION FOR WARRANTY CLAIMS

The Company generally warrants its products and services against
defects in material and workmanship based on contract terms with
customers. The Company records an estimated liability for warranty
claims, based on actual claims experience, at the time the products
and services are provided and revenue is recognized. The Company's
warranty liability totaled $74,000 as of September 30, 1995, and is
included in other liabilities in the accompanying balance sheet. The
provision for warranty claims, which is netted against revenue, was as
follows:

Year Five Months
Ended Ended
September 30, February 29,
1995 1996
----------- ------------

Provision for warranty claims $ 68,000 $ 43,000
======== ========

NOTE K - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Substantially all of the Company's accounts receivable at September
30, 1995, result from sales to third party companies in the airline
industry. This concentration of customers may impact the Company's
overall credit risk, either positively or negatively, in that these
entities may be similarly affected by changes in economic or other
conditions. The Company believes that the risk is mitigated by the
size, reputation and nature of its customers. In addition, the Company
generally does not require collateral or other security to support
customer receivables.

The following summarizes the customers which accounted for greater
than 10% of the Company's revenues during the year ended September 30,
1995 and the five months ended February 29, 1996:

Year Five Months
Ended Ended
September 30, February 29,
1995 1996
------------- ------------
(Unaudited)

United Airlines 76% 96%
=== ===

P-12

The accompanying notes are an integral part of these statements.
<PAGE> 91
[MCGLADREY & PULLEN, LLP LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders
Casper Air Service
Casper, Wyoming

We have audited the accompanying consolidated balance sheets of Casper Air
Service and Subsidiary as of April 30, 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended April 30, 1996. These consolidated financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing 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 consolidated financial position
of Casper Air Service and Subsidiary, as of April 30, 1996, and the results of
their operations and their cash flows for each of the two years in the period
ended April 30, 1996 in conformity with generally accepted accounting
principles.

/s/ MCGLADREY & PULLEN, LLP

Casper, Wyoming
January 24, 1997

C-1
<PAGE> 92

CASPER AIR SERVICE AND
SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996
AND JANUARY 31, 1997

<TABLE>
<CAPTION>
(Unaudited)
April 30, January 31,
ASSETS (Note 6) 1996 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 229,000 $ 78,000
Restricted cash 100,000 100,000
Investment in available-for-sale securities (Note 2) 107,000 110,000
Trade receivables 468,000 614,000
Inventories (Note 3) 2,180,000 1,311,000
Deposits and other assets 31,000 10,000
----------- -----------
TOTAL CURRENT ASSETS 3,115,000 2,223,000

Property and Equipment, net (Note 4) 1,522,000 1,386,000
Notes Receivable Employees 13,000 11,000
----------- -----------

$ 4,650,000 $ 3,620,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable (Note 5) $ 443,000 $ 628,000
Floor plans payable (Note 5) 1,315,000 138,000
Current maturities of long-term debt (Note 5) 366,000 329,000
Trade accounts payable 570,000 559,000
Accrued liabilities 66,000 44,000
Fuel, services and other deposits 98,000 107,000
----------- -----------
Total current liabilities 2,858,000 1,805,000
----------- -----------

Long-Term Debt, less current maturities (Note 5) 1,234,000 983,000
----------- -----------

Commitments and Contingencies (Notes 7 and 8)

Stockholders' Equity
Common stock, no par value, 10,000,000 shares
authorized, 187,146 shares issued 19,000 19,000
Additional contributed capital 2,697,000 2,697,000
Accumulated deficit (667,000) (396,000)
Unrealized gain (loss) on 'investment securities (Note 2) (2,000) 1,000
----------- -----------
2,047,000 2,321,000
Less: Treasury stock, 22,625 shares (569,000) (569,000)
Unearned ESOP shares (Note 7) (920,000) (920,000)
----------- -----------
558,000 832,000
----------- -----------

$ 4,650,000 3,620,000
=========== =========
</TABLE>

See Notes to Consolidated Financial Statements.

