<PAGE>
 
--------------------------------------------------------------------------------

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                                ______________

                                   FORM 10-K

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

For the fiscal year ended:  DECEMBER 31, 1995     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  22071
                   (Address of Principal Executive Offices)
                                (703) 834-9200
                        (Registrant's telephone number)

          Securities registered pursuant to Section 12(b) of the Act:

       Title of Each Class             Name of Each Exchange on Which Registered
       -------------------             -----------------------------------------

Common Stock par value $.001 per share             Nasdaq Stock Market          

       Securities registered pursuant to Section 12(g) of the Act:  NONE

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

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

The aggregate market value of the Common Stock held by non-affiliates of the 
registrant on March 15, 1996, was approximately $21,750,000.

The number of shares of the registrant's Common Stock outstanding on March 15, 
1995 was 12,000,064.

                    DOCUMENTS INCORPORATED BY REFERENCE

Portions of World Airways, Inc.'s Notice of Annual Stockholder's Meeting and 
Proxy Statement, to be filed within 120 days after the end of the registrant's 
fiscal year, are incorporated into Part III of this Report.
<PAGE>
 
                            WORLD AIRWAYS, INC.

                       1995 ANNUAL REPORT ON FORM 10-K

                            TABLE OF CONTENTS

        
                                                                        Page
                                                                        ----


PART I 
-------

Item 1. Business..........................................................3

Item 2. Properties........................................................9

Item 3. Legal Proceedings.................................................9

Item 4. Submission of Matters to a Vote of Security Holders...............9


PART II 
--------

Item 5. Market for Registrant's Common Stock and Related Security Holder 
        Matters..........................................................10

Item 6. Selected Financial Data..........................................11

Item 7. Management's Discussion and Analysis of Financial Condition and
        Results of Operations............................................12

Item 8. Financial Statements and Supplementary Data......................25

Item 9. Changes in and Disagreements with Accountants on Accounting
        and Financial Disclosure.........................................47


PART III 
---------

Item 10. Directors and Executive Officers of the Registrant..............47

Item 11. Executive Compensation..........................................48

Item 12. Security Ownership of Certain Beneficial Owners and Management..48

Item 13. Certain Relationships and Related Transactions..................48


PART IV 
--------

Item 14. Exhibits, Financial Statement Schedules and Reports on 
         Form 8-K........................................................49

                                       2
<PAGE>
 
                                  PART I

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

    World Airways, Inc., a Delaware corporation ("World Airways" or the 
"Company"), 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 in the Company 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 of the Company's common stock were issued and sold by 
the Company and 900,000 shares were sold by WorldCorp.  WorldCorp and MHS 
currently own 59.3% and 16.6%, respectively, of the outstanding common stock of 
World Airways.  The balance is publicly traded.

    The principal executive offices of World Airways are located at Washington 
Dulles International Airport in The Hallmark Building, 13873 Park Center Road, 
Herndon, Virginia 22071.  World Airways' telephone number is (703) 834-9200.

OVERVIEW

    World Airways is a U.S. certificated air carrier, which operates in the air 
transportation industry.  Airline operations account for 100% of the Company's 
operating revenue and operating income.  World Airways is a leading provider of 
long-range passenger and cargo air transportation, serving customers in four 
distinct markets: (i) major international air carriers; (ii) the U.S. 
Government; (iii) international tour operators in the leisure passenger market; 
and (iv) small package shippers and freight forwarders.  In addition, in 1995 
the Company commenced operations in a fifth market:  scheduled passenger/cargo 
service (which, beginning in 1996 will include scheduled charters to leisure 
passenger markets on a seasonal basis).  With the exception of scheduled 
passenger/cargo service, the Company's customers purchase the use of the entire 
aircraft and sell either passenger seats or cargo space directly to their 
customers and assume the risk of filling the aircraft.  

    In July 1995, World Airways commenced year-round scheduled passenger 
service between New York and Tel Aviv.  In scheduled passenger service 
operations, the Company sells seats on an individual basis and, therefore, 
assumes load factor risk.  Recently, the Company received authority to provide 
scheduled passenger and cargo service between the United States and points in 
West Africa and South Africa beginning in the second quarter of 1996. In 
addition, the Company has formed a strategic alliance with Continental Airlines 
("Continental"), subject to definitive documentation.  This agreement with 
Continental includes codesharing, joint marketing, and participation in 
Continental's computer reservation system and OnePass frequent flyer program. 
See "Management's Discussion and Analysis Financial Condition and Results of 
Operations - Growth Opportunities". 

    In scheduled charter operations, the Company has identified what it 
believes is a significant opportunity to increase revenues and profits by 
serving potentially profitable leisure passenger markets between the U.S. and 
Europe on a seasonal basis. In the scheduled charter business, the Company 
sells less-than-planeload blocks of seats to international tour operators and 
markets the remaining seats to the public through computer reservation systems 
(see "Management's Discussion and Analysis of Financial Condition and Results 
of Operations - Growth Opportunities"). For the 1996 leisure market season, the 
Company has developed schedules and is marketing capacity to tour operators 
with particular emphasis on the markets between the U.S. and Germany, 
Switzerland, Ireland, and the United Kingdom.

    World Airways operates a balanced fleet of passenger, cargo, and 
passenger/cargo convertible aircraft, allowing it to serve the needs of its 
diverse customer base, respond to market changes throughout the year, and 
reduce seasonality.  To strengthen its competitive position, particularly with 
its Southeast Asian customers, the Company recently re-equipped its fleet with 
new generation MD-11 aircraft, a state-of-the-art, wide-body aircraft which 
provides superior range, payload, and operating economics compared to the 
Company's older DC10 aircraft.  In March 1996, the Company took delivery of two 
new MD-11ER aircraft which have extended-range capabilities.   World Airways' 
fleet of nine MD-11 and six DC10-30 aircraft appeal to customers who desire 
long-range, non-stop, international service. 

                                       3
<PAGE>
 
CUSTOMERS

    The Company's business relies heavily on its contracts with Malaysian 
Airlines, P.T. Garuda Indonesia ("Garuda") and the U.S. Air Force.  

    World Airways has provided wet lease service to Malaysian Airlines since 
1981, operating aircraft in Malaysian Airlines' scheduled passenger and cargo 
operations as well as transporting passengers for the annual Hadj pilgrimage. 
MHS, which owns 16.6% of the Company as of December 31, 1995, also owns 32% of 
Malaysian Airlines.  In late 1994, the Company entered into a series of 
multi-year contracts, with expiration dates ranging from 1997 to 2000, to 
provide five aircraft to Malaysian Airlines (see "Management's Discussion and 
Analysis of Financial Condition and Results of Operations - Customers").  As a 
result of these contracts, the Company expects that the percentage of its total 
revenue generated from Malaysian Airlines in 1996 will continue to increase 
over historical levels.  In 1995, World Airways provided three aircraft for 
Hadj operations and will provide three aircraft in 1996. The current Malaysian 
Airlines Hadj contract, which was entered into in 1992, expires in 1996.  The 
Company is currently in negotiations with Malaysian Airlines regarding future 
Hadj operations.

    World Airways has provided wet lease services to Garuda since 1973
(operating under an annual Hadj contract since 1988). The Company operated five
aircraft in the 1995 Garuda Hadj and will operate seven aircraft in the 1996
Hadj.

    The Company has provided international air transportation to the U.S. Air
Force since 1956. As compensation for pledges of aircraft to the Civil Reserve
Air Fleet ("CRAF") for use in times of national emergency, the U.S. Air Force
awards contracts to CRAF participants for peacetime transportation of personnel
and cargo. The U.S. Air Force awards points to air carriers acting alone or
through teaming arrangements in proportion to the number and type of aircraft
that the carriers make available to CRAF. As a result of the Company's
increasingly effective use of teaming arrangements, the Company's fixed awards
have grown in recent years and the Company has the largest U.S. Air Force fixed
award under the CRAF program for the U.S. Government's 1995-96 fiscal year. The
current annual contract commenced on October 1, 1995 and expires on September
30, 1996. These contracts provide for a fixed level of scheduled business from
the U.S. Air Force with opportunities for additional short-term expansion
business on an ad hoc basis as needs arise. The Company's fixed award for the
current contract is $55.4 million, compared to the $33.9 million for the prior
year. Due to the utilization of a significant number of the Company's aircraft
under multi-year contracts with Malaysian Airlines and other contractual
commitments, it is unlikely that the Company will be able to accept all of the
available expansion business. Although overall Defense Department spending is
being reduced, the level of U.S. Air Force contract awards has remained
relatively constant in recent years. World Airways, however, cannot determine
how future cuts in military spending may affect future operations with the U.S.
Air Force.

    As a result of these and other contracts, the Company had an overall 
contract backlog at December 31, 1995 of $462.0 million, compared to $285.9 
million at December 31, 1994.  Approximately $219.1 million of the backlog 
relates to 1996 operations.  The Company's backlog for each contract is 
determined by multiplying the minimum number of block hours (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 destination) 
guaranteed under the applicable contract by the specified hourly rate under 
such contract.  Approximately 74% of the backlog (including substantially all 
of the backlog beginning in 1997) relates to multi-year contracts with 
Malaysian Airlines.  The loss of any of these contracts or a substantial 
reduction in business from any of these key customers, if not replaced, would 
have a material adverse effect on the Company's financial condition and results 
of operations.

    The information regarding major customers and foreign revenue is contained 
in Note 12 "Major Customers" of the Company's "Notes to Financial Statements" 
in Item 8. 

    Information concerning the classification of products within the air 
transportation industry comprising 10% or more of the Company's operating 
revenues is presented in the following table (in millions):

                                       4
<PAGE>
 
                                               Year Ended December 31,        
                                             ----------------------------
                                               1995      1994      1993    
                                             --------  --------  --------
    Flight Operations - Passenger            $  183.0  $  134.6  $  147.6
    Flight Operations - Cargo                    66.7      39.3      28.9

COMPETITION

    The air transportation industry is highly competitive and susceptible to 
price discounting.  Certain of the passenger and cargo air carriers against 
which the Company competes possess substantially greater financial resources 
and more extensive facilities and equipment than those which are now, or will 
in the foreseeable future become, available to the Company.

    The Company's ability to provide service in certain foreign markets in the 
future may depend in part on the willingness of the U.S. Department of 
Transportation (the "DOT") to allocate limited traffic rights to the Company 
rather than to competing U.S. airlines, including major scheduled passenger 
carriers capable of carrying greater passenger traffic, and the approval of the 
applicable foreign regulators.  There can be no assurance that the Company will 
be able to obtain the traffic rights it seeks in expanding its business.

    The allocation of military air transportation contracts by the U.S. Air 
Force is based upon the number and type of aircraft a carrier, alone or through 
a teaming arrangement, makes available for use in times of national 
emergencies.  The formation of competing teaming arrangements that have larger 
partners than those sponsored by the Company, an increase by other air carriers 
in their commitment of aircraft to the emergency program, or the withdrawal of 
the Company's current partners, could adversely affect the size of the U.S. Air 
Force contracts, if any, which are awarded to the Company in future years.

    In the passenger airline market, the Company generally competes on the 
basis of price, quality of service, including on-time reliability and in-flight 
service, and schedule convenience.  Many of the Company's competitors in the 
passenger airline market (both scheduled and non-scheduled passenger air 
carriers) compete for passengers in a variety of ways.  During periods of 
dramatic fare cuts by the Company's competitors, the Company may be forced to 
respond with reduced pricing, which could have a material adverse effect on the 
Company's financial condition and results of operations.  The Company also 
competes directly against charter airlines, some of which are substantially 
larger than it, and certain of which are affiliates of major scheduled airlines 
or tour operators.  As a result, in addition to greater access to financial 
resources, these charter airlines may have greater distribution capabilities, 
including exclusive or preferential relationships with affiliates that are tour 
operators.

    The Company believes that the most important bases for competition in the 
air cargo business are the payload and cubic capacities of the aircraft, and 
the price, flexibility, quality and reliability of the cargo transportation 
service.  Competitors in the cargo market include all-cargo carriers, such as 
Atlas Air, Inc. and Polar Air Cargo, and scheduled and non-scheduled passenger 
carriers which have substantial belly cargo capacity.

SEASONALITY

    Historically, the Company's business has been significantly affected by 
seasonal factors.  During the first quarter, the Company typically experiences 
lower levels of utilization and yields as demand for passenger and cargo 
services is lower relative to other times of the year.  The Company experiences 
higher levels of utilization in the second quarter, principally due to peak 
demand for commercial passenger services associated with the annual Hadj 
pilgrimage.  During 1995, the Company's flight operations associated with the 
Hadj pilgrimage occurred from April 1 to June 8.  Because the Hadj occurs 
approximately 10 to 12 days earlier each year, revenues resulting from future 
Hadj contracts will begin to shift from the second quarter to the first quarter 
over the next several years.  In recent years, soft demand and weakening yields 
in worldwide passenger markets adversely affected the Company's results in the 
third quarter.  Fourth quarter utilization depends primarily on the demand for 
air cargo services in connection with the shipment of merchandise in advance of 
the U.S. holiday season.  The Company believes that its recent multi-year 
contracts with Malaysian Airline System Berhad ("Malaysian Airlines") and a 
recent increase in peak European summer tourist travel occurring in the third 
quarter should lessen the effect of these seasonal factors.  The quarterly 
financial data is contained in Note 15 "Unaudited Quarterly Results" of the 
Company's "Notes to Financial Statements" in Item 8.   

                                       5
<PAGE>
 
NEW MD-11ER AIRCRAFT

    World Airways has entered into two 24-year leases with McDonnell Douglas to 
operate a new extended-range model of the McDonnell Douglas MD-11 (see 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations - Liquidity and Capital Resources - Capital Commitments").  The 
aircraft, known as the MD-11ER, is capable of flying nonstop between such 
cities as Zurich and Santiago, New York and Johannesburg, and Los Angeles and 
Shanghai.  The jetliner's increased range is due to a combination of the 
following:  engineering innovations; aerodynamics improvements that minimize 
aircraft drag; major reductions in the airframe weight; significantly increased 
fuel capacity; and a higher allowable maximum takeoff weight that provides the 
heavier fuel load without loss of payload.  The Company will debut this 
aircraft in its 1996 Hadj operations with flights from Indonesian cities to 
Saudi Arabia.  

AVIATION FUEL

    The Company's source of aviation fuel is primarily from major oil 
companies, under annual delivery contracts, at often frequented commercial 
locations, and from United States military organizations at military bases.  
The Company's current fuel purchasing policy consists of the purchase of fuel 
within seven days in advance of all flights based on current prices set by 
individual suppliers.  More than one supplier is under contract at several 
locations.  The Company purchases no fuel under long-term contracts nor does 
the Company enter into futures or fuel swap contracts.

    The air transportation industry in general is affected by the price and 
availability of aviation fuel.  Both the cost and availability of aviation fuel 
are subject to many economic and political factors and events occurring 
throughout the world and remain subject to the various unpredictable economic 
and market factors that affect the supply of all petroleum products.  
Fluctuations in the price of fuel has not had a significant impact on the 
Company's operations in recent years.  The Company's exposure to fuel risk is 
limited because (i) under the terms of the Company's basic contracts, the 
customer is responsible for providing fuel, (ii) under the terms of its full 
service contracts with the U.S. Government, the Company is reimbursed for the 
cost of fuel it provides, and (iii) under the Company's charter contracts, the 
Company is reimbursed for fuel price increases in excess of 5% of the price 
agreed upon in the contract, subject to a 10% cap.  However, a substantial 
increase in the price or the unavailability of aviation fuel could have a 
material adverse effect on the air transportation industry in general and the 
financial condition and results of operations of the Company. 

REGULATORY MATTERS

    The Company is subject to government regulation and control under the U.S. 
laws and the laws of the various countries which it serves.  It is also 
governed by bilateral services agreements between the U.S. and the countries to 
which the Company provides airline service.  Under bilateral air services 
agreements between the U.S. and many foreign countries, traffic rights in those 
countries are available to only a limited number of, and in some cases only one 
or two, U.S. carriers and are subject to approval by the applicable foreign 
regulators.

    The Company is subject to Title 49 of the United States Code (the 
"Transportation Code"), under which the DOT and the Federal Aviation 
Administration (the "FAA") exercise regulatory authority.  The Company is 
subject to the jurisdiction of the FAA with respect to aircraft maintenance and 
operations, including flight operations, equipment, aircraft noise, ground 
facilities, dispatch, communications, training, weather observation, flight 
time, crew qualifications, aircraft registration, and other matters affecting 
air safety.  The FAA has the authority to suspend temporarily or revoke 
permanently the authority of the Company or its licensed personnel for failure 
to comply with regulations promulgated by the FAA and to assess civil penalties 
for such failures.  The FAA also conducts safety audits and has the power to 
impose fines and other sanctions for violations of airline safety regulations.  
The DOT maintains authority over international aviation, subject to review by 
the President of the United States, and has jurisdiction over unfair trade 
practices and consumer protection policies on domestic and international routes 
and fares.  Additionally, foreign governments assert jurisdiction over air 
routes and fares to and from the U.S., airport operation rights, and facilities 
access.

    Under the Airport Noise and Capacity Act of 1990 and related FAA 
regulations, the Company's aircraft fleet must comply with certain Stage 3 
noise restrictions by certain specified deadlines.  All of the Company's 
aircraft currently meet the Stage 3 noise reduction requirement, which is 
currently the most stringent FAA noise requirement. 

                                       6
<PAGE>
 
FAA regulations require installation of the Traffic Alert and Collision 
Avoidance System ("TCAS"), approved airborne windshear warning system and aging 
aircraft regulations.

    Additional laws and regulations have been proposed from time to time which 
could significantly increase the cost of airline operations by imposing 
additional requirements or restrictions on operations.  Laws and regulations 
have been considered from time to time that would prohibit or restrict the 
ownership and transfer of airline routes or slots.  There is no assurance that 
laws and regulations currently enacted or enacted in the future will not 
adversely affect the Company's ability to maintain its current level of 
operating results.

    Several aspects of airline operations are subject to regulation or 
oversight by Federal agencies other than the DOT or FAA.  For instance, labor 
relations in the air transportation industry are generally regulated under the 
Railway Labor Act, which vests in the National Mediation Board certain 
regulatory powers with respect to disputes between airlines and labor unions 
arising under collective bargaining agreements.  In addition, the Company is 
subject to the jurisdiction of other governmental entities, including (i) the 
FCC regarding its use of radio facilities pursuant to the Federal 
Communications Act of 1934, as amended, (ii) the Commerce Department, the 
Customs Service, the Immigration and Naturalization Service, and the Animal and 
Plant Health Inspection Service of the Department of Agriculture regarding the 
Company's international operations, (iii) the Environmental Protection Agency 
(the "EPA") regarding compliance with standards for aircraft exhaust emissions 
and (iv) the Department of Justice regarding certain merger and acquisition 
transactions.  The EPA regulates operations, including air carrier operations, 
which affect the quality of air in the U.S.  The Company has made all necessary 
modifications to its operating fleet to meet fuel-venting requirements and 
smoke emissions standards issued by the EPA.

    Pursuant to federal law, no more than 25% of the voting interest in the 
Company may be owned or controlled by foreign citizens.  In addition, under 
existing precedent and policy, actual control must reside in U.S. citizens.  As 
a matter of regulatory policy, the DOT has stated that it would not permit 
aggregate equity ownership of a domestic air carrier by foreign citizens in an 
amount in excess of 49%.  The Company fully complies as of the date hereof with 
these U.S. citizen ownership requirements.

    The Company believes it is in compliance in all material respects with all 
requirements necessary to maintain in good standing its operating authority 
granted by the DOT and its air carrier operating certificate issued by the FAA.
A modification, suspension or revocation of any of the Company's DOT or FAA 
authorizations or certificates could have a material adverse effect upon the 
Company. The Company also is subject to state and local laws and regulations at 
locations where it operates and the regulations of various local authorities 
which operate the airports it serves. Certain airport operations have adopted 
local regulations which, among other things, impose curfews and noise abatement 
regulations. While the Company 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 the Company therewith or the 
revocation or suspension of licenses or authorities could have a material 
adverse effect on the Company.

EMPLOYEES

    As of February 29, 1996, the Company had 816 full time employees classified 
as follows:

                                                     Number of
            Classification                      Full-Time Employees
                                                -------------------
            Management.................................   11
            Administrative and Operations..............  308
            Cockpit Crew (including pilots)............  262
            Flight Attendants..........................  235
                                                         ---
                Total Employees........................  816
                                                         ===

    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 will become amendable in June 
1998. 

