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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C 20549

                                    FORM 10-K

    [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, 1994     Commission File Number: 0-14646



                           AIRSHIP INTERNATIONAL LTD.
               --------------------------------------------------
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                                 <C>
                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)


</TABLE>

                                 (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 A Common Stock Purchase Warrant, each warrant entitling the
          holder to purchase one share of Common Stock, $.01 par value
                                (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. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant including Preferred Stock as of August 21, 1997 was $3,967,500.

The number of shares of Common Stock outstanding as of August 21, 1997 was
42,522,778.

Documents Incorporated by Reference: The Company's Proxy Statement, dated
March 20, 1995, is hereby incorporated by reference into this Annual Report on
Form 10-K. A list of Exhibits to this Annual Report on Form 10-K begins on
page ___.






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                           AIRSHIP INTERNATIONAL LTD.
                              1994 FORM 10-K REPORT

                                TABLE OF CONTENTS

                                     PART I

Item 1. BUSINESS...............................................................1
Item 2. PROPERTIES.............................................................9
Item 3. LEGAL PROCEEDINGS......................................................9
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................10

                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND
          RELATED STOCKHOLDER MATTERS.........................................11
Item 6. SELECTED FINANCIAL DATA...............................................14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS...........................................15
Item 8. FINANCIAL STATEMENTS AND SCHEDULES....................................20
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE.................................20

                                    PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................21
Item 11.  EXECUTIVE COMPENSATION..............................................23
Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .....26
Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .....................27

                                        1






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                                     PART I

ITEM 1. BUSINESS

GENERAL

               Airship International Ltd. (the "Company") operates
lighter-than-air airships, also commonly known as blimps, which are used to
advertise and promote the products and services of the Company's clients. The
Company currently operates one airship (the "Airship"). 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
Airship which was operating during 1994 was under an aerial advertising
contract with Anheuser-Busch Companies, Inc. ("Anheuser Busch") to promote
the products of Anheuser-Busch (the "Bud One Airship"). In addition, on
December 15, 1994 the Company and its wholly-owned subsidiary Airship
Operations, Inc. ("AOI") 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"). Subsequently, on May 24, 1995, prior to commencement of operations
of the Argentina Airship and pursuant to an Aircraft Purchase and Lease
Assignment and Assumption (the "Purchase and Assignment Agreement") between
the Company and First Security Bank of Utah, as trustee ("First Security")
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.

               In addition, the Company had the option, by notifying First
Security prior to December 15, 1995, 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 exercise
period of such option was extended to January 15, 1996, at which time such
option expired unexercised.

               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".

               In addition to providing clients with aerial advertising and
promotion with its airships, the Company also has acquired assets enabling it to
construct additional airships either to service existing or potential clients of
the Company or for lease or purchase by other parties. To date, the Company has
assembled four airships. In November 1990, the Company acquired a substantial
amount of airship related assets from the receivers of its former competitor,
Airship Industries (UK) Limited ("Airship UK"). The Company believes that this
acquisition enhanced the Company's ability to construct future airships and
maintain its existing fleet. In December 1992 and in 1993, the Company
purchased certain assets (but not the business) of the airship maintenance and
assembly operations (the "Slingsby Assets") of Slingsby Aviation Ltd.
("Slingsby"), a division of ML Holdings Ltd., a United Kingdom company. The
Company believes that the acquisition of these assets has enhanced the
Company's self-maintenance capabilities and reduced maintenance, replacement
and assembly costs.

               A maintenance facility in Weeksville, North Carolina that the
Company had rented on a per diem basis was destroyed in a fire during 1995. The
facility was owned by Westinghouse Airship, Inc. ("Westinghouse"), and used as a
storage facility for airship spare parts. As Westinghouse's inventory of such







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spare parts was destroyed, the Company believes that it is currently one of few
available sources in the United States with a significant inventory of such
spare parts.

               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

               The Company's Airships were each approximately 194 feet long,
67 feet high and 50 feet wide. Each has an approximate volume of 235,000 cubic
feet and is inflated with helium, a nonflammable gas. The Company's Airships
were among the world's largest commercial airships available for advertising.

               The Company's airships, when fully assembled and operational, can
be used as both daytime and nighttime advertising and promotional vehicles. The
Argentina Airship is equipped on both sides with a computerized night sign,
approximately 118 feet long and 29 feet high ("NightSign`tm'"). A NightSign`tm'
is multicolored, contains approximately 8,500 bulbs and is designed to depict
messages, logos, animation, cartoons and other designs. The fast-moving logos
and visual effects, which can be seen from over a mile away, are used for
twilight and night displays. Although not carrying a NightSign`tm', the Bud One
Airship had a fixed NightSign`tm' depicting the client's name.

               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 have utilized its Airships as an aerial
ambassador and network- television camera platform for numerous major events.

               The Company's clients have utilized its airships at major
sporting and special events (to maximize its exposure as a television
"eye-in-the-sky"), as well as over urban and beach locations, as an innovative
advertising and public relations goodwill ambassador. Generally, the Company's
clients provided the television networks with the use of one of the Airships as
a television camera platform in order to televise major sporting and other
events and in return the client received certain on-the-air advertising exposure
during the event. Although the Company did not receive any direct compensation
for this usage, the Company believes that it benefited from the media coverage
that the Airships received as a result.

               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 have
been 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 are flown according to a flight schedule
provided by


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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.

AERIAL ADVERTISING AND OTHER CONTRACTS

               Set forth below are descriptions of the Company's aerial
advertising contracts which were in effect during the fiscal year ended December
31, 1994 (for further detail see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Comparison of Revenue and
Operating Costs -- 1994 to 1993").

               600.05 AERIAL ADVERTISING AGREEMENT. On January 18, 1994,the
Company entered into an Aerial Advertising Agreement (the "600.05 Aerial
Advertising Agreement") with Kingstreet Tours Limited ("Kingstreet Tours") for
the use of an airship (the "600.05 Airship"), to promote Pink Floyd. Pursuant to
this agreement, the 600.05 Airship operated for approximately three months from
March through May 1994. The 600.05 Airship was operated as the Met Life airship
pursuant to an aerial advertising agreement ( the "Met Life Contract") with
Metropolitan Life Insurance Company ("Met Life") from 1989 through October 1993.
On June 20, 1994, subsequent to the termination of the 600.05 Aerial Advertising
Agreement, the 600.05 Airship was damaged in a storm. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

               GULF OIL CONTRACT. On May 28,1993, the Company entered into an
Aerial Advertising Agreement, which was amended in October 1993 (the "Gulf Oil
Contract"), with Catamount Petroleum Limited Partnership, ("Catamount" now known
as Gulf Oil Limited Partnership ("Gulf Oil")) for the use of an airship to
promote Gulf Oil Company (the "Gulf Oil Airship"). The Gulf Oil Contract had a
three-year term ending on June 15, 1996 subject to an annual right of
termination by either party; however, pursuant to the terms of the Gulf Oil
Contract, the Gulf Oil Airship was not operated from November 1993 to April 14,
1994 and no operating fees for the Gulf Oil Airship were received by the Company
for this period. The Gulf Oil Airship was then operated from April 15, 1994
until September 11, 1994, when it was damaged in an accident. As a result, as
provided for in the Gulf Oil Contract, Gulf Oil terminated the Gulf Oil Contract
as of October 15, 1994. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

               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.

               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.


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               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, 1995.

               SEA WORLD PASSENGER CONTRACT. Following the cessation on June 30,
1993 of its previous contract with Anheuser-Busch covering an airship, (the "Sea
World Airship") and the conclusion of flights thereunder in December 1993, the
Company and Anheuser-Busch entered into a Limited Passenger Airship Agreement,
dated as of January 2, 1994 (the "Sea World Passenger Contract"), pursuant to
which the Company was able to use the Sea World Airship to provide passenger
flights and to display advertising. This contract did not provide for usage fees
or for a monthly operating fee, but permitted the Company to use this airship
while it still Carried 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.

               The Company's revenues were historically dependent on the
Company's aerial advertising contracts. For the years ended December 31, 1994
and 1993, 52% and 67%, respectively, of the Company's revenues were derived from
Anheuser-Busch and 29% and 10% respectively, of the Company's revenues were
derived from Gulf Oil. In addition, 19% of 1994 revenues were derived from
Kingstreet Tours, and 23% of 1993 revenues were derived from the Met Life
Contract which was terminated in October 1993. 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

        Set forth below is a description of the Company's financing arrangements
in effect during the year ended December 31, 1994 and for the period from
December 31, 1994 through August 24, 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


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subject of the Amended Lease is not currently operational, at 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
TransContinental 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 may 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 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
Transcontinental Leasing, Inc. ("TLI"), a wholly-owned subsidiary of
Transcontinental Airlines, Inc., ("Transcontinental"), an affiliate of the
Company, entered into a Sale-Leaseback Agreement the ("S/L Agreement") with the
Company pursuant to


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which the Bud One Airship was sold by the Company 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 Transcontinental. The lease payments to be made under the S/L
Agreement are equal to the payments to be made under the Phoenixcor Loan. As TLI
has no source of income other than the rental stream generated by lease of the
airship to the Company, it is likely that a default in such lease payments would
result in TLI's default under the Phoenixcor Loan and a foreclosure by
Phoenixcor of its lien on the Bud One Airship and a potential sale of such
airship.