C-2
<PAGE> 93

CASPER AIR SERVICE AND
SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1996 AND 1995
AND THE NINE MONTHS ENDED JANUARY 31, 1997 AND 1996

<TABLE>
<CAPTION>
(Unaudited)
April 30, January 31,
-------------------------- --------------------------
1996 1995 1997 1996
- ------------------------------------------------------------ --------------------------
<S> <C> <C> <C> <C>
Net Sales $ 6,915,000 $6,278,000 $ 6,570,000 $ 5,260,000
Cost of Sales 6,210,000 5,659,000 5,629,000 4,628,000
----------- ---------- ----------- -----------
GROSS PROFIT 705,000 619,000 941,000 632,000

Operating Expenses 728,000 901,000 580,000 632,000
----------- ---------- ----------- -----------
OPERATING INCOME
(LOSS) (23,000) (282,000) 361,000 --
----------- ---------- ----------- -----------

Other Income (Expense)
Interest income 31,000 38,000 19,000 23,000
Interest expense (213,000) (228,000) (169,000) (183,000)
Gain from sale of assets 4,000 426,000 53,000 4,000
Other income (expense) (25,000) 4,000 7,000 2,000
----------- ---------- ----------- -----------
(203,000) 240,000 (90,000) (154,000)
----------- ---------- ----------- -----------
NET INCOME (LOSS)
(NOTE 7) $ (226,000) $ (42,000) $ 271,000 $ (154,000)
=========== ========== =========== ===========
</TABLE>

See Notes to Consolidated Financial Statements.

C-3
<PAGE> 94

CASPER AIR SERVICE AND
SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended April 30, 1996
and 1995 and the Nine Months Ended January 31, 1997

<TABLE>
<CAPTION>
Additional
Common Contributed Accumulated
Stock Capital Deficit
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, April 30, 1994 $ 19,000 $ 2,913,000 $ (399,000)
Redemption of ESOP shares - treasury stock -- (99,000) --
Purchase of treasury stock - ESOP shares -- -- --
Net (loss) -- -- (42,000)
----------- ----------- -----------

Balance, April 30, 1995 19,000 2,814,000 (441,000)
Redemption of ESOP shares - treasury stock -- (117,000)
Change in unrealized (loss) on available-for-sale
investments -- -- --
Net (loss) -- -- (226,000)
----------- ----------- -----------

Balance, April 30, 1996 19,000 2,697,000 (667,000)
Change in unrealized gain on available-for-sale
investments (unaudited) -- -- --
Net income (unaudited) -- -- 271,000

----------- ----------- -----------
Balance, January 31, 1997 (unaudited) $ 19,000 $ 2,697,000 $ (396,000)
=========== =========== ===========
</TABLE>

See Notes to Consolidated Financial Statements.

C-4
<PAGE> 95

<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Investment Treasury Unearned
Securities Stock ESOP Shares Total
- --------------------------------------------------------
<C> <C> <C> <C>
$ -- $ (272,000) $(1,422,000) $ 839,000
-- (142,000) 241,000 --
-- (11,000) -- (11,000)
-- -- -- (42,000)
- ----------- ----------- ----------- -----------

-- (425,000) (1,181,000)
-- (144,000) 261,000 --

(2,000) -- -- (2,000)
-- -- -- (226,000)
- ----------- ----------- ----------- -----------
(2,000) (569,000) (920,000)

3,000 -- -- 3,000
-- -- -- 271,000
- ----------- ----------- ----------- -----------
$ 1,000 $ (569,000) $ (920,000) $ 832,000
=========== =========== =========== ===========
</TABLE>

C-5
<PAGE> 96

CASPER AIR SERVICE AND
SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996 AND 1995
AND THE NINE MONTHS ENDED JANUARY 31, 1997 AND 1996

<TABLE>
<CAPTION>
(Unaudited)
April 30, January 31,
-------------------------- -------------------------
1996 1995 1997 1996
- ----------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (226,000) $ (42,000) $ 271,000 $ (154,000)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation 248,000 349,000 159,000 191,000
(Gain) on sale of assets (4,000) (426,000) (53,000) (4,000)
Loss on worthless debenture 15,000 15,000 -- 15,000
Increase (decrease) in cash as a result of
changes in operating assets and
liabilities:
Trade receivables 173,000 134,000 (146,000) 101,000
Inventories (1,243,000) 152,000 869,000 (350,000)
Deposits and other assets (24,000) 21,000 21,000 (60,000)
Accounts payable (111,000) (99,000) (11,000) (151,000)
Accrued liabilities 33,000 (47,000) (22,000) 4,000
Prepaid fuel, services and other
deposits (51,000) 141,000 9,000 (41,000)
----------- ---------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,190,000) 198,000 1,097,000 (449,000)
----------- ---------- ---------- -----------

