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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C 20549
                                    FORM 10-K/A

     [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
                              EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1995     COMMISSION FILE NUMBER: 0-14646

                           AIRSHIP INTERNATIONAL LTD.
                           -------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

        NEW YORK                                       06-1113228
(STATE OF INCORPORATION)                 (I.R.S. EMPLOYER IDENTIFICATION NUMBER)

     7380 SAND LAKE ROAD, SUITE 350, ORLANDO, FL                 32819
      (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                 (ZIP CODE)

                                 (407) 351-0011

                         (REGISTRANT'S TELEPHONE NUMBER)
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE
           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                     COMMON STOCK, $.01 PAR VALUE PER SHARE.
                                (TITLE OF CLASS)
               CLASS B COMMON STOCK PURCHASE WARRANT, EACH WARRANT
              ENTITLING THE HOLDER TO PURCHASE ONE SHARE OF COMMON
                             STOCK, $.01 PAR VALUE.
                                (TITLE OF CLASS)
            CLASS A 8% CUMULATIVE CONVERTIBLE VOTING PREFERRED STOCK,
                            PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements
for the past 90 days.

                     Yes [ ]                             No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant including Preferred Stock as of September 5, 1997 was $3,649,537.50.

The number of shares of Common Stock outstanding as of September 5, 1997 was
42,522,778.

Documents Incorporated by Reference: None. A list of Exhibits to this Annual
Report on Form 10-K begins on page 28.


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                           AIRSHIP INTERNATIONAL LTD.
                              1995 FORM 10-K REPORT

                                TABLE OF CONTENTS

                                     PART I

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

ITEM 2.   PROPERTIES.......................................................... 6

ITEM 3.   LEGAL PROCEEDINGS................................................... 7

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 8

                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS.............................................10

ITEM 6.   SELECTED FINANCIAL DATA.............................................12

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS...........................................13

ITEM 8.   FINANCIAL STATEMENTS AND SCHEDULES..................................18

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE............................................18

                                PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................19

ITEM 11.  EXECUTIVE COMPENSATION..............................................20

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......22

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................24

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.....25





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The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forwardlooking statements. This Annual Report contains forwardlooking
statements and information that are based on the beliefs of management as well
as assumptions made by and information currently available to management. The
statements contained in this Annual Report relating to matters that are not
historical facts are forwardlooking statements that involve risks and
uncertainties, including, but not limited to, future demand for the Company's
products and services, general economic conditions, government regulation,
competition and customer strategies, capital deployment, the impact of pricing
and reimbursement and other risks and uncertainties. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated or expected.









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                                     PART I

ITEM 1. BUSINESS

GENERAL

        Airship International Ltd. (the "Company") has operated lighter-than-air
airships, also commonly known as blimps, which have been used to advertise and
promote the products and services of the Company's clients. The Company's
clients utilize its airships at major sporting and special events and over
urban and beach locations as an informative advertising and promotional vehicle.
The Company operated one airship during 1995.

        The Company was incorporated in New York on June 9, 1982 and commenced
operations in August 1985 following the completion of the Company's initial
public offering in June 1985. The Company's principal executive offices are
located at 7380 Sand Lake Road, Suite 350, Orlando, Florida 32819 and its
telephone number is (407) 351-0011. The Company also maintains a small office in
New York, New York.

AIRSHIPS

        For daytime advertising, each of the Airships and its ground support
vehicles were generally painted with the name and logo of the respective client.
In addition, the Company's operating personnel wore uniforms carrying the
client's logo or name.

        The Company's clients utilized its Airships as an aerial ambassador and
network-television camera platform for numerous major events.

        Each of the Company's airships was operated by a team employed by the
Company which included U.S. Federal Aviation Administration ("FAA") certified
airship pilots, mechanics, technicians and crew. The team supervised and
executed the flight schedule and activities which the client specified. The team
was supported by specially equipped ground support vehicles owned by the
Company, which were used in the operation and maintenance of the Airships. The
flight schedule of an airship could have included flights over a several hundred
mile geographical area. The Company could accommodate such requirements because
an airship's mooring support facilities are mobile and will travel with the
ground crew to each of the landing sites. The Company believes that this
mobility provides the flexibility for the use of the airships and implementation
of a client's promotional campaign. No specialized facility is required for use
as a landing site.

        Historically, substantially all of the Company's revenues were derived
from the operation of the Airships pursuant to aerial advertising contracts with
its clients. Fees were generally paid to the Company on a monthly basis and the
respective Airships were flown according to a flight schedule provided by the
client, subject to weather conditions, government regulations and maintenance
requirements. In the absence of availability of suitable replacements and/or
rights of the Company to terminate outstanding advertising contracts,
Termination of or substantial reduction in fees provided by the Company's
operating Airships has had a material adverse impact on the Company's revenues.
The Company continue to seek new aerial advertising contracts and clients.

AERIAL ADVERTISING AND OTHER CONTRACTS






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        Set forth below are descriptions of the Company's aerial advertising
contracts which were in effect during the fiscal year ended December 31, 1995
(for further detail see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Comparison of Revenue and Operating Costs
-- 1995 to 1994").

        BUD ONE CONTRACT. On March 12, 1992, the Company entered into an
agreement (the "Bud One Contract") with Anheuser-Busch for the use of the Bud
One Airship. In March 1994, the Company and Anheuser-Busch agreed to reduce
flight time and monthly fees under the Bud One Contract by approximately 50%,
effective February 1994 through July 1994 (the "March Amendment").

        On July 8, 1994 the Bud One Contract was amended and restated, pursuant
to which amendment the Bud One Airship was to be operated from September 1, 1994
through December 31, 1996. Thereafter, Anheuser-Busch had the option to extend
the agreement for one year. The airship was to be operated, in all material
respects, in the same manner as it had been operated in the past, with contract
payments being substantially equivalent to those under the Bud One Contract
prior to the March Amendment. The Bud One Contract contained restrictions on the
Company's ability to operate airships for potential clients which are
competitive with Anheuser-Busch. In June 1995 the Bud One Airship was sold to
Trans Continental Leasing, Inc., an affiliate of the Company in a
sale-leaseback transaction. See "--Acquisitions, Leasing and
Financings--Allstate Loan." In November 1995 the Bud One Airship was deemed
to be in need of a new envelope and was taken out of service.

        ARGENTINA AGREEMENTS. On December 15, 1994 the Company and AOI
consummated the Argentina Lease Agreement and the Argentina Operations
Agreement, respectively, with Mastellone, an Argentinean dairy company, for the
promotion of the products of Mastellone.

        Subsequently, on May 24, 1995, prior to commencement of flight
operations of the Argentina Airship and pursuant to the Purchase and Assignment
Agreement, the Argentina Airship and related equipment were sold and the
Argentina Lease Agreement was assigned to First Security. In consideration for
such sale and assignment, First Security assumed the Company's obligations under
the Argentina Lease Agreement. The initial terms of the Agreements were for a
period of four months, and commenced in July 1995. Such initial terms were
extended for a ten-month period by Mastellone pursuant to the provisions of the
Agreements.

        In addition, the Company had the option to repurchase the Airship for
120% of the out-of-pocket expenses and the assumption of all liabilities
incurred by First Security and Aviation in connection with the Argentina
Airship. Such option expired unexercised on January 15, 1996.

        Concurrently with the execution and delivery of the Purchase and
Assumption Agreement, the Company sold to Aviation all of the issued and
outstanding shares of the capital stock of AOI. Mr. Julian Benscher, who held,
indirectly through designees, approximately 4.0% of the Company's common stock,
is an officer and stockholder of Aviation. See "Certain Relationships and
Related Transactions".

        The Company's revenues were historically dependent on the Company's
aerial advertising contracts. For the years ended December 31, 1995 and 1994,
100% and 50%, respectively, of the Company's revenues were derived from
Anheuser-Busch. In addition, 19% of 1994 revenues were derived from
Kingstreet Tours and 29% were derived from Gulf Oil. The Company has been
adversely affected during the period between the time that any particular
aerial advertising agreement terminated and the time a new contract commenced.

ACQUISITIONS, LEASES AND FINANCINGS


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        Set forth below is a description of the Company's financing arrangements
in effect during the year ended December 31, 1995 and for the period from
December 31, 1995 through September 5, 1997.

        ORIX LEASE

        In 1989 the Company executed, as lessee, an airship lease (the "Orix
Lease") with Orix USA, Inc. then known as Orix Commercial Credit Corporation
("Orix") for the 600.05 Airship, which provided for an initial three year term
with two three-year renewal options. Pursuant to the Orix Lease, the Company was
obligated to pay a monthly lease payment of $121,000 (through November 1995),
and $35,000 per month from December 1995 to November 1998. As a result of the
termination of the Met Life Contract in October 1993, the Company and Orix
entered into amendments to the Orix Lease in January and May 1994 to restructure
the monthly payments. As a result of the reduced fees under the Bud One Contract
and the suspension of operations of the Gulf Oil Airship, several required
payments were not made. The Company again renegotiated its arrangement with Orix
and in October, 1995, entered into an Amended and Restated Lease Agreement in
the form of a Conditional Sales Contract effective as of June 2, 1995 (the
"Amended Lease"). Pursuant to the Amended Lease, the payments to Orix are
$20,000 per month for the first year, $40,000 plus interest per month for the
next 6 months, $60,000 plus interest per month for the next 6 months and
thereafter the greater of $80,000 per month or 50% of annual cash flow for the
proceeding 12 month period. The Amended Lease expires June 2, 2002 at which time
the Company can purchase the Airship for $1.00. The Airship which is the subject
of the Amended Lease is not currently operational, as it requires a new
envelope. To date, the envelope has not been replaced.

        As security for the Company's obligations under the Orix Lease and the
Amended Lease, Louis J. Pearlman, Chairman of the Board, President and Chief
Executive and Operating Officer of the Company ("Mr. Pearlman"), has personally
guaranteed the payment and performance of the obligations of the Company. In
addition, the Company's obligations to Orix are guaranteed by Trans Continental
Airlines, Inc., an affiliate of the Company, which received common stock of the
Company in exchange for such guaranty. See "Certain Relationships and Related
Transactions."

        WDL LEASE

        Pursuant to an agreement effective May 16, 1993 (the "WDL Lease"), the
Company leased from Westdeutsche Luftwerbung Theodor Wullenkemper GMBH
("Westdeutsche") a used type WDL IB airship equipped with a NightSign(TM)
system. The Company entered into the WDL Lease to procure an airship to fulfill
its obligations under the Gulf Oil Contract when it became apparent that the
proposed acquisition of the assets of Slingsby could not be completed in time to
provide an additional airship to fulfill the Company's obligations under the
Gulf Oil Contract. The Company began operating this airship as the Gulf Oil
Airship on June 25, 1993. On September 11, 1994, the Gulf Oil Airship was
damaged in an accident and its operations ended. As a result of the damage to
the Gulf Oil Airship, the Company sustained a loss of $1,978,000, representing
the cost of the airship less insurance proceeds and credits allowed, including
salvage value, when the airship was returned to WDL in September 1994. At
December 31, 1994, the Company owed WDL a total of $2,866,000 under the WDL
Lease including the $1,978,000 described above plus lease and other operating
costs through September 11, 1994. Pursuant to the WDL Lease, the Company was to
maintain a security deposit of $2,500,000 in a cash account (the "Cash Escrow
Account") with Trans Continental Airlines Inc., an affiliate of the Company
("Trans Continental") (see Note C to the Financial Statements included elsewhere
herein). The Cash Escrow Account, from which the Company could withdraw its
funds at any time upon demand, enabled the Company to maintain a lower amount of
insurance coverage on the Gulf Oil Airship than otherwise would have been
required under the WDL Lease. During the fiscal year ended December 31, 1995,
the Company had withdrawn the funds from



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the Cash Escrow Account to pay certain obligations owing to WDL. As a result of
the payment to WDL of such funds, the Company is currently indebted to WDL in
the approximate amount of $1,000,000. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

        ALLSTATE LOAN

        On November 16, 1994, the Company entered into an Aircraft Collateral
Funding Repayment Agreement (the "Allstate Agreement") with Allstate Financial
Corporation ("Allstate"). Pursuant to the Allstate Agreement, on December 6,
1994, the Company borrowed $1,500,000, (the "Allstate Loan") and as of December
31, 1994, the Company owed Allstate $1,250,000 plus approximately $47,000 of
accrued interest. The Allstate Loan bore interest at the rate of 37.5% annually
and required a minimum payment of $75,000 each month, the first payment of
$75,000 having been made on January 5, 1995. The Allstate Loan was guaranteed by
both Mr. Pearlman and Trans Continental. See "Certain Relationships and Related
Transactions." The guarantors agreed to subordinate any payments due to them
from the Company while the Allstate Loan is outstanding, and any payments that
would otherwise be paid to the guarantors is to be paid to Allstate and applied
against the Allstate Loan.

        Subsequently on June 22, 1995 the Allstate Loan was repaid when Trans
Continental Leasing, Inc. ("TLI"), a wholly-owned subsidiary of Trans
Continental Airlines, Inc., ("Trans Continental"), an affiliate of the Company,
entered into a Sale-Leaseback Agreement the ("S/L Agreement") with the Company
pursuant to which the Company's last remaining airship was sold to TLI for the
purchase price of $2,060,000, which in turn leased such airship back to the
Company. TLI borrowed the purchase price for the airship (the "Phoenixcor Loan")
from Phoenixcor, Inc. ("Phoenixcor"), which was granted a pledge of the lease
and a lien on the Bud One Airship. In addition, the Phoenixcor Loan was
guaranteed by the Company and Trans Continental. The lease payments to be made
under the S/L Agreement are equal to the payments to be made under the
Phoenixcor Loan.

        The Phoenixcor Loan was structured as a sale-leaseback for financing
purposes only.

        The Company entered into an arrangement with Senstar Capital
Corporation, ("Senstar") pursuant to which the sale leaseback arrangement with
TLI was reversed such that the Company reacquired such airship and the Company
has borrowed a total of $3,500,000 from Senstar (the "Senstar Loan"), part of
which has been used to repay the Phoenixcor Loan. The loan from Senstar is
repayable over 5 years in sixty monthly payments of approximately $63,371.06
each, with a balance due at the end of the five year term of approximately
$700,000, and is secured by a lien on the Airship and a guaranty by Trans
Continental. The Senstar Loan provided approximately $1,337,207.31 to the
Company after payment of the Phoenixcor Loan. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".

        On January 15, 1997 the Company entered into a sale agreement with TLI,
an affiliated company, with respect to the Company's $500.04 airship (formerly
the "Bud One" airship) whereby the Company sold to TLI the airship and related
equipment. In consideration for said assets, TLI retired the Company's debt to
Senstar Capital Corp. in the amount of $3,014,000. Additionally, TLI procured a
new envelope from a third party and agreed to lease back the entire assembled
and operational airship to the Company. Pursuant to the agreement, the Company
provided that TLI would undertake to pay the operational costs or the $500.04
airship for a minimum of eight months. In addition, the Company anticipates.
 
        In December 1995, the Company entered into an Envelope Purchase Contract
with Hampstead Technologies Limited, an affiliate of Julian Benscher, for the
purchase of a new envelope for the Bud One Airship. The Company made a
nonrefundable deposit of $630,000. Because the transaction was never
consummated, such amount was written off in 1995. See "Management's Discussion
and Analysis--Results of Operations."


ADDITIONAL AIRSHIPS; AIRSHIP ASSEMBLY



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        In addition to providing clients with aerial advertising and promotion
with its airships, the Company also acquired assets enabling it to partially
construct additional airships either to service existing or potential clients of
the Company or for lease or purchase by other parties. The Company owns
substantial airship replacement components and its experience in airship
assembly includes the assembly of four airships. The airship components that the
Company currently has in inventory, plus approximately $1,000,000 of additional
capital per airship, would enable the Company to construct up to five additional
airships. The Company believes that its inventory of spare airship components
will significantly reduce its cost for initial airship assembly and future
maintenance expenditures, should future clients be obtained. There can be no
assurance, however, that the Company would be able to obtain the financing
necessary to complete construction of any additional airships, or that it would
be able to consummate aerial advertising agreements with respect to any such
airships. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

        Operation of the Company's airships is subject to suitable weather
conditions and an absence of mechanical failures, either of which could damage
or destroy an airship. During 1994, the 600.05 Airship was damaged in a storm
while attached to its mast and the Gulf Oil Airship was damaged in an accident.
Airships can be operated only in warm climates. Accordingly, during the winter
months airships can only operate in the southern states and west coast states.
Furthermore, maintenance of an airship requires that it cease operations for an
aggregate of approximately one month each year, including approximately two
weeks of in-hangar maintenance.

MARKETING

        The Company marketed its airship services directly to potential clients
through a sales effort conducted by its management, including a Director of
Marketing. During 1995, the Company continued pursuing potential new clients,
both for aerial advertising contracts and for the purchase of new airships; none
of such contracts or purchases was consummated.

SUPPLIERS

        Airships are manufactured by a limited number of suppliers worldwide.
The Company's Airships were manufactured by Airship UK, a United Kingdom
supplier no longer doing business, and by Slingsby. Due to asset purchases and
expertise described above in "Additional Airships; Airship Assembly," the
Company could be in a position to manufacture or assemble up to five additional
airships, subject to financing requirements.

COMPETITION

        Historically, the Company's direct competition was limited to those
companies which had airships legally permitted to operate in the United States.
The Company competed with Airship Management Service (AMS), the operator of the
Fuji airship, and Icarus Aircraft, Inc. ("IAI"), a privately-held firm which
operates lightships, which are small airships approximately 1/3 the size of the
Company's airships. Currently, IAI is operating for MetLife. The Lightship
Group, Inc. (formerly Virgin Lightships Inc. and American Blimp Company) owns
and operates the smaller airships on behalf of numerous advertising clients in
the United States. MetLife is a former client of the Company which did not renew
its agreement with the Company in 1993, at least in part due to these
alternative airship providers.




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GOVERNMENTAL REGULATION

        Operation of airships in the United States is regulated by the Federal
aviation laws of the United States. The Company currently holds all necessary
Federal Aviation Administration ("FAA") and U.S. Department of Transportation
authorizations to operate all of its existing airships, including a Standard
airworthiness Certificate issued by the FAA with respect to each of the
airships. In addition, the Company holds an FAA "Type Certificate" which
certifies that the design for the Company's airships meets air-worthiness
requirements of Federal aviation regulations, and an FAA facilities license
which permits the Company to assemble, repair and maintain airships. However,
there can be no assurance that the federal government will not impose additional
requirements on the operation of airships in the future, which might require the
Company to incur additional expense, or which might otherwise have a material
adverse effect on the Company's operations.

        In addition, the Argentina Airship is subject to regulation by the
Argentinean equivalent of the FAA. The Company is currently in compliance with
the requirements of such governmental authority, and anticipates that it will be
able to maintain such compliance in the foreseeable future.

EMPLOYEES

        As of December 31, 1995, the Company had approximately 30 full-time
employees, 11 of whom are administrative, 3 of whom are pilots and the balance
of whom are field operating personnel including mechanics and others who have a
high degree of knowledge and expertise in the airship industry as well as field
workers who accompany and maintain the Airships. The number of employees
fluctuates based in part on the number of Airships conducting flight operations.

        The Company's employees are not represented by any union. The Company
considers its employee relations to be good. The Company believes it can serve
additional pilots and flight personnel as required if new contracts are served.

INSURANCE

        There are risks inherent in the ownership and operation of airships. The
Company has maintained insurance in such amounts and for such coverage as
management has determined to be appropriate and as has been required from time
to time under its contracts with Orix and various financing companies and
airship aerial advertisers. Currently, the Company maintains insurance for its
spare parts, as well as property coverage and general liability insurance. The
Company has also maintained Aircraft Hull All Risk Insurance for the periods
when its Airships are operational.

ITEM 2.  PROPERTIES

        The Company had leased its principal executive offices pursuant to the
terms of a five-year lease, which commenced May 7, 1991 and ended May 6, 1996,
for approximately 7,000 square feet in Orlando, Florida, the home base of the
Company. The annual rent under such lease was approximately $132,000. Since May
7, 1996, the Company has subleased approximately 2,000 square feet of such
facility from Trans Continental Airlines, Inc. on a month-to-month basis for
monthly rental payments of approximately $1,800. The Company also maintains a
small office in New York City for which it pays minimal rent. In December 1994,
the Company renewed for one year a lease for a warehouse of approximately 5,000
square feet in Kissimmee, Florida for





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approximately $15,000 per year. The Company stores various spare parts for its
existing airships at this warehouse and intends to do so for the foreseeable
future.

