UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





(Mark
One)





x    ANNUAL
REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934





FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2008





OR





o    TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
Transition Period from _______________ to ________________





COMMISSION
FILE NUMBER: 000-52593





FIRSTFLIGHT,
INC.


(Exact
name of Registrant as Specified in Its Charter)





Nevada
            87-0617649(State
      or Other Jurisdiction of
            (I.R.S.
      EmployerIncorporation
      or Organization)
            Identification
      No.)





101
Hangar Road


Avoca, PA
18641


(Address
of Principal Executive Offices)





(570)
457-3400


(Issuer’s
telephone number)





Securities
registered under Section 12(b) of the Exchange Act:  None





Securities
registered under Section 12(g) of the Exchange Act:  Common Stock,
$.001 par value.





Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Exchange Act.


Yes
            o
            
            No
            x





Indicate
by check mark whether the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.


Yes
            o
            
            No
            x





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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
            o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) 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 the Form 10-K or
any amendment to this Form 10-K.


Yes
            o
            
            No
            x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.


Large
      accelerated filer
            o
            Accelerated
      filer
            o
            Non-accelerated
      filer
            o
            Smaller
      Reporting Company
            x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes
            o
            
            No
            x





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold as of the last business day of the registrant’s most recently
completed second fiscal quarter: $9,539,878.





As of
April 13, 2009, the Registrant had 33,764,453 shares of its Common Stock, $.001
par value, issued and outstanding.





Documents
incorporated by reference: None











FIRSTFLIGHT,
INC. AND SUBSIDIARIES


FORM
10-K


INDEX





ITEM
      1.
              BUSINESS
              A-1ITEM
      1A.
              RISK
      FACTORS
              A-4ITEM
      1B.
              UNRESOLVED
      STAFF COMMENTS
              A-7ITEM
      2.
              PROPERTIES
              A-7ITEM
      3.
              LEGAL
      PROCEEDINGS
              A-8ITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
              A-8ITEM
      5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
              A-9ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION
              A-10ITEM
      7A.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              A-17ITEM
      8.
              FINANCIAL
      STATEMENTS
              A-18ITEM
      9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
              A-19ITEM
      9A(T).
              CONTROLS
      AND PROCEDURES
              A-19ITEM
      9B.
              OTHER
      INFORMATION
              A-20ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
              A-21ITEM
      11.
              EXECUTIVE
      COMPENSATION
              A-24ITEM
      12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
              A-27ITEM
      13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
              A-29ITEM
      14.
              PRINCIPAL
      ACCOUNTING FEES AND SERVICES
              A-29ITEM
      15.
              EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES
              A-31SIGNATURES
              A-34




THIS FORM
10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934. THE ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE
FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
ARE DISCUSSED IN ITEM 7, “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION – FORWARD-LOOKING STATEMENTS” WITHIN THIS
REPORT.









PART
I




ITEM 1. BUSINESS




General




FirstFlight,
Inc. (“FirstFlight”), through its subsidiaries (FirstFlight and its subsidiaries
collectively the “Company”, “we”, “us” and “our”), operates in the fixed base
operation (“FBO”) segment of the general aviation industry.  An FBO
provides ground-based services such as fueling and hangaring for general
aviation, commercial, and military aircraft; aircraft maintenance, and other
miscellaneous services.  We also provide consulting services for a
non-owned FBO facility and serve as the operator of a heliport.





We were
formed on January 17, 2003 (date of inception) as a proprietorship and were
incorporated in Arizona on January 2, 2004.  We became a public
company as a result of a reverse merger transaction on August 20, 2004 with
Shadows Bend Development, Inc., an inactive public Nevada corporation which
changed its name to FBO Air, Inc.  On December 13, 2006, we changed
our name to FirstFlight, Inc.





Our business activities are carried out
at the Wilkes-Barre/Scranton (Pennsylvania) International Airport, Garden City
(Kansas) Regional Airport, Downtown Manhattan (New York) Heliport, and at
Niagara Falls (New York) International Airport where we provide consulting
services to the operator.





The Wilkes-Barre facility became part
of our company as a result of our acquisition of Tech Aviation Service, Inc.
(“Tech”) and the Garden City facility became part of our company as a result of
our acquisition of the FBO assets of Central Plains Aviation, Inc.
(“CPA”).





The New
York heliport facility became part of our company through the awarding of a
concession agreement by the City of New York to operate the Downtown Manhattan
Heliport.  The business is operated through a subsidiary, FirstFlight
Heliports, LLC (“FFH”).





Discontinued
Operations





In March 2009, we completed the sale of
our charter operations located in Elmira, New York under a plan which commenced
in 2008.  This segment originally became part of our company through
our fourth quarter acquisition of Airborne, Inc.
(“Airborne”).  Management, with the authority to approve this
transaction, committed to a plan to sell the charter operations in fourth
quarter 2008.  Accordingly, the accompanying financial statements for
all periods have been presented to reflect the accounting of discontinued
operations for the divestiture of this subsidiary.





The Airborne sale was accomplished in
the following manner:





On March 2, 2009, the Company entered
into a Share Exchange Agreement with Airborne, John H. Dow, the former President
and Chief Executive Officer of the Company, and Daphne Dow, pursuant to which
the Company divested its ownership interest in Airborne.  Mr. Dow
resigned from the Company immediately preceding this agreement.  Prior
to the consummation of the Share Purchase Agreement, Airborne was a wholly-owned
subsidiary of the Company. Airborne owns and operates an aircraft management and
charter business.  Pursuant to the terms and conditions of the Share
Exchange Agreement, Mr. and Mrs. Dow exchanged all of their 3,418,534
individually and jointly owned shares of Company Common Stock, valued at
$239,297 on the date of the agreement, and all of their options and warrants to
purchase 1,100,000 shares of Company Common Stock owned by them in exchange for
all of the issued and outstanding shares of Common Stock in Airborne owned by
the Company.   As a result of the consummation of the Share
Exchange Agreement, Mr. and Mrs. Dow became the sole owners of
Airborne.  Concurrent with the consummation of the Share Exchange
Agreement, Airborne also assumed all pre- and post-closing rights and
obligations of the Company under lease agreements for the Company’s IST Center
and the Company’s 236 Sing Sing Road, Horseheads, New York
location.  The Company did not obtain a third party valuation with
respect to this transaction.





Immediately prior to entering into the
Airborne Loan Agreement, EuroAmerican Investment Corp. (“EuroAmerican”) loaned
the Company an aggregate of up to $750,000 for the purpose of funding the
Airborne Loan Agreement discussed below.  The EuroAmerican loan is
evidenced by a Promissory Note delivered by the Company to EuroAmerican with a
maturity date of March 2, 2011.  The unpaid principal amount under the
Promissory Note accrues interest at the annual rate of 12% and is payable in
monthly interest only payments until maturity, at which time the entire
principal balance and any accrued but unpaid interest is payable in
full.  Two members of the Company’s Board of Directors, William B.
Wachtel and Alvin S. Trenk, issued personal guarantees in connection with the
EuroAmerican Loan.  Mr. Wachtel is a principal of
EuroAmerican.





A-1


Simultaneous with the consummation of
the Share Exchange, the Company made a non-interest bearing loan to Airborne of
$750,000 pursuant to a Loan Agreement dated March 2, 2009 (the “Airborne Loan
Agreement”).  Under the Airborne Loan Agreement, the Company made a
commitment to loan Airborne an aggregate up to $750,000. $500,000 of such amount
was loaned by the Company to Airborne on March 2, 2009, and the balance of which
was loaned by the Company to Airborne on March 12, 2009 upon the satisfactory
achievement by Airborne of certain agreed upon targets. Beginning on September
1, 2009 and continuing the first day of each month thereafter until July 31,
2015 Airborne shall the Company pay equal payments of $10,500 under the Airborne
Loan Agreement. Beginning on August 1, 2015 and continuing the first day of each
month thereafter the monthly payment by Airborne to the Company under the
Airborne Loan Agreement shall be $8,000.  The Airborne Loan Agreement
did not contain any personal guarantees from the shareholders of
Airborne.  Balances due under the Airborne Loan Agreement are to be
repaid from the cash flow of Airborne.  Due to uncertainties in the
charter business, management is in the process of evaluating the collectability
of this loan.  The Airborne Loan Agreement provides that in the event
of a subsequent sale of Airborne or its assets, the proceeds of such sale shall
be used first to repay the existing credit facility with Five Star Bank and next
to repay any outstanding principal under the Airborne Loan
Agreement.  In addition, the Airborne Loan Agreement provides that the
Company will share a percentage of any remaining available sale proceeds, the
amount of which will vary depending on the timing of a sale
transaction.





Also on March 2, 2009, the Company,
Airborne and Five Star Bank (“Five Star”) entered into a Loan Agreement (the
“Five Star Loan Agreement”). Under the Five Star Loan Agreement, among other
things, Five Star made a commitment to loan the Company and Airborne an
aggregate of up to $1,000,000 on a demand line of credit basis.  The
Five Star Bank Loan Agreement replaced the Company’s existing credit facility
with Five Star (See Note 4). Approximately $1,000,000 was outstanding under the
Five Star Loan Agreement and its predecessor credit facility as of December 31,
2008 and March 1, 2009. Airborne and the Company are jointly and severally
responsible for the repayment of all outstanding borrowings under the Five Star
Loan Agreement. Additional borrowings permitted to be made under the Five Star
Loan Agreement may only be made by the Company. Interest on the outstanding
principal amount under the Five Star Loan Agreement accrues at a variable rate
equal to the Wall Street Journal prime rate then in effect from time to time
plus 200 basis points, or 5.25% as of March 2, 2009. The Five Star Loan
Agreement is evidenced by a Line of Credit Note, which is payable in equal,
monthly interest-only payments unless demanded earlier by Five
Star.  The Five Star Loan Agreement contains customary
representations, warranties and financial covenants.  Borrowings under
the Loan Agreement are secured by (i) a blanket security interest in all of the
assets of the Company and Airborne, (ii) an unlimited guaranty from the
subsidiaries of the Company and Airborne, and (iii) a limited personal guaranty
from Mr. Dow and from Mr. Wachtel.




For the years ended December 31, 2008
and 2007, respectively, approximately $35,000,000 and $38,000,000 of revenue
included in discontinued operations was part of the Company’s charter segment. The
performance of the charter segment had declined significantly in recent quarters
from a revenue and profitability standpoint and it was unclear if an improvement
in performance could be implemented in any foreseeable timeframe.  The
current and anticipated decline in charter segment performance created
considerable cash flow pressure.  We believed that Airborne would
require ongoing cash infusions in the near term in order to maintain operations
and, in the absence of same, would imperil the company as a whole.  We
also believed that such an infusion could be less if Airborne were operated
independently than were it to remain part of
FirstFlight.  Additionally, we believed that significant savings in
corporate overhead could be implemented in the event that Airborne was
divested.





Equally important in our decision to
divest Airborne was a relative confidence in the ongoing FBO and heliport
operations, which have resulted in higher gross margins than our charter
operations.  The FBO business was our original focus and the
performance of that business had proven stable.  Taken in conjunction
with the introduction of our heliport operations in November 2008, the makings
of a solid platform for growth were present.  In the final analysis,
we believe the continuing operations of the Company provide us the best possible
route to resumed profitability and ongoing growth.





This divesture eliminates our charter
segment, one of three previously reported segments (together with FBO and
maintenance).  The divestiture also has a significant impact on the
maintenance segment by eliminating a substantial portion of maintenance services
provided by the discontinued operations.  There remains a relatively
minor maintenance business performed in conjunction with our FBO operation in
Pennsylvania.  We believe that the previous reporting of our business
in multiple segments was appropriate and provided a greater understanding of our
disparate businesses at that time.  Given this divestiture and the
resulting commonality in our continuing business, we no longer believe that
reporting multiple segments is necessary.  Our Management Discussion
& Analysis of Financial Condition and Results of Operation below describes
the various components that make up and contribute to the performance of our FBO
business.





The FBO
segment of the industry is highly fragmented - populated by, according to the
National Air Transportation Association (“NATA”), over 3,000 operators who serve
customers at one or more of the over 3,000 airport facilities across the country
that have at least one paved 3,000-foot runway. The vast majority of these
companies are single location operators. NATA characterizes companies with
operations at three or more airports as “chains.” An operation with FBOs in at
least two distinctive regions of the country is considered a “national” chain
while multiple locations within a single region are “regional”
chains.  The results of operations from FFH will be reported in our
FBO segment as heliport operations are essentially FBO for
helicopters.




A-2




We
believe the general aviation market has historically been somewhat cyclical,
with revenue correlated with general U.S. economic conditions. Although not
truly seasonal in nature, historically the spring and summer months tend to
generate higher levels of revenue.  The recent softening of the global
economy and tightening of the credit markets has impacted the private and
general aviation marketplace in general and the operations of the Company
specifically.




Suppliers and Raw
Materials





We
obtain aviation fuel, component parts and other supplies from a variety of
sources, generally from more than one supplier. Our suppliers and sources are
based in the U.S. and other countries and we believe that our sources of
materials are adequate for our needs for the foreseeable future. We do not
believe the loss of any one supplier would have a material adverse effect on our
business or results of operations. Our principal materials are aviation fuel and
component parts. We generally purchase our materials on the open market, where
certain commodities have fluctuated in price significantly in recent years. We
have not experienced any significant shortage of our key materials.





Strategy




Our long-term strategy is to
increase our sales through growth within our FBO operations.  To do
so, we may expand our geographic reach and product offering through strategic
acquisitions and improve market penetration within strategic
markets.   We expect that any future acquisitions or product
offerings would be a direct complement to our current FBO
operations.




Marketing
and Sales




We have
made enhancements to the Company’s website that enable our sales force to more
easily communicate with, and field requests from, both current and future
clients.  We will continue to invest in modest improvements to our
sales and marketing strategies to drive revenue growth.




Government
Approvals




The
aviation services that we provide are generally performed on municipal or other
government owned real estate properties. Accordingly, at times we will need to
obtain certain consents or approvals from those government entities in
conjunction with our operations. There can be no assurance that we shall obtain
such consents on favorable terms.




Government
Regulation




We are
subject to a variety of governmental laws and regulations that apply to
companies in the general aviation industry.  These include compliance
with the Federal Aviation Administration (“FAA”) rules and regulations and
local, regional and national rules and regulations as they relate to
environmental matters. We intend to comply with all government regulations. The
adoption of new regulations could result in increased costs and have an adverse
impact on our results of operations.  In the event we are unable to
remain compliant with applicable rules and regulations, our business may be
adversely affected.




Competition




The FBO
segment of the aviation services industry, the vast majority of which are
independent, single location operators, is competitive in both pricing and
service due to the amount of flexibility for aircraft in transit to choose from
a number of FBO options within a 200-300 mile radius. As we grow our business,
we anticipate that our larger size will provide us with greater buying power
from suppliers, and therefore provide us with lower costs.  Lower
costs would allow for a more aggressive pricing policy against some competition.
More importantly, we believe that the higher level of customer service offered
in our facilities will allow us to draw additional aircraft and thus compete
successfully against other FBOs of any size.





There can
be no assurance that the Company will compete successfully in the highly
competitive aviation industry.





Costs
and Effects of Complying With Environmental Laws




We are subject to a variety of federal,
state, and local environmental laws and regulations, including those governing
health and safety requirements, the discharge of pollutants into the air or
water, the management and disposal of hazardous substances and wastes and the
responsibility to investigate and cleanup contaminated sites that are or were
owned, leased, operated or used by us or our predecessors. Some of these laws
and regulations require us to obtain permits, which contain terms and conditions
that impose limitations on our ability to emit and discharge hazardous materials
into the environment and periodically may be subject to modification, renewal
and revocation by issuing authorities. Fines and penalties may be imposed for
non-compliance with applicable environmental laws and regulations and the
failure to have or to comply with the terms and conditions of required permits.
We intend to comply with these laws and regulations, however, from time to time,
our operations may not be in full compliance with the terms and conditions of
our permits or licenses. We periodically review our procedures and policies for
compliance with environmental laws and requirements. We believe that our
operations generally are in material compliance with applicable environmental
laws and requirements and that any non-compliance would not be expected to
result in us incurring material liability or cost to achieve compliance.
Historically, the costs of achieving and maintaining compliance with
environmental laws and requirements have not been material.   The
cost of compliance with environmental laws is considered a normal cost of
operations.




A-3




Employees




As of
December 31, 2008, we employed 134 persons, of whom 124 were employed on a
full-time basis.  In the continuing operations, we employed 41
persons, of whom 29 were employed on a full-time basis, three of whom were
executive officers of the Company; the balance are employed within our
operations in New York, New Jersey, Pennsylvania, and Kansas.





ITEM 1A. RISK FACTORS




The
following risk factors relate to our operations:





We
may not be able to generate sufficient funds to sustain our operations through
the next twelve months. Accordingly, the report from our independent registered
public accounting firm included in the accompanying financial statements
contains an explanatory paragraph that expresses substantial doubt about our
ability to continue as a going concern.





Until March 31, 2005, we had no
revenue. We have incurred net losses from continued and discontinued operations
of approximately $10,650,000 for the period from January 17, 2003 (date of
inception) through December 31, 2008.  We generated revenue from
continuing operations of approximately $8,600,000 and net losses from continuing
operations of approximately $1,024,000 for the year ended December 31,
2008.





As
discussed later in this report, in the section captioned “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” the
Company has taken several steps to reduce the level of expenditures for
corporate and functional operations by severing ties with several employees and
instituting a salary reduction program for management.  Despite these
steps, we may be unable to retain profitability on an ongoing basis despite our
expectation that we will.





We may need additional funds to meet
operations, capital expenditures, existing commitments and scheduled payments on
outstanding indebtedness for the next twelve month period. If we, in conjunction
with Airborne, were unable to repay the amounts due under the Five Star Loan
Agreement, the bank could proceed against the security granted to them to secure
that indebtedness. In addition, our assets may not be sufficient to repay in
full the indebtedness under the Five Star Loan Agreement. If the bank were to
demand payment of our indebtedness under the Five Star Loan Agreement, we may be
unable to pay all of our liabilities and obligations when due.





Certain of these conditions raise
substantial doubt about our ability to continue as a going concern. Accordingly,
the accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of our Company as a going concern and
the realization of assets and the satisfaction of liabilities in the normal
course of business. The carrying amounts of assets and liabilities presented in
the financial statements do not necessarily purport to represent realizable or
settlement values. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.





We
may have a need for additional financing to expand our business.





Certain
of the potential sellers with respect to the FBOs we may seek to acquire in the
future may accept shares of our common stock or other securities as payment by
us for the acquisition. However, we believe that it is likely that some may seek
cash payments, whether paid at the closing or in post-closing installment
payments. There can be no assurance that our operations will generate sufficient
cash flow to meet these acquisition obligations. Accordingly, we anticipate the
need to seek additional equity or debt financing to meet any cash requirements
for acquisitions. Any such financing will be dependent on general market
conditions and the stock market’s evaluation of our performance and potential.
Accordingly, we can give no assurance that we will obtain such equity or debt
financing and, even if we do, that the terms be satisfactory to us.




A-4




The
continued threat of terrorist actions may result in less demand for private
aviation and, as a result, our revenue may be adversely affected and we may not
be able to continue successful operations.





Terrorist
actions involving public and private aircraft may have a significant adverse
impact on the Company. As a result of these actions, individuals and corporate
customers may cease using private aircraft as a means of transportation. In this
event, we would be unable to maintain sales and may be unable to continue our
operations on a successful basis.





We
could be adversely affected by increases in fuel prices.





Our
operations could be significantly affected by the availability and price of jet
fuel. A significant increase in jet fuel prices would most likely have a
material impact on our achieving profitability unless we are able to pass on
such costs to our customers. Due to the competitive nature of the industry, our
ability to pass on increased fuel prices by increasing our rates is uncertain.
Likewise, any potential benefit of lower fuel prices may be offset by increased
competition and lower revenue in general. While we do not currently anticipate a
significant reduction in fuel availability, dependency on foreign imports of
crude oil and the possibility of changes in government policy on jet fuel
production, transportation and marketing make it impossible to predict the
future availability of jet fuel. If there are new outbreaks of hostility or
other conflicts in oil producing areas or elsewhere, there could be a reduction
in the availability of jet fuel or significant increases in costs to our
business, as well as to the entire aviation industry.





The
FBO segment of the aviation services industry in which we operate is fiercely
competitive.





We
compete with national, regional, and local FBO operators. Many of our
competitors have been in business longer than we have and may have greater
financial resources available to them. Having greater financial resources will
make it easier for these competitors to absorb higher fuel prices and other
increases in expenses. In addition, these competitors might seek acquisitions in
regions and markets competitive to us. Accordingly, we can give no assurance
that we will be able to successfully compete in our industry.





Our
business as an aviation services company is subject to extensive governmental
regulation.





Aviation
services companies are subject to extensive regulatory requirements that could
result in significant costs. For example, the Federal Aviation Administration,
from time to time, issues directives and other regulations relating to the
management, maintenance and operation of aircraft and
facilities.  Compliance with those requirements may cause us to incur
significant expenditures.





Additional
laws, regulations and charges have been proposed, from time to time, that could
significantly increase the cost of our operations or reduce overall revenue. We
cannot provide assurance that laws or regulations enacted in the future will not
adversely affect our revenue and future profitability.





We
must maintain and add key management and other personnel.





Our
future success will be heavily dependent on the performance of our executive
officers and managers. We have entered into employment agreements with certain
of these individuals, including our President and Chief Executive Officer,
Ronald J. Ricciardi.  Our growth and future success will depend, in
large part, on the continued contributions of key individuals, as well as our
ability to motivate and retain these personnel or hire other persons. In
addition, our proposed plan of development will require an increase in
management, sales, marketing and accounting/administrative personnel and an
investment in development of our expertise by existing employees and management.
Although we believe we will be able to hire and retain qualified personnel, we
can give no assurance that we will be successful in obtaining, recruiting and
retaining such personnel in sufficient numbers to increase revenue, attain
profitability, or successfully implement our growth strategy.





We are subject to environmental laws
that could impose significant costs on us and the failure to comply with such
laws could subject us to sanctions and material fines and
expenses.





We
are subject to a variety of federal, state and local environmental laws and
regulations, including those governing the discharge of pollutants into the air
or water, the management and disposal of hazardous substances and wastes and the
responsibility to investigate and cleanup contaminated sites that are or were
owned, leased, operated or used by us or our predecessors. Some of these laws
and regulations require us to obtain permits, which contain terms and conditions
that impose limitations on our ability to emit and discharge hazardous materials
into the environment and periodically may be subject to modification, renewal
and revocation by issuing authorities. Fines and penalties may be imposed for
non-compliance with applicable environmental laws and regulations and the
failure to have or to comply with the terms and conditions of required permits.
The Company intends to comply with these laws and regulations, however, from
time to time, our operations may not be in full compliance with the terms and
conditions of our permits. We periodically review our procedures and policies
for compliance with environmental laws and requirements. We believe that our
operations generally are in material compliance with applicable environmental
laws, requirements and permits and that any lapses in compliance would not be
expected to result in us incurring material liability or cost to achieve
compliance. Historically, the costs of achieving and maintaining compliance with
environmental laws, and requirements and permits have not been material;
however, the operation our business entails risks in these areas, and a failure
by us to comply with applicable environmental laws, regulations, or permits
could result in civil or criminal fines, penalties, enforcement actions, third
party claims for property damage and personal injury, requirements to clean up
property or to pay for the costs of cleanup, or regulatory or judicial orders
enjoining or curtailing operations or requiring corrective measures. Moreover,
if applicable environmental laws and regulations, or the interpretation or
enforcement thereof, become more stringent in the future, we could incur capital
or operating costs beyond those currently anticipated.




A-5




Continued extreme volatility and
disruption in global financial markets could significantly impact our customers,
weaken the markets we serve and harm our operations and financial
performance.





Our
financial performance depends, in large part, on conditions in the markets that
we serve and on the U.S. and global economies in general. As widely reported,
U.S. and global financial markets have been experiencing extreme disruption
recently, including, among other things, concerns regarding the stability and
viability of major financial institutions, the declining state of the housing
markets, a severe tightening in the credit markets, a low level of liquidity in
many financial markets, and extreme volatility in credit and equity markets.
Given the significance and widespread nature of these nearly unprecedented
circumstances, the U.S. and global economies could remain significantly
challenged in a recessionary state for an indeterminate period of time. While
currently these conditions have not impaired our ability finance our operations,
there can be no assurance that there will not be a further deterioration in
financial markets and confidence in major economies. In addition, the current
tightening of credit in financial markets may adversely affect our customers’
spending habits and could result in a decrease in or cancellation of orders for
our services as well as impact the ability of our customers to make payments.
Similarly, this tightening of credit may adversely affect our supplier base and
increase the potential for one or more of our suppliers to experience financial
distress or bankruptcy. These conditions would harm our business by adversely
affecting our sales, results of operations, profitability, cash flows, financial
condition and long-term anticipated growth rate.