               The Company has entered into an arrangement with Senstar Capital
Corporation, ("Senstar") pursuant to which the sale leaseback arrangement with
TLI has been reversed with the result that the Company reacquired Bud One
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 Transcontinental. 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".

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

ADDITIONAL AIRSHIPS; AIRSHIP ASSEMBLY

               In addition to providing clients with aerial advertising and
promotion with its airships, the Company also has 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."

AIRSHIP OPERATIONS

               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. During 1994, the Company
rented a hangar facility in Weeksville, North Carolina from Westinghouse
Airship, Inc. ("Westinghouse") and used a Santa Ana, California hangar owned by
the U.S. Government for a nominal per diem fee. See "Properties".


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               During 1994, each airship's annual in-hangar maintenance was
performed in the late summer by the Company's employees and routine maintenance
was performed on an as-needed basis by the Company's employees wherever the
airship was located. The Company also leases a warehouse in Kissimmee, Florida
which is being used to store spare parts, including the components needed for
additional airships.

MARKETING

               The Company markets its airship services directly to potential
clients through a sales effort conducted by its management, including a Director
of Marketing. During 1994, the Company was in negotiations with several
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 600.05 and Argentina Airships were manufactured by Airship UK, a
United Kingdom supplier no longer doing business. The Bud One Airship was
manufactured by Slingsby and assembled by the Company. Due to asset purchases
and expertise described above in "Additional Airships; Airship Assembly," the
Company is in a position to manufacture or assemble up to five additional
airships, subject to financing requirements.

BLIMP PORT USA`tm'

               The Company had been to considering the construction of an
airship hangar and maintenance facility to be called "Blimp Port USA,"`tm' which
would be located at a site near its Orlando, Florida base of operations.
Construction of Blimp Port USA`tm' was dependent upon the availability of
additional financing and an increase in the number of aerial advertising
contracts for the Company's airships, none of which materialized. Accordingly,
the Company subsequently determined to forgo any further development of this
project and that the $479,000 it spent in 1993 on architectural design services
for the project should be written off in 1994.

COMPETITION

               Historically, the Company's direct competition has been limited
to those companies which have an airship 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.

               In addition, Goodyear Tire & Rubber Company ("Goodyear")
manufactures, owns and operates on a regular basis three airships in the United
States. However, for over 30 years Goodyear has used its airships to advertise
only its own products and has not leased or sold its airships to others. It is
unknown at this time whether Goodyear will sell or lease the use of its airships
to other companies or permit such entities to use Goodyear's airships for
advertising.


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               In addition to the direct competition with other airship
companies, the Company competes with other forms of aerial advertising, such as
small-scale blimps, hot air balloons, aerostats (tethered blimps), skywriting
and banner towing by fixed-wing aircraft, and with other forms of advertising
and public relations media, such as print (including magazines and newspapers)
and television and radio.

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 March 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.

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


                                       -8-






<PAGE>

<PAGE>



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 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


                                       -9-






<PAGE>

<PAGE>



the operation of some of its airships. On October 3, 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.

               Sequel. In November 1992, Sequel Capital Corporation ("Sequel")
filed an action against the Company asserting breach of an alleged contract to
enter into a sale lease back agreement and a claim of fraudulently inducing
Sequel to make a loan to the Company. Such action sought damages in excess of $3
million from the Company and Louis J. Pearlman, its President. In July 1993, the
Federal District Court in Chicago entered a judgement on the jury verdict in the
amount of $602,000 in favor of Sequel. In September 1993 the Company settled
this lawsuit for the amount of $386,000. Total expenses after legal fees and
other related costs were $742,000, which amounts were paid and expensed during
1993.

               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, 1994.

     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, 1995 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, 1993 was held on January 6, 1994. 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, 1993.

               At the meeting, the Company's directors were elected. For Louis
Pearlman 26,122,020 shares were voted for and 463,159 shares were withheld, for
Roy Belotti 26,116,454 shares were voted for and 468,725 shares were withheld;
for Marvin Palmquist 26,115,863 shares were voted for and 469,316 shares were
withheld for James Ryan 26,124,454 shares were voted for and 460,725 shares were
withheld; and for Alan Siegel 26,126,574 shares were voted for and 458,605
shares were withheld. The appointment for Grant Thornton as the Company's
independent accountants for the fiscal year was approved with 26,060,801 shares
being cast for, 373,979 shares cast against, 114,899 shares abstaining, and
35,500 shares not voted.

               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").

               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.


                                      -10-






<PAGE>

<PAGE>



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.



                                      -11-






<PAGE>

<PAGE>



                                     PART II

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

               The Company's Common Stock, Preferred Stock, Class A Warrants and
Class B Warrants had been listed on the Nasdaq SmallCap Market under the symbols
BLMP, BLMPP, BLMPW 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:


<TABLE>
<CAPTION>

   1994                                                  High Bid       Low Bid
   ----                                                  --------       --------
<S>                                                      <C>            <C>
1st Quarter                                              $    9/8       $  5/16

2nd Quarter                                              $   5/16       $   1/8

3rd Quarter                                              $   5/32       $  3/32

4th Quarter                                              $    1/8       $  1/16

<CAPTION>


   1995                                                  High Bid       Low Bid
   ----                                                  --------       --------
1st Quarter                                              $.125          $.0625

2nd Quarter                                              $.0625         $.03125

3rd Quarter*                                             N/A            N/A

4th Quarter                                              $.125          $.3125


<CAPTION>

   1996                                                  High Bid       Low Bid
   ----                                                  --------       -------
1st Quarter                                                 $.03125        $.03125

2nd Quarter                                                 $.03125        $.04

3rd Quarter                                                 $.1            $.04

4th Quarter                                                 $.085          $.05

</TABLE>


--------
*    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.
                                      -12-






<PAGE>

<PAGE>



<TABLE>
<CAPTION>


   1997                                                  High Bid       Low Bid
   ----                                                  --------       -------
<S>                                                      <C>            <C>
1st Quarter                                                 $.19           $.08

2nd Quarter                                                 $.2            $.09


                                Preferred Stock:

<CAPTION>


   1994                                                   High Bid      Low Bid
   ----                                                   --------      -------
1st Quarter                                              $3  1/4        $2 9/16

2nd Quarter                                              $2  1/2        $1 1/6

3rd Quarter                                              $1 5/32        $2 5/32

4th Quarter                                              $1 3/16        $  5/16

<CAPTION>


   1995                                                  High Bid       Low Bid
   ----                                                  --------       -------
1st Quarter                                              $.59375        $.40625

2nd Quarter                                              $.46875        $.375

3rd Quarter*                                             N/A            N/A

4th Quarter                                              N/A            N/A


<CAPTION>

   1996                                                  High Bid       Low Bid
   ----                                                  --------       -------
1st Quarter

2nd Quarter                                               $1 5/8         $3/8

3rd Quarter                                               $.71875        $.385
  
4th Quarter                                               $.59375        $.28125

<CAPTION>


   1997                                                  High Bid       Low Bid
   ----                                                  --------       -------
1st Quarter                                              $1.125         $.51

2nd Quarter                                              $1.09375       $.53125


                                Class A Warrants:

<CAPTION>

   1994                                                  High Bid       Low Bid
   ----                                                  --------       -------
1st Quarter through February 6, 1994, at which time 
the Class A Warrants expired                             $  1/32        $  1/32

</TABLE>


                                      -13-






<PAGE>

<PAGE>


<TABLE>
<CAPTION>

                                Class B Warrants:

   1994                                                  High Bid       Low Bid
   ----                                                  --------       -------
<S>                                                      <C>            <C>
1st Quarter                                              $  1/16        $  1/32

2nd Quarter.  The Class B Warrants 
expired on February 6, 1995.                             $  1/32        $  1/32

</TABLE>


               As reported by the Nasdaq OTC Bulletin Board, on August 21, 1997
the closing bid price of the Common Stock was $0.081 per share and the closing
bid price of the Preferred Stock was $0.38.

               As of August 21, 1997, there were 1,496 holders of record of the
Company's Common Stock and 83 holders of record of the Preferred Stock,
respectively.

               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 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.


                                      -14-






<PAGE>

<PAGE>



ITEM 6. SELECTED FINANCIAL DATA [1994 NUMBERS MUST BE REVISED BASED UPON AUDIT
        NUMBERS.]

