FLIGHT INTERNATIONAL GROUP INC, 10KSB40, 1997-07-28

FLIGHT INTERNATIONAL GROUP INC
10KSB40, 1997-07-28
AIR TRANSPORTATION, NONSCHEDULED

Previous: INTERNATIONAL TECHNOLOGY CORP, 10-K/A, 1997-07-28

Next: FIRST WESTERN BANCORP INC, 424B3, 1997-07-28

<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended April 30, 1997

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from __________ to __________

Commission file number 2-87778A

THE FLIGHT INTERNATIONAL GROUP, INC.
(Name of small business issuer in its charter)

<TABLE>
<S> <C>
Georgia 94-2802192
(State or other jurisdiction or organization) (I.R.S. employer identification number)

Newport News/Williamsburg International Airport 23602
(Address of principal executive offices) (Zip Code)
</TABLE>

(757) 886-5500
(Issuer's telephone number)

Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
New Common Stock, par value $.01 per share
(Title of class)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No___.

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

The issuer's revenues for the year ending April 30, 1997 were $19,035,036.
As of the date hereof, there is no public market for the issuer's securities.

Check whether the issuer has filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes___ No X

As of July 15, 1997, there were 1,013,976 shares of the issuer's New
Common Stock, par value $.01 per share, issued and outstanding.

Documents Incorporated by Reference: None

Transitional Small Business Disclosure Format [check one]:Yes___; No X
<PAGE> 2
PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

Introduction

The Flight International Group, Inc. (the "Company") was incorporated in
Georgia on May 7, 1982. The Company is an aviation services company performing
military training services using specially modified commercial aircraft,
principally under contract with the United States Department of Defense, other
government agencies and foreign countries, operating through its direct and
indirect subsidiaries described in the next paragraph. In addition, with the use
of these aircraft, the Company has established a market for training and testing
in the aerospace industry. The Company also operates a fixed base operation
("FBO") at the Newport News/Williamsburg International Airport ("NN/W Airport").

Flight International, Inc., a Georgia corporation ("FII"), Flight
International Aviation, Inc., a Georgia corporation ("FIA") and FI Sales and
Leasing, Inc., a Delaware corporation are wholly-owned subsidiaries of the
Company. Flight International of Florida Inc., a Florida corporation ("FIF") is
a wholly-owned subsidiary of FII. Flight International Aviation Training Center,
Inc., a Georgia corporation ("FIATC"), was a wholly-owned subsidiary of FIA. FIA
sold its shares of capital stock of FIATC, which operated a flight school at the
NN/W Airport, in August 1995.

The Company and several of its affiliates emerged from bankruptcy
protection in December 1994 (see "1994 Bankruptcy Proceedings," below). In its
first two full fiscal years since emerging from bankruptcy, and in the period
subsequent thereto, the Company has increased its revenue, obtained a major
long-term contract which management believes will materially increase the
Company's business in the years ahead (see "CAS-MOS Contract," below) and has
generated positive net income (after extraordinary item in 1996) for the years
ended April 30, 1997 and 1996.

Management believes that in the post-bankruptcy period it has taken steps
to rebuild its balance sheet, continue to develop contracts in its core areas
and as a result acquire more personnel and equipment, strengthening the
Company's ability to compete more effectively in its marketplaces. In addition,
the Company is reexamining all aspects of its current sources of revenue and its
current expenses to determine both the short-term and long-term benefits to be
derived from each such source in the context of the Company's overall strategy.
See "Flight Operations - Competition" below.

CAS-MOS Contract

In August 1996, the Company was awarded a major contract. The Commercial
Air Services Military Operations Support (CAS-MOS) contract is a derivative of
the original government contract won by the Company in 1980 and operated until
September 1993. The new contract began on October 1, 1996 and runs for one base
year with four option years. Annual revenues from this contract are anticipated
to be $12 to $22 million; however, CAS-MOS replaces $4.5 million in existing
business from existing contracts with Sentel and Pax River. Therefore, the net
increase from this contract is estimated to be $7.5 to $17.5

- 2 -
<PAGE> 3
million, or an increase of 60% to 140% over fiscal year 1996 actual revenue, and
is expected to constitute a substantial portion of the Company's revenues. Total
revenue recognized for the fiscal year ended April 30, 1997 was $ . There can
be no assurance that the Government will exercise its options on the CAS-MOS
contract.

1994 Bankruptcy Proceedings

On February 4, 1994 (the "Petition Date"), the Company, FII, FIA and FIF
(the "Chapter 11 Entities") filed a petition for relief under Chapter 11 of the
Federal Bankruptcy Code (the "Code") in the United States Bankruptcy Court for
the Eastern District of Virginia, Newport News Division (the "Bankruptcy
Court"). On December 28, 1994, a Joint Plan of Reorganization dated August 31,
1994, as amended, confirmed and decreed by order of the Bankruptcy Court (the
"Plan"), became effective pursuant to an order of the Bankruptcy Court. The Plan
restructured and satisfied the claims of the creditors of the Chapter 11
Entities and the interests of shareholders of the Company.

As part of the Plan, a new class of stock, New Common Stock, par value
$.01 per share ("New Common Stock") was created (with 1,000,000 shares
authorized, which amount was increased to 10,000,000 shares on December 10,
1996) and all previous classes of stock, including its Common Stock, par value
$.01 per share ("Old Common Stock") were canceled pursuant to an Amended and
Restated Certificate of Incorporation of the Company filed with the Secretary of
State of Georgia on December 13, 1994 (the "Amended Certificate of
Incorporation").

Shortly after the filing of the Amended Certificate of Incorporation,
pursuant to the Plan all shares of capital stock existing prior to the Petition
Date, including the Old Common Stock, were canceled and shares of New Common
Stock were issued or reserved for disputed claims. Certain preexisting secured
lenders' indebtedness also was restructured as part of the Plan.

The Company's consolidated operations are concentrated principally in two
business segments: flight operations and fixed base operations.

FLIGHT OPERATIONS

As of July 1, 1997, the Company operated 23 aircraft, including 14
Learjets, four Fairchild Metro IIIs, three Casas and two other prop aircraft.
These aircraft are used in the conduct of flight operations for the U.S.
Government and commercial customers. In addition, the Company owns and operates
electronic warfare equipment used in conjunction with its flight operations
contracts. The Company also maintains an inventory of spare aircraft parts used
in support of the Company's fleet as well as third party aircraft.

Contract Flight Services

The Company performs contract flight services for the United States
Department of Defense ("DOD"), other government agencies and commercial
customers. The Company utilizes specially modified business jets and propjets in
connection with the training of military aircrews, radar operators and weapons
controllers in the techniques of airborne target identification and intercept.

- 3 -
<PAGE> 4
Under the contracts with the DOD, the Company's aircraft simulate
aggressor aircraft, tow airborne targets for air-to-air and surface-to-air
missile and gunnery live firing exercises and use airborne electronic
countermeasures equipment and techniques to disrupt ship, aircraft and land
based communications and radar. Contracts with the DOD generally provide for
compensation based on flight hours of usage. Flight crews are required to hold
United States government security clearances in connection with certain
classified aspects of the services provided.

In addition to its contracts with the DOD, a small portion of the
Company's revenues from flight operations is generated from customers in the
aerospace industry, which use specially configured aircraft for training and
testing. Typically, customers utilize aircraft and flight crews in connection
with product development. Many of these services are provided pursuant to
purchase orders, rather than long-term contracts. A portion of the fleet of
aircraft is offered on an international basis for charter service.

Seasonality is a significant factor in contract flight operations
(historically representing a majority of the Company's revenues) which affects
revenue and cash flow. Revenues are lower during midsummer and early winter
months.

In addition to offering contract flight services, the Company offers its
aircraft and equipment for lease or rental to DOD and other government
customers. During the fiscal year ended April 30, 1997, this part of the
business remained strong, due principally to continuing the Company's contract
with the U.S. Navy/Naval Weapons Center in China Lake, California, to provide
Metro III aircraft necessary to accomplish naval training. This portion of the
business, while strong, represents a smaller percentage of the Company's overall
revenues than in previous years, due principally to the revenues from the
CAS-MOS contract.

Government Contracts

United States Federal government contract awards are made through sealed
competitive bids, unless an exemption from full and open competition under the
Federal procurement laws is applicable. Under the regulations governing sealed
bidding, the qualified bidder with the lowest price and the price related
factors most advantageous to the government, is generally awarded the contract.

Under negotiated procurements, other evaluation factors such as
experience, quality of technical approach and management capability, may weigh
more heavily than price in the selection process.

The Company's DOD contracts were awarded competitively pursuant to
procedures under the relevant Federal procurement laws or are annual contracts
having additional one year option periods that may be exercised by the DOD.

For each year of a contract, including the base year and any option year
that the government has elected to take, all contract revenues are contingent
upon the availability of adequate funding. For the fiscal year ended April 30,
1997, revenue from contracts with the United States government represented
approximately 66% of the Company's total revenues.

Payments received under government contracts normally are based upon
flight hours at the price per

- 4 -
<PAGE> 5
flight hour established in the contract. Flight hours are measured from the time
aircraft and personnel depart for a predesignated location defined in the
contract to perform the assigned training or support mission, until the
completion of the mission and the return of the aircraft to the predetermined
station. Under most contracts it is necessary to attain a predetermined mission
success rate or other contract performance standard.

Minimum guaranteed contract payments under most contracts are based on an
established number of flight hours that the government is required to order
during each current year of the contract and during any subsequent contract year
for which the government affirmatively exercises an option. The Company's price
for "guaranteed" flight hours is fixed in the contract. The government may order
more flight hours than specified in the contract. Such "excess" hours are paid
for at an established contract price for excess hours.

For each contract year, the Company receives payment from the government
for the established number of guaranteed flight hours specified in the contract
at the applicable contract rate, regardless of whether or not the government
actually uses all such flight hours for the contract year. However, payment to
the Company for a shortfall, if any, between the number of hours actually used
by the government and the level specified in the contract will not be received
until the end of the contract year.

The Company's DOD contracts generally are firm, fixed-price contracts
under which the Company bears the risk that the prices paid by the government
will be sufficient to cover actual costs incurred in performing under the
contract, plus the amount of profit expected in pricing its bid or proposal. The
Company may, however, file claims for certain uncontrollable cost overruns such
as jet fuel cost increases.

The Defense Contract Audit Agency has the right to audit the Company's
books and records as a result of these contractual relationships. Because of the
fixed-price nature of the contracts, however, prices are not normally subject to
renegotiation or retroactive adjustment.