        In May 1991, the Company and Westinghouse entered into a contract for
the Company to use Westinghouse's Weeksville, North Carolina hangar for repair,
renovation, maintenance, and related uses. The Westinghouse facility was
destroyed in a fire during the third quarter of 1995. The Company rents space as
available in Lakehurst, New Jersey, if needed, to perform maintenance and
related functions previously performed at the Westinghouse facility.

ITEM 3. LEGAL PROCEEDINGS

        Tenerten and Drake, Inc. On September 15, 1994, Tenerten and Drake, Inc.
("TDI") filed a complaint against the Company. The complaint alleges that the
Company failed to pay certain sums of money due and owing to TDI under an
agreement to perform advertising and related services for the Company. The
Company filed its answer and raised its affirmative defenses to said complaint
alleging that the services allegedly performed by TDI were defective in numerous
respects. On June 13, 1995, the parties entered into a Settlement Stipulation
whereby the Company agreed to make certain payments to Tenerten and Drake, Inc.
On July 20, 1995, Tenerten and Drake, Inc. filed its Motion for Final Judgment
alleging that the Company failed to make a payment under the Settlement
Stipulation. A Final Judgment was entered against the Company on July 20, 1995.
The Company filed its Notice of Appeal on September 19, 1995 and posted a cash
bond in the amount of $24,190.76. The Company filed Appellant's Initial Brief on
January 8, 1996, contending that the Company's payment was made in a timely
manner as required by the Settlement Stipulation. The Circuit Court of the
Eighteenth Judicial Circuit in and for Seminole County, Florida is reviewing the
Briefs filed by the parties and no opinion has been received as of this date.

        Westinghouse. On September 14, 1994, Westinghouse Airships,Inc. filed a
complaint against Airship International Ltd. ("AIL"). The Complaint alleges that
AIL breached an agreement to purchase two Gondolas from WAI. Specifically, the
complaint alleges that WAI delivered both Gondolas at issue and AIL failed to
make certain installments to WAI under the Agreement. The complaint also alleges
that AIL breached a sub-lease to occupy certain hangar space located at
Elizabeth City, North Carolina. On October 31, 1994, WAI filed its Second
Amended Complaint. On November 31, 1994, AIL filed its answer and raised its
affirmative defenses to said complaint alleging payment, fraudulent concealment
by WAI and estoppel. On June 19, 1995, the parties entered into Defendant's
Consent to Entry of Judgment in the amount of $320,240.00. The Company has paid
all sums of money due and owing under said Consent to Entry of Judgment.
On July 27, 1995, a Satisfaction of Judgment was filed with the Court.

        Watermark. In January, 1993, a second amended complaint to a lawsuit,
which was initially commenced in March 1991 and subsequently dismissed twice
without prejudice, was filed in the Circuit Court of the State of Florida
against the Company and its President by Watermark Group PLC and Von Tech
Corporation, as general partners of Company Communications (collectively, the
"WNT Plaintiffs") alleging breach of an alleged joint venture agreement
involving Company Communications and Airship Enterprises Ltd. (a company that
was owned by Mr. Pearlman and that was not in any way owned or controlled by the
Company), breach of an alleged agreement by the Company regarding the lease and
operation of a particular airship; and breach of an alleged oral commission
agreement by the Company relating to the Company's acquisition of two airships
it presently owns. The WNT Plaintiffs seek various legal and equitable remedies,
including monetary damages against the Company and Mr. Pearlman in excess of
$800,000 together with a claim for some portion of the advertising revenue the
Company has received, and will continue to receive, from the operation of some
of its airships. On October 3,




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1995, the parties entered into a Mutual Release and Joint Stipulation for
Settlement whereby the Company agreed to make payments to Watermark in the total
amount of $40,000. Such payments were made during 1995 and 1996.

        In March 1993, the second amended complaint was dismissed without
prejudice. Since the Company denies any involvement with any of the transactions
set forth in the second amended complaint, the Company believes that its
liability, if any, on the claims made by the WNT Plaintiffs will not be
material.

        Capital Funding Group Ltd. In February 1992, Capital Funding Group Ltd.
("CFG") commenced an action against the Company and others in excess of
$1,000,000 in damages based on the alleged failure by the Company to provide
adequate collateral and security in connection with certain alleged financial
agreements with CFG. The Company retained CFG in July 1991, paid a commitment
fee (which was written off in 1991) and received a commitment from CFG which
then failed to provide the funding. The Company and the other defendants
answered the complaint in February 1992 by denying all of the substantive
allegations and asserting several affirmative defenses. In addition, the Company
asserted certain counterclaims against CFG and its two principals for breach of
a commitment letter pursuant to which CFG was to arrange for a $9 million loan
to the Company, breach of a compromise agreement accepted by CFG in January
1992, pursuant to which CFG was to provide funding to the Company in the amount
of $7 million, breach of an escrow agreement, pursuant to which CFG was to
return $200,000 of the commitment fee paid by the Company and various other
counterclaims. In March 1993, the Company was awarded a default judgment of
$8,000,000 against CFG and the complaint against the Company was dismissed. No
balances have been returned to the Company as of December 31, 1995.

        Due to the weakening financial position of the Company at the time, the
Company was unable to complete its audit for the year ended December 31, 1994 or
to conduct audits for the years ended December 31, 1995 and 1996. Accordingly,
the Company had not filed any periodic reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended, for the quarterly and annual
periods ended December 31, 1994 through March 31, 1997 or any Current Reports on
Form 8-K during such periods until July 11, 1997, on which date the Company
filed its Current Report on Form 8-K reporting a change of accountants. On July
18, 1997, the Company entered into a Consent and Undertaking with the Securities
and Exchange Commission pursuant to which the Company agreed, among other
things, to file this Annual Report on Form 10-K,  Annual Reports on Form 10-K
for the years ended December 31, 1994 and 1996 and all reports due under
Sections 13 and 15 of the Securities Exchange Act of 1934, as amended, for all
subsequent periods. Judgement was entered on August 21, 1997.

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

        The Company's annual meeting of stockholders for the year ended December
31, 1994 was held on April 11, 1995. In connection with such meeting, a proxy
statement was sent to the Company's stockholders with respect to the following
items: (1) election of the Company's Board of Directors (2) ratification of
Grant Thornton, as independent accountants of the Company, for the fiscal year
ended December 31, 1994. (3) approval of a reverse stock split pursuant to which
100 shares of the Company's Common Stock would be combined into one share of
Common Stock and 100 shares of the Company's Preferred Stock would be combined
into one share of Preferred Stock (the "Reverse Stock Split"); (4) adoption of
an Employee Share Purchase Plan of the Company to be effective as of November 1,
1994 (the "Share Purchase Plan") and (5) approval of a proposal to issue options
to purchase Common Stock to certain employees of the Company (the "Employee
Options").




                                       -8-


<PAGE>
<PAGE>

        At the meeting, the Company's directors were elected. For Louis Pearlman
18,396,603 shares were voted for and 1,266,328 shares were withheld, for Roy
Belotti 18,510,594 shares were voted for and 1,152,337 shares were withheld; for
Marvin Palmquist 18,540,217 shares were voted for and 1,122,714 shares were
withheld; for James Ryan 18,554,134 shares were voted for and 1,108,747 shares
were withheld; and for Alan Siegel 18,556,117 shares were voted for and
1,106,814 shares were withheld. The appointment for Grant Thornton as the
Company's independent accountants for the fiscal year was approved with
18,487,369 shares being cast for, 526,545 shares cast against and 648,908 shares
abstaining. The Reverse Stock Split was defeated, with 11,517,471 shares being
cast for, 7,487,272 shares cast against, and 498,213 shares abstaining. The
Employee Share Purchase Plan was approved, with 16,677,446 shares being cast
for, 2,487,272 shares cast against and 498,213 shares abstaining. The issuance
of the Employee Options was approved, with 14,465,208 shares being cast for
4,653,011 shares cast against and 544,712 shares abstaining.

        The Company has not held any meetings of shareholders since April 11,
1995.





                                       -9-




<PAGE>
<PAGE>
                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The Company's Common Stock, Preferred Stock, and Class B Warrants had
been listed on the Nasdaq SmallCap Market under the symbols BLMP, BLMPP and
BLMPL, respectively, until Nasdaq's delisting of the Company's securities on
July 5, 1995 (the "Delisting") as a result of the Company's failure to timely
file this Annual Report on Form 10-K. Since the Delisting, the Company's Common
Stock and Preferred Stock have traded on the over-the-counter market under the
symbols "BLMPE" and "BLMPPE," respectively. The price ranges presented below
represent the highest and lowest quoted bid prices during each quarter reported
by the Nasdaq SmallCap Market for periods prior to the Delisting and periods
subsequent to the quarter of 1995, and as obtained from the National Quotation
Bureau, Inc for the third quarter of 1995. The Nasdaq quotes represent prices
between dealers and do not reflect mark-ups, markdowns or commissions and
therefore may not necessarily represent actual transactions.

                                  COMMON STOCK:

   1995                        High Bid                            Low Bid
                               --------                            -------
1st Quarter                    $.125                               $.0625
2nd Quarter                    $.0625                              $.03125
3rd Quarter*                     N/A                                 N/A
4th Quarter                    $.125                               $.03125


    1996                       High Bid                            Low Bid
                               --------                            -------
1st Quarter                    $.3125                              $.03125
2nd Quarter                    $.3125                              $.04
3rd Quarter*                   $.1                                 $.04
4th Quarter                    $.085                               $.05

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

*      Prior to the Delisting. Price ranges during the third quarter of 1995
       include quotations on NASDAQ SmallCap Market up to such date. The Common
       Stock and the Preferred Stock are currently traded on the Nasdaq OTC
       Electronic Bulletin Board.

N/A    Not available.

                                      -10-




<PAGE>
<PAGE>


    1997                       High Bid                           Low Bid
                               --------                           -------
1st Quarter                    $.19                                $.08
2nd Quarter                    $.2                                 $.09

                                       Preferred Stock:

    1995                       High Bid                           Low Bid
                               --------                           -------
1st Quarter                    $.59375                             $.40625
2nd Quarter                    $.46875                             $.37 5
3rd Quarter*                   $.325                               $.325
4th Quarter                    $.25                                $.125

    1996                       High Bid                            Low Bid
                               --------                            -------
1st Quarter                    $.1875                              $.1875
2nd Quarter                    $1.625                              $.375
3rd Quarter*                   $.71875                             $.385
4th Quarter                    $.59375                             $.28125

    1997                       High Bid                            Low Bid
                               --------                            -------
1st Quarter                    $1.125                              $.51
2nd Quarter                    $1.09375                            $.53125

                               CLASS B WARRANTS:

    1994                       High Bid                            Low Bid
                               --------                            -------
1st Quarter                    $1/16                               $1/32
2nd Quarter.  The Class B      $1/32                               $1/32
Warrants expired on February
6, 1995.

        As reported by the Nasdaq OTC Bulletin Board, on September 5, 1997 the
closing bid price of the Common Stock was $0.0825 per share and the closing bid
price of the Preferred Stock was $0.4375.

        As of September 5, 1997, there were 1,496 holders of record of the
Company's Common Stock and 83 holders of record of the Preferred Stock,
respectively.


                                      -11-



<PAGE>
<PAGE>

        No dividends were declared or paid on the Common Stock during the
foregoing periods and the Company does not anticipate paying any dividends on
its Common Stock in the foreseeable future.

        Dividends on the Preferred Stock are payable quarterly on February 15,
May 15, August 15 and November 15 of each year (each such date a "Dividend
Payment Date") and accrue at the annual rate of $.48 per share, to the extent
payable in cash and $.60 per share, to the extent payable in shares of Common
Stock. The first four dividend payments were paid 50% in cash and 50% in
registered shares of Common Stock computed on an annual basis, the last such
dividend payment being made on February 15, 1994. The cash portion of such
dividend payments was paid with a portion of the proceeds of the 1993 Offering,
which had been reserved for such purposes. Beginning May 15, 1994, dividends
were payable in cash from the available cash derived from the adjusted earnings
of the Company for the fiscal quarter immediately preceding the Dividend Payment
Date to the extent available, according to a formula based on adjusted earnings.
Such formula provides that the available cash will be determined as one half of
the difference between airship operating revenues and the sum of operating
costs, interest and principal payments on debt, selling, general and
administrative expenses (limited to a ceiling based on historical numbers with
stated annual percentage increases thereafter) and airship related capital
expenditures (limited to $2,000,000 in any given year). The components of the
above formula are to be determined in accordance with generally accepted
accounting principles as applied in the Company's financial statements as filed
with the Securities and Exchange Commission (the "Commission"). At its option,
the Company may pay cash dividends in excess of the available cash determined by
the above formula. The May 15, 1994 dividend was paid in registered shares of
Common Stock. The Company has deferred and accrued the cash dividend on the
Preferred Stock due on August 15, 1994 and all subsequent quarterly dividends
until a later payment date. The Company does not anticipate paying such
dividends in the near future, and intends to continue to defer and accrue
such dividends.

        Concern has been expressed by management and various shareholders of the
Company over the dilutive effects of issuances of shares of Common Stock in
payment of dividends accrued on the Preferred Stock. The Company is currently
exploring possible alternatives to such issuances, including submitting to the
Company's shareholders a proposal to amend the terms of the Preferred Stock.

ITEM 6. SELECTED FINANCIAL DATA

        The following selected financial data should be read in conjunction with
the Company's financial statements and related notes and Management's Discussion
and Analysis of Financial Condition and Results of Operations appearing
elsewhere herein.

        OPERATING STATEMENT DATA:

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                 --------------------------------------------------------------------------
                                     1995           1994           1993          1992          1991  
                                 ---------------- -------------- ------------- ------------- --------------
<S>                                   <C>            <C>           <C>           <C>            <C>       
Gross Revenue                    $ 2,620,000     $  3,980,000   $  9,748,000    $ 7,258,000   $  7,015,000 
Net Income (loss) before         $(4,867,000)    $(20,645,000)  $ (5,406,000)   $ 1,165,000   $ (4,418,000)
cumulative effect of a change
in accounting principal
Net Income (loss)                $(4,867,000)    $(20,645,000)   $(5,406,000)   $ 1,165,000     (4,418,000)
</TABLE>



                                       -12-


<PAGE>
<PAGE>




<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                 ---------------- -------------- ------------- ------------- --------------
                                     1995              1994            1993         1992        1991
                                 ---------------- -------------- ------------- ------------- --------------
<S>                                   <C>             <C>            <C>          <C>            <C>    
Net Income (loss)                   $(0.18)         $(0.74)         $(0.24)        $0.05        $(0.31) 
</TABLE>


BALANCE SHEET DATA:
<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                 --------------------------------------------------------------------------
                                        1995           1994           1993          1992          1991
                                 ---------------- -------------- ------------- ------------- --------------
<S>                                 <C>           <C>            <C>           <C>           <C>          
Total assets                        $5,073,000     $  9,809,000   $ 26,077,000  $ 21,690,000  $ 16,536,000
Long term debt, excluding           
current maturities                  $ 3,348,000    $  3,258,000   $  3,380,000  $  3,186,000  $  4,580,000
Obligations under Capital lease     $ 3,689,000    $  1,250,000        --              --             --
Total liabilities                   $ 14,680,000   $ 13,070,000   $  7,842,000  $ 12,394,000  $ 13,909,000
Stockholders' equity                $ (9,607,000)  $ (3,261,000)  $ 18,235,000  $  9,296,000  $  2,627,000
Book value per common share               --          $ (0.10)       $  0.65       $ 0.36        $ 0.15 
</TABLE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS

GOING CONCERN AND MANAGEMENT'S PLANS

        As shown in the accompanying financial statements, the Company has
experienced significant operating losses and negative cash flow from operations
in recent years and has an accumulated deficit of $46,569,000, at December 31,
1995. During the year ended December 31, 1995, the Company generated revenues
from airship operations; however, it reported a net loss of $4,687,000 and has
negative working capital of $7,538,000. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.

        Management's plans to improve the financial position and operations with
the goal of sustaining the Company's operations for the next twelve months and
beyond include:

        Arranging with Trans Continental Airlines, Inc. or other related parties
common directorship and ownership, to provide funds on a monthly basis as a loan
and acquiring assets and operations of one or more entities, with which the
Company has been in negotiation. The expectation is that such business
combination, if completed, would provide additional cash flow and net income to
the Company.

        Though management believes the Company will secure additional capital
and/or attain one or more of the above goals, there can be no assurance that any
acquisition, financing or other plan will be effected. Any



                                      -13-





<PAGE>
<PAGE>

acquisition or securities offering would be subject to the Company's due
diligence, the state of the general securities markets and of the specific
market for the Company's securities, and any necessary regulatory review.

        While the Company believes that its plans for additional funding or
possible business combination have the reasonable capability of improving the
Company's financial situation and ensuring the continuation of its business,
there can be no assurance that the Company will be successful in carrying out
its plans and the failure to achieve them could have a material adverse effect
on the Company.

OVERALL FINANCIAL CONDITION AND RESULTS OF OPERATIONS.



        The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. For its year ended December 31, 1994, the
Company incurred a loss of $20,645,000 and had negative cash flows of $2,144,000
from operations. For its year ended December 31, 1995, the Company incurred a
loss of $4,867,000 and had negative cash flows of $4,887,000 from operations.
The accompanying financial statements do not include any adjustments that might
result from the Company's current liquidity shortage, including any adjustments
relating to the values that would be realized from the Company's assets, with
the exception of the effects of applying Statement of Financial Accounting
Standards No. 121, "Impairment of Long-Lived Assets to be Disposed Of,"
as described in Note A to the Financial Statements.

        The Company's stockholders' deficit at December 31, 1995 was $9,607,000,
an increase of 3,261,000 from stockholders' deficit of $6,346,000 at
December 31, 1994. The decrease was due primarily to the net loss of $4,867,000
in fiscal 1995. Accrual of dividends on Preferred Stock increased stockholders'
deficit by $1,725,000. As a result of these deficit changes, during
1995 the Company's assets decreased $4,736,000 while liabilities increased
$1,610,000. Compared to the year ended December 31, 1994, revenues, operating
costs and selling, general and administrative costs decreased 34.2%, 76.9% and
21.4%, respectively. Interest expense less other income for 1995 was $1,045,000,
an increase of $446,000 or 74.4%. In 1993 the Company incurred a nonrecurring
cost of $741,000 in connection with the settlement of a lawsuit by a lender and
related expenses and a $478,000 cost on disposition of airship components,
while in 1994 the Company incurred losses of $3,443,000 when two airships were
damaged. These changes in revenues and costs, as explained in more detail below,
resulted in a net loss for fiscal 1994 of $20,645,000 compared to a net
loss of $5,406,000 in fiscal 1993.

        The Company continues to experience negative cash flows from operating
activities. Cash flow was adversely affected in 1994 through the termination, at
the end of 1993, of contracts relating to the Met Life and Sea World Airships,
and through the temporary cessation of flights and fees under the Gulf Oil
Contract and its subsequent termination in 1994, as well as by the modification
in certain terms of the Bud One Contract pursuant to the March Amendment. Cash
flows for 1995 were adversely affected by the termination of the Gulf
Oil Contract as liabilities at December 31, 1994 related to its termination and
the damage to the Gulf Oil Airship approximates $3,220,000.

        The Company has made changes in its management, office and airship crew
operations (the "Restructuring"). The Restructuring includes the reduction of
salaries of certain of its management, office, and operations personnel
("Personnel"); the reduction of Personnel; the reduction of insurance costs and
the reduction of recurring costs throughout its operations; (collectively, the
"Cost Savings"). Certain of the Restructuring considerations were the result of
the cessation of operations under both the 600.05 Aerial Advertising Agreement
and the Sea World Passenger Contract. Additional Personnel reductions were made,
and operating costs ceased, when the Gulf Oil Airship was destroyed in an
accident on September 11, 1994.

                                      -14-


<PAGE>
<PAGE>

COMPARISON OF REVENUE AND OPERATING COSTS 1995 TO 1994.