The
following risk factors relate to our common stock:





We
do not currently have an active market for our common stock.





To date,
trading of our common stock has been sporadic and limited. In addition, there
are only a limited number of broker-dealers trading our common stock. As a
result the number of shares of our common stock being offered in the market may
not increase. Working with our investment banking and investor relations firms
we are trying to increase this number. However, we can give no assurance that we
will achieve this objective. Accordingly, we can give no assurance that an
active trading market will ever develop.





Our
common stock is subject to the penny stock rules.





The
Securities and Exchange Commission (the “Commission”) has adopted a set of rules
called the penny stock rules that regulate broker-dealers with respect to
trading in securities with a bid price of less than $5.00. These rules do not
apply to securities registered on certain national securities
exchanges (including the Nasdaq Stock Market) or authorized for quotation
on an automated quotation system sponsored by a registered pre-1990 securities
association, provided that current price and volume information regarding
transactions in such securities is provided by the exchange or system. The penny
stock rules require a broker-dealer to deliver to the customer a standardized
risk disclosure document prepared by the Commission that provides information
about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with other information. The
“penny stock” rules require that, prior to a transaction in a penny stock, the
broker-dealer must determine in writing that the penny stock is a suitable
investment for the purchaser.  The broker-dealer must also receive the
purchaser’s written agreement to the transaction. These disclosure requirements
may reduce the level of trading activity in the secondary market for a stock
that is subject to the penny stock rules. If a market ever does develop for our
common stock, as to which we can give no assurance, and it should remain subject
to the penny stock rules, holders of our common stock may find it more difficult
to sell their shares of our common stock.





Potential
additional financings, the granting of additional options and possibly
anti-dilution provisions in our warrants will further dilute our existing
stockholders.





As of
April 13, 2009, there were 33,764,453 shares outstanding. If all of the
outstanding common stock purchase warrants and options were exercised, there
would be 48,591,574 shares outstanding, an increase of over 44%.  Any
further issuances due to additional equity financings or the granting of
additional options or possibly the anti-dilution provisions in our warrants will
further dilute our existing stockholders.




A-6




We
do not anticipate paying dividends on our common stock in the foreseeable
future.





We intend
to retain future earnings, if any, to fund our operations and to expand our
business. Accordingly, we do not anticipate paying cash dividends on shares of
our common stock in the foreseeable future.





Our
Board of Directors’ right to authorize additional shares of preferred stock
could adversely impact the rights of holders of our common stock.





Our board
of directors currently has the right, with respect to the 9,999,154 authorized
shares of our preferred stock, to authorize the issuance of one or more series
of our preferred stock with such voting, dividend and other rights as our
directors determine. Such action can be taken by our board without the approval
of the holders of our common stock. However, a majority of the independent
directors must approve such issuance under a policy adopted by the FirstFlight
board of directors on March 19, 2006. Accordingly, the holders of any new series
of preferred stock could be granted voting rights that reduce the voting power
of the holders of our common stock. For example, the preferred holders could be
granted the right to vote on a merger as a separate class even if the merger
would not have an adverse effect on their rights. This right, if granted, would
give them a veto with respect to any merger proposal. Or they could be granted
20 votes per share while voting as a single class with the holders of the common
stock, thereby diluting the voting power of the holders of our common stock. In
addition, the holders of any new series of preferred stock could be given the
option to be redeemed in cash in the event of a merger. This would make an
acquisition of our Company less attractive to a potential acquirer. Thus, our
board could authorize the issuance of shares of the new series of preferred
stock in order to defeat a proposal for the acquisition of our Company which a
majority of our then holders of our common stock otherwise favor.





Our
common stock may not continue to be traded on the OTC Bulletin
Board.





We cannot
provide any assurance that our common stock will continue to be eligible to
trade on the OTC Bulletin Board. Should our common stock cease to trade on the
OTC Bulletin Board and fail to qualify for listing on a stock exchange
(including Nasdaq), our common stock would be trading only in the “pink sheets.”
Such trading market generally provides an even less liquid market than the OTC
Bulletin Board. In such event, stockholders may find it more difficult to trade
their shares of our common stock or to obtain accurate, current information
concerning market prices for our common stock.





Our
management team currently has influential voting power.





As of
April 13, 2009, the executive officers and directors of FirstFlight and their
family members and associates collectively could vote 7,465,419 shares or 22.1%
of the 33,764,453 shares of the outstanding voting shares. Accordingly, and,
because there is no cumulative voting for directors, our executive officers and
directors are currently in a position to influence the election of all of the
directors of FirstFlight. The management of the Company is controlled by our
board of directors, currently comprised of four independent directors, a
director who is a managing partner of a law firm which provides legal services
to the Company, a director who is related to a former executive officer and one
executive officer/director.





ITEM
1B. UNRESOLVED STAFF COMMENTS




Not Applicable.





ITEM
2. PROPERTIES




As of
April 13, 2009, we lease office space at the following locations:




Location
                            
                            Purpose
                            
                            Space
                            
                            Annual
      Rental
                            
                            Expiration101
      Hangar Road
                              Avoca,
      Pennsylvania
                            
                            
                            Pennsylvania
      service location of our FBO segment
                            
                            
                            24,000
      square feet
                            
                            $
                            75,000
                            
                            
                            August
      21, 20132145
      S. Air Service Road, Garden City, Kansas
                            
                            
                            Kansas
      service location
                              of
      our FBO segment
                            
                            
                            17,640
      square feet
                            
                            $
                            18,600
                            
                            
                            March
      31, 2015





As discussed in Note 19 to the
consolidated financial statements, space occupied by the discontinued operations
were under a lease with a related party.  The obligations under this
lease was assumed by Airborne in connection with the divestiture.





We believe that our space is adequate
and suitable for our immediate needs.  Additional hangar space may be
required in the future.  No such definitive plans have been developed
at the time of this Report.




A-7




We have no current intention to invest
in real estate, other than in connection with the acquisition of an aviation
services property. While we may purchase the common stock of companies as a
means of acquisition of that entity, we have no intent to passively hold or
invest in the common stock of companies in these aviation
businesses.




ITEM
3. LEGAL
PROCEEDINGS




On November 20, 2008, an Article 78
proceeding in the Supreme Court of the State of New York, County of New York was
initiated against New York City Economic Development Corporation, the City of
New York Department of Small Business Services, Robert Walsh, in his capacity as
Commissioner of the Department of Small Business Services, William C. Thompson,
Jr., Comptroller of the City of New York, Office of the New York City
Comptroller, The Honorable Mayor Bloomberg in his capacity as Mayor of the City
of New York, by Petitioners Linden Airport Management Corporation and Paul P.
Dudley, individually, objecting to the award of a concession for the Fixed-Base
Operator for the Downtown Manhattan Heliport to FirstFlight,
Inc.  Shortly thereafter, on November 20, 2008, FirstFlight was joined
as a necessary party to the Article 78 proceeding.  The Petitioners
allege that the selection process for awarding FirstFlight the concession, was
arbitrary, capricious and an abuse of permitted discretion and made in violation
of lawful procedure.  In relation to this allegation, Petitioners are
seeking an annulment of the previous award of the concession and a new “Request
for Proposals” process in order to award the concession to an entity other than
FirstFlight.  Petitioners also allege a breach of public trust against
the City of New York and damages of at least $1,000,000.  The
Company’s legal representation believes that there is a high likelihood of
success on the merits by FirstFlight.





In addition to the matters noted above,
the Company is a party to one or more claims or disputes which may result in
litigation. The Company's management does not, however, presently expect that
any such matters will have a material adverse effect on the Company's business,
financial condition or results of operations.





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




Not Applicable.




A-8




PART
II




ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES




Market
for Common Equity





Our
common stock is traded on the OTC Bulletin Board (“OTCBB”) under the symbol
FFLT. The OTCBB is a regulated quotation service that displays real-time quotes,
last-sale prices and volume information in over-the-counter (“OTC”) equity
securities. The following table sets forth the range of high and low closing
sale prices for the common stock as reported on the OTCBB for the past two
fiscal years.





Common
    StockQuarterly
      Period Ended
                  
                  High
                  
                  
                  LowMarch
      31, 2007
                  
                  $
                  0.55
                  
                  
                  $
                  0.30June
      30, 2007
                  
                  $
                  0.37
                  
                  
                  $
                  0.31September
      30, 2007
                  
                  $
                  0.42
                  
                  
                  $
                  0.28December
      31, 2007
                  
                  $
                  0.40
                  
                  
                  $
                  0.27March
      31, 2008
                  
                  $
                  0.48
                  
                  
                  $
                  0.32June
      30, 2008
                  
                  $
                  0.50
                  
                  
                  $
                  0.33September
      30, 2008
                  
                  $
                  0.42
                  
                  
                  $
                  0.20December
      31, 2008
                  
                  $
                  0.28
                  
                  
                  $
                  0.06




Holders





As of
April 13, 2009, there were approximately 620 holders of record of the Company’s
common stock. This number does not include beneficial owners of the common stock
whose shares are held in the names of various broker-dealers, clearing agencies,
banks, and other fiduciaries.





Dividends





Since
inception we have never declared or paid any cash dividends on our common
stock.  We intend to retain future earnings to finance the growth and
development of our business and future operations. Therefore, we do not
anticipate paying any cash dividends on shares of our common stock in the
foreseeable future.





Securities
Authorized for Issuance under Equity Compensation Plans





The following table set forth certain
information, as of December 31, 2008, with respect to securities authorized for
issuance under equity compensation plans. The only security being so offered is
our common stock.




A-9




Number
      of Securities to be issued upon exercise of outstanding options, warrants
      and rights
                                                      
                                                      
                                                      Weighted-average
      exercise price of outstanding options, warrants and rights
                                                      
                                                      
                                                      Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))(a)
                                                      
                                                      
                                                      (b)
                                                      
                                                      
                                                      (c)Equity
      compensation plans approved by
                                                        security
      holders
                                                      
                                                      $
                                                      2,960,000
                                                      
                                                      
                                                      $
                                                      0.393
                                                      
                                                      
                                                      
                                                      4,540,000Equity
      compensation plans not
                                                        approved
      by security holders
                                                      
                                                      
                                                      350,000
                                                      
                                                      
                                                      $
                                                      1.326
                                                      
                                                      
                                                      
                                                      --Total
                                                      
                                                      
                                                      3,310,000
                                                      
                                                      
                                                      $
                                                      0.492
                                                      
                                                      
                                                      
                                                      4,540,000




We
received stockholder approval on December 12, 2006 for the FirstFlight, Inc.
Stock Option Plan of 2005 which relates to 7,500,000 shares of our common
stock.





Repurchases





In March 2007, FirstFlight re-purchased
25,000 shares for $18,375 in cash that had been issued in a settlement of
litigation and for which the holder had a right to put the shares back to
FirstFlight.  There were no repurchases of shares during the year
ended December 31, 2008.





Recent
Sales of Unregistered Securities




Information
with respect to all equity securities sold by FirstFlight during the fiscal year
ended December 31, 2008 which were not registered under the Securities Act of
1933, as amended (the “Securities Act”), was previously reported on our Form 8-K
filed on August 11, 2008, and is incorporated herein by reference.





ITEM
7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION





Forward-looking
Statements




This
Annual Report on Form 10-K contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than
statements of historical facts included in this Report, including, without
limitation, the statements under "General," "Marketing and Sales," "Liquidity
and Capital Resources" and "Plan of Operation" are forward-looking statements.
The Company cautions that forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those indicated in the forward-looking statements, due to several important
factors herein identified. Important factors that could cause actual results to
differ materially from those indicated in the forward-looking statements
("Cautionary Statements") include services and pricing, general economic
conditions, new product development, the Company's ability to raise additional
capital, the Company's ability to obtain the various approvals and permits for
the acquisition and operation of FBOs and charter management operations and the
other risk factors detailed from time to time in this report and other materials
filed with the Commission.




All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.





Discontinued
Operations





As discussed in Item 1 of this report
above and Notes 2 and 19 of our consolidated financial statements, we completed
the sale of our Airborne subsidiary on March 2, 2009 under a plan commenced in
2008.  We believe the discontinuation of the charter segment will
allow us to focus our efforts on our FBO and heliport
operations.  Pursuant to the Share Exchange Agreement between the
Company and John and Daphne Dow, and the Loan Agreement between the Company and
Airborne, we will continue to share in the benefit of Airborne’s success through
principal payments, continuing payments after the retirement of principal, and
participation in any future sale of Airborne.  Airborne generated
revenue of approximately $38,300,000 and $40,500,000 for the years ended
December 31, 2008 and 2007, respectively.  Airborne recognized
operating losses of approximately $3,880,000, including a write-off of goodwill
and intangibles of approximately $2,635,000, for the year ended December 31,
2008 and operating income of approximately $1,260,000 for the year ended
December 31, 2007.





Under the Five Star Loan Agreement,
Five Star retains a first lien against all of Airborne’s and FirstFlight’s
assets.  Further, Airborne joins FirstFlight as joint and several
guarantors of borrowings against the credit facility.  In the event of
a sale of Airborne, Five Star shall receive the first distribution of any
related proceeds in the full amount of any outstanding amount under the credit
facility.




A-10





Summary
Financial Information




The
summary financial data set forth below is derived from and should be read in
conjunction with the consolidated financial statements, including the notes
thereto, filed as part of this report.




Consolidated
      Statement of Operations Data:
                  
                  Year
      Ended December 31,
                    2008
                  
                  
                  Year
      Ended
                    December
      31,
                    2007(in
      thousands, except for share and per share data)Revenue
      – continuing operations
                  
                  $
                  8,597
                  
                  
                  $
                  6,657Net
      income (loss) – continuing operations
                  
                  $
                  (1,024
                  )
                  
                  $
                  (1,535
                  )Net
      income (loss) – discontinued operations
                  
                  $
                  (3,881
                  )
                  
                  $
                  1,333Net
      income (loss) per share – basic and diluted – continued
      operations
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.03
                  )Net
      income (loss) per share – basic and diluted – discontinued
      operations
                  
                  $
                  (0.11
                  )
                  
                  $
                  0.04Net
      income (loss) per share – basic and diluted
                  
                  $
                  (0.14
                  )
                  
                  $
                  0.01Weighted
      average number of shares – basic and diluted
                  
                  
                  36,582,987
                  
                  
                  
                  36,585,305  Balance
      Sheet Data: (in thousands)
                  
                  December
      31,
                    2008
                  
                  
                  December
      31,
                    2007Working
      capital (deficit)
                  
                  $
                  (756
                  )
                  
                  $
                  961Total
      assets – continuing operations
                  
                  $
                  4,962
                  
                  
                  $
                  6,574Total
      assets – held for sale
                  
                  $
                  5,363
                  
                  
                  $
                  7,821Total
      assets
                  
                  $
                  10,325
                  
                  
                  $
                  14,395Total
      liabilities – continuing operations
                  
                  $
                  1,970
                  
                  
                  $
                  1,559Total
      liabilities – associated with assets held for sale
                  
                  $
                  5,101
                  
                  
                  $
                  6,200Stockholders’
      equity
                  
                  $
                  2,504
                  
                  
                  $
                  6,636Total
      liabilities and Stockholders’ equity
                  
                  $
                  10,325
                  
                  
                  $
                  14,395





Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





This Management’s Discussion and
Analysis of Results of Operations gives effect only to our continuing
operations.





Comparison
of the Years Ended December 31, 2008 and December 31, 2007.





REVENUE





Revenue
increased by 29.1 percent to approximately $8,600,000 for the year ended
December 31, 2008 as compared with corresponding prior-year period revenue of
approximately $6,600,000.





Revenue
associated with the sale of jet fuel, aviation gasoline and related items
increased by 20.5 percent to approximately $6,660,000 in the year ended December
31, 2008 as compared to the same period in the prior year.  Revenue
associated with the operation of the Downtown Manhattan Heliport (the
“Heliport”), which was initiated on November 1, 2008, represented approximately
$545,000 in the year ended December 31, 2008 against no comparable revenue in
the prior year period.  Revenue associated with maintenance activities
increased by 69.9 percent to approximately $1,270,000 as compared to the same
period in the prior year.





These
revenue increases offset a revenue decrease for our flight school (85.5 percent
decrease for the year over year period) and the management of non-owned FBO
facilities (down 15.2 percent in the year ended December 31, 2008 as compared to
the same period in 2007).  Our flight school subsidiary was divested
on December 31, 2007.  The 2008 revenue used for the flight school
comparison is comprised of the aircraft leasing fees and facility lease charges,
as discussed elsewhere in this report.  The decrease in revenue
associated with the management of non-owned FBO facilities was due to an
anticipated reduction in contractual rates.





A-11




The
increase in revenue associated with the sale of jet fuel, aviation gasoline and
related items was related to a combination of higher volume along with higher
average fuel prices as compared with the prior year.  We generally
price our fuel products on a fixed dollar margin basis.  As the cost
of fuel rises, the corresponding customer price rises as well.  If
volume is constant, this methodology yields higher revenue but at lower gross
margins.





Revenue
increases in maintenance were realized in both charges for labor services and
for parts.  The primary reason for the increases in both categories
was a generally higher level of activity associated with jet aircraft domiciled
at the Pennsylvania facility.





GROSS
PROFIT





Gross
profit increased 32.5 percent to approximately $2,500,000 in the year ended
December 31, 2008 as compared with the year ended December 31, 2007. Gross
profit as a percent of revenue increased to 28.6 percent in the year ended
December 31, 2008 as compared to 27.9 percent in the same period in the prior
year.  The impact of the Heliport operation was a major factor in the
increase in gross profit, producing approximately $545,000 in 2008 with no
corresponding impact in 2007.  Presently, revenue generated by the
Heliport has no corresponding offset from a cost of revenue
standpoint.  In the absence of the Heliport, gross profit as a percent
of revenue in the year ended 2008 would have been 23.7 percent.  The
reduction in gross profit on this adjusted percent of revenue basis is
attributable to generally higher average fuel cost as described
above.





OPERATING
EXPENSE





Selling, General and
Administrative – FBO Operations





Selling,
general and administrative (“SG&A”) expenses associated with our FBO
operations were approximately $2,000,000 in the year ended December 31, 2008, an
increase of approximately $466,000 or 30.0 percent as compared to the year ended
December 31, 2007.  Without the introduction of the Heliport, SG&A
associated with our FBO operations would have decreased by approximately
$80,000.





SG&A
associated with our FBO operations, as a percentage of revenue, was 23.4 percent
for the year ended December 31, 2008 as compared with 23.3 percent in the
corresponding prior year period.  Once again, the introduction of the
Heliport was a major factor.  In the absence of the Heliport, SG&A
associated with our FBO operations, as a percent of revenue, would have
decreased to 18.2 percent of revenue; a more meaningful comparison to the 23.3
percent in the year ended December 31, 2007.





Selling, General and
Administrative – Corporate Operations





Corporate
expense was approximately $1,440,000 for the year ended December 31, 2008,
representing an increase of approximately $131,000 as compared with the
corresponding prior year period.   The increase was largely
driven by a combination of stock-based compensation expenses that were
approximately $30,000 greater and by the costs associated with our investor
relations efforts, which were initiated during 2008, and represented
approximately $109,000 for the year ended December 31, 2008.





The
elimination of costs due to the resignation of our former Senior Vice President
and Chief Financial Officer (see Note 15 to our consolidated financial
statements) and our prior President and Chief Executive Officer (see Note 18 to
our consolidated financial statements) will significantly decrease the level of
corporate expenses in coming quarters.  Other individuals within the
Company will absorb the responsibilities of these individuals.  Beyond
these cost reductions, management intends to aggressively negotiate fees
associated with professional support and anticipates that savings will be
realized in 2009 as compared to 2008.





OPERATING
INCOME (LOSS)





Operating
loss from continuing operations decreased by 0.7 percent to approximately
$994,000 in the year ended December 31, 2008 as compared to the same period in
2007.  In addition to the increase in revenue, operating losses were
offset by a combination of lower levels of non-corporate operating expenses and
increased gross margin, both of which are described above.





Depreciation and
Amortization





Depreciation
and amortization from continuing operations was approximately $132,000 and
$143,000 for the year ended December 31, 2008 and 2007,
respectively.





Interest
Income/Expense





Interest
income for the year ended December 31, 2008 was approximately $7,200 as compared
to approximately $32,500 for the year ended December 31,
2007.  Interest income decreased as a result of a combination of lower
average daily balances.  In 2007, we were also accruing interest on a
note receivable that was retired at the end of 2007.  Interest expense
for the year ended December 31, 2008 was approximately $20,100 as compared to
approximately $29,200 for the same period in 2007.  Interest expense
declined as a result of declining debt balances in 2008 as opposed to
2007.  We anticipate that interest costs will in increase in 2009 as a
result of higher interest rates under our new Credit Facility.




A-12




Net Income/Loss Per
Share




Net loss
for the year ended December 31, 2008 was approximately $4,905,000 as compared to
net income of approximately $184,000 for the year ended December 31,
2007.  The increase in net losses were as a result of the items
discussed above plus the additional net loss of approximately $3,880,000
associated with discontinued operations, which included goodwill and intangible
asset impairment charges of approximately $2,635,000.




Basic and
diluted net loss per share for the year ended December 31, 2008 was $0.03 and
$0.11 for continuing and discontinued operations, respectively, for a total net
loss of $0.14 per share.  For the year ended December 31, 2007, we had
basic and diluted net losses per share of $0.03 for continuing operations and
basic and diluted net income of $0.04 per share for discontinued operations, for
a total net income per share of $0.01.





LIQUIDITY
AND CAPITAL RESOURCES





This liquidity and capital resources
section gives effect only to continuing operations.





As of December 31, 2008, we had cash
and cash equivalents of $322,098 and had a working capital deficit of $755,544.
We generated revenue of approximately $8,600,000 and net loss of approximately
$4,905,000 for the year ended December 31, 2008. For the year ended December 31,
2008, net cash used in operating activities was $2,121,727, net cash used in
investing activities was $442,919 and net cash provided by financing activities
was $1,632,783.





We initiated operations at the Heliport
on November 1, 2008 pursuant to an agreement with the City of New York through
the New York City Economic Development Corporation (the “Agreement”). Under the
Agreement, FirstFlight is responsible for minimum annual guaranteed payments of
$1,200,000 in the first year of FirstFlight’s operation of the Heliport. We also
agreed to make certain capital improvements and safety code compliance upgrades
to the Heliport in the amount of $1,000,000 over the first two years of the
Agreement and another $1,000,000 by the end of the fifth year of the Agreement.
We believe that earnings from the operation will be sufficient to satisfy the
minimum annual guarantee and we have secured a verbal commitment to fund the
capital improvements as required.





On September 26, 2008, we completed a
revolving line of credit agreement (the “Credit Facility”) with Five Star Bank
(the “Bank”). The Credit Facility provides us with a $1,000,000 revolving line
of credit with the Bank and is payable on demand. Amounts outstanding under the
Credit Facility will bear interest at a rate equal to the prime rate published
in the Wall Street Journal from time to time plus 200 basis points. The Credit
Facility is secured by all of the Company’s assets as well as the assets of
Airborne and Airborne is also an additional guarantor of the Credit
Facility.  See Note 19 of our consolidated financial
statements.





On March 2, 2009, in conjunction with
the divestiture of Airborne, EuroAmerican Investment Corp. (“EuroAmerican”)
loaned the Company $750,000, the proceeds of which were used to fund the
Company’s loan commitment obligations to Airborne.  The EuroAmerican
loan is evidenced by a Promissory Note delivered by the Company to EuroAmerican
with a maturity date of March 2, 2011.  The unpaid principal amount
under the Promissory Note accrues interest at the annual rate of 12% and is
payable in monthly interest only payments until maturity, at which time the
entire principal balance and any accrued but unpaid interest is payable in
full.  Two members of the Company’s board of directors, William B.
Wachtel and Alvin S. Trenk, issued personal guarantees in connection with the
EuroAmerican loan.  Mr. Wachtel is a principal of
EuroAmerican.





The combination of the divestiture of
Airborne and other steps will have a significant impact on our cost of corporate
operations.  The exit of our former President and Chief Executive
Officer via the Airborne divestiture combined with the prior departure of our
Senior Vice President and Chief Financial Officer will yield annual compensation
savings of over $525,000.





