##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
  1-13025
 AirNet Systems, Inc.
  Ohio
    
    31-1458309(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)7250 Star Check Drive, Columbus, Ohio
    
    43217(Address of principal executive offices)
    
    (Zip Code)
 (614) 409-4900
 Not Applicable
  þ o
  o o þ
  o þ




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##### Table of Contents



TABLE OF CONTENTS
 PAGEPART I.FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Condensed Consolidated Balance Sheets:September 30, 2006 (Unaudited) and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations:Three and Nine Months Ended September 30, 2006 and 2005 (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows:Nine Months Ended September 30, 2006 and 2005 (Unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    24PART II.OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    25Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3.
    
    Defaults Upon Senior Securities
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 5.
    
    Other Information
    
    
    26Item 6.
    
    Exhibits
    
    
    27SIGNATURES
    
    
    28INDEX TO EXHIBITS
    
    
    29EX-31.1EX-31.2EX-32
 2




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AIRNET SYSTEMS, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 In thousands, except par value data
    
    September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,068
    
    
    $
    1,590Accounts receivable, less allowances
    
    
    23,569
    
    
    
    21,103Taxes receivable
    
    
    
    
    
    
    1,786Deposits and prepaids
    
    
    3,395
    
    
    
    2,338Assets related to discontinued operations
    
    
    3,195
    
    
    
    42,231Assets held for sale
    
    
    390
    
    
    
    390Total current assets
    
    
    31,617
    
    
    
    69,438Net property and equipment
    
    
    27,653
    
    
    
    53,701Deposits and other assets
    
    
    56
    
    
    
    154Total assets
    
    $
    59,326
    
    
    $
    123,293LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    9,329
    
    
    $
    10,037Salaries and related liabilities
    
    
    3,356
    
    
    
    4,719Current portion of notes payable
    
    
    1,892
    
    
    
    1,781Taxes payable
    
    
    3,725
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    124Notes payable related to discontinued operations
    
    
    
    
    
    
    29,780Other liabilities related to discontinued operations
    
    
    950
    
    
    
    704Total current liabilities
    
    
    19,252
    
    
    
    47,145Notes payable, less current portion
    
    
    8,036
    
    
    
    24,458Deferred income taxes
    
    
    
    
    
    
    5,311Shareholders equity:Preferred shares, $.01 par value; 10,000 shares authorized; no
shares issued and outstanding
    
    
    
    
    
    
    Common shares, $.01 par value; 40,000 shares authorized; 12,763
issued at September 30, 2006 and December 31, 2005, respectively
    
    
    128
    
    
    
    128Additional paid-in-capital
    
    
    76,214
    
    
    
    76,318Retained deficit
    
    
    (20,906
    )
    
    
    (6,454
    )Accumulated other comprehensive loss
    
    
    (13
    )
    
    
    (13
    )Treasury shares, 2,602and 2,614 common shares held at cost at
September 30, 2006 and December 31, 2005, respectively
    
    
    (23,385
    )
    
    
    (23,600
    )Total shareholders equity
    
    
    32,038
    
    
    
    46,379Total liabilities and shareholders equity
    
    $
    59,326
    
    
    $
    123,293
  3




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AIRNET SYSTEMS, INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 In thousands, except per share data
    
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005NET REVENUES, NET OF EXCISE TAXBank services
    
    $
    27,559
    
    
    $
    29,126
    
    
    $
    84,944
    
    
    $
    85,264Express services
    
    
    15,243
    
    
    
    13,569
    
    
    
    44,268
    
    
    
    39,102Aviation services
    
    
    185
    
    
    
    153
    
    
    
    834
    
    
    
    437Total net revenues
    
    
    42,987
    
    
    
    42,848
    
    
    
    130,046
    
    
    
    124,803COSTS AND EXPENSESWages and benefits
    
    
    4,719
    
    
    
    4,883
    
    
    
    14,430
    
    
    
    14,974Aircraft fuel
    
    
    7,411
    
    
    
    6,955
    
    
    
    22,125
    
    
    
    20,236Aircraft maintenance
    
    
    3,737
    
    
    
    3,855
    
    
    
    12,021
    
    
    
    11,532Contracted air costs
    
    
    3,968
    
    
    
    3,552
    
    
    
    12,576
    
    
    
    10,484Ground courier
    
    
    9,517
    
    
    
    7,886
    
    
    
    26,414
    
    
    
    23,361Depreciation
    
    
    2,663
    
    
    
