<PAGE>

<PAGE>



                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C 20549

                                    FORM 10-K/A

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

FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1996     COMMISSION FILE NUMBER: 0-14646

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

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

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

                                 (407) 351-0011
                         (REGISTRANT'S TELEPHONE NUMBER)
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE
           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                     COMMON STOCK, $.01 PAR VALUE PER SHARE.
                                (TITLE OF CLASS)
            CLASS A 8% CUMULATIVE CONVERTIBLE VOTING PREFERRED STOCK,
                            PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)

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

                  Yes [ ]                             No [X]

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

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

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

Documents Incorporated by Reference: None. A list of Exhibits to this Annual
Report on Form 10-K begins on page 24.



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<PAGE>

                           AIRSHIP INTERNATIONAL LTD.
                              1996 FORM 10-K REPORT

                                TABLE OF CONTENTS

                                     PART I

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

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

ITEM 3.   LEGAL PROCEEDINGS................................................  -6-

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

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS..........................................  -9-

ITEM 6.   SELECTED FINANCIAL DATA.......................................... -11-

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS.......................... -12-

ITEM 8.   FINANCIAL STATEMENTS AND SCHEDULES............................... -15-

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
              ON ACCOUNTING AND FINANCIAL DISCLOSURE....................... -15-

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... -16-

ITEM 11.  EXECUTIVE COMPENSATION........................................... -17-

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
              AND MANAGEMENT............................................... -20-

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... -20-

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
              REPORTS ON FORM 8-K.......................................... -22-





                                      ii




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<PAGE>

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






                                      iii



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<PAGE>

                                     PART I


ITEM 1. BUSINESS

GENERAL

        Airship International Ltd. (the "Company") operated lighter-than-air
airships, also commonly known as blimps, which were used to advertise and
promote the products and services of the Company's clients. The Company's
clients utilized its airships at major sporting and special events and over
urban and beach locations as an informative advertising and promotional vehicle.
The Company did not operate any airships during 1996.

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

AIRSHIPS

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

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

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

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

AERIAL ADVERTISING AND OTHER CONTRACTS


                                      -1-




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<PAGE>


        Set forth below are descriptions of the Company's aerial advertising
contracts which were in effect during the fiscal year ended December 31, 1996
(for further detail see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Comparison of Revenue and Operating Costs
-- 1996 to 1995").

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

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

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

        Concurrently with the execution and delivery of the Purchase and
Assumption Agreement, the Company sold to Aviation all of the issued and
outstanding shares of the capital stock of AOI. Mr. Julian Benscher,
a shareholder of the Company, is an officer and stockholder of Aviation. See
"Certain Relationships and Related Transactions".

        The Company's revenues were historically dependent on the Company's
aerial advertising contracts. For the years ended December 31, 1995 and 1994,
100% and 50%, respectively, of the Company's revenues were derived from
Anheuser-Busch. In addition, 19% of 1994 revenues were derived from
Kingstreet Tours and 29% from Gulf Oil. The Company has been adversely affected
during the period between the time that any particular aerial advertising
agreement terminated and the time a new contract commenced. The Company had no
aerial advertising contracts in effect in 1996.

ACQUISITIONS, LEASES AND FINANCINGS

        Set forth below is a description of the Company's financing arrangements
in effect during the year ended December 31, 1996 and for the period from
December 31, 1996 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,


                                      -2-




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<PAGE>


the payments to Orix are $20,000 per month for the first year, $40,000 plus
interest per month for the next 6 months, $60,000 plus interest per month for
the next 6 months and thereafter the greater of $80,000 per month or 50% of
annual cash flow for the proceeding 12 month period. The Amended Lease expires
June 2, 2002 at which time the Company can purchase the Airship for $1.00. The
Airship which is the subject of the Amended Lease is not currently operational,
as it requires a new envelope. To date, the envelope has not been replaced.

        As security for the Company's obligations under the Orix Lease and the
Amended Lease, Louis J. Pearlman, Chairman of the Board, President and Chief
Executive and Operating Officer of the Company ("Mr. Pearlman"), has personally
guaranteed the payment and performance of the obligations of the Company. In
addition, the Company's obligations to Orix are guaranteed by 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
maintained a security deposit in a cash account (the "Cash Escrow
Account") with Trans Continental Airlines Inc., an affiliate of the Company
("Trans Continental"). As of December 31, 1994, the Company had on deposit in
the Cash Escrow Account $1,800,000. During March 1995, the Company paid the
full balance of the Cash Escrow Account to WDL to reduce its liability to WAL
to $1,000,000. Pursuant to the WDL Lease, Trans Continental collateralized the
advances with a certificate of deposit in the amount of $2,500,000 (see Note
C to the Financial Statements included elsewhere herein). 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


                                      -3-




<PAGE>

<PAGE>


any payments due to them from the Company while the Allstate Loan is
outstanding, and any payments that would otherwise be paid to the guarantors is
to be paid to Allstate and applied against the Allstate Loan.

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

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

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

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

        On December 24, 1996. Trans Continental Leasing, Inc. obtained a loan
with Norwest Equipment Finance, Inc. in the amount of $4,709,000. The proceeds
of this refinancing were used to repay the Company's debt to Senstar and to
provide working capital to the Company.

ADDITIONAL AIRSHIPS; AIRSHIP ASSEMBLY

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


                                      -4-




<PAGE>

<PAGE>


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

MARKETING

        The Company marketed its airship services directly to potential clients
through a sales effort conducted by its management, including a Director of
Marketing. During 1996, the Company continued pursuing potential new clients,
both for aerial advertising contracts and for the purchase of new airships; none
of such contracts or purchases was consummated.

SUPPLIERS

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

COMPETITION

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

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.


                                      -5-




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<PAGE>


EMPLOYEES

        As of December 31, 1996, the Company had approximately 11 full-time
employees, 2 of whom are officers, 8 of whom are administrative and one of whom
is warehouse personnel. The number of employees fluctuates based in part on the
number of Airships conducting flight operations.

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

INSURANCE

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

ITEM 2.  PROPERTIES

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


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


                                      -6-




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<PAGE>


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.


        Watermark. In January, 1993, a second amended complaint to a lawsuit,
which was initially commenced in March 1991 and subsequently dismissed twice
without prejudice, was filed in the Circuit Court of the State of Florida
against the Company and its President by Watermark Group PLC and Von Tech
Corporation, as general partners of Company Communications (collectively, the
"WNT Plaintiffs") alleging breach of an alleged joint venture agreement
involving Company Communications and Airship Enterprises Ltd. (a company that
was owned by Mr. Pearlman and that was not in any way owned or controlled by the
Company), breach of an alleged agreement by the Company regarding the lease and
operation of a particular airship; and breach of an alleged oral commission
agreement by the Company relating to the Company's acquisition of two airships
it presently owns. The WNT Plaintiffs seek various legal and equitable remedies,
including monetary damages against the Company and Mr. Pearlman in excess of
$800,000 together with a claim for some portion of the advertising revenue the
Company has received, and will continue to receive, from the operation of some
of its airships. On October 3, 1995, the parties entered into a Mutual Release
and Joint Stipulation for Settlement whereby the Company agreed to make payments
to Watermark in the total amount of $40,000. Such payments were made during 1995
and 1996.

