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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from to

Commission File No. 0-23224





GREAT LAKES AVIATION, LTD.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Iowa                                                           |  | 42-1135319                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|1022 Airport Parkway, Cheyenne, WY                             |  | 82001                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (307) 432-7000





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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

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

Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
Act. (check one):

Large accelerated filer   ̈    Accelerated
filer   ̈    Non-accelerated filer   ̈    Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

The aggregate market value of common stock held by non-affiliates of the registrant as of the last business day of registrants most recently completed second fiscal quarter was approximately $8,769,142.

As of March 1, 2008 there were 14,091,970 shares of Common Stock of the registrant issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information
required by part III of this document is incorporated by reference to specified portions of the registrants definitive proxy statement for the 2008 annual meeting of shareholders.









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##### Table of Contents

GREAT LAKES AVIATION, LTD.

FORM 10-K

For the Fiscal Year Ended December 31, 2007

INDEX



|                           |  |                                                                                                               |  |   
|-------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | --
|FORWARD-LOOKING STATEMENTS |  | 1                                                                                                            
|                           |  |                                                                                                              
|PART I                     |  |                                                                                                               |  | 2 
|Item 1.                    |  | BUSINESS                                                                                                      |  | 2 
|Item 1A.                   |  | RISK FACTORS                                                                                                  |  | 11
|Item 1B.                   |  | UNRESOLVED STAFF COMMENTS                                                                                     |  | 13
|Item 2.                    |  | PROPERTIES                                                                                                    |  | 14
|Item 3.                    |  | LEGAL PROCEEDINGS                                                                                             |  | 14
|Item 4.                    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                           |  | 14
|                           |  |                                                                                                              
|PART II                    |  |                                                                                                               |  | 15
|Item 5.                    |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 15
|Item 6.                    |  | SELECTED FINANCIAL DATA                                                                                       |  | 15
|Item 7.                    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION                          |  | 17
|Item 7A.                   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                    |  | 27
|Item 8.                    |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                   |  | 29
|Item 9.                    |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                          |  | 50
|Item 9A(T).                |  | CONTROLS AND PROCEDURES                                                                                       |  | 50
|Item 9B.                   |  | OTHER INFORMATION                                                                                             |  | 51
|                           |  |                                                                                                              
|PART III                   |  |                                                                                                               |  | 51
|Item 10.                   |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                        |  | 51
|Item 11.                   |  | EXECUTIVE COMPENSATION                                                                                        |  | 51
|Item 12.                   |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                |  | 51
|Item 13.                   |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE                                      |  | 52
|Item 14.                   |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                        |  | 52
|                           |  |                                                                                                              
|PART IV                    |  |                                                                                                               |  | 52
|Item 15.                   |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                    |  | 52
|                           | 
|SIGNATURES                 |  | 53                                                                                                           



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##### Table of Contents

Forward-Looking Statements

In accordance with the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, Great Lakes Aviation, Ltd. (Great Lakes or the Company) notes that certain statements in this Form 10-K and elsewhere are forward-looking and provide other than historical information. The Companys management may also make
oral, forward-looking statements from time to time. These forward-looking statements include, among others, statements concerning the Companys general business strategies, financing decisions, and expectations for funding expenditures and
operations in the future. The words, believe, plan, continue, hope, estimate, project, intend, expect, and similar expressions reflected in such
forward-looking statements are based on reasonable assumptions, and none of the forward-looking statements contained in this Form 10-K or elsewhere should be relied on as predictions of future events. Such statements are necessarily dependent on
assumptions, data, or methods that may be incorrect or imprecise, and may be incapable of being realized. The risks and uncertainties that are inherent in these forward-looking statements could cause actual results to differ materially from those
expressed in or implied by these statements.

As more fully described in this report, important factors that could cause results to differ materially from
the expectations reflected in any forward-looking statements include:



|1) | the Companys dependence on its code-sharing relationships with United Air Lines, Inc. (United Air Lines or United), and Frontier Airlines, Inc. (Frontier Airlines or
Frontier);
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2) | the Companys ability to maintain compliance with the Companys restructured debt and lease obligations;
|-- | --------------------------------------------------------------------------------------------------------



|3) | the effect of general economic conditions on business and leisure travel;
|-- | -------------------------------------------------------------------------



|4) | the incidence of domestic and international terrorism and military actions;
|-- | ---------------------------------------------------------------------------



|5) | the incidence of pandemic diseases, storms, and other natural disasters;
|-- | ------------------------------------------------------------------------



|6) | the level of passenger confidence in the safety of air travel;
|-- | --------------------------------------------------------------



|7) | the volatility and level of fuel costs;
|-- | ---------------------------------------



|8) | seasonality of passenger traffic;
|-- | ---------------------------------



|9) | the receipt of economically sufficient Essential Air Service subsidies;
|-- | -----------------------------------------------------------------------



|10) | increases in insurance and security expenses;
|--- | ---------------------------------------------



|11) | the possibility of increased competition from other air carriers (including United and Frontier) and from ground transportation; and
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|12) | the level of regulatory and environmental costs.
|--- | ------------------------------------------------

See also Item 1A.,
Risk Factors, below for additional discussion of these factors.

Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. Changes may occur after that date, and the Company does not undertake to update any forward-looking statements except as required by law in the normal course of its public
disclosure practices.



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##### Table of Contents

PART I



|Item 1. | BUSINESS
|------- | --------

General

Great Lakes Aviation, Ltd. (Great Lakes or the Company) is a regional airline operating as an independent carrier and as a code share partner with United Air Lines, Inc.
(United Air Lines or United) and Frontier Airlines, Inc. (Frontier Airlines or Frontier). As of March 15, 2008, the Company served twelve states with 32 destinations to and from Denver, Colorado, four destinations to and from Phoenix, Arizona,
five destinations to and from St. Louis, Missouri, five destinations to and from Kansas City, Missouri and two destinations to and from Albuquerque, New Mexico.

The Company was incorporated on October 25, 1979, as an Iowa corporation and became a publicly traded company on January 21, 1994. General information about the Company can be found atwww.flygreatlakes.com. The
Companys annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through the Companys website as soon as
reasonably practicable after the Company has filed such reports with, or furnished them to, the United States Securities and Exchange Commission. Information on the Companys website is not incorporated into, nor a part of, this Form 10-K or
the Companys other securities filings.

Essential Air Service Program

The Company derived approximately 25% of its total revenue from the Essential Air Service program (EAS) in 2007, which is administered by the United States Department of Transportation (the DOT). The EAS program was
instituted under the Airline Deregulation Act of 1978 (the Deregulation Act), which allowed airlines greater freedom to introduce, increase, and generally reduce or eliminate service to existing markets. Under the EAS program, certain communities
are guaranteed specified levels of essential air service. In order to promote the provision of essential air services, the DOT may authorize the payment of federal subsidies to compensate an air carrier that is providing essential air
services in otherwise unprofitable or minimally profitable markets. An airline serving a community that qualifies for essential air services is required to give the DOT advance notice before the airline may terminate, suspend, or reduce service.
Depending on the circumstances, the DOT may require the continuation of existing service until a replacement carrier is found. EAS rates are normally set for two-year periods for each city. Significant fluctuations in passenger revenues, as well as
fluctuations in fuel and other costs, may cause EAS routes to become unprofitable during these two-year terms.

At the end of the two year term for EAS
service to a particular city, the DOT may request competitive proposals from other airlines. Proposals, when requested, are evaluated on, among other things, the level of service provided, the amount of subsidy requested, the fitness of the
applicant, and comments from the communities served.

Congress set the EAS funding level at $102 million for the federal fiscal year ended
September 30, 2005, and $110 million for the fiscal years ending September 30, 2006 and 2007. Congress is currently proposing $110 million for the fiscal year ending September 30, 2008.

The Company initiated scheduled air service to Gallup, NM in July 2007 with the assistance of a grant awarded to the New Mexico Department of Transportation provided by
the DOT Small Community Air Service Development Program. The Company will discontinue this service on March 30, 2008. Under a similar grant program, the Company discontinued service to Sierra Vista, AZ in the first quarter of 2007.



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During 2007, the Company began providing EAS service to Burlington, IA; Marion, IL; Quincy, IL; Decatur, IL; Ft. Leonard
Wood, MO and Great Bend, KS. The Company also discontinued scheduled services to Brookings, SD; Prescott, AZ and Kingman, AZ.

In October 2007, the
Companys proposal to provide Essential Air Service to serve Vernal, UT; Moab, UT; Ely, NV; Merced, CA and Visalia, CA was accepted by the DOT.

The
Companys proposal to provide Essential Air Service to serve seven Montana communities was accepted by the DOT on December 22, 2007.

Essential Air Service Program Activity Subsequent to December 31, 2007

On January 7, 2008, the Company commenced scheduled
Essential Air Service to Vernal and Moab, UT from Denver, CO.

On February 6, 2008 the Company was selected to provide EAS service to Manhattan, KS
and Salina, KS from Kansas City, MO, and Cape Girardeau, MO, Jackson, TN and Owensboro, KY from Kansas City, MO, St. Louis, MO or Cincinnati, OH.

As of
February 29, 2008, the Company served 28 EAS communities on a subsidized basis.

United Air Lines and Frontier Airlines Code Share Relationships

United Air Lines. The Company has operated under a code share agreement with United Air Lines since 2001. The terms of the United code
share agreement were amended effective July 18, 2003 and again on November 1, 2007. The current terms of the United code share agreement provide that the Company place United Air Lines flight designator codes on certain flights of the
Company that connect with United flights in Albuquerque, NM; Denver, CO; Kansas City, MO and Phoenix, AZ, and anticipates adding Las Vegas, NV.

Frontier Airlines. On May 3, 2001, the Company entered into a code share agreement with Frontier, which was implemented July 9, 2001. The Frontier agreement provides for the use of Frontiers flight designator
code on Great Lakes flights connecting with Frontiers flights in Denver. Accordingly, certain flights to and from Denver carry both the United Air Lines and Frontier Airlines flight designator codes as well as the Great Lakes flight
designator.

Markets

As of December 31, 2007, the
Company operated 232 weekday flights. Service scheduled to and from its five hubs include; 148 flights at Denver, 8 flights at Albuquerque, 12 flights at Phoenix, 20 flights at St. Louis and 12 flights at Kansas City, MO.

The Company frequently modifies its routes. For a current map of routes being flown, please visit our website at www.flygreatlakes.com.



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As of March 28, 2008, the Companys route map, consisting of current scheduled service and recently awarded
Essential Air Service communities, is as follows:

LOGO

Marketing

The Companys
services are marketed primarily by means of the Companys internet web site, global distributions systems (travel agencies and travel agent web sites), the Companys reservation call center and seat capacity made available through the
Companys code share agreements. The Companys promotional programs emphasize the Companys close affiliation with its code share partners and, in particular, the opportunity for the Companys passengers to participate in related
customer service benefits, such as frequent flyer programs.

Yield Management

The Company monitors its inventory and pricing of available seats utilizing yield management techniques. These processes enable the Companys revenue control analysts to examine the Companys past traffic
and pricing trends, and to estimate the optimal number of seats to make available for sale at various fares. The analysts then monitors each flight to adjust seat allocations and booking levels, with the objective of maximizing total revenue for
each flight.



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Charter and Freight Service

The Company uses its Beechcraft 1900Ds and Embraer Brasilia aircraft to provide charter services to private individuals, corporations and athletic teams. The Company also carries freight and small packages on most of its scheduled
flights. Combined revenues from the Companys leases, charter flights and freight air service were 0.9%, 1.5%, and 1.6% of the Companys total revenues for the years ended December 31, 2007, 2006, and 2005, respectively.

Seasonality

The airline industry generally is subject to cyclical
moves in the economy. Because both personal discretionary travel and business travel may be expected to decline during periods of economic weakness, the airline industry tends to experience poorer financial results during such periods.

Seasonal factors, primarily weather conditions and passenger demand, generally affect our monthly passenger enplanements. We have historically shown a higher level of
passenger enplanements in the May through October period as compared with the November through April period for many of the cities served. These seasonal factors have generally resulted in reduced revenues, lower operating income, and less cash flow
for the Company during the November through April period. As a result of such factors, our revenues and earnings have shown a corresponding increase during the May through October period.

Competition

The Company competes for passenger traffic with regional
and major air carriers and ground transportation. The Company may also compete with other regional air carriers to receive EAS subsidies for providing air service to small communities. The Companys competition from other air carriers varies
from location to location and, in certain areas, comes from regional and major carriers who serve the same or nearby destinations as the Company, but through different hub and spoke systems. The Company could experience increased competition from
competitors or on one or more of the Companys routes.

Aircraft

As of December 31, 2007, the Companys fleet consisted of 25 Beechcraft Model 1900D 19-passenger aircraft and six Embraer Brasilia Model 120 30-passenger aircraft.

Beechcraft 1900D Aircraft. The 19 passenger Beechcraft 1900D aircraft are pressurized, weather radar equipped, and offer a 310-mile per hour
cruising speed.

Embraer Brasilia Aircraft. The 30-passenger Embraer Brasilia aircraft are pressurized, weather radar equipped, has
restrooms, is staffed with a flight attendant, and offers a 330-mile per hour cruising speed.



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A summary of the Companys operating aircraft as of December 31, 2007, 2006 and 2005 is as follows:



|                          |  |                 |  |                 |  |                 |  |                 |  |                 |   |  |                
|------------------------- |  | --------------- |  | --------------- |  | --------------- |  | --------------- |  | --------------- | - |  | ---------------
|                          |  | 2007            |  | 2006            |  | 2005           
|                          |  | Beechcraft1900D |  | EmbraerBrasilia |  | Beechcraft1900D |  | EmbraerBrasilia |  | Beechcraft1900D |   |  | EmbraerBrasilia
|Owned                     |  | 25              |  | 4               |  | 25              |  | 4               |  | 25              |   |  | 4              
|Operating leases          |  |                |  | 2               |  |                |  | 2               |  |                |   |  | 2              
|                          |  |                 |  |                 |  |                 |  |                 |  |                 |   |  |                
|                          |  | 25              |  | 6               |  | 25              |  | 6               |  | 25              |   |  | 6              
|Leased to another carrier |  |                |  |                |  |                |  |                |  | (2              | ) |  |               
|                          |  |                 |  |                 |  |                 |  |                 |  |                 |   |  |                
|Available for operations  |  | 25              |  | 6               |  | 25              |  | 6               |  | 23              |   |  | 6              
|                          |  |                 |  |                 |  |                 |  |                 |  |                 |   |  |                

As of December 31, 2007, the average age of the Companys aircraft was approximately 13 years, and as of
December 31, 2006, the average age of the Companys aircraft was approximately 12 years as the Company has operated the same fleet of aircraft in both years.

Maintenance

The Federal Aviation Administration (the FAA) mandates periodic inspection and maintenance of commercial
aircraft. The Company performs most of the maintenance and inspection of its aircraft and engines (except engine overhaul) using its own personnel. The heavy maintenance base is located at Cheyenne, Wyoming. Line maintenance is also performed in
Denver, Colorado and Phoenix, Arizona. Parts and supplies inventories are maintained at these locations to promote the mechanical dispatch reliability of the fleet. The Company also maintains an inventory of spare engines and propellers for its
fleet to allow for minimal downtime during major overhauls. The Company internally performs overhaul of selected aircraft components for its fleet.

As required under the Companys Restructuring Agreement with Raytheon Aircraft Credit Corporation (Raytheon),
dated as of December 31, 2002 (the 2002 Restructuring Agreement) (see Liquidity and Financing below), in April 2004, the Company entered into a five-year Fleet Management ProgramTMcontract with Pratt & Whitney Canada (P&WC) under which P&WC supplies the Company with certain engine maintenance services (the FMP contract).

In July 2006, the Company amended the FMP contract to extend its term to June 30, 2011 and to reduce the hourly rate the Company pays per flight hour. Monthly
amounts to be paid by the Company are based on the total number of Beechcraft 1900D engine flight hours at a fixed contractual rate. The contractual rate per flight hour is subject to annual fixed increases throughout the term of the contract, and
the Company is recognizing this expense at a level rate throughout the term of the contract. Since the FMP contract amendment reduced hourly rates retroactively to July 1, 2005, the Company reflected a change in estimate and recorded an
adjustment of $582,234 for the renegotiated rate which reduced the corresponding balance payable to P&WC and maintenance expense during the third quarter ending September 30, 2006.

Fuel

The Company expects to continue to be able to obtain fuel in
quantities sufficient to meet its future requirements. The Company contracts, through intermediaries and directly with refiners for the purchase of a significant portion of its aircraft fuel requirements. However, standard industry contracts
generally do not provide protection against fuel price increases and do not ensure availability of supply. Accordingly, an increase in the cost of fuel, if not accompanied by an equivalent increase in passenger revenues or subsidies,



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could have a material adverse impact on the Companys future operating results. During 2007, the Companys average price of fuel, including taxes
and plane service fees, was $2.76 per gallon, as compared to $2.42 in 2006 and $2.13 in 2005. At current rates of consumption, a one cent increase or decrease in the per gallon price of fuel will increase or decrease the Companys fuel expense
by approximately $93,000 annually.

Liquidity and Financing

In the first quarter of 2007 and the third and fourth quarters of 2006, the Company successfully renegotiated with its primary creditors to either extinguish debt or renegotiate the terms of their lease, debt, and significant contractual
obligations.

Pratt and Whitney Canada

In July 2006, the Company amended its Fleet Management ProgramTMcontract (the FMP contract) with Pratt & Whitney Canada (P&WC) to extend its term to June 30, 2011 and to reduce the hourly rate the Company pays per flight hour.

CIT Aerospace

On September 28,
2006, the Company extinguished its debt obligation with CIT Aerospace (CIT) by making cash payment of $2.1 million. During the first nine months of 2006, the Company made total payments of principal and interest on the CIT debt obligation in the
amount of $2.7 million. As a result of the extinguishment of debt with CIT, the Company has realized a one-time gain of $1.1 million in the quarter ended September 30, 2006.

FINOVA Capital Corporation

The Company entered into
a settlement agreement with FINOVA Capital Corporation (FINOVA) on October 20, 2006 after returning two Embraer Brasilia aircraft. The terms of the agreement allowed for a reduction in the balance of the outstanding lease obligations and
accrued penalty interest from $1.4 million to $0.85 million, for which the Company entered into a promissory note payable in 45 equal monthly installments of $22,342, including interest, with the first payment being made October 31, 2006. In
accordance with the provisions of SFAS No. 15, the Company recorded the FINOVA debt in the amount of $1.0 million. The Company prepaid the debt in the third quarter of 2007 at a discounted rate. As a result the Company recorded a gain of
approximately $412,000.

Boeing Corporation

On December 20, 2006, the Company and Boeing Capital Corporation (Boeing) entered into a Settlement Agreement and Lease Amendment that discharged the Companys obligations for defaulted rent and other payments due to Boeing under
lease agreements for two Embraer aircraft. The total discharged payment defaults were $10,067,097. Simultaneously, the Company paid Boeing a lump sum of $1,150,000 and a maintenance rent payment for two aircraft engines. The lease was amended to:
(i) reduce the monthly rental payments for each aircraft; (ii) require the Company to pay maintenance rent, which will be reimbursable upon completion of certain maintenance events; and (iii) remove the Companys
option to purchase the aircraft at the end of the April 2013 lease term at the aircrafts then fair market value. The total discharged deferred lease payments were $8.3 million and total discharge including accrued interest and penalties
resulted in a gain for 2006 of $10.1 million. The Settlement Agreement and Lease Amendment cured all existing defaults with Boeing.



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Raytheon Aircraft Credit Corporation

On March 9, 2007, the Company and Raytheon Aircraft Credit Corporation (Raytheon) entered into an Amended and Restated Restructuring Agreement (the Amended Agreement), which amends and restates in its entirety
the Restructuring Agreement between the Company and Raytheon dated as of December 31, 2002, (the 2002 Restructuring Agreement). Pursuant to the Amended Agreement, the Company issued to Raytheon 25 amended and restated promissory notes (the
Aircraft Notes), each secured by an amended security agreement in the related aircraft. The Aircraft Notes replace the existing notes issued by the Company to Raytheon on December 31, 2002. Each of the Aircraft Notes has an original principal
amount of $2,116,573.70, for a total amount of $52,914,343, bears interest at a fixed rate of 6.75% per annum, and provides for monthly payments in arrears starting on March 30, 2007. The Aircraft Notes mature on June 30, 2011, at
which time a final payment of $1,306,674.84 will be due for each aircraft. The fixed rate of 6.75% on the Aircraft Notes represents a significant reduction in interest expense and eliminates variable interest rate risk on all of the Companys
aircraft debt.

Under the Amended Agreement, the Company issued to Raytheon a promissory note (the Senior Note) that replaces the existing senior note and
subordinated note issued by the Company to Raytheon on December 31, 2002. The Senior Note has an original principal amount of $13,174,754.62 and bears interest at a rate of 7.00%. Interest on the Senior Note is payable monthly in arrears on the
last day of each month, commencing on March 30, 2007. Beginning with the calendar quarter ending June 30, 2007, the Senior Note will provide for quarterly payments of principal on June 30, September 30, and December 30
each year until the note matures on December 30, 2015. As additional security for the Senior Note, the Company pledged four Embraer Brasalia aircraft; as well as, all other assets of the Company. For additional information regarding the
Companys arrangements with Raytheon, see Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operation  Liquidity and Capital Resources.

