UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-KSB


(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, 2006





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: 333-56046





FIRSTFLIGHT,
      INC.


(Exact
      name of Small Business Issuer in Its Charter)





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





236
      Sing
      Sing Road


Horseheads,
      NY 14845


(Address
      of Principal Executive Offices)





(607)
      739-7148


(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: None





Check
      whether the issuer is not required to file reports pursuant to Section 13 a
      15(d) of the Exchange Act.    ̈




Check
      whether the issuer (1) 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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. 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





State
      issuer’s revenues for its most recent fiscal year: $39,212,424





Aggregate
      market value of the voting stock held by non-affiliates based on the weighted
      average sale price for such stock on the ten trading days preceding April 13,
      2007: $6,991,553.





As
      of
      March 31, 2007, the Registrant had 36,582,987 shares of its Common Stock, $0.001
      par value, issued and outstanding.





Transitional
      Small Business Disclosure Format





Yes
            o
            
            No
            x











**FIRSTFLIGHT,
      INC. AND SUBSIDIARIES**


**FORM
      10-KSB**




**INDEX**





ITEM
                1.
            
            DESCRIPTION
                OF BUSINESS
            
            A-1ITEM
                2.
            
            DESCRIPTION
                OF PROPERTY
            
            A-4ITEM
                3.
            
            LEGAL
                PROCEEDINGS
            
            A-4ITEM
                4.
            
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            A-4ITEM
                5.
            
            MARKET
                FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
                ISSUER
                PURCHASES OF EQUITY SECURITIES
            
            A-6ITEM
                6.
            
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            
            A-8ITEM
                7.
            
            FINANCIAL
                STATEMENTS
            
            A-17ITEM
                8.
            
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            
            A-18ITEM
                8A.
            
            CONTROLS
                AND PROCEDURES
            
            A-18ITEM
                8B.
            
            OTHER
                INFORMATION
            
            A-18ITEM
                9.
            
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
                COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
            
            A-19ITEM
                10.
            
            EXECUTIVE
                COMPENSATION
            
            A-23ITEM
                11.
            
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDERS MATTERS
            
            A-28ITEM
                12.
            
            CERTAIN
                RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE
            
            A-31ITEM
                13.
            
            EXHIBITS
            
            A-32ITEM
                14.
            
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            
            A-34SIGNATURES
            
            
            
            A-36INDEX
                TO EXHIBITS FILED WITH REPORT
            
            E-1




THIS
      FORM
      10-KSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF 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 6, “MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION-CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS,” WITHIN THIS
      REPORT.










**PART
      I**




**ITEM
      1.**  **DESCRIPTION
      OF BUSINESS**




**General**




FirstFlight,
      Inc. (“FirstFlight”) is a Nevada corporation (formerly known as FBO Air, Inc.,
      the corporation was re-named FirstFlight, Inc. effective December 13, 2006),
      the
      Common Stock, $0.001 par value (the “Common Stock”), of which is publicly
      traded, and acts as a holding company for its operational subsidiaries
      (FirstFlight and its subsidiaries collectively, the "Company" or "we"). We
      are
      an aviation services company with operations in the aircraft charter management,
      fixed base operations (an “FBO”), and aircraft maintenance segments of the
      general aviation industry.





Activities
      by segment are carried out at the following locations:





Location
            
            Charter
            
            FBO
            
            MaintenanceElmira,
                New York
            
            X
            
            Fuel
                sales to managed aircraft only
            
            XWilkes-Barre,
                Pennsylvania
            
            X
            
            X
            
            XGarden
                City, Kansas
            
            
            
            X





The
      Elmira, New York facility became part of FirstFlight through the acquisition
      on
      September 23, 2005 of Airborne, Inc. (“Airborne”).





The
      Wilkes-Barre, Pennsylvania facility came as a result of the acquisition of
      Tech
      Aviation Service, Inc. (“Tech”) and the Garden City, Kansas facility as a result
      of the acquisition of the FBO assets of Central Plains Aviation, Inc. (“CPA”).
      Both transactions occurred on March 31, 2005.





On
      March
      16, 2006, the Company formed Margeson and Associates, Inc. (“Margeson”), an
      insurance brokerage company that primarily represents and sells aviation
      oriented insurance.





The
      Company was formed as FBO Air on January 17, 2003 (date of inception) as a
      proprietorship to acquire and operate FBOs. On January 2, 2004, FBO Air, Inc.
      was incorporated under the laws of the State of Arizona. FBO Air, Inc. completed
      a reverse merger transaction on August 20, 2004 (the “Reverse Merger”) with
      Shadows Bend Development, Inc. ("Shadows Bend"), an inactive Nevada corporation.
      Since October 2000, Shadows Bend had been pursuing a business plan to acquire,
      develop and operate "specialty care" facilities designed to help people
      diagnosed with Alzheimer's or other related illnesses. This business model
      was
      effectively abandoned in December 2002. The directors and management of FBO
      Air,
      Inc., upon consummation of the merger, became the directors and management
      of
      Shadows Bend.





On
      August
      20, 2004, Shadows Bend changed its corporate name to FBO Air, Inc. pursuant
      to
      the Agreement and Plan of Merger dated as of July 26, 2004 between Shadows
      Bend
      and FBO Air, Inc. (On December 13, 2006, the corporation was re-named
      FirstFlight, Inc.). As of December 21, 2004, the Common Stock became eligible
      for quotation on the NASD’s OTC Bulletin Board. FirstFlight files periodic
      reports with the Securities and Exchange Commission (the “SEC”) pursuant to
      Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”).





On
      September 1, 2006, the Company realized $5,025,000 in net proceeds from a
      private placement of equity securities, from which proceeds substantially all
      of
      the Company’s indebtedness was prepaid. In addition, all of the then outstanding
      shares of our Series A Preferred Stock, which, for accounting purposes, did
      not
      count as equity, were thereby converted into equity as shares of our Common
      Stock.





The
      charter management segment of the aviation industry, which includes the charter
      division of FirstFlight, operates under Federal Aviation Regulations (“FAR”)
      Part 135, which covers aircraft with 30 seats or less and up to 7,500 pounds
      of
      payload. According to the National Air Transportation Association
      (“NATA” *)* ,
      there
      are approximately 3,000 holders of Part 135 charter certificates, which include
      2,550 for fixed wing aircraft and 450 for helicopter operators.





NATA
      also
      reports that the business traveler accounts for approximately 70 percent of
      the
      market for charter activity, with leisure activity representing the remaining
      30
      percent. Further, approximately 30 percent of charter travelers have almost
      totally abandoned the scheduled airlines for their travel needs.




A-1




Because
      the charter management segment is populated by primarily small, private
      companies, financial and statistical data is difficult to acquire. However,
      according to the industry publication *Air
      Charter Guide* ,
      the
      total on-demand charter fleet in the United States is comprised of 6,411
      aircraft. The jet component of this number, exclusive of airliner-sized
      equipment, was 2,052 with each category - light, mid, and heavy - having
      increased in size versus prior years.





The
      FBO
      segment of the industry is also highly fragmented - being populated by,
      according to 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 further 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.




We
      believe the general aviation market has historically been somewhat cyclical,
      with revenues correlated quite closely with general US economic conditions.
      We
      also believe that the marketplace is experiencing a significant rebound in
      market and financial performance for three reasons:





·
            The
                economic downturn that marked the post-9/11 period has rebounded.
                FirstFlight believes the current relatively positive general condition
                of
                the US economy is benefiting the general aviation
                category.·
            The
                events of 9/11 were also catalytic in effecting a fundamental change
                in
                the demand for private aviation services; i.e., with the increase
                of
                security initiatives at the country’s major airports and the concomitant
                increase in check-in delays, there has been an increase in the number
                of
                business and high end leisure travelers who are using private aircraft
                for
                their travel needs.·
            There
                is a new generation of private jet aircraft coming on the market,
                which is
                more affordable but has less-than-transcontinental range. As this
                new
                generation of private jet aircraft begins to proliferate, we believe
                there
                will be a resultant demand for more FBO services in secondary markets
                as
                well as in middle America, where these aircraft might be expected
                to put
                down and take on fuel en route to their final
                destinations.





As
      of
      December 31, 2006, the Company had cash and cash equivalents of approximately
      $1,182,000 and had a working capital deficit of approximately $23,000. The
      Company generated revenues of approximately $39,200,000 for the year ended
      December 31, 2006. Since inception, the Company has incurred, in the aggregate,
      net losses and net losses applicable to common stockholders of approximately
      $5,929,000 and $12,515,000, respectively, for the period January 17, 2003 (date
      of inception) through December 31, 2006.





As
      discussed in Item 6 of this Report, Management’s Discussion and Analysis or Plan
      of Operation, the Company has taken steps to reduce the level of expenditures
      for corporate operations by severing ties with two executives. These executives
      represented costs in 2006 of approximately $900,000, including severance and
      separation fees, and stock-based compensation. Additionally, the Company settled
      litigation in 2006 that, including legal and settlement related costs,
      represented approximately $150,000. The Company has also re-negotiated favorable
      terms with certain vendors that management believes will represent a savings
      of
      almost $400,000 versus levels of historical spending, in part driven by the
      hiring of a chief financial officer and the corresponding elimination of an
      outside accounting consultant.





**Other
      Potential Products**




At
      this point in time, management contemplates maintaining focus on the three
      core
      segments of the aviation industry in which we currently operate - charter
      management, FBOs and aircraft maintenance. Any future expansion of offerings
      could come within products, services, or functions that support one, two or
      all
      of these segments.




Such
      expansion is not defined at the time of this Report, nor may it ever
      occur.




**Marketing
      and Sales**




The
      charter segment has a dedicated sales force whose key mission is to maintain
      and
      increase sales of charter activity primarily on its fleet of managed aircraft.
      Senior management personnel complement the efforts of this sales force by
      pursuing aircraft owners who could add their aircraft to our managed fleet.




A-2




Enhancements
      have also been made to the Company’s website that enables the sales force to
      more easily communicate with, and field requests from, both current and future
      clients.




**Government
      Approvals**




The
      aviation services that we operate and/or target for acquisition generally
      operate 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 operation and/or acquisition.
      There can be no assurance that we shall obtain such consents on favorable terms,
      which could result in our not consummating an acquisition that we otherwise
      would consider.




**Effect
      of existing or probable government regulation**




Aviation
      services also operate under the supervision of the Federal Aviation
      Administration. Our efforts to charter aircraft, to dispense fuels, and to
      provide repair and maintenance services are under the purview of local, regional
      and national regulatory agencies. We intend to comply with all government
      regulations. The adoption of new regulations could result in increased
      costs.




**Competition**




The
      segments of the aviation industry in which we compete are highly fragmented.
      Within the base of competition in each segment are local, regional and national
      companies.





Management
      believes that the current fleet of aircraft managed by its charter division
      is
      highly competitive in terms of the type and number of aircraft it can deploy
      for
      charter. As of March 31, 2007, the charter fleet was comprised of 17 jet
      aircraft that are generally recognized as attractive by aircraft charter
      clients, including aircraft by well-known manufacturers Gulfstream, Raytheon,
      Lear, Cessna, and Bombardier.





The
      FBO
      segment of the industry, the vast majority of which are independent, single
      location operators, is characterized by competition in both pricing and service
      due to the fair 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
      forecast that our larger size will provide us with greater buying power from
      suppliers, and thus provide us with lower costs, which would thereby 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.





**Costs
      and effects of complying with environmental laws**




In
      dispensing fuels and in maintenance and repair operations, we handle virgin
      and
      waste petroleum lubricants. The handling of these materials is subject to
      federal, state and local environmental laws. The Company intends to comply
      with
      these laws as part of its standard operating practice. The cost of this
      compliance is considered a normal cost of operations.




**Employees**




As
      of
      December 31, 2006, we employed 121 persons, of whom 92 were employed on a
      full-time basis, three of whom are executive officers of the Company; the
      balance are employed within our segment operations in New York, New Jersey,
      Pennsylvania, and Kansas.




A-3


**ITEM** **2.**  **DESCRIPTION
          OF PROPERTY**




We
      lease
      office space at the following locations:




Location
            
            Purpose
            
            Space
            
            Annual
                Rental
            
            Expiration236
                Sing Sing Road
              Horseheads,
                New York (1)
            
            
            Executive
                offices and principal facility of our charter segment
            
            
            24,050
                square feet
            
            $
            160,582
            
            
            September
                22, 2020101
                Hangar Road
              WB/Scranton
                Int’l Airport
              Avoca,
                PA
            
            
            Pennsylvania
                service location of our FBO segment.
            
            
            24,000
                square feet
            
            $
            75,000
            
            
            August
                21, 20132145
                S. Air Service Road, Garden City, KS
            
            
            Kansas
                service location
              of
                our FBO segment
            
            
            17,640
                square feet
            
            $
            18,600
            
            
            March
                31, 2015225
                Liberty Street, 2ndFloor
              Little
                Ferry, NJ
            
            
            Office
                facility of our
              charter
                sales department
            
            
            800
                square
              feet
            
            $
            20,100
            
            
            Month-to-month





(1)
      This
      location is leased from a related party to whom in the year ended December
      31,
      2006 and 2005 we paid a total amount for rent of approximately $161,000 and
      $43,000, respectively.





We
      believe that our space is adequate for our immediate needs and that, if
      additional space is required, whether due to the scheduled expiration of a
      lease
      or otherwise, it would be readily available at commercially reasonable
      rates.




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**




As
      of
      December 31, 2006, the Company was not a party to any pending legal proceeding
      as to which disclosure was required pursuant to Item 103 of Regulation S-B
      of
      the SEC.





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




(a)
            On
                December 12, 2006, FirstFlight held its Annual Meeting of
                Stockholders.





(b)
            The
                stockholders re-elected William B. Colaianni, John H. Dow, Donald
                Hecht,
                Thomas Iovino, Jeffrey B. Mendell, Ronald J. Ricciardi, Stephen B.
                Siegel,
                Alvin S. Trenk and William B. Wachtel as directors. No other previously
                elected director’s term of office continued after the
                meeting.





(c)
            The
                other matters approved at the meeting and the number of votes cast
                for,
                against or withheld, as well as the number of abstentions and broker
                non-votes as to each matter, were as
                follows:





(1)
            On
                the proposal to Amend the Articles of Incorporation to increase the
                maximum number of directors from seven to eleven, the exact number
                to be
                determined from time to time by the
                directors:





FOR
            
            
            21,906,845AGAINST
            
            
            530,238ABSTAINED
            
            
            782BROKER
                NON-VOTES
            
            
            1,304,491ABSTENTIONS
            
            
            1,008




A-4




(2)
            On
                the proposal to approve the Stock Option Plan of 2005 (the “Stock Option
                Plan”) and to ratify the options to purchase an aggregate of 1,535,000
                shares of the Common Stock theretofore granted
                thereunder:





FOR
            
            
            21,885,022AGAINST
            
            
            552,370ABSTAINED
            
            
            473BROKER
                NON-VOTES
            
            
            1,305,243ABSTENTIONS
            
            
            256




(3)
            On
                the proposal to amend the Articles of Incorporation to change the
                name of
                FirstFlight from FBO Air, Inc. to FirstFlight,
                Inc.





FOR
            
            
            22,437,489AGAINST
            
            
            321ABSTAINED
            
            
            55BROKER
                NON-VOTES
            
            
            1,305,475ABSTENTIONS
            
            
            24




(4)
            On
                the proposal to approve a possible reverse stock split of the Common
                Stock
                in an amount which the Board of Directors deems appropriate, to be
                not
                less than one-for-three and not more than one-for-ten, and the timing
                of
                its effectiveness to be at such time as the Board determines to file
                an
                Amendment to the Articles of Incorporation effectuating this reverse
                stock
                split, but not later than November 15,
                2007:





FOR
            
            
            22,431,969AGAINST
            
            
            5,497ABSTAINED
            
            
            399BROKER
                NON-VOTES
            
            
            1,305,316ABSTENTIONS
            
            
            183




(5)
            The
                voting for each director elected at the Annual Meeting was as
                follows:





NAME
            
            FOR
            
            WITHHELDWilliam
                R. Colaianni
            
            
            22,424,153
            
            
            13,712John
                H. Dow
            
            
            22,424,173
            
            
            13,692Donald
                Hecht
            
            
            22,424,173
            
            
            13,692Thomas
                Iovino
            
            
            22,424,098
            
            
            13,767Jeffrey
                B. Mendell
            
            
            22,424,173
            
            
            13,692Ronald
                J. Ricciardi
            
            
            22,424,153
            
            
            13,712Stephen
                B. Siegel
            
            
            22,424,078
            
            
            13,787Alvin
                S. Trenk
            
            
            22,423,423
            
            
            14,442William
                B. Wachtel
            
            
            22,420,173
            
            
            13,692





An
      Amendment to the Articles of Incorporation effecting the corporate name change
      and the change in the permitted number of directors was filed in the State
      of
      Nevada on December 13, 2006. The Company also filed an Amended and Restated
      Articles of Incorporation. Copies of the Articles of Incorporation, as amended
      prior to December 13 th ,
      are
      filed (by incorporation by reference) as Exhibits 3(i) through 3(i)(4) to this
      Report; a copy of the Amendment filed on December 13, 2006 is filed as Exhibit
      3(i)(5) to this Report; a copy of the Amended and Restated Articles of
      Incorporation is filed as Exhibit 3(i)(6) to this Report; and all are
      incorporated herein by this reference.





Because
      of the changes in the maximum number of authorized directors, Section 3.1 of
      FirstFlight’s Bylaws was also amended. A copy of the Bylaws in effect prior to
      December 13, 2006 is filed (by incorporation by reference) as Exhibit 3(ii)
      to
      this Report, a copy of the Bylaws as amended is filed as Exhibit 3(ii)(1) to
      this Report and both are incorporated by this reference.





A
      copy of
      the Stock Option Plan is filed (by incorporation by reference) as Exhibit 10.20
      to this Report and is incorporated herein by this reference.





(d)
            Not
                applicable.




A-5


**PART
      II**




**ITEM** **5.**  **MARKET
          FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS** **ISSUER
          PURCHASES OF EQUITY SECURITIES**




**Market
      for Common Equity**





The
      Common Stock is traded on the OTC Bulletin Board (“OTCBB”) under the symbol FFLT
      (prior to February 2, 2007 the Common Stock was traded under the symbol FBOR).
      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, 2005
            
            
            1.7500
            
            
            0.0001June
                30, 2005
            
            
            1.9000
            
            
            0.3200September
                30, 2005
            
            
            0.7500
            
            
            0.2200December
                31, 2005
            
            
            1.0000
            
            
            0.3500March
                31, 2006
            
            
            0.7500
            
            
            0.4000June
                30, 2006
            
            
            0.7500
            
            
            0.4100September
                30, 2006
            
            
            0.5000
            
            
            0.3000December
                31, 2006
            
            
            0.6000
            
            
            0.2400




**Holders**





As
      of
      March 31, 2007, there were approximately 660 holders of record of the 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.
      Until September 4, 2006, there were legal impediments to such declarations
      or
      payments, as follows: The Company has had losses since inception and the Nevada
      General Corporation Law, which governs FirstFlight, prohibited our paying cash
      dividends because our total assets were, prior to September 4, 2006, less than
      the sum of our total liabilities and the amount that would be needed, if
      FirstFlight were to be dissolved at the time of the dividend distribution,
      to
      satisfy the then liquidation preference of the holders of our Series A preferred
      stock. In addition, our senior secured notes which were due March 31, 2008
      or
      April 8, 2008 required the consent of the holders of 50.1% of the principal
      amount of such notes for us to pay a cash dividend on shares of our common
      stock. These notes were fully satisfied on September 4, 2006. In addition,
      unless the holders of at least 50.1% of the then outstanding shares of our
      Series A preferred stock consented, such security would also have barred any
      cash dividends on shares of our common stock so long as there were any
      accumulated but unpaid dividends on the Series A preferred stock. Even if a
      cash
      dividend had been permissible on shares of our common stock, the holders of
      our
      Series A preferred stock would have participated as if they had converted.




A-6




With
      the
      consummation of the private placement on September 1, 2006 and the resultant
      mandatory conversion of all of then outstanding shares of our Series A preferred
      stock and prepayment of our senior secured notes (see Notes 13 and 14 to the
      Consolidated Financial Statements in this Report) for information as to the
      foregoing), all of the foregoing legal or agreement restrictions have been
      removed. Nevertheless, we intend to retain future earnings, if any, 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, 2006, with
      respect to securities authorized for issuance under equity compensation plans.
      The only security being so offered is our common stock.





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
            
            
            1,535,000
            
            $
            0.512
            
            
            5,965,000Equity
                compensation plans not approved by security holders
            
            
            775,000
            
            $
            1.549
            
            
            —Total
            
            
            2,310,000
            
            $
            0.860
            
            
            5,965,000




We
      received stockholder approval on December 12, 2006 of the Stock Option Plan
      which relates to 7,500,000 shares of the Common Stock. Of the options granted
      to
      date, 1,535,000 have been granted under the Stock Option Plan.





**Repurchases**





There
      were no repurchases of shares during the years ended December 31, 2006 and
      2005.
      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.





**Recent
      Sales of Unregistered Securities**




Information
      with respect to all equity securities sold by FirstFlight during the fiscal
      year
      ended December 31, 2006 which were not registered under the Securities Act
      was
      previously reported in a Quarterly Report on Form 10-QSB or a Current Report
      on
      Form 8-K.





A-7


**ITEM** **6.**  **MANAGEMENT’S
          DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**




**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 Form 10-KSB.




**Consolidated
                Statement of Operations Data:**
            
            **Year
                Ended December 31,**
              **2006**
            
            **Year
                Ended**
              **December
                31,**
              **2005**(in
                thousands, except for share and per share data)Revenue
            
            $
            39,212
            
            $
            13,806Net
                loss applicable to common stockholders
            
            $
            (7,777
            )
            $
            (4,061
            )Net
                loss per common share
            
            $
            (.34
            )
            $
            (.42
            )Weighted
                average number of shares -basic and diluted
            
            
            22,661,039
            
            
            9,751,563




**Balance
                Sheet Data:**
            
            **December
                31,****2006**Working
                capital (deficiency)
            
            $
            (23
            )Total
                assets
            
            $
            13,181Total
                liabilities
            
            $
            7,157Stockholders’
                equity
            
            $
            6,025





**Forward-looking
      Statements**




This
      Report on Form 10-KSB contains "forward-looking statements" within the meaning
      of Section 27A of the Securities Act and Section 21E of 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 SEC.




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.





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




Comparison
      of the Year Ended December 31, 2006 and December 31, 2005





Revenue





We
      had
      overall revenue of approximately $39,200,000 for the year ended December 31,
      2006 as compared to revenue of $13,806,000 for the year ended December 31,
      2005.
      We did not begin to recognize revenue until the quarter beginning April 1,
      2005
      upon the acquisition of Tech and CPA. The charter segment generated
      approximately $30,900,000 of fiscal 2006 revenue; the FBO segment generated
      approximately $5,300,000 and the maintenance segment generated approximately
      $3,000,000.




Charter
      Segment





The
      charter segment of FirstFlight is engaged in aircraft charter management
      activities, providing on-call passenger air transportation. Charter services
      are
      provided through a fleet of managed aircraft for which we provide regulatory
      and
      maintenance oversight for the managed aircraft, while also offering charter
      services.




A-8




We
      managed 17 aircraft for owners at March 31, 2007. These aircraft were offered
      for charter when not in use by their owners. Fee revenue is generated from
      management of the aircraft - ensuring that the aircraft meets compliance with
      manufacturer and FAA regulations in addition to generating revenue from charter
      activity.





Of
      the
      approximately $30,900,000 in charter segment revenue in the year ended December
      31, 2006, $22,700,000 (73.5%) was generated directly through the charter of
      aircraft. Approximately $6,400,000 (20.7%) of revenue was generated by aircraft
      management services, $1,300,000 (4.2%) was from the sale of fuel, and about
      $500,000 was related to commissions on the sale of aircraft and the sale of
      other miscellaneous items. During the year ended December 31, 2005, the charter
      segment generated about $8,840,000 in revenue with approximately $7,400,000
      (83.7%) being generated directly through the charter of aircraft; $1,200,000
      (13.5%) related to aircraft management services; and $265,000 (3.0%) from the
      sale of fuel. The 355 percent increase in charter segment revenue is largely
      attributable to a full twelve-month performance from the Airborne acquisition,
      which was consummated on September 23, 2005.





FBO
      Segment





The
      FBO
      segment has its main facility in Wilkes-Barre, PA, and became part of
      FirstFlight through the acquisitions of Tech and CPA on March 31, 2005. The
      FBO
      segment provides services such as fueling and hangaring for general aviation,
      commercial and military aircraft along with the operation of a flight school
      in
      Pennsylvania and the management of a non-owned FBO facility.