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

        Capital Funding Group Ltd. In February 1992, Capital Funding Group Ltd.
("CFG") commenced an action against the Company and others in excess of
$1,000,000 in damages based on the alleged failure by the Company to provide
adequate collateral and security in connection with certain alleged financial
agreements with CFG. The Company retained CFG in July 1991, paid a commitment
fee (which was written off in 1991) and received a commitment from CFG which
then failed to provide the funding. The Company and the other defendants
answered the complaint in February 1992 by denying all of the substantive
allegations and asserting several affirmative defenses. In addition, the Company
asserted certain counterclaims against CFG and its two principals for breach of
a commitment letter pursuant to which CFG was to arrange for a $9 million loan
to the Company, breach of a compromise agreement accepted by CFG in January
1992, pursuant to which CFG was to provide funding to the Company in the amount
of $7 million, breach of an escrow agreement, pursuant to


                                      -7-




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<PAGE>


which CFG was to return $200,000 of the commitment fee paid by the Company and
various other counterclaims. In March 1993, the Company was awarded a default
judgment of $8,000,000 against CFG and the complaint against the Company was
dismissed. No balances have been returned to the Company as of December 31,
1995.

        Due to the weakening financial position of the Company at the time, the
Company was unable to complete its audit for the year ended December 31, 1994 or
to conduct audits for the years ended December 31, 1995 and 1996. Accordingly,
the Company had not filed any periodic reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended, for the quarterly and annual
periods ended December 31, 1994 through March 31, 1997 or any Current Reports on
Form 8-K during such periods until July 11, 1997, on which date the Company
filed its Current Report on Form 8-K reporting a change of accountants. On July
18, 1997, the Company entered into a Consent and Undertaking with the Securities
and Exchange Commission pursuant to which the Company agreed, among other
things, to file this Annual Report on Form 10-K, Annual Reports on Form 10-K
for the years ended December 31, 1994 and 1995 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 has not held any meetings of, nor has it submitted any
matters to a vote by, shareholders since April 11, 1995.





                                      -8-




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<PAGE>


                                     PART II

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

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

                                  COMMON STOCK:

    1995                       High Bid                            Low Bid
1st Quarter                    $.125                               $.0625
2nd Quarter                    $.0625                              $.03125
3rd Quarter*
4th Quarter                    $.25                                $.125


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

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



                                      -9-






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<PAGE>


    1997                       High Bid                               Low Bid
1st Quarter                    $.175                                  $.08
2nd Quarter                    $.175                                  $.09

                                Preferred Stock:

    1995                       High Bid                               Low Bid
1st Quarter                    $.59375                                $.40625
2nd Quarter                    $.46875                                $.375
3rd Quarter*                   $.325                                  $.325
4th Quarter                    $.25                                   $.125

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

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

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

        As of September 5, 1997, there were 1,498 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


                                      -10-


<PAGE>

<PAGE>


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.





<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
 
     The following selected financial data should be read in conjunction with
the Company's financial statements and related notes and Management's Discussion
and Analysis of Financial Discussion and Analysis of Financial Condition and
Results of Operation appearing elsewhere herein.
 

 
<TABLE>
<CAPTION>

OPERATING STATEMENT DATA:
                                                                 YEAR ENDED DECEMBER 31,
                                         -----------------------------------------------------------------------
                                            1996           1995           1994           1993           1992
                                         -----------    -----------    -----------    -----------    -----------
 
<S>                                      <C>            <C>            <C>            <C>            <C>
Gross revenues........................   $   --         $ 2,620,000    $  3,980,000    $ 9,748,000    $ 7,258,000
Net income (loss) before cumulative
effect of a change in accounting
principle.............................   $(2,506,000)   $(4,867,000)   $(20,645,000)   $(5,406,000)   $ 1,165,000

Net income (loss).....................   $(2,506,000)   $(4,867,000)   $(20,645,000)   $(5,406,000)   $ 1,165,000
Net income (loss) per share...........   $     (0.10)   $     (0.18)   $     (0.74)   $     (0.24)   $      0.05

<CAPTION>
BALANCE SHEET DATA:
 

                                                                   AT DECEMBER 31,
                                         -----------------------------------------------------------------------
                                            1996           1995           1994           1993           1992
                                         -----------    -----------    -----------    -----------    -----------
 
<S>                                      <C>            <C>            <C>            <C>            <C>
Total assets..........................   $  4,496,000   $  5,073,000   $  9,819,000    $26,077,000    $21,690,000
Long-term obligations.................   $  3,016,000   $  3,689,000   $    --         $   --         $   --
Obligations under capital lease.......   $  3,158,000   $  3,348,000   $  3,258,000    $ 3,380,000    $ 3,186,000
Total liabilities.....................   $ 18,334,000   $ 14,680,000   $ 13,070,000    $ 7,842,000    $12,394,000
Stockholders' equity (deficit)........   $(13,838,000)  $ (9,607,000)  $  (3,251,00)   $18,235,000    $ 9,296,000
Book value per common share...........   $      (0.34)  $      (0.27)  $      (0.10)   $      0.65    $      0.36
</TABLE>




                                      -11-


<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 $50,800,000, at December 31,
1996. During the year ended December 31, 1996, the Company did not generate any
revenues from airship operations. It reported a net loss of $2,506,000 and has
negative working capital of $12,598,000. 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.


                                      -12-


<PAGE>

<PAGE>

OVERALL FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

        The Company's stockholders' deficit at December 31, 1996 was
$13,838,000, an increase of $4,231,000 from stockholders' deficit of $9,607,000
at December 31, 1995. The increase was due primarily to the net loss of
$2,506,000 in fiscal 1996. The accrual of dividends on Preferred Stock
decreased equity by $1,725,000. As a result of these equity changes, during
1996 the Company's assets decreased $577,000 while liabilities increased
$3,664,000. Compared to the year ended December 31, 1995, revenues, operating
costs and selling, general and administrative costs decreased 100%, 71.4% and
63.6%, respectively. Interest expense less other income for 1996 was $724,000,
an increase of $321,000 or 30.7%. These changes in revenues and costs,
as explained in more detail below, resulted in a net loss for fiscal 1996 of
$2,506,000 compared to a net loss of $4,867,000 in fiscal 1995.

        The Company continues to experience negative cash flows from operating
activities and through the cessation of flights and fees under the Gulf Oil
Contract. Cash flows for 1995 were also adversely affected by the termination
of the Gulf Oil Contract as liabilities at December 31, 1996 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.

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.

LIQUIDITY AND CAPITAL RESOURCES.



                                      -13-


<PAGE>

<PAGE>


        The Company continues to experience negative cash flows from operating
activities. During 1996, the Company sustained a net change in cash and cash
equivalents of $24,000, with a reduction of $2,135,000 from operating
activities. At December 31, 1996, available cash balances were represented by
the $2,000 in cash.