As further consideration for the concessions granted by Raytheon in the 2002 Restructuring Agreement, the Company issued 5,371,980 shares of the Companys common
stock to Raytheon, representing an approximate 38.2% interest in the Companys then outstanding shares of common stock. In addition, the Company granted Raytheon observer rights for meetings of the Companys Board of Directors, but without
any right to vote or enter into any discussions at any Board of Directors meetings. As part of the Amended Agreement, Raytheon has relinquished its observer rights.

The Amended Agreement requires the Company to file a shelf registration statement with the Securities and Exchange Commission to permit Raytheon to resell its shares of Company Common Stock, which the Company has
agreed to file by April 30, 2008.

The debt payments to be made under the Amended Agreement are closely aligned with the Companys forecasted
cash flows. Under the Amended Agreement, the Company is no longer required to comply with any financial covenant ratios. The Amended Agreement provides for limitations on capital expenditures, incremental indebtedness, anti-dilution of the
Companys common stock, restrictions on equity issuances, encumbrances of assets, and mergers and acquisitions without Raytheons prior consent.

Other Leases

The Company leases office and hangar space, and office equipment for its headquarters, reservation facilities, airport
facilities, and certain other equipment. The Company also leases certain airport gate and terminal facilities on a month-to-month basis.

Release of Tax
Valuation Allowance

Until the fourth quarter of 2007, the Company had recorded a valuation allowance to fully reserve its net deferred tax assets. In
the fourth quarter of 2007, the Company determined that it is more likely than not that the Company will be able to utilize most of its net operating loss carryforwards prior to their expiration and other



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deferred tax assets as they reverse. As a result, the Company released most of its deferred tax asset valuation allowance and recorded a $10.5 million income
tax benefit on the Companys income statement which represents the difference between the $10.7 million deferred tax benefit and $0.2 million of alternative minimum tax expense. As of December 31, 2007, the Company has approximately $66.5
million of Federal net operating loss carryforwards, which will be available to offset future taxable income. A valuation allowance of $500,000 remains at December 31, 2007 for state net operating loss carryforwards that may not be recovered.

Transportation Security Administration

At
June 30, 2004, the Company was obligated to the Transportation Security Administration for $2.5 million, representing collections from passengers for security fees and amounts due from the Company for aviation security infrastructure fees. On
August 11, 2004, the Company restructured this obligation into an installment note. This obligation was retired on June 20, 2007.

Employees

At March 1, 2008, the Company had 581 full-time and 348 part-time active employees, as compared to 557 full-time and 288 part-time active
employees at March 1, 2007.

The Companys pilots are represented by the International Brotherhood of Teamsters (IBT). The Companys labor
agreement with the pilots became amendable on October 30, 2000. In May 2006, the Company and the IBT agreed to binding arbitration to achieve a new three year labor agreement. On September 16, 2006, the arbitrator ruled on terms that
resulted in a new labor agreement that will not become amendable until September 16, 2009.

The Companys flight attendants are also represented
by the International Brotherhood of Teamsters, and the Companys agreement with the flight attendants became amendable on April 1, 2002. Negotiations with the flight attendants are inactive at the present time.

The Companys mechanics and maintenance clerks are represented by the International Association of Machinists (IAM). The Companys agreement with the mechanics
became amendable on November 1, 2005, and the Companys agreement with the maintenance clerks became amendable on March 1, 2002. On October 19, 2007, the IAM, the designated collective bargaining representative of the class and
craft of Mechanics and Related and Clerical employees, sued the Company in Colorado federal court. The following Monday, October 22, 2007, the Company sued the IAM in Minnesota. For additional detail with respect to the status of these matters,
see Item 3 of this report, Legal Proceedings below.

In 2003, the Companys dispatchers voted to be represented by the International
Brotherhood of Teamsters. Negotiations with the dispatchers are inactive at the present time.



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##### Table of Contents

Executive Officers of the Registrant

The following table provides information with respect to the Companys executive officers as of March 15, 2008.



|                     |  |     |  |                                              |  | 
|-------------------- |  | --- |  | -------------------------------------------- |  | 
|Name                 |  | Age |  | Title                                        |  | 
|Douglas G. Voss      |  | 53  |  | Chairman of the Board of Directors-President |  | 
|Charles R. Howell IV |  | 50  |  | Chief Executive Officer                      |  | 
|Michael O. Matthews  |  | 51  |  | Vice President and Chief Financial Officer   |  | 
|Michael L. Tuinstra  |  | 54  |  | Treasurer                                    |  | 

Douglas G. Voss. Mr. Voss co-founded the Company in 1979 and served in the position of Chief Executive
Officer from the Companys inception until December 31, 2002. Mr. Voss has served as a director of the Company since the Companys inception and became Chairman of the Board of Directors on December 31, 2002. Mr. Voss
became a pilot in 1974 and holds both an Airline Transport Pilot Certificate and an Airframe and Powerplant Mechanic Certificates. Mr. Voss is a graduate of Colorado Aero Tech. Mr. Voss has previously served the Company in the FAA Air
Carrier Certificate required operational control positions of Director of Operations and Director of Maintenance.

Charles R. Howell IV.
Mr. Howell became the Chief Executive Officer of the Company on December 31, 2002. Mr. Howell served as Chief Operating Officer from August 2002 until December 31, 2002. Prior to joining the Company, Mr. Howell was the
President and Chief Executive Officer of Corporate Airlines, Inc., a Nashville-based airline that he co-founded in 1996.

Michael O. Matthews.Mr. Matthews became the Vice President and Chief Financial Officer of the Company on March 28, 2005.Mr. Matthews joined the Company in November 2004 as Vice President of Finance. Prior to joining the Company,
Mr. Matthews was employed as Director of Treasury for Budget Group, Inc. Prior to joining Budget Group, Inc. in 2000, Mr. Matthews held management positions in the financial services industry including Newcourt Financial, MetLife Capital,
Sanwa Business Credit and Societe Generale Financial Corporation.

Michael L. Tuinstra. Mr. Tuinstra became the Companys Treasurer in
January 2002. From August 1998 to January 2002, Mr. Tuinstra served as the Companys Director of Purchasing and Inventory Control. From August 1998 until April 1999, Mr. Tuinstra was the Companys budget and financial analyst.

Regulation

In accordance with the provisions of the
Federal Aviation Act of 1958, as amended (the 1958 Act), the Company is an air carrier subject to regulation by the DOT, primarily with respect to economic matters. As a commuter air carrier, the Company is licensed under Part 298 of the Economic
Regulations of the DOT.

The Company holds an air carrier operating certificate issued by the Federal Aviation Administration (FAA) pursuant to Part 121 of
the FAAs regulations. To ensure compliance with its regulations, the FAA requires that an airline obtain an operating certificate and operations specifications for each particular aircraft and type of operations conducted by the carrier, all
of which are subject to suspension or revocation for cause. As a result, the Company is subject to the jurisdiction of the FAA with respect to the Companys operations, aircraft maintenance, and safety related matters, including, but not
limited to, equipment, ground facilities, dispatch, communications, training, weather observation, flight personnel, and other matters affecting air safety.

The Deregulation Act of 1978 eliminated many regulatory constraints so that airlines became free to set fares and, with limited exceptions, to establish domestic routes without the necessity of seeking government approval. The DOT is still
authorized to establish consumer protection regulations in order to prohibit certain pricing



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practices, mandate conditions of carriage, and make ongoing determinations of a carriers fitness, willingness, and ability to provide air
transportation properly and lawfully. The DOT also has the power to bring proceedings to enforce its regulations under the 1958 Act and seek penalties, including the assessment of civil penalties, the revocation of operating authority, and criminal
sanctions.

The Aviation and Transportation Security Act requires the adoption of certain security measures by airlines and airports, including the
screening of passengers and baggage. The security measures are being partially funded by a per flight segment tax on tickets. The Company is responsible for certain security costs above this level.

The Company is subject to the jurisdiction and regulations of the Federal Communications Commission regarding the use of the Companys radio facilities. In
addition, local governments and authorities in certain markets have adopted regulations governing various aspects of aircraft operations, including noise abatement, curfews, and use of airport facilities. The Company believes that it is in
compliance with all such regulations.

Insurance

The
Company carries the types and amounts of insurance that are required by the DOT and are customary in the regional airline industry, including coverage for public liability, property damage, aircraft loss or damage, baggage and cargo liability, and
workers compensation.

As a result of the September 11 terrorist attacks, aviation insurers have significantly increased premiums for all
aviation coverage, while dramatically reducing the amount of coverage available for war-risk occurrences. In response to the reduction in coverage, the Air Transportation Safety and System Stabilization Act (the Stabilization Act) provided U.S. air
carriers with the option to purchase certain war-risk liability insurance from the United States government on an interim basis at rates that are more favorable than those available in the private market. The Company has purchased this coverage and
anticipates renewing it for as long as the coverage is available from the United States government. The airline and insurance industries, together with the United States and other governments, are continuing to evaluate both the cost of aviation
insurance and options for providing insurance coverage. The Company anticipates that it will follow industry practices with respect to sources of insurance. The Company believes that its insurance is adequate as to amounts and risks covered. There
can be no assurance, however, that the limits of the Companys insurance will be sufficient to cover any catastrophic loss.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Financial Condition of the Company

During the year ended December 31, 2006 and in March 2007 the Company had successfully renegotiated with its lenders to extinguish debt or renegotiate the terms
of their lease and debt agreements. Failure by the Company to comply with the terms and conditions of its debt and lease obligations could affect the Companys ability to secure additional financing to facilitate growth. These transactions are
discussed further in notes (2), (5) and (7) of the accompanying financial statement.



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Dependence on Relationship with United Air Lines

Currently, the Company estimates that approximately 40% of Great Lakes connecting passenger traffic with United Air Lines flights utilizes the United code share product line. As a result of the Companys
relationship with United Air Lines (United), the Companys business is sensitive to events and risks affecting United. If adverse events affect Uniteds business, the Companys business could also be adversely affected. Such events
include the ability of United to achieve financial viability after exiting Chapter 11 bankruptcy reorganization, changes in Uniteds business plan or model, employee strikes or job actions, significant curtailment of services, and terrorist
events. However, to the extent that the Company is successful in developing both its own identity in its route system and its code share relationship with Frontier Airlines and interline partnerships with other airlines, the Company will reduce its
dependence on United and mitigate the effects of any adverse events that are related solely to United.

Terrorist Events

The Companys operations are sensitive to changes in the economy and airline industry that are caused by, or related to, past and future terrorist attacks. Such
changes include, but are not limited to, the impact of additional airline and security charges on Company costs, reduced customer demand for travel, the cost and availability of war-risk and other aviation insurance (including the federal
governments provision of third party war-risk coverage).

War

War or other military action by the United States or other countries could have a significant effect on passenger traffic.

Dependence on Essential Air Service Revenues

In 2007, the Company received approximately $24.1 million of EAS subsidies as compensation for
Essential Air Service provided by the Company to small cities, as compared to $23.9 million in 2006. EAS subsidies are expected to remain a significant portion of the Companys revenues in future years. The total amount of EAS subsidy
ultimately received by the Company over an extended period is determined by, among other things, overall funding levels to the DOT by Congress, competitive bids by other carriers, schedule modifications at the request of the DOT, and the
Companys optimization of its schedules.

The DOT awards EAS subsidies through competitive bidding and the Company could lose its EAS subsidy to
competitors. In addition, the DOT has the right to cancel EAS arrangements if it determines that the communities served by such arrangements are no longer eligible.

Effect of General Economic Conditions

The airline industry is significantly affected by general economic conditions.
During recent recessions, most airlines reduced fares in an effort to increase traffic. Economic and competitive conditions in the airline industry have contributed to a number of airline bankruptcies. A worsening of current economic conditions, or
an extended period of recession, whether nationally or regionally would have a material adverse effect on the Companys operations. See Forward-Looking Statements at the front of this report.



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Fuel Costs

Aircraft
fuel is a major component of the Companys operating expenses. Aircraft fuel represented approximately 28.4% of the Companys operating expenses in 2007 compared to 24.8% of the Companys operating expenses in 2006. The Company does
participate in risk-based fuel hedging instruments. The Companys cost of fuel varies directly with market conditions, and the Company has no guaranteed long-term sources of supply. Generally, the Company intends to follow industry trends by
raising fares in response to significant fuel price increases. However, the Companys ability to pass on increased fuel costs through fare or EAS subsidy increases may be limited by economic and competitive conditions. Accordingly, a reduction
in the availability of, or an increase in the price of fuel, could have a material adverse effect on both the Companys cash flow from operations and the Companys profitability. In the fiscal year ended December 31, 2007, the
Companys average price per gallon of fuel consumed increased to an average of $2.76 per gallon compared to the average price per gallon of $2.42 for the fiscal year ending December 31, 2006. The Company estimates that every $.01 increase
in the price per gallon of fuel equates to an annualized increase in fuel expense of approximately $93,000 based on 2007 operating activity.

Control by
Principal Stockholders

Raytheon, the Companys principal creditor, owns 5,371,980 shares of the Companys common stock, representing an
approximate 38.2% interest in the Companys outstanding shares of common stock. Raytheon acquired the shares in consideration for concessions granted by Raytheon pursuant to the 2002 Restructuring Agreement

Mr. Douglas G. Voss, Chairman of the Board of the Company, beneficially owns or controls approximately 39.5% of the outstanding shares of the Companys
common stock, including shares owned by Ms. Gayle R. Brandt. Pursuant to a Marital Dissolution Stipulation and Property Settlement, Ms. Brandt granted to Mr. Voss an Irrevocable Proxy to vote her shares of the Companys
common stock until June 28, 2010.

Accordingly, Mr. Voss and Raytheon are in a position to control the management and affairs of the Company.

Limited Market for Company Securities

The
Companys Common Stock was delisted from the Nasdaq Small Cap Market on August 14, 2002. As a result of the delisting, the Companys Common Stock has become subject to certain rules of the SEC relating to penny stocks.
These rules require broker-dealers to make a suitability determination for purchasers and to receive the purchasers prior written consent for a purchase transaction, thus restricting the ability to purchase or sell the securities in the open
market. Trading of the Companys Common Stock is conducted on the Over-the-Counter Bulletin Board, which was established for securities that do not meet NASDAQ listing requirements. Consequently, trading the Companys Common Stock may be
more difficult because of lower trading volumes, transaction delays, and reduced security analyst and news media coverage of the Company. These factors could also contribute to lower prices and larger spreads in the bid and ask prices for the
Companys Common Stock.



|Item 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None



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|Item 2. | PROPERTIES
|------- | ----------

The Company leases approximately 96,000 square feet of
space for maintenance, operations, and administration in Cheyenne, Wyoming.

The Company leases gate, terminal and ramp facilities at 44 airports where
ticketing and passenger loading and unloading are handled by Company personnel. Payments to airport authorities for ground facilities are based on a number of factors, including the amount of space used and flight volume.

The Company believes that it has adequate facilities for the conduct of its current and planned operations.

As of December 31, 2007, the Companys fleet consisted of 25 Beechcraft Model 1900D 19-passenger aircraft and six Embraer Brasilia Model 120 30-passenger
aircraft. For additional information with respect to the Companys aircraft, see the discussion in Item 1 of this report, BusinessAircraft above.



|Item 3. | LEGAL PROCEEDINGS
|------- | -----------------

On October 19, 2007, International
Association of Machinists and Aerospace Workers (the IAM), the designated collective bargaining representative of the class and craft of Mechanics and Related and Clerical employees, sued the Company in Colorado federal court. The
following Monday, October 22, 2007, the Company sued the IAM in Minnesota.

These lawsuits arise out of a dispute regarding whether the Company has
been relieved of its Railway Labor Act obligations to bargain collectively with the IAM and to maintain the status quo until the bargaining process is exhausted. The union lawsuit seeks to require the Company to engage in mediated bargaining and to
refrain from changing the terms, conditions and wages of aircraft maintenance employees. The Company lawsuit seeks to free the parties from further bargaining and to authorize unilateral action regarding maintenance employee employment.

On October 31, 2007 the Colorado federal court entered a temporary restraining order preventing the Company from increasing mechanic pay. Later on
November 7, that court entered a preliminary injunction that prohibits unilateral action and compels the Company to participate in bargaining under the auspices of the National Mediation Board. The IAM subsequently agreed to an October 2007
Company proposed wage increase for mechanics effective November 1, 2007. In the meantime the federal court in Minnesota denied the Companys motion for an injunction against mediated bargaining. The Company has appealed both the Minnesota
and Colorado federal court rulings.

On December 5, 2007, the Companys mechanics and maintenance clerks representatives submitted an
Application for Investigation of Representation Dispute to the National Mediation Board seeking to decertify the IAM as their union representatives. The application is currently being investigated by the National Mediation Board. The litigation in
the Minnesota and Colorado federal district courts and the related appeals to the 8th and 10th Circuit federal appellate courts have been stayed pending the outcome of the National Mediation Board investigation and any ensuing union representative
decertification vote.

The Company is a party to other ongoing legal claims and assertions arising in the ordinary course of business. Management believes
that the resolution of these matters will not have a material adverse effect on the Companys financial position, results of operations, or cash flows.



|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

There were no
matters submitted to a vote of the Companys shareholders during the year ended December 31, 2007.



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PART II



|Item 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | -------------------------------------------------------------------------------------------------------------

The Companys Common Stock is traded under the symbol GLUX.OB on the Over-the-Counter Bulletin Board (the OTCBB). The following table sets forth the
range of high and low sale prices for the Companys Common Stock for each of the fiscal quarters for the past two years as reported on the OTCBB. These prices represent inter-dealer prices without adjustments for mark-up, mark-down, or
commission and do not necessarily reflect actual transactions.



|                 |  |      |      |     |   |     
|---------------- |  | ---- | ---- | --- | - | ----
|Stock Quotations |  | High |      | Low
|2007:            |  |      |      |     |   |     
|First quarter    |  | $    | 3.50 |     | $ | 2.15
|Second quarter   |  |      | 3.20 |     |   | 2.25
|Third quarter    |  |      | 3.00 |     |   | 2.20
|Fourth quarter   |  |      | 2.60 |     |   | 1.98
|                 |  |     
|2006:            |  |      |      |     |   |     
|First quarter    |  | $    | 1.28 |     | $ | 0.61
|Second quarter   |  |      | 1.70 |     |   | 1.03
|Third quarter    |  |      | 1.65 |     |   | 1.30
|Fourth quarter   |  |      | 2.27 |     |   | 1.40

As of March 3, 2008, the Company had approximately 319 record holders of its Common Stock.

The transfer agent for the Companys Common Stock is Wells Fargo Bank Minnesota, N.A., 161 North Concord Exchange, South St. Paul, Minnesota 55075-0738, telephone:
(651) 450-4064.

The Company has not paid any dividends on its Common Stock since its initial public offering in January 1994. The Company expects
that, for the foreseeable future, it will follow a policy of retaining earnings in order to finance the continued development of its business. Payment of dividends is within the discretion of the Companys Board of Directors and will depend,
among other factors, upon the earnings, capital requirements, operating and financial condition of the Company, and any applicable restrictive debt and lease covenants. Under its March 9, 2007 Amended and Restated Restructuring Agreement with
Raytheon, the Company has agreed not to pay dividends. There were no sales of unregistered securities of the Company during the fiscal year ended December 31, 2007.