               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,
                                                    --------------------------------------------------------------------------------
                                                        1994             1993            1992           1991            1990
                                                    --------------------------------------------------------------------------------
<S>                                                 <C>              <C>              <C>             <C>              <C>          
Gross Revenue                                       $  3,972,000    $  9,748,000      $  7,258,000   $  7,015,000    $   4,693,000

Net Income (loss) before cumulative
effect of a change in accounting
principal                                           $(10,945,000)   $ (5,406,000)     $  1,165,000   $ (4,418,000    $  (3,356,000)

Net Income (loss)                                   $(10,945,000)   $ (5,406,000)     $  1,165,000   $ (4,418,000)   $  (4,498,000)

Net Income (loss) Per Share
applicable to Common Stockholders:
Before cumulative effect of a change
in accounting principle                                $(0.41)           $(0.24)           $0.05         $(0.31)         $(0.48)

Net Income (loss)                                      $(0.41)           $(0.24)           $0.05         $(0.31)         $(0.65)



BALANCE SHEET DATA:


<CAPTION>
 
                                                                                   At December 31,
                                                    --------------------------------------------------------------------------------
                                                        1994             1993            1992           1991            1990
                                                    --------------------------------------------------------------------------------

Total assets                                        $ 19,384,000     $ 26,077,000     $ 21,690,000    $ 16,536,000     $ 14,315,000

Long term debt, excluding current
maturities                                          $  1,126,000     $  2,380,000     $ 12,394,000    $  4,580,000     $  7,915,000

Total liabilities                                   $ 12,084,000     $  7,842,000     $ 12,394,000    $ 13,909,000     $ 14,170,000

Stockholders' equity                                $  7,300,000     $ 18,235,000     $  9,296,000    $  2,627,000     $    145,000

Book value per common share                            $(0.23)           $0.13             $0.36           $0.15            $0.02



</TABLE>

                                                     -15-






<PAGE>

<PAGE>




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 $39,977,000, at December 31,
1994. During the year ended December 31, 1994, the Company generated revenues
from airship operations; however, it reported a net loss of $20,645,000 and has
negative working capital of $9,754,000. 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 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.
 
     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,
1993, the Company incurred a loss of $5,406,000 and had negative cash flows of
$2,956,000 from operations. 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. 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.

               The Company's stockholders' deficit at December 31, 1994 was
$3,861,000, a decrease of $21,500,000 from stockholders' equity of $18,235,000
at December 31, 1993. The decrease was due primarily to the net loss of
$20,645,000 in fiscal 1994. Issuance of Common Stock less the payment of cash
dividends on Preferred Stock decreased equity by $852,000. As a result of
these equity changes, during 1994 the Company's assets decreased $16,300,000
while liabilities increased $5,300,000. Compared to the year ended December 31,
1993, revenues, selling, general and administrative costs decreased 59.3% and
27.7%, respectively, while operating costs increased 75.2%. Interest expense
less other income for 1994 was $599,000, an increase of $77,000 or 14.8%.
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 will also be 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.

Comparison of Revenue and Operating Costs 1994 to 1993.

               Airship revenues for 1994 were $3,980,000, a decrease of
$5,776,000 (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


                                      -16-



<PAGE>


<PAGE>



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 1994 were $17,453,000, an increase of
$7,488,000 or 75.2% compared to 1993. 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 1994 to 1993.

               Selling, general and administrative costs were $2,480,000 for
1994, a decrease of $1,841,000 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

               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.

Other Income (Expense)

               Interest and other income in 1994 was $206,000, a decrease of
$185,000 or 47.3% compared to 1993. 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.


                                      -17-






<PAGE>

<PAGE>



Comparison of Revenue and Operating Costs 1993 to 1992.

               Revenues for 1993 were $9,748,000, an increase of $2,490,000 or
34.3% compared to revenues of $7,258,000 for 1992. The increase was primarily
due to (i) revenues from the operation of the Bud One Airship for all of 1993
compared to its use as the Bud One Airship beginning May 1992 and as a passenger
airship during the first quarter of 1992; (ii) revenues from the operation of
the Gulf Oil Airship for approximately fourteen weeks between June and October
1993; (iii) revenues from the operation of the Met Life Airship until its
contract ended in October 1993, compared to its operation for approximately four
and one-half months in 1992 as the airship was in the hangar for repairs due to
damage, plus (iv) increases in monthly revenues from operation of the Sea World
Airship.

               Operating costs in 1993 were $9,964,000, an increase of
$3,465,000 or 53.3% compared to 1992. Operation of the Gulf Oil Airship began in
1993 increasing costs by $2,014,000. Gulf Oil Airship costs included (i)
$451,000 of net costs (after $100,000 was reimbursed to the Company by
Catamount) to ship the airship from Germany and assemble it in the United
States; (ii) $450,000 of lease payments on the airship from the time it was
shipped from Germany until the end of 1993, representing approximately thirty
one weeks compared to its operation for Catamount for fourteen weeks. The
Company also maintained a full operating crew for the Gulf Oil Airship through
the end of 1993. As a result of these costs, the 1993 operating costs for the
Gulf Oil Airship exceeded 1993 revenues by $1,042,000.

                Operation of the Met Life airship increased operating costs by
$855,000 or 53.4% in 1993 compared to 1992, mainly as a result of the airship
being in the hangar for repairs from June 1, 1992 until October 15, 1992, for
which time the Company received insurance proceeds of $585,000 for loss of use
of the airship. The Company maintained a full operating crew through the end of
1993 since these employees were subsequently needed to operate the airship under
the 600.05 Aerial Advertising Agreement in 1994. As a result of these net cost
increases and reduced revenues in 1993 when the Met Life Contract ended,
operating costs for the Met Life airship, including non-cash depreciation
charges of $469,000, exceeded revenues by $180,000.

               Operating costs for the Sea World Airship increased by $242,000,
or 11.2%, compared to 1992, including $83,000 in increased insurance costs due
to the addition of loss of use coverage in 1993. For 1993, revenues exceeded
operating costs (including non-cash depreciation charges of $270,000) by
$1,053,000. The Sea World contract had ended on June 30, 1993 and the airship
was operated under the terms of the expired contract until December 31, 1993
when such operations terminated.

               Operating costs for the Bud One Airship in 1993 were similar to
those in 1992 when the airship was utilized as both a passenger airship and as
the Bud One Airship beginning May 1992. Cost increases for normal maintenance of
the airship plus insurance, including the addition of loss of use coverage, were
offset by travel cost reimbursements beginning February 1993.

               Space rented at warehouse facilities in North Carolina and
Florida increased costs by $373,000. These increases were mainly for payroll
costs to service the airships, including the Gulf Oil Airship added in 1993,
plus travel costs related to the acquisition of the Slingsby Assets. Airship
components, parts and equipment purchases, including the acquisition of the
Slingsby Assets in 1993 and the assets acquired in 1990 from Airship UK,
resulted in a major increase in airship components and spare parts that are
being stored. As a result, depreciation and insurance related to warehouse
operations increased a total of $196,000.

Selling, General, and Administrative Expense Comparison 1993 to 1992.

               These costs were $3,449,000 in 1993, an increase of $1,040,000 or
43.2% compared to 1992. Costs associated with the delay in filing the Company's
annual report on Form 10-K for the year ended


                                      -18-






<PAGE>

<PAGE>



December 31, 1992, mainly for accounting professional services, plus increases
related to the change in accountants, increased costs approximately $350,000.
Costs incurred with respect to the 1993 Offering increased costs by $112,000,
mainly for travel, as compared to costs incurred during 1992 related to previous
registration statements filed by the Company. Legal suits increased costs
$69,000 and consulting fees related to the acquisition of the Slingsby Assets
increased costs by $135,000. All other costs increased $374,000, or 15.5%. The
primary increases in these other costs relate to (i) payroll ($233,000),
including the addition of a sales manager and a manager for the Company's
merchandising and mini blimp promotion programs, plus increases in health
insurance and an average increase of 5.3% in all other payroll related costs;
(ii) travel costs ($80,000), related to increased corporate activity including
the acquisition of the Slingsby Assets, the operation of the Gulf Oil Airship
and the related WDL Lease, (iii) a net increase in all other administrative
costs ($67,000), related to the increased corporate activity plus increased rent
costs.

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) ($823,000); 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 1994, the Company sustained a net change in cash
and cash equivalents of ($623,000), with a reduction of $2,070,000 from
operating activities. At December 31, 1994, available cash balances were
represented by the $542,000 in cash plus $1,809,000 in funds contained in the
Cash Escrow Account. The balance of the funds in the Cash Escrow Account were
subsequently used by the Company to repay certain obligations owing to WDL. See
"Business--WDL Lease". Cash flow has been adversely affected by the temporary
cessation in November 1993 of flights and fees under the Gulf Oil Contract which
recommenced on April 15, 1994 and which ended on September 11, 1994, the
cessation of flights and fees under the 600.05 Aerial Advertising Agreement in
April 1994, and by the changes in terms of both the Sea World and Bud One
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.