    The Company's flight attendants are also represented by the Teamsters under
a collective bargaining agreement that became amendable in 1992.
                                       7
<PAGE>
 
The parties exchanged their opening contract proposals in 1992 and have had 
numerous contract negotiation sessions.  In December 1994, the Company and the 
Teamsters jointly requested the assistance of a federal mediator to facilitate 
negotiations.  After several mediated sessions, the National Mediation Board 
(the "NMB") mediator recommended that the NMB release the parties to pursue 
"direct" (i.e., non-mediated) negotiations with the flight attendants.  The 
Company and the Teamsters agreed and direct negotiations continue.  The outcome 
of the negotiations with the flight attendants cannot be determined at this 
time.  The inability to reach an agreement upon terms favorable to the Company 
could have a material adverse effect on the Company.  The Company's flight 
attendants continue to challenge the use of foreign flight attendant crews on 
the Company's flights for Malaysian Airlines and Garuda 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 Company intends to contest this matter vigorously in an upcoming 
arbitration, an unfavorable ruling for the Company could have a material 
adverse effect on the Company.

    The Company's aircraft dispatchers are represented by the Transport Workers 
Union (the "TWU").  This contract became amendable on June 30, 1993.  In May 
1995, the parties reached agreement with respect to a new four-year contract.  
This contract was ratified on February 7, 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 of such employees for 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.

                                       8
<PAGE>
 
ITEM 2.  PROPERTIES
-------------------

FLIGHT EQUIPMENT

    At December 31, 1995, the Company's aggregate operating fleet consisted of 
eleven leased aircraft as follows (see Note 9 "Long-Term Obligations" of the 
Company's "Notes to Financial Statements" in Item 8):

                                           Capacity                 
                             -----------------------------------
     Aircraft (a)            Passenger (seats)(b)   Cargo (Tons)    Total (c)(d)
-------------------------    --------------------   ------------    ------------
McDonnell Douglas MD-11CF            410                 90               2
McDonnell Douglas MD-11F              --                 95               1
McDonnell Douglas MD-11              410                 --               4
McDonnell Douglas DC10-30CF          380                 65               1
McDonnell Douglas DC10-30            350                 --               3
                                                                        ---

         Total                                                           11
                                                                        ===

    Notes
    -----
    (a)  "F" aircraft are freighters, "CF" are convertible freighters and may 
         operate in either passenger or freight configurations.  Aircraft with 
         no letter designation are passenger-only aircraft.
    (b)  Based on standard operating configurations.  Other configurations are 
         occasionally used.
    (c)  Lease terms expire between 1997 and 2010 (assuming exercise of all 
         lease extensions).
    (d)  Subsequent to December 31, 1995, World Airways took delivery of two 
         leased McDonnell Douglas MD-11ER (extended range) aircraft and two 
         leased McDonnell Douglas DC10-30 passenger aircraft.

GROUND FACILITIES

    The Company leases office space located near Washington Dulles 
International Airport which houses its corporate headquarters and substantially 
all of the administrative employees of the Company.  In addition, the Company 
leases additional office and warehouse space in Wilmington, Delaware; 
Philadelphia, Pennsylvania; Miami, Florida; Los Angeles, California; Kuala 
Lumpur, Malaysia; Tel Aviv, Israel; Yakota, Japan; and Frankfurt, Germany.  
Additional small offices and maintenance material storage space are leased at 
often frequented airports to provide administrative and maintenance support for 
commercial and military contracts.


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

    For a description of the Company's current legal proceedings, see Note 14, 
"Commitments and Contingencies" of the Company's "Notes to Financial 
Statements" in Item 8.
                      


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

    No matters were submitted to a vote of security holders during the fourth 
quarter of 1995.
                                       9
<PAGE>
 
                                  PART II



ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK & RELATED SECURITY HOLDER MATTERS
-------------------------------------------------------------------------------


    The Company's common stock trades on the Nasdaq National Market tier of The 
Nasdaq Stock MarketSM under the symbol: WLDA. The high and low closing sales 
prices of the Company's common stock, as reported on the Nasdaq National 
Market, for the quarter following the Company's October 1995 initial public 
offering are as follows:

                                     Common Stock        
                                   -----------------
            1995                   High        Low 
                                   ----        ---

            Fourth Quarter         12          9 1/2
            Third Quarter          N/A         N/A
            Second Quarter         N/A         N/A
            First Quarter          N/A         N/A

    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.  Any 
future decision concerning the payment of dividends on the Common Stock will 
depend upon the results of operations, financial condition and capital 
expenditure plans of the Company, as well as such other factors as the Board of 
Directors, in its sole discretion, may consider relevant (see "Management's 
Discussion and Analysis of Financial Condition and Results of Operations - 
Dividend Policy").

    The approximate number of shareholders of record at March 15, 1996 is 39, 
and does not include those shareholders who hold shares in street name 
accounts.

                                       10
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------


                             WORLD AIRWAYS, INC.
                            SELECTED FINANCIAL DATA
                     (IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE> 
<CAPTION> 
                                                          Year Ended December 31,                        
                                      --------------------------------------------------------------
                                        1995        1994          1993           1992         1991    
                                      --------    --------      --------       --------     --------
<S>                                   <C>         <C>           <C>            <C>          <C> 
RESULTS OF OPERATIONS:
----------------------

Operating revenues                    $259,482    $180,715      $178,736       $180,293     $215,129
Operating expenses                     249,140     185,916 (1)   186,065 (2)    173,028      199,883
Operating income (loss)                 10,342      (5,201)       (7,329)         7,265 (3)   15,246
Earnings (loss) before income
  taxes and change in
  accounting principle                   9,192      (9,027)       (8,985)         8,654       21,329 (4)
Earnings (loss) before change
  in accounting principle                8,896      (9,001)       (9,048)         8,418       20,481
Cumulative effect of change in
  accounting principle                      --          --            --         (1,973)          --
Net earnings (loss)                      8,896      (9,001)       (9,048)         6,445       20,481
Weighted average common stock and
  common equivalent shares 
  outstanding(5)                        10,572       9,939         9,000          9,000        9,000 
Primary and fully diluted earnings
  (loss) per common share:
  Continuing operations               $   0.84     $ (0.91)      $ (1.01)       $  0.94       $ 2.28
  Change in accounting principle            --          --            --          (0.22)          --
  Net earnings (loss)                     0.84       (0.91)        (1.01)          0.72         2.28
  Cash dividends                            --          --            --           2.16           --

FINANCIAL POSITION:
-------------------

Cash and resricted short-term
  investments                         $ 26,180     $  4,722     $ 11,746        $12,958      $20,192
Total assets                           130,695       78,051       88,512         66,486       74,725
Notes payable and long-term 
  obligations including current 
  maturities                            36,579       33,826       42,256         13,076        6,530
Common stockholders' equity (deficit)   30,340       (1,367)      (7,756)         1,292      (14,292)
Dividends                                   --           --           --         19,445           --
</TABLE> 

(1) Operating expenses in 1994 include a $4.2 million reversal of excess accrued
    maintenance reserves associated with the expiration of three DC10-30
    aircraft leases during 1994.
(2) Operating expenses in 1993 include $2.3 million of termination fees related 
    to the early return of three DC10-30 aircraft.
(3) Operating income in 1992 includes $4.1 million related to settlement of 
    contract claims with the U.S. Government related to Operation Desert 
    Shield/Desert Storm.
(4) Other income in 1991 includes a $5.5 million gain as a result of settling 
    litigation with the State of California Franchise Tax Board.
(5) All share and per share data for the periods presented have been restated to
    reflect the 1-for-88,737 stock split which was effectuated in February 1994.

                                       11
<PAGE>
 
ITEM 7.  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.
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.
WorldCorp and MHS Berhad ("MHS") currently own 59.3% and 16.6%, respectively, of
the outstanding common stock of World Airways. The balance is publicly traded.

    The managements of WorldCorp and World Airways are currently exploring ways
to maximize value for the shareholders of each company, including actively
exploring the feasibility of employee initiatives to purchase a substantial
portion of WorldCorp's ownership position in World Airways. In addition to
employee initiatives, WorldCorp is evaluating the feasibility of a spinoff of
its interest in World Airways or a disposition to a third party. There can be no
assurances, however, that any such transactions will ultimately be consumated.

    The Private Securities Litigation Reform Act of 1995 (the "Act") was
recently passed by Congress. The Company desires to take advantage of the new
"safe harbor" provisions of the Act. Therefore, the Company wishes to caution
readers that the following important factors, among others, in some cases have
affected, and in the future could affect, the Company's actual results and could
cause the Company's actual results for 1996 and beyond to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company.

OVERVIEW

GENERAL

    The Company earns revenue primarily from four distinct markets within the 
air transportation industry: passenger and cargo services to major 
international air carriers; passenger and cargo services, on a scheduled and ad 
hoc basis, to the U.S. Government; passenger services in seasonal charter 
markets; and cargo services to small package shippers and freight forwarders. 
In addition, in 1995 the Company commenced operations in a fifth market:  
scheduled passenger/cargo service (which, beginning in 1996, will include 
scheduled charters to leisure passenger markets on a seasonal basis).

    With the exception of scheduled passenger/cargo service, the Company 
generally charges customers on a block hour basis rather than a per seat or per 
pound basis.  A "block hour" is 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:  basic contracts and full service 
contracts.  Under basic 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, 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 basic contracts than full 
service contracts, although it does not necessarily earn a lower profit.  
Because of shifts in the mix between full service contracts and basic 
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.

    As is common in the air transportation industry, the Company has relatively 
high fixed aircraft costs.  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 two of the most critical 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.

CUSTOMERS

    The Company's business relies heavily on its contracts with Malaysian 
Airline System Berhad ("Malaysian Airlines"), P.T. Garuda Indonesia ("Garuda") 
and the U.S. Air Force's Air Mobility Command ("AMC").  These

                                       12
<PAGE>
 
customers provided approximately 39%, 10%, and 20%, respectively, of the 
Company's revenues and 46%, 10%, and 13%, respectively, of the total block 
hours during 1995.  These customers provided approximately 18%, 18% and 22%, 
respectively, of the Company's revenues and 23%, 20%, and 14%, respectively, of 
total block hours in 1994.

    World Airways has provided service to Malaysian Airlines since 1981, 
providing wet lease services for Malaysian Airlines' scheduled passenger and 
cargo operations as well as transporting passengers for the annual Hadj 
pilgrimage.  In 1995, World Airways provided three aircraft for Hadj operations 
and will provide three aircraft in 1996.  The current five-year Hadj contract 
with Malaysian Airlines expires after the 1996 Hadj.  The Company is currently 
in negotiations with Malaysian Airlines regarding future Hadj operations.

    As a means of improving aircraft utilization, the Company has recently 
sought multi-year contracts with high utilization guarantees.  In late 1994, 
the Company entered into a series of multi-year contracts, with expiration 
dates running from 1997 through 2000, to provide basic services to Malaysian 
Airlines. One contract provides for the Company's operation of three MD-11 
freighter aircraft for a five-year period for a combined guaranteed minimum of 
1,200 hours per month (except when an aircraft is in scheduled maintenance).  
The lease for one of the aircraft commenced in June 1994, and the leases for 
the other two aircraft commenced in June and July 1995.  A second contract 
provides for each of two of the Company's MD-11 passenger aircraft to operate a 
guaranteed minimum of 320 hours per month from October 1994 through March 1997.
For fiscal years 1995 and 1994, 29% and 9%, respectively, of the Company's 
revenues and 37% and 14%, respectively, of the Company's block hours flown 
resulted from these new multi-year contracts with Malaysian Airlines.  As a 
result of these contracts, the Company expects that the percentage of its total 
revenue generated from Malaysian Airlines in 1996 will continue to increase 
over historical levels.

    The Company has provided international air transportation to the U.S. Air
Force since 1956. As compensation for pledges of aircraft to the Civil Reserve
Air Fleet ("CRAF") for use in times of national emergency, the U.S. Air Force
awards contracts to CRAF participants for peacetime transportation of personnel
and cargo. The U.S. Air Force awards points to air carriers acting alone or
through teaming arrangements in proportion to the number and type of aircraft
that the carriers make available to CRAF. As a result of the Company's
increasingly effective use of teaming arrangements, the Company's fixed awards
have grown in recent years and the Company has the largest U.S. Air Force fixed
award under the CRAF program for the U.S. Government's 1995-96 fiscal year. The
current annual contract commenced on October 1, 1995 and expires on September
30, 1996. These contracts provide for a fixed level of scheduled business from
the U.S. Air Force with opportunities for additional short-term expansion
business on an ad hoc basis as needs arise. The Company's fixed award for the
current contract is $55.4 million compared to the $33.9 million fixed award for
the prior contract. Due to the utilization of a significant number of the
Company's aircraft under multi-year contracts with Malaysian Airlines and other
contractual commitments, it is unlikely that the Company will be able to accept
all of the available expansion business. Although overall Defense Department
spending is being reduced, the level of U.S. Air Force contract awards has
remained relatively constant in recent years. World Airways, however, cannot
determine how future cuts in military spending may affect future operations with
the U.S. Air Force.

    World Airways has provided wet lease services to Garuda since 1973
(operating under an annual Hadj contract since 1988). The Company operated five
aircraft in the 1995 Garuda Hadj and will operate seven aircraft in the 1996
Hadj.

    As a result of these and other contracts, the Company had an overall 
contract backlog at December 31, 1995 of $462.0 million, compared to $285.9 
million at December 31, 1994.  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 74% of the backlog (including substantially all of the backlog 
beginning in 1997) relates to the multi-year contracts with Malaysian Airlines.
The loss of any of these contracts or a substantial reduction in business from 
any of these key customers, if not replaced, would have a material adverse 
effect on the Company's financial condition and results of operations.

    The information regarding major customers and foreign revenue is contained 
in Note 12 "Major Customers" of the Company's "Notes to Financial Statements" 
in Item 8. 

                                       13
<PAGE>
 
COMPETITION

    The air transportation industry is highly competitive and susceptible to 
price discounting.  Certain of the passenger and cargo air carriers against 
which the Company competes possess substantially greater financial resources 
and more extensive facilities and equipment than those which are now, or will 
in the foreseeable future become, available to the Company.

    The Company's ability to provide service in certain foreign markets in the 
future may depend in part on the willingness of the U.S. Department of 
Transportation (the "DOT") to allocate limited traffic rights to the Company 
rather than to competing U.S. airlines, including major scheduled passenger 
carriers capable of carrying greater passenger traffic, and the approval of the 
applicable foreign regulators.  There can be no assurance that the Company will 
be able to obtain the traffic rights it seeks in expanding its business.

    The allocation of military air transportation contracts by the U.S. Air 
Force is based upon the number and type of aircraft a carrier, alone or through 
a teaming arrangement, makes available for use in times of national 
emergencies.  The formation of competing teaming arrangements that have larger 
partners than those sponsored by the Company, an increase by other air carriers 
in their commitment of aircraft to the emergency program, or the withdrawal of 
the Company's current partners, could adversely affect the size of the U.S. Air 
Force contracts, if any, which are awarded to the Company in future years.

    In the passenger airline market, the Company generally competes on the 
basis of price, quality of service, including on-time reliability and in-flight 
service, and schedule convenience.  Many of the Company's competitors in the 
passenger airline market (both scheduled and non-scheduled passenger air 
carriers) compete for passengers in a variety of ways.  During periods of 
dramatic fare cuts by the Company's competitors, the Company may be forced to 
respond with reduced pricing, which could have a material adverse effect on the 
Company's financial condition and results of operations.  The Company also 
competes directly against charter airlines, some of which are substantially 
larger than it, and certain of which are affiliates of major scheduled airlines 
or tour operators.  As a result, in addition to greater access to financial 
resources, these charter airlines may have greater distribution capabilities, 
including exclusive or preferential relationships with affiliates that are tour 
operators.

    The Company believes that the most important bases for competition in the 
air cargo business are the payload and cubic capacities of the aircraft, and 
the price, flexibility, quality and reliability of the cargo transportation 
service.  Competitors in the cargo market include all-cargo carriers, such as 
Atlas Air, Inc. and Polar Air Cargo, and scheduled and non-scheduled passenger 
carriers which have substantial belly cargo capacity.

CYCLICAL NATURE OF AIR CARRIER BUSINESS

    The Company operates in a challenging business environment. The air
transportation industry is highly sensitive to general economic conditions.
Since a substantial portion of passenger airline travel (both business and
personal) is discretionary, the industry tends to experience severe adverse
financial results during general economic downturns. The airline industry may
also be adversely affected by unexpected global political developments. This is
an important factor to bear in mind since the Company flies to and from such
places as Northern Ireland, Israel, and South Africa. The financial results of
air cargo carriers are also adversely affected by general economic downturns due
to the reduced demand for air cargo transportation. In 1993 and 1994, the
combination of a generally weak global economy and the depressed state of the
air transportation industry has adversely affected the Company's operating
performance. Although the Company has experienced a growth in demand, such that
the Company has increased block hours flown by 41% in 1995 over 1994 and 13% in
1994 over 1993, there can be no assurance that this growth will continue.

SEASONALITY

    Historically, the Company's business has been significantly affected by 
seasonal factors.  During the first quarter, the Company typically experiences 
lower levels of utilization and yields as demand for passenger and cargo 
services is lower relative to other times of the year.  The Company experiences 
higher levels of utilization in the second quarter, principally due to peak 
demand for commercial passenger services associated with the annual Hadj 
pilgrimage.  During 1995, the Company's flight operations associated with the 
Hadj pilgrimage occurred from April 1 to June 8.  Because the Hadj occurs 
approximately 10 to 12 days earlier each year, revenues resulting from future 
Hadj contracts will begin to shift from the second quarter to the first quarter 
over the next several years.  In recent years, soft demand and weakening yields 
in worldwide passenger markets adversely affected the Company's results

                                       14
<PAGE>
 
in the third quarter.  Fourth quarter utilization depends primarily on the 
demand for air cargo services in connection with the shipment of merchandise in 
advance of the U.S. holiday season.  The Company believes that its new 
multi-year contracts with Malaysian Airlines and an increase in peak European 
summer tourist travel occurring in the third quarter should lessen the effect 
of these seasonal factors.  The quarterly financial data is contained in Note 
15 "Unaudited Quarterly Results" of the Company's "Notes to Financial 
Statements" in Item 8.

OPERATING LOSSES

    While the Company was profitable each year from 1987 through 1992 and in 
1995, the Company 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.  There can be no assurance that the Company will be able to sustain 
its current profitability.  See "Selected Financial Data" and "Results of 
Operations".

MAINTENANCE

    The Company outsources major airframe maintenance and power plant work to 
several suppliers.  The Company has a 10-year contract ending in August 2003 
with United Technologies Corporation's Pratt & Whitney Group ("Pratt and 
Whitney") 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 a specified rate per hour during 
the term of the contract.  The specified rate per hour is subject to annual 
escalation, and increases substantially in 1998.  Accordingly, while the 
Company believes the terms of this agreement will result in lower engine 
maintenance costs than it otherwise would incur during the first five years of 
the agreement, these costs will increase substantially during the last seven 
years of the agreement.  The Company has contracted with Caledonian Airmotive 
Limited for off-wing maintenance on the CF6-50C2 engines that power its DC10-30 
aircraft.  The Company believes these contracts provide high quality power 
plant services at competitive costs.

    The Company's maintenance costs associated with the MD-11 aircraft and PW 
4462 engines have been significantly reduced due in part to manufacturer 
guarantees and warranties, which guarantees and warranties began to expire in 
1995 and will fully expire by 1998.  Therefore, the Company expects that 
maintenance expense will increase as these guarantees and warranties expire.

    The Company's material services group acquires and manages the inventory of 
spare parts and consumable materials required to support line maintenance, 
scheduled airframe maintenance and power plant maintenance.  The Company has 
established an inventory management facility in Wilmington, Delaware, to 
support this activity.  As part of this activity, the material services group 
tracks the inventory status of the spare parts kits carried aboard each of the 
Company's aircraft.  Each of the Company's aircraft carries spare parts and 
support kits, which consist of approximately $1.5 to $3.5 million in parts and 
special equipment.  In addition, a highly-trained maintenance representative is 
on board all flights to destinations where the Company does not have on-site 
maintenance facilities.

