<PAGE>

                            
                                   FORM 10-K/A
                       Amendment No. 1 to Items 8 and 14     

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
 
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934
     For the fiscal year ended March 31, 1998
 
[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934
 
Commission file number:  0-24126
 
                            FRONTIER AIRLINES, INC.
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)
 
              Colorado                                     84-1256945
  -------------------------------           ------------------------------------
  (State or other jurisdiction of           (I.R.S. Employer Identification No.)
   incorporated or organization)                                      
 
    12015 E. 46th Avenue, Denver, CO                         80239
----------------------------------------                   ----------
(Address of principal executive offices)                   (Zip Code)

Registrant's telephone number including area code:  (303) 371-7400

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

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

                          Common Stock, No Par Value
                          --------------------------
                                Title of Class

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

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 or any amendment to this Form 10-K.  [X]

Aggregate Market Value of Stock held by Non-Affiliates of the Company as of June
23, 1998:  $31,076,647, based on a closing average bid and asked price on that
date of $3.44 per share.

The number of shares of the Company's Common Stock outstanding as of June 24,
1998 is 13,616,564.

Documents incorporated by reference - Part III is incorporated by reference to
the company's 1998 Proxy Statement.
<PAGE>
 
         

ITEM 8:  FINANCIAL STATEMENTS

       The Company's financial statements are filed as a part of this report
immediately following the signature page.

         









                                       1
<PAGE>
 
                                    PART IV
                                        
                                        
ITEM 14(A): EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

Exhibit
Numbers   Description of Exhibits
-------   -----------------------

  3.1     Amended and Restated Articles of Incorporation of the Company. (10)

  3.2     Amended Bylaws of the Company (June 9, 1997). (5)

  4.1     Specimen Common Stock certificate of the Company. (1)

  4.2     The Amended and Restated Articles of Incorporation and Amended Bylaws
          of the Company are included as Exhibits 3.1 and 3.2.

  4.3     Form of Warrant. (1)

  4.4     Rights Agreement, dated as of February 20, 1997, between Frontier
          Airlines, Inc. and American Securities Transfer & Trust, Inc,
          including the form of Rights Certificate and the Summary of Rights
          attached thereto as Exhibits A and B, respectively, incorporated by
          reference to Frontier Airlines, Inc. Registration Statement on Form 8-
          A dated March 11, 1997. (6)

  4.4(a)  Amendment to Rights Agreement dated June 30, 1997. (5)

  10.1    Office Lease. (1)

  10.2    Office Lease Supplements and Amendments. (5)

  10.2(a) Addendum to Office Lease (10)

  10.3    1994 Stock Option Plan. (1)

  10.4    Amendment No. 1 to 1994 Stock Option Plan. (2)

  10.4(a) Amendment No. 2 to 1994 Stock Option Plan (5)

  10.5    Registration Rights Agreement. (1)

  10.6    Sales Agreement. (1)

  10.7    Airport Use and Facilities Agreement, Denver International Airport (2)

  10.8    Aircraft Lease Agreement dated as of July 26, 1994. (2)

  10.8(a) Assignment and Assumption Agreements dated as of March 28, 1997 and
          March 20, 1997 between USAirways, Inc. and First Security Bank,
          National Association ("Trustee") and Frontier Airlines, Inc. (5)

  10.8(b) Amendment No. 1, dated June 5, 1997, to Lease Agreement dated as of
          July 26, 1994 between Frontier Airlines, Inc. and First Security Bank,
          National Association. (5)

  10.9    Code Sharing Agreement. (5)

                                       2
<PAGE>
 
   10.10     Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23177). 
             (3)

   10.11     Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23257). 
             (3)

   10.12     Aircraft Lease Agreement dated as of May 1, 1996. (3)

   10.13     Aircraft Lease Agreement dated as of June 3, 1996. (3)

   10.13(a)  Amendment No. 1 to Aircraft Lease Agreement dated as of 
             June 3, 1996.(10)

   10.14     Aircraft Lease Agreement dated as of June 12, 1996. Portions of
             this Exhibit have been excluded from the publicly available
             document and an order granting confidential treatment of the
             excluded material has been received. (3)

   10.15     Operating Lease Agreement dated November 1, 1996 between the
             Company and First Security Bank, National Association. Portions of
             this Exhibit have been excluded from the publicly available
             document and an order granting confidential treatment of the
             excluded material has been received. (4)

   10.16     Aircraft Lease Agreement (MSN 28760) dated as of December 12, 1996
             between the Company and Boullion Aircraft Holding Company, Inc.
             Portions of this Exhibit have been excluded from the publicly
             available document and an order granting confidential treatment of
             the excluded material has been received. (4)

   10.16(a)  Amendment No. 1 to Aircraft Lease Agreement (MSN 28760) dated May
             20, 1997. Portions of this Exhibit have been excluded from the
             publicly available document and an application for an order
             granting confidential treatment of the excluded material has been
             made. (5)

   10.17     Aircraft Lease Agreement (MSN 28662) dated as of December 12, 1996
             between the Company and Boullion Aircraft Holding Company, Inc.
             Portions of this Exhibit have been excluded from the publicly
             available document and an order granting confidential treatment of
             the excluded material has been received. (4)
        
   10.17(a)  Amendment No. 1 to Aircraft Lease Agreement (MSN 28662) dated May
             20, 1997. Portions of this Exhibit have been excluded from the
             publicly available document and an application for an order
             granting confidential treatment of the excluded material has been
             made. (5)

   10.18     Aircraft Lease Agreement (MSN 28563) dated as of March 25, 1997
             between the Company and General Electric Capital Corporation.
             Portions of this Exhibit have been excluded from the publicly
             available document and an application for an order granting
             confidential treatment of the excluded material has been made.  (5)
        
   10.19     Space and Use Agreement with Continental Airlines, as amended.
             Portions of this Exhibit have been excluded from the publicly
             available document and an application for an order granting
             confidential treatment of the excluded material has been made.  (5)

   10.20     Letter of Understanding with Continental Airlines dated August
             16,1996. Portions of this Exhibit have been excluded from the
             publicly available document and an application for an order
             granting confidential treatment of the excluded material has been
             made. (5)

