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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            -------------------------




                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934





       For the Quarter Ended: JUNE 30, 1998 Commission File Number 0-26582



                               WORLD AIRWAYS, INC.
             (Exact name of registrant as specified in its charter)




                DELAWARE                          94-1358276
        (State of incorporation) (I.R.S. Employer Identification Number)

              13873 Park Center Road, Suite 490, Herndon, VA 20171
                    (Address of Principal Executive Offices)
                                 (703) 834-9200
                         (Registrant's telephone number)




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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.   Yes X      No

The number of shares of the registrant's Common Stock outstanding on July 24,
1998 was 7,050,064.



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<PAGE>

                               WORLD AIRWAYS, INC.

                     JUNE 1998 QUARTERLY REPORT ON FORM 10Q

                                TABLE OF CONTENTS





                                                                           Page

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

     Condensed Balance Sheets, June 30, 1998 and December 31, 1997.............

     Condensed Statements of Operations,
         Three Months Ended June 30, 1998 and 1997.............................

     Condensed Statements of Operations,
         Six Months Ended June 30, 1998 and 1997...............................

     Condensed Statement of Changes in Common Stockholders' Deficit,
         Six months ended June 30, 1998........................................

     Condensed Statements of Cash Flows,
         Six months ended June 30, 1998 and 1997...............................

     Notes to Condensed Financial Statements...................................

Item 2.  Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................


PART II - OTHER INFORMATION

     Item 6.

         Exhibits and Reports on Form 8-K......................................

<PAGE>

ITEM 1.  FINANCIAL STATEMENTS

                               WORLD AIRWAYS, INC.
                            CONDENSED BALANCE SHEETS
                                     ASSETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>


                                                                                    (unaudited)
                                                                                      June 30,          December 31,
                                                                                        1998               1997
                                                                                  -------------      ---------------
<S>                                                                               <C>               <C>
CURRENT ASSETS
     Cash and cash equivalents, including restricted
         cash of $151 at June 30, 1998
         and $498 at December 31, 1997                                            $       8,967      $       25,887

     Restricted short-term investments                                                      145                  --

     Trade accounts receivable, less allowance for
         doubtful accounts of $1,173 at June 30, 1998
         and $498 at December 31, 1997                                                    7,249               7,747

     Other receivables                                                                    7,463               9,485

     Due from affiliate, less allowance for
         doubtful accounts of $987 at June 30, 1998
         and $475 at December 31, 1997                                                    6,964               2,471

     Prepaid expenses and other current assets                                            5,066               7,995

     Assets held for sale                                                                   500                 500
                                                                                        -------             -------

         Total current assets                                                            36,354              54,085
                                                                                        -------             -------

ASSETS HELD FOR SALE                                                                      2,498               2,734

EQUIPMENT AND PROPERTY
     Flight and other equipment                                                          88,347              86,774
     Equipment under capital leases                                                      12,266              12,266
                                                                                        -------             -------
                                                                                        100,613              99,040
     Less: accumulated depreciation and amortization                                     29,611              25,603
                                                                                        -------             -------

         Net equipment and property                                                      71,002              73,437
                                                                                        -------             -------

LONG-TERM OPERATING DEPOSITS                                                             15,891              16,059

OTHER ASSETS AND DEFERRED CHARGES, NET                                                    2,194               2,833
                                                                                        -------             -------

TOTAL ASSETS                                                                      $     127,939      $      149,148
                                                                                        =======             =======

                                                                                                        (Continued)
</TABLE>

<PAGE>

                               WORLD AIRWAYS, INC.
                            CONDENSED BALANCE SHEETS
                                   (CONTINUED)
                  LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
                        (IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                                   (unaudited)
                                                                                     June 30,          December 31,
                                                                                       1998                1997
                                                                                  -------------      --------------
<S>                                                                               <C>               <C>

CURRENT LIABILITIES
     Notes payable                                                                $       1,360      $        4,039
     Current maturities of long-term obligations                                          7,949               9,856
     Accounts payable                                                                    19,345              19,824
     Unearned revenue                                                                     6,985               2,486
     Accrued maintenance in excess of reserves paid                                       2,732               2,481
     Accrued salaries and wages                                                          12,994              10,976
     Accrued taxes                                                                        1,469               1,386
     Due to affiliate                                                                       744               3,304
     Other accrued liabilities                                                            1,480               1,553
                                                                                        -------             -------
         Total current liabilities                                                       55,058              55,905
                                                                                        -------             -------

LONG-TERM OBLIGATIONS, NET                                                               69,710              75,071

OTHER LIABILITIES
     Deferred gain from sale-leaseback transactions, net of
         accumulated amortization of $20,684 at June 30,
         1998 and $20,156 at December 31, 1997                                            4,667               5,195
     Accrued maintenance in excess of reserves paid                                       9,486              10,575
     Accrued postretirement benefits                                                      2,794               2,752
     Other liabilities                                                                    4,893               4,421
                                                                                        -------             -------
         Total other liabilities                                                         21,840              22,943
                                                                                        -------             -------

TOTAL LIABILITIES                                                                       146,608             153,919
                                                                                        -------             -------

COMMON STOCKHOLDERS' DEFICIT
     Common stock, $.001 par value (40,000,000 shares authorized; 12,000,064
         shares issued and 7,080,064 outstanding at June 30, 1998 and 12,000,064
         shares issued and
         8,003,064 outstanding at December 31, 1997)                                         12                  12
     Preferred stock, $.001 par value (5,000,000 shares authorized
         and no shares issued or outstanding at June 30, 1998
         and December 31, 1997)                                                              --                  --
     Additional paid-in capital                                                          42,522              42,522
     Contributed capital                                                                  3,000               3,000
     Accumulated deficit                                                               (23,630)            (17,554)
     ESSOP guaranteed bank loan                                                             --                (227)
     Note receivable from parent                                                        (1,456)                  --
     Treasury stock, at cost (4,920,000 shares at June 30,
         1998 and 3,997,000 shares at December 31, 1997)                               (39,117)            (32,524)
                                                                                       --------            --------
         Total common stockholders' deficit                                            (18,669)             (4,771)
                                                                                       --------            --------

COMMITMENTS AND CONTINGENCIES

TOTAL LIABILITIES AND COMMON STOCKHOLDERS'
     DEFICIT                                                                      $     127,939      $      149,148
                                                                                       ========            ========

            See accompanying Notes to Condensed Financial Statements
</TABLE>

<PAGE>

                               WORLD AIRWAYS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                       FOR THE THREE MONTHS ENDED JUNE 30,
                      (IN THOUSANDS EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                                                        1998               1997
                                                                                  -------------      --------------
<S>                                                                               <C>                <C>
OPERATING REVENUES
     Flight operations                                                            $      71,066      $       80,063
     Flight operations subcontracted to other carriers                                      436               1,703
     Other                                                                                  127                 162
                                                                                        -------             -------
         Total operating revenues                                                        71,629              81,928
                                                                                        -------             -------

OPERATING EXPENSES
     Flight                                                                              18,495              16,682
     Maintenance                                                                         15,068              17,917
     Aircraft costs                                                                      21,352              24,693
     Fuel                                                                                 5,962               2,663
     Flight operations subcontracted to other carriers                                      652               1,892
     Promotions, sales and commissions                                                    2,627               2,382
     Depreciation and amortization                                                        2,129               2,196
     General and administrative                                                           6,529               7,005
                                                                                         ------              ------
         Total operating expenses                                                        72,814              75,430
                                                                                         ------              ------

OPERATING INCOME (LOSS)                                                                 (1,185)               6,498
                                                                                         ------              ------

OTHER INCOME (EXPENSE)
     Interest expense                                                                   (2,059)               (883)
     Interest income                                                                        100                 190
     Other, net                                                                            (19)                (59)
                                                                                        -------              ------
         Total other expense                                                            (1,978)               (752)
                                                                                        -------              ------

EARNINGS (LOSS) BEFORE INCOME TAXES                                                     (3,163)               5,746

INCOME TAX EXPENSE                                                                           --               (100)
                                                                                        -------              ------

NET EARNINGS (LOSS)                                                               $     (3,163)      $        5,646
                                                                                        =======              ======

NET EARNINGS (LOSS) PER SHARE
         Basic                                                                    $      (0.44)      $         0.50
                                                                                        =======              ======
         Diluted                                                                  $           *      $         0.50
                                                                                        =======              ======

WEIGHTED AVERAGE COMMON AND COMMON
     EQUIVALENT SHARES OUTSTANDING
         Basic                                                                            7,220              11,230
         Diluted                                                                              *              11,230


*  Amounts are anti-dilutive

            See accompanying Notes to Condensed Financial Statements
</TABLE>

<PAGE>

                               WORLD AIRWAYS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                        FOR THE SIX MONTHS ENDED JUNE 30,
                      (IN THOUSANDS EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                         1998               1997
                                                                                  -------------      --------------
<S>                                                                               <C>               <C>
OPERATING REVENUES
     Flight operations                                                            $     139,965      $      158,484
     Flight operations subcontracted to other carriers                                      678               1,943
     Other                                                                                  208                 249
                                                                                        -------             -------
         Total operating revenues                                                       140,851             160,676
                                                                                        -------             -------

OPERATING EXPENSES
     Flight                                                                              35,210              33,114
     Maintenance                                                                         30,640              34,595
     Aircraft costs                                                                      42,620              49,379
     Fuel                                                                                11,402               5,703
     Flight operations subcontracted to other carriers                                    1,078               2,249
     Promotions, sales and commissions                                                    5,277               4,663
     Depreciation and amortization                                                        4,464               4,331
     General and administrative                                                          12,937              13,808
                                                                                        -------             -------
         Total operating expenses                                                       143,628             147,842
                                                                                        -------             -------