Competition

The markets in which the Company conducts flight operations are highly
competitive. Price usually is a significant factor considered in awarding
contracts. Many firms, ranging in size from companies having substantially
smaller operations than the Company to affiliates of major corporations having
substantially greater resources than the Company, compete directly with the
Company for contracts awarded by the United States Government and the other
flight operations customers and potential customers of the Company.

Competitive factors other than price which affect the award of flight
operations contracts include the number of employees (for example, certain
contracts are available only to businesses with fewer than 1,500 employees),
experience in the field of aviation services and adequacy of resources,
including maintenance personnel, aircrews, repair facilities and aircraft.

Management believes that many of the advantages the Company once had over
some of its competitors had diminished prior to, during and immediately after
the bankruptcy period due to the Company's deteriorating financial condition,
the requirement to substantially reduce its personnel, the

- 5 -
<PAGE> 6
transfer (due to a liquidation strategy) of certain strategic resources into the
hands of competing companies and the bankruptcy itself. These events, including
the loss of key contracts and resultant downsizing of key personnel, aircraft
and equipment had enabled the Company's competition to bid competitively on most
of the core business of the Company. The effort to rebuild the Company's status
in the industry has been an enormous challenge for management.

In the fiscal year ended April 30, 1997 and thereafter, however,
management believes it has made substantial inroads to reducing or even
eliminating these problems. The Company's renewed strength resulting from the
restructuring of its indebtedness, the obtaining of the CAS-MOS contract and
other significant events discussed herein have resulted in a greater ability to
compete in its marketplace, although competition remains strong.

Competition is an even greater factor in the commercial segment of the
flight operations market where barriers to entry are lower than in the
government sector. This is due in part to the fact that aircraft may not require
unique modifications in order to perform the desired services. In the commercial
market, the Company competes with numerous companies, some of which also compete
in the market for military contracts. Price also can be a significant factor
where, on occasion, competitors are single aircraft operators engaged in the
business on a part-time basis.

Financial condition and fiscal stability also are significant competitive
factors affecting the award of contracts in both the government and commercial
sectors of flight operations. The Company's results of operations prior to,
during and immediately following the bankruptcy had adversely affected its
ability to compete for certain contracts. Following two profitable years and
successful performance on contracts, management believes it has to a large
extent rebuilt confidence with the Company's customers and potential customers
in order to be a long-term player in the industry. See Item 6, "Management's
Discussion and Analysis or Plan of Operation."

FIXED BASE OPERATION

FIA operates a FBO at the NN/W Airport pursuant to an agreement with the
Peninsula Airport Commission which terminates in January 2004. The FBO currently
serves the line service and fuel requirements of Company aircraft in support of
the Company's flight operations. The Company also offers a full range of
aviation services customarily provided by such a facility to third parties.
These services include aircraft fueling, maintenance services (including
inspections and engine and airframe repairs), aircraft modifications, avionics
installation and replacement, charter, flight instruction, pilot services and
aircraft storage and hangaring.

The competitive market for FBO services may be local, regional or
national, depending upon the particular type of service considered. Competition
with respect to fuel and maintenance generally arises from other FBOs located at
the same airport or within the vicinity of such airport. The Company controls
substantially all the fueling business at the NN/W Airport. For major
maintenance, the Company's facilities compete with other facilities nationwide.

The availability of storage hangars for aircraft also is an important
competitive factor. Generally, pilots with aircraft hangared at a facility will
purchase fuel and a substantial portion of their maintenance

- 6 -
<PAGE> 7
and avionics requirements at that facility. The Company maintains three hangars
at its Newport News FBO which are used for its fleet of aircraft as well as
third-party aircraft. Management does not believe that revenues from its FBO are
seasonal or dependent on a single customer.

The FBO comprises approximately 39,000 square feet of hangar space and
43,000 square feet of maintenance and office space, of which approximately
10,000 square feet is occupied by the Company's headquarters.

REGULATION

The Company's business is subject to regulation by the U.S. Federal
Aviation Administration ("FAA") and the Department of Transportation ("DOT")
under the provisions of the Federal Aviation Act of 1958, as amended (the
"Aviation Act"). The DOT is responsible, inter alia, for evaluating and
determining the fitness of individuals and organizations to function as air
carriers and maintains jurisdiction over consolidations, mergers or acquisitions
of air carriers.

The FAA regulates aircraft and air carrier operations, including personnel
employed, equipment used, ground facilities, maintenance, communications and
other matters. More specifically, the FAA regulates the operation of aircraft in
commercial operations under Federal Aviation Regulation Part 135 and repair
facilities (repair stations), including those operated by the FBO, under Federal
Aviation Regulation Part 145.

The FAA has the authority to suspend or revoke the approval of air
carriers, commercial operators, repair stations and pilot schools or their
licensed personnel for failure to comply with any FAA regulation and can
"ground" aircraft if questions arise concerning their airworthiness. Management
believes the Company holds all operating, airworthiness and other FAA
certificates required for the conduct of its business, although these
certificates may be suspended or revoked for cause.

The FAA also has authority under the Noise Control Act of 1972, as
amended, to monitor and regulate aircraft engine noise. Management believes that
the aircraft operated by the Company are in compliance with regulations
promulgated by the FAA and that such aircraft also comply with standards for
aircraft exhaust regulations promulgated by the Environmental Protection Agency
pursuant to the Clean Air Act of 1979, as amended. In addition, the Company's
operations may be subject to local regulation with respect to noise control.
Such authorities and ordinances could restrict the Company's use of older
Learjets, which produce greater engine noise than newer models.

Because of the extensive use of radio and other communication facilities
in its aircraft operations, the Company is subject to the Federal Communications
Commission Act of 1934, as amended (the "FCC Act") and regulation thereunder by
the Federal Communications Commission ("FCC"). The Company believes it is in
compliance with all material requirements of the FCC Act and the FCC.

The Company maintains a fuel storage area at its FBO and handles materials
which are subject to federal, state and local regulations. The Company believes
it is in compliance with all such regulations and does not currently anticipate
that maintaining compliance will have a material effect on the capital
expenditures, earnings or competitive position of the Company. The Company
believes the costs and effects

- 7 -
<PAGE> 8
of compliance with such regulations are minor.

Compliance with the regulatory requirements applicable to the Company's
business imposes material burdens on the Company, including license
requirements, maintenance, training, record keeping and reporting obligations
and limitations on the manner in which the Company may operate its aircraft.
Further, the cost of compliance with these requirements is significant.
Management believes, however, that the regulatory requirements applicable to the
Company generally are no more burdensome to the Company than to other businesses
operating in the aviation services industry.

EMPLOYEES

As of April 30, 1997, the Company had 130 employees, including 101
full-time employees. None of the Company's employees is covered by a collective
bargaining agreement.

ITEM 2. DESCRIPTION OF PROPERTY

The Company's leasehold interests at the NN/W Airport represent
approximately 20% of the total assets of the Company. These leasehold interests
consist of three hangars totaling 39,000 square feet and approximately 43,000
square feet of maintenance shop and office space. The leasehold improvements are
amortized on a straight-line basis over the term of the land lease, which runs
through January 2004. There are no plans for additional improvement of the
property, and, in the opinion of the management, the property is adequately
insured.

The Company presently operates a small fleet of 23 aircraft, of which
three are owned and twenty are leased. The Company also owns, subject to a Deed
of Trust and Security Interest Lien to Signet Bank/Virginia, certain buildings,
hangars and maintenance facilities at its FBO and leases the land at its
headquarters from the Peninsula Airport Commission. A majority of the Company's
assets are pledged as collateral on its debt and capital lease obligations.

In 1988, FIA mortgaged substantially all of its leasehold interests,
improvements and related fixtures and equipment to Signet Bank/Virginia. As of
April 30, 1997, the indebtedness to Signet Bank/Virginia was approximately
$1,862,600. As of April 30, 1996, the indebtedness to Signet Bank/Virginia was
restructured to provide for complete amortization thereof through graduated
payments through November 2003, at which time the entire obligation will be
satisfied.

The Company leases the land underlying its headquarters building and
hangars through the year 2004 pursuant to a lease agreement with the Peninsula
Airport Commission of Newport News, Virginia, which agreement was retained as a
part of the Plan.

The Company's executive offices and corporate headquarters are located at
Newport News/Williamsburg International Airport, Newport News, Virginia 23602,
where the Company has approximately 10,000 square feet of office space.

- 8 -
<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS

As a consequence of the bankruptcy proceedings with respect to the Chapter
11 Entities, virtually all litigations against the Chapter 11 Entities were
terminated. There are no material pending legal proceedings to which the Company
is a party or to which any of its properties are subject. A certain grand jury
investigation is described in Note 8 to the annexed Consolidated Financial
Statements of the Company set forth in Item 7 hereof.

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

No matters were submitted to a vote of security holders of the Company
during the fiscal quarter ended April 30, 1997.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company became a reporting company under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") in 1984, at the time of its initial
public offering of securities. Thereafter it filed reports pursuant to the
requirements of Sections 13 and 15(d) of the Exchange Act. It has filed its Form
10-K for the fiscal year ended April 30, 1993, a Current Report on Form 8-K
filed during the bankruptcy and all required filings reflective of all periods
from and after January 31, 1995.

The shares of New Common Stock of the Company currently trade in the
"pink sheets," since the Old Common Stock, which had been listed on the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ")
Additional List, was delisted in 1992. There can be no assurance that the
Company will qualify for relisting on Nasdaq. If qualification occurs, the
Company will then determine if it is in the Company's best interest to become
re-listed.

The Company believes that since April 30, 1993, virtually no trading has
taken place with respect to the Old Common Stock and New Common Stock,
respectively. There is no established public trading market currently for the
New Common Stock, and, therefore, no bid information is available.

The approximate number of holders of record of New Common Stock as of
April 30, 1997 is 2,000. The Company has no other class of securities authorized
in its Amended Certificate of Incorporation. On December 10, 1996, the
shareholders of the Company approved an amendment to the Company's Amended
Certificate of Incorporation to increase the number of authorized shares of New
Common Stock from 1,000,000 shares to 10,000,000 shares.

No cash dividends were declared on the New Common Stock during the fiscal
years ended April 30, 1997 and April 30, 1996.

- 9 -
<PAGE> 10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

RESULTS OF OPERATIONS

YEAR ENDED APRIL 30, 1997 COMPARED TO THE YEAR ENDED APRIL 30, 1996

Revenues

For the year ended April 30, 1997, revenues totaled $19,035,036. This
represents an increase of 55% over the prior year. Company revenue is generated
from three sources. Flight operations of owned or leased aircraft accounts for
78% of total revenue, followed by the maintenance and repair facility at 14% and
the FBO at 8% of total revenue.