    3,115
    
    
    
    8,415
    
    
    
    9,364Insurance, rent and landing fees
    
    
    2,045
    
    
    
    2,250
    
    
    
    6,034
    
    
    
    6,745Travel, training and other
    
    
    1,253
    
    
    
    1,426
    
    
    
    3,931
    
    
    
    4,291Selling, general and administrative
    
    
    3,686
    
    
    
    4,707
    
    
    
    12,923
    
    
    
    14,798Net (gain) loss on disposition of assets
    
    
    (80
    )
    
    
    36
    
    
    
    (92
    )
    
    
    (16
    )Impairment of assets
    
    
    24,560
    
    
    
    16,073
    
    
    
    24,560
    
    
    
    16,073Total costs and expenses
    
    
    63,479
    
    
    
    54,738
    
    
    
    143,337
    
    
    
    131,842Income (loss) from continuing operations before interest
and income taxes
    
    
    (20,492
    )
    
    
    (11,890
    )
    
    
    (13,291
    )
    
    
    (7,039
    )Interest expense
    
    
    249
    
    
    
    548
    
    
    
    1,222
    
    
    
    1,377Income (loss) from continuing operations before income taxes
    
    
    (20,741
    )
    
    
    (12,438
    )
    
    
    (14,513
    )
    
    
    (8,416
    )Benefit for income taxes
    
    
    (2,311
    )
    
    
    (4,663
    )
    
    
    (44
    )
    
    
    (3,127
    )Net income (loss) from continuing operations
    
    
    (18,430
    )
    
    
    (7,775
    )
    
    
    (14,469
    )
    
    
    (5,289
    )Income (loss) from discontinued operations(including
2006 gain on sale of $610, net of tax)
    
    
    313
    
    
    
    (158
    )
    
    
    17
    
    
    
    927Net income (loss)
    
    $
    (18,117
    )
    
    $
    (7,933
    )
    
    $
    (14,452
    )
    
    $
    (4,362
    )Income (loss) per common share  basic and diluted:Continuing operations
    
    $
    ($1.82
    )
    
    $
    (0.77
    )
    
    $
    (1.43
    )
    
    $
    (0.52
    )Discontinued operations
    
    
    0.03
    
    
    
    (0.01
    )
    
    
    0.00
    
    
    
    0.09Net income (loss) per common share  basic and diluted
    
    $
    ($1.79
    )
    
    $
    (0.78
    )
    
    $
    (1.43
    )
    
    $
    (0.43
    )
  4




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AIRNET SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 In thousands
    
    Nine Months EndedSeptember 30,2006
    
    
    2005Operating activities:Net income (loss) from continuing operations
    
    
    ($14,469
    )
    
    
    ($5,289
    )Adjustments to reconcile loss from continuing operations to net cash
provided by operating activities:Depreciation
    
    
    8,415
    
    
    
    9,364Impairment
of assets
    
    
    24,560
    
    
    
    16,073Deferred income taxes
    
    
    (5,311
    )
    
    
    (3,080
    )Stock-based compensation expense
    
    
    87
    
    
    
    Other, net
    
    
    
    
    
    
    159Cash provided by (used in) operating assets and liabilities:Accounts receivable
    
    
    (2,466
    )
    
    
    (2,230
    )Taxes receivable or payable
    
    
    5,511
    
    
    
    (169
    )Deposits and prepaids
    
    
    (1,057
    )
    
    
    (358
    )Accounts payable and accrued expenses
    
    
    (708
    )
    
    
    (476
    )Salaries and related liabilities
    
    
    (1,363
    )
    
    
    (19
    )Deferred income taxes
    
    
    (124
    )
    
    
    Other, net
    
    
    
    
    
    
    509Net cash provided by continuing operations
    
    
    13,075
    
    
    
    14,484Net cash provided by discontinued operations
    
    
    2,196
    
    
    
    3,287Net cash provided by operating activities
    
    
    15,271
    
    
    
    17,771Investing activities:Purchases of property and equipment  net
    
    
    (6,927
    )
    
    
    (14,978
    )Net cash used in continuing operations
    
    
    (6,927
    )
    
    
    (14,978
    )Net cash provided by (used in) discontinued operations
    
    
    37,103
    
    
    
    (2,023
    )Net cash provided by (used in) investing activities
    
    
    30,176
    
    
    
    (17,001
    )Financing activities:Proceeds from incentive stock plan programs
    
    
    122
    
    
    
    122Net borrowings (repayments) of debt
    
    
    (16,311
    )
    