See Item 12 with respect to securities authorized for issuance under equity compensation plans.



|Item 6. | SELECTED FINANCIAL AND OPERATING DATA
|------- | -------------------------------------

The following statement of
operations and balance sheet data as of, and for each of, the years in the five-year period ended December 31, 2007 are derived from the Companys financial statements. The financial statements for the years ended December 31, 2007,
2006, 2005, 2004, and 2003 have been audited by KPMG LLP. The financial statements as of December 31, 2007 and 2006, and for each of the years in the three-year



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period ended December 31, 2007, and the report thereon, are included elsewhere in this Form 10-K. The following selected financial data should be read
in conjunction with, and are qualified in their entirety by, the financial statements and the notes thereto included elsewhere in this Form 10-K.



|                                                                                         |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                                                                         |  | Year Ended December 31,                                      |       
|                                                                                         |  | 2007                                                         |        |   | 2006 |   |        | 2005 |  |   | 2004    |   |  | 2003 |         
|                                                                                         |  | (in thousands, except per share and selected operating data) |       
|Statement of Operations Data:                                                            |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Passenger revenues                                                                       |  | $                                                            | 73,283 |   |      | $ | 62,477 |      |  | $ | 53,313  |   |  | $    | 54,532   |   |  | $ | 48,691   |  
|Public service revenues                                                                  |  |                                                              | 24,149 |   |      |   | 23,851 |      |  |   | 21,861  |   |  |      | 20,776   |   |  |   | 25,079   |  
|Freight, charter, and other                                                              |  |                                                              | 728    |   |      |   | 1,286  |      |  |   | 1,218   |   |  |      | 1,040    |   |  |   | 1,991    |  
|                                                                                         |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Total operating revenues                                                                 |  |                                                              | 98,160 |   |      |   | 87,614 |      |  |   | 76,392  |   |  |      | 76,348   |   |  |   | 75,761   |  
|                                                                                         |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Operating expenses:                                                                      |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Salaries, wages and benefits                                                             |  |                                                              | 22,505 |   |      |   | 20,993 |      |  |   | 20,282  |   |  |      | 21,684   |   |  |   | 22,668   |  
|Aircraft fuel                                                                            |  |                                                              | 24,913 |   |      |   | 19,517 |      |  |   | 16,940  |   |  |      | 14,007   |   |  |   | 12,001   |  
|Aircraft maintenance, material, and repairs                                              |  |                                                              | 13,781 |   |      |   | 11,585 |      |  |   | 10,708  |   |  |      | 10,735   |   |  |   | 10,322   |  
|Depreciation and amortization                                                            |  |                                                              | 5,632  |   |      |   | 5,744  |      |  |   | 6,316   |   |  |      | 6,644    |   |  |   | 7,991    |  
|Aircraft rental                                                                          |  |                                                              | 620    |   |      |   | 1,666  |      |  |   | 1,644   |   |  |      | 1,980    |   |  |   | 3,012    |  
|Other rentals and landing fees                                                           |  |                                                              | 4,225  |   |      |   | 4,566  |      |  |   | 4,043   |   |  |      | 4,323    |   |  |   | 4,349    |  
|Other operating expense                                                                  |  |                                                              | 15,949 |   |      |   | 14,707 |      |  |   | 13,177  |   |  |      | 14,822   |   |  |   | 15,059   |  
|                                                                                         |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Total operating expenses                                                                 |  |                                                              | 87,625 |   |      |   | 78,778 |      |  |   | 73,110  |   |  |      | 74,195   |   |  |   | 75,402   |  
|                                                                                         |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Operating income                                                                         |  |                                                              | 10,535 |   |      |   | 8,836  |      |  |   | 3,282   |   |  |      | 2,153    |   |  |   | 359      |  
|                                                                                         |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Interest expense, net                                                                    |  |                                                              | (2,319 | ) |      |   | (3,540 | )    |  |   | (3,122  | ) |  |      | (1,295   | ) |  |   | (2,390   | )
|Insurance recovery                                                                       |  |                                                              |       |   |      |   |       |      |  |   |        |   |  |      | 650      |   |  |   |         |  
|Gain (loss) on disposal of assets                                                        |  |                                                              |       |   |      |   |       |      |  |   | 461     |   |  |      | (197     | ) |  |   | 152      |  
|Gain on extinguishment of debt and deferred leases                                       |  |                                                              | 412    |   |      |   | 10,498 |      |  |   | 560     |   |  |      | 4,317    |   |  |   | 3,669    |  
|                                                                                         |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Income before income taxes                                                               |  |                                                              | 8,628  |   |      |   | 15,794 |      |  |   | 1,181   |   |  |      | 5,628    |   |  |   | 1,790    |  
|Income tax benefit (expense)                                                             |  |                                                              | 10,528 |   |      |   | (115   | )    |  |   |        |   |  |      |         |   |  |   |         |  
|                                                                                         |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Net income                                                                               |  | $                                                            | 19,156 |   |      | $ | 15,679 |      |  | $ | 1,181   |   |  | $    | 5,628    |   |  | $ | 1,790    |  
|                                                                                         |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Net income per share: Basic and Diluted                                                  |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Basic                                                                                    |  | $                                                            | 1.36   |   |      | $ | 1.11   |      |  | $ | 0.08    |   |  | $    | 0.40     |   |  | $ | 0.13     |  
|Diluted                                                                                  |  |                                                              | 1.33   |   |      |   | 1.09   |      |  |   | 0.08    |   |  |      | 0.39     |   |  |   | 0.13     |  
|                                                                                         |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Average number of common shares outstanding:                                             |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Basic                                                                                    |  |                                                              | 14,077 |   |      |   | 14,072 |      |  |   | 14,072  |   |  |      | 14,072   |   |  |   | 14,061   |  
|Diluted                                                                                  |  |                                                              | 14,446 |   |      |   | 14,380 |      |  |   | 14,283  |   |  |      | 14,302   |   |  |   | 14,061   |  
|                                                                                         |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Balance Sheet Data:                                                                      |  |                                                              |        |   |      |   |        |      |  |   |         |   |  |      |          |   |  |   |          |  
|Working capital (deficit)                                                                |  | $                                                            | 3,775  |   |      | $ | (3,462 | )    |  | $ | (94,885 | ) |  | $    | (113,743 | ) |  | $ | (128,614 | )
|Total assets                                                                             |  |                                                              | 92,980 |   |      |   | 82,312 |      |  |   | 86,479  |   |  |      | 103,296  |   |  |   | 117,778  |  
|Long-term debt (including current installments) and long-term debt classified as current |  |                                                              | 67,202 |   |      |   | 75,523 |      |  |   | 78,904  |   |  |      | 98,603   |   |  |   | 115,264  |  
|Stockholders equity (deficit)                                                           |  |                                                              | 16,306 |   |      |   | (2,872 | )    |  |   | (18,551 | ) |  |      | (19,732  | ) |  |   | (25,361  | )



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|                                             |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                             |  | Year Ended December 31, |        
|                                             |  | 2007                    |         |   | 2006 |   |         | 2005 |  |   | 2004    |   |  | 2003 |        
|Selected Operating Data (unaudited):         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Available seat miles (in thousands) (1)      |  |                         | 318,524 |   |      |   | 283,272 |      |  |   | 280,579 |   |  |      | 318,904 |   |  |   | 328,904 |  
|Revenue passenger miles (in thousands) (2)   |  |                         | 157,144 |   |      |   | 132,251 |      |  |   | 117,761 |   |  |      | 133,948 |   |  |   | 126,064 |  
|Revenue passengers carried                   |  |                         | 578,773 |   |      |   | 504,666 |      |  |   | 443,304 |   |  |      | 484,395 |   |  |   | 453,396 |  
|Departures flown                             |  |                         | 68,360  |   |      |   | 61,806  |      |  |   | 60,169  |   |  |      | 66,019  |   |  |   | 70,928  |  
|Passenger load factor (3)                    |  |                         | 49.3    | % |      |   | 46.7    | %    |  |   | 42.0    | % |  |      | 42.0    | % |  |   | 38.3    | %
|Break-even passenger load factor (4)         |  |                         | 42.7    | % |      |   | 32.9    | %    |  |   | 40.9    | % |  |      | 36.9    | % |  |   | 36.7    | %
|Average yield per revenue passenger mile (5) |  |                         | 46.7    | ¢ |      |   | 47.2    | ¢    |  |   | 45.3    | ¢ |  |      | 40.7    | ¢ |  |   | 38.6    | ¢
|Revenue per available seat mile (6)          |  |                         | 30.8    | ¢ |      |   | 30.9    | ¢    |  |   | 27.2    | ¢ |  |      | 23.9    | ¢ |  |   | 23.0    | ¢
|Operating cost per available seat mile (7)   |  |                         | 27.5    | ¢ |      |   | 27.8    | ¢    |  |   | 26.1    | ¢ |  |      | 23.3    | ¢ |  |   | 22.9    | ¢
|Average passenger fare (8)                   |  | $                       | 126.62  |   |      | $ | 123.80  |      |  | $ | 120.26  |   |  | $    | 112.58  |   |  | $ | 107.39  |  
|Average passenger trip length (miles) (9)    |  |                         | 272     |   |      |   | 262     |      |  |   | 266     |   |  |      | 277     |   |  |   | 278     |  
|Aircraft in service (end of period)          |  |                         | 31      |   |      |   | 31      |      |  |   | 29      |   |  |      | 36      |   |  |   | 42      |  
|Destinations served (end of period)          |  |                         | 44      |   |      |   | 37      |      |  |   | 37      |   |  |      | 31      |   |  |   | 40      |  



|(1) | Available seat miles or ASMs represent the number of seats available for passengers in scheduled flights multiplied by the number of scheduled miles those
seats are flown.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Revenue passenger miles represent the number of miles flown by revenue passengers.
|--- | ------------------------------------------------------------------------------------

|(3) | Passenger load factor represents the percentage of seats filled by revenue passengers and is calculated by dividing revenue passenger miles by available seat miles.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Break-even passenger load factor represents the percentage of available seat miles that must be flown by revenue passengers at the average yield (net of commissions and
fees) for airline operations to break even.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Average yield per revenue passenger mile represents the average passenger revenue received for each mile a revenue passenger is carried.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Revenue per available seat mile represents the average total operating revenue received for each available seat mile.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(7) | Operating cost per available seat mile represents operating expenses divided by available seat miles.
|--- | -------------------------------------------------------------------------------------------------------

|(8) | Average passenger fare represents passenger revenue divided by the number of revenue passengers carried.
|--- | ----------------------------------------------------------------------------------------------------------

|(9) | Average passenger trip length represents revenue passenger miles divided by the number of revenue passengers carried.
|--- | -----------------------------------------------------------------------------------------------------------------------



|Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
|------- | ------------------------------------------------------------------------------------

Overview

The discussion and analysis throughout this report contains certain forward-looking terminology such as
believes, anticipates, will, and intends or comparable terminology. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those
projected. Potential purchasers of the Companys securities are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by the cautions and risks described herein. See
Forward-Looking Statements at the front of this report.



17



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The Company began providing air charter service in 1979, and has provided scheduled passenger service in the Upper
Midwest since 1981. The Company operates under its own name and as a code sharing partner with both United and Frontier Airlines. As of March 30, 2008, the Company is providing passenger service to 46 airports in twelve states.

Results of Operations

(dollars in
thousands)



|                                                     |  |                                  |        |             |      |   |                               |       |   |        |   |             |  |      |                               |  |      |        |  |             |        |  |      |  
|---------------------------------------------------- |  | -------------------------------- | ------ | ----------- | ---- | - | ----------------------------- | ----- | - | ------ | - | ----------- |  | ---- | ----------------------------- |  | ---- | ------ |  | ----------- | ------ |  | ---- | -
|                                                     |  | For the Years Ended December 31, |       
|                                                     |  | 2007                             |        |             | 2006 |   |                               | 2005  |  
|                                                     |  | Amount                           |        | CentsperASM |      |   | % Increase(decrease)from 2006 |       |   | Amount |   | CentsperASM |  |      | % Increase(decrease)from 2005 |  |      | Amount |  | CentsperASM |       
|Operating revenues:                                  |  |                                  |        |             |      |   |                               |       |   |        |   |             |  |      |                               |  |      |        |  |             |        |  |      |  
|Passenger                                            |  | $                                | 73,283 |             |      |   |                               | 17.3  | % |        | $ | 62,477      |  |      |                               |  | 17.2 | %      |  | $           | 53,313 |  |      |  
|Public service                                       |  |                                  | 24,149 |             |      |   |                               | 1.2   |   |        |   | 23,851      |  |      |                               |  | 9.1  |        |  |             | 21,861 |  |      |  
|Other                                                |  |                                  | 728    |             |      |   |                               | (43.4 | ) |        |   | 1,286       |  |      |                               |  | 5.6  |        |  |             | 1,218  |  |      |  
|                                                     |  |                                  |        |             |      |   |                               |       |   |        |   |             |  |      |                               |  |      |        |  |             |        |  |      |  
|Total operating revenues                             |  |                                  | 98,160 |             |      |   |                               | 12.0  | % |        |   | 87,614      |  |      |                               |  | 14.7 | %      |  |             | 76,392 |  |      |  
|                                                     |  |                                  |        |             |      |   |                               |       |   |        |   |             |  |      |                               |  |      |        |  |             |        |  |      |  
|Salaries, wages, and benefits                        |  |                                  | 22,505 |             | 7.1  | ¢ |                               | 7.2   | % |        |   | 20,993      |  | 7.4  | ¢                             |  | 3.5  | %      |  |             | 20,282 |  | 7.2  | ¢
|Aircraft fuel                                        |  |                                  | 24,913 |             | 7.8  |   |                               | 27.6  |   |        |   | 19,517      |  | 6.9  |                               |  | 15.2 |        |  |             | 16,940 |  | 6.0  |  
|Aircraft maintenance materials and component repairs |  |                                  | 13,781 |             | 4.3  |   |                               | 19.0  |   |        |   | 11,585      |  | 4.1  |                               |  | 8.2  |        |  |             | 10,708 |  | 3.8  |  
|Depreciation and amortization                        |  |                                  | 5,632  |             | 1.8  |   |                               | (1.9  | ) |        |   | 5,744       |  | 2.0  |                               |  | (9.1 | )      |  |             | 6,316  |  | 2.3  |  
|Aircraft rental                                      |  |                                  | 620    |             | 0.2  |   |                               | (62.8 | ) |        |   | 1,666       |  | 0.6  |                               |  | 1.3  |        |  |             | 1,644  |  | 0.6  |  
|Other rentals and landing fees                       |  |                                  | 4,225  |             | 1.3  |   |                               | (7.5  | ) |        |   | 4,566       |  | 1.6  |                               |  | 12.9 |        |  |             | 4,043  |  | 1.4  |  
|Other operating expense                              |  |                                  | 15,949 |             | 5.0  |   |                               | 8.4   |   |        |   | 14,707      |  | 5.2  |                               |  | 11.6 |        |  |             | 13,177 |  | 4.6  |  
|                                                     |  |                                  |        |             |      |   |                               |       |   |        |   |             |  |      |                               |  |      |        |  |             |        |  |      |  
|Total operating expenses                             |  |                                  | 87,625 |             | 27.5 | ¢ |                               | 11.2  | % |        |   | 78,778      |  | 27.8 | ¢                             |  | 7.8  | %      |  |             | 73,110 |  | 26.1 | ¢
|                                                     |  |                                  |        |             |      |   |                               |       |   |        |   |             |  |      |                               |  |      |        |  |             |        |  |      |  
|Operating income                                     |  | $                                | 10,535 |             |      |   |                               |       |   |        | $ | 8,836       |  |      |                               |  |      |        |  | $           | 3,282  |  |      |  
|                                                     |  |                                  |        |             |      |   |                               |       |   |        |   |             |  |      |                               |  |      |        |  |             |        |  |      |  



|                                         |  |         |   |  |                              |    |  |         |   |  |                              |   |  |         |  
|---------------------------------------- |  | ------- | - |  | ---------------------------- | -- |  | ------- | - |  | ---------------------------- | - |  | ------- | -
|                                         |  | 2007    |   |  | Increase/(decrease)from 2006 |    |  | 2006    |   |  | Increase/(decrease)from 2005 |   |  | 2005    |  
|Available seat miles (thousands)         |  | 318,524 |   |  | 12.4                         | %  |  | 283,272 |   |  | 1.0                          | % |  | 280,579 |  
|Revenue passenger miles (thousands)      |  | 157,144 |   |  | 18.8                         | %  |  | 132,251 |   |  | 12.3                         | % |  | 117,761 |  
|Passenger load factor                    |  | 49.3    | % |  | 5.6                          | %  |  | 46.7    | % |  | 11.2                         | % |  | 42.0    | %
|Average yield per revenue passenger mile |  | 46.7    | ¢ |  | (1.1                         | )% |  | 47.2    | ¢ |  | 4.2                          | % |  | 45.3    | ¢
|Revenue per available seat mile          |  | 30.8    | ¢ |  | (0.3                         | )% |  | 30.9    | ¢ |  | 13.6                         | % |  | 27.2    | ¢
|Cost per Available Seat Mile             |  | 27.5    | ¢ |  | (1.1                         | )% |  | 27.8    | ¢ |  | 6.5                          | % |  | 26.1    | ¢

Comparison of 2007 to 2006

Passenger Revenues.Passenger revenues and revenue passenger miles increased 17.3% and 18.8%, respectively, from 2006. The increase in passenger revenues was largely due to the 18.8% increase in revenue
passenger miles as a result of a 14.7% increase in revenue passengers carried. Reducing this affect, average yield per revenue passenger mile decreased 1.1%.

Public Service Revenues. Public service revenues earned through the Essential Air Service program increased 1.2% to $24.1 million in 2007, as compared to $23.9 million in 2006. The increase in public service revenues was
attributable to changes in estimates relating to prior periods and rate changes on existing routes along with changes in the cities served, which was partially offset by a net decrease of one community served by the Company under the Essential Air
Service Program.



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Other Revenues. Other revenues decreased 43.4% to $0.7 million in 2007. This decrease was mainly due to
termination of rental income from the lease of two Beechcraft 1900D aircraft in 2006. This decrease was partially offset by an increase in cargo revenue.

Operating Expenses. Total operating expenses increased 11.2%, or $8.8 million, from the previous year. However, operating expenses per ASM decreased from 27.8 cents in 2006 to 27.5 cents in 2007.

Salaries, wages, and benefits increased 7.2% to $22.5 million, which was primarily attributable to Company-wide increases in staffing levels and hours worked as a result
of a 12.4% increase in ASMs and 10.6% increase in departures flown during 2007. The average number of pilots and other employees increased in 2007 compared to 2006 by 2.9% and 5.7%, respectively.

Aircraft fuel expense was $24.9 million, or 7.8 cents per ASM, in 2007, an increase of $5.4 million. In comparison, the Companys aircraft fuel expense for 2006 was
$19.5 million, or 6.9 cents per ASM. The average cost of fuel increased from $2.42 per gallon in 2006 to $2.76 per gallon in 2007. The effect of the $0.34 increase in cost per gallon was an increase in total cost of $2.7 million in 2007. The 27.6%
increase in the Companys aircraft fuel expense is attributable to a 13.3% increase in consumption as the result of a 12.4% increase in the Companys available seat miles, along with a 14.1% increase in the average cost of fuel per gallon.
At 2007 rates of consumption, a one cent increase or decrease in the per gallon price of fuel will increase or decrease the Companys fuel expense by approximately $93,000 annually.

Aircraft maintenance, materials, and component repair expense increased 19.0% to $13.8 million. The 2007 increase in aircraft maintenance expense was primarily attributable to a one time reduction in 2006 of $0.7
million related to the restructuring of the FMP contract, $1.2 million in heavy maintenance checks and $0.2 million in Embraer Brasilia Model 120 engine overhauls. Overall, the cost per ASM for aircraft maintenance, excluding labor, increased to 4.3
cents in 2007, as compared to 4.1 cents in 2006.

Depreciation and amortization expense was $5.6 million during 2007, which was at approximately the same
level as 2006.

Aircraft rental expense was $0.6 million during 2007, a decrease of 62.8% from $1.7 million during 2006. The reduction was primarily
attributable to the reduced monthly rental payments for the two aircraft leased from Boeing.

Other rentals and landing fees decreased 7.5% to $4.2 million
in 2007 from $4.6 million in 2006. The decrease in other rentals and landing fees expenses is mostly attributable to a reduction in costs at Denver International Airport.

Other operating expenses increased 8.4% in 2007 to $16.0 million, from $14.7 million in 2006. The increase in other operating expenses is primarily due to an increase of approximately $0.3 million in pilot training
and associated lodging expenses as a result of an increase in the ASMs. Other increases include approximately $0.2 million for passenger booking fees, $0.4 million for deicing, $0.3 million for legal and professional fees and $0.3 million from
increased operations. These increases were offset by reductions of hull and liability insurances of $0.3 million.

Interest Expense.
Interest expense decreased 34.5% to $2.3 million in 2007, from $3.5 million in 2006. The decrease was primarily the result of non-recurring penalty interest expense in 2006 and lower fixed interest rates on reduced principal balances. These
decreases were partially offset by a reduction in the SFAS No. 15 credits in interest expense related to the 2002 restructured Raytheon debt.



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Gain on Extinguishment of Debt and Deferred Leases.During 2007, the Company recognized a $0.4 million gain
on the settlement and extinguishment of debt on previously leased Embraer Brasilia aircraft from FINOVA.In 2006, the Company recognized a $8.9 million gain on the extinguishment of Boeing past due lease payments and contractual
payments associated with the lease, a $1.1 million gain on the extinguishment of CIT debt and a $0.4 million gain on the extinguishment of FINOVA deferred lease payments.

Income Tax benefit (expense).Until the fourth quarter of 2007, the Company had recorded a valuation allowance to fully reserve its net deferred tax assets. In the fourth quarter of 2007, the Company
determined that it is more likely than not that the Company will be able to utilize most of its net operating loss carryforwards prior to their expiration and other deferred tax assets as they reverse. As a result, the Company released most of its
deferred tax asset valuation allowance and recorded a $10.5 million income tax benefit on the Companys income statement which represents the difference between the $10.7 million deferred tax benefit and $0.2 million of alternative minimum tax.
As of December 31, 2007, the Company has approximately $66.5 million of Federal net operating loss carryforwards, which will be available to offset future taxable income. A valuation allowance of $500,000 remains at December 31, 2007 for
state net operating loss carryforwards that may not be recovered.