While flight operations and the maintenance and repair facility showed
substantial increases, the FBO revenue decreased, as displayed below (in
thousands):

<TABLE>
<CAPTION>
12 Months Ended 12 Months Ended
April 30, 1997 (000's) April 30, 1996 (000's) % Increase
---------------------- ---------------------- ----------
<S> <C> <C> <C>
Flight Operations $14,904 $8,947 67%
Maintenance Facility $ 2,671 $1,693 58%
Newport News FBO $ 1,460 $1,625 -10%
</TABLE>

The increase in flight operations is due to revenues resulting from the
CAS-MOS contract, which was in place for seven months during the fiscal year
ended April 30, 1997. Maintenance revenue was up due to the completion of
customer aircraft modifications during the first quarter. FBO revenues were down
due to decreased traffic through the NN/W Airport.

Costs of Services

Costs of services include the direct operating expenses of aircraft owned
and leased by the Company. Types of expenses incurred include the following:
lease, fuel, insurance, maintenance, pilots and equipment. Also included are the
costs of operating the FBO at the NN/W Airport. The costs for the aircraft
repair facility are also included in costs of services.

For the year ending April 30, 1997 there was a 65% increase in costs of
services. The major factor contributing to the increase in costs of services was
expenses related to the CAS-MOS contract. The overall gross margin declined to
20% from 24% in the prior year. The decline in gross margin is principally due
to the sale and leaseback of three aircraft in April 1996 (the
"Sale/Leaseback"). See also "Depreciation and "Amortization," below.

Depreciation and Amortization

- 10 -
<PAGE> 11
Aircraft and engines are depreciated as follows: aircraft are depreciated
on a straight-line basis over 12 years. Engines are depreciated based on hours
flown down to a core value. In addition, a reserve is recorded to cover the cost
of major periodic inspections on engines. Electronic warfare equipment is
depreciated on a straight line basis over five years. All other property and
equipment is depreciated over its estimated useful life or lease term, if
applicable.

Depreciation and amortization of $588,395 for the fiscal year ended April
30, 1997 reflects a decrease of 29% compared to fiscal year 1996. This decrease
is the result of the Sale/Leaseback involving three planes with a total cost
basis of approximately $2,694,000 in April 1996.

General, Corporate and Administrative

General, corporate and administrative expenses consist principally of
facility costs associated with the three hangars and corporate headquarters
building, and labor costs associated with the administrative and sales staff.
General, corporate and administrative expenses aggregated $2,218,682 for the
year ended April 30, 1997, an increase of 22% over the prior twelve month
period. The increase is the result of an increase in support staff to offset the
sizable increase in direct costs. In addition, bad debt expense increased
substantially due to one commercial maintenance customer.

Interest Expense

Interest expense decreased to $376,558 from $561,284 for the prior twelve
month period, or 33%. The decrease in interest expense is principally due to the
Sale/Leaseback in April 1996 and the related payoff of approximately $2,164,000
and $711,000 reduction in long term debt during the fiscal year ended April 30,
1997. The decrease from the Sale/Leaseback is partially offset by interest
expense resulting from obligations pursuant to the Company's new factoring
arrangement (see "Liquidity and Capital Resources," below).

Income Tax Expense

Income tax expense varies from statutory tax rates principally because of
the utilization of net operating loss carryforwards. For further discussion see
Note 6 to the Consolidated Financial Statements included herein.

Extraordinary Gain on Debt Extinguishment

In April 1996, the Company paid off at a discount certain indebtedness to
Michigan National Bank in a transaction described in more detail herein (see
Item 12, "Certain Relationships and Related Transactions"). As a result of that
transaction, an extraordinary gain of $313,793 was recorded to reflect the
forgiveness of that portion of the indebtedness.

Net Income

The consolidated net profit for the year ended April 30, 1997 was
$664,890, a profit of $.66 per share compared to a net profit of $115,295, or
$.11 per share, for the year ended April 30, 1996. The weighted

- 11 -
<PAGE> 12
average number of shares was 1,003,976 and 998,976, respectively.

YEAR ENDED APRIL 30, 1996 COMPARED TO FOUR MONTHS ENDED APRIL 30, 1995 AND THE
EIGHT MONTHS ENDED DECEMBER 31, 1994

Revenues

For the year ended April 30, 1996, revenues totaled $12,265,000. This
represents an increase of 12% over the prior year. Company revenue is generated
from four sources. Contract flying of owned or leased aircraft accounts for 55%
of total revenue, followed by aircraft leasing at 18%, the repair facility at
14% and the FBO at 13% of total revenue.

All four sources of revenue showed increases as displayed below (in
thousands):

<TABLE>
<CAPTION>
12 Months Ended 12 Months Ended
April 30, 1996 April 30, 1995 % Increase
-------------- -------------- ----------
<S> <C> <C> <C>
Flight Operations $8,947 $7,594 56
Maintenance Facility 1,693 1,495 13
Newport News FBO 1,625 1,529 6
</TABLE>

The 45% increase in aircraft leasing is as a result of having a full year
of operations on the China Lake contract as opposed to seven months in fiscal
year 1995.

Costs of Services

For the year ending April 30, 1996 there was a 1.9% decrease in costs of
services. Major factors contributing to the decrease in costs of services were
the FBO, which decreased costs by 25% and by sale of the flight school. Repair
station and all flight operations also had improved gross margins. The decrease
in costs of service, combined with the 12% increase in revenue, is reflected in
improved gross margins across the board. The overall gross margin improved to
24% from 13% in the prior year.

Depreciation and Amortization

Aircraft and engines are depreciated as follows: aircraft are depreciated
on a straight-line basis over 12 years. Engines are depreciated based on hours
flown down to a core value. In addition, a reserve is recorded to cover the cost
of major periodic inspections on engines. Electronic warfare equipment is
depreciated on a straight line basis over five years. All other property and
equipment is depreciated over its estimated useful life or lease term, if
applicable. Increase in depreciation is a result of a relatively stable level of
aircraft and facilities and an increased utilization rate.

- 12 -
<PAGE> 13
Depreciation and amortization of $828,425 for the fiscal year ended April
30, 1996 reflects an increase of 4% compared to fiscal year 1995. This increase
is the result of the moderate increased utilization of aircraft.

General, Corporate and Administrative

General, corporate and administrative expenses consist principally of
facility costs associated with the three hangars and corporate headquarters
building, and labor costs associated with the administrative and sales staff.
General, corporate and administrative expenses aggregated $1,812,130 for the
year ended April 30, 1996, a decrease of 13% over the prior twelve month period.
This decrease is a result of a reduction in professional fees and the departure
of an executive of the Company, partially offset by an increase in marketing
expenses.

Interest Expense

Interest expense increased to $561,284 from $409,735 for the prior twelve
month period, or 37%. This increase in primarily due to the fact that interest
on unsecured and undersecured indebtedness did not begin accruing until the
confirmation date of the Plan in December 1994.

Income Tax Expense

Income tax expense varies from statutory tax rates principally because of
the utilization of net operating loss carryforwards. Fur further discussion see
Note 6 to the Consolidated Financial Statements included herein.

Extraordinary Gain on Debt Extinguishment

Net Income (Profit)

The consolidated net profit for the year ended April 30, 1996 was
$115,295, a profit of $.11 per share (includes an extraordinary gain of
$313,793; net loss before extraordinary item was $198,498, or $.20 per share).
The weighted average number of shares remained consistent during this period at
998,976.

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations primarily through cash flows from
operations, bank indebtedness and the Sale/Leaseback. The Company's operating
activities provided cash of approximately $85,355 for the year ended April 30,
1997, while providing $663,657 in the comparable prior year period. For the year
ended April 30, 1997, cash was provided by net income, increases in accounts
payable and

- 13 -
<PAGE> 14
accrued expenses and absorbed by increases in accounts receivable and prepaid
expenses and other assets. Cash was used to repay long term debt and provide for
start-up expenses and deposits related to the CAS-MOS contract.

On October 16, 1996, the Company entered into a Factoring Agreement (the
"Heller Agreement") with Heller Small Business Finance, a division of Heller
Financial, Inc. ("Heller"). The Heller Agreement granted Heller an assignment of
the CAS-MOS contract accounts receivable and proceeds thereon as collateral for
a line of credit which is expected not to exceed $2,000,000. The term of the
Heller Agreement is two years, with an option for the Company to terminate the
Heller Agreement after one year, if the Company is able to obtain traditional
bank financing. Heller charges a discount fee of .8% of the invoice amount
purchased and an interest rate of prime plus 1% until the invoice is paid. The
Heller Agreement includes a minimum fee to Heller, inclusive of all interest
charges, of $60,000 per annum. There were no amounts due to Heller as of April
30, 1997.

The Company operates in a capital intensive industry. Typically, major
expenses are incurred in connection with the initiation of a new contract. These
costs can consist of acquisition of additional aircraft, equipment and training.
These costs can be reduced through leasing arrangements and advance payments
from customers, if these are obtainable. The Company believes that it will be
able to arrange through available means the financing of these initial contract
costs when necessary, although no assurance can be given. See Notes 4 and 7 to
the Consolidated Financial Statements included herein for a discussion of future
debt and lease commitments.