During
      the year ended December 31, 2006, of the approximately $5,300,000 in FBO segment
      revenue, $4,800,000 (90.6%) was generated by the sale of jet fuel, aviation
      gasoline (“avgas”), and related items; $400,000 (7.5%) related to flight
      training, and approximately $100,000 (1.8%) was generated by the sale of
      miscellaneous items and the management of non-owned FBO facilities. During
      the
      year ended December 31, 2005, of the approximately $4,200,000 in FBO segment
      revenue, $3,700,000 (88.1%) was generated by the sale of jet fuel, avgas and
      related items; $324,000 (7.8%) related to flight training, and approximately
      $200,000 (3.8%) was generated by the sale of miscellaneous items and the
      management of non-owned FBO facilities.




The
      fluctuation of fuel cost was a significant focus for management in the year
      ended December 31, 2006. As the cost of fuel rose, as it did on numerous
      occasions throughout the year, we paid close attention to how competition was
      pricing their product and made counter-competitive decisions on almost a weekly
      basis. Particularly in our Kansas location, where transient traffic represents
      the majority of gallonage, these decisions impacted the revenue and margin
      performance of the division.





As
      fuel
      is the primary driver of revenue in the FBO division, we anticipate continued
      variability of pricing following closely the crude oil marketplace. There has
      proven a fair amount of price elasticity in the segment of turbine-engine
      aircraft that require jet fuel. There has been, however, a direct relationship
      between the price of avgas, which is used in piston-engine aircraft, and the
      amount of leisure flying.





Maintenance
      Segment





The
      aircraft maintenance segment provides repair services for both managed and
      non-managed aircraft as well as specialty services on aircraft brakes and
      wheels.




We
      first
      reported maintenance as a separate segment in the quarter ended September 30,
      2006. Management believes that this separate, dedicated emphasis will prompt
      a
      greater focus on operational efficiencies in the segment and, ultimately, lead
      to improved performance.





During
      the year ended December 31, 2006, of the approximately $3,000,000 in maintenance
      segment revenue, approximately $1,500,000 (50%) was related to labor charges;
      approximately $900,000 (30%) was due to the sale of parts; and approximately
      $600,000 (20%) was generated by our brake and wheel shop. During the year ended
      December 31, 2005, maintenance segment revenue was about $800,000. As in the
      charter segment, this significant increase in segment revenue was directly
      attributable to a full year performance in 2006 from the Airborne acquisition,
      which was consummated on September 23, 2005.




A-9


Cost
        of
        Revenue and Gross Profit
  Charter
        Segment


Cost
      of
      revenue for the charter segment for the year ended December 31, 2006 was
      approximately $26,300,000, or 85.0% of revenue, for a gross profit of
      $4,600,000, or 15.0% of revenue. The largest dollar contributor to gross profit
      was the charter of aircraft under our management (50.1%), followed by management
      services (21.6%), aircraft sales commissions and miscellaneous items (11.6%),
      fuel sales (9.5%), and charter arranged for trips outside our managed fleet
      (7.2%). Cost of revenue for the year ended December 31, 2005 was about
      $7,700,000 for a gross profit of $1,100,000 or 12.5% of revenue. The largest
      dollar contributor to gross profit was the charter of aircraft under our
      management (59.7%), followed by management services (23.6%), charter arranged
      for trips outside our managed fleet (9.0%), fuel sales (5.1%), and miscellaneous
      items (2.5%) The increase in total gross profit percentage in 2006 compared
      to
      2005 is due primarily due to aircraft sales commissions in 2006, which have
      no
      direct costs to offset their contribution to gross profit. Excluding these
      commissions the gross profit percentage for 2006 would have been 13.3% of
      revenue.




FBO
      Segment





Cost
      of
      revenue for the FBO segment for the year ended December 31, 2006 was
      approximately $3,900,000, or 73.0% of revenue, for a gross profit of $1,400,000,
      or 27.0% of revenue. The largest contributor to gross profit was the sale of
      jet
      fuel, avgas, and related items, with a gross profit of $1,200,000 (81.4%),
      the
      operation of the flight school $140,000 (9.9%) and the contract management
      of
      non-owned FBO facilities $125,000 (8.7%). Cost of revenue for the year ended
      December 31, 2005 was approximately $2,900,000 for a gross profit of $1,300,000
      or 31.4% of revenue. The decline in gross profit percentage was the impact
      of
      jet fuel and avgas pricing pressures. As the cost per gallon increased during
      2006, we selectively determined our retail sales price while balancing being
      competitive in the marketplace.





Maintenance
      Segment





Cost
      of
      revenue for the maintenance segment for the year ended December 31, 2006 was
      approximately $2,600,000, or 86.0% of revenue, for a gross profit of $400,000,
      or 14.0% of revenue. The brake and wheel operation and charges for labor
      generated positive gross profits ($276,000 and $401,000, respectively) while
      the
      sale of parts and miscellaneous items generated negative gross profit ($225,000
      and $36,000, respectively). Cost of revenue for year ended December 31, 2005
      was
      about $650,000 for a gross profit of $150,000 or 18.7% of revenue.





Operating
      Expenses





We
      had
      overall operating expenses of approximately $8,900,000 for the year ended
      December 31, 2006 as compared to approximately $4,000,000 for the year ended
      December 31, 2005.





Excluding
      depreciation and amortization, the charter segment, which is primarily a
      function of the September 23, 2005 acquisition of Airborne, represented
      approximately $3,700,000 in operating expenses; the FBO segment, which is a
      function of the March 31, 2005 acquisitions of Tech and CPA, represented
      approximately $1,300,000 in operating expenses; and the maintenance segment,
      which is a combination of the Airborne and Tech acquisitions, had approximately
      $600,000 in operating expenses. The corresponding figures for the year ended
      December 31, 2005 were approximately $900,000 in the charter segment, $1,200,000
      for the FBO segment, and $200,000 for the maintenance segment. Depreciation
      and
      amortization for the operating segments totaled approximately $400,000 in the
      year ended December 31, 2006 compared to approximately $135,000 in 2005. Timing
      of acquisitions, and therefore lessor time periods being represented in 2005,
      primarily account for the increases on a year-over-year basis.





The
      remainder of operating expenses was attributable to the corporate operations
      and
      amounted to approximately $2,850,000 for the year ended December 31, 2006 as
      compared to $1,700,000 for the year ended December 31, 2005. Stock-based
      compensation was approximately $800,000 of the total in 2006, rather than $0
      in
      2005 as a result of the adoption of SFAS 123R as described elsewhere in this
      Report. Included in stock-based compensation expense for 2006 was approximately
      $328,000 to expense the remaining unamortized fair value of options related
      to
      the termination of employment agreements with two executives, as discussed
      elsewhere in this Report. The balance of increased expenses were primarily
      comprised of legal and accounting expenses incurred for operating for the full
      year along with increased payroll expenses related to a larger infrastructure.





We
      have,
      however, taken steps to reduce our level of expenditure for corporate
      operations. As described in the Employment Agreement section of Item 10 to
      this
      Report, we have severed ties with two executives. These executives represented
      costs in 2006 of approximately $900,000, including severance and separation
      fees, and stock-based compensation. Additionally, we settled litigation in
      2006
      that, including legal and settlement related costs, represented approximately
      $150,000. We have also negotiated favorable terms with certain vendors that
      we
      believe will represent a savings of almost $400,000 versus levels of historical
      spending, in part driven by the hiring of a chief financial officer and the
      corresponding elimination of an outside accounting consultant.




A-10


Interest
      Expense




Interest
      expense for the years ended December 31, 2006 and 2005 was approximately
      $1,200,000 and $500,000, respectively. The increase in interest expense in
      2006
      was largely attributable to the additional amortization of the discount on
      the
      Senior Secured Notes charged to interest expense upon early
      payment.





Income
      Taxes




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”).




**Net
      Loss Applicable to Common Stockholders**




Net
      losses applicable to common stockholders for the year ended December 31, 2006
      and 2005 were approximately $7,777,000 and $4,061,000, respectively, an increase
      of approximately $3,716,000 or approximately 92%. The increased net loss
      applicable to common stockholders for the year ended December 31, 2006 was
      due
      to an increase in operating expenses and interest expenses as described above
      along with increases in 2006 compared to 2005 for deemed dividends on the
      issuance of the Series A Preferred Stock (increased by $1,420,000 in 2006
      compared to 2005) and amortization of deferred financing costs (increased by
      $956,000).




Basic
      net
      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. Common stock equivalents, consisting of options, convertible
      preferred stock and convertible notes payable, were not included in the
      calculation of the diluted losses per share because their inclusion would have
      been anti-dilutive. Basic and diluted net losses per share applicable to common
      stockholders were $0.34 and $0.42 for the years ended December 31, 2006 and
      2005, respectively.





**LIQUIDITY
      AND CAPITAL RESOURCES**





On
      September 1, 2006, we closed a private placement (“the Offering”) and sold 50.25
      units (the “Units”) at $100,000 per Unit. Each Unit consisted of 166,700 shares
      of the Common Stock and a warrant expiring August 31, 2011 to purchase 100,000
      shares of the Common Stock. We realized gross proceeds of $5,025,000 from the
      Offering and, in connection therewith, issued 8,376,675 shares of the Common
      Stock.




The
      Company has also taken steps to reduce the level of expenditure for corporate
      operations by severing ties with two executives (see Item 10). These executives
      represented costs in 2006 of approximately $900,000, including severance and
      separation fees, and stock-based compensation. Additionally, the Company settled
      litigation in 2006 that, including legal and settlement related costs,
      represented approximately $150,000. The Company has also re-negotiated favorable
      terms with certain vendors that management believes will represent a savings
      of
      almost $400,000 versus levels of historical spending, in part driven by the
      hiring of a chief financial officer and the corresponding elimination of an
      outside accounting consultant.





The
      Company is continuing its financial and operational restructuring initiatives
      and will continue to implement its strategic business plan. Although the Company
      believes that it has sufficient liquidity to sustain its existing business
      through December 31, 2007, there is no assurance that unforeseen
      circumstances will not have a material affect on the business that could require
      it to raise additional capital or take other measures to sustain operations
      in
      the event outside sources of capital are not available. The Company has not
      secured any commitments for new financing at this time nor can it provide any
      assurance that new capital (if needed) will be available to it on
      acceptable terms, if at all.




During
      the year ended December 31, 2006, the Company had a net decrease in cash and
      cash equivalents of approximately $149,000. The Company's sources and uses
      of
      funds during this period were as follows:





**Cash
      Used in Operating Activities**




For
      the
      year ended December 31, 2006, net cash used in operating activities was
      approximately $1,888,000. This was primarily derived from a net loss of
      $3,337,000 adjusted for $2,210,000 of non-cash items such as depreciation,
      amortization and stock-based compensation.




A-11




For
      the
      year ended December 31, 2005, net cash used in operating activities was
      approximately $955,000. This was primarily derived from a net loss of
      $1,914,000, an increase in accounts receivable of $225,000, and a decrease
      in
      accounts payable of $182,000. Net cash used in operations was reduced by the
      effect of increases in customer deposits of $332,000 and accrued expenses of
      $593,000. These changes in cash used in operating activities are all
      attributable to the operations that were acquired on March 31, 2005 and
      September 23, 2005.





**Cash
      Used in Investing Activities**




For
      the
      year ended December 31, 2006, net cash used in investing activities was
      approximately $8,000. This was attributable to the receipt of a $200,000
      repayment of a note receivable, offset by $208,000 for the purchase of fixed
      assets.





For
      the
      year ended December 31, 2005, net cash used in investing activities was
      approximately $4,392,000. This was attributable primarily to FirstFlight's
      purchase of two fixed base operating companies on March 31, 2005 for $2,555,000
      and, on September 23, 2005, the purchase of a charter management operation,
      requiring cash of $1,400,000.





**Cash
      Provided by Financing Activities**




For
      the
      year ended December 31, 2006, net cash provided by financing activities was
      approximately $1,747,000, consisting of the receipt of proceeds of $5,025,000
      from a private placement, net of $1,500,000 for the repayment of a term loan,
      $1,496,000 for the repayment of the principal balance of the Senior Secured
      Notes and $211,000 in accrued interest on the Senior Secured Notes, and $116,000
      in principal repayments on certain notes payable associated with the March
      31,
      2005 acquisitions.





For
      the
      year ended December 31, 2005, net cash provided by financing activities was
      approximately $6,663,000. On March 31, April 8, and April 15, 2005, we received
      net funds aggregating approximately $5,231,000 through a private placement
      consisting of the issuance of $1,496,000 of Senior Secured Notes, the issuance
      of $4,243,000 of Series A Preferred Stock and the issuance of warrants
      for the purchase of 3,617,000 shares of the Common Stock, less issuance expenses
      paid in cash at closing of $508,000.





**CAUTIONARY
      STATEMENT FOR FORWARD-LOOKING STATEMENTS**





Statements
      contained in this "Management's Discussion and Analysis or Plan of Operation"
      may contain information that includes or is based upon certain "forward-looking
      statements" relating to our business. These forward-looking statements represent
      management's current judgment and assumptions, and can be identified by the
      fact
      that they do not relate strictly to historical or current facts. Forward-looking
      statements are frequently accompanied by the use of such words as "anticipates,"
      "plans," "believes," "expects," "projects," "intends," and similar expressions.
      Such forward-looking statements involve known and unknown risks, uncertainties,
      and other factors, including, while it is not possible to predict or identify
      all such risks, uncertainties, and other factors, those relating
      to:




·
            our
                ability to secure the additional financing, if required, to execute
                our
                business plan;·
            our
                ability to identify, negotiate and complete the acquisition of targeted
                operators, consistent with our business plan;·
            existing
                or new competitors consolidating operators ahead of the
                Company;·
            we
                may be unable to attract new personnel, which would adversely affect
                implementation of our overall business strategy.·
            the
                success of our investor relations program to create and sustain interest
                and liquidity in our stock, which is currently thinly traded on the
                OTCBB;




Any
      one
      of these or other risks, uncertainties, other factors, or any inaccurate
      assumptions may cause actual results to be materially different from those
      described herein or elsewhere by us. We caution readers not to place undue
      reliance on any such forward-looking statements, which speak only as of the
      date
      they were made. Certain of these risks, uncertainties, and other factors may
      be
      described in greater detail in our filings from time to time with the SEC,
      which
      we strongly urge you to read and consider. Subsequent written and oral
      forward-looking statements attributable to us or to persons acting on our behalf
      are expressly qualified in their entirety by the cautionary statements set
      forth
      above and elsewhere in our reports filed with the SEC. We expressly disclaim
      any
      intent or obligation to update any forward-looking statements.




A-12




**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**  **Policies**




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.




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:





Business Combinations




In
      accordance with business combination accounting, the Company allocates the
      purchase price of acquired companies to the tangible and intangible assets
      acquired, liabilities assumed, as well as in-process research and development
      based on their estimated fair values. The Company engaged a third-party
      appraisal firm to assist management in determining the fair values of certain
      assets acquired and liabilities assumed. Such a valuation requires management
      to
      make 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 charter management and fuel revenues, managed aircraft agreements,
      customer relationships and key management 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.





Accounts
      Receivable




The
      Company’s extends credit to large and mid-size companies for aviation services.
      The Company has concentrations of credit risk in that 52% of the balance of
      accounts receivable at December 31, 2006 is made up of only ten customers.
      At
      December 31, 2006, accounts receivable from the two largest accounts amounted
      to
      approximately $505,000 (9.9%) and $426,000 (8.4%), 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 collectibility
      and
      the allowance for doubtful accounts is adjusted accordingly. Management
      determines collectibility 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 $4,194,770.
      The Company has determined that there is no impairment of goodwill at December
      31, 2006. Intangible assets continue to be amortized over their estimated useful
      lives.




A-13




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 NOL carryforwards may be subject to an annual limitation in future
      periods pursuant to Section 382 of the Code.





Stock
      Based Compensation





During
      December 2006, the stockholders of FirstFlight approved the Stock Option Plan
      of
      2005 (the “Plan”) that was approved by the Board of Directors in December 2005.
      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 no more than ten years. The exercise price is to be
      equal
      to at least 100% of the fair market value of a share of Common Stock, as
      determined by the Committee, on the grant date.





For
      the
      year ended December 31, 2006, the Company incurred stock-based compensation
      expense of $801,721 related to stock options. In addition, for the year ended
      December 31, 2006, the Company incurred certain expenses aggregating $29,375
      in
      connection with stock issued in settlement of a legal dispute. These amounts
      were settled by the issuance of 57,598 shares of the Common Stock.





Prior
      to
      January 1, 2006, the Company accounted for employee options under the
      recognition and measurement provisions of Accounting Principles Board Opinion
      No. 25 ("APB 25"). Accordingly, the Company would recognize compensation expense
      only if it granted options with a discounted exercise price. Any resulting
      compensation expense would then have been recognized ratably over the associated
      service period. No stock-based employee compensation expense relating to the
      Company’s stock options was reflected in net loss, as all options granted had an
      exercise price equal to or greater than the market value of the underlying
      Common Stock on the effective date of grant. Prior to January 1, 2006, the
      Company provided pro-forma disclosure amounts in accordance with SFAS No. 148,
      "Accounting for Stock-Based Compensation--Transition and Disclosure" ("SFAS
      148"), as if the fair value method defined by SFAS 123, “Accounting for
      Stock-Based Compensation” ("SFAS 123") had been applied to its stock-based
      compensation.





Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      SFAS 123R, using the modified prospective transition method and therefore has
      not restated prior periods' results. Under this transition method, employee
      stock-based compensation expense for the year ended December 31, 2006 included
      compensation expense for all stock-based compensation awards granted, but not
      yet fully exercisable, prior to January 1, 2006.  The fair value of the
      options granted was determined at the original grant dates in accordance with
      the provisions of SFAS 123.  Stock-based compensation expense for all
      share-based payment awards granted after December 31, 2005 is based on the
      grant-date fair value estimated in accordance with the provisions of SFAS 123R.
      The Company recognizes these compensation costs over the requisite service
      period of the award, which is generally the vesting term of the options
      associated with the underlying employment agreement, where applicable. As a
      result of adopting SFAS 123R, the impact to the consolidated financial
      statements for the year ended December 31, 2006 was $801,721 greater than if
      the
      Company had continued to account for stock-based compensation under APB 25.
      The
      impact of the adoption of SFAS 123R on both basic and diluted net loss per
      share
      for the year ended December 31, 2006 was $0.04. At December 31, 2006, the
      unamortized fair value of employee stock options under SFAS 123R was $375,992.
      The unamortized portion will be expensed over a weighted average period of
      approximately two years.





The
      Company accounts for equity instruments issued to non-employees in accordance
      with the provisions of SFAS 123 and the Emerging Issues Task Force (“EITF”)
      Issue No.  96-18,  “Accounting  for  Equity 
Instruments  That Are Issued to Other Than  Employees  for 
Acquiring,  or In  Conjunction  with Selling,  Goods or
      Services” (“EITF 96-18”) which require that such equity instruments are recorded
      at their fair value on the measurement date, which date is typically upon
      the inception of the services that will be performed.  For the year ended
      December 31, 2006, stock based compensation expense for non-employees related
      to
      57,598 shares of the Common Stock issued in connection with the settlement
      of
      litigation was $29,375 and was accounted for under EITF 96-18.




A-14




**Recent
      Accounting Pronouncements**





In
      February 2007, the FASB issued Statement of Financial Accounting
      Standards No. 159, The Fair Value Option for Financial Assets and Financial
      Liabilities ("SFAS 159"), to permit all entities to choose to elect, at
      specified election dates, to measure eligible financial instruments at fair
      value. An entity shall report unrealized gains and losses on items for which
      the
      fair value option has been elected in earnings at each subsequent reporting
      date, and recognize upfront costs and fees related to those items in earnings
      as
      incurred and not deferred. SFAS 159 applies to fiscal years beginning after
      November 15, 2007, with early adoption permitted for an entity that has also
      elected to apply the provisions of SFAS 157, Fair Value Measurements. An
      entity is prohibited from retrospectively applying SFAS 159, unless it chooses
      early adoption. SFAS 159 also applies to eligible items existing at November
      15,
      2007 (or early adoption date). The Company is currently evaluating the
      impact of adopting SFAS 159 on its consolidated financial
      statements.




In
      December 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-2,
      Accounting for Registration Payment Arrangements. This FSP specifies that the
      contingent obligation to make future payments or otherwise transfer
      consideration under a registration payment arrangement, whether issued as a
      separate agreement or included as a provision of a financial instrument or
      other
      agreement, should be separately recognized and measured in accordance with
      FASB
      Statement No. 5, Accounting for Contingencies. This FSP further clarifies that
      a
      financial instrument subject to a registration payment arrangement should be
      accounted for in accordance with other applicable GAAP without regard to the
      contingent obligation to transfer consideration pursuant to the registration
      payment arrangement. This FSP amends various authoritative literature notably
      FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
      Activities, FASB Statement No. 150, Accounting for Certain Financial Instruments
      with Characteristics of both Liabilities and Equity, and FASB Interpretation
      No.
      45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
      Indirect Guarantees of Indebtedness of Others.   This FSP is effective
      immediately for registration payment arrangements and the financial instruments
      subject to those arrangements that are entered into or modified subsequent
      to
      December 21, 2006. For registration payment arrangements and financial
      instruments subject to those arrangements that were entered into prior to
      December 21, 2006, the guidance in the FSP is effective for financial statements
      issued for fiscal years beginning after December 15, 2006, and interim periods
      within those fiscal years. The Company is in the process of determining the
      effect, if any, the adoption of this FSP will have on its consolidated financial
      statements.




In
      November 2006, the EITF reached a final consensus in EITF Issue 06-6 “Debtor’s
      Accounting for a Modification (or Exchange) of Convertible Debt Instruments”
(“EITF 06-6”). EITF 06-6 addresses the modification of a convertible debt
      instrument that changes the fair value of an embedded conversion option and
      the
      subsequent recognition of interest expense for the associated debt instrument
      when the modification does not result in a debt extinguishment pursuant to
      EITF
      96-19 , “Debtor’s Accounting for a Modification or Exchange of Debt
      Instruments,”. The consensus should be applied to modifications or exchanges of
      debt instruments occurring in interim or annual periods beginning after November
      29, 2006. The Company is currently evaluating the impact of the adoption of
      EITF 06-6 on its consolidated financial position, results of operations or
      cash
      flows.




In
      November 2006, the FASB ratified EITF Issue No. 06-7, Issuer’s Accounting for a
      Previously Bifurcated Conversion Option in a Convertible Debt Instrument When
      the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement
      No. 133, Accounting for Derivative Instruments and Hedging Activities (“EITF
      06-7”). At the time of issuance, an embedded conversion option in a convertible
      debt instrument may be required to be bifurcated from the debt instrument and
      accounted for separately by the issuer as a derivative under FAS 133, based
      on
      the application of EITF 00-19. Subsequent to the issuance of the convertible
      debt, facts may change and cause the embedded conversion option to no longer
      meet the conditions for separate accounting as a derivative instrument, such
      as
      when the bifurcated instrument meets the conditions of Issue 00-19 to be
      classified in stockholders’ equity. Under EITF 06-7, when an embedded conversion
      option previously accounted for as a derivative under FAS 133 no longer meets
      the bifurcation criteria under that standard, an issuer shall disclose a
      description of the principal changes causing the embedded conversion option
      to
      no longer require bifurcation under FAS 133 and the amount of the liability
      for
      the conversion option reclassified to stockholders’ equity. EITF 06-7 should be
      applied to all previously bifurcated conversion options in convertible debt
      instruments that no longer meet the bifurcation criteria in FAS 133 in interim
      or annual periods beginning after December 15, 2006, regardless of whether
      the
      debt instrument was entered into prior or subsequent to the effective date
      of
      EITF 06-7. Earlier application of EITF 06-7 is permitted in periods for which
      financial statements have not yet been issued. The Company
      is currently evaluating the impact of this guidance on its consolidated
      financial position, results of operations or cash flows.




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”).  This Statement defines fair value, establishes a framework for
      measuring fair value and expands disclosure of fair value measurements. 
SFAS No. 157 applies under other accounting pronouncements that require or
      permit fair value measurements and accordingly, does not require any new fair
      value measurements.  SFAS No. 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007.  The
      Company is in the process of evaluating the impact that the adoption of SFAS
      No.
      157 will have on the Company’s results of operations and financial
      condition.




A-15




In
      September 2006, the staff of the SEC issued Staff Accounting Bulletin No. 108
      ("SAB 108") which provides interpretive guidance on how the effects of the
      carryover or reversal of prior year misstatements should be considered in
      quantifying a current year misstatement. SAB 108 is effective in fiscal years
      ending on or after November 15, 2006. Adoption of SAB 108 did not have a
      material impact on the Company's consolidated financial position, results of
      operations or cash flows.