OPERATING INCOME (LOSS)                                                                 (2,777)              12,834
                                                                                        -------             -------

OTHER INCOME (EXPENSE)
     Interest expense                                                                   (3,886)             (2,046)
     Interest income                                                                        482                 338
     Other, net                                                                              31               (110)
                                                                                        -------             -------
         Total other expense                                                            (3,373)             (1,818)
                                                                                        -------             -------

EARNINGS (LOSS) BEFORE INCOME TAXES                                                     (6,150)              11,016

INCOME TAX EXPENSE                                                                           --               (350)
                                                                                        -------             -------

NET EARNINGS (LOSS)                                                               $     (6,150)      $       10,666
                                                                                        =======             =======

NET EARNINGS (LOSS) PER SHARE
         Basic                                                                    $      (0.84)      $         0.95
                                                                                        =======             =======
         Diluted                                                                  $           *      $         0.95
                                                                                        ========            =======

WEIGHTED AVERAGE COMMON AND COMMON
     EQUIVALENT SHARES OUTSTANDING
         Basic                                                                            7,315              11,232
         Diluted                                                                              *              11,234


*  Amounts are anti-dilutive

            See accompanying Notes to Condensed Financial Statements
</TABLE>

<PAGE>

                               WORLD AIRWAYS, INC.
                         CONDENSED STATEMENTS OF CHANGES
                         IN COMMON STOCKHOLDERS' DEFICIT
                     FOR THE SIX MONTHS ENDED JUNE 30, 1998
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                                   Note                   Total
                                              Additional                               ESSOP     Receivable  Treasury    Common
                                      Common   Paid-in   Contributed   Accumulated   Guaranteed     from      Stock,   Stockholders'
                                      Stock    Capital     Capital      Deficit       Bank Loan    Parent    at Cost     Deficit
                                      -----    -------     -------      -------       ---------    ------    -------    ---------

<S>                                  <C>      <C>        <C>          <C>            <C>         <C>        <C>         <C>
BALANCE AT
     DECEMBER 31, 1997                $   12   $ 42,522   $ 3,000      $ (17,554)     $ (227)     $   --     $(32,524)   $ (4,771)

Common stock repurchases
     (773,000 shares)                     --         --        --              --          --         --       (5,910)     (5,910)

Common stock redemption
     (150,000 shares)                     --         --        --              74          --        559         (683)        (50)


Employee Savings and Stock
     Ownership Plan
     Guaranteed bank loan                 --         --        --             --          227         --           --         227

Note Receivable from
     WorldCorp                            --         --        --              --          --    (2,015)           --     (2,015)

Net Loss                                  --         --        --         (6,150)          --         --           --     (6,150)
                                       -----     ------     -----         ------       ------     ------       ------     -------

BALANCE AT
     JUNE 30, 1998                    $   12   $ 42,522   $ 3,000      $ (23,630)     $    --    $(1,456)   $ (39,117)  $(18,669)
                                       =====     ======    ======        ========      ======     =======     ========   ========

            See accompanying Notes to Condensed Financial Statements
</TABLE>

 <PAGE>
                               WORLD AIRWAYS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                        FOR THE SIX MONTHS ENDED JUNE 30,
                                 ( IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                         1998               1997
                                                                                  -------------     ---------------
<S>                                                                              <C>                <C>
CASH AND CASH EQUIVALENTS AT BEGINNING
     OF PERIOD                                                                    $      25,887      $        7,028

CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)                                                                     (6,076)              10,666
Adjustments to reconcile net income (loss) to cash
     provided (used) by operating activities:
     Depreciation and amortization                                                        4,464               4,331
     Deferred gain recognition                                                            (528)               (528)
     Provision for losses on accounts receivable                                          1,187                  --
     Other                                                                                  318                 536
     Changes in certain assets and liabilities net of effects of non-cash
         transactions:
         (Increase) decrease in accounts receivable                                     (3,160)               5,143
         Increase in restricted short-term investments                                    (145)               (154)
         Decrease in deposits, prepaid expenses
              and other assets                                                            3,097               1,897
         (Decrease) increase in accounts payable,
              accrued expenses and other liabilities                                    (1,459)                 730
         Increase in unearned revenue                                                     4,499                 117
                                                                                        -------             -------
     Net cash provided by operating activities                                            2,197              22,738
                                                                                        -------             -------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property                                                     (1,711)             (4,565)
Proceeds from disposals of equipment and property                                           446                 355
                                                                                        -------             -------
     Net cash used by investing activities                                              (1,265)             (4,210)
                                                                                        -------             -------

CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in line of credit borrowing arrangement, net                                        --             (7,520)
Repayment of debt                                                                       (9,859)             (9,290)
Purchase of World Airways common stock, at cost                                         (5,910)               (476)
Debt issuance costs                                                                        (68)                  --
Loan to majority shareholder                                                            (2,015)                  --
                                                                                       --------            --------
     Net cash used by financing activities                                             (17,852)            (17,286)
                                                                                       --------            --------

NET (DECREASE) INCREASE IN CASH
     AND CASH EQUIVALENTS                                                              (16,920)               1,242
                                                                                       --------            --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        $       8,967      $        8,270
                                                                                      =========            ========

            See accompanying Notes to Condensed Financial Statements
</TABLE>
<PAGE>

                               WORLD AIRWAYS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   The condensed balance sheet of World Airways, Inc. ("World Airways" or the
     "Company") as of June 30, 1998, the related condensed statements of
     operations for the three month and six month periods ended June 30, 1998
     and 1997, the condensed statement of changes in common stockholders'
     deficit for the six months ended June 30, 1998, and the condensed
     statements of cash flows for the six months ended June 30, 1998 and 1997
     are unaudited. In the opinion of management, all adjustments necessary for
     a fair presentation of such financial statements have been included. Such
     adjustments consisted only of normal recurring items. Interim results are
     not necessarily indicative of results for a full year.

     The condensed financial statements and notes are presented as required by
     Form 10-Q and do not contain certain information included in the Company's
     annual financial statements and notes. These financial statements should be
     read in conjunction with the financial statements and the notes included in
     the Company's Form 10-K for the year ended December 31, 1997.

2.   On August 26, 1997, the Company completed a private offering, issuing
     $50.0 million of 8% convertible senior subordinated debentures (the
     "Debentures") due in 2004 (the "Offering"). The Debentures were
     subsequently registered with the Securities and Exchange Commission. In
     connection with the above-mentioned Offering, the Company and WorldCorp,
     Inc. ("WorldCorp") entered into an agreement (the "Agreement") on August
     20, 1997 for the purchase by World Airways of up to 4.0 million shares of
     common stock owned by WorldCorp at a purchase price of $7.65 per share. On
     September 18, 1997, the Company purchased 3,227,000 shares of its common
     stock from WorldCorp for approximately $24.7 million. Therefore, at
     December 31, 1997, WorldCorp and MHS owned approximately 46.3% and 24.9% of
     World Airways, respectively. The remaining shares were publicly traded. In
     accordance with a shareholders agreement, dated as of February 3, 1994, as
     amended, among WorldCorp, MHS and the Company, if WorldCorp were to dispose
     of its holdings in the Company with the result that WorldCorp's ownership
     interest in the Company falls below 51% of the outstanding shares of common
     stock, then MHS may either sell its shares to a third party or require
     WorldCorp to sell a pro rata number of shares held by MHS to the party
     purchasing WorldCorp's shares. Therefore, as a result of the purchase of
     3,227,000 shares of common stock by World Airways from WorldCorp, MHS had
     the right to sell, and accordingly sold, 773,000 shares of its World
     Airways common stock to the Company for approximately $5.9 million,
     effective January 23, 1998. Therefore, effective January 23, 1998,
     WorldCorp and MHS owned approximately 51.2% and 16.8%, respectively, of
     World Airways.

3.   In 1996, World Airways instituted a program to purchase up to one million
     shares of its publicly-traded Common Stock pursuant to open market
     transactions. As of June 30, 1998, World Airways had purchased 770,000
     shares of Common Stock at an aggregate cost of approximately $7.9 million
     pursuant to such program. In July and August 1998, the Company purchased an
     additional 30,000 and 50,000 shares of Common Stock, respectively, both at
     aggregate costs of approximately $0.1 million. The Company may purchase
     additional shares in the future

4.   On February 21, 1998 and April 8, 1998, World Airways loaned WorldCorp
     $1.75 million and $0.27 million, respectively, which was used by WorldCorp
     to pay debt obligations. The loan was collateralized by 1.0 million of
     World Airways shares owned by WorldCorp, bore interest at prime plus 2.5%
     and was due on April 28, 1998. WorldCorp failed to make the required
     payment on April 28, 1998. After WorldCorp failed to make the required
     payment on April 28, 1998, WorldCorp and the Company entered into, and
     subsequently completed, negotiations to restructure the loan. The
     restructured loan calls for WorldCorp to increase the interest rate
     effective April 28, 1998 to 12% as compared to prime plus 2.5% in the
     original loan and to substitute 1,860,396 shares of its InteliData common
     stock and 500,000 shares of its World Airways common stock as collateral
     for the loan, rather than the prior collateral package of 1,000,000 shares
     of World Airways common stock. If WorldCorp reduces the loan principal,
     World Airways will return a pro rata amount of the collateral. On June 25,
     1998, the parties agreed to exchange 150,000 of the previously
     collateralized shares of World Airways common stock for a payment on 1)
     expenses incurred in connection with the loan, 2) interest receivable on
     the loan, and 3) principal, respectively. Principal was reduced by
     approximately $0.6 million as a result of this transaction. Therefore, at
     June 30, 1998, WorldCorp (and its subsidiaries) and MHS own 50.2% and
     17.2%, respectively, of the outstanding common stock of World Airways. The
     loan is included as a separate component of stockholders' deficit in the
     accompanying condensed balance sheet. Under the direction of the Board of
     Directors, the Company continues to examine all alternatives to collect
     interest and principal due on the loan.

