**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**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  September 30, 2002**                                                                                                                                                             |
|                                                                                                                                                                                                               |
| **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 of principal  executive offices)  (Zip Code)                           |
|                                                             |                                                                                 |   |   |
|                                                             | **(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 the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes  ý  No  o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act.  Yes  o  No  ý

 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date:

 

Common Shares, $.01 Par Value, Outstanding as ofNovember 12, 2002 – 10,153,955

 

 

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**AIRNET SYSTEMS, INC.**

 

**FORM10-Q FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002**

 
| **PART  I:  FINANCIAL INFORMATION** |                                                                                                                     |
|------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                     |   |
| Item 1                                   | Financial Statements (Unaudited)                                                                                         |   |
|                                     |                                                                                                                     |   |
|                                     | Condensed  Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001                                    | 3 |
|                                     |                                                                                                                     |   |
|                                     | Condensed  Consolidated Statements of Operations for the three months and nine months  ended September 30, 2002 and 2001 | 4 |
|                                     |                                                                                                                     |   |
|                                     | Condensed  Consolidated Statements of Cash Flows for the nine months ended September 30,  2002 and 2001                  | 5 |
|                                     |                                                                                                                     |   |
|                                     | Notes  to Condensed Consolidated Financial Statements                                                                    | 6 |
|                                     |                                                                                                                     |   |
| Item  2                                  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                              | 9 |
|                                     |                                                                                                                     |   |
| Item  3                                  | Quantitative  and Qualitative Disclosures About Market Risk                                                              | 14 |
|                                     |                                                                                                                     |   |
| Item 4                                   | Controls and Procedures                                                                                                  | 14 |
|                                     |                                                                                                                     |   |
| **PART  II:**                            | **OTHER  INFORMATION**                                                                                                   |
|                                     |                                                                                                                     |
| Items 1 through 6                        | 15                                                                                                                       |
|                                     |                                                                                                                     |
| Signatures                               | 16                                                                                                                       |
|                                     |                                                                                                                     |
| Certifications                           | 17                                                                                                                       |
|                                     |                                                                                                                     |
| Index to  Exhibits                       | 19                                                                                                                       |

 

2

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**AIRNET SYSTEMS, INC.**

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| **In thousands**                                                                                                              |   | **September 30,  2002** |        | **December 31,  2001** |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------|------------------------|--------|
|                                                                                                                          |   | **(unaudited)**         |        |                   |   |
| **ASSETS**                                                                                                                    |   |                    |        |                   |   |
| Current assets:                                                                                                               |   |                    |        |                   |   |
| Cash and cash equivalents                                                                                                     |   | **$**                   | **4,302**   |                   | $      | 377 |   |
| Accounts receivable, less allowances                                                                                          |   | **19,248**              |        | 16,803                 |   |
| Inventory and spare parts                                                                                                     |   | **7,782**               |        | 6,704                  |   |
| Taxes receivable                                                                                                              |   | **—**              |        | 4                      |   |
| Deferred taxes                                                                                                                |   | **729**                 |        | 729                    |   |
| Deposits and prepaids                                                                                                         |   | **4,052**               |        | 1,703                  |   |
| Total current assets                                                                                                          |   | **36,113**              |        | 26,320                 |   |
|                                                                                                                          |   |                    |        |                   |   |
| Net property and equipment                                                                                                    |   | **110,756**             |        | 98,872                 |   |
| Other assets:                                                                                                                 |   |                    |        |                   |   |
| Goodwill, net of accumulated amortization                                                                                     |   | **7,080**               |        | 7,080                  |   |
| Other intangibles, net of accumulated amortization                                                                            |   | **38**                  |        | 56                     |   |
| Other                                                                                                                         |   | **957**                 |        | 751                    |   |
| **Total assets**                                                                                                              |   | **$**                   | **154,944** |                   | $      | 133,079 |   |
|                                                                                                                          |   |                    |        |                   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                 |   |                    |        |                   |   |
| Current liabilities:                                                                                                          |   |                    |        |                   |   |
| Accounts payable                                                                                                              |   | **$**                   | **8,304**   |                   | $      | 6,135 |   |
| Salaries and related liabilities                                                                                              |   | **4,012**               |        | 4,849                  |   |
| Accrued expenses                                                                                                              |   | **310**                 |        | 523                    |   |
| Taxes payable                                                                                                                 |   | **1,206**               |        | —                 |   |
| Current portion of notes payable                                                                                              |   | **5,178**               |        | 33                     |   |
| Total current liabilities                                                                                                     |   | **19,010**              |        | 11,540                 |   |
| Other liabilities                                                                                                             |   | **105**                 |        | 326                    |   |
| Notes payable, less current portion                                                                                           |   | **38,741**              |        | 28,202                 |   |
| Deferred tax liability                                                                                                        |   | **14,157**              |        | 14,065                 |   |
|                                                                                                                          |   |                    |        |                   |   |
| Shareholders’ equity:                                                                                                    |   |                    |        |                   |   |
| Preferred shares, $.01 par value; 10,000 shares authorized; no shares  issued and outstanding                                 |   | **—**              |        | —                 |   |
| Common shares, $.01 par value; 40,000 shares authorized; 12,753 shares  issued at September 30, 2002 and at December 31, 2001 |   | **128**                 |        | 128                    |   |
| Additional paid-in-capital                                                                                                    |   | **77,278**              |        | 77,440                 |   |
| Retained earnings                                                                                                             |   | **31,347**              |        | 27,656                 |   |
| Accumulated other comprehensive loss                                                                                          |   | **(64**                 | **)**       | (194                   | )      |
| Treasury shares, 2,610 and 2,629 shares held at cost at September 30,  2002 and December 31, 2001, respectively               |   | **(25,758**             | **)**       | (26,084                | )      |
| Total shareholders’ equity                                                                                               |   | **82,931**              |        | 78,946                 |   |
|                                                                                                                          |   |                    |        |                   |   |
| **Total liabilities and shareholders’ equity**                                                                           |   | **$**                   | **154,944** |                   | $      | 133,079 |   |