   10.21     Service Agreement between Frontier Airlines, Inc. and Greenwich Air
             Services, Inc. dated May 19, 1997. Portions of this Exhibit have
             been excluded from the publicly available document and an
             application for an order granting confidential treatment of the
             excluded material has been made. (5)


                                       3
<PAGE>
 
  10.22   Agreement between Frontier Airlines, Inc. and Dallas Aerospace, Inc.
          dated April 17, 1997.  Portions of this Exhibit have been excluded
          from the publicly available document and an application for an order
          granting confidential treatment of the excluded material has been
          made.  (5)

  10.23   General Services Agreement between Frontier Airlines, Inc. and Tramco,
          Inc. dated as of August 6, 1996. (5)

  10.24   General Terms Engine Lease Agreement between Frontier Airlines, Inc.
          and Terandon Leasing Corporation dated as of August 15, 1996, as
          assigned to U.S. Bancorp Leasing and Financial on February 19, 1997.
          Portions of this Exhibit have been excluded from the publicly
          available document and an application for an order granting
          confidential treatment of the excluded material has been made. (5)

  10.25   Lease Agreement between Frontier Airlines, Inc. and Aircraft
          Instrument and Radio Company, Inc. dated December 11, 1995.  Portions
          of this Exhibit have been excluded from the publicly available
          document and an application for an order granting confidential
          treatment of the excluded material has been made.  (5)

  10.26   Agreement and Plan of Merger between Western dated June 30, 1997. (5)
          Pacific Airlines, Inc. and Frontier Airlines, Inc.
 
  10.26(a)Agreement dated as of September 29, 1997 between  Airlines, Inc. (7)
          Western Pacific Airlines, Inc. and Frontier
 
  10.27   Security Agreement with Wexford Management LLC dated December 2, 1997.
          (8)
 
  10.28   Amended and Restated Warrant Agreement with Wexford Management LLC
          dated as of February 27, 1998. (10)
 
  10.29   Amended and Restated Registration Rights Agreement with Wexford
          Management LLC dated asof February 27, 1998. (10)
           

  10.30   Securties Purchase Agreement with B III Capital Partners, L.P. dated
          as of April 24, 1998. (9)

  10.31   Registration Rights Agreement with B III Capital Partners, L.P. dated
          as of April 24, 1998. (10)

  10.32   Warrant Agreement with The Seabury Group, LLC dated as of may 26,
          1998. (10)

 10.33    Registration rights Agreement with The Seabury Group, LLC dated as of
          May 26, 1998. (10)
    
  23.1    Consent of KPMG Peat Marwick LLP  (11)     

  27.1    Financial Data Schedule (10)

---------------------------
(1)  Incorporated by reference from the Company's Registration Statement on Form
     SB-2, Commission File No. 33-77790-D, declared effective May 20, 1994.
(2)  Incorporated by reference from the Company's Annual Report on Form 10-KSB,
     Commission File No. 0-4877, filed on June 29, 1995.
(3)  Incorporated by reference from the Company's Annual Report on Form 10-KSB,
     Commission File No. 0-4877, filed on June 24, 1996.
(4)  Incorporated by reference from the Company's Quarterly Report on Form 10-
     QSB, Commission File No. 0-4877, filed on February 13, 1997.
(5)  Incorporated by reference from the Company's Annual Report on Form 10-KSB,
     Commission File No. 0-24126, filed July 14, 1997.


                                       4
<PAGE>
 
(6)  Incorporated by reference from the Company's Report on Form 8-K filed on
     March 12, 1997.
(7)  Incorporated by reference from the Company's Report on Form 8-K filed on
     October 1, 1997.
(8)  Incorporated by reference from the Company's Report on Form 8-K filed on
     December 12, 1997.
(9)  Incorporated by reference from the Company's Report on Form 8-K filed on
     May 4, 1998.
    
(10) Previously filed.
(11) Filed herewith.     

ITEM 14(b):  REPORTS ON FORM 8-K.

   No reports on Form 8-K were filed during the quarter ended March 31, 1998.



                                       5
<PAGE>
 
                                  SIGNATURES

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


                              FRONTIER AIRLINES, INC.

    
Date: July 9, 1998            By: /s/ Samuel D. Addoms
                                 ---------------------
                              Samuel D. Addoms, Principal Executive
                              Officer and Principal Financial Officer


Date: July 9, 1998            By: /s/ Elissa A. Potucek     
                                 ----------------------
                              Elissa A. Potucek, Vice President, Controller,
                              Treasurer and Principal Accounting Officer


         

<PAGE>
 
                          Independent Auditors' Report
                          ----------------------------
                                        


THE BOARD OF DIRECTORS AND
 STOCKHOLDERS
FRONTIER AIRLINES, INC.:


We have audited the accompanying balance sheets of Frontier Airlines, Inc. as of
March 31, 1998 and 1997, and the related statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
March 31, 1998.  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 generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Frontier Airlines, Inc., as of
March 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the years in the three-year period ended March 31, 1998, in
conformity with generally accepted accounting principles.



                                  KPMG PEAT MARWICK LLP

Denver, Colorado
June 16, 1998

                                      F-1
<PAGE>
 
FRONTIER AIRLINES, INC.
BALANCE SHEETS
MARCH 31, 1998 AND 1997
<TABLE>     
<CAPTION> 
---------------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>
                                                                        MARCH 31,      March 31,
                                                                          1998            1997
                                                                      -------------   ------------

Assets
------
Current assets:
    Cash and cash equivalents                                          $  3,641,395   $ 10,286,453
    Restricted investments                                                4,000,000      2,000,000
    Trade receivables, net of allowance for doubtful accounts of
      $139,096 and $71,713 at March 31, 1998 and 1997                    11,661,323      7,451,342
    Maintenance deposits (note 3)                                         9,307,723      6,968,379
    Prepaid expenses                                                      3,843,694      3,449,871
    Inventories                                                           1,164,310        997,102
    Deferred lease and other expenses                                       380,975        289,579
    Note receivable - current portion                                             -         27,288
                                                                       ------------   ------------
             Total current assets                                        33,999,420     31,470,014
 
