**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

| **(Mark One)**                                                                                                                                                  |   |                                                                                               |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|
| **ý**                                                                                                                                                      |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**  |
|                                                                                                                                                            |
| **For the quarterly period ended  March 31, 2004**                                                                                                         |
|                                                                                                                                                            |
| **or**                                                                                                                                                          |
|                                                                                                                                                            |
| **o**                                                                                                                                                           |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                            |   |                                                                                               |
| **For the transition period  from            to          ** |
|                                                                                                                                                            |
| **Commission File Number 1-13025**                                                                                                                              |

 
| **AirNet Systems, Inc.**                                                       |
|-------------------------------------------------------------------------------------|
| (Exact name of registrant  as specified in its charter)                             |
|                                                                                |   |   |
| **Ohio**                                                                            |   | **31-1458309** |
| (State or other  jurisdiction  of incorporation or organization)                    |   | (I.R.S. Employer  Identification No.) |
|                                                                                |
| **3939 International Gateway  Columbus, Ohio 43219**                                |
| (Address, including zip  code, of registrant’s principal executive offices)    |
|                                                                                |
| **(614) 237-9777**                                                                  |
| (Registrant’s telephone  number, including area code)                          |
|                                                                                |
| **Not Applicable**                                                                  |
| (Former name, former  address and former fiscal year, if changed since last report) |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý No o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act). Yes o No ý

 

As of May 3, 2004,10,073,212 of the registrant’s common shares, par value $0.01, wereoutstanding.

 

 

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**TABLE OF CONTENTS**

 
| **PART I. FINANCIAL INFORMATION** |                                                                                                           |
|-----------------------------------|----------------------------------------------------------------------------------------------------------------|
|                              |                                                                                                           |   |
| Item 1.                      | Financial  Statements:                                                                                         |   |
|                              |                                                                                                           |   |
|                              | Condensed  Consolidated Balance Sheets:  March 31, 2004 (Unaudited) and December 31, 2003            |   |
|                              |                                                                                                           |   |
|                              | Condensed Consolidated Statements of Operations (Unaudited):  Three Months Ended March 31, 2004 and 2003  |   |
|                              |                                                                                                           |   |
|                              | Condensed  Consolidated Statements of Cash Flows (Unaudited):  Three Months Ended March 31, 2004 and 2003 |   |
|                              |                                                                                                           |   |
|                              | Notes to Condensed Consolidated Financial Statements (Unaudited)                                               |   |
|                              |                                                                                                           |   |
| Item 2.                      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                    |   |
|                              |                                                                                                           |   |
| Item 3.                      | Quantitative and Qualitative Disclosures  about Market Risk                                                    |   |
|                              |                                                                                                           |   |
| Item 4.                      | Controls and Procedures                                                                                        |   |
|                              |                                                                                                           |   |
| **PART II. OTHER INFORMATION**    |                                                                                                           |
|                              |                                                                                                           |
| Item 1.                           | Legal Proceedings                                                                                              |   |
|                              |                                                                                                           |   |
| Item 2.                           | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity  Securities                              |   |
|                              |                                                                                                           |   |
| Item 3.                           | Defaults Upon Senior Securities                                                                                |   |
|                              |                                                                                                           |   |
| Item 4.                           | Submission of Matters to a Vote of Security Holders                                                            |   |
|                              |                                                                                                           |   |
| Item 5.                           | Other Information                                                                                              |   |
|                              |                                                                                                           |   |
| Item  6.                          | Exhibits  and Reports on Form 8-K                                                                              |   |
|                              |                                                                                                           |   |
| SIGNATURES                        |                                                                                                           |
|                              |                                                                                                           |   |
| INDEX  TO EXHIBITS                |                                                                                                           |
|                                   |                                                                                                                |  |  |

 

2

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**AIRNET SYSTEMS, INC.**

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 

Inthousands, except per share data

 
|                                                                                                                                  |   | **March 31,  2004** |        | **December 31,  2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|-------------|-----------------------------|--------|
|                                                                                                                                  |   | **(unaudited)**          |        |                        |   |
|                                                                                                                                  |   |                     |        |                        |   |
| **ASSETS**                                                                                                                            |   |                     | ** **  |                        |   |
| Current assets:                                                                                                                       |   |                     | ** **  |                        |   |
| Cash and cash equivalents                                                                                                             |   | **$**                    | **2,257**   | ** **                  | $      | 125 |   |
| Accounts receivable, less allowances of **$617** and $515 at March 31, 2004 and  December 31, 2003, respectively            |   | **22,302**               | ** **  | 18,647                      |   |
| Inventory and spare parts                                                                                                             |   | **7,447**                | ** **  | 6,589                       |   |
| Taxes receivable                                                                                                                      |   | **1,147**                | ** **  | 1,401                       |   |
| Deposits and prepaids                                                                                                                 |   | **2,822**                | ** **  | 3,246                       |   |
| Total current assets                                                                                                                  |   | **35,975**               | ** **  | 30,008                      |   |
|                                                                                                                                  |   |                     | ** **  |                        |   |
| Net property and equipment                                                                                                            |   | **120,324**              | ** **  | 118,799                     |   |
|                                                                                                                                  |   |                     | ** **  |                        |   |
| Other assets:                                                                                                                         |   |                     | ** **  |                        |   |
| Goodwill, net of accumulated amortization                                                                                             |   | **4,018**                | ** **  | 4,018                       |   |
| Other                                                                                                                                 |   | **366**                  | ** **  | 448                         |   |
| **Total assets**                                                                                                                      |   | **$**                    | **160,683** | ** **                  | $      | 153,273 |   |
|                                                                                                                                  |   |                     | ** **  |                        |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                         |   |                     | ** **  |                        |   |
| Current liabilities:                                                                                                                  |   |                     | ** **  |                        |   |
| Accounts payable                                                                                                                      |   | **$**                    | **8,927**   | ** **                  | $      | 7,442 |   |
| Salaries and related liabilities                                                                                                      |   | **3,791**                | ** **  | 4,955                       |   |
| Deferred revenue                                                                                                                      |   | **2,330**                | ** **  | 184                         |   |
| Accrued expenses                                                                                                                      |   | **933**                  | ** **  | 887                         |   |
| Taxes payable                                                                                                                         |   | **—**               | ** **  | 76                          |   |
| Deferred income taxes                                                                                                                 |   | **4**                    | ** **  | 4                           |   |
| Current portion of notes payable                                                                                                      |   | **5,239**                | ** **  | 5,256                       |   |
| Total current liabilities                                                                                                             |   | **21,224**               | ** **  | 18,804                      |   |
|                                                                                                                                  |   |                     | ** **  |                        |   |
| Other liabilities                                                                                                                     |   | **1,142**                | ** **  | 1,280                       |   |
| Notes payable, less current portion                                                                                                   |   | **37,218**               | ** **  | 32,520                      |   |
| Deferred income taxes                                                                                                                 |   | **16,390**               | ** **  | 16,389                      |   |
|                                                                                                                                  |   |                     | ** **  |                        |   |
| Shareholders’ equity:                                                                                                            |   |                     | ** **  |                        |   |
| Preferred shares, $.01 par value; 10,000  shares authorized; and no shares issued and outstanding                                     |   | **—**               | ** **  | —                      |   |
| Common shares, $.01 par value; 40,000  shares authorized; **12,753** shares  issued at March 31, 2004 and December 31, 2003 |   | **128**                  | ** **  | 128                         |   |
| Additional paid-in capital                                                                                                            |   | **77,403**               | ** **  | 77,759                      |   |
| Retained earnings                                                                                                                     |   | **32,255**               | ** **  | 31,938                      |   |
| Accumulated other comprehensive loss                                                                                                  |   | **(35**                  | **)**       | (35                         | )      |
| Treasury shares **2,690** and 2,720 shares held at cost at March 31, 2004  and December 31, 2003, respectively              |   | **(25,042**              | **)**       | (25,510                     | )      |
| Total shareholders’ equity                                                                                                       |   | **84,709**               | ** **  | 84,280                      |   |
|                                                                                                                                  |   |                     | ** **  |                        |   |
| **Total liabilities and shareholders’ equity**                                                                                   |   | **$**                    | **160,683** | ** **                  | $      | 153,273 |   |