In
      July
      2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in
      Income Taxes - an Interpretation of FASB Statement No. 109" (the
      "Interpretation"). The Interpretation establishes for all entities a minimum
      threshold for financial statement recognition of the benefit of tax positions,
      and requires certain expanded disclosures. The Interpretation is effective
      for
      fiscal years beginning after December 31, 2006, and is to be applied to all
      open
      tax years as of the date of effectiveness. The Company is in the process of
      evaluating the impact of the application of the Interpretation to its
      consolidated financial statements.





In
      March 2006, the FASB issued Statement of Financial Accounting Standard 156
      - Accounting for Servicing of Financial Assets (“SFAS 156”), which requires all
      separately recognized servicing assets and servicing liabilities be initially
      measured at fair value. SFAS 156 permits, but does not require, the subsequent
      measurement of servicing assets and servicing liabilities at fair value.
      Adoption is required as of the beginning of the first fiscal year that begins
      after September 15, 2006. Early adoption is permitted. The adoption of SFAS
      156 is not expected to have a material effect on the Company’s consolidated
      financial position, results of operations or cash flows.





In
      February 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard 155 - Accounting for Certain Hybrid
      Financial Instruments (“SFAS 155”), which eliminates the exemption from applying
      SFAS 133 (“Accounting for Derivative Instruments and Hedging Activities”) (“SFAS
      133”) to interests in securitized financial assets so that similar instruments
      are accounted for similarly regardless of the form of the instruments. SFAS
      155
      also allows the election of fair value measurement at acquisition, at issuance,
      or when a previously recognized financial instrument is subject to a
      re-measurement event. Adoption is effective for all financial instruments
      acquired or issued after the beginning of the first fiscal year that begins
      after September 15, 2006. Early adoption is permitted. The adoption of SFAS
      155 is not expected to have a material effect on the Company’s consolidated
      financial position, results of operations or cash flows.





In
      October 2005, the FASB issued FSP FAS 123(R)-2, “Practical Accommodation to the
      Application of Grant Date as Defined in FASB Statement No. 123(R)”, which
      provides clarification of the concept of mutual understanding between employer
      and employee with respect to the grant date of a share-based payment award.
      This
      FSP provides that a mutual understanding of the key terms and conditions of
      an
      award shall be presumed to exist on the date the award is approved by management
      if the recipient does not have the ability to negotiate the key terms and
      conditions of the award and those key terms and conditions will be communicated
      to the individual recipient within a relatively short time period after the
      date
      of approval. This guidance was applicable upon the initial adoption of SFAS
      123(R). The adoption of this pronouncement did not have an impact on the
      Company's consolidated financial position, results of operations, or cash
      flows.




A-16


**ITEM** **7.**  **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-KSB.





FIRSTFLIGHT,
                INC. AND SUBSIDIARIES(FORMERLY
                FBO AIR, INC. AND SUBSIDIARIES)Table
                of Contents to Consolidated Financial
                Statements






Report
                of Independent Registered Public Accounting Firm
            
            
            F-1Consolidated
                Financial StatementsConsolidated
                Balance Sheet as of December 31, 2006
            
            
            F-2Consolidated
                Statements of Operations For the Years Ended December 31, 2006 and
                2005
            
            
            F-3Consolidated
                Statements of Stockholders' Equity For the Years Ended December 31,
                2006
                and 2005
            
            
            F-4Consolidated
                Statements of Cash Flows For the Years Ended December 31, 2006 and
                2005
            
            
            F-5Notes
                to Consolidated Financial Statements
            
            
            F-8




A-17




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To
      the
      Audit Committee of the Board of Directors and Stockholders of


FirstFlight,
      Inc.




We
      have
      audited the accompanying consolidated balance sheet of FirstFlight, Inc. and
      Subsidiaries (formerly FBO Air, Inc. and Subsidiaries) (the "Company") as of
      December 31, 2006, and the related consolidated statements of operations,
      stockholders’ equity, and cash flows for each of the two years in the period
      ended December 31, 2006. 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, 2006, and the results of their
      operations and their cash flows for each of the two years in the period ended
      December 31, 2006, in conformity with United States generally accepted
      accounting principles.




/s/
                Marcum & Kliegman LLPNew
                York, NY
              March
                22, 2007





F-1





FIRSTFLIGHT,
                INC. AND SUBSIDIARIES(FORMERLY
                FBO AIR, INC. AND SUBSIDIARIES)CONSOLIDATED
                BALANCE SHEETDecember
                31, 2006




ASSETSCURRENT
                  ASSETSCash
                  and cash equivalents
              
              $
              1,181,870Accounts
                  receivable, net of allowance fordoubtful
                  accounts of $57,722
              
              
              5,083,524Inventory
              
              
              193,413Prepaid
                  expenses and other current assets
              
              
              280,923Total
                  current assets
              
              
              6,739,730PROPERTY
                  AND EQUIPMENT,
                  netof
                  accumulated depreciation of $272,788
              
              
              1,286,376OTHER
                  ASSETSDeposits
              
              
              26,500Note
                  receivable
              
              
              150,000Intangible
                  assets - trade names
              
              
              420,000Other
                  intangible assets, net ofaccumulated
                  amortization of $275,936
              
              
              364,064Goodwill
              
              
              4,194,770Total
                  other assets
              
              
              5,155,334TOTAL
                  ASSETS
              
              $
              13,181,440LIABILITIES
                  AND STOCKHOLDERS' EQUITYCURRENT
                  LIABILITIESAccounts
                  payable
              
              $
              5,627,406Customer
                  deposits
              
              
              398,785Accrued
                  expenses
              
              
              532,988Notes
                  payable - current portion
              
              
              203,823Total
                  current liabilities
              
              
              6,763,002LONG-TERM
                  LIABILITIESNotes
                  payable - less current portion
              
              
              393,805Total
                  liabilities
              
              
              7,156,807COMMITMENTS
                  AND CONTINGENCIESSTOCKHOLDERS'
                  EQUITYPreferred
                  stock - $.001 par value; authorized 9,999,154;none
                  issued and outstanding
              
              
              -Common
                  stock - $.001 par value; authorized 100,000,000;36,583,793
                  issued and outstanding
              
              
              36,584Additional
                  paid-in capital
              
              
              18,398,977Accumulated
                  deficit
              
              
              (12,410,928
              )TOTAL
                  STOCKHOLDERS' EQUITY
              
              
              6,024,633TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              13,181,440


*See
      notes to consolidated financial statements.*





F-2





FIRSTFLIGHT,
                INC. AND SUBSIDIARIES(FORMERLY
                FBO AIR, INC. AND SUBSIDIARIES)CONSOLIDATED
                STATEMENTS OF OPERATIONS




For
                  the Year Ended
                December
                  31,2006
              
              2005REVENUE
              
              $
              39,212,424
              
              $
              13,805,562COST
                  OF REVENUES
              
              
              32,719,490
              
              
              11,247,405GROSS
                  PROFIT
              
              
              6,492,934
              
              
              2,558,157SELLING,
                  GENERAL AND ADMINISTRATIVEEXPENSES(including $831,096 and $0of
                  stock based compensation, respectively)
              
              
              8,868,277
              
              
              4,044,479OPERATING
                  LOSS
              
              
              (2,375,343
              )
              
              (1,486,323
              )OTHER
                  INCOME (EXPENSE)OTHER
                  INCOME
              
              
              157,500
              
              
              —INTEREST
                  INCOME
              
              
              31,188
              
              
              38,117INTEREST
                  EXPENSE
              
              
              (1,150,104
              )
              
              (466,091
              )TOTAL
                  OTHER INCOME (EXPENSE)
              
              
              (961,416
              )
              
              (427,974
              )NET
                  LOSS
              
              $
              (3,336,759
              )
              $
              (1,914,297
              )Deemed
                  dividend to preferred stockholders:Amortization
                  of discount
              
              
              (2,831,303
              )
              
              (1,411,347
              )Amortization
                  of deferred financing costs
              
              
              (1,437,194
              )
              
              (481,146
              )Preferred
                  stock dividend
              
              
              (171,260
              )
              
              (254,123
              )Net
                  loss applicable to common stockholders
              
              $
              (7,776,516
              )
              $
              (4,060,913
              )Basic
                  and Diluted Net Loss PerCommon
                  Share applicable to common stockholders
              
              $
              (0.34
              )
              $
              (0.42
              )Weighted
                  Average Number of Common SharesOutstanding
                  - Basic and Diluted
              
              
              22,661,039
              
              
              9,751,563


*See
      notes to consolidated financial statements.*




F-3


FIRSTFLIGHT,
                INC. AND SUBSIDIARIES(FORMERLY
                FBO AIR, INC. AND SUBSIDIARIES)CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS' EQUITYFor
                the Years Ended December 31, 2006 and
                2005




TotalAdditional
              
              Deferred
              
              
              
              Stockholders'Common
                  Stock
              
              Paid-in
              
              Financing
              
              Accumulated
              
              EquityShares
              
              Amount
              
              Capital
              
              Costs
              
              Deficit
              
              (Deficiency)BALANCE-
                  January 1, 2005
              
              
              6,026,022
              
              $
              6,026
              
              $
              34,475
              
              $
              -
              
              $
              (573,499
              )
              $
              (532,998
              )Common
                  stock issued inconnection
                  with the conversionof
                  convertible notes
              
              
              4,018,376
              
              
              4,018
              
              
              395,982
              
              
              -
              
              
              -
              
              
              400,000Beneficial
                  conversion featurediscounts
                  recorded in connectionwith
                  the redeemable convertiblepreferred
                  stock and senior notes
              
              
              -
              
              
              -
              
              
              6,857,298
              
              
              -
              
              
              -
              
              
              6,857,298Deferred
                  financing costs incurred inconnection
                  with the issuance ofredeemable
                  convertible preferredStock
                  and warrants
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,918,340
              )
              
              
              
              
              (1,918,340
              )Common
                  stock issued in connectionwith
                  the purchase of Airborne
              
              
              2,333,334
              
              
              2,333
              
              
              627,667
              
              
              -
              
              
              -
              
              
              630,000Warrants
                  issued in connection withthe
                  term loan for the acquisitionof
                  Airborne
              
              
              -
              
              
              -
              
              
              33,033
              
              
              -
              
              
              -
              
              
              33,033Common
                  stock issued in connectionwith
                  the exercise of warrants
              
              
              21,413
              
              
              21
              
              
              12,826
              
              
              -
              
              
              -
              
              
              12,847Common
                  stock issued in connectionwith
                  the conversion of redeemableconvertible
                  preferred stock
              
              
              1,516,667
              
              
              1,517
              
              
              460,149
              
              
              -
              
              
              -
              
              
              461,666Deemed
                  dividend to preferredStockholders
                  - accretion of discount
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,411,347
              )
              
              (1,411,347
              )Amortization
                  of deferredfinancing
                  costs
              
              
              -
              
              
              -
              
              
              -
              
              
              481,146
              
              
              (481,146
              )
              
              -Dividends
                  on redeemable convertiblepreferred
                  stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (254,123
              )
              
              (254,123
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,914,297
              )
              
              (1,914,297
              )BALANCE-
                  December 31, 2005
              
              
              13,915,812
              
              $
              13,915
              
              $
              8,421,430
              
              $
              (1,437,194
              )
              $
              (4,634,412
              )
              $
              2,363,739Common
                  stock issued inconnection
                  with the cashlessexercise
                  of stock options
              
              
              207,435
              
              
              207
              
              
              (207
              )
              
              -
              
              
              -
              
              
              -Common
                  stock issuedin
                  connection with thesettlement
                  of obligation
              
              
              25,000
              
              
              25
              
              
              18,725
              
              
              -
              
              
              -
              
              
              18,750Common
                  stock issued in connectionwith
                  the settlement of litigation
              
              
              57,598
              
              
              58
              
              
              (58
              )
              
              -
              
              
              -
              
              
              -Amortization
                  of stock basedcompensation
              
              
              -
              
              
              -
              
              
              801,721
              
              
              -
              
              
              -
              
              
              801,721Amortization
                  of deferredfinancing
                  costs
              
              
              -
              
              
              -
              
              
              -
              
              
              1,437,194
              
              
              (1,437,194
              )
              
              -Deemed
                  dividend to preferredshareholders
                  - accretion of discount
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,831,303
              )
              
              (2,831,303
              )Dividends
                  on redeemableconvertible
                  preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (171,260
              )
              
              (171,260
              )Common
                  stock issued inconnection
                  with conversion ofconvertible
                  preferred stock
              
              
              12,583,336
              
              
              12,584
              
              
              3,716,780
              
              
              -
              
              
              -
              
              
              3,729,364Common
                  stock issued in connectionwith
                  private placement
              
              
              8,376,675
              
              
              8,377
              
              
              5,016,623
              
              
              -
              
              
              -
              
              
              5,025,000Common
                  stock issued for paymentof
                  accrued dividends onconvertible
                  preferred stock
              
              
              1,417,937
              
              
              1,418
              
              
              423,963
              
              
              -
              
              
              -
              
              
              425,381Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,336,759
              )
              
              (3,336,759
              )BALANCE-
                  December 31, 2006
              
              
              36,583,793
              
              $
              36,584
              
              $
              18,398,977
              
              $
              -
              
              $
              (12,410,928
              )
              $
              6,024,633


*See
      notes to consolidated financial statements.*





F-4


FIRSTFLIGHT,
                INC. AND SUBSIDIARIES(FORMERLY
                FBO AIR, INC. AND SUBSIDIARIES)CONSOLIDATED
                STATEMENTSOF
                CASH FLOWS




For
                  the Year Ended
                December
                  31,2006
              
              2005CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (3,336,759
              )
              $
              (1,914,297
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              406,471
              
              
              145,053Amortization
                  of debt discount
              
              
              951,849
              
              
              320,668Provision
                  for doubtful accounts
              
              
              20,546
              
              
              2,670Amortization
                  of option on lease of real estate
              
              
              -
              
              
              600Stock
                  based compensation
              
              
              801,721
              
              
              -Issuance
                  of redeemable common stock
              
              
              29,375
              
              
              -Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (1,682,615
              )
              
              (224,618
              )Inventory
              
              
              (2,159
              )
              
              (3,680
              )Prepaid
                  expenses and other current assets
              
              
              (59,328
              )
              
              (132,616
              )Due
                  from stockholder
              
              
              -
              
              
              15,510Deposits
              
              
              -
              
              
              (25,000
              )Accounts
                  payable
              
              
              1,425,875
              
              
              (181,820
              )Customer
                  deposits
              
              
              (52,021
              )
              
              332,388Accrued
                  interest and dividends
              
              
              (117,990
              )
              
              117,988Accrued
                  expenses
              
              
              (272,759
              )
              
              592,587TOTAL
                  ADJUSTMENTS
              
              
              1,448,965
              
              
              959,730NET
                  CASH USED IN OPERATING ACTIVITIES
              
              
              (1,887,794
              )
              
              (954,567
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESIssuance
                  of note receivable
              
              
              -
              
              
              (350,000
              )Repayment
                  of note receivable
              
              
              200,000
              
              
              -Purchase
                  of fixed assets
              
              
              (207,554
              )
              
              (87,652
              )Acquisition
                  of Airborne
              
              
              -
              
              
              (1,400,000
              )Acquisition
                  of FBOs, less cash acquired of $167,329
              
              
              -
              
              
              (2,554,816
              )NET
                  CASH USED IN INVESTING ACTIVITIES
              
              
              (7,554
              )
              
              (4,392,468
              )


*See
      notes to consolidated financial statements.*





F-5





FIRSTFLIGHT,
                INC. AND SUBSIDIARIES(FORMERLY
                FBO AIR, INC. AND SUBSIDIARIES)CONSOLIDATED
                STATEMENTSOF
                CASH FLOWS, CONTINUED




For
                  the Year Ended
                December
                  31,2006
              
              2005CASH
                  FLOWS FROM FINANCING ACTIVITIESProceeds
                  from the sale of convertible notes
              
              
              -
              
              
              20,000Repayment
                  of notes
              
              
              (327,456
              )
              
              (100,219
              )Proceeds
                  from term loan
              
              
              45,548
              
              
              -Repayment
                  of term loan
              
              
              (1,500,000
              )
              
              -Repayment
                  of senior notes
              
              
              (1,496,324
              )
              
              -Proceeds
                  from private placement
              
              
              5,025,000
              
              
              -Deferred
                  financing costs
              
              
              -
              
              
              (508,234
              )Proceeds
                  from exercise of warrants
              
              
              -
              
              
              12,847Proceeds
                  from the issuance of term loan
              
              
              -
              
              
              1,500,000Proceeds
                  from the private placement
              
              
              -
              
              
              4,488,974Proceeds
                  from the Co-Investment
              
              
              -
              
              
              1,250,000NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              1,746,768
              
              
              6,663,368NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              (148,580
              )
              
              1,316,333CASH
                  AND CASH EQUIVALENTS-
                  Beginning
              
              
              1,330,450
              
              
              14,117CASH
                  AND CASH EQUIVALENTS-
                  Ending
              
              $
              1,181,870
              
              $
              1,330,450





F-6


FIRSTFLIGHT,
                INC. AND SUBSIDIARIES(FORMERLY
                FBO AIR, INC. AND SUBSIDIARIES)CONSOLIDATED
                STATEMENTSOF
                CASH FLOWS, CONTINUED




SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                  paid during the periods for:Interest
              
              $
              328,931
              
              $
              3,000Income
                  taxes
              
              $
              8,160
              
              $
              -Non-cash
                  investing and financing activities:Common
                  stock issued to settle obligation
              
              $
              18,750
              
              $
              -Redeemable
                  common stock issued in connection with the settlement of
                  litigation
              
              $
              29,375
              
              $
              -Cashless
                  exercise of stock options
              
              $
              207
              
              $
              -Redeemable
                  convertible preferred stock converted to common stock
              
              $
              3,729,364
              
              $
              461,666Convertible
                  Notes converted to common stock
              
              $
              -
              
              $
              400,000Purchase
                  of equipment under capital lease
              
              $
              110,896
              
              $
              -Common
                  stock issued for dividends on redeemable convertible preferred
                  stock
              
              $
              425,381
              
              $Supplemental
                  non-cash investing and financing activity:Current
                  assets acquired
              
              $
              -
              
              $
              3,640,721Property
                  and equipment acquired
              
              
              -
              
              
              1,153,063Intangible
                  assets acquired
              
              
              -
              
              
              1,060,000Goodwill
                  recognized on purchase business combinations
              
              
              -
              
              
              4,194,770Deposits
                  acquired
              
              
              -
              
              
              1,500Current
                  liabilities assumed with acquisitions
              
              
              -
              
              
              (4,554,280
              )Notes
                  payable - other - less current portion, assumed with
                  acquisition
              
              
              -
              
              
              (733,629
              )Non-cash
                  consideration to seller
              
              
              -
              
              
              (640,000
              )Less:
                  Cash acquired
              
              
              -
              
              
              (167,329
              )Cash
                  paid to acquire businesses
              
              $
              -
              
              $
              3,954,816


*See
      notes to consolidated financial statements.*




F-7


**FIRSTFLIGHT,
      INC. AND SUBSIDIARIES**


**Notes
      To Consolidated Financial Statements**


**December
      31, 2006**




NOTE
      1 - Nature
      of Operations





FBO
      Air
      was formed on January 17, 2003 (date of inception) as a proprietorship to
      acquire and operate fixed base operators. On January 2, 2004, FBO Air, Inc.
      was
      incorporated in the State of Arizona. On December 13, 2006, FBO Air, Inc.
      changed its name to FirstFlight, Inc. (“FirstFlight”). The business strategy of
      FirstFlight and its subsidiaries (collectively, the “Company”) is as an aviation
      services company with operations in the charter management, FBO operations,
      and
      aircraft maintenance segments of the private aviation industry. The Company
      utilized a merger/acquisition strategy to establish itself as an operating
      company.





Effective
      August 20, 2004, Shadows Bend Development, Inc. (“Shadows Bend”), a Nevada
      publicly-traded company with no active business, entered into a merger
      transaction with FBO Air, Inc., a privately-held Arizona corporation. Upon
      completion of the merger transaction, Shadows Bend changed its name to FBO
      Air,
      Inc. and the original FBO Air, Inc. stockholders owned 75% of the outstanding
      shares of the Common Stock of the surviving company. Accordingly, this
      transaction has been accounted for as a reverse merger with FirstFlight as
      the
      acquirer of Shadows Bend. The reverse merger was accounted for as a
      recapitalization of FirstFlight and the stockholders’ deficiency of FirstFlight
      was retroactively restated to its inception on January 17, 2003.





From
      its
      inception, the Company had been in the development stage and its efforts up
      to
      March 31, 2005 had been principally devoted to the organizational activities
      of
      raising capital, recruiting and hiring of key personnel, and identifying and
      screening of potential acquisitions.




On
      March
      31, 2005, FirstFlight formed FBO Air-Wilkes-Barre (“FBO Wilkes-Barre”), a
      wholly-owned subsidiary, and then acquired the common stock of Tech Aviation
      Service, Inc. (“Tech”), a fixed base operator in Avoca, Pennsylvania.





On
      March
      31, 2005, FirstFlight formed FBO Air-Garden City (“FBO Garden City”), a
      wholly-owned subsidiary of FirstFlight, and then acquired certain operating
      assets of Central Plains Aviation, Inc., (“CPA”) a fixed base operator located
      in Garden City, Kansas.





Accordingly,
      since March 31, 2005, the Company is no longer considered a development stage
      entity.





On
      September 23, 2005, FirstFlight acquired the common stock of Airborne, Inc.
      (“Airborne”), a charter and aircraft management company, located in Elmira, New
      York.





On
      October 20, 2005, FirstFlight formed Tech Aviation Flight School, Inc. (“TAFS”),
      a wholly-owned subsidiary of FBO Wilkes-Barre. TAFS operates in connection
      with
      the fixed base operation in Avoca, Pennsylvania and is an FAA accredited flight
      school.





On
      March
      16, 2006, FirstFlight formed Margeson & Associates, Inc. (“Margeson”), a
      wholly-owned subsidiary of FirstFlight. Margeson, an insurance agency, offers
      property, casualty and liability insurance primarily to the general aircraft
      industry.





During
      March 2006, the Company completed its consolidation of certain activities under
      a single Federal Aviation Administration (“FAA”) Part 135 Certificate. In
      connection with the consolidation, on April 11, 2006, the Company sold Tech,
      whose sole asset immediately prior to the sale consisted of Tech’s FAA Part 135
      Certificate, and recognized other income of approximately $157,000.




NOTE
      2 - Management’s
      Plan of Operation




F-8
 
 **FIRSTFLIGHT,
          INC. AND SUBSIDIARIES**
 **Notes
          To Consolidated Financial Statements**
 **December
          31, 2006**


As
      of
      December 31, 2006, the Company had cash and cash equivalents of approximately
      $1,182,000 and had a working capital deficit of approximately $23,000. The
      Company generated revenues of approximately $39,200,000 for the year ended
      December 31, 2006. Since inception, the Company has incurred, in the aggregate,
      net losses and net losses applicable to common stockholders of approximately
      $5,929,000 and $12,515,000, respectively for the period January 17, 2003 (date
      of inception) through December 31, 2006. For the year ended December 31, 2006,
      net cash used in operating activities was approximately $1,888,000 and net
      cash
      used in investing activities was approximately $8,000.





The
      Company has taken steps to reduce the level of expenditures for corporate
      operations by severing ties with two executives. These executives represented
      costs in 2006 of approximately $900,000, including severance and separation
      fees, and stock-based compensation. Additionally, the Company settled litigation
      in 2006 that, including legal and settlement related costs, represented
      approximately $150,000. The Company has also re-negotiated favorable terms
      with
      certain vendors that management believes will represent a savings of almost
      $400,000 versus levels of historical spending, in part driven by the hiring
      of a
      chief financial officer and the corresponding elimination of an outside
      accounting consultant.





The
      Company is continuing its financial and operational restructuring initiatives
      and will continue to implement its strategic business plan. Although the Company
      believes that it has sufficient liquidity to sustain its existing business
      through December 31, 2007, there is no assurance that unforeseen
      circumstances will not have a material affect on the business that could require
      it to raise additional capital or take other measures to sustain operations
      in
      the event outside sources of capital are not available. The Company has not
      secured any commitments for new financing at this time nor can it provide any
      assurance that new capital (if needed) will be available to it on
      acceptable terms, if at all.




NOTE
      3 - Summary
      of Significant Accounting Policies





Principles
      of Consolidation




The
      consolidated financial statements include the accounts of FirstFlight and its
      wholly-owned subsidiaries, FBO Wilkes-Barre, FBO Garden City, Airborne, Margeson
      and TAFS. All significant inter-company accounts and transactions have been
      eliminated in consolidation.





