**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  June 30, 2003**                                                                                                          |
|                                                                                                                                                            |   |
| **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 ofregistrant as specified in its charter)

 

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

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).Yes o No ý

 

 

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As of August 8, 2003, there were 10,150,347 shares of theregistrant’s common stock, par value $0.01, outstanding.

 

 

**TABLE OF CONTENTS**

 
| **PART I. FINANCIAL  INFORMATION** |
|------------------------------------|
|                               |
| Item 1.                       | Financial Statements: |
|                               |   |
|                               | Condensed Consolidated Balance Sheets:  June 30, 2003 (Unaudited) and December 31, 2002 |
|                               |   |
|                               | Condensed Consolidated Statements of  Operations (Unaudited):  Three and Six Months Ended June 30, 2003 and 2002 |
|                               |   |
|                               | Condensed Consolidated Statements of Cash  Flows (Unaudited):  Six Months Ended June 30, 2003 and 2002 |
|                               |   |
|                               | Notes to Condensed Consolidated Financial  Statements (Unaudited) |
|                               |   |
| Item 2.                       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|                               |   |
| Item 3.                       | Quantitative  and Qualitative Disclosures about Market Risk |
|                               |   |
| Item 4.                       | Controls  and Procedures |
|                               |   |
| **PART II. OTHER INFORMATION**     |
|                               |
| Item 1.                            | Legal Proceedings |
|                               |   |
| Item 2.                            | Changes in Securities and Use of Proceeds |
|                               |   |
| Item 3.                            | Defaults Upon Senior Securities |
|                               |   |
| Item 4.                            | Submission of Matters to a Vote of Security  Holders |
|                               |   |
| Item 5.                            | Other Information |
|                               |   |
| Item 6.                            | Exhibits and Reports on Form 8-K |
|                               |   |
| SIGNATURE                          |
|                               |
| INDEX TO EXHIBITS                  |
|                               |
| CERTIFICATIONS                     |

 

2

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**AIRNET SYSTEMS, INC.**

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 
| **In thousands**                                                                                                                    |   | **June 30,  2003** |        | **December 31,  2002** |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------|-----------------------------|--------|
|                                                                                                                                |   | **(unaudited)**         |        |                        |   |
| **ASSETS**                                                                                                                          |   |                    | ** **  |                        |   |
| Current assets:                                                                                                                     |   |                    | ** **  |                        |   |
| Cash and cash equivalents                                                                                                           |   | **$**                   | **231**     | ** **                  | $      | 1,484 |   |
| Accounts receivable, less allowances                                                                                                |   | **17,062**              | ** **  | 19,029                      |   |
| Inventory and spare parts                                                                                                           |   | **7,100**               | ** **  | 6,926                       |   |
| Deferred taxes                                                                                                                      |   | **1,529**               | ** **  | 220                         |   |
| Deposits and prepaids                                                                                                               |   | **2,421**               | ** **  | 3,675                       |   |
| Assets held for sale                                                                                                                |   | **1,005**               | ** **  | —                      |   |
| Total current assets                                                                                                                |   | **29,348**              | ** **  | 31,334                      |   |
|                                                                                                                                |   |                    | ** **  |                        |   |
| Net property and equipment                                                                                                          |   | **111,419**             | ** **  | 111,349                     |   |
| Other assets:                                                                                                                       |   |                    | ** **  |                        |   |
| Goodwill, net of accumulated amortization                                                                                           |   | **4,018**               | ** **  | 4,018                       |   |
| Other intangibles, net of accumulated  amortization                                                                                 |   | **37**                  | ** **  | 38                          |   |
| Other                                                                                                                               |   | **530**                 | ** **  | 964                         |   |
| **Total assets**                                                                                                                    |   | **$**                   | **145,352** | ** **                  | $      | 147,703 |   |
|                                                                                                                                |   |                    | ** **  |                        |   |
| **LIABILITIES AND  SHAREHOLDERS’ EQUITY**                                                                                      |   |                    | ** **  |                        |   |
| Current liabilities:                                                                                                                |   |                    | ** **  |                        |   |
| Accounts payable                                                                                                                    |   | **$**                   | **6,230**   | ** **                  | $      | 6,008 |   |
| Salaries and related liabilities                                                                                                    |   | **4,000**               | ** **  | 4,568                       |   |
| Deferred revenues                                                                                                                   |   | **1,669**               | ** **  | —                      |   |
| Accrued expenses                                                                                                                    |   | **1,354**               | ** **  | 897                         |   |
| Taxes payable                                                                                                                       |   | **883**                 | ** **  | 499                         |   |
| Current portion of notes payable                                                                                                    |   | **5,212**               | ** **  | 5,193                       |   |
| Total current liabilities                                                                                                           |   | **19,348**              | ** **  | 17,165                      |   |
|                                                                                                                                |   |                    | ** **  |                        |   |
| Other liabilities                                                                                                                   |   | **105**                 | ** **  | 106                         |   |
| Notes payable, less current portion                                                                                                 |   | **29,889**              | ** **  | 36,601                      |   |
| Deferred tax liability                                                                                                              |   | **14,344**              | ** **  | 13,035                      |   |
|                                                                                                                                |   |                    | ** **  |                        |   |
| Shareholders’ equity:                                                                                                          |   |                    | ** **  |                        |   |
| Preferred shares, $.01 par value; 10,000  shares authorized; no shares issued and outstanding                                       |   | **—**              | ** **  | —                      |   |
| Common shares, $.01 par value; 40,000  shares authorized; 12,753 shares issued at June 30, 2003 and at  December 31, 2002 |   | **128**                 | ** **  | 128                         |   |
| Additional paid-in-capital                                                                                                          |   | **76,803**              | ** **  | 77,152                      |   |
| Retained earnings                                                                                                                   |   | **30,180**              | ** **  | 29,158                      |   |
| Accumulated other comprehensive loss                                                                                                |   | **(58**                 | **)**       | (59                         | )      |
| Treasury shares, 2,621 and 2,599 shares  held at cost at June 30, 2003 and December 31, 2002, respectively                |   | **(25,387**             | **)**       | (25,583                     | )      |
| Total shareholders’ equity                                                                                                     |   | **81,666**              | ** **  | 80,796                      |   |
|                                                                                                                                |   |                    | ** **  |                        |   |
| **Total liabilities and  shareholders’ equity**                                                                                |   | **$**                   | **145,352** | ** **                  | $      | 147,703 |   |