 

See notes to condensed consolidated financialstatements

 

3

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**AIRNET SYSTEMS, INC.**

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 

(unauditied,In thousands, except per share data)

 
|                                                                                              |   | **Three Months Ended  March 31,** |       |
|---------------------------------------------------------------------------------------------------|--------|----------------------------------------|------------|
|                                                                                              |   | **2004**                               |       | **2003** |   |
|                                                                                              |   |                                   |       |   |   |
| **NET REVENUES**                                                                                  |   |                                   |       |   |   |
| Air transportation for the three months  ended March 31, 2004 and 2003, respectively:        |   |                                   |       |   |   |
| Delivery services:                                                                                |   |                                   |       |   |   |
| Bank services                                                                                     |   | **$**                                  | **25,832** |   | $ | 26,323 |   |
| Express services                                                                                  |   | **10,798**                             |       | 9,010 |   |
| Total delivery services revenues                                                                  |   | **36,630**                             |       | 35,333 |   |
|                                                                                              |   |                                   |       |   |   |
| Passenger Charter services                                                                        |   | **3,650**                              |       | 1,439 |   |
| Aviation services                                                                                 |   | **191**                                |       | 304 |   |
| **Total net revenues**                                                                            |   | **40,471**                             |       | 37,076 |   |
|                                                                                              |   |                                   |       |   |   |
| **COSTS AND EXPENSES**                                                                            |   |                                   |       |   |   |
| Wages and benefits                                                                                |   | **6,345**                              |       | 6,211 |   |
| Aircraft fuel                                                                                     |   | **5,536**                              |       | 4,942 |   |
| Aircraft maintenance                                                                              |   | **3,191**                              |       | 3,381 |   |
| Contracted air costs                                                                              |   | **3,071**                              |       | 2,807 |   |
| Ground courier                                                                                    |   | **7,142**                              |       | 6,266 |   |
| Depreciation                                                                                      |   | **4,889**                              |       | 4,192 |   |
| Insurance, rent and landing fees                                                                  |   | **2,564**                              |       | 2,244 |   |
| Travel, training and other                                                                        |   | **2,560**                              |       | 2,178 |   |
| Selling, general and administrative                                                               |   | **3,959**                              |       | 3,931 |   |
| Net loss on disposition of assets                                                                 |   | **292**                                |       | — |   |
| **Total costs and expenses**                                                                      |   | **39,549**                             |       | 36,152 |   |
|                                                                                              |   |                                   |       |   |   |
| Income from operations                                                                            |   | **922**                                |       | 924 |   |
| Interest expense                                                                                  |   | **367**                                |       | 402 |   |
| Income from continuing operations before  income taxes and cumulative effect of accounting change |   | **555**                                |       | 522 |   |
| Provision for income taxes                                                                        |   | **239**                                |       | 203 |   |
|                                                                                              |   |                                   |       |   |   |
| **Income from continuing operations**                                                             |   | **$**                                  | **316**    |   | $ | 319 |   |
|                                                                                              |   |                                   |       |   |   |
| **Loss from discontinued operations, net of taxes**                                               |   | **$**                                  | **—** |   | $ | (22 | ) |
|                                                                                              |   |                                   |       |   |   |
| **Net income**                                                                                    |   | **$**                                  | **316**    |   | $ | 297 |   |
|                                                                                              |   |                                   |       |   |   |
| Income per common share - basic and diluted                                                       |   |                                   |       |   |   |
| Continuing operations                                                                             |   | **$**                                  | **0.03**   |   | $ | 0.03 |   |
| Discontinued operations                                                                           |   | **$**                                  | **—** |   | $ | — |   |
|                                                                                              |   |                                   |       |   |   |
| Net income per share - basic and diluted                                                          |   | **$**                                  | **0.03**   |   | $ | 0.03 |   |

 

See notes to condensed consolidated financialstatements

 

4

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**AIRNET SYSTEMS, INC.**

 

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS**

 