        The Company's negative cash flow for 1996 was $24,000. Operating
activities utilized $2,135,000 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 $384,000 as liabilities at
December 31, 1996 increased to approximately $18,334,000. Investing activities
used $30,000 in the form of funds taken from the Cash Escrow Account.
Financing activities contributed $3,004,000 principally from proceeds of the
Trans Continental Loan, partially offset by the 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


                                      -14-


<PAGE>

<PAGE>

advances or loans or give personal guarantees if the Company requires additional
capital. At December 31, 1996, the Company owed Mr. Pearlman $1,137,000 net of
unamortized 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 $1,137,000 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.
Mr. Pearlman has deferred repayment of such loan for an indefinite period
of time.

        In addition, Trans Continental has guaranteed the Company's obligations
under the Allstate Loan and the Phoenixcor Loan. In consideration for these and
other guarantees of the Company's obligations, Trans Continental has been
granted 10% of the issued and outstanding common stock of the Company. See
"Certain Relationships and Related Transactions." There can be no assurance that
Trans Continental will continue to guaranty the Company's obligations in
connection with any future financings. During the year ended December 31, 1996,
Trans Continental advanced the Company $3,004,000. The total outstanding
balance at December 31, 1996 amounted to $3,470,000.

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

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

        Dividends on the Company's Preferred Stock are payable in cash to the
extent of available cash derived from the adjusted earnings of the Company for
the fiscal quarter immediately preceding the Dividend Payment Date (according to
a formula based on adjusted earnings). The Company has deferred and accrued the
cash dividend on the Preferred Stock due on August 15, 1994, and all subsequent
quarterly dividend payment dates, until a later payment date.

ITEM 8. FINANCIAL STATEMENTS AND SCHEDULES

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

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

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

                                      -15-


<PAGE>

<PAGE>



                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The following table sets forth information, as of September 4, 1997,
relating to each director and executive officer of the Company.


<TABLE>
<CAPTION>

Name                  Age            Positions with the Company                 Position Held Since

<S>                   <C>            <C>                                      <C>
Louis J. Pearlman     43             Chairman of the Board of Directors,        June 1982
                                     President and Chief Executive,
                                     Finanical 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

</TABLE>

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


        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 50% 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.

        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.


                                      -16-


<PAGE>

<PAGE>


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

        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.

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, 1996. 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>

Name and Principal       Fiscal   Salary      Bonus   Other Annual   Restricted  Securities     Other
Position                 Year                         Compensation  Stock Award  Underlying  Compensation
                                                                                Options
                         -----    ----------- ------  -------------  ----------- ---------- ------------
<S>                      <C>      <C>       <C>        <C>           <C>        <C>         <C> 

Louis J. Pearlman,       1996     $118,921     $     0
Chairman,                1995     $112,276.50  $     0
President, Chief         1994     $252,101     $     0     --            --         --          --
Executive and
Operatng Officer

Alan A. Siegel,          1996(1)  $ 61,530     $     0
Secretary, General       1995(1)  $ 58,140     $70,000
Manager and Director     1994(1)  $ 71,539     $     0


</TABLE>

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

(1)   Mr. Siegel deferred $25,000 of his salary in each of 1994, 1995 and 1996.


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 


                                      -17-


<PAGE>

<PAGE>


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

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

        There were no option grants in 1996.



                                      -18-


<PAGE>

<PAGE>



                       AGGREGATED OPTION EXERCISES IN 1996
                     AND 1996 FISCAL YEAR-END OPTION VALUES



There were no options exercises in 1996.




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


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.
See "Employment Agreements."

EMPLOYMENT AGREEMENTS

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

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


                                      -19-


<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            97,000                         *                                 *
Trans Continental(3)    3,666,862                        10%                              *
All officers and       13,118,533                      24.3%                              *
directors as a group
(5 persons)(2)


</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)  Such shares of Common Stock were granted to Trans Continental 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".


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


                                      -20-


<PAGE>

<PAGE>


the Company's obligation to repay principal and interest on Mr. Pearlman's
loan to the Company shall be reduced proportionately to reflect the amount of
the then outstanding Loan for so long as the Loan shall remain outstanding. The
loan from Mr. Pearlman bears interest at the rate of 8.5%. In consideration for
Mr. Pearlman's guaranteeing repayment of the Loan and agreeing that the Loan can
be offset against his loan, the Company has treated the $789,000 as a reduction
of the amount due to Mr. Pearlman.

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

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

        On October 9, 1995 the Company granted to Trans Continental 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 Trans
Continental'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, Trans Continental has procured, for the Company's
benefit, a corporate credit card.

        On December 24, 1996, Trans Continental Leasing, Inc. obtained a loan
with Norwest Equipment Finance, Inc. In the amount of $4,709,000. The proceeds
of this refinancing were used to repay the Company's debt to Senstar and to
provide working capital to the Company.

        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 


                                      -21-


<PAGE>

<PAGE>


3, 1994 and interest of $7,500 was received in February 1995. The remaining
balance of the loan was subsequently repaid.

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

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

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


                                      -22-


<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 of Independent Certified Public Accountant                F-1

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

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

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

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

             F.    Notes to Financial Statements                                 F-8 to F-22

(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-23

             B.   II  - Amounts receivable from related parties                  F-24

             C.   IV - Indebtedness to related parties                           F-25

             D.   V  - Airships and related equipment                            F-26

             E.   VI - Accumulated depreciation and amortization of              F-27
                       airships and related equipment
</TABLE>

<TABLE>
<CAPTION>

 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>

                                      -23-







<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>

                                      -24-





<PAGE>

<PAGE>

<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


</TABLE>


                                      -25-





<PAGE>

<PAGE>

<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

</TABLE>

                                      -26-





<PAGE>

<PAGE>

<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

</TABLE>


                                      -27-





<PAGE>

<PAGE>

<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

</TABLE>

                                      -28-






<PAGE>

<PAGE>


<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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

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

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

  11.1      Statement re: Computation of Per Share Earnings.                                           *

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

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

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

  21.1      List of Subsidiaries                                                                 Exhibit 21.1(19)

  27.1      Financial Data Schedule                                                                      *

</TABLE>



            *Filed herewith.


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



                                      -29-






<PAGE>

<PAGE>

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

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

                                      -30-




<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:  September 8, 1997                   By: /s/ Louis J. Pearlman
                                               -----------------------
                                                 Louis J. Pearlman
                                                 Chairman of the Board of
                                                 Directors, President and
                                                 Treasurer (Principal Executive
                                                 and Financial Officer)


Dated: September 8, 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: September 8, 1997                    By:  /s/ Marvin Palmquist
                                               ----------------------
                                                  Marvin Palmquist
                                                  Director

Dated: September 8, 1997                    By:  /s/ James J. Ryan
                                               -------------------
                                                  James J. Ryan
                                                  Director







                                        -31-




<PAGE>


<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT

Board of Directors and Stockholders
Airship International Ltd.