        Airship revenues for 1995 were $2,820,000, a decrease of $1,360,000 (or
34.2% compared to revenues of $3,980,000 for 1994, primarily due to $1,360,000
of decreased revenues from the Bud One Airship contract which terminated on
December 31, 1995. In addition, monthly fees under the Bud One Contract were
reduced for a period of six months effective February 1994. The 600.05 Airship,
formerly the Met Life airship, operated for only three months during 1994, while
the Met Life airship operated for six months during 1993, reducing revenues for
1994, as compared to 1993. These decreases were partially offset by
approximately four months of revenues earned from operating the Gulf Oil Airship
in 1994 compared to its operation for just over three months during 1993 when
operations of that airship first began. The Bud One contract was amended
in July 1994 and provided for operations at the full price from August 1994
through December 1996. However, during December 1995, it was determined that
the envelope was in need of replacement. Therefore, the Company removed the
airship from service.

         Operating costs for 1995 were $4,027,000, a decrease of $13,425,000 or
76.9% compared to 1994. This increase was primarily due to the discontinuance of
its contract with Bud One. The Company also had a write down in its airships and
airship components by $1,462,000 that offset the reduction in operating costs.
See Note A to the financial statements "Impairment of Long-Lived Assets." Costs
to operate the 600.05 Airship until it was damaged on June 20, 1994, primarily
in connection with the 600.05 Aerial Advertising Agreement, were $1,349,000
lower than costs to operate that airship during 1993 under the former Met Life
contract. Costs to operate the Sea World Airship declined 61% or $1,471,000
compared to the 1993 fiscal year as it began limited operations under the Sea
World Passenger Contract beginning January 1994. These cost reductions were
offset in part by cost increases resulting primarily from operation and lease of
the Gulf Oil Airship of $231,000, and secondarily due to increased warehouse
costs of $69,000, related to depreciation on airship components purchased during
1993. In addition, increased depreciation charges of $1,156,000 related to
changes in accounting estimates and writedowns of $479,000 related to
construction in progress were taken during 1994.

COMPARISON OF REVENUE AND OPERATING COSTS 1994 TO 1993.

        Airship revenues for 1994 were $3,980,000, a decrease of $5,768,000 (or
59.2%) compared to revenues of $9,748,000 for 1993, primarily due to $3,454,000
of decreased revenues from the Sea World Airship contract which terminated on
December 31, 1993. In addition, monthly fees under the Bud One Contract were
reduced for a period of six months effective February 1994. The 600.05 Airship,
formerly the Met Life airship, operated for only three months during 1994, while
the Met Life airship operated for six months during 1993, reducing revenues for
1994, as compared to 1993. These decreases were partially offset by
approximately four months of revenues earned from operating the Gulf Oil Airship
in 1994 compared to its operation for just over three months during 1993 when
operations of that airship first began.

        Operating costs for 1995 were $17,452,000, an increase of $7,488,000 or
75.2% compared to 1994. This increase was primarily due to a write down in its
airships and airship components by $9,634,000. See Note A to the financial
statements "Impairment of Long-Lived Assets." Costs to operate the 600.05
Airship until it was damaged on June 20, 1994, primarily in connection with the
600.05 Aerial Advertising Agreement, were $1,349,000 lower than costs to operate
that airship during 1993 under the former Met Life contract. The cost savings
resulted primarily from a decrease in costs to operate the Bud One Airship of
$710,000,or 34% compared to the 1993 fiscal year. Costs to operate the Sea World
Airship declined 61% or $1,471,000 compared to the 1993 fiscal year as it began
limited operations under the Sea World Passenger Contract beginning January
1994. These cost reductions were offset in part by cost increases resulting
primarily from operation and lease of the Gulf Oil Airship of $231,000, and
secondarily due to increased warehouse costs of $69,000, related to depreciation
on airship components purchased during 1993. In addition, increased depreciation
charges of $1,156,000 related to changes in accounting estimates and writedowns
of $479,000 related to construction in progress were taken during 1994.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE COMPARISON 1995 TO 1994.

         Selling, general and administrative costs were $1,893,000 for 1995, a
decrease of $515,000 or 21.4% compared to 1994. The decrease related
primarily to a reduction in outside services and professional and legal fees of
$309,000 and late fees incurred with respect to the Orix Lease during 1994 in
the amount of $138,898.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE COMPARISON 1994 TO 1993.

        Selling, general and administrative costs were $2,408,000 for 1994, a
decrease of $1,041,000 or 30.2% compared to 1993, primarily due to the
non-recurrence of accounting, legal and other costs incurred in 1993 related to
the Company's public offering of its Preferred Stock (the "1993 Offering") and
the acquisition of the Slingsby Assets ($687,000). The Cost Savings reduced
salaries and certain other costs by approximately $710,000. These savings were
partially offset by restructuring costs of $135,000 and a net increase in other
costs, primarily in connection with late fees incurred with respect to the Orix
Lease plus costs incurred in connection with the Allstate Loan. Such costs
resulted from the Company's liquidity shortage. See "Liquidity and Capital
Resources", below.

INTEREST EXPENSE COMPARISON 1995-1994.

         Interest expense in 1995 was $1,103,000, an increase of $295,000 or
37.0% compared to 1994. Interest costs related to the Senstar loan, the Orix
Lease and Mr. Pearlman's loan to the Company were the primary reason for the
increase in interest costs compared to 1994. Ongoing interest expense, at the
end of 1994, relates to the Senstar loan, Orix Lease plus other loans payable
and capital leases, mainly for vehicles and the loan from Mr. Pearlman.

INTEREST EXPENSE COMPARISON 1994-1993.

        Interest expense in 1994 was $805,000, a decrease of $108,000 or 12.4%
compared to 1993. Debt that was fully repaid in 1993 reduced interest costs by
$102,000 in 1994 compared to 1993. Interest costs related to the Orix Lease and
Mr. Pearlman's loan to the Company decreased $88,000 compared to 1993 as
payments were made in both 1993 and 1994, (including the reduction of Mr.
Pearlman's loan in connection with the June 1993 Loan. See "Certain
Relationships and Related Transactions"). These decreases were partially offset
by interest costs related to the Allstate Loan and the short term loans from
private investors received and repaid in 1994 (See Note E to the Financial
Statements included elsewhere herein). Ongoing interest expense, at the end of
1994, relates to the Orix Lease plus other loans payable and capital leases,
mainly for vehicles, the loan from Mr. Pearlman and the Allstate Loan.



                                      -15-



<PAGE>
<PAGE>


OTHER INCOME (EXPENSE)

        Interest and other income in 1995 was $58,000, a decrease of $148,000
or 71.8% compared to 1994. In 1993, proceeds from the 1993 Offering were placed
in certificates of deposit and utilized throughout 1993 and interest was earned
in 1993 on a receivable related to a sale of airship components in 1992.

INFLATION.

        Since the formation of the Company in August 1985, the rate of inflation
has remained low and the cost of the Company's operations has not been
significantly affected by inflationary trends in the economy. The Company has
incorporated adjustments for inflation in its contract with Anheuser-Busch.

LIQUIDITY AND CAPITAL RESOURCES.

        In 1993 the Company completed the 1993 Offering, obtaining net proceeds
of approximately $14,471,000. The 1993 Offering proceeds have been utilized to
date: to repay short term debt ($3,600,000) and related interest ($120,000), for
architectural and design services for Blimp Port USA'tm' ($479,000); to acquire
parts for the assembly of an additional airship, including a Nightsign'tm'
($3,263,000); to acquire additional airship assets ($2,500,000); to fund a
portion of dividend payments on the Preferred Stock ($600,000); and for working
capital ($1,455,000). Of the 1993 Offering proceeds to be used for the purchase
of land and a hangar for Blimp Port USA'tm' a significant portion had been used
instead for working capital purposes due to net losses sustained by the Company.

        The Company continues to experience negative cash flows from operating
activities. During 1995, the Company sustained a net change in cash and cash
equivalents of ($517,000), with a reduction of $4,887,000 from operating
activities. At December 31, 1995, available cash balances were represented by
the $26,000 in cash. The balance of the $1,809,000 in the Cash Escrow Account
were subsequently used by the Company to repay certain obligations to its
vendors. Cash flow has been adversely affected by the temporary cessation of
flights and fees under all of its contracts.

        The Gulf Oil Airship did not recommence operations until April 15, 1994,
causing an approximate $650,000 negative cash flow. The accident involving the
Gulf Oil Airship and its subsequent suspension of operations on September 11,
1994 resulted in a further negative operating cash flow for 1994 of
approximately $400,000. The Gulf Oil Airship was returned to WDL in September
1994. Approximately $610,000 of the negative cash flow sustained in connection
with the Gulf Oil Airship during 1994 resulted from rental and other costs due
WDL. Including similar costs for 1993, the Company owed WDL $2,866,000 at
December 31, 1994 including $1,978,000 representing the loss incurred when the
Gulf Oil Airship was damaged. The Company will not incur additional operating
cash costs relating to the Gulf Oil Airship. However, the Company's liability to
WDL at December 31, 1994 was $2,866,000. Of such amount, approximately
$1,800,000 was repaid to WDL from the Cash Escrow Account during 1995, leaving a
balance owing from the Company to WDL of approximately $1,000,000.

        The Sea World Airship commenced limited operations under the Sea World
Passenger Contract, causing a $659,000 negative cash flow during 1994, including
maintenance costs when it was disassembled for shipment

                                      -16-





<PAGE>
<PAGE>

to Argentina for use as the Argentina Airship. The 600.05 Airship was operated
under an aerial advertising contract only during part of 1994, causing a
$128,000 negative cash flow for 1994. The 600.05 Airship was disassembled in
June 1994, and ongoing cash costs will be minimal for this airship.

        The Company's negative cash flow for 1995 was $517,000. Operating
activities utilized $4,887,000 principally as a result of the net loss for the
period, which includes non-cash charges of approximately $3,047,000. In
addition, the change in operating assets and liabilities increased the negative
cash flow effect of the net loss by approximately $3,067,000. Liabilities at
December 31, 1995 increased to approximately $14,680,000 as a result of new
debt financing with Senstar Capital Corporation. Investing activities
contributed $1,632,000 in the form of funds taken from the Cash Escrow Account.
Financing activities contributed $2,739,000 principally from proceeds of the
Senstar Loan, partially offset by repayment of loans.

        The Company has not had existing bank lines of credit available to
provide additional working capital due to the Company's negative cash flow and
existing encumbrances on assets, and has previously received substantial
financing from Mr. Pearlman in the form of loans and guarantees which supplement
the funds available from the Company's operations. There can be no assurance
that Mr. Pearlman will make additional cash advances or loans or give personal
guarantees if the Company requires additional capital. At December 31, 1995, the
Company owed Mr. Pearlman $1,040,000 net of unauthorized discount and after
offsetting $785,000 with respect to a loan made by the Company and guaranteed by
Mr. Pearlman. The entire unpaid principal balance of the loan from Mr. Pearlman,
together with all accrued and unpaid interest, became due and payable on
May 31, 1997.

        In addition, Trans Continental has guaranteed the Company's obligations
under the Allstate Loan and the Phoenixcor Loan. In consideration for these and
other guarantees of the Company's obligations, Trans Continental has been
granted 10% of the issued and outstanding common stock of the Company. See
"Certain Relationships and Related Transactions." There can be no assurance that
Trans Continental will continue to guaranty the Company's obligations in
connection with any future financings. During the year ended December 31, 1995,
Trans Continental advanced the Company $549,000.

        The Company has been taking steps to improve its liquidity. The Company
renegotiated the Orix Lease, and completed refinancing of the Phoenixcor
Loan. See "Business-Acquisitions, Leases and Financings." Cost Savings in
operations and administration were instituted in 1994. Management eliminated
its hull insurance on certain airships and continues to attempt to renegotiate
certain long term obligations. In addition, the Company experienced decreases in
ongoing costs resulting from the acquisition in 1993 of certain airship assets
and from the sale and retirement from service of its airships; however,
to date the Company has failed to secure any  new aerial advertising
contracts to replace lost revenues from contracts which have terminated.
The Company has continued to seek potential new contracts and customers,
but there can be no assurance that any of these results will be achieved.

        To date the Company has never paid a dividend on its Common Stock and
does not anticipate paying one on its Common Stock in the foreseeable future.

        Dividends on the Company's Preferred Stock are payable in cash to the
extent of available cash derived from the adjusted earnings of the Company for
the fiscal quarter immediately preceding the Dividend Payment Date (according to
a formula based on adjusted earnings). The Company has deferred and accrued the
cash


                                      -17-






<PAGE>
<PAGE>

dividend on the Preferred Stock due on August 15, 1994, and all subsequent
quarterly dividend payment dates, until a later payment date.

ITEM 8. FINANCIAL STATEMENTS AND SCHEDULES

        The report of the Company's Independent Auditor, Financial Statements,
Notes to Financial Statements and Financial Statement Schedules appear herein
commencing on Page F-1.

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

        The Company became delinquent in its financial filings subsequent to
filing its Form 10-Q for the period ending September 30, 1994. In June 1997 the
Company retained Charlie M. Meeks, C.P.A., P.A. as its independent auditor due
to the added expense of continuing with a large audit firm such as Grant
Thornton.






                                      -18-




<PAGE>
<PAGE>


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The following table sets forth information, as of August 21, 1997,
relating to each director and executive officer of the Company.**


<TABLE>
<CAPTION>
NAME                  AGE            POSITIONS WITH THE COMPANY                POSITION HELD SINCE
<S>                   <C>                                                            <C> 
Louis J. Pearlman     43             Chairman of the Board of Directors,        June 1982
                                     President and Chief Executive and
                                     Operating Officer

Marvin Palmquist      81             Director                                   November 1984

James J. Ryan         49             Director                                   July 1986

Alan A. Siegel        33             Secretary and Director                     October 1989

Seth M. Bobet(1)      34             Vice President of Finance and Chief        February 1990
                                     Financial Officer
</TABLE>

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

(1)     Mr. Bobet resigned as Chief Financial Officer in June 1995. Mr. Pearlman
        now acts as Chief Financial Officer of the Company.

        The following sets forth the business experience of each director,
executive officer, including principal occupations, at present and for at least
the past five years.

        Louis J. Pearlman has been Chairman of the Board, President, Chief
Executive and Operating Officer and Treasurer of the Company since June 1982.
Since November 1976, Mr. Pearlman has been President and Chief Operating
Officer, a director and a 21% shareholder of Trans Continental. See "Certain
Relationships and Related Transactions." Mr. Pearlman currently devotes
approximately 10% of his time to Trans Continental and the remainder of his time
to the Company.

        Marvin Palmquist has been a director of the Company since November 1984.
Since August 1967, Mr. Palmquist has been Chairman of the Board of Directors and
President of Lloyd American Corporation ("LAC") and its subsidiaries, including
Lloyd Communications Group, Inc. which develops, owns and operates local
television stations and a satellite receiving center associated with the
Independent Network System. LAC also owns and operates the Midway Theater, an
historic theater located in Rockford, Illinois.

        Seth M. Bobet was appointed Vice President of Finance in February 1990.
From June 1987 through February 1990, Mr. Bobet was the controller of the
Company. Mr. Bobet graduated in June 1985 with a Bachelor of Science Degree
in Accounting from the State University of New York.

        James J. Ryan has been a director of the Company since July 1986. Until
1994 for more than 20 years he had been employed with Alexander and Alexander
Inc., an international insurance brokerage firm and its predecessor firm, where
he most recently held the title of Senior Vice President of the Aviation and
Aerospace Division. Mr. Ryan is currently Executive Director of Sedgwick
Aviation of North America, an international insurance brokerage firm.




                                      -19-







<PAGE>
<PAGE>


        Alan A. Siegel has been a director of the Company since December 1991
and Secretary of the Company since October 1989. From 1985 to 1989, Mr. Siegel
was Senior Account Manager of the Company and since 1989 has served as the
Company's General Manager. Mr. Siegel has also been Senior Account Manager for
Trans Continental since 1986.

--------
**      Mr. Roy Belotti, a director since November 1984, passed away in May,
        1995. To date the Company's Board of Directors has not chosen a director
        to fill the vacancy on the Board created by Mr. Belotti's death.

        The Company's directors are elected for a period of one year and until
their successors are duly elected and qualified. Directors who are not employees
of the Company are compensated at a rate of $500 for each meeting of the full
Board of Directors which they attend in person, up to a maximum of $2,000 in any
one year, plus expenses for attending such meetings. Officers are appointed
annually by the Board of Directors and serve at the discretion of the Board.

        To the knowledge of management of the Company, except as set forth
above, no director of the Company holds any directorship in any other company
with a class of securities registered pursuant to Section 12, or subject to the
requirements of Section 15(d), of the Securities Exchange Act of 1934 or in any
company registered as an investment company under the Investment Company Act of
1940.

        There are currently four members of the Board of Directors. The Company
and its principal shareholders have agreed to use their best efforts to elect
two designees of the underwriters of the 1993 Offering to the Company's Board of
Directors. Due to the Company's failure to pay a specified portion of dividends
on the Preferred Stock in cash, the holders of the Preferred Stock, voting as a
class, have the right to designate two additional members of the Company's Board
of Directors.

        COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires
officers and directors of the Company and persons who own more than ten percent
of the Common Stock or the Preferred Stock, to file initial statements of
beneficial ownership (Form 3), and statements of changes in beneficial ownership
(Forms 4 or 5), of the Common Stock and the Preferred Stock with the Securities
and Exchange Commission (the "SEC"). Officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Company with
copies of all such forms they file.

ITEM 11.  EXECUTIVE COMPENSATION

        The following table summarizes all compensation earned by or paid to the
Company's Chief Executive Officer for services rendered in all capacities to the
Company for the three years ended December 31, 1995. No other executive
officer's annual salary and bonus exceeded $100,000 during the Company's past
three fiscal years.


                                      -20-



<PAGE>
<PAGE>



                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal       Fiscal   Salary    Bonus   Other Annual    Restricted  Securities    Other
Position                 Year                       Compensation    Stock       Underlying Compensation
                                                                    Award       Options
                         -----  ----------- -------   ---------------  ----------  ---------  ------------
<S>                      <C>    <C>         <C>       <C>              <C>        <C>         <C>        
Louis J. Pearlman,       1995   $112,276.50 $0
Chairman,

President, Chief         1994   $252,101    $0             --            --          --          --
Executive and
Operating Officer        1993    $251,573   $0             --            --          --          --


Alan A. Siegel,          1995   $58,140(1)  $70,000        --            --          --          --
Secretary, General       1994   $71,539(1)  $0
Manager and              1993   $93,066(1)  $0             --            --          --          --
Director

</TABLE>


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

(1) Mr. Siegel deferred $25,000 of his salary for each of 1995 and 1994.

1994 EMPLOYEE SHARE PURCHASE PLAN

        The Company has an employee share option plan (the "Plan") for employees
of the Company and any present or future "subsidiary corporations." The Company
intends the Plan to be an "employee stock purchase plan" as defined in Section
423 of the Internal Revenue Code of 1986, as amended (the "Code"). The Plan,
approved by the Company's shareholders on April 11, 1995, was effective November
1, 1994. All employees are eligible to participate in the Plan, except that the
Company's appointed committee may exclude any or all of the following groups of
employees from any offering: (i) employees who have been employed for less than
2 years; (ii) employees whose customary employment is 20 hours or less per week;
(iii) employees whose customary employment is not more than 5 months in any
calendar year; and (iv) highly compensated employees (within the meaning of Code
Section 414(q). The shares issuable under the Plan shall be common shares of the
Company subject to certain restrictions up to a maximum of 1,000,000 shares. The
committee shall determine the length of each offering but no offering may exceed
27 months. The option price for options granted in each offering may not be less
than the less of (i) 85% of the fair value of the shares on the day of the
offering, or (ii) 85% of the fair market value of the shares at the time the
option is exercised.

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

        There were no options grants made in 1995.





                                      -21-


<PAGE>
<PAGE>


                       AGGREGATED OPTION EXERCISE IN 1995
                     AND 1995 FISCAL YEAR-END OPTION VALUES

        There were no option exercises in 1995.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        The Board of Directors of the Company does not have a compensation
committee. Messrs. Pearlman and Siegel determine executive compensation, based
on corporate performance and market conditions. The compensation of Mr.
Pearlman, the Chief Executive and Operating Officer of the Company, is based
solely upon the terms of his employment agreement with the Company. Similarly,
the compensation of Mr. Siegel, the Secretary of the Company, is fixed by the
terms of his employment agreement with the Company. See "Employment Agreements."