(unaudited,In thousands)

 
|                                                                               |   | **March 31,** |       |
|------------------------------------------------------------------------------------|--------|--------------------|------------|
|                                                                               |   | **2004**           |       | **2003** |   |
|                                                                               |   |               | ** ** |   |   |
| **OPERATING ACTIVITIES**                                                           |   |               | ** ** |   |   |
| Net income                                                                         |   | **$**              | **316**    | ** ** | $ | 297 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |   |               | ** ** |   |   |
| Depreciation                                                                       |   | **4,889**          | ** ** | 4,192 |   |
| Deferred taxes                                                                     |   | **(4**             | **)**      | **—** | ** ** |
| Provision for losses on accounts receivable                                        |   | **89**             | ** ** | 94 |   |
| Loss on disposition of assets                                                      |   | **292**            | ** ** | 36 |   |
| Cash provided by (used in) operating assets  and liabilities:                      |   |               | ** ** |   |   |
| Accounts receivable                                                                |   | **(1,444**         | **)**      | 53 |   |
| Inventory and spare parts                                                          |   | **(858**           | **)**      | (512 | ) |
| Deposits and prepaids                                                              |   | **425**            | ** ** | 530 |   |
| Accounts payable                                                                   |   | **1,347**          | ** ** | 1,311 |   |
| Accrued expenses and deferred revenues                                             |   | **2,192**          | ** ** | 1,534 |   |
| Taxes payable/receivable                                                           |   | **181**            | ** ** | (28 | ) |
| Salaries and related liabilities                                                   |   | **(1,163**         | **)**      | (559 | ) |
| Other, net                                                                         |   | **81**             | ** ** | 391 |   |
| Net assets of discontinued operations                                              |   | **—**         | ** ** | (278 | ) |
| **Net cash provided by operating activities**                                      |   | **6,343**          | ** ** | 7,061 |   |
|                                                                               |   |               | ** ** |   |   |
| **INVESTING ACTIVITIES**                                                           |   |               | ** ** |   |   |
| Purchases of property and equipment                                                |   | **(9,803**         | **)**      | (5,272 | ) |
| Proceeds from sales of property and  equipment                                     |   | **798**            | ** ** | 101 |   |
| **Net cash used in investing activities**                                          |   | **(9,005**         | **)**      | (5,171 | ) |
|                                                                               |   |               | ** ** |   |   |
| **FINANCING ACTIVITIES**                                                           |   |               | ** ** |   |   |
| Proceeds from 1996 Incentive Stock Plan  programs                                  |   | **112**            | ** ** | 48 |   |
| Net borrowings under revolving credit  facilities                                  |   | **6,000**          | ** ** | 400 |   |
| Repayments of term loan facilities                                                 |   | **(1,318**         | **)**      | (1,296 | ) |
| Purchase of treasury shares                                                        |   | **—**         | ** ** | (250 | ) |
| **Net cash provided by (used in) financing  activities**                           |   | **4,794**          | ** ** | (1,098 | ) |
|                                                                               |   |               | ** ** |   |   |
| Net increase in cash                                                               |   | **2,132**          | ** ** | 792 |   |
| Cash and cash equivalents at beginning of  period                                  |   | **125**            | ** ** | 1,054 |   |
|                                                                               |   |               | ** ** |   |   |
| **Cash and cash equivalents at end of period**                                     |   | **$**              | **2,257**  | ** ** | $ | 1,846 |   |

 

See notes to condensed consolidated financialstatements

 

5

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**AIRNET SYSTEMS, INC.**

 

**NOTES TO CONDENSED****CONSOLIDATEDFINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.****     Basisof Presentation**

 

AirNet Systems, Inc. and itssubsidiaries (“AirNet” or the “Company”) operate a fully integrated nationalair transportation network which provides delivery service for time-criticalshipments for customers in the U.S. banking industry and other industriesrequiring the express delivery of packages. AirNet also offers passenger charter services and retail aviation fuelsales and related ground services.

 

The accompanying condensedconsolidated financial statements include the accounts of AirNet Systems, Inc.and its subsidiaries.  These financialstatements are unaudited and have been prepared pursuant to the rules andregulations of the United States Securities and Exchange Commission.

 

Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been condensed or omitted as permitted by suchrules and regulations. These condensed consolidated financial statements shouldbe read in conjunction with the consolidated financial statements and notesthereto included in the AirNet Systems, Inc.’s Annual Report on Form 10-K forthe fiscal year ended December 31, 2003. The results of operations for thequarterly period ended March 31, 2004 are not necessarily indicative ofthe results for the full year.

 

The financial information included hereinreflects all adjustments (consisting of normal recurring adjustments), whichare, in the opinion of management, necessary for a fair presentation of theresults of interim periods.

 

The preparation of the condensed consolidatedfinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the amounts reported in those financial statementsand accompanying notes thereto.  Actualresults could differ from those estimates.

 

Certain reclassifications have been made inthe prior year’s financial statements to conform to the presentation for thethree months ended March 31, 2004.

 

**2.****     StockPlans and Awards**

 

SFAS No. 148, *Accounting for Stock-BasedCompensation-Transition and Disclosure*, requires prominentdisclosures in both annual and interim financial statements regarding themethod of accounting for stock-based employee compensation and the effect ofthe method used on reported results.

 

The Company accounts for its employee anddirector stock-based compensation plan under the recognition and measurementprinciples of APB Opinion No. 25, *Accounting for Stock Issued to Employees,*and related interpretations.  Nostock-based employee compensation cost is reflected in net income, as alloptions granted under the plan have an exercise price equal to the market valueof the underlying common shares on the date of grant.  Pro forma information regarding net income and net income pershare, as required by SFAS No. 148, has been determined as if the Company hadaccounted for its employee stock options under the fair value method of SFASNo. 123, *Accountingfor Stock-Based Compensation*. The fair value of these options wasestimated at the date of grant using the Black-Scholes option pricing model.

 

6

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The following table illustrates the effect onnet income and net income per share as if the Company had applied the fairvalue recognition provisions of SFAS No. 123 to stock-based employeecompensation (in thousands, except per share data).

 
|                                                                                                                                               |   | **Three  Months Ended  March 31,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                                                               |   | **2004**                                |   | **2003** |   |
|                                                                                                                                               |   |                                    |   |   |   |
| Net income, as reported                                                                                                                            |   | $                                       | 316    |   | $ | 297 |   |
|                                                                                                                                               |   |                                    |   |   |   |
| Deduct:   Total stock-based employee compensation expense determined under fair  value method for all awards, net of related tax effects |   | (80                                     | )      | (60 | ) |
|                                                                                                                                               |   |                                    |   |   |   |
| Pro forma net income                                                                                                                               |   | $                                       | 236    |   | $ | 237 |   |
|                                                                                                                                               |   |                                    |   |   |   |
| Net income per share – basic and diluted:                                                                                                     |   |                                    |   |   |   |
| As reported                                                                                                                                        |   | $                                       | .03    |   | $ | .03 |   |
| Pro forma                                                                                                                                          |   | $                                       | .02    |   | $ | .02 |   |

 

**3.****     IncomePer Share From Continuing Operations**

 