Comparison of 2006 to 2005

Passenger Revenues.Passenger revenues and revenue passenger miles increased 17.2% and 12.3%, respectively, from 2005. The increase in passenger revenues
was largely due to the 12.3% increase in revenue passenger miles as a result of a 13.8% increase in revenue passengers carried. In addition, average yield per revenue passenger mile increased 4.2%.

Public Service Revenues. Public service revenues earned through the Essential Air Service program increased 9.1% to $23.9 million in 2006, as compared to
$21.9 million in 2005. The increase in public service revenues was attributable to an increase in the number of subsidized communities served by the Company. Service was added in three communities, which was partially offset by a subsidy decrease
resulting from service discontinued in one community.

Other Revenues. Other revenues increased 5.6% to $1.3 million in 2006. This increase
was mainly due to increased cargo, charter and maintenance labor income.

Operating Expenses. Total operating expenses increased 7.8%, or
$5.7 million, from the previous year. Operating expenses per ASM increased from 26.1 cents in 2005 to 27.8 cents in 2006.

Salaries, wages, and benefits
increased 3.5% to $21.0 million, which was primarily attributable to Company-wide increases in staffing levels and hours worked. The average number of pilots and other employees increased in 2006 compared to 2005 by 5.0% and 3.4%, respectively.

Aircraft fuel expense increased 15.2% in 2006, even though fuel consumption increased 0.3%. The increase in fuel expense was a result of rising fuel costs
in 2006. The Companys average fuel cost per gallon increased 14.1% to $2.42 in 2006. Fuel costs contributed 6.04 cents and 6.89 cents to cost per ASM in 2005 and 2006 respectively. The effect of increased fuel costs contributed an incremental
0.85 cents to cost per ASM in 2006.

Aircraft maintenance, materials, and component repair expense increased 8.2% to $11.6 million. The increase in
aircraft maintenance expense was primarily attributable the $1.2 million increase in heavy maintenance checks, $0.3 million in Embraer Brasilia Model 120 engine overhauls and $0.2 million in propeller overhauls performed in 2006 over 2005. These
increases were partially offset by reduction of $0.7 million related to the restructuring of the FMP contract. Overall, the cost per ASM for aircraft maintenance increased to 4.1 cents in 2006, as compared 3.8 cents in 2005.



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##### Table of Contents

Depreciation expense decreased 9.1% to $5.7 million in 2006, from $6.3 million in 2005. The decrease was primarily
attributable to the return of five surplus Beechcraft 1900D aircraft to Raytheon during 2005.

Other rentals and landing fees increased 12.9% in 2006. The
increase occurred primarily because the Company received a lower reimbursement of the annual rate adjustments from Denver International Airport than the reimbursement it received during 2005, along with adjustments of rates on landing fees.

Other operating expenses increased 11.6% in 2006 to $14.7 million, from $13.2 million in 2005. The increase in other operating expenses is primarily due
to an increase of approximately $0.3 million in pilot training and associated lodging expenses as a result of an increase in the number of pilots. Other increases include approximately $0.3 million for passenger booking fees, $0.2 million for legal
and professional fees, $0.2 million from increased operations and increases resulting from 2005 reductions from credits for insurance audits of $0.3 million and contract handling credits of $0.2 million.

Interest Expense. Interest expense increased 13.4% to $3.5 million in 2006, from $3.1 million in 2005. The increase was primarily the result of
reduced SFAS No. 15 amortization of $0.7 million on Raytheon restructured debt.

Income Tax benefit (expense).In 2005 and 2006 the
realization of any income tax benefits from the Companys loss carry forward position was substantially in doubt. The $115,000 of expense was the result of 2006 estimated alternative minimum tax of $60,000 and 2005 final alternative minimum tax
return amount booked in 2006 of $55,000.

Gain on Disposal of Assets and Gain on Extinguishment of Debt.In 2006, the Company recognized a
$8.9 million gain on the extinguishment of Boeing past due lease payments and contractual payments associated with the lease, a $1.1 million gain on the extinguishment of CIT debt and a $0.4 million gain on the extinguishment of FINOVA deferred
lease payments. In 2005, the Company recognized gains on extinguishment of debt in the amount of $0.6 million as a result of the return of five debt-financed Beechcraft 1900D aircraft and $0.5 million gain on the sale of two spare Pratt &
Whitney PT6A-67D engines.

Liquidity and Capital Resources

The Company recognized net income of $19.2 million for the year 2007 including a $10.5 million income tax benefit. Cash of $8.1 million was generated from operating activities and was the primary source of funds used to make $6.0 million in
payments on notes payable and long-term debt.

Our liquidity depends to a large extent on the number of passengers who fly with us, the fares they pay, the
rate and amount of EAS subsidy we receive, our operating and capital expenditures, our financing activities, and the cost of fuel.

We had cash and cash
equivalents of $4.0 million and $2.7 million at December 31, 2007 and December 31, 2006, respectively. At December 31, 2007, total current assets were $19,639,202 as compared to $15,863,849 of total current liabilities, resulting in
working capital of $3,775,353. At December 31, 2006, total current assets were $12,269,755 as compared to $15,731,942 of total current liabilities, resulting in negative working capital of $3,462,187. The increase in our working capital from
December 31, 2006 to December 31, 2007 is largely a result of cash generated from operations and refinancing activities undertaken by the Company in 2006 and 2007. For further information on our financing plans, activities and commitments,
see Contractual Obligations and Raytheon Refinance Activities below.

Operating Activities. Net cash provided
by operating activities for the year ended December 31, 2007 was $8,097,334 as compared to $6,808,067 for the year ended December 31, 2006. The increase in operating cash flows was primarily due to an increase in the number of passenger
enplanements, an increase in passenger fares and incremental public service revenue.



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##### Table of Contents

Investing Activities.Net cash used in investing activities for the year ended December 31,
2007 was $709,300. Capital expenditures of $884,300 for the year ended December 31, 2007 included the purchase of flight equipment and other property and equipment. We received $175,000 primarily from the sale of a spare engine which was
obsolete to the Companys fleet

Net cash used in investing activities for the year ended December 31, 2006 was $594,142. Capital expenditures
were $594,142 for the year ended December 31, 2006 and included the purchase of flight equipment and other property and equipment.

Financing
Activities. Net cash used in financing activities for the year ended December 31, 2007 was $6,007,346. During the year ended December 31, 2007, we paid $6,029,571 of repayment of notes payable and long-term debt and we
received proceeds of $22,225 from the sale of common stock.

Cash used in financing activities for the year ended December 31, 2006 was $5,457,225.
During the year ended December 31, 2006, we paid $5,547,225 of repayment of notes payable and long-term debt.

Other Items That Impact Our
Liquidity

Our liquidity position is impacted by our maintenance and fuel costs. For further information on our maintenance and fuel costs, see
Managements Discussion and Analysis of Financial Position  Overview above.

We continue to assess our liquidity position in light
of our other capital requirements, the economy, our competition, and other uncertainties surrounding the airline industry. We intend to continue to examine other transactions as necessary to support our capital and operating needs. For further
information on our financing plans, activities and commitments, see Contractual Obligations and Raytheon Refinance Activities below.

We cannot predict future trends or predict whether current trends and conditions will continue. Our future liquidity and capital resources may be impacted by many factors, including those described as Risk Factors in
Item 1A of this report.

Raytheon Refinance Activity

On March 9, 2007 the Company and Raytheon entered into the Amended Agreement, which, amended and restated the 2002 Restructuring Agreement. Pursuant to the Amended Agreement, the Company issued to Raytheon 25 amended and restated
promissory notes (the Aircraft Notes), each secured by an amended security agreement in the related aircraft. The Aircraft Notes replace the existing notes issued by the Company to Raytheon on December 31, 2002. Each of the Aircraft Notes has
an original principal amount of $2,116,573.70, for a total amount of $52,914,343, bears interest at a fixed rate of 6.75% per annum, and provides for monthly payment in arrears starting on March 30, 2007. The Aircraft Notes mature on
June 30, 2011. Outstanding balances on each note call for a principal payment of $1,306,675 per Aircraft Note for a total balloon payment of $32,666,875 at June 30, 2011. The fixed rate of 6.75% on the Aircraft Notes represents a
significant reduction in interest expense and eliminates variable interest rate risk on all of the Companys aircraft debt.

Under the Amended
Agreement, the Company issued to Raytheon a promissory note (the Senior Note) that replaces the existing senior note and subordinated note issued by the Company to Raytheon on December 31, 2002. The Senior Note has an original
principal amount of $13,174,754.62 and bears interest at a rate of 7.00%. Interest on the Senior Note is payable monthly in arrears on the last day of each month, commencing on March 30, 2007.



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Beginning with the calendar quarter ending June 30, 2007, the Senior Note will provide for quarterly payments of principal on
June 30, September 30 and December 30 each year until the note matures on December 30, 2015. As additional security for the Senior Note, the Company pledged four Embraer Brasalia aircraft; as well as, all other assets of the
Company.

The Amended Agreement requires the Company to prepay amounts outstanding under the Companys notes held by Raytheon in an amount equal to
70% of the excess cash for any fiscal year. Excess cash means as at the end of any fiscal year an amount equal to (i) the sum of the Companys cash, cash equivalents and short term instruments, minus (ii) a minimum
of $3,000,000 plus 4% of the difference between current and prior year revenue. On January 30, 2008 the company was required to make a mandatory cash payment to Raytheon in the amount of approximately $427,000. In conjunction with the mandatory
cash payment of $427,000, the Company made a voluntary cash payment of approximately $138,000 which was applied to the prepayment of the remaining balance on the variable rate engine note totaling $565,045.

At December 31, 2006, the Raytheon notes consisted of 25 aircraft promissory notes and three long-term notes payable. Twenty-five of the promissory notes ($57.6
million at December 31, 2006) required payments of approximately $25,500 per month, with interest accruing on unpaid balances at the rate of LIBOR plus 375 basis points per annum. Each of these 25 promissory notes was to mature on
December 31, 2012. During 2006, the Company made principal payments of $2.3 million on the Aircraft Debt. In addition the Company made payments of interest in the amount of $4.5 million. At December 31, 2006, outstanding principal amount
of the Aircraft Debt was $50.9 million, while the carrying value of the Aircraft Debt on the Companys books was $57.6 million. During 2006, amortization of the SFAS No. 15 amount on the Companys books reduced principal by $2.1
million. At December 31, 2006, the Company was in arrears on payments of principal and interest for the aircraft debt in the amount of $12.5 million and was not in compliance with certain other financial covenants contained in the 2002
Restructuring Agreement. Of the three long-term notes payable, the first note payable ($5.9 million at December 31, 2005) required quarterly payments of principal and interest beginning in 2005, at which time payments of principal and interest
in the amount of $362,000 was due and payable quarterly. Interest accrued on the unpaid balance of the first note payable at the rate of 8.25% per annum, and the note was to mature on December 31, 2009. The second note payable ($6.0
million at December 31, 2006) required payments beginning in 2006, at which time payments of interest ranging in amounts from $41,000 to $44,000 were due and payable quarterly. Interest accrued on the unpaid balances of the second note payable
at the rate of 6% per annum. The second note payable was to mature on September 30, 2007, at which time all outstanding amounts under the note would have been due and payable. The third note payable ($1.0 million at December 31, 2006)
requires monthly payments of principal in the amount of $37,500 plus interest beginning January 31, 2004 at which time payments of principal and interest would be due and payable monthly. Interest would accrue on the unpaid balance of the third
note payable at the rate of LIBOR plus 400 basis points per annum. This third note payable was paid in full on January 30, 2008. The termination of this note leaves the Company with no variable interest rate risk.

Other Financing

Boeing Capital Corporation. On
December 20, 2006, the Company and Boeing Capital Corporation (Boeing) entered into a Settlement Agreement and Lease Amendment that discharged the Companys obligations for defaulted rent and other payments due to Boeing under lease
agreements for two Embraer aircraft. The total discharged payment defaults were $10,067,097. Simultaneously, the Company paid Boeing a lump sum of $1,150,000 and a maintenance rent payment for two aircraft engines. The lease was amended to:
(i) reduce the monthly rental payments for each aircraft; (ii) require the Company to pay maintenance rent, which will be reimbursable upon completion of certain maintenance events; and (iii) remove the Companys
option to purchase the aircraft at the end of the April 2013 lease term at the aircrafts then fair market value. The total discharged deferred lease payments were $8.3 million and total discharge including accrued interest and penalties
resulted in a gain for 2006 of $10.1 million. The Settlement Agreement and Lease Amendment cured all existing defaults with Boeing.



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CIT.On September 28, 2006, the Company extinguished its debt obligation with CIT Aerospace
(CIT) by making a cash payment of $2.1 million. During the first nine months of 2006, the Company made total payments of principal and interest on the CIT debt obligation in the amount of $2.7 million. As a result of the extinguishment of debt with
CIT, the Company has realized a one-time gain of $1.1 million in the quarter ended September 30, 2006.

FINOVA. The Company entered into
a settlement agreement with FINOVA Capital Corporation (FINOVA) on October 20, 2006 after returning two Embraer Brasilia aircraft. The terms of the agreement allowed for a reduction in the balance of the outstanding lease obligations and
accrued penalty interest from $1.4 million to $0.85 million, for which the Company entered into a promissory note payable in 45 equal monthly installments of $22,342, including interest, with the first payment being made October 31, 2006. In
accordance with the provisions of SFAS No. 15, the Company recorded the FINOVA debt in the amount of $1.0 million. The Company prepaid the debt in the third quarter of 2007 at a discounted rate. As a result the Company recorded a gain of
approximately $412,000.

Contractual Obligations

The
following table summarizes the Companys major contractual payment obligations as of December 31, 2007:



|                                           |  |      |            |           |   |            |  |            |            |       |   |           |  |   |           
|------------------------------------------ |  | ---- | ---------- | --------- | - | ---------- |  | ---------- | ---------- | ----- | - | --------- |  | - | ----------
|                                           |  | 2008 |            | 2009-2010 |   | 2011-2012  |  | After 2012 |            | Total
|Long-term debt - contractual (1)           |  | $    | 5,994,238  |           | $ | 12,671,900 |  | $          | 38,629,749 |       | $ | 4,758,121 |  | $ | 62,054,008
|Contractual interest on long-term debt (1) |  |      | 4,117,960  |           |   | 6,935,413  |  |            | 2,147,813  |       |   | 548,172   |  |   | 13,749,358
|Additional SFAS 15 carrying value          |  |      | 1,685,890  |           |   | 2,860,948  |  |            | 600,945    |       |   |          |  |   | 5,147,783 
|                                           |  |      |            |           |   |            |  |            |            |       |   |           |  |   |           
|Total debt                                 |  |      | 11,798,088 |           |   | 22,468,261 |  |            | 41,378,507 |       |   | 5,306,293 |  |   | 80,951,149
|Aircraft lease obligations                 |  |      | 600,000    |           |   | 1,200,000  |  |            | 1,200,000  |       |   | 150,000   |  |   | 3,150,000 
|Non-aircraft lease commitments             |  |      | 2,266,594  |           |   | 2,461,634  |  |            | 55,220     |       |   | 9,203     |  |   | 4,792,651 
|                                           |  |      |            |           |   |            |  |            |            |       |   |           |  |   |           
|Total lease obligations                    |  |      | 2,866,594  |           |   | 3,661,634  |  |            | 1,255,220  |       |   | 159,203   |  |   | 7,942,651 
|                                           |  |      |            |           |   |            |  |            |            |       |   |           |  |   |           
|Total Obligations                          |  | $    | 14,664,682 |           | $ | 26,129,895 |  | $          | 42,633,727 |       | $ | 5,465,496 |  | $ | 88,893,800
|                                           |  |      |            |           |   |            |  |            |            |       |   |           |  |   |           



|(1) | On January 30, 2008 the Raytheon Engine Note was prepaid in the amount of $565,045 consisting of $560,854 of principal and $4,192 of accrued interest.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

See Item 7A for interest obligations.

Critical Accounting
Policies and Estimates

The preparation of the Companys financial statements in conformity with accounting principles generally accepted in the
United States requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements; revenues and expenses during the reporting period; and related disclosures
of contingent assets and liabilities in the financial statements and the accompanying notes. Actual results could differ from those estimates.

The United
States Securities and Exchange Commission (the SEC) has defined a companys most critical accounting policies as the ones that are most important to the portrayal of the Companys financial condition and results and that require the
company to make its most difficult and subjective judgments, often as a result of the



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need to make estimates of matters that are inherently uncertain. Based on this definition, the Company has identified its critical accounting policies as
including those addressed below. The Company also has other key accounting policies, which involve the use of estimates, judgments, and assumptions. See Note 3, Summary of Significant Accounting Policies and Procedures, in the Notes to
the Financial Statements for additional discussion of these items. Management believes that its estimates and assumptions are reasonable, based on information presently available; however, changes in these estimates, judgments, and assumptions will
occur as a result of future events. Accordingly, actual results could differ from amounts estimated.

Passenger Revenues. The Company
recognizes revenues from ticket sales when the service is provided and records as a liability amounts received for services to be provided in the future. To the extent that a passenger travels using a joint fare ticket that provides for a portion of
the service to be provided by another airline, the total amount of the ticket that is apportioned to the carrying airline is based on contractual formulas that approximate usual industry standard formulas for sharing of ticket revenues.

Essential Air Service Subsidy Rates. With respect to closed EAS subsidy awards, the Company records revenues based on rates that were approved by
the DOT during the term of service.

In the case of EAS service currently under negotiation, the Company records revenues based upon the assumption that
the subsidy rate will be renewed at rates that are not less than the rates currently in use. Any adjustments in revenue for differences between the assumed rates currently utilized by the Company and the rates approved by the Department of
Transportation in the closed EAS award are recorded by the Company when such EAS terms of subsidization are finalized.

Depreciation and Residual
Values On Aircraft. In accounting for long-lived assets, we make estimates about the expected useful lives, projected residual values, and the potential for impairment. Estimates of useful lives and residual values of aircraft are
based on actual industry experience with the same or similar aircraft types and anticipated utilization of the aircraft. Changing market prices of new and used aircraft, government regulations, and changes in the Companys maintenance program
or operations could result in changes to these estimates.

Inventories. Inventories are comprised primarily of expendable spare
aircraft parts, fuel, materials, and supplies relating to flight equipment, which are recorded at the lower of cost (average cost) or market. Expendable spare aircraft parts are subject to reserves for obsolescence.

Maintenance Expense. The Company records maintenance expense as it is incurred and does not provide for any maintenance expense in advance. As
required under the 2002 Restructuring Agreement, the Company entered into the FMP Contract for all of the Companys Beechcraft 1900D aircraft engines with monthly expense based on the total number of Beechcraft 1900D engine flight hours at a
fixed contractual rate.

Aircraft Valuation and Impairments. In accordance with Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed of, long-lived assets, such as property, plant, equipment and aircraft, subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposal
group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. An impairment loss is recognized to the extent that the carrying amount exceeds the assets fair value.



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Income Taxes.We account for income taxes using the asset and liability method. Under that method, deferred
income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and tax bases of existing
assets and liabilities and net operating losses (NOLs) and tax credit carryforwards. A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become
deductible. We considered the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The NOLs that have been generated are due in large part to the accelerated
depreciation over a shorter useful life for tax purposes. Approximately eighty-five percent of our NOLs expire between 2020 and 2024. Additionally, our book basis in fixed assets is approximately $54 million larger than our tax basis, and is
expected to reverse during periods in which we have NOLs available. Approximately 51.3 million of our state NOLs are expected to expire unused and accordingly we have provided a valuation allowance in 2007 for those state
NOLs. Based upon the projections for future taxable income over the periods in which the deferred tax assets become deductible, we believe it is more likely than not that we will realize the benefits of most of our deductible differences and
NOLs. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

Liability Accruals and Reserves.The Company is obligated under various agreements relating to employee health and welfare, injuries, tax and fee
remittances, and other contractual matters, some of which involve estimates of the ultimate amounts due and impacts of insurance coverage. Changes in the estimates and assumptions could occur and would result in actual results being different than
those estimated.

New Accounting Standards Not Yet Adopted.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS No. 159). This statement permits all entities to elect to measure eligible financial instruments at fair value on a recurring basis. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007, and may not be applied retrospectively to prior fiscal years. The Company has not yet determined the impact of adopting FAS 159.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted
in the United States of America, and expands disclosure about fair value measurements. This pronouncement applies to other accounting standards that require or permit fair value measurements. Accordingly, this statement does not require any new fair
value measurement. This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company has not yet determined the impact of adopting FAS 157.

Effects of Inflation

The Company is subject to inflationary
pressures from labor agreements, fuel price escalations, and increased operating costs at airports served by the Company. The Company attempts to counteract the effects of inflation through fare increases, subsidy increases and schedule adjustments.
Except for the price of fuel, inflation has not had a material effect on the Companys operations in the past five years.

Air Carrier Security
Fees

Included in the Companys current liabilities at December 31, 2006 was $0.4 million, of funds collected or assessed for security matters
in fiscal years 2001 through 2003. This liability was paid in full in June 2007.



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Off Balance Sheet Arrangements

An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a
contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing,
liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company.

