SECURITIES AND EXCHANGE COMMISSION
                                              WASHINGTON, D.C. 20549

                                                    FORM 10-KSB

[x]     Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
 Act of 1934 [Fee Required]

For the fiscal year ended September 30, 1998

[ ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]

For the transition period from                          to

Commission file number 0-22310

                                             LAS VEGAS AIRLINES, INC.
                           (Exact name of small business issuer in its charter)

                         DELAWARE               33-0564327
(State or other jurisdiction of incorporation or organization)  (I.R.S. Employer
 Identification No.)

                 24901 Dana Point Harbor Drive, Suite 200
                 Dana Point, California                           92629
           (Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code:               (949) 488-8494
                                                             -------------------

Securities registered pursuant to Section 12(b) of the Act:              None
                                                             ----------------

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, par
 value $.001
                                                             ------------------

           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

           Check if there is no disclosure  of delinquent  filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
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. [ X ]

           State issuer's revenues for its most recent fiscal year: None

           The aggregate market value of the voting stock held by non-affiliates
of the registrant as of September 30, 1998 was not determinable since the Common
Stock was not traded on an established trading market.

           The number of shares  outstanding  of the issuer's  classes of Common
Stock as of September 30, 1998:

Common Stock, $.001 Par Value - 3,937,000 shares

                                    DOCUMENTS INCORPORATED BY REFERENCE:  NONE


<PAGE>



                                                      PART I

Item 1.   DESCRIPTION OF BUSINESS

 Las  Vegas  Airlines,   Inc.,  a  Delaware   corporation  (the  "Company")  was
incorporated as Hermaton  Company on May 4, 1992. The Company was formed for the
purpose of either merging with or acquiring an operating  company with operating
history and assets.

 The Company  acquired  51% of the common stock of Las Vegas  Airlines,  Inc., a
non-affiliated  Nevada  corporation  ("LVA-Nevada") on April 28, 1998. Under the
Acquisition  the Company  paid  $500,000 to acquire  51% of  LVA-Nevada  and the
rights to use the LVA-Nevada operating permit. The remaining 49% was acquired by
merger with another  subsidiary,  Acquisition Corp. 2500, on September 30, 1998.
LVA Nevada had been in business for over 24 years,  primarily  operating  Navajo
aircraft in a commuter  service  between Las Vegas,  Nevada and the Grand Canyon
and in charter  operations  in the area.  The Company  intended to continue  the
Grand Canyon business, but its primary business focus is the expansion of routes
in niche markets.  The first market is the U.S. Virgin Islands to be followed by
routes in Northern  California and other  locations to be  determined.  Due to a
changing  regulatory  climate under FAA Part 121, and the failure of an aircraft
lessee to timely deliver aircraft, the Virgin Islands expansion was indefinitely
postponed.  At the same time,  subsequent to year end, the Company evaluated its
Las Vegas business and determined  that it was not profitable and was not likely
to become profitable in the foreseeable future. In the belief of management, the
prior  owner of  LVA-Nevada  made  several  material  misrepresentations  to the
Company. The Company sued Donald J. Donohue, Sr. ("Donohue"),  the former owner,
in Nevada state court for these  misrepresentations and for embezzling cash from
LVA-Nevada.  In response,  on December 11, 1998, the former owner of LVA-Nevada,
and 4 other persons filed an involuntary  petition for relief under Chapter 7 of
the Federal  Bankruptcy  Code against LVA. The petition was filed in  bankruptcy
court in Las  Vegas,  Nevada.  As a result of this  filing and its effect on the
Company,  it was obligated to cease operations in December 1998. The Company has
evaluated  the  situation  and has  determined  that Donohue is likely  judgment
proof,  and has determined that  collectibility  of any claim against Donohue is
unlikely.  In addition,  the Company has determined that the value of LVA-Nevada
is nominal and any recovery  from it is  unlikely,  and has decided not to waste
additional funds on recovery efforts. The Company is seeking another acquisition
at this time.



                                                         2

<PAGE>



Item 2.   DESCRIPTION OF PROPERTY

 The Company receives the use of office space from an officer at no charge.

Item 3.   LEGAL PROCEEDINGS

 Not Applicable.

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 the fiscal year ended September 30, 1998.


                                                         3

<PAGE>



                                                      PART II


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

 The  Company's  Common  Stock  has  traded  only  infrequently  and  it is  not
 considered to have an  established  trading  market.  As of September 30, 1998,
 there were approximately 310 stockholders of record.