                                      -19-






<PAGE>

<PAGE>




               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 to Argentina
for use as the Argentina Airship. The 600.05 Airship was operated under an
aerial advertising contract only during ____ months 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 1994 was $622,000. Operating
activities utilized $2,144,000 principally as a result of the net loss for the
period, which includes non-cash charges of approximately $14,122,000. In
addition, the change in operating assets and liabilities offset the negative
cash flow effect of the net loss by approximately $4,379,000 as liabilities
at December 31, 1994 increased to approximately $13,070,000. All but
approximately $1,000,000 of these liabilities are payable in 1995. Investing
activities contributed $455,000 in the form of funds taken from the Cash Escrow
Account. Financing activities contributed $1,067,000 principally from proceeds
of the Allstate Loan, partially offset by the payment of dividends and
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, 1994, the
Company owed Mr. Pearlman $950,000 net of unauthorized discount and after
offsetting $785,000 with respect to a loan made by the Company and guaranteed by
Mr. Pearlman. As of December 31, 1994, the Company owed Mr. Pearlman $950,000
net of unamortized discount. The entire unpaid principal balance of the loan
from Mr. Pearlman, together with all accrued and unpaid interest, becomes 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.

                The Company is currently taking steps to improve its liquidity.
On July 8, 1994, the Bud One Contract was amended, as explained in Note I to
the Financial Statements included herein, on terms more favorable to the Company
than those contained in the March Amendment. In addition, the Company has
renegotiated the Orix Lease, and has completed refinancing of the Phoenixcor
Loan. See "Business-Acquisitions, Leases and Financings." Cost Savings in
operations and administration were instituted in 1994. Management has
eliminated its hull insurance on certain airships and continues to attempt
to renegotiate certain long term obligations. In addition, the Company
anticipates decreases in ongoing costs resulting from the acquisition in 1993
of certain airship assets, and is seeking new aerial advertising contracts,
although there can be no assurance that these anticipated 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


                                      -20-






<PAGE>

<PAGE>



accrued the cash 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

               On May 27, 1993, the Company and Wiss & Co. ("Wiss"), mutually
agreed that Wiss would no longer serve as the Company's outside auditors. The
Company had determined that in light of the fact that it is a growing public
company, it would be more appropriate to seek a larger, full-service national
accounting firm to serve as its outside auditors. This decision was approved by
the Company's Board of Directors.

               On August 23, 1993, the Company engaged Grant Thornton as its new
independent accountants. In April 1993, pursuant to discussions between the
Company and its former independent auditor, the Company engaged Grant Thornton
to examine the issue of revenue recognition described below. The Company and
Wiss subsequently reached an agreement on this matter before Grant Thornton was
in a position to reach a conclusion. Accordingly, no oral advice or written
opinions on the issue in dispute were given by Grant Thornton.

               For further information relating to the replacement of Wiss by
Grant Thornton, including an exchange of letters between Wiss and the Company,
see the current Report on form 8-K-A filed by the Company with the Commission on
July 12, 1993.

               In connection with their audit of the Company's financial
statements for the year ended December 31, 1992, the Company and Wiss had a
disagreement regarding gain recognition for a transaction that occurred in the
fourth quarter of 1992. As reported on its reports on Form 8-K filed with the
Securities and Exchange Commission (the "Commission") on April 16 and May 18,
1993, this disagreement was resolved to the satisfaction of both the Company and
Wiss. In connection with their audit of the Company's financial statement for
the year ended December 31, 1992, Wiss had preliminarily indicated to the
Company their agreement with the Company's proposed accounting treatment that
recognized that the gain on a sale of airship components could be recognized in
1992. However, shortly before the due date for the filing of the Company's
annual report on Form 10-K with the Commission, Wiss indicated that they
disagreed with the Company's position on the gain recognition and indicated
instead that the gain should be recognized in 1993. After several discussions
between Wiss and the Company and following the receipt of additional supporting
documents and audit evidence, Wiss concluded that the gain could be recognized
in 1992. Therefore, the Company's financial statements for the year ended
December 31, 1992 were filed with the Company's Annual Report on Form 10-K
(which was filed with the Commission on May 20, 1993) as originally prepared.


                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 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.



                The Company authorized Wiss to respond fully to inquiries of
Grant Thornton concerning the aforementioned disagreement. The Wiss report on
the Company's 1991 financial statements included a going concern qualification.
However, the 1992 financial statements contained no such qualification.


                                      -21-






<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>

                                               POSITIONS WITH
NAME                          AGE              THE COMPANY                         POSITION HELD SINCE
----                          ---              ----------------                    --------------------
<S>                           <C>              <C>                                 <C>
Louis J. Pearlman             43               Chairman of the Board of            June 1982
                                               Directors, 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       February 1990
                                               Chief 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.

--------
**   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.


                                      -22-






<PAGE>

<PAGE>



               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.

                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.

               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.

               To the Company's knowledge, based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons that no additional forms were required for those persons, the
Company believes that during 1994 all filing requirements applicable to its
officers, directors, and greater than ten percent beneficial owners were
complied with. Mr. Pearlman filed one late Statement of Changes of Beneficial
Ownership of Securities on Form 4 for the month of August 1994.


                                      -23-






<PAGE>

<PAGE>



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, 1994. No other executive
officer's annual salary and bonus exceeded $100,000 during the Company's past
three fiscal years.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>

                                                                                                LONG TERM
                                                      ANNUAL COMPENSATION                  COMPENSATION AWARDS
                                             ----------------------------------------    --------------------------
                                                                                                         SECURITIES
                                   FISCAL                                 OTHER ANNUAL     RESTRICTED    UNDERLYING       OTHER
NAME AND PRINCIPAL POSITION         YEAR       SALARY           BONUS     COMPENSATION    STOCK AWARD     OPTIONS      COMPENSATION
--------------------------         -----       ------           -----     ------------    -----------    ---------     ------------
<S>                                 <C>       <C>                  <C>                                                        
Louis J. Pearlman, Chairman,        1994      $252,101(1)          $0          --              --            --             --
President, Chief Executive and      1993      $251,573             $0          --              --            --             --
Operating Officer                   1992      $240,000             $0          --              --            --             --
                                    1991      $249,318       $100,000          --              --            --             --
</TABLE>


(1) Mr. Pearlman had agreed to voluntarily defer approximately $100,000 of his
salary for 1994, to which he is entitled pursuant to his employment agreement
with the Company. On December 31, 1994, such deferred compensation was applied
by the Company as an offset against the exercise price payable with respect to
the exercise by Mr. Pearlman of certain options on such date. (See "Other
Options").

INCENTIVE STOCK OPTION PLAN

               On November 1, 1984, the Company adopted an Incentive Stock
Option Plan (the "Plan") for all management and other key employees. The Plan
was intended to qualify under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). The Board of Directors has sole authority to select
participating employees. On December 22, 1991 the Plan was amended, increasing
the number of shares reserved for issuance under the Plan to 750,000. The
aggregate fair market value (determined as of the date the options are granted)
of the shares for which an employee is granted options which are exercisable for
the first time by the employee in any calendar year (granted pursuant to all of
the stock option plans of the Company or any parent or subsidiary of the
Company) may not exceed $100,000.

               These options may have a term of up to ten years (five years in
the case of a 10% shareholder or director) and the Board may provide for the
exercise of such options in installments over a period of up to ten years (five
years in the case of a 10% shareholder or director). The option price may not be
less than the fair market value of the shares on the date of grant (110% of such
value in the case of a 10% shareholder or director). The Plan terminated on
October 31, 1994.


                                      -24-






<PAGE>

<PAGE>



               The following options have been granted under the Plan to the
following persons:


<TABLE>
<CAPTION>

Name                  Number of Shares    Price Per Share   Date of Expiration
----                  ----------------    ---------------   -------------------
<S>                        <C>                 <C>                <C>  <C>
Mike Fitzpatrick           20,000              $ .94              2/27/99

Alan A. Siegel             50,000              $ .94              2/27/99

Frank I. Sicoli            50,000              $ .94              2/27/99

Mary T. Iannerelli          5,000              $ .94              2/27/99

Mary T. Iannerelli         10,000              $1.28              10/1/01

Scott Bennett              10,000              $1.28              10/1/01

Frank Vazquez              10,000              $1.28              10/1/01

</TABLE>

       No options have been granted under the Plan since fiscal year 1992.

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 __, 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

               The following table sets forth certain information regarding
individual options granted in fiscal year 1994 to the Chief Executive Officer.
In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the table sets forth the hypothetical gains or "options spreads"
that would exist for the options at the end of their respective terms. These
gains are based on assumed rates of annual compound stock price appreciation of
5% and 10% from the date the option was granted to the end of the option term.