5.   On April 20, 1998, WorldCorp consummated a transaction pursuant to which it
     acquired an 80% interest in Paper Acquisition Corp., a Delaware corporation
     ("Paper"). Pursuant to the transaction, (i) WorldCorp exchanged seven-year
     warrants to acquire 35% (after the exercise of such warrants and the
     WorldCorp Acquisition Corp. options described below) of the issued and
     outstanding capital stock of WorldCorp Acquisition Corp. a Delaware
     corporation ("WorldCorp Acquisition"), held by WorldCorp for certain of the
     shares of Paper held by the Paper shareholders (the warrants are
     exercisable after one-year, at an exercise price of 125% of the estimated
     fair market value of the WorldCorp Acquisition stock at April 20, 1998 and
     payable with a seven-year, full-recourse, interest only note)(ii) WorldCorp
     contributed all of its shares of World Airways and the Paper shares
     received above, to WorldCorp Acquisition Corp., in exchange for 80% of the
     issued and outstanding capital stock of WorldCorp Acquisition and (iii) the
     holders of Paper contributed their shares of capital stock of Paper in
     exchange for (A) 20% of the issued and outstanding capital stock of
     WorldCorp Acquisition, (B) the assumption of approximately $15 million of
     debt, net of cash and investments, of Paper, (C) $15 million of 8% interest
     only promissory notes of WorldCorp Acquisition due in April 2003, (D) $1
     million of 8% promissory notes of WorldCorp Acquisition due in March 1999
     and (E) an earn-out based on the earnings before interest, taxes,
     depreciation and amortization of Paper during the next five years. The
     earn-out is payable, including interest at 10%, in September 2002.
     WorldCorp has pledged all of its shares of common stock of both WorldCorp
     Acquisition and InteliData, and WorldCorp Acquisition has pledged all of
     its shares of common stock of both World Airways and Paper to the current
     Paper shareholders to collateralize the notes and the earn-out. As
     discussed in Note 4 above, one million shares of World Airways owned by
     WorldCorp were previously pledged to secure a loan of aproximately $2.0
     million from World Airways to WorldCorp. The collateral on the loan was
     adjusted to include 500,000 shares of World Airways and 1,860,396 shares of
     InteliData owned by WorldCorp. World Airways subsequently acquired 150,000
     of these shares as partial payment of the outstanding loan. After repayment
     of the loan and release of any additional shares, the shares will become
     subject to the pledge to the former Paper shareholders. The notes contain
     various restrictive covenants, including dividend restrictions on WorldCorp
     and its subsidiaries, limitations on transfers of cash to WorldCorp, as
     well as cross-default provisions. Upon an event of default, the note
     holders may assume control of the WorldCorp Acquisition board and the
     pledged collateral.

6.   Effective March 1998, the Company amended its Credit Agreement with BNY
     Financial Corporation ("BNY") for three years. The amended line of credit
     has a maximum borrowing capacity of $25.0 million, subject to borrowing
     base amounts related to receivables and spare parts inventory, as defined.
     The receivables portion of the facility has a rate equal to the Prime Rate.
     The spare parts portion of the facility has a sub-limit of $11.0 million at
     the Prime Rate + 1/2 of 1%. Further, the receivables facility allowes for
     the issuing of Letters of Credit to a sub-limit amount of $4.0 million. The
     amended agreement contains certain dividend and borrowing restrictions as
     well as certain covenants related to the Company's financial condition and
     operating results. Borrowings under this amended Credit Agreement are
     collateralized by certain receivables, inventory, and equipment. At the end
     of the second quarter there were no outstanding amounts on this facility.

     At June 30, 1998, the Company was not in compliance with the covenants. The
     Company is currently in negotiations with BNY and expects to reach an
     agreement soon.

7.   For a discussion of commitments and contingencies see "Management's
     Discussion and Analysis of Financial Condition and Results of Operations -
     Legal and Administrative Proceedings".

8.   Earnings (loss) per share for the three and six months ended June 30, 1998
     and 1997 are computed as follows(amounts in thousands except share data):

<TABLE>
<CAPTION>
                                                                  For the Three Months Ended June 30,1998
                                                              -----------------------------------------------
                                                                 Loss            Shares            Per-Share
                                                              (Numerator)     (Denominator)          Amount
                                                              -----------     -------------      ------------
<S>                                                           <C>                 <C>            <C>
     Basic EPS
        Net loss                                              $     (3,089)            7,220     $     (0.43)
                                                                                                     ========
     Effect of Dilutive Securities
        Options                                                          --               --
        8% convertible debentures                                       977            5,618
                                                                   --------           ------
     Diluted EPS
        Net loss                                              $     (2,112)           12,838     $          *
                                                                    =======           ======         ========
</TABLE>
<TABLE>
<CAPTION>
                                                                 For the Three Months Ended June 30, 1997
                                                              ----------------------------------------------
                                                               Earnings          Shares            Per-Share
                                                              (Numerator)     (Denominator)         Amount
                                                              -----------     -------------      -----------
<S>                                                          <C>                   <C>          <C>
       Basic EPS
           Net earnings available to common
              stockholders                                    $       5,646           11,230     $      0.50
                                                                                                    ========
        Effect of Dilutive Securities
           Options                                                       --               --
                                                                      -----           ------
        Diluted EPS
           Net earnings available to common
              stockholders, assuming conversions              $       5,646           11,230     $      0.50
                                                                      =====           ======         =======
</TABLE>
<TABLE>
<CAPTION>
                                                                   For the Six Months Ended June 30,1998
                                                              ----------------------------------------------
                                                                 Loss              Shares          Per-Share
                                                              (Numerator)       (Denominator)        Amount
                                                              -----------       -------------    -----------
 <S>                                                         <C>                   <C>          <C>
        Basic EPS
           Net loss                                           $     (6,076)            7,315     $    (0.83)
                                                                                                     =======
        Effect of Dilutive Securities
           Options                                                       --               --
           8% convertible debentures                                  1,944            5,618
                                                                    -------           ------
        Diluted EPS
           Net loss                                           $     (4,132)           12,933     $          *
                                                                    =======           ======          =======
</TABLE>
<TABLE>
<CAPTION>
                                                                    For the Six Months Ended June 30, 1997
                                                              -----------------------------------------------
                                                                  Earnings         Shares           Per-Share
                                                                (Numerator)   (Denominator)          Amount
                                                                -----------   -------------      ------------
<S>                                                          <C>                  <C>           <C>
        Basic EPS
           Net earnings available to common
               stockholders                                   $      10,666           11,232     $       0.95
                                                                                                     ========
        Effect of Dilutive Securities
           Options                                                       --                2
                                                                     ------           ------
        Diluted EPS
           Net earnings available to common
              stockholders, assuming conversions              $      10,666           11,234     $       0.95
                                                                     ======           ======         ========

           *  Anti-dilutive
</TABLE>

9.   The Company adopted Statement of Financial Accounting Standards No. 130
     (FAS No. 130), "REPORTING COMPREHENSIVE INCOME", effective January 1, 1998.
     FAS No. 130 established standards for the reporting and display of
     comprehensive income and its components in the financial statements. The
     adoption of FAS No. 130 does not impact the Company since the Company did
     not record any components of comprehensive income during the quarter.

     In June 1997, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 131 (FAS No. 131), "DISCLOSURE ABOUT
     SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION". FAS No. 131 requires
     the Company to present certain information about operating segments and
     related information, including geographic and major customer data, in its
     annual financial statements and in condensed financial statements for
     interim periods. The Company is required to adopt the provisions of this
     Statement during fiscal year 1998 The Company has not completed its
     analysis of the impact on the financial statements that will be caused by
     the adoption of this Statement.

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of World Airways, Inc.
("World Airways" or "the Company") as reflected in its financial statements.

The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 (the "Act"). Therefore, this
report contains forward looking statements that are subject to risks and
uncertainties, including, but not limited to, the reliance on key strategic
alliances, fluctuations in operating results and other risks detailed from time
to time in the Company's filings with the Securities and Exchange Commission.
These risks could cause the Company's actual results for 1998 and beyond to
differ materially from those expressed in any forward looking statements made
by, or on behalf of, the Company.

World Airways was organized in March 1948 and became a wholly owned subsidiary
of WorldCorp, Inc. ("WorldCorp") in a holding company reorganization in 1987. In
February 1994, pursuant to an October 1993 agreement, WorldCorp sold 24.9% of
its ownership to MHS Berhad ("MHS"), a Malaysian aviation company. Effective
December 31, 1994, WorldCorp increased its ownership in the Company to 80.1%
through the purchase of 5% of World Airways common stock held by MHS. In October
1995, the Company completed an initial public offering in which 2,000,000 shares
were issued and sold by the Company and 900,000 shares were sold by WorldCorp.
On September 18, 1997, the Company repurchased 3,227,000 shares of its common
stock from WorldCorp. At December 31, 1997, WorldCorp and MHS owned 46.3% and
24.9%, respectively, of the outstanding common stock of World Airways. The
balance was publicly traded. On January 23, 1998, the Company purchased 773,000
shares of its common stock from MHS in accordance with the shareholders
agreement. At March 31, 1998, WorldCorp and MHS owned 51.2% and 16.8%
respectively, of the outstanding common stock of World Airways, with the balance
publicly traded. In June 1998, World Airways received 150,000 shares of its
common stock from WorldCorp as partial payment on an outstanding loan from
WorldCorp. Therefore, at June 30, 1998, WorldCorp (and its subsidiaries) and MHS
owned 50.2% and 17.2% respectively, of the outstanding common stock of World
Airways, with the balance publicly traded.