Cash Flows from Investing Activities
Proceeds from sale of investments -- 21,000 -- --
Proceeds from sale of equipment 28,000 1,241,000 94,000 28,000
Purchase of property and equipment (239,000) (691,000) (64,000) (168,000)
Receipt of cash restricted for letters of
credit 150,000 3,000 -- 150,000
Investment in certificate of deposit (100,000) -- -- (100,000)
Investment in marketable securities (27,000) (56,000) -- (16,000)
Payments received on notes receivable 17,000 20,000 2,000 --
Advances on notes receivable -- -- -- (68,000)
----------- ---------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (171,000) 538,000 32,000 (174,000)
----------- ---------- ---------- -----------

Cash Flows from Financing Activities
Net increase (decrease) in outstanding
checks in excess of bank balance (177,000) -- -- (177,000)
Proceeds from (payments on) flooring
arrangements 1,315,000 -- (1,177,000) 278,000
Net change in short-term borrowing 267,000 (284,000) 185,000 300,000
Proceeds from issuance of long-term debt 213,000 290,000 -- 213,000
Principal reduction on long-term debt (312,000) (459,000) (288,000) (196,000)
Purchase of treasury stock -- (11,000) -- --
----------- ---------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,306,000 (464,000) (1,280,000) 418,000
----------- ---------- ---------- -----------
</TABLE>

Continued

C-6
<PAGE> 97

CASPER AIR SERVICE AND
SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED APRIL 30, 1996 AND 1995 AND THE NINE MONTHS ENDED
JANUARY 31, 1997 AND 1996

<TABLE>
<CAPTION>
April 30, January 31,
-------------------------- -------------------------
1996 1995 1997 1996
- ----------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (55,000) $ 272,000 $ (151,000) $ (205,000)

Cash and cash equivalents:
Beginning of year 284,000 12,000 229,000 284,000
----------- ---------- ---------- -----------

End of year $ 229,000 $ 284,000 $ 78,000 $ 79,000
=========== ========== ========== ===========

Supplemental Disclosure of Cash Flow
Information
Cash paid for interest expense $ 219,000 $ 223,000 $ 182,000 $ 183,000

Supplemental Disclosure of Noncash
Financing Activities
Shares purchased from ESOP in lieu
of treasury shares 261,000 241,000 -- --
</TABLE>

See Notes to Consolidated Financial Statements.

C-7
<PAGE> 98
CASPER AIR SERVICE AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

Casper Air Service, the Company, operates a full-service, fixed-base operation
featuring aircraft sales, charter flights, aircraft maintenance, propeller
overhaul, an accessory overhaul shop, parts distribution, line service and
college-level aviation education at the Natrona County International Airport in
Casper, Wyoming. The Company grants credit to customers through the normal
course of business. Casper Air Service's wholly-owned subsidiary, Casper Flying
Service, rents a charter aircraft to Casper Air Service.

Casper Air Service acquired Casper Flying Service subsequent to April 30, 1996.
Casper Flying Service was owned by the majority stockholder of Casper Air
Service. These financial statements have been reinstated to reflect Casper
Flying Service as if it had been acquired April 3, 1994 in a manner similar to
a pooling of interest.

A summary of significant accounting policies applied in the preparation of the
accompanying financial statements follows:

Principles of consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its subsidiary. All material
intercompany balances and transactions have been eliminated in consolidation.

Interim period financial statements: The unaudited financial statements as of
January 31, 1997 and for the nine months ended January 31, 1997 and 1996,
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly state the financial position
and results of operations for the respective periods. Operating results for the
interim periods are not necessarily indicative of the results for full years.
The interim financial statements are not intended to be a complete presentation
in accordance with generally accepted accounting principles.

Cash and cash equivalents: For purposes of the statement of cash flows, the
Companies consider all unrestricted highly-liquid debt instruments with
original maturities of three months or less to be cash equivalents.

Investment in available-for-sale securities: Casper Air Service has
investments in marketable equity securities. Marketable equity securities
consist primarily of common stocks that are traded or listed on national
exchanges.