GROWTH OPPORTUNITIES

    In the scheduled charter market, the Company has identified what it 
believes is a significant opportunity to increase revenues and profits by 
serving potentially profitable leisure passenger markets between the U.S. and 
Europe.  In the scheduled charter business, the Company sells 
less-than-planeload blocks of seats to international tour operators and markets 
remaining seats through computer reservations systems.  Based on the successful 
experience of European carriers, the Company believes serving the seasonal 
passenger markets on a scheduled charter basis will have several benefits which 
the Company believes outweigh the potential increased load and yield risk 
associated with serving this market.  First, it should be possible to achieve 
greater revenue per block hour because tour operators will pay higher prices in 
exchange for not bearing the risk of filling an entire aircraft.  Second, the 
Company expects to increase the hourly utilization of its aircraft deployed in 
this market because the Company will set the schedules rather than a tour 
operator that, in the case of a full-planeload charter, has contracted for the 
entire aircraft and controls scheduling.  This strategy gives the Company more 
control within the charter distribution channel and a stronger commercial 
position in this market than it would have in the full-load charter business.  
For the 1996 leisure market season, the Company has developed schedules and is 
marketing capacity to tour operators with particular emphasis on the markets 
between the U.S. and Germany, Switzerland, Ireland, and the United Kingdom.
Although the Company believes that scheduled charters may improve utilization
and yields in the leisure passenger market for the reasons described above, the
Company has no prior experience operating scheduled charters and can, therefore,
provide no assurances that it will be able to operate scheduled charters
profitably.

                                       15
<PAGE>
 
    In the scheduled passenger business, the Company will consider entering 
only those markets that it believes (i) are well suited to the competitive 
advantages of the Company's long-range, wide-body aircraft, (ii) have prospects 
for rapid growth, and (iii) have barriers to entry. After determining that the 
market between New York and Tel Aviv met these criteria, the Company commenced 
scheduled passenger service in this market in July 1995 with three weekly round 
trips. In March 1996, the Company reduced its weekly frequencies from three to 
two until the summer peak tourist season. In addition, the Company recently 
received regulatory authority to provide scheduled passenger and cargo service 
between the United States and points in West Africa and South Africa beginning 
in the second quarter of 1996.   

    While the Company has achieved a 72% cumulative load factor on the Tel Aviv
route as of February 1996, yields have been significantly lower than expected
due to price sensitive, high commission traffic originating in the New York area
and the lack of a marketing relationship with a major U.S. carrier to feed the
Company's New York departures. As a result of these factors, the Company has
sustained operating losses on this route since commencing scheduled service to
Tel Aviv in July 1995. In response to these issues, the Company has taken steps
to improve its yield and load factor performance. First, as discussed above, the
Company has reduced its weekly frequencies to Tel Aviv from three to two until
this summer's peak tourist season. Second, and more importantly, the Company has
formed, subject to definitive documentation, a strategic alliance with
Continental Airlines ("Continental"). This agreement with Continental includes
codesharing, joint marketing, and participation in Continental's computer
reservation system and OnePass frequent flyer program. The Company's
international passengers will connect through Continental's Newark International
Airport ("Newark") hub to major U.S. cities as well as Canada and Mexico.
Continental's passengers will connect directly on the Company's international
destinations including Israel, Ireland, and South Africa. In conjunction with
this alliance, the Company will begin flying from Newark in June 1996. Although
the Company hopes that its strategic alliance with Continental will improve
financial results on the Company's scheduled passenger routes, including but not
limited to the Company's Tel Aviv route, no assurances can be given that the
Company will be able to operate its scheduled passenger routes profitably even
with the Continental alliance.

ABILITY TO MANAGE GROWTH

    As described above, the Company is currently experiencing rapid growth in
its existing operations and intends to enter new markets. For example, the
Company's fleet size increased 38% from 1994 to 1995, and total block hours
increased 41% over the comparable period. In the first quarter of 1996, the
Company's fleet size was further enhanced with the delivery of two MD-11ER
aircraft and two additional DC10-30 aircraft. If the Company's management is
unable to manage this growth, the Company's financial performance and results of
operations may be adversely affected. Additionally, the Company's entrance into
new markets requires more skilled personnel and distribution capability. An
inability to hire skilled personnel or to develop its distribution capability
may also adversely affect the Company's ability to operate profitably in its new
markets.

CONTROL BY WORLDCORP; POTENTIAL CONFLICTS OF INTEREST

    As of December 31, 1995, WorldCorp owns approximately 59.3% of the 
Company's outstanding common stock.  WorldCorp is a holding company that owns 
majority positions in two companies:  US Order, Inc. ("US Order") and the 
Company.  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, neither of which is 
expected to pay dividends in the foreseeable future.  As a result of 
WorldCorp's cash requirements, it may be required to sell additional shares of 
the Company's common stock from time to time, and such sales, or the threat of 
such sales, could have a material adverse affect on the market price on the 
Company's common stock.  Except as limited by contractual arrangements with 
MHS, WorldCorp also is in a position to control the outcome of substantially 
all issues submitted to the Company's stockholders, including the election of 
all of the Company's Board of Directors, adoption of amendments to the 
Company's Certificate of Incorporation, and approval of mergers.  Under 
Delaware law, WorldCorp may approve certain actions by written consent without 
a meeting of the stockholders of the Company.  In addition, the Company's Board 
of Directors has eight members, one of whom, T. Coleman Andrews, III, is 
President, Chief Executive Officer and a director of WorldCorp. 

    The managements of WorldCorp and World Airways are currently exploring ways 
to maximize value for the shareholders of each company, including actively 
exploring the feasibility of employee initiatives to purchase a substantial 
portion of WorldCorp's ownership position in World Airways.  In addition to 
employee initiatives, WorldCorp is evaluating the feasibility of a spinoff of 
its interest in World Airways or a disposition to a third party.  There can be 
no assurances, however, that any such transactions will ultimately be 
consumated.

                                       16
<PAGE>
 
RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

    Operating Revenues.  Total block hours increased 10,885 hours, or 41%, 
    ------------------
to 37,342 hours in 1995 from 26,457 hours in 1994, with an average of 10.3 
available aircraft per day in 1995 compared to 8.2 in 1994.  Average daily 
utilization (block hours flown per day per aircraft) increased to 9.9 hours in 
1995 from 8.8 hours in 1994.  In 1995, the Company continued to obtain a higher 
percentage of its revenues under basic contacts as opposed to full service 
contracts.  In 1995, basic contracts accounted for 70% of total block hours, up 
from 63% in 1994.  Total operating revenues increased $78.8 million, or 44%, to 
$259.5 million in 1995 from $180.7 million in 1994.

    Revenues from flight operations increased $75.8 million, or 44%, to $249.7 
million in 1995 from $173.9 million in 1994.  This increase was primarily 
attributable to a $58.4 million increase in revenues generated from the new 
multi-year contracts with Malaysian Airlines.  Average daily utilization for 
these contracts was 11.2 hours in 1995.  In addition, the Company realized an 
increase in revenues associated with services to certain international carriers 
and from the commencement of scheduled service operations to Tel Aviv in July 
1995.  Partially offsetting these increases was a decrease in revenues 
associated with the 1995 summer charter programs to Europe.

    Revenues from flight operations subcontracted to other carriers increased 
$3.2 million for 1995 to $8.6 million from $5.4 million in 1994.  This increase 
resulted primarily from the Company's need to subcontract certain flights to 
other carriers due to peak airlift requirements for the 1995 Hadj pilgrimage.  
This increase was partially offset by the subservice of certain contracts in 
the fourth quarter of 1994 primarily to make aircraft capacity available for 
the commencement of operations under the Company's multi-year contracts with 
Malaysian Airlines.

    Operating Expenses.  Total operating expenses increased $63.2 million, 
    ------------------
or 34%, in 1995 to $249.1 million from $185.9 million in 1994.

    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 dispatch and flight operations 
administration.  Flight operations expenses increased $15.0 million, or 26%, in 
1995 to $72.8 million from $57.8 million in 1994.  This increase resulted 
primarily from the following:  an increase in block hours flown; higher cockpit 
crew levels associated with the integration of additional aircraft into the 
fleet in 1995; and an increase in accruals under the Company's profit sharing 
plans for its crewmembers during 1995.  These factors were partially offset by 
a shift from full service to basic contracts.

    Maintenance expenses increased $17.1 million, or 65%, in 1995 to $43.3 
million from $26.2 million in 1994.  This increase resulted primarily from a 
non-recurring 1994 reversal of $4.2 million of excess reserves associated with 
the expiration of three DC10-30 aircraft leases and the increase in block hours 
flown in 1995, partially offset by lower costs associated with reduced 
maintenance requirements of new MD-11 aircraft and the guarantees and 
warranties received from the engine and aircraft manufacturers of the MD-11 
aircraft and related engines, which guaranties and warranties began to expire 
in 1995.

    Aircraft costs increased $17.3 million, or 32%, in 1995 to $71.2 million 
from $53.9 million in 1994.  This increase was primarily due to the lease of 
two additional MD-11 convertible aircraft in the first quarter of 1995 and the 
short-term lease of incremental DC10-30 aircraft which began in the fourth 
quarter of 1994 and second quarter of 1995, partially offset by the return of 
three lower-cost DC10-30 aircraft to the lessor in the third quarter of 1994.

    Fuel expenses increased $2.8 million, or 17%, in 1995 to $19.7 million from 
$16.9 million in 1994.  This increase is due primarily from an increase in fuel 
uplifted for military and scheduled service operations, partially offset by a 
shift from full service to basic contracts in 1995 under which the Company is 
not responsible for fuel.

    Promotions, sales and commissions increased $4.2 million in 1995 to $5.3 
million from $1.1 million in 1994.  This increase resulted primarily from 
commissions paid in connection with scheduled service operations to Tel Aviv 
which commenced in 1995 and an increase in joint venture commissions associated 
with the larger fixed-award contract received from the U.S. Air Force beginning 
October 1995.  

                                       17
<PAGE>
 
    Depreciation and amortization increased $2.1 million, or 53%, in 1995 to 
$6.1 million from $4.0 million in 1994.  This increase resulted primarily from 
an increase in spare parts required to support the additional MD-11 aircraft 
and incremental DC10-30 aircraft described above as well as the amortization of 
certain MD-11 aircraft integration costs and other deferred costs.

    General and administrative expenses increased $1.2 million, or 6%, in 1995 
to $21.7 million from $20.5 million in 1994.  This increase was primarily due 
to various start-up expenses and personnel necessary for scheduled service 
operations as well additional marketing personnel, partially offset by a 
decrease in certain legal and professional fees.

    Other Income (Expense).  Other expenses decreased $2.6 million, or 68%, 
    ----------------------
in 1995 from 1994 primarily due to a $0.7 million loss on the sale of a DC10 
engine by the Company in 1994.  In addition, the Company recognized a $0.8 
million gain in 1995 resulting from a settlement with the lessor relating to 
the return of two DC10 aircraft in 1993.
 
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

    Operating Revenues.  Total block hours increased 2,995 hours, or 13%, 
    ------------------
to 26,457 hours in 1994 from 23,462 hours in 1993.  Average daily utilization 
increased from 7.3 block hours in 1993 to 8.8 hours partially due to a planned 
reduction in average available aircraft per day from 8.8 in 1993 to 8.2 in 
1994.  During 1994, the Company began to obtain a higher percentage of its 
revenues under basic contracts as opposed to full service contracts.  In 1994, 
basic contracts accounted for 63% of total block hours up from 45% in 1993.  
Total operating revenues increased $2.0 million, or 1%, to $180.7 million in 
1994 from $178.7 million in 1993.

    Revenues from flight operations decreased $2.6 million, or 1%, to $173.9 
million in 1994 from $176.5 million in 1993.  This decrease resulted primarily 
from a decrease in military charter revenues and cargo revenues in 1994 
compared to 1993.  While the Company's U.S. Air Force fixed award revenues 
increased during 1994, this increase was offset by a decrease in short-term 
expansion flying.  During 1993, the Company participated in short-term 
expansion flying in connection with the transportation of military personnel to 
Mogadishu, Somalia.  In addition, a reduction in cargo revenues resulted 
primarily from the expiration of a contract with a cargo carrier in January 
1994.  These decreases were partially offset by increases of $17.1 million in 
revenues generated from the multi-year contracts with Malaysian Airlines 
entered into in 1994 and an increase in charter passenger service revenues 
resulting from additional charter programs to Europe and South America.

    Revenues from flight operations subcontracted to other carriers were $5.4 
million in 1994 compared to $1.2 million in 1993.  This increase was required 
primarily to make aircraft capacity available for the commencement of 
operations under the Company's multi-year contracts with Malaysian Airlines.

    Operating Expenses.  Total operating expenses decreased slightly in 
    ------------------
1994 to $185.9 million from $186.1 million in 1993.

    Flight operations expenses increased $2.5 million, or 5%, in 1994 to $57.8 
million from $55.3 million in 1993. This increase was primarily due to the 
increase in block hours flown, partially offset by the shift to more basic 
contracts.  In addition, in 1993, the Company incurred costs related to MD-11 
integration which were not incurred in 1994.

    Maintenance expense decreased $2.5 million, or 9%, in 1994 to $26.2 million 
from $28.7 million in 1993 primarily due to a $4.2 million reversal of excess 
accrued maintenance reserves associated with the expiration of three DC10-30 
aircraft leases during 1994.  Excluding the effect of this reversal, 
maintenance expenses increased $1.7 million, or 6%, primarily due to an 
increase in block hours flown in 1994, partially offset by lower costs 
associated with reduced maintenance requirements of new MD-11 aircraft and the 
guarantees and warranties received from engine and aircraft manufacturers on 
the MD-11 aircraft and related engines, which guaranties and warranties began 
to expire in 1995.

    Aircraft costs increased $1.8 million, or 3%, in 1994 to $53.9 million from 
$52.1 million in 1993.  This increase was primarily due to the higher lease 
costs associated with MD-11 aircraft, partially offset by the Company's return 
of three DC10-30 aircraft with long-term leases in 1993 and related termination 
fees of $2.3 million.

                                       18
<PAGE>
 
    Fuel expenses decreased $8.8 million, or 34%, in 1994 to $16.9 million from 
$25.7 million in 1993.  This decrease was primarily due to the shift to more 
basic contracts in 1994 under which the Company is not responsible for fuel.

    Depreciation and amortization decreased $1.6 million, or 29%, in 1994 to 
$4.0 million from $5.6 million in 1993 primarily due to the elimination of 
amortization for leasehold improvements in connection with two DC10-30 aircraft 
returned to the lessor in July 1993.  In addition, depreciation was reduced due 
to the transfer of DC10-30 spare parts to assets held for sale following the 
return of the DC10-30 aircraft.  This decrease was partially offset by the 
depreciation of spare parts purchased for MD-11 aircraft.

    General and administrative expenses increased $4.3 million, or 27%, in 1994 
to $20.5 million in 1994 from $16.2 million in 1993 primarily due to increased 
professional fees and marketing expenses.  During 1994, the Company began 
increasing its marketing and sales personnel and related activities to develop 
future marketing programs.

    Other Income (Expense).  Interest expense increased $1.6 million, or 
    ----------------------
76%, in 1994 to $3.7 million from $2.1 million in 1993 primarily due to MD-11 
rotable financing, and use of a bank line of credit in 1994.

LIQUIDITY AND CAPITAL RESOURCES

    The Company is highly leveraged.  The Company incurred substantial debt and 
lease commitments during 1993, 1994, and 1995 in connection with its 
acquisition of MD-11 aircraft and related spare parts.  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.

    In October 1995, the Company completed an initial public offering (the 
"Offering") of 2,900,000 shares of the Company's common stock.  Of the 
2,900,000 shares sold, 2,000,000 shares were issued and sold by the Company and 
900,000 shares were sold by WorldCorp, the Company's majority shareholder.  As 
a result of this offering, World Airways and WorldCorp received approximately 
$22.8 million and $10.2 million in net proceeds, respectively.

    The Company's cash and cash equivalents at December 31, 1995 and December 
31, 1994 were $25.3 million and $4.1 million, respectively.  At December 31, 
1995 the Company's current assets were $55.5 million and current liabilities 
were $64.4 million.  The Company believes that the combination of the 
financings consummated to date, income from operations and the additional 
financings described below will be sufficient to allow the Company to meet its 
operating and capital requirements for at least the next twelve months.

CASH FLOWS FROM OPERATING ACTIVITIES

    Operating activities provided $18.7 million in cash for the year ended 
December 31, 1995 compared to using $3.0 million of cash in 1994.  This 
increase in cash in 1995 was primarily from an increase in operating income 
over 1994 and increases in accounts payable and accrued expenses.  These 
increases were partially offset by an increase in accounts receivable during 
1995 over 1994.  

CASH FLOWS FROM INVESTING ACTIVITIES

    Investing activities used $22.5 million in cash for the year ended 
December 31, 1995 compared to using $2.6 million in 1994.  This increase in 
cash used resulted primarily from the following: the purchase of rotable spare 
parts required for the integration of two MD-11 aircraft; the purchase of 
rotable spare parts required as station spares in Malaysia as a result of the 
new multi-year contracts with Malaysian Airlines; and the purchase of a spare 
engine in the third quarter of 1995. In addition, the Company made a $1.2 
million downpayment towards the purchase of an additional spare engine to be 
delivered in the first quarter of 1996.

CASH FLOWS FROM FINANCING ACTIVITIES

    Financing activities provided $25.0 million in cash for the year ended 
December 31, 1995 primarily from $22.8 million in cash received by the Company 
from the sale of its common stock in October 1995.  In addition, the

                                       19
<PAGE>
 
Company increased its net borrowings by $2.2 million in 1995 as a result of 
financing an engine.  For the year ended December 31, 1994, financing 
activities used $2.0 million in cash due to $14.4 million in net borrowing 
repayments made by the Company, partially offset by $12.4 million in cash 
received from the sale of its common stock to MHS in February 1994.

CAPITAL COMMITMENTS

    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. As 
part of the lease agreements, the Company was assigned purchase options for 
four additional MD-11 aircraft. In 1992, the Company made non-refundable 
deposits of $1.2 million toward the option aircraft.  

    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.  As part of the 
agreement, the above-mentioned deposits were applied towards the deposits 
required on these two aircraft.  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. 

    World Airways maintains four long-term DC10-30 aircraft leases with terms 
expiring in 1998, 2003, and two in 1997.  In addition, beginning in 1996, the 
Company leased two additional DC10-30 aircraft for three-year terms.  The 
Company may choose to lease additional DC10-30 aircraft primarily to meet peak 
demand requirements.

    Annual minimum payments required under the Company's aircraft and lease 
obligations total $88.7 million for 1996, including the two MD-11ER aircraft 
and the two DC10-30 aircraft leased in 1996 (see Note 9 of "Notes to Financial 
Statements").

    The Company spent $11.0 million to purchase spare parts and to make cash 
security deposits for MD-11 integration in 1995. In August 1995, the Company 
amended its aircraft spare parts facility under the Credit Agreement to provide 
for a variable rate borrowing of $10.5 million. Approximately $2.5 million of 
this facility was used to pay off the previously outstanding balance of the 
spare parts loan facility and $0.8 million was used to purchase additional 
spare parts for MD-11s required during the remainder of 1995. The balance of 
this loan facility was used to increase cash balances which were drawn down 
during the first half of 1995 to purchase MD-11 spare parts.

    On September 29, 1995, the Company entered into an agreement with a lessor 
to purchase a spare engine, previously under lease, for $5.5 million (see Note 
9 of "Notes to Financial Statements").  In addition, the Company purchased an 
additional spare engine delivered in the first quarter of 1996. The engine cost 
approximately $8.0 million. The Company entered into an agreement with the 
engine's manufacturer to finance 80% of the purchase price over a seven-year 
term.  The Company made payments of $1.2 million and $0.4 million towards this 
purchase in September 1995 and January 1996, respectively.

    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 a result of this agreement, the Company 
estimates that it will expend approximately $1.6 million for crewmember 
training, $8.9 million for additional spare parts and $8.5 million for an 
additional spare engine and a QEC kit in 1996. As part of the agreement for the 
MD-11 aircraft, the Company will receive spare parts financing from the lessor 
of $9.0 million of which $3.0 million will be advanced with the delivery of 
each aircraft, and the remaining $3.0 million will be available in December 
1996. In January 1996, the Company received a commitment from the engine 
manufacturer to finance 85% of the engine purchase price over a seven-year term 
with an interest rate to be fixed at the time of delivery.

    The Company anticipates that its total capital expenditures in 1996 will be 
approximately $28.0 million. As discussed above, the Company will receive 
approximately $22.6 million in financing for these expenditures.  The remaining 
balance will be funded from its operating cash flow and available cash 
balances. 