The following table sets forth the computation of basic and dilutedincome per common share from continuing operations (in thousands, except pershare data):

 
|                                                   |   | **Three  Months Ended  March 31,** |   |
|--------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                   |   | **2004**                                |   | **2003** |   |
|                                                   |   |                                    |   |   |   |
| Numerator:                                             |   |                                    |   |   |   |
| Income from continuing operations                      |   | $                                       | 316    |   | $ | 319 |   |
|                                                   |   |                                    |   |   |   |
| Denominator:                                           |   |                                    |   |   |   |
| Basic – weighted average shares outstanding       |   | 10,049                                  |   | 10,117 |   |
|                                                   |   |                                    |   |   |   |
| Diluted                                                |   |                                    |   |   |   |
| Stock options–employees, officers, and  directors |   | 32                                      |   | 3 |   |
| Adjusted weighted average shares  outstanding          |   | 10,081                                  |   | 10,120 |   |
|                                                   |   |                                    |   |   |   |
| Income per share from continuing operations  –    |   |                                    |   |   |   |
| Basic and diluted:                                     |   | $                                       | 0.03   |   | $ | 0.03 |   |

 

Common shares subject to outstanding stockoptions excluded from the diluted weighted average shares outstandingcalculation, as the exercise price of the stock options exceeded the averagefair market value of the underlying common shares for the period, were 740,120and 936,000 for the three months ended March 31, 2004 and March 31,2003, respectively.

 

**4.****     ComprehensiveIncome**

 

Comprehensive income iscomprised of net income of the Company and the change in the fair value ofinterest rate swap agreements, net of income taxes.  Comprehensive incomefor the three months ended March 31, 2004 and March 31, 2003 was$316,000 and $299,000, respectively.

 

7

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**5.****     DiscontinuedOperations**

 

On August 11, 2003,AirNet Systems, Inc. completed the sale of substantially all of the assets ofits Mercury Business Services unit to Mercury Business Services, Inc., aDelaware corporation owned by a group that includes the original owners of theMercury business.

 

The sales price ofthe transaction was approximately $1.1 million.  Mercury BusinessServices, Inc. paid approximately $455,000 of the sales price through theissuance of a ninety day promissory note secured by the assets being sold andguaranteed by each of the shareholders of Mercury Business Services, Inc. Under the terms of the Asset Purchase Agreement, approximately $536,000 of thepurchase price was paid with AirNet Systems, Inc. common shares owned by theshareholders of Mercury Business Services, Inc., including 56,000 common sharestendered to AirNet Systems, Inc. prior to closing at $4.30 per share (theclosing price of the AirNet Systems, Inc. common shares on the NYSE onJuly 25, 2003) and 68,494 common shares tendered to AirNet Systems, Inc.on the closing date at $4.31 per share (the average closing price of the AirNetSystems, Inc. common shares on the NYSE on August 4-6, 2003).  Thebalance of the sales price was paid in cash.

 

AirNet accountedfor these operations as discontinued operations.

 

The MercuryBusiness Services unit had revenues for the three months ended March 31,2003 of $2,432,000.

 

Pre-tax loss forAirNet’s Mercury Business Services unit for the three months endedMarch 31, 2003 was $25,000.

 

**AIRNET SYSTEMS, INC.**

 

**ITEM 2****-MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTSOF OPERATIONS**

 

**Safe Harbor Statement**

 

Except for the historicalinformation contained in this Form 10-Q, the matters discussed, including, butnot limited to, information regarding future economic performance and plans andobjectives of AirNet’s management, are forward-looking statements that involverisks and uncertainties. When used in this document, the words “believe”,“anticipate”, “estimate”, “expect”, “intend”, “may”, “plan”, “project” andsimilar expressions are intended to be among statements that identifyforward-looking statements.  Suchstatements involve risks and uncertainties including, but not limited to, thefollowing which could cause actual results to differ materially from anyforward-looking statement: potential regulatory changes by the Federal AviationAdministration (“FAA”), which could increase the regulation of AirNet’sbusiness, or potential regulatory changes by the Federal Reserve which couldchange the competitive environment of transporting cancelled checks; changes incheck processing and shipment patterns of bank customers; adverse weatherconditions; potential declines in the values of aircraft in AirNet’s fleet andany related asset impairment charges; the ability to successfully market thepassenger charter business in light of global changes in the commercial airlineindustry; potential changes in locally and federally mandated securityrequirements; increases in aviation fuel costs not fully offset by AirNet’sfuel surcharge program; potential cost overruns associated with theconstruction of a new facility at Rickenbacker International Airport; acts ofwar and terrorist activities; the acceptance of AirNet’s time-critical serviceofferings within targeted Express markets; technological advances and increasesin the use of electronic funds transfers; as well as other economic,competitive and domestic and foreign governmental factors affecting AirNet’smarkets, prices and other facets of its operations.  Should one or more of these risks or uncertainties materialize,or should underlying assumptions prove incorrect, actual outcomes may varymaterially from those indicated.  Pleaserefer to the sections captioned “Forward-looking statements” and “Risk Factors”in Item 7 of the Annual Report on Form 10-K for the fiscal year endedDecember 31, 2003  of AirNetSystems, Inc. (File No. 1-13025) for additional details relating to riskfactors that could affect AirNet’s results and cause those results to differmaterially from those expressed in forward-looking statements.

 

8

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**General**

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements inaccordance with accounting principles generally accepted in the United Statesof America requires management to adopt accounting policies and makesignificant judgements and estimates to develop amounts reflected and disclosedin the financial statements. In many cases, there are alternative policies orestimation techniques that could be used. AirNet maintains a thorough processto review the application of its accounting policies and to evaluate theappropriateness of the estimates; however, even under optimal circumstances,estimates routinely require adjustment based on changing circumstances and thereceipt of new or better information.

 

Management has discussed thedevelopment and selection of the Company’s critical accounting policies andestimates with the Audit Committee of AirNet Systems, Inc.’s Board of Directorsand with its independent auditors. AirNet’s critical accounting policies have not changed significantlyfrom the policies disclosed in Item 7 of AirNet Systems, Inc.’s Annual Reporton Form 10-K for the fiscal year ended December 31, 2003.

 

AirNet’s audited consolidatedfinancial statements for the fiscal year ended December 31, 2003, includedin Item 8 of AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2003, contain additional disclosures regardingAirNet’s significant accounting policies and Item 7 of that Annual Report onForm 10-K includes a summary of AirNet’s critical accounting policies. Theinformation appearing therein may be useful when reading this discussion andanalysis of financial condition and results of operations.