On August 26, 1997, the Company completed a private offering, issuing $50.0
million of 8% convertible senior subordinated debentures (the "Debentures") due
in 2004 (the "Offering"). The Debentures were subsequently registered with the
Securities and Exchange Commission. The Debentures are unsecured obligations,
convertible into shares of the Company's common stock at $8.90 per share,
subject to adjustment in certain events, and subordinated to all present and
future senior indebtedness of the Company. In the event of a change in control
of the Company, as defined, the holders of the Debentures could require the
Company to repurchase the outstanding Debentures. The Debentures are not
redeemable by the Company prior to August 26, 2000. The Company used the net
proceeds of the Offering to repurchase approximately 4.0 million shares of its
common stock, repay certain indebtedness, increase working capital and for
general corporate purposes.

In connection with the above-mentioned Offering, the Company and WorldCorp, Inc.
("WorldCorp") entered into an agreement (the "Agreement") on August 20, 1997 for
the purchase by World Airways of up to 4.0 million shares of common stock owned
by WorldCorp at a purchase price of $7.65 per share. On September 18, 1997, the
Company purchased 3,227,000 shares of its common stock from WorldCorp for
approximately $24.7 million. In accordance with a shareholders agreement dated
as of February 3, 1994, as amended, among WorldCorp, MHS and the Company, if
WorldCorp were to dispose of its holdings in the Company with the result that
WorldCorp's ownership interest in the Company falls below 51% of the outstanding
shares of common stock, then MHS may either sell its shares to a third party or
require WorldCorp to sell a prorata number of shares held by MHS to the party
purchasing WorldCorp's shares. Therefore, as a result of the purchase of
3,227,000 shares of common stock by World Airways from WorldCorp, MHS had the
right to sell, and accordingly sold, 773,000 shares of common stock to World
Airways for approximately $5.9 million, effective January 23, 1998.

In 1996, World Airways instituted a program to purchase up to one million shares
of its publicly-traded Common Stock pursuant to open market transactions. As of
June 30, 1998, World Airways had purchased 770,000 shares of Common Stock at an
aggregate cost of approximately $7.9 million pursuant to such program. In July
and August 1998, the Company purchased an additional 30,000 and 50,000 shares of
Common Stock, respectively, both at aggregate costs of approximately $0.1
million. The Company may purchase additional shares in the future.

On April 20, 1998, WorldCorp consummated a transaction pursuant to which it
acquired an 80% interest in Paper Acquisition Corp., a Delaware corporation
("Paper"). Pursuant to the transaction, (I) WorldCorp exchanged seven-year
warrants to acquire 35% (after the exercise of such warrants and the WorldCorp
Acquisition Corp. options described below) of the issued and outstanding capital
stock of WorldCorp Acquisition Corp. a Delaware corporation ("WorldCorp
Acquisition"), held by WorldCorp for certain of the shares of Paper held by the
Paper shareholders (the warrants are exercisable after one-year, at an exercise
price of 125% of the estimated fair market value of the WorldCorp Acquisition
stock at April 20, 1998 and payable with a seven-year, full-recourse, interest
only note)(ii) WorldCorp contributed all of its shares of World Airways and the
Paper shares received above, to WorldCorp Acquisition Corp., in exchange for 80%
of the issued and outstanding capital stock of WorldCorp Acquisition and (iii)
the holders of Paper contributed their shares of capital stock of Paper in
exchange for (A) 20% of the issued and outstanding capital stock of WorldCorp
Acquisition, (B) the assumption of approximately $15 million of debt, net of
cash and investments, of Paper, (C) $15 million of 8% interest only promissory
notes of WorldCorp Acquisition due in April 2003, (D) $1 million of 8%
promissory notes of WorldCorp Acquisition due in March 1999 and (E) an earn-out
based on the earnings before interest, taxes, depreciation and amortization of
Paper during the next five years. The earn-out is payable, including interest at
10%, in September 2002. WorldCorp has pledged all of its shares of common stock
of both WorldCorp Acquisition and InteliData, and WorldCorp Acquisition has
pledged all of its shares of common stock of both World Airways and Paper to the
current Paper shareholders to collateralize the notes and the earn-out. One
million shares of World Airways owned by WorldCorp were previously pledged to
secure a loan of approximately $2.0 million from World Airways to WorldCorp.
After WorldCorp failed to make the required payment on April 28, 1998, WorldCorp
and the Company entered into, and subsequently completed, negotiations to
restructure the loan. The restructured loan calls for WorldCorp to increase the
interest rate effective April 28, 1998 to 12% as compared to prime plus 2.5% in
the original loan and to substitute 1,860,396 shares of its InteliData common
stock and 500,000 shares of its World Airways common stock as collateral for the
loan, rather than the prior collateral package of 1,000,000 shares of World
Airways common stock. If WorldCorp reduces the loan principal, World Airways
will return a pro rata amount of the collateral. On June 25, 1998, WorldCorp and
World Airways agreed that 150,000 of the shares previously pledged would be
transferred to World Airways as payment for 1) expenses incurred in connection
with the loan, 2) interest receivable on the loan, and 3) principal,
respectively. Principal was reduced by approximately $0.6 million as a result of
this transaction. After repayment of the loan and release of the shares, the
remaining shares will become subject to the pledge to the former Paper
shareholders. The notes contain various restrictive covenants, including
dividend restrictions on WorldCorp and its subsidiaries, limitations on
transfers of cash to WorldCorp, as well as cross-default provisions.

OVERVIEW

GENERAL

World Airways is a global provider of long-range passenger and cargo air
transportation outsourcing services to major international airlines under fixed
rate, multi-year contracts. The Company's passenger and freight operations
employ 12 wide-body aircraft which are operated under contracts, a significant
portion of which are with Pacific Rim airlines. These contracts generally
require the Company to supply aircraft, crew, maintenance and insurance ("ACMI"
or "wet lease"), while the Company's customers are responsible for the other
operating expenses, including fuel. World Airways' airline customers have
determined that outsourcing a portion of their wide-body passenger and cargo
requirements can be less expensive, and offers greater operational and financial
flexibility than purchasing new aircraft and additional spare parts required for
such aircraft. World Airways also leads a contractor teaming arrangement that is
one of the largest single suppliers of commercial airlift services to the United
States Air Force's Air Mobility Command ("U.S. Air Force" or "USAF").

The Company generally charges customers on a block hour basis rather than a per
seat or per pound basis. "Block hours" are defined as the elapsed time computed
from the moment the aircraft first moves under its own power at the point of
origin to the time it comes to rest at its final destination. The Company
provides most services under two types of contracts: wet lease contracts and
full service contracts. Under wet lease contracts, the Company provides the
aircraft, cockpit crew, maintenance and insurance and the customer provides all
other operating services and bears all other operating expenses, including fuel
and fuel servicing, marketing costs associated with obtaining passengers and/or
cargo, airport passenger and cargo handling fees, landing fees, cabin crews,
catering, ground handling and aircraft push-back and de-icing services. Under
full service contracts in addition to those services provided under an ACMI
contract, the Company provides fuel, catering, ground handling, cabin crew and
all related support services as well. Accordingly, the Company generally charges
a lower rate per block hour for wet lease contracts than for full service
contracts, although it does not necessarily earn a lower profit. Because of
shifts in the mix between full service contracts and wet lease contracts,
fluctuations in revenues are not necessarily indicative of volume trends or
profitability. It is important, therefore, to measure the Company's business
volume by block hours flown and to measure profitability by operating income per
block hour.

The Company's operating philosophy is to build on its existing ACMI
relationships to achieve a strong platform for future growth. World Airways
concentrates on ACMI contracts which shift yield, load factor and certain cost
risks to the customer. The customer bears the risk of filling the aircraft with
passengers or cargo and assumes operating expenses, including fuel. World
Airways has elected to emphasize its ACMI business because the Company perceives
a number of opportunities created by a growing global economy, particularly
growth in second and third world economies where the demand for airlift exceeds
capacity. World Airways attempts to maximize profitability by combining its
multi-year ACMI contracts with short term, higher-yielding ACMI agreements which
meet the peak seasonal requirements of its customers. The Company responds
opportunistically to rapidly changing market conditions by maintaining a
flexible fleet of aircraft that can be deployed in a variety of configurations.

As noted above, the Company has focused its business on ACMI contract services.
As is common in the air transportation industry, the Company has relatively high
fixed aircraft costs. World Airways operates a fleet of eight MD-11 and four
DC10-30 wide-body aircraft, and while the Company believes that the lease rates
on its MD-11 aircraft are favorable relative to lease rates of other MD-11
operators, the Company's MD-11 aircraft have higher lease costs (although lower
operating costs) than its DC10-30 aircraft. Therefore, achieving high average
daily utilization of its aircraft (particularly its MD-11 aircraft) at
attractive yields are important factors to the Company's financial results. In
addition to fixed aircraft costs, a portion of the Company's labor costs are
fixed due to monthly minimum guarantees to cockpit crewmembers and flight
attendants. Factors that affect the Company's ability to achieve high
utilization in its ACMI business include the compatibility of the Company's
aircraft with customer needs and the Company's ability to react on short notice
to customer requirements (which can be unpredictable due to changes in traffic
rights, aircraft delivery schedules and aircraft maintenance requirements). The
Company is currently exploring possible alternatives to the fleet composition to
better meet both customer and market demands. Other factors that affect the ACMI
business include particular domestic and foreign regulatory requirements, as
well as a trend toward aviation deregulation which is increasing the number of
alliances and code share arrangements.