Security, maintenance and other deposits (note 3)                         7,633,143      6,596,660
Property and equipment, net (note 2)                                      5,579,019      4,340,982
Note receivable - long-term portion                                               -         31,762
Deferred lease and other expenses                                           780,429        918,994
Restricted investments                                                    2,606,459        734,133
                                                                       ------------   ------------
                                                                       $ 50,598,470   $ 44,092,545
                                                                       ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
    Accounts payable                                                   $ 13,664,750     $8,045,533
    Air traffic liability                                                18,910,441     13,058,632
    Other accrued expenses                                                5,157,640      3,318,043
    Accrued maintenance expense (note 3)                                 12,537,228      8,277,115
    Note payable                                                                  -          9,812
    Current portion of obligations under capital leases (note 3)             54,346         35,700
                                                                        -----------   ------------
            Total current liabilities                                    50,324,405     32,744,835
 
Senior secured notes payable (note 4)                                     3,468,138              -
Accrued maintenance expense (note 3)                                      2,381,354      1,408,363
Obligations under capital leases, excluding current portion (note 3)         97,757         56,444
                                                                        -----------   ------------
                  Total liabilities                                      56,271,654     34,209,642
                                                                        -----------    -----------
Stockholders' (deficit) equity
    Preferred stock, no par value, authorized 1,000,000 shares;
        none issued and outstanding                                               -              -
    Common stock, no par value, stated value of $.001 per share,
        authorized 40,000,000 shares; 9,253,563 and 8,844,375
        shares issued and outstanding at March 31, 1998 and 1997              9,253          8,844
    Additional paid-in capital                                           37,954,584     35,764,710
    Accumulated deficit                                                 (43,637,021)   (25,890,651)
                                                                        -----------   ------------
            Total stockholders' (deficit) equity                         (5,673,184)     9,882,903
                                                                        -----------   ------------
Commitments and contingencies (notes 3,6,10 and 11)
                                                                       $ 50,598,470   $ 44,092,545
                                                                       ============   ============
See accompanying notes to financial statements.
</TABLE>     

                                      F-2
<PAGE>
 
FRONTIER AIRLINES, INC.

STATEMENTS OF OPERATIONS

YEARS ENDED MARCH 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                            1998              1997              1996
                                            ----              ----              ----
 
Revenues:
<S>                                      <C><C>            <C><C>            <C><C>
  Passenger                            $ 142,018,392     $ 113,758,027     $ 68,530,051
  Cargo                                    3,008,919         1,956,150        1,148,357
  Other                                    2,115,326           786,457          714,167
                                       -------------    --------------    -------------
 
       Total revenues                    147,142,637       116,500,634       70,392,575
                                       -------------    --------------    ------------- 

Operating expenses:
  Flight operations                       66,288,125        52,650,575       28,019,390
  Aircraft and traffic servicing          30,684,992        24,849,388       18,486,719
  Maintenance                             31,790,600        24,945,636       11,732,102
  Promotion and sales                     29,328,970        21,526,345       14,218,814
  General and administrative               6,352,977         4,617,982        3,320,700
  Depreciation and amortization            1,251,364         1,072,160          547,514
                                       -------------    --------------    ------------- 
       Total operating expenses          165,697,028       129,662,086       76,325,239
                                       -------------    --------------    ------------- 
       Operating loss                    (18,554,391)      (13,161,452)      (5,932,664)
                                       -------------    --------------    ------------- 

Nonoperating income:
  Interest income                            722,380         1,033,508          419,756
  Interest expense                          (324,167)          (20,435)         (22,671)
  Other, net                                 409,808           (37,953)         (46,103)
                                       -------------    --------------    ------------- 
       Total nonoperating income, net        808,021           975,120          350,982
                                       -------------    --------------    ------------- 
Net loss                               $ (17,746,370)  $   (12,186,332)  $   (5,581,682)
                                      ==============    ==============    =============
 
Basic and diluted loss per common share       $(1.95)           $(1.49)          $(1.23)
                                      ==============    ==============    =============
 
Weight average shares outstanding          9,095,220         8,156,302        4,536,914
                                      ==============    ==============    ============= 
</TABLE> 
 
 
See accompanying notes to financial statements.

                                      F-3
<PAGE>
 
FRONTIER AIRLINES, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED MARCH 31, 1998, 1997 AND 1996

-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                               COMMON STOCK        
                                        -----------------------    ADDITIONAL                         TOTAL
                                                         STATED     PAID-IN      ACCUMULATED       stockholders'
                                             SHARES       VALUE     CAPITAL        DEFICIT       (DEFICIT) EQUITY
                                        ------------   --------    ----------    -----------     ----------------
<S>                                     <C>            <C>          <C>            <C>             <C>
BALANCES,
  MARCH 31, 1995                           3,443,300     $3,443     9,761,686     (8,122,637)           1,642,492
 
Contribution of common stock to
    employee stock ownership plan            137,340          -       721,000              -              721,000
Issuance of compensatory
    common stock options                           -          -        60,500              -               60,500
Sale of common stock and
    warrants, net of offering
    costs of $1,230,000                    1,840,000      1,978     7,279,532              -            7,281,510
Issuance of warrants                                                  577,200                             577,200
Net loss                                           -          -             -     (5,581,682)          (5,581,682)
                                       -------------  ---------    ----------    -----------     ---------------- 
BALANCES,
  MARCH 31, 1996                           5,420,640      5,421    18,399,918    (13,704,319)           4,701,020
 
Sale of common stock, net of
    offering costs of $279,385               678,733        679     2,720,615                           2,721,294
Exercise of common stock
    warrants, net of issuance
    costs of $55,518                       2,666,133      2,666    13,275,145                          13,277,811
Contribution of common stock
    to employee stock ownership
    plan                                      78,869         78       499,922                             500,000
Issuance of warrants                                                  869,110                             869,110
Net loss                                                                         (12,186,332)         (12,186,332)
                                       -------------  ---------    ----------    -----------     ---------------- 
BALANCES,
  MARCH 31, 1997                           8,844,375      8,844    35,764,710    (25,890,651)           9,882,903
 
Exercise of common stock
    options                                  409,188        409       434,948                             435,357
Warrants issued in conjunction                                                                                  -
    with debt                                                       1,754,926                           1,754,926
Net loss                                                                         (17,746,370)         (17,746,370)
                                       -------------  ---------    ----------    -----------     ---------------- 
BALANCES,
  MARCH 31, 1998                           9,253,563     $9,253    37,954,584    (43,637,021)          (5,673,184)
                                       =============  =========    ==========    ===========     ================ 
 
See accompanying notes to financial statements
</TABLE>

                                      F-4
<PAGE>
 
FRONTIER AIRLINES, INC.