Financial Accounting Standards Board Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities, requires that management determine
the appropriate classification of securities at the date individual investment
securities are acquired, and that the appropriateness of such classification be
reassessed at each balance sheet date. Since the Company neither buys
investment securities in anticipation of short-term fluctuations in market
prices nor can commit to holding debt securities to their maturities, the
investment in marketable equity securities have been classified as
available-for-sale in accordance with Statement No. 115. Available-for-sale
securities are stated at fair value, and unrealized holding gains and losses,
net of the related deferred tax effect, are reported as a separate component of
stockholders' equity. Gains and losses are determined by the specific
identification method.

C-8
<PAGE> 99
CASPER AIR SERVICE AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------

Inventories: Aircraft inventory held for resale is valued at the lower of cost
(specific-identification method) or market, the parts inventory is valued at
cost (weighted-average method) which is not in excess of market.

Property and equipment: Depreciation is provided for in amounts sufficient to
relate the cost of the depreciable assets to operations over their estimated
service lives on the straight line basis. Depreciation is computed over the
following lives:

<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and improvements 7-40
Flight charter equipment 5-10
Other equipment 3-10
</TABLE>

Maintenance and repairs of property and equipment are charged to operations and
major improvements prolonging the life of the assets are capitalized.

Income taxes: Casper Air Service provides for deferred taxes on a liability
method whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.

Prior to its acquisition, Casper Flying Service, with the consent of its
shareholder, elected to be taxed under sections of federal income tax law,
which provide that, in lieu of corporate income taxes, the stockholder
separately accounts for its items of income, deductions, losses and credits. As
a result of this election, no income taxes have been recognized in the
accompanying financial statements for Casper Flying Service prior to
acquisition. It is the intent of the Company to file a consolidated tax return
and income taxes are recognized after the acquisition date on a consolidated
basis.

Employee stock ownership plan: Casper Air Service accounts for compensation
expenses for ESOP contributions by a method which determines the expense to be
at least 80% of the amount that would be expensed under the shares allocated
method. Casper Air Service has elected not to implement the provision of
Statement of Position 93-6, Employers Accounting for Employee Stock Ownership
Plans, for stock sold to the ESOP prior to December 31, 1992. However, any
future stock purchases by the ESOP will be subject to the expense recognition
requirements of SOP 93-6.

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

C-9
<PAGE> 100
CASPER AIR SERVICE AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------

Fair value of financial instruments: Financial Accounting Standards Board
("FASB") Statement No. 107, Disclosures about Fair Value of Financial
Instruments, requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. Statement No. 107 excludes certain
financial instruments and all nonfinancial assets and liabilities from its
disclosure requirements. The following methods and assumptions were used to
estimate the fair value of financial instruments:

Cash, cash equivalents and restricted cash: The carrying amount
approximates fair value because of the short maturity of those
instruments.

Investment in available-for-sale securities: Investments are carried
at fair value.

Notes payable and floor plans payable: The carrying amount
approximates fair value because the debt terms are negotiated
annually.

Long-term debt: The fair values of the Companies' long-term debt are
estimated using discounted cash flow analyses, based on the Companies'
current incremental borrowing rates for similar types of borrowing
arrangements. The fair value approximates carrying value.

NOTE 2. AVAILABLE-FOR-SALE SECURITIES

Available-for-sale securities at April 30, 1996 are carried at market value.
The related cost and unrealized (loss) on these securities at April 30, 1996
were $109,000 and ($2,000), respectively. Marketable securities were sold
during the year ended April 30, 1996 for $25,000 with no realized gain or loss.
The unrealized loss on investment securities increased by $2,000 during the
year ended April 30, 1996.

NOTE 3. INVENTORIES

The composition of the inventories is as follows:

<TABLE>
<CAPTION>
(Unaudited)
April 30, January 31,
1996 1997
------------ -----------
<S> <C> <C>
Aircraft held for sale $ 1,392,000 $ 485,000
Parts 783,000 817,000
Other 5,000 9,000
------------ -----------
$ 2,180,000 $ 1,311,000
============ ===========
</TABLE>

C-10
<PAGE> 101
CASPER AIR SERVICE AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------

Casper Air Service carries small quantities of a large number of parts for
older model planes still in service. A substantial portion of these parts are
sold to charter services and aircraft maintenance operations throughout the
United States and overseas. Management removes parts from inventory which are
dated or determined to be obsolete by the Federal Aviation Administration and
believe that the remaining parts are salable. However, in accordance with
industry practice, these inventories are included in current assets even
though a substantial portion will not be sold within one year in the normal
course of business.