Item 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

 The  Company  has  minimal  cash  on hand  and  does  not  intend  to  continue
operations.

Item 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 The consolidated financial statements of the Company required to be included in
 Item 7 are set forth in the Financial Statements Index.

Item 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

 Not Applicable.  The Company has retained Thurman Shaw & Co. LC as its
 principal auditors for its next
 fiscal year.  As reported in a Form 8-K dated November 6, 1998, the Company
 has changed its fiscal year
 to September 30.


                                                         4

<PAGE>



                                                     PART III

Item 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

Directors and Executive Officers

 The members of the Board of Directors of the Company serve until the next
 annual meeting of
stockholders, or until their successors have been elected. The officers serve at
the  pleasure  of the  Board of  Directors.  The  following  are the  directors,
executive officers and significant employees of the Company.

         Name                                                 Position

         Jehu Hand               President, Chief Financial Officer and Director
         William H. Prince                     Executive Vice President
         Marvin Winograde                       Vice President-Industry Affairs

         Jehu Hand has been  President  and  Secretary of the Company  since its
inception and Chief  Financial  Officer since January 1, 1995. Mr. Hand has been
engaged in corporate and  securities  law practice and has been a partner of the
law  firm  of  Hand &  Hand  since  1992.  Hand  &  Hand  incorporated  as a law
corporation  in May 1994.  Mr.  Hand has been a  registered  principal  of SoCal
Securities,  an NASD registered broker dealer,  since 1992. From January 1992 to
December 1992 he was the Vice President-Corporate Counsel and Secretary of Laser
Medical Technology, Inc., which designs,  manufactures and markets dental lasers
and endodontics equipment. He was a director of Laser Medical from February 1992
to February 1993.  From January to October,  1992 Mr. Hand was Of Counsel to the
Law Firm of Lewis,  D'Amato,  Brisbois & Bisgaard.  From January 1991 to January
1992 he was a shareholder of McKittrick,  Jackson, DeMarco & Peckenpaugh,  a law
corporation. Jehu Hand received a J.D. from New York University School of Law in
1984 and a B.A. from Brigham Young University in 1981.

         William H.  Prince has served as managing  director  of Prince  Capital
Corporation  since 1989.  Prince  Capital is an  investment  banking  firm which
provides corporation financing services to emerging and middle market companies.
From 1985 to 1989, Mr. Prince was Director of Corporate Finance for P.B. Jameson
&  Company,  Inc.  From 1978 to 1985 he was an  institutional  broker  for three
national  New York  Stock  Exchange  firms:  Smith  Barney,  Dain  Bosworth  and
Prudential  Bache.  From 1966 to 1978 he was a retail  broker for an NYSE member
firm and conducted  wholesale  activities for a national mutual fund with assets
in  excess  of  $1  billion.  He  graduated  in  1966  with  a  BA  in  Business
Communications  from  Brigham  Young  University.  Mr.  Prince  is a  registered
representative of SoCal Securities.

         Mr.  Marvin  Winograde  is a graduate  of the  University  of  Southern
California  with a Bachelor  of Science  Degree in Finance  and  Economics.  Mr.
Winograde  has had a diverse  career  with  other  regional  airlines  including
assignments in corporate  finance,  commercial  aircraft  financing,  as well as
being an officer and director for two air carriers.  Since 1987,  Mr.  Winograde
has  served  as Vice  President  of Las  Vegas  Airlines  with  responsibilities
including organizational and fiscal management, preparation of corporate budgets
and forecasts, and industry affairs. Further, Mr. Winograde has been responsible
for  development  and  implementation  of the  Company's  interline  agreements,
marketing  objectives of the Company,  and  implementation  of the marketing and
development strategies.
He has also provided decision-making support to the President.



                                                         5

<PAGE>



Item 10. EXECUTIVE COMPENSATION

         The Company  currently does not pay any  compensation  to its executive
officers and director. No compensation is expected to be paid for the forseeable
future.

         Directors  currently  receive  no  compensation  for  their  duties  as
directors.

         The Company,  by resolution of its Board of Directors and stockholders,
adopted a 1992 Stock Option Plan (the  "Plan") on May 4, 1992.  The Plan enables
the  Company  to offer an  incentive  based  compensation  system to  employees,
officers and  directors  and to employees of companies  who do business with the
Company.