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.





Cash
      and Cash Equivalents




For
      purposes of the consolidated statements of cash flows, the Company considers
      all
      highly liquid debt instruments with original maturities of three months or
      less
      to be cash equivalents.





Concentrations
      of Credit Risk




Cash:
      The
      Company maintains its cash with various financial institutions, which exceed
      federally insured limits throughout the period. At December 31, 2006, the
      Company had cash on deposit of approximately $1,722,000 in excess of federally
      insured limits.





Accounts
      Receivable




The
      Company’s extends credit to large and mid-size companies for flight related
      services. The Company has concentrations of credit risk in that 52% of the
      balance of accounts receivable at December 31, 2006 is made up of only ten
      customers. At December 31, 2006, accounts receivable from the two largest
      accounts amounted to approximately $505,000 (9.9%) and $426,000 (8.4%),
      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 collectibility and the allowance for doubtful accounts is adjusted
      accordingly. Management determines collectibility based on their experience
      and
      knowledge of the customers.





Deferred
      Financing Costs




Costs
      incurred on March 31, 2005, April 8, 2005 and April 15, 2005 to issue the
      convertible preferred stock and the warrants were capitalized and were charged
      to equity as deferred financing costs. Such costs were being amortized as deemed
      dividends to preferred stockholders over a three year period. In 2006, the
      remaining balance was fully amortized as a result of the conversion of the
      Preferred Stock to Common Stock.





F-9


**FIRSTFLIGHT,
      INC. AND SUBSIDIARIES**


**Notes
      To Consolidated Financial Statements**


**December
      31, 2006**




Inventory




Inventory
      consists primarily of maintenance parts and aviation fuel and is stated at
      the
      lower of cost or market determined by the first-in, first out method.





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. The
      Company engaged a third-party appraisal firm to assist management in determining
      the fair values of certain assets acquired and liabilities assumed. Such a
      valuation requires management to make 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 charter management and fuel revenues, managed aircraft agreements,
      customer relationships and key management 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.




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 accrues
      Federal Aviation Administration (“FAA”) designated maintenance costs pro rata,
      based upon the hours flown by the aircraft.





Goodwill
      and Intangible Assets




The
      Company accounts for Goodwill and Intangible Assets in accordance with Statement
      of Financial Accounting Standards (“FAS”) No. 141, “Business Combinations” (“FAS
      141”) and FAS No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). Under
      FAS 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 recorded goodwill
      in connection with the Company's acquisitions described in Note 4 amounting
      to
      $4,194,770. The Company has determined that no impairment charge is necessary
      at
      December 31, 2006. Intangible assets continue to be amortized over their
      estimated useful lives.





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. Revenue related to charter services is
      recognized when a particulare charter trip is completed. Revenue related to
      insurance activity is recognized at the point that the client is afforded
      protection under the policy, the premium was due, reasonably estimated and
      billable. The full commission revenue is recognized along with an historically
      driven reserve for the potential cancellation of the policy. The sources of
      revenue are recognized when persuasive evidence of an arrangement exists,
      delivery has occurred, the fee is fixed and determinable and collectibility
      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
      year ended December 31, 2006 and 2005 was approximately $142,000 and $44,000,
      respectively.





Income
      Taxes




The
      Company accounts for income taxes under SFAS No. 109, “Accounting for Income
      Taxes” (“FAS 109”). Under FAS 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 FAS 109, the effect
      on deferred tax assets and liabilities of a change in tax rates is recognized
      in
      income in the period that includes the enactment date. 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.





F-10
 
 **FIRSTFLIGHT,
          INC. AND SUBSIDIARIES**
 **Notes
          To Consolidated Financial Statements**
 **December
          31, 2006**


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
      Loss Per Common Share




Basic
      net
      loss per common share is computed based on the weighted average number of shares
      of the Common Stock outstanding during the periods presented. Common stock
      equivalents, consisting of options, warrants and convertible preferred stock,
      were not included in the calculation of the diluted loss per share because
      their
      inclusion would have had the effect of decreasing the loss per share otherwise
      computed. The total shares issuable upon the exercise of stock options, warrants
      and convertible preferred stock as of December 31, 2006 and 2005 was 13,427,121
      and 19,926,401, respectively.




Stock
      Based Compensation




The
      Company had stock-based compensation expense in the amount of $801,721 for
      the
      year ended December 31, 2006. Prior to January 1, 2006, the Company accounted
      for stock-based compensation under the recognition and measurement provisions
      of
      Accounting Principles Board Opinion No. 25 ("APB 25"). Any resulting
      compensation expense was recognized ratably over the associated service period,
      which was generally the option vesting term. Prior to January 1, 2006, no
      stock-based compensation expense relating to the Company’s stock options was
      reflected in net loss, as all options granted had an exercise price equal to
      or
      greater than the market value of the underlying Common Stock on the respective
      dates of grant. Prior to January 1, 2006, the Company provided pro-forma
      disclosure amounts in accordance with FAS No. 148, "Accounting for Stock-Based
      Compensation-Transition and Disclosure" ("FAS 148"), as if the fair value method
      defined by FAS No. 123, “Accounting for Stock-Based Compensation” ("FAS 123")
      had been applied to its stock-based compensation.





Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
“Share Based Payment” (“FAS 123R”), using the modified prospective transition
      method. Under this transition method, stock-based compensation expense for
      the
      year ended December 31, 2006 included compensation expense for stock-based
      compensation awards granted prior to, but not yet fully vested as of January
      1,
      2006, based on the grant date fair value estimated in accordance with the
      original provisions of FAS 123.  Stock-based compensation expense for all
      share-based payment awards granted after January 1, 2006 is based on the
      grant-date fair value estimated in accordance with the original 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.





As
      a
      result of adopting FAS 123R, the impact to the consolidated financial statements
      for the year ended December 31, 2006 on net loss was $801,721, rather than
      zero
      if the Company had continued to account for stock-based compensation under
      APB
      25. Included
      in stock-based compensation expense for 2006 was approximately $328,000 to
      expense the remaining unamortized fair value of options related to the
      termination of employment agreements with two executives (see Note 18). The
      impact of the adoption of FAS123R on both basic and diluted net loss per share
      for the year ended December 31, 2006 was $0.04 per share. As of December 31,
      2006, the unamortized fair value of the options totaled $375,992 all of which
      relate to options granted in 2006 and 2005. The unamortized portion will be
      expensed over a weighted average period of approximately two
      years.





The
      Company accounts for equity instruments issued to non-employees in accordance
      with the provisions of FAS 123 and the Emerging Issues Task Force (“EITF”) Issue
      No.  96-18,  “Accounting  for  Equity 
Instruments  That Are Issued to Other Than  Employees  for 
Acquiring,  or In  Conjunction  with Selling,  Goods or
      Services” (“EITF 96-18”) which require that such equity instruments are recorded
      at their fair value on the measurement date, which date is typically upon
      the inception of the services that will be performed.  For the year ended
      December 31, 2006, stock based compensation expense for non-employees related
      to
      57,598 shares of the Common Stock issued in connection with the settlement
      of
      litigation was $29,375 and was accounted for under EITF 96-18.




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.





F-11
 
 **FIRSTFLIGHT,
          INC. AND SUBSIDIARIES**
 **Notes
          To Consolidated Financial Statements**
 **December
          31, 2006**


The
      fair
      value of each share-based payment awards was estimated using the Black-Scholes
      option pricing model with the following weighted average fair values as follows:


For
                  the Year Ended December 31,2006
              
              2005Dividend
                  yield
              
              
              0
              %
              
              0
              %Expected
                  volatility
              
              
              249
              %
              
              55
              %Risk-free
                  interest rate
              
              
              4.8
              %
              
              4.1
              %Expected
                  life in years
              
              
              4.8
                  years
              
              
              5.0
                  years





The
      proforma table below reflects net loss and net loss and basic an
      diluted net loss per share for the year ended December 31, 2005 had the Company
      applied the fair value recognition provisions of FAS 123, as follows:




Net
                  loss applicable to common stockholders, as reported
              
              $
              (4,060,913
              )Deduct:
                  total stock-based employee compensation expense determined under
                  fair
                  value based method for all awards, net of related tax effects,
                  if
                  any
              
              
              (157,466
              )Pro-forma
                  net loss
              
              $
              (4,218,379
              )Net
                  loss per share applicable to common stockholders - basic and
                  diluted:As
                  reported
              
              $
              (0.43
              )Pro
                  forma
              
              $
              (0.43
              )





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 classifications have no effect on the previously
      reported loss.





Recently
      Issued Accounting Pronouncements




In
      February 2007, the FASB issued Statement of Financial Accounting
      Standards No. 159, The Fair Value Option for Financial Assets and Financial
      Liabilities ("SFAS 159"), to permit all entities to choose to elect, at
      specified election dates, to measure eligible financial instruments at fair
      value. An entity shall report unrealized gains and losses on items for which
      the
      fair value option has been elected in earnings at each subsequent reporting
      date, and recognize upfront costs and fees related to those items in earnings
      as
      incurred and not deferred. SFAS 159 applies to fiscal years beginning after
      November 15, 2007, with early adoption permitted for an entity that has also
      elected to apply the provisions of SFAS 157, Fair Value Measurements. An
      entity is prohibited from retrospectively applying SFAS 159, unless it chooses
      early adoption. SFAS 159 also applies to eligible items existing at November
      15,
      2007. The Company is currently evaluating the impact of adopting SFAS 159
      on its consolidated financial statements.




In
      December 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-2,
      Accounting for Registration Payment Arrangements. This FSP specifies that the
      contingent obligation to make future payments or otherwise transfer
      consideration under a registration payment arrangement, whether issued as a
      separate agreement or included as a provision of a financial instrument or
      other
      agreement, should be separately recognized and measured in accordance with
      FASB
      Statement No. 5, Accounting for Contingencies. This FSP further clarifies that
      a
      financial instrument subject to a registration payment arrangement should be
      accounted for in accordance with other applicable GAAP without regard to the
      contingent obligation to transfer consideration pursuant to the registration
      payment arrangement. This FSP amends various authoritative literature notably
      FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
      Activities, FASB Statement No. 150, Accounting for Certain Financial Instruments
      with Characteristics of both Liabilities and Equity, and FASB Interpretation
      No.
      45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
      Indirect Guarantees of Indebtedness of Others.   This FSP is effective
      immediately for registration payment arrangements and the financial instruments
      subject to those arrangements that are entered into or modified subsequent
      to
      December 21, 2006. For registration payment arrangements and financial
      instruments subject to those arrangements that were entered into prior to
      December 21, 2006, the guidance in the FSP is effective for financial statements
      issued for fiscal years beginning after December 15, 2006, and interim periods
      within those fiscal years. The Company is in the process of determining the
      effect, if any, the adoption of this FSP will have on its consolidated financial
      statements.




F-12
 
 **FIRSTFLIGHT,
            INC. AND SUBSIDIARIES**
 **Notes
            To Consolidated Financial Statements**
 **December
            31, 2006**


In
      November 2006, the EITF reached a final consensus in EITF Issue 06-6 “Debtor’s
      Accounting for a Modification (or Exchange) of Convertible Debt Instruments”
(“EITF 06-6”). EITF 06-6 addresses the modification of a convertible debt
      instrument that changes the fair value of an embedded conversion option and
      the
      subsequent recognition of interest expense for the associated debt instrument
      when the modification does not result in a debt extinguishment pursuant to
      EITF
      96-19 , “Debtor’s Accounting for a Modification or Exchange of Debt
      Instruments,”. The consensus should be applied to modifications or exchanges of
      debt instruments occurring in interim or annual periods beginning after November
      29, 2006. The Company is currently evaluating the impact of the adoption of
      EITF 06-6 on its consolidated financial position, results of operations or
      cash
      flows.




In
      November 2006, the FASB ratified EITF Issue No. 06-7, Issuer’s Accounting for a
      Previously Bifurcated Conversion Option in a Convertible Debt Instrument When
      the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement
      No. 133, Accounting for Derivative Instruments and Hedging Activities (“EITF
      06-7”). At the time of issuance, an embedded conversion option in a convertible
      debt instrument may be required to be bifurcated from the debt instrument and
      accounted for separately by the issuer as a derivative under FAS 133, based
      on
      the application of EITF 00-19. Subsequent to the issuance of the convertible
      debt, facts may change and cause the embedded conversion option to no longer
      meet the conditions for separate accounting as a derivative instrument, such
      as
      when the bifurcated instrument meets the conditions of Issue 00-19 to be
      classified in stockholders’ equity. Under EITF 06-7, when an embedded conversion
      option previously accounted for as a derivative under FAS 133 no longer meets
      the bifurcation criteria under that standard, an issuer shall disclose a
      description of the principal changes causing the embedded conversion option
      to
      no longer require bifurcation under FAS 133 and the amount of the liability
      for
      the conversion option reclassified to stockholders’ equity. EITF 06-7 should be
      applied to all previously bifurcated conversion options in convertible debt
      instruments that no longer meet the bifurcation criteria in FAS 133 in interim
      or annual periods beginning after December 15, 2006, regardless of whether
      the
      debt instrument was entered into prior or subsequent to the effective date
      of
      EITF 06-7. Earlier application of EITF 06-7 is permitted in periods for which
      financial statements have not yet been issued. The Company
      is currently evaluating the impact of this guidance on its consolidated
      financial position, results of operations or cash flows.




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”).  This Statement defines fair value, establishes a framework for
      measuring fair value and expands disclosure of fair value measurements. 
SFAS No. 157 applies under other accounting pronouncements that require or
      permit fair value measurements and accordingly, does not require any new fair
      value measurements.  SFAS No. 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007.  The
      Company is in the process of evaluating the impact that the adoption of SFAS
      No.
      157 will have on the Company’s results of operations and financial
      condition.





In
      September 2006, the staff of the SEC issued Staff Accounting Bulletin No. 108
      ("SAB 108") which provides interpretive guidance on how the effects of the
      carryover or reversal of prior year misstatements should be considered in
      quantifying a current year misstatement. SAB 108 is effective in fiscal years
      ending on or after November 15, 2006. Adoption of SAB 108 did not have a
      material impact on the Company's consolidated financial position, results of
      operations or cash flows.





In
      July
      2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in
      Income Taxes - an Interpretation of FASB Statement No. 109" (the
      "Interpretation"). The Interpretation establishes for all entities a minimum
      threshold for financial statement recognition of the benefit of tax positions,
      and requires certain expanded disclosures. The Interpretation is effective
      for
      fiscal years beginning after December 31, 2006, and is to be applied to all
      open
      tax years as of the date of effectiveness. The Company is in the process of
      evaluating the impact of the application of the Interpretation to its
      consolidated financial statements.




In
      June
      2006, the EITF reached a consensus on Issue No. 06-3 (“EITF 06-3”), “Disclosure
      Requirements for Taxes Assessed by a Governmental Authority on Revenue-Producing
      Transactions.” The consensus allows companies to choose between two acceptable
      alternatives based on their accounting policies for transactions in which the
      company collects taxes on behalf of a governmental authority, such as sales
      taxes. Under the gross method, taxes collected are accounted for as a component
      of sales revenue with an offsetting expense. Conversely, the net method allows
      a
      reduction to sales revenue. If such taxes are reported gross and are
      significant, companies should disclose the amount of those taxes. The guidance
      should be applied to financial reports through retrospective application for
      all
      periods presented, if amounts are significant, for interim and annual reporting
      beginning after December 15, 2006 with early adoption is permitted. The Company
      does not expect the adoption of EITF 06-3 to have a material effect on its
      consolidated financial statements.




In
      March 2006, the FASB issued Statement of Financial Accounting Standard 156
      - Accounting for Servicing of Financial Assets (“SFAS 156”), which requires all
      separately recognized servicing assets and servicing liabilities be initially
      measured at fair value. SFAS 156 permits, but does not require, the subsequent
      measurement of servicing assets and servicing liabilities at fair value.
      Adoption is required as of the beginning of the first fiscal year that begins
      after September 15, 2006. Early adoption is permitted. The adoption of SFAS
      156 is not expected to have a material effect on the Company’s consolidated
      financial position, results of operations or cash flows.





In
      February 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard 155 - Accounting for Certain Hybrid
      Financial Instruments (“SFAS 155”), which eliminates the exemption from applying
      SFAS 133 (“Accounting for Derivative Instruments and Hedging Activities”) (“SFAS
      133”) to interests in securitized financial assets so that similar instruments
      are accounted for similarly regardless of the form of the instruments. SFAS
      155
      also allows the election of fair value measurement at acquisition, at issuance,
      or when a previously recognized financial instrument is subject to a
      re-measurement event. Adoption is effective for all financial instruments
      acquired or issued after the beginning of the first fiscal year that begins
      after September 15, 2006. Early adoption is permitted. The adoption of SFAS
      155 is not expected to have a material effect on the Company’s consolidated
      financial position, results of operations or cash flows.





F-13




**FIRSTFLIGHT,
      INC. AND SUBSIDIARIES**


**Notes
      To Consolidated Financial Statements**


**December
      31, 2006**




In
      October 2005, the FASB issued FSP FAS 123(R)-2, “Practical Accommodation to the
      Application of Grant Date as Defined in FASB Statement No. 123(R)”, which
      provides clarification of the concept of mutual understanding between employer
      and employee with respect to the grant date of a share-based payment award.
      This
      FSP provides that a mutual understanding of the key terms and conditions of
      an
      award shall be presumed to exist on the date the award is approved by management
      if the recipient does not have the ability to negotiate the key terms and
      conditions of the award and those key terms and conditions will be communicated
      to the individual recipient within a relatively short time period after the
      date
      of approval. This guidance was applicable upon the initial adoption of SFAS
      123(R). The adoption of this pronouncement did not have an impact on the
      Company's consolidated financial position, results of operations, or cash
      flows.




NOTE
      4 - Acquisitions





Acquisition
      of Tech Aviation Service, Inc.




On
      March
      31, 2005, a subsidiary of FirstFlight purchased 100% of the outstanding shares
      of Tech Aviation Service, Inc. (“Tech”), a fixed base operator conducting
      business in the Northeast. Under the terms of the acquisition agreement,
      FirstFlight paid cash at closing of approximately $2,256,000, applied a deposit
      of $10,000 and issued notes payable to the Tech stockholders with a face value
      aggregating $500,000. The notes bear no stated interest. The notes were
      discounted at a market interest rate of 5% per annum and recorded at the net
      discounted value of $432,948. These notes are to be repaid with five annual
      payments aggregating $100,000 annually, which began on March 31,
      2006.





All
      assets and liabilities of Tech have been recorded in the Company’s consolidated
      balance sheet at their fair values at the date of acquisition. Identifiable
      intangible assets and goodwill relating to the purchase approximated $1,958,000.
      Identifiable intangible assets included trade names and customer relationships
      of $100,000 and $20,000, respectively. Trade names have an indefinite life.
      Customer relationships are being amortized over an estimated useful life of
      three years.





The
      following table details the allocation of the purchase price:





Fair
                ValueCash
            
            $
            167,329Accounts
                receivable
            
            
            237,117Inventory
            
            
            99,752Prepaid
                expenses
            
            
            52,331Equipment
            
            
            579,785Intangible
                assets - trade names
            
            
            100,000Intangible
                assets - customer relationships
            
            
            20,000Goodwill
            
            
            1,838,284Accounts
                payable and accrued expenses
            
            
            (334,776
            )Long
                term debt
            
            
            (60,681
            )Total
            
            $
            2,699,141





A
      subsidiary of FirstFlight purchased Tech on March 31, 2005. Therefore, the
      results of Tech from April 1, 2005 through December 31, 2005 are reflected
      in
      the Company’s results for the year ended December 31, 2005.





Acquisition
      of Central Plains Aviation, Inc.




On
      March
      31, 2005, a subsidiary of FirstFlight purchased certain assets of Central Plains
      Aviation, Inc. (“CPA”), a fixed base operator conducting business in Kansas.
      Under the terms of the acquisition agreement, FirstFlight paid cash at closing
      of $466,000 and issued a note payable to the CPA shareholder for $240,000.
      This
      note matured in September 2006, bore an interest rate of 5% per annum, and
      was
      payable in six quarterly installments of approximately $42,000 each, which
      began
      on June 30, 2005.




F-14


**FIRSTFLIGHT,
        INC. AND SUBSIDIARIES**
 **Notes
        To Consolidated Financial Statements**
 **December
        31, 2006**




The
      CPA
      assets have been recorded in the Company’s consolidated balance sheet at their
      fair values at the date of acquisition. Identifiable intangible assets and
      goodwill relating to the purchase approximated $560,000. Identifiable intangible
      assets included customer relationships of $30,000. Customer relationships are
      being amortized over an estimated useful life of three years.





The
      following table details the allocation of the purchase price:





Fair
                ValueInventory
            
            $
            30,952Equipment
            
            
            115,000Intangible
                assets - customer relationships
            
            
            30,000Goodwill
            
            
            530,000Total
            
            $
            705,952





A
      subsidiary of FirstFlight purchased certain assets of the former CPA on March
      31, 2005. Accordingly, the results of CPA from April 1, 2005 through December
      31, 2005 are reflected in the Company’s results for the year ended December 31,
      2005.





Acquisition
      of Airborne, Inc.




On
      September 23, 2005, FirstFlight purchased 100% of the outstanding common shares
      of Airborne, Inc. (“Airborne”), a charter management company conducting business
      in the Northeast. Under the terms of the acquisition agreement, FirstFlight
      paid
      cash of $1,400,000 and issued 2,333,334 shares of the Common Stock valued at
      $630,000 at closing aggregating $2,030,000. The acquisition was funded by
      proceeds received from the issue of a term note, aggregating $1,500,000, payable
      to a related party (See Note 10).





All
      assets and liabilities of Airborne have been recorded in the Company’s
      consolidated balance sheet at their fair values at the date of acquisition.
      Identifiable intangible assets and goodwill relating to the purchase
      approximated $2,736,486. Identifiable intangible assets included the trade
      name,
      customer relationships and non-compete agreements of $320,000, $310,000 and
      $280,000, respectively. The trade name has an indefinite life. Customer
      relationships and the non-compete agreements will be amortized over their
      estimated life, which is approximately three years.





The
      following table details the allocation of the purchase price:





Fair
                ValueAccounts
                receivable
            
            $
            2,962,390Inventory
            
            
            56,870Prepaid
                expenses
            
            
            33,980Equipment
            
            
            458,278Deposits
            
            
            1,500Intangible
                assets - trade name
            
            
            320,000Intangible
                assets - customer relationships
            
            
            310,000Intangible
                assets - non-compete agreements
            
            
            280,000Goodwill
            
            
            1,826,486Accounts
                payable and accrued expenses
            
            
            (4,119,216
            )Debt
            
            
            (100,288
            )Total
            
            $
            2,030,000


The
        three
        acquisitions discussed above resulted in goodwill of $4,194,770. During the
        year
        ended December 31, 2006, the Company segregated its operations into three
        segments and allocated $3,460,689; $479,553; and $254,528 to the charter,
        FBO
        and maintenance segments, respectively.


F-15




**FIRSTFLIGHT,
        INC. AND SUBSIDIARIES**
 **Notes
        To Consolidated Financial Statements**
 **December
        31, 2006**


Pro
      forma




The
      following table presents the unaudited pro forma combined results of operations
      of FirstFlight, Tech, CPA, and Airborne for the year ended December 31, 2005,
      as
      if the three entities had been acquired at January 1, 2005:





Revenues:Net
                sales
            
            $
            25,021,806Net
                loss applicable to common stockholders
            
            $
            (3,960,441
            )Basic
                and diluted net loss per common share
            
            $
            (0.32
            )Weighted
                average of common shares outstanding - basic and diluted
            
            
            12,442,828





The
      pro-forma combined results are not necessarily indicative of the results that
      actually would have occurred if the acquisitions had been completed as of
      January 1, 2005, nor are they necessarily indicative of future consolidated
      results.





NOTE
      5 - Inventory





Inventory
      consists primarily of maintenance parts and aviation fuel, which the Company
      dispenses to its customers. Inventory amounted to $193,413 as of December 31,
      2006.





NOTE
      6 - Property
      and Equipment




Property
      and equipment as of December 31, 2006 consisted of the following:




Estimated
                Useful
                  LifeAircraft
            
            $
            679,785
            
            
            7
                - 12 yearsVehicles
            
            
            157,100
            
            
            5
                - 7 yearsOffice
                furniture and equipment
            
            
            271,644
            
            
            3
                -7 yearsTools
                and shop equipment
            
            
            291,739
            
            
            5
                - 10 yearsLeasehold
                improvements
            
            
            158,896
            
            
            7
                - 17 yearsTotal
            
            $
            1,559,164Less:
                accumulated depreciation and amortization
            
            
            (272,788
            )Property
                and equipment, net
            
            $
            1,286,376





Depreciation
      and amortization expense for the year ended December 31, 2006 and 2005 was
      approximately $184,000 and $89,000, respectively.