    
    2,988Net cash provided by (used in) continuing operations
    
    
    (16,189
    )
    
    
    3,110Net cash provided by (used in) discontinued operations
    
    
    (29,780
    )
    
    
    (1,438
    )Net cash provided by (used in) financing activities
    
    
    (45,969
    )
    
    
    1,672Net increase (decrease) in cash
    
    
    (522
    )
    
    
    2,442Cash and cash equivalents at beginning of period
    
    
    1,590
    
    
    
    1,086Cash and cash equivalents at end of period
    
    $
    1,068
    
    
    $
    3,528
  5




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AIRNET SYSTEMS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Basis of Presentation
     Accounting
for Uncertainty in Income Taxes
  2. Impairment of Assets
 Accounting for the Impairment or Disposal of Long-Lived
Assets
 September 30, 2006 Asset Impairment Charge
  6




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September 30, 2005 Asset Impairment Charge
  3. Discontinued Operations
   7




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4. Stock Plans and Awards
 Accounting for Stock Issued to Employees, Accounting for Stock-Based
Compensation" Share-Based
Payment
   Impact of the Adoption of FAS 123(R)
  8




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Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2005Income (loss) from continuing operations
    
    $
    (7,775
    )
    
    $
    (5,289
    )Income (loss) from discontinued operations, net of tax
    
    
    (158
    )
    
    
    927Net income (loss), as reported
    
    $
    (7,933
    )
    
    $
    (4,362
    )Deduct: Total stock-based employee and director
compensation expense determined under fair value method for
all awards, net of related tax effects
    
    
    (39
    )
    
    
    (93
    )Pro forma net income (loss)
    
    $
    (7,972
    )
    
    $
    (4,455
    )Net income (loss) per common share  basic and diluted:Income (loss) per common share from continuing operations
    
    $
    (0.77
    )
    
    $
    (0.52
    )Income (loss) per common share from discontinued
operations, net of tax
    
    $
    (0.01
    )
    
    $
    0.09Net income (loss) per common share
    
    $
    (0.78
    )
    
    $
    (0.43
    )
  5. Income (loss) Per Common Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator:Income (loss) from continuing operations
    
    $
    (18,430
    )
    
    $
    (7,775
    )
    
    $
    (14,469
    )
    
    $
    (5,289
    )Income (loss) from discontinued operations, net of tax
    
    
    313
    
    
    
    (158
    )
    
    
    17
    
    
    
    927Net income (loss)
    
    $
    (18,117
    )
    
    $
    (7,933
    )
    
    $
    (14,452
    )
    
    $
    (4,362
    )Denominator:Basic  weighted average common shares outstanding
    
    
    10,141
    
    
    
    10,132
    
    
    
    10,137
    
    
    
    10,144DilutedDilutive effect of stock optionsemployees, officers, and directors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted weighted average common shares outstanding
    
    
    10,141
    
    
    
    10,132
    
    
    
    10,137
    
    
    
    10,144Net income (loss) per common share  basic and diluted:Income (loss) from continuing operations
    
    $
    (1.82
    )
    
    $
    (0.77
    )
    
    $
    (1.43
    )
    
    $
    (0.52
    )Income (loss) from discontinued operations, net of tax
    
    
    0.03
    
    
    
    (0.01
    )
    
    
    0.00
    
    
    
    0.09Net income (loss) per common share
    
    $
    (1.79
    )
    
    $
    (0.78
    )
    
    $
    (1.43
    )
    
    $
    (0.43
    )
  9




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6. Bank Financing Matters
 Term Notes and Revolving Credit Facility
      10




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Other Term Notes
  Term Loans  Discontinued Operations
  11




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7. Income Taxes
 Accounting for Income Taxes,
    8. Contingencies
   12




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AIRNET SYSTEMS, INC.
 ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Safe Harbor Statement
  General
    13




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Share-Based Payment
 Sale of Jetrides Passenger Charter Business
      Impairment Charges
 Accounting for the Impairment or Disposal of Long-Lived Assets
 14




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September 30, 2006 Asset Impairment Charge
    September 30, 2005 Asset Impairment Charge
  Results of Operations
 Financial Overview
 Financial Overview  Third Quarter
  15




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Financial Overview  Year-to-Date
   Net Revenues
 Dollars in 000s
    
    Three Months Ended
    
    
    Increase (Decrease)
    