        I have audited the accompanying balance sheets of Airship International
Ltd. as of December 31, 1996 and 1995 and the related statement of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.

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

        In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Airship
International Ltd. at December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.

        The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As described in Note B to the
financial statements, the Company has experienced significant operating losses,
an accumulated deficit and negative working capital at December 31, 1996 and
1995. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty, with the
exception of the effects of applying Statement of Financial Accounting Standards
No. 121, "Impairment of Long-Lived Assets to be Disposed Of," as described in
Note A.

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

Maitland, Florida
September 5, 1997


                                         F-1


<PAGE>



<PAGE>
                           AIRSHIP INTERNATIONAL LTD.
                                 BALANCE SHEETS
                                   DECEMBR 31,
 
<TABLE>
<CAPTION>
                                                                                        1996            1995
                                                                                    ------------    ------------
 
<S>                                                                                 <C>             <C>
                                     ASSETS
Airships and Related Equipment
     Airships....................................................................   $  2,294,000    $  2.294,000
     Vehicles....................................................................      1,384,000       1,566,000
     Parts and equipment.........................................................      1,216,000       1,197,000
     Airship components..........................................................      1,605,000       1,605,000
                                                                                    ------------    ------------
                                                                                       6,499,000       6,662,000
Less: Accumulated depreciation and amortization..................................      2,292,000       1,958,000
                                                                                    ------------    ------------
                                                                                       4,207,000       4,704,000
Cash and cash equivalents........................................................          2,000          26,000
Prepaid insurance................................................................             --          81,000
Due from related parties.........................................................        275,000         176,000
Other assets.....................................................................         12,000          86,000
                                                                                    ------------    ------------
                                                                                    $  4,496,000    $  5,073,000
                                                                                    ------------    ------------
                                                                                    ------------    ------------
                      LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
     Accounts payable--trade.....................................................   $  1,615,000    $  1,690,000
     Customer payment on future services.........................................        553,000         553,000
     Insurance financing.........................................................         38,000         104,000
     Accrued expenses and other liabilities......................................      4,536,000       2,838,000
     Obligations under capital leases............................................      3,158,000       3,348,000
     Loan payable................................................................      3,016,000       3,689,000
     Deferred gain on sale of airship............................................        810,000         854,000
     Due to stockholders.........................................................      4,608,000       1,604,000
                                                                                    ------------    ------------
          Total liabilities......................................................     18,334,000      14,680,000
                                                                                    ------------    ------------
                                                                                    ------------    ------------
CONTINGENCIES AND COMMITMENTS....................................................         --              --

STOCKHOLDERS' DEFICIT
     Preferred stock, $.01 par value; Authorized--10,000,000 shares, issued and
       outstanding--2,712,000 shares in 1996 and 2,797,000 in 1995...............         27,000          28,000
     Common stock, $.01 par value; Authorized--80,000,000 shares, issued and
       outstanding--41,002,000 shares in 1995 and 40,490,000 in 1995..............       410,000         405,000
     Capital in excess of par value -- Preferred Stock...........................     14,444,000      14,443,000
     Capital in excess of par value -- Common Stock..............................     22,081,000      22,086,000
     Accumulated deficit.........................................................    (50,800,000)    (46,569,000)
                                                                                    ------------    ------------
          Total stockholders' deficit............................................    (13,838,000)     (9,607,000)
                                                                                    ------------    ------------
                                                                                    $  4,496,000      $5,073,000
                                                                                    ------------    ------------
                                                                                    ------------    ------------
 
        The accompanying notes are an integral part of these statements.
 
                                      F-2


<PAGE>

<PAGE>
                           AIRSHIP INTERNATIONAL LTD.
                            STATEMENTS OF OPERATIONS
 

</TABLE>
<TABLE>
<CAPTION>
                                                                            FOR THE YEAR ENDED DECEMBER 31,
                                                                       ------------------------------------------
                                                                          1996           1995            1994
                                                                       -----------    -----------    ------------
 
<S>                                                                    <C>            <C>            <C>
Airship Revenue.....................................................   $   --         $ 2,620,000    $  3,980,000
Costs and Expenses:
     Operating costs................................................     1,150,000      4,027,000      17,452,000
     Selling, general and administrative expenses...................       689,000      1,893,000       2,408,000
                                                                       -----------    -----------    ------------
                                                                         1,839,000      5,920,000      19,860,000
Loss from operations................................................    (1,839,000)    (3,300,000)    (15,880,000)
                                                                       -----------    -----------    ------------
Other income (expense)
     Gain (loss) on sale of airship components to a stockholder.....        13,000       (548,000)       (659,000)
     Realized gain on sale leaseback................................        44,000         26,000         --
     Loss on insurance settlement...................................       --             --           (3,433,000)
     Interest expense...............................................      (768,000)    (1,103,000)       (805,000)
     Interest, royalties and other income...........................        44,000         58,000         206,000
     Costs relating to settlement of litigation.....................       --             --              (64,000)
                                                                       -----------    -----------    ------------
                                                                          (667,000)    (1,567,000)     (4,765,000)
                                                                       -----------    -----------    ------------
Net income (loss)...................................................   $(2,506,000)   $(4,867,000)   $(20,645,000)
                                                                       -----------    -----------    ------------
Weighted average number of common shares and equivalents
  outstanding.......................................................    40,879,000     36,008,000      30,161,000
Net income (loss) applicable to common stock:
     Net income (loss)..............................................   $(2,506,000)   $(4,867,000)   $(20,645,000)
     Less preferred stock dividend..................................    (1,725,000)    (1,725,000)     (1,681,000)
                                                                       -----------    -----------    ------------
Net income (loss) applicable to common stock........................   $(4,231,000)   $(6,592,000)   $(22,326,000)
                                                                       -----------    -----------    ------------
Net income (loss) per share.........................................   $     (0.10)   $     (0.18)   $      (0.74)
                                                                       -----------    -----------    ------------
 
SIGNIFICANT AMOUNTS APPLICABLE TO RELATED PARTIES
Operating costs -- Insurance expense................................   $   --         $        --    $     74,000
Selling, general and administrative:
     Interest expense...............................................   $   293,000    $   101,000    $    105,000
     Interest income................................................   $   --         $    23,000    $    164,000
</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)
 
<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,
  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)
    Conversion of preferred
      stock into common
      stock.................      (78,000)     (1,000)        467,000       5,000           1,000         (5,000)        --
    Exercise of stock
      options as
      compensation..........       --           --          5,000,000      50,000         --              50,000         --
    Issuance of common stock
      to Trans Continental
      for loan guarantee....       --           --          3,667,000      36,000         --             110,000         --
    Dividends paid on
      preferred stock:
        Accrued common stock
          dividend..........       --           --            --            --            --             --           (1,725,000)
    Loss....................       --           --            --            --            --             --           (4,867,000)
Balance at December 31,
  1995......................    2,797,000      28,000      40,490,000     405,000      14,443,000     22,086,000     (46,569,000)
                               ----------    ---------    -----------    ---------    -----------    -----------    ------------
                               ----------    ---------    -----------    ---------    -----------    -----------    ------------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-4