Statements of Cash Flows

Years Ended March 31, 1998, 1997 and 1996
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                   1998             1997            1996
                                                                   ----             ----            ----
<S>                                                          <C> 
Cash flows from operating activities:
  Net loss                                                     $(17,746,370)    $(12,186,332)    $(5,581,682)
  Adjustments to reconcile net loss to net cash
    used by operating activities:
      Employee stock ownership plan compensation expense                  -          500,000         721,000
      Issuance of compensatory common stock options                       -                -          60,500
      Depreciation and amortization                               1,749,097        1,322,916         603,014
      Loss on sale of equipment                                      10,334            4,708          62,940
      Changes in operating assets and liabilities:
        Restricted investments                                   (2,372,326)          82,458        (842,574)
        Trade receivables                                        (4,209,981)      (1,579,184)     (2,289,183)
        Security, maintenance and other deposits                 (3,583,327)      (1,608,524)     (5,149,965)
        Prepaid expenses                                           (393,823)        (562,954)     (2,269,203)
        Inventories                                                (167,208)        (427,926)       (362,581)
        Note receivable                                              11,740           10,950               -
        Accounts payable                                          5,619,217        3,643,071       1,590,072
        Air traffic liability                                     5,851,809        1,858,072       7,384,114
        Other accrued expenses                                    1,839,597        1,323,037        (337,294)
        Accrued maintenance expense                               5,233,104        1,151,443       5,572,559
                                                              -------------    -------------    ------------
          Net cash used in operating activities                  (8,158,137)      (6,468,265)       (838,283)
                                                              -------------    -------------    ------------
 Cash flows used by investing activities:
  Decrease (increase) in short-term investments                           -        1,168,200      (1,168,200)
  Aircraft lease deposits                                           207,500       (2,682,250)     (1,661,250)
  Increase in restricted investments                             (1,500,000)        (600,000)              -
  Capital expenditures                                           (2,355,266)      (3,434,789)     (1,097,788)
  Proceeds from sale of property and equipment                            -                -          32,440
                                                              -------------    -------------    ------------
          Net cash used in investing activities                  (3,647,766)      (5,548,839)     (3,894,798)
                                                              -------------    -------------    ------------
 
Cash flows from financing activities:
  Net proceeds from issuance of common stock and warrants           435,357       15,999,455       7,281,510
  Proceeds from sale of senior secured notes including warrants   5,000,000                -               -
  Cash payments for debt issuance costs                            (227,500)
  Proceeds from short-term borrowings                               202,810           95,911         101,496
  Principal payments on short-term borrowings                      (212,622)         (96,540)        (91,055)
  Principal payments on obligations under capital leases            (37,200)         (54,523)        (34,357)
                                                              -------------    -------------    ------------
          Net cash provided by financing activities               5,160,845       15,944,303       7,257,594
                                                              -------------    -------------    ------------ 

          Net (decrease) increase in cash and cash equivalents   (6,645,058)       3,927,199       2,524,513
 
Cash and cash equivalents, beginning of year                     10,286,453        6,359,254       3,834,741
                                                              -------------    -------------    ------------ 

Cash and cash equivalents, end of year                           $3,641,395      $10,286,453      $6,359,254
                                                              =============    =============    ============
See accompanying notes to financial statements.
</TABLE>

                                      F-5
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 1998

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

(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    NATURE OF BUSINESS AND INDUSTRY RISKS

    Frontier Airlines, Inc. (the "Company") was incorporated in the State of
    Colorado on February 8, 1994 and is a low-fare full service commercial
    airline based in Denver, Colorado which currently serves cities on the west
    and east coasts, as well as intermediate cities in relatively close
    proximity to Denver.  The Company commenced airline operations on July 5,
    1994.

    The airline industry is highly competitive primarily due to the effects of
    the Airline Deregulation Act of 1978, which has substantially eliminated
    government authority to regulate domestic routes and fares and has increased
    the ability of airlines to compete with respect to flight frequencies and
    fares.  The Company's results are highly sensitive to changes in fare
    levels.  The Company cannot predict future fare levels, which can change
    rapidly, and are subject to actions by the Company's competitors.

    The airline industry is also characterized by fixed costs that are high in
    relation to revenues.  Accordingly, a shortfall from expected revenue levels
    can have a material adverse effect on profitability and liquidity, including
    those of the Company's.  The Company's connecting hub is located at Denver
    International Airport (DIA).  DIA opened in March 1995.  Financed through
    revenue bonds, DIA depends on landing fees, gate rentals and other income
    from airlines, the traveling public and others to pay debt service and
    support operations.  Management believes that the Company's operating costs
    at DIA will continue to substantially exceed those that other airlines incur
    at hub airports in other cities.

    The airline industry is significantly affected by general economic
    conditions.  Because a substantial portion of business and personal airline
    travel is discretionary, the industry tends to experience severe adverse
    financial results during general economic downturns.  The Company's business
    also is seasonal, which affects the Company's results of operations from
    quarter to quarter.

    Fuel is a major component of operating expense for all airlines.  Both the
    cost and availability of fuel are subject to many economic and political
    factors and events occurring throughout the world.  The future cost and
    availability of fuel to the Company cannot be predicted, and substantial
    price increases or the unavailability of adequate fuel supplies could have a
    material adverse effect on the Company's operations and profitability.

                                      F-6
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (continued)

    PREPARATION OF FINANCIAL STATEMENTS

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

    CASH AND CASH EQUIVALENTS

    For financial statement purposes, the Company considers cash and short-
    term investments with an original maturity of three months or less to be
    cash equivalents.