                                       20
<PAGE>
 
    On September 28, 1995, the Credit Agreement was amended to increase the 
limit on capital expenditures by the Company to no more than $25.0 million in 
1995. While the Credit Agreement limits capital expenditures by the Company to 
no more than $15.0 million in 1996, the Company currently is negotiating with 
BNY Financial Corporation to amend the Credit Agreement to increase the annual 
limit on capital expenditures. There can be no assurance that the Credit 
Agreement will be so amended or that a waiver will be obtained, in which event 
the Company would expect to limit its annual capital expenditures to $15.0 
million.
  
    In March 1996, the Company received regulatory authority to provide 
scheduled passenger and cargo service between Newark and points in West Africa 
and South Africa beginning in the second quarter of 1996. The Company 
anticipates that it will incur approximately $1.0 million in start-up costs in 
connection with this operation and will fund such start-up costs from its 
operating cash flow. 

    As of December 1995, the Company held approximately $3.0 million (at book 
value) of aircraft spare parts currently available for sale.

FINANCING DEVELOPMENTS

    On October 30, 1993, WorldCorp, the Company and MHS entered into the MHS 
Stock Purchase Agreement pursuant to which MHS, subject to satisfactory 
completion of its due diligence investigations, agreed to purchase 24.9% of the 
Common Stock. On February 28, 1994, the transaction was completed. The Company 
received upon closing $12.4 million to fund its working capital requirements. 
The remaining proceeds from the sale ($15.0 million less a $2.7 million deposit 
received in November 1993) were paid directly to WorldCorp.

    In October 1995, the Company completed an initial public offering pursuant 
to which World Airways and WorldCorp received approximately $22.8 million and 
$10.2 million in net proceeds, respectively.  World Airways used its proceeds 
to increase cash reserves.

    In 1993, the Company entered into the Credit Agreement, which included a
$12.0 million spare parts loan and an $8.0 million revolving line of credit
collateralized by certain receivables, inventory, equipment, and general
intangibles. The Company is prohibited from granting a security interest in such
collateral to anyone other than BNY Financial Corporation. Approximately $10.8
million of the proceeds from this borrowing were used to retire existing
obligations. This agreement contains certain covenants related to the Company's
financial condition and operating results. In March, August and September of
1995, the Company amended this agreement to adjust certain covenants beginning
in the first quarter of 1995, in August 1995 and in September 1995,
respectively, and extended the credit facility's term to 1998. Under the terms
of the amended Credit Agreement, the Company is not permitted to (i) incur
indebtedness in excess of $25.0 million (excluding capital leases), (ii)
declare, pay, or make any dividend or distributions in any six month period
which aggregate in excess of the lesser of $4.5 million or 50% of net income for
the previous six months, (iii) declare or pay dividends if after giving effect
to such dividends the Company's cash or cash equivalents would be less than $7.5
million or (iv) make capital expenditures in 1995 of more than $25.0 million or
in any subsequent year of more than $15.0 million. The Company must also
maintain a certain quarterly net worth and net income (loss) requirements, and
at December 31, 1995, the Company was in compliance with the terms of the Credit
Agreement as in effect as of such date. No assurances can be given that the
Company will continue to meet these revised covenants or, if necessary, obtain
the required waivers. In addition, the Company amended the aircraft spare parts
facility under the Credit Agreement to provide for a variable rate spare parts
loan of $10.5 million. As of December 31, 1995, $1.7 million of the $8.0 million
portion of the credit facility collateralized by receivables was utilized, with
$0.3 million capacity currently available, and $8.6 million of the $10.5 million
spare parts loan was outstanding.

    In the first quarter of 1995, the Company obtained approximately $6.0 
million in short-term borrowings from equipment lessors for working capital 
purposes, with an average interest rate of approximately 11%. The borrowings 
had been repaid as of December 1995. 

    As discussed above, in September 1995 the Company entered into an agreement 
with a lessor to purchase a spare engine, previously under lease, for $5.5 
million. The Company paid $0.5 million upon closing and signed a note for the 
$5.0 million balance. The note bears interest at a rate of 7.25% and is payable 
over a 40-month period at $69,000 a month, with the balance of $3.3 million due 
on January 29, 1999.

                                       21
<PAGE>
 
OTHER MATTERS

LEGAL AND ADMINISTRATIVE PROCEEDINGS

    The Company and WorldCorp (the "World Defendants") are defendants in 
litigation brought by the Committee of Unsecured Creditors of Washington 
Bancorporation (the "Committee") in August 1992, captioned Washington 
Bancorporation v. Boster, et. al., Adv. Proc. 92-0133 (Bankr. D.D.C.) (the 
"Boster Litigation").  The complaint asserts that the World Defendants received 
preferential transfers or fraudulent conveyances from Washington Bancorporation 
when the World Defendants received payment at maturity on May 4, 1990 of 
Washington Bancorporation commercial paper purchased on May 3, 1990. Washington 
Bancorporation filed for relief under the Federal Bankruptcy Code on August 1, 
1990. The Committee seeks recovery of approximately $4.8 million from the 
Company and approximately $2.0 million from WorldCorp, which are alleged to be 
the amounts paid to each of the Company and WorldCorp by Washington 
Bancorporation. On the motion of the World Defendants, among others, the Boster 
Litigation was removed from the Bankruptcy Court to the District Court for the 
District of Columbia on May 10, 1993. The World Defendants filed a motion to 
dismiss the Boster Litigation as it pertains to them on June 9, 1993, and 
intend to vigorously contest liability. On September 20, 1995, the District 
Court for the District of Columbia granted the motion to dismiss filed by the 
World Defendants with respect to three of the four counts alleged in the 
litigation, but declined to grant a motion to dismiss the remaining claim 
regarding fraudulent transfers. The District Court's ruling is subject to 
appeal in certain cases.  The World Defendants filed a summary motion with 
respect to the remaining claim on October 19, 1995, which remains pending.  In 
any event, the Company believes it has substantial defenses to this action, 
although no assurance can be given of the eventual outcome of this litigation. 
Depending upon the timing of the resolution of this claim, if the Committee 
were successful in recovering the full amount claimed, the resolution could 
have a material adverse effect on the Company's financial condition and results 
of operations.

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

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 will become amendable in June 
1998. 

    The Company's flight attendants are also represented by the Teamsters under
 a collective bargaining agreement that became amendable in 1992. The
 parties exchanged their opening contract proposals in 1992 and have had
 numerous contract negotiation sessions. In December 1994, the Company and the
 Teamsters jointly requested the assistance of a federal mediator to facilitate
 negotiations. After several mediated sessions, the National Mediation Board
 (the "NMB") mediator recommended that the NMB release the parties to pursue
 "direct" (i.e., non-mediated) negotiations with the flight attendants. The
 Company and the Teamsters agreed and direct negotiations continue. The outcome
 of the negotiations with the flight attendants cannot be determined at this
 time. The inability to reach an agreement upon terms favorable to the Company
 could have a material adverse effect on the Company. The Company's flight
 attendants continue to challenge 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 Company intends to contest this matter
 vigorously in an upcoming arbitration, an unfavorable ruling for the Company
 could have a material adverse effect on the Company.

    The Company's aircraft dispatchers are represented by the Transport Workers 
Union (the "TWU"). This contract became amendable on June 30, 1993. In May 
1995, the parties reached agreement with respect to a new four-year contract.  
This contract was ratified on February 7, 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

                                       22
<PAGE>
 
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.

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. Any 
future decision concerning the payment of dividends on the common stock will 
depend upon the results of operations, financial condition and capital 
expenditure plans of the Company, as well as such other factors as the Board of 
Directors, in its sole discretion, may consider relevant.

    Under the terms of a 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
through September 1995, the "Credit Agreement") contains restrictions on the
Company's ability to pay dividends on the common stock. The Credit Agreement
provides that the Company shall not declare, pay or make any dividends or
distributions in any six-month period which aggregate in excess of the lesser of
$4.5 million or 50% of the Company's net income for the previous six months and
requires that the Company have a cash balance of not less than $7.5 million
after giving effect to such dividend or distribution. Additionally, WorldCorp,
which owns approximately 59.3% of the Company's common stock, is subject to the
provisions of an indenture expiring in 2004 under which it is obligated to cause
the Company not to pay dividends upon the occurrence of any events of default by
WorldCorp under such indenture. Further, under the indenture terminating in
1997, WorldCorp has agreed to cause the Companies not to pay dividends unless
WorldCorp has a positive adjusted net worth (as defined therein). As of March
11, 1996, WorldCorp's adjusted net worth was negative and under the indenture
terminating in 1997, WorldCorp is therefore obligated to cause World Airways not
to pay dividends.

INCOME AND OTHER TAXES

    In August 1991, 5.7 million shares of WorldCorp common stock were sold by a 
group of existing shareholders. This transaction constituted an ownership 
change of WorldCorp (and thus of the Company) as defined under Section 382 of 
the Code (the "1991 Ownership Change"). The 1991 Ownership Change subjected 
WorldCorp to an annual limitation in 1991 and future years in the use of net 
operating losses ("NOLs") that were available to WorldCorp (and thus allocable 
to the Company) on the date on which the 1991 Ownership Change occurred. As of 
December 31, 1995, the Company had NOLs for federal income tax purposes of 
$100.4 million which, if not utilized to offset taxable income in future 
periods, will expire from 1997 to 2009. Of this amount, $62.0 million is 
subject to a $6.9 million annual limitation resulting from the 1991 Ownership 
Change. The remaining $38.4 million was generated after the 1991 Ownership 
Change and, therefore, is not currently subject to annual limitation.

    Use of the Company's net operating loss carryforwards in future years could 
be further limited if an Ownership Change were to occur in the future.  While 
the Company believes that the sale of common stock in its initial public 
offering (the "Offering") did not cause an Ownership Change, the application of 
the Code in this area is subject to interpretation by the Internal Revenue 
Service.  Also, any future transactions in the Company's or WorldCorp's stock 
could cause an Ownership Change.  In the event that more than approximately 
$5.0 million of the outstanding convertible debentures of WorldCorp are 
converted into WorldCorp common stock, the Company believes an Ownership Change 
will occur. 
 
    There can be no assurance that the operations of the Company will generate 
taxable income in future years so as to allow the Company to realize a tax 
benefit from its NOLs. 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 to the change in ownership that might occur upon the 
conversion of the WorldCorp debentures, additional ownership changes of the 
Company may occur in the future and may result in the imposition of a lower 
annual limitation on the Company's NOLs existing at the time of any such 
ownership change.

    The valuation allowance for deferred tax assets as of December 31, 1995 was 
$39.5 million. The Company's estimate of the required valuation allowance is 
based on a number of factors, including historical operating results.  The 
Company generated net earnings for the year ended 1995 as compared to losses in 
both 1994 and 1993.  If the Company continues to generate net earnings in 1996, 
it is possible that a change in the estimate of the required valuation 
allowance will occur in the near term, and could differ materially from the 
amount recorded at December 31, 1995.

                                       23
<PAGE>
 
NEW ACCOUNTING STANDARDS

    In June 1995, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards No. 121, Accounting for the Impairment of 
Long-lived Assets and for Long-lived Assets to Be Disposed Of ("SFAS No. 121"). 
SFAS No. 121 requires companies to review long-lived assets and certain 
identifiable intangibles to be held, used or disposed of, for impairment 
whenever events or changes in circumstances indicate that the carrying amount 
of an asset may not be recoverable. The Company believes the adoption of this 
statement will not have a significant effect on its financial statements. The 
Company is required to adopt this statement in 1996.

    In October 1995, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 123, Accounting for Stock-based 
Compensation ("Statement 123"). Statement 123 recommends, but does not require, 
the adoption of a fair value based method of accounting for stock-based 
compensation to employees, including common stock options, and stock-based 
compensation to individuals other than employees. The Company currently intends 
to continue recording stock-based compensation to employees under the intrinsic 
value method and does not intend to adopt the fair value based method of 
accounting for stock-based compensation to employees as permitted by Statement 
123.  Certain pro forma disclosures will be required in the Company's financial 
statements for the year ending December 31, 1996 as if the fair value based 
method had been adopted.
 
INFLATION

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

                                       24
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


                                                            December 31,        
                                                         -------------------
                                                           1995       1994    
                                                         --------    -------
CURRENT ASSETS
   Cash and cash equivalents, including restricted
      cash of $619 at December 31, 1995 and
      $103 at December 31, 1994 (Note 14)                $ 25,271    $ 4,054

   Restricted short-term investments (Notes 5 and 14)         909        668

   Trade accounts receivable, less allowance for
      doubtful accounts of $258 at December 31, 1995
      and $35 at December 31, 1994 (Notes 3 and 8)         15,472      5,480

   Other receivables (Note 3)                               3,314      2,936

   Prepaid expenses and other current assets (Note 6)       9,882      6,931

   Assets held for sale (Notes 7 and 9)                       700      2,500
                                                         --------   --------

      Total current assets                                 55,548     22,569
                                                         --------   --------

ASSETS HELD FOR SALE (Notes 7 and 9)                        2,308     11,328

EQUIPMENT AND PROPERTY (Notes 7 and 9)
   Flight and other equipment                              54,460     22,457
   Equipment under capital leases                          11,466     11,466
                                                         --------   --------

                                                           65,926     33,923
   Less accumulated depreciation and amortization          13,497      9,257
                                                         --------   --------

      Net equipment and property                           52,429     24,666
                                                         --------   --------

LONG-TERM OPERATING DEPOSITS (Note 9)                      16,157     13,562

OTHER ASSETS AND DEFERRED CHARGES,
   NET (Notes 3 and 6)                                      4,253      5,926
                                                         --------   --------

TOTAL ASSETS                                             $130,695   $ 78,051
                                                         ========   ========

                                                                     (Continued)

                                       25
<PAGE>
 
                              WORLD AIRWAYS, INC.
                                BALANCE SHEETS
                                  (CONTINUED)
             LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
                                (IN THOUSANDS)


                                                             December 31,
                                                         -------------------
                                                           1995        1994    
                                                         --------    -------
CURRENT LIABILITIES
   Notes payable (Note 8)                                $  6,764    $ 7,162
   Current maturities of long-term obligations (Note 9)     9,398      9,550
   Deferred aircraft rent (Note 9)                            533        907
   Accounts payable                                        15,278     11,609
   Unearned revenue                                        10,417      5,300
   Air traffic liability                                    2,332         --
   Accrued maintenance in excess of reserves paid           8,919      6,395
   Accrued salaries and wages                               8,716      5,328
   Accrued taxes                                            1,485      1,601
   Due to affiliate (Note 2)                                  405         97
   Other accrued liabilities                                  184        414
                                                        ---------  ---------
      Total current liabilities                            64,431     48,363
                                                        ---------  ---------

LONG-TERM OBLIGATIONS, NET (Note 9)                        20,417     17,114

OTHER LIABILITIES
   Deferred gain from sale-leaseback transactions, net of 
      accumulated amortization of $18,041 at December
      31, 1995 and $16,978 at December 31, 1994             7,310      8,373
   Accrued maintenance in excess of reserves paid           3,579      2,866
   Accrued postretirement benefits (Note 10)                2,596      2,384
   Other liabilities                                        2,022        318
                                                        ---------  ---------
      Total other liabilities                              15,507     13,941
                                                        ---------  ---------

TOTAL LIABILITIES                                         100,355     79,418
                                                        ---------  ---------

COMMON STOCKHOLDERS' EQUITY (DEFICIT) (Notes 1, 2,
   3, 9, 10 and 13)
   Common stock, $.001 par value (20,000,000 shares 
      authorized, 12,000,064 and 10,000,064 shares 
      issued and outstanding at December 31, 1995 
      and December 31, 1994, respectively)                     12         10
   Additional paid-in capital                              42,312     19,503
   Contributed capital                                      3,000      3,000
   Accumulated deficit                                    (14,984)   (23,880)
                                                        ---------  ---------
      Total common stockholders' equity (deficit)          30,340     (1,367)
                                                        ---------  ---------

COMMITMENTS AND CONTINGENCIES (Notes 2, 8, 9,
   10, 11, 12 and 14)

TOTAL LIABILITIES AND COMMON STOCKHOLDERS'
   EQUITY (DEFICIT)                                     $ 130,695  $  78,051
                                                        =========  =========

                See accompanying Notes to Financial Statements

                                       26
<PAGE>
 
                             WORLD AIRWAYS, INC.
                           STATEMENTS OF OPERATIONS
                     (IN THOUSANDS EXCEPT PER SHARE DATA)



                                                   Years Ended December 31, 
                                              --------------------------------
                                                1995        1994        1993    
                                              --------    --------    --------
[S]                                           [C]         [C]         [C] 
OPERATING REVENUES (Note 12) 
   Flight operations                          $249,719    $173,925    $176,492
   Flight operations subcontracted
      to other carriers                          8,598       5,378       1,221
   Other                                         1,165       1,412       1,023
                                              --------    --------    --------
      Total operating revenues                 259,482     180,715     178,736
                                              --------    --------    --------

OPERATING EXPENSES
   Flight                                       72,812      57,792      55,336
   Maintenance (Notes 9 and 14)                 43,272      26,212      28,668
   Aircraft costs (Note 9)                      71,238      53,860      52,056
   Fuel                                         19,678      16,915      25,660
   Flight operations subcontracted
      to other carriers                          9,096       5,549       1,312
   Promotions, sales and commissions             5,281       1,060       1,237
   Depreciation and amortization                 6,056       4,006       5,573
   General and administrative (Note 2)          21,707      20,522      16,223
                                              --------    --------    --------
      Total operating expenses                 249,140     185,916     186,065
                                              --------    --------    --------

OPERATING INCOME (LOSS)                         10,342      (5,201)     (7,329)
                                              --------    --------    --------

OTHER INCOME (EXPENSE)
   Interest expense (Notes 8 and 9)             (3,486)     (3,684)     (2,103)
   Interest income                                 933         426         499
   Other, net (Note 9)                           1,403        (568)        (52)
                                              --------    --------    --------
      Total other expense                       (1,150)     (3,826)     (1,656)
                                              --------    --------    --------

EARNINGS (LOSS) BEFORE INCOME TAXES              9,192      (9,027)     (8,985)

INCOME TAX EXPENSE (BENEFIT) (Note 11)             296         (26)         63
                                              --------    --------    --------

NET EARNINGS (LOSS)                           $  8,896    $ (9,001)   $ (9,048)
                                              ========    ========    ========
                                                                      
NET EARNINGS (LOSS) PER COMMON 
   EQUIVALENT SHARE                           $   0.84    $  (0.91)   $  (1.01)
                                              ========    ========    ========

WEIGHTED AVERAGE COMMON AND 
   COMMON EQUIVALENT SHARES
   OUTSTANDING                                  10,572       9,939       9,000
                                              ========    ========    ========


                See accompanying Notes to Financial Statements

                                       27
<PAGE>
 
                               WORLD AIRWAYS, INC.
                              STATEMENTS OF CHANGES
                    IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
                  YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
                                 (IN THOUSANDS)


<TABLE> 
<CAPTION> 
                                                                                       Total
                                                                                      Common
                                            Additional                           Stockholders'
                                   Common     Paid-in  Contributed  Accumulated        Equity
                                    Stock     Capital      Capital      Deficit      (Deficit) 
                                  -------   ---------  -----------  -----------  ------------- 
<S>                               <C>       <C>        <C>          <C>          <C> 
BALANCE AT
   DECEMBER 31, 1992              $    --     $ 7,123    $    --     $ (5,831)       $  1,292
                                                                                
Net loss                               --          --         --       (9,048)         (9,048)
                                  -------     -------    -------     --------        --------  
BALANCE AT                                                                      
   DECEMBER 31, 1993              $    --     $ 7,123    $    --     $(14,879)       $ (7,756)
                                                                                
1 for 88,737 stock split (Note 1)       9         (9)         --           --              --
Sale of stock to MHS (Note 3)           1      12,389         --           --          12,390
Contributed capital (Note 3)           --          --      3,000           --           3,000
Net loss                               --          --         --       (9,001)         (9,001)
                                  -------     -------    -------     --------        --------  
BALANCE AT                                                                      
   DECEMBER 31, 1994              $    10     $19,503    $ 3,000     $(23,880)       $ (1,367)
                                                                                
Sale of common stock in public                                                  
   offering, net (Note 1)               2      22,809         --           --          22,811
                                                                                