 

See notes to condensed consolidated financialstatements

 

3

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**AIRNET SYSTEMS, INC.**

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS** - Unaudited

 
| **In thousands, except per share data**                   |   | **Three Months Ended  September 30,** |       | **Nine Months Ended  September 30,** |       |
|-----------------------------------------------------------|--------|---------------------------------------|------------|--------------------------------------|------------|
|                                                      |   | **2002**                              |       | **2001**                             |       | **2002** |   | **2001** |   |
|                                                      |   |                                  |       |                                 |       |   |   |   |   |
| **NET REVENUES**                                          |   |                                  |       |                                 |       |   |   |   |   |
| Air transportation, net of excise tax                     |   |                                  |       |                                 |       |   |   |   |   |
| Bank services                                             |   | **$**                                 | **25,793** |                                 | $          | 26,646 |   | **$** | **76,316** |   | $ | 79,402 |   |
| Express services                                          |   | **11,353**                            |       | 8,137                                |       | **31,428** |   | 24,342 |   |
| Aviation services and other operations                    |   | **1,394**                             |       | 544                                  |       | **3,701** |   | 1,264 |   |
| **Total net revenues**                                    |   | **38,540**                            |       | 35,327                               |       | **111,445** |   | 105,008 |   |
|                                                      |   |                                  |       |                                 |       |   |   |   |   |
| COSTS AND  EXPENSES                                       |   |                                  |       |                                 |       |   |   |   |   |
| Wages and benefits                                        |   | **5,805**                             |       | 4,823                                | ** ** | **16,562** |   | 14,481 |   |
| Aircraft fuel                                             |   | **4,142**                             |       | 3,314                                | ** ** | **11,736** |   | 9,549 |   |
| Aircraft maintenance                                      |   | **2,899**                             |       | 2,600                                | ** ** | **9,029** |   | 8,475 |   |
| Contracted air costs                                      |   | **3,355**                             |       | 4,003                                | ** ** | **10,340** |   | 12,022 |   |
| Ground courier                                            |   | **6,447**                             |       | 5,537                                | ** ** | **18,151** |   | 17,002 |   |
| Depreciation                                              |   | **4,393**                             |       | 3,557                                | ** ** | **13,103** |   | 10,799 |   |
| Other                                                     |   | **3,388**                             |       | 2,845                                |       | **10,296** |   | 8,294 |   |
| Selling, general and administrative                       |   | **5,272**                             |       | 4,668                                |       | **14,953** |   | 14,963 |   |
| **Total costs and expenses**                              |   | **35,701**                            |       | 31,347                               |       | **104,170** |   | 95,585 |   |
| Income from operations                                    |   | **2,839**                             |       | 3,980                                |       | **7,275** |   | 9,423 |   |
| Impairment on investment                                  |   | **—**                            |       | —                               | ** ** | — |   | 1,744 |   |
| Interest expense                                          |   | **477**                               |       | 438                                  |       | **1,224** |   | 1,304 |   |
| Income before income taxes                                |   | **2,362**                             |       | 3,542                                |       | **6,051** |   | 6,375 |   |
| Provision for income taxes                                |   | **921**                               |       | 1,441                                |       | **2,359** |   | 3,308 |   |
|                                                      |   |                                  |       |                                 |       |   |   |   |   |
| **Net income**                                            |   | **$**                                 | **1,441**  |                                 | $          | 2,101 |   | **$** | **3,692** |   | $ | 3,067 |   |
|                                                      |   |                                  |       |                                 |       |   |   |   |   |
| Net income per common share - basic and assuming dilution |   | **$**                                 | **0.14**   |                                 | $          | 0.20 |   | **$** | **0.36** |   | $ | 0.29 |   |

 

Seenotes to condensed consolidated financial statements

 

4

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**AIRNET SYSTEMS, INC.**

 

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS** - Unaudited

 
| **In  thousands**                                                                            |   | **Nine Months Ended  September 30,** |       |
|----------------------------------------------------------------------------------------------|--------|--------------------------------------|------------|
|                                                                                         |   | **2002**                             |       | **2001** |   |
|                                                                                         |   |                                 |       |   |   |
| **Operating activities:**                                                                    |   |                                 |       |   |   |
| Net income                                                                                   |   | **$**                                | **3,692**  | ** ** | $ | 3,067 |   |
| Non-cash charge for investment impairment                                                    |   | **—**                           | ** ** | 1,744 |   |
| Adjustments to reconcile net income to net cash provided by (used in)  operating activities: |   |                                 | ** ** |   |   |
| Depreciation                                                                                 |   | **13,103**                           | ** ** | 10,799 |   |
| Amortization of intangibles                                                                  |   | **17**                               | ** ** | 397 |   |
| Provision for losses on accounts receivable                                                  |   | **302**                              | ** ** | 374 |   |
| Gain on disposition of assets                                                                |   | **79**                               | ** ** | 40 |   |
| Cash provided by (used in) operating assets and liabilities:                                 |   |                                 | ** ** |   |   |
| Accounts receivable                                                                          |   | **(2,748**                           | **)**      | (3,109 | ) |
| Inventory and spare parts                                                                    |   | **(1,078**                           | **)**      | (831 | ) |
| Prepaid expenses                                                                             |   | **(2,349**                           | **)**      | (210 | ) |
| Accounts payable                                                                             |   | **2,170**                            | ** ** | 378 |   |
| Accrued expenses                                                                             |   | **(213**                             | **)**      | 606 |   |
| Taxes payable                                                                                |   | **1,210**                            | ** ** | 1,704 |   |
| Salaries and related liabilities                                                             |   | **(838**                             | **)**      | 1,523 |   |
| Other, net                                                                                   |   | **(204**                             | **)**      | (239 | ) |
| **Net cash provided by operating activities**                                                |   | **13,143**                           | ** ** | 16,243 |   |
|                                                                                         |   |                                 | ** ** |   |   |
| **Investing activities:**                                                                    |   |                                 | ** ** |   |   |
| Purchases of property and equipment                                                          |   | **(25,402**                          | **)**      | (13,772 | ) |
| Proceeds from sales of property and equipment                                                |   | **336**                              | ** ** | 274 |   |
| **Net cash used in investing activities**                                                    |   | **(25,066**                          | **)**      | (13,498 | ) |
|                                                                                         |   |                                 | ** ** |   |   |
| **Financing activities:**                                                                    |   |                                 | ** ** |   |   |
| Proceeds from Incentive Stock Plan programs                                                  |   | **163**                              | ** ** | 83 |   |
| Net borrowings under the revolving credit facility                                           |   | **10,397**                           | ** ** | 4,549 |   |
| Net borrowings (repayments) of long-term debt                                                |   | **5,288**                            | ** ** | (24 | ) |
| Purchase of treasury shares                                                                  |   | **—**                           | ** ** | (4,983 | ) |
| **Net cash provided by (used in) financing activities**                                      |   | **15,848**                           | ** ** | (375 | ) |
|                                                                                         |   |                                 | ** ** |   |   |
| Net increase in cash                                                                         |   | **3,925**                            |       | 2,370 |   |
| Cash and cash equivalents at beginning of period                                             |   | **377**                              |       | 1,118 |   |
|                                                                                         |   |                                 |       |   |   |
| **Cash and cash equivalents at end of period**                                               |   | **$**                                | **4,302**  |   | $ | 3,488 |   |