The Company has no off-balance sheet arrangements of the types described in the four categories above that they believe may have material current or future effect on financial condition, liquidity or results of operations.



|Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Market Risks

The Company is susceptible to certain risks related to changes in the cost of aircraft fuel and changes in interest rates. As
of December 31, 2007, the Company did not have any derivative financial instruments.

Aircraft Fuel

Due to the airline industrys dependency on aircraft fuel for operations, airline operators, including the Company are substantially impacted by changes in aircraft
fuel prices. Aircraft fuel represented approximately 28.4% of the Companys operating expenses in 2007. A one-cent change in the average cost of aircraft fuel would impact the Companys aircraft fuel expense by approximately $93,000
annually, based on fuel consumption in 2007.

Interest Rates

The Companys operations are very capital intensive because the vast majority of the Companys assets consist of flight equipment, which is financed primarily with long-term debt. As a result, the degree of the Companys
exposure to the market risk that is associated with changes in interest rates is directly related to the Companys outstanding debt obligations. The Companys cash flow had been negatively impacted by increases in interest rates because a
significant portion of the Companys long-term debt was financed with variable interest rates. Increases in interest rates also negatively impacted the fair value of the Companys debt obligations that carried fixed rates of interest. The
new notes bear interest at a fixed rate; therefore, at December 31, 2007, all but $0.6 million of the Companys long-term debt was financed with fixed interest rates. The variable rate note was paid in full in January 2008, leaving only
the fixed rate debt. See Note 7 to the Financial Statements.

Due to the amortization of the SFAS No. 15 amounts on the Companys restructured
debt obligations to Raytheon, the Companys recorded interest expense will be significantly less than the contractual interest expense throughout the terms of the Raytheon notes. During 2007, the Companys contractual interest expense for
all long-term debt obligations was $4.5 million. In accordance with procedures set forth in SFAS No. 15, the Company amortized $1.8 million of the SFAS No. 15 balances. As a result, the Companys net interest expense on long-term debt
obligations, as reflected on the financial statements, was $2.3 million, net of interest income of $0.4 million for the year ended December 31, 2007.



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The projected contractual interest expense on the Companys long-term obligations (based on the interest rate stated
in the debt instruments and December 31, 2007 rate for variable rate debt) for the next five years and thereafter is as follows:



|           |  |                               |           |                   |       |   |                             |   |                          |  |       |  
|---------- |  | ----------------------------- | --------- | ----------------- | ----- | - | --------------------------- | - | ------------------------ |  | ----- | -
|Maturity   |  | Fixed RateContractualInterest |           | FixedInterestRate |       |   | RateContractualInterest (1) |   | VariableInterestRate (1) | 
|2008       |  | $                             | 4,085,227 |                   | 6.799 | % |                             | $ | 32,733                   |  | 9.230 | %
|2009       |  |                               | 3,682,328 |                   | 6.799 | % |                             |   | 1,693                    |  | 9.230 | %
|2010       |  |                               | 3,251,392 |                   | 6.799 | % |                             |   |                         |  |       |  
|2011       |  |                               | 1,714,972 |                   | 6.828 | % |                             |   |                         |  |       |  
|2012       |  |                               | 432,841   |                   | 7.000 | % |                             |   |                         |  |       |  
|Thereafter |  |                               | 548,172   |                   | 7.000 | % |                             |   |                         |  |       |  



|(1) | Subsequent to December 31, 2007, the variable rate note was paid in full.
|--- | -------------------------------------------------------------------------

In comparison, after applying the amortization of the SFAS No. 15 amounts against the Companys contractual interest expense, the Companys reportable interest expense using SFAS No. 15 for long-term obligation that is
due in the five subsequent years and thereafter is estimated to be as follows:



|           |  |                             |           |                                  |       |   |                                 |   |                                      |  |       |  
|---------- |  | --------------------------- | --------- | -------------------------------- | ----- | - | ------------------------------- | - | ------------------------------------ |  | ----- | -
|Maturity   |  | Interestadjusted forSFAS 15 |           | Interest Rateadjusted forSFAS 15 |       |   | Interestadjusted forSFAS 15 (1) |   | Interest Rateadjusted forSFAS 15 (1) | 
|2008       |  | $                           | 2,399,337 |                                  | 3.896 | % |                                 | $ | 32,733                               |  | 9.230 | %
|2009       |  |                             | 2,165,992 |                                  | 3.960 | % |                                 |   | 1,693                                |  | 9.230 | %
|2010       |  |                             | 1,906,780 |                                  | 3.980 | % |                                 |   |                                     |  |       |  
|2011       |  |                             | 1,114,026 |                                  | 3.984 | % |                                 |   |                                     |  |       |  
|2012       |  |                             | 432,841   |                                  | 7.000 | % |                                 |   |                                     |  |       |  
|Thereafter |  |                             | 548,172   |                                  | 7.000 | % |                                 |   |                                     |  |       |  



|(1) | Subsequent to December 31, 2007, the variable rate note was paid in full.
|--- | -------------------------------------------------------------------------



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|Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

The financial
statements of the Company as of December 31, 2007, 2006 and 2005, together with the Report of the Independent Registered Public Accounting Firm, are included in this Form 10-K on the pages indicated below.



|                                                                                                  |  |   
|------------------------------------------------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm                                           |  | 30
|                                                                                                  | 
|Balance Sheets as of December 31, 2007 and 2006                                                   |  | 31
|                                                                                                  | 
|Statements of Income for the Years Ended December 31, 2007, 2006 and 2005                         |  | 32
|                                                                                                  | 
|Statements of Stockholders Equity (Deficit) for the Years Ended December 31, 2007, 2006 and 2005 |  | 33
|                                                                                                  | 
|Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005                     |  | 34
|                                                                                                  | 
|Notes to Financial Statements                                                                     |  | 35

Supporting schedules are omitted because they are inapplicable, not required, or the information is presented in
the financial statements or notes thereto.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Great Lakes Aviation, Ltd.:

We have audited the accompanying balance sheets
of Great Lakes Aviation, Ltd. (the Company) as of December 31, 2007 and 2006, and the related statements of income, stockholders equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2007.
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Great Lakes Aviation, Ltd. as of
December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 3 to the financial statements, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, effective January 1, 2007, and effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based
Payment.

/s/ KPMG LLP

Denver, Colorado

March 31, 2008



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GREAT LAKES AVIATION, LTD.

Balance Sheets

December 31, 2007 and 2006



|                                                                                             |  |                  |             |   |                  |   |             |  
|-------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                             |  | December 31,2007 |             |   | December 31,2006 |  
|Assets                                                                                       |  |                  |             |   |                  |   |             |  
|Current assets:                                                                              |  |                  |             |   |                  |   |             |  
|Cash                                                                                         |  | $                | 4,044,745   |   |                  | $ | 2,664,057   |  
|Accounts receivable                                                                          |  |                  | 6,687,604   |   |                  |   | 5,189,290   |  
|Inventories                                                                                  |  |                  | 5,116,995   |   |                  |   | 2,133,430   |  
|Prepaid expenses and other current assets                                                    |  |                  | 1,226,420   |   |                  |   | 2,282,978   |  
|Current deferred tax assets                                                                  |  |                  | 2,563,438   |   |                  |   |            |  
|                                                                                             |  |                  |             |   |                  |   |             |  
|Total current assets                                                                         |  |                  | 19,639,202  |   |                  |   | 12,269,755  |  
|                                                                                             |  |                  |             |   |                  |   |             |  
|Property and equipment:                                                                      |  |                  |             |   |                  |   |             |  
|Flight equipment                                                                             |  |                  | 110,844,388 |   |                  |   | 110,671,748 |  
|Other property and equipment                                                                 |  |                  | 8,492,958   |   |                  |   | 8,767,842   |  
|Less accumulated depreciation and amortization                                               |  |                  | (55,221,679 | ) |                  |   | (50,383,206 | )
|                                                                                             |  |                  |             |   |                  |   |             |  
|Total property and equipment                                                                 |  |                  | 64,115,667  |   |                  |   | 69,056,384  |  
|                                                                                             |  |                  |             |   |                  |   |             |  
|Other assets                                                                                 |  |                  | 1,106,662   |   |                  |   | 985,461     |  
|Long-term deferred tax assets                                                                |  |                  | 8,119,012   |   |                  |   |            |  
|                                                                                             |  |                  |             |   |                  |   |             |  
|Total assets                                                                                 |  | $                | 92,980,543  |   |                  | $ | 82,311,600  |  
|                                                                                             |  |                  |             |   |                  |   |             |  
|Liabilities and Stockholders Equity (Deficit)                                               |  |                  |             |   |                  |   |             |  
|Current liabilities:                                                                         |  |                  |             |   |                  |   |             |  
|Notes payable and current maturities of long-term debt                                       |  | $                | 7,680,128   |   |                  | $ | 7,642,876   |  
|Accounts payable                                                                             |  |                  | 3,446,860   |   |                  |   | 3,441,220   |  
|Accrued interest, unearned revenue and other liabilities                                     |  |                  | 4,736,861   |   |                  |   | 4,647,846   |  
|                                                                                             |  |                  |             |   |                  |   |             |  
|Total current liabilities                                                                    |  |                  | 15,863,849  |   |                  |   | 15,731,942  |  
|                                                                                             |  |                  |             |   |                  |   |             |  
|Long-term debt, net of current maturities                                                    |  |                  | 59,521,663  |   |                  |   | 67,880,438  |  
|Other long-term liabilities                                                                  |  |                  | 1,113,324   |   |                  |   | 1,348,757   |  
|Deferred credits                                                                             |  |                  | 175,947     |   |                  |   | 222,785     |  
|                                                                                             |  |                  |             |   |                  |   |             |  
|Total liabilities                                                                            |  |                  | 76,674,783  |   |                  |   | 85,183,922  |  
|                                                                                             |  |                  |             |   |                  |   |             |  
|Common stock, $0.01 par value.                                                               |  |                  |             |   |                  |   |             |  
|Authorized: 50,000,000 shares                                                                |  |                  |             |   |                  |   |             |  
|Issued and outstanding: 14,091,970 and 14,071,970 at December 31, 2007 and 2006 respectively |  |                  | 140,920     |   |                  |   | 140,720     |  
|Paid-in capital                                                                              |  |                  | 33,490,669  |   |                  |   | 33,468,644  |  
|Accumulated deficit                                                                          |  |                  | (17,325,829 | ) |                  |   | (36,481,686 | )
|                                                                                             |  |                  |             |   |                  |   |             |  
|Total stockholders equity (deficit)                                                         |  |                  | 16,305,760  |   |                  |   | (2,872,322  | )
|Commitments and contingencies                                                                |  |                  |             |   |                  |   |             |  
|                                                                                             |  |                  |             |   |                  |   |             |  
|Total liabilities and stockholders equity (deficit)                                         |  | $                | 92,980,543  |   |                  | $ | 82,311,600  |  
|                                                                                             |  |                  |             |   |                  |   |             |  

See accompanying notes to financial statements.



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GREAT LAKES AVIATION, LTD.

Statements of Income

Years Ended December 31, 2007, 2006, and 2005



|                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|-------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                   |  | 2007 |            |   | 2006 |   |            | 2005 | 
|Operating revenues:                                |  |      |            |   |      |   |            |      |  |   |            |  
|Passenger                                          |  | $    | 73,283,407 |   |      | $ | 62,477,258 |      |  | $ | 53,313,462 |  
|Public service                                     |  |      | 24,148,653 |   |      |   | 23,850,804 |      |  |   | 21,860,963 |  
|Freight, charter, and other                        |  |      | 728,164    |   |      |   | 1,285,600  |      |  |   | 1,218,212  |  
|                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|Total operating revenues                           |  |      | 98,160,224 |   |      |   | 87,613,662 |      |  |   | 76,392,637 |  
|                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|Operating expenses:                                |  |      |            |   |      |   |            |      |  |   |            |  
|Salaries, wages, and benefits                      |  |      | 22,504,983 |   |      |   | 20,992,638 |      |  |   | 20,282,033 |  
|Aircraft fuel                                      |  |      | 24,913,112 |   |      |   | 19,516,740 |      |  |   | 16,939,750 |  
|Aircraft maintenance, materials, and repairs       |  |      | 13,780,796 |   |      |   | 11,584,917 |      |  |   | 10,708,368 |  
|Depreciation and amortization                      |  |      | 5,631,722  |   |      |   | 5,744,099  |      |  |   | 6,316,164  |  
|Aircraft rental                                    |  |      | 620,100    |   |      |   | 1,666,464  |      |  |   | 1,644,198  |  
|Other rentals and landing fees                     |  |      | 4,225,124  |   |      |   | 4,566,084  |      |  |   | 4,042,969  |  
|Other operating expense                            |  |      | 15,949,550 |   |      |   | 14,707,092 |      |  |   | 13,176,938 |  
|                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|Total operating expenses                           |  |      | 87,625,387 |   |      |   | 78,778,034 |      |  |   | 73,110,420 |  
|                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|Operating income                                   |  |      | 10,534,837 |   |      |   | 8,835,628  |      |  |   | 3,282,217  |  
|                                                   |  |      |           
|Other income (expense):                            |  |      |            |   |      |   |            |      |  |   |            |  
|Interest expense, net                              |  |      | (2,318,635 | ) |      |   | (3,539,550 | )    |  |   | (3,121,997 | )
|Gain on disposal of assets                         |  |      |           |   |      |   |           |      |  |   | 460,688    |  
|Gain on extinguishment of debt and deferred leases |  |      | 412,086    |   |      |   | 10,498,102 |      |  |   | 559,899    |  
|                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|Total other income (expense)                       |  |      | (1,906,549 | ) |      |   | 6,958,552  |      |  |   | (2,101,410 | )
|                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|Income before income taxes                         |  |      | 8,628,288  |   |      |   | 15,794,180 |      |  |   | 1,180,807  |  
|                                                   |  |      |           
|Income tax benefit (expense)                       |  |      | 10,527,569 |   |      |   | (115,115   | )    |  |   |           |  
|                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|Net income                                         |  | $    | 19,155,857 |   |      | $ | 15,679,065 |      |  | $ | 1,180,807  |  
|                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|Net income per share:                              |  |      |            |   |      |   |            |      |  |   |            |  
|Basic                                              |  | $    | 1.36       |   |      | $ | 1.11       |      |  | $ | 0.08       |  
|Diluted                                            |  |      | 1.33       |   |      |   | 1.09       |      |  |   | 0.08       |  
|                                                   |  |      |           
|Average shares outstanding:                        |  |      |            |   |      |   |            |      |  |   |            |  
|Basic                                              |  |      | 14,077,093 |   |      |   | 14,071,970 |      |  |   | 14,071,970 |  
|Diluted                                            |  |      | 14,445,896 |   |      |   | 14,379,557 |      |  |   | 14,283,037 |  

See accompanying notes to financial statements.



32



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##### Table of Contents

GREAT LAKES AVIATION, LTD.

Statements of Stockholders Equity (Deficit)

Years Ended December 31, 2007, 2006, and 2005



|                                    |        |              |        |                 |         |                    |   |            |       |   |             |   |  |   |             |  
|----------------------------------- | ------ | ------------ | ------ | --------------- | ------- | ------------------ | - | ---------- | ----- | - | ----------- | - |  | - | ----------- | -
|                                    |        | Common stock |        | Paid-in capital |         | Accumulateddeficit |   |            | Total |  
|                                    | Shares |              | Amount |                 |         |                   
|Balance at December 31, 2004        |        | 14,071,970   |        | $               | 140,720 |                    | $ | 33,468,644 |       | $ | (53,341,558 | ) |  | $ | (19,732,194 | )
|                                    |        |              |        |                 |        
|Net income and comprehensive income |        |             |        |                 |        |                    |   |           |       |   | 1,180,807   |   |  |   | 1,180,807   |  
|                                    |        |              |        |                 |         |                    |   |            |       |   |             |   |  |   |             |  
|Balance at December 31, 2005        |        | 14,071,970   |        |                 | 140,720 |                    |   | 33,468,644 |       |   | (52,160,751 | ) |  |   | (18,551,387 | )
|                                    |        |              |        |                 |        
|Net income and comprehensive income |        |             |        |                 |        |                    |   |           |       |   | 15,679,065  |   |  |   | 15,679,065  |  
|                                    |        |              |        |                 |         |                    |   |            |       |   |             |   |  |   |             |  
|Balance at December 31, 2006        |        | 14,071,970   |        |                 | 140,720 |                    |   | 33,468,644 |       |   | (36,481,686 | ) |  |   | (2,872,322  | )
|                                    |        |              |        |                 |        
|Sale of common stock                |        | 20,000       |        |                 | 200     |                    |   | 22,025     |       |   |            |   |  |   | 22,225      |  
|                                    |        |              |        |                 |        
|Net income and comprehensive income |        |             |        |                 |        |                    |   |           |       |   | 19,155,857  |   |  |   | 19,155,857  |  
|                                    |        |              |        |                 |         |                    |   |            |       |   |             |   |  |   |             |  
|Balance at December 31, 2007        |        | 14,091,970   |        |                 | 140,920 |                    |   | 33,490,669 |       |   | (17,325,829 | ) |  |   | 16,305,760  |  
|                                    |        |              |        |                 |         |                    |   |            |       |   |             |   |  |   |             |  

See accompanying notes to financial statements.



33



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##### Table of Contents

GREAT LAKES AVIATION, LTD.

Statements of Cash Flows

Years Ended December 31, 2007, 2006, and 2005



|                                                                                 |  |      |             |   |      |   |             |      |  |   |            |  
|-------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ---------- | -
|                                                                                 |  | 2007 |             |   | 2006 |   |             | 2005 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                            |  |      |             |   |      |   |             |      |  |   |            |  
|Net income                                                                       |  | $    | 19,155,857  |   |      | $ | 15,679,065  |      |  | $ | 1,180,807  |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |      |             |   |      |   |             |      |  |   |            |  
|Depreciation and amortization                                                    |  |      | 5,631,722   |   |      |   | 5,744,099   |      |  |   | 6,316,164  |  
|Loss on items beyond economic repair                                             |  |      | 18,295      |   |      |   | 111,337     |      |  |   | 135,937    |  
|Gain on disposal of assets                                                       |  |      |            |   |      |   |            |      |  |   | (460,688   | )
|Non-cash gain on extinguishment of debt and leases                               |  |      | (412,086    | ) |      |   | (10,498,102 | )    |  |   | (559,899   | )
|Non-cash SFAS No. 15 interest                                                    |  |      | (1,879,866  | ) |      |   | (2,252,818  | )    |  |   | (2,942,524 | )
|Deferred tax benefit                                                             |  |      | (10,682,450 | ) |      |   |            |      |  |   |           |  
|Change in current operating items:                                               |  |      |             |   |      |   |             |      |  |   |            |  
|(Increase)/Decrease in Accounts Receivable                                       |  |      | (1,498,314  | ) |      |   | (233,947    | )    |  |   | 43,974     |  
|(Increase)/Decrease in Inventories                                               |  |      | (2,983,565  | ) |      |   | 297,717     |      |  |   | (36,127    | )
|(Increase)/Decrease in Prepaid Expenses and Other Current Assets                 |  |      | 1,056,558   |   |      |   | (1,301,565  | )    |  |   | (224,033   | )
|(Increase) Decrease in Other Assets                                              |  |      | (121,201    | ) |      |   | 710,961     |      |  |   | (148,456   | )
|(Increase) Decrease in Accounts Payable                                          |  |      | 5,640       |   |      |   | (2,477,503  | )    |  |   | (2,592,628 | )
|Increase in Unearned Revenue                                                     |  |      | 125,352     |   |      |   | 456,239     |      |  |   | 500,322    |  
|(Decrease) in Accrued Liabilities and Other Long-Term Liabilities                |  |      | (318,608    | ) |      |   | (365,790    | )    |  |   | 3,312,281  |  
|Increase in Deferred Lease Payments                                              |  |      |            |   |      |   | 938,374     |      |  |   | 1,066,098  |  
|                                                                                 |  |      |             |   |      |   |             |      |  |   |            |  
|Net cash provided by operating activities                                        |  |      | 8,097,334   |   |      |   | 6,808,067   |      |  |   | 5,591,228  |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                            |  |      |             |   |      |   |             |      |  |   |            |  
|Proceeds from disposition of assets                                              |  |      | 175,000     |   |      |   |            |      |  |   |           |  
|Purchase of flight equipment and other property and equipment                    |  |      | (884,300    | ) |      |   | (594,142    | )    |  |   | (844,433   | )
|                                                                                 |  |      |             |   |      |   |             |      |  |   |            |  
|Net cash flows used in investing activities                                      |  |      | (709,300    | ) |      |   | (594,142    | )    |  |   | (844,433   | )
|                                                                                 |  |      |             |   |      |   |             |      |  |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                            |  |      |             |   |      |   |             |      |  |   |            |  
|Repayment of notes payable and long-term debt                                    |  |      | (6,029,571  | ) |      |   | (5,457,225  | )    |  |   | (3,878,813 | )
|Proceeds from sale of common stock                                               |  |      | 22,225      |   |      |   |            |      |  |   |           |  
|                                                                                 |  |      |             |   |      |   |             |      |  |   |            |  
|Net cash used in financing activities                                            |  |      | (6,007,346  | ) |      |   | (5,457,225  | )    |  |   | (3,878,813 | )
|                                                                                 |  |      |             |   |      |   |             |      |  |   |            |  
|NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                             |  |      | 1,380,688   |   |      |   | 756,700     |      |  |   | 867,982    |  
|                                                                                 |  |      |            
|Cash and Cash Equivalents:                                                       |  |      |             |   |      |   |             |      |  |   |            |  
|Beginning of year                                                                |  |      | 2,664,057   |   |      |   | 1,907,357   |      |  |   | 1,111,375  |  
|                                                                                 |  |      |             |   |      |   |             |      |  |   |            |  
|End of year                                                                      |  | $    | 4,044,745   |   |      | $ | 2,664,057   |      |  | $ | 1,979,357  |  
|                                                                                 |  |      |             |   |      |   |             |      |  |   |            |  
|Supplementary cash flow information:                                             |  |      |             |   |      |   |             |      |  |   |            |  
|Cash paid during the year for interest (contractual)                             |  | $    | 4,860,538   |   |      | $ | 4,860,538   |      |  | $ | 2,804,361  |  
|                                                                                 |  |      |            
|Non-cash transactions:                                                           |  |      |             |   |      |   |             |      |  |   |            |  
|                                                                                 |  |      |            
|Conversion of accrued interest to debt(1)                                        |  | $    |            |   |      | $ | 4,132,197   |      |  | $ |           |  
|                                                                                 |  |      |            
|Conversion of deferred lease and interest to debt(2)                             |  | $    |            |   |      | $ | 1,005,412   |      |  | $ |           |  
|                                                                                 |  |      |            
|Extinguishment of outstanding debt principal on aircraft returned to Raytheon    |  | $    |            |   |      | $ |            |      |  | $ | 12,877,680 |  
|                                                                                 |  |      |            
|Decrease in accounts payable from engine sales                                   |  | $    |            |   |      | $ |            |      |  | $ | 585,000    |  



|(1) | The March 9, 2007, Amended and Restated Restructuring
Agreement between the Company and Raytheon included the conversion of accrued interest on the aircraft, senior and subordinated notes to debt in 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Company entered into a promissory note payable with FINOVA
in exchange for a reduction in the balance of the outstanding lease obligations and accrued penalty interest in 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See accompanying
notes to financial statements.