- 14 -
<PAGE> 15
ITEM 7. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

ASSETS
<TABLE>
<CAPTION>
April 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Current assets
Cash $ 231,111 $ 1,178,779
Accounts receivable, net (Note 1) 2,230,370 1,380,803
Inventories (Notes 2 and 5) 1,790,890 1,729,503
Prepaid expenses, deposits and other 1,416,076 786,985
- --------------------------------------------------------------------------------

Total current assets 5,668,447 5,076,070
- --------------------------------------------------------------------------------

Property and equipment, net (Notes 3 and 5) 4,266,598 4,532,658
- --------------------------------------------------------------------------------

Other assets 28,323 31,116
- --------------------------------------------------------------------------------

Total assets $ 9,963,368 $ 9,639,844
- --------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable $ 326,406 $ 174,286
Deferred revenue 769,547 598,145
Accrued expenses and other liabilities (Note 8) 1,775,972 1,580,820
Long-term debt due currently (Note 5) 640,351 599,533
- --------------------------------------------------------------------------------

Total current liabilities 3,512,276 2,952,784

Other non-current liabilities 400,543 214,339
Deferred revenue 1,090,191 1,445,516
Long-term debt, less current maturities (Note 5) 3,282,068 4,034,355
- --------------------------------------------------------------------------------

Total liabilities 8,285,078 8,646,994
- --------------------------------------------------------------------------------

Commitments and contingencies (Notes 7 and 8)
- --------------------------------------------------------------------------------

Stockholders' equity
Common stock, $.01 par value, 10,000,000
shares authorized; 1,013,976 and
998,976 issued and outstanding, respectively 10,140 9,990
Additional paid-in capital 1,009,386 988,986
Treasury stock, 1,769 shares of common stock,
at fair value (1,769) (1,769)
Retained earnings (deficit) 660,533 (4,357)
- --------------------------------------------------------------------------------

Total stockholders' equity 1,678,290 992,850
- --------------------------------------------------------------------------------

Total liabilities and stockholders' equity $ 9,963,368 $ 9,639,844
- --------------------------------------------------------------------------------
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

15
<PAGE> 16
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues (Note 10) $ 19,035,036 $ 12,265,436
- --------------------------------------------------------------------------------

Operating costs and expenses
Costs of services 15,259,962 9,265,121
Gain on disposal of assets (73,451) (3,026)
Depreciation and amortization 588,395 828,425
General, corporate and administrative 2,218,682 1,812,130
- --------------------------------------------------------------------------------

Total operating costs and expenses 17,993,588 11,902,650
- --------------------------------------------------------------------------------

Income before other (income)
expenses and extraordinary items 1,041,448 362,786
- --------------------------------------------------------------------------------

Other (income) expenses
Interest expense 376,558 561,284
- --------------------------------------------------------------------------------

Total other (income) expenses 376,558 561,284
- --------------------------------------------------------------------------------

Income (loss) before extraordinary items 664,890 (198,498)
- --------------------------------------------------------------------------------

Extraordinary items
Gain on debt extinguishment (Notes 5 and 11) -- 313,793
- --------------------------------------------------------------------------------

Net income $ 664,890 $ 115,295
- --------------------------------------------------------------------------------

Income (loss) per common share
Income (loss) before extraordinary items $ 0.66 $ (0.20)
Extraordinary item -- 0.31
- --------------------------------------------------------------------------------

Net income per common share $ 0.66 $ 0.11
- --------------------------------------------------------------------------------

Weighted average number of shares 1,003,976 998,976
- --------------------------------------------------------------------------------
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

16
<PAGE> 17
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Common Stock Additional Retained
----------------- Paid-in Treasury Earnings
Shares Amount Capital Stock (Deficit)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1995 998,976 $ 9,990 $ 988,986 $(1,769) $(119,652)

Net income -- -- -- -- 115,295
- ---------------------------------------------------------------------------------------

Balance, April 30, 1996 998,976 9,990 988,986 (1,769) (4,357)

Issuance of common stock 15,000 150 20,400 -- --
Net income -- -- -- -- 664,890
- ---------------------------------------------------------------------------------------

Balance, April 30, 1997 1,013,976 $10,140 $1,009,386 $(1,769) $ 660,533
- ---------------------------------------------------------------------------------------
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

17
<PAGE> 18
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended April 30,
--------------------
1997 1996
---- ----
<S> <C> <C>
Operating activities
Net income $ 664,890 $ 115,295
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 588,395 828,425
Engine reserve 186,205 (7,093)
Issuance of common stock for services 20,550 --
(Gain) loss on sale of assets (73,451) (3,026)
Extraordinary gain on debt extinguishment -- (313,793)
Changes in operating assets and liabilities
Accounts receivable (849,567) 429,088
Inventories (61,387) (352,685)
Prepaid expenses and other assets (626,298) (226,767)
Accounts payable 152,120 104,872
Accrued expenses and other liabilities 267,820 (231,326)
Deferred revenue (183,922) 320,667
- -----------------------------------------------------------------------------------

Net cash provided by operating activities 85,355 663,657
- -----------------------------------------------------------------------------------

Investing activities
Purchase of property and equipment (346,846) (219,866)
Proceeds from the sale of property and
equipment 25,292 2,900,000
- -----------------------------------------------------------------------------------

Net cash provided (absorbed) by investing activities (321,554) 2,680,134
- -----------------------------------------------------------------------------------

Financing activities
Repayment of long-term debt (711,469) (2,766,756)
- -----------------------------------------------------------------------------------

Net cash absorbed by financing activities (711,469) (2,766,756)
- -----------------------------------------------------------------------------------

Net increase (decrease) in cash and
cash equivalents (947,668) 577,035

Cash and cash equivalents,
beginning of year 1,178,779 601,744
- -----------------------------------------------------------------------------------

Cash and cash equivalents, end of year $ 231,111 $ 1,178,779
- -----------------------------------------------------------------------------------

Supplemental Schedule of Noncash Investing and
Financing Activities

Deferred gain on sale/leaseback of property
and equipment (Note 11) $ -- $ 214,974
- -----------------------------------------------------------------------------------
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

18
<PAGE> 19
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business - The Flight International Group, Inc. and Subsidiaries
(the "Company") is an aviation services company that performs military training
services using specially modified commercial aircraft, principally under
contracts with the United States Department of Defense, other government
agencies and foreign countries. In addition, the Company has established a
market for training and testing in the aerospace industry. The Company also
operates a fixed base operation ("FBO") at the Newport News/Williamsburg
International Airport.

Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.

Inventories - Aircraft parts - Aircraft parts include rotables, repairable
and expendable aircraft components and rotables. Rotables and repairables are
recorded using the specific identification method and are valued at the lower of
cost or market. Expendables are recorded at the lower of average cost or market.

Targets and cable - Targets and cable are special equipment required to
perform target tow missions and are recorded at the lower of average cost or
market.

Fuel - Fuel includes Jet A and Avgas, both of which are consumed in the
performance of contracts and sold commercially. Fuel is recorded at the lower of
average cost or market.

Property and Equipment - Property and equipment are recorded at cost. The
cost of improvements are capitalized, while the cost of replacements,
maintenance and repairs which do not improve or extend the life of the
respective assets are expensed.

Depreciation and amortization of property and equipment are provided, for
financial reporting purposes, as follows:

Aircraft and Engines - Aircraft are depreciated on a straight-line basis
over 12 years. Engines are depreciated based on hours flown down to a core
value.

The U.S. Federal Aviation Administration mandates the performance of a
Major Periodic Inspection (MPI) on engines every 1,500 flight hours. In order to
properly account for the cost of this inspection over the time the engine is in
service, the Company records a reserve based on hours between inspections for
each engine. The reserve is relieved when the service work is performed on the
engine.

Electronic Warfare Equipment - Substantially all electronic warfare
equipment and related aircraft modifications are utilized to train military
aircrews, radar operators and weapons controllers in the techniques of airborne
target identification and intercept. Such equipment and related aircraft
modifications are carried at the lower of cost or market value and are
depreciated on a straight-line basis over 5 years.

Other equipment - All other property and equipment is depreciated on a
straight-line basis over its estimated useful life or lease term, as applicable.
Estimated useful lives are as follows: leasehold interests and improvements,
primarily in the airport buildings - 85 months (remaining lease term);
equipment, office furniture, and fixtures - 5 years.

19
<PAGE> 20
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Asset Impairments and Disposals - The Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121) during the year ended April 30, 1997. SFAS 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of.
The Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. Any long-lived assets held for disposal are reported at their net
realizable value. The application of this pronouncement did not have a material
effect on the financial statements of the Company.

Revenue Recognition - Contract Revenue - The Company recognizes contract
revenue as hours are flown, at the average rate per flight hour, over the term
of each contract. Certain contracts provide for a guaranteed minimum number of
flight hours per contract year. Contract revenue for such guaranteed but unflown
hours, if any, is recognized at the end of the contract year. Certain contracts
provide for cash payments in excess of the average rate per hour in the early
years of a contract; such excess is recorded as deferred revenue.

Aircraft Maintenance - Repairs and maintenance services performed for
unrelated third parties are recognized on the completed contract method. Costs
associated with an incomplete job at period end are deferred as costs in excess
of billings and included in "prepaid expenses, deposits and other" in the
consolidated balance sheets.

Income Taxes - Income taxes are accounted for under FASB Statement No. 109,
"Accounting for Income Taxes" ("SFAS No. 109), the asset and liability method.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
Under SFAS No. 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.

Stock Based Compensation - The Company adopted the provisions of Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock
Based Compensation." SFAS No. 123 allows companies to continue to account for
their stock option plans in accordance with APB Opinion 25 but encourages the
adoption of a new accounting method based on the estimated fair value of
employee stock options. Companies electing not to follow the new fair value
based method are required to provide expanded footnote disclosures, including
proforma net income and earnings per share, determined as if the company had
applied the new method.

The Company measures stock based compensation cost as the excess of the
market value of the Company's common stock at the grant date over any amount the
employee pays for the stock. The application of this pronouncement did not have
a material effect on the financial statements of the Company.

Statement of Cash Flows - For purposes of the statement of cash flows, the
Company considers all highly-liquid instruments purchased with a maturity of
three months or less to be cash equivalents.

20
<PAGE> 21
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Net Income Per Share - Net income per common share is computed by dividing
the income by the weighted average of the number of shares of common stock
outstanding during the year (1,003,976 shares - 1997 and 998,976 shares - 1996).

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

Reclassifications - Certain reclassifications have been made in prior year
consolidated financial statements to conform to the presentation in the 1997
consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ACCOUNTS RECEIVABLE - The balance of accounts receivable is comprised
of the following:

<TABLE>
<CAPTION>
April 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Flight operations contracts
and programs $2,170,518 $1,256,892
Trade 125,708 128,930
Other receivables 78,781 53,764
---------- ----------

2,375,007 1,439,586
Less: allowance for
doubtful accounts (144,637) (58,783)
---------- ----------

$2,230,370 $1,380,803
---------- ----------
</TABLE>

21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

NOTE 1 - ACCOUNTS RECEIVABLE (CONTINUED) - Accounts receivable from flight
operations contracts and programs consist of the following:

<TABLE>
<CAPTION>
April 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
U.S. Government
Amounts billed $ 410,533 $ 201,407
Services provided,
not billed 1,033,647 302,582
---------- ----------

1,444,180 503,989
---------- ----------
Commercial Customers
Amounts billed 664,290 498,977
Services provided,
not billed 62,048 253,926
---------- ----------

726,338 752,903
---------- ----------
Total flight operations
contracts and programs $2,170,518 $1,256,892
---------- ----------
</TABLE>

Accounts receivable are billed in accordance with the terms of the
contracts under which they arise. Amounts not billed represent services
performed between the last billing date and year end.