SIGNIFICANT CUSTOMER RELATIONSHIPS

During the first six months of 1998, the Company's business relied heavily on
its contracts with Malaysian Airline System Berhad ("Malaysian Airlines"),
Philippine Airlines, Inc. ("Philippine Airlines"), P.T. Garuda Indonesia
("Garuda") and the U.S. Air Force. In 1998, these customers provided
approximately 20%, 5%, 23% and 40%, respectively, of the Company's revenues and
20%, 6%, 26% and 26%, respectively, of total block hours. In 1997, these
customers provided approximately 27%, 36%, 19%, and 15%, respectively, of the
Company's revenues and 30%, 38%, 20%, and 8%, respectively, of total block hours
flown.

Malaysian Airlines. World Airways has provided wet lease services to Malaysian
Airlines since 1981, for scheduled passenger and cargo operations as well as
transporting passengers for the annual Hadj pilgrimage. MHS, which owns 17.2% of
the Company as of June 30, 1998, also owns 28% of Malaysian Airlines. The
Company entered into a 32-month agreement for year-round operations (including
the Hadj) with Malaysian Airlines whereby the Company is providing two passenger
aircraft with cockpit crews, maintenance and insurance to Malaysian Airlines'
newly-formed charter division through May 1999. However, the Company agreed to a
five month reduction in the utilization of one aircraft during 1997, although
the aircraft was redeployed in other activity. Malaysian Airlines has not
informed the Company of any reductions for 1998. The Company provided three
aircraft for 1997 Hadj operations. MAS received notice from the Malaysian Hadj
Board that MAS would not participate in the 1998 Hadj pilgrimage. As a result,
the Company provided two DC-10 aircraft to fly in the 1998 Indian Hadj on behalf
of a contract entered into by MAS.

The Company has a long-term contract to operate three MD-11 cargo aircraft for
Malaysian Airlines. However, beginning in July 1996, and as mutually agreed by
the parties, World Airways redeployed two cargo aircraft, which had been
operating under these contracts, into other contracts. The two aircraft were
then redeployed to the Garuda Hadj in March 1998 and to other contracts
subsequent to the Hadj. The Company and Malaysian Airlines are currently
discussing the redeployment of these aircraft back into Malaysian Airlines'
operations during 1998 in order to meet the contracts' original obligations. The
Company can provide no assurances, however, that the Company will, in fact, be
able to do so. Revenues associated with these contractual obligations are
included in the Company's backlog amount included herein.

Malaysian Airlines is subject to the financial difficulties associated with the
adverse economic conditions in Malaysia and the Asia Pacific Region, but it has
generally remained current with its payments for committed block hour minimums
provided in the contracts. In 1998, the Company received approximately $3.3
million in revenue associated with minimum guarantee payments from Malaysian
Airlines. Failure by Malaysian Airlines to meet its aircraft lease obligations,
if not offset by other business, would have a material adverse effect on the
financial condition, cash flows and results of operations of the Company.
Garuda. The Company has flown for Garuda periodically since 1973 and yearly
since 1988. Since 1988, the Company has been one of the largest providers of
passenger services to Indonesia for the Hadj pilgrimage. The Indonesian Hadj
pilgrimage is the world's largest due to the size of Indonesia's Islamic
population. The Company operated six aircraft during the 1998 pilgrimage.

Philippine Airlines. The Company had agreements with Philippine Airlines to
operate four passenger aircraft until November 1997. As a result of the economic
distress experienced in the Philippines, the Company negotiated to terminate the
agreements on two of the aircraft effective in August 1997, and received monthly
termination payments totaling $3.0 million through the original end of the
agreements in November 1997. In addition, the contracts on the remaining two
aircraft were extended until February 1998 and the per block hour rates for
those two aircraft were reduced slightly. The two aircraft which were removed
from Philippine Airlines service were redeployed by the Company under agreements
with other customers. The contract with Philippine Airlines expired in February
1998.

U.S. Air Force. The Company has provided international air transportation to the
U.S. Air Force since 1956. In exchange for requiring pledges of aircraft to the
Civil Reserve Air Fleet ("CRAF") for use in times of national emergency, the
U.S. Air Force grants awards to CRAF participants for peacetime transportation
of personnel and cargo. Although the Company's agreements with the USAF provide
for full service contracts with certain minimum performance requirements, the
Company has risks similar to an ACMI agreement because the USAF agreements are
cost-plus contracts at attractive rates. The overall downsizing of the U.S.
military places a premium on the mobility of the U.S. armed forces. This is
reflected in the stable size over the past several years of the USAF's
procurement of commercial airlift services. It is uncertain, however, what
impact, if any, the instability within the Middle East will have upon the
Company's future flight operations.

The USAF awards points to air carriers acting alone or through teaming
arrangements in proportion to the number and type of aircraft such carriers make
available to CRAF. The Company utilizes such teaming arrangements to maximize
the value of potential awards. The Company leads a contractor teaming
arrangement that enjoys a large market share of the USAF's overall commercial
airlift requirement. During a period in which the U.S. military downsized
substantially, the Company's portion of the fixed USAF award increased from
$15.6 million for the government's 1992- 93 fiscal year, to $73.4 million for
the government's 1997-98 fiscal year. The current annual contract commenced on
October 1, 1997 and expires on September 30, 1998. In July 1998, the Company was
awarded an $86 million contract for the government's 1998-1999 fiscal year,
which is a 16% increase over the contract for the 1997-1998 fiscal year. World
Airways, however, cannot determine how future cuts in military spending may
affect future operations with the U.S. Air Force.

VASP. In May 1998, the Company entered into a wet lease agreement with Viacao
Aerea Sao Paulo ("VASP") to provide one passenger aircraft for a six-month term
beginning in June 1998. Just prior to the scheduled commencement of flying, VASP
informed the Company that they had been unable to obtain the necessary approval
of the contract from the Brazilian government. The Company continues to examine
all alternatives to complete this agreement.

STAF. In April 1998, the Company entered into an agreement with Servicios De
Transportes Aereos Fueguinos ("STAF") to provide one cargo aircraft for a three
year term which began in the end of May 1998.

Although the Company's customers bear the financial risk of filling the
Company's aircraft with passengers or cargo, the Company can be affected
adversely if its customers are unable to operate the Company's aircraft
profitably, or if one or more of the Company's customers experience a material
adverse change in their market demand, financial condition or results of
operations. Under these circumstances, the Company can be adversely affected by
receiving delayed or partial payments or by receiving customer demands for rate
and utilization reductions, flight cancellations, and/or early termination of
their agreements.

As a result of these and other contracts, the Company had an overall contract
backlog at June 30, 1998 of $226.9 million, compared to $338.7 million at June
30, 1997. Approximately $83.6 million of the backlog relates to operations
during 1998. The Company's backlog for each contract is determined by
multiplying the minimum number of block hours guaranteed under the applicable
contract by the specified hourly rate under such contract. Approximately 50% of
the backlog relates to its contracts with Malaysian Airlines, included in which
are the revenues associated with the three cargo aircraft for Malaysian Airlines
(see "Significant Customer Relationships-Malaysian Airlines" for further
discussion of these contracts) and 27% of the backlog relates to its contracts
with STAF. Consistent with prior years, the Company has substantial uncontracted
capacity in September to December of 1998 and beyond and has historically been
successful in obtaining new customers. Although there can be no assurance that
it will be able to secure additional business to reduce this excess capacity,
the Company is actively seeking customers for 1998 and beyond. The Company's
financial results and financial condition would be affected adversely if the
Company is unable to secure additional business to reduce this excess capacity.

SEASONALITY

Historically, World Airways' business has been significantly affected by
seasonal factors. During the first quarter, World Airways typically experiences
lower levels of utilization and yields due to lower demand for passenger and
cargo services relative to other times of the year. World Airways experiences
higher levels of utilization and yields in the second quarter, principally due
to peak demand for commercial passenger services associated with the annual Hadj
pilgrimage. In 1998, World Airways' flight operations associated with the Hadj
pilgrimage occurred from February 28 to May 12. Because the Islamic calendar is
a lunar-based calendar, the Hadj pilgrimage occurs approximately 10 to 12 days
earlier each year relative to the Western (Gregorian) calendar. As a result,
revenues resulting from future Hadj pilgrimage contracts will continue to shift
from the second quarter to the first quarter over the next several years.

GEOGRAPHIC CONCENTRATION

The Company derives a significant percentage of its revenues and block hours
from its operations in the Pacific Rim region. Any further economic decline or
any military or political disturbance in this area may interfere with the
Company's ability to provide service in this area. In 1997 and 1998, the affects
of the adverse economic conditions in Malaysia and Indonesia and other countries
in the Asia Pacific Region included a national liquidity crisis, significant
depreciation in the value of the ringgit and rupiah, higher domestic interest
rates, reduced opportunity for refinancing or refunding of maturing debts, and a
general reduction in spending throughout the region. These conditions and
similar conditions in other countries in the Asia Pacific Region could have a
material adverse effect on the operations of Malaysian Airlines and Garuda
Indonesia, and therefore on the operations of the Company. However, management
also believes these conditions could provide new opportunities to wet lease
aircraft to airlines customers, particularly those who have deferred or canceled
new aircraft orders but are still in need of providing additional airlift.