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##### Table of Contents

Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31,
2006



|1) | Business
|-- | --------

Great Lakes Aviation, Ltd. (Great Lakes or the Company)
is a regional airline operating as an independent carrier and as a code share partner with United Air Lines, Inc. (United Air Lines or United) and Frontier Airlines, Inc. (Frontier Airlines or Frontier). Effective May 1, 2001, the Company and
United entered into a code share agreement, which expired on December 31, 2005. The Company and United continued to operate under the terms of their agreement, which expired on December 31, 2005, while they negotiated an ongoing agreement.
Effective November 1, 2007, the Company and United amended the terms of their code share agreement to be extended until November 1, 2010. Other terms of the amendment provide for the Company to implement United Air Lines code sharing for
destinations the Company currently services to and from Albuquerque, NM, Denver, CO, Kansas City, MO and Phoenix, AZ hubs. The Company is also working on establishing a Las Vegas, NV hub.

On May 3, 2001, the Company entered into a similar code share agreement with Frontier. However, the Frontier agreement does not have a fixed termination date but is
terminable 180 days after written notice by either party.

Approximately 40%, 45%, and 46% of the Companys passenger traffic during 2007, 2006, and
2005, respectively, were generated from Great Lakes passengers that connected with United flights utilizing the United code share product line.

In
2007, the Company derived approximately 25% of its total revenue from services provided under the Essential Air Service program administered by the United States Department of Transportation.

The Company provides charter air services to private individuals, corporations, and athletic teams. The Company also carries cargo on most of the Companys
scheduled flights.

As of December 31, 2007, the Company served twelve states with 32 destinations to and from Denver, Colorado, four destinations to
and from Phoenix, Arizona, five destinations to and from St. Louis, Missouri, five destinations to and from Kansas City, Missouri and two destinations to and from Albuquerque, New Mexico.



|(2) | Subsequent Event
|--- | ----------------

The Engine Note with Raytheon Aircraft Credit
Corporation (Raytheon) in the amount of $560,882, which was scheduled to mature on March 31, 2009, was paid in full on January 30, 2008.



|(3) | Summary of Significant Accounting Policies and Procedures
|--- | ---------------------------------------------------------

(a) Use of Estimates.The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Companys management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the 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.

(b) Cash and cash equivalents. Cash and cash equivalents include highly
liquid investments with original maturities of three months or less that are readily convertible into cash. Cash equivalents are not subject to significant risk from fluctuations in interest rates and as a result, the carrying amount of cash
equivalents approximates fair value. To preserve capital and maintain liquidity, we invest with financial institutions we deem to be of sound financial condition, and in high quality and relatively risk-free investment products. Our cash investment
policy limits the concentration of investments with specific financial institutions or among certain products and includes criteria related to credit worthiness of any particular financial institution.



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##### Table of Contents

Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



(c) Liability Accruals and Reserves.The Company is obligated under various agreements
relating to employee health and welfare, injuries, tax and fee remittances, and other contractual matters, some of which involve estimates of the ultimate amounts due and impacts of insurance coverages. Changes in the estimates and assumptions could
occur and would result in actual results being different than those estimated.

(d) Accounts Receivable. Substantially all
accounts receivable balances are due from various airlines, credit card companies, or the United States government. Approximately 31%, 20%, and 40%, respectively, of the December 31, 2007 receivable balances, and 23%, 24% and 34%, respectively,
of the December 31, 2006 receivable balances, are due from various airlines, credit card companies, and the United States government, respectively. All receivables are pledged as collateral securing the Companys debt agreements.

(e) Inventories. Inventories consist of expendable spare parts, fuel, materials, and supplies relating to flight equipment.
Inventories are stated at the lower of average cost (which approximates FIFO) or market. Expendable parts are charged to maintenance expense as used. Inventories consisting of expendable spare parts and equipment are pledged as collateral securing
the Raytheon notes.

(f) Property and Equipment. Property and equipment includes aircraft and major parts relating to
such aircraft. Property is stated at cost and depreciated on a straight-line basis for financial reporting purposes over estimated useful lives of 10 to 20 years for flight equipment and 3 to 10 years for other property and equipment. The estimated
lives used to record depreciation on the Companys aircraft may be affected by the volume of passenger traffic, fare levels, technology, policies regarding EAS subsidies promulgated by the DOT, and changes in strategy by the Company. In
accounting for long-lived assets, we make estimates about the expected useful lives, projected residual values, and the potential for impairment. Estimates of useful lives and residual values of aircraft are based on actual industry experience with
the same or similar aircraft types and anticipated utilization of the aircraft. Changing market prices of new and used aircraft, government regulations, and changes in our maintenance program or operations could result in changes to these estimates.
Leasehold improvements are amortized over the shorter of the life of the lease or the life of the asset. Accelerated methods of depreciation are used for tax reporting purposes. All owned aircraft are pledged as collateral securing the Raytheon
notes.

(g) Impairment of Long Lived Assets. In accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed of, long-lived assets, such as property, plant, equipment, and aircraft, subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of
a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. An impairment loss is recognized to the extent that the carrying amount exceeds the assets fair
value.



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##### Table of Contents

Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



(h) Other Assets. Other assets consist primarily of deposits with financial
institutions, bonding companies, facilities lessors, and others to secure the payment of fixed obligations. Deposits related to long-term facility leases were $1.1 million and $1.0 million at December 31, 2007 and 2006, respectively.

(i) Revenue Recognition. Passenger, cargo, and other revenues are recorded as income either when the respective
services are rendered or when the time for use of the ticket has expired, one year after the date of issuance, and are net of excise taxes, passenger facility charges and security fees. Unused tickets issued by the Company are recorded in the
accompanying balance sheets as unearned revenue. The Company also receives public service subsidy revenues for providing air service to certain communities that do not generate sufficient traffic to fully support profitable air service. Public
service subsidy revenues are recorded by the Company during the period in which the agreed on air service is furnished by the Company

With
respect to closed EAS subsidy terms, while the Company continues to service the market, the Company records revenues based on rates that were approved by the Department of Transportation (DOT) during the term of the award.

(j) Code Share Relationships. At December 31, 2007, the Company operated under code share agreements with United Air Lines and
Frontier Airlines. The Company also participates in Uniteds Mileage Plus frequent flyer program. The Companys code share agreement with United Air Lines expired on December 31, 2005. The Company and United continued to
operate under the terms of their agreement, which expired on December 31, 2005, while they negotiated an ongoing agreement. Effective November 1, 2007, the Company and United amended the terms of their code share agreement to be extended
until November 1, 2010. Other terms of the amendment provide for the Company to implement United Air Lines code sharing for destinations the Company currently services to and from Albuquerque, NM, Denver, CO, Kansas City, MO and Phoenix, AZ
hubs, as well as Las Vegas, NV hub when it should become operational. On May 3, 2001, the Company entered into a similar code share agreement with Frontier Airlines. However, the Frontier Airlines agreement does not have a fixed termination
date but is terminable 180 days after written notice by either party. Passenger revenue under the code share agreements is recognized at the time services are rendered.

(k) Income Taxes.The Company accounts for income taxes using the asset and liability method. Under that method, deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and tax basis of existing assets and liabilities and net operating losses and tax credit
carryforwards. A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized. The effect on deferred taxes from a change in tax rates is recognized in income in the period that includes
the enactment date.

(l) Income Per Share. Basic income per share has been computed by dividing the net income for a
particular year by the weighted average number of shares of common stock outstanding during such year. Diluted earnings per share reflects the potential dilution of securities that could share in earnings.

(m) Reclassifications. Certain prior year amounts have been reclassified to conform to the present year presentation.



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##### Table of Contents

Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



(n) Stock Option Plans.Prior to January 1, 2006, the Company accounted for
stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations. Effective January 1, 2006, the Company
adopted SFAS No. 123R, Share-Based Payment (SFAS 123R), using the modified prospective transition method. Under the modified prospective transition method, compensation cost is recognized in the financial statements
beginning with the effective date based on the requirements of SFAS 123R for all share-based payments granted after that date, and based on the requirements of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS
123), for all unvested awards granted prior to the effective date of SFAS 123R. Results for prior periods are not restated using the modified prospective transition method.

Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS 123 for the year ended
December 31, 2005, the Companys net income and net income per share would have been adjusted as indicated below:



|                                                                    |  |                         |          
|------------------------------------------------------------------- |  | ----------------------- | ---------
|                                                                    |  | Year Ended December 31,
|                                                                    |  | 2005                   
|Net income as reported                                              |  | $                       | 1,180,807
|Less: total compensation expense determined under fair value method |  |                         | 2,008    
|net of tax                                                          |  |                         |          
|                                                                    |  |                         |          
|Pro forma net income                                                |  |                         | 1,178,799
|                                                                    |  |                         |          
|Basic income per share, as reported                                 |  |                         | 0.08     
|Pro forma basic income per share                                    |  |                         | 0.08     
|Diluted income per share, as reported                               |  |                         | 0.08     
|Pro forma diluted income per share                                  |  |                         | 0.08     

(o) Aircraft Maintenance. The Company operates under an FAA-approved
continuous inspection and maintenance program. The Company accounts for maintenance activities on the direct expense method. Under this method, major airframe overhaul maintenance costs are recognized as expense as maintenance services are
performed. Routine maintenance and repairs are charged to operations as incurred. Major Beechcraft 1900D engine maintenance is performed under a long-term contract which includes monthly payments that are established to recognize costs ratably over
the term of the contract based upon actual usage of the engines.

Maintenance and repairs, including periodic aircraft overhauls, are
expensed as incurred or when the component is placed in service. Major modifications that extend the life or improve the usefulness of aircraft are capitalized and depreciated over their estimated useful life.

(p) Fair Value of Financial Instruments. Fair value estimates, methods, and assumptions of financial instruments are set forth below:

Cash, accounts receivable, accounts payable, and accrued liabilities. The carrying amount approximates fair value because of the
short-term nature of these instruments.

Long-term debt. Based on the Companys concentration of long-term debt with one
aircraft creditor, who is also a significant stockholder of the company, the fair value of long-term debt was not reasonably determinable.



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##### Table of Contents

Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



(q) Recent Accounting Pronouncements.In June 2006, the FASB issued Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in a companys financial
statements. The interpretation prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of FIN 48 on January 1, 2007. The implementation of FIN 48 did not have a
material impact on the Companys consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). This statement permits all entities to elect to measure eligible financial instruments at fair value on a recurring basis. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007, and may not be applied retrospectively to prior fiscal years. The Company has not yet determined the impact of adopting FAS 159.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for
measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosure about fair value measurements. This pronouncement applies to other accounting standards that require or permit fair value
measurements. Accordingly, this statement does not require any new fair value measurement. This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In December of 2007, the
FASB agreed to a one year deferral of SFAS No. 157s fair value measurement requirements for nonfinancial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis. The Company has not yet
determined the impact of adopting FAS 157.



|(4) | Accounts Receivable
|--- | -------------------

The following represents the additions and
deletions to the Companys accounts receivable reserves for doubtful accounts during 2007, 2006, and 2005.



|                                    |  |                            |         |                   |   |          |                             |  |   |                       |   |  |   |       
|----------------------------------- |  | -------------------------- | ------- | ----------------- | - | -------- | --------------------------- |  | - | --------------------- | - |  | - | ------
|                                    |  | Balance atbeginning ofyear |         | Charged toreserve |   |          | Charged toexpense(recovery) |  |   | Balance atend of year
|2007 reserves for doubtful accounts |  | $                          | 0       |                   | $ | 0        |                             |  | $ | 0                     |   |  | $ | 0     
|2006 reserves for doubtful accounts |  |                            | 10,000  |                   |   | (9,849   | )                           |  |   | (151                  | ) |  |   | 0     
|2005 reserves for doubtful accounts |  |                            | 160,000 |                   |   | (147,000 | )                           |  |   | (3,000                | ) |  |   | 10,000



|(5) | Leases
|--- | ------

Aircraft Leases

At December 31, 2007 and 2006 the Company operated two leased Embraer Brasilia Model 120 aircraft, which are accounted for under an operating lease agreement. In
addition to scheduled future minimum lease payments, the Company is required to make supplemental rent payments to cover the cost of major scheduled maintenance overhauls of these aircraft and are reimbursable to the Company at the time maintenance
overhauls are completed. These supplemental rentals are based on the number of flight hours flown and/or flight departures and are included in maintenance expense. The lease agreements require the Company to pay taxes, maintenance, insurance, and
other operating expenses applicable to the leased property. During the years ended December 31, 2007, 2006 and 2005 supplemental rent payments were $497,778, $240,370 and $0 respectively.



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##### Table of Contents

Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



Other Leases

The
Company leases office and hangar space, spare engines and office equipment for its headquarters, reservation facilities, airport facilities, and certain other equipment. The Company also leases certain airport gate facilities on a month-to-month
basis.

At December 31, 2007, commitments under non-cancelable operating leases (excluding aircraft supplemental rent requirements) with terms in
excess of one year were as follows:



|           |  |          |           |       |   |               |  |   |          
|---------- |  | -------- | --------- | ----- | - | ------------- |  | - | ---------
|           |  | Aircraft |           | Other |   | Totalper year
|2008       |  | $        | 600,000   |       | $ | 2,266,594     |  | $ | 2,866,594
|2009       |  |          | 600,000   |       |   | 2,129,082     |  |   | 2,729,082
|2010       |  |          | 600,000   |       |   | 332,552       |  |   | 932,552  
|2011       |  |          | 600,000   |       |   | 27,610        |  |   | 627,610  
|2012       |  |          | 600,000   |       |   | 27,610        |  |   | 627,610  
|Thereafter |  |          | 150,000   |       |   | 9,203         |  |   | 159,203  
|           |  |          |           |       |   |               |  |   |          
|           |  | $        | 3,150,000 |       | $ | 4,792,651     |  | $ | 7,942,651
|           |  |          |           |       |   |               |  |   |          

The Company leases two Embraer Brasilia Model 120 aircraft from Boeing. At December 31, 2005, the Company was
in arrears on its aircraft rental obligations under these leases in the amount of $7.3 million. The Company had also recorded a liability to Boeing in the amount of $1.3 million for accrued penalty interest on the missed lease payments. On
December 20, 2006, the Company and Boeing entered into a Settlement Agreement that discharged the Companys obligations for defaulted rent payments due to Boeing under lease agreements for these aircraft. The total discharged rental
payments and penalty interest, that had accrued as of November 30, 2006, was $10,067,097. Simultaneously, the Company paid Boeing a lump sum of $1,150,000 and a maintenance payment for two aircraft engines. The lease was amended to:
(i) reduce the monthly rental payments for each aircraft; (ii) require the Company to pay maintenance rent, which will be reimbursable upon completion of certain maintenance events; and (iii) remove the Companys
option to purchase the aircraft at the end of the April 2013 lease term at the aircrafts then fair market value. The lease agreements require the Company to pay taxes, maintenance, insurance, and other operating expenses applicable to the
leased property. During the years ended December 31, 2007, 2006 and 2005 maintenance rent rent payments were $497,778, $240,370 and $0, respectively.

In November 2002, the Company entered into a Deferral Agreement with FINOVA with respect to a leased Embraer Brasilia aircraft, whereby the Company agreed to pay reduced lease payments through the end of the aircraft
lease. The lease terminated on November 1, 2003, and the Company returned the aircraft in January 2004. The Company was responsible for costs of repair and refurbishment in order to satisfy the required aircraft return conditions. Accordingly,
in 2004, the Company recognized a liability of $0.2 million for such expenditures. As of December 31, 2005, the Company had accrued lease payments, together with accrued penalty interest, in the amount of $1.3 million. On October 20, 2006,
the Company entered into a settlement agreement with FINOVA. See Note (7) for a further discussion of the terms of the agreement.

Rental expense
under operating leases, including month-to-month leases, for the years ended December 31, 2007, 2006 and 2005 was $2.6 million, $2.5 million, and $2.5 million, respectively.



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##### Table of Contents

Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



|(6) | Accrued Liabilities.
|--- | --------------------

Accrued liabilities consisted of the
following balances at December 31, 2007 and 2006:



|                          |  |      |           |      |   |          
|------------------------- |  | ---- | --------- | ---- | - | ---------
|                          |  | 2007 |           | 2006
|Accrued expenses          |  | $    | 367,394   |      | $ | 380,401  
|Unearned revenue          |  |      | 2,763,451 |      |   | 2,638,099
|Accrued property taxes    |  |      | 54,517    |      |   | 350,013  
|Accrued payroll           |  |      | 1,551,499 |      |   | 1,272,642
|Accrued interest          |  |      |          |      |   | 6,691    
|                          |  |      |           |      |   |          
|Total accrued liabilities |  | $    | 4,736,861 |      | $ | 4,647,846
|                          |  |     
|                          |  |      |           |      |   |          

At December 31, 2007, accrued property taxes decreased $295,496 as a result of timing of invoices received
accordingly, accrued property taxes for 2007 were included in accounts payable.



|(7) | Notes Payable and Long-Term Debt
|--- | --------------------------------

The following table sets forth,
as of December 31, 2007 and December 31, 2006, the amounts of the Companys long-term debt, the amounts of current maturities of long-term debt and the additional amounts of current and long-term debt recorded by the Company pursuant
to SFAS No. 15:



|                                                   |  |      |            |   |      |   |            |  
|-------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                   |  | 2007 |            |   | 2006 |  
|Long-Term Debt:                                    |  |      |            |   |      |   |            |  
|Raytheon Aircraft Credit Corporationprincipal (A) |  | $    | 62,054,009 |   |      | $ | 67,602,232 |  
|Raytheon carrying value under SFAS No. 15 (A)      |  |      | 5,147,782  |   |      |   | 6,980,419  |  
|Finova (B)                                         |  |      |           |   |      |   | 802,410    |  
|Finova carrying value under SFAS No. 15 (B)        |  |      |           |   |      |   | 138,253    |  
|                                                   |  |      |            |   |      |   |            |  
|Total long-term debt                               |  |      | 67,201,791 |   |      |   | 75,523,314 |  
|                                                   |  |     
|Less:                                              |  |      |            |   |      |   |            |  
|Current maturities of long-term debt               |  |      | (5,994,235 | ) |      |   | (5,747,168 | )
|Current portion of SFAS No. 15                     |  |      | (1,685,893 | ) |      |   | (1,895,708 | )
|                                                   |  |      |            |   |      |   |            |  
|Total current portion                              |  |      | (7,680,128 | ) |      |   | (7,642,876 | )
|                                                   |  |      |            |   |      |   |            |  
|Total long-term portion                            |  | $    | 59,521,663 |   |      | $ | 67,880,438 |  
|                                                   |  |      |            |   |      |   |            |  



| | A. | The Raytheon Aircraft Credit Corporation (Raytheon) debt consists of 25 Aircraft Notes secured by Beechcraft model 1900D aircraft, a Senior Note secured by four
Embraer Brasilia EMB 120 aircraft and all the assets of the Company, and an Engine Note which is unsecured. On March 9, 2007, the Company and Raytheon Aircraft Credit Corporation (Raytheon) entered into an Amended and Restated Restructuring
Agreement (the Amended Agreement), which amends and restates in its entirety the Restructuring Agreement between the Company and Raytheon dated as of December 31, 2002, (the 2002 Restructuring Agreement). Pursuant to the Amended Agreement, the
Company issued to Raytheon 25 amended and restated promissory notes (the Aircraft Notes), each secured by an amended security agreement in the related aircraft. The Aircraft Notes replace the existing notes issued by the Company to Raytheon on
December 31, 2002. Each of the Aircraft Notes has an original principal amount of $2.2 million, for a total amount of $52.9 million, bears interest at a fixed rate of 6.75% per annum, and provides for monthly payments in arrears starting
on March 30, 2007. The Aircraft Notes mature
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



| | on June 30, 2011, at which time a final payment of $1.3 million will be due for each aircraft. The fixed rate of 6.75% on the Aircraft Notes represents
a significant reduction in interest expense and eliminates variable interest rate risk on all of the Companys aircraft debt.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under the Amended Agreement, the Company issued to Raytheon a promissory note (the Senior Note) that replaced both the existing senior note and subordinated note issued by the Company to Raytheon on December 31, 2002. The Senior Note
has an original principal amount of $13.2 million and bears interest at a rate of 7.00% per annum. Interest on the Senior Note is payable monthly in arrears on the last day of each month, commencing on March 30, 2007. Beginning with the
calendar quarter ending June 30, 2007, the Senior Note provides for quarterly payments of principal on June 30, September 30, and December 30 each year until the note matures on December 30, 2015. As additional security
for the Senior Note, the Company pledged four Embraer Brasalia aircraft; as well as, all other assets of the Company.