    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    Noncash Financing and Investment Activities:

    During the year ended March 31, 1998, the Company issued warrants to its
    lender in connection with its $5,000,000 senior secured notes with an
    estimated fair market value totaling $1,645,434, and issued warrants to its
    financial advisor in connection with debt and equity financing with an
    estimated fair market value totaling $109,492.  Also during the year ended
    March 31, 1998, the Company entered into capital lease agreements totaling
    $97,000, and exchanged a note receivable for certain property and equipment
    totaling $47,000.  In the years ended March 31, 1997 and 1996, the Company
    issued warrants to aircraft lessors with an estimated fair market value
    totaling $869,110 and $577,200, respectively.  The unamortized portion of
    deferred lease expense totaled $850,125 and $1,139,703 at March 31, 1998 and
    1997.  In the year ended March 31, 1996, the Company sold equipment and
    accepted a promissory note in lieu of cash for $70,000.

    Interest and Taxes Paid During the Year:

    Cash paid for interest totaled $184,999, $20,435, and $22,671, for the years
    ended March 31, 1998, 1997 and 1996, respectively.  No income taxes were
    paid during the years ended March 31, 1998, 1997, and 1996.

                                      F-7
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (continued)

    RESTRICTED INVESTMENTS

    Restricted investments include certificates of deposit which secure certain
    letters of credit issued primarily to companies which process credit card
    sale transactions, certain airport authorities and aircraft lessors.
    Restricted investments are carried at cost, which management believes
    approximates market value.  Maturities are for one year or less and the
    Company intends to hold restricted investments until maturity.

    VALULATION AND QUALIFYING ACCOUNTS

    The allowance for doubtful accounts was $139,096 and $72,713 at March 31,
    1998 and 1997.  Provisions for bad debts net of recoveries totaled $267,000,
    $160,000, and $222,000 for the years ended March 31, 1998, 1997 and 1996.
    Deductions from the reserve totaled $200,000, $120,000, and $190,000 for the
    years ended March 31, 1998, 1997, and 1996.

    INVENTORIES

    Inventories consist of expendable parts, supplies and aircraft fuel and are
    stated at the lower of cost or market.  Inventories are accounted for on a
    first-in, first-out basis and are charged to expense as they are used.

    The Company has two aircraft parts agreements for the Company's 14 Boeing
    737 aircraft discussed in note 3, one with another air carrier and another
    with an aircraft parts supplier.  The Company is required to pay a monthly
    consignment fee to each of these lessors, based on the value of the
    consigned parts, and to replenish any such parts when used with a like part.
    At March 31, 1998 and 1997, the Company held consigned parts and supplies in
    the amount of approximately $8,161,000 and $7,105,944, which are not
    included in the Company's balance sheet.

    PROPERTY AND EQUIPMENT

    Property and equipment are carried at cost.  Major additions, betterments
    and renewals are capitalized.  Depreciation and amortization is provided for
    on a straight-line basis to estimated residual values over estimated
    depreciable lives as follows:

    Flight equipment                   5-20 years
    Improvements to leased aircraft    Life of improvements or term of lease,
                                       whichever is less
    Ground property, equipment, and
      leasehold improvements           3-5 years or term of lease

                                      F-8
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (continued)

    Assets utilized under capital leases are amortized over the lesser of
    the lease term or the estimated useful life of the asset using the straight-
    line method.  Amortization of capital leases is included in depreciation
    expense.

    MAINTENANCE

    Routine maintenance and repairs are charged to operations as incurred.

    Under the terms of its aircraft lease agreements, the Company is required to
    make monthly maintenance deposits based on usage; such deposits are applied
    against the cost of major airframe maintenance checks, landing gear and
    engine overhauls.  These deposits are expensed in the month the usage was
    incurred and a liability for accrued maintenance is established.  Deposit
    balances remaining at lease termination remain with the lessor and any
    remaining liability for maintenance checks is reversed against the deposit
    balance. Additionally, a provision is made for the estimated costs of
    scheduled major overhauls required to be performed on leased aircraft and
    components under the provisions of the aircraft lease agreements if the
    required monthly deposit amounts are not adequate to cover the entire cost
    of the scheduled maintenance.  Accrued maintenance expense expected to be
    incurred beyond one year is classified as long-term.

    REVENUE RECOGNITION

    Passenger, cargo, and other revenues are recognized when the transportation
    is provided or after the tickets expire, and are net of excise taxes.
    Revenues which have been deferred are included in the accompanying balance
    sheet as air traffic liability.

    PASSENGER TRAFFIC COMMISSIONS AND RELATED EXPENSES

    Passenger traffic commissions and related expenses are expensed when the
    transportation is provided and the related revenue is recognized.  Passenger
    traffic commissions and related expenses not yet recognized are included as
    a prepaid expense.

    FREQUENT FLYER AWARDS

    The Company had maintained a frequent travel award program that provided
    awards to program members based on accumulated segments flown, which was
    discontinued effective September 11, 1996.  The Company allows its
    passengers to accumulate mileage on Continental Airlines' OnePass frequent
    flyer program.  The cost of providing mileage on the OnePass program is
    based on an agreed upon rate per mileage credit, which is paid to
    Continental Airlines on a monthly basis.

                                      F-9
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

-------------------------------------------------------------------------------
 
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (continued)

    LOSS PER COMMON SHARE

    In February 1997, the Financial Accounting Standards Board issued Statement
    of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No.
    128).  This statement replaces the presentation of primary earnings per
    share (EPS) and fully diluted EPS with a presentation of basic EPS and
    diluted EPS, respectively.  Basic EPS excludes dilution and is computed by
    dividing earnings (loss) available to common stockholders by the weighted-
    average number of common shares outstanding for the period.  Similar to
    fully diluted EPS, diluted EPS reflects the potential dilution of securities
    that could share in earnings.  This statement has been adopted in the
    accompanying financial statements.

    Common stock equivalents are excluded from the computation of diluted loss
    per share as their effect would have been anti-dilutive.

    INCOME TAXES

    The Company accounts for income taxes using the asset and liability method
    prescribed by Statement of Financial Accounting Standards No. 109,
    Accounting for Income Taxes.  Under the asset and liability 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 the existing assets and liabilities.  A valuation allowance for
    net deferred tax assets is provided unless realizability is judged by
    management to be more likely than not.  The effect on deferred taxes from a
    change in tax rates is recognized in income in the period that includes the
    enactment date.

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    The Company estimates the fair value of its monetary assets and liabilities
    based upon existing interest rates related to such assets and liabilities
    compared to current rates of interest for instruments with a similar nature
    and degree of risk.  The Company estimates that the carrying value of all of
    its monetary assets and liabilities approximates fair value as of March 31,
    1998.