         In the discretion of a committee  comprised of  non-employee  directors
(the "Committee"), directors, officers, and key employees of the Company and its
subsidiaries  or  employees of  companies  with which the Company does  business
become  participants  in the Plan  upon  receiving  grants  in the form of stock
options or restricted  stock.  A total of 2,000,000  shares are  authorized  for
issuance  under the Plan, of which 780,000 shares are issuable under the Plan as
of June 30,  1998 at an  exercise  price of $2.50 per  share.  The  Company  may
increase the number of shares authorized for issuance under the Plan or may make
other material modifications to the Plan without shareholder approval.  However,
no amendment may change the existing rights of any option holder.

         Any shares  which are subject to an award but are not used  because the
terms and  conditions  of the award are not met, or any shares which are used by
participants to pay all or part of the purchase price of any option may again be
used for awards  under the Plan.  However,  shares with respect to which a stock
appreciation right has been exercised may not again be made subject to an award.

         Stock  options  may  be  granted  as  non-qualified  stock  options  or
incentive  stock  options,  but incentive  stock options may not be granted at a
price  less  than 100% of the fair  market  value of the stock as of the date of
grant (110% as to any 10% shareholder at the time of grant); non-qualified stock
options may not be granted at a price less than 85% of fair market  value of the
stock as of the date of grant.  Restricted  stock may not be  granted  under the
Plan in connection with incentive stock options.

         Stock  options  may be  exercised  during a period of time fixed by the
Committee except that no stock option may be exercised more than ten years after
the date of grant or three years after death or disability,  whichever is later.
In the discretion of the Committee, payment of the purchase price for the shares
of stock  acquired  through the  exercise of a stock option may be made in cash,
shares of the Company's Common Stock or by delivery or recourse promissory notes
or a combination  of notes,  cash and shares of the Company's  common stock or a
combination  thereof.  Incentive  stock options may only be issued to directors,
officers and employees of the Company.

         Stock  options  may be granted  under the Plan may include the right to
acquire an Accelerated Ownership Non-Qualified Stock Option ("AO"). If an option
grant  contains  the AO  feature  and if a  participant  pays all or part of the
purchase  price of the option with shares of the Company's  common  stock,  then
upon exercise of the option the participant is granted an AO to purchase, at the
fair market value as of the date of the AO grant, the number of shares of common
stock the  Company  equal to the sum of the number of whole  shares  used by the
participant in payment of the purchase price and the number of whole shares,  if
any,  withheld  by the Company as payment for  withholding  taxes.  An AO may be
exercised  between the date of grant and the date of  expiration,  which will be
the same as the date of expiration of the option to which the AO is related.

         Stock  appreciation  rights and/or  restricted  stock may be granted in
conjunction  with, or may be unrelated to stock  options.  A stock  appreciation
right entitles a participant to receive a payment,  in cash or common stock or a
combination  thereof,  in an amount equal to the excess of the fair market value
of the stock at the time of exercise  over the fair market  value as of the date
of grant.  Stock  appreciation  rights may be exercised  during a period of time
fixed by the  Committee not to exceed ten years after the date of grant or three
years after death or disability,  whichever is later.  Restricted stock requires
the  recipient  to  continue  in service as an  officer,  director,  employee or
consultant  for a fixed period of time for  ownership of the shares to vest.  If
restricted shares or stock appreciation

                                                         6

<PAGE>



rights  are  issued  in  tandem  with  options,  the  restricted  stock or stock
appreciation  right is canceled  upon exercise of the option and the option will
likewise terminate upon vesting of the restricted shares.

Item 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           The following table sets forth information relating to the beneficial
ownership of Company  common stock by those  persons  beneficially  holding more
than 5% of the Company  capital  stock,  by the Company's  directors,  executive
officers and  significant  employees and by all of the  Company's  directors and
executive officers as a group, as of September 30, 1998.
<TABLE>
<CAPTION>

                                                                           Percentage
Name of                                       Number of                of Outstanding
Stockholder                                Shares Owned                  Common Stock

<S>      <C>                                  <C>                               <C>
Jehu Hand(2)                                  1,410,000                         34.1%
24901 Dana Point Harbor Drive, #200
Dana Point, CA 92629

William H. Prince(3)                            620,000                         16.4%

Marvin Winograde                                330,000                          8.4%

All officers and directors as
  a group (3 persons)(2)(3)                   2,360,000                         51.0%
</TABLE>