Under the Amended
Agreement, the Company did not amend the Engine Note, (0.6 million at December 31, 2007) required monthly payments of principal in the amount of $37,500 plus interest beginning January 31, 2004 at which time payments of principal and
interest will be due and payable monthly. Interest will accrue on the unpaid balance of the Engine Note payable at the rate of LIBOR plus 400 basis points per annum. The Engine Note was to mature on March 31, 2009, but was subsequently prepaid
on January 30, 2008.

The Amended Agreement requires the Company to prepay amounts outstanding under the Companys notes held by
Raytheon in an amount equal to 70% of the excess cash for any fiscal year. Excess cash means as at the end of any fiscal year an amount equal to (i) the sum of the Companys cash, cash equivalents and short term
instruments, minus (ii) a minimum of $3,000,000 plus 4% of the difference between current and prior year revenue.On January 30, 2008 the company was required to make a mandatory cash payment to Raytheon in the amount of
approximately $427,000. In conjunction with the mandatory cash payment of $427,000, the Company made a voluntary cash payment of approximately $138,000 which was applied to the prepayment of the remaining balance on the variable rate engine note
totaling $560,882.

The Amended Agreement restated the terms of the notes; therefore, at December 31, 2006, the carrying amounts of the
Raytheon notes consisted of 25 aircraft promissory notes and two long-term notes payable.

At December 31, 2006, the Company was in
arrears on payments of principal and interest in the amount of $12.5 million, which included interest on the Aircraft Debt in the amount of $2.8 million. In accordance with FASB Statement of Financial Accounting Standards No. 6 (FAS 6),
Classification of Short Term Obligations Expected to be Refinanced, the amount of long-term debt that would otherwise be due after one year would have been reflected on the Companys balance sheet as long-term obligations classified as current.
Since the Company had entered into the Amended Agreement on March 9, 2007, with Raytheon Aircraft Credit Corporation (Raytheon), before the financial statements were issued, the amounts had been reclassified to non-current at December 31,
2006.



| | B. | In August 2002, the Company entered into a Settlement Agreement with FINOVA, whereby the Company agreed to pay to FINOVA a total of $0.7 million, with interest at 10%, over a period
of 48 months in settlement of amounts owed by the Company on the return of one leased Embraer Brasilia aircraft. This note was fully paid in 2006.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On April 27, 2007, the Company and FINOVA amended the September 30, 2006 promissory note payable to FINOVA which had originally provided for 45 consecutive monthly payments of $22,342 ending June 30,
2010. The amended note provided for continued scheduled monthly payments of



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Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



$22,342 through June 30, 2007 followed by three consecutive monthly payments of $130,747 commencing July 30, 2007 through September 30, 2007.
The note has been paid in full and all debt owing under the note forgiven. The Company recorded a gain of approximately $412,000 as a result of this forgiveness of debt in the third quarter when the debt was extinguished.

The amount of long-term debt also includes additional amounts of debt recorded pursuant to the provisions of the SFAS No. 15. This additional debt is being
amortized as a reduction of interest expense over the remaining term of the debt. Due to the amortization of the SFAS No. 15 amounts on the Companys restructured debt obligations to Raytheon, the Companys interest expense will be
significantly less than the contractual interest expense throughout the terms of the Raytheon notes. During 2007, the Companys contractual interest expense for all long-term debt obligations was $4.6 million. In accordance with procedures set
forth in SFAS No. 15, the Company amortized $1.9 million of the SFAS No. 15 balances during 2007. As a result, the Companys net interest expense on long-term debt obligations, as reflected in the financial statements, net of interest
income, was $2.3 million, $3.5 million and $3.1 million on December 31, 2007, December 31, 2006 and December 31, 2005, respectively.

Reduction of Debt Balances.

As of December 31, 2007, the long-term debt obligations due in the five subsequent years and
thereafter under their contractual terms were as follows:



|                                        |  |                  |            |       |   |            |  |   |           
|--------------------------------------- |  | ---------------- | ---------- | ----- | - | ---------- |  | - | ----------
|                                        |  | Beechcraft1900Ds |            | Other |   | Total     
|2008                                    |  | $                | 4,391,466  |       | $ | 1,602,769  |  | $ | 5,994,235 
|2009                                    |  |                  | 4,711,365  |       |   | 1,513,654  |  |   | 6,225,019 
|2010                                    |  |                  | 5,044,108  |       |   | 1,402,772  |  |   | 6,446,880 
|2011                                    |  |                  | 35,324,205 |       |   | 1,652,772  |  |   | 36,976,977
|2012                                    |  |                  |           |       |   | 1,652,772  |  |   | 1,652,772 
|Thereafter                              |  |                  |           |       |   | 4,758,126  |  |   | 4,758,126 
|                                        |  |                  |            |       |   |            |  |   |           
|                                        |  |                  | 49,471,144 |       |   | 12,582,865 |  |   | 62,054,009
|                                        |  |                  |           
|Additional carrying value under SFAS 15 |  |                  | 5,147,782  |       |   |           |  |   | 5,147,782 
|                                        |  |                  |            |       |   |            |  |   |           
|                                        |  | $                | 54,618,926 |       | $ | 12,582,865 |  | $ | 67,201,791
|                                        |  |                  |            |       |   |            |  |   |           

The 2008 and 2009 maturities include $450,000 and $110,882, respectively for the engine note with Raytheon in
accordance with the notes contractual terms, however the Company repaid the note in full during January 2008.



|(8) | Income Taxes
|--- | ------------

The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We considered the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. The tax net operating loss carryforwards (NOLs) that have been generated are due in large part to the accelerated depreciation of property and equipment over a shorter useful life for tax purposes.
Approximately eighty-five percent of our NOLs expire between 2020 and 2024. Additionally, our book basis property and equipment is approximately $54 million larger than our tax basis, and is expected to reverse during periods in



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Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



which we have NOLs available. Approximately $1.3 million ($500,000 tax effected) of our state NOLs are expected to expire unused and accordingly
we have a valuation allowance. Based upon the projections for future taxable income over the periods in which the deferred tax assets become deductible, we believe it is more likely than not that we will realize the benefits of most of our
deductible temporary differences and NOLs. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

The Company believes that over any cumulative three-year period the stock ownership percentages (by value) of 5-percent shareholders (as such term is defined
in Internal Revenue Code Section 382) have not increased, in the aggregate, by more than 50 percentage points over such shareholders lowest ownership percentages within any such cumulative three-year period. Accordingly, the Company
believes that the Companys ability to use its estimated net operating loss carry forwards is not subject to any annual limitations set forth in Internal revenue Code Section 382. Any future changes in stock ownership by one or more
5-percent shareholders could potentially subject the Company to such annual limitations.

A deferred income tax asset valuation allowance is established
when it is more likely than not that all or some portion of the deferred income tax assets will not be realized. After reducing the deferred income tax assets by the valuation allowance, the net deferred income tax assets represent the income tax
benefits that are expected to be realized. The Company does not anticipate future taxable income from the forgiveness of debt for purposes of reducing an otherwise required valuation allowance. Until the fourth quarter of 2007, the Company had
recorded a valuation allowance to fully reserve its net deferred tax assets. In the fourth quarter of 2007, the Company determined that it is more likely than not that the Company will be able to utilize most of its net operating loss carryforwards
prior to their expiration and utilize its deferred tax assets as they reverse. As a result, the company released most of its deferred tax asset valuation allowance and recorded a $10.5 million income tax benefit on the Companys 2007 income
statement. The Company has approximately $66.5 million of federal net operating loss carryforwards, which will be available to offset future taxable income. A valuation allowance of $500,000 remains at December 31, 2007 for the deferred tax
asset related to state net operating loss carryforwards that may not be recovered.

Income tax expense (benefit) for the years ended December 31,
2007, 2006 and 2005 is presented below:



|                              |  |         |         |          |   |             |       |  |   |             |  
|----------------------------- |  | ------- | ------- | -------- | - | ----------- | ----- |  | - | ----------- | -
|                              |  | Current |         | Deferred |   |             | Total | 
|Year ended December 31, 2007: |  |         |         |          |   |             |       |  |   |             |  
|U.S. Federal                  |  | $       | 154,881 |          | $ | (9,929,405  | )     |  | $ | (9,774,524  | )
|State and local               |  |         |        |          | $ | (753,045    | )     |  | $ | (753,045    | )
|                              |  |         |         |          |   |             |       |  |   |             |  
|                              |  | $       | 154,881 |          | $ | (10,682,450 | )     |  | $ | (10,527,569 | )
|                              |  |         |         |          |   |             |       |  |   |             |  
|Year ended December 31, 2006: |  |         |         |          |   |             |       |  |   |             |  
|U.S. Federal                  |  | $       | 115,115 |          | $ |            |       |  | $ | 115,115     |  
|State and local               |  |         |        |          |   |            |       |  |   |            |  
|                              |  |         |         |          |   |             |       |  |   |             |  
|                              |  | $       | 115,115 |          | $ |            |       |  | $ | 115,115     |  
|                              |  |         |         |          |   |             |       |  |   |             |  
|Year ended December 31, 2005: |  |         |         |          |   |             |       |  |   |             |  
|U.S. Federal                  |  | $       |        |          | $ |            |       |  | $ |            |  
|State and local               |  |         |        |          |   |            |       |  |   |            |  
|                              |  |         |         |          |   |             |       |  |   |             |  
|                              |  | $       |        |          | $ |            |       |  | $ |            |  
|                              |  |         |         |          |   |             |       |  |   |             |  



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Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



Current tax expense in 2007 and 2006 $154,881 and $115,115 respectively represents alternative minimum tax expenses.
The federal statutory tax rate differs from the Companys effective income tax rate for the years ended December 31, 2007, 2006, and 2005 as follows:



|                                           |  |       |    |  |       |    |  |       |   
|------------------------------------------ |  | ----- | -- |  | ----- | -- |  | ----- | --
|                                           |  | 2007  |    |  | 2006  |    |  | 2005  |   
|Federal statutory expense rate             |  | (35.0 | )% |  | (35.0 | )% |  | (35.0 | )%
|                                           |  |       |   
|State income taxes, net of federal benefit |  | (2.7  | )  |  | (2.6  | )  |  | (2.6  | ) 
|                                           |  |       |   
|Primarily change in valuation allowance    |  | 159.7 |    |  | 36.9  |    |  | 37.6  |   
|                                           |  |       |    |  |       |    |  |       |   
|Net effective income tax rate              |  | 122.0 | %  |  | (0.7  | )% |  | 0.0   | % 
|                                           |  |       |    |  |       |    |  |       |   

Deferred tax assets (liabilities) as of December 31, 2007 and 2006 were as follows (in thousands):



|                                      |  |      |         |   |      |   |         |  
|------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                      |  | 2007 |         |   | 2006 |  
|Deferred tax assets:                  |  |      |         |   |      |   |         |  
|Net operating loss carry forwards     |  | $    | 25,106  |   |      | $ | 27,575  |  
|Alternative minimum tax carryforwards |  |      | 275     |   |      |   | 115     |  
|SFAS No. 15 interest                  |  |      | 1,942   |   |      |   | 2,504   |  
|Inventory reserve                     |  |      | 1,176   |   |      |   | 1,209   |  
|Deferred revenue                      |  |      | 1,043   |   |      |   | 969     |  
|Other Reserves                        |  |      | 344     |   |      |   | 746     |  
|                                      |  |      |         |   |      |   |         |  
|Total gross deferred tax assets       |  |      | 29,886  |   |      |   | 33,118  |  
|                                      |  |     
|Less: valuation allowance             |  |      | (500    | ) |      |   | (14,275 | )
|                                      |  |      |         |   |      |   |         |  
|Net deferred tax assets               |  |      | 29,386  |   |      |   | 18,843  |  
|Deferred tax liabilities:             |  |      |         |   |      |   |         |  
|Property and equipment                |  |      | (18,704 | ) |      |   | (18,843 | )
|                                      |  |      |         |   |      |   |         |  
|Total deferred tax asset (liability)  |  | $    | 10,682  |   |      | $ |        |  
|                                      |  |      |         |   |      |   |         |  

The Company files income tax returns in the U.S., and various state and local jurisdictions. The Company is not
currently under examination by the IRS, tax returns remain subject to examination for 3 years after a tax net operating loss is utilized. State jurisdictions also remain subject to examination. The Company believes there will not be any material
changes in unrecognized tax positions over the next twelve months.

The Company believes that its income tax filing positions and deductions related to tax
periods subject to examination will be sustained upon audit and does not anticipate any adjustments that will result in a material adverse effect on the Companys financial condition, results of operations, or cash flow. Therefore, no reserves
for uncertain income tax positions have been recorded pursuant to FIN 48.

The Company has estimated net operating loss carry forwards for federal income
tax purposes in a total amount of approximately $66.5 million at December 31, 2007, expiring in years from 2009 through 2026. The net change in the total valuation allowance for the fiscal year ended December 31, 2007 was a decrease of
$13.8 million, which includes the effects of adjustments relative to filed tax returns. Federal net operating losses expire in the following years (in thousands):



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Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



|                   |  |        |       
|------------------ |  | ------ | ------
|Year of Expiration |  | Amount
|2009               |  | $      | 3,873 
|2011               |  |        | 121   
|2018               |  |        | 2,316 
|2019               |  |        | 3,840 
|2020               |  |        | 27,796
|2021               |  |        | 22,526
|2023               |  |        | 4,011 
|2024               |  |        | 2,054 
|2026               |  |        | 3     
|                   |  |        |       
|                   |  | $      | 66,540
|                   |  |        |       



|(9) | Employee Benefit Plans
|--- | ----------------------

(a)
401(k). The Company maintains a qualified 401(k) employee savings plan for the benefit of substantially all of the Companys employees. The Company matches up to 4% of participating employees contributions. Company
contributions net of forfeitures totaled $219,857 in 2007, $178,541 in 2006, and $65,570 in 2005.

(b) Stock Option
Plans. In 1993, the Company adopted the Great Lakes Aviation, Ltd. 1993 Stock Option Plan and the Great Lakes Aviation, Ltd. 1993 Director Stock Option Plan (collectively, the Plans). The Plans permitted the grant of stock options in
the aggregate of 1,300,000 shares of the Companys common stock to key employees, officers, and directors of the Company. Pursuant to their terms, both Plans expired on October 31, 2003, and no options may be granted after October 31,
2003. However, all outstanding options shall remain in effect until such outstanding options have either expired or been cancelled.

Options
granted under the Plans become 20% vested upon the completion of 12 continuous months of employment from the date of grant, with additional 20% vesting in each subsequent 12-month period of employment over a continuous five year period. The options
expire after 10 years from the date of grant. Options are forfeited upon termination from employment for reasons other than retirement, death, or disability.

During the year ended December 31, 2007, there were no options granted, cancelled or forfeited; and 20,000 options outstanding were exercised at an average purchase price of $1.11 per share. For the year
December 31, 2006, there were no options granted, cancelled, exercised or forfeited. The Company did not realize any tax deductions related to the exercise of stock options during 2007. The Company will record such deductions to additional paid
in capital when realized. There are no shares available for grant under the Plans as of December 31, 2007. The aggregate intrinsic value for options outstanding and exercisable at December 31, 2007 was $968,561. There was no unrecognized
compensation cost from unvested stock options as of December 31, 2007.



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Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



A summary of the option activity under all stock option plans during the year ended December 31, 2007 is
presented below:



|                                         |  |         |   |  |                               |      |                                                  |  
|---------------------------------------- |  | ------- | - |  | ----------------------------- | ---- | ------------------------------------------------ | -
|                                         |  | Shares  |   |  | WeightedAverageExercise Price |      | Weighted_AverageRemainingContractualLife (Years)
|Outstanding at January 1, 2007           |  | 570,000 |   |  | $                             | 0.94 |                                                  |  
|Granted                                  |  |        |   |  |                               |     |                                                  |  
|Canceled                                 |  |        |   |  |                               |     |                                                  |  
|Exercised                                |  | (20,000 | ) |  |                               | 1.11 |                                                  |  
|                                         |  |         |   |  |                               |      |                                                  |  
|Outstanding at December 31, 2007         |  | 550,000 |   |  | $                             | 0.94 |                                                  | 4
|                                         |  |         |   |  |                               |      |                                                  |  
|Options exercisable at December 31, 2007 |  | 550,000 |   |  | $                             | 0.94 |                                                  | 4
|                                         |  |         |   |  |                               |      |                                                  |  



|(10) | Income Per Share
|---- | ----------------

The following table provides a reconciliation of
the numerators and denominators of the basic and diluted income per share computations for the periods presented:



|                                                             |  |                   |            |                     |            |                |   |       |                   |  |                     |            |                |            |  |                   |       |                     |  |                |           |  |            |  |   |     
|------------------------------------------------------------ |  | ----------------- | ---------- | ------------------- | ---------- | -------------- | - | ----- | ----------------- |  | ------------------- | ---------- | -------------- | ---------- |  | ----------------- | ----- | ------------------- |  | -------------- | --------- |  | ---------- |  | - | ----
|                                                             |  | 2007              |            |                     | 2006       |                |   | 2005 
|                                                             |  | Income(numerator) |            | Shares(denominator) |            | Pershareamount |   |       | Income(numerator) |  | Shares(denominator) |            | Pershareamount |            |  | Income(numerator) |       | Shares(denominator) |  | Pershareamount
|Basic income per share attributable to common stockholders   |  | $                 | 19,155,857 |                     | 14,077,093 |                | $ | 1.36  |                   |  | $                   | 15,679,065 |                | 14,071,970 |  | $                 | 1.11  |                     |  | $              | 1,180,807 |  | 14,071,970 |  | $ | 0.08
|                                                             |  |                   |            |                     |            |                |   |       |                   |  |                     |            |                |            |  |                   |       |                     |  |                |           |  |            |  |   |     
|Effect of dilutive securities:                               |  |                   |            |                     |            |                |   |       |                   |  |                     |            |                |            |  |                   |       |                     |  |                |           |  |            |  |   |     
|Stock options                                                |  |                   |           |                     | 368,803    |                |   | (0.03 | )                 |  |                     |           |                | 307,587    |  |                   | (0.02 | )                   |  |                |          |  | 211,067    |  |   | 0.00
|                                                             |  |                   |            |                     |            |                |   |       |                   |  |                     |            |                |            |  |                   |       |                     |  |                |           |  |            |  |   |     
|Diluted income per share attributable to common stockholders |  | $                 | 19,155,857 |                     | 14,445,896 |                | $ | 1.33  |                   |  | $                   | 15,679,065 |                | 14,379,557 |  | $                 | 1.09  |                     |  | $              | 1,180,807 |  | 14,283,037 |  | $ | 0.08
|                                                             |  |                   |            |                     |            |                |   |       |                   |  |                     |            |                |            |  |                   |       |                     |  |                |           |  |            |  |   |     

For the years ended December 31, 2007, 2006, and 2005, the number of stock options that were excluded from
the calculation of diluted earnings per share, because the exercise of such options would have been anti-dilutive, totaled approximately 120,000, 120,000, and 160,000, respectively.

Under the Amended Agreement, the Company is prohibited from paying dividends.



47



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##### Table of Contents

Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



|(11) | Commitments and Contingencies
|---- | -----------------------------

(a)
Transactions with Affiliates. The Company rents six-passenger aircraft and a vehicle from Iowa Great Lakes Flyers, Inc., a corporation solely owned by Douglas G. Voss, the Companys Chairman and major stockholder. Total payments for the
various leases were $28,500 in 2007, $28,500 in 2006, and $30,700 in 2005. As of December 31, 2007 the Company had no balance payable.