 

**Results of Operations**

 

*Net Revenues*

 
| **In ‘000’s  Net Revenues** |   | **3 months  ending  March 31, 2004** |   | **3 months  ending  March 31, 2003** |   | **$ Increase  (Decrease)  2003 to 2004** |   | **% Increase  (Decrease)  2003 to 2004** |   |
|---------------------------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|
| **Delivery Services Net Revenues**    |   |                                      |   |                                      |   |                                     |   |                                     |   |
| Bank  Services                        |   | $                                         | 25,832 |                                      | $      | 26,323                                   |   | $                                        | (491   | ) | -2 | % |
| Express Services                      |   | 10,798                                    |   | 9,010                                     |   | 1,788                                    |   | 20                                       | %      |
| Total Delivery Services Revenues      |   | $                                         | 36,630 |                                      | $      | 35,333                                   |   | $                                        | 1,297  |   | 4 | % |
|                                  |   |                                      |   |                                      |   |                                     |   |                                     |   |
| Passenger Charter Services Revenues   |   | 3,650                                     |   | 1,439                                     |   | 2,211                                    |   | 154                                      | %      |
|                                  |   |                                      |   |                                      |   |                                     |   |                                     |   |
| Aviation Services Revenues            |   | 191                                       |   | 304                                       |   | (113                                     | )      | -37                                      | %      |
|                                  |   |                                      |   |                                      |   |                                     |   |                                     |   |
| Total Revenues                        |   | $                                         | 40,471 |                                      | $      | 37,076                                   |   | $                                        | 3,395  |   | 9 | % |

 

AirNet has experienced overall net revenuegrowth for the quarter ended March 31, 2004 over the same period of theprior year.  This can be attributed toseveral factors including increased Express shipment volume and growth inPassenger Charter services.

 

*Bank Services Revenues*

 
| **In ‘000’s  Bank Services Revenues** |   | **3 months  ending  March 31, 2004** |   | **3 months  ending  March 31, 2003** |   | **$ Increase  (Decrease)  2003 to 2004** |   | **% Increase  (Decrease)  2003 to 2004** |   |
|-------------------------------------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|
| Bank Revenues                                   |   | $                                         | 25,503 |                                      | $      | 25,549                                   |   | $                                        | (46    | ) | -0 | % |
| Fuel Surcharge                                  |   | 954                                       |   | 1,436                                     |   | (482                                     | )      | -34                                      | %      |
| Federal Excise Tax                              |   | (625                                      | )      | (662                                      | )      | 37                                       |   | -6                                       | %      |
| **Total Net Bank Revenues**                     |   | $                                         | 25,832 |                                      | $      | 26,323                                   |   | $                                        | (491   | ) | -2 | % |

 

Bank revenues held constant for the periodended March 31, 2004 as compared to the same period of the prior year asAirNet obtained new customers during the second half of 2003.  AirNet believes however that

 

9

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lower check delivery volume as a result ofhistorically low interest rates and the declining use of checks, willcontribute to a reduction in revenues in future periods, as will increasedcompetitive factors from regional carriers and transportation cost reductioninitiatives by AirNet’s Bank customers. AirNet believes that this decline will continue as the Check 21 Actbecomes effective in October 2004; however, at this time AirNet is unableto predict the ultimate impact of this Act on future periods.

 

AirNet calculates fuel surcharges based on the wholesale fuel prices ofthe OPIS-CMH Index for Jet A fuel. Based on this index, which shows lower fuel prices in the quarter endedMarch 31, 2004 as compared to the same period of the prior year anddeclining Bank revenues, fuel surcharges for Bank revenues were 34% lower inthe first quarter of 2004 as compared to the first quarter of 2003.

 

*Express Services Revenues*

 
| **In ‘000’s  Express Services Revenues** |   | **3 months  ending  March 31, 2004** |   | **3 months  ending  March 31, 2003** |   | **$ Increase  (Decrease)  2003 to 2004** |   | **% Increase  (Decrease)  2003 to 2004** |   |
|----------------------------------------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|
| Express Revenues – Non Charter                |   | $                                         | 8066   |                                      | $      | 6,654                                    |   | $                                        | 1,412  |   | 21 | % |
| Express Revenues – Charters                   |   | 2,732                                     |   | 2,340                                     |   | 392                                      |   | 17                                       | %      |
| Fuel Surcharge                                     |   | 323                                       |   | 287                                       |   | 36                                       |   | 13                                       | %      |
| Federal Excise Tax                                 |   | (324                                      | )      | (271                                      | )      | 53                                       |   | 20                                       | %      |
| Total Net Express Revenues                         |   | $                                         | 10,798 |                                      | $      | 9,010                                    |   | $                                        | 1,788  |   | 20 | % |

 

Express services revenues continue to increase as a percentage of totalrevenues.  AirNet continues to focus itsmarketing efforts on niche markets requiring expedited delivery.  Express shipment increases of 10% over thesame period of the prior year as the Company continues to penetrate markets inthe Life Sciences, Aerospace, Entertainment and other markets.

 

*PassengerCharter Services Revenues*
| **In ‘000’s  Passenger Charter Services Revenues** |   | **3 months  ending  March 31, 2004** |   | **3 months  ending  March 31, 2003** |   | **$ Increase  (Decrease)  2003 to 2004** |   | **% Increase  (Decrease)  2003 to 2004** |   |
|--------------------------------------------------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|
| Total Passenger Charter Services Revenues                    |   | $                                         | 3,650  |                                      | $      | 1,439                                    |   | $                                        | 2,211  |   | 154 | % |
|                                                              |        |                                           |        |                                           |        |                                          |        |                                          |        |  |  |  |

 

Passenger Charter services revenues continue to grow as AirNet investsin additional aircraft to support increased utilization in this line ofbusiness.  AirNet has increased itsoperations of passenger charter aircraft from seven aircraft (two Learjet 60’sand five Learjet 35’s) at March 31, 2003 to eleven (six Learjet 60’s andfive Learjet 35’s) at March 31, 2004.