 

See notes to condensed consolidated financialstatements

 

5

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**AIRNET SYSTEMS, INC.**

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.             Basisof Presentation**

 

AirNet Systems, Inc. and its subsidiaries (“AirNet” or the “Company”)operate a fully integrated national air transportation network which providesdelivery service of time-critical shipments for customers in the U.S. bankingindustry and other industries requiring the express delivery of packages.  AirNet also offers passenger charterservices from various locations throughout the United States as well as retailaviation fuel sales and related ground services for customers at its Columbus,Ohio facility.

 

The accompanying unaudited condensed consolidated financial statementsinclude the accounts of AirNet Systems, Inc. and its subsidiaries.  These financial statements have beenprepared in accordance with generally accepted accounting principles forinterim financial information and with the instructions for Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include all information and footnotes requiredby generally accepted accounting principles for complete financialstatements.  These financial statementsshould be read in conjunction with the year ended December 31, 2001consolidated financial statements of AirNet Systems, Inc. included in Item 8 ofthe Annual Report on Form 10-K for the fiscal year ended December 31, 2001(File No. 1-13025) which contains additional disclosures including a summary ofAirNet’s accounting policies.

 

The financial information included herein reflects all adjustments(consisting of normal recurring adjustments) which are, in the opinion ofmanagement, necessary for a fair presentation of the results of interimperiods.  Operating results for thethree and nine months ended September 30, 2002 are not necessarily indicativeof the results to be expected for the year ending December 31, 2002.

 

The preparation of the condensed consolidated financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the amounts reported in thosefinancial statements and accompanying notes thereto.  Actual results could differ from those estimates.

 

Certain 2001 balances have been reclassified to conform with the 2002presentation.

 

**2.             Goodwill**

 

In June 2001, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standards (SFAS) No. 141, *BusinessCombinations*, effective for business combinations initiated afterJune 30, 2001, and No. 142, *Goodwill**and Other Intangible Assets*,effective for fiscal years beginning after December 15, 2001.  Under the new rules, goodwill and intangibleassets deemed to have indefinite lives are no longer amortized but are subjectto annual impairment tests in accordance with SFAS 142.  Other intangible assets continue to beamortized over their useful lives.

 

The Company adopted the new standards in the first quarter of 2002.Application of the nonamortization provisions of SFAS 142 resulted in anincrease in net income of approximately $86,000  ($52,000, net of tax), or less than $0.01 per share, for thethree months ending September 30, 2002 and approximately $257,000 ($156,000,net of tax), or less than $.02 per share, for the nine months ending September30, 2002.

 

6

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The Company has conducted the required preliminary review of itsgoodwill and other intangible assets in accordance with the transitionprovisions for adoption of SFAS 142. Under SFAS 142, the Company is required to assess goodwill and otherintangibles with indefinite lives for impairment at least annually, based onthe fair value of the related reporting unit. Based on its preliminary review, the Company concluded that potentialtransition impairment may exist related to the Mercury Business Services reportingunit.  The net book value of recordedgoodwill related to Mercury totaled $3.1 million at December 31, 2001 andSeptember 30, 2002**. **Asrequired by SFAS 142, management plans to complete the second phase of thetransition analysis later this year and compute the ultimate amount of thenon-cash impairment charge.  Inaccordance with the transition provisions of SFAS 142, any such charge will bereflected as a cumulative effect of a change in accounting method as of thebeginning of 2002.

 

**3.             Net Income Per Share**

 

The following table sets forth the computation of basic and diluted netincome per common share (in thousands, except per share data):

** **
|                                                             |   | **Three  Months Ended  September 30,** |   | **Nine  Months Ended  September 30,** |   |
|------------------------------------------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                                                             |   | **2002**                               |   | **2001**                              |   | **2002** |   | **2001** |   |
| Numerator:                                                       |   |                                   |   |                                  |   |   |   |   |   |
| Net income                                                       |   | $                                      | 1,441  |                                  | $      | 2,101 |   | $ | 3,692 |   | $ | 3,067 |   |
|                                                             |   |                                   |   |                                  |   |   |   |   |   |
| Denominator:                                                     |   |                                   |   |                                  |   |   |   |   |   |
| Basic – weighted  average shares outstanding                |   | 10,143                                 |   | 10,341                                |   | 10,137 |   | 10,728 |   |
|                                                             |   |                                   |   |                                  |   |   |   |   |   |
| Diluted                                                          |   |                                   |   |                                  |   |   |   |   |   |
| Stock options –  associates, officers, and directors        |   | 78                                     |   | 98                                    |   | 142 |   | 48 |   |
| Adjusted  weighted average shares outstanding                    |   | 10,221                                 |   | 10,439                                |   | 10,279 |   | 10,776 |   |
|                                                             |   |                                   |   |                                  |   |   |   |   |   |
| Net income per  common share – basic and assuming dilution: |   | $                                      | 0.14   |                                  | $      | 0.20 |   | $ | 0.36 |   | $ | 0.29 |   |

 

For the three months andnine months ended September 30, 2002, 733,000 and  732,000 commonshares subject to outstanding stock options were excluded from the dilutedweighted average shares outstanding calculation, as the exercise price of thestock options exceeded the average fair market value of the underlying commonshares for the period.