22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

NOTE 2 - INVENTORIES - Inventories are compromised of:

<TABLE>
<CAPTION>
April 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Aircraft parts $1,634,890 $1,544,818
Targets and cable 135,260 160,426
Fuel 20,740 24,259
---------- ----------

$1,790,890 $1,729,503
---------- ----------
</TABLE>

NOTE 3 - PROPERTY AND EQUIPMENT - Property and equipment consist of the
following:

<TABLE>
April 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Aircraft and engines $2,289,820 $2,339,820
Electronic warfare equipment 519,147 519,147
Leasehold interests 1,999,791 1,999,791
Office furniture and fixtures 78,962 39,955
Other equipment 701,128 395,006
---------- ----------

5,588,848 5,293,719
Accumulated depreciation
and amortization (1,322,250) (761,061)
---------- ----------

Property and equipment, net $4,266,598 $4,532,658
---------- ----------
</TABLE>

NOTE 4 - NOTES PAYABLE - The Company entered into an accounts receivable
factoring agreement with Heller Financial, Inc. in October of 1996. Under the
terms of the agreement, the Company may obtain advances up to 80% of amounts
billed by the Company relating to an agreed U.S. Government Contract. The
Company must pay interest at prime plus 1% on outstanding advances. No amounts
were outstanding at April 30, 1997.

23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

NOTE 5 - LONG-TERM DEBT - Long-term debt consists of the following:

<TABLE>
<CAPTION>
April 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Note payable to bank with interest payable at 8.5%, due
in monthly installments of principal and interest,
beginning at $19,000 and ending at $37,000, through
November 1, 2003, secured by a first mortgage deed of
trust on leasehold improvements and assignment of
leases on certain real property located in Newport
News, Virginia. $1,862,609 $1,970,762

Note payable to finance company with interest payable
at 8%, due in equal monthly installments of principal
and interest of $6,784 maturing on August 1, 1996,
secured by certain property and equipment. -- 21,489

Note payable to finance company with interest payable
at 8%, due in equal monthly installments of principal
and interest of $7,800 through August 30, 1999, and a
final payment of principal and unpaid interest of
approximately $17,768 due September 30, 1999, secured
by certain property and equipment. 213,277 292,449

Note payable to finance company with interest payable
at 8%, due in equal monthly installments of principal
and interest of $30,000 through December 20, 1999, and
a final payment of principal and unpaid interest of
$338,120 due January 20, 2000, secured by certain
property and equipment. 1,133,481 1,391,487

Note payable to bank with interest payable at 7%
through December 8, 1999, and at the five-year U.S.
Treasury Bill rate plus 2.10% through December 8, 2004,
due in monthly installments of principal and interest
of approximately $15,333 through December 8, 2004,
secured by inventory. 713,052 957,701
----------- ----------

3,922,419 4,633,888
Current maturities 640,351 599,533
---------- ----------

Long-term debt, net $3,282,068 $4,034,355
---------- ----------
</TABLE>

<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

NOTE 5 - LONG-TERM DEBT (CONTINUED) -

At April 30, 1997, aggregate principal payments due for long-term debt for the
next five fiscal years and thereafter were as follows:

<TABLE>
<S> <C>
1998 $ 640,351
1999 746,771
2000 971,413
2001 421,273
2002 392,106
Thereafter 750,505
----------

$3,922,419
==========
</TABLE>

An extraordinary gain of $313,793 was recorded at April 30, 1996 to reflect
forgiveness of bank debt related to early payoff of an amount less than the
outstanding balance on a 7.875% note payable to bank, (See Note 11).

NOTE 6 - INCOME TAXES - Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.

The sources of temporary differences and their effect on net deferred tax asset
are as follows:

<TABLE>
<CAPTION>
April 30,
-----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred revenue $ 707,000 $ 777,000
Engine reserve 173,000 129,000
Allowance for bad debts 55,000 22,000
Vacation expense 41,000 37,000
Installment sale 54,000 82,000
Net operating loss carryforwards 3,703,000 4,043,000
Basis difference of property and equipment (322,000) (360,000)
---------- ----------

Net deferred tax asset 4,411,000 4,730,000

Valuation allowance (4,411,000) (4,730,000)
---------- ----------

$ -- $ --
---------- ----------
</TABLE>

25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

NOTE 6 - INCOME TAXES (CONTINUED) - The provision for income taxes differs from
the amount determined by applying federal statutory tax rates to pre-tax income
as a result of the following differences:

<TABLE>
<CAPTION>
Year Ended Year Ended
April 30, 1997 April 30, 1996
-------------- --------------

Amount Percent Amount Percent
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income taxes at
statutory rate $226,063 34% $ 39,200 34.0%
Increase (decrease) in
taxes resulting from:
Federal alternative
minimum tax 9,000 1.4 -- --
Travel and entertainment 16,674 2.5 11,542 10.0
Change in valuation allowance (319,000) (48.0) (55,354) (48.0)
State taxes, net of
federal benefit 26,596 4.0 4,612 3.6
Other 40,667 6.1 -- --
-------- -------- -------- --------

$ -- --% $ -- --%
-------- -------- -------- --------
</TABLE>

As of April 30, 1997, the cumulative net operating loss available for federal
income tax purposes was $9,700,000, which will expire primarily in the 2006 -
2011 period, subject to certain limitations due to reorganization, if not
previously utilized.

NOTE 7 - OPERATING LEASE COMMITMENTS - The Company leases various aircraft and
engines under operating leases for use on government contracts. Total lease
expense for these aircraft was $4,322,745 and $1,894,834 for the years ended
April 30, 1997 and 1996, respectively. Such lease expenses included
approximately $414,487 and $164,819 for the years ended April 30, 1997 and 1996,
respectively, for contingent rentals based on hours flown.

The Company leases various office facilities and airport property under lease
arrangements with terms expiring through May 2004. Other operating leases are
for office machines and aircraft maintenance equipment. The lease expense for
these operating leases was $364,006 and $347,736 for the years ended April 30,
1997 and 1996 respectively. Such lease expenses included approximately $109,351
and $102,878 for the years ended April 30, 1997 and 1996, respectively, for
contingent rentals based on revenue.

At April 30, 1997, future minimum lease payments on operating leases for each of
the next five fiscal years and thereafter were as follows:

<TABLE>
<S> <C>
1998 $1,873,468
1999 791,885
2000 149,514
2001 149,964
2002 151,314
Thereafter 198,279
----------

$3,314,424
==========
</TABLE>

26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

NOTE 8 - CLAIMS CONTINGENCIES, AND COMMITMENTS - On February 4, 1994, the
Company filed voluntary petitions in the United States Bankruptcy Court for the
Eastern District of Virginia (the "Bankruptcy Court") for reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Code"). On December 8,
1994, the Bankruptcy Court entered an order confirming the Company's joint plan
of reorganization (the "Plan"), and the Plan became effective on December 28,
1994 (the "Effective Date"). For accounting purposes, the effective date was
deemed to be December 31, 1994.

Pursuant to the Plan, a total of 1,000,000 shares of new common stock were
authorized and 998,976 shares were issued. The 9,899,713 shares of common stock
previously outstanding were retired. Of the new shares of common stock issued,
51,000 shares are being held by the Company to satisfy the remaining claims of
the unsecured creditors. The Company anticipates that a final distribution of
the remaining shares based on the final valuation of all general unsecured
claims will be completed by April 30, 1998.

Priority tax claims, which arose from the plan, are being paid over a period of
six years together with interest thereon. Unpaid claims amounted to
approximately $199,000 and $270,000 at April 30, 1997 and 1996, respectively,
and are included in accrued expenses and other long term liabilities.

On May 7, 1996, the Company received notification of a grand jury subpoena
issued on behalf of the United States Information Agency (USIA) for records of
Flight International Aviation, Inc. and Flight International Aviation Training
Center, Inc. pertaining to the administration of training pursuant to the J-1
Exchange Visitor Program. The Company has produced all documents in its
possession and has cooperated with the investigation. The Company has not been
identified as a "target" of any criminal investigation nor have any civil claims
been asserted against the Company. In addition, the Company has not operated the
Training Center since November 1, 1994. Management of the Company believes that
the ultimate settlement of this matter will not have a material adverse effect
on the Company's financial position or results of operations.

NOTE 9 - EMPLOYEE BENEFIT PLANS - The Company sponsors a defined contribution
pension plan covering all eligible employees. Employees become eligible to
participate upon completing one year of service in a job classification not
subject to a collective bargaining agreement. One year of service is defined as
any consecutive 12 month period in which the employee works 1,000 hours.
Participants may elect to have 1% to 15% of their compensation contributed to
the Plan, up to the maximum allowed by law. Prior to May 1, 1996, contributions
to the Plan were matched by the Company at the rate of 25% of the first 4% of
employees' contributions. All employee contributions, rollover contributions,
and earnings thereon are 100% vested. Company contributions vest at a rate of
20% per year. The participant may designate his contribution and employer
matching contributions to be invested in any combination of seven money market,
stock or bond funds maintained by the Trustee. After a participant dies or
retires, the participant or his beneficiary is entitled to receive the entire
vested balance of his account. Effective May 1, 1996, the Company increased its
match to 30% of the first 5% of employees' contributions.

The Company reserves the right to amend or terminate the Plan at any time. If
the Plan is terminated, each participant is then vested with the amount in his
account. The Company contributed $31,921 and $14,470 to the plan for the years
ended April 30, 1997 and 1996, respectively.

27
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

NOTE 10 - TRANSACTIONS WITH MAJOR CUSTOMER - Revenues from all U.S. government
contracts included in the Flight operations segment are as follows:

<TABLE>
<CAPTION>
Percent
Amount Total Revenue
----------- -------------
<S> <C> <C>
Fiscal year ended April 30, 1997 $12,520,399 66%
Fiscal year ended April 30, 1996 $ 5,942,969 48%
</TABLE>

NOTE 11 - RELATED PARTIES - The Company has entered into lease agreements with
Maritime Sales and Leasing ("MSL") for certain aircraft which require future
minimum lease payments of approximately $2.3 million through October, 1999.
David Sandlin, President and CEO of the Company, is also an officer of MSL.

During 1996, the Company entered into a lease with the Aviation Company. David
Sandlin has an ownership interest in the Aviation Company. The single aircraft
lease calls for payments of $500 per hour flown.

On April 15, 1996, the Company sold three planes to MSL for $2.9 million. The
Company leased the planes back from MSL for a three year period. Proceeds from
the sale were distributed as follows: $1.85 million to payoff bank debt;
$106,000 to MSL for lease deposits; and the remainder to the Company. The
Company realized a $218,000 gain related to the sale/leaseback which was
deferred over the lease term, and a $313,793 extraordinary gain related to the
early extinguishment of related bank debt, (See Note 5).

