##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission File Number 1-13025
 AirNet Systems, Inc.
  Ohio
    
    31-1458309(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 7250 Star Check Drive
Columbus, Ohio 43217
 (614) 409-4900
 Not Applicable
 þ o
 o þ




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TABLE OF CONTENTS
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets: June 30, 2005 (Unaudited) and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations (Unaudited): Three and Six Months Ended June 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited): Six Months Ended June 30, 2005 and 2004
    
    
    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
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3. Defaults Upon Senior Securities
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 5. Other Information
    
    
    23Item 6. Exhibits
    
    
    24SIGNATURES
    
    
    25INDEX TO EXHIBITS
    
    
    26EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



AIRNET SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 In thousands, except par value
    
    June 30,
    
    December 31,2005
    
    2004(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,126
    
    
    $
    1,086Accounts receivable, less allowances
    
    
    23,414
    
    
    
    24,591Inventory
    
    
    265
    
    
    
    502Taxes receivable
    
    
    1,286
    
    
    
    1,137Deferred income taxes
    
    
    446
    
    
    
    187Deposits and prepaids
    
    
    2,576
    
    
    
    2,820Total current assets
    
    
    29,113
    
    
    
    30,323Net property and equipment
    
    
    112,495
    
    
    
    106,816Deposits and other assets
    
    
    330
    
    
    
    331Total assets
    
    $
    141,938
    
    
    $
    137,470LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    10,892
    
    
    $
    11,311Salaries and related liabilities
    
    
    5,233
    
    
    
    4,496Deferred revenue
    
    
    
    
    
    
    102Accrued expenses
    
    
    1,238
    
    
    
    912Current portion of notes payable
    
    
    3,141
    
    
    
    3,076Total current liabilities
    
    
    20,504
    
    
    
    19,897Other liabilities
    
    
    378
    
    
    
    670Notes payable, less current portion
    
    
    57,199
    
    
    
    59,169Deferred income taxes
    
    
    9,740
    
    
    
    7,268Shareholders 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
shares issued at March 31, 2005 and at December 31, 2004
    
    
    128
    
    
    
    128Additional paid-in-capital
    
    
    76,608
    
    
    
    76,835Retained earnings (deficit)
    
    
    1,363
    
    
    
    (2,208
    )Accumulated other comprehensive loss
    
    
    (6
    )
    
    
    (13
    )Treasury shares, 2,635and 2,644 common shares held at cost at
June 30, 2005 and December 31, 2004, respectively
    
    
    (23,976
    )
    
    
    (24,276
    )Total shareholders equity
    
    
    54,117
    
    
    
    50,466Total liabilities and shareholders equity
    
    $
    141,938
    
    
    $
    137,470
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AIRNET SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 In thousands, except per share data
    
    Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004NET REVENUESDelivery services, net of excise tax:Bank services
    
    $
    28,845
    
    
    $
    26,230
    
    
    $
    56,138
    
    
    $
    52,062Express services
    
    
    12,428
    
    
    
    12,083
    
    
    
    25,533
    
    
    
    22,881Total delivery services revenues
    
    
    41,273
    
    
    
    38,313
    
    
    
    81,671
    
    
    
    74,943Passenger charter services
    
    
    8,499
    
    
    
    3,616
    
    
    
    17,827
    
    
    
    7,253Aviation services and other operations
    
    
    117
    
    
    
    211
    
    
    
    284
    
    
    
    415Total net revenues
    
    
    49,889
    
    
    
    42,140
    
    
    
    99,782
    
    
    
    82,611COSTS AND EXPENSESWages and benefits
    
    
    6,194
    
    
    
    6,251
    
    
    
    12,398
    
    
    
    12,123Aircraft fuel
    
    
    8,921
    
    
    
    6,186
    
    
    
    17,175
    
    
    
    11,722Aircraft maintenance
    
    
    4,782
    
    
    
    3,690
    
    
    
    10,169
    
    
    
    6,881Contracted air costs
    
    
    3,826
    
    
    
    3,127
    
    
    
    7,094
    
    
    
    6,198Ground courier
    
    
    7,642
    
    
    
    7,887
    
    
    
    15,531
    
    
    
    15,029Depreciation
    
    
    3,628
    
    
    
    5,050
    
    
    
    7,270
    
    
    
    9,939Insurance, rent and landing fees
    
    
    2,326
    
    
    
    2,638
    
    
    
    5,136
    
    
    