 

**4.      Long-Term Debt**

 

The Company had borrowings as follows (in thousands):

 
|                                |   | **September  30,  2002** |   | **December  31,  2001** |   |
|-------------------------------------|--------|--------------------------|--------|-------------------------|--------|
| Revolving credit  facility          |   | $                        | 18,545 |                    | $      | 28,149 |   |
| Term notes                          |   | 25,374                   |   | 86                      |   |
|                                |   | 43,919                   |   | 28,235                  |   |
| Current portion  of notes payable   |   | 5,178                    |   | 33                      |   |
| Long-term  portion of notes payable |   | $                        | 38,741 |                    | $      | 28,202 |   |

 

During first quarter 2002, AirNet entered into three term loans withbanks totaling $5,969,000.  The firstnote has a principal amount of $1,249,000 with a 60-month term, a 5.77% interest rate and a $24,000monthly principal and interest payment. The second note has a principal amount of  $1,720,000 with a 60-month term, a 5.77% interest rate and a$33,000 monthly principal and interest payment.  Thethird note has a principal amount of $3,000,000 with a floating interest rate

 

7

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based upon LIBOR (London InterbankOffered Rate) and a $50,000 principal payment due monthly over 60 months.  Four aircraft secure these loans, with a netbook value totaling approximately $6,227,000 at September 30, 2002.

 

In September 2002, the Company replacedits credit agreement.  The new creditagreement provides the Company with a three-year $35,000,000 unsecuredrevolving credit facility and a five-year $20,000,000 term loan.  The revolving credit facility is scheduledto expire on September 30, 2005.  Theterm loan requires twenty consecutive quarterly installments, each in theamount of $1,000,000, commencing on the last day of December 2002 andcontinuing on the last day of each third month thereafter through September 30,2007.  The agreement bears interest atthe Company’s option of a fixed rate based upon LIBOR plus a margin determinedby the Company’s leverage ratio as defined in the agreement, or a floating ratebased on the greater of the prime rate and the sum of .5% plus the federalfunds rate in effect from time to time. The new agreement requires the maintenance of certain minimum tangiblenet worth and cash flow levels, imposes certain limitations on capitalexpenditures and the sale of assets, and restricts the amount of additionaldebt.

 

The prior credit agreement remained in effect as of September 30, 2002,although there was no outstanding debt, pending the transfer of a letter ofcredit.  The credit agreement requiresthe maintenance of minimum net worth and cash flow levels, imposes limits onpayments of dividends to 50% of net income and restricts the amount of additionaldebt which may be incurred.

 

**5.      Aircraft Leases**

 

In February 2002, AirNet entered into operating leases for six CessnaCaravan aircraft.  The lease terms rangefrom 3.0 years to 4.5 years and contain various cancellation privileges.  AirNet is responsible for repair andmaintenance of the aircraft during the term of the leases.  Combined monthly lease payments totalapproximately $50,000.

 

**6.      Commitments**

 

In August 2002, AirNetentered into a commitment to purchase a Learjet 35 no later than February 5,2003 at a purchase price of approximately $1.5 million.  The Company intends to fund the purchasewith bank debt.

 

**7.      Comprehensive Income**

 

Comprehensive income is comprised of net income of the Company and thechange in the fair value of interest rate swap agreements, net of incometaxes.  Comprehensive income for thenine months ended September 30, 2002 and 2001 was $3,821,000 and $2,912,000,respectively.  Comprehensive income forthe three months ended September 30, 2002 and 2001 was $1,466,000 and $2,040,000respectively.

 

8

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**AIRNET SYSTEMS, INC.**

 

**ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

**SafeHarbor Statement**

 

Except for the historical information contained in this Form 10-Q, thematters discussed, including, but not limited to, information regarding futureeconomic performance and plans and objectives of AirNet’s management, areforward-looking statements which involve risks and uncertainties. When used inthis document, the words “anticipate”, “estimate”, “expect”, “may”, “plan”,“project” and similar expressions are intended to be among statements thatidentify forward-looking statements. Such statements involve risks and uncertainties including, but notlimited to, the following which could cause actual results to differ materiallyfrom any forward-looking statement: potential regulatory changes by the Federal Aviation Administration(“FAA”), which could increase the regulation of AirNet’s business, or theFederal Reserve, which could change the competitive environment of transportingcanceled checks; adverse weather conditions; potential changes in locally andfederally mandated security requirements; increases in aviation fuel costs notfully offset by AirNet’s fuel surcharge program; changes in check processingand shipment patterns of bank customers; the acceptance of AirNet’stime-critical service offerings by targeted Express customers; technologicaladvances and increases in the use of electronic funds transfers; as well asother economic, competitive and domestic and foreign governmental factorsaffecting AirNet’s markets, prices and other facets of its operations.  Should one or more of these risks oruncertainties materialize, or should underlying assumptions prove incorrect,actual outcomes may vary materially from those indicated.  Please refer to Item 7 of the Annual Reporton Form 10-K for the fiscal year ended December 31, 2001 for additional detailsrelating to risk factors that could affect AirNet’s results and cause those resultsto differ materially from those expressed in forward-looking statements.

 

**Resultsof Operations**

 

*Threemonths ended September 30, 2002 compared to three months ended September 30,2001*

 

Total net revenues were$38.5 million for the three months ended September 30, 2002, an increase of$3.2 million, or 9.1%, over the same period of 2001.