Total rent expense on all related party leases were as follows:

<TABLE>
<S> <C>
Fiscal year ended April 30, 1997 $2,415,260
Fiscal year ended April 30, 1996 $1,285,671
</TABLE>

NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS - Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents, and trade receivables. The Company
places its cash and cash equivalents with high credit qualified financial
institutions.

The following details the fair values of financial instruments for which it is
practicable to estimate the value:

Cash and cash equivalents - The carrying amounts approximate fair value because
of the short maturity of these instruments.

Debt - The aggregate fair value of the Company's long-term debt obligations,
which is based upon quoted market prices and rates currently available to the
Company for debt with similar terms and maturities, approximates the carrying
amount.

28
<PAGE> 29
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS

To the Board of Directors and Stockholders of
The Flight International Group, Inc.

We have audited the accompanying consolidated balance sheets of The Flight
International Group, Inc. and subsidiaries as of April 30, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Flight
International Group, Inc. and Subsidiaries as of April 30, 1997 and 1996, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

Richmond, Virginia BDO Seidman, LLP
June 20, 1997

29
<PAGE> 30
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There are not and have not been any disagreements between the Registrant
and its accountants on any matter of accounting principles, practices or
financial statement disclosure.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

The current officers and directors will serve for terms of one year or
until their respective successors are elected and qualified. The current
officers and directors are:

<TABLE>
<CAPTION>
Name Age Date of Election Position
- ---- --- ---------------- --------
<S> <C> <C> <C>
David E. Sandlin 53 March 30, 1994 Chairman, President, Director

Wayne M. Richmon 40 February 13, 1995 Executive Vice President,
Treasurer, Chief Financial Officer,
Director

David R. Sharp 57 October 1, 1996 Vice President, Chief Operating
Officer

Gary D. Reinhart 61 April 13, 1993 Vice Pres. of Administration

Ann P. Campbell 58 April 13, 1993 Secretary

C. Lofton Fouts, Jr. 65 February 13, 1995 Director

John R. Bone 46 February 13, 1995 Director

James N. Lingan 49 May 24, 1995 Director

Vice Admiral Richard M. Dunleavy (Ret.) 64 May 24, 1995 Director
</TABLE>

The Plan requires that the Company's Board of Directors remain at six (6)
members until changed by vote of shareholders. The members of the Board of
Directors need not be shareholders of the Company. Further, the Plan requires
that three members of the Board of Directors may be, but are not required to be,
officers, employees, consultants or independent contractors engaged, employed or
retained by the Company or

- 30 -
<PAGE> 31
its subsidiaries and/or affiliates. Messrs. Sandlin, Richmon and Bone represent
these three directors. The remaining three directors shall consist of
individuals who are not directly or indirectly engaged, employed or retained by
the Company or its subsidiaries and/or affiliates. Messrs. Fouts, Lingan and
Dunleavy represent these three directors.

Each director and executive officer's business experience during the past
five years is described below:

David E. Sandlin. Mr. Sandlin has been Chairman, President and a Director
of the Company and its subsidiaries since March 30, 1994, and was formerly
President of Flight International's Sales and Leasing Division. Mr. Sandlin has
been involved in aircraft marketing and management since 1978. He has worked in
various capacities for Cessna and Dassault and has extensive experience with
Learjets. In 1990 he founded DESCO Aviation Consultants International ("DESCO")
and is an officer, director and 50% shareholder of in Maritime Sales & Leasing,
Inc. ("Maritime"), a major lessor of turbine aircraft. Maritime has leased a
total of 16 aircraft to FII. Mr. Sandlin also is a one-third owner of The
Aviation Company ("TAC"), which has leased one aircraft to the Company. With
relation to three particular Learjets owned by the Company, an arrangement was
made in May 1996 whereby Maritime would purchase the aircraft from the Company,
lease them back to the Company and pay off Michigan National Bank (the entity
that financed the aircraft). See Item 12, "Certain Relationships and Related
Transactions."

Wayne M. Richmon. Mr. Richmon, Executive Vice President, Treasurer, Chief
Financial Officer and Director, joined the Company in 1992, and is responsible
for finance, corporate administration, human resources, management information
services and contract administration. Prior to joining the Company, he served
previously as Chief Financial Officer for American Systems Engineering Company
and held management positions at two national "big six" accounting firms,
specializing in government contract and consulting services. Mr. Richmon is a
CPA registered in the State of Virginia.

David R. Sharp. Mr. Sharp, Vice President and Chief Operating Officer,
joined the Company in 1987 after 26 years as a U.S. Navy officer, retiring with
the rank of Captain. He was Director of Navy Programs for the Company until
October 1992, when he resigned to pursue other interests. Prior to returning to
the Company in May 1995 as Director of Government Marketing he served as a
consultant and held positions in marketing and program management. He is
currently responsible for all commercial and government operations of the
Company.

Gary D. Reinhart. Mr. Reinhart, Vice President, Administration, joined the
Company in 1987 as Director of Purchasing and has also served as Director,
Materials and Risk Management. Mr. Reinhart previously worked in corporate and
group management positions with Bendix/ Allied Signal for 28 years.

Ann P. Campbell. Ms. Campbell, Corporate Secretary, joined the Company in
1987 as Secretary to the Chief Financial Officer of the Company. Since that
time, she has served as Executive Secretary to the Chief Operating Officer and
President, and Assistant to the Chairman. Ms. Campbell has over fifteen years
experience as a legal secretary and currently serves as Executive Secretary to
the Chairman and to the Chief Financial Officer.

C. Lofton Fouts, Jr. Mr. Fouts, Director, has been involved in the
aviation industry for 29 years. He wrote the original Piper Flite Center
training syllabus, the first standardized flight program used nationwide in

- 31 -
<PAGE> 32
the general aviation industry. In 1988, Mr. Fouts formed Lofton Fouts &
Associates, Inc., a general aviation consulting business specializing in sales,
acquisitions and mergers of fixed base operations and related aviation
businesses.

John R. Bone. Mr. Bone, Director, is President of Global Jet, a corporate
aircraft sales and brokerage firm, and is an officer, director and 50%
shareholder of Maritime. Mr. Bone studied aeronautical engineering at Northrup
University. He is an A&P mechanic, has worked as Chief Pilot for major U.S.
companies and currently is a pilot with a major United States airline. Global
Jet, with Mr. Bone, has been instrumental in developing the fleet of Learjets
for Phoenix Air Group, a competitor of FII. See Item 12, "Certain Relationships
and Related Transactions."

James N. Lingan. Mr. Lingan, Director, is a principal with KPMG Peat
Marwick LLP in Washington, D.C. Mr. Lingan supervises a staff which provides
consulting and advisory services to Department of Defense weapons acquisitions
programs. Mr. Lingan has served more than 10 years in the United States Navy and
is a Captain in the Navy Reserve.

Vice Admiral Richard M. Dunleavy (Ret.). Admiral Dunleavy, Director, was
formerly Assistant Chief of Naval Operations (Air Warfare). Admiral Dunleavy
joined the Staff of the Chief of Naval Operations in 1976. From 1978 to 1979 he
was Commanding Officer of the USS Ponchatoula and assumed command of the USS
Coral Sea in 1979. In 1981 he was selected as Commander of U.S. Naval Forces in
the Philippines and later became Commander, Carrier Group FOUR/Commander
Striking Force Atlantic. From 1986 to 1989 he was Commander, Naval Air Force,
U.S. Atlantic Fleet. Admiral Dunleavy's military awards include a Distinguished
Service Medal, three Legions of Merit, eight Air Medals and four Navy
Commendation Medals.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The Company believes that all required Forms 3 and 4 were furnished to the
Registrant during the fiscal year ended April 30, 1997.

ITEM 10. EXECUTIVE COMPENSATION

The following table reflects the aggregate cash compensation, including
bonuses and deferred compensation, for services in all capacities to the Company
during the fiscal years ended April 30, 1997, 1996 and 1995 for the Chief
Executive Officer of the Company. No other executive officer of the Company had
aggregate remuneration exceeding $100,000.

- 32 -
<PAGE> 33
ANNUAL COMPENSATION

<TABLE>
<CAPTION>
Other
Annual Other
Name,Principal Position Year Salary Comp. Compensation
- ----------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
David E. Sandlin(4) 1997 $110,000(1)(2) $ 13,700(3)
Chairman, President 1996 $100,000(1)(2) $ 962
1995 $ 89,612(1)(2) $ 308
</TABLE>

- ----------
(1) Pursuant to an Employment Agreement, dated as of January 3, 1995, by and
between the Company and David E. Sandlin, as amended to date (the "Sandlin
Agreement"), Mr. Sandlin received a salary at an annual rate of $100,000
from the effective date of such agreement through the end of the fiscal
year ended April 30, 1996 and $110,000 during the fiscal year ended April
30, 1997. See "Employment Agreements," below.

(2) The Sandlin Agreement and Mr. Sandlin's employment arrangement prior to
entering into the Sandlin Agreement provides for certain perquisites,
including an apartment in Newport News, Virginia, travel costs to and from
his home in Atlanta, Georgia and an automobile in Newport News. The
aggregate cost of these items for the fiscal year ended April 30, 1997 was
$25,280; for the fiscal year ended April 30, 1996, $25,081; and for the
fiscal year ended April 30, 1995, $22,466.

(3) Mr. Sandlin was issued 10,000 shares of Common Stock in January 1997 as
compensation. The valuation of such shares is an estimate by the Company.
There is no current active trading market in the Company's securities. See
"Employment Agreements," below.

(4) Mr. Sandlin is an officer, director and 50% shareholder of Maritime.
Maritime has leased a total of 16 aircraft to FII. Mr. Sandlin is also a
one-third owner of TAC, which has leased one aircraft to the Company. With
relation to three particular Learjets owned by the Company, an arrangement
was made in May 1996 whereby Maritime would purchase the aircraft from the
Company, lease them back to the Company and pay off Michigan National Bank
(the entity that financed the aircraft). The Company does not believe that
any of the foregoing constituted compensation to Mr. Sandlin, but makes
this disclosure for the sake of completeness. See "Item 12 - Certain
Relationships and Related Transactions."

THE FLIGHT INTERNATIONAL GROUP, INC. 401(K) PLAN

The Flight International Group, Inc. 401(k) Plan (the "401(k) Plan") is a
defined contribution plan sponsored by the Company. The 401(k) Plan covers all
eligible employees of the Company. Employees become eligible to participate upon
completing one year of service in a job classification not subject to a
collective bargaining agreement. One year of service is defined as any
consecutive 12 month period in which the employee works 1,000 hours.