 

***OperatingExpenses and Income from Continuing Operations***

 
| **In ‘000’s, except hours flown  Operating Costs and Expenses** |   | **3 months  ending  March 31, 2004** |       | **3 months  ending  March 31, 2003** |       | **Increase  (Decrease)  2003 to 2004** |       | **% Increase  (Decrease)  2003 to 2004** |       |
|---------------------------------------------------------------------------|--------|-------------------------------------------|------------|-------------------------------------------|------------|----------------------------------------|------------|------------------------------------------|------------|
| Wages and benefits                                                        |   | $                                         | 6,345      |                                      | $          | 6,211                                  |       | $                                        | 134        |   | 2 | % |
| Aircraft fuel                                                             |   | 5,536                                     |       | 4,942                                     |       | 594                                    |       | 12                                       | %          |
| Aircraft maintenance                                                      |   | 3,191                                     |       | 3,381                                     |       | (190                                   | )          | -6                                       | %          |
| Contracted air costs                                                      |   | 3,071                                     |       | 2,807                                     |       | 264                                    |       | 9                                        | %          |
| Ground courier                                                            |   | 7,142                                     |       | 6,266                                     |       | 876                                    |       | 14                                       | %          |
| Depreciation                                                              |   | 4,889                                     |       | 4,192                                     |       | 697                                    |       | 17                                       | %          |
| Insurance, rent and landing fees                                          |   | 2,564                                     |       | 2,244                                     |       | 320                                    |       | 14                                       | %          |
| Travel, training and other                                                |   | 2,560                                     |       | 2,178                                     |       | 382                                    |       | 18                                       | %          |
| Sales, general and administrative                                         |   | 3,959                                     |       | 3,931                                     |       | 28                                     |       | 1                                        | %          |
| Net(gain)loss on disposition of assets                                    |   | 292                                       |       | 0                                         |       | 292                                    |       | 100                                      | %          |
| **Total operating costs and expenses**                                    |   | **$**                                     | **39,549** | ** **                                | **$**      | **36,152**                             | ** ** | **3,397**                                | ** ** | **9** | **%** |
|                                                                      |   |                                      |       |                                      |       |                                   |       |                                     |       |
| **Hours flown – Total**                                              |   | **25,764**                                | ** ** | **25,256**                                | ** ** | **508**                                | ** ** | **2**                                    | **%**      |
|                                                                           |        |                                           |            |                                           |            |                                        |            |                                          |            |  |  |  |

 

10

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Total operating costs and expenses have increased for the quarter endedMarch 31, 2004 over the quarter ended March 31, 2003 as operatingactivity for AirNet continues to increase. Expenses for the quarter ended March 31, 2004 related to AirNet’sgrowing Passenger Charter services business have increased $1,524,000 over thesame period of the prior year.  Fuelcosts, of which $332,000 of the increase relates to AirNet’s Passenger Charterservices, have increased as a result of increased flying hours as well asincreasing fuel costs which are partially offset by AirNet’s fuel surchargeprogram.  Ground courier costs increasedover prior year due to an increase in Express shipment volumes.  Express shipments typically contain higherground costs on a per shipment basis than Bank cancelled check shipments due totheir ad hoc nature. AirNet continues to review its ground courier costs andshift services performed by employees to contracted vendors and independentcontractors to better align its costs with the more variable Express shipmentvolume.

 

Depreciation increased as a result of the addition of two Learjet 60’s(acquired in December 2003 and January 2004) to the Passenger Charterfleet, additional hours flown in the first quarter of 2004, and continuingadjustments to AirNet’s estimates of aircraft and engine salvage values.

 

AirNet recognized a net loss on disposition ofassets during the quarter ended March 31, 2004.

 

This amount included a loss of approximately$584,000 related to an accident involving one of its cargo aircraft (net ofinsurance proceeds of $2,300,000 included in AirNet’s accountsreceivable).  In addition, as AirNetcontinues to adjust its aircraft fleet in response to changing customer needs,AirNet sold seven piston aircraft during the quarter ended March 31, 2004resulting in a loss on sale of approximately $114,000.  Offsetting these losses was a gain on thesale of an aircraft of approximately $400,000.

 

**Liquidity and Capital Resources**

 

*Cash flowfrom operating activities.*  Net cash provided by operatingactivities was $6.3 million for the three months ended March 31, 2004,compared to $7.1 million for the same period in 2003.

 

*Current credit arrangements.*  InSeptember 2002, the Company replaced its $50 million revolving creditagreement.  The credit agreementprovides the Company with a three-year $35 million unsecured revolving creditfacility of up to $35.0 million scheduled to expire on September 30, 2005and a five-year $20.0 million unsecured term loan.  The term loan requires quarterly principal installments of $1.0million.  The credit agreement bearsinterest, at the Company’s option, at a fixed rate based upon LIBOR plus amargin determined by the Company’s leverage ratio as defined in the creditagreement, or a floating rate based on the greater of the prime rate and thesum of 0.5% plus the federal funds rate in effect from time to time.  The new credit agreement requires themaintenance of certain minimum tangible net worth and cash flow levels, imposescertain limitations on capital expenditures and the sale of assets, andrestricts the amount of additional debt. As of March 31, 2004, there was $14.0 million outstanding on theunsecured term loan and $24.8 million outstanding and $3.0 million available onthe unsecured revolving credit facility.

 

During first quarter 2002, AirNet entered intotwo five-year term loans totaling approximately $3.0 million with fixedinterest rates of 5.77%, each secured by aircraft, and a $3.0 million term loanwith a floating interest rate based upon LIBOR, secured by two aircraft. As ofMarch 31, 2004, there was $3.6 million outstanding on these secured termloans, and the net book value of the aircraft securing the loans totaledapproximately $6.9 million.

 

*Investing activities.* Capital expenditures totaled $9.8 million for the three months endedMarch 31, 2004 versus $5.3 million in 2003.  Of the 2004 expenditures, $8.3 million was for major periodicaircraft inspections, major engine overhauls and related flight equipment andthe purchase of a Learjet 60 dedicated to Passenger Charter services..  AirNet anticipates it will spend between$41.5 million and $63 million in total capital expenditures in 2004.  AirNet anticipates it will continue toacquire aircraft and flight equipment as necessary to maintain growth andcontinue offering quality service to its customers and will evaluate whetherfuture asset acquisitions should be purchases or leases.  AirNet is currently in negotiations with thebanks participating in its bank credit facility to revise its credit agreementto provide for additional borrowing capacity in order to meet AirNet’s plannedcapital expenditures for 2004.

 

AirNet Systems, Inc. announced a stockrepurchase plan in February 2000 allowing AirNet Systems, Inc., topurchase up to $3.0 million of its common shares.  As of the end of the 2001 fiscal year, $2.4 million of commonshares had been repurchased, and there has been no repurchase activity underthe plan since. As such, purchases of approximately $0.6 million of the commonshares of AirNet Systems, Inc., may still be made over time in the open marketor through privately negotiated transactions. Such future purchases would be considered based on current marketconditions, the stock price and funds available for repurchase. AirNet Systems,Inc., acquired 52,410 common shares, outside the repurchase plan, for

 

11

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$249,996 on January 2, 2003 from formerChairman Gerald Mercer under the terms of his retirement agreement.