UTILIZATION OF AIRCRAFT

Due to the large capital costs of leasing and maintaining World Airways'
aircraft, each of World Airways' aircraft must have high utilization at
attractive rates in order for World Airways to operate profitably. Although
World Airways' strategy is to enter into long-term contracts with its customers,
the terms of World Airways' existing customer contracts are substantially
shorter than the terms of World Airways' lease obligations with respect to the
aircraft. As mentioned above, a significant portion of World Airways' contract
backlog at June 30, 1998, relates to its multi-year contracts with Malaysian
Airlines which is subject to the financial difficulties associated with the
adverse economic conditions in Malaysia and the Asia Pacific region. In addition
the Company has substantial uncontracted capacity in September to December of
1998 and beyond. There can be no assurance that World Airways will be able to
enter into additional contracts with new or existing customers or that it will
be able to obtain enough additional business to fully utilize each aircraft.
World Airways' financial position and results of operations could be materially
adversely affected even by relatively brief periods of low aircraft utilization
and yields. In order to maximize aircraft utilization, World Airways does not
intend to acquire new aircraft unless such aircraft would be necessary to
service existing needs or World Airways has obtained additional ACMI contracts
for the aircraft to service. The Company is currently exploring possible
alternatives to the fleet composition to better meet both customer and market
demands. World Airways is seeking to obtain additional ACMI contracts with new
and existing customers, to which such new aircraft would be dedicated when
placed in service, but World Airways can provide no assurance that it will
obtain new ACMI contracts or that existing ACMI contracts will be renewed or
extended.

MAINTENANCE

Engine maintenance accounts for most of the Company's annual maintenance
expenses. Typically, the hourly cost of engine maintenance increases as the
aircraft ages. The Company outsources major airframe maintenance and power plant
work to several suppliers. The Company has a 10-year contract expiring in August
2003 with United Technologies Corporation's Pratt & Whitney Group for all
off-wing maintenance on the PW 4462 engines that power its MD-11 aircraft. Under
this contract, the manufacturer agreed to provide such maintenance services at a
cost not to exceed specified rates per hour during the term of the contract. The
specified rates per hour are subject to annual escalation, increasing
substantially in 1998. Accordingly, while the Company believes the terms of this
agreement have resulted in lower engine maintenance costs than it otherwise
would incur, engine maintenance costs will increase substantially during the
last five years of the agreement. The Company began to accrue these increased
expenses in 1997 and such expenses will continue to increase during the
remainder of the term of the contract as the Company's aircraft fleet ages.

OPERATING LOSSES

While the Company generated operating income each year from 1987 through 1992
and in 1995 and 1997, it sustained operating losses in 1993 and 1994 of $7.3
million and $5.2 million, respectively, and net losses of $9.0 million in each
of these two years. For the year ended December 31, 1996, the Company incurred a
net loss of $14.0 million, which resulted from operating losses incurred in the
Company's scheduled service operations, which were discontinued in 1996, and the
related estimated loss on disposal. Earnings from continuing operations were
$18.4 million for 1996. The Company has incurred operating losses for the six
months ended June 30, 1998, and there can be no assurance that the Company will
be able to generate operating income in the second half of 1998 or future years.
<PAGE>
CONTROL BY WORLDCORP; POTENTIAL CONFLICTS OF INTEREST

As of June 30, 1998, WorldCorp and its subsidiaries owned approximately 50.2% of
the outstanding World Airways common stock. WorldCorp is a holding company that
owns positions in the following companies: InteliData, and through WorldCorp
Acquisition, World Airways and Paper Acquisition Corp. ("Paper"). WorldCorp is
highly leveraged and therefore requires substantial funds to cover debt service
each year. As a holding company, all of WorldCorp's funds are generated through
its subsidiaries, none of which are expected to pay dividends in the foreseeable
future. In addition, in connection with the aforementioned acquisition of Paper,
WorldCorp Acquisition entered into promissory notes which contain various
restrictive covenants, including dividend restrictions on WorldCorp and its
subsidiaries, including World Airways. As a result of WorldCorp's cash
requirements, it may be required to sell additional shares of common stock, and
such sales, or the threat of such sales, could have a material adverse effect on
the market price of the common stock. Except as limited by contractual
arrangements with MHS, WorldCorp also is in a position to control the outcome of
many issues submitted to World Airways' stockholders, including the election of
all of World Airways' Board of Directors, adoption of amendments to World
Airways' Certificate of Incorporation, and approval of mergers.

On February 21, 1998 and April 8, 1998, World Airways loaned WorldCorp $1.75
million and $0.27 million, respectively, which was used by WorldCorp to pay debt
obligations. The loan was collateralized by 1.0 million of World Airways shares
owned by WorldCorp, bore interest at prime plus 2.5% and was due on April 28,
1998. WorldCorp failed to make the required payment on April 28, 1998. After
WorldCorp failed to make the required payment on April 28, 1998, WorldCorp and
the Company entered into, and subsequently completed, negotiations to
restructure the loan. The restructured loan calls for WorldCorp to increase the
interest rate effective April 28, 1998 to 12% as compared to prime plus 2.5% in
the original loan and to substitute 1,860,396 shares of its InteliData common
stock and 500,000 shares of its World Airways common stock as collateral for the
loan, rather than the prior collateral package of 1,000,000 shares of World
Airways common stock. If WorldCorp reduces the loan principal, World Airways
will return a pro rata amount of the collateral. On June 25, 1998, the parties
agreed to exchange 150,000 of the previously collateralized shares of World
Airways common stock for a payment on 1) expenses incurred in connection with
the loan, 2) interest receivable on the loan, and 3) principal, respectively. As
of June 30, 1998, $1.5 million of the loan was outstanding, as well as other
receivables of $0.4 million. Under the direction of the Board of Directors, the
Company continues to examine all alternatives available to complete this
transaction.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997

Total block hours decreased 3,532 hours, or 29%, to 8,804 hours in the second
quarter of 1998 from 12,336 hours in 1997, with an average of 12.0 available
aircraft per day in 1998 compared to 14.0 in 1997. This decrease is due to one
less MD-11 aircraft and one less short-term DC10-30 aircraft in 1998 versus 1997
as well as low cargo wet lease aircraft utilization in 1998 in comparison to
four aircraft in high utilization PAL flying in 1997. Average daily utilization
(block hours flown per day per aircraft) was 8.1 hours in 1998 and 9.7 hours in
1997. In 1998, wet lease contracts accounted for 69% of total block hours, a
decrease from 91% in 1997 due to continuous AMC flying in 1998 versus
redeployment to Garuda Indonesia for Hadj flying in 1997 as well as the end of
the Phillipine Airlines contract in February 1998. Total operating revenues
decreased $10.3 million, or 13%, to $71.6 million in 1998 from $81.9 million in
1997.

OPERATING REVENUES. Revenues from flight operations decreased $9.0 million, or
11%, to $71.1 million in 1998 from $80.1 million in 1997. This decrease
corresponds primarily to a decrease in block hours flown in 1998 compared to
1997, partially offset by a shift in business during 1998 with an increase in
full service operations from wet lease operations.

OPERATING EXPENSES. Total operating expenses decreased $2.6 million, or 3%, in
1998 to $72.8 million from $75.4 million in 1997.

Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight operations administration. Flight
operations expenses increased $1.8 million, or 11%, in 1998 to $18.5 million
from $16.7 million in 1997. This increase resulted primarily from a shift to
full service flying and a corresponding increase in flight attendant costs
offset by a decrease related to cockpit crew headcount and training due to a
decrease in the number of aircraft in the fleet and in block hours.

Maintenance expenses decreased $2.8 million, or 16%, in 1998 to $15.1 million
from $17.9 million in 1997. This decrease resulted primarily from the decrease
in the number of aircraft from 13 to 12 and a reduction in overall hours. The
Company expects its maintenance expense to increase on an hourly basis in 1998
and beyond due to escalations in the specified rates per hour under the
Company's maintenance agreement.

Aircraft costs decreased $3.3 million, or 13%, in 1998 to $21.4 million from
$24.7 million in 1997. This decrease resulted primarily from the return of one
short-term DC10-30 in July of 1997, two Pratt & Whitney engines in the fourth
quarter of 1997 and one MD-11 aircraft in the third quarter of 1997.

Fuel expenses increased $3.3 million in 1998, to $6.0 million from $2.7 million
in 1997. This increase is due primarily to an increase in full service block
hours and the military contract fuel price increases.

Promotions, sales and commissions increased $0.2 million in 1998, or 9%, to $2.6
million from $2.4 million in 1997. This increase resulted primarily from
expenses incurred in connection with increased revenues relating to increased
Air Mobility Command flying partially offset by no Philippine Airlines
commissions in 1998 due to the end of the contract.

Depreciation and amortization decreased $0.1 million, or 5%, in 1997 to $2.1
million from $2.2 million in 1997. This decrease resulted primarily from a
decrease in both the depreciation of DC-10 leasehold improvements and
amortization of other assets, partially offset by an increase in the
depreciation of DC-10 and MD-11 engines.

General and administrative expenses decreased $0.5 million, or 7% in 1998 to
$6.5 million from $7.0 million in 1997. This decrease was primarily due to a
reduction in wages and fringes offset by an increase in general insurance.

Interest expense increased $1.2 million in 1998 to $2.1 million from $0.9
million in 1997. This increase resulted primarily from the issuance of $50.0
million of 8% senior subordinated debentures on August 26, 1997.

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

Total block hours decreased 6,436 hours, or 27%, to 17,714 hours in 1998 from
24,150 hours in 1997, with an average of 12.0 available aircraft per day in 1998
compared to 13.7 in 1997. This decrease is due to one less MD-11 aircraft and
one less short-term DC10-30 aircraft in 1998 versus 1997 as well as low second
quarter cargo wet lease aircraft utilization in 1998 in comparison to high
utilization on four aircraft flying for PAL in 1997. Average daily utilization
(block hours flown per day per aircraft) was 8.2 hours in 1998 and 9.8 hours in
1997. In 1998, wet lease contracts accounted for 71% of total block hours, a
decrease from 90% in 1997 due to continuous AMC flying in 1998 versus
redeployment to Garuda Indonesia for Hadj flying in 1997 as well as the end of
the Phillipine Airlines contract in February 1998. Total operating revenues
decreased $19.8 million, or 12%, to $140.9 million in 1998 from $160.7 million
in 1997.