    5,202Travel, training and other
    
    
    3,746
    
    
    
    2,264
    
    
    
    6,941
    
    
    
    4,536Selling, general and administrative
    
    
    4,974
    
    
    
    4,842
    
    
    
    10,461
    
    
    
    9,562Net (gain) loss on disposition of assets
    
    
    (2
    )
    
    
    (3
    )
    
    
    (52
    )
    
    
    289Total costs and expenses
    
    
    46,037
    
    
    
    41,932
    
    
    
    92,123
    
    
    
    81,481Income from operations
    
    
    3,852
    
    
    
    208
    
    
    
    7,659
    
    
    
    1,130Interest expense
    
    
    1,024
    
    
    
    407
    
    
    
    1,879
    
    
    
    774Income (loss) before income taxes
    
    
    2,828
    
    
    
    (199
    )
    
    
    5,780
    
    
    
    356Provision (benefit) for income taxes
    
    
    774
    
    
    
    (86
    )
    
    
    2,209
    
    
    
    153Net income (loss)
    
    $
    2,054
    
    
    
    ($113
    )
    
    $
    3,571
    
    
    $
    203Net income (loss) per share  basic and diluted
    
    $
    0.20
    
    
    
    ($0.01
    )
    
    $
    0.35
    
    
    $
    0.02
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AIRNET SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 In thousands
    
    Six Months EndedJune 30,2005
    
    2004Operating activities:Net income
    
    $
    3,571
    
    
    $
    203Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    7,270
    
    
    
    9,939Deferred taxes
    
    
    2,210
    
    
    
    98Provision for losses on accounts receivable
    
    
    93
    
    
    
    117(Gain) loss on disposition of assets
    
    
    (52
    )
    
    
    289Cash provided by (used in) operating assets and liabilities:Accounts receivable
    
    
    1,084
    
    
    
    (2,599
    )Inventory
    
    
    237
    
    
    
    (1,045
    )Deposits and prepaids
    
    
    245
    
    
    
    1,260Accounts payable
    
    
    (711
    )
    
    
    2,106Deferred revenues and accrued expenses
    
    
    224
    
    
    
    2,103Taxes receivable
    
    
    (145
    )
    
    
    (160
    )Salaries and related liabilities
    
    
    737
    
    
    
    (387
    )Other, net
    
    
    7
    
    
    
    62Net cash provided by operating activities
    
    
    14,770
    
    
    
    11,986Investing activities:Purchases of property and equipment
    
    
    (13,053
    )
    
    
    (34,625
    )Proceeds from sales of property and equipment
    
    
    156
    
    
    
    3,103Net cash used in investing activities
    
    
    (12,897
    )
    
    
    (31,522
    )Financing activities:Proceeds from incentive stock plan programs
    
    
    69
    
    
    
    80Net (repayments) borrowings under revolving credit facilities
    
    
    (500
    )
    
    
    4,000(Repayments) borrowings under term loans
    
    
    (1,405
    )
    
    
    16,575Issuance of treasury shares
    
    
    3
    
    
    
    94Net cash (used in) provided by financing activities
    
    
    (1,833
    )
    
    
    20,749Net increase in cash
    
    
    40
    
    
    
    1,213Cash and cash equivalents at beginning of period
    
    
    1,086
    
    
    
    125Cash and cash equivalents at end of period
    
    $
    1,126
    
    
    $
    1,338
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AIRNET SYSTEMS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Basis of Presentation
      2. Segment Reporting
  6




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(in thousands):
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net RevenuesDelivery Services
    
    $
    41,273
    
    
    $
    38,313
    
    
    $
    81,671
    
    
    $
    74,943Passenger Charter Services
    
    
    8,499
    
    
    
    3,616
    
    
    
    17,827
    
    
    
    7,253Total net revenues
    
    $
    49,772
    
    
    $
    41,929
    
    
    $
    99,498
    
    
    $
    82,196Contribution MarginDelivery Services
    
    $
    6,746
    
    
    $
    3,307
    
    
    $
    13,142
    
    
    $
    6,825Passenger Charter Services
    
    
    1,299
    
    
    
    407
    
    
    
    2,808
    
    
    
    1,216Total contribution margin
    
    $
    8,045
    
    
    $
    3,714
    
    
    $
    15,950
    
    
    $
    8,041Depreciation ExpenseDelivery Services
    
    $
    2,831
    
    
    $
    4,401
    
    
    $
    5,758
    
    
    $
    8,740Passenger Charter Services
    
    
    492
    
    
    