                                      -25-






<PAGE>

<PAGE>



                              OPTION GRANTS IN 1994

<TABLE>
<CAPTION>

                                                                                                          POTENTIAL REALIZABLE VALUE
                                                                                                          AT ASSUMED ANNUAL RATES
                                    PERCENTAGE OF                                                              OF STOCK PRICE
                      SECURITIES    TOTAL OPTIONS                                                         APPRECIATION FOR OPTION
                      UNDERLYING     GRANTED TO     EXERCISE         MARKET PRICE                                  TERM
                       OPTIONS      EMPLOYEES IN      PRICE            ON DATE          EXPIRATION       -----------------------
NAME                   GRANTED       FISCAL YEAR    PER SHARE          OF GRANT            DATE              5%           10%
----                 -----------    -------------  ------------      ------------       -----------       -------       ------
<S>                  <C>              <C>          <C>               <C>                   <C>           <C>           <C>     
LOUIS J. PEARLMAN    5,000,000(1)     100%(1)      $.02 per share    $625,000(2)    August 11, 1999(3)    $681,250      $837,500

</TABLE>

----------

(1)  On August 11, 1994, the Company issued to Mr. Pearlman five-year options to
     purchase 5,000,000 shares of Common Stock at an exercise price of $.125 per
     share, which was the closing market value of the Common Stock on August 10,
     1994. These options were non-compensatory in nature and were issued in
     connection with Mr. Pearlman's guaranty of certain obligations pursuant to
     a restructuring of the Company's indebtedness. Thereafter, Mr. Pearlman
     personally guaranteed the Company's obligations under an Airship Lease
     Agreement between the Company and Mastellone Hnos. S.A. dated December 15,
     1994, and in connection therewith the Company's Board of Directors lowered
     the exercise price of such options to $.02 per share. The closing market
     value of the Common Stock on such date was $.125. These options were
     granted in connection with the guaranty of certain obligations of the
     Company by Mr. Pearlman and were not issued as compensation.

(2)  Based upon the closing price of the Company's Common Stock on the National
     Association of Securities Dealers Automated Quotation System on August 11,
     1994.

(3)  Mr. Pearlman exercised these options on December 31, 1994. (See Summary
     Compensation Table).

                       AGGREGATED OPTION EXERCISE IN 1994
                     AND 1994 FISCAL YEAR-END OPTION VALUES


<TABLE>
<CAPTION>

                                                                  NUMBER OF SECURITIES
                                                                         UNDERLYING              VALUE OF UNEXERCISED
                               SHARES                              UNEXERCISED OPTIONS AT        IN-THE-MONEY OPTIONS
                             ACQUIRED             VALUE              FISCAL YEAR-END             AT FISCAL YEAR-END
NAME                        ON EXERCISE          REALIZED         EXERCISABLE/UNEXERCISABLE    EXERCISABLE/UNEXERCISABLE
----                        -----------          --------         -------------------------    -------------------------
<S>                        <C>                  <C>                           <C>                          <C>
LOUIS J. PEARLMAN          5,000,000(1)         $525,000                    - 0 -                        - 0 -
</TABLE>


----------

(1)  The option exercised by Mr. Pearlman was issued in consideration of Mr.
     Pearlman's guaranty of certain obligations of the Company. See " - Other
     Options."


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."


                                      -26-






<PAGE>

<PAGE>



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.

PERFORMANCE GRAPH

               Set forth below is a line graph comparing the cumulative total
shareholder return of the Company's Common Stock, based on the market price of
the Common Stock, with the cumulative total return of companies on the Nasdaq
Market Index. Because of the unique nature of the Company's business, the
Company has been unable to identify a peer group consisting of companies in a
similar line of business, and instead has provided a comparison with a "peer
group" of companies with a similar market capitalization. Such peer group is
comprised of companies with market capitalizations of between one million and
ten million dollars on December 31, 1994 and whose stock is traded on Nasdaq.

                           [INTENTIONALLY LEFT BLANK]


                                      -27-






<PAGE>

<PAGE>



                                   [GRAPHIC]







                                      -28-






<PAGE>

<PAGE>

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 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 directors      9,451,671                     24.3%                        *
  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. See "Certain
     Relationships and Related Transactions."

(4)  Such shares of Common Stock were granted to Transcontinental Airlines, Inc.
     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) through (3), above.


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


                                             -29-






<PAGE>

<PAGE>



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.

               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.

               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.


                                      -30-






<PAGE>

<PAGE>



               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 December 31,1995,
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. For
assisting in reducing the Company's insurance costs, on April 7, 1990, Mr. Ryan
was granted a five year warrant to purchase 67,000 shares of Common Stock at
$2.20 per share.


                                      -31-






<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:  August 25, 1997                     By:  /s/ LOUIS J. PEARLMAN
                                                 --------------------------
                                                  Louis J. Pearlman
                                                  Chairman of the Board of
                                                  Directors, President and
                                                  Treasurer (Principal Executive
                                                  and Financial Officer)



Dated: August 25, 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: August 25, 1997                      By:  /s/ Marvin Palmquist
                                                 --------------------------
                                                   Marvin Palmquist
                                                   Director


Dated: August 25, 1997                      By:  /s/ James J. Ryan
                                                 --------------------------
                                                   James J. Ryan
                                                   Director



                                      -32-

<PAGE>


<PAGE>


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 Independent Certified Public Accountant                      F-1

          B. Balance Sheets as of December 31, 1994 and 1993                     F-2
 
          C. Statements of Operations for the years ended December 31,
               1994, 1993 and 1992                                               F-3

          D. Statements of Changes in Stockholders' (Deficit) Equity for
               the years ended December 31, 1994, 1993 and 1992              F-4 to F-5

          E. Statements of Cash Flows for the years ended December 31,
               1994, 1993 and 1992                                           F-6 to F-7

          F. Notes to Financial Statements                                   F-7 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-27

         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 airships and 
                  related equipment                                             F-30

         F.  IX - Short-term borrowings                                         F-31


                                       -33-

<PAGE>

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT





Board of Directors and Stockholders
Airship International Ltd.

I have audited the accompanying balance sheet of Airship International Ltd. as
of December 31, 1994 and the related statement of operations, stockholders'
equity (deficit) and cash flows for the year 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. The December 31,
1992 financial statements were audited by other auditors whose report dated
February 26, 1993, expressed an unqualified opinion on those statements.

I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe my audit provides 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, 1994, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.

As discussed in Note B, the Company is subject to various matters giving rise to
uncertainty, including matters giving rise to substantial doubt as to the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
such matters.





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


Maitland, Florida
August 22, 1997


                                      F-1



<PAGE>

<PAGE>

                           Airship International Ltd.
                                 Balance Sheets
                                  December 31,





</TABLE>
<TABLE>
<CAPTION>

                                                                                                    1994                   1993
------------------------------------------------------------------------------------------------------------------------------------
                                ASSETS
<S>                                                                                            <C>                     <C>         
Airships and Related Equipment:
   Airships                                                                                    $  2,104,000            $ 12,048,000
   Vehicles                                                                                       1,609,000               1,514,000
   Parts and equipment                                                                            1,542,000               2,768,000
   Airship components                                                                             2,730,000               6,762,000
   Construction in progress                                                                            --                   479,000
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  7,985,000              23,571,000
Less: Accumulated depreciation and
      amortization                                                                                1,492,000               3,257,000
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  6,493,000              20,314,000
Cash and cash equivalents                                                                           543,000               1,165,000
Prepaid insurance                                                                                   626,000               1,433,000
Due from Transcontinental Airlines, Inc., an affiliate                                            1,809,000               2,526,000
Deferred financing and offering costs,
   net of accumulated amortization                                                                  157,000                 196,000
Other assets                                                                                        181,000                 443,000
------------------------------------------------------------------------------------------------------------------------------------
                                                                                               $  9,809,000            $ 26,077,000
------------------------------------------------------------------------------------------------------------------------------------

            LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
    Accounts payable - trade                                                                   $  4,068,000            $    915,000
    Customer payment on future services                                                           1,367,000                 250,000
    Insurance financing                                                                             291,000               1,504,000
    Accrued expenses and other liabilities                                                        1,886,000                 771,000
    Obligations under capital leases                                                              3,258,000               3,556,000
    Loan payable                                                                                  1,250,000                   --
    Due to related party                                                                            950,000                 846,000
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                                13,070,000               7,842,000
------------------------------------------------------------------------------------------------------------------------------------

CONTINGENCIES AND COMMITMENTS                                                                          --                      --

STOCKHOLDERS' EQUITY (DEFICIT)
    Preferred stock, $.01 par value:  Authorized -
      10,000,000 shares, issued and outstanding 2,875,000                                            29,000                  29,000
    Common stock, $.01 par value:  Authorized -
      80,000,000 shares, issued and outstanding - 31,400,000
      shares in 1994 and 27,946,000 in 1993                                                         314,000                 279,000
    Capital in excess of par value - Preferred Stock                                             14,442,000              14,442,000
    Capital in excess of par value - Common Stock                                                21,931,000              21,136,000
    Accumulated deficit                                                                         (39,977,000)            (17,651,000)
------------------------------------------------------------------------------------------------------------------------------------
       Total stockholders' equity (deficit)                                                      (3,261,000)             18,235,000
------------------------------------------------------------------------------------------------------------------------------------
                                                                                               $  9,809,000            $ 26,077,000
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>







        The accompanying notes are an integral part of these statements.