(1)  Unless  otherwise noted below,  the Company believes that all persons named
     in the table have sole  voting  and  investment  power with  respect to all
     shares of Common Stock  beneficially  owned by them. For purposes hereof, a
     person is  deemed  to be the  beneficial  owner of  securities  that can be
     acquired  by such  person  within  60 days  from the date  hereof  upon the
     exercise  of  warrants  or  options  or  the   conversion  of   convertible
     securities.  Each beneficial owner's percentage  ownership is determined by
     assuming that any such warrants, options or convertible securities that are
     held by such person (but not those held by any other  person) and which are
     exercisable within 60 days from the date hereof, have been exercised.
(2 Includes 500,000 shares issuable upon exercise of options at $2.50 per share.
   --
(3)Includes 150,000 shares issuable upon exercise of options at $2.50 per share.
   --



                                                         7

<PAGE>



Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         An officer of the Corporation has advanced  certain  expenses on behalf
of the  Company.  As of March  31,  1995,  1996,  1997 and  September  1998 such
expenses  totalled $1,877,  $2,411,  $2,604 and $15,188.  Subsequent to year end
this officer advanced $26,329.

                                                      PART IV


Item 13.    EXHIBITS AND REPORTS ON FORM 8-K

            (a) Exhibits.  The following exhibits of the Company are included
herein.


    Exhibit No.            Document Description


                           2.       Plan of acquisition, reorganization,
arrangement, liquidation or succession.


                                                         8

<PAGE>
                              LAS VEGAS AIRLINES, INC.
                                          (Formerly Hermaton Corporation)

                                         CONSOLIDATED FINANCIAL STATEMENTS
                                           WITH ACCOMPANYING INFORMATION

                                           YEAR ENDED SEPTEMBER 30, 1998

                                                        AND

                                           INDEPENDENT AUDITORS' REPORT


<PAGE>

<TABLE>
<CAPTION>


                                             LAS VEGAS AIRLINES, INC.
                                          (Formerly Hermaton Corporation)
                                         Consolidated Financial Statements

                                                 Table of Contents


<S>                                                                                                       <C>
Independent Auditors' Report                                                                              1

Financial Statements

         Consolidated Balance Sheet                                                                       2

         Consolidated Statement of Operations and Retained Earnings                                       4

         Consolidated Statement of Changes in Stockholders' Equity                                        5

         Consolidated Statement of Cash Flows                                                             7

         Notes to Consolidated Financial Statements                                                       8

Supplementary Information

         Detail of Consolidated Balance Sheet                                                            15

         Detail of Consolidated Statement of Operations and
           Retained Earnings                                                                             16

</TABLE>

<PAGE>



                                           INDEPENDENT AUDITORS' REPORT



The Board of Directors
Las Vegas Airlines, Inc.
(Formerly Hermaton Corporation)

We have  audited  the  accompanying  consolidated  balance  sheet  of Las  Vegas
Airlines,  Inc. (formerly Hermaton Corporation) as of September 30, 1998 and the
related  consolidated  statements of operations and retained earnings (deficit),
and cash flows for the year then ended. These consolidated  financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audit.

We conducted our audit 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
misstatements. 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 audit provides 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 Las Vegas  Airlines,  Inc.
(formerly Hermaton Corporation) as of September 30, 1998, and the results of its
operations  and cash flows for the year then ended in conformity  with generally
accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern.  As shown in the consolidated
financial  statements,  the Company incurred a net loss of ($720,950) during the
year ended  September  30,  1998,  and, as of that date,  had a working  capital
deficiency of ($1,367,235)  and net worth of ($780,914).  Those conditions raise
substantial  doubt about the Company's  ability to continue as a going  concern.
The consolidated  financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


THURMAN SHAW & CO. LC


Bountiful, Utah
December 31, 1998

                                                         1

<PAGE>


<TABLE>
<CAPTION>

                                              LAS VEGAS AIRLINES, INC.
                                          (Formerly Hermaton Corporation)
                                             Consolidated Balance Sheet
                                                 September 30, 1998





ASSETS

Current assets
<S>                                                                                                  <C>
     Cash                                                                                            $      141,599
     Accounts receivable                                                                                     58,709
     Expendable parts, at cost                                                                              126,313
     Refundable taxes based on income                                                                        90,416
     Refundable excise taxes                                                                                  2,463
     Prepaid insurance                                                                                      231,363
                                                                                                     --------------

           Total current assets                                                                             650,863


Furniture, vehicles and equipment, at cost
     Furniture and equipment                                                                                 28,749
     Transportation                                                                                          66,158
     Engines                                                                                                122,608
                                                                                                     --------------