    345
    
    
    
    1,018
    
    
    
    643Total depreciation expense
    
    $
    3,323
    
    
    $
    4,746
    
    
    $
    6,776
    
    
    $
    9,383
 (in thousands):
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reportable segment net revenues
    
    $
    49,772
    
    
    $
    41,929
    
    
    $
    99,498
    
    
    $
    82,196Aviation services and other
    
    
    117
    
    
    
    211
    
    
    
    284
    
    
    
    415Total net revenues
    
    $
    49,889
    
    
    $
    42,140
    
    
    $
    99,782
    
    
    $
    82,611
 (in
thousands):
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reportable segment contribution margin
    
    $
    8,045
    
    
    $
    3,714
    
    
    $
    15,950
    
    
    $
    8,041Net selling and administrative expenses
excluded from reportable segment
contribution margin
    
    
    (4,193
    )
    
    
    (3,506
    )
    
    
    (8,291
    )
    
    
    (6,911
    )Income from operations
    
    $
    3,852
    
    
    $
    208
    
    
    $
    7,659
    
    
    $
    1,130
 (in thousands):
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reportable segment depreciation
    
    $
    3,323
    
    
    $
    4,746
    
    
    $
    6,776
    
    
    $
    9,383Corporate depreciation
    
    
    305
    
    
    
    304
    
    
    
    494
    
    
    
    556Total depreciation expense
    
    $
    3,628
    
    
    
    5,050
    
    
    $
    7,270
    
    
    $
    9,939
 3. Stock Plans and Awards
 7




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Accounting for Stock
Issued to Employees, Accounting for Stock-Based Compensation  Transition and
Disclosure Accounting for Stock-Based
Compensation
 Share-Based Payment Accounting for Stock Issued to Employees" Statement of Cash Flows 
  1.
    
    A modified prospective method in which compensation cost is recognized beginning with
the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based
payments granted after the effective date and (b) based on the requirements of SFAS No. 123
for all awards granted to employees prior to the effective date of SFAS No. 123(R) that
remain unvested on the effective date.2.
    
    A modified retrospective method which includes the requirements of the modified
prospective method described above, but also permits entities to restate financial
statements based on the amounts previously recognized under SFAS No. 123 for purposes of
pro forma disclosures either (a) all prior periods presented or (b) prior interim periods
of the year of adoption.
   8




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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss), as reported
    
    $
    1,895
    
    
    $
    (113
    )
    
    $
    3,412
    
    
    $
    203Deduct: Total stock-based employee
compensation expense determined under fair
value method for all awards, net of related tax
effects
    
    
    (28
    )
    
    
    (29
    )
    
    
    (51
    )
    
    
    (182
    )Pro forma net income (loss)
    
    $
    1,867
    
    
    $
    (142
    )
    
    $
    3,361
    
    
    $
    21Net income (loss) per share  basic and diluted:As reported
    
    $
    .20
    
    
    $
    (.01
    )
    
    $
    .35
    
    
    $
    .02Pro forma
    
    $
    .18
    
    
    $
    (.01
    )
    
    $
    .33
    
    
    $
    .00
 4. Income (Loss) Per Share
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Numerator:Net income (loss)
    
    $
    2,054
    
    
    $
    (113
    )
    
    $
    3,571
    
    
    $
    203Denominator:Basic  weighted average shares outstanding
    
    
    10,127
    
    
    
    10,076
    
    
    
    10,123
    
    
    
    10,063DilutedStock optionsemployees, officers, and directors
    
    
    32
    
    
    
    40
    
    
    
    16
    
    
    
    35Adjusted weighted average shares outstanding
    
    
    10,159
    
    
    
    10,116
    
    
    
    10,139
    
    
    
    10,098Net income (loss) per share 
Basic and diluted
    
    $
    .20
    
    
    $
    (.01
    )
    
    $
    .35
    
    
    $
    .02
  5. Comprehensive Income
  9




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




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Other Term Notes
   7. Income Taxes
  8. Contingencies
  9. Subsequent Events
  11




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%
 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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Results of Operations
 Net Revenues
 Three
Months Ended
    
    
    
    
    
    

Increase 
(Decrease)
   

Six
Months Ended
    
    
    
    
    
        
Increase
(Decrease)June 30,
    
    
    
    
    
    
    2005 to 2004

    
    June 30,
    
    
    
    
    