                                      F-2


<PAGE>

<PAGE>

                           Airship International Ltd.
                            Statements of Operations
                        For the Year Ended December 31,



<TABLE>
<CAPTION>

                                                                                 1994                 1993                  1992
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                    <C>                   <C>      
Airship Revenue                                                            $  3,980,000          $  9,748,000          $  7,258,000
                                                                           ------------          ------------          ------------
Costs and Expenses:
Operating costs                                                              17,452,000             9,964,000             6,499,000
Selling, general and administrative expenses                                  2,408,000             3,449,000             2,409,000
------------------------------------------------------------------------------------------------------------------------------------
                                                                             19,860,000            13,413,000             8,908,000

Loss from operations                                                        (15,880,000)           (3,665,000)           (1,650,000)
------------------------------------------------------------------------------------------------------------------------------------
Other income (expense)
    Gain on sale of airship components,
      net of imputed interest of $69,000                                           --                    --               2,366,000
    Gain (loss) on sale of airship components
      to a stockholder                                                         (659,000)                 --               1,077,000
    Gain (loss) on insurance settlement                                      (3,443,000)                 --                 769,000
    Interest expense                                                           (805,000)             (913,000)           (1,571,000)
    Interest capitalized                                                           --                    --                  30,000
    Interest, royalties and other income                                        206,000               391,000               144,000
    Costs relating to settlement of litigation                                  (64,000)             (741,000)                 --   
    Loss on disposition of airship component                                       --                (478,000)                 --   
------------------------------------------------------------------------------------------------------------------------------------
                                                                             (4,765,000)           (1,741,000)            2,815,000
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                          $(20,645,000)         $ (5,406,000)         $  1,165,000
------------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
  shares and equivalents outstanding                                         30,161,000            27,073,000            22,070,000
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock:
    Net income (loss)                                                      $(20,645,000)         $ (5,406,000)         $  1,165,000
    Less preferred stock dividend                                            (1,683,000)           (1,166,000)                 --   
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock                               $(22,328,000)         $ (6,572,000)         $  1,165,000
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share                                                $      (0.74)         $      (0.24)         $       0.05
------------------------------------------------------------------------------------------------------------------------------------
         SIGNIFICANT AMOUNTS APPLICABLE TO RELATED PARTIES

Operating costs - Insurance expense                                        $    877,000          $  1,319,000          $  1,072,000
Selling, general and administrative:
  Travel                                                                             $-          $      6,000          $    115,000
Interest expense                                                           $    105,000          $    149,000          $    292,000
Interest income                                                            $    164,000          $    184,000          $    131,000


</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, 1991                    --    $   --       17,307,000  $    173,000  $  --      $ 14,698,000   $(12,244,000)

Sale of common stock and
  warrants issued to private investors,
  less related expenses of $360,000             --         --       5,225,000        52,000       --       3,972,000           --   
Exercise of warrants, less
  expenses of $65,000                           --         --       3,069,000        31,000       --       1,295,000           --   
Conversions of debt into common
  stock, less related expenses
  of $15,000                                    --         --         338,000         3,000       --         223,000           --   
Fair value of options issued in
  connection with loan to:
    President                                   --         --            --            --         --          25,000           --   
    Others                                      --         --            --            --         --          33,000           --   
Expenses incurred in registration of
  previously outstanding shares and
  warrants                                      --         --            --            --         --        (130,000)          --   
Net income                                      --         --            --            --         --            --        1,165,000
------------------------------------------------------------------------------------------------------------------------------------
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           --   


</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>   
 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 $7,000            --         --       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)
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)
------------------------------------------------------------------------------------------------------------------------------------




        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>
<TABLE>
<CAPTION>


                                                                               1994                    1993                 1992
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                   <C>                   <C>         
Cash flows from operating activities
  Net income (loss)                                                        $(20,645,000)         $ (5,406,000)         $  1,165,000
  Adjustments to reconcile net income (loss)
   to net cash flows used in operating activities:
     Depreciation and amortization                                            2,389,000             1,223,000               981,000
     Gain on sale of airship components
       to J&B Enterprises Limited (UK) Corp.                                       --                    --              (2,366,000)
     Gain on sale of airship components
       to stockholder                                                              --                    --              (1,077,000)
     Loss from impairment of long-lived assets                                9,634,000                  --                    --   
     Gain (loss) on dispositon of airship
       components and related assets                                            153,000                  --                (769,000)
     Loss on insurance settlement                                             1,467,000                  --                    --   
     Loss on abandonment of Blimp USA                                           479,000                  --                    --   
     Other - net                                                                   --                 232,000               197,000
     Loss on disposition of airship component                                      --                 478,000                  --   
     Changes in operating assets and liabilities:
       Prepaid insurance                                                        807,000              (253,000)             (224,000)
       Other assets                                                             262,000              (136,000)              (70,000)
       Accounts payable - trade                                               3,153,000               464,000              (451,000)
       Customer payments on future services                                   1,117,000               (57,000)             (157,000)
       Insurance financing                                                   (1,213,000)              433,000               167,000
       Accrued expense to principal stockholder                                    --                 139,000               167,000
       Accrued expenses and other liabilities                                   253,000               (73,000)              236,000
------------------------------------------------------------------------------------------------------------------------------------
         Net cash flows used in operating
          activities                                                         (2,144,000)           (2,956,000)           (2,201,000)
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Net proceeds from insurance settlement                                           --                    --               1,529,000
  Proceeds from sale of airship components                                       55,000             2,228,000               500,000
  Acquisition of airships and related equipment                                (317,000)           (6,716,000)           (3,008,000)
  Deposit for purchase of airships
    and related equipment                                                          --                    --              (2,000,000)
  Net change in due from Trans Continental                                      717,000            (1,940,000)              770,000
------------------------------------------------------------------------------------------------------------------------------------
     Net cash flows provided by (used in)
        investing activities                                                    455,000            (6,428,000)           (2,209,000)


</TABLE>
 

                                      F-6



<PAGE>

<PAGE>


        The accompanying notes are an integral part of these statements.
                           Airship International Ltd.
                      Statements of Cash Flows - Continued
                        For the Year Ended December 31,


Increase (decrease) in cash and cash equivalents                        

<TABLE>
<CAPTION>
                                                       1994           1993            1992
---------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>           <C>      
Cash flows from financing activities:

Proceeds from issuance of loans payable             1,432,000         420,000       1,800,000
Principal payments on capital leases and loans       (479,000)     (4,728,000)     (1,450,000)
Principal payments to related party                   104,000      (1,150,000)       (467,000)
Net proceeds from issuance of common stock               --           614,000       5,205,000
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                                   --          (222,000)           --
Deferred financing and offering costs paid               --              --          (271,000)
---------------------------------------------------------------------------------------------
Net cash flows from financing activities         $  1,067,000    $  9,078,000    $  4,817,000
---------------------------------------------------------------------------------------------

Net changes in cash and equivalents                  (622,000)       (306,000)        407,000
 Cash and equivalents, beginning of year            1,165,000       1,471,000       1,064,000
---------------------------------------------------------------------------------------------
 Cash and equivalents, end of year               $    543,000    $  1,165,000    $  1,471,000
---------------------------------------------------------------------------------------------
</TABLE>



The accompanying notes are an integral part of these statements.



                                      F-7

<PAGE>

<PAGE>

                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

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, 1994, the Company operated two airships.

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, 1994 or 1993.

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
will be 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, 1994, 1993 and 1992

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 $9,634,000 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. 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'pp'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
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



                                      F-9
<PAGE>

<PAGE>


                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

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

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

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 and 1993, the
Company incurred losses of $20,571,000 and $5,406,000, respectively, and had
negative cash flows of $ 2,144,000 and $2,956,000, respectively, from
operations.

Management believes that additional contracts, if obtained, may be sufficient to
achieve positive cash flow. However, there can be no assurances that such
positive cash flows would be achieved.

As a result of the losses during the year, plus cancellation and modification of
advertising agreements with clients, the Company postponed its original plans
for purchase of land and the hangar for Blimp Port USA'tm' (a hangar and
maintenance facility). Losses for 1993, which continuing into 1994, were funded
by proceeds from the offering previously designated as capital expenditures for
Blimp Port USA'tm'. In addition, the Company made the additional deposit of
$1,940,000 and made a $789,000 loan to an individual who had previously
facilitated financing for the Company (see disussion in Note C). The
accompanying financial statements do not include any adjustments that might
result from such matters.