During the year ended December 31,
2008, we had a net decrease in cash and cash equivalents of $927,617. Our
sources and uses of funds from continuing and discontinued operations during
this period were as follows:




A-13




Cash
from Operating Activities




For the year ended December 31, 2008,
net cash used in operating activities was $2,121,727. This amount included a
decrease in operating cash related to net loss of $4,905,415 and additions for
the following items: (i) depreciation and amortization, $345,131; (ii)
impairment of goodwill and intangible assets, $2,634,663; (iii) issuance of
restricted stock under a consulting agreement, $222,000; (iv) warrant issued in
connection with the acquisition of New World Jet Corporation, $137,390; and (v)
stock-based compensation expense, $414,555.  The increase in cash used
in operating activities in 2008 was offset by a decrease of approximately
$992,000 in operating assets and liabilities for the following items: (i)
customer deposits decreased cash approximately $433,000 related to advance
payments made in 2007 for charter flights that occurred in 2008; (ii) cash
payments for prepaid expenses increased by approximately $137,000; and (iii)
changes in accounts payable, accounts receivable, inventories and accrued
expenses all resulted in a net decrease in cash of approximately
$414,000.  For the year ended December 31, 2007, net cash provided by
operating activities was $1,483,555.  The primary sources of cash from
operating activities in 2007 were from net income of $184,454, plus depreciation
and amortization of $390,165; stock-based compensation expense of $415,782; and
impairment for collection of note receivable of $150,000.  These
increases were impacted by a net increase in operating assets and liabilities of
approximately $465,000 comprised of increases in accounts payable ($624,637),
customer deposits ($248,456), and accrued expenses (56,100) offset by decreases
in accounts receivable ($153,799), inventories ($133,553), prepaid expenses
($166,827), and deposits ($10,300).





Cash
from Investing Activities




For the year ended December 31, 2008,
net cash used in investing activities was $442,919 and was attributable to the
purchase of property and equipment of $221,976 offset by sale proceeds of $8,000
and approximately $225,000 of cash payments in connection with the acquisition
of New World Jet Corporation as described in Note 7 to our consolidated
financial statements.  For 2007, net cash used in investing activities
was $93,140 attributable to the proceeds from the sale of property and equipment
of $329,184 offset by the purchase of property and equipment of $318,797 and the
payments related to the sale of TAFS of $103,527.





Cash
from Financing Activities




For the year ended December 31, 2008,
net cash provided by financing activities was $1,632,783, consisting of the
proceeds from a line of credit of $1,000,000 and capital contribution to the
Heliport of $749,847, offset by repayment of notes payable of
$117,064.  For 2007, net cash used in financing activities was
$172,133, consisting of the repayment of notes payable and the re-purchase of
stock of $153,758 and $18,375, respectively.





Going
Concern





We may need additional funds to meet
operations, capital expenditures, existing commitments and scheduled payments on
outstanding indebtedness for the next twelve month period. If we, in conjunction
with Airborne as described above, were unable to repay the amounts under the
Credit Facility, the Bank could proceed against the security granted to them to
secure that indebtedness. Our assets may not be sufficient to repay in full the
indebtedness under the Credit Facility. If the Bank were to demand payment of
our indebtedness under the Credit Facility, we may be unable to pay all of our
liabilities and obligations when due.





These conditions raise substantial
doubt about our ability to continue as a going concern. Accordingly, the
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuation of our Company as a going concern and the
realization of assets and the satisfaction of liabilities in the normal course
of business. The carrying amounts of assets and liabilities presented in the
financial statements do not necessarily purport to represent realizable or
settlement values. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.





Off-Balance
Sheet Arrangements




We have not entered into any
transactions with unconsolidated entities in which we have financial guarantees,
subordinated retained interests, derivative instruments or other contingent
arrangements that expose us to material continuing risks, contingent liabilities
or any other obligations under a variable interest in an unconsolidated entity
that provides us with financing, liquidity, market risk or credit risk
support.





Critical Accounting Estimates




Discussion
and analysis of our financial condition and results of operations are based upon
our consolidated financial statements, which have been prepared in accordance
with generally accepted accounting principles in the United States. The
preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the amounts reported in the consolidated
financial statements and the accompanying notes. On an ongoing basis, we
evaluate our estimates, including those related to product returns, product and
content development expenses, bad debts, inventories, intangible assets, income
taxes, contingencies and litigation. We base our estimates on experience and on
various assumptions that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.




A-14




The
critical accounting policies which we believe affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements are provided as follows:





Accounts
Receivable


We extend credit to large and mid-size
companies for aviation services. The Company has concentrations of credit risk
in its continuing operations in that 60.6% of the balance of accounts receivable
at December 31, 2008 is made up of only five customers. At December 31, 2008,
accounts receivable from our largest account amounted to approximately $146,000
(24.1%). The Company does not generally require collateral or other security to
support customer receivables. Accounts receivable are carried at their estimated
collectible amounts. Accounts receivable are periodically evaluated for
collectability and the allowance for doubtful accounts is adjusted accordingly.
Management determines collectability based on their experience and knowledge of
the customers.





Goodwill and Intangible
Assets


The Company accounts for Goodwill and
Intangible Assets in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 141, “Business Combinations” (“SFAS 141”) and SFAS No. 142,
“Goodwill and Other Intangible Assets” (“SFAS 142”). Under SFAS No. 142,
goodwill and intangibles that are deemed to have indefinite lives are no longer
amortized but, instead, are to be reviewed at least annually for impairment.
Application of the goodwill impairment test requires judgment, including the
identification of reporting units, assigning assets and liabilities to reporting
units, assigning goodwill to reporting units, and determining the fair value.
Significant judgments required to estimate the fair value of reporting units
include estimating future cash flows, determining appropriate discount rates and
other assumptions. Changes in these estimates and assumptions could materially
affect the determination of fair value and/or goodwill impairment for each
reporting unit. We have recorded goodwill in connection with the Company's
acquisitions amounting to $2,368,284 related to continuing operations. The
Company has determined that there is no impairment of goodwill for continuing
operations at December 31, 2008 and 2007. Intangible assets continue to be
amortized over their estimated useful lives.  The Company performed an
analysis of its goodwill and intangible assets with SFAS No. 142 as of December
31, 2008, and determined that an impairment charge of $2,634,663 was necessary
and has recorded this charge to discontinued operations.




In
accordance with the requirements of SFAS 141, the Company recognized certain
intangible assets acquired, primarily goodwill, trade names, non-compete
agreements and customer relationships.  In accordance with the
provisions of SFAS 142, on a regular basis, the Company performs impairment
analysis of the carrying value of goodwill and certain other intangible
assets.




Income
Taxes


The
Company accounts for income taxes under SFAS No. 109, “Accounting for Income
Taxes” (“SFAS 109”). Under SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
their financial statement carrying amounts 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 SFAS 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. The Company’s ability to
utilize its net operating loss (“NOL”) carry-forwards may be subject to an
annual limitation in future periods pursuant to Section 382 of the Internal
Revenue Code of 1986, as amended.





Although
we have federal and state net operating losses available for income tax purposes
that may be carried forward to offset future taxable income, the deferred tax
assets are subject to a 100% valuation allowance because it is more likely than
not that the deferred tax assets will not be realized in future periods. The
Company’s ability to use its net operating loss carry forwards may be subject to
an annual limitation in future periods pursuant to Section 382 of the Internal
Revenue Code (the “Code”).





Effective January 1, 2007, we adopted
Financial Accounting Standards Board (“FASB”) Interpretation Number 48,
“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109,” (“FIN No. 48”), which prescribes a single, comprehensive model for how
a company should recognize, measure, present and disclose in its financial
statements uncertain tax positions that the company has taken or expects to take
on its tax returns. Upon adoption of FIN No. 48, we recognized no changes in the
liability for unrecognized tax benefits.




We record interest and penalties
related to unrecognized tax benefits in income tax expense. As of January 1,
2007, we recognized no charges for interest and penalties related to
unrecognized tax benefits in our Consolidated Balance Sheet.




We file income tax returns in the
United States (federal) and in various state and local jurisdictions. In most
instances, we are no longer subject to federal, state and local income tax
examinations by tax authorities for years prior to 2004.




A-15




Stock Based
Compensation


We account for stock-based compensation
in accordance with the fair value recognition provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 123R (revised 2004), entitled
“Share-Based Payment” (“SFAS 123R”), as adopted by the FASB. Stock-based
compensation expense for all share-based payment awards are based on the
grant-date fair value estimated in accordance with the provisions of SFAS 123R.
We recognize these compensation costs over the requisite service period of the
award, which is generally the option vesting term.





Option
valuation models require the input of highly subjective assumptions including
the expected life of the option. Because the Company's employee stock options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.





The fair
value of each share-based payment awards granted during the period was estimated
using the Black-Scholes option pricing model with certain assumptions in
estimating fair value.





We account for the expected life of
share options in accordance with the “simplified” method provisions of
Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 110
(December 2007), which enables the use of the simplified method for “plain
vanilla” share options, as defined in SAB No. 107.





Recent
Accounting Pronouncements





On October 10, 2008, the FASB issued
FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market
for That Asset Is Not Active (FSP).” The FSP clarifies the application of FASB
Statement No. 157 in a market that is not active. The guidance is primarily
focused on addressing how the reporting entity’s own assumptions should be
considered when measuring fair value when relevant observable inputs does not
exist; how available observable inputs in a market that is not active should be
considered when measuring fair value; and how the use of market quotes should be
considered when assessing the relevance of observable and unobservable inputs
available to measure fair value. The adoption of FSP FAS 157-3 did not have a
material impact on the our financial statements.





In June 2008, the FASB issued FSP EITF
03-6-1, “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities”. This FSP addresses whether
instruments granted in share-based payment transactions are participating
securities prior to vesting and, therefore, need to be included in the earnings
allocation in computing earnings per share (EPS) under the two-class method
described in paragraphs 60 and 61 of FASB Statement No. 128, “Earnings per
Share.” FSP EITF 03-6-1 is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those years.
The Company is in the process of determining the impact FSP EITF 03-6-1 will
have on its consolidated financial statements.





In June 2008, the EITF reached a
consensus in Issue No. 07-5, “Determining Whether an Instrument (or
Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). This Issue
addresses the determination of whether an instrument (or an embedded feature) is
indexed to an entity’s own stock, which is the first part of the scope exception
in paragraph 11(a) of SFAS 133. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. Early application is not permitted. We are currently in the process of
evaluating the impact of the adoption of EITF 07-5 on our results of operations
and financial condition.





In May 2008, the FASB issued Statement
No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” The
current hierarchy of generally accepted accounting principles is set forth in
the American Institute of Certified Accountants (AICPA) Statement of Auditing
Standards (“SAS”) No. 69, “The meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.” Statement No. 162 is intended to
improve financial reporting by identifying a consistent framework or hierarchy
for selecting accounting principles to be used in preparing financial statements
that are presented in conformity with U.S. generally accepted accounting
principles for nongovernmental entities. Statement No. 162 is effective 60 days
following the Securities and Exchange Commission’s approval of the Public
Company Oversight Board Auditing amendments to SAS 69. At this time, management
is evaluating the application of Statement No. 162, but does not anticipate that
Statement No. 162 will have a material effect on the Company’s results of
operations or financial position.





In
April 2008, the FASB issued FSP No. FAS 142-3, which amends the factors
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible
Assets, ("SFAS No. 142"). FSP No. 142-3 requires a
consistent approach between the useful life of a recognized intangible asset
under SFAS No. 142 and the period of expected cash flows used to
measure the fair value of an asset under SFAS No. 141(R). The FSP also
requires enhanced disclosures when an intangible asset's expected future cash
flows are affected by an entity's intent and/or ability to renew or extend the
arrangement. FSP No. 142-3 is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and is to be applied
prospectively. Early adoption is prohibited.  The Company has not completed
its analysis of the potential impact of FSP No. 142-3, but does not believe
the adoption will have a material impact on the Company's financial condition,
results of operations, or cash flows.




A-16




In
March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 161, “Disclosures about Derivative Instruments and Hedging
Activities—an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS
No. 161 changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No.
133, “Accounting for Derivative Instruments and Hedging Activities” and its
related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and
cash flows.  The guidance in SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. SFAS No. 161
encourages, but does not require, comparative disclosures for earlier periods at
initial adoption.  At this time, management is evaluating the implications
of SFAS No. 161 and its impact on the consolidated financial statements has not
yet been determined.





In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations" which
replaces SFAS No. 141, "Business Combinations." SFAS 141R establishes principles
and requirements for determining how an enterprise recognizes and measures the
fair value of certain assets and liabilities acquired in a business combination,
including noncontrolling interests, contingent consideration, and certain
acquired contingencies. SFAS 141R also requires acquisition-related transaction
expenses and restructuring costs be expensed as incurred rather than capitalized
as a component of the business combination. SFAS 141R will be applicable
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. SFAS 141R would have an impact on accounting for any
businesses acquired after the effective date of this pronouncement.





In
December 2007, the FASB issued SFAS No. 160, “Non-Controlling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51 (“SFAS No.
160”).  SFAS No. 160 establishes accounting and reporting standards
for the non-controlling interest in a subsidiary (previously referred to as
minority interests). SFAS No. 160 also requires that a retained non-controlling
interest upon the deconsolidation of a subsidiary be initially measured at its
fair value. Upon adoption of SFAS No. 160, we would be required to report any
non-controlling interests as a separate component of consolidated stockholders’
equity. We would also be required to present any net income allocable to
non-controlling interests and net income attributable to our stockholders
separately in our consolidated statements of operations. SFAS No. 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after January 1, 2009. SFAS No. 160 requires retroactive
adoption of the presentation and disclosure requirements for existing minority
interests. All other requirements of SFAS No. 160 shall be applied
prospectively. SFAS No. 160 would have an impact on the presentation and
disclosure of the non-controlling interests of any non wholly-owned business
acquired us in the future.





In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a single definition
of fair value and a framework for measuring fair value, sets out a fair value
hierarchy to be used to classify the source of information used in fair value
measurements, and requires new disclosures of assets and liabilities measured at
fair value based on their level in the hierarchy. This statement applies under
other accounting pronouncements that require or permit fair value measurements.
In February 2008, the FASB issued Staff Positions (“FSPs”) No. 157-1 and No.
157-2, which, respectively, remove leasing transactions from the scope of SFAS
No. 157 and defer its effective date for one year relative to certain
nonfinancial assets and liabilities. As a result, the application of the
definition of fair value and related disclosures of SFAS No. 157 (as impacted by
these two FSPs) was effective for the Company beginning January 1, 2008 on a
prospective basis with respect to fair value measurements of (a) nonfinancial
assets and liabilities that are recognized or disclosed at fair value in the
Company’s financial statements on a recurring basis (at least annually) and (b)
all financial assets and liabilities. This adoption did not have a material
impact on the Company’s consolidated results of operations or financial
condition. The remaining aspects of SFAS No. 157 for which the effective date
was deferred under FSP No. 157-2. Areas impacted by the deferral relate to
nonfinancial assets and liabilities that are measured at fair value, but are
recognized or disclosed at fair value on a nonrecurring basis. This deferral
applies to such items as nonfinancial assets and liabilities initially measured
at fair value in a business combination (but not measured at fair value in
subsequent periods) or nonfinancial long-lived asset groups measured at fair
value for an impairment assessment. The effects of these remaining aspects of
SFAS No. 157 are to be applied to fair value measurements prospectively
beginning January 1, 2009. The Company does not expect them to have a material
impact on the Company’s consolidated results of operations or financial
condition.





ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





We have one revolving loan for which
the interest rate on outstanding borrowings is variable and is based upon the
prime rate of interest. At December 31, 2008 and 2007, there was $1,000,000 and
$0, respectively, outstanding under this revolving credit facility.





A-17





ITEM 8.FINANCIAL
STATEMENTS




Our
consolidated financial statements and the related notes to the consolidated
financial statements called for by this item appear under the caption “Table of
Contents to Consolidated Financial Statements” beginning on page F-1 attached
hereto of this Annual Report on Form 10-K.





FIRSTFLIGHT,
      INC. AND SUBSIDIARIESTable
      of Contents to Consolidated Financial StatementsReport
      of Independent Registered Public Accounting Firm
                      F-1Consolidated
      Financial StatementsConsolidated
      Balance Sheets as of December 31, 2008 and 2007
                      F-2Consolidated
      Statements of Operations For the Years Ended December 31, 2008 and
      2007
                      F-3Consolidated
      Statements of Stockholders’ Equity For the Years Ended December 31, 2008
      and 2007
                      F-4Consolidated
      Statements of Cash Flows For the Years Ended December 31, 2008 and
      2007
                      F-5Notes
      to Consolidated Financial Statements
                      F-6




A-18





REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo
      the Audit Committee of the Board of Directors and Stockholders
      ofFirstFlight,
      Inc.We
      have audited the accompanying consolidated balance sheets of FirstFlight,
      Inc. and Subsidiaries (the “Company”) as of December 31, 2008 and 2007,
      and the related consolidated statements of operations, stockholders’
      equity, and cash flows for the years 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 audits.We
      conducted our audits in accordance with the standards of the Public
      Company Accounting Oversight Board (United States). Those standards
      require that we plan and perform the audit to obtain reasonable assurance
      about whether the financial statements are free of material misstatement.
      The Company is not required to have, nor were we engaged to perform, an
      audit of its internal control over financial reporting. Our audits
      included consideration of internal control over financial reporting as a
      basis for designing audit procedures that are appropriate in the
      circumstances, but not for the purpose of expressing an opinion on the
      effectiveness of the Company’s internal control over financial reporting.
      Accordingly, we express no such opinion. An audit also includes examining,
      on a test basis, evidence supporting the amounts and disclosures in the
      financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the
      overall consolidated financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.In
      our opinion, the consolidated financial statements referred to above
      present fairly, in all material respects, the consolidated financial
      position of FirstFlight, Inc. and Subsidiaries as of December 31, 2008 and
      2007, and the results of their operations and their cash flows for the
      years then ended, in conformity with United States generally accepted
      accounting principles.
                
                The
      accompanying financial statements have been prepared assuming that the
      Company will continue as a going concern. As more fully described in
      Note 4, the Company has incurred significant operating losses and may
      need to raise additional funds to meet its obligations and sustain its
      operations.  These conditions raise substantial doubt about the
      Company’s ability to continue as a going concern. Management’s plans in
      regard to these matters are also described in Note 4. The financial
      statements do not include any adjustments that might result from the
      outcome of this uncertainty./s/ Marcum & Kliegman
    LLPNew
      York, NYApril
      14, 2009




F-1







FIRSTFLIGHT,
      INC. AND SUBSIDIARIESCONSOLIDATED BALANCE
SHEETS




ASSETSDecember
      31,
                                                                                          2008
                                                                                        
                                                                                        
                                                                                        December
      31,
                                                                                          2007CURRENT ASSETSCash
      and cash equivalents
                                                                                        
                                                                                        $
                                                                                        322,098
                                                                                        
                                                                                        
                                                                                        $
                                                                                        744,629Accounts
      receivable
                                                                                        
                                                                                        
                                                                                        605,356
                                                                                        
                                                                                        
                                                                                        
                                                                                        318,099Inventories
                                                                                        
                                                                                        
                                                                                        229,699
                                                                                        
                                                                                        
                                                                                        
                                                                                        220,772Prepaid
      expenses and other current assets
                                                                                        
                                                                                        
                                                                                        156,898
                                                                                        
                                                                                        
                                                                                        
                                                                                        128,526Assets
      held for sale
                                                                                        
                                                                                        
                                                                                        4,861,941
                                                                                        
                                                                                        
                                                                                        
                                                                                        7,011,197Total
      current assets
                                                                                        
                                                                                        
                                                                                        6,175,992
                                                                                        
                                                                                        
                                                                                        
                                                                                        8,423,223PROPERTY AND EQUIPMENT, netof
      accumulated depreciation of $382,592 and $275,533,
      respectively
                                                                                        
                                                                                        
                                                                                        751,730
                                                                                        
                                                                                        
                                                                                        
                                                                                        859,717OTHER ASSETSDeposits
                                                                                        
                                                                                        
                                                                                        427,780
                                                                                        
                                                                                        
                                                                                        
                                                                                        —Assets
      held for sale
                                                                                        
                                                                                        
                                                                                        501,532
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,636,016Intangible
      assets - trade names
                                                                                        
                                                                                        
                                                                                        100,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        100,000Other
      intangible assets, net ofaccumulated
      amortization of $50,000 and $42,405, respectively
                                                                                        
                                                                                        
                                                                                        —
                                                                                        
                                                                                        
                                                                                        
                                                                                        7,595Goodwill
                                                                                        
                                                                                        
                                                                                        2,368,284
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,368,284Total
      other assets
                                                                                        
                                                                                        
                                                                                        3,397,596
                                                                                        
                                                                                        
                                                                                        
                                                                                        5,111,895TOTAL
      ASSETS
                                                                                        
                                                                                        $
                                                                                        10,325,318
                                                                                        
                                                                                        
                                                                                        $
                                                                                        14,394,835LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT LIABILITIESAccounts
      payable
                                                                                        
                                                                                        $
                                                                                        274,869
                                                                                        
                                                                                        
                                                                                        $
                                                                                        692,996Customer
      deposits
                                                                                        
                                                                                        
                                                                                        143,054
                                                                                        
                                                                                        
                                                                                        
                                                                                        181,233Line
      of credit
                                                                                        
                                                                                        
                                                                                        1,000,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        —Accrued
      expenses
                                                                                        
                                                                                        
                                                                                        286,720
                                                                                        
                                                                                        
                                                                                        
                                                                                        304,045Notes
      payable – current portion
                                                                                        
                                                                                        
                                                                                        125,929
                                                                                        
                                                                                        
                                                                                        
                                                                                        84,105Liabilities
      associated with assets held for sale
                                                                                        
                                                                                        
                                                                                        5,100,964
                                                                                        
                                                                                        
                                                                                        
                                                                                        6,199,801Total
      current liabilities
                                                                                        
                                                                                        
                                                                                        6,931,536
                                                                                        
                                                                                        
                                                                                        
                                                                                        7,462,180LONG-TERM LIABILITIESNotes
      payable - less current portion
                                                                                        
                                                                                        
                                                                                        139,535
                                                                                        
                                                                                        
                                                                                        
                                                                                        296,788Total
      liabilities
                                                                                        
                                                                                        
                                                                                        7,071,071
                                                                                        
                                                                                        
                                                                                        
                                                                                        7,758,968MINORITY INTEREST
                                                                                        
                                                                                        
                                                                                        749,848
                                                                                        
                                                                                        
                                                                                        
                                                                                        —STOCKHOLDERS’ EQUITYPreferred
      stock - $.001 par value; authorized 9,999,154;none
      issued and outstanding
                                                                                        
                                                                                        
                                                                                        —
                                                                                        
                                                                                        
                                                                                        
                                                                                        —Common
      stock - $.001 par value; authorized 100,000,000;37,182,987
      shares issued and 36,582,987 shares outstanding in 2008;
                                                                                          36,582,987
      shares issued and outstanding in 2007
                                                                                        
                                                                                        
                                                                                        37,183
                                                                                        
                                                                                        
                                                                                        
                                                                                        36,583Additional
      paid-in capital
                                                                                        
                                                                                        
                                                                                        19,599,504
                                                                                        
                                                                                        
                                                                                        
                                                                                        18,825,759Accumulated
      deficit
                                                                                        
                                                                                        
                                                                                        (17,131,888
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (12,226,476
                                                                                        )TOTAL
      STOCKHOLDERS’ EQUITY
                                                                                        
                                                                                        
                                                                                        2,504,399
                                                                                        
                                                                                        
                                                                                        
                                                                                        6,635,868TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                                                        
                                                                                        $
                                                                                        10,325,318
                                                                                        
                                                                                        
                                                                                        $
                                                                                        14,394,835





See
accompanying notes to consolidated financial statements.