EMPLOYMENT AGREEMENTS

        The Company entered into an employment agreement as of February 15, 1993
with Louis J. Pearlman, superseding his prior agreement which was to expire
December 31, 1994. Both agreements contemplate an annual salary to Mr. Pearlman
of $200,000 during 1989 and for annual increases thereafter in an amount equal
to the greater of 5% of his previous year's salary or the increase, if any, in
the Consumer Price Index for All Urban Consumers, Central Florida 1967 - 100.
The agreement also provided for an annual profit bonus payable to Mr. Pearlman
in an amount equal to 4% of the first $1 million of the Company's net after-tax
profits for such fiscal year. Pursuant to the agreement, Mr. Pearlman's annual
compensation, including salary and bonus was limited to $340,000 per year. In
addition, Mr. Pearlman agreed in 1993 not to receive a bonus for the 1993 fiscal
year. Mr. Pearlman received a bonus of $254,000 (including $100,000 applied to
exercise of options) for the 1994 fiscal year. See "Option Grants in 1994." The
Company is presently negotiating a new employment agreement with Mr. Pearlman.

        The Company entered into an employment agreement as of December 31, 1992
with Alan A. Siegel. Mr. Siegel's agreement expires on January 1, 1998. Mr.
Siegel's agreement provides for an annual salary of $75,000 for the first year
of the agreement and for annual increases thereafter in an amount equal to the
greater of 5% of his previous year's salary or the increase, if any, in the
Consumer Price Index for All Urban Consumers, Central Florida 1967 -- 100. The
agreement also provides for an annual bonus payable to Mr. Siegel in an amount
equal to 1 1/2% of the Company's net after-tax profits for such fiscal year plus
an amount determined in the discretion of the Board.

ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth the number and percentage of shares of
Common Stock beneficially owned, as of the Record Date, by (i) all persons known
by the Company to be the beneficial owner of more than 5% of



                                      -22-



<PAGE>
<PAGE>

the outstanding Common Stock or Preferred Stock, (ii) each of the Company's
directors, (iii) the Company's Chief Executive Officer and (iv) all executive
officers and directors of the Company as a group (5 persons).




<TABLE>
<CAPTION>
                      SHARES OWNED OF RECORD   PERCENTAGE OF OUTSTANDING  PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS      OR BENEFICIALLY          SHARES OF COMMON STOCK     SHARES OF PREFERRED STOCK
----------------      -----------------        ------------------------   -------------------------
<S>                    <C>                              <C>                      <C>
Louis J. Pearlman(1)     9,302,291                        23.9%                         *
Alan A. Siegel(2)         51,130                            *                           *
Roy T. Belotti             1,250                            *                           *
Marvin Palmquist            -0-                             *                           *
James J. Ryan(3)          97,000                            *                           *
Transcontinental(4)      3,666,862                          10%                         *
All officers and         13,118,533                       24.3                          *
directors as a group
(5 persons)(2)(5)

</TABLE>



----------
*        Denotes less than 1%.

(1)      Mr. Pearlman has an address at: c/o Airship International Ltd., 7380
         Sand Lake Road, Suite 350, Orlando, Florida 32819.

(2)      Includes 50,000 options granted under the Company's Incentive Stock
         Option Plan.

(3)      Includes a warrant to purchase 67,000 shares of Common Stock which
         expired unexercised on April 7, 1995. See "Certain Relationships and
         Related Transactions."

(4)      Such shares of Common Stock were granted to Trans Continental in
         consideration for its guaranty of the Company's obligations
         under the Allstate Loan, the Phoenixcor Loan, the Senstar Loan, the
         Argentina Lease Agreement and the Argentina Operations Agreement, and a
         corporate credit card issued for the Company's benefit. See "Certain
         Relationships and Related Transactions".

(5)      Includes the options described in footnotes (2) and (3), above.




                                  -23-



<PAGE>
<PAGE>


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        As of January 1, 1993, the Company owed Mr. Pearlman an aggregate amount
of approximately $1,900,000 which amount represented accrued and unpaid salary
and bonus, and principal and accrued and unpaid interest on loans made to the
Company by Mr. Pearlman for general operation purposes. On June 30,1993, the
Company made a $789,000 loan (the "June 1993 Loan") to an individual who had
previously facilitated financing for the Company. Mr. Pearlman has guaranteed
repayment of the Loan and in addition, has agreed that the Company's obligation
to repay principal and interest on Mr. Pearlman's loan to the Company shall be
reduced proportionately to reflect the amount of the then outstanding Loan for
so long as the Loan shall remain outstanding. The loan from Mr. Pearlman bears
interest at the rate of 8.5%. In consideration for Mr. Pearlman's guaranteeing
repayment of the Loan and agreeing that the Loan can be offset against his loan,
the Company has treated the $789,000 as a reduction of the amount due to Mr.
Pearlman.

        As the result of further interest accruing on the amounts owing to Mr.
Pearlman by the Company, at December 31, 1994, and after allowing for the offset
described above with respect to the Loan, the Company owed Mr. Pearlman $950,000
net of unamortized discount. As of December 31, 1994 the Company owed Mr.
Pearlman $950,000 net of unamortized discount.

        During the year ended December 31, 1994, the Company earned $164,000 of
interest income on advances (the "Trans Continental Account") previously made to
Trans Continental Airlines, Inc. ("Trans Continental"). Mr. Louis J. Pearlman
owns 21% of Trans Continental and is the Company's Chairman of the Board,
President and principal shareholder. The advances were made to obtain higher
yields and, at December 31, 1994, totaled $1,809,000. Trans Continental has
pledged a $2,500,000 money market account as collateral for this advance. This
advance is returnable to the Company upon demand, and during the year ended
December 31, 1994, an aggregate amount of $881,000 of the advances were returned
to the Company including interest earned. The balance of the advances were
returned to the Company during 1995 and were used by the Company to pay
outstanding amounts owing to WDL.

        On October 9, 1995 the Company granted to Transcontinental 3,666,862
shares of Common Stock representing 10% of the issued and outstanding Common
Stock of the Company. Such grant was made in consideration of Transcontinental's
guaranty of the Company's obligations under the Allstate Loan, the Phoenixcor
Loan and the Senstar Loan and the Argentina Lease and Operations Agreements. In
addition, Transcontinental has procured, for the Company's benefit, a corporate
credit card.

        On January 15, 1997 the Company entered into a sale agreement with TLI,
an affiliated company, with respect to the Company's $500.04 airship (formerly
the "Bud One" airship) whereby the Company sold to TLI the airship and related
equipment. In consideration for said assets, TLI retired the Company's debt to
Senstar Capital Corp. in the amount of $3,014,000. Additionally, TLI procured a
new envelope from a third party and agreed to lease back the entire assembled
and operational airship to the Company. Pursuant to the agreement, the Company
provided that TLI would undertake to pay the operational costs or the $500.04
airship for a minimum of eight months. In addition, the Company anticipates.

        The Company advanced Airship Airways, Inc. ("AAI") $137,500 in August
1994. At such time, Mr. Pearlman was a principal stockholder of AAI, owning
approximately 44% of its stock. Subsequent to such transaction Mr. Pearlman has
reduced his ownership interest in AAI to approximately 4%. The advance was made
in connection with a proposed merger (the "Merger") transaction between the
Company and AAI. At the present time the Company believes that it is unlikely
that the Merger will be consummated. In connection with the advance, AAI issued
to the Company its promissory note (the "AAI Note") in the amount of $137,500 in
October 1994. The AAI Note is secured by certain aircraft and equipment owned by
AAI. The AAI Note bore interest at the rate of 8% per annum, and was due and
payable on or before February 23,1995. On February 8, 1995 AAI repaid the AAI
Note in full by paying the Company $82,100 and cancelling two promissory notes
that had been issued by the Company to AAI in the respective principal amounts
of $25,000 and $30,400. These notes had been issued in connection with expenses
incurred in connection with the Merger, and reductions in rental payments on
office space obtained with the cooperation of AAI, and which were due and
payable on February 23, 1995 and May 1, 1996, respectively.





                                      -24-



<PAGE>
<PAGE>


        Pursuant to an Agreement dated December 7, 1993, the Company made a
$75,000 unsecured loan to Superbound Limited ("Superbound"), a United Kingdom
corporation controlled by James Stuart Tucker, the former President of Slingsby.
The loan bears interest at an annual rate of 10%. Principal is payable in two
equal installments of $37,500 each on the first two anniversaries of the date
the loan proceeds were paid to Superbound (within seven days of December 7,
1993). Mr. Tucker is a guarantor of this loan. During 1994 Mr. Tucker was able
to procure, without cost to the Company, required maintenance service and parts
which would otherwise have cost the Company over $100,000. In exchange for his
services, $37,500 of the loan was cancelled as of December 3, 1994 and interest
of $7,500 was received in February 1995. The remaining balance of the loan was
subsequently repaid.

        On December 31, 1991, Mr. Julian Benscher and the Company entered into a
Line of Credit Agreement, pursuant to which Mr. Benscher loaned the Company $
1,000,000 in 1992. As partial consideration for making these loans, the Company
issued to Mr. Benscher warrants to purchase 775,000 shares of Common Stock and
issued additional warrants to purchase 325,000 shares of Common Stock to certain
parties designated by Mr. Benscher. The Company has granted Mr. Benscher
registration rights with respect to all shares of Common Stock and warrants
owned by him. These warrants were to expire on December 31, 1994; however, for
continued assistance provided to the Company by Mr. Benscher, the Company
extended the expiration date of these warrants to January 15, 1996, on which
date the warrants expired unexercised.

        The Company sold the Argentina Airship to First Security for the benefit
of Aviation, in June, 1995 in consideration for First Security's assumption of
the Company's liabilities under the Argentina Lease Agreement and AOI's
obligations under the Argentina Operations Agreement. In connection with such
sale, the Company assigned the Argentina Lease Agreement to First Security, and
Aviation purchased all of the issued and outstanding Capital Stock of AOI. See
"Business-Aerial Advertising and Other Contracts-Argentina Airship."

        The Company has purchased hull insurance for the Company's airships
through Sedgwick Aviation of North America, an international insurance brokerage
firm of which Mr. James J. Ryan is the Executive Director.

Item 14 - Exhibits, Financial Statements, Schedules and Reports on Form 8-K

<TABLE>
<CAPTION>
                                                                                    Page
                                                                                    ----
<S>   <C>                                                                        <C>
(a)   (1)    The following financial statements of the Company have been
             filed as part of this report:

             A.    Report of Independent Certified Public Accountant                F-1

             B.    Balance Sheets as of December 31, 1995 and 1994                  F-2

             C.    Statements of Operations for the years ended December 31,
                     1995, 1994 and 1993                                            F-3

             D.    Statements of Changes in Stockholders' Equity for the years
                     ended December 31, 1995, 1994 and 1993                      F-4 to F-5

             E.    Statements of Cash Flows for the years ended December 31,
                   1995, 1994 and 1993                                           F-6 to F-7

             F.    Notes to Financial Statements                                 F-8 to F-25

(a)   (2)    No Financial Statement Schedules are required to be filed by the
             Company other than the following which have been filed as part of
             this report:  

             A.   Report of Independent  Certified  Public  Accountants on
                  Schedules                                                      F-26

             B.   II  - Amounts receivable from related parties                  F-27

             C.   IV - Indebtedness to related parties                           F-28

             D.   V  - Airships and related equipment                            F-29

             E.   VI - Accumulated depreciation and amortization of              F-30
                       airships and related equipment

             F.   IX - Short-term borrowings                                     F-31
</TABLE>



                                      -25-


<PAGE>


<PAGE>


<TABLE>
<CAPTION>

                                  Exhibit Index
                                  --------------

 Exhibit                                                                                          Incorporated by
 Number                             Description                                                   Reference to 
-------                             -----------                                                   ---------------
<S>                                                                                              <C>  
   3.1      Certificate of incorporation of the Company filed June 9, 1992.                      Exhibit 2(12)

   3.2      Amendment to Certificate of Incorporation filed September 18, 1984.                  Exhibit 3(12)

   3.3      Amendment to Certificate of Incorporation filed April 8, 1985.                       Exhibit 4(12)

   3.4      Amendment to Certificate of Incorporation filed August 1, 1986.                      Exhibit 5(12)

   3.5      Amendment to Certificate of Incorporation filed January 27, 1989.                    Exhibit 6(12)

   3.6      Amendment to Certificate of Incorporation filed August 5, 1992.                      Exhibit 7(12)

   3.7      Certificate of Correction to Amendment of Certificate of Incorporation filed         Exhibit 8(12)
            on February 26, 1993.

   3.8      Amendment to Certificate of Incorporation filed February 26, 1993.                   Exhibit 9(12)

   3.9      By-laws of the Company.                                                                      *

   4.1      Warrant Agreement dated February 14, 1991 between the Company and                    Exhibit 4.1(4)
            American Securities Transfer, Inc. including form of Class A Warrant and
            form of Class B. Warrant.

   4.2      Warrant dated February 7, 1991 issued to Stephen M. Bathgate.                        Exhibit 4.2(4)

   4.3      Two warrants dated respectively December 31, 1991 and February 25, 1992              Exhibit 4.3(4)
            issued to Julian M. Benscher.

   4.4      Two warrants dated respectively February 7, 1991 and March 23, 1991                  Exhibit 4.4(4)
            issued to Kenneth S. Bernstein.

   4.5      Two warrants dated respectively February 7, 1991, and May 23, 1991                   Exhibit 4.5(4)
            issued to Chatfield Dean & Co., Inc.

   4.6      Warrant dated September 26. 1991 issued to Dr. Joseph C. F. Chow and                 Exhibit 4.6(4)
            Cynthia B. Chow.

   4.7      Warrant dated September 26, 1991 issued to Cohig & Associates, Inc.                  Exhibit 4.7(4)

   4.8      Warrant dated May 1, 1991 issued to Daliz Associates.                                Exhibit 4.8(4)

   4.9      Two warrants dated respectively February 8, 1990, and February 21, 1991              Exhibit 4.9(4)
            issued to Emanuel and Company.

  4.10      Warrant dated December 10, 1991 issued to After Falkowitz.                           Exhibit 4.10(4)

  4.11      Four warrants dated respectively June 5, 1990, December 5, 1990,                     Exhibit 4.11(4)
            December 17,1 990, and February 21, 1991 issued to Alfonso Figlioia.

  4.12      Two warrants dated respectively, May 23, 1991 and February 7, 1992                   Exhibit 4.12(4)
            issued to Sanford D. Greenberg.

  4.13      Warrant dated December 7, 1991 issued to Edward C. Larkin.                           Exhibit 4.13(4)

</TABLE>

                                      26




<PAGE>

<PAGE>

<TABLE>
<CAPTION>

                                  Exhibit Index
                                  --------------

 Exhibit                                                                                          Incorporated by
 Number                             Description                                                   Reference to 
-------                             -----------                                                   ---------------
<S>                                                                                              <C>  

  4.14      Warrant dated December 4, 1991 issued to David Mathis.                               Exhibit 4.14(4)

  4.15      Warrant dated February 7, 1991 issued to Eugene McColley.                            Exhibit 4.15(4)

  4.16      Warrant dated February, 1992 issued to Nour Collection, Inc.                         Exhibit 4.16(4)

  4.17      Warrant dated November 3, 1989 issued to ORIX Commercial Credit                      Exhibit 10.29(5)
            Corporation ("ORIX").

  4.18      Warrant date February, 1992 issued to Chahram Pahlavi.                               Exhibit 4.18(4)

  4.19      Warrant dated April 7, 1992 issued to Jim Ryan.                                      Exhibit 4.19(4)

  4.20      Warrant dated May 1, 1992 issued to Sterling Capital Group, Inc.                     Exhibit 4.20(4)

  4.21      Warrant dated May 1, 1991 issued to Jonathan Turk.                                   Exhibit 4.21(4)

  4.22      Warrant dated February 7, 1991 issued to Steven R. Hinkle.                           Exhibit 4.22(4)

  4.23      Warrant dated April 1. 1992 issued to Simon Zamet.                                   Exhibit 4.23(4)

  4.24      Warrant dated May 8, 1992 issued to Louis J. Pearlman.                               Exhibit 4.24(6)

  4.25      Two Warrants dated April 17, 1992 issued to Emanuel and Company.                     Exhibit 4.25(6)

  4.26      Representatives' Preferred Stock Warrant issued to Emanuel and Company
            and Chatfield Dean & Co. Inc.

  10.1      Amended and Restated Loan Agreement dated as May 8, 1992 between the                 Exhibit 10.1(6)
            Company and Louis J. Pearlman.

  10.2      Form of Subscription Agreement between the Company and certain                       Exhibit 10.2(6)
            investors relating to the 1992 Private Placement.

  10.3      Letter Agreement dated April 17, 1992, between the Company and Emanuel               Exhibit 10.3(6)
            and Company in connection with the 1992 Private Placement.

  10.4      Incentive Stock Option Plan as amended, of the Company.                              Exhibit 10.2(1)

  10.5      Amendment to Incentive Stock Option Plan dated December 9, 1991.                     Exhibit 10.2(4)

  10.6      Aerial Airship Agreement dated October 26, 1987 by and between the                   Exhibit 10.29(7)
            Company and the Metropolitan Life Insurance Company ("MetLife").

  10.7      Amendment dated as of March 15, 1988 to the Advertising Agreement                    Exhibit B.1(3)
            between the Company and MetLife.

  10.8      Amendment dated as of March 15, 1988 to the Aerial Advertising                       Exhibit 10.14(5)
            Agreement between the Company and MetLife.

  10.9      Amendment dated as of March 15, 1988 to the Aerial Advertising                       Exhibit 10.15(5)
            Agreement between the Company and MetLife.

  10.10     Amendment dated as of March 15, 1988 to the Aerial Advertising                       Exhibit 19.4(8)
            Agreement between the Company and MetLife.

  10.11     Airship Advertising Agreement dated as to April 27, 1990 between the                 Exhibit 10.8(4)
            Company, Airship Industries (USA), Inc. ("AIUSA") and Anheuser Busch
            Companies, Inc. ("Anheuser").

</TABLE>


                                       27






<PAGE>

<PAGE>

<TABLE>
<CAPTION>

                                  Exhibit Index
                                  --------------

 Exhibit                                                                                          Incorporated by
 Number                             Description                                                   Reference to 
-------                             -----------                                                   ---------------
<S>                                                                                              <C>  

  10.12     Termination Agreement dated as of January 1, 1991 between the Company,               Exhibit 19.2(8)
            Anheuser, and AIUSA.

  10.13     Airship Advertising Agreement dated as of January 1, 1991 between the                Exhibit 19.3(8)
            Company and Anheuser.

  10.14     Amendment to Airship Advertising Agreement dated May 31, 1991 between                Exhibit 10.11(4)
            the Company and Anheuser.

  10.15     Passenger Airship Agreement dated May 31, 1991 between the Company                   Exhibit 19.12(4)
            and Anheuser.

  10.16     Airship Advertising Agreement dated March 12, 1992 between the                       Exhibit 10.13(4)
            Company and Anheuser.

  10.17     Term Loan Agreement dated as of February 27. 1990, between State Bank                Exhibit 10.3(9)
            of South Australia and the Company in the principal amount of $250,000.

  10.18     Airship Lease dated February 27, 1990 between the Company and the State              Exhibit 10.23(5)
            Bank of South Australia together with Lease Supplement No. 1 thereto.

  10.19     Subordination Agreement dated February 27, 1990, between the Company,                Exhibit 10.16(4)
            State Bank of South Australia and Louis J. Pearlman.

  10.20     Line of Credit Agreement dated December 31, 1991 between Julian                      Exhibit 10.17(4)
            Benscher and the Company in the amount of $1,000,000, as amended on
            February 20, 1992 and Secured and Credit Note dated December 31, 1991
            from the Company to Julian Benscher in the principal amount of
            $1,000,000.

  10.21     Loan Agreement dated December 8, 1988 between the Company and Louis                  Exhibit C.1(3)
            J. Pearlman relating to a loan of $500,000.

  10.22     Promissory note dated December 8, 1988 of the Company.                               Exhibit D.1(3)

  10.23     Demand Note dated as of December 31, 1988 of the Company to Louis J.                 Exhibit H.1(3)
            Pearlman, in the principal amount of $324,929.76.

  10.24     Term Note for the principal amount of $850.000 dated January 31, 1990                Exhibit 10.21(4)
            from the Company to Louis J. Pearlman.