 <PAGE>


<PAGE>
                           AIRSHIP INTERNATIONAL LTD.
            STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
 
<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>
Conversion of preferred
  stock into common stock...      (85,000)     (1,000)        512,000       5,000           1,000         (5,000)        --
Dividends paid on preferred
  stock:
    Accrued common stock                                                                                 --      
      dividend..............       --           --            --            --            --                          (1,725,000)
Loss........................       --           --            --            --            --             --           (2,506,000)
                               ----------    ---------    -----------    ---------    -----------    -----------    ------------
Balance at December 31,
  1996......................    2,712,000     $27,000      41,002,000    $410,000     $14,444,000    $22,081,000    $(50,800,000)
                               ----------    ---------    -----------    ---------    -----------    -----------    ------------
                               ----------    ---------    -----------    ---------    -----------    -----------    ------------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-5



<PAGE>


<PAGE>
                           AIRSHIP INTERNATIONAL LTD.
                            STATEMENTS OF CASH FLOWS
                        FOR THE YEAR ENDED DECEMBER 31,
 
Increase (decrease) in cash and cash equivalents
 
<TABLE>
<CAPTION>
                                                                            1996          1995          1994
                                                                         ----------    ----------    -----------
 
<S>                                                                      <C>           <C>           <C>
Cash flows from operating activities
     Net income (loss)................................................   $(2,506,000)  $(4,867,000)  $(20,645,000)
     Adjustments to reconcile net income (loss) to net cash flows used
       in operating activities:
          Issuance of common stock through exercise of options........       --           100,000        --
          Issuance of common stock in exchange for Trans Continental         
            debt guarantee............................................       --           146,000        --
          Depreciation and amortization...............................      462,000       661,000      2,389,000
          Realized gain on sale leaseback.............................      (44,000)      (26,000)       --
          Loss from impairment of long-lived assets...................       --         1,462,000      9,634,000
          Gain (loss) on disposition of airship components and related
            assets....................................................      (34,000)      704,000        153,000
          Loss on insurance settlement................................       --            --          1,467,000
          Loss on abandonment of Blimp USA............................       --            --            479,000
          Other -- net................................................       --            --            --
          Loss on disposition of airship component....................       --            --            --
          Changes in operating assets and liabilities:
               Prepaid insurance......................................       81,000       545,000        807,000
               Other assets...........................................       74,000        95,000        262,000
               Accounts payable -- trade..............................      (75,000)   (2,378,000)     3,153,000
               Customer payments on future services...................       --          (813,000)     1,117,000
               Insurance financing....................................      (66,000)     (187,000)    (1,213,000)
               Accrued expenses and other liabilities.................      (27,000)     (329,000)       253,000
                                                                         ----------    ----------    -----------
                    Net cash flows used in operating activities.......   (2,135,000)   (4,887,000)    (2,144,000)
                                                                         ----------    ----------    -----------
Cash flows from investing activities:
     Proceeds from sale of airship components.........................       88,000        20,000         55,000
     Acquisition of airships and related equipment....................      (19,000)      (21,000)      (317,000)
     Net change in due from Trans Continental.........................      (99,000)    1,632,000        717,000
                                                                         ----------    ----------    -----------
                    Net cash flows provided by (used in) investing
                      activities......................................      (30,000)    1,631,000        455,000
                                                                         ----------    ----------    -----------
</TABLE>
 
        The accompanying notes are an integral part of these statements.


                                           F-6


<PAGE>


<PAGE>

                           AIRSHIP INTERNATIONAL LTD.
                      STATEMENTS OF CASH FLOWS--CONTINUED
                        FOR THE YEAR ENDED DECEMBER 31,
 
<TABLE>
<CAPTION>


Increase (decrease) in cash and cash equivalents
 
                                                                            1996          1995          1994
                                                                         ----------    ----------    -----------
 
<S>                                                                      <C>           <C>           <C>
Cash flows from financing activities:
     Proceeds from issuance of loans payable..........................       --          3,500,00      1,432,000
     Principal payments on capital leases and loans...................     (863,000)   (1,415,000)      (479,000)
     Principal payments to related party..............................       --            --            104,000
     Net proceeds from private placement of debt......................       --            --            183,000
     Payment of dividends.............................................       --            --           (173,000)
     Proceeds from loans by stockholder...............................    3,004,000       654,000        --
     Net cash flows from financing activities.........................    2,141,000     2,739,000      1,067,000
                                                                         ----------    ----------    -----------
Net changes in cash and equivalents...................................      (24,000)     (517,000)      (622,000)
Cash and equivalents, beginning of year...............................       26,000       543,000      1,165,000
                                                                         ----------    ----------    -----------
Cash and equivalents, end of year.....................................   $    2,000    $   26,000    $   543,000
                                                                         ----------    ----------    -----------
                                                                         ----------    ----------    -----------
</TABLE>
 
        The accompanying notes are an integral part of these statements.

                                            F-7


<PAGE>

<PAGE>


                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

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, 1996, the Company had no airships in operation.

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

        Revenue Recognition - Airship revenues, when available, are 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, 1996 or 1995.

        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, 1996, 1995 and 1994

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


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

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

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

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

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

                                      F-9

<PAGE>


<PAGE>



                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

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

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

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

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

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

        As shown in the accompanying financial statements, the Company has
experienced significant operating losses and negative cash flow from operations
in recent years and has an accumulated deficit of $50,800,000 at December 31,
1996. During the year ended December 31, 1996, the Company did not generate any
revenues from airship operations and it reported a net loss of $2,506,000 and
has negative working capital of $12,588,000 at December 31, 1996. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern.

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

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

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

        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.

                                             F-10

<PAGE>


<PAGE>



                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

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

        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.

NOTE C - TRANSACTIONS WITH STOCKHOLDERS, RELATED PARTIES AND OTHERS

        Due from Affiliate - At December 31, 1994, the Company made advances
netting to $1,809,000 to Trans Continental Airlines, Inc. ("Trans Continental"),
an affiliated aircraft leasing company and stockholder of the Company. Louis J.
Pearlman ("Mr. Pearlman") owns 21% of Trans Continental and is the Company's
Chairman of the Board, President and Principal Stockholder. Trans Continental
pledged a $2,500,000 money market account as collateral for this advance. The
deposit was returned to the Company during 1995. Interest earned on this deposit
amounted to $23,467 and $164,000 for years ended December 31, 1995 and 1994, 
respectively. No interest was earned during the year ended December 31, 1996, as
the Company used these funds to reduce liabilities.