NOTE
      7 - Note
      Receivable





On
      May
      26, 2005, the Company loaned $350,000 as a note receivable to a fixed base
      operator (“FBO”) which was a potential acquisition target of the Company ("the
      Maker").  The note bore interest at 10% per annum and such interest was
      only to be paid quarterly, starting upon the three-month anniversary of the
      secured note.  The note could be prepaid at any time. The Company was
      granted a security interest in all tangible property, goods and accounts of
      the
      Maker. Further, the Company had been granted an option to purchase the FBO
      owned
      by Maker, such option to expire one year from date of grant of
      option.




F-16


**FIRSTFLIGHT,
        INC. AND SUBSIDIARIES**
 **Notes
        To Consolidated Financial Statements**
 **December
        31, 2006**




On
      February 1, 2006, the Company declined to pursue the acquisition and negotiated
      revised repayment terms, whereupon the Company released its security interest
      in
      the tangible property, goods and accounts and the Maker made a $200,000 cash
      payment with the balance of the principal, $150,000, plus unpaid interest and
      certain legal fees of approximately $24,000, with an annual interest at a rate
      of six percent (6%) to be paid quarterly and the principal balance due upon
      maturity in January 2008. The owner of Maker has provided a personal guarantee
      of the payment of the remaining obligation under the note receivable.




NOTE
      8 - Intangible
      Assets




Intangible
      assets consist exclusively of amounts related to the acquisitions of Tech,
      CPA
      and Airborne.




The
      estimated remaining amortization of amortizable intangible assets for the two
      years ending December 31, 2008 is as follows:




**For
                the years ending**
              **December
                31,**
            
            **Total**
            
            **Non-Compete
                Agreements**
            
            **Customer
                Relationships**2007
            
            $
            214,000
            
            $
            94,000
            
            $
            120,0002008
            
            
            150,000
            
            
            68,000
            
            
            82,000Total
            
            $
            364,000
            
            $
            162,000
            
            $
            202,000




During
      the year ending December 31, 2006 and 2005, the Company recorded amortization
      expense related to the acquired amortizable intangibles of approximately
      $222,000 and $54,000, respectively.




The
      weighted average amortization period for amortizable intangibles is 3.0 years
      and has no residual value.




NOTE
      9 - Notes
      Payable




Notes
                  payable at December 31, 2006 consisted of:
              
              Outstanding
                  Balance atNotes
                  payable to:
              
              December
                  31,2006Wilkes-Barre/Scranton
                  International Airport, unsecured, matures September 2007
              
              $
              60,681Banks
                  - Airborne, secured by related equipment, montly payment of $3,176,
                  interest at 7%, matures August 2007
              
              
              22,310Sellers
                  - Tech, secured by assets of Tech and guaranteed by FirstFlight,
                  annual
                  payments of $100,000, which includes imputed interest of 5%, matures
                  March
                  2010
              
              
              367,892County
                  of Chemung - Airborne, unsecured, approximately 215 montly payments
                  based
                  on fuel usage with imputed interest of 6%, matures approximately
                  2023
              
              
              44,098Capital
                  leases, secured by related equipment, montly payments ranging from
                  $750 to
                  $1,525, interest rates ranging from 8% to 8.75%, various maturity
                  dates
                  through November 2011
              
              
              102,647Subtotal
              
              
              597,628Less:
                  current portion
              
              
              (203,823
              )Total
                  - long term
              
              $
              393,805





F-17


**FIRSTFLIGHT,
      INC. AND SUBSIDIARIES**


**Notes
      To Consolidated Financial Statements**


**December
      31, 2006**




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





For
                the years ending December 31
            
            Total
                Amount
            
            AcquisitionNotes
            
            Other2007
            
            $
            203,823
            
            $
            100,000
            
            $
            103,8232008
            
            
            117,867
            
            
            95,238
            
            
            22,6292009
            
            
            113,994
            
            
            90,703
            
            
            23,2912010
            
            
            108,538
            
            
            81,951
            
            
            26,5872011
            
            
            18,020
            
            
            -
            
            
            18,020Thereafter
            
            
            35,386
            
            
            -
            
            
            35,386Total
            
            $
            597,628
            
            $
            367,892
            
            $
            229,736Less-current
                portion
            
            
            (203,823
            )Long-term
                portion
            
            $
            393,805




NOTE
      10 - Term
      Loan Payable - Related Party





The
      acquisition of Airborne was funded by a term note payable from a related party
      (see Note 19) with a face value of $1,500,000 which was to mature on March
      22,
      2006 and bore interest at 4.25% per annum through the initial maturity date.
      FirstFlight elected to exercise the option to extend the maturity date to
      September 23, 2006, whereupon the promissory note bore interest at 9.25% per
      annum for the duration of the extended period. Airborne granted the holder
      a
      security interest in its accounts receivable, all of its deposit accounts,
      all
      monies then and thereafter in the possession or under the control of Airborne
      or
      FirstFlight and all products and proceeds of the foregoing personal property.
      FirstFlight’s Chairman of the Board and an entity owned by one of FirstFlight’s
      other directors are the members of the holder’s entity. In September 2006,
      FirstFlight, using part of the proceeds from its then just closed private
      placement (see Note 14), prepaid the note and the security interest terminated.





In
      conjunction with the issuance of the term note, FirstFlight also issued a
      five-year warrant to purchase a total of 1,200,000 shares of the Common Stock
      at
      an exercise price of $0.60 per share. The Company allocated $35,000 of the
      aggregate proceeds from the term note to the warrant as an original issuance
      discount, which represented the relative fair value of the warrant at the date
      of issuance, and amortized the discount to interest expense over the life of
      the
      term note. The amount amortized to interest expense for the years ended December
      31, 2006 and 2005 was approximately $15,000 and $20,000,
      respectively.




NOTE 11
      - Capital
      Lease Obligations





The
      Company’s property under capital leases, at December 31, 2006, which is included
      in property and equipment, is summarized as follows:





Vehicles
            
            $
            37,000Office
                Furniture and Equipment
            
            
            73,896Subtotal
            
            
            110,896Less: 
                accumulated depreciation
            
            
            (4,845
            )Total
            
            $
            106,051





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




F-18




**FIRSTFLIGHT,
        INC. AND SUBSIDIARIES**
 **Notes
        To Consolidated Financial Statements**
 **December
        31, 2006**


Future
      minimum lease payments for the capital lease obligations at December 31, 2006
      for the next five (5) years and in the aggregate are as follows:




For
                the Twelve Months Ending
              December
                31
            
            Amount2007
            
            $
            27,3002008
            
            
            27,3002009
            
            
            27,3002010
            
            
            27,3002011
            
            
            16,775125,975Less: amount
                representing interest
            
            
            (23,328
            )Present
                value of future minimum lease payments
            
            
            102,647Less: 
                current maturities
            
            
            (19,291
            )Total
            
            $
            83,356





Depreciation
      of assets held under capital leases in the approximate amount of $4,800 and
      $0
      is included in depreciation expense for the year ended December 31, 2006 and
      2005, respectively.





NOTE
      12 - Income
      Taxes




As
      of
      December 31, 2006, the Company had federal and state net operating loss
      carryforwards of approximately $2,800,000 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. In
      addition, Shadows Bend had approximately $8,000,000 of net operating losses
      available prior to the reverse merger with FirstFlight. Under current tax law
      the Company believes that it will not be able to utilize these losses and,
      accordingly, 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 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 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.




F-19




**FIRSTFLIGHT,
        INC. AND SUBSIDIARIES**
 **Notes
        To Consolidated Financial Statements**
 **December
        31, 2006**




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




December 31,Deferred
                tax assets:
            
            2006
            
            2005Operating
                loss carryforwards
            
            $
            1,092,324
            
            $
            628,419Stock
                based compensation
            
            
            312,456
            
            
            —Allowance
                for doubtful accounts
            
            
            22,512
            
            
            86,556Deferred
                start up costs
            
            
            106,265
            
            
            106,265Property
                and equipment
            
            
            —
            
            
            9,144Intangible
                assets
            
            
            67,234
            
            
            8,058Accrued
                expenses
            
            
            252,660
            
            
            —Non
                deductible vacation accruals
            
            
            —
            
            
            26,624Total
                deferred tax assets
            
            
            1,853,451
            
            
            865,066Deferred
                tax liabilities:Goodwill
            
            
            (24,115
            )
            
            (10,335
            )Property
                and Equipment
            
            
            (98,278
            )
            
            —Total
                deferred tax liabilities
            
            
            (122,393
            )
            
            (10,335
            )Deferred
                tax assets - net of deferred tax liabilities
            
            
            1,731,058
            
            
            854,731Valuation
                Allowance
            
            
            (1,731,058
            )
            
            (854,731
            )Deferred
                tax assets - net of valuation allowance
            
            $
            —
            
            $
            —Change
                in valuation allowance
            
            $
            (876,327
            )
            $
            (751,834
            )




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 31,2006
            
            
            2005Tax
                benefit at statutory rate
            
            
            (34.0
            )%
            
            (34.0
            )%State
                income taxes
            
            
            (5.0
            )%
            
            (6.0
            )%Adjustment
                to change in valuation allowance
            
            
            39.0
            %
            
            40.0
            %Effective
                income tax rate
            
            
            -
            
            
            -




NOTE
      13 - Senior
      Secured Notes





In
      connection with a private placement closed on March 31, April 8 and April 15,
      2005, FirstFlight issued Senior Secured Notes aggregating approximately
      $1,496,000 due March 31, 2008 or April 8, 2008 (the ”Senior Secured Notes”).




F-20




**FIRSTFLIGHT,
          INC. AND SUBSIDIARIES**
 **Notes
          To Consolidated Financial Statements**
 **December
          31, 2006**




On
      September 1, 2006, FirstFlight closed a private placement and sold 50.25 units
      at $100,000 per unit (see Note 14). The Company utilized approximately
      $1,496,000 and $236,000 of this amount to prepay the Senior Secured Notes and
      accrued interest, respectively, in full.





NOTE
      14 - Stockholders’
      Equity





Common
      Stock




In
      April
      2004, FBO Air entered into a convertible note agreement with a group of
      investors (the "Investors") to purchase five-year, 8% convertible notes in
      the
      aggregate principal amount of $400,000. On March 31, 2005, the Investors
      converted the entire $400,000 in convertible notes, plus accrued interest,
      into
      4,018,376 shares of the Common Stock.





On
      September 23, 2005, FirstFlight issued 2,333,334 shares of the Common Stock
      at
      $0.27 per share with a total value of $630,000 in connection with the purchase
      of Airborne.





During
      November and December 2005, FirstFlight received cash of $12,847 upon the
      exercise of warrants to purchase 21,413 shares of the Common Stock.





During
      October and December 2005, holders of 92 shares of the Series A Convertible
      Preferred Stock converted their shares and were issued 1,516,667 shares of
      the
      Common Stock.





On
      January 5, 2006, FirstFlight issued 25,000 shares of the Common Stock valued
      at
      $18,750 in connection with the settlement of certain accrued
      expenses.





During
      January and March 2006, FirstFlight issued an aggregate of 207,435 shares of
      the
      Common Stock to directors and a former director in connection with the cashless
      exercises of stock options to purchase an aggregate of 375,000
      shares.





On
      May
      31, 2006, FirstFlight issued 57,598 shares of the Common Stock valued at $29,375
      in connection with the settlement of litigation.





On
      various dates between January 18, 2006 and July 19, 2006, holders of 140 shares
      of the Series A Convertible Preferred Stock converted their shares and were
      issued 2,333,334 shares of the Common Stock.





On
      September 1, 2006, FirstFlight closed a private placement (“the Offering”) and
      sold 50.25 units (the “Units”) at $100,000 per unit. Each Unit consisted of
      166,700 shares of the Common Stock, and a warrant expiring August 31, 2011
      to
      purchase 100,000 shares of the Common Stock at an initial exercise price of
      $1.00 per share. FirstFlight realized gross proceeds of $5,025,000 from the
      Offering and, in connection therewith, issued 8,376,675 shares of the Common
      Stock. Officers and/or directors of the Company participated in the Offering
      and
      were collectively issued 5,001,000 shares of the Common Stock and warrants
      to
      purchase 3,000,000 shares of the Common Stock in return for a collective
      investment of $3,000,000. The terms of the warrant agreement provide certain
      anti-dilution protections and provide for certain adjustments to protect the
      holder upon the future issuance of certain securities at a price less than
      the
      current warrant exercise price in effect, as provided for in the agreement.
      FirstFlight was obligated to file within 90 days of the closing a registration
      statement in regard to the 8,376,675 shares of Common Stock and the 5,025,000
      shares underlying the warrants issued in the Offering. FirstFlight filed the
      registration statement within the required time frame and the registration
      statement was declared effective on January 4, 2007. FirstFlight is obligated
      to
      use its best efforts to keep the registration statement effective until the
      earlier date (i) when all securities have been sold or (ii) when all securities
      may be sold pursuant to the exemption of Rule 144(k) under the Securities Act.
      If, for any reason or no reason, the holders of the securities in the Offering
      are not permitted to resell their registrable securities, then FirstFlight
      shall
      pay to the holder, for each 30-day period until the holders may sell all of
      their shares of the Common Stock thereunder an amount in cash equal to one
      (1%)
      percent of the aggregate purchase price paid by the holder for the Unit(s)
      purchased in the Offering.




The
      September 1, 2006 private placement constituted a Qualified Follow-On Offering
      under the terms of the Series A Convertible Preferred Stock and, as a result,
      was a mandatory conversion event. As a result, the then remaining 615 shares
      of
      the Series A Convertible Preferred Stock outstanding were automatically
      converted into 10,250,002 shares of the Common Stock. The 1,000 shares which
      previous to this date were authorized for the Series A Convertible Preferred
      Stock were deemed to be cancelled and the 846 shares issued were permanently
      retired from authorized shares. The 154 shares of the Series A Convertible
      Preferred Stock which were never issued were restored to the status of
      authorized but not issued shares of the Preferred Stock not allocated to any
      series.




F-21




**FIRSTFLIGHT,
          INC. AND SUBSIDIARIES**
 **Notes
          To Consolidated Financial Statements**
 **December
          31, 2006**
  Preferred
          Stock


During
      February 2005, FirstFlight authorized the issuance of 1,000 shares of
      mandatorily redeemable convertible preferred stock, (“Series A Convertible
      Preferred Stock”), each share having a Stated Value (“Stated Value”) of $5,000.
      These shares provided for cumulative dividends at the annual rate of 8%, payable
      quarterly, and matured three years from the date of issue. The cumulative
      dividend, at the option of FirstFlight, could have been paid either in cash
      or
      by the issuance of additional shares of the Series A Convertible Preferred
      Stock.





The
      holders of the Series A Convertible Preferred Stock and the holders of the
      shares of the Common Stock were to vote as a single class, with the holders
      of
      the Series A Convertible Preferred Stock having the number of votes based upon
      the formula for the conversion to shares of the Common Stock, as provided below.
      The holders of the Series A Convertible Preferred Stock had the right to elect
      one director to FirstFlight’s Board of Directors or to have had one observer at
      Board meetings.





The
      Series A Convertible Preferred Stock was convertible into shares of the Common
      Stock as defined below. The shares were to automatically convert upon
      FirstFlight’s realization of gross proceeds exceeding $5,000,000 from the sale
      of equity securities (a “Qualified Follow-On Offering”), separate and apart from
      the March and April 2005 Private Offering, or at such time as the traded price
      of the Common Stock exceeded 2.5 times the Initial Conversion Price (“Conversion
      Price”) for a period of 20 consecutive trading days and during such period the
      trading volume each day had exceeded 200,000 shares. For either automatic
      conversion to occur, the common shares underlying the preferred shares had
      to be
      registered. At the option of the holder, the shares, in whole or in part, could
      have been converted at any time.





Subject
      to certain adjustments, as provided in the Certificate of Designations, the
      Conversion Price was $0.30 per share. Each share of the Series A Convertible
      Preferred Stock was convertible into that number of shares of the Common Stock
      determined by dividing the Stated Value of each share of the Series A
      Convertible Preferred Stock by the Conversion Price. In the case of a mandatory
      conversion on account of a Qualified Follow-On Offering, then at the option
      of
      the holder, the shares could have been converted at (a) the Conversion Price,
      or
      (b) at the same price that such securities were being sold in such Qualified
      Follow-On Offering, with the holder, in this case, also receiving a premium
      of
      an additional 10% in the number of such shares. Under certain conditions
      whereupon FirstFlight sold shares of the Common Stock at a price below the
      Conversion Price, then the Conversion Price was to be reduced, as provided
      for
      in the Certificate of Designations.





On
      the
      third anniversary of the original date of issue of the Series A Convertible
      Preferred Stock, FirstFlight was to redeem for cash all remaining outstanding
      shares at a redemption price equal to the aggregate Stated Value, plus all
      accrued and unpaid dividends.





In
      the
      event of a liquidation of the Company, the holders of the Series A Convertible
      Preferred Stock then outstanding would have been entitled to receive 115% of
      the
      stated value of each share, plus any accrued and unpaid dividends.





In
      connection with the issuance of the Series A Convertible Preferred Stock
      issuance FirstFlight entered into a registration rights agreement.  Under
      the terms of this registration rights agreement, FirstFlight was to file a
      Registration Statement with the Securities and Exchange Commission no later
      than
      sixty days from the Closing Date and use its best efforts to ensure that this
      Registration Statement would be declared effective within 120 days from the
      Closing Date.  In the event that the registration statement was not
      declared effective or FirstFlight failed to maintain an effective registration,
      FirstFlight was to have paid a cash amount equal to 1% per month of the original
      investment.  Pursuant to EITF 05-4, the registration rights agreement
      has all the characteristics of a derivative and, therefore should be accounted
      for as a liability. However due to the registration statement becoming effective
      on August 5, 2005 and other relevant factors, the value of the registration
      rights was deemed to be de minimus and therefore no liability was recorded
      in
      the consolidated financial statements.





Beneficial
      Conversion Feature




Under
      the
      terms of the Series A Convertible Preferred Stock, the holders could have
      converted these securities into the Common Stock of the Company at a fixed
      price
      of $0.30, subject to certain anti-dilutive adjustments. At March 31, 2005,
      the
      date of issuance, this fixed conversion price represented a discount to the
      market value of the Common Stock, which was a quoted price of $1.75 per share.
      This difference in price was considered a benefit of the conversion feature
      in
      the security. This benefit was calculated and its value exceeded the face amount
      of the issued Series A Convertible Preferred Stock. FirstFlight was required
      to
      record the value of this beneficial conversion feature, but at an amount not
      greater than the face amount of the related Series A Convertible Preferred
      Stock. Accordingly, the Company recorded this beneficial conversion feature
      discount of approximately $4,243,000 as a reduction to the Series A Convertible
      Preferred Stock and as a credit to additional paid in capital. The beneficial
      conversion feature discount to the Series A Convertible Preferred Stock was
      to
      be accreted to its stated value over a three-year period and $1,065,625 in
      accretion of discount was recorded for the year ended December 31, 2005.




F-22




**FIRSTFLIGHT,
          INC. AND SUBSIDIARIES**
 **Notes
          To Consolidated Financial Statements**
 **December
          31, 2006**




During
      the year ended December 31, 2005, 92 shares of the Series A Convertible
      Preferred Stock were converted to 1,516,667 shares of the Common Stock, and
      unamortized discounts aggregating $345,722 associated with the converted shares
      were charged to accumulated deficit. Total accretion of discount for the year
      ended December 31, 2005 was $1,411,347 and was reflected as a deemed dividend
      to
      the preferred stockholders and amortization of deferred financing costs was
      $481,146.





As
      of
      December 31, 2006 and 2005, dividends of $171,260 and $254,123, respectively,
      had been accrued on the Series A Convertible Preferred Stock. No dividends
      were
      declared or paid on July 1, 2005 and September 1, 2005 because, on such dates,
      the total assets of the Company did not exceed the sum of its total liabilities
      and the liquidation preference on the Series A Convertible Preferred Stock.
      Under Nevada law, no dividends may be declared or paid under such circumstances,
      so the dividends were accrued.





On
      September 4, 2006, immediately after receiving proceeds from the Offering,
      FirstFlight’s equity position improved to the extent that FirstFlight was
      permitted under the laws of the State of Nevada to issue dividends on the Series
      A Convertible Preferred Stock for the period January 2, 2004 through September
      3, 2006. Prior to the Offering, under Nevada law, FirstFlight did not meet
      the
      financial requirements to issue dividends. Accordingly, FirstFlight issued
      an
      aggregate of 1,417,937 shares of the Common Stock as accrued dividends, valued
      at $425,381, on September 4, 2006.





During
      the year ended December 31, 2006, deferred financing costs of $1,437,194 and
      accretion of discount of $2,831,303 were amortized as deemed dividends on the
      Series A Convertible Preferred Stock.




NOTE
      15
– Stock
      Options





Effective
      April 1, 2005, the Board of Directors of FirstFlight granted options to purchase
      an aggregate of 750,000 shares of the Common Stock. An option expiring March
      31,
      2010 to purchase 250,000 shares of the Common Stock was granted to each of
      (i)
      Robert J. Ettinger, who is no longer with the Company but at that time was
      Vice
      Chairman of the Board and the Chief Operating Officer of FirstFlight; (ii)
      Jeffrey M. Trenk, who is no longer with the Company but at that time was a
      Vice
      Chairman of the Board and the Executive Vice President of Business Development
      of FirstFlight and (iii) Ronald J. Ricciardi, who is currently Vice Chairman
      of
      the Board of Directors but at that time was President and Chief Executive
      Officer of FirstFlight. These options were exercisable at $1.60 per share,
      the
      closing sales price on March 31, 2005, and vested immediately upon the grant
      date. Mr. Trenk and Mr. Ettinger had to exercise their options within three
      months of their respective dates of separation from the Company or the options
      would be forfeited. Mr. Trenk did not exercise his options as of January 31,
      2007and Mr. Ettinger did not exercise his options as of March 31,
      2007.





Effective
      September 23, 2005, the Board of Directors granted to John H. Dow, who is now
      President and Chief Executive Officer but at that time was employed in the
      office of Chief Executive of Airborne, an option expiring September 23, 2010
      to
      purchase 250,000 shares of the Common Stock. The option was exercisable at
      $0.33
      per share, the closing sales price on September 22, 2005, and vested immediately
      upon the grant date. Mr. Dow exercised this option on a cashless basis on
      January 11, 2006 and received 85,000 shares.





During
      December 2005, the Board of Directors approved the Stock Option Plan of 2005
      (the “Plan”) and, during December 2006, the stockholders of the Company 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, 2006 there
      are 5,965,000 options available under the Plan.





Effective
      December 13, 2005, four non-employee directors were granted options, under
      the
      Plan, expiring five years after date of grant to purchase, in the aggregate,
      100,000 shares of the Common Stock. These options are exercisable at $0.64
      and
      became exercisable on December 13, 2006. During the year ending December 31,
      2006, the Company recognized $33,297 in expense relating to these
      options.





Effective
      April 1, 2006, the Board of Directors, based on the Compensation Committee
      recommendation, granted options under the Plan to purchase an aggregate of
      750,000 shares of the Common Stock. An option expiring March 31, 2011 to
      purchase 250,000 shares of the Common Stock was granted to each of (i) Robert
      J.
      Ettinger, who is no longer with the Company but at that time was the Chief
      Operating Officer of FirstFlight, (ii) Jeffrey M. Trenk, who is no longer with
      the Company but at that time was Executive Vice President of Business
      Development of FirstFlight, and (iii) Ronald J. Ricciardi, who is currently
      Vice
      Chairman of the Board but at that time was the President and Chief Executive
      Officer of FirstFlight. These options are exercisable at $0.50 per share, the
      closing sales price on March 31, 2006, and became exercisable immediately upon
      the grant date. These options are valued at $373,086. Mr. Trenk and Mr. Ettinger
      did not exercise their options within 90 days of their respective dates of
      separation from the Company and therefore their options were forfeited (see
      Note
      18). During the year ending December 31, 2006, the Company recognized $295,361
      in expense relating to these options.




F-23


**FIRSTFLIGHT,
          INC. AND SUBSIDIARIES**
 **Notes
          To Consolidated Financial Statements**
 **December
          31, 2006**




Effective
      May 30, 2006, the Board of Directors, based on the Compensation Committee
      recommendation, granted options under the Plan to purchase an aggregate of
      160,000 shares of the Common Stock to employees of the Company, expiring three
      years after the date of grant. These options are exercisable at $0.51 per share,
      the closing price at May 30, 2006, and options as to 60,000 shares became
      exercisable immediately upon the grant date and options as to 100,000 shares
      will become exercisable one year from the date of grant. This option is valued
      at $79,197. During the year ending December 31, 2006, the Company recognized
      $58,875 in expense relating to these options.




