Summary of GULFSTREAM INTERNATIONAL GROUP INC

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 and cost, 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 response to higher fuel costs and a weakening economy. 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; and

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

Current Developments

The third quarter of 2008 included the following significant developments:

We reduced our flight capacity (available seat miles) by 39.9% compared to the same quarter last year, due primarily to the sale of our fleet of eight Embraer aircraft and the restructure of our route network;

In August 2008, we restructured our route network and eliminated city pairs that were no longer profitable in the current high fuel price environment;

We redeployed 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 third quarter by 18.9% to help offset the rising price of jet fuel; and

We implemented certain capacity-related and structural cost reductions throughout the organization.

The third quarter of 2008 was very much a transition quarter for the Company as we implemented a revised business plan in response to rising fuel prices and a weakening economy. The quarter was primarily characterized by an immediate and substantial reduction in capacity and a corresponding decrease in operating costs. The rate of overall cost reductions during the quarter was not as immediate as our capacity and related revenue reductions, because of the complexities and delays associated with implementing extensive schedule changes and related staff reductions and retraining. As a result, our unit revenue (revenue per available seat mile) increased 39.2% compared to the same period last year, while unit operating cost (cost per available seat mile) increased by 53.5%. Our unit operating costs during the quarter included a 72% rise in fuel prices to an average of $3.98 per gallon for the third quarter this year from $2.31 per gallon for the same period last year.

In order to fund our anticipated liquidity shortfall during the second half of 2008, we initiated efforts during the first quarter of 2008 to sell available assets, raise additional capital, and restructure certain past-due creditor obligations. During the third quarter of 2008, we completed the sale of our fleet of eight Embraer Brasilia aircraft. As a result of these sales, we raised cash of approximately $5.1 million, net of expenses and the repayment of $7.2 million of existing bank debt. We also secured additional capital during the third quarter through the issuance of a $5.1 million senior secured debenture to an institutional lender, as well as the issuance of a $1.0 million unsecured debenture to an entity owned by a majority stockholder and members of the Board of Directors of the Company. The net proceeds from these debt financings were $4.9 million and were used to repay $754,000 of principal and interest outstanding under the Company's revolving credit line, with the balance being used for general corporate purposes.

The final stage to improve our liquidity involves the restructuring of over $6.0 million in creditor obligations owed primarily to our principal aircraft lessor and engine maintenance vendor. The restructuring plan proposed by our aircraft lessor obligates the Company to allocate its free cash flow projected for 2009 and thereafter to the repayment of past-due obligations among the creditors in proportions that are acceptable to all parties. If we do not complete this multiple-party restructuring, our aircraft lessor may place us in default with respect to our aircraft leases and demand return of the aircraft, or our engine maintenance vendor may withhold further engine maintenance services. If the proposed restructuring of our creditor obligations is not completed, we would experience an immediate and significant liquidity shortfall, and may be unable to continue operating.

Results of Operations

Comparative Results for the Three-Month and Nine-Month Periods Ended September 30, 2007 and 2008

As a result of the increasing significance of the Cuba charter business to our overall performance, we have consolidated the results of the Cuba charter business as a variable interest entity for the three and nine months ended September 30, 2008 pursuant to the requirements of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities. For the three and nine months ended September 30, 2008, gross revenue and operating expenses are included in the Consolidated Statement of Operations, and the operating profit of the Cuba charter business is included in consolidated net income. Conversely, for the three and nine months ended September 30, 2007, the operating profit of the Cuba charter business was included as a component of Revenue, and gross revenue and operating expenses were excluded from the Statement of Operations.