    
    2005 to 2004Dollars in 000s
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    % ofNet Revenues
    
    2005
    
    
    Total
    
    2004
    
    
    Total

    
    $
    
    
    
    %
    
    2005
    
    
    Total
    
    
    2004
    
    
    Total
    
    
    $
    
    
    %Delivery Services Revenues:Bank Services
    
    $
    28,845
    
    
    
    57.9
    %
    
    $
    26,230
    
    
    
    62.2
    %
    
    $
    2,615
    
    
    
    10.0
    %
    
    $
    56,138
    
    
    
    56.3
    %
    
    $
    52,062
    
    
    
    63.0
    %
    
    $
    4,076
    
    
    
    7.8
    %Express Services
    
    
    12,428
    
    
    
    24.9
    %
    
    
    12,083
    
    
    
    28.7
    %
    
    
    345
    
    
    
    2.9
    %
    
    
    25,533
    
    
    
    25.6
    %
    
    
    22,881
    
    
    
    27.7
    %
    
    
    2,652
    
    
    
    11.6
    %Total Delivery Services Revenues
    
    
    41,273
    
    
    
    82.8
    %
    
    
    38,313
    
    
    
    90.9
    %
    
    
    2,960
    
    
    
    7.7
    %
    
    
    81,671
    
    
    
    81.9
    %
    
    
    74,943
    
    
    
    90.7
    %
    
    
    6,728
    
    
    
    9.0
    %Passenger Charter Services Revenues
    
    
    8,499
    
    
    
    17.0
    %
    
    
    3,616
    
    
    
    8.6
    %
    
    
    4,883
    
    
    
    135.0
    %
    
    
    17,827
    
    
    
    17.9
    %
    
    
    7,253
    
    
    
    8.8
    %
    
    
    10,574
    
    
    
    145.8
    %Aviation Services and Other Revenues
    
    
    117
    
    
    
    0.2
    %
    
    
    211
    
    
    
    0.5
    %
    
    
    (94
    )
    
    
    (44.5
    )%
    
    
    284
    
    
    
    0.2
    %
    
    
    415
    
    
    
    0.5
    %
    
    
    (131
    )
    
    
    (31.6
    )%Total Net Revenues
    
    $
    49,889
    
    
    
    100.0
    %
    
    $
    42,140
    
    
    
    100.0
    %
    
    $
    7,749
    
    
    
    18.4
    %
    
    $
    99,782
    
    
    
    100.0
    %
    
    $
    82,611
    
    
    
    100.0
    %
    
    $
    17,171
    
    
    
    20.8
    %
   Bank Services Revenues
 Three Months Ended
    
    
    Increase (Decrease)
    
    Six Months Ended
    
    
    Increase(Decrease)Dollars in 000s
    
    June 30,
    
    
    2005 to 2004

    
    June 30,
    
    
    2005 to 2004Bank Services Revenues
    
    2005
    
    
    2004
    
    
    $
    
    
    %
    
    2005
    
    
    2004
    
    
    $
    
    
    %Bank Services Revenues, Net of
Federal Excise Tax Fees
    
    $
    26,003
    
    
    $
    25,080
    
    
    $
    923
    
    
    
    3.7
    %
    
    $
    51,185
    
    
    $
    49,958
    
    
    $
    1,227
    
    
    
    2.5
    %Fuel Surcharge
    
    
    2,842
    
    
    
    1,150
    
    
    
    1,692
    
    
    
    147.1
    %
    
    
    4,953
    
    
    
    2,104
    
    
    
    2,849
    
    
    
    135.4
    %Total Net Bank Services Revenues
    
    $
    28,845
    
    
    $
    26,230
    
    
    $
    2,615
    
    
    
    10.0
    %
    
    $
    56,138
    
    
    $
    52,062
    
    
    $
    ,076
    
    
    
    7.8
    %
   14




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Express Services Revenues
 Dollars in 000s
    
    Three Months Ended
    
    
    Increase(Decrease)
    
    Six Months Ended
    
    
    Increase (Decrease)June 30,
    
    
    2005 to 2004
    
    June 30,
    
    
    2005 to 2004Express Services Revenues
    
    2005
    
    
    2004
    
    
    $
    
    
    %
    
    2005
    
    
    2004
    
    
    $
    
    
    %Express Revenues  Non Charter
    
    $
    8,214
    
    
    $
    9,073
    
    
    $
    (859
    )
    