F-2








FIRSTFLIGHT,
      INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF
  OPERATIONS  For
      the Years Ended
                                                                  December
      31,2008
                                                                
                                                                
                                                                2007REVENUE
                                                                
                                                                $
                                                                8,596,750
                                                                
                                                                
                                                                $
                                                                6,656,591COST OF REVENUES
                                                                
                                                                
                                                                6,133,280
                                                                
                                                                
                                                                
                                                                4,798,842GROSS PROFIT
                                                                
                                                                
                                                                2,463,470
                                                                
                                                                
                                                                
                                                                1,857,749SELLING, GENERAL AND ADMINISTRATIVE
      EXPENSES
                                                                
                                                                
                                                                3,457,224
                                                                
                                                                
                                                                
                                                                2,858,377OPERATING INCOME (LOSS) FROM CONTINUING
      OPERATIONS
                                                                
                                                                
                                                                (993,754
                                                                )
                                                                
                                                                
                                                                (1,000,628
                                                                )OTHER INCOME (EXPENSE)OTHER
      (EXPENSE), net
                                                                
                                                                
                                                                (17,749
                                                                )
                                                                
                                                                
                                                                (151,167
                                                                )INTEREST
      INCOME
                                                                
                                                                
                                                                7,151
                                                                
                                                                
                                                                
                                                                32,553INTEREST
      EXPENSE
                                                                
                                                                
                                                                (20,075
                                                                )
                                                                
                                                                
                                                                (29,188
                                                                )TOTAL
      OTHER INCOME (EXPENSE)
                                                                
                                                                
                                                                (30,673
                                                                )
                                                                
                                                                
                                                                (147,802
                                                                )NET
      INCOME (LOSS) FROM CONTINUING OPERATIONS
                                                                
                                                                
                                                                (1,024,427
                                                                )
                                                                
                                                                
                                                                (1,148,430
                                                                )NET
      INCOME (LOSS) FROM DISCONTINUED OPERATIONS
                                                                
                                                                
                                                                (3,880,995
                                                                )
                                                                
                                                                
                                                                1,332,884NET
      INCOME (LOSS)
                                                                
                                                                $
                                                                (4,905,415
                                                                )
                                                                
                                                                $
                                                                184,454Net
      income (loss) per Common ShareContinuing
      operations
                                                                
                                                                $
                                                                (0.03
                                                                )
                                                                
                                                                $
                                                                (0.03
                                                                )Discontinued
      operations
                                                                
                                                                
                                                                (0.11
                                                                )
                                                                
                                                                
                                                                0.04Total
      Basic and Diluted Net Income (Loss) Per Common Share
                                                                
                                                                $
                                                                (0.14
                                                                )
                                                                
                                                                $
                                                                0.01Weighted
      Average Number of Common SharesOutstanding
      – Basic and Diluted
                                                                
                                                                
                                                                36,582,987
                                                                
                                                                
                                                                
                                                                36,585,305





See
accompanying notes to consolidated financial statements.





F-3





FIRSTFLIGHT,
      INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS'
    EQUITYFor
      the Years Ended December 31, 2008 and
2007




Additional
                                              
                                              
                                              
                                              
                                              
                                              TotalCommon
      Stock
                                              
                                              
                                              Paid-in
                                              
                                              
                                              Accumulated
                                              
                                              
                                              Stockholders’Shares
                                              
                                              
                                              Amount
                                              
                                              
                                              Capital
                                              
                                              
                                              Deficit
                                              
                                              
                                              EquityBALANCE –
      January 1, 2007
                                              
                                              
                                              36,583,793
                                              
                                              
                                              $
                                              36,584
                                              
                                              
                                              $
                                              18,398,976
                                              
                                              
                                              $
                                              (12,410,932
                                              )
                                              
                                              $
                                              6,024,632Common
      stock issued in connection with the
                                                cashless
      exercise of stock options
                                              
                                              
                                              24,194
                                              
                                              
                                              
                                              24
                                              
                                              
                                              
                                              (24
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —Common
      stock repurchased in connection with
                                                the
      settlement of obligation
                                              
                                              
                                              (25,000
                                              )
                                              
                                              
                                              (25
                                              )
                                              
                                              
                                              (18,350
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (18,375
                                              )Common
      stock issued in connection with the
                                                settlement
      of obligation
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              29,375
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              29,375Amortization
      of stock based compensation
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              415,782
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              415,782Net
      income
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              184,454
                                              
                                              
                                              
                                              184,454BALANCE –
      December 31, 2007
                                              
                                              
                                              36,582,987
                                              
                                              
                                              
                                              36,583
                                              
                                              
                                              
                                              18,825,759
                                              
                                              
                                              
                                              (12,226,476
                                              )
                                              
                                              
                                              6,635,868Amortization
      of stock based compensation
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              414,555
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              414,555Issuance
      of restricted stock under consulting agreement
                                              
                                              
                                              600,000
                                              
                                              
                                              
                                              600
                                              
                                              
                                              
                                              221,400
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              222,000Warrant
      issued in connection with acquisition
                                                of
      New World Jet Corporation
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              137,390
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              137,390Net
      loss
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (4,905,415
                                              )
                                              
                                              
                                              (4,905,415
                                              )BALANCE –
      December 31, 2008
                                              
                                              
                                              37,182,987
                                              
                                              
                                              
                                              37,183
                                              
                                              
                                              $
                                              19,599,504
                                              
                                              
                                              $
                                              (17,131,888
                                              )
                                              
                                              $
                                              2,504,399





See
accompanying notes to consolidated financial statements.





F-4





FIRSTFLIGHT,
      INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH
  FLOWS  For
      the Years Ended
                                                                                                  December
      31,2008
                                                                                                
                                                                                                
                                                                                                2007CASH FLOWS FROM
      OPERATING ACTIVITIESNet
      income (loss)
                                                                                                
                                                                                                $
                                                                                                (4,905,415
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                184,454Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                                                                                                
                                                                                                
                                                                                                345,131
                                                                                                
                                                                                                
                                                                                                
                                                                                                390,165Amortization
      of debt discount
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                25,262Impairment
      of goodwill and intangible assets
                                                                                                
                                                                                                
                                                                                                2,634,663
                                                                                                
                                                                                                
                                                                                                
                                                                                                —(Gain)
      loss on sale of property and equipment
                                                                                                
                                                                                                
                                                                                                14,500
                                                                                                
                                                                                                
                                                                                                
                                                                                                (56,638
                                                                                                )Gain
      on sale of subsidiary
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                (29,503
                                                                                                )Stock
      based compensation
                                                                                                
                                                                                                
                                                                                                414,555
                                                                                                
                                                                                                
                                                                                                
                                                                                                415,782Issuance
      of restricted stock under consulting agreement
                                                                                                
                                                                                                
                                                                                                222,000
                                                                                                
                                                                                                
                                                                                                
                                                                                                —Warrant
      issued in connection with acquisition of New World Jet
      Corporation
                                                                                                
                                                                                                
                                                                                                137,390
                                                                                                
                                                                                                
                                                                                                
                                                                                                —Provision
      for doubtful accounts
                                                                                                
                                                                                                
                                                                                                7,279
                                                                                                
                                                                                                
                                                                                                
                                                                                                —Income
      from extinguishment of debt
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                (60,681
                                                                                                )Impairment
      for collection of note receivable
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                150,000Changes
      in operating assets and liabilities:Accounts
      receivable
                                                                                                
                                                                                                
                                                                                                1,408,805
                                                                                                
                                                                                                
                                                                                                
                                                                                                (153,799
                                                                                                )Inventories
                                                                                                
                                                                                                
                                                                                                (77,566
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (133,553
                                                                                                )Prepaid
      expenses and other current assets
                                                                                                
                                                                                                
                                                                                                136,824
                                                                                                
                                                                                                
                                                                                                
                                                                                                (166,827
                                                                                                )Deposits
                                                                                                
                                                                                                
                                                                                                (432,605
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (10,300
                                                                                                )Accounts
      payable
                                                                                                
                                                                                                
                                                                                                (1,533,525
                                                                                                )
                                                                                                
                                                                                                
                                                                                                624,637Customer
      deposits
                                                                                                
                                                                                                
                                                                                                (282,539
                                                                                                )
                                                                                                
                                                                                                
                                                                                                248,456Accrued
      expenses
                                                                                                
                                                                                                
                                                                                                (211,224
                                                                                                )
                                                                                                
                                                                                                
                                                                                                56,100TOTAL
      ADJUSTMENTS
                                                                                                
                                                                                                
                                                                                                2,783,688
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,299,101NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                                                                                                
                                                                                                
                                                                                                (2,121,727
                                                                                                )
                                                                                                
                                                                                                
                                                                                                1,483,555CASH
      FLOWS FROM INVESTING ACTIVITIESProceeds
      from sale of property and equipment
                                                                                                
                                                                                                
                                                                                                8,000
                                                                                                
                                                                                                
                                                                                                
                                                                                                329,184Net
      cash paid from sale of subsidiary
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                (103,527
                                                                                                )Purchase
      of New World Jet Corporation
                                                                                                
                                                                                                
                                                                                                (228,943
                                                                                                )Purchase
      of property and equipment
                                                                                                
                                                                                                
                                                                                                (217,730
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (318,797
                                                                                                )NET
      CASH USED IN INVESTING ACTIVITIES
                                                                                                
                                                                                                
                                                                                                (438,673
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (93,140
                                                                                                )CASH
      FLOWS FROM FINANCING ACTIVITIESRepayment
      of notes payable
                                                                                                
                                                                                                
                                                                                                (117,064
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (153,758
                                                                                                )Proceeds
      from line of credit
                                                                                                
                                                                                                
                                                                                                1,000,000
                                                                                                
                                                                                                
                                                                                                
                                                                                                —Proceeds
      from sale of minority interest in subsidiary
                                                                                                
                                                                                                
                                                                                                749,847
                                                                                                
                                                                                                
                                                                                                
                                                                                                —Repurchase
      of stock
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                (18,375
                                                                                                )NET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                                                                                                
                                                                                                
                                                                                                1,632,783
                                                                                                
                                                                                                
                                                                                                
                                                                                                (172,133
                                                                                                )NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                                                                                                
                                                                                                
                                                                                                (927,617
                                                                                                )
                                                                                                
                                                                                                
                                                                                                1,218,282CASH AND CASH EQUIVALENTS –
      Beginning
                                                                                                
                                                                                                
                                                                                                2,400,152
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,181,870CASH AND CASH EQUIVALENTS –
      Ending
                                                                                                
                                                                                                $
                                                                                                1,472,535
                                                                                                
                                                                                                
                                                                                                $
                                                                                                2,400,152SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the periods for:Interest
                                                                                                
                                                                                                $
                                                                                                27,551
                                                                                                
                                                                                                
                                                                                                $
                                                                                                30,530Income
      taxes
                                                                                                
                                                                                                $
                                                                                                13,829
                                                                                                
                                                                                                
                                                                                                $
                                                                                                525Non-cash
      investing and financing activities:Cashless
      exercise of stock options
                                                                                                
                                                                                                $
                                                                                                —
                                                                                                
                                                                                                
                                                                                                $
                                                                                                24Purchase
      of equipment under capital lease or debt obligation
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                15,000Expiration
      of put option
                                                                                                
                                                                                                $
                                                                                                —
                                                                                                
                                                                                                
                                                                                                $
                                                                                                29,375Sale
      of SubsidiaryNet
      liabilities
                                                                                                
                                                                                                $
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                (133,030
                                                                                                )Gain
      on sale
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                29,503Net
      cash paid
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                (103,527
                                                                                                )


See
accompanying notes to consolidated financial statements.




F-5




FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements




NOTE 1 -
Nature of
Operations





FirstFlight,
Inc. (“FirstFlight”), through its subsidiaries (collectively the “Company”),
operates in the fixed base operation (FBO) segment of the general aviation
industry.  An FBO provides ground-based services such as fueling and
hangaring for general aviation, commercial, and military aircraft; aircraft
maintenance, and other miscellaneous services.  The Company also
provides consulting services for a non-owned FBO facility and serves as the
operator of a heliport.





FBO Air
Wilkes-Barre (“FBOWB”), a wholly-owned subsidiary, provides FBO services in
Avoca, Pennsylvania.  FBO Air Garden City (“FBOGC”), a wholly-owned
subsidiary provides FBO services in Garden City, Kansas.





On July
22, 2008, the Company and a newly-formed wholly-owned subsidiary, New World Jet
Acquisition Corporation (“NWJAC”), and executed a Stock Purchase Agreement with
Gold Jets LLC whereby NWJAC agreed to purchase all of the issued and outstanding
capital stock of New World Jet Corporation from Gold Jets LLC.  See
Note 7.





On July
9, 2008, the Company formed FirstFlight Heliports, LLC (“FFH”) as a subsidiary
to operate the Downtown Manhattan Heliport via a concession agreement awarded to
the Company by the City of New York.





NOTE 2 –
Discontinued
Operations – Related Party Transaction





A
wholly-owned subsidiary of the Company located in Elmira, New York, Airborne,
Inc. (“Airborne”), was sold on March 2, 2009 under a plan commenced in
2008.  Management, with the authority to approve this transaction,
committed to a plan to sell the charter operations in fourth quarter
2008.  Accordingly, the accompanying financial statements for all
periods have been presented to reflect the accounting of discontinued operations
for the divestiture of this subsidiary. Also included in the sale are
Margeson & Associates (“M&A”) and New World Jet Corporation
(“NWJC”).  Discontinued operations had revenue of approximately
$38,300,000 and $40,500,000 for the years ended December 31, 2008 and 2007,
respectively.  Discontinued operations had operating losses of
approximately $3,880,000, including the write-off of goodwill and intangibles of
approximately $2,635,000, for the year ended December 31, 2008 and operating
income of approximately $1,260,000 for the year ended December 31,
2007.  See Note 19.





For the
years ended December 31, 2008 and 2007, respectively, approximately $35,000,000
and $38,000,000 of revenue included in discontinued operations was part of the
Company’s charter segment.


Company
believed that significant savings in corporate overhead could be implemented in
the event that Airborne was divested.





The
Airborne sale was accomplished in the following manner:





On March
2, 2009, the Company entered into a Share Exchange Agreement with Airborne, John
H. Dow, the former President and Chief Executive Officer of the Company, and
Daphne Dow, pursuant to which the Company divested its ownership interest in
Airborne.  Mr. Dow resigned from the Company immediately preceding
this agreement.  Prior to the consummation of the Share Purchase
Agreement, Airborne was a wholly-owned subsidiary of the Company. Airborne owns
and operates an aircraft management and charter business.  Pursuant to
the terms and conditions of the Share Exchange Agreement, Mr. and Mrs. Dow
exchanged all of their 3,418,534 individually and jointly owned shares of
Company Common Stock, valued at $239,297 on the date of the agreement, and all
of their options and warrants to purchase 1,100,000 shares of Company Common
Stock owned by them in exchange for all of the issued and outstanding shares of
Common Stock in Airborne owned by the Company.   As a result of
the consummation of the Share Exchange Agreement, Mr. and Mrs. Dow became the
sole owners of Airborne.  Concurrent with the consummation of the
Share Exchange Agreement, Airborne also assumed all pre- and post-closing rights
and obligations of the Company under lease agreements for the Company’s IST
Center and the Company’s 236 Sing Sing Road, Horseheads, New York
location.  The Company did not obtain a third party valuation with
respect to this transaction.





Immediately
prior to entering into the Airborne Loan Agreement, EuroAmerican Investment
Corp. (“EuroAmerican”) loaned the Company an aggregate of up to $750,000 for the
purpose of funding the Airborne Loan Agreement discussed below.  The
EuroAmerican loan is evidenced by a Promissory Note delivered by the Company to
EuroAmerican with a maturity date of March 2, 2011.  The unpaid
principal amount under the Promissory Note accrues interest at the annual rate
of 12% and is payable in monthly interest only payments until maturity, at which
time the entire principal balance and any accrued but unpaid interest is payable
in full.  Two members of the Company’s Board of Directors, William B.
Wachtel and Alvin S. Trenk, issued personal guarantees in connection with the
EuroAmerican Loan.  Mr. Wachtel is a principal of
EuroAmerican.




F-6


FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements


Simultaneous
with the consummation of the Share Exchange, the Company made a non-interest
bearing loan to Airborne of $750,000 pursuant to a Loan Agreement dated March 2,
2009 (the “Airborne Loan Agreement”).  Under the Airborne Loan
Agreement, the Company made a commitment to loan Airborne an aggregate up to
$750,000. $500,000 of such amount was loaned by the Company to Airborne on March
2, 2009, and the balance of which was loaned by the Company to Airborne on March
12, 2009 upon the satisfactory achievement by Airborne of certain agreed upon
targets. Beginning on September 1, 2009 and continuing the first day of each
month thereafter until July 31, 2015 Airborne shall the Company pay equal
payments of $10,500 under the Airborne Loan Agreement. Beginning on August 1,
2015 and continuing the first day of each month thereafter the monthly payment
by Airborne to the Company under the Airborne Loan Agreement shall be
$8,000.  The Airborne Loan Agreement did not contain any personal
guarantees from the shareholders of Airborne.  Balances due under the
Airborne Loan Agreement are to be repaid from the cash flow of
Airborne.  Due to uncertainties in the charter business, management is
in the process of evaluating the collectability of this loan.  The
Airborne Loan Agreement provides that in the event of a subsequent sale of
Airborne or its assets, the proceeds of such sale shall be used first to repay
the existing credit facility with Five Star Bank and next to repay any
outstanding principal under the Airborne Loan Agreement.  In addition,
the Airborne Loan Agreement provides that the Company will share a percentage of
any remaining available sale proceeds, the amount of which will vary depending
on the timing of a sale transaction.





Also on
March 2, 2009, the Company, Airborne and Five Star Bank (“Five Star”) entered
into a Loan Agreement (the “Five Star Loan Agreement”). Under the Five Star Loan
Agreement, among other things, Five Star made a commitment to loan the Company
and Airborne an aggregate of up to $1,000,000 on a demand line of credit
basis.  The Five Star Bank Loan Agreement replaced the Company’s
existing credit facility with Five Star (See Note 4). Approximately $1,000,000
was outstanding under the Five Star Loan Agreement and its predecessor credit
facility as of December 31, 2008 and March 1, 2009. Airborne and the Company are
jointly and severally responsible for the repayment of all outstanding
borrowings under the Five Star Loan Agreement. Additional borrowings permitted
to be made under the Five Star Loan Agreement may only be made by the Company.
Interest on the outstanding principal amount under the Five Star Loan Agreement
accrues at a variable rate equal to the Wall Street Journal prime rate then in
effect from time to time plus 200 basis points, or 5.25% as of March 2, 2009.
The Five Star Loan Agreement is evidenced by a Line of Credit Note, which is
payable in equal, monthly interest-only payments unless demanded earlier by Five
Star.  The Five Star Loan Agreement contains customary
representations, warranties and financial covenants.  Borrowings under
the Loan Agreement are secured by (i) a blanket security interest in all of the
assets of the Company and Airborne, (ii) an unlimited guaranty from the
subsidiaries of the Company and Airborne, and (iii) a limited personal guaranty
from Mr. Dow and from Mr. Wachtel.





As
discussed in Note 19 herein, this divestiture eliminates the Company’s charter
segment, one of three previously reported segments (together with FBO and
maintenance).  The divestiture also has a significant impact on the
maintenance segment.  There remains a relatively minor maintenance
business performed in conjunction with the Company’s FBO operation in
Pennsylvania.  The Company believes that the previous reporting of its
business in multiple segments was appropriate and provided a greater
understanding of its disparate businesses at that time.  Given this
divestiture and the resulting commonality in the Company’s continuing business,
management believes that reporting multiple segments is no longer
necessary.





NOTE 3 –
Downtown Manhattan
Heliport





FirstFlight
initiated operations at the Downtown Manhattan Heliport (the “Heliport”) on
November 1, 2008 pursuant to a concession agreement with the City of New York
through the New York City Economic Development Corporation (the “Agreement”).
Under the Agreement, FirstFlight is responsible for a minimum annual guaranteed
payment of $1,200,000 in the first year of FirstFlight’s operation of the
Heliport. Minimum annual guarantee payments are made on a monthly basis and
recorded as operating expenses of the Heliport.  The Company also
agreed to make certain capital improvements and safety code compliance upgrades
to the Heliport in the amount of $1,000,000 in the first two years of the
Agreement and up to another $1,000,000 by the end of the fifth year of the
Agreement.  During the year ended December 31, 2008, the Company
received aggregate cash of approximately $725,000 in exchange for a one percent
membership interest in FFH..





NOTE 4 –
Going Concern &
Management’s Liquidity Plans





As of
December 31, 2008, the Company had cash and cash equivalents of $322,098 and had
a working capital deficit of $755,544. The Company generated revenue of
approximately $8,620,000 and net loss of approximately $4,905,000 for the year
ended December 31, 2008. Since inception, the Company has incurred, in the
aggregate, net losses of approximately $10,650,000 for the period January 17,
2003 (date of inception) through December 31, 2008.  For the year
ended December 31, 2008, cash flows of continuing and discontinued operations
included net cash used in operating activities of $2,121,727, net cash used in
investing activities of $438,673, and net cash provided by financing activities
of $1,632,783.




F-7




FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements


As
described in Note 3, the Heliport requires minimum annual guaranteed payments
and certain capital improvements and safety code compliance
upgrades.  Management believes that earnings from the operation will
be sufficient to satisfy the minimum annual guarantee and has secured a verbal
agreement to fund the capital improvements as required.





On
September 26, 2008, FirstFlight completed a revolving line of credit agreement
(the “Credit Facility”) with Five Star Bank (the “Bank”). The Credit Facility
provides the Company with a $1,000,000 revolving line of credit with the Bank.
Amounts outstanding under the Credit Facility will bear interest at a rate equal
to the prime rate published in the Wall Street Journal form time to time plus
200 basis points. The Credit Facility is secured by all of the Company’s assets
as well as the assets of Airborne and Airborne is an additional guarantor of the
Credit Facility, as discussed below and in Note 19.  The Credit
Facility is payable upon demand by the Bank and requires interest payments based
on outstanding balances at an interest rate of prime plus 200 basis points
(5.75% as of December 31, 2008).  See Note 2 regarding amended loan
agreement.  As described in Note 2, in connection with the Airborne
divestiture, the Bank retains a first lien against all of Airborne’s and
FirstFlight’s assets.  Further, Airborne joins FirstFlight as joint
and several guarantors of borrowings against the Credit Facility.  In
the event of a sale of Airborne, the Bank shall receive the first distribution
of any related proceeds in the full amount of any outstanding against the Credit
Facility.





The
combination of the divestiture and other steps will have a significant impact on
the cost of corporate operations.  The exit of the Company’s former
President and Chief Executive via the Airborne divestiture combined with the
prior departure of the Company’s Senior Vice President and Chief Financial
Officer will yield annual compensation savings of over $525,000.  It
is anticipated that other employees within the continuing operations will absorb
the duties of these individuals.





The
Company anticipates that it may need additional funds to meet operations,
capital expenditures, existing commitments and


scheduled
payments on outstanding indebtedness for the next twelve month period. If the
Company, in conjunction with Airborne as described above, were unable to repay
the amounts under the Credit Facility, the Bank could proceed against the
security granted to them to secure that indebtedness. The Company's assets may
not be sufficient to repay in full the indebtedness under the Credit Facility.
If the Bank were to demand payment of the Company's indebtedness, the Company
may be unable to pay all of its liabilities and obligations when
due.





These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Accordingly, the accompanying consolidated financial statements
have been prepared in conformity with accounting principles generally accepted
in the United States of America, which contemplate continuation of the Company
as a going concern and the realization of assets and the satisfaction of
liabilities in the normal course of business. The carrying amounts of assets and
liabilities presented in the financial statements do not necessarily purport to
represent realizable or settlement values. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.





NOTE 5 –
Sale of
Subsidiary





On
September 30, 2007, the Company sold the stock of Tech Aviation Flight School
(“TAFS”) for $25,000.  With net liabilities of approximately $5,000
assumed by the buyer, the Company recognized a gain of approximately
$30,000.  In addition, the Company executed an agreement to transfer
the aircraft assets owned by TAFS into a newly-formed wholly-owned subsidiary,
FBO Air WB Leasing (the Lessor).  As part of the transaction, TAFS
entered into a one-year aircraft lease agreement with FBO Air WB Leasing as well
as an agreement to lease space and buy fuel and maintenance services from the
Company.  In addition, the Company entered into an office lease
agreement with TAFS for which it will receive monthly payments of $1,050,
expiring on September 23, 2023, calling for future minimum payments to the
Company of $201,600.





NOTE 6 -
Summary of Significant
Accounting Policies





Principles of
Consolidation


The
consolidated financial statements include the accounts of FirstFlight, Inc. and
its wholly-owned subsidiaries, FBOWB, FBOGC, FBO Air WB Leasing (“WB Leasing”),
FFH, and TAFS (which was divested on September 30, 2007). All significant
inter-company accounts and transactions have been eliminated in
consolidation.  Results associated with Airborne, M&A and NWJC are
reported as discontinued operations as of December 31, 2008 and
2007.





Use of
Estimates


The
preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the 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.  The Company’s
significant estimates include depreciation, impairment of goodwill and
intangibles, stock-based compensation, allowance for doubtful accounts, and
deferred tax assets.




F-8


FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements


Reclassifications


Certain
accounts in the prior period financial statements have been reclassified for
comparison purposes to conform with the presentation of the current period
financial statements.  These reclassifications had no effect on the
previously reported loss.





Cash and Cash
Equivalents


The
Company considers all highly liquid debt instruments with original maturities of
three months or less when purchased to be cash equivalents.  Due to
their short-term nature, cash equivalents are carried at cost, which approximate
fair value.