    
    Nine Months Ended
    
    
    Increase (Decrease)Net Revenues
    
    September 30,
    
    
    2006 to 2005
    
    
    September 30,
    
    
    2006 to 2005% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of2006
    
    
    Total
    
    
    2005
    
    
    Total
    
    
    $
    
    
    %
    
    
    2006
    
    
    Total
    
    
    2005
    
    
    Total
    
    
    $
    
    
    %Revenues Net of Excise TaxBank Services
    
    $
    27,559
    
    
    
    64
    %
    
    $
    29,126
    
    
    
    68
    %
    
    $
    (1,567
    )
    
    
    (5
    )%
    
    $
    84,944
    
    
    
    65
    %
    
    $
    85,264
    
    
    
    69
    %
    
    $
    (320
    )
    
    
    0
    %Express Services
    
    
    15,243
    
    
    
    36
    %
    
    
    13,569
    
    
    
    32
    %
    
    
    1,674
    
    
    
    12
    %
    
    
    44,268
    
    
    
    34
    %
    
    
    39,102
    
    
    
    31
    %
    
    
    5,166
    
    
    
    13
    %Aviation Services
    
    
    185
    
    
    
    0
    %
    
    
    153
    
    
    
    0
    %
    
    
    32
    
    
    
    21
    %
    
    
    834
    
    
    
    1
    %
    
    
    437
    
    
    
    0
    %
    
    
    397
    
    
    
    91
    %Total Net Revenues
    
    $
    42,987
    
    
    
    100
    %
    
    $
    42,848
    
    
    
    100
    %
    
    $
    139
    
    
    
    0
    %
    
    $
    130,046
    
    
    
    100
    %
    
    $
    124,803
    
    
    
    100
    %
    
    $
    5,243
    
    
    
    4
    %
    16




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Bank Services Revenues
 Dollars in 000s
    
    Three Months Ended
    
    
    Increase (Decrease)
    
    
    Nine Months Ended
    
    
    Increase (Decrease)September 30,
    
    
    2006 to 2005
    
    
    September 30,
    
    
    2006 to 2005Bank Services Revenues
    
    2006
    
    
    2005
    
    
    $
    
    
    %
    
    
    2006
    
    
    2005
    
    
    $
    
    
    %Bank
Services Revenues, Net of
Federal Excise Tax Fees
    
    $
    23,490
    
    
    $
    25,382
    
    
    $
    (1,892
    )
    
    
    (7
    )%
    
    $
    73,019
    
    
    $
    76,567
    
    
    $
    (3,548
    )
    
    
    (5
    )%Fuel Surcharge
    
    
    4,069
    
    
    
    3,744
    
    
    
    325
    
    
    
    9
    %
    
    
    11,925
    
    
    
    8,697
    
    
    
    3,228
    
    
    
    37
    %Total Net
Bank Services Revenues
    
    $
    27,559
    
    
    $
    29,126
    
    
    $
    (1,567
    )
    
    
    (5
    )%
    
    $
    84,944
    
    
    $
    85,264
    
    
    $
    (320
    )
    
    
    0
    %
    17




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Express Services Revenues
 Dollars in 000s
    
    Three Months Ended
    
    
    Increase (Decrease)
    
    
    Nine Months Ended
    
    
    Increase (Decrease)September 30,
    
    
    2006 to 2005
    
    
    September 30,
    
    
    2006 to 2005Express Services Revenues
    
    2006
    
    
    2005
    
    
    $
    
    
    %
    
    
    2006
    
    
    2005
    
    
    $
    
    
    %Express Revenues  Non
Charter
    
    $
    9,585
    
    
    $
    8,730
    
    
    $
    855
    
    
    
    10
    %
    
    $
    27,646
    
    
    $
    25,570
    
    
    $
    2,076
    
    
    
    8
    %Express Revenues  Charter
    
    
    3,611
    
    
    
    3,489
    
    
    
    122
    
    
    
    3
    %
    
    
    10,810
    
    
    
    10,697
    
    
    
    113
    
    
    
    1
    %Fuel Surcharge
    
    
    2,498
    
    
    
    1,732
    
    
    
    766
    
    
    
    44
    %
    
    
    7,033
    
    
    
    4,024
    
    
    
    3,009
    
    
    
    75
    %Federal Excise Tax Fees
    
    
    (451
    )
    
    
    (382
    )
    
    
    (69
    )
    
    
    18
    %
    
    
    (1,221
    )
    
    
    (1,189
    )
    
    
    (32
    )
    