On
      August
      25, 2006, the Compensation Committee granted an option under the Plan to
      purchase 25,000 shares of the Common Stock to Mark Margeson, President of
      Margeson & Associates, FirstFlight’s insurance broker subsidiary. This
      option is exercisable at $0.60 per share, has a five-year term, will become
      exercisable upon the one-year anniversary of the date of grant and is valued
      at
      $9,945. During the year ending December 31, 2006, the Company recognized $1,707
      in expense relating to these options.





Effective
      September 15, 2006, the Compensation Committee granted an option under the
      Plan
      to purchase an aggregate of 250,000 shares of the Common Stock to Keith P.
      Bleier, Senior Vice President and Chief Financial Officer of the Company. This
      option is exercisable at $0.60 per share, has a five-year term and will become
      exercisable upon the first anniversary of the grant date. This option is valued
      at $87,024. During the year ending December 31, 2006, the Company recognized
      $8,461 in expense relating to these options.





Effective
      September 23, 2006, the Compensation Committee granted to John H. Dow, who
      is
      currently President and Chief Executive Officer but at the time was the
      President of the operating segments, an option under the Plan expiring September
      23, 2011 to purchase 250,000 shares of the Common Stock. The option is
      exercisable at $0.40 per share, the closing sales price on September 22, 2006,
      and became exercisable immediately upon the grant date. This option is valued
      at
      $99,597. During the year ending December 31, 2006, the Company recognized
      $13,488 in expense relating to these options.





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





Number
                of
              Options
            
            
            Weighted
                Average
              Exercise
                PriceBalance,
                January 1, 2005
            
            
            150,000
            
            $
            0.01Granted
                (weighted average fair valueof 
                $0.07 per share)
            
            
            1,100,000
            
            
            1.22Exercised
            
            
            —
            
            
            —Forfeited
            
            
            —
            
            
            —Balance,
                December 31, 2005
            
            
            1,250,000
            
            $
            1.08Granted
                (weighted average fair valueof 
                $0.45 per share)
            
            
            1,435,000
            
            
            0.50Exercised
            
            
            (375,000
            )
            
            0.22Forfeited
            
            
            —
            
            
            —Balance,
                December 31, 2006
            
            
            2,310,000
            
            $
            0.86





The
      options exercised aggregating 375,000 shares were exercised on a cashless basis
      and, in connection therewith, FirstFlight issued 207,435 shares of the Common
      Stock.




F-24




**FIRSTFLIGHT,
        INC. AND SUBSIDIARIES**
 **Notes
        To Consolidated Financial Statements**
 **December
        31, 2006**




A
      summary
      of FirstFlight’s stock options outstanding and exercisable at December 31, 2006
      is presented in the table below:




Option
                exercise price
            
            
            Total
            
            
            Aggregate
              Intrinsic
              Value$
            0.01
            
            $
            0.40
            
            $
            0.50
            
            $
            0.51
            
            $
            0.60
            
            $
            0.64
            
            $
            1.60Outstanding
            
            
            25,000
            
            
            250,000
            
            
            750,000
            
            
            160,000
            
            
            275,000
            
            
            100,000
            
            
            750,000
            
            
            2,310,000
            
            $
            7,750Weighted
                average remaining contractual life of options outstanding (in
                years)
            
            
            2.75
            
            
            4.75
            
            
            4.25
            
            
            2.25
            
            
            4.75
            
            
            4.00
            
            
            3.25Exercisable
            
            
            25,000
            
            
            250,000
            
            
            750,000
            
            
            60,000
            
            
            —
            
            
            100,000
            
            
            750,000
            
            
            1,935,000
            
            $
            7,750




FirstFlight
      has determined that shares of the Common Stock for future exercises shall be
      from authorized but unissued shares of stock.





A
      summary
      of non-exercisable options at December 31, 2006 is shown below:




Non-Vested
              Shares
            
            
            Fair
                ValueNon-exercisable
                at January 1, 2006
            
            
            100,000
            
            $
            0.34Granted
            
            
            1,435,000
            
            
            0.45Became
                exercisable
            
            
            (1,160,000
            )
            
            0.46Forfeited
            
            
            —
            
            
            —Non-exercisable
                at December 31, 2006
            
            
            375,000
            
            $
            0.39




NOTE
      16 - Warrants





On
      March
      31, April 8 and April 15, 2005, FirstFlight issued warrants to purchase shares
      of the Common Stock aggregating approximately 3,617,000 to investors and
      1,296,000 to the placement agent. Each warrant, which vested immediately,
      provides a five-year right to purchase a share of the Common Stock at the
      initial exercise price (the “Warrant Exercise Price”) of $0.60 per share, with
      such price and the number of shares to be adjusted in the event of stock splits
      and certain other events, as provided in the agreement, and upon the sale by
      FirstFlight of additional equity securities at a price below the Warrant
      Exercise Price. At the option of FirstFlight, the warrants may be redeemed
      at
      any time, in whole, but not in part, at a price of $0.01 per share provided
      that: (a) there is an effective registration statement covering the resale
      of
      the warrant shares; (b) the volume weighted average closing price of the Common
      Stock for the prior 20 trading days is not less than 250% of the Warrant
      Exercise Price; and (c) the average daily trading volume of the Common Stock
      is
      not less than 200,000 shares per day during such 20-day trading period.





On
      September 23, 2005, FirstFlight issued a warrant to purchase shares of the
      Common Stock totaling 1,200,000 to a lender in conjunction with the issuance
      of
      a term note. The warrant, which vested immediately, was issued to an entity
      owned by FirstFlight’s chairman and an affiliate of another director. The
      warrant provides a five-year right to purchase a share of the Common Stock
      at
      the initial exercise price (the “Warrant Exercise Price”) of $0.60 per share,
      with such price and the number of shares to be adjusted in the event of stock
      splits and certain other events, as provided in the agreement, and upon the
      sale
      of additional equity securities at a price below the Warrant Exercise Price.
      At
      the option of FirstFlight, the warrant may be redeemed at any time, in whole,
      but not in part, at a price of $0.01 per share provided that: (a) there is
      an
      effective registration statement covering the resale of the warrant shares;
      (b)
      the volume weighted average closing price of the Common Stock for the prior
      20
      trading days is not less than 250% of the Warrant Exercise Price; and (c) the
      average daily trading volume of the Common Stock is not less than 200,000 shares
      per day during such 20-day trading period.





On
      September 1, 2006, FirstFlight consummated a $5.025 million private offering
      sold in Units of $100,000. Each Unit consisted of 166,700 shares of the Common
      Stock, and a warrant expiring August 21, 2011 to purchase 100,000 shares of
      the
      Common Stock, at an initial exercise price of $1.00 per share.




F-25




**FIRSTFLIGHT,
        INC. AND SUBSIDIARIES**
 **Notes
        To Consolidated Financial Statements**
 **December
        31, 2006**


A
      summary
      of the status of FirstFlight’s warrants and the changes during the years then
      ended December 31, 2006 and 2005 is presented in the table below:





**Number
                of**
              **Warrants**
            
            
            **Weighted
                Average**
                **Exercise
                  Price**Balance,
                January 1, 2005
            
            
            -
            
            $
            -Granted
            
            
            6,113,534
            
            
            .60Exercised
            
            
            (21,413
            )
            
            .60Forfeited
            
            
            -
            
            
            -Balance,
                December 31, 2005
            
            
            6,092,121
            
            $
            .60Granted
            
            
            5,025,000
            
            
            1.00Exercised
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -Balance,
                December 31, 2006
            
            
            11,117,121
            
            $
            .78





A
      summary
      of FirstFlight’s stock warrants outstanding and exercisable at December 31,
      2006 is presented in the table below:





Warrant
                exercise price
            
            Total$
            0.60
            
            $
            1.00Outstanding
            
            
            6,092,121
            
            
            5,025,000
            
            
            11,117,121Weighted
                average remaining contractual life of warrants outstanding (in
                years)
            
            
            3.25
            
            
            4.75Exercisable
            
            
            6,092,121
            
            
            5,025,000
            
            
            11,117,121




NOTE
      17 - Employee
      Benefit Plan





Tech
      and
      Airborne both maintained 401k plans prior to their acquisition by FirstFlight.
      Effective July 1, 2006, those plans were merged into the FirstFlight 401k Plan
      (the “Plan”), which covers all employees. The newly merged 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 2006, the Company matched participant contributions at a rate of 50%
      of
      the first 6% of participant deferrals. Company contributions to the Plan totaled
      approximately $61,000 and $10,000 for the year ended December 31, 2006 and
      2005,
      respectively.





NOTE
      18 - Commitments
      and Contingencies




Operating
      Leases




The
      Company leases facilities from the City of Garden City, Kansas. Effective on
      April 1, 2005 and in conjunction with the Company’s purchase of the fixed base
      operator assets in Garden City, Kansas, the Company executed a new lease 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.




F-26




**FIRSTFLIGHT,
        INC. AND SUBSIDIARIES**
 **Notes
        To Consolidated Financial Statements**
 **December
        31, 2006**


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 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 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, the Company pays a monthly fuel flowage
      fee
      from $.06 to $.09 per gallon based on the number of gallons
      dispensed.





The
      Company leases its facilities in Elmira, New York from the 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). The annual rent is $160,582, 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
      Index Price. The Company has paid a $25,000 security deposit with respect to
      this lease. During the year ended December 31, 2006 and 2005, the Company paid
      approximately $161,000 and $43,000, respectively in rent expense under this
      lease.





The
      Company leases refueling trucks with intial terms of one year or less. As of
      December 31, 2006 and 2005, the refueling truck lease required monthly rental
      payments of approximately $6,000 per annum. In addition, the Company leases
      vehicles and equipment with payments ranging from $180 to $625 per
      month.





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




For
                the year ended
            
            
            
            
            
            RelatedDecember
                31,
            
            
            Total
            
            
            Party
            
            
            Other2007
            
            $
            286,585
            
            $
            160,581
            
            $
            126,0042008
            
            
            280,130
            
            
            160,582
            
            
            119,5482009
            
            
            273,508
            
            
            160,582
            
            
            112,9262010
            
            
            274,042
            
            
            160,582
            
            
            113,4602011
            
            
            274,642
            
            
            160,582
            
            
            114,0602012
                and thereafter
            
            
            1,937,912
            
            
            1,401,524
            
            
            536,388TOTAL
            
            $
            3,326,819
            
            $
            2,204,433
            
            $
            1,122,386




Total
      rent expense under all operating leases including the related party lease was
      approximately $383,000 and $187,000 for the year ended December 31, 2006 and
      2005, respectively.




Employment
      Agreements




On
      March
      31, 2005, the Board of Directors elected Jeffrey M. Trenk as an officer of
      FirstFlight, terminated Mr. Trenk's consulting agreement and entered into an
      employment agreement with Mr. Trenk dated April 1, 2005 (the "Jeffrey Trenk
      Employment Agreement"). Pursuant to the Jeffrey Trenk Employment Agreement,
      Mr.
      Trenk was employed as the Executive Vice President of Business Development
      of
      FirstFlight. The term of the Jeffrey Trenk Employment Agreement was to be for
      three years, which commenced April 1, 2005, and thereafter was to automatically
      renew for additional one-year periods. Pursuant to Jeffrey Trenk Employment
      Agreement, Mr. Trenk's base annual salary was $175,000. Mr. Trenk was to be
      granted an option each April 1 during the initial term to purchase 250,000
      shares of the Common Stock. The first option was granted effective April 1,
      2005
      and the second option was granted effective April 1, 2006. Effective October
      31,
      2006, the Jeffrey Trenk Employment Agreement was mutually terminated. Mr. Trenk
      was also serving as a director. Under the terms of the employment agreement
      separation, Mr. Trenk was paid the sum of $81,000 in November 2006 in lieu
      of
      any future monetary claims under the employment agreement. His right to receive
      an option effective April 1, 2007 was terminated and Mr. Trenk had until January
      31, 2007 to exercise the two outstanding options, which he did not.




F-27


**FIRSTFLIGHT,
        INC. AND SUBSIDIARIES**
 **Notes
        To Consolidated Financial Statements**
 **December
        31, 2006**




On
      March
      31, 2005, FirstFlight entered into an employment agreement dated as of April
      1,
      2005 (the "Ettinger Employment Agreement") with Robert J. Ettinger. Pursuant
      to
      the Ettinger Employment Agreement, Mr. Ettinger was employed as the Chief
      Operating Officer of FirstFlight and as the President of its executive jet
      management group. The term of the Ettinger Employment Agreement was for three
      years, which commenced April 1, 2005, and thereafter was to automatically renew
      for additional one-year periods. Mr. Ettinger's base annual salary was $150,000
      and he was guaranteed an annual bonus payment of $100,000, both the salary
      and
      the bonus payment were to be paid in equal monthly installments. In addition,
      he
      could have received an annual performance bonus based on the Board's evaluation
      of the Company's (particularly the Division's) performance and his performance.
      Mr. Ettinger was to be granted an option each April 1 during the initial term
      to
      purchase 250,000 shares of the Common Stock. The first option was granted
      effective April 1, 2005 and the second option was granted effective April 1,
      2006. On December 18, 2006, FirstFlight gave notice to Mr. Ettinger terminating
      without cause (as permitted) effective as of December 28, 2006 the Ettinger
      Employment Agreement. Mr. Ettinger was paid one-year’s severance pay of $150,000
      and is eligible to receive certain employee benefits of the Company for a period
      of six months. His right to receive an option effective April 1, 2007 was
      terminated and Mr. Ettinger has until March 31, 2007 to exercise the two
      outstanding options, which he did not.





On
      March
      31, 2005, the Board of Directors authorized execution of the First Amendment
      effective April 1, 2005 (the "First Amendment") to the employment agreement
      (the
      "Ricciardi Employment Agreement') for Ronald J. Ricciardi, FirstFlight's
      President and CEO. The First Amendment provided that Mr. Ricciardi's employment
      under the Ricciardi Employment Agreement was effective April 1, 2005 and would
      continue for three years thereafter subject to automatic one-year renewals.
      The
      First Amendment increased his base salary to $175,000. Mr. Ricciardi is to
      be
      granted an option each April 1 during the initial term to purchase 250,000
      shares of the Common Stock. The first option was granted effective April 1,
      2005
      and the second option was granted effective April 1, 2006. On December 12,
      2006,
      Mr. Ricciardi was elected as Vice Chairman of the Board by the Board of
      Directors and, effective January 1, 2007 Mr. Ricciardi’s base salary was
      adjusted to $125,000. The initial term was also extended and will expire March
      31, 2009.




On
      September 23, 2005, Airborne and FirstFlight entered into an employment
      agreement dated as of September 23, 2005 (the "Dow Employment Agreement") with
      John Dow. Pursuant to the Dow Employment Agreement, Mr. Dow is employed in
      the
      office of Chief Executive of Airborne. The term of the agreement is for three
      years, which commenced September 23, 2005, and thereafter automatically renews
      for additional one-year periods. Mr. Dow's base annual salary is $150,000.
      In
      addition, he may receive an annual performance bonus based on the Board's
      evaluation of Airborne's performance and his performance. Mr. Dow is to be
      granted an option each September 23 during the initial term to purchase 250,000
      shares of the Common Stock. The first option was granted effective September
      23,
      2005 and the second option was granted effective September 23, 2006. On December
      12, 2006, Mr. Dow was elected as President of the Company by the Board of
      Directors and designated as its Chief Executive Officer.




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 serves FirstFlight as a Senior Vice President and its Chief Financial
      Officer. The term of the agreement is for three years, which commenced on
      September 15, 2006, and thereafter automatically renews for additional one-year
      periods. Mr. Bleier’s base annual salary is $185,000 with annual increases of
      5%. In addition, he may receive an annual performance bonus at the discretion
      of
      the Board of Directors. Mr. Bleier is 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 was granted his first option (see Note
      15).





Future
      commitments under the Company’s employment agreements aggregate approximately
      $1,200,000.





NOTE
      19 - Related
      Parties





The
      firm
      of Wachtel & Masyr, LLP is corporate counsel to the Company. William B.
      Wachtel, FirstFlight’s Chairman of the Board, is a managing partner of this
      firm. During the year ended December 31, 2006 and 2005, the Company was billed
      for legal services of approximately $462,000 and $300,000, respectively. At
      December 31, 2006, the Company has recorded in accounts payable an obligation
      for legal fees of approximately $564,000 related to these legal services.




F-28




**FIRSTFLIGHT,
        INC. AND SUBSIDIARIES**
 **Notes
        To Consolidated Financial Statements**
 **December
        31, 2006**




On
      September 23, 2005, FirstFlight issued a note payable to an entity, for which
      Mr. Wachtel and an entity owned by one of its other directors are members.
      This
      note payable has a face value of $1,500,000 and, for the initial period of
      180
      days, bore an annual interest rate of 4.25%. Effective March 22, 2006, the
      initial maturity date, FirstFlight elected to extend the maturity to September
      23, 2006 with an interest rate of 9.25% per annum applicable to the extended
      period. Airborne granted the holder a security interest in its accounts
      receivable, all of its deposit accounts, all monies now and hereafter in the
      possession or under the control of Airborne or FirstFlight and all products
      and
      proceeds of the foregoing personal property. In September 2006, FirstFlight,
      using part of the proceeds from its then just closed private placement, prepaid
      the note and the security interest terminated. During the year ended December
      31, 2006 and 2005, the Company recorded interest expense of approximately
      $74,000 and $14,000, respectively under this note payable obligation. See Note
      16 for information relating to a warrant issued to the entity as additional
      consideration for the loan.




The
      charter division of FirstFlight manages an aircraft owned by an entity
      controlled by Mr. Wachtel. During the year ended December 31, 2006, the Company
      recorded revenue and expenses of $3,273,000 and $2,579,000, respectively,
      related to the Company's management of this aircraft. At December 31, 2006
      the
      Company had recorded in accounts receivable a balance of approximately $500,000
      owed from this entity. During the year ended December 31, 2005, the Company
      recorded revenues and expenses of $1,182,000 and $1,064,000, respectively,
      related to the management of this aircraft.





On
      May
      24, 2006, Airborne entered into 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
      FirstFlight through its charter segment, and through which the Company would
      retain 90% of the associated charter revenue. The lease agreement was
      subsequently terminated in February 2007. 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, 2006, FirstFlight recorded revenue and expenses
      of
      $317,000 and $415,000, respectively, in conjunction with the lease of this
      aircraft.





NOTE
      20 - Litigation





In
      early
      2005, FirstFlight was served with a complaint which named FirstFlight, among
      others, as a defendant in a suit brought by a broker-dealer, seeking damages
      of
      approximately $100,000 arising from Shadows Bend's cancellation of a stock
      certificate in the year 2002 evidencing shares allegedly sold by the plaintiff
      for the account of a stockholder of Shadows Bend. Captioned *Institutional
      Capital Management, Inc. vs. Michael W. Sciacchetano, et.
      al.* ,
      the
      suit was pending in the 215 th Judicial
      District Court, Harris County, Texas. On March 28, 2005, FirstFlight filed
      a
      general denial. On June 20, 2006 this suit was settled and FirstFlight agreed
      to
      pay $29,375 in cash and to issue 57,598 shares of the Common Stock valued at
      $29,375. FirstFlight has granted piggy-back registration rights, on a best
      efforts basis, in regard to these shares and has agreed that within one year
      of
      issue FirstFlight will, at the request of the plaintiff, repurchase these shares
      for $29,375 in cash. Because FirstFlight has an obligation to repurchase these
      shares, the amount of $29,375 has been recorded as an accrued
      expense.





On
      May
      19, 2005, New World Aviation, Inc. ("New World") instituted an action in the
      Supreme Court of the State of New York, County of New York, captioned *New
      World Aviation, Inc., Plaintiff, against Robert J. Ettinger, individually,
      and
      FBO Air, Inc., Defendants* .
      From
      April 1, 2005, Mr. Ettinger had been an officer of FirstFlight and, from March
      31, 2005 until July 24, 2006, a director of FirstFlight. Until March 25, 2005,
      when he resigned, Mr. Ettinger had served as President (since October 15, 1998)
      of New World. In its amended complaint New World was seeking (a) to enjoin
      the
      Defendants from soliciting New World's clients and employees allegedly using
      the
      confidential information which Mr. Ettinger learned in his "high-level position
      with New World" and (b) damages in an amount to be determined at trial against
      Mr. Ettinger for his alleged breach of fiduciary duties to New World. On June
      20, 2005, FirstFlight answered the complaint, asserting as affirmative defenses
      that (a) New World had forced Mr. Ettinger's resignation by reneging on its
      promise to pay him a bonus for 2004, (b) New World was partly responsible for
      any alleged damages, (c) the identity of actual and potential New World clients
      is available from publicly available records, (d) any putative damages sustained
      by New World were caused by New World and third parties and (e) New World's
      claims are barred by the statute of fraud. Mr. Ettinger also filed a
      counterclaim against New World for $25,000 relating to the 2004 bonus, to which
      New World has asserted five affirmative defenses.





On
      August
      21, 2006, this matter was settled on the following basis: (1) Mr. Ettinger
      agreed to pay the plaintiff $7,000 to cover certain costs of plaintiff and
      to
      repay the plaintiff certain cash advances while he employed by plaintiff and
      (2)
      Mr. Ettinger and FirstFlight agreed not to use any written or electronic
      information or documents obtained while he was employed to advance the business
      interests of FirstFlight and/or to solicit any present or former clients,
      customers, passengers or employees of the plaintiff. The parties exchanged
      general releases.




F-29




**FIRSTFLIGHT,
        INC. AND SUBSIDIARIES**
 **Notes
        To Consolidated Financial Statements**
 **December
        31, 2006**




NOTE
      21 - Segment
      Data




The
      Company is an aviation services company with operations in the aircraft charter
      management (“Charter”), fixed base operations (an “FBO”), and aircraft
      maintenance (“Maintenance”) segments of the general aviation
      industry.





Each
      of
      the Company’s three segments is operated under the FirstFlight brand name: the
      aircraft charter management segment is in the business of providing on-call
      passenger air transportation. These charter operations are implemented primarily
      through a fleet of managed aircraft - owned by another person or entity for
      which the Company provides regulatory and maintenance oversight while offering
      charter services. Within the FBO segment, the Company provides ground services
      such as the fueling and hangaring of aircraft. Within the maintenance segment,
      the Company offers maintenance and repair to aircraft owned or managed by
      general aviation aircraft operators.





The
      following tables summarize financial information about the Company’s business
      segments for the years ended December 31, 2006 and 2005 (in
      thousands):




For
                the Year Ended
              December
                31, 2006Charter
            
            
            FBO
            
            
            Maintenance
            
            
            Corporate
            
            
            ConsolidatedRevenues
            
            $
            30,913
            
            $
            5,336
            
            $
            2,963
            
            $
            —
            
            $
            39,212Income
                (Loss) from Operations
            
            $
            631
            
            $
            26
            
            $
            (225
            )
            $
            (2,807
            )
            $
            (2,375
            )Depreciation
                and Amortization
            
            $
            264
            
            $
            129
            
            $
            11
            
            $
            2
            
            $
            406Interest
                Income (Expense)
            
            $
            4
            
            $
            (42
            )
            $
            —
            
            $
            (1,081
            )
            $
            (1,119
            )Capital
                Expenditures
            
            $
            27
            
            $
            174
            
            $
            117
            
            $
            —
            
            $
            318Total
                Assets
            
            $
            9,675
            
            $
            2,118
            
            $
            254
            
            $
            1,134
            
            $
            13,181Goodwill
            
            $
            3,461
            
            $
            480
            
            $
            254
            
            $
            —
            
            $
            4,195




For
                the Year Ended
              December
                31, 2005Charter
            
            
            FBO
            
            
            Maintenance
            
            
            Corporate
            
            
            ConsolidatedRevenues
            
            $
            8,841
            
            $
            4,163
            
            $
            802
            
            $
            —
            
            $
            13,806Income
                (Loss) from Operations
            
            $
            201
            
            $
            44
            
            $
            (29
            )
            $
            (1,702
            )
            $
            (1,486
            )Depreciation
                and Amortization
            
            $
            67
            
            $
            70
            
            $
            1
            
            $
            7
            
            $
            145Interest
                Income (Expense)
            
            $
            (4
            )
            $
            (8
            )
            $
            —
            
            $
            (454
            )
            $
            (466
            )Capital
                Expenditures
            
            $
            7
            
            $
            81
            
            $
            —
            
            $
            —
            
            $
            88Total
                Assets
            
            $
            9,114
            
            $
            2,050
            
            $
            254
            
            $
            476
            
            $
            11,894Goodwill
            
            $
            3,461
            
            $
            480
            
            $
            254
            
            $
            —
            
            $
            4,195




NOTE
      22 - Subsequent
      Events




In
      March
      2007, FirstFlight re-purchased 25,000 shares that had been issued in a
      settlement and for which the holder had a right to put the shares back to
      FirstFlight. The cost of these shares was $18,375.