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

                           Three Months Ended                         Nine Months Ended
                              September 30,           Percent           September 30,           Percent
                           2007          2008         Change         2007          2008         Change
                             (In thousands)                            (In thousands)
Revenue
Airline passenger
revenue                 $   23,319     $  16,754         -28.2 %   $  81,732     $  72,105         -11.8 %
Academy, charter and
other revenue                1,986         4,312         117.1 %       4,943        11,268         128.0 %
Total Revenue               25,305        21,066         -16.8 %      86,675        83,373          -3.8 %
Operating Expenses
Flight operations            3,318         2,824         -14.9 %       9,859        10,211           3.6 %
Aircraft fuel                6,437         7,083          10.0 %      18,882        25,332          34.2 %
Aircraft rent                1,590         1,468          -7.7 %       4,771         4,701          -1.5 %
Maintenance                  6,226         5,317         -14.6 %      17,816        18,870           5.9 %
Passenger service            5,845         4,898         -16.2 %      17,824        17,595          -1.3 %
Promotion & sales            1,725         1,463         -15.2 %       5,977         5,588          -6.5 %
General and
administrative               1,690         1,655          -2.1 %       5,310         5,499           3.6 %
Depreciation and
amortization                   943           280         -70.3 %       2,802         2,472         -11.8 %
Loss on disposal of
equipment                       --           496                          --         4,963
Operating Expenses          27,774        25,484          -8.2 %      83,241        95,231          14.4 %
Income (loss) from
operations                  (2,469 )      (4,418 )        78.9 %       3,434       (11,858 )          NM
Non-Operating Income
and (Expense)
Interest (expense)            (300 )        (104 )       -65.3 %        (883 )        (406 )       -54.0 %
Other income                    50             3            NM           155            11            NM
Non-Operating Income
and (Expense)                 (250 )        (101 )       -59.6 %        (728 )        (395 )       -45.7 %
Income (loss) before
taxes                       (2,719 )      (4,519 )        66.2 %       2,706       (12,253 )          NM
Provision (benefit)
for income taxes            (1,020 )        (441 )       -56.8 %       1,026        (3,344 )          NM
Income (loss) before
minority interest       $   (1,699 )      (4,078 )       140.0 %       1,680        (8,909 )          NM
Minority interest               --            --            NM            --            --            NM
Net income (loss)       $   (1,699 )      (4,078 )       140.0 %   $   1,680     $  (8,909 )          NM

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

                               Three Months                                  Nine Months
                            Ended September 30,          Percent         Ended September 30,         Percent
                           2007             2008          Change          2007          2008          Change
Operating Statistics
(unaudited):
Available seat miles
(000's) (1)                 69,978           42,085          -39.9 %      222,063       185,885          -16.3 %
Revenue passenger
miles (000's) (2)           38,246           23,399          -38.8 %      133,086       104,005          -21.9 %
Revenue passengers
carried                    192,825          116,520          -39.6 %      673,365       520,819          -22.7 %
Departures flown            17,089           10,862          -36.4 %       53,710        45,667          -15.0 %
Passenger load factor
(3)                           54.7 %           55.6 %          1.7 %         59.9 %        56.0 %         -6.6 %
Average yield per
revenue passenger
mile (4)                $    0.610       $    0.716           17.4 %   $    0.614     $   0.693           12.9 %
Revenue per available
seat miles (5)          $    0.356       $    0.495           39.2 %   $    0.387     $   0.443           14.7 %
Operating costs per
available seat mile
(6)                     $    0.384       $    0.589           53.5 %   $    0.362     $   0.499           37.7 %
Average passenger
fare (7)                $   120.93       $   143.79           18.9 %   $   121.38     $  138.45           14.1 %
Average passenger
trip length (miles)
(8)                            198              201            1.2 %          198           200            1.0 %
Fuel cost per gallon
(incl taxes)            $     2.31       $     3.98           72.3 %   $     2.20     $    3.49           58.6 %


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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 third quarter of 2008 was $4.1 million compared to a net loss of $1.7 million for the comparable period last year, while the consolidated net loss for the nine months ended September 30, 2008 was $8.9 million compared to net income of $1.7 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 $5.0 million non-recurring charge related to the sale of our fleet of eight Embraer aircraft.

Operating Income. The consolidated operating loss for the third quarter of 2008 was $4.4 million compared to an operating loss of $2.5 million for the comparable period last year. Similarly, the consolidated operating loss for the nine months ended September 30, 2008 was $11.9 million compared to operating income of $3.4 million for the comparable period last year. The following table identifies the operating profit impact of each of our respective operating components.