    
    (9.5
    )%
    
    $
    17,244
    
    
    $
    17,138
    
    
    $
    106
    
    
    
    0.6
    %Express Revenues  Charters
    
    
    3,621
    
    
    
    2,960
    
    
    
    661
    
    
    
    22.3
    %
    
    
    7,208
    
    
    
    5,692
    
    
    
    1,516
    
    
    
    26.6
    %Fuel Surcharge
    
    
    1,012
    
    
    
    437
    
    
    
    575
    
    
    
    131.6
    %
    
    
    1,888
    
    
    
    761
    
    
    
    1,127
    
    
    
    148.1
    %Federal Excise Tax Fee
    
    
    (419
    )
    
    
    (387
    )
    
    
    (32
    )
    
    
    (8.3
    )%
    
    
    (807
    )
    
    
    (710
    )
    
    
    (97
    )
    
    
    (13.7
    )%Net Express Services Revenues
    
    $
    12,428
    
    
    $
    12,083
    
    
    $
    345
    
    
    
    2.9
    %
    
    $
    25,533
    
    
    $
    22,881
    
    
    $
    2,652
    
    
    
    11.6
    %
    Passenger Charter Services Revenues
 Dollars in 000s
    
    Three Months Ended
    
    
    Increase(Decrease)
    
    Six Months Ended
    
    
    Increase(Decrease)June 30,
    
    
    2005 to 2004
    
    June 30,
    
    
    2005 to 2004Passenger Charter Services Revenues
    
    2005
    
    
    2004
    
    
    $
    
    
    %
    
    2005
    
    
    2004
    
    
    $
    
    
    %Passenger Charter Services revenues
    
    $
    7,525
    
    
    $
    3,375
    
    
    $
    4,150
    
    
    
    123.0
    %
    
    $
    16,084
    
    
    $
    6,764
    
    
    $
    9,320
    
    
    
    137.8
    %Management fee revenues
    
    
    421
    
    
    
    127
    
    
    
    294
    
    
    
    231.5
    %
    
    
    784
    
    
    
    253
    
    
    
    531
    
    
    
    209.9
    %Fuel Surcharge
    
    
    553
    
    
    
    114
    
    
    
    439
    
    
    
    385.1
    %
    
    
    959
    
    
    
    236
    
    
    
    723
    
    
    
    306.4
    %Total Passenger Charter services revenues
    
    $
    8,499
    
    
    $
    3,616
    
    
    $
    4,883
    
    
    
    135.0
    %
    
    $
    17,827
    
    
    $
    7,253
    
    
    $
    10,574
    
    
    
    145.8
    %
  15




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##### Table of Contents



Costs and Expenses
 Dollars in 000s
    

Three Months Ended
    
    

Increase (Decrease)
    

Six Months Ended
    
    
    Increase (Decrease)June 30,
    
    
    2005 to 2004
    
    June 30,
    
    
    2005 to 2004Costs and Expenses
    
    2005
    
    
    2004
    
    
    $
    
    
    %
    
    2005
    
    
    2004
    
    
    $
    
    
    %Wages and benefits
    
    $
    6,194
    
    
    $
    6,251
    
    
    $
    (57
    )
    
    
    (0.9
    )%
    
    $
    12,398
    
    
    $
    12,123
    
    
    $
    275
    
    
    
    2.3
    %Aircraft fuel
    
    
    8,921
    
    
    
    6,186
    
    
    
    2,735
    
    
    
    44.2
    %
    
    
    17,175
    
    
    
    11,722
    
    
    
    5,453
    
    
    
    46.5
    %Aircraft maintenance
    
    
    4,782
    
    
    
    3,690
    
    
    
    1,092
    
    
    
    29.6
    %
    
    
    10,169
    
    
    
    6,881
    
    
    
    3,288
    
    
    
    47.8
    %Contracted air costs
    
    
    3,826
    
    
    
    3,127
    
    
    
    699
    
    
    
    22.4
    %
    
    
    7,094
    
    
    
    6,198
    
    
    
    896
    
    
    
    14.5
    %Ground courier
    
    
    7,642
    
    
    
    7,887
    
    
    
    (245
    )
    
    
    (3.1
    )%
    
    
    15,531
    
    
    
    15,029
    
    
    
    502
    
    
    
    3.3
    %Depreciation
    
    
    3,628
    
    
    
    5,050
    
    
    
    (1,422
    )
    
    
    (28.2
    )%
    
    
    7,270
    
    
    
