Summary of GULFSTREAM INTERNATIONAL GROUP INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Special Note Regarding Forward-Looking Statements

This Form 10-Q, including the sections entitled "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements. These statements relate to, among other things:

our business strategy;

our value proposition;

the market opportunity for our services, including expected demand for our services;

information regarding the replacement, deployment, acquisition and financing of certain numbers and types of aircraft, and projected expenses associated therewith;

costs of compliance with FAA regulations, Department of Homeland Security regulations and other rules and acts of Congress;

the ability to pass taxes, fuel costs, inflation, and various expense to our customers;

certain projected financial obligations;

our estimates regarding our capital requirements; and

any of our other plans, objectives, expectations and intentions contained in this prospectus that are not historical facts.

These statements, in addition to statements made in conjunction with the words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate" and similar expressions, are forward-looking statements. These statements relate to future events or our future financial performance and only reflect management's expectations and estimates. You should read this Form 10-Q completely and with the understanding that our results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. We undertake no duty to update these forward-looking statements after the date of this Form 10-Q, even though our situation may change in the future. The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements:

changing external competitive, business, budgeting, fuel supply, weather or economic conditions;

changes in our relationships with employees or code share partners;

availability and cost of funds for financing new aircraft and our ability to profitably manage our existing fleet;

adverse reaction and publicity that might result from any accidents;

the impact of current or future laws and government investigations and regulations affecting the airline industry and our operations;

additional terrorist attacks; and

consumer unwillingness to incur greater costs for flights.

Overview

We operate a scheduled airline, scheduled and on-demand charter services, and a flight training academy for commercial pilots.

Our most significant market opportunity relates to the fact that we currently operate in and have targeted future expansion in unserved and underserved short haul markets, which is a growing opportunity for two principal reasons. Many smaller markets are being abandoned by major carriers, as they shift their focus increasingly to international markets and reduce capacity in domestic markets and hubs. In addition, many smaller markets are also being abandoned by regional airlines, as they continue to gravitate toward larger jet aircraft in the 70-100 seat range, and away from smaller regional jets and turboprop aircraft. As a result, we will continue to seek opportunities to grow in the expanding number of smaller underserved or unserved markets that are suitable for our fleet of small-capacity aircraft.

Our most significant challenges relate to:

unprecedented increases and volatility in the price of aircraft fuel, which accounts for 31.4% of our ongoing operating expenses during the second quarter of 2008; and

securing cost-effective maintenance resources as the average age of our aircraft fleet increases.

Current Developments

In January 2008, we adopted a revised business plan to improve liquidity by selling certain aircraft and parts inventory, to reduce the complexity of our operations, and to lower our operating expenses. During the second quarter of 2008, we made progress in all of the following areas:

We expect to raise approximately $4.9 million of cash subsequent to the end of the second quarter, after repayment of $7.2 million of existing bank debt, through the sale of our fleet of eight Embraer aircraft and related parts inventory;

Effective with the start of our August 2008 flight schedule, we have restructured our route network and eliminated city pairs that are no longer profitable in the current high fuel price environment;

We are redeploying certain assets to profitable routes by initiating service on September 3, 2008 between Continental's Cleveland hub and five smaller cities in Pennsylvania and West Virginia in conjunction with Essential Air Service routes awarded by the Department of Transportation;

We increased our average ticket prices during the second quarter by 14.7% to help offset the rising price of jet fuel;

We added a $25 charge for checking a second piece of luggage, which became effective in June 2008; and

We achieved certain cost reductions throughout the organization, and we expect additional cost reductions during the second half of the year.

Our financial results for the three months ended June 30, 2008 reflected initial improvements resulting from certain of these initiatives. However, our financial results continued to be significantly overwhelmed by the unprecedented rise in fuel prices. We expect our recent business initiatives to produce greater positive contributions to operating results during the second half of 2008 and into 2009.

In addition to the cash generated through our aircraft sales, we must secure additional capital in the short term. On August 4, 2008, we executed a non-binding term sheet with a prospective lender for $5.1 million of secured debt financing, for a term of 36 months. The lender has begun its due diligence process and the parties are planning to close by the beginning of September.
This financing will be subject to the Company obtaining certain third party consents.

In the event that this proposed financing does not close, we will continue to pursue other financing alternatives. However, we can make no assurance that the proposed financing or any alternative financing will close, or that additional sources of capital will be available under terms acceptable to us, or at all.
If the proposed transaction is not consummated and we are unable to consummate another transaction to raise additional capital in the coming months, we will experience a significant liquidity shortage.

Results of Operations

Comparative Results for the Three-Month and Six-Month Periods Ended June 30,
2007 and 2008

The following table sets forth our financial results (unaudited) for the three
and six month periods ended June 30, 2007 and 2008.