In July 1996, Casper Air Service sold two of the three aircraft held for sale
as of April 30, 1996 for $1,427,000. The cost of these aircraft at April 30,
1996 was $1,315,000.

NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment is composed of the following as of April 30, 1996:

<TABLE>
<S> <C>
Buildings and improvements $ 1,641,000
Flight charter equipment 2,050,000
Other equipment 883,000
-----------
4,574,000
Accumulated depreciation (3,052,000)
-----------
$ 1,522,000
===========
</TABLE>

C-11
<PAGE> 102
CASPER AIR SERVICE AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------

NOTE 5. NOTES PAYABLE, FLOORING ARRANGEMENTS, LONG-TERM DEBT AND ASSETS
PLEDGED THEREON

The Companies' notes payable, financing arrangements and long-term debt and
assets pledged thereon as of April 30, 1996 are as follows:

<TABLE>
<S> <C>
Notes payable:
$400,000 line of credit with a bank, interest at 1.5% over bank's prime
rate (10.55% as of April 30, 1996), interest payable monthly,
collateralized by receivables and inventories, due October 1996,
subsequently renewed through November 1997 $ 370,000

$150,060 line of credit with a bank, interest at 1.5% over bank's prime
rate (10.5% as of April 30, 1996), interest payable quarterly,
collateralized by an airplane, due June 1996, subsequently renewed
through May 1997 73,000
----------
$ 443,000
==========
Flooring arrangements:
Flooring arrangement with Cessna, interest at 10.25%, paid in full on
sale of aircraft, July 1996 $1,210,000

Flooring arrangement with Cessna, interest at 10.5%, paid in full on sale
of aircraft, July 1996 105,000
----------
$1,315,000
==========

Long-term debt:
Note payable to Small Business Administration, payable in monthly payments
of $9,876, including interest at 10% due February 2003, collateralized
by building improvements, equipment and guarantees of the ESOP and
majority shareholder $ 588,000

Notes payable to aircraft finance corporations, payable in monthly payments
aggregating $12,186, plus interest at 2% over banks' prime rates (10.25%
to 11% as of April 30, 1996), due through April 2001, collateralized
by flight charter aircraft 547,000

Notes payable to bank, payable in monthly payments aggregating $2,737,
including interest rates ranging from 7.85% to 9.75%, due through
December 2000, collateralized by flight charter aircraft and certificate
of deposit 205,000

Note payable to an individual, payable in monthly payments of $5,840,
including interest at 8%, due March 1998, collateralized by an aircraft
and personal guarantee of the majority shareholder 124,000

Notes payable due in monthly payments aggregating $1,446 and an annual
payment of $6,802, including interest ranging from 10% to 21.45%, due
through January 2000, collateralized by equipment 74,000

Note payable to a former stockholder and relative of the majority
stockholder, payable in monthly payments of $3,000, including effective
interest at 31%, due April 2001, collateralized by the assets of
Casper Air Service 62,000
----------
1,600,000
Less current maturities (366,000)
----------
$1,234,000
==========
</TABLE>

C-12
<PAGE> 103
CASPER AIR SERVICE AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------

Aggregate future maturities of long-term debt as of April 30, 1996 are as
follows:

<TABLE>
<CAPTION>
Year ended April 30,
- --------------------
<S> <C>
1997 $ 366,000
1998 290,000
1999 237,000
2000 300,000
2001 199,000
Thereafter 208,000
----------
$1,600,000
==========
</TABLE>

NOTE 6. INCOME TAXES

Net deferred tax assets consist of the following components as of April 30,
1996:

<TABLE>
<S> <C>
Deferred tax assets:
Operating loss carryforwards $ 183,000
Investment tax credits carryforward 81,000
Other components 32,000
----------
296,000
Less valuation allowance 296,000
----------
$ --
==========
</TABLE>

As of April 30, 1996, Casper Air Service has recorded a valuation allowance of
$296,000 on the deferred tax assets to reduce the total to an amount that is
estimated to be ultimately realized. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that
deductible temporary differences and carryforwards are expected to be available
to reduce taxable income.