    9,939
    
    
    
    (2,669
    )
    
    
    (26.9
    )%Insurance, rent and landing fees
    
    
    2,326
    
    
    
    2,638
    
    
    
    (312
    )
    
    
    (11.8
    )%
    
    
    5,136
    
    
    
    5,202
    
    
    
    (66
    )
    
    
    (1.3
    )%Travel, training and other
    
    
    3,746
    
    
    
    2,264
    
    
    
    1,482
    
    
    
    65.5
    %
    
    
    6,941
    
    
    
    4,536
    
    
    
    2,405
    
    
    
    53.0
    %Selling, general and administrative
    
    
    4,974
    
    
    
    4,842
    
    
    
    132
    
    
    
    2.7
    %
    
    
    10,461
    
    
    
    9,562
    
    
    
    899
    
    
    
    9.4
    %Net (gain) loss on disposition of assets
    
    
    (2
    )
    
    
    (3
    )
    
    
    1
    
    
    
    33.3
    %
    
    
    (52
    )
    
    
    289
    
    
    
    (341
    )
    
    
    (118.0
    )%Total
costs and expenses
    
    $
    46,037
    
    
    $
    41,932
    
    
    $
    4,105
    
    
    
    9.8
    %
    
    $
    92,123
    
    
    $
    81,481
    
    
    $
    10,642
    
    
    
    13.1
    %Hours
flown  Total
    
    
    26,592
    
    
    
    26,187
    
    
    
    405
    
    
    
    1.5
    %
    
    
    55,325
    
    
    
    51,951
    
    
    
    3,374
    
    
    
    6.5
    %
  16




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##### Table of Contents



Dollars in 000s
    
    Three Months Ended
    
    
    Increase (Decrease)
    

    Six Months Ended
    
    
    Increase (Decrease)June 30,
    
    
    2005 to 2004
    
    June 30,
    
    
    2005 to 2004Aircraft Fuel
    
    2005
    
    
    2004
    
    
    $
    
    
    %
    
    
    2005
    
    
    2004
    
    
    $
    
    
    %Aircraft fuel
    
    $
    8,921
    
    
    $
    6,186
    
    
    $
    2,735
    
    
    
    44.2
    %
    
    $
    7,175
    
    
    $
    11,722
    
    
    $
    5,453
    
    
    
    46.5
    %Less  Fuel surcharge revenues
related to AirNet operated aircraft
    
    
    (4,022
    )
    
    
    (1,549
    )
    
    
    (2,473
    )
    
    
    (159.7
    )%
    
    
    (7,067
    )
    
    
    (2,829
    )
    
    
    (4,238
    )
    
    
    (149.8
    )%Net
    
    $
    4,899
    
    
    $
    4,637
    
    
    $
    262
    
    
    
    5.7
    %
    
    $
    10,108
    
    
    $
    8,893
    
    
    $
    1,215
    
    
    
    13.7
    %
       17




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##### Table of Contents



Liquidity and Capital Resources
 Cash flow from operating activities.
 Financing Matters
     18




---



##### Table of Contents



Investing activities.
   19




---



##### Table of Contents



Regulation
   20




---



##### Table of Contents



Brown Gibbons Lang & Company
      Off-Balance Sheet Arrangements
  Seasonality and Variability in Quarterly Results
  21




---



##### Table of Contents



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
  
    
    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 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.
 22




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 .
    
  (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 June 30, 2005. 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
June 30, 2005, AirNet Systems, Inc. had the authority to still repurchase
approximately $0.6 million of its common shares under this stock repurchase
plan.
 
  
  
   23




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##### Table of Contents



Exhibit No.
    
    Description31.1
    
    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)
 24




---



##### Table of Contents



AIRNET SYSTEMS, INC.
 
 SIGNATURES
  AIRNET SYSTEMS, INC.Dated: August 15, 2005
    
    
    
    By:
    
    /s/ Gary W. QualmannGary W. Qualmann,Chief Financial Officer, Treasurer and Secretary(Duly Authorized Officer)(Principal Financial Officer)Dated: August 15, 2005
    
    
    
    By:
    
    /s/ Ray L. DruseikisRay L. Druseikis,Controller(Duly Authorized Officer)(Principal Accounting Officer)
 25




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##### Table of Contents



AIRNET SYSTEMS, INC.
 
 INDEX TO EXHIBITS
 Exhibit No.
    
    Description31.1
    
    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)
 26