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

        Loans from Principal Stockholder - In May 1992, all amounts due to Mr.
Pearlman, consisting of 10% notes payable, accrued salaries, bonuses and
interest were consolidated into one single loan of $1,845,000. The loan was
payable in equal quarterly installments of $135,000 per year including interest
at 8 1/2% per annum, and commenced in July 1992. This payment schedule continued
until a loan payable to a bank for the SeaWorld airship was paid (with the
preferred stock proceeds - see Note H), at which time the loan became payable at
the discretion of the Company. All unpaid principal and interest is due in May
1997 and has been deferred by Mr. Pearlman for an indefinite period of time.
Interest on the loan payable was $93,000, $85,000, and $105,000 for the years
ended 1996, 1995, and 1994, respectively.

        On June 30, 1993, the Company made a $789,000 loan (the "Loan") to an
individual who had previously facilitated financing for the Company. Mr.
Pearlman has guaranteed repayment of the Loan. The Loan is being repaid by Mr.
Pearlman in equal monthly installments of $6,209 per month, including interest
at the rate of 8.75%. The remaining unpaid principal balance of the Loan was due
on June 30, 1995. It has been agreed that the Company's obligation to repay
principal and interest on the loan to Mr. Pearlman shall be reduced to reflect
the outstanding balance on this Loan for so long as it shall remain outstanding.
Amounts due to Mr. Pearlman at December 31, 1996 and 1995 totaled $1,040,000 and
$950,000, respectively, net of unamortized discount.

        During the years ended December 31, 1996 and 1995, Trans Continental
advanced the Company funds that were used for operations in the amount of
$3,470,000. The balance owed to Trans Continental is accruing interest at the
rate of 10% per annum and is due on demand.

                                            F-11


<PAGE>


<PAGE>


                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

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

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

        Rental Arrangement and Travel Agency Service - Trans Continental serves
as the Company's travel agent for substantially all of its travel arrangements
and the Company is its principal customer. In the opinion of management, the
terms and prices received from the corporation are similar to those available
from other travel agencies. During 1996, 1995 and 1994, 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 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. Insurance expense for Alexander Howden was $131,000 and $72,000
in 1995 and 1994, respectively.

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

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

NOTE D - INCOME TAXES

        At December 31, 1995, the Company had net operating loss carryforwards
for income taxes of approximately $38,141,000 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 $23,460,000 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 2013. The
company also has unused investment tax credits of $140,000 which expire
principally in the year 2000.

                                 F-12

<PAGE>


<PAGE>


                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

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>
                                                 1996                1995
-------------------------------------------------------------------------------
<S>                                         <C>                   <C>         
Deferred tax assets:
   Net operating loss......................  $11,953,000           $10,595,000
   Accrued expenses........................      358,000               323,000
--------------------------------------------------------------------------------
                                              12,311,000            10,918,000
   Less: Valuation allowance...............   10,128,000             8,491,000
--------------------------------------------------------------------------------
Deferred tax liabilities:
   Airships and related equipment..........   (2,183,000)           (2,427,000)
--------------------------------------------------------------------------------
                                              (2,183,000)           (2,427,000)
--------------------------------------------------------------------------------
Net deferred tax asset.....................  $     --              $      --
--------------------------------------------------------------------------------

</TABLE>


        The net change in the valuation allowance was approximately $244,000
relating to net operating losses from 1996.

NOTE E - CAPITAL LEASES AND LOANS PAYABLE

        Capital Leases - In October 1989, the Company purchased a new Skyship
600 Series airship (the "MetLife airship") from Airship UK. The MetLife airship
and related equipment were financed primarily by net proceeds of $6,200,000 from
a capital lease obtained through ORIX Commercial Credit Corp. ("ORIX"). The
capital lease initially required monthly payments of $135,000 through November
1992. In December 1992, the lease was renewed for an additional three-year term
at monthly payments of $121,000. At the end of the additional three year term
the Company had the option to purchase this airship for $1,000,000 or renew the
lease for another three year term at monthly payments of $35,000. At the
completion of the third lease term, title is to be transferred to the Company
upon payment of $1. On January 11, 1994 the Company renegotiated the lease to
reduce the $121,000 payments. Even after the payment modifications the Company
was unable to make the payments and went into default. Effective June 2, 1995,
the lease was renegotiated calling for payments of principle only of $20,000 for
twelve months. At the end of the initial twelve-month period, the Company began
to make principle and interest payments at the rate of prime plus 1% of $40,000
for the next six months, followed by payments of $60,000 for an next six months
and finally payments equaling the higher of $80,000 or 50% of the annual cash
flows for the fiscal year immediately prior to the commencement of each
applicable twelve-month period for the remaining term of the lease until the
lease is fully amortized or a larger payment is made based upon the annual cash
flow of the year. Based upon the revised payment schedule, the payments are not
sufficient to cover the interest expense. Thus negative amortization results in
1994 and 1995 and the ending principal balance is increased. The balance under
this capital lease amounted to $3,158,000 and $3,348,000 at December 31, 1996
and 1995.

                                        F-13


<PAGE>


<PAGE>


                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

NOTE E - CAPITAL LEASES AND LOANS PAYABLE - Continued

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

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


     1997.......................................... $  860,000
     1998..........................................    960,000
     1999..........................................    960,000
     2000..........................................    960,000
     Thereafter....................................     28,000
                                                    -----------
     Total minimum lease payments..................  3,768,000
     Less amount representing interest.............    610,000
                                                    -----------
    Present value of net minimum lease payments...   $3,158,000
                                                    -----------





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

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

        On November 30, 1995, the Company entered into an arrangement with
Senstar Capital Corporation ("Senstar") pursuant to which the sale-leaseback
arrangement with TLI was reversed. The Company borrowed a total of $3,500,000
from Senstar, part of which has been used to repay the loan from Phoenixcor,
Inc., the lender for TLI's transaction. The loan from Senstar is repayable over
5 years in sixty monthly payments of approximately $63,000 each, with a balance
due at the end of the five year term of approximately $700,000, and secured by a
lien on the Airship and is guaranteed by Trans Continental. The balance due
under this loan amounted to $3,004,000 and $3,463,000 at December 31, 1996 and
1995, respectively.

                                       F-14


<PAGE>


<PAGE>


                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

NOTE E - CAPITAL LEASES AND LOANS PAYABLE - Continued

        Other Long-Term Debt - The Company has other long-term debt in the
amount of $12,000 and $215,000 at December 31, 1996 and 1995, respectively.
These loans mature through December 31, 2001 at various annual interest rates.

        Current maturities of long-term are as follows:


     1997.......................................... $  541,000
     1998..........................................    583,000
     1999..........................................    605,000
     2000..........................................    664,000
     Thereafter....................................    623,000
                                                    -----------
     Total ........................................ $3,016,000
                                                    -----------
                                                    -----------


        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 of
$8,000,000 against CFG. No balances have been returned to the Company as of
December 31, 1995.

        Watermark Group PLC and Von Tech Corporation - In January 1993, a second
amended complaint to a lawsuit, which was initially commenced in March 1991 and
subsequently dismissed twice without prejudice, was filed against the Company
and Mr. Pearlman by Watermark Group PLC and Von Tech Corporation, a general
partners of Company communications (collectively the "W/VT Plaintiffs") alleging
breach of an alleged joint venture agreement involving Company Communications
and Airship Enterprises Ltd. (a company that was owned by Mr. Pearlman and that
was not in any way owned or controlled by the Company); breach of an alleged
agreement by the Company regarding the lease and operation of a particular
airship; and breach of an alleged oral commission agreement by the Company
relating to the Company's acquisition of two airships it presently owns.
                                 