Concentrations of Credit
Risk


The
Company maintains its cash and cash equivalents with various financial
institutions, which exceed federally insured limits throughout the period. At
December 31, 2008 and 2007, the Company had cash and cash equivalents in excess
of federally insured limits.  As part of its cash management process,
the Company periodically reviews the relative credit standing of these financial
institutions.





Accounts
Receivable


The
Company extends credit to large and mid-size companies for flight related
services. The Company has concentrations of credit risk in its continuing
operations in that 60.6% of the balance of accounts receivable at December 31,
2008 is made up of only five customers. At December 31, 2008, accounts
receivable in the Company’s continuing operations from its two largest accounts
amounted to approximately $146,000 (24.1%) and approximate $81,700 (13.5%),
respectively. The Company does not generally require collateral or other
security to support customer receivables. Accounts receivable are carried at
their estimated collectible amounts. Accounts receivable are periodically
evaluated for collectability and the allowance for doubtful accounts is adjusted
accordingly. Management determines collectability based on their experience and
knowledge of the customers.  As of December 31, 2008 and 2007, the
Company has recorded an allowance for doubtful accounts of $0.





Inventories


Inventories
consist primarily of maintenance parts and aviation fuel and are stated at the
lower of cost or market determined by the first-in, first out
method.





Property and
Equipment


Property
and equipment is stated at cost. Maintenance and repairs are charged to expense
as incurred; costs of major additions and betterments are capitalized. When
property and equipment is sold or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is reflected in income. For repairs on aircraft, the Company records
Federal Aviation Administration (“FAA”) designated maintenance costs using the
deferral method of accounting under FSP AUG AIR-1 (“Accounting for Planned Major
Maintenance Activities”).





Business
Combinations


In
accordance with business combination accounting, the Company allocates the
purchase price of acquired companies to the tangible and intangible assets
acquired and liabilities assumed, based on their estimated fair values based on
significant estimates and assumptions, especially with respect to intangible
assets.  Management makes estimates of fair values based upon assumptions
believed to be reasonable. These estimates are based on historical experience
and information obtained from the management of the acquired companies. Critical
estimates in valuing certain of the intangible assets include but are not
limited to: future expected cash flows from customer relationships and market
position, as well as assumptions about the period of time the acquired trade
names will continue to be used in the combined company's product portfolio; and
discount rates. These estimates are inherently uncertain and unpredictable.
Assumptions may be incomplete or inaccurate, and unanticipated events and
circumstances may occur which may affect the accuracy or validity of such
assumptions, estimates or actual results.





Goodwill and Intangible
Assets


The
Company accounts for Goodwill and Intangible Assets in accordance with Statement
of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”
(“SFAS 141”) and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS
142”). Under SFAS No. 142, goodwill and intangibles that are deemed to have
indefinite lives are no longer amortized but, instead, are to be reviewed at
least annually for impairment. Application of the goodwill impairment test
requires judgment, including the identification of reporting units, assigning
assets and liabilities to reporting units, assigning goodwill to reporting
units, and determining the fair value. Significant judgments required to
estimate the fair value of reporting units include estimating future cash flows,
determining appropriate discount rates and other assumptions. Changes in these
estimates and assumptions could materially affect the determination of fair
value and/or goodwill impairment for each reporting unit. The Company has
determined that there is no impairment of goodwill for continuing operations at
December 31, 2008 and 2007. Intangible assets continue to be amortized over
their estimated useful lives.  The Company performed an analysis of
its goodwill and intangible assets with SFAS No. 142 as of December 31, 2008,
and determined that an impairment charge of $2,634,663 was necessary and has
recorded this charge to discontinued operations.




F-9


FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements


Revenue
Recognition


Revenue
for the sales of products is recognized at the time products are delivered to
customers. Revenue for services is recognized at the time the services are
performed and provided to customers. The sources of revenue are recognized when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed and determinable and collectability is probable.





Customer
Deposits


Customer
deposits consist of amounts that customers are required to remit in advance to
the Company in order to secure payment for future purchases and
services.





Advertising


The
Company expenses all advertising costs as incurred.  Advertising
expense for the years ended December 31, 2008 and 2007 was approximately $20,100
and $10,300, respectively.





Income
Taxes


The
Company accounts for income taxes under SFAS No. 109, “Accounting for Income
Taxes” (“SFAS 109”). Under SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
their financial statement carrying amounts 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 SFAS 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. The Company’s ability to
utilize its net operating loss (“NOL”) carryforwards may be subject to an annual
limitation in future periods pursuant to Section 382 of the Internal Revenue
Code of 1986, as amended (the “Code”).





Although
the Company has federal and state net operating losses available for income tax
purposes that may be carried forward to offset future taxable income, the
deferred tax assets are subject to a 100% valuation allowance because it is more
likely than not that the deferred tax assets will not be realized in future
periods. The Company’s ability to use its net operating loss carry forwards may
be subject to an annual limitation in future periods pursuant to Section 382 of
the Code.





Effective
January 1, 2007, the Company adopted Financial Accounting Standards Board
(“FASB”) Interpretation Number 48, “Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109” (“FIN No. 48”), which prescribes a
single, comprehensive model for how a company should recognize, measure, present
and disclose in its financial statements uncertain tax positions that the
company has taken or expects to take on its tax returns. Upon adoption of FIN
No. 48, the Company recognized no changes in the liability for unrecognized tax
benefits.  The Company records interest and penalties related to
unrecognized tax benefits in income tax expense. As of December 31, 2008 and
2007, the Company recognized no charges for interest and penalties related to
unrecognized tax benefits in the Consolidated Balance Sheet.  The
Company files income tax returns in the United States (federal) and in various
state and local jurisdictions. In most instances, the Company is no longer
subject to federal, state and local income tax examinations by tax authorities
for years prior to 2005.





Fair Value of Financial
Instruments


The
reported amounts of the Company’s financial instruments, including accounts
payable and accrued liabilities, approximate their fair value due to their short
maturities. The carrying amounts of debt approximate fair value because the debt
agreements provide for interest rates that approximate market.





Net Income (Loss) Per Common
Share


Basic net
income (loss) per share applicable to common stockholders is computed based on
the weighted average number of shares of common stock outstanding during the
periods presented. Diluted net income (loss) per share reflects the potential
dilution that could occur if securities or other instruments to issue Common
Stock were exercised or converted into common stock.  Potentially
dilutive securities, consisting of options and warrants, are excluded from the
calculation of the diluted losses per share when their inclusion would be
anti-dilutive or if their exercise prices were greater than the average market
price of the Common Stock during the period.




F-10


FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements




The
following table sets forth the components used in the computation of basic and
diluted income (loss) per share:





For
      the Year Ended
                                    December
      31,2008*
                                  
                                  
                                  
                                  2007**Weighted
      average common shares outstanding, basic
                                  
                                  
                                  36,582,987
                                  
                                  
                                  
                                  36,585,305Common
      shares upon exercise of options
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Common
      shares upon exercise of warrants
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Weighted
      average common shares outstanding, diluted
                                  
                                  
                                  36,582,987
                                  
                                  
                                  
                                  36,585,305





*
Potential common shares of 16,427,121 underlying 3,310,000 options and
13,117,121 warrants outstanding as of December 31, 2008 were excluded from the
computation of diluted earnings per share, as their as their inclusion would be
anti-dilutive.





**
Potential common shares of 13,502,121 underlying 2,385,000 options and
11,117,121warrants outstanding as of December 31, 2007 were excluded from the
computation of diluted earnings per share, as their exercise prices were greater
than the average market price of the Common Stock during the
period.





Stock Based
Compensation


The
Company accounts for stock-based compensation in accordance with the fair value
recognition provisions of Statement of Financial Accounting Standards (“SFAS”)
No. 123R (revised 2004), entitled “Share-Based Payment” (“FAS 123R”), as adopted
by the Financial Accounting Standards Board (“FASB”). Stock-based compensation
expense for all share-based payment awards are based on the grant-date fair
value estimated in accordance with the provisions of FAS 123R. The Company
recognizes these compensation costs over the requisite service period of the
award, which is generally the option vesting term.  For the year ended
December 31, 2008 and 2007, the Company incurred stock based compensation of
$414,555 and $415,782, respectively.  Such amounts have been recorded
as part of the Company’s selling, general and administrative expenses in the
accompanying consolidated statements of operations.  As of December
31, 2008, the unamortized fair value of the options totaled $237,122, and the
weighted average remaining amortization period of the options and is
approximately 0.67 years.





Option
valuation models require the input of highly subjective assumptions, including
the expected life of the option. Because the Company's employee stock options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.





The fair
value of each share-based payment award granted during the years ended December
31, 2008 and 2007 were estimated using the Black-Scholes option pricing model
with the following weighted average fair values:





For
      the Year Ended
                December
      31,2008
              2007Dividend
      yield
              
              0%
              0%Expected
      volatility
              
              291%
              286%Risk-free
      interest rate
              
              3.51%
              4.20%Expected
      lives
              
              5.83
      years
              5
      years





The
weighted average fair value of the options on the date of grant, using the fair
value based methodology during the years ended December 31, 2008 and 2007, was
$0.38 and $0.37, respectively.





The
Company accounts for the expected life of share options in accordance with the
“simplified” method provisions of Securities and Exchange Commission Staff
Accounting Bulletin (“SAB”) No. 110 (December 2007), which enables the use of
the simplified method for “plain vanilla” share options, as defined in SAB No.
107.





Minority
Interest


Certain
consolidated subsidiaries of the Company issue equity shares to unrelated
parties.  The Company accounts for such transactions in accordance
with Staff Accounting Bulletin No. 51, “Accounting for Sales of Stock by a
Subsidiary” (“SAB 5H”).  SAB 5H requires that the difference between
the carrying amount of the Company’s investment in the subsidiary and underlying
net book value of the subsidiary after the issuance of shares be recognized
either as a gain or loss in the consolidated statement of operations or as a
capital transaction.  In these instances it is the Company’s policy to
consider gains and losses arising from such issuances of shares by a subsidiary
as equity transactions; as such no gain or loss is recognized in the income
statement.




F-11


FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements




Recently Issued Accounting
Pronouncements


On
October 10, 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active (FSP).” The FSP
clarifies the application of FASB Statement No. 157 in a market that is not
active. The guidance is primarily focused on addressing how the reporting
entity’s own assumptions should be considered when measuring fair value when
relevant observable inputs does not exist; how available observable inputs in a
market that is not active should be considered when measuring fair value; and
how the use of market quotes should be considered when assessing the relevance
of observable and unobservable inputs available to measure fair value. The
adoption of FSP FAS 157-3 did not have a material impact on the Company’s
financial statements.





In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities”. This FSP
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share (EPS) under the
two-class method described in paragraphs 60 and 61 of FASB Statement No. 128,
“Earnings per Share.” FSP EITF 03-6-1 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those years. The Company is in the process of determining the impact FSP
EITF 03-6-1 will have on its consolidated financial statements.





In
June 2008, the EITF reached a consensus in Issue No. 07-5,
“Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity’s Own Stock” (“EITF 07-5”). This Issue addresses the determination of
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which is the first part of the scope exception in paragraph 11(a) of SFAS
133. EITF 07-5 is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early application is not
permitted. The Company is currently in the process of evaluating the impact of
the adoption of EITF 07-5 on our results of operations and financial
condition.





In May
2008, the FASB issued Statement No. 162 “The Hierarchy of Generally Accepted
Accounting Principles.” The current hierarchy of generally accepted accounting
principles is set forth in the American Institute of Certified Accountants
(AICPA) Statement of Auditing Standards (“SAS”) No. 69, “The meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles”. Statement
No. 162 is intended to improve financial reporting by identifying a consistent
framework or hierarchy for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with U.S.
generally accepted accounting principles for nongovernmental entities. Statement
No. 162 is effective 60 days following the Securities and Exchange Commission’s
approval of the Public Company Oversight Board Auditing amendments to SAS 69.
The Company is currently evaluating the application of Statement No. 162 but
does not anticipate that Statement No. 162 will have a material effect on the
Company’s results of operations or financial position.





In April
2008, the FASB issued FSP No. FAS 142-3, which amends the factors
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible
Assets, ("SFAS No. 142"). FSP No. 142-3 requires a
consistent approach between the useful life of a recognized intangible asset
under SFAS No. 142 and the period of expected cash flows used to
measure the fair value of an asset under SFAS No. 141(R). The FSP also
requires enhanced disclosures when an intangible asset's expected future cash
flows are affected by an entity's intent and/or ability to renew or extend the
arrangement. FSP No. 142-3 is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and is to be applied
prospectively. Early adoption is prohibited.  The Company has not completed
its analysis of the potential impact of FSP No. 142-3, but does not believe
the adoption will have a material impact on the Company's financial condition,
results of operations, or cash flows.





In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities—an amendment of FASB Statement
No. 133” (“SFAS No. 161”).SFAS
No. 161 changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No.
133, “Accounting for Derivative Instruments and Hedging Activities” and its
related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and
cash flows.  The guidance inSFAS No. 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. SFAS
No. 161 encourages, but does not require, comparative disclosures for earlier
periods at initial adoption.  At this time, management is evaluating the
implications ofSFAS No. 161 and its impact on the
Company’s consolidated financial statements has not yet been
determined.




F-12


FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements




In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations" which
replaces SFAS No. 141, "Business Combinations." SFAS 141R establishes principles
and requirements for determining how an enterprise recognizes and measures the
fair value of certain assets and liabilities acquired in a business combination,
including noncontrolling interests, contingent consideration, and certain
acquired contingencies. SFAS 141R also requires acquisition-related transaction
expenses and restructuring costs be expensed as incurred rather than capitalized
as a component of the business combination. SFAS 141R will be applicable
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. SFAS 141R would have an impact on accounting for any
businesses acquired after the effective date of this pronouncement.





In
December 2007, the FASB issued SFAS No. 160, “Non-Controlling Interests in
Consolidated Financial Statements –  an amendment  of ARB
No. 51 (“SFAS No. 160”).  SFAS No. 160 establishes accounting and
reporting standards for the non-controlling interest in a subsidiary (previously
referred to as minority interests). SFAS No. 160 also requires that a retained
non-controlling interest upon the deconsolidation of a subsidiary be initially
measured at its fair value. Upon adoption of SFAS No. 160, the Company would be
required to report any non-controlling interests as a separate component of
consolidated stockholders’ equity. The Company would also be required to present
any net income allocable to non-controlling interests and net income
attributable to the stockholders of the Company separately in its consolidated
statements of operations. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after January 1,
2009. SFAS No. 160 requires retroactive adoption of the presentation and
disclosure requirements for existing minority interests. All other requirements
of SFAS No. 160 shall be applied prospectively. SFAS No. 160 would have an
impact on the presentation and disclosure of the non-controlling interests of
any non wholly-owned business acquired by the Company in the
future.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
No. 157 establishes a single definition of fair value and a framework for
measuring fair value, sets out a fair value hierarchy to be used to classify the
source of information used in fair value measurements, and requires new
disclosures of assets and liabilities measured at fair value based on their
level in the hierarchy. This statement applies under other accounting
pronouncements that require or permit fair value measurements. In February 2008,
the FASB issued Staff Positions (“FSPs”) No. 157-1 and No. 157-2, which,
respectively, remove leasing transactions from the scope of SFAS No. 157 and
defer its effective date for one year relative to certain nonfinancial assets
and liabilities. As a result, the application of the definition of fair value
and related disclosures of SFAS No. 157 (as impacted by these two FSPs) was
effective for the Company beginning January 1, 2008 on a prospective basis with
respect to fair value measurements of (a) nonfinancial assets and liabilities
that are recognized or disclosed at fair value in the Company’s financial
statements on a recurring basis (at least annually) and (b) all financial assets
and liabilities. This adoption did not have a material impact on the Company’s
consolidated results of operations or financial condition. The remaining aspects
of SFAS No. 157 for which the effective date was deferred under FSP No. 157-2.
Areas impacted by the deferral relate to nonfinancial assets and liabilities
that are measured at fair value, but are recognized or disclosed at fair value
on a nonrecurring basis. This deferral applies to such items as nonfinancial
assets and liabilities initially measured at fair value in a business
combination (but not measured at fair value in subsequent periods) or
nonfinancial long-lived asset groups measured at fair value for an impairment
assessment. The effects of these remaining aspects of SFAS No. 157 are to be
applied to fair value measurements prospectively beginning January 1, 2009. The
Company does not expect them to have a material impact on the Company’s
consolidated results of operations or financial condition.





NOTE 7 –
Acquisition of New
World Jet Corporation





On July
22, 2008, the Company and a newly-formed wholly-owned subsidiary, New World Jet
Acquisition Corporation (“NWJAC”), executed a Stock Purchase Agreement with Gold
Jets LLC whereby NWJAC agreed to purchase all of the issued and outstanding
capital stock of New World Jet Corporation (“NWJC”) from Gold Jets LLC. The
acquisition occurred on August 5, 2008. As part of the transaction, the Company
made a cash payment of $120,000, incurred approximately $108,000 in transaction
costs, assumed a working capital deficit as recorded on closing of up to
$250,000, and agreed to future contingent post-closing payments tied to the
performance of acquired aircraft. Future contingent cash payments include 25
percent of net charter commissions, management fees, and maintenance
coordination fees; 50 percent of the net proceeds on the sale of NWJC’s air
carrier certificate; 33 percent of the initial year’s block charter commissions;
and 25 percent of any aircraft transaction fees. The Company also issued Gold
Jets LLC a warrant to purchase up to 2,000,000 shares of FirstFlight’s common
stock at an exercise price of $0.50 per share. The vesting of the warrants are
contingent on having eight aircraft on the Company’s air carrier certificate at
each measurement date. Subject to the Company’s legal remedies and rights under
the Stock Purchase Agreement, the vesting of these warrants were accelerated by
the Airborne divestiture and resulted in a charge of $191,167 to discontinued
operations relating to the fair value of the vested warrants. For the period
August 6, 2008 through December 31, 2008, the Company incurred losses related to
the acquisition of approximately $848,000.





All
assets and liabilities of NWJC have been recorded in the Company’s consolidated
balance sheet at their fair values at the date of acquisition. Identifiable
intangible assets and goodwill related to the original purchase approximated
$448,638. Identifiable intangible assets included customer relationships, which
are being amortized over an estimated useful life of three years. The amounts of
these intangibles have been estimated based upon information available to
management and are subject to change in the near term.




F-13


FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements




The
following table details the allocation of the purchase price and cash payments
made for the acquisition:





Fair
      ValueCash
                  
                  $
                  4,245Accounts
      receivable
                  
                  
                  85,027Prepaid
      expenses
                  
                  
                  70,701Equipment
                  
                  
                  30,305Intangible
      assets – customer relationships
                  
                  
                  50,000Goodwill
                  
                  
                  398,638Accounts
      payable and accrued expenses
                  
                  
                  (409,973
                  )Total
      cash paid for acquisition
                  
                  $
                  228,943





As
discussed in Note 2, the results of NWJC from August 6, 2008 through December
31, 2008 are reflected in the Company’s results from discontinued operations for
the period ended December 31, 2008.  As discussed in Note 2, the
Company decided to divest its Airborne subsidiary in fourth quarter
2008.  Accordingly, pro-forma presentation under SFAS 141 is not
presented since the business of NWJC was part of the charter segment and, as
such, became part of discontinued operations in connection with the divestiture
of Airborne.





Pursuant
to the Stock Purchase Agreement, the Company is required to make contingent
payments based on future results.  Those payments are required for a
period of three years following the transaction consummation.  At
December 31, 2008, contingent cash payments were accrued totaling $11,828 for
the period October 1, 2008 through December 31, 2008.  These payments
are charged to goodwill when incurred, therefore the cumulative goodwill from
the NWJC acquisition at December 31, 2008 totaled $805,053, and were included in
the impairment charge described in Note 6.  The Company was not
required to make any contingent payments related to warrants through December
31, 2008.  Under the guidance of APB Opinion No. 16 and EITF Abstract
Issue No. 95-8 contingent cash payments and warrant grants related to the
acquisition are treated as an additional cost of the NWJC
acquisition.





NOTE 8 -
Inventories





Inventory
consists primarily of maintenance parts and aviation fuel, which the Company
dispenses to its customers.  The Company also maintains fuel
inventories for commercial airlines, to which it charges into-plane fees when
servicing commercial aircraft.





Inventories
consist of the following:





December
      31,2008
                  
                  
                  2007Parts
      inventory
                  
                  $
                  101,006
                  
                  
                  $
                  81,267Fuel
      inventory
                  
                  
                  116,532
                  
                  
                  
                  131,420Other
      inventory
                  
                  
                  12,161
                  
                  
                  
                  8,085Total
      inventory
                  
                  $
                  229,699
                  
                  
                  $
                  220,772





Included
in fuel inventory are amounts held for third parties of $45,484 and $70,849 as
of December 31, 2008 and 2007, respectively, with an offsetting liability
included as part of accrued expenses.





NOTE 9 -
Property and
Equipment




Property
and equipment consist of the following:





December
      31,
                    
                    Estimated2008
                    
                    
                    2007
                    
                    Useful
      LifeAircraft
                    
                    $
                    254,784
                    
                    
                    $
                    371,294
                    
                    7 –
      12 yearsVehicles
                    
                    
                    251,897
                    
                    
                    
                    179,273
                    
                    5 –
      10 yearsOffice
      furniture and equipment
                    
                    
                    94,613
                    
                    
                    
                    232,990
                    
                    3 –
      7 yearsTools
      and shop equipment
                    
                    
                    319,452
                    
                    
                    
                    412,453
                    
                    3 –
      10 yearsLeasehold
      improvements
                    
                    
                    214,043
                    
                    
                    
                    334,883
                    
                    7 –
      17 yearsTotal
                    
                    
                    1,134,789
                    
                    
                    
                    1,530,893Less:
      accumulated depreciation and amortization
                    
                    
                    (383,059
                    )
                    
                    
                    (361,577
                    )Property
      and equipment, net
                    
                    $
                    751,730
                    
                    
                    $
                    1,169,316




Depreciation
and amortization expense from continuing operations for the years ended December
31, 2008 and 2007 was approximately $132,000 and $143,000,
respectively.  Depreciation and amortization from discontinued
operations for the years ended December 31, 2008 and 2007 was approximately
$213,000 and $247,000, respectively.




F-14




FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements


NOTE 10 –
Goodwill and
Intangible Assets




As of
December 31, 2008, goodwill and intangible assets consist exclusively of trade
names related to the acquisitions of Tech and CPA.




During
the years ended December 31, 2008 and 2007, the Company recorded amortization
expense related to the acquired amortizable intangibles of approximately
$157,000 and $213,000, respectively.





NOTE 11 -
Notes
Payable





Notes
payable consist of:





December
      31,2008
                            
                            
                            2007Kubota
      – secured by equipment, 4.49% interest, matures February
    2011
                            
                            $
                            10,186
                            
                            
                            $
                            15,000Sellers
      – Tech, secured by assets of Tech and guaranteed by FirstFlight, annual
      payments of $100,000, which includes imputed interest of 5%, matures March
      2010
                            
                            
                            192,914
                            
                            
                            
                            325,095Capital
      leases, secured by related equipment (see Note 12)
                            
                            
                            62,364
                            
                            
                            
                            83,356Subtotal
                            
                            
                            265,464
                            
                            
                            
                            423,451Less:
      current portion
                            
                            
                            (125,929
                            )
                            
                            
                            (126,663
                            )Total
      – long term
                            
                            $
                            139,535
                            
                            
                            $
                            296,788





Aggregate
annual maturities of long-term debt are as follows:





For
      the years ended December 31,
                      
                      Total
                        Amount2009
                      
                      $
                      125,9292010
                      
                      
                      124,8792011
                      
                      
                      14,655Total
                      
                      $
                      265,464




F-15




FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements




NOTE 12
- Capital Lease
Obligations





The
Company’s property under capital leases, at December 31, 2008 and 2007, which
are included in property and equipment, is summarized as follows:




December
      31,2008
                                                  
                                                  
                                                  2007Vehicles
                                                  
                                                  $
                                                  37,000
                                                  
                                                  
                                                  $
                                                  37,000Office
      Furniture and Equipment
                                                  
                                                  
                                                  73,896
                                                  
                                                  
                                                  
                                                  73,896Subtotal
                                                  
                                                  
                                                  110,896
                                                  
                                                  
                                                  
                                                  110,896Less: 
      accumulated depreciation
                                                  
                                                  
                                                  (29,580
                                                  )
                                                  
                                                  
                                                  (14,840
                                                  )Total
                                                  
                                                  $
                                                  81,316
                                                  
                                                  
                                                  $
                                                  96,056





The
Company’s capital leases require monthly payments ranging from $750 to $1,525
reflecting effective interest rates of between 8% and 8.75% per annum, expiring
in various years through November 2011.