NOTE C - TRANSACTIONS WITH STOCKHOLDERS, RELATED PARTIES AND OTHERS

Due from Affiliate - At December 31, 1994 and 1993, the Company made advances of
$1,809,000 and $2,526,000, respectively, to Transcontinental Airlines, Inc.
("Transcontinental"), an affiliated aircraft leasing company. Louis J. Pearlman
("Mr. Pearlman") owns 21% of Transcontinental and is the Company's Chairman of
the Board, President and Principal Stockholder. Transcontinental has pledged a
$2,500,000 money market account as collateral for this advance. The deposit may
be returned to the Company upon demand. Interest earned on this deposit
amounted to $164,000, $107,000 and $131,000 for years ended December 31, 1994,
1993 and 1992, respectively.

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


                                      F-10
<PAGE>

<PAGE>


                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

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

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. If the Company's income before taxes had exceeded $500,000 in
any of the three years ending December 31, 1994, the Company would have been
required to pay Mr. Pearlman an amount equal to 20% of such annual pre-tax
profit as a prepayment on this loan. Interest on the loan payable was $105,000,
$144,000, and $167,000 for the years ended 1994, 1993, and 1992, 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 is due no later
than June 30, 1995. Mr. Pearlman has guaranteed repayment of the Loan. In
addition, 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, 1994 and 1993 totaled $950,000 and
$846,000, respectively, net of unamortized discount.

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 - The following transactions involve the sale of
unassembled airship components acquired in the 1990 asset acquisition from
Airship UK:

1. 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.

        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.




                                      F-11
<PAGE>

<PAGE>

                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

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

2. In September 1992, the Company sold to Mr. Benscher a gondola, tail fins and
certain other airship components for $1,150,000. Payment consisted of offsetting
the $1,000,000 loan payable (and related interest) due to Mr. Benscher pursuant
to the loans under a line-of-credit agreement discussed below. The transaction
resulted in a gain of $1,077,000.

Rental Arrangement and Travel Agency Service - Transcontinental 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 and $115,000 for travel
expenses in 1993 and 1992, respectively. During 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 $72,000, $1,319,000 and $1,072,000 in 1994, 1993,
and 1992, respectively.

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

Transaction with Slingsby Aviation Limited ("Slingsby") - On January 29, 1992,
Slingsby exchanged the aforementioned airship components it had acquired from
Airship UK for certain of the Airship components the Company had acquired from
Airship UK. In connection with this exchange, Slingsby agreed to provide the
Company storage for the components at no cost, not to increase certain prices to
assemble that airship by more than 5% for twelve months and certain other items.
The Company did not recognize gain or loss on this nonmonetary transaction as
this was not considered the culmination of an earnings process.

On December 31, 1992, Transcontinental, on behalf of the Company, paid
$2,000,000 to Slingsby in connection with an understanding to acquire Slingsby
airship components (the 'Slingsby Asset Purchase'). Slingsby had indicated that
the Company was to receive airship parts with a fair market value equal to at
least this sum if a definitive agreement was not entered into by March 31, 1993.
During 1993, the Company concluded its acquisition of airship components from
Slingsby for a total of $5,457,000.





                                      F-12
<PAGE>

<PAGE>






                           Airship international Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

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

Underwriter - Emanuel and Company ("Emanuel"), one of the two representatives of
the several underwriters for the offering of Preferred Stock which was sold in
February 1993 (see Note H) is a beneficial owner of 4.0% of the Company's common
stock. Emanuel received warrants to purchase 1,450,000 shares of common stock at
$1 per share for arranging the sale in April 1992 of 1,048,000 common shares to
private investors. The private investors received three year warrants to
purchase 1,048,000 shares of common stock at an exercise price of $1.25 per
share, subject to adjustment. Emanuel will receive a 7% commission from the
Company upon the exercise of the warrants held by the private investors.

In addition, Emanuel is the custodian of the collateral pledged as security for
amounts due from Transcontinental.

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 are
due on December 7, 1995.

NOTE D - INCOME TAXES

At December 31, 1994, the Company had net operating loss carryforwards for
income taxes of approximately $29,949,000 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 $15,268,000 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 2011. 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, 1994, 1993 and 1992

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:



<TABLE>
<CAPTION>


                                                    1994                1993
--------------------------------------------------------------------------------
<S>                                            <C>                 <C>         
Deferred tax assets:
    Net operating loss                         $ 14,548,000        $  4,900,000
    Accrued expenses                                291,000             300,000
--------------------------------------------------------------------------------
                                                 14,839,000           5,200,000
    Less:  Valuation allowance                   11,962,000           2,600,000
--------------------------------------------------------------------------------
                                                  2,877,000           2,600,000
Deferred tax liabilities:
    Airships and related equipment               (2,877,000)         (2,600,000)
--------------------------------------------------------------------------------
                                                 (2,877,000)         (2,600,000)
--------------------------------------------------------------------------------

Net deferred tax asset                         $     --            $      --
--------------------------------------------------------------------------------
</TABLE>



The net change in the valuation allowance was approximately $277,000 relating to
net operating losses from 1994.

NOTE E - CAPITAL LEASES AND LOANS PAYABLE

Capital leases payable consist of the following:



<TABLE>
<CAPTION>

                                                           1994            1993
------------------------------------------------------------------------------------
<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               $2,904,000      $3,113,000

Other loans and capital leases with various annual
interest rates                                               354,000        443,000
------------------------------------------------------------------------------------
                                                          $3,258,000     $3,556,000
------------------------------------------------------------------------------------

</TABLE>






                                      F-14
<PAGE>

<PAGE>

                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

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, 1994:



<TABLE>



<S>                                                          <C>      
1995                                                         $ 299,000
1996                                                           540,000
1997                                                           911,000
1998                                                           979,000
1999                                                           960,000
Thereafter                                                   3,869,000
                                                            ----------
Total minimum lease payments                                 7,558,000
Less amount representing interest                            4,300,000
                                                            ----------
Present value of net minimum lease payments                 $3,258,000
                                                            ==========



</TABLE>


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 again calling for payments of $20,000 for twelve
months, $40,000 for the next six months, $60,000 for an additional six months
and the higher of $80,000 for the remaining term until the lease is paid off
or a larger payment 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 have 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 airship components. The resulting net book value was later
analyzed as part of the SFAS 121 writedown as described in Note A.

Loan Payable to 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.




                                      F-15
<PAGE>

<PAGE>

                           Airship International Ltd.
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

NOTE E - CAPITAL LEASES AND LOANS PAYABLE - Continued

Subsequently on June 22, 1995, the Allstate loan was repaid when
Transcontinental Leasing, Inc. ("TLI"), a wholly-owned subsidiary of
Transcontinental, an affiliate of the Company, 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.

Subsequently 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 Transcontinental.

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

NOTE F - LEGAL PROCEEDINGS

Capital Funding Group 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 of the commitment fee paid by the Company and various other
counterclaims. In March 1993, the Company was awarded a default judgment against
CFG. No balances have been returned to the Company as of December 31, 1994.

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





                                      F-16
<PAGE>

<PAGE>


                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

NOTE F - LEGAL PROCEEDINGS - Continued

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 $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. 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 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.

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
hanger 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 ordinary course of its 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.




                                      F-17
<PAGE>

<PAGE>


                           Airship international Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

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.

The State of Florida completed a sales tax audit of the Company in March 1992
covering all periods through December 31, 1991 and assessed the Company
approximately $12,000, which was paid in March 1992.

Employment Agreements - In 1993 the Company and Mr. Pearlman entered into an
employment agreement which expires in December 1994. 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% of the first $1
million of the Company's net after-tax 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, 1994 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 of the 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 after tax
profits for such fiscal year plus an additional amount determined at the
discretion of the Board of Directors.

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, 1993 are as
follows:

                   1994                        $  634,000
                   1995                            93,000
                   1996                            31,000
                                               ----------
                                               $  758,000
                                               ==========

Rent expense was approximately $577,000 in 1993.


                                      F-18
<PAGE>

<PAGE>



                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

NOTE H - STOCKHOLDERS' EQUITY

Common Stock - In February 1991, the Company completed a public offering (the
"Offering") of its units (the "Units"), consisting of two shares of Common
Stock, two Class A Common Stock Purchase Warrants and two Class B Common Stock
Purchase Warrants. Each Class A Warrant entitles the holder to purchase one
share of Common Stock at a price of $1.50 until February 6, 1994. Each Class B
Warrant entitles the, holder to purchase one share of Common Stock at a price of
$2.00 until February 6, 1995. The warrants may be redeemed by the Company at a
price of $.10 per Warrant at any time upon at lease 30 days, prior written
notice if the closing bid price of the Common Stock during 20 of the 30
preceding trading days exceeds the exercise price of the Warrants by at least
40%.

Convertible Subordinated Notes - In connection with a private placement of the
Company's 15% Convertible Subordinated Notes (the "Notes") completed in December
1990, the placement agent received a commission of 10% of the aggregate
principal amount of the notes sold and three-year warrants to purchase a total
of 374,000 shares of common stock (254,000 and 120,000 shares of common stock at
$1 and $.75 per share, respectively).