 

Net revenues from Bankservices decreased $0.9 million, or 3.2%, compared to the same quarter lastyear.  Weekday shipment volume was down7.2% per flying day compared to third quarter 2001.  Approximately $0.7 million of the relative loss in volume isattributable to additional volume transported during the days immediatelyfollowing the September 11th tragedies last year. The relative lossin volume is also partly attributable to a decline in interest rates during thepast year which impacts transportation decisions by the Company’s bankcustomers, as the time value of money becomes less significant.  The decrease in weekday shipment volume waspartially offset by one more flying day in the 2002 quarter, an 8.1% increasein weekend shipment volume, rate increases implemented in January 2002averaging approximately 2.2%, and the implementation of a 2.3% securitysurcharge in September.

 

Express services netrevenue increased $3.2 million to $11.4 million, compared to $8.1 million forthe third quarter of 2001.  Revenue fromMercury Business Services (“Mercury”) was $2.2 million in the third quartercompared with $2.0 million last year, largely due to a relative loss in volumein the days immediately following the September 11th tragedies lastyear. Excluding Mercury, Express services net revenue increased 50.0% comparedto last year, partly due to a 5% rate increase in February 2002.  Revenue from customers in the medicalindustry achieved solid sales gains compared to last year with net revenuesincreasing $2.6 million, or 93.4%. Approximately 

 

9

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$0.6million of the increase was a result of new customers utilizing AirNet’stransportation services to deliver cord blood to cryogenic facilities.

 

Aviation services revenueincreased $0.9 million to $1.4 million, compared to $0.5 million for the thirdquarter last year, as a result of increased passenger charters.  AirNet operated seven Learjets dedicated topassenger charter services at September 30, 2002, compared to only one Learjetdedicated to passenger charter as of September 30, 2001.

 

Total costs and expenseswere $35.7 million for third quarter 2002 compared with $31.3 million lastyear, resulting in income from operations of $2.8 million for the three monthsended September 30, 2002, compared to $4.0 million for the same period of 2001.

 

Third quarter 2002 wagesand benefits increased $1.0 million, or 20.4%, over the same period in2001.  AirNet had, on average, 26 morepilots in the third quarter of 2002 when compared to the same quarter lastyear.  Pilots were added to alleviateprior year shortages, which began to ease after September 11th, andto support the addition of the weekend program for the check delivery businessin the first quarter of 2002 and growth in passenger charter services.  There was also additional operations staffin this year’s third quarter to support growth in the Express business.

 

Aircraft fuel expenseincreased $0.8 million, or 25.0%, over the same quarter in the prior year dueto a 16.8% increase in flight hours and increased fuel prices which were notfully offset by the Company’s fuel surcharge programs.  The bank fuel surcharge rate was increasedin August 2002 to help offset timing differences between market prices and theindex used for determining surcharge amounts. During 2001 and through January 2002, AirNet’s Express customers paid a4% temporary fuel surcharge on most revenue under a separate program.  In February 2002, AirNet rescinded its 4%fuel surcharge on Express services and implemented a surcharge program usingthe OPIS-CMH index.

 

Aircraft maintenanceexpense increased $0.3 million, or 11.5%, over the same quarter in the prioryear due to more aircraft and increased flight hours.  TheU.S. Federal Aviation Administration issued an order in August 2002,temporarily grounding certain Chieftan aircraft, in response to recentincidents involving the plane’s crankshaft experienced by other owners.  Eight of the Company’s eighteen Chieftanscontinue to be grounded pending resolution of this matter.

 

Third quarter 2002contracted air costs decreased $0.6 million, or 16.2%, over the same period in2001 largely due to decreased dependency on outside providers as a result ofadding aircraft and pilots to staff certain routes as well as the cancellationof some subleased routes. Ground courier costs increased $0.9 million, or16.4%, over the same period last year reflecting the increase in Expressservices volume.

 

Depreciation expense increased $0.8 million over the same quarter inthe prior year due to the purchase of aircraft.  Since September 30, 2001 AirNet has purchased five CessnaCaravans and two Learjets, at a combined cost of $10.1 million, to replace tentwin-engine piston aircraft.  ThreeLearjets dedicated to passenger charter services were also purchased duringthat twelve-month period at a combined cost of $10.8 million.

 

Other expense increased$0.5 million over the same quarter in the prior year largely as a result of a$0.3 million increase in aircraft lease expense, a $0.1 million increase inaircraft insurance and a $0.1 million increase in rent expense.  To further enhance performance capabilitiesand implement more weekend flights, AirNet began leasing six Cessna Caravans inFebruary 2002 and, beginning in April 2002, the Company began leasing anotherCessna Caravan on a month-to-month basis. To support the growth in passenger charter services, the Company beganleasing a Learjet 60 in June 2002 and a Learjet 35 in September 2002.  Aircraft insurance increased as the resultof a premium increase in August and the addition of aircraft to the fleet.  Additional and expanded regional offices andsecurity related costs experienced at several airport locations contributed tothe increase in rent expense.

 

10

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Selling, general andadministrative expense increased $0.6 million, or 13.0%, in third quarter 2002over the same quarter in the prior year largely due to an increase in payrollexpense.  The payroll increase islargely due to an increase in administrative personnel as the result of thecompletion of staffing of the regional support and sales staffs and informationtechnology personnel.  In accordancewith Statement of Financial Accounting Standards (SFAS) No. 142, *Goodwill**and OtherIntangible Assets*, AirNet has eliminated amortization of goodwill,effective January 1, 2002.  The effectof this change on the third quarter 2002 was a reduction of amortizationexpense of approximately $86,000 (or $52,000, net of tax.)

 

Total debt outstandingwas $43.9 million at September 30, 2002 compared to $27.2 million at September30, 2001.  The increase of $16.7 millionis primarily due to the purchase of additional aircraft.  Despite the increase in debt outstanding,third quarter 2002 interest expense was not significantly higher than the sameperiod in 2001, due to lower interest rates on the variable portion of theCompany’s revolving credit facility.