  10.25     Stock Option Agreement dated January 1, 1989 between the Company and                 Exhibit E.1(3)
            Louis J. Pearlman to purchase 1,000,000 shares.

  10.26     Amendment to Stock Option Agreement between the Company and Louis J.                 Exhibit 10.24(4)
            Pearlman dated as of February 7, 1991.

  10.27     Exchange Agreement dated January 29, 1992 between Slingsby Aviation                  Exhibit 10.28(4)
            Limited and the Company.

  10.28     Purchase Agreement Assignment dated November 2, 1989 between the                     Exhibit 10.26(5)
            Company and ORIX and Consent by Airship UK.

  10.29     Letter of Credit dated November 2,1989 between the Company and ORIX.                 Exhibit 10.309(5)

  10.30     Assignment of (MetLife) Aerial Advertising Agreement and Consent dated              Exhibit 10.27(5)
            as of November 2, 1989 between the Company and Airship (UK).


</TABLE>



                                       28





<PAGE>

<PAGE>

<TABLE>
<CAPTION>

                                  Exhibit Index
                                  --------------

 Exhibit                                                                                          Incorporated by
 Number                             Description                                                   Reference to 
-------                             -----------                                                   ---------------
<S>                                                                                              <C>  

  10.31     Guaranty of Louis J. Pearlman in favor of ORIX dated as of November 2,               Exhibit 10.28(5)
            1989.

  10.32     Note and Warrant Purchase Agreement dated as of November 2, 1989                     Exhibit 109.33(5)
            between the Company and ORIX

  10.33     Agreement dated November 12, 1990 among the Company the Receiver for                 Exhibit 10.30(10)
            Airship UK, AIUSA and others.

  10.34     Corporate Financial Consulting Agreement dated February 14, 1991                     Exhibit 10.38(4)
            between the Company and Cohig & Associates.

  10.35     Engagement Letter dated September 22, 1988 between Emanuel and                       Exhibit K.1(3)
            Company and the Company.

  10.36     Agreement dated August 28, 1992 between Seoul Olympic Sports Promotion               Exhibit 10.45(11)
            Foundation and the Company.

  10.37     Fifth Amendment to Aerial Advertising Agreement effective as of                      Exhibit 10.46(11)
            September 1, 1992 between Metropolitan Life and the Company.

  10.38     Loan  Agreement dated October 14, 1992 between Sequel Capital Corporation and        Exhibit 10.47(11)
            the Company.

  10.39     Agreement dated December 17, 1992 between J&B Enterprises Limited                    Exhibit 10.48(11)
            (UK) Corp. Julian Benscher and the Company.

  10.40     Airship Mortgage dated December 17, 1992 between the Company and J&B                 Exhibit 10.49(11)
            Enterprises Limited (UK) Corp.

  10.41     Employment Agreement dated as of December 31, 1992 between the                       Exhibit 10.50(11)
            Company and Seth Bobet.

  10.42     Employment Agreement dated as of December 31, 1992 between the                       Exhibit 10.51(11)
            Company and Alan Siegel.

  10.43     Employment Agreement dated as of December 31, 1992 between the                       Exhibit 10.52(11)
            Company and Frank Sicoli.

  10.44     Amended Employment Agreement dated as of February 15,1993 between                    Exhibit 10.53(11)
            the Company and Louis J. Pearlman

  10.45     Second Amendment to Stock Option Agreement between the Company and                   Exhibit 10.54(11)
            Louis J. Pearlman date as of February 15.l 1993.

  10.46     Mast Sale Agreement dated December 30, 1992 between J&B Enterprises                  Exhibit 10.55(11)
            Limited (UK) Corp. Julian Benscher and the Company.

  10.47     Mortgage dated December 30, 1992 between the Company and J&B                         Exhibit 10.56(11)
            Enterprises Limited (UK) Corp.

  10.48     Subscription Agreements between the Company and certain investors                    Exhibit 10.57(11)
            relating to the 1992 Private Placement.

  10.49     Sublease Agreement between Westinghouse Airships, Inc. and the Company               Exhibit 10.58(13)
            dated November 9, 1992.

</TABLE>

                                        29





<PAGE>

<PAGE>

<TABLE>
<CAPTION>

                                  Exhibit Index
                                  --------------

 Exhibit                                                                                          Incorporated by
 Number                             Description                                                   Reference to 
-------                             -----------                                                   ---------------
<S>                                                                                              <C>  
  10.50     Amendment to Sublease Agreement between Westinghouse Airships, Inc.                  Exhibit 10.59(13)
            and the Company dated November 9, 1992.

  10.51     Lease Agreement between Sand Lake IV-A Limited Partnership and the                   Exhibit 10.60(13)
            Company dated February 25, 1991.

  10.52     Lease Agreement between T&L Leasing and the Company dated January                    Exhibit 10.61(13)
            13. 1992.

  10.53     Lease Agreement between Westdeutsche Luftwerbung Theodor                             Exhibit 10.52(15)
            Wullenkemper GMBH and the company dated May 16, 1993.

  10.54     Manufacturers Agreement between WDL Luftschiffgesellschaft MBH and                   Exhibit 10.53(15)
            the Company dated may 16, 1993.

  10.55     Escrow Agreement between and among Westdeutsche Lufterbung Theodor                   Exhibit 10.54(15)
            Wullenkemper GMBH & Co., WDL Luftschiffgesellschaft MBH, Trans                       Exhibit 10.55(15)
            Continental Airlines Inc., and the Company dated May 15, 1993.

  10.56     Aerial Advertising Agreement between the Company and Catamount                       Exhibit 10.56(15)
            Petroleum Limited Partnership dated May 28, 1993.

  10.57     Amendment to Aerial Advertising Agreement between the Company and                    Exhibit 10.57(15)
            Catamount Petroleum Limited Partnership dated July 27, 1993.

  10.58     Second Amendment to Aerial Advertising Agreement between the Company                 Exhibit 10.58(15)
            and Catamount Petroleum Limited Partnership dated August 9, 1993.

  10.59     Third Amendment to Aerial Advertising Agreement between the Company                  Exhibit 10.59(15)
            and Catamount Petroleum Limited Partnership dated October 13, 1993.

  10.60     Fourth Amendment to Aerial Advertising Agreement between the Company                 Exhibit 10.60(15)
            and Catamount Petroleum Limited Partnership dated November 9, 1993.

  10.61     Aerial Advertising Agreement between Kingstreet Tours Limited and the                Exhibit 10.61(15)
            Company dated as of January 18, 1994.

  10.62     Passenger Airship Agreement between Anheuser-Busch Companies, Inc.                   Exhibit 10.62(15)
            and the Company dated as of January 2, 1994.

  10.63     Amendment to Airship Advertising Agreement dated March 12, 1992,                     Exhibit 10.63(15)
            between the Company and Anheuser-Busch Companies, Inc. dated March 4,
            1994 and related letter agreement dated February 11, 1994.

  10.64     Amendment to note agreement dated as of November 2, 1989 between the                 Exhibit 10.64(15)
            Company and ORIX dated January 11, 1994.

  10.65     Loan Agreement between Don Golden and the Company dated June 30,                     Exhibit 10.65(15)
            1993.

  10.66     Guarantee of Louis J. Pearlman in favor of the Company dated as of June              Exhibit 10.66(15)
            30, 1993.

  10.67     Loan Agreement between Superbound Limited and the Company dated                      Exhibit 10.67(15)
            December 7, 1993.

</TABLE>

                                        30





<PAGE>

<PAGE>

<TABLE>
<CAPTION>

                                  Exhibit Index
                                  --------------

 Exhibit                                                                                          Incorporated by
 Number                             Description                                                   Reference to 
-------                             -----------                                                   ---------------
<S>                                                                                              <C>  
  10.68     Guarantee of James Stuart Tucker in favor of the Company dated as of                 Exhibit 10.68(19)
            December 7, 1993.

  10.69     Kingstreet Tours Limited Aerial Advertising Agreement dated January 18,              Exhibit 10.69(19)
            1994, by and between the Company and Kingstreet Tours Limited.

  10.70     Amended and Restated Airship Advertising Agreement, dated July 8, 1994,              Exhibit 10.70(19)
            by and between the Company and Anheuser-Busch Companies, Inc.

  10.71     Aircraft Lease Agreement, dated December 15, 1994, by and between the                Exhibit 10.71(19)
            Company and Mastellone Hnos., S.A.

  10.72     Airship Operations Agreement, dated December 15, 1994, by and between                Exhibit 10.72(19)
            Airship Operations (USA), Inc. and Mastellone Hnos, S.A.

  10.73     Passenger Airship Agreement, dated as of January 2, 1994, by and between             Exhibit 10.73(19)
            the Company and Anheuser-Busch Companies, Inc.

  10.74     Letter Agreement Modification, dated January 11, 1994, by and between                Exhibit 10.74(19)
            the Company and ORIX USA Corporation.

  10.75     Amendment to Lease, dated May 12, 1994, by and between the Company                   Exhibit 10.75(19)
            and ORIX USA Corporation.

  10.76     Collateral and Security Agreement, dated as of May 10, 1994, by and                  Exhibit 10.76(19)
            between the Company and ORIX USA Corporation.

  10.77     Aircraft Collateral Funding Repayment Agreement, dated as of November                Exhibit 10.77(19)
            16, 1994, by and between the Company and Allstate Financial Corporation.

  10.78     Guaranty, dated December 6, 1994, of Louis J. Pearlman.                              Exhibit 10.78(19)

  10.79     Guaranty, dated December 6, 1994, of Trans-Continental Airlines, Inc.                Exhibit 10.79(19)

  10.80     Aircraft Lease Agreement, dated as of May 31, 1995, by and between                   Exhibit 10.80(19)
            Trans Continental Leasing, Inc., as Lessor and the Company, as Lessee.

  10.81     Full Warranty Bill of Sale, dated as of May 31, 1994, by the Company to              Exhibit 10.81(19)
            Trans Continental Leasing, Inc.

  10.82     Credit Agreement, dated November 30, 1995, by and between the Company                Exhibit 10.82(19)
            and Senstar Capital Corporation.

  10.83     Term Note, dated November 30, 1995, of the Company to Senstar Capital                Exhibit 10.83(19)
            Corporation.

  10.84     Aircraft Mortgage and Security Agreement, dated November 30, 1995, by                Exhibit 10.84(19)
            and between the Company and Senstar Capital Corporation.

  10.85     Assignment of Contract Rights, dated November 30, 1995, by and between               Exhibit 10.85(19)
            the Company and Senstar Capital Corporation.

  10.86     Agreement of Guaranty and Suretyship, dated November 30, 1995, by and                Exhibit 10.86(19)
            between Trans Continental Airlines and Senstar Capital Corporation.

</TABLE>

                                        31





<PAGE>

<PAGE>


<TABLE>
<CAPTION>

                                  Exhibit Index
                                  --------------

 Exhibit                                                                                          Incorporated by
 Number                             Description                                                   Reference to 
-------                             -----------                                                   ---------------
<S>                                                                                              <C>  

  10.87     Release and Settlement Agreement, dated September 20, 1993, by and                   Exhibit 10.87(19)
            between the Company and Sequel Capital Corporation and Louis J.
            Pearlman.

  10.88     Promissory Note, dated October __, 1994, of Louis J. Pearlman to Airship             Exhibit 10.88(19)
            Airways, Inc.

  10.89     Promissory Note, dated October 26, 1994, of Louis J. Pearlman to Airship             Exhibit 10.89(19)
            Airways, Inc.

  10.90     Form of Share Subscription Agreement, dated August 11, 1994, between                 Exhibit 10.90(19)
            the Company and _______________.

  10.91     List of Purchasers in the 1994 Private Placement.                                    Exhibit 10.91(19)

  10.92     Secured Promissory Note, dated October 26, 1994, of Airship Airways, Inc. to         Exhibit 10.92(19)
            the Company.

  10.93     Option Agreement, dated as of August 11, 1994, between the Company and               Exhibit 10.93(19)
            Louis J. Pearlman.

  10.94     Airship International Ltd. Employee Share Purchase Plan.                             Exhibit 1(18)

  11.1      Statement re: Computation of Per Share Earnings.                                           *

  16.1      Letter of Wiss & Co. dated June 22, 1993                                             Exhibit 16.1(14)

  16.2      Letter of Grant Thornton dated July 7, 1997.                                         Exhibit 16(16)

  16.3      Letter of Grant Thornton dated July 22, 1997                                         Exhibit 16(17)

  21.1      List of Subsidiaries                                                                 Exhibit 21.1(19)

  27.1      Financial Data Schedule                                                                      *

</TABLE>



            *Filed herewith.


(1)  The Company's Registration Statement on Form S 18 Registration No. 2.96334
     NY as filed with the Securities and Exchange Commission (the "SEC") on
     March 9, 1985.
(2)  The Company's Registration Statement on Form S-1 Registration No. 33-7830,
     as filed with the SEC on August 7, 1986.
(3)  The Company's Annual Report on Form 10-K for fiscal year ended December 31,
     1988.
(4)  The Company's Annual Report on Form 10-K for fiscal year ended December 31,
     1991.
(5)  The Company's Registration Statement on Form S-2, Registration No.
     33-32619, as filed with the SEC on December 18, 1989.
(6)  The Company's Post-effective Amendment No. 1 on Form S-3 to Form S-2,
     Registration No. 33-38076, as filed with the SEC on May 14,1 992.
(7)  The Company's Annual Report on Form 10-K for the fiscal year ended December
     31, 1987.
(8)  The Company's Report on Form 8 dated August 14, 1991.
(9)  The Company's Report on Form 8-K dated February 27, 1990.
(10) The Company's Registration Statement on Form S-2, Registration No.
     33038076. as filed with the SEC on December 5. 1990.


                                       32





<PAGE>

<PAGE>

(11) The Company's Registration Statement on Form S-1, Registration No.
     33-56382, as filed with the SEC on February 16, 1993.
(12) The Company's Registration Statement on Form 8-A, as filed with SEC on
     March 16, 1993.
(13) The Company's Annual Report on Form 10-K for the fiscal year ended December
     31, 1992.
(14) The Company's Report on Form 8-K dated July 9, 1993.
(15) The Company's Annual Report on Form 10-K for the fiscal year ended
     December 31, 1993.
(16) The Company's Report on Form 8-K, as filed with the SEC on July 11, 1997.
(17) The Company's Report on Form 8-K/A, as filed with the SEC on July 22, 1997.
(18) The Company's Proxy Statement, as filed with the SEC on March 20, 1995.
(19) The Company's Annnual Report on Form 10-K for the year ended December 31,
     1994.

(b) The Company had not filed any reports on form 8-K during the last quarter of
the period covered by this report.


                                         33


<PAGE>

<PAGE>


                                   SIGNATURES

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

                                            AIRSHIP INTERNATIONAL LTD.

Dated:  October  15, 1997                   By:  /s/ Louis J. Pearlman
                                               -----------------------
                                            Louis J. Pearlman
                                            Chairman of the Board of
                                            Directors, President and
                                            Treasurer (Principal Executive
                                            and Financial Officer)

Dated:  Oct0ber  16, 1997                   By:  /s/ Alan A. Siegel
                                               --------------------
                                            Alan A. Siegel
                                            Secretary & Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

Dated: October 15, 1997
                                            By: /s/ Marvin Palmquist
                                               --------------------- 
                                            Marvin Palmquist
                                            Director

Dated: October 15, 1997                     By: /s/ James J. Ryan
                                               -------------------
                                            James J. Ryan
                                            Director






                                      34




<PAGE>
<PAGE>


                REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT


Board of Directors and Stockholders
Airship International Ltd.

I have audited the accompanying balance sheets of Airship International Ltd. as
of December 31, 1995 and 1994 and the related statement of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit. The December 31, 1993 financial statements were audited by other
auditors whose report, dated March 24, 1994 on those statements included an
explanatory paragraph describing conditions that raised substantial doubt about
the Company's ability to continue as a going concern.

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

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Airship International Ltd. at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note B to the
financial statements, the Company has experienced significant operating losses,
an accumulated deficit and negative working capital at December 31, 1995 and
1994. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty, with the
exception of the effects of applying Statement of Financial Accounting Standards
No. 121, "Impairment of Long-Lived Assets to be Disposed Of," as described in
Note A.

                                            CHARLIE M. MEEKS, C.P.A., P.A.

Maitland, Florida
October 15, 1997


                                      F-1




<PAGE>
<PAGE>


                           AIRSHIP INTERNATIONAL LTD.
                                 BALANCE SHEETS
                                  DECEMBER 31,


<TABLE>
<CAPTION>
                                                     1995             1994
======================================================================================
<S>                                                     <C>               <C>         
                             ASSETS
Airships and Related Equipment:
    Airships                                            $  2,294,000      $  2,104,000
    Vehicles                                               1,566,000         1,609,000
    Parts and equipment                                    1,197,000         1,542,000
    Airship components                                     1,605,000         2,730,000
----------------------------------------------------------------------------------------
                                                           6,662,000         7,985,000
Less: Accumulated depreciation and
      amortization                                         1,958,000         1,492,000
----------------------------------------------------------------------------------------
                                                           4,704,000         6,493,000

Cash and cash equivalents                                     26,000           543,000
Prepaid insurance                                             81,000           626,000
Due from related parties                                     176,000         1,809,000
Deferred financing and offering costs,
  net of accumulated amortization                                  -           157,000
Other assets                                                  86,000           181,000
----------------------------------------------------------------------------------------
                                                        $  5,073,000      $  9,809,000
========================================================================================

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

LIABILITIES
   Accounts payable - trade                             $  1,690,000      $  4,068,000
   Customer payment on future services                       553,000         1,367,000
   Insurance financing                                       104,000           291,000
   Accrued expenses and other liabilities                  2,838,000         1,886,000
   Obligations under capital leases                        3,348,000         3,258,000
   Loan payable                                            3,689,000         1,250,000
   Deferred gain on sale of airship                          854,000                 -
   Due to related parties                                  1,604,000           950,000
----------------------------------------------------------------------------------------
      Total liabilities                                   14,680,000        13,070,000
========================================================================================

CONTINGENCIES AND COMMITMENTS                                      -                 -

STOCKHOLDERS' EQUITY (DEFICIT)
   Preferred stock, $.01 par value:
     Authorized - 10,000,000 shares, issued and
     outstanding - 2,797,000 shares in 1995
     and 2,875,000 in 1994                                    28,000            29,000
   Common stock, $.01 par value:
     Authorized - 80,000,000 shares, issued and
     outstanding - 40,490,000 shares in 1995
     and 31,356,000 in 1994                                  405,000           314,000
   Capital in excess of par value - Preferred Stock       14,443,000        14,442,000
   Capital in excess of par value - Common Stock          22,086,000        21,931,000
   Accumulated deficit                                   (46,569,000)      (39,977,000)
----------------------------------------------------------------------------------------
      Total stockholders' equity (deficit)                (9,607,000)       (3,261,000)
----------------------------------------------------------------------------------------
                                                        $  5,073,000      $  9,809,000
========================================================================================
</TABLE>

        The accompanying notes are an integral part of these statements.
                           AIRSHIP INTERNATIONAL LTD.