In addition, the placement agent received a commission of 9% of the principal
amount of each note converted to common stock and, upon exercise of each related
warrant will receive a commission equal to 7% of the exercise price. For
accounting purposes, the proceeds of the notes were allocated based upon the
fair value of the debt and warrants. The resulting debt discount was amortized
over the term of the debt and the amount of $22,000 assigned to the warrants was
credited to capital in excess of par value. Substantially all of the above
warrants were exercised as of December 31, 1993.

The Company borrowed $100,000 in December 1990 at 10% interest per quarter plus
three-year warrants to purchase 30,000 shares of common stock at $.75 per share,
subject to anti-dilution adjustments. Effective December 31, 1990, the
noteholder converted the $100,000 loan into 100,000 shares of common stock. In
connection with this transaction, the placement agent received three-year
warrants to purchase 30,000 shares of common stock at $.75 per share, subject to
anti-dilution adjustments. All such warrants were exercised during 1992.

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.


                                      F-19
<PAGE>

<PAGE>


                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

NOTE H - STOCKHOLDERS' EQUITY - Continued

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 of the 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.

Warrants and Options - Outstanding warrants and options at December 31, 1994,
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
----------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>            <C>  
Warrants:
Issued in connection with public
  offering in 1991:
    Class B Warrants                               4,575,000     $   2.00       February 1995
    Underwriter's Warrants                           567,000     $   0.96       February 1996
    Underwriter's Class B  Warrants                  567,000     $   2.00       February 1995
Issued to consultants in 1991                        710,000     $   1.12       Various through May 1995


Issued to stockholder and certain others
  In 1992                                             19,000     $   0.41       December 1994
Issued to placement agent in 1992 in
  Connection with sale of Common
  Stock to private investors                       1,096,000     $   0.96       April 1995
Issued to private investors in 1992 in
  Connection with purchase of Common
  Stock                                              519,000     $   1.17       April 1995
Options:
Issued to director in 1990                            67,000     $   2.20       April 1995
Incentive options issued to key
   Employees:
     Officer and director in 1989                     50,000     $   1.03       February 1994
     Officer and others in 1989 and 1991             215,000   $0.94 to $1.28   February 1990 to
                                                                                October 2001
</TABLE>


                                      F-20
<PAGE>

<PAGE>

                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

NOTE H - STOCKHOLDERS' EQUITY - Continued


<TABLE>

<S>                                             <C>               <C>           <C>
Issued to the Company's President in 
  1994 in 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,
                                                    ----------------------------------------------
                                                     1994               1993               1992
--------------------------------------------------------------------------------------------------
<S>                                                 <C>                <C>                <C>    
Options outstanding at beginning of year            265,000            265,000            265,000
Options granted                                        --                 --   
Options exercised                                      --                 --   
Options cancelled                                   265,000               --                 --   
--------------------------------------------------------------------------------------------------

Options outstanding at end of year                     --              265,000            265,000
--------------------------------------------------------------------------------------------------

Option price per share                            $.94 - $1.28       $.94 - $1.28       $.94 - $1.28

Options exercisable:
Number of shares                                       --              265,000            265,000
--------------------------------------------------------------------------------------------------
</TABLE>



Since inception, 24,000 options granted under the Plan have been exercised (none
in 1994, 1993 or 1992). 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



                                      F-21
<PAGE>

<PAGE>

                           Airship International, Ltd.
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

NOTE H - STOCKHOLDERS' EQUITY - Continued

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).

No revenues were earned on the MetLife airship during the period subsequent to
the airship accident described below until October 15, 1992. The Company
collected $585,000 of business interruption insurance proceeds relating to the
loss of revenues during the months that the MetLife airship was under repair
due to damage.

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 and $18,000 for the years ended December 31, 1993 and 1992,
respectively.



                                      F-22
<PAGE>

<PAGE>


                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

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

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 1991 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.

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 will resume 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 Hnos, 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 by the Company due to
a transaction with First Security Bank of Utah, as described below.

Subsequently, 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.

                                      F-23
<PAGE>

<PAGE>

                           Airship international Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

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

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 4.0% of the Company's common stock,
is a principal stockholder of Aviation. See Note C - Transactions With
Stockholders, Related Parties And Others.

Other Credit Concentrations - Reference should be made to Note C for advances to
affiliate and deposit with Slingsby.

In June 1992, the Company's MetLife airship was damaged during a test flight.
The airship was in the hangar in North Carolina through October 15, 1992
undergoing repairs as a result of the damage, during which time no related
airship revenues were received. In August 1992, the Company received $1,850,000
from its insurance carrier in settlement of such damages to the airship and
loss of revenues from interruption of operations. The Company wrote off the
net book value of the damaged components ($760,000, principally related to the
envelope) and costs to repair the airship, including the cost of replacement
components, of $321,000. The Company provided most of the replacement
components from its existing stock. The cost of the new envelope ($711,000)
and other reassembly costs were capitalized and totaled approximately
$1,201,000.

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 employee's salary. The Company matches 5% of each employee's
contributions, 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 $11,000 for 1994. There were no matching contributions for 1992.


                                      F-24
<PAGE>

<PAGE>

                           Airship international Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1993 and 1992

NOTE K - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION


<TABLE>
<CAPTION>


                                                                                          1994             1993              1992
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>              <C>              <C>       
Cash paid during the year for:
Interest                                                                                $392,000         $832,000         $1,044,000

Supplemental non-cash activity:
  Conversion of debt to equity                                                          $  --            $  --            $  241,000
  Application of debt toward sales price of airship components
    and related equipment                                                               $  --            $  --            $1,150,000
  Accrued common stock dividend                                                         $862,000         $  --            $    --
  Warrants or options granted for loan guarantees or
    convertible subordinate notes                                                       $  --            $  --            $   58,000

</TABLE>


NOTE L - SUBSEQUENT EVENTS





                                      F-25
<PAGE>

<PAGE>






              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                                  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 August 22, 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, 1994, we have also audited Schedules II, IV, V, VI, IX,
and X for the year ended December 31, 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.


Orlando, Florida
August 22, 1994







                                      F-26




<PAGE>

<PAGE>




        (b) Exhibits listed in the Exhibit Index below have been filed as part
of this report:


<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>






<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>


                                       2






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<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).


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                                       3





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<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.

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                                        4





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<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>

                                        5





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<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(15)
            December 7, 1993.

  10.69     Kingstreet Tours Limited Aerial Advertising Agreement dated January 18,                      *
            1994, by and between the Company and Kingstreet Tours Limited.

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

  10.71     Aircraft Lease Agreement, dated December 15, 1994, by and between the                        *
            Company and Mastellone Hnos., S.A.

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

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

  10.74     Letter Agreement Modification, dated January 11, 1994, by and between                        *
            the Company and ORIX USA Corporation.

  10.75     Amendment to Lease, dated May 12, 1994, by and between the Company                           *
            and ORIX USA Corporation.

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

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

  10.78     Guaranty, dated December 6, 1994, of Louis J. Pearlman.                                      *

  10.79     Guaranty, dated December 6, 1994, of Trans-Continental Airlines, Inc.                        *

  10.80     Aircraft Lease Agreement, dated as of May 31, 1995, by and between                           *
            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                      *
            Trans Continental Leasing, Inc.

  10.82     Credit Agreement, dated November 30, 1995, by and between the Company                        *
            and Senstar Capital Corporation.

  10.83     Term Note, dated November 30, 1995, of the Company to Senstar Capital                        *
            Corporation.

  10.84     Aircraft Mortgage and Security Agreement, dated November 30, 1995, by                        *
            and between the Company and Senstar Capital Corporation.

  10.85     Assignment of Contract Rights, dated November 30, 1995, by and between                       *
            the Company and Senstar Capital Corporation.

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

</TABLE>

                                        6





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<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                           *
            between the Company and Sequel Capital Corporation and Louis J.
            Pearlman.

  10.88     Promissory Note, dated October __, 1994, of Louis J. Pearlman to Airship                     *
            Airways, Inc.

  10.89     Promissory Note, dated October 26, 1994, of Louis J. Pearlman to Airship                     *
            Airways, Inc.

  10.90     Form of Share Subscription Agreement, dated August 11, 1994, between                         *
            the Company and _______________.

  10.91     List of Purchasers in the 1994 Private Placement.                                            *

  10.92     Secured Promissory Note, dated October 26, 1994, of Airship Airways, Inc. to                 *
            the Company.

  10.93     Option Agreement, dated as of August 11, 1994, between the Company and                       *
            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                                                                         *

  24.1      Consent of Charlie Meeks, CPA                                                                *

  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.


                                       7





<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
     December31, 1993.
(16) The Company's Report on Form 8-K, as filed with the SEC on July11, 1997.
(17) The Company's Report on Form 8-K/A, as filed with the SEC on July22, 1997.
(18) The Company's Proxy Statement, as filed with the SEC on March 20, 1995.


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

                                       8

                    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'

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