                                                                                                            217,515

     Less accumulated depreciation                                                                         (180,510)

                                                                                                             37,005

Other assets
     Deposits                                                                                               542,000
     Other                                                                                                   14,737

                                                                                                            556,737

                                                                                                     $    1,244,605





</TABLE>

            See accompanying notes to financial statements

                                                         2

<PAGE>
<TABLE>
<CAPTION>











LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

Current liabilities
<S>                                                                                                  <C>
     Accounts payable                                                                                $      210,331
     Insurance payable                                                                                      228,033
     Accrued payroll and payroll taxes                                                                      235,733
     Other accrued liabilities                                                                               59,415
     Current portion of long-term debt                                                                      408,486
     Loan from shareholder                                                                                  966,100
                                                                                                     --------------

           Total current liabilities                                                                      2,108,098

Long-term debt, net of current portion                                                                        7,421
                                                                                                     --------------

           Total liabilities                                                                              2,115,519

Commitments



Stockholder's equity (deficit):
     Preferred stock, $0.001 par value; 1,000,000 shares
       authorized; no shares issued and outstanding                                                            -

     Common stock, $0.001 par value; 20,000,000 shares
       authorized; 3,937,000 shares issued and outstanding                                                    3,937

     Paid in capital                                                                                        166,550

     Retained earnings (deficit)                                                                         (1,041,401)

                                                                                                           (870,914)

                                                                                                     $    1,244,605
</TABLE>

                                                         3

<PAGE>


<TABLE>
<CAPTION>

                                              LAS VEGAS AIRLINES, INC.
                                          (Formerly Hermaton Corporation)
                        Consolidated Statement of Operations and Retained Earnings (Deficit)
                                           Year Ended September 30, 1998



<S>                                                                                                         <C>
Revenues                                                                                                    1,816,307

Cost of revenues                                                                                          1,845,444

Gross profit                                                                                                (29,137)

Selling, general and administrative expenses                                                                861,073

Operating loss                                                                                             (890,210)

Other income (expense)
     Interest income                                                                                            256
     Interest expense                                                                                      (113,419)
     Gain on sale of aircraft                                                                               145,200
                                                                                                     --------------

                                                                                                             32,037

Loss before income taxes                                                                                   (858,173)

Income tax benefit                                                                                           47,223

Net loss                                                                                                   (810,950)

Retained earnings (deficit), beginning                                                                     (230,451)

Retained earnings (deficit), ending                                                                  $   (1,041,401)
                                                                                                     ==============

</TABLE>












                              See accompanying notes to financial statements

                                                         4

<PAGE>

<TABLE>
<CAPTION>


                                              LAS VEGAS AIRLINES, INC.
                                          (Formerly Hermaton Corporation)
                             Consolidated Statement of Changes in Stockholders' Equity
                                       May 4, 1992 Through September 30, 1998


                                                              Common StockAdditional      Retained
                                                                                       Paid-In          Earnings/
                                                    Shares            Amount           Capital          (Deficit)           Total


<S>                                                    <C>        <C>               <C>              <C>               <C>
Issuance of common stock for cash                      400,000    $          400    $         100    $         -       $         500

Net (loss)                                                -                 -                -                 (269)           (269)
                                                 -------------    --------------    -------------    --------------    -------------

Balance, March 31, 1993                                400,000               400              100              (269)             231

Contribution to capital                                   -                 -                 500              -                 500

Sale of shares in private placement
   on September 30, 1993                                24,600                25              221              -                 246

Net (loss)                                                -                 -                -               (1,661)         (1,661)
                                                 -------------    --------------    -------------    --------------    -------------

Balance, March 31, 1994                                424,600               425              821            (1,930)           (684)

Issuance of shares - Failed
   acquisition, June 1, 1994                         3,200,000             3,200             -                 -               3,200

Net (loss)                                                -                 -                -               (4,280)         (4,280)
                                                 -------------    --------------    -------------    --------------    -------------

Balance, March 31, 1995                              3,624,600             3,625              821            (6,210)         (1,764)

Net (loss)                                                -                 -                -                 (588)           (585)
                                                 -------------    --------------    -------------    --------------    -------------

Balance, March 31, 1996                              3,624,600             3,625              821            (6,798)         (2,352)

Net (loss)                                                -                 -                -                 (247)           (247)
                                                 -------------    --------------    -------------    --------------    -------------

Balance, March 31, 1997                              3,624,600             3,625              821            (7,045)         (2,599)