OPERATING REVENUES. Revenues from flight operations decreased $18.5 million, or
12%, to $140.0 million in 1998 from $158.5 million in 1997. This decrease
corresponds primarily to a decrease in block hours flown in 1998 compared to
1997, partially offset by a shift in business during 1998 with an increase in
full service operations from wet lease operations.

OPERATING EXPENSES. Total operating expenses decreased $4.2 million, or 3%, in
1998 to $143.6 million from $147.8 million in 1997.

Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight operations administration. Flight
operations expenses increased $2.1 million, or 6%, in 1998 to $35.2 million from
$33.1 million in 1997. This increase resulted primarily from a shift to full
service flying and a corresponding increase in flight attendant costs offset by
a decrease related to cockpit crew headcount and training due to a decrease in
the number of aircraft in the fleet and in block hours.

Maintenance expenses decreased $4.0 million, or 12%, in 1998 to $30.6 million
from $34.6 million in 1997. This decrease resulted primarily from the decrease
in the number of aircraft from 13 to 12 and a reduction in overall hours flown,
partially offset by an additional maintenance accrual of $1.4 million relating
to an engine overhaul in the first quarter of 1998. The Company expects its
maintenance expense on an hourly basis to increase in 1998 due to escalations in
the specified rates per hour under the Company's maintenance agreement.

Aircraft costs decreased $6.8 million, or 14%, in 1998 to $42.6 million from
$49.4 million in 1997. This decrease resulted primarily from the return of one
short-term DC10-30 in July of 1997, two Pratt & Whitney engines in the fourth
quarter of 1997 and one MD-11 aircraft in the third quarter of 1997, and a
decrease in aircraft insurance as a result of a reduction in insurance policy
rates.

Fuel expenses increased $5.7 million, or 100%, in 1998, to $11.4 million from
$5.7 million in 1997. This increase is due primarily to an increase in full
service block hours and the military contract fuel price increases.

Promotions, sales and commissions increased $0.6 million in 1998, or 13%, to
$5.3 million from $4.7 million in 1997. This increase resulted primarily from
expenses incurred in connection with increased revenues relating to increased
Air Mobility Command flying partially offset by the end of the Philippine
Airlines contract in February 1998.

Depreciation and amortization increased $0.2 million, or 5%, in 1997 to $4.5
million from $4.3 million in 1997. This increase resulted primarily from an
increase in the depreciation of DC-10 and MD-11 engines offset by a decrease in
both the depreciation of DC-10 leasehold improvements and amortization of other
assets.

General and administrative expenses decreased $0.9 million, or 7%, in 1998 to
$12.9 million from $13.8 million in 1997. This decrease was primarily due to a
reduction in wages and fringes, legal expenses, property tax accrual and FAA
fine accruals offset by an increase in general insurance.

Interest expense increased $1.8 million, or 90%, in 1998 to $3.9 million from
$2.0 million in 1997. This increase resulted primarily from the issuance of
$50.0 million of 8% senior subordinated debentures on August 26, 1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company is highly leveraged. The Company incurred substantial debt and lease
commitments during the past four years in connection with its acquisition of
MD-11 aircraft and related spare parts. In addition, the Company issued $50.0
million of convertible debentures in August 1997, as discussed below. As of June
30, 1998, the Company had outstanding long-term debt and capital leases of $69.7
million and notes payable and current maturities of long term obligations of
$9.3 million. In addition, the Company has significant future long-term
obligations under aircraft leases.

The Company has historically financed its working capital and capital
expenditure requirements out of cash flow from operating activities, public and
private sales of its common stock, secured borrowings, and other financings from
banks and other lenders. The degree to which the Company is leveraged could have
important consequences to holders of common stock, including the following: (I)
World Airways' ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may be limited;
(ii) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness; (iii)
World Airways' degree of leverage and related debt service obligations, as well
as its obligations under operating leases for aircraft, may make it more
vulnerable than some of its competitors in a prolonged economic downturn; (iv)
World Airways' ability to meet its payment obligations under existing and future
indebtedness, capital leases and operating leases may be limited; and (v) World
Airways' financial position may restrict its ability to pursue new business
opportunities and limit its flexibility in responding to changing business
conditions.

In the event that World Airways enters into leases for additional aircraft,
World Airways will need to make capital expenditures for additional spare
engines and parts. No assurances can be given, however, that World Airways will
obtain all of the financing required for such capital expenditures.

World Airways' cash and cash equivalents at June 30, 1998 and December 31, 1997
were $9.0 million and $25.9 million, respectively. As is common in the airline
industry, World Airways operates with a working capital deficit. Effective
January 23, 1998, the Company used approximately $5.9 million of its cash
balance to purchase the aforementioned 773,000 shares of common stock and on
February 27, 1998 and April 8, 1998, loaned WorldCorp $1.75 million and $0.27
million, respectively, which was used by WorldCorp to pay debt obligations.
World Airways has substantial long-term aircraft lease obligations with respect
to its current aircraft fleet. At June 30, 1998, World Airways' current assets
were $36.4 million and current liabilities were $55.1 million.

In 1996, World Airways instituted a program to purchase up to one million shares
of its publicly-traded Common Stock pursuant to open market transactions. As of
June 30, 1998, World Airways had purchased 770,000 shares of Common Stock at an
aggregate cost of approximately $7.9 million pursuant to such program. In July
and August 1998, the Company purchased an additional 30,000 and 50,000 shares of
Common Stock, respectively, both at aggregate costs of approximately $0.1
million. The Company may purchase additional shares in the future.

Although there can be no assurances, World Airways believes that its existing
contracts and additional business which it expects to obtain in the near term,
along with its existing cash and financing arrangements will be sufficient to
allow World Airways to meet its cash requirements related to debt service and
the operating and capital requirements for its continuing operations for the
next 12 months.

CASH FLOWS FROM OPERATING ACTIVITIES

Operating activities provided $2.2 million in cash for the six months ended June
30, 1998 compared to providing $22.7 million in the comparable period in 1997.
This decrease resulted primarily from a net loss in 1998 compared to net
earnings in 1997 and an increase in accounts receivable, partially offset by an
increase in unearned revenue.

CASH FLOWS FROM INVESTING ACTIVITIES

Investing activities used $1.3 million in cash for the six months ended June 30,
1998, compared to using $4.2 million in the comparable period in 1997. In 1998,
cash was used primarily to purchase MD-11 and DC-10 rotables to support the
current fleet, and leasehold improvements on the corporate headquarters. In
1997, cash was used primarily for the purchase of rotable spare parts, a spare
engine, and engine upgrades required for two MD-11 aircraft.

CASH FLOWS FROM FINANCING ACTIVITIES

Financing activities used $17.9 million in cash for the six months ended June
30, 1998 compared to using $17.3 million in the comparable period in 1997. In
1998, cash was used primarily to repay debt of approximately $9.9 million for
the purchase of shares of the Company's common stock for an aggregate cost of
$5.9 million, and for the loan to WorldCorp of $2.0 million, net. In 1997, cash
was used to repay debt of approximately $16.8 million and for the purchase of
shares of the Company's common stock for an aggregate cost of $0.5 million.

CAPITAL COMMITMENTS/FINANCING DEVELOPMENTS

In October 1992 and January 1993, the Company signed a series of agreements to
lease seven new MD-11 aircraft for initial lease terms of two to five years,
renewable for up to 10 years (and in the case of one aircraft, for 13 years) by
the Company with increasing rent costs. As of March 1995, the Company had taken
delivery of all seven aircraft, consisting of four passenger MD-11 aircraft, one
freighter MD-11, and two passenger/cargo convertible MD-11s. The Company
returned one aircraft in August 1997. In March 1996, the Company signed an
agreement with the manufacturer to lease two MD-11ER aircraft. Under the
agreement, the Company leased each aircraft for a term of 24 years with an
option to return the aircraft after a seven-year period with certain fixed
termination fees. In addition, the Company agreed to assume an existing lease of
two additional MD-11 freighter aircraft for 20 years, beginning in 1999, in the
event that the existing lessee terminates its lease with the manufacturer at
that time. The Company received notice that the existing lessee intends to
terminate its lease with the manufacturer. The Company is currently in
discussions with the manufacturer regarding these aircraft.

As of June 30, 1998, World Airways maintains leases for four DC10-30 aircraft.
Two of the leases expire in 1999 and two expire in 2003.

In March 1998, the Company renewed and amended a revolving line of credit
facility of up to $25.0 million for a period of 3 years, collateralized by
certain receivables, inventory and equipment. The proceeds from this facility
will be used to increase working capital and for general corporate purposes.

Under the terms of the amended Credit Agreement, the Company is not permitted
without prior written approval to (I) incur indebtedness in excess of $1.0
million (excluding capital leases), (ii) declare, pay, or make any dividend or
distribution in any six month period which aggregate in excess of 50% of net
income for the previous six months, (iii) apply any of its funds, property or
assets to the purchase, redemption or other retirement of any common or
preferred stock in excess of 5% of the total aggregate outstanding amount of
such stock. The Company must also maintain a certain quarterly tangible net
worth, net income (loss) and debt ratio requirements. The Company was not in
compliance with these covenants at June 30, 1998. At the end of the second
quarter there were no outstanding amounts on this facility. The Company is
currently in negotiations with the financial institution and expects to reach an
agreement soon.