Future
minimum lease payments for the capital lease obligations at December 31, 2008
are as follows:




For
      the Year Ended
                          December
      31
                        
                        Amount2009
                        
                        $
                        27,3002010
                        
                        
                        27,3002011
                        
                        
                        16,7752012
                        
                        
                        —71,375Less: amount
      representing interest
                        
                        
                        (9,011
                        )Present
      value of future minimum lease payments
                        
                        
                        62,364Less: 
      current maturities
                        
                        
                        (22,845
                        )Total
                        
                        $
                        39,519





Depreciation
of assets held under capital leases in the approximate amount of $13,000 and
$10,000 is included in depreciation expense from the continuing operations for
the years ended December 31, 2008 and 2007, respectively.





NOTE 13 -
Income
Taxes




As of
December 31, 2008, the Company had federal and state net operating loss
carry-forwards of approximately $7,000,000 expiring in various years through
2026, portions of which may be used to offset future taxable income, if any. The
Company has deferred tax assets arising from such operating losses for which a
full valuation allowance has been established because it is more likely than not
that the deferred tax assets will not be realized in future
periods.





The
Company’s deferred tax assets and deferred tax liabilities consisted of the
following:




Operating
      loss carryforwards
                                                                                  
                                                                                  $
                                                                                  1,913,694
                                                                                  
                                                                                  
                                                                                  $
                                                                                  799,820Stock
      based compensation
                                                                                  
                                                                                  
                                                                                  636,554
                                                                                  
                                                                                  
                                                                                  
                                                                                  474,618Allowance
      for doubtful accounts
                                                                                  
                                                                                  
                                                                                  26,586
                                                                                  
                                                                                  
                                                                                  
                                                                                  10,821Deferred
      start up costs
                                                                                  
                                                                                  
                                                                                  (19,462
                                                                                  )
                                                                                  
                                                                                  
                                                                                  98,675Intangible
      assets
                                                                                  
                                                                                  
                                                                                  443,114
                                                                                  
                                                                                  
                                                                                  
                                                                                  122,895Accrued
      expenses
                                                                                  
                                                                                  
                                                                                  (467,113
                                                                                  )
                                                                                  
                                                                                  
                                                                                  201,053Total
      deferred tax assets
                                                                                  
                                                                                  
                                                                                  3,421,208
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,707,455Deferred
      tax liabilities:Goodwill
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (37,895
                                                                                  )Property
      and Equipment
                                                                                  
                                                                                  
                                                                                  (108,206
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (96,800
                                                                                  )Goodwill
                                                                                  
                                                                                  
                                                                                  887,835
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Total
      deferred tax liabilities
                                                                                  
                                                                                  
                                                                                  (2,404,964
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (133,895
                                                                                  )Deferred
      tax assets – net of deferred tax liabilities
                                                                                  
                                                                                  
                                                                                  3,313,002
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,573,560Valuation
      Allowance
                                                                                  
                                                                                  
                                                                                  (3,313,002
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,573,560
                                                                                  )Deferred
      tax assets – net of valuation allowance
                                                                                  
                                                                                  $
                                                                                  —
                                                                                  
                                                                                  
                                                                                  $
                                                                                  —Change
      in valuation allowance
                                                                                  
                                                                                  $
                                                                                  1,739,442
                                                                                  
                                                                                  
                                                                                  $
                                                                                  157,498




F-16




FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements




The
Company has recorded a full valuation allowance against its deferred tax assets
since management believes that based upon currently available objective evidence
it is more likely than not that the deferred tax asset will not be
realized.  The provision for income taxes using the statutory federal
tax rate as compared to the Company's effective tax rate is summarized as
follows:




December 31,2008
                                                                
                                                                
                                                                2007Tax
      expense (benefit) at statutory rate
                                                                
                                                                
                                                                (34.2
                                                                )%
                                                                
                                                                
                                                                34.0
                                                                %State
      and local income taxes, net of federal
                                                                
                                                                
                                                                (5.0
                                                                )%
                                                                
                                                                
                                                                5.0
                                                                %Non-deductible
      expenses
                                                                
                                                                
                                                                17.0
                                                                %
                                                                
                                                                
                                                                8.0
                                                                %Change
      in estimate of prior year tax provision
                                                                
                                                                
                                                                -
                                                                %
                                                                
                                                                
                                                                38.0
                                                                %Change
      in valuation allowance
                                                                
                                                                
                                                                38
                                                                %
                                                                
                                                                
                                                                (85.0
                                                                )%Effective
      income tax rate
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                —




NOTE 14 –
Stockholders’
Equity





Stock
Options


During
December 2005, the Board of Directors approved the Stock Option Plan of 2005
(the “Plan”) and, during December 2006, the stockholders of FirstFlight approved
the Plan.  The Plan is administered by FirstFlight’s compensation
committee and provides for 7,500,000 shares of the Common Stock to be reserved
for issuance under the Plan.  Directors, officers, employees, and
consultants of the Company are eligible to participate.  The Plan
provides for the awards of incentive and non-statutory stock
options.  The  committee determined the vesting schedule to
be up to five years at the time of grant of any options under the Plan, and
unexercised options will expire in ten years.  The exercise price is
to be equal to at least 100% of the fair market value of a share of the Common
Stock, as determined by the Committee, on the grant date.  As of
December 31, 2008 and 2007, there were 4,540,000 and 5,465,000 shares,
respectively, available for grant as options under the Plan.





Details
of all options outstanding are presented in the table below:





Number
      of
                            Options
                          
                          
                          Weighted
      Average
                            Exercise
      PriceBalance,
      January 1, 2007
                          
                          
                          2,310,000
                          
                          
                          $
                          0.86Granted
                          
                          
                          1,100,000
                          
                          
                          
                          0.37Exercised
                          
                          
                          (25,000
                          )
                          
                          
                          0.01Forfeited
                          
                          
                          (1,000,000
                          )
                          
                          
                          1.05Balance,
      January 1, 2008
                          
                          
                          2,385,000
                          
                          
                          $
                          0.56Granted
                          
                          
                          925,000
                          
                          
                          
                          0.31Exercised
                          
                          
                          —
                          
                          
                          
                          —Forfeited
                          
                          
                          —
                          
                          
                          
                          —Balance,
      December 31, 2008
                          
                          
                          3,310,000
                          
                          
                          $
                          0.49




F-17


FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements




On
December 1, 2008, the Company granted a stock option to each of the seven
non-employee directors to purchase 25,000 of the common stock at $0.08 per
share, the closing price of the Company’s common stock on December 1,
2008.  Each option vests on December 1, 2009 and expires on December
1, 2013.  These options are collectively valued at
$14,000.





On
September 15, 2008, under the terms of an employment agreement, the Company
granted an employee a stock option to purchase 250,000 shares of the common
stock at $0.29 per share, the closing price of the Company’s common stock on
September 14, 2008.  The option vests on September 15, 2009 and expires on
September 14, 2014.  This option is valued at $72,491 and is being
amortized over the remaining one-year term of the employment
agreement.





On July
1, 2008, under the terms of an employment agreement, the Company granted an
employee a stock option to purchase 250,000 shares of the common stock at $0.40
per share, the closing price of the Company’s common stock on June 30,
2008.  The option vests on July 1, 2009 and expires on June 30, 2014. 
This option is valued at $99,982 and is being amortized over the two-year term
of the employment agreement.





On
January 19, 2008, under the terms of an employment agreement, the Company
granted an employee a stock option to purchase 250,000 shares of the common
stock at $0.40 per share, the closing price of the Company’s common stock on
January 18, 2008.  This option vests on January 19, 2009 and expires
on January 18, 2014.  This option is valued at $99,970 and is being
amortized over the two-year term of the employment agreement.





During
the year ended December 31, 2007, a director of FirstFlight exercised an option
to purchase 25,000 shares on a cashless basis and received 24,194
shares.  In addition, the options of two former executives to purchase
an aggregate of 1,000,000 shares were forfeited.





On
December 1, 2007, FirstFlight granted to each of the seven non-employee
directors a stock option to purchase 25,000 shares of the Common Stock, a total
of 175,000 shares, at $0.36 per share, the closing price of the Common Stock on
November 30, 2007.  The options vest over one year and expire on
November 30, 2012.  These options are valued at $62,925 and are being
amortized over the vesting period.





On
September 14, 2007, under the terms of an employment agreement, FirstFlight
granted an executive a stock option to purchase 250,000 shares of the Common
Stock at $0.40 per share, the closing price of the Common Stock on September 21,
2007 (September 22nd being a
Saturday).  The option vested immediately and expires on September 23,
2012.  This option is valued at $99,884 and is being amortized over
the remaining term of the employment agreement.





On
September 14, 2007, under the terms of an employment agreement, FirstFlight
granted an executive a stock option to purchase 250,000 shares of the Common
Stock at $0.33 per share, the closing price of the Common Stock on September 14,
2007.  The option vests over one year and expires on September 15,
2013.  This option is valued at $82,467 and is being amortized over
the term of the employment agreement.





In June
2007, a put option expired that, if exercised, would have required FirstFlight
to repurchase 57,598 shares of the Common Stock at a cost of
$29,375.  This amount was reclassified to additional paid in
capital.





In March
2007, FirstFlight repurchased 25,000 shares that had been issued in a settlement
and for which the holder had a right to put the shares back to the Company at a
cost of $18,375.





On April
19, 2007, under the terms of an employment agreement, FirstFlight granted an
executive a stock option to purchase 250,000 shares of the Common Stock at $0.39
per share, the closing price of the Common Stock on March 30,
2007.  The option vested immediately and expires on March 31,
2012.  This option is valued at $97,356 and is being amortized over
the term of the employment agreement.





On April
19, 2007, FirstFlight granted to each of the seven non-employee directors a
stock option to purchase 25,000 shares of the Common Stock, a total of 175,000
shares, at $0.36 per share, the closing price of the Common Stock on April 19,
2007.  The options vest over one year and expire on April 18,
2012.  These options are valued at $62,909 and are being amortized
over the vesting period.




F-18




FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements


A summary
of the Company’s stock options outstanding and exercisable at December 31, 2008
is presented in the table below:





Exercise Price
                
                
                Outstanding
                
                
                Weighted
      average remaining contractual life of
                  options (in years)
                
                
                Exercisable
                
                
                Intrinsic
                  Value$
                0.08
                
                
                
                175,000
                
                
                
                4.92
                
                
                
                —
                
                
                $
                —$
                0.29
                
                
                
                250,000
                
                
                
                5.71
                
                
                
                —
                
                
                $
                —$
                0.33
                
                
                
                250,000
                
                
                
                4.71
                
                
                
                250,000
                
                
                $
                —$
                0.36
                
                
                
                350,000
                
                
                
                3.61
                
                
                
                350,000
                
                
                $
                —$
                0.39
                
                
                
                250,000
                
                
                
                3.25
                
                
                
                250,000
                
                
                $
                —$
                0.40
                
                
                
                1,000,000
                
                
                
                3.23
                
                
                
                500,000
                
                
                $
                —$
                0.50
                
                
                
                250,000
                
                
                
                2.25
                
                
                
                250,000
                
                
                $
                —$
                0.51
                
                
                
                160,000
                
                
                
                0.33
                
                
                
                160,000
                
                
                $
                —$
                0.60
                
                
                
                275,000
                
                
                
                3.43
                
                
                
                275,000
                
                
                $
                —$
                0.64
                
                
                
                100,000
                
                
                
                1.92
                
                
                
                100,000
                
                
                $
                —$
                1.60
                
                
                
                250,000
                
                
                
                1.25
                
                
                
                250,000
                
                
                $
                —TOTALS
                
                
                
                3,310,000
                
                
                
                
                
                
                
                2,385,000
                
                
                $
                —





Warrants


Details
of all warrants outstanding are presented in the table below:





Number
      of
                            Warrants
                          
                          
                          Weighted
      Average
                            Exercise
      PriceBalance,
      January 1, 2007
                          
                          
                          11,117,121
                          
                          
                          $
                          0.78Granted
                          
                          
                          —
                          
                          
                          
                          —Exercised
                          
                          
                          —
                          
                          
                          
                          —Forfeited
                          
                          
                          —
                          
                          
                          
                          —Balance,
      January 1, 2008
                          
                          
                          11,117,121
                          
                          
                          $
                          0.78Granted
                          
                          
                          2,000,000
                          
                          
                          
                          0.50Exercised
                          
                          
                          —
                          
                          
                          
                          —Forfeited
                          
                          
                          —
                          
                          
                          
                          —Balance,
      December 31, 2008
                          
                          
                          13,117,121
                          
                          
                          $
                          0.74





On July
22, 2008, the Company issued a warrant to purchase up to 2,000,000 shares of the
Company’s common stock at an exercise price of $0.50 per share.  See Note 7
herein.





A summary
of the Company’s warrants outstanding and exercisable at December 31, 2008 is
presented in the table below:





Exercise Price
                
                
                Outstanding
                
                
                Weighted
      average remaining contractual life of
                  options (in years)
                
                
                Exercisable
                
                
                Intrinsic
                  Value$
                0.50
                
                
                
                2,000,000
                
                
                
                4.60
                
                
                
                —
                
                
                $
                —$
                0.60
                
                
                
                6,092,121
                
                
                
                1.33
                
                
                
                6,092,121
                
                
                $
                —$
                1.00
                
                
                
                5,025,000
                
                
                
                2.67
                
                
                
                5,025,000
                
                
                $
                —TOTALS
                
                
                
                13,117,121
                
                
                
                
                
                
                
                11,117,121
                
                
                $
                —





Restricted
Stock


On August
5, 2008, under the terms of a consulting agreement, the Company granted 600,000
shares of restricted stock in connection with the NWJC acquisition. 
Subject to the Company’s legal remedies and rights under the consulting
agreement, the restricted stock vested ratably over three years and resulted in
a charge of $222,000 to operations as of December 31, 2008.




Preferred
Stock
 As of
December 31, 2008 and 2007, the Company has 9,999,134 shares of preferred stock
authorized and none issued and outstanding.  The Company’s Board of
Directors currently has the right, with respect to the authorized shares of
preferred stock, to authorize the issuance of one or more series of preferred
stock with such voting, dividend and other rights as the directors
determine.


NOTE 15 -
Employee Benefit
Plan





FirstFlight
maintains a 401(k) Plan (the “Plan”), which covers all employees of the Company.
The Plan contains an option for the Company to match each participant's
contribution. Any Company contribution vests over a five-year period on a twenty
percent per year basis. During 2008 and 2007, the Company matched participant
contributions at a rate of 50% of the first 6% of participant
deferrals.  Company contributions to the Plan totaled approximately
$122,000 and $103,000 for the years ended December 31, 2008 and 2007,
respectively.




F-19




FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements


NOTE 16 -
Commitments and
Contingencies




Operating Leases under
Continuing Operations


The
Company leases facilities from the City of Garden City, Kansas, which provides
for: (a) a ten-year lease term expiring March 31, 2015, with two five-year
renewal periods; (b) a base rent of $1,550 and $1,750 per month for years one
through five and years six through ten of the lease, respectively. In addition a
fuel flowage fee of $.06 per gallon of fuel received by the Company will be due
monthly. The fuel flowage fee is to be reviewed annually by the Garden City
Regional Airport, the City of Garden City, and the Company.





The
Company leases a facility under the terms of a Fixed Base Operator’s Lease and
Operating Agreement with the Wilkes-Barre/Scranton International Airport. The
agreement is for an initial term of ten years, expiring August 21, 2013, with
two five-year renewal periods. The agreement requires payment of monthly rents
of $6,250 plus additional payments based on certain of the Company’s revenues.
These include per-gallon fees for certain fuel sales and commissions on landing,
parking, tie-down and other types of fees charged by the Company to its aviation
customers.





The
Company leases refueling trucks. As of December 31, 2008 and 2007, the refueling
truck leases require aggregate monthly rental payments of approximately $6,000
per annum.  In addition, the Company leases vehicles and equipment
with payments ranging from $180 to $477 per month.





Rent
expense from continuing operations aggregated approximately $160,000 and
$164,000 for the years ended December 31, 2008 and 2007,
respectively.





Future
minimum rental payments under the Company’s operating leases are as
follows:




For
      the year endedDecember
      31,
                      
                      Total2009
                      
                      $
                      99,9792010
                      
                      
                      98,3822011
                      
                      
                      96,0002012
                      
                      
                      96,0002013
      and thereafter
                      
                      
                      97,250TOTAL
                      
                      $
                      487,611




Employment
Agreements


On
September 29, 2008, the Company appointed Gary Hart as its Chief Operating
Officer and Senior Vice President.  The Company and Mr. Hart also
entered into a two year employment agreement (the “Hart Employment Agreement”).
Such employment agreement provided that Mr. Hart would receive an annual
base salary of $200,000 and receive stock options to purchase an aggregate of
500,000 shares of the Company’s common stock, as follows: (i) 250,000
shares on the first anniversary date of the Hart Employment Agreement; and
(ii) 250,000 shares on the second anniversary date of the Hart Employment
Agreement. The price of each tranche of such stock option award shall be equal
to the greater of: (i) the fair market value of the Company’s common stock
as of the close of business on the day immediately preceding the grant date; or
(ii) $0.60 per share. Each tranche of such stock option award shall vest one
year following the date of grant and be exercisable for five years following
vesting.  As a result of the termination of Mr. Hart’s employment
agreement, no such options were issued or have vested.  Effective
November 10, 2008, the Hart Employment Agreement was terminated.





On
September 1, 2006, FirstFlight entered into an employment agreement effective as
of September 15, 2006 with Keith P. Bleier (the “Bleier Employment Agreement”).
Mr. Bleier served FirstFlight as a Senior Vice President and its Chief Financial
Officer. The term of the agreement was for three years, which commenced on
September 15, 2006, and thereafter would have automatically renewed for
additional one-year periods. Mr. Bleier’s base annual salary was $185,000 with
annual increases of 5%. In addition, he was eligible to receive an annual
performance bonus at the discretion of the Board of Directors. Mr. Bleier was to
be granted an option each September 15 during the initial term to purchase
250,000 shares of the common stock, commencing September 15, 2006.  He
has received his first option effective September 15, 2006, his second option
effective September 15, 2007 and his third option effective September 15,
2008.  Mr. Bleier resigned from his positions with the Company
effective December 31, 2008 and the Bleier Employment Agreement was
terminated.  Mr. Bleier’s third option (related to the September 15,
2008 issuance) was forgone in connection with his resignation on December 31,
2008 and the other options expired on March 31, 2009.




F-20


FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements




On
September 22, 2005, FirstFlight entered into an employment agreement with John
H. Dow (the “Dow Employment Agreement”). Mr. Dow served FirstFlight as President
and its Chief Executive Officer. The term of the Dow Employment Agreement was
for three years and thereafter would have automatically renewed for additional
one-year periods. Mr. Dow’s base annual salary was $150,000 with a guaranteed
annual bonus of $100,000. In addition, he was eligible to receive an annual
performance bonus at the discretion of the Board of Directors. Mr. Dow was to be
granted an option each September 22 during the initial term to purchase 250,000
shares of the Common Stock.  He has received his first option
effective September 22, 2005, his second option effective September 22, 2006 and
his third option effective September 22, 2007.  As a condition of the
Airborne divestiture, Mr. Dow resigned from his positions with the Company
effective March 2, 2009 and the Dow Employment Agreement was terminated and all
options were forfeited.





As of
December 31, 2008, future severance commitments under the Company’s employment
agreements aggregate approximately $175,000.





NOTE 17 -
Related
Parties





The firm
of Wachtel & Masyr, LLP provides certain legal services to the Company.
William B. Wachtel, a member of the Company’s Board of Directors, is a managing
partner of the firm. During the years ended December 31, 2008 and 2007, the
Company was billed approximately $90,000 and $165,000, respectively, for legal
services.  At December 31, 2008 and 2007, the Company recorded in
accounts payable an obligation for legal fees to such firm of approximately $0
and $375,000, respectively, related to legal services provided by such
firm.





NOTE 18 -
Litigation





On
November 20, 2008, an Article 78 proceeding in the Supreme Court of the State of
New York County of New York was initiated against New York City Economic
Development Corporation; the City of New York Department of Small Business
Services; Robert Walsh, in his capacity as Commissioner of the Department of
Small Business Services; William C. Thompson, Jr., Comptroller of the City of
New York, Office of the New York City Comptroller; The Honorable Mayor Bloomberg
in his capacity as Mayor of the City of New York, by Petitioners Linden Airport
Management Corporation and Paul P. Dudley, individually, objecting to the award
of a concession for the Fixed-Base Operator for the Downtown Manhattan Heliport
to FirstFlight, Inc.  Shortly thereafter, on November 20, 2008,
FirstFlight was joined as a necessary party to the Article 78
proceeding.  The Petitioners allege that the selection process for
awarding FirstFlight the concession, was arbitrary, capricious and an abuse of
permitted discretion and made in violation of lawful procedure.  In
relation to this allegation, Petitioners are seeking an annulment of the
previous award of the concession and a new “Request for Proposals” process in
order to award the concession to an entity other than
FirstFlight.  Petitioners also allege a breach of public trust against
the City of New York and damages of at least $1,000,000.  The
Company’s legal representation believes that there is a high likelihood of
success on the merits by FirstFlight.





The
Company had been engaged in a civil action entitled Raintree Express, Inc. v. Tech
Aviation, Inc. in which Raintree Express had made a claim against FBOWB
of approximately $200,000 in compensatory damages in connection with disputed
charges and expenses incurred by Raintree Express in the operation of an
aircraft.  On May 21, 2008, the Company and Raintree Express entered into a
Settlement Agreement whereby the Company paid Raintree Express $110,000 over a
120-day period.  The Company made the final payment in September
2008.  The Company has accounted for this action in accordance with
SFAS No. 5, “Accounting for Contingencies”.





In
addition to the matters noted above, the Company is a party to one or more
claims or disputes which may result in litigation. The Company's management does
not, however, presently expect that any such matters will have a material
adverse effect on the Company's business, financial condition or results of
operations.





NOTE 19 -
Subsequent
Events




On
January 19, 2009, under the terms of an employment agreement, the Company
granted an employee a stock option to purchase 250,000 shares of the common
stock at $0.08 per share.  This option vests on January 19, 2010 and
expires on January 18, 2015.  This option is valued at $20,000 and is
being amortized over the remaining term of the employment
agreement.




F-21


FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements




Discontinued
Operations


As
discussed in Note 2, the Company divested Airborne on March 2,
2009.





In
accordance with SFAS 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets (“SFAS 144”), since management committed to the plan to divest
in fourth quarter 2008, the Company has reported Airborne’s results for the
years ended December 31, 2008 and 2007 as discontinued operations because the
operations and cash flows have been eliminated from the Company’s continuing
operations.