Net (loss)                                                -                 -                -                  (35)            (35)
                                                 -------------    --------------    -------------    --------------    -------------

</TABLE>



                 See accompanying notes to financial statements

                                                                  5

<PAGE>

<TABLE>
<CAPTION>



                            LAS VEGAS AIRLINES, INC.
                         (Formerly Hermaton Corporation)
                                Consolidated Statement of Changes in Stockholders' Equity (Continued)
                     May 4, 1992 Through September 30, 1998


                                                              Common StockAdditional      Retained
                                                                                       Paid-In          Earnings/
                                                    Shares            Amount           Capital          (Deficit)           Total

<S>                                                  <C>                   <C>                <C>            <C>              <C>

Balance, September 30, 1997                          3,624,600             3,625              821            (7,080)         (2,634)

Issuance of stock for cash                             312,400               312          630,688              -             631,000

Acquisition of Las Vegas Airlines, Inc.
   for cash                                               -                 -            (464,959)         (223,371)       (688,330)

Net loss                                                  -                 -                -             (810,950)       (810,950)
                                                 -------------    --------------    -------------    --------------    -------------


Balance, September 30, 1998                          3,937,000    $        3,937    $     166,550    $   (1,041,401)   $   (870,914)
                                                 =============    ==============    =============    ==============    =============

</TABLE>























                 See accompanying notes to financial statements

                                                                  6

<PAGE>

<TABLE>
<CAPTION>


                                             LAS VEGAS AIRLINES, INC.
                                          (Formerly Hermaton Corporation)
                                       Consolidated Statement of Cash Flows
                                           Year Ended September 30, 1998


CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                              <C>
     Net loss                                                                                    $    (810,950)
     Adjustments to reconcile net loss to net
       cash used in operating activities
       Depreciation                                                                                     50,089
       Changes in assets and liabilities
         Decrease in accounts receivable                                                                25,130
         Decrease in expendable parts                                                                   27,993
         Increase in refundable income taxes                                                           (47,223)
         Decrease in refundable excise taxes                                                             5,000
         Increase in prepaid insurance                                                                 (55,263)
         Increase in other assets                                                                       (9,807)
         Increase in deposits                                                                         (542,000)
         Decrease in checks written in excess of cash in bank                                          (33,791)
         Decrease in accounts payable                                                                   (3,303)
         Increase in insurance payable                                                                  25,932
         Increase in accrued payroll and payroll taxes                                                 172,134
         Increase in other accrued liabilities                                                          43,471
                                                                                                 -------------
           Net cash used in operating activities                                                    (1,152,588)
                                                                                                 -------------

CASH FLOWS FROM INVESTING ACTIVITIES
     Sale of aircraft - net                                                                              3,306
           Net cash provided by investing activities                                                     3,306

CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from debt                                                                                285,967
     Proceeds from issuance of stock                                                                   131,000
     Proceeds from advances from shareholder                                                           966,100
     Principal payments on long-term debt                                                             (105,617)
                                                                                                 -------------
           Net cash provided by financing activities                                                 1,277,450
                                                                                                 -------------

Net increase in cash                                                                                   128,168

Cash, beginning                                                                                         13,431

Cash, ending                                                                                     $     141,599
                                                                                                 =============

SUPPLEMENTAL CASH FLOW DISCLOSURES
     Interest paid                                                                               $     113,419
                                                                                                 =============
</TABLE>

                                  See accompanying notes to financial statements

                                                         7

<PAGE>




                                             LAS VEGAS AIRLINES, INC.
                                          (Formerly Hermaton Corporation)
                                           Notes to Financial Statements



1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Organization

         Las Vegas Airlines  (formerly  Hermaton  Corporation)  was incorporated
         under the laws of Delaware  on May 4, 1992,  for the purpose of seeking
         out business opportunities, including acquisitions.

         On January  23,  1998 and  September  30,  1998,  Hermaton  Corporation
         acquired all of the outstanding  stock of Las Vegas Airlines,  Inc. for
         $500,000.  Subsequent to the purchase, Hermaton Corporation changed its
         name to Las Vegas  Airlines  and also  changed  its fiscal  year-end to
         September 30.

         The Las Vegas Airlines,  Inc. (subsidiary) was incorporated in October,
         1973,  under  the laws of the  State of  Nevada  to  operate  air taxis
         services under Federal  Aviation  Regulation 135. The primary  services
         include scheduled commuter,  air tours and charters to the Grand Canyon
         and surrounding areas.