Participants may elect to have 1% to 15% of their compensation contributed
to the 401(k) Plan, up to the maximum allowed by law. Contributions to the
401(k) Plan are matched by the Company at the rate of 30% of the first 5% of
employees' contributions. The Board of Directors has approved, effective August
1, 1997, an

- 33 -
<PAGE> 34
increase in the matching to the rate of 40% of the first 5% of employees'
contributions. All employee contributions, rollover contributions and earnings
thereon are 100% vested. Company contributions vest at a rate of 20% per year.
The participant may designate his contribution and employer matching
contributions to be invested in any combination of eight funds maintained by the
Trustee. After a participant dies or retires, the participant or his beneficiary
is entitled to receive the entire vested balance of his account. The Company
reserves the right to amend or terminate the 401(k) Plan at any time. If the
401(k) Plan is terminated, each participant is then vested with the amount in
his account. The Company contributed $24,082 and $14,470 to the 401(k) Plan in
fiscal years 1997 and 1996, respectively.

The 401(k) Plan has applied for, but not yet received, a determination
letter exempting it from Federal income taxes.

DIRECTORS' COMPENSATION

Directors who are not members of management or affiliates thereof receive
$1,000 for each Board meeting attended, plus out-of-pocket expenses incurred in
connection with such attendance. Members of management and affiliates thereof
who are directors do not receive separate compensation therefor.

EMPLOYMENT AGREEMENTS

The Sandlin Agreement

The Sandlin Agreement continues for a term which expires December 31,
2001, provided that the Sandlin Agreement is renewed automatically from year to
year thereafter unless either party gives notice of termination. Mr. Sandlin's
base salary was previously $100,000 per year (subject to increases by the Board
of Directors taking into consideration certain factors specified therein). On
September 17, 1996, the Board of Directors approved the extension of the Sandlin
Agreement through December 31, 2001, as well as a raise in Mr. Sandlin's base
salary to $110,000, with 10% annual base salary increases. The Board also
approved issuing to Mr. Sandlin, as compensation, 10,000 shares of Common Stock,
which were issued in January 1997.

Mr. Sandlin is reimbursed for all necessary and reasonable expenses
incurred in performing under the Sandlin Agreement and certain other expenses
specified therein (including without limitation for the cost of an apartment and
automobile for his use in Newport News, Virginia and his travel expenses to and
from his home in Atlanta, Georgia and Newport News). He is also entitled to
participate in any benefit programs which the Company may establish.

The Company may terminate the Sandlin Agreement for "cause" (as defined
therein), in the event of the death or disability of Mr. Sandlin or at any time
after delivery to Mr. Sandlin of a written notice of termination. Mr. Sandlin
may terminate the Sandlin Agreement on sixty (60) days written notice for, among
other things, a reduction in his base salary below that in existence upon
signing (or other material breach by the Company), the relocation of the
Company's offices and the assignment of duties inconsistent with his position or
material adverse alteration in the nature or status of his responsibilities or
conditions of employment (including without limitation material reductions in
vacation or material increase in overnight travel obligations not reasonably
required).

- 34 -
<PAGE> 35
In the event that the Sandlin Agreement is terminated by the Company for
cause or in the event of death or disability, or in the event Mr. Sandlin
terminates the Sandlin Agreement other than in connection with a change in
control, Mr. Sandlin receives his salary, expense reimbursements and other
benefits through the date of termination, in addition to any applicable
insurance benefits.

In the event of a termination by the Company not for cause, death or
disability, or in the event Mr. Sandlin terminates the Sandlin Agreement in
connection with a change in control, Mr. Sandlin receives the amounts described
above plus a lump sum severance payment equal to 100% of his annual base salary
at the rate in effect at the time notice of termination is given. In this
circumstance, the Company, for one year after termination, also will provide Mr.
Sandlin with life and health insurance benefits substantially similar to those
he was receiving immediately prior to the notice of termination. A change in
control is deemed to have occurred in the event of a sale of the Company or
merger of the Company with another business pursuant to which any person or
entity other than certain specified entities (these are Maritime, Global Jet,
Phoenix Air Group and DESCO, Aviation Consultants) become beneficial owners of
capital stock of the Company.

The Sandlin Agreement prohibits Mr. Sandlin, during the term of the
Sandlin Agreement and for one year thereafter, from serving as an employee,
owner, partner, agent, director, officer, consultant or shareholder (except
ownership of 5% or less of most public companies) of a business which is
materially in competition with the business of the Company, but this provision
can be modified by formal resolution of at least 75% of the Board of Directors
(excluding Mr. Sandlin). The Company agrees to indemnify Mr. Sandlin against
reasonable expenses, liabilities and losses incurred or suffered by him in
connection with his service to the Company.

Employment Agreement with Wayne M. Richmon

The Company also has entered into an Employment Agreement with Wayne M.
Richmon, its Executive Vice President, Treasurer and Chief Financial Officer,
dated as of January 3, 1995 (the "Richmon Agreement"). The Richmon Agreement
continues for a term which expires December 31, 1996, provided that the Richmon
Agreement is renewed automatically from year to year thereafter unless either
party gives notice of termination. Mr. Richmon's base salary was previously
$80,000 per year (subject to increases by the Board of Directors taking into
consideration certain factors specified therein). On September 17, 1996, the
Board of Directors approved the extension of the Richmon Agreement through
December 31, 1997, as well as a raise in Mr. Richmon's base salary to $88,000.
In the event of automatic renewal, Mr. Richmon's base salary will increase 10%
per annum. The Board also approved issuing to Mr. Richmon, as compensation,
5,000 shares of Common Stock, which were issued in January 1997.

Mr. Richmon is reimbursed for all necessary and reasonable expenses
incurred in performing under the Richmon Agreement and certain other expenses
specified therein. He is also entitled to participate in any benefit programs
which the Company may establish.

The Company may terminate the Richmon Agreement for "cause" (as defined
therein), in the event of the death or disability of Mr. Richmon or at any time
after delivery to Mr. Richmon of a written notice of termination. Mr. Richmon
may terminate the Richmon Agreement on sixty (60) days written notice for, among
other things, a reduction in his base salary below $88,000 (or other material
breach by the Company), the relocation of the Company's offices and the
assignment of duties inconsistent with his position or material adverse
alteration in the nature or status of his responsibilities or conditions of
employment.

- 35 -
<PAGE> 36
In the event that the Richmon Agreement is terminated by the Company for
cause or in the event of death or disability, or in the event Mr. Richmon
terminates the Richmon Agreement other than in connection with a change in
control, Mr. Richmon receives his salary, expense reimbursements and other
benefits through the date of termination, in addition to any applicable
insurance benefits.

In the event of a termination by the Company not for cause, death or
disability, or in the event Mr. Richmon terminates the Richmon Agreement in
connection with a change in control, Mr. Richmon receives the amounts described
above plus a lump sum severance payment equal to 100% of his annual base salary
at the rate in effect at the time notice of termination is given. In this
circumstance, the Company, for one year after termination, also will provide Mr.
Richmon with life and health insurance benefits substantially similar to those
he was receiving immediately prior to the notice of termination. A change in
control is deemed to have occurred in the event of a sale of the Company or
merger of the Company with another business pursuant to which any person or
entity becomes beneficial owner of capital stock of the Company.

The Richmon Agreement prohibits Mr. Richmon, during the term of the
Richmon Agreement and for one year thereafter, from serving as an employee,
owner, partner, agent, director, officer, consultant or shareholder (except
ownership of 5% or less of most public companies) of a business which is
materially in competition with the business of the Company. The Company agrees
to indemnify Mr. Richmon against reasonable expenses, liabilities and losses
incurred or suffered by him in connection with his service to the Company.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth, as of July 15, 1997, all persons known to
the Registrant to be the beneficial owner of more than five percent of the
Company's New Common Stock (other than those persons listed in the chart under
"Security Ownership of Management" below in this Item 11).

- 36 -
<PAGE> 37
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of
Beneficial Beneficial
Owner Ownership Percent of Class
- ----- --------- ----------------
<S> <C> <C>
Flight Partners Limited., L.P. ("FPP") 60,000 5.92%
c/o Lincolnshire Management, Inc.
780 Third Avenue
New York, NY 10017
Attention: Mr. William F. Wolffer, Jr.

Michigan National Bank 103,985 10.26%(1)
2777 Inkster Road
Mail Code 10-60
Farmington Hills, MI 48334-5326
Attention: Otto Wilhelm, Vice President

South Trust Bank of Alabama, N.A. 105,435 10.40%(1)
112 N. 20th Street, 3rd Floor
Birmingham, AL 35203
Attention: Mr. Lee Brown, Senior V.P.

First Tennessee National Bank Assn. 54,073 5.33%(1)
Box 84
Memphis, TN 38101
Attention: Gary Rick, Vice President

LeasePlan USA, Inc. 61,341 6.05%(1)
180 Interstate North Parkway, Suite 400
Atlanta, GA 30339
Attention: John Stasiowski, Vice President
</TABLE>

- ----------
(1) Pursuant to the Plan, 510,000 shares of New Common Stock were issued to
unsecured creditors and certain other claimants of the Chapter 11 Entities,
including these shareholders (the "Creditor Shareholders"). The Company
disputed, however, claims to approximately 200,000 of such shares to certain
creditors. As of the date of filing of this Annual Report, as indicated above,
the Company has resolved all such disputed claims, subject to final paperwork in
one case.

- 37 -
<PAGE> 38
SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth, as of July 15, 1997, information as to all
directors and executive officers of the Company, and all directors and executive
officers as a group.

<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of
Beneficial Beneficial
Owner Ownership Percent of Class(1)
- ----- --------- -------------------
<S> <C> <C>
David E. Sandlin 205,000 20.22%
c/o The Flight International Group, Inc.
Newport News/Williamsburg
International Airport
Newport News, Virginia 23602

Wayne M. Richmon 55,000 5.42%
c/o The Flight International Group, Inc.
Newport News/Williamsburg
International Airport
Newport News, Virginia 23602

David Sharp 1 *
c/o The Flight International Group, Inc.
Newport News/Williamsburg
International Airport
Newport News, Virginia 23602

Gary D. Reinhart - 0 - --
c/o The Flight International Group, Inc.
Newport News/Williamsburg
International Airport
Newport News, Virginia 23602

Ann P. Campbell - 0 - --
c/o The Flight International Group, Inc.
Newport News/Williamsburg
International Airport
Newport News, Virginia 23602

C. Lofton Fouts, Jr. - 0 - --
6690 Knollwood Circle
Douglasville, GA 30135

John R. Bone 145,000 14.30%
</TABLE>

- 38 -
<PAGE> 39
<TABLE>
<S> <C> <C>
P.O. Box 217, 64 College Street
Newman, GA 30263

James N. Lingan - 0 - --
2531 Jefferson Davis Highway
Building NC3
Arlington, VA 22202

Vice Admiral Richard M. Dunleavy (Ret.) - 0 - --
2220 Sandpiper Road
Virginia Beach, VA 23456

ALL DIRECTORS AND
EXECUTIVE OFFICERS
AS A GROUP (8 individuals) 405,001 39.94%
------- -------
</TABLE>

* Represents less than a one percent interest.