 

*Ninemonths ended September 30, 2002 compared to nine months ended September 30,2001*

 

Total net revenues were$111.4 million for the nine months ended September 30, 2002, an increase of$6.4 million, or 6.1%, over the same period of 2001.

 

Net revenues from Bankservices decreased $3.1 million, or 3.9%, to $76.3 million.  Weekday shipment volume was down 5.3% perflying day compared to last year.  Aportion of the relative lost volume is attributable to additional volumetransported during the days immediately following the September 11thtragedies last year. The lost volume is also partly attributable to a declinein interest rates during the past year which impacts transportation decisionsby the Company’s bank customers, as the time value of money becomes lesssignificant.  The decrease in weekdayshipment volume was partially offset by a 14.5% increase in weekend shipmentvolume, rate increases implemented in January 2002 averaging approximately2.2%, and the implementation of a 2.3% security surcharge in September.

 

Express service netrevenues increased $7.1 million, or 29.1%, to $31.4 million, compared to $24.3million last year.  Revenue from Mercurywas $6.6 million compared with $6.5 million last year.  Excluding Mercury, Express services revenueincreased 38.7% compared to last year, partly due to a 5% rate increase inFebruary 2002 and an increase in the security surcharge in August 2002.  Revenue from customers in the medicalindustry achieved solid sales gains compared to last year with revenuesincreasing 75.6% partially as a result of new customers utilizing AirNet’s transportation services todeliver cord blood to cryogenic facilities beginning in May of this year.

 

Aviation services revenuewas $3.7 million for the nine months ended September 30, 2002, an increase of$2.4 million over the same period of 2001, primarily due to the addition ofpassenger charter services which began operations in April 2001.

 

Total costs and expenseswere $104.2 million for the nine months ended September 30, 2002, an increaseof $8.6 million, or 9.0%, over the same period in 2001, resulting in incomefrom operations of $7.3 million for the nine months ended September 30, 2002,compared to $9.4 million for the same period of 2001.

 

Wages and benefits forthe nine months increased $2.1 million, or 14.4%, over the same period in2001.  AirNet had, on average, 29 morepilots during the nine months ended September 30, 2002 when compared to thesame period last year, due to growth in passenger charter services, theaddition of the weekend program for the check delivery business in the firstquarter of 2002 and previously vacant positions that have been filled in thepast year.  Operations staff was alsoadded in 2002 to support growth in the Express business and the weekend programfor the check delivery business.

 

11

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Fuel expense increased$2.2 million, or 22.9%, over the prior year due to a 10.8% increase inoperating hours flown and increased fuel prices which were not fully offset bythe Company’s fuel surcharge programs. The bank fuel surcharge rate was increased in August 2002 to help offsettiming differences between market prices and the index used for determiningsurcharge amounts.  During 2001 andthrough January 2002, AirNet’s Express customers paid a 4% temporary fuelsurcharge on most revenue under a separate program.  In February 2002, AirNet rescinded its 4% fuel surcharge onExpress services and implemented a surcharge program using the OPIS-CMH index.

 

Aircraft maintenanceexpense increased $0.6 million, or 6.5%, over the prior year due to moreaircraft and increased flight hours. Contracted air costs decreased $1.7 million, or 14.0%, from the prioryear due to decreased dependency on outside providers as a result of addingaircraft and pilots.  Ground couriercosts increased $1.1 million, or 6.8%, over the prior year reflecting theincrease in Express services volume.

 

Depreciation expense for the nine months ended September 30, 2002 increased$2.3 million over the same period last year due to the purchase ofaircraft.  Since September 30, 2001AirNet has purchased five Cessna Caravans and two Learjets, at a combined costof $10.1 million, to replace ten twin-engine piston aircraft.  Three Learjets dedicated to passengercharter services were also purchased during that twelve-month period at acombined cost of $10.8 million.

 

Aircraft lease expenseincreased $0.6 million due to leasing seven Cessna Caravans to support theweekend program for the check delivery business and two Learjets to support thegrowth in passenger charter services. The Company entered into an agreement to manage a Learjet in February2002, which resulted in costs of $0.2 million in 2002.  Aircraft insurance increased $0.3 million asthe result of the addition of aircraft to the fleet and premium increases inAugust.  Rent expense increased $0.2million due to additional and expanded regional offices and security relatedcosts experienced at several airport locations.

 

During the second quarter2001, AirNet recorded a $1.0 million charge for the retirement package of itsFounder and then Chairman.  Excludingthis charge, selling, general and administrative expense for the nine monthsended September 30, 2002 increased $1.0 million over the same period last yearlargely due to an increase in payroll primarily attributed to the completion ofstaffing of the regional support and sales staffs.  In accordance with SFAS 142, AirNet has eliminated amortizationof goodwill, effective January 1, 2002. For the nine months ended September 30, 2002, the effect of this changereduced amortization expense by approximately $257,000 (or $156,000 net oftax.)

 

During the second quarter of 2001, AirNet’s wholly-owned subsidiary,Float Control, Inc., reported a $1.7 million impairment on investment chargerelated to its investment in the Check Exchange System Co. (CHEXS).  The $1.7 million charge includedapproximately $0.3 million of goodwill and was primarily the result of the lossof a significant customer of CHEXS.

 

Total debt outstandingwas $43.9 million at September 30, 2002 compared to $27.2 million at September30, 2001.  The increase of $16.7 millionis primarily due to the purchase of additional aircraft.  Despite the increase in debt outstanding,interest expense decreased $0.1 million due to lower interest rates on thevariable portion of the Company’s revolving credit facility.

 

**Liquidityand Capital Resources**

 

*Cashflow from operating activities.*  Net cash provided by operating activities was $13.1 million forthe nine months ended September 30, 2002, compared to $16.2 million for thesame period in 2001.  AirNet paid $2.2million in August 2002 to renew the Company’s aircraft insurance for atwelve-month period.  In the past, AirNethad paid the aircraft insurance premium in installments;

 

12

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however, in 2002, the Company opted to pay the premium in advance totake advantage of a discount for prepayment.