Net earnings                           --          --         --        8,896           8,896
                                  -------     -------    -------     --------        --------  
BALANCE AT                                                                      
   DECEMBER 31, 1995              $    12     $42,312    $ 3,000     $(14,984)       $ 30,340
                                  =======     =======    =======     ========        ========  
</TABLE> 
   

                   See accompanying Notes to Financial Statements

                                       28
<PAGE>
 
                              WORLD AIRWAYS, INC.
                           STATEMENTS OF CASH FLOWS
                            (DOLLARS IN THOUSANDS)
<TABLE> 
<CAPTION> 



                                                   Years Ended December 31,
                                             ---------------------------------
                                                1995         1994       1993  
                                             ---------    ---------   --------
<S>                                          <C>          <C>         <C> 
CASH AND CASH EQUIVALENTS AT
   BEGINNING OF YEAR (Note 4)                $   4,054    $ 11,596    $ 12,509

CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)                              8,896      (9,001)     (9,048)
Adjustments to reconcile net earnings 
   (loss) to cash provided (used) by 
   operating activities:
   Depreciation and amortization                 6,056       4,006       5,573
   Deferred gain recognition                    (1,063)     (1,949)     (4,587)
   Deferred aircraft rent payments, net            153         576       8,145
   (Gain) loss on sale of property and 
     equipment                                     (55)         725        (14)
   Reversal of excess accrued maintenance 
     reserves                                       --       (4,200)        --
   Other                                           277          (96)        32
   Changes in certain assets and liabilities 
      net of effects of non-cash transactions:
      (Increase) decrease in accounts 
        receivable                             (10,370)      11,120     (5,405)
      (Increase) decrease in restricted 
        short-term investments                    (241)        (518)       299
      Increase in deposits, prepaid expenses
        and other assets                        (4,601)      (8,511)    (2,656)
      Increase in accounts payable, accrued
        expenses and other liabilities          12,172          874        234
      Increase in unearned revenue               5,117        4,007        302
      Increase in air traffic liability          2,332           --         --
                                             ---------    ---------   --------
   Net cash provided (used) by operating 
    activities                                  18,673       (2,967)    (7,125)
                                             ---------    ---------   --------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property            (23,210)      (4,358)   (19,599)
Proceeds from disposals of equipment 
  and property                                     717        1,787        864
                                             ---------    ---------   --------
   Net cash used by investing activities       (22,493)      (2,571)   (18,735)
                                             ---------    ---------   --------

CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in line of credit 
   borrowing arrangement, net                   (1,051)      (4,275)     7,069
Issuance of debt                                25,240        5,999     32,762
Repayment of debt                              (21,963)     (16,118)   (14,394)
Proceeds from sale of common stock, net         22,811       12,390         --
Debt issuance costs                                 --           --       (490)
                                             ---------    ---------   --------
   Net cash provided (used) by financing 
     activities                                 25,037       (2,004)    24,947
                                             ---------    ---------   --------

NET INCREASE (DECREASE) IN CASH 
   AND CASH EQUIVALENTS                         21,217       (7,542)      (913)
                                             ---------    ---------   --------

CASH AND CASH EQUIVALENTS AT END OF
   YEAR (Note 4)                             $  25,271    $   4,054   $ 11,596
                                             =========    =========   ========
</TABLE> 
                See accompanying Notes to Financial Statements

                                       29
<PAGE>
 
                            WORLD AIRWAYS, INC.
                       NOTES TO FINANCIAL STATEMENTS




1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

    World Airways is a U.S. certificated air carrier, which operates in the air 
transportation industry.  Airline operations account for 100% of the Company's 
operating revenue and operating income.  World Airways is a leading provider of 
long-range passenger and cargo air transportation, serving customers in four 
distinct markets: (i) major international air carriers; (ii) the U.S. 
Government; (iii) international tour operators in the leisure passenger market; 
and (iv) small package shippers and freight forwarders.  In addition, the 
Company recently commenced operations in a fifth market, scheduled 
passenger/cargo service (including scheduled charters to leisure passenger 
markets on a seasonal basis). The Company's business relies heavily on its 
contracts with Malaysian Airline System Berhad ("Malaysian Airlines"), P.T. 
Garuda Indonesia ("Garuda") and the U.S. Air Force (see Note 12).

    Effective June 23, 1987, World Airways, Inc. ("World Airways" or the 
"Company") became a wholly-owned subsidiary of WorldCorp, Inc. ("WorldCorp") 
pursuant to a Merger Agreement and Plan of Reorganization (the "Plan").  Under 
the Plan, the shareholders of World Airways exchanged their outstanding common 
shares, warrants and/or options for common shares, warrants and/or options of 
WorldCorp in a one-for-one exchange.  This transaction was accounted for in a 
manner similar to a pooling of interests.

    On October 30, 1993, WorldCorp, World Airways, and MHS Berhad ("MHS") 
entered into a stock purchase agreement pursuant to which MHS, subject to 
satisfactory completion of its due diligence investigations, agreed to purchase 
24.9% of World Airways' common stock.  On February 28, 1994, WorldCorp, World 
Airways, and MHS concluded the transaction.  Effective December 31, 1994, 
WorldCorp purchased 5% of World Airways' common stock held by MHS, increasing 
its ownership to 80.1%.  Therefore, at December 31, 1994, MHS owned 19.9% of 
World Airways' common stock (see Note 3).

    On August 8, 1995, World Airways filed a registration statement on Form S-1 
with the Securities and Exchange Commission to register 2,900,000 shares of 
World Airways' common stock.  The offering was completed on October 12, 1995.  
Of the 2,900,000 shares registered, 2,000,000 shares were issued and sold by 
World Airways and 900,000 shares were sold by WorldCorp, Inc., the majority 
shareholder.  At December 31, 1995, WorldCorp and MHS own approximately 59.3% 
and 16.6%, respectively, of the outstanding common stock of World Airways. The 
remaining shares are publicly traded.

FINANCIAL STATEMENT RECLASSIFICATIONS

    Certain items in prior year financial statements included herein have been 
reclassified to conform to the 1995 financial statement presentation.  In 
addition, in 1995 the Company changed its presentation of activity under 
contracts in which certain of the services to be provided under the contract 
are subcontracted by the Company to the customer.  In prior years, equal 
amounts of revenue and expenses related to these subcontracted services were 
reflected in the financial statements.  For the year ended December 31, 1995, 
no revenue or expenses have been included in the financial statements for these 
subcontracted services.  Prior year financial statements have been reclassified 
to conform to the 1995 presentation.  The revenue and expenses which have been 
reclassified amounted to $22.3 million and $22.8 million for the years ended 
December 31, 1994, and 1993, respectively.

USE OF ESTIMATES

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

                                       30
<PAGE>
 
CASH EQUIVALENTS

    For purposes of the Statements of Cash Flows, the Company considers all 
highly liquid investments purchased with an original maturity of ninety days or 
less to be cash equivalents.

REVENUE RECOGNITION

    Contract flight operations and scheduled service revenues are recognized as 
the services are provided.

ADMINISTRATIVE AND INTEREST EXPENSES

    Administrative expenses incurred by WorldCorp are allocated as described in 
Note 2.  This allocation is intended to reflect the costs that would have been 
incurred had World Airways been operated on a stand-alone basis.  Interest 
expense is charged based upon the outstanding balance of long-term payables to 
WorldCorp, if any.  In the opinion of WorldCorp management, such allocations 
are made on a reasonable basis; however, the allocations are not necessarily 
indicative of the costs which may be incurred in subsequent periods.  The 
amounts due to/from affiliates resulting from allocations of expenses are 
short-term in nature and are non-interest bearing.

INCOME TAXES

    The results of the Company's operations prior to February 28, 1994 are 
included in WorldCorp's consolidated income tax returns.  As a result of 
certain transactions with MHS Berhad during 1994 (see Note 3), the results of 
the Company's operations for the period from February 28, 1994 to December 31, 
1994 and subsequent periods will not be included in WorldCorp's consolidated 
income tax returns.  Income tax expenses included in the Company's financial 
statements were computed as if the Company filed its own tax return for the 
whole year.

    The Company computes income taxes in accordance with Financial Accounting 
Standards Board Statement of Financial Accounting Standards No. 109, Accounting 
for Income Taxes, ("FAS #109"). Under the asset and liability method of FAS 
#109, deferred tax assets and liabilities are recognized for the future tax 
consequences attributable to differences between the financial statement 
carrying amounts of existing assets and liabilities and their respective tax 
bases. Deferred tax assets and liabilities are measured using enacted tax rates 
expected to apply to taxable income in the years in which those temporary 
differences are expected to be recovered or settled. Under FAS #109, the effect 
on deferred tax assets and liabilities of a change in tax rates is recognized 
in income in the period that includes the enactment date.

EARNINGS (LOSS) PER COMMON SHARE

    Primary and fully diluted earnings (loss) per common share is computed by 
dividing net earnings (loss) by the weighted average number of common and 
common equivalent shares outstanding during the period.  Common equivalent 
shares consist of stock options.  Pursuant to Securities and Exchange 
Commission Staff Accounting Bulletin Topic 4:D, stock issued and stock options 
granted during the 12-month period preceding the date of the Company's initial 
public offering have been included in the calculation of weighted average 
shares of common stock and common stock equivalents outstanding for all periods 
using the treasury stock method based on the initial public offering price of 
$12.50 per share.

    On October 21, 1993, the Board of Directors approved the recapitalization 
of the Company and declared a one for 88,737 stock split effective February 2, 
1994, and changed the par value of the common stock from $1 to $.001 per share.
The par value of the new shares issued totaled approximately $9,000 and this 
amount was transferred from additional paid-in-capital to common stock.  All 
share and per share data for prior periods presented have been restated to 
reflect the stock split.

EQUIPMENT AND PROPERTY

    Equipment and property are stated at cost or, if acquired under capital 
leases, at the present value of the minimum lease payments.  Engine overhauls 
and major airframe maintenance and repairs are charged to operating expense on 
an accrual basis.  Modifications performed in response to Airworthiness 
Directives issued by the Federal Aviation Administration are capitalized at 
cost.

                                       31
<PAGE>
 
    Provisions for depreciation and amortization of equipment and property are 
computed over estimated useful lives or the term of the lease, if shorter, for 
capital leases, by the straight-line method, with estimated residual values of 
0 - 15%.  Estimated useful lives of equipment and property are as follows:

      DC10  and MD-11 flight equipment                15-16 years
      Other equipment and property                     5-10 years

    Deferred gains realized in connection with sale-leasebacks of aircraft and 
equipment are amortized over the periods of the respective leases.

ASSETS HELD FOR SALE

    Assets held for sale are recorded at the lower of cost or estimated net 
realizable value. Net realizable value is based on the estimated fair value 
(measured by using a current selling price for similar assets) less estimated 
selling costs.

AIR TRAFFIC LIABILITY

    The air traffic liability relates to scheduled service to Tel Aviv, Israel, 
which the Company began in July 1995.  Scheduled service passenger ticket sales 
are initially recorded in the air traffic liability account.  When 
transportation is provided by the Company, revenue is recognized and the 
liability is reduced.  The liability is also reduced by any  refunds to 
passengers or billings from other airlines that provide the passenger 
transportation.

OTHER ASSETS AND DEFERRED CHARGES

    Contract enhancements and pre-operating costs are amortized on a straight 
line basis over certain estimated periods (see Notes 3 and 6).

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

    World Airways' cockpit crewmembers and eligible dependents are covered 
under postretirement health care benefits to age 65.  The Company accounts for 
the benefit costs in accordance with Statement of Financial Accounting 
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other 
Than Pensions" ("FAS #106").  The Company funds the benefit costs on a 
pay-as-you-go (cash) basis.

2. TRANSACTIONS WITH PARENT COMPANY

ADMINISTRATIVE COST ALLOCATION

    Prior to December 31, 1994, WorldCorp and its operating subsidiaries 
utilized a single corporate staff for administrative support services thus 
permitting the Company to draw upon the expertise of WorldCorp management 
personnel as needed.  Effective January 1, 1995, a majority of the WorldCorp 
employees providing services to World Airways became employees of the Company.  
As a result, the net allocation of corporate administrative costs to the 
Company was minimal in 1995.  Allocations of $5.9 million and $6.7 million of 
corporate administrative costs were made to the Company in 1994 and 1993, 
respectively.  These allocations include the costs of directing or performing 
certain management, accounting, financial, legal, tax, marketing, cash 
management, employee benefits, human resources, management information services 
activities and operations and maintenance administrative services. Office 
space, furniture and fixtures and other items were also considered in the 
administrative cost allocation.  This allocation and other costs incurred 
directly by the Company are reflected in selling and administrative expense in 
the accompanying statements of operations.

CONTROL BY WORLDCORP

    As of December 31, 1995, WorldCorp owns approximately 59.3% of World 
Airways.  WorldCorp's revenues are derived from its ownership of majority 
positions in US Order, Inc. and the Company.  WorldCorp is highly leveraged, 
and therefore requires substantial funds to cover debt service.  As a holding 
company, all of WorldCorp's funds are generated through its subsidiaries, 
neither of which has paid dividends since 1992.  The Company intends

                                       32
<PAGE>
 
to retain any earnings for the foreseeable future. Additionally, WorldCorp is
subject to two indentures that could, under certain circumstances, restrict the
Company's ability to pay dividends to all shareholders. Under an indenture
terminating in 2004, WorldCorp has agreed to cause the Company not to pay
dividends upon the occurrence of any events of default by WorldCorp under such
indenture. Further, under the indenture terminating in 1997, WorldCorp has
agreed to cause the Companies not to pay dividends unless WorldCorp has a
positive adjusted net worth (as defined therein). As of March 11, 1996,
WorldCorp's adjusted net worth was negative and under the indenture terminating
in 1997, WorldCorp is therefore obligated to cause World Airways not to pay
dividends.

    The managements of WorldCorp and World Airways are currently exploring ways 
to maximize value for the shareholders of each company, including actively 
exploring the feasibility of employee initiatives to purchase a substantial 
portion of WorldCorp's ownership position in World Airways.  In addition to 
employee initiatives, WorldCorp is evaluating the feasibility of a spinoff of 
its interest in World Airways or a disposition to a third party. There can be 
no assurances, however, that any such transactions will ultimately be 
consumated.

3. TRANSACTIONS WITH MHS AND MALAYSIAN AIRLINES

    On October 30, 1993, WorldCorp, Inc., World Airways, Inc., and MHS entered 
into a Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to 
which MHS, subject to satisfactory completion of its due diligence 
investigations, agreed to purchase 24.9% of World Airways' common stock for 
$27.4 million in cash.  Under this Agreement, World Airways would receive upon 
closing $12.4 million to fund its working capital requirements.  The remaining 
$15.0 million would be paid to WorldCorp to add to its cash reserves. WorldCorp 
received $2.7 million prior to December 31, 1993 as an advance on the sales 
price.  At the time of the signing of the Stock Purchase Agreement, World 
Airways was a wholly-owned subsidiary of WorldCorp.  On February 28, 1994, 
WorldCorp, World Airways, and MHS concluded the transaction according to the 
terms described above.  Under the agreement, if at any time after October 30, 
1996 World Airways registers its common stock under the Securities Act of 1933, 
MHS has the right to demand the registration of its shares of the Company's 
common stock.  Under a shareholders agreement, MHS agreed not to transfer, 
sell, or pledge any of its shares of common stock prior to February 28, 1997 
without the prior written consent of WorldCorp.  MHS has the right to nominate 
two members to the Company's board of directors and WorldCorp has agreed to 
vote its shares of common stock to elect such nominees.  Also, if without the 
prior written consent of MHS: (1) World Airways sells all or substantially all 
of its business; or (2) World Airways fundamentally changes its line of 
business, then MHS has the option (a) to sell or transfer all or a portion of 
its shares to a third party prior to February 28, 1997, and/or (b) to require 
WorldCorp to purchase all or part of MHS's shares at fair market value.  Fair 
market value is defined to be not less than the aggregate of the costs borne by 
MHS in acquiring and holding its World Airways shares.  Management has 
indicated that it does not have any current intent to take any such actions 
without the prior consent of MHS or the directors nominated by MHS. The 
shareholders agreement also provides that if 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. 
MHS also has a right of first refusal to purchase shares of common stock issued 
by the Company or sold by WorldCorp and to purchase additional shares of common 
stock to maintain its ownership percentage in the Company.

    During 1994, MHS acquired 32% of Malaysian Airline System Berhad, the flag 
carrier of Malaysia.  World Airways has provided service to Malaysian Airlines 
for many years, providing aircraft for integration into Malaysian Airlines' 
scheduled passenger and cargo operations as well as transporting passengers for 
the annual Hadj pilgrimage. The current Malaysian Airlines Hadj contract, which 
was entered into in 1992, expires in 1996.  The Company is currently in 
negotiations with Malaysian Airlines regarding future Hadj operations.  In 1995 
and 1994, the Company provided three and two aircraft, respectively, for Hadj 
operations and will provide three aircraft for the 1996 Hadj operations. 
Malaysian Airlines is the Company's largest customer (see Note 12).

    Effective December 31, 1994, WorldCorp entered into a 6% note payable to 
MHS in the amount of $8.5 million, due December 31, 1995, in exchange for 5% of 
World Airways' common stock held by MHS and the execution of a series of 
multi-year contracts between World Airways and Malaysian Airlines.  The shares 
were pledged as security for the note payable.  The note was repaid in 
accordance with the agreement.  As a result of this transaction, effective 
December 31, 1994, MHS owned 19.9% of World Airways' common stock.  As a result 
of the Company's initial public offering (see Note 1), MHS owns approximately 
16.6% of the Company's common stock as of December 31, 1995.

    Under the terms of its new multi-year contracts with Malaysian Airlines, 
World Airways operates three freighter aircraft for a combined guaranteed 
minimum of 1,200 block hours per month (except when an aircraft is in scheduled 
maintenance). One freighter began service in June 1994 and will operate through 
September 1999; two additional freighters began service in June and July 1995, 
respectively, and will operate through September 2000.  Also under

                                       33
<PAGE>
 
the new contracts, Malaysian Airlines extended through March 1997 the operation 
of two MD-11 passenger aircraft that had been previously contracted by 
Malaysian Airlines to operate from October 1994 through March 1995.  Each of 
these passenger aircraft operates a minimum of 320 block hours per month. 
Certain operating costs incurred by the Company pursuant to these contracts are 
reimbursed by Malaysian Airlines. As of December 31, 1995 and 1994, the Company 
has $3.0 million and $0.6 million, respectively, included in trade accounts 
receivable in the accompanying balance sheets relating to these costs.

    Of the $8.5 million consideration paid by WorldCorp to MHS, $3.0 million is 
attributable to the contract enhancements discussed above.  This amount is 
included in other assets and deferred charges and in contributed capital in the 
accompanying balance sheets, and is being amortized over the terms of the 
Malaysian Airlines contracts, approximately two to five years.  As of December 
31, 1995, the unamortized balance of the deferred contract cost is $2.3 
million, net of $0.7 million of accumulated amortization (see Note 6).

    The Company and Malaysian Airlines entered into an agreement in March 1995 
pursuant to which Malaysian Airlines provides routine maintenance checks, 
structural inspections and other necessary work for the Company's aircraft in 
Kuala Lumpur.  The Company paid Malaysian Airlines approximately $0.4 million 
during 1995 related to these services.

    During 1995, the Company entered into agreements with Malaysian Airlines to 
lease two DC10-30 aircraft.  The aircraft were delivered in June and December 
1995 and have lease terms of 26 and 36 months, respectively. Rent expense and 
maintenance reserve payments related to these aircraft amounted to $1.6 million 
in 1995.  The Company incurred approximately $1.4 million during 1995 related 
to improvements made to these two aircraft, which will be reimbursed by 
Malaysian Airlines.  Approximately $0.7 million of this amount is included in 
trade and other receivables in the accompanying balance sheet at December 31, 
1995.

    In March 1996, the Company leased two additional DC10-30 aircraft from 
Malaysian Airlines.  These aircraft have lease terms of 36 months with monthly 
rent expense and other lease terms similar to the aircraft leased during 1995.  
The Company may choose to enter into additional aircraft leases with Malaysian 
Airlines to meet short-term peak demand requirements.

4. SUPPLEMENTAL INFORMATION -- STATEMENTS OF CASH FLOWS

    Additional information pertaining to certain cash payments and noncash 
investing and financing activities is as follows (in thousands):

                                       For the years ended December 31,   
                                       --------------------------------
                                          1995      1994       1993   
                                        -------    -------    -------
      Cash paid for:
         Interest                       $ 3,377    $ 3,334    $ 1,779
         Income taxes                       336         15         62


   In 1994, the Company paid approximately $1.8 million and exchanged a DC10 
engine valued at approximately $1.0 million in connection with the settlement 
of maintenance reserves due on the return of three DC10 aircraft in 1994.