CHANGES IN CONTROL

The Company is not aware of any arrangements which may result in a change
in control of the Company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Sandlin is an officer, director and 50% shareholder of Maritime, a
major lessor of turbine aircraft. Maritime has leased a total of 16 aircraft to
FII at a total cost to FII of $2,300,000 through October 1999. The Company
believes the financial and other arrangements between FII and Maritime are
reasonable and fair and similar to arrangements which would have been made in an
arm's length transaction between FII and an unaffiliated third party. The
Company does not believe that Mr. Sandlin's relationship with Maritime
materially interferes with his ability to fully perform his obligations to the
Company as a director, officer and employee.

Mr. Sandlin is also a one-third owner of TAC, which has leased one Casa
235 aircraft to the Company. In anticipation of a project to send Casa 235
aircraft to Bahrain, the Company sought to lease a plane from TAC. In
expectation of this lease, TAC purchased the aircraft intended for the lease.
Thereafter, this project was eliminated due to DOD budget cutting. However, the
aircraft has been leased to the Company. As of April 30, 1997, the Company had
not found a full time use for the aircraft and this situation had been causing
harm to its cash flow. On April 30, 1996, the lease was modified from $60,000
per month to $500 per hour flown. This substantially reduced the cost of
carrying this aircraft, although certain other significant expenses, such as
insurance and other maintenance, continue. The Company believes, however, that
the financial and other arrangements between FII and TAC are reasonable and fair
and similar to arrangements which would have been made in an arm's length
transaction between FII and an unaffiliated third party.

- 39 -
<PAGE> 40
In an effort to alleviate the Company's cash flow problems, the following
plan involving three Company owned Learjets which were financed by Michigan
National Bank ("MNB") was approved by the Company's Board of Directors in March
1996. The Company's monthly payment to MNB on the aircraft was $47,000. The plan
provided that Maritime purchase the aircraft, repay all indebtedness to MNB, and
then lease the aircraft back to the Company at a monthly rate of $53,000. The
proceeds from the sale were distributed as follows:

<TABLE>
<S> <C>
Sale Price of Aircraft $2,900,000
Payoff of MNB Debt (1,850,000)
Proceeds to the Company $1,050,000
</TABLE>

In addition, an engine also financed by MNB (worth approximately $400,000)
was retained by the Company. The plan relieved the Company of its indebtedness
to MNB, allowed it to receive an additional $1,050,000 and pay only $6,000 per
month more for the lease than it was paying to service the debt.

Mr. Bone is an officer, director and 50% shareholder of Maritime. In
addition, Mr. Bone is the sole shareholder, director and officer of Global Jet
("Global Jet"), which, with Mr. Bone, has been instrumental in developing the
fleet of Learjets for Phoenix Air Group, a competitor of FII. The Company does
not believe that Mr. Bone's relationships with Maritime and Global Jet
materially interfere with Mr. Bone's ability to fully perform his obligations to
the Company as a director.

The Board of Directors of the Company currently requires approval or
ratification by the Board of all related party transactions.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

1. The exhibits required to be filed as part of this Annual Report on Form
10-KSB are listed in the attached Exhibit Index.

2. During the quarter ended January 31, 1997, the Company filed no Current
Reports on Form 8-K.

- 40 -
<PAGE> 41
SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: July , 1997 THE FLIGHT INTERNATIONAL GROUP, INC.
-----

By: /s/ David E. Sandlin
---------------------------------
David E. Sandlin
Principal Executive Officer

By: /s/ Wayne M. Richmon
---------------------------------
Wayne M. Richmon
Principal Financial Officer

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

Signature Title Date
--------- ----- ----

/s/ David E. Sandlin Director and July , 1997
-------------------------- Principal Executive --------------
David E. Sandlin Officer

/s/ Wayne M. Richmon Director and July , 1997
-------------------------- Principal Financial --------------
Wayne M. Richmon Officer

/s/ C. Lofton Fouts, Jr. Director July , 1997
-------------------------- --------------
C. Lofton Fouts, Jr.

/s/ John R. Bone Director July , 1997
-------------------------- --------------
John R. Bone

/s/ James N. Lingan Director July , 1997
-------------------------- --------------
James N. Lingan

/s/ Vice Admiral
Richard M. Dunleavy (Ret.) Director July , 1997
-------------------------- --------------
Vice Admiral
Richard M. Dunleavy (Ret.)

- 41 -
<PAGE> 42
EXHIBIT INDEX

Exhibit
Number Description
- ------ -----------

3(a) Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to the Company's Report on Form
10-KSB for the fiscal year ended April 30, 1996).

3(b) Bylaws of the Company (incorporated by reference to the
Company's Report on Form 10-KSB for the fiscal year ended
April 30, 1996)..

10(a) Lease Agreement dated November 8, 1984 between the Peninsula
Airport Commission and Flight International Aviation, Inc., as
amended. (incorporated by reference to Exhibit 10(n) to the
Company's Report on Form 10-K for the fiscal year ended April
30, 1988).

10(b) Award/Contract No. N00421-92-C-0134 dated September 15, 1992,
issued by the United States Naval Weapons Center, Patuxent
River, MD to Flight International, Inc. (incorporated by
reference to the Company's Report on Form 10-KSB for the
fiscal year ended April 30, 1996).

10(c) Award/Contract No. N68936-94-C-0086 dated November 21, 1994,
issued by the United States Naval Weapons Center, China Lake,
CA to Flight International, Inc. (incorporated by reference to
the Company's Report on Form 10-KSB for the fiscal year ended
April 30, 1996).

10(d) Collateral Retention and Adequate Protection Agreement dated
July 25, 1994 among Flight International Inc., Flight
International of Florida, Inc. and First Tennessee Equipment
Finance Corporation (incorporated by reference to Exhibit 2 to
the Company's Current Report on Form 8-K dated December 20,
1994).

10(e) Collateral Retention and Adequate Protection Agreement dated
July 29, 1994 among Flight International Inc., Flight
International of Florida, Inc., the Company and Michigan
National Bank (incorporated by reference to Exhibit 2 to the
Company's Current Report on Form 8-K dated December 20, 1994).

10(f) Amended Secured Promissory Note between Signet Bank/Virginia
and Flight International Aviation, Inc. dated October 13, 1994
(incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K dated December 20, 1994).

10(g) Stipulation Regarding Adequate Protection of Interest of
Nations Financial Capital Corporation in Certain Aircraft
Owned By Debtor dated December 14, 1994 between Flight
International of Florida, Inc. and NationsFinancial Capital
Corporation (incorporated by reference to Exhibit 2 to the
Company's Current Report on Form 8-

- 42 -
<PAGE> 43
K dated December 20, 1994).

10(h) Agreement on Use of Cash Collateral and for Loan Restructure
dated December 14, 1994 between Flight International, Inc. and
SouthTrust Bank of Alabama, N. A. (incorporated by reference
to Exhibit 2 to the Company's Current Report on Form 8-K dated
December 20, 1994).

10(i) Collateral Retention and Adequate Protection Agreement dated
December 14, 1994 among Flight International Inc., Flight
International of Florida, Inc., the Company and Lease Plan
U.S.A. (incorporated by reference to Exhibit 2 to the
Company's Current Report on Form 8-K dated December 20, 1994).

10(j) Employment Agreement dated January 3, 1995 between the Company
and David E. Sandlin (incorporated by reference to the
Company's Report on Form 10-KSB for the fiscal year ended
April 30, 1995).

10(k) Employment Agreement dated January 3, 1995 between the Company
and Wayne M. Richmon (incorporated by reference to the
Company's Report on Form 10-KSB for the fiscal year ended
April 30, 1995).

10(l) Award/Contract No. N00019 dated August 30, 1996, issued by the
United States Naval Air Systems Command, AIR-2.5.3, Patuxent
River, MD to Flight International, Inc. ("CAS-MOS"
Contract)(incorporated by reference to the Company's Report on
Form 10-KSB/A for the fiscal year ended April 30, 1996).
Certain portions of this Exhibit have been omitted based upon
a request for confidential treatment with the Securities and
Exchange Commission (the "Commission"). The confidential
portions have been filed with the Commission.

10(m) Intentionally omitted.

10(n) Intentionally omitted.

10(o) Fourth Modification Agreement, dated as of April 30, 1996, by
and between Flight International Aviation, Inc., Steven D.
Delaney, Otto W. Konrad and Signet Bank (incorporated by
reference to the Company's Report on Form 10-KSB for the
fiscal year ended April 30, 1996).

10(p) Amended and Restated Deed of Trust Note, dated April 30, 1996,
from Flight International Aviation, Inc., as maker, to Signet
Bank (incorporated by reference to the Company's Report on
Form 10-KSB for the fiscal year ended April 30, 1996).

10(q) Agreement between Heller Small Business Finance and FII dated
October 16, 1996 (incorporated by reference to the Company's
Report on Form 10-QSB for the fiscal quarter ended October 31,
1996).

- 43 -
<PAGE> 44
22 Subsidiaries of the Company (incorporated by reference to the
Company's Report on Form 10-KSB for the fiscal year ended
April 30, 1995).

27 Financial Data Schedule.

- 44 -

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidation financial statements of the company for the year ended April 30,
1997 and is qualified in its entirety by reference to the form 10-KSB for fiscal
1997.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<CASH> 231,111
<SECURITIES> 0
<RECEIVABLES> 2,375,007
<ALLOWANCES> 144,637
<INVENTORY> 1,790,890
<CURRENT-ASSETS> 5,668,447
<PP&E> 5,588,848
<DEPRECIATION> 1,322,250
<TOTAL-ASSETS> 9,963,368
<CURRENT-LIABILITIES> 3,512,276
<BONDS> 0
0
0
<COMMON> 10,140
<OTHER-SE> 1,668,150
<TOTAL-LIABILITY-AND-EQUITY> 9,963,368
<SALES> 19,035,036
<TOTAL-REVENUES> 19,035,036
<CGS> 15,259,962
<TOTAL-COSTS> 17,993,588
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 376,558
<INCOME-PRETAX> 664,890
<INCOME-TAX> 0
<INCOME-CONTINUING> 664,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 664,890
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66

</TABLE>