As of December 31 2007, Raytheon owned 5,371,980 shares of common stock of the Company, representing an approximate 38.2% interest in the Companys outstanding common stock.

(b) Litigation. The Company was a defendant in a lawsuit arising from a gear-up landing of one of the Companys Beechcraft 1900D
aircraft at OHare International Airport in Chicago, Illinois in 2001. On February 2, 2007 this matter was settled without any payment of claims by the Company.

On October 19, 2007, International Association of Machinists and Aerospace Workers (the IAM), the designated collective bargaining representative of the class and craft of Mechanics and Related and
Clerical employees, sued the Company in Colorado federal court. The following Monday, October 22, 2007, the Company sued the IAM in Minnesota.

These lawsuits arise out of a dispute regarding whether the Company has been relieved of its Railway Labor Act obligations to bargain collectively with the IAM and to maintain the status quo until the bargaining process is exhausted. The
union lawsuit seeks to require the Company to engage in mediated bargaining and to refrain from changing the terms, conditions and wages of aircraft maintenance employees. The Company lawsuit seeks to free the parties from further bargaining and to
authorize unilateral action regarding maintenance employee employment.

On October 31, 2007 the Colorado federal court entered a
temporary restraining order preventing the Company from increasing mechanic pay. The IAM subsequently agreed to an October 2007 Company proposed wage increase for mechanics effective November 1, 2007. Later on November 7, that court
entered a preliminary injunction that prohibits unilateral action and compels the Company to participate in bargaining under the auspices of the National Mediation Board. In the meantime the federal court in Minnesota denied the Companys
motion for an injunction against mediated bargaining. The Company has appealed both the Minnesota and Colorado federal court rulings.

On
December 5, 2007, the Companys mechanics and maintenance clerks representatives submitted an Application for Investigation of Representation Dispute to the National Mediation Board seeking to decertify the IAM as their union
representatives. The application is currently being investigated by the National Mediation Board. The litigation in the Minnesota and Colorado federal district courts and the related appeals to the 8th and 10th Circuit federal appellate courts have
been stayed pending the outcome of the National Mediation Board investigation and any ensuing union representative decertification vote.

The Company is a party to other ongoing legal claims and assertions arising in the ordinary course of business. Management believes that the resolution of these matters will not have a material adverse effect on the Companys financial
position, results of operations, or cash flows.

(c) Union Agreements. The Companys pilots are represented by the
International Brotherhood of Teamsters (IBT). The Companys labor agreement with the pilots became amendable on October 30, 2000. In May 2006, the Company and the IBT agreed to binding arbitration to achieve a new three year labor
agreement. On September 16, 2006, the arbitrator ruled on terms that resulted in a new labor agreement that will not become amendable until September 16, 2009.



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##### Table of Contents

Great Lakes Aviation, Ltd.

Notes to Financial Statements for December 31, 2007 and December 31, 2006



The Companys mechanics and maintenance clerks are represented by the International Association
of Machinists. The Companys agreement with the mechanics became amendable on November 1, 2005, and the Companys agreement with the maintenance clerks became amendable on March 1, 2002. Negotiations with the mechanics and
maintenance clerks are active at the present time.



|(12) | Selected Quarterly Financial Data
|---- | ---------------------------------

The following
table presents selected quarterly unaudited financial data for quarters during the year ended December 31, 2007 and 2006 (in thousands, except for per share information):



|                                    |  |              |        |               |   |              |  |               |        |           |   |        |  |   |       
|----------------------------------- |  | ------------ | ------ | ------------- | - | ------------ |  | ------------- | ------ | --------- | - | ------ |  | - | ------
|2007                                |  | FirstQuarter |        | SecondQuarter |   | ThirdQuarter |  | FourthQuarter |        | TotalYear
|Operating revenues                  |  | $            | 21,012 |               | $ | 23,727       |  | $             | 26,673 |           | $ | 26,748 |  | $ | 98,160
|Operating income                    |  |              | 792    |               |   | 1,681        |  |               | 4,333  |           |   | 3,729  |  |   | 10,535
|Net income                          |  |              | 197    |               |   | 1,023        |  |               | 4,176  |           |   | 13,760 |  |   | 19,156
|Net income per share                |  |              |        |               |   |              |  |               |        |           |   |        |  |   |       
|Basic                               |  | $            | 0.01   |               | $ | 0.07         |  | $             | 0.30   |           | $ | 0.98   |  | $ | 1.36  
|Diluted                             |  |              | 0.01   |               |   | 0.07         |  |               | 0.29   |           |   | 0.95   |  |   | 1.33  
|Weighted average shares outstanding |  |              |        |               |   |              |  |               |        |           |   |        |  |   |       
|Basic                               |  |              | 14,072 |               |   | 14,072       |  |               | 14,079 |           |   | 14,085 |  |   | 14,077
|Diluted                             |  |              | 14,452 |               |   | 14,445       |  |               | 14,443 |           |   | 14,437 |  |   | 14,446



|                                    |  |              |        |   |               |   |              |  |               |        |           |   |        |  |   |       
|----------------------------------- |  | ------------ | ------ | - | ------------- | - | ------------ |  | ------------- | ------ | --------- | - | ------ |  | - | ------
|2006                                |  | FirstQuarter |        |   | SecondQuarter |   | ThirdQuarter |  | FourthQuarter |        | TotalYear
|Operating revenues                  |  | $            | 20,086 |   |               | $ | 22,020       |  | $             | 23,542 |           | $ | 21,966 |  | $ | 87,614
|Operating income (loss)             |  |              | (80    | ) |               |   | 1,482        |  |               | 4,493  |           |   | 2,941  |  |   | 8,836 
|Net income (loss)                   |  |              | (945   | ) |               |   | 549          |  |               | 4,825  |           |   | 11,250 |  |   | 15,679
|Net income (loss) per share         |  |              |        |   |               |   |              |  |               |        |           |   |        |  |   |       
|Basic                               |  | $            | (0.07  | ) |               | $ | 0.04         |  | $             | 0.34   |           | $ | 0.80   |  | $ | 1.11  
|Diluted                             |  |              | (0.07  | ) |               |   | 0.04         |  |               | 0.34   |           |   | 0.78   |  |   | 1.09  
|Weighted average shares outstanding |  |              |        |   |               |   |              |  |               |        |           |   |        |  |   |       
|Basic                               |  |              | 14,072 |   |               |   | 14,072       |  |               | 14,072 |           |   | 14,072 |  |   | 14,072
|Diluted                             |  |              | 14,292 |   |               |   | 14,351       |  |               | 14,376 |           |   | 14,413 |  |   | 14,380

In the fourth quarter of 2007, the Company
recorded a $10.5 million income tax benefit as the result of releasing its deferred tax asset valuation allowance. In the second quarter of 2007, the Company recognized gains from extinguishment of debt of $0.4 million. In the third quarter of 2006,
the Company reduced maintenance expense by approximately $580,000 for estimates in the Fleet Management ProgramTMcontract. In the third and fourth
quarters of 2006, the Company recognized gains from extinguishment of debt and lease obligations of $1.1 million and $9.3 million respectively.

The above financial data includes normal recurring adjustments and reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of such financial data. The Companys business is seasonal and,
accordingly, interim results are not indicative of results for a full year.



49



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##### Table of Contents

|Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

There were no changes in or disagreements on any matters of accounting principles or financial statement disclosure between the Company and its independent auditors during the Companys two most recent fiscal
years or any subsequent interim period.



|Item 9A(T). | CONTROLS AND PROCEDURES
|----------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

The Company maintains a system of disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(f)) that is designed
to provide reasonable assurance that information that is required to be disclosed is accumulated and communicated to management timely. At the end of the period covered by this report, the Company carried out an evaluation under the supervision and
with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15.
Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the
Company required to be disclosed in the Companys periodic filings with the SEC.

Managements Annual Report On Internal Control Over
Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting, as defined in Exchange Act Rule 13a-15(f), is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and
procedures that:



| |  |  | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of our assets that could have a material
effect on the financial statements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. Based on this
assessment, management believes that as of December 31, 2007, our internal control over financial reporting is effective based on those criteria.



50



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##### Table of Contents

This annual report does not include an attestation report of the companys registered public accounting firm
regarding internal control over financial reporting. Managements report was not subject to attestation by the companys registered public accounting firm pursuant to temporary rules of the SEC to provide only managements report in
this annual report.

Changes in Internal Control Over Financial Reporting

During the Companys most recent fiscal quarter, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



|Item 9B. | OTHER INFORMATION
|-------- | -----------------

Not applicable.

PART III



|Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

We
incorporate by reference the information contained under the captions Proposal 1  Election of Directors, Our Board of Directors and Committees, and Section 16(a) Beneficial Reporting Compliance in our
definitive proxy statement for the 2008 annual meeting of shareholders.

Executive Officers

Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, information regarding the Companys executive officers is
provided in Part I of our Form 10-K under separate caption.

Code of Ethics

The Company has adopted a code of ethics that applies to the Companys principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar
functions. The Companys code of ethics satisfies the requirements of Item 406(b) of Regulation S-K. The Companys code of ethics is posted on the Companys web site at www.flygreatlakes.com. The Company intends to
disclose any amendments to or waivers from a provision of its code of ethics that requires disclosure on its website at www.flygreatlakes.com.



|Item 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

We incorporate by reference the information
contained under the captions Executive Compensation, Our Board of Directors and Committees, Compensation Committee Interlocks, and Non-Employee Director Compensation in our definitive proxy
statement for the 2008 annual meeting of shareholders.



|Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

We incorporate by reference the information contained under the captions Security Ownership of Certain Beneficial Owners and Management in our definitive proxy statement for the 2008 annual meeting of
shareholders.



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##### Table of Contents

|Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

We incorporate by reference the information contained under the captions Certain Relationships and Related Transactions, and Our Board of Directors and Committees in our definitive proxy statement for the 2008 annual
meeting of shareholders.



|Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

We incorporate by reference
the information contained under the captions Principal Accounting Fees and Services in our definitive proxy statement for the 2008 annual meeting of shareholders.

PART IV



|Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------



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



| | (1) | Financial statements of the Company included in Item 8, Financial Statements and Supplementary Data:
| | --- | ------------------------------------------------------------------------------------------------------



| | (i) | Report of Independent Registered Public Accounting Firm
| | --- | -------------------------------------------------------



| | (ii) | Balance Sheets as of December 31, 2007 and 2006
| | ---- | -----------------------------------------------



| | (iii) | Statements of Income for the Years Ended December 31, 2007, 2006 and 2005
| | ----- | -------------------------------------------------------------------------



| | (iv) | Statements of Stockholders Equity (Deficit) for the Years Ended December 31, 2007, 2006 and 2005
| | ---- | -------------------------------------------------------------------------------------------------



| | (v) | Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005
| | --- | ------------------------------------------------------------------------------



| | (vi) | Notes to Financial Statements
| | ---- | -----------------------------

Supporting schedules are omitted because
they are inapplicable, not required, or the information is presented in the financial statements or notes thereto.



| | (2) | The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed in the Exhibit Index to this Annual Report on Form 10-K (pages
E-1 through E-3).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | An Exhibit Index is contained on page E-1.
|--- | ------------------------------------------



|(c) | Not Applicable.
|--- | ---------------



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##### Table of Contents

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.



|                      |  |  |  |                            |  |                                              |  | 
|--------------------- |  |  |  | -------------------------- |  | -------------------------------------------- |  | 
|                      |  |  |  | GREAT LAKES AVIATION, LTD. |  |                                             
|                      |  |  |  |                           
|Dated: March 31, 2008 |  |  |  | By:                        |  | /s/ Charles R. Howell IV                     |  | 
|                      |  |  |  |                            |  | Charles R. Howell IV                         |  | 
|                      |  |  |  |                            |  | Chief Executive Officer                      |  | 
|                      |  |  |  |                            |  | (Principal Executive Officer)                |  | 
|                      |  |  |  |                           
|                      |  |  |  | By:                        |  | /s/ Michael O. Matthews                      |  | 
|                      |  |  |  |                            |  | Michael O. Matthews                          |  | 
|                      |  |  |  |                            |  | Vice President and Chief Financial Officer   |  | 
|                      |  |  |  |                            |  | (Principal Accounting and Financial Officer) |  | 



53



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##### Table of Contents

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Douglas G. Voss, Charles R. Howell IV, and Michael O. Matthews, and each of them individually, as his
or her true and lawful agent, proxy, and attorney-in-fact, with full power of substitution and resubstitution for such individual and in such individuals name, place, and stead, in any and all capacities, to act on, sign, and file with the
Securities and Exchange Commission any and all amendments to this report together with all schedules and exhibits thereto and to take any and all actions that may be necessary or appropriate in connection therewith, and each such individual hereby
approves, ratifies, and confirms all that such agents, proxies, and attorneys-in-fact, any of them, or any of his or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

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



|                         |  |                                                                      |  |               
|------------------------ |  | -------------------------------------------------------------------- |  | --------------
|Signature                |  | Title                                                                |  | Date          
|                         |  |                                                                     
|/s/ Douglas G. Voss      |  | Chairman of the Board and Director                                   |  | March 31, 2008
|Douglas G. Voss          |  |                                                                      |  |               
|                         |  |                                                                     
|/s/ Charles R. Howell IV |  | Chief Executive Officer (Principal Executive
Officer)                |  | March 31, 2008
|Charles R. Howell IV     |  |                                                                      | 
|                         |  |                                                                     
|/s/ Michael O. Matthews  |  | Vice President and                                                   |  | March 31, 2008
|Michael O. Matthews      |  | Chief Financial Officer (Principal
Accounting and Financial Officer) |  |               
|                         |  |                                                                      | 
|                         |  |                                                                     
|/s/ Vernon A. Mickelson  |  | Director                                                             |  | March 31, 2008
|Vernon A. Mickelson      |  |                                                                      |  |               
|                         |  |                                                                     
|/s/ Ivan L. Simpson      |  | Director                                                             |  | March 31, 2008
|Ivan L. Simpson          |  |                                                                      |  |               
|                         |  |                                                                     
|/s/ James Link           |  | Director                                                             |  | March 31, 2008
|James Link               |  |                                                                      |  |               
|                         |  |                                                                     
|/s/ Allan R. Moulton III |  | Director                                                             |  | March 31, 2008
|Allan R. Moulton III     |  |                                                                      |  |               



54



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##### Table of Contents

EXHIBIT INDEX



|      |  |                                                                                                                                                                                                                                                                                                                              
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|3.1   |  | Amended and Restated Articles of Incorporation. (1)                                                                                                                                                                                                                                                                          
|      | 
|3.2   |  | Amended and Restated Bylaws. (1)                                                                                                                                                                                                                                                                                             
|      | 
|4.1   |  | Specimen Common Stock Certificate. (1)                                                                                                                                                                                                                                                                                       
|      | 
|10.1  |  | Great Lakes Aviation, Ltd. 1993 Stock Option Plan. (1)                                                                                                                                                                                                                                                                       
|      | 
|10.2  |  | 1993 Director Stock Option Plan. (1)                                                                                                                                                                                                                                                                                         
|      | 
|10.3  |  | Great Lakes Aviation, Ltd. Employee Stock Purchase Plan. (1)                                                                                                                                                                                                                                                                 
|      | 
|10.4  |  | Amended and Restated Restructuring Agreement dated as of March 9, 2007 by and between the Company and Raytheon Aircraft Credit Corporation. (9)                                                                                                                                                                              
|      | 
|10.5  |  | Senior Note, dated as of March 9, 2007, issued by the Company to Raytheon Aircraft Credit Corporation. (9)                                                                                                                                                                                                                   
|      | 
|10.6  |  | First Amendment to Security Agreement dated as of March 9, 2007, by and between the Company and Raytheon Aircraft Credit Corporation. (9)                                                                                                                                                                                    
|      | 
|10.7  |  | Form of Amended and Restated Promissory Note relating to 1900D aircraft, dated as of March 9, 2007, issued by the Company to Raytheon Aircraft Credit Corporation. (9)                                                                                                                                                       
|      | 
|10.8  |  | Security Agreement, dated December 31, 2002, by and between Raytheon Aircraft Credit Corporation and the Company. (2)                                                                                                                                                                                                        
|      | 
|10.9  |  | Fifth Amendment to Security Agreement, dated as of March 9, 2007 by and between Raytheon Aircraft Credit Corporation and the Company. (9)                                                                                                                                                                                    
|      | 
|10.10 |  | Amended and Restated Security Agreement, dated December 31, 2002 by and between Raytheon Aircraft Credit Corporation and the Company. (2)                                                                                                                                                                                    
|      | 
|10.11 |  | Form of First Amendment to Amended and Restated Security Agreement relating to 1900D aircraft, date as of March 9, 2007, by and between the Company and Raytheon Aircraft Credit Corporation. (9)                                                                                                                            
|      | 
|10.12 |  | Employment Agreement, dated December 31, 2002, by and between Douglas G. Voss and the Company. (2)                                                                                                                                                                                                                           
|      | 
|10.13 |  | Employment Agreement, dated December 31, 2002, by and between Charles R. Howell IV and the Company. (2)                                                                                                                                                                                                                      
|      | 
|10.14 |  | Code Share and Regulatory Cooperation and Marketing Agreement, dated February 1, 2001, by and between United Air Lines, Inc. and the Company. (3)                                                                                                                                                                            
|      | 
|10.15 |  | Code Share Agreement, dated May 3, 2001, by and between Frontier Airlines, Inc. and the Company, as amended on February 8, 2002. Portions of this Exhibit have been excluded from the publicly
available document, and the SEC has granted the Companys application for confidential treatment of the excluded material. (3)



E-1



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                       
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |  | Amendment to Code Share and Regulatory Cooperation and Marketing Agreement by and between United Air Lines, Inc. and the Company effective July 18, 2003. Portions of this Exhibit have been
excluded from the publicly available document, and the SEC has granted the Companys application for confidential treatment of the excluded material. (4)
|      | 
|10.17 |  | Group A Engine Overhaul Note executed on December 31, 2003 by the Company and delivered to Raytheon Aircraft Credit Corporation. (5)                                                                                                                                                                                                                  
|      | 
|10.18 |  | Installment Payment Agreement between the Company and the United States Department of Homeland Security Transportation Security Administration dated August 11, 2004. (6)                                                                                                                                                                             
|      | 
|10.19 |  | Term Cost PlanTMAgreement dated April 1, 2004 executed by and between Pratt & Whitney
Canada Corp. and the Company. Portions of this Exhibit have been excluded from the publicly available document, and the SEC has granted the Companys application for confidential treatment of the excluded material. (5)                                      
|      | 
|10.20 |  | Settlement Agreement entered into as of December 20, 2006, by and between Boeing Capital Corporation and the Company. (8)                                                                                                                                                                                                                             
|      | 
|10.21 |  | Second Amendment to Amended and Restated Restructuring Agreement, entered into as of June 30, 2007, by and between Raytheon Aircraft Credit Corporation and the Company. (10)                                                                                                                                                                         
|      | 
|10.22 |  | Third Amendment to Amended and Restated Restructuring Agreement, entered into as of July 30, 2007, by and between Raytheon Aircraft Credit Corporation and the Company. (10)                                                                                                                                                                          
|      | 
|10.23 |  | Second Amendment to Code Share and Regulatory Cooperation and Marketing Agreement by and between United Air Lines, Inc. and the Company, dated November 1, 2007. Filed herewith.                                                                                                                                                                      
|      | 
|14    |  | Code of Ethics. Available on the Companys web site.                                                                                                                                                                                                                                                                                                  
|      | 
|23.1  |  | Consent of KPMG LLP. Filed herewith.                                                                                                                                                                                                                                                                                                                  
|      | 
|24    |  | Powers of Attorney. Included on signature page to Form 10-K.                                                                                                                                                                                                                                                                                          
|      | 
|31.1  |  | Certification pursuant to Rule 13a-14(a) of Chief Executive Officer. Filed herewith.                                                                                                                                                                                                                                                                  
|      | 
|31.2  |  | Certification pursuant to Rule 13a-14(a) of Chief Financial Officer (Principal Accounting and Financial Officer). Filed herewith.                                                                                                                                                                                                                     
|      | 
|32.1  |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Executive Officer. Filed herewith.                                                                                                                                                                                   
|      | 
|32.2  |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Financial Officer. Filed herewith.                                                                                                                                                                                   



|(1) | Incorporated by reference to the Companys Registration Statement on Form S-1, Registration No. 33-71180.
|--- | ---------------------------------------------------------------------------------------------------------



E-2



---

##### Table of Contents

|(2) | Incorporated by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 2002. (File No. 0-23224)
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. (File No. 0-23224)
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2003. (File No. 0-23224)
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. (File No. 0-23224)
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2003. (File No. 0-23224)
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. (File No. 0-23224)
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to the Companys Current Report on Form 8-K filed December 27, 2006. (File No. 0-23224)
|--- | -----------------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2006. (File No. 0-23224)
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. (File No. 0-23224)
|---- | --------------------------------------------------------------------------------------------------------------------------------



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