                                      F-10
<PAGE>
 
FRONTIER AIRLINES, INC.

Notes to Financial Statements, continued
--------------------------------------------------------------------------------
 
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (continued)

    STOCK BASED COMPENSATION

    The Company follows Accounting Principles Board Opinion No. 25 Accounting
    for Stock Issued to Employees ("APB 25") and related Interpretations in
    accounting for its employee stock options and follows the disclosure
    provisions of Statement of financial Accounting Standards No. 123 (SFAS No.
    123).  Under APB 25, because the exercise price of the Company's employee
    stock options equals the market price of the underlying stock on the date of
    grant, no compensation expense is recognized.  The Company has included the
    pro forma disclosures required by SFAS No. 123 in Note 7.

    IMPAIRMENT OF LONG-LIVED ASSETS

    The Company records impairment losses on long-lived assets used in
    operations when indicators of impairment are present and either the
    undiscounted future cash flows estimated to be generated by those assets or
    the fair market value are less than the assets' carrying amount.

    RECLASSFICATIONS

    Certain prior year amounts have been reclassified to conform to the current
    year presentation.

(2) PROPERTY AND EQUIPMENT, NET

    As of March 31, 1998 and 1997 property and equipment consisted of the 
    following:

                                                             1998        1997
                                                          ----------  ----------

    Flight equipment and improvements to leased aircraft  $4,932,024  $3,251,284
    Ground property, equipment and leasehold improvements  3,673,363   2,923,658
                                                          ----------  ----------
                                                           8,605,387   6,174,942
    Less accumulated depreciation and amortization         3,026,368   1,833,960
                                                          ----------  ----------
 
        Property and equipment, net                       $5,579,019  $4,340,982
                                                          ==========  ==========

    Property and equipment includes certain office equipment under capital
    leases.  At March 31, 1998 and 1997, office equipment recorded under capital
    leases was $280,857 and $183,698 and accumulated amortization was $113,364
    and $104,479.

                                     F-11
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

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

(3) LEASE COMMITMENTS

    AIRCRAFT LEASES

    At March 31, 1998, the Company operated 14 aircraft which are accounted for
    under operating lease agreements with initial terms ranging from 2 to 8
    years with certain leases that allow for renewal options.  Security deposits
    related to leased aircraft at March 31, 1998 and 1997 totaled $4,604,750 and
    $4,812,250 and are included in security, maintenance and other deposits on
    the balance sheet.  Letters of credits issued to certain aircraft lessors in
    lieu of cash deposits and related restricted investments to secure these
    letters of credits at March 31, 1998 and 1997 totaled $2,100,000 and
    $1,500,000.

    In addition to scheduled future minimum lease payments, the Company is
    required to pay to each aircraft lessor monthly cash deposits based on
    flight hours and cycles operated to provide funding for certain scheduled
    maintenance costs of leased aircraft.  The lease agreements provide that the
    Company shall pay taxes, maintenance, insurance, and other operating
    expenses applicable to the leased property.  At March 31, 1998 and 1997,
    aircraft maintenance deposits totaled $11,466,033 and $8,142,176 and are
    reported as a component of security, maintenance and other deposits on the
    balance sheet.

    Any cash deposits paid to aircraft lessors for future scheduled maintenance
    costs to the extent not used during the lease term remain with the lessors,
    and any remaining liability for maintenance checks is reversed against the
    deposit balance.  Maintenance deposits are unsecured and may be subject to
    the risk of loss in the event the lessors are not able to satisfy their
    obligations under the lease agreements.

    OTHER LEASES

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

    At March 31, 1998, commitments under capital and noncancelable operating
    leases (excluding maintenance deposit requirements) with terms in excess of
    one year were as follows:

                                      F-12
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

(3)  LEASE COMMITMENTS (CONTINUED)

                                       Capital        Operating
                                        Leases         Leases
                                       --------     ------------
     Year ended March 31:
     1999                              $ 69,069     $ 35,944,976
     2000                                43,167       32,112,675
     2001                                24,636       22,715,742
     2002                                24,636       18,688,397
     2003                                24,636       17,773,916
     Thereafter                            -          32,987,326
                                       --------     ------------
        Total minimum lease payments    186,144      160,223,032
                                                    ============
 

 
     Less amount representing interest  (34,041)
                                       --------

 
     Present value of obligations 
       under capital leases             152,103

 
     Less current portion of 
       obligations under capital 
       leases                            54,346
                                       --------

 
     Obligations under capital leases,
       excluding current portion       $ 97,757
                                       ========

     The obligations under capital leases have been discounted at imputed
     interest rates ranging from 10.5% to 12.2%.

     Rental expense under operating leases, including month-to-month leases, for
     the years ended March 31, 1998, 1997 and 1996 was $36,573,509, $25,336,749
     and $12,625,175, respectively.


                                      F-13
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

--------------------------------------------------------------------------------
 
(4) SENIOR SECURED NOTES

    In December 1997, the Company sold $5,000,000 of 10% senior secured notes to
    Wexford Management LLC ("Wexford").  The notes are due and payable in full
    on December 15, 2001 with interest payable quarterly in arrears.  The notes
    are secured by substantially all of the assets of the company.  The Wexford
    agreement contains restrictions primarily related to liens on assets and
    requires prior written consent for expenditures outside the ordinary course
    of business.  In connection with this transaction, the Company issued
    Wexford warrants to purchase 1,750,000 shares of Common Stock at $3.00 per
    share.  The Company determined the value of the warrants to be $1,645,434
    and recorded the value as equity in additional paid-in capital.  The balance
    of the notes will be accreted to its face value over the term of the notes
    and included as interest expense.  The effective interest rate on the notes
    is approximately 22.5% including the value of the warrants.

(5) INCOME TAXES

    The Company has not recognized any income tax benefit related to net
    operating losses incurred for the years ended March 31, 1998, 1997 and 1996
    because the benefit of the net operating losses were offset by an increase
    in the valuation allowance for net deferred tax assets.