                                                                                        Nine Months Ended September
                                               Three Months Ended September 30,                     30,
                                                  2007                  2008               2007                  2008
                                                        (In thousands)                         (In thousands)
Airline and charter                          $        (1,725 )     $        (3,333 )           5,959       $   (8,727 )
Academy                                                   19                  (126 )              --             (152 )
Total income (loss) from operations                   (1,706 )              (3,459 )           5,959           (8,879 )
Less: General and administrative                         763                   959             2,525            2,979

Consolidated income (loss) from operations $ (2,469 ) $ (4,418 ) $ 3,434 $ (11,858 )

Revenues. Consolidated revenue decreased 16.8% to $21.1 million for the three months ended September 30, 2008 from $25.3 million for the comparable period in 2007. The overall revenue decrease was due principally to a 39.9% capacity reduction this quarter that led to a 28.2% decline in passenger revenue during the third quarter of 2008, despite the inclusion of $2.2 million of charter revenue during the third quarter of 2008 resulting from the consolidation of our Cuba charter business as a variable interest entity effective January 1, 2008. For the third quarter of 2007, only the pre-tax profit from the Cuba charter business was included as Charter and other revenue. The following table identifies the revenue contribution from each of our operating components.

                         Three Months Ended September
                                      30,                    Percent         Nine Months Ended September 30,         Percent
                          2007               2008            Change            2007                  2008            Change
 Revenue
Airline passenger
revenue                 $  23,319       $        16,754         -28.2 %   $        81,732       $        72,105         -11.8 %
Charter and
other revenue               1,585                 4,096         158.4 %             4,109                10,284         150.3 %
Academy                       946                   570         -39.7 %             2,785                 2,368         -15.0 %
Intercompany revenue
elimination                  (545 )                (354 )       -35.0 %            (1,951 )              (1,384 )       -29.1 %
Total Revenue           $  25,305       $        21,066         -16.8 %   $        86,675       $        83,373          -3.8 %

Airline Passenger Revenue. Airline passenger revenue decreased 28.2% for the three months ended September 30, 2008 from the comparable period in 2007. This decrease was primarily attributable to a 39.6% decrease in the number of passengers carried, partially offset by an 18.9% increase in average fares.

We reduced our available seat mile capacity for the three months ended September 30, 2008 by 39.9% compared to the same period last year. Our average passenger fare increased during the second quarter of 2008 to $143.79 from $120.93 in the comparable period in 2007. While increased fares helped to offset higher fuel prices, they also contributed, along with capacity reductions, to a decline in the number of passengers flown.

Airline passenger revenue decreased 11.8% for the nine months ended September 30, 2008 from the comparable period in 2007. This decrease was primarily attributable to a 22.7% decrease in the number of passengers carried, partially offset by a 14.1% increase in average fares. Our average passenger fare increased during the first three quarters of 2008 to $138.45 from $121.38 in the comparable period in 2007.

We reduced our available seat mile capacity for the nine months ended September 30, 2008 by 16.3% compared to the same period last year, while the number of passengers flown declined by 22.7% compared to the same period in 2007.

Charter, Cuba Operations and Other Revenue. Revenue from charter and other revenue increased 158.4% to $4.1 million for the third quarter of 2008 from $1.6 million for the comparable period in 2007. This overall increase was due primarily to a change in accounting treatment effective January 1, 2008 relating to the consolidation of the Cuba charter business as a variable interest entity. The change resulted in the inclusion of $2.2 million of revenue for our Cuba charter business for the third quarter of 2008. Conversely, for the third quarter of 2007, only the profit of $161,000 from the Cuba charter business was included as Revenue. The same accounting treatment change led to an increase of 150.3% in charter and other revenue for the first three quarters of 2008 to $10.3 million, from $4.1 million for the comparable period in 2007. The change resulted in the inclusion of $6.2

million of revenue for our Cuba charter business for first three quarters of 2008. Conversely, for the first three quarters of 2007, only the profit of $531,000 from the Cuba charter business was included as Revenue.

Academy Revenue. Academy revenue decreased 39.7% and 15.0% for the three and nine months ended September 30, 2008, respectively, from the comparable periods in 2007. The decrease related to a decline in intercompany revenue charged to the Airline for pilot training of flight crews due to lower pilot attrition rates, as well as fewer commercial pilot students due to a contraction of demand for pilots within the airline industry.

Airline Operating Expenses. The following table sets forth our airline operating results for the three and nine month periods ended September 30, 2007 and 2008.