                                      F-2



<PAGE>
<PAGE>


                            STATEMENTS OF OPERATIONS
                         FOR THE YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                         1995               1994              1993
========================================================================================================
<S>                                                 <C>               <C>                <C>         
Airship Revenue                                     $  2,620,000      $   3,980,000      $  9,748,000
--------------------------------------------------------------------------------------------------------
Costs and Expenses:
Operating costs                                        4,027,000         17,452,000         9,964,OOO
Selling, general and administrative expenses           1,893,000          2,408,000         3,449,000
--------------------------------------------------------------------------------------------------------
                                                       5,920,000         19,860,000        13,413,000

Loss from operations                                  (3,300,000)       (15,880,000)       (3,665,000)
--------------------------------------------------------------------------------------------------------

Other income (expense)
  Loss on sale of airship components
    to a stockholder                                    (548,000)          (659,000)               --
  Realized gain on sale leaseback                         26,000                 --                --
  Gain (loss) on insurance settlement                         --         (3,443,000)               --
  Interest expense                                    (1,103,000)          (805,000)         (913,000)
  Interest, royalties and other income                    58,000            206,000           391,000
  Costs relating to settlement of litigation                  --            (64,000)         (741,000)
  Loss on disposition of airship component                    --                 --          (478,000)
--------------------------------------------------------------------------------------------------------
                                                      (1,567,000)        (4,765,000)       (1,741,000)
--------------------------------------------------------------------------------------------------------

Net income (loss)                                    $(4,867,000)      $(20,645,000)      $(5,406,000)
--------------------------------------------------------------------------------------------------------

Weighted average number of common
  shares and equivalents outstanding                  36,008,000         30,161,000        27,073,000
========================================================================================================

Net income (loss) applicable to common stock:
  Net income (loss)                                  $(4,867,000)      $(20,645,000)      $(5,406,000)
  Less preferred stock dividend                       (1,725,000)        (1,681,000)       (1,166,000)
--------------------------------------------------------------------------------------------------------

Net income (loss) applicable to common stock         $(6,592,000)      $(22,326,OOO)      $(6,572,OOO)
========================================================================================================

Net income (loss) per share                               $(0.18)      $      (0.74)      $     (0.24)
========================================================================================================

  SIGNIFICANT AMOUNTS APPLICABLE TO RELATED PARTIES

Operating costs - Insurance expense                  $    --           $     74,000       $ 1,319,000
Selling, general and administrative:
  Travel                                             $    --           $       --         $     6,000
Interest expense                                     $   101,000       $    105,000       $   149,000
Interest income                                      $    23,000       $    164,000       $   184,000
</TABLE>


        The accompanying notes are an integral part of these statements.


                                      F-3



<PAGE>
<PAGE>



                           AIRSHIP INTERNATIONAL LTD.
             STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                         FOR THE YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                                          Capital in Excess
                                                                                            of Par Value
                                             Preferred Stock       Common Stock       ------------------------
                                         ------------------------------------------   Preferred      Common      Accumulated
                                           Shares    Par Value   Shares   Par Value     Stock         Stock        Deficit
=============================================================================================================================
<S>                                       <C>        <C>      <C>         <C>         <C>         <C>          <C>          
Balance at December 31, 1992                     -   $     -   25,939,000  $259,000         $  -   $20,116,000  $(11,079,000)

Sale of common stock and warrants
  issued to private investors, less
  related expenses of $27,000                    -         -      318,000     3,000            -       209,000             -
  Sale of preferred stock to public
   less related expenses of $2,779,000   2,875,000    29,000            -         -   14,442,000             -   (11,079,000)
  Exercise of warrants into common
   stock                                         -         -      640,000     6,000            -       396,000             -
  Repurchase of warrants                         -         -            -         -            -      (222,000)            -
  Dividends paid on preferred stock:
   In cash                                       -         -            -         -            -             -      (518,000)
   In common stock                               -         -    1,049,000    11,000            -       637,000      (648,000)
  Loss                                           -         -            -         -            -             -    (5,406,000)
-----------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1993             2,875,000    29,000   27,946,000   279,000   14,442,000    21,136,000   (17,651,000)

 Issuance of common stock from private
   placement, less expenses of S7,000            -         -    1,344,000    14,000            -       169,000             -
 Dividends paid on preferred stock:
   In cash                                       -         -            -         -            -             -      (172,000)
   In common stock                               -         -    2,066,000    21,000            -       626,000      (647,000)
</TABLE>


        The accompanying notes are an integral part of these statements.

                                      F-4




<PAGE>
<PAGE>

                           AIRSHIP INTERNATIONAL LTD.
             STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                         FOR THE YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                                          Capital in Excess
                                                                                            of Par Value
                                             Preferred Stock       Common Stock       ------------------------
                                         ------------------------------------------   Preferred      Common      Accumulated
                                           Shares    Par Value   Shares   Par Value     Stock         Stock        Deficit
=============================================================================================================================
<S>                                       <C>        <C>      <C>         <C>         <C>         <C>          <C>          
Accrued common stock dividend                     -         -           -         -            -             -      (862,000)
Loss                                              -         -           -         -            -             -   (20,645,000)
-----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994              2,875,000   $29,000  31,356,000  $314,000  $14,442,000   $21,931,000  $(39,977,000)

 Conversion of preferred stock into
   common stock                             (78,000)   (1,000)    467,000     5,000        1,000        (5,000)            -
 Exercise of stock options as compensation        -         -   5,000,000    50,000            -        50,000             -
 Issuance of common stock to Trans
   Continental for loan guarantee                 -         -   3,667,000    36,000            -       110,000             -
 Dividends paid on preferred stock:
   Accrued common stock dividend                  -         -           -         -            -             -    (1,725,000)
 Loss                                             -         -           -         -            -             -    (4,867,000)
-----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995              2,797,000   $28,000  40,490,000  $405,000  $14,443,000   $22,086,000  $(46,569,000)
=============================================================================================================================
</TABLE>


        The accompanying notes are an integral part of these statements.


                                      F-5




<PAGE>
<PAGE>


                           AIRSHIP INTERNATIONAL LTD.
                            STATEMENTS OF CASH FLOWS
                         FOR THE YEAR ENDED DECEMBER 31,


Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
                                                                    1995             1994           1993
=============================================================================================================
<S>                                                             <C>             <C>              <C>         
 Cash flows from operating activities
   Net income (loss)                                            $(4,867,000)    $(20,645,000)    $(5,406,000)
   Adjustments to reconcile net income (loss)
    to net cash flows used in operating activities:
     Issuance of common stock through exercise
      of options                                                    100,000                -               -
     Issuance of common stock in exchange for
      Trans Continental debt guarantee                              146,000                -               -
     Depreciation and amortization                                  661,000        2,389,000       1,223,000
     Realized gain on sale leaseback                                (26,000)               -               -
     Loss from impairment of long-lived assets                    1,462,000        9,634,OOO               -
     Gain (loss) on dispositon of airship
     components and related assets                                  704,000          153,000               -
     Loss on insurance settlement                                         -        1,467,000               -
     Loss on abandonment of Blimp USA                                     -          479,000               -
     Other - net                                                          -                -         232,OOO
     Loss on disposition of airship component                             -                -         478,000
     Changes in operating assets and liabilities:
       Prepaid insurance                                            545,O00          807,OOO        (253,OOO)
       Other assets                                                  95,000          262,000        (136,000)
       Accounts payable - trade                                  (2,378,000)       3,153,000         464,OOO
       Customer payments on future services                        (813,000)       1,117,000         (57,000)
       Insurance financing                                         (187,000)      (1,213,000)        433,000
       Accrued expense to principal stockholder                           -                -         139,000
       Accrued expenses and other liabilities                      (329,000)         253,000         (73,000)
-------------------------------------------------------------------------------------------------------------
        Net cash flows used in operating
         activities                                            (4,887,000)      (2,144,000)     (2,956,000)
-------------------------------------------------------------------------------------------------------------

 Cash flows from investing activities:
    Proceeds from sale of airship components                       20,000           55,000       2,228,000
    Acquisition ofairships and related equipment                  (21,000)        (317,000)     (6,716,000)
    Net change in due from Trans Continental                   1,632,000          717,000      (1,940,000)
    Net cash flows provided by (used in)
-------------------------------------------------------------------------------------------------------------
        Net cash flows provided by (used in)
         investing activities                                   1,631,000          455,000      (6,428,OOO)
-------------------------------------------------------------------------------------------------------------
</TABLE>



        The accompanying notes are an integral part of these statements.


                                      F-6



<PAGE>
<PAGE>


                           AIRSHIP INTERNATIONAL LTD.
                            STATEMENTS OF CASH FLOWS
                         FOR THE YEAR ENDED DECEMBER 31,


Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
                                                                    1995             1994           1993
=============================================================================================================
<S>                                                             <C>             <C>              <C>         

Cash flows from financing activities:

   Proceeds from issuance of loans payable                       3,500,000       1,432,000         420,000
   Principal payments on capital leases and loans               (1,415,000)       (479,000)     (4,728,000)
   Principal payments to related party                                   -         104,000      (1,150,000)
   Net proceeds from issuance of common stock                            -               -         614,000
   Net proceeds from private placement of debt                           -         183,000
   Net proceeds from issuance of preferred stock                         -               -      14,662,000
   Payment of dividends                                                  -        (173,000)       (518,000)
   Repurchase of warrants                                                -                        (222,OOO)
   Proceeds from loans from stockholder                            654,000               -               -
-------------------------------------------------------------------------------------------------------------
      Net cash flows from financing activities                   2,739,000       1,067,000       9,078,000
-------------------------------------------------------------------------------------------------------------

Net changes in cash and equivalents                               (517,000)       (622,000)       (306,000)
Cash and equivalents, beginning of year                            543,000       1,165,000       1,471,000
-------------------------------------------------------------------------------------------------------------

Cash and equivalents, end of year                              $    26,000     $   543,000     $ 1,165,000
=============================================================================================================
</TABLE>





        The accompanying notes are an integral part of these statements.


                                      F-7





<PAGE>
<PAGE>


                           Airship International Ltd.
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1995, 1994 and 1993

NOTE A -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business -- The Company operates lighter-than-air airships used to
advertise and promote the products and services of the Company's clients. At
December 31, 1995, the Company had no airships in operation.

Cash and Equivalents -- The Company considers unrestricted short-term, highly
liquid investments with maturities of three months or less at the time of
purchase to be cash equivalents.

Revenue Recognition -- Airship revenues are being recognized during the period
in which services are provided. Whenever significant flight time is owed to a
customer, the incremental cost of providing services is accrued. No amounts are
accrued at December 31, 1995 or 1994.

Flight Crew Training Costs -- Significant flight crew training costs for new
blimps are amortized over twelve months from the date related revenues commence.

Airships and Related Equipment -- Property and Equipment are stated at cost.
Depreciation is provided by the straight line method over the estimated useful
lives of the assets - 10 to 20 years (airships), 4 to 8 years (vehicles), 3 to 5
years (parts and equipment) and 2 to 3 years (improvements). Airship components
are not depreciated until placed in service.

Construction in Progress -- The Company has abandoned its plans to build a
manufacturing complex and aviation hangar to be called Blimp Port USA'tm' which
would have been located at a site near its Orlando, Florida base of operations.
The Company intended to use this facility to manufacture, assemble and maintain
airships for commercial and governmental use and provide offices for technical
and executive personnel. The Company has acquired a Federal Aviation
Administration (FAA) license necessary for the assembly and maintenance of
airships. Capitalized costs, including interest, relating to the facilities
amounted to $479,000 were written off during the year ended December 31, 1994.
Such costs included incremental costs directly identifiable with the facility,
such as land lease rental, property taxes, insurance and other costs directly
associated with the acquisition, development and construction of the project. To
date costs capitalized represent consulting, architectural and design fees.

Deferred Financing and Offering Costs -- Costs incurred to obtain debt financing
are capitalized and amortized over the terms of the related loans. Such costs
include incremental payments to consultants, lenders and other out of pocket
expenses, as well as the fair value of options and warrants issued to persons
other than lenders. The fair value of options and warrants issued to lenders are
reported as debt discount and amortized over the term of the related loan. In
determining the fair value of warrants issued, substantial discounts have been
provided for the effects of restrictions on sale, the volume of shares involved
and other factors.

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.

                                      F-8




<PAGE>
<PAGE>


                           Airship International Ltd.
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1995, 1994 and 1993

NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Continued

Income Taxes -- The Company follows the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes", which requires the
recognition of deferred tax liabilities and assets for expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect when these
differences are expected to reverse. Valuation allowances are established when
appropriate, to reduce deferred tax assets to the amount expected to be
realized.

Impairment of Long-Lived Assets -- In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of
("SFAS 121"). SFAS 121 requires that long-lived assets held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
adoption of this standard in the fourth quarter of the fiscal year ended
December 31, 1994 resulted in an adjustment of $9,634,000 or $0.32 per share to
the Company's financial statements. The Company obtained an independent
appraisal on its airship components in August 1997, which reflects a range of
values from $2,174,000 (on a liquidation sale value) to $5,096,000 (on a market
value basis). Based on the fact that the Company had two airships in operation
at December 31, 1994, the Company adjusted the carrying value to $3,635,000 or
the midpoint of the above range. At December 31, 1995, the Company decided to
write down the balance of the airship components to liquidation sale value,
which resulted in an additional adjustment of $1,462,000 or $0.04 per share.
The Company reviews all of its long-lived assets for impairment in accordance
with SFAS 121. Prior to the adoption of SFAS 121, all long-lived assets, were
reviewed for impairment by comparing the carrying value of such assets to future
expected net cash flows.

Change in Accounting Estimate -- Effective April 1, 1994, the Company revised
its estimate of useful lives of airships and airship components. Previously,
airship envelopes and Nightsigns'tm' on operating airships were depreciated over
20 years. The Company has changed the useful lives to 4 1/2 on airship envelopes
years and 10 years for Nightsigns'tm' resulting in an additional charge to
income of $774,000 or $.03 per share.

Net Income (Loss) Per Share -- Net income (loss) per share is based on the
weighted average number of shares outstanding during the periods. When losses
have been incurred, warrants and options are not included since the effect would
dilute loss per share, however, preferred stock dividends are included in the
loss per share calculation. When net income is reported, warrants and options
are included using the treasury stock method, provided exercise prices are less
than the average market price; warrants convertible into common stock are
included when such inclusion results in further dilution.

Recently Issued Pronouncements -- In October 1995, the FASB issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", ("SFAS 123") which sets forth accounting and disclosure
requirements for stock-based compensation arrangements. The new statement
encourages, but does not require, companies to measure stock-based compensation
cost using a fair-value method, rather than the intrinsic-value method
prescribed by Accounting Principles Board Opinion No. 25 ("APB Opinion 25"). The
Company will adopt the disclosure requirements of SFAS 123 in 1995 and will


                                      F-9



<PAGE>
<PAGE>


                           Airship International Ltd.
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1995, 1994 and 1993

NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Continued

elect to continue to record stock-based compensation expense using the
intrinsic-value approach prescribed by APB Opinion 25.

Accordingly, the Company computes compensation cost for each employee stock
option granted as the amount by which the quoted market price of the Company's
Common Stock on the date of grant exceeds the amount the employee must pay to
acquire the stock. The amount of compensation costs, if any, will be charged to
operations over the vesting period.

In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128") and Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure ("SFAS
129"). SFAS 128 specifies the computation of earnings per share, and SFAS 129
specifies the presentation and disclosure requirements about an entity's capital
structure. Both SFAS 128 and 129 shall be adopted in the fourth quarter of 1997
with restatement back to January 1, 1997. The initial adoption of these
standards are not expected to have a material effect on the Company's earnings
per share as disclosed.

NOTE B - SIGNIFICANT UNCERTAINTIES AND MANAGEMENT'S PLANS TO OVERCOME OPERATING
DIFFICULTIES AND MEET CASH REQUIREMENTS

As shown in the accompanying financial statements, the Company has experienced
significant operating losses and negative cash flow from operations in recent
years and has an accumulated deficit of $46,569,000 at December 31, 1995. During
the year ended December 31, 1995, the Company generated revenues from airship
operations; however, it reported a net loss of $4,687,000 and has negative
working capital of $7,538,000. These conditions raise substantial doubt about
the Company's ability to continue as a going concern.

Management's plans to improve the financial position and operations with the
goal of sustaining the Company's operations for the next twelve months and
beyond include:

Arranging with Trans Continental Airlines, Inc., a company related through
common directorship and ownership, to provide funds on a monthly basis as a loan
and acquiring assets and operations of one or more entities, which the Company
has been exploring. Management's hope is that such business combination, if
completed, would provide additional cash flow and net income to the Company.

Though management believes the Company will secure additional capital and/or
attain one or more of the above goals, there can be no assurance that any
acquisition, financing or other plan will be effected. Any acquisition or
securities offering is subject to the Company's due diligence, the state of the
general securities markets and of the specific market for the Company's
securities, and any necessary regulatory review.

                                      F-10




<PAGE>
<PAGE>


                           Airship International Ltd.
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1995, 1994 and 1993


NOTE C - TRANSACTIONS WITH STOCKHOLDERS, RELATED PARTIES AND OTHERS

Due from Affiliate -- At December 31, 1995 and 1994, the Company made advances
of $1,809,000 to Trans Continental Airlines, Inc. ("Trans Continental"), an
affiliated aircraft leasing company and stockholder of the Company. Louis J.
Pearlman ("Mr. Pearlman") owns 21% of Trans Continental and is the Company's
Chairman of the Board, President and Principal Stockholder. Trans Continental
pledged a $2,500,000 money market account as collateral for this advance. The
deposit was returned to the Company during 1995. Interest earned on this deposit
amounted to $23,467, $164,000 and $107,000 for years ended December 31, 1995,
1994 and 1993, respectively.

Personal Guarantees -- Mr. Pearlman and Trans Continental have guaranteed all
capital leases and loans of the Company (see Note E).

Loans from Principal Stockholder -- In May 1992, all amounts due to Mr.
Pearlman, consisting of 10% notes payable, accrued salaries, bonuses and
interest were consolidated into one single loan of $1,845,000. The loan was
payable in equal quarterly installments of $135,000 per year including interest
at 8 1/2% per annum, and commenced in July 1992. This payment schedule continued
until a loan payable to a bank for the SeaWorld airship was paid (with the
preferred stock proceeds - see Note H), at which time the loan became payable at
the discretion of the Company. All unpaid principal and interest is due in May
1997 and has been deferred by Mr. Pearlman for an indefinite period of time.
Interest on the loan payable was $85,000, $105,000, and $144,000 for the years
ended 1995, 1994, and 1993, respectively.

On June 30, 1993, the Company made a $789,000 loan (the "Loan") to an individual
who had previously facilitated financing for the Company. Mr. Pearlman has
guaranteed repayment of the Loan. The Loan is being repaid by Mr. Pearlman in
equal monthly installments of $6,209 per month, including interest at the rate
of 8.75%. The remaining unpaid principal balance of the Loan was due on June 30,
1995. It has been agreed that the Company's obligation to repay principal and
interest on the loan to Mr. Pearlman shall be reduced to reflect the outstanding
balance on this Loan for so long as it shall remain outstanding. Amounts due to
Mr. Pearlman at December 31, 1995 and 1994 totaled $1,040,000 and $950,000,
respectively, net of unamortized discount.

During 1995, Trans Continental advanced the Company funds that were used for
operations in the amount of $549,000. The balance owed to Trans Continental is
accruing interest at the rate of 10% per annum and is due on demand.

                                      F-11




<PAGE>
<PAGE>


                           Airship International Ltd.
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1995, 1994 and 1993

NOTE C - TRANSACTIONS WITH STOCKHOLDERS, RELATED PARTIES and OTHERS - Continued

Transactions with Stockholder and His Affiliate -- Mr. Julian Benscher ("Mr.
Benscher") beneficially owned 4.0% of the common stock of the Company at
December 31, 1994. Mr. Benscher is also a stockholder and director of J&B
Enterprises Limited (UK) Corp. ("J&B"). The Company and Mr. Benscher have been
involved in certain transactions as follows:

Sale of Airship Components -- In December 1992, the Company entered into two
agreements with J&B to sell for $2,790,000 ($2,721,000 net of imputed interest)
an unassembled airship and its related components which had a cost basis to the
Company of $355,000. The Company received a $500,000 initial payment in December
1992. The balance of the purchase price was paid in February and November 1993
and bore interest at the LIBOR rate. The unpaid balance of the purchase price
was collateralized by the respective airship components and such other security
as the parties were to mutually agree to be reasonable and guaranteed by Mr.
Benscher. This transaction involves the sale of unassembled airship components
acquired in the 1990 asset acquisition from Airship UK.

In addition, certain real property located in the United Kingdom and owned by a
director of J&B who is a relative of Mr. Benscher was pledged and accepted by
the Company in satisfaction of the unspecified collateral stated in the December
1992 agreement. Certain components at this time continue to remain in a
warehouse leased by the Company in Florida. J&B reimburses the Company for
occupancy costs for storage of the components.

Rental Arrangement and Travel Agency Service -- Trans Continental serves as the
Company's travel agent for substantially all of its travel arrangements and the
Company is its principal customer. In the opinion of management, the terms and
prices received from the corporation are similar to those available from other
travel agencies. The Company paid the agency $6,000 for travel expenses in 1993.
During 1995, 1994 and 1993, the Company utilized the travel agency services for
reservations, while primarily paying certain costs directly to the provider.