         Basis of Presentation

         The accompanying financial statements include the accounts of Las Vegas
         Airlines   (formerly   Hermaton   Corporation)   and  its  wholly-owned
         subsidiary Las Vegas Airlines, Inc.

         At September 30, 1998,  the Company's  current  obligations  exceed its
         current assets by  approximately  $1,457,235.  Management  believes the
         Company  will be able  to  continue  in  business  as a going  concern;
         however,  that is  dependent  upon its ability to  continue  profitable
         operations  and/or  obtain   additional   working  capital  to  finance
         continuance of operations.

         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  amount  reported  in the  financial
         statements  and  accompanying  notes.  Actual results could differ from
         those estimates.

         Inventories

         Inventories consist of airplane parts and are stated at the cost.

         Revenue Recognition

         Income is recognized after air transportation is provided


                                                         8

<PAGE>



Notes (continued)

         Concentration of Credit Risk

         The  Company  sells  its tours  primarily  through  independent  travel
         industry   organizations  located  throughout  the  United  States  and
         overseas.  Ongoing credit evaluations of customers' financial condition
         is performed by the Company and  generally  collateral is not required.
         Management  believes  that an allowance  for  doubtful  accounts is not
         necessary.

         Income taxes

         The Company's tax provision is calculated in accordance  with Financial
         Accounting Standards No. 109, "Accounting for Income Taxes".

         Cash Equivalents

         For purposes of the statement of cash flows, the Company  considers all
         highly  liquid  debt  instruments  purchased  with a maturity  of three
         months or less to be cash equivalents.

         Depreciation

         Depreciation is generally computed over a range of three to seven years
         of estimated  useful lives of the assets  using the  straight-line  and
         double-declining  balance  methods  for  financial  and  tax  reporting
         purposes.  Depreciation  expense for the year ended  September 30, 1998
         was $50,089.

         Advertising

         The  Company  expenses  the  cost  of  advertising  and  promotions  as
         incurred. Advertising expense for the year ended September 30, 1998 was
         $86,801.


2.       INCOME TAXES

         Deferred  taxes are  determined  based on the  difference  between  the
         financial statement basis and tax basis of assets and liabilities,  and
         measured  at the  enacted  tax rates that will be in effect  when those
         differences  reverse.  Deferred tax expense is determined by the change
         in the net deferred tax asset or liability.

         The  provision  (credit) for income taxes for the year ended  September
         30, 1998 is comprised of the following:
<TABLE>
<CAPTION>

                                                                                      1998
                  Federal:
<S>                                                                               <C>
                      Current                                                     $     (47,223)
                      Deferred                                                         (205,407)
                      Valuation allowance                                               205,407
                                                                                  -------------

                                                                                  $     (47,223)
</TABLE>

                                                         9

<PAGE>



Notes (continued)

         At September  30, 1998,  the Company has a federal net  operating  loss
         carryforward of approximately $604,140. The credit for income taxes for
         the year ended  September 30, 1998,  reflect the utilization of the net
         operating losses that will be carried back to prior years.

         The tax effect of temporary differences resulted in deferred income tax
assets (liabilities) as follows:
<TABLE>
<CAPTION>

                                                                                1998
                                                                    Current        Noncurrent
                  Deferred tax asset (liability):
<S>                                                             <C>               <C>
                      Net operating loss carry forwards         $      -          $     205,407
                                                                -------------     -------------
                                                                       -                205,407
                      Valuation allowance                              -               (205,407)
                                                                -------------     -------------

                                                                $      -          $      -
                                                                =============     ========
</TABLE>

         As of September  30,  1998,  the Company had net deferred tax assets of
         approximately  $205,407.  The net  deferred  tax asset  has been  fully
         offset by a valuation allowance.  The net valuation allowance increased
         by  $203,207  during the  current  year.  Deferred  tax  assets  relate
         primarily to net operating loss to be carried forward.