                                   F-15

<PAGE>



<PAGE>



                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

NOTE F - LEGAL PROCEEDINGS - Continued

        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, which has been placed in escrow pending appeal.

        Westinghouse Airships, Inc. - On September 14, 1994, Westinghouse
Airships, Inc. ("WAI") filed a complaint against the Company alleging that the
Company and Mr. Pearlman breached an agreement to purchase two gondolas from
WAI. Specifically, the complaint alleges that WAI delivered both gondolas at
issue and that the Company failed to make certain installments to WAI under the
agreement. The complaint also alleges that the Company breached a sub-lease to
occupy certain 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 normal the course of business. Those
cases in which the ultimate settlement is known or estimable have been accrued
in the financial statements. It is not possible at this time to predict the
outcome of the unsettled legal actions; however, in the opinion of management
and informal advice of counsel, the disposition of these other lawsuits will not
have a material effect on the financial statements.

                                       F-16




<PAGE>





<PAGE>


                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

NOTE G - COMMITMENTS AND CONTINGENCIES

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

        Employment Agreements - In 1993 the Company and Mr. Pearlman entered
into an employment agreement which 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, 1995 are $391,000 and are included in amounts due
to related party.

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

        The Company entered into employment agreements as of January 1, 1993
with each of two officers and another employee. Each agreement expires on
January 1, 1998 and provides for annual salaries of $75,000 for the first year
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 aftertax 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,
1996 are as follows:


     1997..........................................  $27,000
     1998..........................................    4,000
     1999..........................................    1,000
                                                    -----------
                                                     $31,000
                                                    -----------
                                                    -----------


        Rent expense amounted to $52,000, $(18,000) and $819,000 for the year
ended 1996, 1995 and 1994, respectively.

                                           F-17



<PAGE>

<PAGE>



                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

NOTE H - STOCKHOLDERS' EQUITY

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

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

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

        In connection with the offering, the Company issued to the two
representatives of the several underwriters, warrants to purchase an additional
10% of the Preferred Stock sold in the Offering. The Preferred Stock warrants
are exercisable for four years commencing February 1994 at an exercise price
equal to 165% of the initial offering price 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,
1995, all of which are currently exercisable, after giving effect to adjustments
through such date for anti-dilution provisions and exercisable price reductions
are as follows:

<TABLE>
<CAPTION>
                                                                      Exercise
                                                       Shares            Price          Expiration
                                                      Issuable         Per Share           Date
-------------------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>               <C>
Warrants:
   Issued in connection with public offering in 1991:
      Officer and others in 1989 and 1991.............  215,000      $0.94 to $1.28    February 1990
                                                                                       to October 2001
</TABLE>

                                                 F-18


<PAGE>



<PAGE>


                          Airship International, Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

NOTE H - STOCKHOLDERS' EQUITY - Continued

        Incentive Stock Option Plan - 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>

                                                   1996       1995       1994
-------------------------------------------------------------------------------
<S>                                                <C>        <C>       <C>
  Options outstanding at beginning of year........  --         --       265,000
  Options granted.................................  --         --          --
  Options exercised...............................  --         --          --
  Options cancelled...............................  --         --       265,000
-------------------------------------------------------------------------------
  Options outstanding at end of year..............  --         --          --
-------------------------------------------------------------------------------
  Options price per share.........................  --         --     $.94-$1.28
  Options exercisable:
     Number of shares.............................  --         --          --
                                                   ----------------------------

</TABLE>

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

                                    F-19


<PAGE>


<PAGE>



                          Airship International, Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

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.

        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.

        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).

        Anheuser-Busch/Sea World - 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 and
the term of the contract ended in August 1994. The Bud One contract was amended
in July 1994 and provided for operations at the full price from August 1994
through December 1996. However, during December 1995, it was determined that the
envelope was in need of replacement. Therefore, the Company removed the airship
from service.

                                        F-20


<PAGE>



<PAGE>



                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

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

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

        The Company was 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.

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

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

        Concurrently with the execution and delivery of the Purchase and
Assumption Agreement, the Company sold to Aviation all of the issued and
outstanding shares of the capital stock of Airship Operations, Inc. Mr.
Benscher, who is a shareholder of the Company, is a principal stockholder of
Aviation. See Note C - Transactions With Stockholders, Related Parties
And Others.

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

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

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


                                     F-21


<PAGE>


<PAGE>





                           Airship International Ltd.
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

NOTE J - EMPLOYEE SAVINGS PLAN

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

NOTE K - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION


<TABLE>
<CAPTION>

                                                        1996            1995         1994
                                                     ----------      ----------    --------
<S>                                                  <C>             <C>           <C>
Cash paid during the year for:
    Interest........................................ $  475,000      $1,018,000    $392,000

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

</TABLE>


NOTE L - SUBSEQUENT EVENTS

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

                                F-22


<PAGE>


<PAGE>



              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOLINTANTS
                                  ON SCHEDULES

Board of Directors and Stockholders
Airship International Ltd.

        In connection with our audit of the financial statements of Airship
International Ltd. referred to in our report dated September 5, 1997 (that
contains an explanatory paragraph pertaining to a going concern and other
uncertainties), which is included in the Annual Report on SEC Form 10-K for the
year ended December 31, 1996 and 1995, we have also audited Schedules II, IV, V
and VI, for the year ended December 31, 1996 and 1995. In our opinion, these
schedules present fairly, in all material respects, the information required to
be set forth therein.



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


Maitland, Florida
September 5, 1997

                                   F-23



<PAGE>

<PAGE>
                           AIRSHIP INTERNATIONAL LTD.
                                  SCHEDULE II
                    AMOUNTS RECEIVABLE FROM RELATED PARTIES
 
<TABLE>
<CAPTION>
                                                                BALANCE                                   BALANCE
                                                              AT BEGINNING                               AT END OF
                   NAME OF RELATED PARTY                        OF YEAR       ADDITIONS    DEDUCTIONS      PERIOD
-----------------------------------------------------------   ------------    ---------    ----------    ----------
 
<S>                                                           <C>             <C>          <C>           <C>
YEAR ENDED DECEMBER 31, 1996:
     Trans Continental Airlines, Inc.......................    $  176,000     $  99,000    $   --        $  275,000
                                                              ------------    ---------    ----------    ----------
YEAR ENDED DECEMBER 31, 1995:
     Trans Continental Airlines, Inc.......................    $1,809,000     $ 176,000    $1,809,000    $  176,000
     Airship Airways, Inc..................................    $   82,500     $   --       $   82,500    $   --   
                                                              ------------    ---------    ----------    ----------
YEAR ENDED DECEMBER 31, 1994:
     Trans Continental Airlines, Inc.......................    $2,526,000     $ 742,500    $1,459,500    $1,809,000
     Airship Airways, Inc..................................    $   --         $  82,500    $   --        $   82,500
                                                              ------------    ---------    ----------    ----------
</TABLE>

Includes $164,000 of interest income earned on advances for the years
ended December 31, 1994.