Hull and Liability Insurance -- The Company purchases hull and liability
insurance with respect to the Company's airships through Alexander and Howden,
Inc., an international insurance brokerage firm of which James J. Ryan is the
Senior Vice President of its Aviation Aerospace Division. Mr. Ryan is also a
director of the Company and, in 1990, was granted a five-year warrant to
purchase 67,000 shares of common stock at $2.20 per share. Insurance expense for
Alexander and Howden was $131,000, $72,000, and $1,319,000 in 1995, 1994, and
1993, respectively.

Warrants -- Reference should be made to Note H for warrants issued in connection
with certain of the above transactions.

                                      F-12




<PAGE>
<PAGE>


                           Airship International Ltd.
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1995, 1994 and 1993

NOTE C - TRANSACTIONS WITH STOCKHOLDERS, RELATED PARTIES and OTHERS - Continued

Corporate Offices -- The Company provides office space to affiliates free of
charge. The Company is reimbursed by the affiliates for telephone charges.

Loan Receivable -- During 1993 the Company made an unsecured loan of $75,000 to
a company controlled by and guaranteed by the former president of Slingsby. This
loan bears interest at 10%, payable quarterly. Principal payments of $37,500
were paid during 1995.

NOTE D - INCOME TAXES

At December 31, 1995, the Company had net operating loss carryforwards for
income taxes of approximately $35,117,000 available as offsets against future
taxable income. During 1991, the Company experienced changes in the Company's
ownership as defined in Section 382 of the Internal Revenue Code ("IRC"). The
effect of these changes in ownership is to limit the utilization of certain
existing net operating loss carryforwards for income tax purposes. Operating
losses incurred after the ownership change are not limited. As a result, only
approximately $20,436,000 of the operating losses which occurred after the
ownership change are not limited. The operating losses incurred prior to the
ownership change are limited to a certain dollar amount each year. The net
operating loss carryforwards expire during the years 2000 to 2012. The company
also has unused investment tax credits of $140,000 which expire principally in
the year 2000.

                                      F-13






<PAGE>
<PAGE>

                              Airship International Ltd.
                            NOTES TO FINANCIAL STATEMENTS
                           December 31, 1995, 1994 and 1993

   NOTE D-INCOME TAXES-Continued

   The tax effect of temporary differences that give rise to significant
   positions of the deferred tax assets and deferred tax liabilities, consist of
   the following at December 31:

 

                                                     1995            1994
--------------------------------------------------------------------------------
 Deferred tax assess:
       Net operating loss                     $ 10,595,000        $ 14,576,000
       Accrued expenses                            323,000             291,000
--------------------------------------------------------------------------------
                                                10,918,000          14,867,000
     Less: Valuation allowance                   8,491,000          11,990,000
--------------------------------------------------------------------------------
                                                 2,427,000           2,877,000
 Deferred tax liabilities:
       Airships and related equipment           (2,427,000)         (2,877,000)
--------------------------------------------------------------------------------
                                                (2,427,000)         (2,877,000)
--------------------------------------------------------------------------------
 Net deferred tax asset                       $     --            $      --
--------------------------------------------------------------------------------


The net change in the valuation allowance was approximately $450,000 relating to
 net operating losses from 1995.

NOTE E - CAPITAL LEASES AND LOANS PAYABLE

Capital leases payable consist of the following:

<TABLE>
<CAPTION>
                                                                        1995                1994
------------------------------------------------------------------------------------------------------
<S>                                                                      <C>              <C>
  Capital lease of MetLife airship, payable monthly through November
  1995 with an option to renew through November 1998, less amounts
  ($640,000 and $670,000) representing interest with an annual
  interest rate of 16%. The lease was renegotiated
  in January 1994 and June 1995.                                      $ 3,348,000         $ 2,904,000
------------------------------------------------------------------------------------------------------

                                                                      $ 3,348,000         $ 2,904,000
------------------------------------------------------------------------------------------------------
</TABLE>

                                      F-14





<PAGE>
<PAGE>

                           Airship International Ltd.
                          NOTES TO FINANCIAL STATEMENTS
                         December 31, 1995, 1994 and 1993

 NOTE E - CAPITAL LEASES AND LOANS PAYABLE - Continued

 The following is a schedule by year of future minimum lease payments pursuant
 to the capital leases together with the present value of the net minimum lease
 payments as of December 31, 1995:

       1996                                                $   400,000
       1997                                                    860,000
       1998                                                    960,000
       1999                                                    960,000
       2000                                                    960,000
 Thereafter                                                     28,000
                                                          ------------
 Total minimum lease payments                                4,168,000
 Less amount representing interest                             820,000
                                                          ------------
 Present value of net minimum lease payments               $ 3,348,000
                                                          ============
 
 Capital Leases - In October 1989, the Company purchased a new Skyship 600
 Series airship (the "MetLife airship") from Airship UK. The MetLife airship and
 related equipment were financed primarily by net proceeds of $6,200,000 from a
 capital lease obtained through ORIX Commercial Credit Corp. ("ORIX"). The
 capital lease initially required monthly payments of $135,000 through November
 1992. In December 1992, the lease was renewed for an additional three-year term
 at monthly payments of $121,000. At the end of the additional three year term
 the Company had the option to purchase this airship for $1,000,000 or renew the
 lease for another three year term at monthly payments of $35,000. At the
 completion of the third lease term, title is to be transferred to the Company
 upon payment of $1. On January 11, 1994 the Company renegotiated the lease to
 reduce the $121,000 payments. Even after the payment modifications the Company
 was unable to make the payments and went into default. Effective June 2, 1995,
 the lease was renegotiated calling for payments of principle only of $20,000
 for twelve months. At the end of the initial twelve-month period, the Company
 will begin to make principle and interest payments at the rate of prime plus 1%
 of $40,000 for the next six months, followed by payments of $60,000 for an next
 six months and finally payments equaling the higher of $80,000 or 50% of the
 annual cash flows for the fiscal year immediately prior to the commencement of
 each applicable twelve-month period for the remaining term of the lease until
 the lease is fully amortized or a larger payment is made based upon the annual
 cash flow of the year. Based upon the revised payment schedule, the payments
 are not sufficient to cover the interest expense. Thus negative amortization
 results in 1994 and 1995 and the ending principal balance is increased.

 The airship and related equipment financed by the capital leases had a cost of
 $6,687,000 and accumulated depreciation of $1,077,000 at December 31, 1993.
 During 1994 the leased airship was damaged and taken out of service. A cost of
 $2,699,000 and accumulated depreciation of $1,232,000 were written off due
 to the damage. The remaining cost basis of approximately $3,500,000 was
 transferred to spare parts and air ship components. The resulting net book
 value was later analyzed as part of the SEAS 121 writedown as described in
 Note A.

                                      F-15


                                             



<PAGE>
<PAGE>






                           Airship International Ltd.
                          NOTES TO FINANCIAL STATEMENTS
                         December 31, 1995, 1994 and 1993

 NOTE E - CAPITAL LEASES AND LOANS PAYABLE - Continued

 Loan Payable to Senstar (Allstate) - The Company entered into an accounts
 receivable factoring security agreement on September 19, 1994 which was
 modified on November 16, 1994 and November 23, 1994. The maximum borrowing
 amount under the November 23rd agreement was $1,500,000. The loan balance was
 to be reduced by $75,000 per month beginning December 1, 1994. A fee of 0.125%
 per month is payable each month on the higher of funds outstanding or
 $1,500,000. The loan was used to pay off certain liabilities and provide a
 source of working capital. The balance due to Allstate as of December 31, 1994
 amounted to $1,250,000. The loan was secured by accounts receivable, inventory,
 certain airships and equipment.

 On June 22, 1995, the Allstate loan was repaid when Trans Continental Leasing,
 Inc. ("TLI"), a wholly-owned subsidiary of Trans Continental, entered into a
 sale-leaseback agreement with the Company. Pursuant to which, the Bud One
 Airship was sold by the Company to TLI for the purchase price of $2,060,000,
 which in turn was leased back to the Company.


 On November 30, 1995, the Company entered into an arrangement with Senstar
 Capital Corporation ("Senstar") pursuant to which the sale-leaseback
 arrangement with TLI was reversed. The Company borrowed a total of $3,500,000
 from Senstar, part of which has been used to repay the loan from Phoenixcor,
 Inc., the lender for TLI's transaction. The loan from Senstar is repayable over
 5 years in sixty monthly payments of approximately $63,000 each, with a balance
 due at the end of the five year term of approximately $700,000, and secured by
 a lien on the Airship and is guaranteed by Trans Continental. The balance due
 under this loan amounted to $3,463,000 at December 31, 1995.


 Other Long-Term Debt - The Company has other long-term debt in the amount of
 $215,000 maturing through December 31, 2001 at various annual interest rates.
 
Current maturities of long-term are as follows:
 1996                                                     $ 601,000
 1997                                                       552,000
 1998                                                       572,000
 1999                                                       609,000
 2000                                                       663,000
 Thereafter                                                 679,000
                                                          ---------
 Total minimum lease payments                             3,676,000
-------------------------------------------------------------------
 Warrants - Reference should be made to Note H for warrants issued in connection
 with certain of these transactions.

                                      F-16

 



<PAGE>
<PAGE>


                                        Airship International Ltd.
                                       NOTES TO FINANCIAL STATEMENTS
                                     December 31, 1995, 1994 and 1993

 NOTE F - LEGAL PROCEEDINGS

 Capital Funding Ltd. - In February 1992, Capital Funding Group Ltd. ("CFG")
 commenced an action against the Company and others seeking in excess of
 $1,000,000 in damages based on the alleged failure by the Company to provide
 adequate collateral and security in connection with certain alleged financial
 agreements with CFG. The Company retained CFG in July 1991, paid a commitment
 fee (which was written off in 1991) and received a commitment from CFG which
 then failed to provide the funding. The Company and the other defendants
 answered the complaint in February 1992 by denying all of the substantive
 allegations and asserting several affirmative defenses. In addition, the
 Company asserted certain counterclaims against CFG and its two principals for
 breach of a commitment letter pursuant to which CFG was to arrange for a $9
 million loan to the Company, breach of a compromise agreement accepted by CFG
 in January 1992, pursuant to which CFG was to provide funding to the Company in
 the amount of $7 million, breach of an escrow agreement, pursuant to which CFG
 was to return $200,000 ofthe commitment fee paid by the Company and various
 other counterclaims. In March 1993, the Company was awarded a default judgment
 of $8,000,000 against CFG. No balances have been returned to the Company as of
 December 31, 1995.

 Watermark Group PLC and Von Tech Corporation - In January 1993, a second
 amended complaint to a lawsuit, which was initially commenced in March 1991
 and subsequently dismissed twice without prejudice, was filed against
 the Company and Mr. Pearlman by Watermark Group PLC and Von Tech Corporation,
 a general partners of Company Communications (collectively the "W/VT
 Plaintiffs") alleging breach of an alleged joint venture agreement involving
 Company Communications and Airship Enterprises Ltd. (a company that was owned
 by Mr. Pearlman and that was not in any way owned or controlled by the
 Company); breach of an alleged agreement by the Company regarding the lease
 and operation of a particular airship; and breach of an alleged oral commission
 agreement by the Company relating to the Company's acquisition of two airships
 it presently owns. The W/VT Plaintiffs seek various legal and equitable
 remedies, including monetary damages against the Company and Mr. Pearlman in
 excess of $80O,000 together with a claim for some portion of the advertising
 revenue the Company has received, and will continue to receive, from the
 operation of some of its airships. In March 1993, the second amended complaint
 filed against the Company and Mr. Pearlman by W/VT Plaintiffs was dismissed
 without prejudice. Since the Company denies any involvement with any of the
 transactions set forth in the second amended complaint, the Company believes
 that its liability, if any, on the claims made by the W/VT Plaintiffs will not
 be material. This case was settled on October 3, 1995 for $40,000.

 Sequel Capital Corporation - In December 1992 a lawsuit was filed against the
 Company, Mr. Pearlman and an advertising customer of the Company by Sequel
 Capital Corporation ("Sequel"). The complaint (as amended) contains claims
 for default on an $800,000 loan from Sequel (the "Sequel Loan") as a result of
 an alleged failure to provide collateral consisting of monthly payments being
 made to the Company by a third party on an airship advertising agreement. The
 proceeds of the Sequel Loan, which was personally guaranteed by Mr. Pearlman,
 were applied by the Company towards the purchase of a new airship from the
 Seoul Olympic Sports Promotion Foundation. The amended complaint also includes
 a claim for breach of an alleged contract to enter into a sale leaseback
 agreement with respect to one of the company's airships and a claim for
 allegedly fraudulently inducing Sequel to make the Loan to the Company. This
 claim was settled by the Company in 1993 for approximately $741,000 including
 legal expenses.

 Tenerten and Drake. Inc. - On September 15, 1994, Tenerten and Drake, Inc.
 ("TDI") filed a complaint against the Company. The complaint alleges that the
 Company failed to pay certain sums of money due to

                                      F-17




<PAGE>
<PAGE>


                           Airship International Ltd.

                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1995, 1994 and 1993

 NOTE F - LEGAL PROCEEDINGS - Continued

 TDI under an agreement to perform advertising and related services for the
 Company. The Company filed its answer and raised its affirmative defenses to
 said complaint alleging that the services allegedly performed by TDI were
 defective in numerous respects. A final judgment was entered against the
 Company on July 20, 1995 in the amount of $24,000, which has been placed in
 escrow pending appeal.

 Westinghouse Airships. Inc. - On September 14, 1994, Westinghouse Airships,
 Inc. ("WAI") filed a complaint against the Company alleging that the Company
 and Mr. Pearlman breached an agreement to purchase two gondolas from WAI.
 Specifically, the complaint alleges that WAI delivered both gondolas at issue
 and that the Company failed to make certain installments to WAI under the
 agreement. The complaint also alleges that the Company breached a sub-lease to
 occupy certain hangar space located in North Carolina. On June 19, 1995, the
 Company and WAI agreed to settle the case for $32,000.

 Other Proceedings - The Company is a defendant in a number of other legal
 proceedings, which occurred in the normal the course of business. Those cases
 in which the ultimate settlement is known or estimable have been accrued in the
 financial statements. It is not possible at this time to predict the outcome of
 the unsettled legal actions; however, in the opinion of management and informal
 advice of counsel, the disposition of these other lawsuits will not have a
 material effect on the financial statements.

 NOTE G - COMMITMENTS AND CONTINGENCIES

 Possible Future Tax Claims - Because blimp advertising services differ from
 many other forms of advertising, state and local tax authorities may assert
 claims based on interpretations of law which differ from interpretations by
 management. In the opinion of management, its positions are consistent with
 similar entities.

 Employment Agreements - In 1993 the Company and Mr. Pearlman entered into an
 employment agreement which was amended to continue to December 199 . The
 agreement provides for an annual salary to Mr. Pearlman of $200,000 for the
 first year of the  agreement and for annual increases thereafter in
 an amount equal to the greater  of 5% of his previous year's salary
 or the increase, if any, in the Consumer  Price Index for All Urban
 Consumers, Central Florida. The agreement also  provides for an annual
 bonus payable to Mr. Pearlman in an amount equal to 4%  profits for such
 fiscal year. Pursuant to this agreement, Mr. Pearlman's annual
 compensation, including salary and bonus is limited to $340,000 per year.
 Accrued and unpaid salaries through December 31, 1995 are $391,000 and are
 included in amounts due to related party.

 On March 1, 1994 the Company agreed to reimburse Mr. Pearlman $4,000 per month
 in expenses, effective January 1, 1993, due to Mr. Pearlman's out-of-pocket
 expenses for the Company's business.

 The Company entered into employment agreements as of January 1, 1993 with each
 of two officers and another employee. Each agreement expires on January 1, 1998
 and provides for annual salaries of $75,000 for the first year ofthe agreement
 and annual increases thereafter in an amount equal to the greater of 5% of his
 previous years salary or the increase, if any, in the Consumer Price Index for
 All Urban Consumers, Central Florida. Each agreement also provides for an
 annual bonus payable in an amount equal to 1 1/2% of the Company's net aftertax
 profits for such fiscal year plus an additional amount determined at the
 discretion ofthe Board of Directors.

                                      F-18




<PAGE>
<PAGE>

                           Airship International Ltd.

                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1995, 1994 and 1993

 NOTE G - COMMITMENTS AND CONTINGENCIES - Continued

 Operating Leases - The Company has various operating leases which will expire
 at various dates through May 1996 with unrelated parties for its executive
 offices, warehouse space, maintenance facility, and the Gulf airship discussed
 in Note I.

 Future minimum payments under these operating leases at December 31, 1995 are
 as follows:

                 1996                 $ 95,000
                 1997                   27,000
                 1998                    4,000
                 1999                    1,000
                                     ---------
                                     $ 126,000
                                     =========

 Rent expense amounted to approximately $(18,000), $819,000 and $577,000 for the
 years ended 1995, 1994 and 1993, respectively.

NOTE H - STOCKHOLDERS' EQUITY

 Preferred Stock - In February 1993, the Company completed a public offering
 ("the Offering") of 2,875,000 shares of its Class A 8% Cumulative Convertible
 Voting Preferred Stock ("Preferred Stock") at $6.00 per share.

 Each share of Preferred Stock is convertible, at any time after the earlier of
 February 16, 1994 or a date determined by the underwriters at their sole
 discretion (which date was not to be prior to April 19, 1993), into 6 shares
 of common stock, subject to future adjustment. Dividends on the Preferred Stock
 are payable quarterly and the first four dividends were paid, on an annualized
 basis, 50% in cash and 50% in shares of the Company's common stock. The
 Preferred Stock accrues dividends at the annual rate of $.60 per share for
 dividends paid in shares of common stock, and $.48 per share for dividends
 paid in cash. If available cash is not sufficient to pay any or all of the
 subsequent dividend payments, the balance of the dividend will be paid in
 shares of the common stock.

 The Preferred Stock is redeemable at the option of the Company,
 in whole or in part, at $6.60, together with all accrued and
 unpaid dividends, at any time after February 16, 1996. The liquidation
 preference of the Preferred Stock is $6.00 per share.

 In connection with the offering, the Company issued to the two representatives
 of the several underwriters, warrants to purchase an additional 10% of the
 Preferred Stock sold in the Offering. The Preferred Stock warrants are
 exercisable for four years commencing February 1994 at an exercise price equal
 to 165% of the initial offering price ofthe Preferred Stock, subject to certain
 anti-dilution provisions.

 Private Placement of Common Stock - During the first and second quarters of
 1994, the Company sold common stock to certain investors pursuant to a share
 subscription agreement. The number of shares initially sold were 5,301,164 at
 an average purchase price of $.20 per share. These shares were not sold
 pursuant to a formal offering memorandum. Therefore, the Company offered a
 right of recession, which the majority of the purchasers of the common stock
 exercised.

                                      F-19




<PAGE>
<PAGE>




                           Airship International, Ltd.

                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1995, 1994 and 1993

 NOTE H - STOCKHOLDERS' EQUITY - Continued

 Warrants and Options - Outstanding warrants and options at December 31, 1995,
 all of which are currently exercisable, after giving effect to adjustments
 through such date for anti-dilution provisions and exercisable price reductions
 are as follows:

<TABLE>
<CAPTION>

                                                           Exercise
                                            Shares           Price           Expiration
                                           Issuable        Per Share            Date
---------------------------------------------------------------------------------------------------
 Warrants:

<S>                                        <C>          <C>                 <C>
  Issued in connection with public
    offering in 1991:
     Underwriter's Warrants                567,000          $0.96           February 1996
     Officer and others in 1989 and        215,000      $0.94 to $1.28      February 1990
     1991                                                                   to October
                                                                            2001

 Issued in Company President in
 1994 connection with cancellation
 of certain warrants and for
 guarantee of Company debt                5,000,000          $.125          August 10, 1999
                                        -----------
                                         13,385,000
                                        ===========

</TABLE>



 The Company has an incentive stock option plan (the "Plan") for key employees
 under which it may grant options to purchase the Company's common stock over a
 term of up to ten years at the fair market value at the time of the grant.
 Options granted to a ten percent or more shareholder, an officer, or a
 director, may not be for less than 110% of fair market value and must be
 exercised within five years. The Plan was amended in December 1991 increasing
 to 750,000 the number of shares reserved for issuance. The Plan terminated on
 October 31, 1994.