As discussed above, the Company signed an agreement for the lease of two MD-11ER
aircraft beginning in the first quarter of 1996 to provide additional capacity
for growth opportunities. As part of the agreement for the MD-11 aircraft, the
Company received spare parts financing from the lessor of $9.0 million of which
$3.0 million was made available with the delivery of each aircraft, and the
remaining $3.0 million was made available in December 1996. As of June 30, 1998,
approximately $7.8 million had been received.

As of June 30, 1998, annual minimum payments required under the Company's
aircraft and lease obligations totaled $39.8 million for the remainder of 1998.
The Company anticipates that its total capital expenditures in 1998 will
approximate $4.1 million which the Company expects to fund from its working
capital. As of June 30, 1998, the Company held approximately $3.0 million (at
book value) of aircraft spare parts currently available for sale.

OTHER MATTERS

LEGAL AND ADMINISTRATIVE PROCEEDINGS

World Airways has periodically received correspondence from the FAA with respect
to minor noncompliance matters. In November 1996, as the FAA has increased its
scrutiny of U.S. airlines, World Airways was assessed a preliminary fine of
$810,000 in connection with certain security violations by ground handling crews
contracted by World Airways for services at foreign airport locations. Under 49
U.S.C., Section 46301, any violation of pertinent provisions of 49 U.S.C.
Subsection 40101 or related rules is subject to a civil penalty for each
violation. Upon review of the evidence or facts and circumstances relating to
the violation, the statute allows for the compromise of proposed civil
penalties. The penalties were proposed by the FAA in connection with recent
inspections at foreign airport facilities and relate primarily to ground
handling services provided by World Airways' customers in connection with their
operations; specifically, the inspection procedures of its aircraft, passengers
and associated cargo. In each of these instances, World Airways was in
compliance with international regulations, but not the more stringent U.S.
requirements, despite the fact that the flights in question did not originate or
terminate in the United States. World Airways has taken steps to comply with the
U.S. requirements. In September 1997, the Company entered into a consent order
and settlement agreement with the FAA in connection with the above-mentioned
alleged violations. Pursuant to this agreement, the Company is liable for the
sum of $610,000, of which $405,000 was paid in September 1997. The remaining
$205,000 was suspended and will be forgiven if the Company complies with the
provisions of the settlement agreement, including not incurring any security
violations during the one year period following the execution of the settlement
agreement. While World Airways believes it is currently in compliance in all
material respects with all appropriate standards and has all required licenses
and authorities, any material non-compliance by World Airways therewith or the
revocation or suspension of licenses or authorities could have a material
adverse effect on the financial condition or results of operations of World
Airways.

In connection with the discontinuance of World Airways' scheduled service
operations, World Airways is subject to claims by various third parties and may
be subject to further claims in the future. A claim has been filed in Germany
against the Company by a tour operator seeking approximately $3.5 million in
compensation related to the cancellation of a summer program in 1996. The
Company believes it has substantial defenses to this action, although no
assurance can be given of the eventual outcome of this litigation.

In addition, World Airways is party to routine litigation and administrative
proceedings incidental to its business, none of which is believed by World
Airways to be likely to have a material adverse effect on the financial
condition and results of operations of World Airways.

EMPLOYEES

The Company's cockpit crew members, who are represented by the International
Brotherhood of Teamsters (the "Teamsters"), are subject to a four-year
collective bargaining agreement that became amendable in July 1998.
Approximately 34% of the Company's employees are covered under this collective
bargaining agreement. The Company expects to begin negotiations in the third
quarter of 1998 and cannot predict the outcome of the negotiations or their
possible impact on the Company's financial condition and results of operations.

The Company's flight attendants, who are also represented by the Teamsters, are
subject to a four-year collective bargaining agreement that will expire in
August 2000. The Company's flight attendants have argued that the "scope clause"
of the collective bargaining agreement had been violated by the Company and
challenged the use of foreign flight attendant crews on the Company's flights
for Malaysian Airlines and Garuda Indonesia which has historically been the
Company's operating procedure. The Company is contractually obligated to permit
its Southeast Asian customers to deploy their own flight attendants. While the
arbitrator in this matter denied in 1997 the Union's request for back pay to
affected flight attendants for flying relating to the 1994 Hadj, the arbitrator
concluded that the Company's contract with its flight attendants requires the
Company to first actively seek profitable business opportunities that require
using the Company's flight attendants, before the Company may accept wet lease
business opportunities that use the flight attendants of the Company's
customers. Subsequently, in 1997, the flight attendants challenged and filed
"scope clause" grievances with respect to four separate wet-lease contracts. The
Company and the Teamsters are presently in discussions regarding these
grievances. At this time, however, the Company can give no assurance that these
discussions will be successful and the grievances will not be submitted to
formal arbitration. The Company can provide no assurances as to how the
resolution of this matter will affect the Company's financial condition and
results of operations.

The Company's aircraft dispatchers are represented by the Transport Workers
Union (the "TWU"). In May 1995, the parties reached agreement with respect to a
new four-year contract. This contract was ratified in February 1996. Fewer than
12 Company employees are covered by this collective bargaining agreement.

The Company is unable to predict whether any of its employees not currently
represented by a labor union, such as the Company's maintenance personnel, will
elect to be represented by a labor union or collective bargaining unit. The
election by such employees of representation in such an organization could
result in employee compensation and working condition demands that could have a
material adverse effect on the financial results of the Company.
<PAGE>
DIVIDEND POLICY

The Company has not declared or paid any cash dividends or distributions on its
common stock since the payment of a distribution to WorldCorp in 1992. The
Company currently intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future. Any future decision
concerning the payment of dividends on its common stock will depend upon the
results of operations, financial condition and capital expenditure plans of the
Company, provisions of certain financing instruments as well as such other
factors as the Board of Directors, in its sole discretion, may consider
relevant.

Under the terms of the shareholders agreement among the Company, WorldCorp, and
MHS, the Company has agreed to declare and distribute all dividends properly
payable, subject to the requirements of law and general overall financial
prudence. The Credit Agreement with BNY Financial Corporation (as amended in
March 1998, the "Credit Agreement") contains restrictions on the Company's
ability to pay dividends or make any distributions of common stock in excess of
5% of the total aggregate outstanding amount of stock, except that the Company
may make quarterly dividends so long as in any six month period, such dividends
do not exceed 50% of the Company's aggregate net income for the previous six
months.

In connection with the aforementioned acquisition of Paper, WorldCorp
Acquisition entered into promissory notes which contain various restrictive
covenants, including dividend restrictions on WorldCorp and its subsidiaries,
including World Airways.

INCOME AND OTHER TAXES

As of December 31, 1997, World Airways had net operating loss carryforwards
("NOLs") for federal income tax purposes of $92.2 million ($27.8 million of
which is subject to a $6.9 million annual limitation as a result of an ownership
change of World Airways for tax purposes in 1991). These NOLs, if not utilized
to offset taxable income in future periods, would expire between 1998 and 2011.
Use of World Airways' NOLs in future years could be further limited if an
ownership change were to occur in the future. While World Airways believes that
as of June 30, 1998, no Ownership Change has occurred since the 1991 Ownership
Change, the application of the Internal Revenue Code (the "Code") in this area
is subject to interpretation by the Internal Revenue Service. The NOLs are
subject to examination by the IRS and, thus, are subject to adjustment or
disallowance resulting from any such IRS examination. In addition, conversion of
the Debentures or future transactions in the Company's common stock or the
common stock of the Company's stockholders, including conversions of a portion
of the outstanding WorldCorp debentures into common stock, may cause an
ownership change, which could result in a substantial reduction in the annual
limitation in the use of the NOLs and the loss of a substantial portion of the
NOLs available to the Company.

YEAR 2000

The Company has begun a comprehensive review of its computer system to identify
the systems that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. The Company presently
believes that, with modifications to existing software and converting to new
software, the Year 2000 problem will not pose significant operational problems
for the Company's computer systems as so modified and converted. However, if
such modifications and conversion are not completed timely, the Year 2000
problem may have a material impact on the operations of the Company. The Company
is currently in the process of testing and modifying its existing computer
systems as well as obtaining certification of intent to be compliant from
outside parties the Company relies upon. The Company has not yet estimated the
cost of modifying its computer systems.

EFFECTS OF NEW ACCOUNTING STANDARDS

The Company adopted Statement of Financial Accounting Standards No. 130 (FAS No.
130), "REPORTING COMPREHENSIVE INCOME", effective January 1, 1998. FAS No. 130
established standards for the reporting and display of comprehensive income and
its components in the financial statements. The adoption of FAS No. 130 does not
impact the Company since the Company did not record any components of
comprehensive income during the quarter.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (FAS No. 131), "DISCLOSURE ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION". FAS No. 131 requires the Company to
present certain information about operating segments and related information,
including geographic and major customer data, in its annual financial statements
and in condensed financial statements for interim periods. The Company is
required to adopt the provisions of this Statement during fiscal year 1998 The
Company has not completed its analysis of the impact on the financial statements
that will be caused by the adoption of this Statement.

INFLATION

The Company believes that inflation has not had a material effect on the
Company's revenues during the past three years.

<PAGE>


                                     PART II

ITEM 6.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Exhibits

     No.    Description
     ---    -----------

     11     Computation of earnings (loss) per share.            Filed Herewith

     27     Financial data schedule for the quarter
            ended June 30, 1998.                                 Filed Herewith


(b)  Reports on Form 8-K

     None


  *     *     *     *     *     *     *     *     *     *     *     *     *

<PAGE>






                                   SIGNATURES



Pursuant to the requirements 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.




                                              WORLD AIRWAYS, INC.



                               By:   /s/ James Douglas
                                     Principal Accounting and Financial Officer




Date:  August 15, 1998