Components
of discontinued operations are as follows:





Years
      Ended
                                    December
      31,2008
                                  
                                  
                                  2007Revenue
                                  
                                  $
                                  38,273,031
                                  
                                  
                                  $
                                  40,451,337Cost
      of sales
                                  
                                  
                                  32,195,550
                                  
                                  
                                  
                                  34,656,445Gross
      profit
                                  
                                  
                                  6,077,481
                                  
                                  
                                  
                                  5,794,892Operating
      expenses
                                  
                                  
                                  9,958,484
                                  
                                  
                                  
                                  4,533,172Operating
      income (loss)
                                  
                                  
                                  (3,881,003
                                  )
                                  
                                  
                                  1,261,720Interest
      income (expense), net
                                  
                                  
                                  8
                                  
                                  
                                  
                                  21,326Other
      income (expense), net
                                  
                                  
                                  —
                                  
                                  
                                  
                                  49,839Net
      income (loss) from discontinued operations
                                  
                                  $
                                  (3,880,995
                                  )
                                  
                                  $
                                  1,332,885




ASSETS HELD FOR SALEDecember
      31,
                                                                2008
                                                              
                                                              
                                                              December
      31,
                                                                2007CURRENT ASSETSCash
      and cash equivalents
                                                              
                                                              $
                                                              1,150,437
                                                              
                                                              
                                                              $
                                                              1,655,523Accounts
      receivable, net
                                                              
                                                              
                                                              3,289,593
                                                              
                                                              
                                                              
                                                              4,907,907Inventories
                                                              
                                                              
                                                              172,182
                                                              
                                                              
                                                              
                                                              103,541Prepaid
      expenses and other current assets
                                                              
                                                              
                                                              249,729
                                                              
                                                              
                                                              
                                                              344,226Total
      current assets
                                                              
                                                              
                                                              4,861,941
                                                              
                                                              
                                                              
                                                              7,011,197PROPERTY
      AND EQUIPMENT, net
                                                              
                                                              
                                                              459,907
                                                              
                                                              
                                                              
                                                              309,599OTHER ASSETSDeposits
                                                              
                                                              
                                                              41,625
                                                              
                                                              
                                                              
                                                              36,800Intangible
      assets - trade names
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              320,000Other
      intangible assets, net
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              143,131Goodwill
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              1,826,486Total
      other assets
                                                              
                                                              
                                                              41,625
                                                              
                                                              
                                                              
                                                              2,326,417TOTAL
      ASSETS
                                                              
                                                              $
                                                              5,363,474
                                                              
                                                              
                                                              $
                                                              9,647,213LIABILITIES ASSOCIATED WITH ASSETS HELD FOR
      SALECURRENT LIABILITIESAccounts
      payable
                                                              
                                                              $
                                                              4,793,944
                                                              
                                                              
                                                              $
                                                              5,559,050Customer
      deposits
                                                              
                                                              
                                                              106,804
                                                              
                                                              
                                                              
                                                              351,164Accrued
      expenses
                                                              
                                                              
                                                              159,293
                                                              
                                                              
                                                              
                                                              247,029Notes
      payable – current portion
                                                              
                                                              
                                                              40,923
                                                              
                                                              
                                                              
                                                              42,558Total
      current liabilities
                                                              
                                                              $
                                                              5,100,964
                                                              
                                                              
                                                              $
                                                              6,199,801





Related Party Transactions
Included in Discontinued Operations






F-22


FIRSTFLIGHT,
INC. AND SUBSIDIARIES
 Notes
To Consolidated Financial Statements




Airborne
was a party to an agreement to lease an aircraft from a company, of which one of
its members is John H. Dow, a director and the current President and Chief
Executive Officer of FirstFlight, and the other member is an employee of its
charter segment. The terms of the lease provided for the payment of rent of
$17,000 per month and a charge of $600 for each hour of aircraft use. The lease
agreement further provided that this aircraft would be managed by the Company
through its charter segment, and through which the Company would retain 90% of
the associated charter revenue. The Company made use of this aircraft for
certain business travel needs and paid these expenses to the lessor. The lease
agreement was subsequently terminated in February 2007 and was replaced by the
lease described in the following paragraph.





On April
26, 2007, Airborne entered into an agreement to lease an aircraft from a
company, of which one of its members is Mr. Dow and the other member is an
employee of Airborne. The terms of the lease provided for the payment of rent of
$20,000 per month and a charge of $500 for each hour of aircraft use. The lease
agreement, which was for a period of one year with automatic annual renewals,
further provided that this aircraft would be managed by the Company through its
charter segment, and through which the Company would retain 90% of the
associated charter revenue.  The Company made use of this aircraft for
certain business travel needs and paid these expenses to the
lessor.  During the year ended December 31, 2008, the Company recorded
revenue and expenses of approximately $314,000 and $509,000, respectively, in
conjunction with the lease of this aircraft.  During the year ended
December 31, 2007, the Company recorded revenue and expenses of approximately
$392,000 and $493,000, respectively, in conjunction with the lease of this
aircraft.





Airborne
managed several aircraft owned by an entity in which Mr. Wachtel along with two
other directors of FirstFlight, Thomas Iovino and Stephen B. Siegel, are
members. During the year ended December 31, 2008, the Company recorded direct
revenue and expenses of $5,516,292 and $4,947,652, respectively, related to the
Company’s management of these aircraft. At December 31, 2008 the Company had
recorded in accounts receivable a balance of approximately $568,641 owed from
this entity.  During the year ended December 31, 2007, the Company
recorded direct revenue and expenses of $6,809,903 and $5,944,582, respectively,
related to the Company’s management of these aircraft.  At December
31, 2007 the Company had recorded in accounts receivable a balance of
approximately $172,621 owed from this entity.





Airborne
leases a parking area and land for its main operating facility under the terms
of an operating agreement with the County of Chemung, the owner of the
Elmira/Corning Regional Airport. The agreement was effective January 1, 2006 and
is for an initial term of twenty-five years with one fifteen-year renewal and
one subsequent ten-year renewal period. The agreement requires payment of
quarterly rent of $931 for the parking lot lease and monthly rent of $1,195 for
the county land lease. In addition, Airborne pays a monthly fuel flowage fee
between $.06 to $.09 per gallon based on the number of gallons
dispensed.





Airborne
leased its facilities in Horseheads, New York from the then Chief Executive
Officer of the Company and a related party. The term is 15 years (subject to
renewals at the option of Airborne at least 60 days prior to the expiration of
the term) and expires September 22, 2020. The annual rent is $160,584, payable
in advance in equal monthly installments of $13,382. Beginning on the fifth
anniversary of the commencement date of the lease, and annually each year
thereafter, the annual rent shall increase or decrease by the increase or
decrease in the applicable Consumer Price Index.  During the years ended
December 31, 2008 and 2007, Airborne paid approximately $161,000 in rent expense
under this lease.





Airborne
leased office space for its charter sales department and hangar space for
managed aircraft under the terms of an operating agreement in New Jersey. The
office and hangar agreements were effective October 1, 2007 and expired on
September 30, 2008. The office agreement requires payment of monthly rent of
$3,677 and the hangar agreement requires payment of monthly rent of
$28,033.





Future
minimum rental payments under Airborne’s operating leases are as follows for
both related and non related parties:




For
      the year ended
                      
                      
                      
                      
                      RelatedDecember
      31,
                      
                      Total
                      
                      
                      Party
                      
                      
                      Other2009
                      
                      $
                      333,668
                      
                      
                      
                      160,584
                      
                      
                      
                      173,0842010
                      
                      
                      237,088
                      
                      
                      
                      160,584
                      
                      
                      
                      76,5042011
                      
                      
                      219,600
                      
                      
                      
                      160,584
                      
                      
                      
                      59,0162012
                      
                      
                      195,118
                      
                      
                      
                      160,584
                      
                      
                      
                      34,5342013
                      
                      
                      185,508
                      
                      
                      
                      160,584
                      
                      
                      
                      24,9242014
      and thereafter
                      
                      
                      1,387,383
                      
                      
                      
                      1,080,368
                      
                      
                      
                      307,015TOTAL
                      
                      $
                      2,280,603
                      
                      
                      $
                      1,883,288
                      
                      
                      $
                      397,315





F-23








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





None.





ITEM
9A(T). CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





The Company evaluated the design and
operation of its disclosure controls and procedures to determine whether they
are effective in ensuring that it discloses the required information in a timely
manner and in accordance with the Exchange Act and the rules and forms of the
Commission. Management, including its principal executive officer and principal
financial officer, supervised and participated in the evaluation. The principal
executive officer and principal financial officer concluded, based on their
review, that its disclosure controls and procedures, as defined by Exchange Act
Rules 13a-15(e) and 15d-15(e), are designed to provide reasonable assurance and
that the disclosure controls and procedures were effective as of the end of the
period covered by the report to provide reasonable assurance that material
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms.





Based upon its evaluation, our
management, with the participation of principal executive and principal
financial officer, has concluded  there is a significant deficiency
with respect to the Company’s internal control over financial reporting as
defined in Rule 13a-15(e). Those rules define internal control over
financial reporting as a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.  The weakness identified by management relates
to the lack of sufficient accounting resources to apply certain U.S. Generally
Accepted Accounting Principles (“U.S. GAAP”).





As discussed elsewhere in this report,
the Company’s Senior Vice President and Chief Financial Officer resigned
effective December 31, 2008.  The Company currently lacks adequately
trained accounting personnel with appropriate U.S. GAAP expertise for certain
complex transactions.  Management believes this weakness is considered
a significant deficiency and does not rise to the level of a material weakness
due to the compensating supervisory controls as discussed below.





As of the end of the period covered by
this report and to address the identified weakness, the Company periodically
engages consultants or other resources to assist with the accounting and
disclosure for complex transactions.  The principal executive and
financial officer operates in a supervisory capacity to help compensate for the
limited accounting personnel.  This added level of supervision helps
ensure the financial statements and disclosures are accurate and
complete.  This additional assistance was considered in concluding
that our weakness in internal control is a significant
deficiency.  This added level of supervision helps ensure the
financial statements and disclosures are accurate and complete.




In order to correct this deficiency,
the Company plans to hire additional employees or consultants, as needed, to
ensure that management will have adequate resources in order to attain complete
reporting of financial information on a timely manner and provide a further
level of segregation of financial responsibilities.




A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met.  Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues, if any, within a company
have been detected. Such limitations include the fact that human judgment in
decision-making can be faulty and that breakdowns in internal control can occur
because of human failures, such as simple errors or mistakes or intentional
circumvention of the established process.





Management’s
Report on Internal Control Over Financial Reporting; Changes in Internal
Controls Over Financial Reporting





Management is responsible for
establishing and maintaining adequate internal controls over financial
reporting.  We believe that a control system, no matter how well
designed and operated, cannot provide absolute assurance that the objectives of
the control system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected. Our disclosure controls and procedures are designed
to provide a reasonable assurance of achieving their
objectives.  Under the supervision and with the participation of our
management, including our Chief Executive Officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting based on the
framework established by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) as set forth in Internal Control - Integrated
Framework. Based on our evaluation under the framework in Internal Control —
Integrated Framework, our management concluded that our internal control over
financial reporting was effective at the reasonable assurance level as of
December 31, 2008.




A-19




During the year ended December 31,
2008, no changes were made to the Company’s internal controls over financial
reporting that materially affected or were reasonably likely to materially
affect these controls subsequent to the date of their evaluation.  As
discussed above, the Company’s Senior Vice President and Chief Financial Officer
resigned effective December 31, 2008.  As also discussed elsewhere in
this report, the Company’s charter segment was divested on March 2,
2009.  Management believes that the requirements for internal controls
will be absorbed by other personnel in the continuing operations and will not
have a material effect on our internal controls over financial
reporting.





This report does not include an
attestation report of the Company’s independent registered public accounting
firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Commission that permit the Company to provide only management’s report in this
Report.





ITEM 9B.OTHER
INFORMATION




On April 8, 2009, William B. Wachtel
resigned as Chairman of the Board of FirstFlight, Inc.  Mr. Wachtel
will continue as a member of the Company’s Board of
Directors.  Effective the same day, Ronald J. Ricciardi was elected as
Chairman of the Board and shall serve in such capacity until the first meeting
of the Board of Directors of the Corporation immediately following the next
Annual Meeting of Stockholders of the Corporation or until the Board otherwise
directs.





See Item 10 of this report for a
description of Mr. Ricciardi’s business background.




A-20




Part
III





ITEM
10.                      DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS, AND CORPORATE GOVERNANCE




The
following table contains certain information related to the directors and
executive officers of FirstFlight as of April 13, 2009:





Name
              
              Age
              
              PositionRonald
      J. Ricciardi
              
              47
              
              Director,
      Chairman of the Board, President & Chief Executive
    OfficerWilliam
      B. Wachtel
              
              54
              
              DirectorDonald
      Hecht
              
              75
              
              DirectorJeffrey
      B. Mendell
              
              55
              
              DirectorAlvin
      S. Trenk
              
              79
              
              Director





Each director of FirstFlight was
re-elected at the Annual Meeting of Stockholders held on June 19, 2008 to serve
until the next Annual Meeting of Stockholders or until his successor is duly
elected and shall have qualified. Each officer of FirstFlight is elected
annually by the Board of Directors to serve at the discretion of the
Board.





Business
History





Ronald
J. Ricciardi – Director, Chairman of the Board, President & Chief Executive
Officer





Mr. Ricciardi had served as the
President and a director of the Arizona FBO Air since its inception and was
designated as its Chief Executive Officer on January 2, 2004. He was elected the
President and a director of FirstFlight and designated as its Chief Executive
Officer effective with the reverse merger transaction on August 20, 2004. On
December 12, 2006, he was elected as Chairman of the Board.  On March
2, 2009, he was re-elected the President of FirstFlight and designated as its
Chief Executive Officer.




Mr.
Ricciardi is a senior executive with extensive general management experience in
entrepreneurial and large companies. Before joining the Arizona FBO Air, Mr.
Ricciardi was President and CEO of P&A Capital Partners, Inc., an
entertainment finance company established to fund the distribution of
independent films. Mr. Ricciardi was also co-founder, Chairman and CEO of eTurn,
Inc., a high technology service provider, for which he developed a consolidation
strategy, negotiated potential merger/acquisition candidates, prepared private
placement materials and executed numerous private, institutional and venture
capital presentations. After a management career at Pepsi-Cola Company and the
Perrier Group of America, Mr. Ricciardi was President and CEO of Clearidge,
Inc., a leading regional consumer products company, where he provided strategic
and organizational development, and led a consolidation effort that included 14
transactions, which more than tripled their revenue over four
years.




William
B. Wachtel – Director




Mr. Wachtel was first elected as a
director of FirstFlight and its Chairman of the Board on March 31,
2005.  Mr. Wachtel served as Chairman until April 8, 2009, when he
resigned from such capacity but he will remain as a member of the
Board.




Mr. Wachtel has been a managing partner
of Wachtel & Masyr, LLP, or its predecessor law firm (Gold & Wachtel,
LLP), since its founding in August 1984. Such firm serves as corporate counsel
to the Company. He is a co-founder of the Drum Major Institute, an organization
carrying forth the legacy of the late Reverend Martin Luther King,
Jr.




A-21




Donald
Hecht - Director





Mr. Hecht was first elected as a
director of FirstFlight effective September 15, 2006, and has served in that
capacity since then.





Mr. Hecht has, since 1966, been a
managing partner of Hecht and Company, P.C., a certified public accounting firm.
He has served on the board of directors of other public companies.





Jeffrey
B. Mendell - Director





Mr.
Mendell was first elected as a director of FirstFlight on September 30, 2004,
and has served in that capacity since then.





Mr.
Mendell is, and has been since 1983, the Chairman & CEO of JBM Realty, a
private real estate company headquartered in Greenwich, CT. This company is
active in the development, financing and sale of residential and commercial
properties. His most recent project was the development of Greenwich Shore, a
luxury rental apartment project overlooking Long Island Sound in Greenwich,
CT.





Earlier
in his career, Mr. Mendell was an executive with Citicorp Real Estate, Inc. in
New York City and he is a licensed real estate broker in the State of New
York





Alvin
S. Trenk - Director





Mr. Trenk
was first elected as a director and the Chairman of the Board of FirstFlight
effective with the reverse merger transaction on August 20, 2004. He resigned as
the Chairman of the Board on March 31, 2005, but has served as a director since
August 20, 2004.





Mr. Trenk has served as Chairman and
CEO of Air Pegasus since 1981 and, from 1997 to 2003, as Chairman, President and
CEO of Sightseeing Tours of America, Inc. and Liberty Helicopters, Inc.,
privately held corporations operating public use heliports in New York and
providing helicopter air tours and charter and air services. Mr. Trenk has also
been Chairman and CEO of TechTron, Inc. since 1980. TechTron is a privately
owned holding company with investment emphasis on emerging global market
opportunities. From 1976 to 1980, Mr. Trenk was Vice Chairman of Kenton
Corporation, a diversified publicly-traded corporation, where he also served as
President and CEO of Charles Town Turf Club, owner and operator of thoroughbred
race tracks in West Virginia, and Chairman and CEO of International Health
Company, which owned and operated a national chain of artificial kidney
centers.





Family
Relationships





There are
no family relationships among the directors and the executive officers of
FirstFlight.





Other
Directorships





No
director of FirstFlight serves as a director of a company with a class of
securities registered pursuant to Section 12 of the Exchange Act or any company
registered as an investment company under the Investment Company Act of
1940.




Code
of Ethics





On May
19, 2006, the Board of Directors of FirstFlight adopted a Code of Ethics for
application to the Company.  FirstFlight will provide to any person,
without charge, upon request, a copy of the Code of Ethics upon written or oral
request to Ronald J. Ricciardi, Chairman of the Board, FirstFlight, Inc., 101
Hangar Road, Wilkes-Barre/Scranton International Airport, Avoca, PA 18641, or by
telephone at: (570) 457-3400.





Committees
of the Board of Directors




There are
three committees of the Board of Directors: the Audit Committee comprised of
Donald Hecht; the Compensation Committee comprised of Jeffrey B. Mendell,
Chairman, and Alvin S. Trenk, and the Nominating Committee comprised of Jeffrey
B. Mendell.




A-22




Section
16(a) of the Exchange Act Beneficial Ownership Reporting Compliance




Based solely on a review of Forms 3 and
4 and amendments thereto, furnished to FirstFlight during the fiscal year ended
December 31, 2008 and Forms 5 and amendments thereto, furnished to FirstFlight
with respect to the fiscal year ended December 31, 2008, each director and
executive officer timely reported all of his transactions during that most
recent fiscal year as required by Section 16(a) of the Exchange
Act.





Corporate
Governance





There have been no changes to the
procedures by which security holders of FirstFlight may recommend nominees to
its Board of Directors since the Board set forth such policy in its proxy
statement for its Annual Meeting of Stockholders held on June 19,
2008.





FirstFlight’s Board of Directors has
determined that Donald Hecht qualifies as an audit committee financial expert on
its Audit Committee and is “independent” as that term is defined by the rules of
The Nasdaq Stock Market, Inc. (“Nasdaq”).




A-23




ITEM
11. EXECUTIVE
COMPENSATION




COMPENSATION
OF EXECUTIVE OFFICERS




The
following table sets forth the annual and long-term compensation for services in
all capacities for the fiscal year ended December 31, 2008. The following table
sets forth the annual compensation paid by the Company for services performed on
the Company's behalf for the fiscal years ended December 31, 2008 and 2007 with
respect to any person who served as Chief Executive Officer of FirstFlight
during fiscal 2008 and the two other most highly compensated executive officers
serving at December 31, 2008 whose total compensation exceeded $100,000 in
fiscal 2008.  The three persons named in the table are the only
persons who served as executive officers of FirstFlight in fiscal
2008.





SUMMARY
COMPENSATION TABLE




Name
      and Principal Position
              Year
              Salary
                ($)(2)
              Bonus
                ($)
              Option
                Awards
                ($)(3)
              All
      Other
                Compensation
                ($)(4)
              Total
                ($)John
      H. Dow, President and
                Chief
      Executive Officer (1)
              2008
                2007
              150,000
                150,000
              83,333
                100,000
              --
                99,600
              24,000
                24,000
              257,333
                373,600Ronald
      J. Ricciardi, Vice
                Chairman
      of the Board
              2008
                2007
              130,417
                125,000
              --
                --
              --
                97,400
              24,000
                24,000
              154,417
                246,400Keith
      P. Bleier, Senior VP,
                CFO
      and CAO (1)
              2008
                2007
              191,013
                188,100
              --
                --
              72,500
                82,500
              20,400
                20,400
              283,913
                291,000




1.
            Mr.
      Dow resigned as President and Chief Executive Officer and as a director
      effective with the March 2, 2009 divestiture of Airborne.  Mr.
      Bleier resigned as Senior Vice President and Chief Financial Officer
      effective on December 31, 2008.2.
            Before
      his resignation, effective March 2, 2009, Mr. Dow received a base salary
      of $150,000 and a guaranteed bonus of $100,000; effective November 1,
      2008, Mr. Dow agreed to temporarily forego his guaranteed bonus until
      further notice in connection with a cost-reduction program.  Mr.
      Ricciardi received a base salary of $125,000 in 2007 through October 31,
      2008 and $175,000 thereafter; effective November 1, 2008, Mr. Ricciardi
      agreed to temporarily forego 10% of his salary until further notice in
      connection with a cost-reduction program: Before his resignation effective
      December 31, 2008, Mr. Bleier received a base salary of $185,000 with
      annual increases of 5% effective September 1st
      of each year; effective November 1, 2008.3.
            Mr.
      Dow received an option to purchase 250,000 shares on September 23,
      2007.  The options were vested immediately and are exercisable
      for five years from the date of grant.  All of the previously
      mentioned options were forfeited by Mr. Dow as a condition to the
      consummation of the Airborne divestiture.  The option was priced
      at $0.40 per share, the closing sales price of the common stock on
      September 22, 2007.  All of the previously mentioned options
      were forfeited by Mr. Dow as a condition to the consummation of the
      Airborne divestiture.  Mr. Ricciardi received an option to
      purchase 250,000 shares on April 1, 2007.  Each set of options
      were vested immediately and are exercisable for five years from the date
      of grant.  The option was priced at $0.39 per share, the closing
      sales price of the common stock on April 1, 2007.  Mr. Bleier
      received an option to purchase 250,000 shares effective September 15, 2008
      and 2007.  Each set of options vest over one year and are
      exercisable for five years from the date of vesting.  The 2008
      and 2007 options were priced at $0.29 and $0.33 per share, the closing
      sales price of the common stock on September 14, 2008 and 2007,
      respectively.  Mr. Bleier’s final option (issued September 15,
      2008) was forgone upon his resignation effective December 31, 2008; the
      remaining sets of Mr. Bleier’s options expired on March 31,
      2009.  All options were valued using the Black-Scholes
      model.4.
            Mr.
      Dow received the use of an automobile and related expenses paid by the
      Company; Mr. Ricciardi receives an auto allowance of $1,000 per month and
      Mr. Bleier received an auto allowance of $700 per month.  Each
      of Messrs Dow, Ricciardi and Bleier receive health insurance coverage paid
      by the company estimated at a value of $1,000 per
  month.




A-24




OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END




OPTION
      AWARDSName
              Number
      of
                Securities
                Underlying
                Unexercised
                Options
                Exercisable
                (#)(1)
              Number
      of
                Securities
                Underlying
                Unexercised
                Options
                Unexercisable
                (#)
              Equity
      Incentive
                Plan
      Awards:
                Number
      of
                Securities
                Underlying
                Unexercised
                Unearned
                Options
                (#)
      (1)
              Option
                Exercise
                Price
                ($)
              Option
                Expiration
                DateJohn
      H. Dow
              250,000
                250,000
              
              
              0.40
                0.40
              09/22/2011
                09/22/2012Ronald
      J. Ricciardi
              250,000
                250,000
                250,000
              
              
              1.60
                0.50
                0.39
              03/31/2010
                03/31/2011
                03/31/2012Keith
      P. Bleier
              250,000
                250,000
                250,000
              250,000
              
              0.60
                0.33
                0.29
              09/15/2012
                09/15/2013
                09/15/2014




1.
            As
      part of his employment agreement, Mr. Dow: (a) received on September 23,
      2005 an option for 250,000 shares at $0.33 per share, upon which he made a
      cashless exercise on January 11, 2006 and for which he received 85,000
      shares; (b) received on September 23, 2006 an option for 250,000 shares at
      $0.40 per share, the closing sales price of the common stock on September
      22, 2006, which is currently exercisable; and (c) received on September
      23, 2007 an option for 250,000 shares at $0.40 per share, the closing
      sales price of the common stock on September 22, 2007, which is currently
      exercisable.  All of the previously mentioned options were
      forfeited by Mr. Dow as a condition to the consummation of the Airborne
      divestiture.
              
              As
      part of his employment agreement, Mr. Ricciardi: (a) received on April 1,
      2005 an option for 250,000 shares at $1.60 per share, the closing sales
      price of the common stock on March 31, 2005, which is currently
      exercisable; (b) received on April 1, 2006 an option for 250,000 shares at
      $0.50 per share, the closing sales price on March 31, 2006, which is
      currently exercisable; and (c) received as of April 1, 2007 an option for
      250,000 shares at $0.39 per share, the closing sales price on March 31,
      2007, which is currently exercisable.
              
              As
      part of his employment agreement, Mr. Bleier: (a) received on September
      15, 2006 an option for 250,000 shares at $0.60 per share, a negotiated
      price, which became exercisable on September 15, 2007; (b) received on
      September 1, 2007 an option for 250,000 shares priced at $0.33 per share,
      the closing sales price of the common stock on September 14, 2007, which
      is currently exercisable; and (c) received on September 15, 2008 an option
      for 250,000 shares priced at $0.29 per share, the closing sales price as
      of September 14, 2008.  This final option was forgone upon Mr.
      Bleier’s resignation effective December 31, 2008; the remaining options
      expired on March 31, 2009.
              
              Each
      set of options expires five years from its respective date of
      vesting.  FirstFlight has never re-priced any option (including
      those in the table) or otherwise modified any such option (such as by
      extension of exercise periods, the change of vesting or forfeiture
      conditions or the change or elimination of applicable performance
      criteria).