 Options under the Plan are summarized as follows:
 

<TABLE>
<CAPTION>

                                                      Year Ended December 31,
                                              -----------------------------------------
                                                1995          1994           1993
<S>                                             <C>           <C>             <C>    
 Options outstanding at beginning of year         -         265,000         265,000
 Options granted                                  -            -               -
 Options exercised                                -            -               -
 Options cancelled                                -         265,000            -
---------------------------------------------------------------------------------------
 Options outstanding at end of year               -               -         265 000
---------------------------------------------------------------------------------------
 Option price per share                           -       $.94 - $1.28    $.94 - $1.28
 Options exercisable:
   Number of shares                               -               -          265,000
---------------------------------------------------------------------------------------
</TABLE>

                                      F-20



<PAGE>
<PAGE>


                           Airship International, Ltd.

                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1995, 1994 and 1993

 NOTE H - STOCKHOLDERS' EQUITY - Continued

 Since inception, 24,000 options granted under the Plan have been exercised
 (none in 1995, 1994 or 1993). The Plan terminated on October 31, 1994.

 Employee  Share Purchase Plan - The Company has an employee share option
 plan (the "Plan") for employees of the Company and any present or future
 "subsidiary  corporations." The Company intends the Plan to be an "employee
 stock purchase  plan" as defined in Section 423 of the Internal Revenue Code
 of 1986, as amended (the "Code"). The Plan was effective November 1, 1994.
 All employees are eligible to participate in the Plan, except that the
 Company's appointed committee may exclude any or all of the following
 groups of employees from any offering: (i) employees who have been employed
 for less than 2 years; (ii) employees whose customary employment is 20 hours
 or less per week; (iii) employees whose customary employment is not more that
 5 months in any calendar year; and (iv) highly compensated employees (within
 the meaning of Code Section 414(q). The shares issuable under the Plan shall
 be common shares of the Company subject to certain restrictions up to a
 maximum of 1,000,000 shares. The committee shall determine the length of each
 offering but no offering may exceed 27 months. The option price for options
 granted in each offering may not be less than the less of (i) 85% of the fair
 value of the shares on the day of the offering, or (ii) 85% of the fair market
 value of the shares at the time the option is exercised.

 NOTE I - AIRSHIP REVENUES, MAJOR CUSTOMERS AND CREDIT
 CONCENTRATION

 Metropolitan Life - During 1993, the Company derived airship
 revenue from Metropolitan Life Insurance Company ("MetLife") pursuant to an
 amended aerial advertising agreement which expired in October 1993. The
 agreement provided for minimum monthly revenues plus travel expense
 reimbursements. The Company was responsible for all costs associated with the
 ownership, use or operation of the MetLife airship, including repairs,
 maintenance supplies, insurance and taxes.

 In January 1994, the Company entered into an advertising agreement with
 Kingstreet Tours Limited (UK) for the use of  the MetLife airship
 promoting Pink Floyd. The term of the agreement was
 originally for six months commencing January 18, 1994. The Company was
 responsible for all costs associated with the operations of the airship,
 including travel costs, repairs, maintenance, insurance and taxes. On June 20,
 1994, the MetLife airship was damaged in a storm and the contract was cancelled
 (See Note E).


                                      F-21



<PAGE>
<PAGE>


                           Airship International, Ltd.

                          NOTES TO FINANCIAL STATEMENTS
                         December 31, 1995, 1994 and 1993

 NOTE I - AIRSHIP REVENUES, MAJOR CUSTOMERS AND CREDIT CONCENTRATION--
 Continued

 Anheuser-Busch/Sea World - In April 1990, the Company entered into an aerial
 advertising agreement with Anheuser-Busch Companies, Inc. ("Anheuser-Busch")
 granting Anheuser-Busch the exclusive use of the Sea World airship to advertise
 and promote Anheuser-Busch's products and business. The agreement was replaced
 in April 1991 (retroactive to January 1, 1991) to include the payment of
 $540,000 to the Company in January 1991 as an advance against the fees for the
 next 18 months. The $540,000 advance was recognized as airship revenue at the
 rate of $30,000 per month over the period of January 1, 1991 to June 30, 1992.
 The agreement also provided for additional monthly revenues through the
 expiration of the agreement on June 30, 1993. The Company continued to operate
 the airship for a monthly fee through December 1993, after which the lease was
 terminated.

 The Company was responsible for all costs associated with the
 ownership, use or operation of the airship, including repairs, maintenance
 supplies, insurance and taxes.

 The Company is also entitled to receive royalties from Anheuser-Busch on
 monthly sales of merchandise shaped like or containing an image of the airship
 and bearing Anheuser-Busch's trademarks during the term of the Sea World
 Contract and for two years thereafter. The amount of royalties recognized as
 revenue amounted to $7,000 for the years ended December 31, 1993.

 On January 2, 1994 the Company entered into an agreement with Anheuser-Busch,
 whereby the Company was permitted to provide passenger rides and to display
 advertising. The contract did not provide for usage fees or for a monthly
 operating fee, but permits the Company to use this airship while it still
 carries Sea World's logos/markings. The term of this agreement was to expire
 on December 31, 1994.  However, the Company exercised its right under the
 contract to voluntarily  suspend operations of the airship in April 1994.

 Anheuser-Busch/Bud One - In March 1992, the Company entered into an agreement
 similar to the above with Anheuser-Busch for the use of the Bud One airship.
 Pursuant to this agreement, the Company agreed to convert the Bud One airship
 (then being used as a passenger airship) into an airship operated to promote
 the goods and products  of Anheuser-Busch. The agreement provides for an
 initial term of six months with renewals for additional terms totaling three
 years. Anheuser-Busch may terminate the agreement during the first or at the
 end of the second annual period by giving proper notice to the Company
 (see Note L). The Company had operated this airship to advertise and promote
 the Sea World theme park from September l991 to March 1992 under a prior
 agreement with Anheuser-Busch which enabled the Company to operate
 sightseeing tours for passengers on a fee basis at Kissimmee Airport.

 Pursuant to an amendment dated March 4, 1994, monthly fees under the Bud One
 agreement were reduced by 50% effective February 1994 through July 1994 and the
 term of the contract ended in August 1994. The Bud One contract was amended
 in July 1994 and provided for operations at the full price from August 1994
 through December 1996. However, during December 1995, it was determined that
 the envelope was in need of replacement. Therefore, the Company removed the
 airship from service.

                                      F-22




<PAGE>
<PAGE>



                           Airship International Ltd.

                          NOTES TO FINANCIAL STATEMENTS
                         December 31, 1995, 1994 and 1993


 NOTE I - AIRSHIP REVENUES, MAJOR CUSTOMERS AND CREDIT CONCENTRATION -Continued

 Catamount Petroleum CorPoration/Gulf Oil - In May 1993, the Company entered
 into an agreement with Catamount Petroleum Corporation for the use of the Gulf
 airship. The initial term of the agreement is for three years. Notwithstanding
 this term, the agreement may be terminated by either party upon proper written
 notice. During 1993, the airship was in operation from July through October
 upon which, at the request of Catamount, the agreement was suspended through
 April 1994 when the airship resumed operations through October 1994.

 The Company is responsible for all costs associated with the operation of the
 Gulf airship, including repairs, maintenance, insurance and taxes.

 Mastellone Hno's S.A. - On December 15, 1994, the Company and its
 wholly-owned subsidiary Airship Operations, Inc. consummated an Aircraft
 Lease Agreement (the "Argentina Lease Agreement") and an Airship Operations
 Agreement (the "Argentina Operations Agreement"), respectively, with
 Mastellone Hnos, S. A. ("Mastellone") for the promotion of the products
 of Mastellone (the "Argentina Airship"). The Company received a deposit
 from Mastellone in the amount of $500,000. The operations for the Argentina
 Airship were never commenced.

 On May 24, 1995, prior to commencement of operations of the Argentina Airship
 and pursuant to an Aircraft Purchase and Lease Assignment and Assumption
 between the Company and First Security Bank of Utah, as trustee for the benefit
 of Aviation Support Group, Ltd. ("Aviation"), the Argentina Airship was sold
 and the Argentina Lease Agreement was assigned to First Security. In
 consideration for such sale and assignment, First Security assumed the
 Company's obligations under the Argentina Lease Agreement. The Company
 is entitled to receive, during a ten-month renewal term provided for in
 the Argentina Lease and Argentina Operations Agreements, a portion of
 the rental income generated should Mastellone exercise its right to
 extend the terms of such agreement.

 In addition, by notifying First Security prior to December 15, 1995 (extended
 to January 15, 1996), the Company had the right to repurchase the airship for
 120% of the out-of-pocket expenses and the assumption of all liabilities
 incurred by First Security and Aviation in connection with the Argentina
 Airship. The Company did not exercise the right to repurchase the airship.

 Concurrently with the execution and delivery of the Purchase and Assumption
 Agreement, the Company sold to Aviation all of the issued and outstanding
 shares of the capital stock of Airship Operations, Inc. Mr. Benscher, who holds
 indirectly through designees approximately 4% of the Company's common stock, is
 a principal stockholder of Aviation. See Note C - Transactions With
 Stockholders, Related Parties And Others.


 In December 1995 the Company entered into an Envelope Purchase agreement with
 Hampstead Technologies Limited, an affiliate of Julian Benscher, for the
 purchase  of a new envelope for the BudOne Airship. The Company made a
 non-refundable  deposit of $630,000. This purchase was never consummated
 and as such the deposit  was written off in 1995.


 On May 31, 1995 the Company entered into an Aircraft Lease Agreement with Trans
 Continental Leasing, Inc. As part of the transaction, the Company sold and
 leased back the BudOne airship and related components. The selling price was
 for $2,060,000 which was financed by Phoenixcor. In accordance with SFAS 98,
 "Accounting for Leases," any gain on the sale is deferred and amortized in
 proportion to the amortization of the leased asset. The resulting gain of
 $873,393 was capitalized as part of the airship cost and is being amortized
 over 20 years equal to the corresponding increased depreciation.

 This sale and lease back agreement was substituted by another Aircraft Lease
 Agreement with Trans Continental Leasing, Inc. on December 24, 1996. As part
 of this agreement Phoenixcor was paid off and $4,708,661 was borrowed from
 Norwest Equipment Finance, Inc by Trans Continental. The increase in loan
 proceeds was the result of the contract being modified to include a new
 envelope used on the BudOne ship.







                                      F-23



<PAGE>
<PAGE>

                           Airship International Ltd.
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1995, 1994 and 1993

 NOTE J - EMPLOYEE SAVINGS PLAN

 The Company has an employee savings plan (the "Savings Plan") that qualifies as
 a deferred salary arrangement under Section 401(k) of the Internal Revenue
 Code. Under the Savings Plan, participating employees may defer a portion of
 their pretax earnings, up to the Internal Revenue Service annual contribution
 limit of 15% of the employees salary. The Company matches 25% of each employees
 contributions for 1993 and 5% for 1995 and 1994, depending on length of
 service, up to a maximum of 6% of the employee's earnings. The Company's
 matching contributions to the Savings Plan was $1,948, $11,000 and
 $25,000 for 1995  and 1994 and 1993, respectively.



 NOTE K - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>

                                                          1995              1994         1993
<S>                                                     <C>                 <C>         <C>
 Cash paid during the year for:
 Interest                                             $ 1,018,000       $ 392,000     $ 832,000


 Supplemental non-cash activity:
 Accrued common stock dividend                        $ 1,725,000       $ 862,000    $       --

</TABLE>



 NOTE L - SUBSEQUENT EVENTS On December 24, 1996, Transcontinental Leasing, Inc.
 obtained a loan with Norwest Equipment Finance, Inc. in the amount of
 $4,709,000. The proceeds of this refinancing were used to repay the Company's
 debt to Senstar and to provide working capital to the Company. This financing
 did not close until January 1997.

                                      F-24




<PAGE>
<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOLINTANTS
                                  ON SCHEDULES

 Board of Directors and Stockholders
 Airship International Ltd.

 In connection with our audit of the financial statements of Airship
 International Ltd. referred to in our report dated September 5, 1997 (that
 contains an explanatory paragraph pertaining to a going concern and other
 uncertainties), which is included in the Annual Report on SEC Form 10-K for the
 year ended December 31, 1995 and 1994, we have also audited Schedules II, IV,
 V, VI, and IX for the year ended December 31, 1995 and 1994. In our opinion,
 these schedules present fairly, in all material respects, the information
 required to be set forth therein.




                                                   CHARLIE M. MEEKS, C.P.A, P.A.

 Maitland, Florida
 September 5, 1997

                                          F-25



<PAGE>

<PAGE>

                                  AIRSHIP INTERNATIONAL LTD.

                                          SCHEDULE II

                            AMOUNTS RECEIVABLE FROM RELATED PARTIES

<TABLE>
<CAPTION>
                                   BALANCE                                      BALANCE
                                 AT BEGINNING                                  AT END OF
NAME OF RELATED PARTY               OF YEAR        ADDITIONS    DEDUCTIONS       PERIOD
-------------------------------------------------------------------------------------------
<S>                                  <C>              <C>         <C>            <C>
YEAR ENDED DECEMBER 31, 1995:
Trans Continental Airlines, Inc.... $1,809,000       $  176,000   $1,809,000    $  176,000
Airship Airways, Inc................$   82,500           --       $   82,500        --
-------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994:
Trans Continental Airlines, Inc.... $2,526,000       $  742,500   $1,459,500    $1,809,000
Airship Airways, Inc............... $   82,500           --       $   82,500   $    --
-------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993:
Trans Continental Airlines, Inc.... $  586,000       $1,940,000   $    --       $2,526,000
-------------------------------------------------------------------------------------------
</TABLE>

* Includes $164,000 and $107,000 of interest income earned on advances
  for the years ended December 31, 1994 and 1993, respectively.

                                           F-26


<PAGE>

<PAGE>


                                     AIRSHIP INTERNATIONAL LTD.
                                            SCHEDULE IV
                                   INDEBTEDNESS TO RELATED PARTIES

<TABLE>
<CAPTION>

                                   BALANCE                                        BALANCE
                                 AT BEGINNING                                    AT END OF
NAME OF RELATED PARTY               OF YEAR        ADDITIONS(1)    DEDUCTIONS       PERIOD
-----------------------------------------------------------------------------------------------
<S>                                   <C>             <C>             <C>               <C>

YEAR ENDED DECEMBER 31, 1995:

Due to related party --
  Trans Continental Airlines, Inc...   $    --          $549,000        $    --       $  549,000
  Louis J. Pearlman.................   $  949,000       $ 90,000        $    --       $1,039,000
------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994:
  Due to related party --
  Louis J. Pearlman.................   $  846,000       $103,000        $   --        $  949,000
-----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993:
  Due to related party --
  Louis J. Pearlman.................   $1,857,000       $197,000        $1,208,000(2) $  846,000
-----------------------------------------------------------------------------------------------
</TABLE>

(1)  Includes amortization of debt discount of $5,000 per year.
(2)  Includes reduction for the loan paid to an individual which
     was treated as a reduction of the balance outstanding (See Note C).

                                F-27


<PAGE>

<PAGE>



                          Airship International Ltd.

                                   SCHEDULE V

                          AIRSHIPS AND RELATED EQUIPMENT


<TABLE>
<CAPTION>

                                            Balance                                                              Balance
                                         at Beginning        Additions                                           at End
Classification                              of Year           at Cost         Retirements  Reclassifications     of Year
                                        ----------------------------------------------------------------------------------
<S>                                         <C>                <C>             <C>                <C>            <C>
YEAR ENDED DECEMBER 31, 1995:
     Airships.........................      2,104,000          900,000         (710,000)          --             2,294,000
     Airship components...............      2,730,000            --           (1,125,000)         --             1,605,000
     Vehicles.........................      1,609,000            --              (39,000)         --             1,566,000
     Parts and equipment..............      1,542,000            --             (345,000)         --             1,197,000
                                            ------------------------------------------------------------------------------
                                            7,985,000           900,000      (2,223,000)          --             6,662,000
                                            ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,1994:
     Airships.........................     12,048,000            11,000      (7,043,000)     (2,912,000)         2,104,000
     Airship components..............       6,762,000              --        (6,783,000)      2,751,000          2,730,000
     Vehicles........................       1,514,000           241,000        (146,000)           --            1,609,000
     Parts and equipment.............       2,768,000            64,000      (1,451,000)        161,000          1,542,000
     Construction in progress........         479,000              --          (479,000)         --                 --
                                            ------------------------------------------------------------------------------
                                            23,571,000          316,000      (15,902,000)         --             7.985,000
                                            ------------------------------------------------------------------------------

                                            ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,1993:
     Airships.........................     12,748,000            296,000          --          (996,000)         12,048,000
     Airship components..............       1,337,000          5,903,000        (478,000)         --             6,762,000
     Vehicles........................         793,000          1,011,000        (290,000)        --              1,514,000
     Parts and equipment.............       1,430,000          1,027,000        (685,000)      996,000           2,768,000
     Construction in progress........           --               479,000           --            --                479,000
                                            ------------------------------------------------------------------------------
                                           16,308,000          8,716,000      (1,453,000)         --            23,571,000
                                            ------------------------------------------------------------------------------
</TABLE>

                                     F-28



<PAGE>


<PAGE>





                                         Airship International Ltd.

                                                SCHEDULE VI

                                ACCUMULATED DEPRECIATION AND AMORTIZATION OF
                                      AIRSHIPS AND RELATED EQUIPMENT

<TABLE>
<CAPTION>
                                                             ADDITIONS
                                            BALANCE         CHARGED TO                                           BALANCE
                                         AT BEGINNING        COSTS AND                                           AT END
CLASSIFICATION                              OF YEAR           EXPENSES         RETIREMENTS  RECLASSIFICATIONS    OF YEAR
                                        ----------------------------------------------------------------------------------
<S>                                         <C>                <C>             <C>                <C>            <C>
YEAR ENDED DECEMBER 31, 1995:
  Airships.......................          234,000          113,000            --                --            347,000
  Vehicles.......................          805,000          302,000          (39,000)            --          1,068,000
  Parts and equipment............          453,000           90,000            --                --            543,000
                                          --------------------------------------------------------------------------------
                                          1,492,000         505,000          (39,000)            --          1,958,000
  YEAR ENDED DECEMBER 31, 1994:           --------------------------------------------------------------------------------

  Airships......................          1,976,000       1,199,000       (3,O78,000)          137,000         234,000
  Airship components............             --             451,000         (314,000)         (137,000)          --
  Vehicles......................            565,000         331,000          (91,000)            --            805,000
  Parts and equipment...........            716,000         369.000         (632,000)            --            453,000
  Construction in progress......               --              --               --                --              --
                                            ------------------------------------------------------------------------------
                                            3,257,000      2,350,000      (4,115,000)            --          1,492,000
YEAR ENDED DECEMBER 31, 1993:               ------------------------------------------------------------------------------
  Airships.....................             1,536,000       659,000          --             (219,000)        1,976,000
  Vehicles ....................               598,000       209,000        (242,000)                           565,000
  Parts and equipment..........               719,000       355,000        (577,000)        (219,000)          716,000
                                            ------------------------------------------------------------------------------
                                            2,853,000     1,223,000        (819,000)          --             3,257,000
                                             -----------------------------------------------------------------------------
</TABLE>

                                     F-29


<PAGE>



<PAGE>




                                         Airship International Ltd.

                                                SCHEDULE IX

                                            SHORT-TERM BORROWINGS   

<TABLE>
<CAPTION>
                                                                               MAXIMUM            AVERAGE         WEIGHTED
                                                             WEIGHTED          AMOUNT             AMOUNT           AVERAGE
                                         BALANCE              AVERAGE         OUTSTANDING        OUTSTANDING   INTEREST RATE
                                          AT END             INTEREST         DURING THE         DURING THE     DURING THE
CLASSIFICATION                           OF PERIOD              RATE            PERIOD              PERIOD         PERIOD
                                        ----------------------------------------------------------------------------------
<S>                                         <C>                <C>             <C>                <C>            <C>
YEAR ENDED DECEMBER 31, 1995:
Note payable to financial institution.... $  -                    0%           $  --              $  -              0% 
--------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994:
Note payable to financial institution.... $  -                    0%           $  --              $  -              0% 
--------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993:
Note payable to financial institution.... $  -                   12%           $800,000           $228,000         12% 
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                     F-30




                    STATEMENT OF REFERENCES
The copyright symbol shall be expressed as.............................`c'
The registered trademark symbol shall be expressed as..................`r'
The trademark symbol shall be expressed as.............................`tm'
Characters normally expressed as superscript shall be preceded by.......`pp'




<PAGE>