                                           F-24


<PAGE>


<PAGE>
                           AIRSHIP INTERNATIONAL LTD.
                                  SCHEDULE IV
                        INDEBTEDNESS TO RELATED PARTIES
 
<TABLE>
<CAPTION>
                                                                BALANCE                                   BALANCE
                                                              AT BEGINNING                               AT END OF
                   NAME OF RELATED PARTY                        OF YEAR       ADDITIONS(1) DEDUCTIONS      PERIOD
-----------------------------------------------------------   ------------    ---------    ----------    ----------
 
<S>                                                           <C>             <C>          <C>           <C>
YEAR ENDED DECEMBER 31, 1996:
     Due to related party
          Trans Continental Airlines, Inc..................    $  549,000     $2,921,000   $    --       $3,470,000
          Louis J. Pearlman................................    $1,039,000     $   98,000   $    --       $1,137,000
                                                              ------------    ----------   ----------    ----------
YEAR ENDED DECEMBER 31, 1995:
     Due to related party
          Trans Continental Airlines, Inc..................    $   --         $  549,000   $   --        $  549,000
          Louis J. Pearlman................................       949,000     $   90,000   $   --        $1,039,000
                                                              ------------    ----------   ----------    ----------
YEAR ENDED DECEMBER 31, 1994:
     Due to related party
          Louis J. Pearlman................................    $  846,000     $  103,000   $   --        $  949,000
                                                              ------------    ----------   ----------    ----------
</TABLE>
 
(1) Includes amortization of debt discount of $5,000 per year.
 
(2) Includes reduction for the loan paid to an individual which was treated as a
    reduction of the balance outstanding (See Note C).
 
                                       F-25


<PAGE>



<PAGE>

 
                           AIRSHIP INTERNATIONAL LTD.
                                   SCHEDULE V
                         AIRSHIPS AND RELATED EQUIPMENT
 
<TABLE>
<CAPTION>
                                                  BALANCE
                                                     AT                                                     BALANCE
                                                  BEGINNING     ADDITIONS                   RECLASSI-        AT END
                CLASSIFICATION                     OF YEAR       AT COST      RETIREMENTS   FICATIONS       OF YEAR
----------------------------------------------                   ---------    -----------    ----------    ---------
 
<S>                                              <C>             <C>          <C>            <C>           <C>
YEAR ENDED DECEMBER 31, 1996:
     Airships.................................     2,294,000        --            --             --        2,294,000
     Airship components.......................     1,605,000        --            --             --        1,605,000
     Vehicles.................................     1,566,000                     (182,000)       --        1,384,000
     Parts and equipment......................     1,197,000       19,000         --             --        1,216,000
                                                 ------------    ---------    -----------    ----------    ---------
                                                   6,662,000       19,000        (182,000)       --        6,499,000
                                                 ------------    ---------    -----------    ----------    ---------
                                                 ------------    ---------    -----------    ----------    ---------
YEAR ENDED DECEMBER 31, 1995:
     Airships.................................     2,104,000      900,000        (710,000)       --        2,294,000
     Airship components.......................     2,730,000        --         (1,125,000)       --        1,605,000
     Vehicles.................................     1,609,000                      (43,000)       --        1,566,000
     Parts and equipment......................     1,542,000        --           (345,000)       --        1,197,000
                                                 ------------    ---------    -----------    ----------    ---------
                                                   7,985,000      900,000      (2,223,000)       --        6,662,000
                                                 ------------    ---------    -----------    ----------    ---------
                                                 ------------    ---------    -----------    ----------    ---------
YEAR ENDED DECEMBER 31, 1994:
     Airships.................................    12,048,000       11,000      (7,043,000)   (2,912,000)   2,104,000
     Airship components.......................     6,762,000        --         (6,783,000)    2,751,000    2,730,000
     Vehicles.................................     1,514,000      241,000        (146,000)       --        1,609,000
     Parts and equipment......................     2,768,000       64,000      (1,451,000)      161,000    1,542,000
     Construction in progress.................       479,000        --           (479,000)       --           --
                                                 ------------    ---------    -----------    ----------    ---------
                                                  23,571,000      316,000     (15,902,000)       --        7,985,000
                                                 ------------    ---------    -----------    ----------    ---------
                                                 ------------    ---------    -----------    ----------    ---------
</TABLE>

                                                  F-26


 <PAGE>

<PAGE>
   
 
                           AIRSHIP INTERNATIONAL LTD.
                                  SCHEDULE VI
                  ACCUMULATED DEPRECIATION AND AMORTIZATION OF
                         AIRSHIPS AND RELATED EQUIPMENT
 
<TABLE>
<CAPTION>
                                                     BALANCE       ADDITIONS
                                                        AT         CHARGED TO                               BALANCE
                                                    BEGINNING      COSTS AND                  RECLASSI-      AT END
                 CLASSIFICATION                      OF YEAR       EXPENSES      RETIREMENTS  FICATIONS     OF YEAR
------------------------------------------------                   ----------    ----------    --------    ---------
 
<S>                                                <C>             <C>           <C>           <C>         <C>
YEAR ENDED DECEMBER 31, 1996:
     Airships...................................       347,000       131,000         --           --         478,000
     Vehicles...................................     1,068,000       275,000       (127,000)      --       1,216,000
     Parts and equipment........................       543,000        55,000         --           --         598,000
                                                   ------------    ----------    ----------    --------    ---------
                                                     1,958,000       461,000       (127,000)      --       2,292,000
                                                   ------------    ----------    ----------    --------    ---------
                                                   ------------    ----------    ----------    --------    ---------
YEAR ENDED DECEMBER 31, 1995:
     Airships...................................       234,000       113,000         --           --         347,000
     Vehicles...................................       805,000       302,000        (39,000)      --       1,068,000
     Parts and equipment........................       453,000        90,000         --           --         543,000
                                                   ------------    ----------    ----------    --------    ---------
                                                     1,492,000       505,000        (39,000)      --       1,958,000
                                                   ------------    ----------    ----------    --------    ---------
YEAR ENDED DECEMBER 31, 1994:
                                                   ------------    ----------    ----------    --------    ---------
     Airships...................................     1,976,000     1,119,000     (3,078,000)    137,000      234,000
     Vehicles...................................       565,000       331,000        (91,000)      --         805,000
     Parts and equipment........................       716,000       369,000       (632,000)      --         453,000
                                                   ------------    ----------    ----------    --------    ---------
                                                     3,257,000     1,899,000     (3,801,000)    137,000    1,492,000
                                                   ------------    ----------    ----------    --------    ---------
                                                   ------------    ----------    ----------    --------    ---------
</TABLE>
 
                                               F-27

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






<PAGE>