 

*Currentcredit arrangements.*  In September 2002, the Company replacedits $50 million revolving credit agreement. The new credit agreement provides the Company with a three-year $35million unsecured revolving credit facility scheduled to expire on September30, 2005 and a five-year $20.0 million unsecured term loan.  The term loan requires quarterlyinstallments of $1.0 million.  Theagreement bears interest at the Company’s option of a fixed rate based uponLIBOR plus a margin determined by the Company’s leverage ratio as defined inthe agreement, or a floating rate based on the greater of the prime rate andthe sum of .5% plus the federal funds rate in effect from time to time.  The new agreement requires the maintenanceof certain minimum tangible net worth and cash flow levels, imposes certainlimitations on capital expenditures and the sale of assets, and restricts theamount of additional debt.

 

During first quarter 2002, AirNet entered into two five-year term loanstotaling approximately $3.0 million with fixed interest rates of 5.77%, eachsecured by an aircraft, and a $3.0 million term loan with a floating interest rate based upon LIBOR, securedby two aircraft.

 

As of September 30, 2002, there was $25.4 million of outstanding termdebt and $18.5 million outstanding and $16.5 million unused and available underthe line of credit.

 

*Investing activities.*  Capital expenditures totaled $25.4 millionfor the nine months ended September 30, 2002 compared to $13.5 million for thesame period in 2001.  Of the 2002expenditures, $11.0 million was for the purchase of four aircraft, including$6.6 million for a Learjet 60 dedicated to passenger charter services, and$13.5 million was for aircraft inspections, major engine overhauls and relatedflight equipment.  AirNet anticipates itwill have between $28.0 million and $30.0 million in total capital expendituresin 2002, including approximately $1.2 million expended to purchase the finalCessna Caravan under the purchase agreement entered into second quarter of2001, currently scheduled for delivery in the fourth quarter.   AirNet anticipates it will continue toacquire aircraft and flight equipment as necessary to maintain growth andcontinue offering quality service to its customers, and has committed topurchase a Learjet 35 no later than February 5, 2003 at a purchase price ofapproximately $1.5 million.  AirNet willcontinue to consider whether future asset acquisitions should be in the form ofpurchases or leases.

 

AirNet announced a stock repurchase program in February 2000 allowingAirNet to purchase up to $3.0 million of its common shares.  As of the end of the 2001 fiscal year, $2.4million of AirNet’s common shares had been repurchased.  There was no repurchase activity in thefirst nine months of 2002.  As such,purchases of approximately $0.6 million of the Company’s common shares maystill be made over time in the open market or through privately negotiatedtransactions.  Such future purchaseswould be considered based on current market conditions and the stock price.

 

AirNet anticipates that operating cash and capital expenditurerequirements will continue to be funded by cash flow from operations, cash onhand and bank borrowings in conjunction with the recently implemented creditfacility.

 

**Seasonalityand Variability in Quarterly Results**

 

AirNet’s operations historically have been somewhat seasonal andsomewhat dependent on the number of banking holidays falling during theweek.  Because financial institutionsare currently AirNet’s principal customers, AirNet’s air system is scheduledprimarily around the needs of financial institution customers.  When financial institutions are closed,there is no need for AirNet to operate a full system.  AirNet’s fiscal quarter ending December 31 is often the mostimpacted by bank holidays (including Thanksgiving and Christmas) recognized byits primary customers.  When theseholidays fall on Monday through Thursday, AirNet’s revenue and net income areadversely affected. AirNet’s annual results fluctuate as well based on whenholidays fall during the week over the course of the year.

 

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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.

 

**Item3.            Quantitative and QualitativeDisclosures About Market Risk**

 

**Inflation and Interest Rates**

 

AirNet is exposed to certain market risks from transactions that areentered into during the normal course of business.  AirNet’s primary market risk exposure relates to interest raterisk.  At September 30, 2002, AirNet hada $38.5 million outstanding balance on our credit facility subject to marketrate changes in interest.  This facilitybears interest at AirNet’s option of a fixed rate determined by the Eurodollarrate or a floating rate.  Assumingborrowing levels at September 30, 2002, a one hundred basis point change ininterest rates would impact net interest expense by approximately $385,000 peryear.

 

In February 2002, AirNet entered into an interest rateswap agreement with a bank relative to a $3.0 million term loan, with anotional amount of $3.0 million and a fixed rate of 4.25% plus a margin based onAirNet’s funded debt ratio.  AtSeptember 30, 2002, the aggregate fair value of the interest rate swap wasapproximately ($105,000).

 

**FuelSurcharge**

 

AirNet has historicallymaintained a fuel surcharge/rebate program for its Bank customers.  Under this program, as the OPIS-CMH (OhioPrice Information Service – Columbus, Ohio Station) price of jet fuel exceeds$0.75 per gallon, Bank customers are surcharged.  In turn, if the OPIS-CMH price falls below $0.60 per gallon, thesame customers receive a rebate.  InAugust, AirNet increased the fuel surcharge rate to better match its coststructure with the OPIS-CMH index.

 

During 2001 and throughJanuary 2002, AirNet’s Express customers paid a 4% temporary fuel surcharge onmost revenue under a separate program.  In February 2002, AirNet rescinded its 4% fuel surcharge onExpress services and implemented a surcharge program using the OPIS-CMHindex.  Under this program, as theOPIS-CMH price of jet fuel exceeds $0.80 per gallon, Express customers aresurcharged.

 

**Item 4.    Controls and Procedures**

 

**Evaluation of Disclosure Controls andProcedures**

 

Within ninety days priorto the filing date of this quarterly report, an evaluation was performed byAirNet Systems, Inc. under the supervision and with the participation of itsmanagement, including the Chief Executive Officer (the “CEO”) and ChiefFinancial Officer (the “CFO”), of the effectiveness of the design and operationof AirNet Systems, Inc.’s disclosure controls and procedures, as contemplatedby Rule13a-15 under the Securities Exchange Act of 1934, as amended.  Based upon that evaluation, AirNet Systems,Inc.’s management, including the CEO and CFO concluded that the Company’sdisclosure controls and procedures were effective to ensure that materialinformation relating to AirNet Systems, Inc., including its consolidatedsubsidiaries, is made known to them, particularly during the period for whichthe periodic reports are being prepared.