3.       LONG TERM DEBT

         Long-term debt consisted of the following at September 30, 1998:

<TABLE>
<CAPTION>

              Note payable to a bank in monthly installments of
                $331 including interest at 10.25%; final payment is
<S>                                                                                                   <C>

                due October 28, 2001; secured by a vehicle                                              10,277

              Note payable to a shareholder, the notes are non-
                interest bearing and are unsecured                                                     232,118

              * Note payable to a bank in monthly installments of
                interest only of $300 at 6.25%; secured by a second
                trust deed on an officer/stockholder's personal residence                               55,288

              * Credit cards payable                                                                     2,675

              Note payable to a shareholder; the note is a demand
                note, bears interest at 8.00% and is unsecured                                         115,549
                                                                                                 -------------
                                                                                                       415,907
              Less current portion                                                                    (408,486)

                                                                                                 $       7,421
</TABLE>

                                                        10

<PAGE>



Notes (continued)

         * These loans were granted to an officer/stockholder, who assigned them
to Las Vegas Airlines, Inc.
<TABLE>
<CAPTION>

                    Principal payments are due as follows:
                                Years ending September 30,
<S>                                                   <C>                       <C>
                                                      1999                      $     408,486
                                                      2000                              3,367
                                                      2001                              3,729
                                                      2002                                325
                                                      2003                             -
                                                                                --------
                                                                                $     415,907
</TABLE>

4.       COMMITMENTS

         The Company leases five airplanes under  operating  lease  arrangements
         expiring  January 31, 2004,  at a total  annual rent of  $178,752.  The
         lease agreements include the option to terminate the lease after August
         5, 1999 upon payment of 4% of the  remaining  payments.  Each year this
         payment  will  decline  by 1% per  year.  After the  expiration  of the
         leases,  the Company has the option to acquire each  airplane by paying
         from $62,000 to $106,000 per airplane.  Future minimum rental  payments
         under these leases will be as follows:
<TABLE>
<CAPTION>

                                      Years ending September 30,
<S>                                              <C>                            <C>
                                                 1999                           $     178,752
                                                 2000                                 178,752
                                                 2001                                 178,752
                                                 2002                                 178,752
                                                 2003                                 154,351
                                                                                -------------
                                                                                $     869,359
</TABLE>

         The  Company  leases  its  plant  facilities  under  a month  to  month
         renewable  lease.  The  rent  expense  included  in the  statements  of
         operations  (including  equipment  rental)  amounted  to $176,579 as of
         September 30, 1998.


5.       CONTINGENCIES

         Excise Taxes

         The Internal  Revenue Service has assessed  additional  excise taxes on
airline tickets as follows:
<TABLE>
<CAPTION>

                      Tax period ended
<S>                            <C> <C>                                          <C>
                      December 31, 1990                                         $      24,460
                      December 31, 1991                                               151,854
                      December 31, 1992                                               151,216
                                                                                -------------

                           Total                                                $     327,530
                                                                                =============
</TABLE>

                                                        11

<PAGE>



Notes (continued)

         The  company  denies  responsibility  for these taxes since the airline
         tickets  which cover  these  additional  taxes were issued  overseas by
         unrelated  agencies and the Company is not  responsible  for collection
         and payment. The Internal Revenue Service appeals officer made a verbal
         offer to settle this dispute for 20% of the total amount at issue.  The
         Company  filed a  complaint  with the U.S.  Court of Federal  Claims on
         April 21, 1995.  On July 24, 1995,  the Company  received the answer to
         the  complaint.  The case is  currently  pending  in the U.S.  Court of
         Federal Claims.  Outside  counsel  believes the Company has a very good
         chance to prevail in this  litigation.  Management  believes  the final
         outcome of this  litigation  will not have a significant  effect on the
         Company's financial statements.

         Payroll Taxes

         The  Company is  currently  disputing  certain  payroll  taxes that the
         Internal  Revenue  Service  says are past due in the amount of $34,000.
         The Company  believes the Internal  Revenue Service has applied certain
         credits and refunds to periods  already  closed by a  Bankruptcy  Court
         Order dated January 4, 1994.  Negotiations  are ongoing and the company
         believes it will prevail.


6.       GOING CONCERN

         As shown in the accompanying financial statements, the Company incurred
         a net loss of $810,950 during the year ended September 30, 1998, and as
         of that date, the Company's  current  liabilities  exceeded its current
         assets by $1,457,235. The ability of the Company to continue as a going
         concern is  dependent  on  increasing  sales and  obtaining  additional
         capital and  financing.  The  financial  statements  do not include any
         adjustments  that  might be  necessary  if the  Company  is  unable  to
         continue as a going concern.

                                                        12

<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 July 13, 1998.


                                                     LAS VEGAS AIRLINES, INC.


                                                           By:    /s/ Jehu Hand
                                                                  Jehu Hand
                                                                  President

        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 on July 13, 1998.


By:     /s/ Jehu Hand President, Secretary, Chief Financial Officer and Director
        Jehu Hand


                                                         9

<PAGE>