DIRECTOR
COMPENSATION TABLE




Name
              Fees
                Earned
      in
                Cash
                ($)(1)
              Option
                Awards
                ($)(2)
              Total
                ($)William
      B. Wachtel
              4,000
              2,000
              6,000Donald
      Hecht
              4,000
              2,000
              6,000Thomas
      Iovino
              4,000
              2,000
              6,000Jeffrey
      B. Mendell
              4,000
              2,000
              6,000Stephen
      B. Siegel
              4,000
              2,000
              6,000Alvin
      S. Trenk
              4,000
              2,000
              6,000





1.
            Directors
      who are not employees of the Company are entitled to a fee of $1,000 per
      board meeting and $750 and $500 per committee meeting for committee
      chairman and committee member, respectively.  Each director is
      also reimbursed for expenses incurred in connection with attendance at
      meetings of the Board of Directors.2.
            Each
      non-employee director is eligible to be granted an annual option to
      purchase shares of the common stock. On December 1, 2008 the Compensation
      Committee granted each non-employee director an option for their service
      in 2008.  Each set of options was for 25,000 shares and was
      priced at $0.08 per share, which was the closing sales price of the common
      stock on December 1, 2008.  The options may be exercised until
      November 30, 2013.




A-25




Employment
Agreements




On September 29, 2008, the Company
appointed Gary Hart as its Chief Operating Officer and Senior Vice
President.  FirstFlight and Mr. Hart also entered into a two year
employment agreement (the “Hart Employment Agreement”). Such employment
agreement provided that Mr. Hart would receive an annual base salary of
$200,000 and receive stock options to purchase an aggregate of 500,000 shares of
the Company’s common stock, as follows: (i) 250,000 shares on the first
anniversary date of the Hart Employment Agreement; and (ii) 250,000 shares
on the second anniversary date of the Hart Employment Agreement. The price of
each tranche of such stock option award shall be equal to the greater of:
(i) the fair market value of the Company’s common stock as of the close of
business on the day immediately preceding the grant date; or (ii) $0.60 per
share. Each tranche of such stock option award shall vest one year following the
date of grant and be exercisable for five years following vesting.  As
a result of the termination of Mr. Hart’s employment agreement, no such options
were issued or have vested.  Effective November 10, 2008, the Hart
Employment Agreement was terminated.





On September 1, 2006, FirstFlight
entered into an employment agreement effective as of September 15, 2006 with
Keith P. Bleier (the “Bleier Employment Agreement”). Mr. Bleier served
FirstFlight as a Senior Vice President and its Chief Financial Officer. The term
of the agreement was for three years, which commenced on September 15, 2006, and
thereafter would have automatically renewed for additional one-year periods. Mr.
Bleier’s base annual salary was $185,000 with annual increases of 5%. In
addition, he was eligible to receive an annual performance bonus at the
discretion of the Board of Directors. Mr. Bleier was to be granted an option
each September 15 during the initial term to purchase 250,000 shares of the
Common Stock, commencing September 15, 2006.  He has received his
first option effective September 15, 2006, his second option effective September
15, 2007 and his third option effective September 15, 2008.  Mr.
Bleier resigned from his position with the Company effective December 31, 2008
and the Bleier Employment Agreement was terminated.  Mr. Bleier’s
third option was forgone in connection with his resignation on December 31, 2008
and the other options expired on March 31, 2009.





On September 22, 2005, FirstFlight
entered into an employment agreement with John H. Dow (the “Dow Employment
Agreement”). Mr. Dow served FirstFlight as President and its Chief Executive
Officer. The term of the agreement was for three years and thereafter would have
automatically renewed for additional one-year periods. Mr. Dow’s base annual
salary was $150,000 with a guaranteed annual bonus of $100,000. In addition, he
was eligible to receive an annual performance bonus at the discretion of the
Board of Directors. Mr. Dow was to be granted an option each September 22 during
the initial term to purchase 250,000 shares of the Common Stock.  He
has received his first option effective September 22, 2005, his second option
effective September 22, 2006 and his third option effective September 22,
2007.  As a condition of the Airborne divestiture, Mr. Dow resigned
from his positions with the Company effective March 2, 2009 and the Dow
Employment Agreement was terminated and all options were forfeited.





Additional
Narrative Disclosure





FirstFlight does not offer a defined
retirement or pension plan.  The FirstFlight 401k Plan covers all
employees of the Company. The Plan contains an option for the Company to match
each participant's contribution. Any Company contribution vests over a five-year
period on a 20% per year basis. During 2008 and 2007, the Company matched
participant contributions at a rate of 50% of the first 6% of participant
deferrals.  Company contributions to the plan totaled approximately
$122,000 and $103,000 for the years ended December 31, 2008 and 2007,
respectively.




A-26




ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED
STOCKHOLDER MATTERS




Beneficial
Owners




The
following table presents certain information as of April 13, 2009 regarding the
beneficial ownership of our Common Stock by:





-
            each
      of our current executive officers and directors; and-
            all
      of our current directors and executive officers as a group;
      and-
            each
      other person or entity known by us to own beneficially 5% or more of our
      issued and outstanding common
stock.




Number
      of Shares
                                                          
                                                          Percentage
      ofName
      and Address
                                                          
                                                          of
      Common Stock
                                                          
                                                          Common
      Stockof
      Beneficial Owner
                                                          
                                                          Beneficially
      Owned
                                                          
                                                          Beneficially
      Owned (1)Ronald
      J. Ricciardi (2)
                                                          
                                                          
                                                          1,893,575
      (3)
                                                          
                                                          
                                                          5.5
                                                          %c/o
      FirstFlight, Inc.236
      Sing Sing RoadHorseheads,
      NY 14845William
      B. Wachtel (4)
                                                          
                                                          
                                                          7,005,243
      (5)
                                                          
                                                          
                                                          19.7
                                                          %c/o
      Wachtel & Masyr, LLP110
      East 59thStreetNew
      York, NY 10022Donald
      Hecht (4)
                                                          
                                                          
                                                          316,700
      (6)
                                                          
                                                          
                                                          0.9
                                                          %c/o
      Hecht and Company, P.C.111
      West 40thStreet20thFloorNew
      York, NY 10018Jeffrey
      B. Mendell (4)
                                                          
                                                          
                                                          335,293
      (7)
                                                          
                                                          
                                                          1.0
                                                          %c/o
      JBM Realty Capital Corp.100
      Putnam GreenGreenwich,
      CT 06830Alvin
      S. Trenk (4)
                                                          
                                                          
                                                          1,847,944
      (8)
                                                          
                                                          
                                                          5.3
                                                          %350
      East 79thStreetApartment
      38CNew
      York, NY 10021All
      directors and officers
                                                          
                                                          
                                                          12,556,736
                                                          
                                                          
                                                          31.2
                                                          %As
      a group (5 in number)Martin
      Sands and Steven Sands
                                                          
                                                          
                                                          3,578,029
      (9)
                                                          
                                                          
                                                          10.5
                                                          %c/o
      Laidlaw & Company (UK) Ltd.90
      Park AvenueNew
      York, NY 10016Peter
      Nordin
                                                          
                                                          
                                                          1,957,359(10)
                                                          
                                                          
                                                          5.7
                                                          %Bakkerevej
      OASnekkersten,
      Denmark






(1)
            The
      percentages computed in the table are based upon 33,764,453 shares of our
      common stock, which were outstanding on April 13, 2009. Effect is given,
      pursuant to Rule 13-d(1)(i) under the Exchange Act, to shares of our
      common stock issuable upon the exercise of options or warrants currently
      exercisable or exercisable within 60 days of April 13,
    2009.





(2)
            Ronald
      J. Ricciardi was the President and Chief Executive Officer of FirstFlight
      prior to December 12, 2006 and is a director of FirstFlight. On December
      12, 2006, he was elected Vice Chairman of the Board.  On March
      2, 2009, he was elected President and designated as Chief Executive
      Officer.  On April 8, 2009, he was elected Chairman of the
      Board.




A-27




(3)
            The
      shares of the Common Stock reported in the table include: (a) 250,000
      shares issuable upon the exercise of an option expiring March 31, 2010;
      (b) 250,000 shares issuable upon the exercise of an option expiring March
      31, 2011; (c) 250,000 shares issuable upon the exercise of an option
      expiring March 31, 2012; and (d) 100,000 shares issuable upon the exercise
      of a warrant expiring August 31, 2011.  Each of the three
      options and the warrant is currently
  exercisable.





(4)
            The
      reporting person is a director of
FirstFlight.





(5)
            The
      shares of the Common Stock reported in the table include: (a) 208,336
      shares issuable upon the exercise of a warrant expiring March 31, 2010,
      which is currently exercisable; (b) 800,000 of the 1,200,000 shares
      subject to a warrant expiring September 22, 2010, which is currently
      exercisable; (c) 750,000 shares issuable upon the exercise of a warrant
      expiring August 31, 2011, which is currently exercisable; (d) 25,000
      shares issuable upon the exercise of an option expiring December 12, 2010,
      which is currently exercisable; and (e) 25,000 shares issuable upon the
      exercise of an option expiring April 18, 2012, which is currently
      exercisable. The shares of the Common Stock reported in the table do not
      reflect (x) 333,400 shares of the Common Stock and (y) 200,000 shares
      issuable upon the exercise of a warrant expiring August 31, 2011 (which is
      currently exercisable) acquired by Wachtel & Masyr, LLP, which
      provides certain legal services for the Company, in the private placement
      which we closed on September 1, 2006. Mr. Wachtel is a managing partner of
      such firm, but does not have sole dispositive or voting power with respect
      to his firm’s securities.





(6)
            The
      shares of the Common Stock reported in the table include: (a) 100,000
      shares issuable upon the exercise of a warrant expiring August 31, 2011
      which is currently exercisable; and (b) 25,000 shares issuable upon the
      exercise of an option expiring April 18, 2012, which is currently
      exercisable.





(7)
            The
      shares of the Common Stock reported in the table include: (a) 50,000
      shares issuable upon the exercise of an investor warrant expiring March
      31, 2010 which is currently exercisable; (b) 25,000 shares issuable upon
      the exercise of an option expiring December 12, 2010 which is currently
      exercisable; and (c) 25,000 shares issuable upon the exercise of an option
      expiring April 18, 2012, which is currently
  exercisable.





(8)
            The
      shares of the Common Stock reported in the table include: (a) 400,000
      shares of the 1,200,000 shares subject to a warrant expiring September 22,
      2010, which is currently exercisable; (b) 25,000 shares issuable upon the
      exercise of an option expiring September 29, 2009, which is currently
      exercisable; (c) 500,000 shares issuable upon the exercise of a warrant
      expiring August 31, 2011, which is currently exercisable; and (d) 25,000
      shares issuable upon the exercise of an option expiring April 18, 2012,
      which is currently exercisable.





(9)
            Each
      of Martin Sands and Steven Sands has dispositive power and voting power
      with respect to the shares of the Common Stock (including the shares
      issuable upon the exercise of warrants) owned by Sands Brothers Venture
      Capital LLC and three other Sands Brothers funds. No one of these funds
      individually owns more than 5% of the outstanding shares of the Common
      Stock as of April 13, 2009. As a result of the Sands possessing such
      dispositive and voting powers each may be deemed the beneficial owner with
      respect to the shares of the Common Stock held by each of these
      stockholders. However, each disclaims beneficial ownership of these
      shares.





(10)
            Peter
      Nordin beneficially owns (a) 556,877 shares of our common stock and (b)
      150,000 shares issuable upon the exercise of a warrant expiring March 31,
      2010.  Peter Nordin APS owns (a) 938,815 shares of our common
      stock and (b) 266,667 shares issuable upon the exercise of a warrant
      expiring March 31, 2010.  The warrants are currently
      exercisable.  Peter Nordin may be deemed the beneficial owner of
      both the shares he owns personally and those of Peter Nordin APS because
      he has sole dispositive power and sole voting power with respect to the
      latter’s shares.




A-28




ITEM 13.CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE





Certain
Relationships and Related Transactions




The firm
of Wachtel & Masyr, LLP provides certain legal services to the Company.
William B. Wachtel, a member of the Company’s Board of Directors, is a managing
partner of this firm. During the year ended December 31, 2008, the Company was
billed for legal services of $90,000. At December 31, 2008, the Company has
recorded in accounts payable an obligation for legal fees of $0 related to these
legal services.





The charter division of the Company
manages several aircraft owned by an entity in which Mr. Wachtel along with two
other directors of FirstFlight, Thomas Iovino and Stephen B. Siegel, are
members. During the year ended December 31, 2008, the Company recorded direct
revenue and expenses of $5,516,292 and $4,947,652, respectively, related to the
Company’s management of these aircraft. At December 31, 2008 the Company had
recorded in accounts receivable a balance of approximately $568,641 owed from
this entity.





On April 26, 2007, Airborne entered
into an agreement to lease an aircraft from a company, of which one of its
members is Mr. Dow and the other member is an employee of Airborne. The terms of
the lease provided for the payment of rent of $20,000 per month and a charge of
$500 for each hour of aircraft use. The lease agreement, which was for a period
of one year with automatic annual renewals, further provided that this aircraft
would be managed by the Company through its charter segment, and through which
the Company would retain 90% of the associated charter revenue.  The
Company made use of this aircraft for certain business travel needs and paid
these expenses to the lessor.  During the year ended December 31,
2008, the Company recorded revenue and expenses of approximately $314,000 and
$509,000, respectively, in conjunction with the lease of this
aircraft.





Information with respect to the
Airborne divestiture was previously reported on Form 8-K on March 6, 2009 and is
incorporated herein by reference.





FirstFlight’s Board of Directors
adopted a Policy and Procedure Governing Related Party Transactions on April 26,
2007, which policy delegates certain functions related to the review and
approval of related party transactions to the Audit Committee and the
Compensation Committee.





Director
Independence





FirstFlight’s Board of Directors made
the determination of director independence in accordance with the definition set
forth in The Nasdaq Stock Market, Inc. rules.  Under such definition,
each of Donald Hecht and Jeffrey B. Mendell qualify as
independent.  Accordingly, all members of the Audit Committee and all
members of the Nominating Committee qualify as independent.  Of the
members of the Compensation Committee, only Alvin S. Trenk would not qualify as
independent because he is the father of a former director and executive officer
who resigned on October 31, 2006.





In making its determination as to the
independence of the two directors listed above, the Board did not consider any
transactions, relationships or arrangements of such directors with the Company
because there were none other then compensation arrangements for service
applicable to them generally.





ITEM 14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES





Audit Fees.The aggregate fees billed for professional services rendered by Marcum
& Kliegman LLP were approximately $160,000 and approximately $165,000
for the audits of the Company’s annual financial statements for the fiscal years
ended December 31, 2008 and 2007, respectively, and the reviews of the financial
statements included in the Company’s Forms 10-Qs and registration
statements for those fiscal years.




Audit-Related
Fees. The aggregate fees billed for professional services categorized as
Audit-Related Fees rendered were $0 for the fiscal years ended December 31, 2008
and 2007.




Tax Fees.
For the years ended December 31, 2008 and 2007, the principal accountant billed
$0 for tax compliance.




All Other
Fees. Other than the services described above, the aggregate fees billed
for services rendered by the principal accountant were $0 for the fiscal years
ended December 31, 2008 and 2007.




A-29




Audit Committee
Policies and Procedures. The Audit Committee must pre-approve all
auditing services and permitted non-audit services (including the fees and terms
thereof) to be performed for the Company by its independent registered public
accountants, subject to the de minimus exceptions for non-audit services
described in Section 10A(i)(1)(B) of the Exchange Act , which should be
nonetheless be approved by the Audit Committee of the Board of Directors prior
to the completion of the audit. Each year the independent registered public
accountants’s retention to audit our financial statements, including the
associated fee, is approved by the Audit Committee before the filing of the
previous year’s Annual Report on Form 10-K. At the beginning of the fiscal year,
the Audit Committee will evaluate other known potential engagements of the
independent registered public accountants, including the scope of work proposed
to be performed and the proposed fees, and approve or reject each service,
taking into account whether the services are permissible under applicable law
and the possible impact of each non-audit service on the independent registered
public accountant’s independence from management. At each such subsequent
meeting, the registered public accountants and management may present subsequent
services for approval. Typically, these would be services such as due diligence
for an acquisition, that would not have been known at the beginning of the
year.




Since
September 24, 2004 when the Board of Directors of FirstFlight initially
authorized the engagement of Marcum & Kliegman LLP, pursuant to the
Commission rules stating that an auditor is not independent of an audit client
if the services it provides to the client are not appropriately approved, each
new engagement of Marcum & Kliegman LLP, has been approved in advance by the
Audit Committee of the Board of Directors, and none of those engagements made
use of the de minimus exception to the pre-approval contained in Section
10A(i)(1)(B) of the Exchange Act.




A-30




Part
VI





ITEM 15.EXHIBITS, FINANCIAL STATEMENT
SCHEDULES





(a)
            Financial
      Statements





The
consolidated financial statements of FirstFlight, Inc. and subsidiaries as of
December 31, 2008 and 2007 and for each of the years then ended, and the Report
of Independent Registered Public Accounting Firm thereon, which includes an
explanatory paragraph as to the Company’s ability to continue as a going
concern, are included herein as shown in the “Table of Contents to Consolidated
Financial Statements.”





(b)
            Financial
      Statement Schedules





None.





(c)
            Exhibits





Exhibit
      No.
                  Description
      of Exhibit2
                  Agreement
      and Plan of Merger dated as of July 26, 2004 by and between
      FirstFlight
                    (then
      named Shadows Bend Development, Inc.) and FBO Air, Inc, an Arizona
      corporation (without schedules). (1)3(i)
                  Articles
      of Incorporation of FirstFlight filed on June 2, 1998.
  (2)3
      (i)(1)
                  Certificate
      of Amendment to Articles of Incorporation (Exhibit 3(i) filed on October
      15, 1999). (2)3
      (i)(2)
                  Certificate
      of Amendment to Articles of Incorporation (Exhibit 3(i) filed on June 2,
      2000). (2)3
      (i)(3)
                  Certificate
      of Amendment to FirstFlight’s Articles of Incorporation (Exhibit 3(j)
      filed on July 30, 2004). (1)3
      (i) (4)
                  Certificate
      of Designations. (3)3
      (i) (5)
                  Certificate
      of Amendment to Articles of Incorporation (Exhibit 3(i)) filed on December
      13, 2006).(4)3
      (i) (6)
                  Restated
      Articles of Incorporation.(4)3(ii)
      (1)
                  Bylaws
      of FirstFlight, Inc. (12)4.1
                  Common
      Stock Certificate. (12)4.2
                  Form
      of Warrant expiring March 31, April 8 or April 15, 2010.
    (5)4.3
                  Registration
      Rights Agreement (without schedule or exhibit). (5)4.4
                  Form
      of Co-Investor Registration Rights Agreement (without schedule or
      exhibit). (5)4.5
                  Copy
      of Warrant expiring September 22, 2010. (6)4.6
                  Form
      of Subscription Agreement (including registration rights commitment).
      (10)4.7
                  Copy
      of Warrant expiring August 31, 2011.  (14)10.1
                  Copy
      of Employment Agreement dated as of January 2, 2004 by and between Ronald
      J. Ricciardi and FirstFlight (as the successor by merger to FBO Air,
      Inc., an Arizona corporation). (8)10.2
                  Copy
      of First Amendment effective April 1, 2005 to the Ricciardi Employment
      Agreement, a copy of which is filed as Exhibit 10.5.
  (5)
  A-31
  10.3
                Copy
      of Second Amendment to the Ricciardi Employment Agreement, a copy of which
      is filed as Exhibit 10.7. (12)10.4
                Copy
      of Asset Purchase Agreement dated March 31, 2005 among FBO Air Garden
      City, Inc. and John A. Crotts. (5)10.5
                Copy
      of Stock Purchase Agreement dated March 31, 2005 between Tech Aviation
      Source, Ronald D. Ertley, Frank E. Paczewski, and FBO Air Wilkes-Barre,
      Inc. (5)10.6
                Copy
      of the FirstFlight, Inc. Stock Option Plan of 2005 dated as of December
      13, 2005. (11)10.7
                Share
      Exchange Agreement between FirstFlight, Inc., Airborne, Inc. and John and
      Daphne Dow dated March 2, 2009. (13)10.8
                Loan
      Agreement between FirstFlight, Inc. and Airborne, Inc. dated March 2,
      2009. (13)10.9
                Promissory
      Note between Airborne, Inc. and FirstFlight, Inc. dated March 2, 2009.
      (13)10.10
                Loan
      Agreement between FirstFlight, Inc. and EuroAmerican Investment Corp.
      dated March 2, 2009. (13)10.11
                Promissory
      Note between FirstFlight, Inc. and EuroAmerican Investment Corp. dated
      March 2, 2009. (13)10.12
                Loan
      Agreement between FirstFlight, Inc. and Five Star Bank dated March 2,
      2009. (13)10.13
                Security
      Agreement between FirstFlight, Inc. and Five Star Bank dated March 2,
      2009. (13)10.14
                Line
      of Credit Note between FirstFlight, Inc., Airborne, Inc., and Five Star
      Bank dated March 2, 2009. (13)14
                Code
      of Ethics. (9)21
                Subsidiaries.
      (13)31.1
                Certification
      pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act
      (principal executive and financial officer).32.1
                Certification
      pursuant to Section 1350 Certification of Sarbanes-Oxley Act of
      2002.





Footnotes:




(1)
Incorporated by reference to FirstFlight's Current Report on Form 8-K filed on
August 27, 2004.




(2) Incorporated by reference
to FirstFlight’s Registration Statement Form SB-2, File No.
333-56046.




(3) Incorporated by reference to
FirstFlight's Annual Report on Form 10-KSB for the year ended December 31,
2004.




(4)
Incorporated by reference to FirstFlight’s Current Report on Form 8-K filed on
December 18, 2006.





(5)
Incorporated by reference to FirstFlight's Current Report on Form 8-K filed on
April 6, 2005.




(6)
Incorporated by reference to FirstFlight's Current Report on Form 8-K/A filed on
November 3, 2005.




(7)
Incorporated by reference to FirstFlight’s Current Report on Form 8-K filed on
November 6, 2006.




A-32




(8)
Incorporated by reference to FirstFlight's Current Report on Form 8-K filed on
October 5, 2004.




(9)
Incorporated by reference to FirstFlight’s Current Report on Form 8-K filed on
May 24, 2006.





(10)
Incorporated by reference to FirstFlight’s Registration Statement on Form SB-2,
File No. 333-138994.





(11)
Incorporated by reference to FirstFlight’s Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2005.





(12)
Incorporated by reference to FirstFlight’s Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2006.





(13)
Filed herewith.





(14)
Incorporated by reference to FirstFlight’s Current Report on Form 8K filed on
September 8, 2006.




A-33




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.




FirstFlight,
      Inc.(Registrant)Date: April
      15, 2009
              By:
              /s/ Ronald J.
      RicciardiRonald
      J. Ricciardi,President
      and Chief Executive Officer





SIGNATURE
            
            TITLE
            DATE/s/
      William B. Wachtel
            
            Director
            April
      15, 2009William
      B. Wachtel/s/
      Donald Hecht
            
            Director
            April
      15, 2009Donald
      Hecht/s/
      Jeffrey B. Mendell
            
            Director
            April
      15, 2009Jeffrey
      B. Mendell/s/
      Alvin S. Trenk
            
            Director
            April
      15, 2009Alvin
      S. Trenk




A-34




FirstFlight,
Inc. Form 10-K for the Year Ended December 31, 2008


Exhibits
Filed with the Annual Report





INDEX





Exhibit
      No.
              Description
      of Exhibit10.7
              Share
      Exchange Agreement between FirstFlight, Inc., Airborne, Inc. and John and
      Daphne Dow dated March 2, 2009. (13)10.8
              Loan
      Agreement between FirstFlight, Inc. and Airborne, Inc. dated March 2,
      2009. (13)10.9
              Promissory
      Note between Airborne, Inc. and FirstFlight, Inc. dated March 2, 2009.
      (13)10.10
              Loan
      Agreement between FirstFlight, Inc. and EuroAmerican Investment Corp.
      dated March 2, 2009. (13)10.11
              Promissory
      Note between FirstFlight, Inc. and EuroAmerican Investment Corp. dated
      March 2, 2009. (13)10.12
              Loan
      Agreement between FirstFlight, Inc. and Five Star Bank dated March 2,
      2009. (13)10.13
              Security
      Agreement between FirstFlight, Inc. and Five Star Bank dated March 2,
      2009. (13)10.14
              Line
      of Credit Note between FirstFlight, Inc., Airborne, Inc., and Five Star
      Bank dated March 2, 2009. (13)21
              Subsidiaries.31.1
              Officer's
      Certification Pursuant to Rule 13a-14(a) under the Securities Exchange
      Act.32.1
              Certification
      Pursuant to Section 906 of Sarbanes-Oxley Act of
  2002.




A-35