In
      January 2007, a Director of the Company, Alvin S.
      Trenk, made a cashless exercise and received 24,194 shares of the Common
      Stock.





F-30








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




Not
      applicable.




**ITEM
        8A.** **CONTROLS
        AND PROCEDURES**





The
      Company's principal executive officer and principal financial officer have
      evaluated the effectiveness of the Company's "disclosure controls and
      procedures," as such term is defined in Rule 13a-15(e) of the Exchange Act
      as of
      the end of the period covered by this Annual Report on Form 10-KSB. The
      evaluation process, including the inherent limitations on the effectiveness
      of
      such controls and procedures is more fully discussed below. Based upon their
      evaluation, the principal executive officer and the principal financial officer
      have concluded that the Company's disclosure controls and procedures were not
      effective.




The
      Company is currently building its accounting infrastructure. On September 15,
      2006, the Company hired a qualified, full-time Chief Financial Officer. Prior
      to
      this point, the Company employed a financial consultant who worked closely
      with
      the Company's then Chief Executive Officer, who also acted as Principal
      Financial Officer, and other senior managers of the organization to assemble
      the
      required information and to prepare the periodic financial statement and public
      filings. Reliance on these limited resources impaired our ability to provide
      for
      segregation of duties and the ability to ensure consistently complete and
      accurate financial reporting, as well as disclosure controls and procedures.
      Our
      Company's Chief Executive Officer and our Chief Financial Officer have concluded
      that the disclosure controls and procedures are not effective, given the
      foregoing material weakness. In addition, as the Company grows, and as resources
      permit, we project that our new Chief Financial Officer will hire such
      additional competent financial personnel to assist in the segregation of duties
      with respect to financial reporting and Sarbanes-Oxley Section 404
      compliance.




We
      believe that, for the reasons described above, we will be able to improve our
      financial reporting and disclosure controls and procedures and remedy the
      material weakness identified above. Because of the inherent limitations in
      all
      control systems, no evaluation of controls can provide absolute assurance that
      all control issues and instances of fraud, if any, will be or have been
      detected.




**Limitations
      on the Effectiveness of Controls**





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 and our Chief Executive Officer had
      concluded that such controls and procedures are effective at the "reasonable
      assurance" level.




**ITEM
          8B.** **OTHER
          INFORMATION**
 There
        are
        no items required to be disclosed on a Current Report on Form 8-K during
        the
        quarter ended December 31, 2006 that were not so reported.




A-18




**Part
      III**




**ITEM
          9.** **DIRECTORS,
          EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE** **GOVERNANCE;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT**


The
      following table contains certain information related to the directors and
      executive officers of FirstFlight as of March 31, 2007:





**Name**
            
            **Age**
            
            **Position**John
                H. Dow
            
            52
            
            President,
                Chief Executive Officer and a directorRonald
                J. Ricciardi
            
            45
            
            Director,
                Vice Chairman of the BoardKeith
                P. Bleier
            
            37
            
            Senior
                VP, Chief Financial and Chief Accounting OfficerWilliam
                B. Wachtel
            
            52
            
            Director,
                Chairman of the BoardWilliam
                R. Colaianni
            
            60
            
            DirectorDonald
                Hecht
            
            73
            
            DirectorThomas
                Iovino
            
            54
            
            DirectorJeffrey
                B. Mendell
            
            53
            
            DirectorStephen
                B. Siegel
            
            62
            
            DirectorAlvin
                S. Trenk
            
            77
            
            Director





Each
      director of FirstFlight was re-elected at the Annual Meeting of Stockholders,
      held on December 12, 2006, to serve until the next Annual Meeting of
      Stockholders or until his successor is elected and shall have qualified. Each
      officer of FirstFlight is elected by the Board of Directors to serve at the
      discretion of the Board.





**Business
      History**





***John
      H. Dow - Director, President, Chief Executive Officer***





Mr.
      Dow
      was first elected as a director of FirstFlight effective September 23, 2005.
      He
      was designated as President of the Charter Division on that date and as
      President of the FBO Division on September 25, 2006. He was elected President
      of
      FirstFlight on December 12, 2006 and designated as the Chief Executive Officer
      on the same date.




Mr.
      Dow
      formed Airborne, Inc. d/b/a FirstFlight Management in 1987, shortly after he
      acquired B & F Brake and Wheel Service. In 1989, he expanded Airborne’s
      services by adding a charter brokerage division to his management, charter
      and
      aircraft sales capabilities. In 1992, Airborne successfully developed and
      received worldwide Federal Aviation Regulations (“FAR”) Part 135 Certification.
      Mr. Dow is a licensed pilot with an Air Transport Type rating in Gulfstream
      aircraft. He is a member of the National Business Aviation Association
      Operations Committee as well as the National Air Transport Association and
      served on the aviation committee for the Elmira/Corning Regional
      Airport.




A-19









***Ronald
      J. Ricciardi - Director, Vice Chairman of the Board***





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 Vice
      Chairman of the Board.




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 company revenue over four
      years.




***Keith
      P. Bleier - Senior Vice President and Chief Financial and Chief Accounting
      Officer***




Mr.
      Bleier was elected as Senior Vice President of FirstFlight, and designated
      as
      its Chief Financial Officer, effective September 15, 2006. Mr. Bleier was
      designated as our Chief Accounting Officer on December 12, 2006.





Prior
      to
      his engagement by FirstFlight and commencing in September 2002, Mr. Bleier,
      who
      is a certified public accountant, served as a Principal of the Business Advisory
      Group of Bonadio & Co. LLP, a certified public accounting firm. While
      serving in such capacity, among his duties was as the engagement manager in
      that
      firm’s representation of Airborne, Inc., which became a subsidiary of
      FirstFlight on September 23, 2005. From September 1998 to September 2002, he
      served as the principal accounting and financial officer of Montana Mills Bread
      Co., Inc., and its subsidiaries, which company’s common stock was listed on the
      American Stock Exchange prior to its purchase by Krispy Kreme Donut Corp. and
      which was a specialty retail and wholesale bakery manufacturer.




***William
      B. Wachtel - Director, Chairman of the Board***




Mr.
      Wachtel was first elected as a director of FirstFlight and its Chairman of
      the
      Board on March 31, 2005.




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.





***William
      R. Colaianni - Director***





Mr.
      Colaianni was first elected as a director of FirstFlight on September 30,
      2004.





Mr.
      Colaianni is currently a member of Holding Capital Group LLC, a private
      investment banking firm that invests in smaller middle market private companies.
      Holding Capital has been in business for over 25 years and has made investments
      in over 300 deals. Mr. Colaianni joined the firm in 1983. Structuring and
      financing of unique transactions is Holding Capital’s expertise. Mr. Colaianni
      also sits on the board of directors for seven privately-held companies and
      is
      the President of a $35 million veneer and plywood company in
      Georgia.





Prior
      to
      joining Holding Capital, Mr. Colaianni was Chief Operating Officer of Adidas
      Sports and Leisure, and was President of Pony Footwear. He was also a Vice
      President for Bankers Trust Company, New York, in charge of asset based lending.
      Before beginning his professional career, Mr. Colaianni served as a captain
      in
      the US Army.





***Donald
      Hecht - Director***





Mr.
      Hecht
      was first elected as a director of FirstFlight effective September 15,
      2006.





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.




A-20




***Thomas
      Iovino - Director***





Mr.
      Iovino was first elected as a director of FirstFlight effective September 15,
      2006.





Mr.
      Iovino has, since 1983, managed his own contracting firm Judlaw Contracting,
      Inc., which firm had revenues approximating $150 million in 2005. He serves
      on
      the Board of Trustees of Rensselaer Polytechnic Institute, where he received
      his
      BS and Masters degrees in Civil Engineering.





***Jeffrey
      B. Mendell - Director***





Mr.
      Mendell was first elected as a director of FirstFlight on September 30,
      2004.





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





***Stephen
      B. Siegel - Director***





Mr.
      Siegel was first elected as a director of FirstFlight effective September 15,
      2006.





He
      currently serves as Chairman of Global Brokerage Services of CB Richard Ellis
      (“CBRE”), a worldwide premier full service real estate company. He was Chairman
      and Chief Executive Officer of Insignia/ESG, Inc., a premier commercial real
      estate company, from 1992 until its merger in July 2003 into CBRE. He serves
      on
      many charitable boards of trustees, including serving with his wife Wendy as
      Co-Chairs of the Council of National Trustees of the National Jewish Medical
      and
      Research Center.





***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.





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. Jeffrey M. Trenk, until October 31, 2006, the Executive Vice
      President for Business Development and a director since March 31, 2005, is
      the
      son of Alvin S. Trenk, another director of FirstFlight since August 20,
      2004.





**Other
      Directorships**





William
      B. Wachtel is a director of Hanover Direct, Inc., the common stock of which
      is
      registered pursuant to Section 12(b) of the Exchange Act but is currently
      trading in the pink sheets. Hanover Direct is engaged in the catalog
      business.





Stephen
      P. Siegel is a trustee of Liberty Property Trust, a real estate investment
      trust
      traded on the New York Stock Exchange.




A-21




No
      other
      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, Vice Chairman of the Board, FirstFlight, Inc., 101
      Hangar Road, Wilkes-Barre/Scranton International Airport, Avoca, PA 18641,
      or
      telephone number: (570) 457-3400.





**Committees
      of the Board of Directors**




There
      are
      three committees of the Board of Directors: the Audit Committee comprised of
      William R. Colaianni, Chairman, Donald Hecht and Thomas Iovino; the Compensation
      Committee comprised of Jeffrey B. Mendell, Chairman, Stephen B. Siegel and
      Alvin
      S. Trenk, and the Nominating Committee comprised of Stephen B. Siegel, Chairman,
      Thomas Iovino and Jeffrey B. Mendell.





**Compliance
      with Section 16(a) of the Exchange Act**




FirstFlight
      has not registered as yet its Common Stock or any other class of equity security
      under Section 12 of the Exchange Act and, accordingly, its executive officers
      and directors are not subject to the reporting requirements of 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
      December 12, 2006.




FirstFlight’s
      Board of Directors has determined that each of William R. Colaianni and Donald
      Hecht qualifies as an audit committee financial expert on its Audit Committee
      and each is independent using the definition of The Nasdaq Stock Market, Inc.
      (“Nasdaq”).




A-22




**ITEM
      10.**  **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, 2006. 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, 2005 and 2006
      with
      respect to any person who served as Chief Executive Officer of FirstFlight
      during fiscal 2006, the one other most highly compensated executive officer
      serving at December 31, 2006 whose total compensation exceeded $100,000 in
      fiscal 2006 and two other individuals who were not still serving as executive
      officers at December 31, 2006, but whose total compensation did exceed $100,000
      in fiscal 2006.




**SUMMARY
      COMPENSATION TABLE**




Name
                and Principal Position
            
            Year
            
            Salary
              ($)(1)
            
            Bonus
              ($)
            
            Stock
              Awards
              ($)
            
            Option
              Awards
              ($)(2)
            
            Non-Equity
              Incentive
                Plan
              Compensation
              ($)
            
            Non-qualified
              Deferred
              Compensation
              ($)
            
            All
                Other
              Compensation
              ($)(3)
            
            Total
              ($)John
                H. Dow, President and
              Chief
                Executive Officer (4)(5)
            
            
            2006
              2005
            
            
            150,000
              40,700
            
            
            100,000
              27,100
            
            
            —
              —
            
            
            99,600
              —
            
            
            —
              —
            
            
            —
              —
            
            
            12,000
              3,000
            
            
            361,600
              70,800Ronald
                J. Ricciardi, Vice
              Chairman
                of the Board (4)
            
            
            2006
              2005
            
            
            175,000
              162,500
            
            
            —
              —
            
            
            —
              —
            
            
            124,400
              —
            
            
            —
              —
            
            
            —
              —
            
            
            12,000
              12,000
            
            
            311,400
              174,500Keith
                P. Bleier, Senior VP,
              CFO
                and CAO (6)
            
            
            2006
              2005
            
            
            49,850
              —
            
            
            —
              —
            
            
            —
              —
            
            
            87,000
              —
            
            
            —
              —
            
            
            —
              —
            
            
            —
              —
            
            
            136,850
              —Jeffrey
                M. Trenk, former
              Exec.
                VP, Bus Dev (7)
            
            
            2006
              2005
            
            
            156,000
              162,500
            
            
            —
              —
            
            
            —
              —
            
            
            124,400
              —
            
            
            —
              —
            
            
            —
              —
            
            
            91,000
              12,000
            
            
            371,400
              174,500Robert
                J. Ettinger, former
              Chief
                Operating Officer (8)
            
            
            2006
              2005
            
            
            150,000
              112,500
            
            
            100,000
              75,000
            
            
            —
              —
            
            
            124,400
              —
            
            
            —
              --
            
            
            --
              --
            
            
            160,000
              7,500
            
            
            534,400
              195,000




1.
            Mr.
                Dow receives a base salary of $150,000 and a guaranteed bonus of
                $100,000;
                Mr. Ricciardi received a base salary of $175,000 in 2006 (effective
                January 1, 2007, Mr. Ricciardi is receiving a base salary of $125,000);
                and Mr. Bleier receives a base salary of $185,000 with annual increases
                of
                5%.2.
            Mr.
                Dow received an option to purchase 250,000 shares on September 23,
                2006.
                The option was priced at $0.40 per share, the closing sales price
                of the
                Common Stock on September 22, 2006, was vested immediately and is
                exercisable for five years. Mr. Ricciardi received an option to purchase
                250,000 shares on April 1, 2006. The option was priced at $0.50 per
                share,
                the closing sales price of the Common Stock on April 1, 2006, was
                vested
                immediately and is exercisable for five years. Mr. Bleier received
                an
                option to purchase 250,000 shares effective September 1, 2006. The
                option
                was priced at $0.60 per share, a negotiated price, vests over one
                year and
                is exercisable for five years. Mr. Trenk received an option to purchase
                250,000 shares on April 1, 2006. The option was priced at $0.50 per
                share,
                the closing sales price of the Common Stock on April 1, 2006, and
                was
      vested immediately; Mr. Ettinger received an option to purchase
                250,000
                shares on April 1, 2006. The option was priced at $0.50 per share,
                the
                closing sales price of the Common Stock on April 1, 2006 and was
                vested
                immediately. Mr. Trenk and Mr. Ettinger had to exercise their options
                within 90 days of their respective dates of separation from the Company
                or
                the options would be forfeited. Neither did, so the options were
                forfeited.
              
              All
                options were valued using the Black-Scholes method.3.
            Mr.
                Dow receives 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 receives an auto allowance of $700 per month. Mr. Trenk
                received an auto allowance of $1,000 per month for the full year
                in 2005
                and 10 months in 2006 as well as a separation payment of $81,000
                upon
                termination effective October 31, 2006. Mr. Ettinger received the
                use of
                an automobile and related expenses paid by the Company for 9 months
                in
                2005 and 12 months in 2006 as well as a severance allowance of $150,000
                when his employment agreement was terminated effective December 28,
                2006.4.
            Mr.
                Dow was first designated as the Chief Executive Officer of FirstFlight
                on
                December 12, 2006; prior thereto, Mr. Ricciardi served as the Chief
                Executive Officer of FirstFlight.




A-23




5.
            As
                indicated in the section captioned “Employment Agreements” in this Item
                10, Mr. Dow’s employment agreement with Airborne, a subsidiary of
                FirstFlight, began on September 23, 2005 when Airborne was acquired
                by
                FirstFlight. The fiscal 2005 totals in the table reflect only his
                compensation in fiscal 2005 as paid by the Company while he was an
                employee.6.
            As
                indicated in the section captioned “Employment Agreements” in this Item
                10, Mr. Bleier’s employment agreement with the Company began on September
                15, 2006. The fiscal 2006 totals in the table reflect only his
                compensation in fiscal 2006 as paid by the Company while he was an
                employee.7.
            As
                indicated in the section captioned “Employment Agreements” in this Item
                10, Mr. Trenk’s employment with the Company was terminated by mutual
                agreement effective October 31, 2006.8.
            As
                indicated in the section captioned “Employment Agreements” in this Item
                10, Mr. Ettinger’s employment with the Company was terminated without
                cause (as permitted) effective December 28,
                2006.




**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
            
            
            0
            
            
            0
              250,000
            
            
            0.40
            
            
            09/22/2011Ronald
                J. Ricciardi
            
            
            250,000
              250,000
            
            
            0
              0
            
            
            0
              0
              250,000
            
            
            1.60
              0.50
            
            
            03/31/2010
              03/31/2011Keith
                P. Bleier
            
            
            0
            
            
            250,000
            
            
            0
              500,000
            
            
            0.60
            
            
            09/01/2011Jeffrey
                M. Trenk (2)
            
            
            250,000
              250,000
            
            
            0
              0
            
            
            0
              0
            
            
            1.60
              0.50Robert
                J. Ettinger (2)
            
            
            250,000
              250,000
            
            
            0
              0
            
            
            0
              0
            
            
            1.60
              0.50




STOCK
                AWARDS(3)Name
            
            Number
                of
              Shares
                or Units
              Of
                Stock
              That
                Have
              Not
                Vested
              (#)
            
            Market
                Value of
              Shares
                or Units
              Of
                Stock
              That
                Have
              Not
                Vested
              ($)
            
            Equity
                Incentive
              Plan
                Awards:
              Number
                of
              Unearned
                Shares, Units
              or
                Other Rights
              That
                Have Not Vested
              (#)
            
            Equity
                Incentive
              Plan
                Awards:
              Market
                or
              Payout
                Value
              Of
                Unearned Shares, Units
              Or
                Other Rights
              That
                Have Not Vested
              ($)John
                H. Dow
            
            
            —
            
            
            —
            
            
            —
            
            
            —Ronald
                J. Ricciardi
            
            
            —
            
            
            —
            
            
            —
            
            
            —Keith
                P. Bleier
            
            
            —
            
            
            —
            
            
            —
            
            
            —Jeffrey
                M. Trenk
            
            
            —
            
            
            —
            
            
            —
            
            
            —Robert
                J. Ettinger
            
            
            —
            
            
            —
            
            
            —
            
            
            —




A-24


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) will receive on
                September 23, 2007 an option for 250,000 shares priced at the closing
                sales price as of September 22, 2007.
              
              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) will receive as of April 1, 2007 an
                option
                for 250,000 shares priced at the closing sales price as of March
                31, 2007.
              
              As
                part of his Employment Agreement, Mr. Bleier (a) received on September
                1,
                2006 an option for 250,000 shares at $0.60 per share, a negotiated
                price,
                which becomes exercisable on September 1, 2007; (b) will receive
                on
                September 1, 2007 an option for 250,000 shares priced at the closing
                sales
                price of the Common Stock as of August 31, 2007, which shall become
                exercisable on September 1, 2008; and (c) will receive on September
                1,
                2008 an option for 250,000 shares priced at the closing sales price
                as of
                August 31, 2008, which shall become exercisable on September 1, 2009.
              
              Each
                set of options expires five years from its respective grant
                dates.2.
            As
                part of his Employment Agreement, Mr. Trenk received (a) 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 and (b) on April 1, 2006 an
                option
                for 250,000 shares at $0.50 per share, the closing sales price on
                March
                31, 2006. In connection with his separation from the Company, as
                described
                elsewhere in this Report, Mr. Trenk had not exercised his options
                as of
                January 31, 2007; as such these options have been forfeited.
              
              As
                part of his Employment Agreement, Mr. Ettinger received (a) 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 and (b) on April 1, 2006
                an
                option for 250,000 shares at $0.50 per share, the closing price on
                March
                31, 2006. In connection with his separation from the Company, as
                described
                elsewhere in this Report, Mr. Ettinger had not exercised his options
                as of
                March 31, 2007; as such these options have been
                forfeited.3.
            FirstFlight
                has made no Stock Awards.




**DIRECTOR
      COMPENSATION TABLE**




Name
            
            Fees
              Earned
                in
              Cash
              ($)(1)
            
            Stock
              Awards
              ($)
            
            Option
              Awards
              ($)(2)
            
            Non-Equity
              Incentive
                Plan
              Compensation
              ($)
            
            Non-qualified
              Deferred
              Compensation
              ($)
            
            All
                Other
              Compensation
              ($)
            
            Total
              ($)William
                B. Wachtel
            
            
            3,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            3,000William
                R. Colaianni
            
            
            3,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            3,000Donald
                Hecht (3)
            
            
            1,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,000Thomas
                Iovino (3)
            
            
            1,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,000Jeffrey
                B. Mendell
            
            
            3,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            3,000Stephen
                B. Siegel (3)
            
            
            1,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,000Alvin
                S. Trenk
            
            
            2,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            2,000




A-25




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 option to purchase
                shares of the Common Stock. On September 30, 2004, each of the then
                non-employee directors received an option expiring September 29,
                2008 to
                purchase 25,000 shares with an exercise price of $0.01. This option
                did
                not become exercisable until September 30, 2005. On January 11, 2006,
                Mr.
                Colaianni made a cashless exercise of his option, receiving 24,375
                shares
                of the Common Stock. On March 13, 2006, Mr. Mendell made a cashless
                exercise of his option, receiving 24,667 shares of the Common Stock.
                On
                January 26, 2007, Mr. Trenk made a cashless exercise of his option,
                receiving 24,194 shares of the Common Stock. On December 13, 2005,
                each of
                FirstFlight’s non-employee directors received an option expiring on
                December 12, 2010 to purchase 25,000 shares with an exercise price
                of
                $0.64. The option became exercisable December 13, 2006. No options
                were
                granted to non-employee directors in 2006. However, it is anticipated
                that
                the Compensation Committee will grant each non-employee director
                an option
                for 25,000 shares at its initial meeting in 2007.3.
            This
                director was elected to the board effective September 15, 2006 and
                attended one Board meeting in 2006.





**Employment
      Agreements**




On
      September 1, 2006, FirstFlight entered into an employment agreement effective
      as
      of September 15, 2006 with Keith P. Bleier. A copy of the Bleier Employment
      Agreement is filed (by incorporation by reference) as Exhibit 10.21 to this
      Report and is incorporated herein by this reference. Mr. Bleier serves
      FirstFlight as a Senior Vice President and its Chief Financial Officer. The
      term
      of the agreement is for three years, which commenced on September 15, 2006,
      and
      thereafter automatically renews for additional one-year periods, unless
      terminated by either party upon 90 days’ notice prior to the start of any
      renewal period. Mr. Bleier’s base annual salary is $185,000 with annual
      increases of 5%. In addition, he may receive an annual performance bonus at
      the
      discretion of the Board of Directors. Mr. Bleier is to be granted an option
      each
      September 1 during the initial term to purchase 250,000 shares of the Common
      Stock, commencing September 15, 2006. The first option was granted effective
      September 1, 2006.





On
      September 23, 2005, Airborne and FirstFlight entered into an employment
      agreement dated as of September 23, 2005 (the "Dow Employment Agreement") with
      John Dow. A copy of the Dow Employment Agreement is filed (by incorporation
      by
      reference) as Exhibit 10.17 to this Report and is incorporated herein by this
      reference. Pursuant to the Dow Employment Agreement, Mr. Dow is employed in
      the
      office of Chief Executive of Airborne. The term of the agreement is for three
      years, which commenced September 23, 2005, and thereafter automatically renews
      for additional one-year periods, unless terminated by either party upon 90
      days’
notice prior to the start of any renewal period. Mr. Dow receives an annual
      base
      salary of $150,000 and is guaranteed annually a bonus of $100,000 with the
      salary and bonus to be paid on a bi-weekly basis. In addition, he may receive
      an
      annual performance bonus based on the Board's evaluation of Airborne's
      performance and his performance. Mr. Dow is to be granted an option each
      September 23 during the initial term to purchase 250,000 shares of the Common
      Stock. The first option was granted effective September 23, 2005 and the second
      option was granted effective September 23, 2006. On December 12, 2006, Mr.
      Dow
      was elected as President of FirstFlight by the Board of Directors and designated
      as its Chief Executive Officer.