                              Three Months Ended June 30,          Percent           Six Months Ended June 30,          Percent
                               2007                 2008            Change           2007                2008            Change
                                    (In thousands)                                        (In thousands)
Revenue
Airline passenger
revenue                   $       30,756       $       27,614          -10.2 %   $      58,413       $      55,352           -5.2 %
Academy, charter and
other revenue                      1,388                3,438          147.7 %           2,957               6,955          135.2 %
Total Revenue                     32,144               31,052           -3.4 %          61,370              62,307            1.5 %
Operating Expenses
Flight operations                  3,212                3,498            8.9 %           6,541               7,388           12.9 %
Aircraft fuel                      6,816               10,063           47.6 %          12,445              18,249           46.6 %
Aircraft rent                      1,590                1,615            1.6 %           3,181               3,234            1.7 %
Maintenance                        6,293                5,976           -5.0 %          11,590              13,553           16.9 %
Passenger service                  6,244                6,045           -3.2 %          11,979              12,698            6.0 %
Promotion & sales                  2,188                1,971           -9.9 %           4,252               4,124           -3.0 %
General and
administrative                     1,888                1,809           -4.2 %           3,620               3,843            6.2 %
Depreciation and
amortization                         939                1,116           18.8 %           1,859               2,191           17.9 %
Impairment charge -
assets held for sale                   -                4,467                                -               4,467
Operating Expenses                29,170               36,560           25.3 %          55,467              69,747           25.7 %
Income (loss) from
operations                         2,974               (5,508 )       NM                 5,903              (7,440 )       NM
Non-Operating Income
and (Expense)
Interest (expense)                  (289 )               (148 )        -48.8 %            (583 )              (302 )        -48.2 %
Other income                          85                   (8 )       NM                   105                   8         NM
Non-Operating Income
and (Expense)                       (204 )               (156 )        -23.5 %            (478 )              (294 )        -38.5 %
Income (loss) before
taxes                              2,770               (5,664 )       NM                 5,425              (7,734 )       NM
Provision (benefit) for
income taxes                       1,044               (2,120 )       NM                 2,046              (2,903 )       NM
Income (loss) before
minority interest                  1,726               (3,544 )       NM                 3,379              (4,831 )       NM
Minority interest                     (5 )                  -         NM                     -                   -         NM
Net income (loss)         $        1,721               (3,544 )       NM         $       3,379       $      (4,831 )       NM

Operating Statistics. The following table sets forth our major operational statistics and the percentage-of-change for the three and six month periods ended June 30, 2007 and 2008.

                              Three Months Ended June 30,          Percent           Year-to-Date Ended June 30,          Percent
                               2007                 2008            Change            2007                 2008            Change
Operating Statistics
(unaudited):
Available seat miles
(000's) (1)                       77,124               71,615           -7.1 %          152,085              143,800           -5.4 %
Revenue passenger miles
(000's) (2)                       49,531               39,275          -20.7 %           94,840               80,606          -15.0 %
Revenue passengers
carried                          251,311              196,797          -21.7 %          480,540              404,299          -15.9 %
Departures flown                  18,544               17,303           -6.7 %           36,621               34,805           -5.0 %
Passenger load factor
(3)                                 64.2 %               54.8 %        -14.6 %             62.4 %               56.1 %        -10.1 %
Average yield per
revenue passenger mile
(4)                       $        0.621       $        0.703           13.2 %   $        0.616       $        0.687           11.5 %
Revenue per available
seat miles (5)            $        0.417       $        0.427            2.6 %   $        0.401       $        0.428            6.8 %
Operating costs per
available seat mile (6)   $        0.365       $        0.500           37.0 %   $        0.352       $        0.472           34.0 %
Average passenger fare
(7)                       $       122.38       $       140.32           14.7 %   $       121.56       $       136.91           12.6 %
Average passenger trip
length (miles) (8)                   197                  200            1.3 %              197                  199            1.0 %
Average fuel cost per
gallon (incl taxes)       $         2.31       $         3.69           59.7 %   $         2.13       $         3.33           56.3 %


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"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.

"Revenue passenger miles" or "RPMs" represent the number of miles flown by revenue passengers.

"Passenger load factor" represents the percentage of seats filled by revenue passengers and is calculated by dividing revenue passenger miles by available seat miles.

"Average yield per revenue passenger mile" represents the average passenger revenue received for each mile a revenue passenger is carried.

"Revenue per available seat mile" or "RASM" represents the average total operating revenue received for each available seat mile.

"Operating cost per available seat mile" represents operating expenses divided by available seat miles.

"Average passenger fare" represents passenger revenue divided by the number of revenue passengers carried.

"Average passenger trip length" represents revenue passenger miles divided by the number of revenue passengers carried.

Net Income. The consolidated net loss for the second quarter of 2008 was $3.5 million compared to net income of $1.7 million for the comparable period last year, while the consolidated net loss for the six months ended June 30, 2008 was $4.8 million compared to net income of $3.4 million for the comparable period last year. These results were primarily due to the unprecedented rise in fuel prices in 2008 compared to last year, as well as the $4.5 million non-recurring impairment charge related to the sale of our fleet of eight Embraer aircraft that is expected to be completed by the end of September 2008.

Operating Income. The consolidated operating loss for the second quarter of 2008 was $5.5 million compared to operating income of $3.0 million for the comparable period last year. Similarly, the consolidated operating loss for the six months ended June 30, 2008 was $7.4 million compared to operating income of $5.9 million for the comparable period last year. The following table identifies the operating profit impact of each of our respective operating components.