    The differences between the Company's provision for income taxes and such
    provisions (benefit) for income taxes computed at the federal statutory rate
    is comprised of the items shown in the following table:

    <TABLE>
    <CAPTION>
                                                         1998          1997          1996
                                                         ----          ----          ----
     <S>                                                 <C>           <C>           <C> 
                   Income tax benefit at the
                    statutory rate                        34%           34%           34%
                   Net operating loss producing
                   no current benefit                    (34%)         (34%)         (34%)
                                                    ----------------------------------------
                                                           -             -             -
                                                    ========================================
</TABLE>

                                      F-14
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

--------------------------------------------------------------------------------
 
(5) INCOME TAXES, CONTINUED

    The tax effects of temporary differences that give rise to significant
    portions of the deferred tax assets at March 31, 1998 are presented below:

<TABLE>
<CAPTION>
                                                                    1998             1997
                                                               ---------------  ---------------
                 <S>                                          <C>              <C> 
                 Deferred tax assets:

                  Net operating loss carryforwards              $  13,434,000     $  7,603,000
                  Start-up cost deferred for tax purposes             108,000          198,000
                  Accrued maintenance not deductible for
                   tax purposes                                       899,000          717,000
                  Accrued vacation and health insurance
                   liability not deductible for tax purposes          527,000          395,000
                  Other                                               110,000          117,000
                                                             ---------------------------------
 
                      Total gross deferred tax assets             15,078,000        9,030,000
 
                      Less valuation allowance                   (14,832,000)      (8,934,000)
                                                            ---------------------------------
 
                                                                     246,000           96,000
                                                            ---------------------------------
 
                 Deferred tax liabilities:
 
                 Equipment depreciation and amortization            (246,000)         (96,000)
                                                            ---------------------------------
                   Net deferred taxes                                   -                -
                                                            =================================
</TABLE>

    The valuation allowance is provided since it is uncertain that the
    deferred tax assets will be realized.  The Company established the valuation
    allowance based principally on its historical financial results from
    operations.  Additionally, the utilization of these carryforwards may be
    limited due to the ownership change provisions as enacted by the Tax Reform
    Act of 1986 and subsequent legislation.

    The valuation allowance for deferred tax assets as of March 31, 1997 was
    $8,934,000.  The increase in the valuation allowance for the year ended
    March 31, 1998 was $5,989,000.  At March 31, 1998, the Company had net
    operating loss carryforwards of approximately $36,015,000, which expire in
    the years 2010 to 2013.

                                      F-15
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

--------------------------------------------------------------------------------
 
(6) WARRANTS

    The Company issued 2,670,000 warrants to purchase common stock in
    conjunction with a private placement and its initial public offering.  Each
    warrant entitled the warrant holder to purchase one share of common stock
    for $5.00.  These warrants were subject to redemption at $.05 per warrant by
    the Company on 45 days written notice if certain conditions were met.  The
    Company met these conditions in May 1996 and on May 14, 1996, the Company
    notified the warrant holders of the Company's intent to exercise its
    redemption rights with respect to the warrants not exercised on or before
    June 28, 1996.  2,666,133 warrants were exercised with net proceeds to the
    Company totaling $13,275,000.

    At completion of the Company's initial public offering in 1994, an
    underwriter acquired options to purchase up to 110,000 shares of common
    stock exercisable at a price equal to $5.525 per share.  Additionally, the
    underwriter was granted up to 110,000 warrants to purchase common stock at a
    price equal to $.325 per warrant and $5.00 per share of common stock.  The
    underwriters in a secondary public offering by the Company in 1995 received
    a warrant to purchase 168,500 shares of common stock at $5.55 per share.
    The options and warrants issued to underwriters in connection with the
    initial and secondary public offerings expire, respectively, on May 20, 1999
    and September 18, 2000.

    In October 1995, the Company issued to each of two of its Boeing 737-300
    aircraft lessors a warrant to purchase 100,000 shares of Common Stock for an
    aggregate purchase price of $500,000.  In June 1996, the Company issued two
    warrants to a Boeing 737-200 lessor, each warrant entitling the lessor to
    purchase 70,000 shares of common stock at an aggregate exercise price of
    $503,300 per warrant.  In connection with a Boeing 737-300 aircraft to be
    delivered in August 1997, the Company has issued to the lessor a warrant to
    purchase 55,000 shares of Common Stock at an aggregate purchase price of
    $385,000.  Warrants issued to aircraft lessors, to the extent not earlier
    exercised, expire upon expiration of the aircraft leases in March 2000, May
    and June 2001, and September 2005.

    In February 1998, in connection with the $5,000,000 senior notes as
    discussed in note 4, the Company issued a warrant to the lender to purchase
    1,750,000 shares of the Company's Common Stock at a purchase price of $3.00
    per share, which warrant expires in December 2001.  In May 1998, the Company
    issued a warrant to its financial advisor, in connection with debt and
    equity financings, a warrant to purchase 548,000 shares of the Company's
    Common Stock at a purchase price of $3.00 per share, which warrant expires
    in May 2003.  Of the 548,000 shares, 116,450 were recognized as of March 31,
    1998 as part of the sale of the senior secured notes discussed in note 4.
    The Company recorded a value of $109,492 for these shares and recorded the
    value as equity in additional paid in capital and deferred loan expenses.
    The value will be amortized over the life of the notes.

                                      F-16
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------
 
(7)  STOCK OPTION PLAN

     The Company has a stock option plan whereby the Board of Directors or its
     Compensation Committee may issue options to purchase shares of the
     Company's common stock to employees, officers, and directors of the
     Company.

     Under the plan, the Company has reserved an aggregate of 2,250,000 shares
     of common stock for issuance pursuant to the exercise of options. With
     certain exceptions, options issued through March 31, 1998 generally vest
     one year from the date of grant and expire from March 9, 1999 to December
     11, 2007. At March 31, 1998, 308,750 options are available for grant under
     the plan.