    
    3
    %Net Express ServicesRevenues
    
    $
    15,243
    
    
    $
    13,569
    
    
    $
    1,674
    
    
    
    12
    %
    
    $
    44,268
    
    
    $
    39,102
    
    
    $
    5,166
    
    
    
    13
    %
     Aviation Services
  18




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Costs and Expenses
 Dollars in '000's
    
    Three Months Ended
    
    
    Increase (Decrease)
    
    
    Nine Months Ended
    
    
    Increase (Decrease)September 30,
    
    
    2006 to 2005
    
    
    September 30,
    
    
    2006 to 2005Costs and Expenses
    
    2006
    
    
    2005
    
    
    $
    
    
    %
    
    
    2006
    
    
    2005
    
    
    $
    
    
    %Wages and benefits
    
    $
    4,719
    
    
    $
    4,883
    
    
    $
    (164
    )
    
    
    (3
    )%
    
    $
    14,430
    
    
    $
    14,974
    
    
    $
    (544
    )
    
    
    (4
    )%Aircraft fuel
    
    
    7,411
    
    
    
    6,955
    
    
    
    456
    
    
    
    7
    %
    
    
    22,125
    
    
    
    20,236
    
    
    
    1,889
    
    
    
    9
    %Aircraft maintenance
    
    
    3,737
    
    
    
    3,855
    
    
    
    (118
    )
    
    
    (3
    )%
    
    
    12,021
    
    
    
    11,532
    
    
    
    489
    
    
    
    4
    %Contracted air costs
    
    
    3,968
    
    
    
    3,552
    
    
    
    416
    
    
    
    12
    %
    
    
    12,576
    
    
    
    10,484
    
    
    
    2,092
    
    
    
    20
    %Ground courier
    
    
    9,517
    
    
    
    7,886
    
    
    
    1,631
    
    
    
    21
    %
    
    
    26,414
    
    
    
    23,361
    
    
    
    3,053
    
    
    
    13
    %Depreciation
    
    
    2,663
    
    
    
    3,115
    
    
    
    (452
    )
    
    
    (15
    )%
    
    
    8,415
    
    
    
    9,364
    
    
    
    (949
    )
    
    
    (10
    )%Insurance,
rent and landing fees
    
    
    2,045
    
    
    
    2,250
    
    
    
    (205
    )
    
    
    (9
    )%
    
    
    6,034
    
    
    
    6,745
    
    
    
    (711
    )
    
    
    (11
    )%Travel, training and other
    
    
    1,253
    
    
    
    1,426
    
    
    
    (173
    )
    
    
    (12
    )%
    
    
    3,931
    
    
    
    4,291
    
    
    
    (360
    )
    
    
    (8
    )%Selling, general and
administrative
    
    
    3,686
    
    
    
    4,707
    
    
    
    (1,021
    )
    
    
    (22
    )%
    
    
    12,923
    
    
    
    14,798
    
    
    
    (1,875
    )
    
    
    (13
    )%Net gain on disposition
of assets
    
    
    (80
    )
    
    
    36
    
    
    
    (116
    )
    
    
    *
    
    
    
    (92
    )
    
    
    (16
    )
    
    
    (76
    )
    
    
    *Subtotal
    
    
    38,919
    
    
    
    38,665
    
    
    
    254
    
    
    
    1
    %
    
    
    118,777
    
    
    
    115,769
    
    
    
    3,008
    
    
    
    3
    %Impairment of assets
    
    
    24,560
    
    
    
    16,073
    
    
    
    8,487
    
    
    
    53
    %
    
    
    24,560
    
    
    
    16,073
    
    
    
    8,487
    
    
    
    53
    %Total costs and expenses
    
    $
    63,479
    
    
    $
    54,738
    
    
    $
    8,741
    
    
    
    16
    %
    
    $
    143,337
    
    
    $
    131,842
    
    
    $
    11,495
    
    
    
    9
    %
 *
    
    The percentage increase (decrease) is not meaningful.       19




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##### Table of Contents



Liquidity and Capital Resources
 Cash flow from operating activities  Continuing Operations
  Cash flow from operating activities  Discontinued Operations
  Financing Activities  Continuing Operations
    20




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##### Table of Contents



21




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##### Table of Contents



Financing Activities  Discontinued Operations
  Investing Activities  Continuing Operations
     22




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##### Table of Contents



Investing Activities  Discontinued Operations
  Regulation
       23




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##### Table of Contents



Termination of Brown Gibbons Lang & Company Engagement
  Off-Balance Sheet Arrangements
  Seasonality and Variability in Quarterly Results
  