No income tax benefit was included in operations for the years ended April 30,
1996 and 1995. This differs from the amounts obtained by applying the U.S.
federal income tax rate to pre-tax loss due to the following:

<TABLE>
<CAPTION>
(Unaudited)
January 31,
1996 1995 1997
<S> <C> <C> <C>
Computed "expected" tax benefit $ 77,000 $ 13,000 $ 92,000
Increase (decrease) resulting from:
Subsidiary election to be taxed at the
stockholder level (13,000) (10,000) --
Nondeductible expenses (5,000) -- --
Increase in valuation allowance (59,000) (3,000) --
Reduction of valuation allowance -- -- (92,000)
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
</TABLE>

C-13
<PAGE> 104
CASPER AIR SERVICE AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------

At April 30, 1996, Casper Air Service had available net operating loss
carryforwards of $729,000, which includes the effect of the accumulated ESOP
contribution expense of $1,326,000 since the ESOP was adopted in 1989. The net
operating loss carryforward is available to offset future taxable income.
Casper Air Service also has investment tax credits of $81,000 available to
offset future federal income tax. The Internal Revenue Code, Section 382,
limits the utilization of net operating loss carryforwards when certain
ownership changes occur, measured over a three-year period. The net operating
loss carryforward and investment tax credits expire as follows:

<TABLE>
<CAPTION>
Net Operating Investment
Year of Expiration Loss Tax Credit
- ------------------ ------------- ----------
<S> <C> <C>
1997 $ -- $ 6,000
1998 -- 46,000
1999 -- 29,000
2007 48,000 --
2009 580,000 --
2110 7,000 --
2111 94,000 --
--------- ---------
$ 729,000 $ 81,000
========= =========
</TABLE>

NOTE 7. EMPLOYEE BENEFIT PLANS

Employee Stock Ownership Plan and Trust: Casper Air Service sponsors an
Employee Stock Ownership Plan and Trust ("ESOP") which covers substantially all
employees who are not included in a collective bargaining agreement. The ESOP
is designed to enable employees who meet minimum age and length of service
requirements to acquire stock ownership in the Company. The ESOP is
noncontributory and vesting occurs at a rate of 20% per year of accumulated
service, commencing with the third year of service.

The ESOP borrowed $2,500,000 from the Company to purchase 81,887 shares of
common stock in 1989. The loan obligation of the ESOP is considered unearned
employee benefit expense and, as such, is recorded as a reduction of the
Company's stockholders' equity. The ESOP shares which have not been allocated
are pledged as collateral for this debt. As the debt is repaid, shares are
released from collateral based on the proportion of debt service paid in the
year and allocated to active employees. Because no shares were allocated for
1996 or 1995, the expense was limited to the interest expense of $98,000 and
$118,000 for the years ended April 30, 1996 and 1995, respectively, which was
offset against the interest income from the note receivable.

If a terminated participant desires to sell his or her shares of the Company's
stock, or for certain employees who elect to diversify their account balances,
the Company may be required to purchase the shares from the participant at
their fair market value. However, as long as the existing ESOP debt is unpaid,
employees that terminate for reasons other than death or disability may not
receive share distributions from the plan and the Company has no obligation to
repurchase shares allocated to the terminating participant. The debt of the
ESOP is scheduled to be retired in 1999.

C-14
<PAGE> 105
CASPER AIR SERVICE AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------

During the year ended April 30, 1995, the fair market value of the stock
purchased by the Company from ESOP participants totaled $11,000. Those shares
are included in treasury stock in the accompanying balance sheet. No stock was
purchased from participants during the year ended April 30, 1996. The Company
also guaranteed a minimum return on investment to ten participants who rolled
401(k) balances into the ESOP. The guarantee exceeds the estimated fair
market value of the shares by approximately $37,500. This amount has been
recognized as a liability in the accompanying financial statements. At
April 30, 1996, 34,741 shares of the Company's stock, with an aggregate fair
market value of approximately $584,000 have been allocated to ESOP participants
based on independent appraisal as of April 30, 1996.

The principal portion of the April 30, 1996 and 1995 ESOP debt payments were
transacted through acquisition of 8,545 and 7,890 ESOP shares for an aggregate
amount of $261,000 and $241,000, respectively.