                                                   Percent of Airline Revenue                                           Percent of Airline Revenue
                         Three Months             Three Months Ended September              Nine Months
                      Ended September 30,                      30,                      Ended September 30,          Nine Months Ended September 30,
                        2007         2008           2007               2008            2007            2008             2007                  2008
Airline
Operating
Expenses
Flight
operations         $   3,318       $   2,824           14.2 %               16.9 %   $   9,859       $  10,211               12.1 %                14.2 %
Aircraft fuel          6,437           7,083           27.6 %               42.3 %      18,882          25,332               23.1 %                35.1 %
Aircraft rent          1,590           1,468            6.8 %                8.8 %       4,771           4,701                5.8 %                 6.5 %
Maintenance            6,226           5,317           26.7 %               31.7 %      17,816          18,870               21.8 %                26.2 %
Passenger
service                5,845           4,898           25.1 %               29.2 %      17,824          17,595               21.8 %                24.4 %
Promotion &
sales                  1,725           1,463            7.4 %                8.7 %       5,977           5,588                7.3 %                 7.7 %
Depreciation and
amortization             943             280            4.0 %                1.7 %       2,802           2,472                3.4 %                 3.4 %
Loss on disposal
of equipment              --             496            0.0 %                3.0 %          --           4,963                0.0 %                 6.9 %
Operating
Expenses           $  26,084       $  23,829          111.9 %              142.2 %   $  77,931       $  89,732               95.3 %               124.4 %

Flight Operations. Major components of flight operations expense include salaries for pilots, flight attendants and other operations personnel, as well as pilot training expenses.

Flight operations expenses for the third quarter of 2008 declined by 14.9% to $2.8 million compared to $3.3 million for the same period last year. These expense declines were due mostly to capacity reductions instituted during the third quarter of 2008 due to the sale of our Embraer aircraft and schedule adjustments implemented in response to higher fuel prices.

For the first three quarters of 2008, flight operations expenses increased 3.6% to $10.2 million from $9.9 million for the comparable period of 2007. However, flight operations expenses for the third quarter and first three quarters of 2008 included $411,000 and $1.4 million, respectively, of expenses resulting from the consolidation of our Cuba charter business as a variable interest entity. A similar expense is not included for the third quarter or first three quarters of 2007.

Aircraft Fuel. Our average price for jet fuel for the third quarter of 2008 increased to $3.98 per gallon, an increase of 72.3% from $2.31 per gallon during the comparable period last year. As a result of the relentless rise in fuel prices for the past year, fuel increased as a percent of airline revenue to 35.1% for the first three quarters of 2008 from 23.1% during the comparable period last year.

Aircraft Rent. Aircraft rent is related to the lease costs associated with our 27 Beech 1900D aircraft.

Maintenance and repair expense. Major components of maintenance and repair expense includes salaries and wages, repair parts and materials, and expenses incurred from third party service providers required to maintain our aircraft engines. Maintenance expense declined 14.6% to $5.3 million for the third quarter of 2008 from $6.2 million for the comparable period last year, due primarily to the sale of our Embraer aircraft and capacity reductions implemented during the quarter.

For the first three quarters of 2008, maintenance expense increased 5.9% to $18.9 million from $17.8 million for the comparable period last year. Maintenance costs increased primarily as a result of increased

material and repair costs associated with our Embraer fleet and a new engine overhaul contract for our Beechcraft 1900D fleet requiring higher hourly payments, as well as $721,000 of maintenance expense associated with the consolidation as a variable interest entity of our Cuba charter business for the first three quarters of 2008.

Passenger Service. Major components of passenger service expense include ground handling services, airport counter and gate rentals, wages paid to airport employees, passenger liability insurance, security and miscellaneous passenger-related expenses. Passenger service expense declined 16.2% to $4.9 million for the third quarter of 2008 from $5.8 million for the same period last year, due to cost reductions implemented as part of our revised business plan. The cost reductions more than offset a $599,000 increase attributable to passenger service expense associated with the consolidation of our Cuba charter business as a variable interest entity for the third quarter of 2008.

For the first three quarters of 2008, passenger service expense decreased 1.3% to $17.6 million from $17.8 million for the same period last year, despite a . . .