 ITEM 3  Quantitative and Qualitative Disclosures About Market Risk
 Inflation and Interest Rates
  Fuel Surcharge
  
 ITEM 4  Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  24




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##### Table of Contents




    
    information required to be disclosed by AirNet in this Quarterly Report on
Form 10-Q and the other reports that AirNet files or submits under the
Exchange Act would be accumulated and communicated to AirNets management,
including its principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure;
    
    information required to be disclosed by AirNet in this Quarterly Report on
Form 10-Q and the other reports that AirNet files or submits under the Exchange
Act would be recorded, processed, summarized and reported within the time
period specified in the SECs rules and forms; and
    
    AirNets disclosure controls and procedures are effective as of the end of
the quarterly period covered by this Quarterly Report on Form 10-Q to ensure
that material information relating to AirNet and its consolidated subsidiaries
is made known to them by others within those entities, particularly during the
period in which this Quarterly Report on Form 10-Q is being prepared.
 Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 ITEM 1  Legal Proceedings
    25




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##### Table of Contents



ITEM 1A  Risk Factors
  The use of image replacement documents and other electronic methods to clear cancelled
checks is accelerating and will have a significant adverse effect on AirNets revenues
and income.
   
 ITEM 2  Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    Not applicable.(b)
    
    Not applicable.(c)
    
    Neither AirNet Systems, Inc. nor any affiliated purchaser, as
defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as
amended, purchased any common shares of AirNet Systems, Inc. during the fiscal
quarter ended September 30, 2006. On February 18, 2000, AirNet Systems, Inc.
announced a stock repurchase plan under which up to $3.0 million of its common
shares may be repurchased from time to time. These repurchases may be made in
open market transactions or through privately negotiated transactions. As of
September 30, 2006, AirNet Systems, Inc. had the authority to repurchase
approximately $0.6 million of its common shares under this stock repurchase
plan.
 
 ITEM 3  Defaults Upon Senior Securities.
  
 ITEM 4  Submission of Matters to a Vote of Security Holders.
  
 ITEM 5  Other Information
  26




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##### Table of Contents



ITEM 6  Exhibits
  Exhibit No.
    
    Description2
    
    Purchase Agreement, dated as of July 26, 2006, among Jetride, Inc., an Ohio
corporation, Pinnacle Air, LLC, a Delaware limited liability company, and AirNet
Systems, Inc., an Ohio corporation (the exhibits and schedules referenced in the
Purchase Agreement have been omitted pursuant to Item 601(b)(2) of SEC Regulation S-K.
AirNet Systems, Inc. hereby agrees to furnish supplementally a copy of any such omitted
exhibit or schedule to the Securities and Exchange Commission upon its request),
incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of
AirNet Systems, Inc. dated and filed July 28, 2006 (SEC File No. 001-13025)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)31.2
    
    Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)32
    
    Section 1350 Certification (Principal Executive Officer and Principal Financial Officer)
 27




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##### Table of Contents



AIRNET SYSTEMS, INC.
 
 SIGNATURES
  AIRNET SYSTEMS, INC.Dated:  November 14, 2006
    By:
    /s/ Gary W. QualmannGary W. Qualmann,Chief Financial Officer, Treasurer and Secretary
(Duly Authorized Officer)
(Principal Financial Officer)Dated:  November 14, 2006
    By:
    /s/ Ray L. DruseikisRay L. Druseikis,Vice President of Finance and Controller
(Duly Authorized Officer)
(Principal Accounting Officer) 28




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##### Table of Contents



AIRNET SYSTEMS, INC.
 
 INDEX TO EXHIBITS
 Exhibit No.
    
    Description2
    
    Purchase Agreement, dated as of July 26, 2006, among Jetride, Inc., an Ohio
corporation, Pinnacle Air, LLC, a Delaware limited liability company, and AirNet
Systems, Inc., an Ohio corporation (the exhibits and schedules referenced in the
Purchase Agreement have been omitted pursuant to Item 601(b)(2) of SEC Regulation S-K.
AirNet Systems, Inc. hereby agrees to furnish supplementally a copy of any such omitted
exhibit or schedule to the Securities and Exchange Commission upon its request),
incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of
AirNet Systems, Inc. dated and filed July 28, 2006 (SEC File No. 001-13025)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)31.2
    
    Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)32
    
    Section 1350 Certification (Principal Executive Officer and Principal Financial Officer)
 29