ESOP shares as of April 30, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Allocated shares 35,000 35,000
Unallocated shares 30,000 47,000
------ ------
65,000 82,000
====== ======
</TABLE>

Employee Benefit Risk Management Program: Casper Air Service provides employee
health care benefits through a risk management program. The Company is insured
under a stop-loss policy for individual claims exceeding $5,000 per year.
Expenses incurred for claims during the years ended April 30, 1996 were
$24,000. Premiums paid for stop-loss insurance were $37,000.

NOTE 8. COMMITMENTS AND CONTINGENCIES

Operating Lease Arrangements: The Companies conduct a portion of their
operations in facilities and on real estate under various operating leases.
These operating leases currently require minimum annual rentals, plus
additional rentals based on five cents per gallon flowage fee for every gallon
of fuel pumped. The leases expire at various dates through August 2006. In
addition to these leases, there is an operating agreement with Natrona County
International Airport which is paid on a month-to-month basis. The following is
a schedule, by years, of minimum annual rentals under the operating leases and
agreement:

<TABLE>
<CAPTION>
Year ended April 30,
- --------------------
<S> <C>
1997 $ 35,000
1998 35,000
1999 35,000
2000 35,000
2001 35,000
Thereafter 24,000
---------
TOTAL MINIMUM ANNUAL RENTALS REQUIRED $ 199,000
=========
</TABLE>

C-15
<PAGE> 106

CASPER AIR SERVICE AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO JANUARY 31, 1997 AND 1996 IS UNAUDITED
- -------------------------------------------------------------------------------

The leases provide for the payment of certain taxes and other expenses by the
Companies. Rent expense for operating leases for the years ending April 30,
1996 and 1995 were $48,000 and $67,000, respectively, and $26,000 and $50,000
for the nine month periods end January 31, 1996 and 1997, respectively.

C-16
<PAGE> 107

[INSIDE BACK COVER]

AVIATION GROUP, INC.

GROUND HANDLING SERVICES

[Color picture of Company employee
vacuuming aisle inside aircraft] Interior cleaning services
are currently performed in
six airports nationwide.

[Color picture of Company employee
preparing to empty aircraft laboratory
from outside aircraft into a waste
disposal trailer]

Lavatory, light catering and other
ground services are provided.

[Color picture of Company Exterior aircraft cleaning
employees in protective clothing and polishing in
spray cleaning underbelly of jet accordance with all EPA
aircraft fuselage] requirements.

FBO SERVICES

[Color picture of main The Company's Casper Air Service FBO
hangar and offices of operating facility in Casper, Wyoming.
Casper Air Service with
plane parked in front of
hangar]

Propeller overhaul, engine [Color picture looking downward into
maintenance and other FAA- propeller repair shop at Casper Air
certified services are also Service]
provided by the Company's
FBO & Airport Management
Division.

<PAGE> 108
===============================================================================

NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THOSE TO WHICH IT RELATES IN
ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH
STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO ITS DATE.

________

TABLE OF CONTENTS
________

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . 6
Use of Proceeds . . . . . . . . . . . . . . . . 12
Acquisition of Casper Air Service . . . . . . . 14
Dilution . . . . . . . . . . . . . . . . . . . 15
Dividend Policy . . . . . . . . . . . . . . . . 16
Capitalization . . . . . . . . . . . . . . . . 16
Management's Discussion and Analysis of
Financial Condition and
Results of Operations. . . . . . . . . . . . . 17
Unaudited Pro Forma Combined Financial
Information . . . . . . . . . . . . . . . . . 22
Business . . . . . . . . . . . . . . . . . . . 29
Management . . . . . . . . . . . . . . . . . . 38
Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . 42
Principal Shareholders . . . . . . . . . . . . 45
Description of Securities . . . . . . . . . . . 46
Underwriting . . . . . . . . . . . . . . . . . 51
Legal Opinions . . . . . . . . . . . . . . . . 53
Experts . . . . . . . . . . . . . . . . . . . . 53
Additional Information . . . . . . . . . . . . 53
</TABLE>

Until September 7, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments.

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

AVIATION GROUP, INC.

1,000,000 SHARES OF
COMMON STOCK
AND
1,000,000 WARRANTS

_________

P R O S P E C T U S
_________

DUKE & CO. INC.

August 13, 1997

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