   During 1993, the Company sold $9.5 million of MD-11 aircraft spare parts and 
leased the parts back under a 79 month capital lease.  The following is a 
summary of the transaction (in thousands):

      Sale price of parts                          $ 9,463
      Debt retired                                  (7,570)
      Security deposit                              (1,893)
                                                   -------
         Net cash proceeds                         $     0
                                                   =======

5. SHORT-TERM INVESTMENTS

   At December 31, 1995 and 1994, short-term investments consist of cash 
pledged as collateral for letters of credit with original maturities in excess 
of ninety days, and expiration dates within one year.

                                       34
<PAGE>
 
6. OTHER ASSETS

   Prepaid expenses and other current assets consist of the following (in 
thousands):

                                                    December 31,      
                                                 ------------------
                                                   1995      1994   
                                                 -------    -------
      Prepaid rent                               $ 1,533    $   975
      Prepaid insurance                            5,857      4,821
      Deposit on spare engine (see Notes 
        9 and 14)                                  1,150         --
      Other                                        1,342      1,135
                                                  ------     ------
                                                  $9,882     $6,931
                                                  ======     ======

   Other assets and deferred charges include net deferred contract costs of 
$2.3 million and $3.0 million as of December 31, 1995 and 1994, respectively 
(see Note 3) and net MD-11 aircraft integration costs of $2.0 million and $2.9 
million as of December 31, 1995 and 1994, respectively.  Aircraft integration 
costs consist of pre-operating costs incurred in connection with integrating 
the new MD-11 aircraft into the Company's fleet (see Note 9).  These costs, 
consisting primarily of flight crew training, are being amortized on a 
straight-line basis over a five-year period.

7. ASSETS HELD FOR SALE

   Assets held for sale consist primarily of DC10 rotables with a net book 
value of $3.0 million and $11.0 million as of December 31, 1995 and 1994, 
respectively, as well as two DC10 engines with a net book value of $2.8 million 
as of December 31, 1994.  The Company has consigned these parts with a third 
party to sell these parts over a reasonable period of time with the objective 
of maximizing the proceeds from the sales.  Due to the increased number of DC10 
aircraft leased by the Company during 1995, DC10 rotables and the two DC10 
engines with a total net book value of $9.9 million were reclassified from 
assets held for sale to flight and other equipment in the accompanying balance 
sheet at December 31, 1995.  This amount represents the Company's estimate of 
the additional spare parts needed to support the Company's fleet of DC10-30 
aircraft.

8. NOTES PAYABLE

   In 1993, the Company entered into an $8.0 million revolving line of credit 
borrowing arrangement which is collateralized by certain receivables which were 
sold to the bank with recourse.  Borrowing availability under the line is based 
on the amount of eligible receivables.  At December 31, 1995, World Airways had 
an unused borrowing capacity of $0.3 million.  At December 31, 1994, World 
Airways had no unused borrowing capacity available.  Borrowings under the line 
of credit were $1.7 million and $2.8 million at December 31, 1995 and 1994, 
respectively, and bear interest at the greater of the federal funds rate plus 
2.5% or the prime rate plus 2%.  The interest rate was 10.5% at December 31, 
1995 and 1994. World Airways is required to pay any outstanding amounts under 
the line of credit on January 7, 1998. This agreement contains certain 
covenants related to World Airways' financial condition and operating results, 
including minimum quarterly net income tests.  In March 1995, World Airways 
amended this agreement to adjust certain covenants beginning in the first 
quarter of 1995.  No assurances can be given that the Company will continue to 
meet these covenants or, if necessary, obtain the required waivers. The 
agreement also requires an unused facility fee of 0.5% per year.

   A $5.0 million note bearing interest at 3.8% and a $4.4 million note bearing 
interest at 4.4% are included in notes payable at December 31, 1995 and 1994, 
respectively.  Principal and interest is payable monthly in 1996 and 1995, 
respectively.

   In the first quarter of 1995, World Airways received approximately $6.0 
million in working capital and short-term financing from certain of its 
equipment lessors, bearing interest at approximately 11%.  The balance was 
repaid during 1995.

9. LONG-TERM OBLIGATIONS

LONG-TERM DEBT

   The Company's long-term obligations at December 31 are as follows (in 
thousands):

                                       35
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                                              1995       1994   
                                                                             ------     -------
   <S>                                                                       <C>        <C> 
   Note payable due 1995 -- with interest at one month LIBOR
      plus 1.95% payable monthly (7.95% at December 31, 1994),
      collateralized by one General Electric CF6-50C2 engine.                $   --     $   300

   Note payable due 1999 -- with interest at 7.25% payable                    
      monthly, collateralized by one Pratt & Whitney PW4462 engine.           4,883          --

   Spare parts loan due 1998 -- with principal and interest at 8.5%           
      payable monthly, collateralized by certain MD-11 spare parts.           3,617       4,004

   Spare parts loan due 1997 -- with principal paid semi-annually beginning   
      in 1995 and interest at 8.5% payable semi-annually, collateralized
      by certain MD-11 spare parts.                                           2,857       5,000

   Aircraft spare parts security agreement payable to a bank due 1998 --      
      with interest at the greater of the federal funds rate plus 2.5% 
      or the prime rate plus 2% (10.5% at December 31, 1995 and 
      December 31, 1994), collateralized by certain rotables.                 8,568       6,371

   Deferred aircraft rent, non-current                                        1,142       1,522

   Capitalized lease obligations                                              8,748       9,467
                                                                            -------     -------

      Total                                                                  29,815      26,664

   Less current maturities                                                    9,398       9,550
                                                                            -------     -------

      Total long-term obligations, net                                      $20,417     $17,114
                                                                            =======     =======
</TABLE> 

   The aircraft security agreement is subject to the terms of the $8.0 million 
revolving line of credit borrowing (see Note 8).  Under this agreement the 
borrowing must be reduced by the amount of proceeds received from the sale of 
excess spare parts, but at a minimum of $0.5 million each month.  The borrowing 
facility also restricts World Airways' ability to pay dividends.  Under this 
agreement, World Airways cannot declare, pay, or make any dividend or 
distributions in any six month period which aggregate in excess of the lesser 
of $4.5 million of 50% of net income for the previous six months.  In addition, 
World Airways must have a cash balance of at least $7.5 million immediately 
after giving effect to such dividend.  Under the terms of the agreement, the 
Company is also not permitted to incur indebtedness in excess of $25.0 million 
(excluding capital leases), or make capital expenditures in 1995 of more than 
$25.0 million or in any subsequent year of more than $15.0 million. In 1995, 
World Airways amended this agreement to adjust certain covenants beginning in 
the first quarter of 1995, extend the credit facility to 1998, and to defer 
payments of principal due in February and March 1995 until the second quarter 
of 1995.  On August 24, 1995, the Company again amended the agreement to 
provide for a variable rate, $10.5 million borrowing, which is payable over a 
21-month term.  The Company used a portion of the proceeds from this loan to 
pay off the previously outstanding balance of the aircraft parts loan.  No 
assurances can be given that the Company will continue to meet these revised 
covenants or, if required, obtain the required waivers.

   The Company has a commitment to purchase a spare engine in the first quarter 
of 1996.  World Airways has made deposits of $1.6 million as of March 1996 
towards this engine and intends to finance the remaining balance of 
approximately $6.4 million through the manufacturer over a seven year period at 
a fixed interest rate.

   In January 1996, the Company entered into an agreement with an engine 
manufacturer to purchase another spare engine and a quick engine change kit for 
approximately $8.5 million to be delivered by July 1996.  As part of the 
agreement, World Airways plans to finance 85% of the purchase price through the 
manufacturer over a seven year period at a fixed interest rate.

   The following table shows the aggregate annual amount of scheduled principal 
maturities (in thousands) of debt outstanding at December 31, 1995.

                                       36
<PAGE>
 
      1996                                                  $ 8,306
      1997                                                    4,910
      1998                                                    3,408
      1999                                                    3,300
      2000                                                       --
      Thereafter                                                 --
                                                            -------
         Total                                              $19,924
                                                            =======

DEFERRED AIRCRAFT RENT

   During 1993, the Company negotiated with several of its lessors to defer
approximately $14.7 million of lease payments on eight aircraft. Of this amount,
the Company repaid approximately $13.7 million in 1995, 1994, and 1993. In
addition, during 1995 and 1994 the Company deferred approximately $0.7 million
of rent, pursuant to the 1993 agreement. The remaining deferrals at December 31,
1995 bear interest at rates ranging from 7% to 11.7% and are due as follows (in
thousands):

      1996                                                  $   533
      1997                                                      227
      1998                                                      244
      1999                                                      261
      2000                                                      280
      Thereafter                                                130
                                                            -------
         Total                                              $ 1,675
                                                            =======

CAPITAL LEASES

   The present value of the obligations under capital leases at December 31, 
1995 is calculated using rates ranging from 6.1% to 11.7%.  The following are 
scheduled minimum capital lease payments (in thousands) due in the succeeding 
five years and thereafter, together with the present value of such obligations:

      1996                                                  $ 1,934
      1997                                                    1,673
      1998                                                    3,352
      1999                                                    1,317
      2000                                                    2,940
      Thereafter                                                 --
                                                            -------
      Total minimum lease payments                           11,216
      Less imputed interest                                   2,468
                                                            -------
         Present value of obligations under capital lease   $ 8,748
                                                            =======

   Property under capital leases consists of equipment leases and are amortized 
over the lease terms or expected useful life of the assets.  Accumulated 
amortization under capital leases was $3.6 million and $2.8 million at December 
31, 1995 and 1994, respectively.  Amortization expense of property under 
capital leases totaled approximately $0.8 million for the years ended December 
31, 1995 and 1994, respectively, and $0.4 million for the year ended December 
31 1993.

OPERATING LEASES

   In October 1992 and January 1993, World Airways signed a series of 
agreements with International Lease Finance Corporation ("ILFC"), McDonnell 
Douglas Corporation, GATX Capital Corporation, and United Technologies 
Corporation's Pratt & Whitney Group ("Pratt and Whitney") to lease seven new 
McDonnell Douglas MD-11 aircraft under initial lease terms of two to five 
years.  Six of the seven aircraft leases contain annual renewal options in 
years six through fifteen of the lease term.  Under the terms of the lease 
agreements, World Airways may be required to pay additional rent in excess of 
the fixed monthly amounts depending on block hours flown.

   In February 1992, World Airways signed 12 year operating leases for two 
McDonnell Douglas DC10-30 passenger aircraft.  In July 1993, World Airways 
returned these aircraft to their lessor which resulted in a $1.5

                                       37
<PAGE>
 
million early termination payment of which $1.1 million was expensed in 1993 
and included in aircraft costs.  Certain matters related to the termination of 
these leases were resolved in 1995 and resulted in a gain to the Company of 
approximately $0.8 million.  This gain is included in other income in 1995 (see 
Note 14).

   In October 1993, the Company returned an aircraft to its lessor and recorded 
an expense of $1.2 million related to the early termination of the lease which 
is also included in aircraft costs. 

   In 1994, the Company recorded a $4.2 million reversal of excess accrued 
maintenance reserves associated with the expiration of three additional DC10-30 
aircraft leases in 1994.  The reversal is recorded as a reduction to 
maintenance expense. 

   As of December 31, 1995, the Company's fleet consisted of four passenger 
MD-11 aircraft, one freighter MD-11 aircraft, two convertible MD-11 aircraft, 
three passenger DC10-30 aircraft, and one DC10-30 convertible aircraft.  The 
MD-11 leases contain options to purchase the aircraft at various times 
throughout the lease terms.  Long-term deposits consist primarily of deposits 
on the MD-11 leases.  As part of the lease agreements, World Airways was 
assigned purchase options for four additional MD-11 aircraft.  In 1992, World 
Airways made non-refundable deposits to McDonnell Douglas toward the option 
aircraft.  These options expired in 1995.  In March 1996, the Company entered 
into an agreement with McDonnell Douglas to lease two MD-11ER aircraft. Under 
this agreement, the Company will lease each aircraft for a term of 24 years 
with an option to return the aircraft after a seven year period, subject to 
fixed termination fees of $2.8 million per aircraft.  The non-refundable 
deposits of $1.2 million previously paid to McDonnell Douglas towards options 
on four MD-11 aircraft will be applied to the deposits required on the MD-11ER 
aircraft.  The Company entered into a simultaneous agreement with McDonnell 
Douglas to finance MD-11 spare parts.  The Company will receive a total of $9.0 
million of which $3.0 million will be advanced with the delivery of each 
aircraft and an additional $3.0 million will be available in December 1996.  
McDonnell Douglas will retain a purchase money lien in the purchased parts.  In 
connection with this lease agreement, the Company agreed to assume an existing 
lease of two additional MD-11 freighter aircraft for 20 years, beginning in 
1999, in the event the existing lessee terminates its lease with McDonnell 
Douglas at that time.

   World Airways ultimately plans to exit DC10 aircraft and standardize its 
fleet around the MD-11 aircraft.  However, to the extent the Company can obtain 
DC10 aircraft at favorable lease terms, the Company will continue to utilize 
these aircraft to supplement the MD-11 fleet during peak flying times until the 
MD-11 fleet is sufficient to fulfill its obligations. Therefore, in 1995, World 
Airways entered into three DC10-30 aircraft leases with lease terms expiring in 
August 1997, September 1997, and December 1998.  In March 1996, the Company 
leased two additional DC10-30 aircraft (see Note 3).  

   The Company extended the lease terms on two spare engines subsequent to year 
end.  One lease, originally expiring on December 31, 1995, was extended until 
February 1998.  This lease was classified as a capital lease at December 31, 
1995, but will be classified as an operating lease under the new agreement.  
The other engine was extended three years from its original April 20, 1996 
termination date.

   Rental expense, primarily relating to aircraft leases, totaled approximately 
$68.5 million, $52.5 million, and $50.6 million for the years ended December 
31, 1995, 1994 and 1993, respectively.

   The following is a schedule of future annual minimum rental payments, 
principally aircraft rentals (excluding variable portions), required under 
operating leases that have initial or remaining noncancellable lease terms in 
excess of one year as of December 31, 1995, including the leases entered into 
subsequent to year-end (in thousands):

      1996                                                 $ 88,673
      1997                                                   93,021
      1998                                                   88,979
      1999                                                   75,002
      2000                                                   71,350
      Thereafter                                            749,335
                                                         ----------
      Total                                              $1,166,360
                                                         ==========

   These future annual minimum rental payments include all option years.  Under 
the terms of certain of the leases, if the options are not exercised, the 
Company must pay to the lessor either a fixed penalty or a penalty based on

                                       38
<PAGE>
 
the number of block hours flown since delivery of the aircraft per the lease 
agreement.  The Company intends to exercise the options under these leases.

10. EMPLOYEE BENEFIT PLANS

   The World Airways' Crewmembers Target Benefit Plan and the World Airways' 
Flight Attendants Target Benefit Plan are defined contribution plans covering 
flight engineers and pilots, and flight attendants, respectively, with 
contributions based upon defined wages.  These are both tax-qualified 
retirement plans under Section 401(a) of the Internal Revenue Code of 1986, as 
amended (the "Code").  Pension expense for both plans totaled $1.9 million, 
$1.4 million, and $1.5 million for the years ended December 31, 1995, 1994, and 
1993, respectively.

   Effective January 1, 1987, World Airways adopted the World Airways, Inc. 
Profit Sharing Bonus Plan (the "1987  Profit Sharing Plan").  Distributions 
under the 1987 Profit Sharing Plan are equal to 20% of World Airways' defined 
operating income, subject to an annual limitation of 10% of the total annual 
aggregate compensation of World Airways' employees participating in the 1987 
Profit Sharing Plan in that year.  This is not a tax-qualified retirement plan 
under Section 401(a) of the Code.  The Company made no distributions in 1995 or 
1994 pertaining to 1994 or 1993 financial results, respectively.  The Company 
has recorded expense and expects to distribute approximately $1.8 million in 
1996 pertaining to 1995 results.

   World Airways' cockpit crewmembers and eligible dependents are covered under 
postretirement health care benefits to age 65. The Company accounts for the 
cost of health benefits in accordance with Statement of Financial Accounting 
Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than 
Pensions ("FAS #106").  FAS #106 requires accrual accounting for all 
postretirement benefits other than pensions.  World Airways funds the benefit 
costs on a pay-as-you-go (cash) basis.

   A summary of the net periodic postretirement benefit costs for the years 
ended December 31, 1995, 1994, and 1993 is as follows:

                                                 1995        1994       1993    
                                              ---------   ---------  ---------

      Service cost                            $ 118,000   $ 145,000  $ 103,000
      Interest cost on accumulated
        postretirement benefit obligation       134,000     143,000    156,000
      Net amortized gain                        (40,000)         --         --
                                              ---------   ---------  ---------
         Net periodic postretirement benefit 
           cost                               $ 212,000   $ 288,000  $ 259,000
                                              =========   =========  =========

   The components of the Accumulated Postretirement Benefit Obligation for the 
years ended December 31, 1995 and 1994 are as follows:

                                                 1995       1994        
                                             ----------  ----------

      Retirees and dependents                $  951,000  $  935,000
      Fully eligible, active participants       165,000     211,000
      Not fully eligible participants         1,480,000   1,238,000
                                             ----------  ----------
                                             $2,596,000  $2,384,000
      Less: plan assets                               0           0
                                             ----------  ----------
         Accrued postretirement benefit 
           obligation                        $2,596,000  $2,384,000
                                             ==========  ==========

   The assumed discount rates used to measure the accumulated postretirement 
benefit obligation for 1995 and 1994 were 6.0% and 8.0%, respectively.  The 
medical cost trend rate in 1995 was 7.0% trending down to an ultimate rate in 
2020 of 3.5%.  A one percentage point increase in the assumed health care cost 
trend rates for each future year would have increased the aggregate of the 
service and interest cost components of 1995 net periodic postretirement 
benefit cost by $33,000 and would have increased the accumulated postretirement 
benefit obligation as of December 31, 1995 by $136,000.

   On May 24, 1995, the Company's stockholders approved the 1995 Stock Option 
Plan (the "1995 Plan") that took effect May 31, 1995.  Members of the Company's 
Board of Directors, employees, and consultants to the Company

                                       39
<PAGE>
 
or its affiliates are eligible to participate in the 1995 Plan.  The company 
has reserved 1,100,000 shares of common stock for issuance upon the exercise of 
options granted to participants under the 1995 Plan.  As of December 31, 1995, 
the Company has awarded options to purchase 1,070,083 shares of common stock, 
which are exercisable at prices ranging from $10.00 to $11.55 per share.  As of 
December 31, 1995, no options had been exercised.  These options become vested 
at various times through May 2003.

   On July 27, 1995, the Company adopted the Non-Employee Directors' Stock 
Option Plan (the "Directors' Plan"), pursuant to which each non-affiliate 
director will be offered options to purchase 10,000 shares of common stock upon 
election or appointment to the Board of Directors of the Company.  On the third 
anniversary of the initial award, each such director will be offered an option 
to purchase 5,000 shares of common stock.  Options granted under the Directors' 
Plan become exercisable in equal monthly installments during the 36 months 
following the award, as long as the person remains a director of the Company.  
The exercise price of all such options will be the average closing price of the 
common stock during the 30 trading days immediately preceding the date of 
grant.  Up to 250,000 shares of common stock may be issued under the Directors' 
Plan, subject to certain adjustments.

11.FEDERAL AND STATE INCOME TAXES

   Income tax expense attributable to income from continuing operations 
consists of (in thousands):

                                            For the years ended December 31,
                                            --------------------------------
                                               1995       1994      1993    
                                             --------  --------   --------

   U.S. Federal                              $    208  $    (44)  $     19
   State                                           88        18         44
                                             --------  --------   --------
    Income tax expense (benefit)             $    296  $    (26)  $     63
                                             ========  ========   ========

   There is no deferred tax expense or benefit for the years ended December 31, 
1995, 1994, and 1993.