 

AirNet anticipates that operating cash and capital expenditurerequirements will continue to be funded by cash flow from operations, cash onhand, borrowings in conjunction with the bank credit facility or other sources,including leasing.

 

On January 20, 2004, AirNet entered intoa Land Lease with the Columbus Regional Airport Authority to leaseapproximately 8 acres located within the Rickenbacker International Airport(“Rickenbacker”).  Rickenbacker islocated in Franklin and Pickaway Counties, Ohio, southeast of Columbus, Ohio,approximately fifteen miles from AirNet’s current facility at 3939International Gateway in Columbus, Ohio (the “Port Columbus Facility”).  AirNet intends to construct a new corporateand operational headquarters at the Rickenbacker site (the “RickenbackerFacility”).  Construction of theRickenbacker Facility is anticipated to be completed in the summer of 2005.Upon completion of the Rickenbacker Facility, AirNet’s current corporate andoperational functions that are conducted at the Port Columbus Facility, and theadministrative functions being conducted at 555 Morrison Avenue, will beconsolidated at the new Rickenbacker Facility.

 

In anticipation of AirNet’s move to its newRickenbacker Facility, on January 20, 2004, AirNet entered into anagreement to sell its Port Columbus Facility to the Columbus Regional AirportAuthority for $3,850,000.  AirNet hasretained the right to continue to occupy the Port Columbus Facility untilconstruction and relocation to the new Rickenbacker Facility is complete.

 

There have been no material changes inAirNet’s contractual obligations from those disclosed in AirNet System Inc.’sAnnual Report on Form 10-K for the fiscal year ended December 31, 2003.

 

**Seasonality and Variability inQuarterly Results**

 

AirNet’s operations historically have beensomewhat seasonal and somewhat dependent on the number of banking holidaysfalling during the week.  Becausefinancial institutions are currently AirNet’s principal customers, AirNet’s airsystem is scheduled primarily around the needs of financial institutioncustomers.  When financial institutionsare closed, there is no need for AirNet to operate a full system.  AirNet’s fiscal quarter ending December 31is often the most impacted by bank holidays (including Thanksgiving andChristmas) recognized by its primary customers.  When these holidays fall on Monday through Thursday, AirNet’srevenues and net income are adversely affected. AirNet’s annual resultsfluctuate as well based on when holidays fall during the week over the courseof the year.

 

Operating results are also affected by the weather.  AirNet generally experiences highermaintenance costs during its fiscal quarter ending March 31.  Winter weather often requires additionalcosts for de-icing, hangar rental and other aircraft services.

 

**Item 3.**    Quantitative and Qualitative Disclosures AboutMarket Risk

 

### **Inflationand Interest Rates**

 

AirNet is exposed to certain market risks fromtransactions that are entered into during the normal course of business.  AirNet’s primary market risk exposurerelates to interest rate risk.  AtMarch 31, 2004, AirNet had a $38.8 million outstanding balance under itscredit agreement subject to market rate changes in interest. The creditagreement bears interest, at the Company’s option, at a fixed rate based uponLIBOR plus a margin determined by the Company’s leverage ratio as defined inthe credit agreement, or a floating rate based on the greater of the prime rateand the sum of 0.5% plus the federal funds rate in effect from time totime.  Assuming borrowing levels atMarch 31, 2004, a one hundred basis point change in interest rates wouldimpact net interest expense by approximately $405,500 per year.

 

During first quarter 2002,AirNet entered into two five-year term loans totaling approximately $3.0million with fixed interest rates of 5.77%, each secured by an aircraft, and a$3.0 million term loan with a floating interest rate based upon LIBOR, securedby two aircraft. However, in February 2002, AirNet entered into aninterest rate swap agreement with a bank relative to the $3.0 million termloan, with a notional amount of $3.0 million and a fixed rate of 4.25% plus amargin based on AirNet’s funded debt ratio. At March 31, 2004, the aggregate fair value of the interest rateswap was approximately ($65,000).

 

**FuelSurcharge**

 

AirNet assesses its customers a fuel surchargewhich is based on the Oil Price Index Summary – Columbus, Ohio (OPIS-CMHindex).  As index rates increase above aset threshold, surcharge rates increase. AirNet’s fuel

 

12

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surcharge program helps offset timingdifferences between market prices and the OPIS-CHM index used to determinesurcharge rates.

 

**Item 4.**    Controls and Procedures

 

**Evaluation of Disclosure Controls andProcedures**

 

With the participation of the Chairman of theBoard, Chief Executive Officer and President (the principal executive officer)and the Chief Financial Officer, Treasurer and Secretary (the principalfinancial officer) of AirNet Systems, Inc. (the “Registrant”), the Registrant’smanagement has evaluated the effectiveness of the Registrant’s disclosurecontrols and procedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934 (the “Exchange Act”)) as of the end of the period coveredby this Quarterly Report on Form 10-Q. Based upon that evaluation, theRegistrant’s Chairman of the Board, Chief Executive Officer and President andthe Registrant’s Chief Financial Officer, Treasurer and Secretary haveconcluded that:

 

•      information required to be disclosed by the Registrant in this QuarterlyReport on Form 10-Q would be accumulated and communicated to theRegistrant’s management, including its principal executive officer andprincipal financial officer, as appropriate to allow timely decisions regardingrequired disclosure;

 

•      information required to be disclosed by the Registrant in this QuarterlyReport on Form 10-Q would be recorded, processed, summarized and reportedwithin the time period specified in the SEC’s rules and forms; and

 

•      the Registrant’s disclosure controls and procedures are effective as ofthe end of the period covered by this Quarterly Report on Form 10-Q to ensurethat material information relating to the Registrant and its consolidatedsubsidiaries is made known to them, particularly during the period for whichthe Registrant’s periodic reports, including this Quarterly Report on Form10-Q, are being prepared.

 

**Changes in Internal Control Over FinancialReporting**

 

In addition, there were no changes thatoccurred during the fiscal quarter covered by this Quarterly Report on Form10-Q in the Registrant’s internal control over financial reporting (as definedin Rule 13a -15(f) under the Exchange Act) that have materially affected, orare reasonably likely to materially affect, the Registrant’s internal controlover financial reporting.