 

**Changes in Internal Controls**

 

There have been nosignificant changes in the Company’s internal controls or in other factors thatcould significantly affect these controls subsequent to the date of theevaluation pursuant to Exchange Act Rule 13a-15 referred to above.

 

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**AIRNET SYSTEMS, INC.**

 

**PARTII - OTHER INFORMATION**

 
| Item 1. | Legal Proceedings**.**                                                                                                                                                                                                                                                                                                                |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                  |
|    | There are no pending legal proceedings involving  AirNet other than routine litigation incidental to its business.  In the opinion of AirNet’s management,  these proceedings should not, individually or in the aggregate, have a  material adverse effect on AirNet’s results of operations or financial  condition. |
|    |                                                                                                                                                                                                                                                                                                                                  |
| Item 2. | Changes in Securities and Use of Proceeds. Not  Applicable                                                                                                                                                                                                                                                                            |
|    |                                                                                                                                                                                                                                                                                                                                  |
| Item 3. | Defaults Upon Senior Securities.  Not Applicable                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                  |
| Item 4. | Submission of Matters to a Vote of Security  Holders.  Not Applicable                                                                                                                                                                                                                                                            |
|    |                                                                                                                                                                                                                                                                                                                                  |
| Item 5. | Other Information.                                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                  |
| Item 6. | Exhibits and Reports  on Form 8-K.                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                  |
|    | (a)                                                                                                                                                                                                                                                                                                                                   | Exhibits (filed  herewith): |
|    |                                                                                                                                                                                                                                                                                                                                  |
|    |                                                                                                                                                                                                                                                                                                                                  | **Exhibit No.** |   | **Description** |   |
|    |                                                                                                                                                                                                                                                                                                                                  | 4.1 |   | Credit Agreement among The Huntington National Bank  and AirNet Systems, Inc., dated September 30, 2002 |   |
|    |                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
|    |                                                                                                                                                                                                                                                                                                                                  | 99.1 |   | Certification  Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer) |   |
|    |                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
|    |                                                                                                                                                                                                                                                                                                                                  | 99.2 |   | Certification  Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer) |   |
|    |                                                                                                                                                                                                                                                                                                                                  |   |   |   |
|    | (b)                                                                                                                                                                                                                                                                                                                                   | Reports on Form 8-K: |
|    |                                                                                                                                                                                                                                                                                                                                  |   |
|    |                                                                                                                                                                                                                                                                                                                                  | No Current Reports on Form 8-K were filed during the  fiscal quarter ended September 30, 2002. |
|         |                                                                                                                                                                                                                                                                                                                                       |  |  |  |  |  |

 

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**AIRNET SYSTEMS, INC.**

 

**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 
| Dated:  November 12, 2002 | By:    | /s/ William R. Sumser                                                              |   |
|--------------------------------|--------|------------------------------------------------------------------------------------|--------|
|                           |   | William R. Sumser,                                                                 |
|                           |   | Chief Financial  Officer  (Duly Authorized Officer)  (Principal Financial Officer) |

 

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CERTIFICATIONS

 

I, Joel E. Biggerstaff, certify that:

 

1.                                       I have reviewed this quarterly report onForm 10-Q of AirNet Systems, Inc.;

 

2.                                       Based on my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periods presentedin this quarterly report;

 

4.                                       The registrant’s other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

 

a)             designed such disclosure controlsand procedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly report is being prepared;

 

b)            evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)             presented in this quarterly reportour conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifyingofficers and I******havedisclosed, based on our most recent evaluation, to the registrant’s auditorsand the audit committee of the registrant’s board of directors (or personsperforming the equivalent function):

 

a)             all significant deficiencies in thedesign or operation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)            any fraud, whether or not material,that involves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.                                       The registrant’s other certifyingofficers and I******haveindicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

Dated:  November 12, 2002
|   | /s/ Joel E.  Biggerstaff                                                   |
|--------|----------------------------------------------------------------------------|
|   | Printed Name:  Joel E. Biggerstaff                                    |
|   | Title:  Chairman of the Board, President  and Chief Executive Officer |

 

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I, William R. Sumser, certify that:

 

1.                                       I have reviewed this quarterly report onForm 10-Q of AirNet Systems, Inc.;

 

2.                                       Based on my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.                                       The registrant’s other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

 

a)             designed such disclosure controlsand procedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly report is being prepared;

 

b)            evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)             presented in this quarterly reportour conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifyingofficers and I******havedisclosed, based on our most recent evaluation, to the registrant’s auditorsand the audit committee of the registrant’s board of directors (or personsperforming the equivalent function):

 

a)             all significant deficiencies in thedesign or operation of internal controls which could adversely affect theregistrant’s ability to record, process, summarize and report financial dataand have identified for the registrant’s auditors any material weaknesses ininternal controls; and

 

b)            any fraud, whether or not material,that involves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.                                       The registrant’s other certifyingofficers and I******haveindicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

Dated:  November 12, 2002
|   | /s/ William R. Sumser                                                                   |
|--------|-----------------------------------------------------------------------------------------|
|   | Printed Name:  William R. Sumser                                                   |
|   | Title:  Chief Financial Officer, Treasurer,  Secretary and Vice President, Finance |

 

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**AIRNET SYSTEMS, INC.**

 

**INDEX TO EXHIBITS**

 
| **Exhibit No.** |   | **Description**                                                                                                                                                         |
|-----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.1             |   | Credit Agreement among The Huntington National Bank,  Fifth Third Bank, Bank One, N.A. and AirNet Systems, Inc., dated September  30, 2002                              |
|            |   |                                                                                                                                                                    |
| 99.1            |   | Certification  Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)* |
|            |   |                                                                                                                                                                    |
| 99.2            |   | Certification  Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)* |

 

----

*Filed herewith.

 

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