   Income tax expense attributable to income (loss) from continuing operations 
for the years ended December 31, 1995, 1994, and 1993 differed from the amounts 
computed by applying the U.S. Federal income tax rate of 34 percent as a result 
of the following (in thousands):

                                            For the years ended December 31,
                                            --------------------------------
                                               1995       1994      1993    
                                             --------  --------   --------
Expected Federal income tax expense 
    (benefit) at the statutory rate          $  3,125  $ (3,069)  $(3,055)
   Generation (utilization) of net
    operating loss carryforward                (3,349)    2,666     2,899
   Alternative minimum and environmental
    taxes                                         285        --        --
   State income tax expense, net of 
    Federal benefit                                58        12        30
   Other                                          177       365       189
                                             --------  --------   ------- 
    Income tax expense (benefit)             $    296  $    (26)  $    63
                                             ========  ========   ======= 

   The tax effects of temporary differences that give rise to significant 
portions of deferred tax assets and liabilities at December 31, are as follows 
(in thousands):

                                                         1995      1994
                                                       --------  --------
    Deferred tax assets:                                         
      Net operating loss carryforwards                 $ 34,136  $ 38,610
      Recognition of sales/leaseback gains                2,485     2,846
      Accrued maintenance in excess of reserves                  
       paid, primarily due to accrual for                        
       financial statement purposes                       3,811     2,728
      Accrued postretirement benefit obligation,                 
       due to accrual for financial statement                    
       purposes                                             883       811

                                       40
<PAGE>
 
      Compensated absences, primarily due to accrual 
       for financial statement purposes                     656       514
      Accrued rent                                          608        --
      Alternative minimum tax credit carryforward         2,500     2,211
      Investment tax credit carryforward                  1,300     7,100
      Other                                                 204        --
                                                       --------  --------
       Gross deferred tax assets                         46,583    54,820
       Less:  valuation allowance                        39,453    51,143
                                                       --------  --------
       Net deferred tax assets                            7,130     3,677
                                                       --------  --------
    Deferred tax liabilities:
      Property and equipment                              6,757     3,451
      Other                                                 373       226
                                                       --------  --------
      Gross deferred tax liabilities                      7,130     3,677
                                                       --------  --------
    Net deferred income taxes                                --        --
                                                       ========  ========

    The valuation allowance for deferred tax assets as of January 1, 1994 was 
$49.1 million.  The net changes in the total valuation allowance for the years 
ended December 31, 1995 and 1994 were a decrease of $11.7 and an increase of 
$2.0 million, respectively. The Company's estimate of the required valuation 
allowance is based on a number of factors, including historical operating 
results.  The Company generated net earnings for the year ended 1995 as 
compared to losses in both 1994 and 1993.  If the Company continues to generate 
net earnings in 1996, it is possible that a change in the estimate of the 
required valuation allowance will occur in the near term, and could differ 
materially from the amount recorded at December 31, 1995.

    The availability of net operating loss, alternative minimum tax credit, and 
investment tax credit carryforwards to reduce the Company's future federal 
income tax liability is subject to limitations under section 382 of the 
Internal Revenue Code of 1986, as amended (the "Code").  Generally, these 
limitations restrict the availability of net operating loss and investment tax 
credit carryforwards upon certain changes in stock ownership by five percent 
shareholders which, in aggregate, exceed 50 percentage points in value in a 
three-year period ("Ownership Change").

    In August 1991, 5.7 million shares of WorldCorp common stock were sold by a 
group of existing shareholders.  This transaction constituted an Ownership 
Change as defined under Section 382 of the Internal Revenue Code of 1986, as 
amended. This Ownership Change subjects the Company to an annual limitation in 
1991 and future years in the use of net operating loss, alternative minimum tax 
credit, and investment tax credit carryforwards which were available to 
WorldCorp (and thus allocable to the Company) on the date on which the Ownership
Change occurred.  As of December 31, 1995, the Company had net operating 
loss carryforwards for federal income tax purposes of $100.4 million.  Of this 
amount, $62.0 million is subject to a $6.9 million annual limitation resulting 
from the 1991 Ownership Change.  The remaining $38.4 million was generated 
after the 1991 Ownership Change and, therefore, is not currently subject to
annual limitation.  The Company's net operating loss carryforwards expire as
follows (in millions):

                        1997                  $ 14.2
                        1998                    12.0
                        1999                    15.8
                        2000                    10.2
                        2004                     4.0
                        2007                    20.4
                        2008                     5.9
                        2009                    17.9
    
    Use of the Company's net operating loss carryforwards in future years could 
be further limited if an Ownership Change were to occur in the future.  While 
the Company believes that the sale of common stock in its initial public 
offering (the "Offering") did not cause an Ownership Change, the application of 
the Code in this area is subject to interpretation by the Internal Revenue 
Service.  Also, any future transactions in the Company's or WorldCorp's stock 
could cause an Ownership Change.  In the event that more than approximately 
$5.0 million of the outstanding convertible debentures of WorldCorp are 
converted into WorldCorp common stock, the Company believes an Ownership Change 
will occur.

                                       41
<PAGE>
 
12. MAJOR CUSTOMERS

    The Company operates in one business segment, the air transportation 
industry.  Information concerning customers for years in which their revenues 
comprised 10% or more of the Company's operating revenues is presented in the 
following table (in thousands):

                                                  Year ended December 31, 
                                                  -----------------------
                                                 1995       1994       1993    
                                               --------   --------   --------
                                                                    
      Malaysian Airlines                       $100,934   $ 32,773   $ 24,162
      U.S. Department of Defense                                    
       (including U.S. Air Force)                52,889     44,572     54,201
      P. T. Garuda Indonesia                     26,263     32,356     30,309
      Look Charters                               3,677     21,222     12,468
      Burlington Air Express, Inc.                   --        526     22,358

   World Airways has provided service to Malaysian Airlines since 1981, 
providing aircraft for integration into Malaysian Airlines' scheduled passenger 
and cargo operations as well as transporting passengers for the annual Hadj 
pilgrimage.  World Airways recently entered into a series of multi-year 
agreements with Malaysian Airlines (see Note 3).  World Airways provides five 
aircraft to Malaysian Airlines under multi-year contracts with expirations 
ranging from March 1997 to September 2000.  As a result of these contracts, 
World Airways expects that the percentage of the Company's total revenue 
generated from Malaysian Airlines in 1996 will continue to increase as compared 
to historical levels. The current Malaysian Airlines' Hadj contract, which was 
entered into in 1992, expires in 1996.  The Company is currently in 
negotiations with Malaysian Airlines regarding future Hadj operations.  World 
Airways provided three aircraft for the 1995 Hadj operations and two aircraft 
for the 1994 Hadj operations.

   The Company's contract with the U.S. Air Force expires in September 1996.  
The Company anticipates that future renewals of the U.S. Air Force contract 
will be on an annual basis.

   The Company has provided service to PT Garuda Indonesia since 1973 and has
operated under an annual Hadj contract since 1988. World Airways operated five
aircraft in the 1995 Garuda Hadj and six aircraft in the 1994 Garuda Hadj. The
Company will operate seven aircraft in the 1996 Garuda Hadj.

   World Airways has provided service to Look Charters under an annual contract 
since 1992.  In 1995 and 1994, World Airways performed operations for a summer 
charter program transporting passengers between Paris, France and various 
locations in the United States and Mexico.

   The loss of any of the Company's contracts described above, or a substantial 
reduction in business from any of the Company's major customers, could have a 
material adverse effect on the Company's results of operations and financial 
condition.

   The Company derives a significant percentage of its revenues and block hours 
from its operations in Southeast Asia and the Middle East primarily as a result 
of its contracts with Malaysian Airlines, Garuda Indonesia and its scheduled 
passenger service to Tel Aviv.  While the Company believes Southeast Asia and 
the Middle East are growth markets for air transportation, any economic decline 
or any military or political disturbance in these areas may interfere with the 
Company's ability to provide service in these areas and could have a material 
adverse effect on the Company's financial condition and results of operations.

   All export contracts are denominated in U.S. dollars as are substantially 
all of the related expenses.  The classification between domestic and export 
revenues is based on entity definitions prescribed in the economic regulations 
of the Department of Transportation.  Information concerning the Company's 
export revenues is presented in the following table (in thousands):

                                              For the Years Ended December 31,
                                              --------------------------------

                                                 1995       1994        1993   
                                               --------   --------    --------
Operating Revenues:
      Domestic                                 $ 76,374   $ 63,156    $ 96,637

                                       42
<PAGE>
 
      Export-  Malaysia                         100,934     32,773      24,162
            -  Indonesia                         26,263     32,356      30,310
            -  France                             6,897     22,217      12,531
            -  Other                             49,014     30,213      15,097
                                               --------   --------    --------
      Total                                    $259,482   $180,715    $178,737
                                               ========   ========    ========
                                                                       

13. RELATED PARTY TRANSACTIONS

   Effective December 31, 1995, WorldCorp owns approximately 59.3% of the 
outstanding common stock of World Airways.  Transactions between World Airways 
and WorldCorp are described in Note 2.

   Effective December 31, 1995, MHS owns approximately 16.6% of the outstanding 
commons stock of World Airways.  During 1994, MHS acquired 32% of Malaysian 
Airline System Berhad, the flag carrier of Malaysia.  Malaysian Airlines is 
World Airways' largest commercial customer (see Notes 3 and 12).

   Bain & Company, Inc. provided consulting services of approximately $150,000 
and $400,000 to the Company during 1995 and 1994, respectively.  A principle of 
Bain & Company is also a member of the Board of Directors of WorldCorp.

   W. Jerrold Scoutt, Jr., a member of the Board of Directors of WorldCorp 
until May 1994, is a member of the law firm of Zuckert, Scoutt & Rasenberger, 
Washington, D.C.   Zuckert, Scoutt & Rasenberger rendered legal services to the 
Company during 1995, 1994, and 1993.

14. COMMITMENTS AND CONTINGENCIES 

LITIGATION AND CLAIMS

   The Company and WorldCorp (the "World Defendants") are defendants in 
litigation brought by the Committee of Unsecured Creditors of Washington 
Bancorporation (the "Committee") in August 1992, captioned Washington 
Bancorporation v. Boster, et. al., Adv. Proc. 92-0133 (Bankr. D.D.C.) (the 
"Boster Litigation").  The complaint asserts that the World Defendants received 
preferential transfers or fraudulent conveyances from Washington Bancorporation 
when the World Defendants received payment at maturity on May 4, 1990 of 
Washington Bancorporation commercial paper purchased on May 3, 1990. Washington 
Bancorporation filed for relief under the Federal Bankruptcy Code on August 1, 
1990. The Committee seeks recovery of approximately $4.8 million from the 
Company and approximately $2.0 million from WorldCorp, which are alleged to be 
the amounts paid to each of the Company and WorldCorp by Washington 
Bancorporation. On the motion of the World Defendants, among others, the Boster 
Litigation was removed from the Bankruptcy Court to the District Court for the 
District of Columbia on May 10, 1993. The World Defendants filed a motion to 
dismiss the Boster Litigation as it pertains to them on June 9, 1993, and 
intend to vigorously contest liability. On September 20, 1995, the District 
Court for the District of Columbia granted the motion to dismiss filed by the 
World Defendants with respect to three of the four counts alleged in the 
litigation, but declined to grant a motion to dismiss the remaining claim 
regarding fraudulent transfers. The District Court's ruling is subject to 
appeal in certain cases.  The World Defendants filed a summary motion with 
respect to the remaining claim on October 19, 1995, which remains pending.  In 
any event, the Company believes it has substantial defenses to this action, 
although no assurance can be given of the eventual outcome of this litigation. 
Depending upon the timing of the resolution of this claim, if the Committee 
were successful in recovering the full amount claimed, the resolution could 
have a material adverse effect on the Company's financial condition and results 
of operations.

   As of February 29, 1996, the Company's flight attendants represented 
approximately 29% of the Company's work force.  The collective bargaining 
agreement between the Company and the Teamsters on behalf of the Company's 
flight attendants expired in 1992.  The parties exchanged their opening 
contract proposals in 1992 and have had numerous contract negotiation sessions.
In December 1994, the Company and the Teamsters jointly requested the 
assistance of a federal mediator to facilitate negotiations.  After several 
mediated sessions, the National Mediation Board (the "NMB") mediator 
recommended that the NMB release the parties to pursue "direct" (i.e., 
non-mediated) negotiations with the flight attendants.  The Company and the 
Teamsters agreed and direct negotiations continue.  The outcome of the 
negotiations with the flight attendants cannot be determined at this time.  The 
inability to reach an agreement upon terms favorable to the Company could have 
a material adverse effect on the Company. 

                                       43
<PAGE>
 
The Company's flight attendants continue to challenge 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 in contractually obligated to permit its Southeast Asian customers to 
deploy their own flight attendants.  While the Company intends to contest this 
matter vigorously in an upcoming arbitration, an unfavorable ruling for the 
Company could have a material adverse effect on the Company.

   The Company is involved in various other claims and legal actions arising in 
the the ordinary course of business.  In the opinion of management, the 
ultimate disposition of these matters will not have a material adverse effect 
on the Company's financial condition.

CONTINGENT RENTAL PAYMENTS

   In July 1993, the Company returned certain DC10-30 aircraft to the lessor 
(see Note 9).  As a result of this early lease termination, the Company is 
responsible, until 2004 for one aircraft and 2005 for the second aircraft, for 
one-third of any deficit in rent incurred in future leases of the aircraft, up 
to $100,000 monthly per plane, with an overall combined cap of $1,850,000.  The 
Company accrued $904,000 for rent shortfalls for the period August 1993 to 
September 1995.  One aircraft is currently being leased for an amount in excess 
of the shortfall limit.  The current lease for the second aircraft requires the 
Company to contribute $8,000 per month.  The estimated shortfall liabilities 
relating to these aircraft are accrued in the accompanying balance sheet at 
December 31, 1995.  The Company's remaining contingent liability related to 
this matter approximates $923,000.

COMMITMENTS TO PURCHASE SPARE ENGINES

   The Company has commitments to purchase two spare engines in the first and 
second quarters of 1996 (See Note 9).

LETTERS OF CREDIT

   At December 31, 1995 and 1994,  restricted cash and short-term investments 
include customer deposits held in escrow and cash pledged as collateral for 
various letters of credit facilities issued by a bank on the Company's behalf 
totaling $0.9 million and $0.7 million, respectively, with expiration dates 
principally occurring in 1996.

MD-11 ENGINE MAINTENANCE AGREEMENT

   In July 1995 and January 1996, the Company amended its MD-11 engine 
maintenance agreement covering the leased MD-11 engines.  Under the terms of 
the amended agreement with the engine manufacturer, which expires in August 
2003, the manufacturer will perform a significant portion of the Company's 
required engine overhauls.  In exchange, the manufacturer agreed to provide 
such maintenance services at a cost not to exceed a specified rate per hour 
during the term of the contract.  The specified rate per hour is subject to 
annual escalation, and increases substantially in September 1998.  Accordingly, 
while the Company believes the terms of this agreement will result in lower 
engine maintenance costs than it otherwise would incur during the first five 
years of the agreement, these costs will increase substantially during the
last seven years of the agreement. Also under this agreement, the Company will
pay approximately $0.7 million for MD-11 spare parts in 1996.

                                       44
<PAGE>
 
15.UNAUDITED QUARTERLY RESULTS

   The results of the Company's quarterly operations (unaudited) for 1995 and 
1994 are as follows (in thousands except share data):

<TABLE> 
<CAPTION> 
                                                 Quarter Ended  
                              -----------------------------------------------------
                                                    September  December     Total
                              March 31     June 30      30        31         Year
                              -------      -------  ---------  --------   ---------
<S>                           <C>          <C>      <C>        <C>        <C> 
   1995

   Operating revenues         $40,537      $75,778   $79,246   $63,921     $259,482

   Operating income (loss)     (3,074)      11,402     4,049    (2,035)      10,342

   Net earnings (loss)        $(3,800)     $10,934   $ 3,359   $(1,597)(2) $  8,896

   Primary and fully diluted
     net earnings (loss) per
     common share               (0.38)        1.08      0.33     (0.13)        0.84


   1994

   Operating revenues         $31,720      $55,865   $51,544   $41,586     $180,715
 
   Operating income (loss)     (5,522)(1)    6,944    (6,147)     (476)      (5,201)

   Net earnings (loss)        $(6,454)      $6,224   $(7,490)  $(1,281)    $ (9,001)

   Primary and fully diluted
     net earnings (loss) per
     common share               (0.69)        0.61     (0.74)    (0.13)       (0.91)
</TABLE> 

(1) Operating loss in the quarter ended March 31, 1994 includes approximately 
    $4.2 million of reversals of excess accrued maintenance reserves associated 
    with the expiration of three DC10 aircraft leases in 1994.

(2) Net loss in the quarter ended December 31, 1995 includes a gain of 
    approximately $0.8 million on a settlement relating to the return of two 
    DC10-30 aircraft in 1993 (see Note 9).

                                       45
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT






THE BOARD OF DIRECTORS AND STOCKHOLDERS
WORLD AIRWAYS, INC.:


   We have audited the accompanying balance sheets of World Airways, Inc. 
("World Airways") as of December 31, 1995 and 1994, and the related statements 
of operations, changes in common stockholders' equity (deficit) and cash flows 
for each of the years in the three-year period ended December 31, 1995.  In 
connection with our audits of the financial statements, we also have audited 
the related financial statement schedule as listed in Item 14(a)(2) herein.  
These financial statements and financial statement schedule are the 
responsibility of World Airways' management.  Our responsibility is to express 
an opinion on these financial statements and financial statement schedule based 
on our audits.

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

   In our opinion, the financial statements referred to above present fairly, 
in all material respects, the financial position of World Airways as of 
December 31, 1995 and 1994, and the results of its operations and its cash 
flows for each of the years in the three-year period ended December 31, 1995, 
in conformity with generally accepted accounting principles.  Also in our 
opinion, the related financial statement schedule, when considered in relation 
to the basic financial statements taken as a whole, presents fairly, in all 
material respects, the information set forth therein.



                                           KPMG PEAT MARWICK LLP          



WASHINGTON, D.C.
MARCH 18, 1996

                                       46
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
-------------------------------------------------------------------------
         FINANCIAL DISCLOSURE
         --------------------

None.

                                 PART III

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

DIRECTORS

   The Company incorporates herein by reference the information concerning 
directors contained in its Notice of Annual Stockholder's Meeting and Proxy 
Statement to be filed within 120 days after the end of the Company's fiscal 
year (the "1996 Proxy Statement").

EXECUTIVE OFFICERS

   The following table sets forth the names and ages of all executive officers 
of the Company and all positions and offices within the Company presently held 
by such executive officers:

          Name               Age                  Position Held
          ----               ---                  -------------

    Charles W. Pollard        38          Chief Executive Officer, President, 
                                          and Director

    Vance Fort                52          Senior Vice President - Government 
                                          Affairs and General Counsel

    Henk J. Guitjens          57          Senior Vice President - Marketing and 
                                          Sales

    Ahmad M. Khatib           46          Executive Vice President and Director 
                                          - Operations

    Michael E. Savage         37          Chief Financial Officer and Vice 
                                          President

    Mr. Charles W. Pollard has served as a Director of the Company since 
September 1989, President of the Company since June 1992, and Chief Executive 
Officer of the Company since March 1996.  He served as General Counsel and 
Secretary of WorldCorp from October 1987 until October 1990, and Vice 
President, Administration and Legal Affairs from October 1990 until June 1992.  
From August 1983 to October 1987, he practiced law in the corporate department 
of the law firm of Skadden, Arps, Slate, Meagher & Flom, Washington, D.C.

    Vance Fort has served as Senior Vice President - Government Affairs and 
General Counsel of the Company since July 1993 and currently manages the Human 
Resources and Management Information Systems departments of the Company.  He 
joined the Company as Senior Vice President, Government and International 
Affairs, in September 1989.  He serves as Vice President, International and 
Government Affairs for the Flying Tiger Line, an air cargo service provider, 
from September 1987 to September 1989.  From 1978 to 1987 he served in various 
positions at the U.S. Department of Transportation, including service as Deputy 
Assistant Secretary for Policy and International Affairs.

    Henk J. Guitjens has served as Senior Vice President - Marketing and Sales 
of the Company since April 1995.  Prior to joining the Company, Mr. Guitjens 
served in various executive capacities with Martinair Holland N.V. 
("Martinair"), a passenger airline and provider of air cargo services, for 27 
years, most recently as Vice President and General Manager, the Americas.  Mr. 
Guitjens began his 33 years in the air travel business as a charter wholesaler 
for Boston-based University Air Travel, after which he joined KLM where he 
managed the North American division of its charter unit, Martinair.