     A summary of the Plan's stock option activity and related information for
     the years ended March 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
 
                                              1998                   1997                    1996
                                   ------------------------------------------------------------------------ 
                                                  Weighted-              Weighted-               Weighted-
                                                   Average                Average                 Average
                                                  Exercise                Exercise                Exercise
                                       Options      Price     Options      Price      Options      Price
                                   ------------------------------------------------------------------------
     <S>                           <C>            <C>        <C>         <C>         <C>         <C>
     Outstanding-beginning of year   1,911,250     $1.85     1,731,250     $1.27     1,631,250     $1.17
     Granted                            30,000      2.77       180,000      7.40       100,000      3.07
     Exercised                        (409,188)     1.06
     Surrendered                      (180,000)     7.40
     Re-issued                         180,000      3.00
                                   ------------------------------------------------------------------------

                                     1,532,062     $1.56     1,911,250     $1.85     1,731,250     $1.27
                                   ========================================================================
 
     Exercisable at end of year      1,445,394     $1.48     1,761,250     $1.39     1,671,250     $1.20
</TABLE>

     Exercise prices for options outstanding under the plan as of March 31, 1998
     ranged from $1.00 to $3.75 per option share. The weighted-average remaining
     contractual life of those options is 5.6 years. A summary of the
     outstanding and exercisable options at March 31, 1998, segregated by
     exercise price ranges, is as follows:

<TABLE>
<CAPTION>
                                                            Weighted-
                                                             Average
                                           Weighted-        Remaining                     Weighted-
           Exercise Price    Options        Average        Contractual     Exercisable     Average
               Range       Outstanding   Exercise Price  Life (in years)     Options      Exercise Price
           ---------------------------------------------------------------------------------------------
           <S>             <C>           <C>             <C>               <C>            <C>
           $1.00 - $ 2.75     1,200,812       $1.11             5.0         1,200,812         $1.11
           $3.00 - $ 3.75       331,250        3.19             7.8           244,582          3.26
                           -----------------------------------------------------------------------------
                              1,532,062       $1.56             5.6         1,445,394         $1.48
                           =============================================================================
</TABLE>


                                     F-17
<PAGE>
 
FRONTIER AIRLINES, INC.

Notes to Financial Statements, continued
--------------------------------------------------------------------------------
 
(7) STOCK OPTION PLAN, CONTINUED

    Pro forma information regarding net income and earnings per share is
    required by SFAS No. 123, which also requires that the information be
    determined as if the Company has accounted for its employee stock options
    granted subsequent to March 31, 1995 under the fair value method of that
    Statement.  The fair value for these options was estimated at the date of
    grant using a Black-Scholes option pricing model with the  following
    weighted-average assumptions for 1998, 1997 and 1996, respectively:  risk-
    free interest rates of 6.42%, 6.55% and 6.08%, dividend yields of  0%, 0%
    and 0%; volatility factors of the expected market price of the Company's
    common stock of 64.33%, 58.78% and 60.86%, and a weighted-average expected
    life of the options of 7 years for each year.

    The Company applies APB Opinion 25 and related Interpretations in accounting
    for its plans.  Accordingly, no compensation cost is recognized for options
    granted at a price equal to the fair market value of the common stock.  Had
    compensation cost for the Company's stock-based compensation plan been
    determined using the fair value of the options at the grant date, the
    Company's net loss for the years ended March 31, 1998, 1997 and 1996, would
    have been $17,843,000, $12,367,000 and $5,628,000, and loss per common share
    would have been $1.96, $1.52 and $1.24 per share.

(8) EMPLOYEE STOCK OWNERSHIP PLAN

    The Company has established an Employee Stock Ownership Plan (ESOP) which
    inures to the benefit of each permanent employee of the Company, except
    those employees covered by a collective bargaining agreement that does not
    provide for participation in the ESOP.  Company contributions to the ESOP
    are discretionary and vary from year to year.  In order for an employee to
    receive an allocation of company common stock from the ESOP, the employee
    must be employed on the last day of the ESOP's plan year, with certain
    exceptions.  The Company's annual contribution to the ESOP, if any, will be
    allocated among the eligible employees of the Company as of the end of each
    plan year in proportion to the relative compensation (as defined in the
    ESOP) earned that plan year by each of the eligible employees.  The ESOP
    does not provide for contributions by participating employees.  Employees
    will vest in contributions made to the ESOP based upon their years of
    service with the Company.  A year of service is an ESOP plan year during
    which an employee has at least 1,000 hours of service.  Vesting generally
    occurs at the rate of 20% per year, beginning after the first year of
    service, so that a participating employee will be fully vested after five
    years of service.  Distributions from the ESOP will not be made to employees
    during employment.  However, upon termination of employment with the
    Company, each employee will be entitled to receive the vested portion of his
    or her account balance.

                                      F-18
<PAGE>
 
FRONTIER AIRLINES, INC.

Notes to Financial Statements, continued
--------------------------------------------------------------------------------
 
(8)  EMPLOYEE STOCK OWNERSHIP PLAN, CONTINUED

     The initial Company contribution to the ESOP was made on June 22, 1995 and
     consisted of 137,340 shares of Common Stock, of which 27,468 shares relate
     to the plan year ended March 31, 1995 and 109,872 shares relate to the
     period from April 1, 1995 to December 31, 1995.  During the years ended
     March 31, 1997, the Company contributed 78,869 shares to the plan and none
     during the year ended March 31, 1998.  The Company recognized compensation
     expense during the year ended March 31, 1997 and 1996 of $500,000 and
     $721,000 related to its contribution to the ESOP and none during the year
     ended March 31, 1998.

(9)  CONCENTRATION OF CREDIT RISK

     The Company does not believe it is subject to any significant concentration
     of credit risk relating to trade receivables. At March 31, 1998 and 1997,
     60% and 75% of the Company's trade receivables relate to tickets sold to
     individual passengers through the use of major credit cards, travel
     agencies approved by the Airlines Reporting Corporation, tickets sold by
     other airlines and used by passengers on Company flights, or the United
     States Postal Service. These receivables are short-term, generally being
     settled shortly after sale or in the month following ticket usage.
 
(10) CONTINGENCIES

     The Company is party to legal proceedings and claims which arise during the
     ordinary course of business. In the opinion of management, the ultimate
     outcome of these matters will not have a material adverse effect upon the
     Company's financial position or results of operations.
 
(11) SUBSEQUENT EVENTS

     In April 1998, the Company sold 4,363,001 shares of its common stock, no
     par value, through a private placement to an institutional investor. Gross
     proceeds to the Company from the transaction was $14,179,753, of which the
     Company received net proceeds of approximately $13,850,000. The Company
     issued a warrant to this investor to purchase 716,929 shares of common
     stock of the Company at a purchase price of $3.75 per share, which warrant
     expires in April 2002.

                                      F-19