 

13

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**AIRNET SYSTEMS, INC.**

 

**PART II - OTHER INFORMATION**

 

Item1.    LegalProceedings**.**

 

There are no pending legal proceedingsinvolving AirNet other than routine litigation incidental to its business.  In the opinion of AirNet’s management, theseproceedings should not, individually or in the aggregate, have a materialadverse effect on AirNet’s results of operations or financial condition.

 

Item2.    Changes inSecurities, Use of Proceedsand Issuer Purchases of Equity Securities.

 

(a)   Not applicable.

 

(b)   Not applicable.

 

(c)   Not applicable.

 

(d)   Not applicable

 

(e)   AirNet Systems, Inc. did not purchase anycommon shares during the fiscal quarter ended March 31, 2004.  On February 18, 2000, AirNet Systems,Inc. announced a stock repurchase plan under which up to $3.0 million of itscommon shares may be repurchased from time to time.  These repurchases may be made in open market transactions orthrough privately negotiated transactions. As of March 31, 2004, AirNet Systems, Inc. had the authority tostill repurchase approximately $0.6 million of its common shares under thisstock repurchase plan.

 

Item3.    Defaults Upon Senior Securities.  Not Applicable

 

Item4.    Submission of Matters to a Vote of Security Holders.  Not Applicable

 

Item5.    OtherInformation.  Not applicable.

 

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Item 6.    Exhibits and Reportson Form 8-K.

 

(a)   Exhibits: 

 
| **Exhibit No.** |   | **Description**                                                                        |
|-----------------|--------|----------------------------------------------------------------------------------------|
|            |   |                                                                                   |
| 31.1            |   | Rule 13a-14(a)/15d-14(a)  Certification (Principal Executive Officer) [Filed herewith] |
| 31.2            |   | Rule 13a-14(a)/15d-14(a)  Certification (Principal Financial Officer) [Filed herewith] |
| 32.1            |   | Section 1350  Certification (Principal Executive Officer) [Filed herewith]        |
| 32.2            |   | Section 1350  Certification (Principal Financial Officer) [Filed herewith]        |

 

(b)   Reports on Form 8-K:

 

On February 24, 2004,AirNet Systems, Inc. (the “Registrant”) filed a Current Report on Form 8-K, dated February 20, 2004,reporting under Item 5.  Other Eventsand Regulation FD Disclosure, that the Registrant had entered into a LandLease with the Columbus Regional Airport Authority (the “Authority”), dated asof January 20, 2004, pursuant to which the Registrant is to leaseapproximately 8 acres (with the exact size to be determined by survey) withinRickenbacker International Airport in Franklin and Pickaway Counties, Ohio andthat the Registrant and the Authority had also entered into the followingancillary agreements:

 
| (a)    |   | Leasehold Improvements  Purchase Agreement, dated January 20, 2004, between Columbus Regional  Airport Authority and AirNet Systems, Inc.                                                                        |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                  |
| (b)    |   | Rickenbacker International  Airport Operating Agreement, dated January 20, 2004, between Columbus  Regional Airport Authority and AirNet Systems, Inc.                                                           |
|   |   |                                                                                                                                                                                                                  |
| (c)    |   | Non-Exclusive License  Agreement to Conduct an Aeronautical Business at Rickenbacker International  Airport, dated as of January 20, 2004, between Columbus Regional Airport  Authority and AirNet Systems, Inc. |
|   |   |                                                                                                                                                                                                                  |
| (d)    |   | Rickenbacker International  Airport Non-Public Self-Fueling Permit, executed by Columbus Regional Airport  Authority on January 20, 2004 and AirNet Systems, Inc. on  January 15, 2004.                     |
|   |   |                                                                                                                                                                                                                  |
| (e)    |   | Rickenbacker International  Airport Commingling Fuel Agreement, dated January 20, 2004, between  Columbus Regional Airport Authority and AirNet Systems, Inc.                                                    |
|   |   |                                                                                                                                                                                                                  |
| (f)    |   | Non-Exclusive Access  Easement granted by Columbus Regional Airport Authority in favor of AirNet  Systems, Inc., executed on January 20, 2004.                                                                   |
|   |   |                                                                                                                                                                                                                  |
| (g)    |   | No-Build Easement granted  by Columbus Regional Airport Authority in favor of AirNet Systems, Inc.,  executed on January 20, 2004.                                                                               |

 

The Land Lease and the ancillaryagreements were filed as Exhibits 10.1 through and including 10.8 to theForm 8-K.

 

On March 12, 2004, theRegistrant filed a Current Report on Form 8-K, dated March 11, 2004,reporting under Item 5.  Other Eventsand Regulation FD Disclosure, that the Registrant had issued a news releaseon March 11, 2004, announcing that the Registrant’s primary aircraftmaintenance center in Columbus, Ohio had been granted ISO 9001:2000Certification by European Quality Assurance Limited.  A copy of the news release was filed as Exhibit 99 to theForm 8-K.

 

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**AIRNET SYSTEMS, INC.**

 

**SIGNATURES**

 

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

 
| Dated:  May 14, 2004 | By:    | /s/ Gary W. Qualmann                              |   |
|---------------------------|--------|---------------------------------------------------|--------|
|                      |   | Gary W. Qualmann,                                 |
|                      |   | Chief  Financial Officer, Treasurer and Secretary |
|                      |   | (Duly Authorized Officer)                         |
|                      |   | (Principal Financial  Officer)                    |
|                      |   |                                              |
| Dated:  May 14, 2004 | By:    | /s/ Denise D. Brown                               |   |
|                      |   | Denise D. Brown,                                  |
|                      |   | Controller                                        |
|                      |   | (Duly Authorized Officer)                         |
|                      |   | (Principal Accounting  Officer)                   |
|                           |        |                                                   |        |  |  |

 

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**AIRNET SYSTEMS, INC.**

 

**INDEXTO EXHIBITS**

 

 
| **Exhibit No.** |   | **Description**                                                                        |
|-----------------|--------|----------------------------------------------------------------------------------------|
|            |   |                                                                                   |
| 31.1            |   | Rule 13a-14(a)/15d-14(a)  Certification (Principal Executive Officer) [Filed herewith] |
| 31.2            |   | Rule 13a-14(a)/15d-14(a)  Certification (Principal Financial Officer) [Filed herewith] |
| 32.1            |   | Section 1350  Certification (Principal Executive Officer) [Filed herewith]        |
| 32.2            |   | Section 1350  Certification (Principal Financial Officer) [Filed herewith]        |

 

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