    Ahmad M. Khatib has served as a Director and Executive Vice President - 
Operations of the Company since February 1994.  Mr. Khatib has served as Senior 
Vice President, in different capacities, since June 1988.  He joined

                                       47
<PAGE>
 
the Company in May 1972 as a passenger service agent.  During his more than 20 
years with the Company, he has held numerous management positions in the areas 
of sales, planning and services as well as in aircraft leasing and related 
agreements, becoming Vice President of Marketing and Customer Services in 1987.

    Michael E. Savage has served as Vice President and Chief Financial Officer 
of the Company since May 1994.  He serves as Vice President and Chief Financial 
Officer of Tower Air, Inc., a long-haul scheduled and charter passenger 
airline, from April 1991 until April 1994.  From 1983 to April 1991 Mr. Savage 
was with the accounting firm of Arthur Young & Company (which became Ernst & 
Young) where he was promoted to the position of Manager in 1985 and to the 
position of Principal in 1989.

BENEFICIAL OWNERSHIP REPORTING

    The Company incorporates herein by reference the information required by 
Item 405 of Regulation S-K contained in its 1996 Proxy Statement.

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

    The Company incorporates herein by reference the information concerning 
executive compensation contained in the 1996 Proxy Statement.

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

    The Company incorporates herein by reference the information concerning 
security ownership of certain beneficial owners and management contained in the 
1996 Proxy Statement.

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

    The Company incorporates herein by reference the information concerning 
certain relationships and related transactions contained in the 1996 Proxy 
Statement.

                                       48
<PAGE>
 
                                  PART IV

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

(a) The following documents are filed as part of this report:

    (1) Financial Statements

        The following financial statements of World Airways, Inc. are filed 
        herewith:

        Balance Sheets, December 31, 1995 and 1994

        Statements of Operations, Years Ended December 31, 1995, 1994, and 1993

        Statements of Changes in Common Stockholders' Equity (Deficit), 
          Years Ended December 31, 1995, 1994 and 1993

        Statements of Cash Flows, Years Ended December 31, 1995, 1994 and 1993

        Notes to Financial Statements

        Independent Auditors' Report

    (2) Financial Statement Schedule

        Schedule
         Number            
        --------

         II. Valuation and Qualifying Accounts

         NOTE: All other schedules are omitted because the requisite 
               information is either presented in the financial statements or 
               notes thereto or is not present in amounts sufficient to require 
               submission of the schedules.

    (3) Index to Exhibits



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

 1.1 Form of Underwriting Agreement to be entered into among       Incorporated
     the Company, WorldCorp, Inc. and the Underwriters.            By Reference 
                                                                   
                                                                               
                                                                               

 3.1 Amended and Restated Certificate of Incorporation.            Incorporated
                                                                   By Reference

 3.2 Amended and Restated Bylaws.                                  Incorporated
                                                                   By Reference

 4.1 Article IV of the Company's Amended and Restated              Incorporated
     Certificate of Incorporation, incorporated by reference       By Reference 
     to Exhibit 3.1 filed herewith, and Section 6 of the
     Company's Bylaws, incorporated by reference to Exhibit
     3.2 filed herewith.                                           
                                                                   

 5.1 Opinion of Hunton & Williams.                                 Incorporated
                                                                   By Reference

10.1 The Company's 1995 Stock Option Plan.                         Incorporated
                                                                   By Reference

                                       49
<PAGE>
 
10.2 Form of Directors' Indemnification Agreement.                 Incorporated
                                                                   By Reference

10.3 Employment Agreement between the Company and Charles          Incorporated
     W. Pollard, dated as  of January 1, 1995.                     By Reference 
                                                                                
                                                                                
10.4 Amendment No. 1 to the Employment Agreement between           Incorporated 
     the Company and Charles W. Pollard, dated as of May           By Reference 
     31, 1995.                                                                  
                                                                                
                                                                                
10.5 Stock Option Agreement between the Company and Charles        Incorporated 
     W. Pollard, dated as of January 1, 1995.                      By Reference 
                                                                                
                                                                                
10.6 Amendment No. 1 to the Stock Option Agreement between         Incorporated 
     the Company and Charles W. Pollard, dated as of               By Reference 
     May 31, 1995.                                                              
                                                                                
                                                                                
10.7 Agreement between the Company and Flight Attendants           Incorporated 
     represented by International Brotherhood of Teamsters.        By Reference 
     (Filed as Exhibit 10.67 to WorldCorp, Inc.'s Form S-3                      
     Registration Statement (Commission File No. 91998) filed                   
     on December 10, 1987 and incorporated herein by reference.)                
                                                                                

10.8 Office Lease--The Hallmark Building dated as of               Incorporated
     September 20, 1989 between the Company and GT                 By Reference 
     Renaissance Centre Limited Partnership. (Filed as
     Exhibit 10.38 to WorldCorp, Inc.'s Annual Report on
     Form 10-K for the fiscal year ended December 31, 1989
     and incorporated herein by reference.)                        
                                                                   

10.9 Aircraft Lease Agreement for Aircraft Serial Number           Incorporated
     48518 dated as of September 30, 1992 between the              By Reference 
     Company and International Lease Finance Corporation.
     (Filed as Exhibit 10.38 to WorldCorp, Inc.'s Annual
     Report on Form 10-K for the fiscal year ended December
     31, 1992 and incorporated herein by reference.)

10.10 Amendment No. 1 to Aircraft Lease Agreement for              Incorporated
      Aircraft Serial Number 48518 dated as of November 1992       By Reference 
      between the Company and International Lease Finance
      Corporation. (Filed as Exhibit 10.68 to WorldCorp,
      Inc.'s Annual Report on Form 10-K for the fiscal year
      ended December 31, 1993 and incorporated herein by
      reference.)

10.11 Amendment No. 2 to Aircraft Lease Agreement for              Incorporated
      Aircraft Serial Number 48518 dated as of March 8, 1993       By Reference 
      between the Company and International Lease Financial
      Corporation. (Filed as Exhibit 10.69 to WorldCorp,
      Inc.'s Annual Report on Form 10-K for the fiscal year
      ended December 31, 1993 and incorporated herein by
      reference.)

10.12 Aircraft Lease Agreement for Aircraft Serial Number          Incorporated
      48519 dated as of September 30, 1992 between the             By Reference 
      Company and International Lease Finance Corporation.
      (Filed as Exhibit 10.39 to WorldCorp, Inc.'s Annual
      Report on Form 10-K for the fiscal year ended December
      31, 1992 and incorporated herein by reference.)

10.13 Amendment No. 2 to Aircraft Lease Agreement for              Incorporated
      Aircraft Serial Number 48519 dated as of April 23,           By Reference 
      1993 between the Company and International 
      Lease Finance Corporation.

10.14 Amendment No. 3 to Aircraft Lease Agreement for              Incorporated
      Aircraft Serial Number 48519 dated as of April 1993          By Reference 
      between the Company and International Lease Finance.

10.15 Aircraft Lease Agreement for Aircraft Serial Number          Incorporated 
      48437 dated as of September 30, 1992 between the             By Reference 
      Company and International Lease Finance Corporation.
      (Filed as Exhibit 10.40 to WorldCorp, Inc.'s Annual
      Report on Form 10-K for the fiscal year ended December
      31, 1992 and incorporated herein by reference.)

                                       50
<PAGE>
 
10.16 Amendment No. 2 to Aircraft Lease Agreement for              Incorporated
      Aircraft Serial Number 48437 dated as of March 31,           By Reference 
      1993 between the Company and International Lease
      Finance Corporation. (Filed as Exhibit 10.73 to
      WorldCorp, Inc.'s Annual Report on Form 10-K for the
      fiscal year ended December 31, 1993 and incorporated
      herein by reference.)

10.17 Amendment No. 3 to Aircraft Lease Agreement for              Incorporated
      Aircraft Serial Number 48437 dated as of April 15,           By Reference 
      1993 between the Company and International Lease
      Finance Corporation. (Filed as Exhibit 10.74 to
      WorldCorp, Inc.'s Annual Report on Form 10-K for the
      fiscal year ended December 31, 1993 and incorporated
      herein by reference.)

10.18 Aircraft Lease Agreement for Aircraft Serial Number          Incorporated
      48633 dated as of September 30, 1992 between the             By Reference 
      Company and International Lease Finance Corporation.
      (Filed as Exhibit 10.41 to WorldCorp, Inc.'s Annual
      Report on Form 10-K for the fiscal year ended December
      31, 1992 and incorporated herein by reference.)

10.19 Aircraft Lease Agreement for Aircraft Serial Number          Incorporated
      48631 dated as of September 30, 1992 between the             By Reference 
      Company and International Lease Finance Corporation.
      (Filed as Exhibit 10.42 to WorldCorp, Inc.'s Annual
      Report on Form 10-K for the fiscal year ended December
      31, 1992 and incorporated herein by reference.)

10.20 Amendment No. 2 to Aircraft Lease Agreement for              Incorporated
      Aircraft Serial Number 48631 dated as of April 28,           By Reference 
      1995 between the Company and International Lease
      Finance Corporation.

10.21 Aircraft Lease Agreement for Aircraft Serial Number          Incorporated
      48632 dated as of September 30, 1992 between the             By Reference 
      Company and International Lease Finance Corporation.
      (Filed as Exhibit 10.43 to WorldCorp, Inc.'s Annual
      Report on Form 10-K for the fiscal year ended December
      31, 1992 and incorporated herein by reference.)

10.22 Amendment No. 2 to Aircraft Lease Agreement for              Incorporated
      Aircraft Serial Number 48632 dated as of April 28,           By Reference 
      1995 between the Company and International Lease
      Finance Corporation.

10.23 Accounts Receivable Management and Security Agreement        Incorporated
      dated as of December 7, 1993 between the Company and         By Reference 
      BNY Financial Corporation. (Filed as Exhibit 10.46 to
      WorldCorp, Inc.'s Annual Report on Form 10-K for the
      fiscal year ended December 31, 1993 and incorporated
      herein by reference.)

10.24 Amendment (No. 1) to the Accounts Receivable                 Incorporated
      Management and Security Agreement between the Company        By Reference 
      and BNY Financial Corporation dated March 15, 1995 and
      effective as of January 1, 1995.

10.25 Amendment No. 2 to the Accounts Receivable Management        Incorporated
      and Security Agreement between the Company and BNY           By Reference 
      Financial Corporation dated August 1995.

10.26 Long Term Aircraft Charter Agreement dated August 20,        Incorporated
      1986 between the Company and Malaysian Airline System        By Reference 
      Berhad (Filed as Exhibit 10.79 to WorldCorp's Annual
      Report on Form 10-K for the year ended December 31,
      1986).

10.27 Amendment dated April 10, 1991 to the Long Term              Incorporated
      Aircraft Charter Agreement dated August 20, 1986             By Reference 
      between the Company and Malaysian Airline System
      Berhad.

                                       51
<PAGE>
 
10.28 Stock Purchase Agreement by and among the Company,           Incorporated
      WorldCorp, Inc., and Malaysian Helicopter Services           By Reference 
      Berhad dated as of October 30, 1993. (Filed as Exhibit
      10.87 to WorldCorp, Inc.'s Annual Report on Form 10-K
      for the fiscal year ended December 31, 1994 and
      incorporated herein by reference.)

10.29 Stock Registration Rights Agreement between the              Incorporated
      Company and Malaysian Helicopter Services Berhad dated       By Reference 
      as of October 30, 1993. (Filed as Exhibit 10.88 to
      WorldCorp, Inc.'s Annual Report on Form 10-K for the
      fiscal year ended December 31, 1994 and incorporated
      herein by reference.)

10.30 Shareholders Agreement between Malaysian Helicopter          Incorporated
      Services Berhad, WorldCorp, Inc. and the Company,            By Reference 
      dated as of February 3, 1994. (Filed as Exhibit 10.89
      to WorldCorp, Inc.'s Annual Report on Form 10-K for
      the fiscal year ended December 31, 1994 and
      incorporated herein by reference.)

10.31 Amendment No. 1 to Shareholders Agreement dated as of        Incorporated
      February 28, 1994, among WorldCorp, the Company and          By Reference 
      Malaysian Helicopter Services Berhad. (Filed as
      Exhibit 10.90 to WorldCorp Inc.'s Annual Report on
      Form 10-K for the fiscal year ended December 31, 1994
      and incorporated herein by reference.)

10.32 Agreement between the Company and the International          Incorporated
      Brotherhood of Teamsters representing the Cockpit            By Reference 
      Crewmembers employed by the Company dated August 15,
      1994-June 30, 1998. (Filed as Exhibit 10.98 to
      WorldCorp, Inc.'s Annual Report on Form 10-K for the
      fiscal year ended December 31, 1994 and incorporated
      herein by reference.)

10.33 Aircraft Services Agreement dated September 26,              Incorporated
      1994 by and between the Company and Malaysian Airline        By Reference 
      System Berhad. (Filed as Exhibit 10.101 to WorldCorp,
      Inc.'s Annual Report on Form 10-K for the fiscal year
      ended December 31, 1994 and incorporated herein by
      reference.)

10.34 Freighter Services Agreement dated October 6, 1994 by        Incorporated
      and between the Company and Malaysian Airline System         By Reference 
      Berhad. (Filed as Exhibit 10.102 to WorldCorp, Inc.'s
      Annual Report on Form 10-K for the fiscal year ended
      December 31, 1994 and incorporated herein by
      reference.)

10.35 Amendment No. 1 to Passenger Aircraft                        Incorporated
      Services and Freighter Services Agreement dated              By Reference 
      December 31, 1994 by and between the Company and
      Malaysian Airline System Berhad. (Filed as Exhibit
      10.107 to WorldCorp, Inc.'s Annual Report on Form 10-K
      for the fiscal year ended December 31, 1994 and
      incorporated herein by reference.)

10.36 Amendment No. 2 to the Aircraft Services and Freighter       Incorporated
      Services Agreements by and between the Company and           By Reference 
      Malaysian Airline System Berhad, dated February 9,
      1995.

10.37 Amendment No. 3 to the Freighter Services Agreement by       Incorporated
      and between the Company and Malaysian Airline System         By Reference 
      Berhad dated May, 1995.

10.38 1995 U.S. Air Force Contract F11626-94-D0027 dated           Incorporated
      October 1, 1994 between the Company and Air Mobility         By Reference 
      Command. (Filed as Exhibit 10.103 to WorldCorp, Inc.'s
      Annual Report on Form 10-K/A for the fiscal year ended
      December 31, 1994 and incorporated herein by
      reference.)

10.39 FY1996 Contractor Team Agreement among the Company,          Incorporated
      Continental Airlines, Inc., Emery Worldwide Airlines,        By Reference 
      Inc., Evergreen International Airlines, Inc., Miami
      Air International, Inc., Northwest Airlines, Inc. and
      Rich International Airways, Inc. dated April 3, 1995.

                                       52
<PAGE>
 
10.40 Lease agreement for Aircraft Serial Number 48485 dated       Incorporated
      as of January 15, 1991 between the Company and First         By Reference 
      Security National Bank of Utah, N.A. (Filed as Exhibit
      10.65 to WorldCorp, Inc.'s Annual Report on Form 10-K
      for the fiscal year ended December 31, 1991 and
      incorporated herein by reference).

10.41 Maintenance Agreement between Malaysian Airline System       Incorporated
      Berhad and the Company dated March 1, 1995.                  By Reference 

10.42 Form of Master Services Agreement between the Company        Incorporated
      and WorldCorp, Inc.                                          By Reference 

10.43 1996 U.S. Air Force Contract dated October 1, 1995           Incorporated
      between the Company and Air Mobility Command.                By Reference 

10.44 Amendment No. 3 to the Accounts Receivable Management        Incorporated
      and Security Agreement between the Company and BNY           By Reference 
      Financial Corporation dated as of September 28, 1995.

10.45 Amendment No. 4 to the Accounts Receivable Management        Incorporated
      and Security Agreement between the Company and BNY           By Reference 
      Financial Corporation dated as of September 28, 1995.

10.46 Form of Non-Employee Directors' Stock Option Plan.           Incorporated
                                                                   By Reference

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

27    Financial data schedule for the year ended December 
      31, 1995                                                     Filed 
                                                                   Herewith
(b)  Reports on Form 8-K

     None.

                         STATUS OF PRIOR DOCUMENTS

    World Airways' Annual Report on Form 10-K for the year ended December 31, 
1995, at the time of filing with the Securities and Exchange Commission, shall 
modify and supersede all prior documents filed pursuant to Sections 13, 14, and 
15(d) of the Securities Exchange Act of 1934 for purposes of any offers or 
sales of any securities after the date of such filing pursuant to any 
Registration Statement or Prospectus filed pursuant to the Securities Act of 
1933, as amended, which incorporates by reference such Annual Report on Form 
10-K.


            *     *     *     *     *     *     *     *     *     *

                                       53
<PAGE>
 
                                                               SCHEDULE II

                            WORLD AIRWAYS, INC.
                     VALUATION AND QUALIFYING ACCOUNTS
           FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
                              (IN THOUSANDS)





<TABLE>
<CAPTION> 
                                 Balance at  Charged to   Deductions    Balance
                                  beginning   costs and      charged  at end of
                                  of period    expenses   to reserve     period
                                 ----------  ----------   ----------  ---------
<S>                              <C>         <C>          <C>         <C> 
Allowance for Doubtful Accounts
-------------------------------

Year ended December 31, 1995       $     35    $    370     $    147   $    258
                                   ========    ========     ========   ========
                                                                      
Year ended December 31, 1994       $    277    $    409     $    651   $     35
                                   ========    ========     ========   ========
                                                                      
Year ended December 31, 1993       $     15    $    271     $      9   $    277
                                   ========    ========     ========   ========
                                                                      
                                                                      
                                                                      
    Valuation Allowance for                                           
      Deferred Tax Assets                                             
--------------------------------                                      
                                                                      
Year ended December 31, 1995       $51,143     $     --     $11,690    $ 39,453
                                   ========    ========     ========   ========
                                                                     
Year ended December 31, 1994       $49,138     $  2,005     $     --   $ 51,143
                                   ========    ========     ========   ========
                                                                     
Year ended December 31, 1993       $45,462     $  3,676     $     --   $ 49,138
                                   ========    ========     ========   ========
</TABLE> 

                                       54
<PAGE>
 
                                                              EXHIBIT 11.1

                            WORLD AIRWAYS, INC.
              CALCULATION OF EARNINGS (LOSS) PER COMMON SHARE
                     (IN THOUSANDS EXCEPT SHARE DATA)


<TABLE> 
<CAPTION> 
                                                  1995        1994          1993    
                                              -----------  ----------   -----------
<S>                                           <C>          <C>          <C> 
Net earnings (loss) applicable to 
   common stock                               $     8,896  $   (9,001)  $   (9,048)
                                              ===========  ==========   ===========
Weighted average common shares 
   outstanding                                 10,476,776   9,812,337    9,000,000

Weighted average options and warrants treated
   as common stock equivalents                     95,066     126,390           --
                                              -----------  ----------   -----------

Primary and fully diluted number of shares     10,571,842   9,938,727    9,000,000
                                              ===========  ==========   ===========

Primary and fully diluted net earnings (loss)
   per share of common stock                  $      0.84  $    (0.91)  $    (1.01)
</TABLE> 

                                       55
<PAGE>
 
                                SIGNATURES


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

                                           WORLD AIRWAYS,  INC.

                                           By /s/ Charles W. Pollard
                                              ----------------------
                                              Charles W. Pollard
                                              Chief Executive Officer, 
                                               President, and Director



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

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

/s/ Charles W. Pollard        Chief Executive Officer,        March 29, 1996
----------------------        President and Director
(Charles W. Pollard)          and Director


/s/ Michael E. Savage         Chief Financial Officer         March 29, 1996
---------------------
(Michael E. Savage)


/s/ T. Coleman Andrews, III   Director and Chairman of        March 29, 1996
---------------------------   the Board
(T. Coleman Andrews, III)


/s/ A. Scott Andrews          Director                        March 29, 1996
--------------------
(A. Scott Andrews)


/s/ Wan Malek Ibrahim         Director                        March 29, 1996
---------------------
(Wan Malek Ibrahim)


/s/ Ahmad M. Khatib           Director                        March 29, 1996
-------------------
(Ahmad M. Khatib)


/s/ Russell L. Ray, Jr        Director                        March 29, 1996
----------------------
(Russell L. Ray, Jr.)             


/s/ Peter M. Sontag           Director                        March 29, 1996
-------------------
(Peter M. Sontag)                 


/s/ Lim Kheng Yew             Director                        March 29, 1996
-----------------
(Lim Kheng Yew)                   

                                       56