On
      March
      31, 2005, the Board of Directors authorized execution of the First Amendment
      effective April 1, 2005 (the "First Amendment") to the employment agreement
      dated January 2, 2004 (the "Ricciardi Employment Agreement') for Ronald J.
      Ricciardi, then FirstFlight's President and Chief Executive Officer. The First
      Amendment provided that Mr. Ricciardi's employment under the Ricciardi
      Employment Agreement was effective April 1, 2005 and would continue for three
      years thereafter subject to automatic one-year renewals, unless terminated
      by
      either party upon 90 days’ notice prior to the start of any renewal period. The
      First Amendment increased his base salary to $175,000. Mr. Ricciardi is to
      be
      granted an option each April 1 during the initial term to purchase 250,000
      shares of the Common Stock. The first option was granted effective April 1,
      2005
      and the second option was granted effective April 1, 2006. On December 12,
      2006,
      Mr. Ricciardi was elected as Vice Chairman of the Board by the Board of
      Directors and, effective January 1, 2007, Mr. Ricciardi’s base salary was
      adjusted to $125,000 and the initial term was extended to March 31, 2009. A
      copy
      of the Ricciardi Employment Agreement is filed (by incorporation by reference)
      as Exhibit 10.5 to this Report; a copy of the First Amendment is filed (by
      incorporation by reference, as Exhibit 10.6 to this Report; a copy of the Second
      Amendment is filed as Exhibit 10.7 to this Report; and all are incorporated
      herein by this reference.





In
      all
      the above-cited employment agreements (other than the agreements with Messrs.
      Dow and Bleier during the initial term), FirstFlight or, in the case of Mr.
      Dow,
      Airborne, may terminate such agreement, upon ten days’ prior written notice,
      without cause. In such event, each officer is entitled to one-year’s base salary
      as severance, in addition to his incentive bonus on a pro rata basis and to
      participate in non-cash employee benefit plans for a period of six months.
      All
      agreements have change of control provisions which involve the occurrence of
      one
      of these events: the sale of all of substantially all of the employer’s assets,
      a merger or consolidation of FirstFlight in which the then stockholders of
      FirstFlight own less than 50% of the shares of stock of the surviving
      corporation, or the sale of two-thirds or more of the outstanding shares of
      FirstFlight in one transaction. If the employee leaves within one year of the
      occurrence of the change of control event, then each employee has his unvested
      stock options vest and he is covered for six months under the employer’s
      non-cash employee benefit plans. In addition, each of Messrs. Dow and Bleier
      is
      entitled to one year’s base salary and his prior year incentive bonus as
      severance pay.




A-26





On
      March
      31, 2005, FirstFlight entered into an employment agreement dated as of April
      1,
      2005 (the "Ettinger Employment Agreement") with Robert J. Ettinger. A copy
      of
      the Ettinger Employment Agreement is filed (by incorporation by reference)
      as
      Exhibit 10.1 to this Report and is incorporated herein by this reference.
      Pursuant to the Ettinger Employment Agreement, Mr. Ettinger was employed as
      the
      Chief Operating Officer of FirstFlight and as the President of its executive
      jet
      management group. The term of the Ettinger Employment Agreement was for three
      years, which commenced April 1, 2005, and thereafter would have automatically
      renewed for additional one-year periods. Mr. Ettinger's base annual salary
      was
      $150,000 and he was guaranteed an annual bonus payment of $100,000, both the
      salary and the bonus payment to be paid in equal monthly installments. In
      addition, he may receive an annual performance bonus based on the Board's
      evaluation of the Company's (particularly the Division's) performance and his
      performance. Mr. Ettinger was to be granted an option each April 1 during the
      initial term to purchase 250,000 shares of the Common Stock. The first option
      was granted effective April 1, 2005 and the second option was granted effective
      April 1, 2006. On December 18, 2006, FirstFlight gave notice to Mr. Ettinger,
      terminating without cause (as permitted) the Ettinger Employment Agreement
      effective as of December 28, 2006. Mr. Ettinger was paid one-year’s severance
      pay of $150,000 and was eligible to participate in certain non-cash benefit
      plans of the Company for a period of six months. His right to receive an option
      effective April 1, 2007 was terminated and Mr. Ettinger had until March 31,
      2007
      to exercise the outstanding options, which he did not.





On
      March
      31, 2005, the Board of Directors elected Jeffrey M. Trenk as an officer of
      FirstFlight, terminated Mr. Trenk's consulting agreement and entered into an
      employment agreement with Mr. Trenk dated April 1, 2005 (the "Jeffrey Trenk
      Employment Agreement"). Pursuant to the Jeffrey Trenk Employment Agreement,
      Mr.
      Trenk was employed as the Executive Vice President of Business Development
      of
      FirstFlight. The term of the Jeffrey Trenk Employment Agreement was for three
      years, which commenced April 1, 2005, and thereafter would have automatically
      renewed for additional one-year periods. Pursuant to Jeffrey Trenk Employment
      Agreement, Mr. Trenk's base annual salary was $175,000. Mr. Trenk was to be
      granted an option each April 1 during the initial term to purchase 250,000
      shares of the Common Stock. The first option was granted effective April 1,
      2005
      and the second option was granted effective April 1, 2006. Effective October
      31,
      2006, the Jeffrey Trenk Employment Agreement was mutually terminated. Mr. Trenk
      was also serving as a director of FirstFlight. Under the terms of the employment
      agreement separation, Mr. Trenk was paid the sum of $81,000 in lieu of any
      future monetary claims under the employment agreement. His right to receive
      an
      option effective April 1, 2007 was terminated and Mr. Trenk had until January
      31, 2007 to exercise the outstanding options, which he did not. A copy of his
      consulting agreement with FirstFlight is filed (by incorporation by reference)
      as Exhibit 10.2 to this Report; a copy of the Jeff Trenk Employment Agreement
      is
      filed (by incorporation by reference) as Exhibit 10.3 to this Report; a copy
      of
      the First Amendment thereto is filed (by incorporation by reference) as Exhibit
      10.4 to this Report; and all are incorporated herein by this
      reference.





**Additional
      Narrative Disclosure**





FirstFlight
      does not offer a defined retirement or pension plan. Tech and Airborne both
      maintained 401k plans prior to their acquisition by FirstFlight. Those plans
      have been merged into the FirstFlight 401k Plan, which covers all employees.
      The
      newly merged 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 2006, the Company matched participant contributions
      at a
      rate of 50% of the first 6% of participant deferrals. Company contributions
      to
      the plan totaled approximately $61,000 and $10,000 for the year ended December
      31, 2006 and 2005, respectively.




A-27





**ITEM
      11.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      AND** **RELATED
      STOCKHOLDER MATTERS**




**Beneficial
      Owners**




The
      following table presents certain information as of March 31, 2007 regarding
      the
      beneficial ownership of our Common Stock by:


·
              each
                  of our current executive officers and directors; and
  ·
                all
                    of our directors and current 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.
  ·
                    Information
                        as to two former executive officers named in the Summary
                        Compensation
                        Table in Item 10 to this Report may be found in Note (16)
                        to the following
                        table.




Number
                  of Shares
                of
                  Common Stock
            
            Percentage
                  of
                Common
                  StockName
                    and Addressof
                    Beneficial Owner
            
            Beneficially
                Owned
            
            Beneficially
                Owned (1)John
                H. Dow (2)
            
            
            4,268,534
            (3)
            
            11.4
            %c/o
                FirstFlight, Inc.236
                Sing Sing RoadHorseheads,
                NY 14845Ronald
                J. Ricciardi (4)
            
            
            1,643,575
            (5)
            
            4.4
            %c/o
                FirstFlight, Inc.230
                Sing Sing RoadHorseheads,
                NY 14845Keith
                P. Bleier
            
            
            0
            (6)
            
            less
                than 1
            %c/o
                FirstFlight, Inc.236
                Sing Sing RoadHorseheads,
                NY 14845William
                B. Wachtel (7)
            
            
            6,761,243
            (8)
            
            17.6
            %c/o
                Wachtel & Masyr, LLP110
                East 59thStreetNew
                York, NY 10022William
                R. Colaianni (9)
            
            
            49,375
            (10)
            
            less
                than 1
            %c/o
                Holding Capital Group LLC630
                Third AvenueNew
                York, NY 10017




A-28




Donald
                Hecht (9)
            
            
            266,700
            (11)
            
            less
                than 1
            %c/o
                Hecht and Company, P.C.111
                West 40thStreet20thFloorNew
                York, NY 10018Thomas
                Iovino (9)
            
            
            2,000,250
            (12)
            
            5.4
            %c/o
                Judlaw Contracting, Inc.26-15
                Ulmer StreetCollege
                Point, NY 11354Jeffrey
                B. Mendell (9)
            
            
            285,293
            (13)
            
            less
                than 1
            %c/o
                JBM Realty Capital Corp.100
                Putnam GreenGreenwich,
                CT 06830Stephen
                B. Siegel (9)
            
            
            533,400
            (14)
            
            1.5
            %c/o
                CB Richard Ellis200
                Park AvenueNew
                York, NY 10165Alvin
                S. Trenk (9)
            
            
            1,797,944
            (15)
            
            4.8
            %350
                East 79thStreetApartment
                38CNew
                York, NY 10021All
                directors and officers
            
            
            17,607,120
            
            42.0
            %As
                a group (10 in number) (16)Peter
                Nordin
            
            
            1,957,359
            (17)
            
            5.3
            %Bakkerevej
                OASnekkersten,
                DenmarkMartin
                Sands and Steven Sands
            
            
            3,578,029
            (18)
            
            9.7
            %c/o
                Laidlaw & Company (UK) Ltd.90
                Park AvenueNew
                York, NY 10016





(1)
            The
                percentages computed in the table are based upon 36,582,987 shares
                of our
                common stock which were outstanding on March 31, 2007. 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 March 31,
                2007.





(2)
            John
                H. Dow was the President of the FirstFlight Operating Divisions prior
                to
                December 12, 2006 and is a director of FirstFlight. On December 12,
                2006,
                he became the President and Chief Executive Officer of
                FirstFlight.




A-29


(3)
            Of
                the shares of our common stock reported in the table as being beneficially
                owned by Mr. Dow, (a) 1,166,667 shares are owned by his wife Daphne
                Dow;
                (b) they share beneficial ownership of (i) 1,000,200 shares and (ii)
                a
                warrant expiring August 31, 2011 to purchase 600,000 shares which
                is
                currently exercisable; and (c) 250,000 shares are issuable upon the
                exercise by him of an option expiring September 22, 2011 which is
                currently exercisable.





(4)
            Ronald
                J. Ricciardi was the President and the 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.





(5)
            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; and (c) 100,000 shares issuable upon the exercise of a
                warrant
                expiring August 31, 2011. Each of the two options and the warrant
                is
                currently exercisable.





(6)
            The
                shares of the Common Stock reported in the table do not include 250,000
                shares issuable upon the exercise of an option expiring on August
                31, 2011
                which shall become exercisable on September 1,
                2007.





(7)
            William
                B. Wachtel is the Chairman of the Board and a director of
                FirstFlight.





(8)
            The
                shares of the Common Stock reported in the table include (a) 208,336
                shares issuable upon the exercise of a co-investor warrant expiring
                March
                31, 2010; (b) 800,000 of the 1,200,000 shares subject to a warrant
                expiring September 22, 2010; (c) 750,000 shares issuable upon the
                exercise
                of a warrant expiring August 31, 2011; and (d) 25,000 shares issuable
                upon
                the exercise of an option expiring December 12, 2010. All three warrants
                and the option are 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, our corporate counsel, 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.





(9)
            The
                reporting person is a director of
                FirstFlight.




(10)
            The
                shares of the Common Stock reported in the table include 25,000 shares
                issuable upon the exercise of an option expiring December 12, 2010
                which
                is currently exercisable.





(11)
            The
                shares of the Common Stock reported in the table include 100,000
                shares
                issuable upon the exercise of a warrant expiring August 31, 2011
                which is
                currently exercisable.





(12)
            The
                shares of the Common Stock reported in the table include 750,000
                shares
                issuable upon the exercise of a warrant expiring August 31, 2011
                which is
                currently exercisable.





(13)
            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 and (b) 25,000 shares issuable upon
                the
                exercise of an option expiring December 12, 2010 which is currently
                exercisable.





(14)
            The
                shares of the Common Stock reported in the table include 200,000 shares
                issuable upon the exercise of a warrant expiring August 31, 2011
                which is
                currently exercisable.





(15)
            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; (b) 25,000 shares issuable upon the exercise of an option expiring
                September 29, 2009; and (c) 500,000 shares issuable upon the exercise
                of a
                warrant expiring August 31, 2011. Each of the warrants and the options
                are
                currently exercisable.(16)
            The
                table does not reflect any shares beneficially owned by two former
                executive officers of FirstFlight (i.e.,
                Jeffrey M. Trenk and Robert J. Ettinger) who are named in the Summary
                Compensation Table in Item 10 to this Report, but who ceased to be
                executive officers as of October 31, 2006 and December 28, 2006,
                respectively. Because Mr. Trenk’s wife and her daughter reside in the same
                residence as he does, he may be deemed to be the beneficial owner,
                as of
                March 31, 2007, of an aggregate of 1,445,355 shares of the Common
                Stock,
                or 4% of the outstanding shares of the Common Stock as of that date;
                however, he disclaims beneficial ownership of the aggregate of 1,106,859
                shares owned by them because he has no dispositive or voting power
                over
                such shares. Mr. Ettinger owned no shares of the Common Stock as
                of March
                31, 2007.




A-30




(17)
            Peter
                Nordin beneficially owns (a) 556,877 shares of the Common Stock and
                (b)
                150,000 shares issuable upon the exercise of an investor warrant
                expiring
                March 31, 2010. Peter Nordin APS owns (a) 983,815 shares of the Common
                Stock and (b) 266,667 shares issuable upon the exercise of a warrant
                expiring March 31, 2010. The investor 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.




(18)
            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 III LLC and three other Sands Brothers funds. No one of these
                funds individually owns as much as 5% of the outstanding shares of
                the
                Common Stock as of March 31, 2007. 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..





**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





**Certain
      Relationships and Related Transactions**




The
      Company leases its principal facility in Elmira, NY from John H. Dow ,
      the
      President, the Chief Executive Officer and a director of FirstFlight ,
      and his
      wife. See Note 19 to the Consolidated Financial Statements elsewhere in this
      Report. During the year ended December 31, 2006 and 2005, we paid approximately
      $161,000 and $43,000, respectively, in rent under the lease agreement.





On
      May
      24, 2006, the Company 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 its charter segment. The terms of the lease provide 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 division, and through which the Company would retain
      90% of the associated charter revenue. The lease agreement was subsequently
      terminated in February 2007. 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, 2006, the Company recorded revenue and expenses of $317,000
      and $415,000, respectively, related to our lease of this aircraft.





The
      Company manages aircraft owned by an entity controlled by William B. Wachtel,
      FirstFlight’s Chairman of the Board. During
      the year ended December 31, 2006, we recorded revenue and expenses of $3,273,000
      and $2,579,000, respectively, related to our management of this aircraft. At
      December 31, 2006 we had approximately $500,000 in accounts receivable owed
      to
      the Company in connection with this entity. During the year ended December
      31,
      2005, we recorded revenue and expenses of $1,182,000 and $1,064,000,
      respectively, related to our management of this aircraft.




On
      September 23, 2005, FirstFlight issued a note payable to a holder, for which
      Mr.
      Wachtel and an entity owned by one of its other directors (Alvin S. Trenk)
      are
      members of the holder's entity. This note payable has a face value of $1,500,000
      and for the initial period of 180 days, bears an annual interest rate of 4.25%.
      Effective March 22, 2006, the initial maturity date, FirstFlight elected to
      extend the maturity to September 23, 2006 with an interest rate of 9.25% per
      annum applicable to the extended period. Airborne granted the holder a security
      interest in its accounts receivable, all of its deposit accounts, all monies
      now
      and hereafter in the possession or under the control of Airborne or FirstFlight
      and all products and proceeds of the foregoing personal property. In September
      2006, FirstFlight, using part of the proceeds from its then just closed private
      placement, prepaid the note and the security interest terminated. During the
      year ended December 31, 2006 and 2005, the Company recorded interest expense
      of
      approximately $74,000 and $14,000, respectively, under this note payable
      obligation. As additional compensation to the holder for making this loan,
      FirstFlight also granted the holder a warrant expiring September 22, 2010 to
      purchase 1,200,000 shares of the Common Stock at $0.60 per share.




Mr.
      Wachtel is also a managing partner of Wachtel & Masyr, LLP, corporate
      counsel to the Company. During the year ended December 31, 2006 and 2005, we
      were billed for legal services of approximately $462,000 and $300,000,
      respectively. At December 31, 2006, we have recorded in accounts payable an
      obligation for legal fees of approximately $564,000 related to these legal
      services.





**Director
      Independence**





FirstFlight’s
      Board of Directors uses the definition of Nasdaq in determining whether a
      director is independent. Under such definition, each of William R. Colaianni,
      Donald Hecht, Thomas Iovino and Jeffrey B. Mendell qualifies as independent.
      Accordingly, all members of the Audit Committee and all members of the
      Nominating Committee qualify as independent. Of the three 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 first
      resigned on October 31, 2006.





In
      making
      its determination as to the independence of the five 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.




A-31


**ITEM
      13.**  **EXHIBITS**





**Exhibit
                No.**
            
            **Description
                of Exhibit**2
            
            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)
            
            Bylaws
                of FirstFlight previously in effect (2)3(ii)
                (1)
            
            Bylaws
                of FirstFlight as currently in effect. (15)4.1
            
            Common
                Stock Certificate. (15)4.2
            
            Form
                of 10% Senior Secured Promissory Note due March 31, 2008 or April
                8, 2008.
                (5)4.3
            
            Copy
                of General Security Agreement dated as of June 30, 2005.
                (5)4.4
            
            Form
                of Warrant expiring March 31, April 8 or April 15, 2010.
                (5)4.5
            
            Registration
                Rights Agreement (without schedule or exhibit). (5)4.6
            
            Form
                of Co-Investor Registration Rights Agreement (without schedule or
                exhibit). (5)4.7
            
            Copy
                of Warrant expiring September 22, 2010. (6)4.8
            
            Form
                of Subscription Agreement (including registration rights commitment).
                (13)4.9
            
            Form
                of Letter Agreement dated May 24, 2005 by and between FirstFlight
                and
                Laidlaw & Company, Ltd (5)10.1
            
            Copy
                of Employment Agreement dated as of April 1, 2005 by and between
                Robert J.
                Ettinger and FirstFlight. (5)




A-32




10.2
            
            Copy
                of Business Development Agreement dated as of January 2, 2004 by
                and
                between Jeffrey M. Trenk and FBO Air (as the successor by merger
                to FBO
                Air, Inc., an Arizona corporation). (8)10.3
            
            Copy
                of Employment Agreement dated as of April 1, 2005 between Jeffrey
                M. Trenk
                and FirstFlight. (5)10.4
            
            Copy
                of First Amendment dated as of October 31, 2006 by and between Jeffrey
                M.
                Trenk and FirstFlight.(7)10.5
            
            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)10.6
            
            Copy
                of First Amendment effective April 1, 2005 to the Ricciardi Employment
                Agreement, a copy of which is filed as Exhibit 10.5.
                (5)10.7
            
            Copy
                of Second Amendment to the Ricciardi Employment Agreement, a copy
                of which
                is filed as Exhibit 10.(15)10.8
            
            Copy
                of Asset Purchase Agreement dated March 31, 2005 among FBO Air -
                Garden
                City and John A. Crotts. (5)10.9
            
            Copy
                of Employment Agreement between FBO Air - Garden City, Inc. and John
                A.
                Crotts. (5)10.10
            
            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)10.11
            
            Copy
                of Employment Agreement dated March 31, 2005 between Tech Aviation
                Service,
              Inc,
                and Frank E. Paczewski. (5)10.12
            
            Copy
                of Convertible Loan Agreement dated April 16, 2004 among FBO Air
                and the
                investors mentioned in Schedule A. (1)10.13
            
            Copy
                of the Letter Agreement dated as of July 26, 2004 to the Convertible
                Loan
                Agreement, a copy of which is filed as Exhibit 10.10.
                (9)10.14
            
            Form
                of Convertible Notes due April 15, 2009. (1)10.15
            
            Copy
                of Letter Agreement dated October 21, 2004 amending the Convertible
                Notes,
                the form of which is filed as Exhibit 10.14 (9)10.16
            
            Copy
                of Stock Purchase Agreement Dated as of September 22, 2005 by and
                among
                Airborne, Inc., John H. Dow, Daphne Dow and FirstFlight (without
                a
                schedule or exhibit). (10)10.17
            
            Copy
                of Employment Agreement dated as of September 23, 2005 among John
                Dow,
                Airborne, Inc. and FirstFlight. (10)10.18
            
            Copy
                of Lease dated as of September 23, 2005 between John H. Dow and Daphne
                Dow, as the Landlord, and Airborne, Inc., as the Tenant.
                (10)10.19
            
            Copy
                of Term Loan Agreement dated as of September 23, 2005 by and among
                FirstFlight, Airborne, Inc., and Airport Capital, LLC.
                (10)




A-33




10.20
            
            Copy
                of the FirstFlight, Inc. Stock Option Plan of 2005 dated as of December
                13, 2005 (14)10.21
            
            Copy
                of Employment Agreement dated as of September 1, 2006 between FirstFlight
                and Keith P. Bleier.(12)14
            
            Code
                of Ethics.(12)21
            
            Subsidiaries
                (13)31.1
            
            Officer's
                Certification Pursuant to Rule 13a-14(a) under the Securities Exchange
                Act. (15)32.1
            
            Certification
                Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. (15)





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 filed on  March
      29,
      2005.




(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.





(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/A filed
      on
      November 4, 2004.




(10)
      Incorporated by reference to FirstFlight's Current Report on Form 8-K filed
      on
      September 28, 2005.





(11)
      Incorporated by reference to FirstFlight’s Current Report on Form 8-K filed on
      September 21, 2006.





(12)
      Incorporated by reference to FirstFlight’s Current Report on Form 8-K filed on
      May 24, 2006.





(13)
      Incorporated by reference to FirstFlight’s Registration Statement on Form SB-2,
      File No. 333-138994.





(14)
      Incorporated by reference to FirstFlight’s Annual Report on Form 10-KSB for the
      fiscal year ended December 31, 2005.





(15)
      Filed herewith.





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





***Audit
      Fees.***The aggregate fees billed for professional services rendered
      by Marcum & Kliegman was $186,000 and $80,000 for the audits of the
      Company’s annual financial statements for the fiscal years ended December 31,
      2006 and 2005, respectively, and the reviews of the financial statements
      included in the Company’s Forms 10-QSB for those fiscal years.




***Audit-Related
      Fees.*** The
      aggregate fees billed for professional services categorized as Audit-Related
      Fees rendered was $0 for the fiscal years ended December 31, 2006 and
      2005.




A-34




***Tax
      Fees***. For the years ended December 31, 2006 and 2005, the
      principal accountant billed $25,000 and $10,000, respectively, for tax
      compliance.




***All
      Other Fees*** .
      Other
      than the services described above, the aggregate fees billed for services
      rendered by the principal accountant was $0 for the fiscal years ended December
      31, 2006 and 2005.





***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
      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-KSB. 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 accountants’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
      May
      6, 2003, the effective date of the SEC 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-35




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
                17, 2007
            By:
            /s/
                Ronald J.
                RicciardiRonald
                J. Ricciardi,Vice
                Chairman of the Board





SIGNATURE
            
            TITLE
            
            DATE/s/
                John H. Dow
            
            Principal
                Executive Officer, Director
            
            April
                17, 2007John
                H. Dow/s/
                Keith P. Bleier
            
            Principal
                Financial and Accounting
            
            April
                17, 2007Keith
                P. Bleier
            
            Officer/s/
                William B. Wachtel
            
            Director
            
            April
                17, 2007William
                B. Wachtel/s/William
                R. Colaianni
            
            Director
            
            April
                17, 2007William
                R. Colaianni/s/
                Donald Hecht
            
            Director
            
            April
                17, 2007Donald
                Hecht/s/
                Thomas Iovino
            
            Director
            
            April
                17, 2007Thomas
                Iovino/s/
                Jeffrey B. Mendell
            
            Director
            
            April
                17, 2007Jeffrey
                B. Mendell/s/
                Ronald J. Ricciardi
            
            Director
            
            April
                17, 2007Ronald
                J. Ricciardi/s/
                Stephen B. Siegel
            
            Director
            
            April
                17, 2007Stephen
                B. Siegel/s/
                Alvin S. Trenk
            
            Director
            
            April
                17, 2007Alvin
                S. Trenk




A-36


FirstFlight,
      Inc. Form 10-KSB for the Year Ended December 31, 2006


Exhibits
      Filed with the Annual Report




**INDEX**





**Exhibit
                No.**
            
            **Description
                of Exhibit**3(ii)(1)
            
            Bylaws
                of FirstFlight as currently in effect.4.1
            
            Common
                Stock Certificate.10.7
            
            Copy
                of Second Amendment to the Ricciardi Employment Agreement.31.1
            
            Officer's
                Certification Pursuant to Rule 13a-14(a) under the Securities Exchange
                Act.31.2
            
            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 2002.32.2
            
            Certification
                Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.





E-1