 

See notes tocondensed consolidated financial statements

 

3

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**AIRNET SYSTEMS, INC.**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS** - Unaudited

 
|                                                                                              |   | **Three Months Ended  June 30,** |       | **Six Months Ended  June 30,** |   |
|---------------------------------------------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------|--------|
| **In thousands, except per share  data**                                                          |   | **2003**                              |       | **2002**                            |   | **2003** |   | **2002** |   |
|                                                                                              |   |                                  |       |                                |   |   |   |   |   |
| **NET REVENUES**                                                                                  |   |                                  |       |                                |   |   |   |   |   |
| Air transportation, net of excise tax                                                             |   |                                  | ** ** |                                |   |   | ** ** |   |   |
| Bank services                                                                                     |   | **$**                                 | **25,682** | ** **                          | $      | 26,012 |   | **$** | **52,005** | ** ** | $ | 50,804 |   |
| Express services                                                                                  |   | **8,631**                             | ** ** | 8,196                               |   | **17,641** | ** ** | 15,781 |   |
| Aviation services and other operations                                                            |   | **2,271**                             | ** ** | 1,208                               |   | **4,014** | ** ** | 2,307 |   |
| **Total net revenues**                                                                            |   | **36,584**                            | ** ** | 35,416                              |   | **73,660** | ** ** | 68,892 |   |
|                                                                                              |   |                                  | ** ** |                                |   |   | ** ** |   |   |
| **COSTS AND EXPENSES**                                                                            |   |                                  | ** ** |                                |   |   | ** ** |   |   |
| Air transportation                                                                                |   |                                  | ** ** |                                |   |   | ** ** |   |   |
| Wages and benefits                                                                                |   | **5,587**                             | ** ** | 5,274                               |   | **11,126** | ** ** | 10,169 |   |
| Aircraft fuel                                                                                     |   | **4,951**                             | ** ** | 4,401                               |   | **9,893** | ** ** | 7,966 |   |
| Aircraft maintenance                                                                              |   | **2,954**                             | ** ** | 3,267                               |   | **6,335** | ** ** | 6,131 |   |
| Contracted air costs                                                                              |   | **2,378**                             | ** ** | 2,091                               |   | **5,185** | ** ** | 4,525 |   |
| Ground courier                                                                                    |   | **6,123**                             | ** ** | 5,960                               |   | **12,338** | ** ** | 11,656 |   |
| Depreciation                                                                                      |   | **4,319**                             | ** ** | 4,334                               |   | **8,511** | ** ** | 8,661 |   |
| Other                                                                                             |   | **3,998**                             | ** ** | 3,308                               |   | **7,758** | ** ** | 6,560 |   |
| Selling, general and administrative                                                               |   | **4,808**                             | ** ** | 4,455                               |   | **10,121** | ** ** | 8,604 |   |
| **Total costs and expenses**                                                                      |   | **35,118**                            | ** ** | 33,090                              |   | **71,267** | ** ** | 64,272 |   |
| Income from continuing operations                                                                 |   | **1,466**                             | ** ** | 2,326                               |   | **2,393** | ** ** | 4,620 |   |
| Interest expense                                                                                  |   | **343**                               | ** ** | 393                                 |   | **748** | ** ** | 747 |   |
| Income from continuing operations and  cumulative effect of accounting change before income taxes |   | **1,123**                             | ** ** | **1,933**                           |   | **1,645** | ** ** | **3,873** |   |
| Provision for income taxes                                                                        |   | **438**                               | ** ** | 754                                 |   | **641** | ** ** | 1,510 |   |
|                                                                                              |   |                                  | ** ** |                                |   |   | ** ** |   |   |
| **Income from continuing  operations before cumulative effect of accounting change**              |   | **$**                                 | **685**    | ** **                          | $      | 1,179 |   | **$** | **1,004** | ** ** | $ | 2,363 |   |
|                                                                                              |   |                                  | ** ** |                                |   |   | ** ** |   |   |
| **Income (loss) from  discontinued operations, net of taxes**                                     |   | **$**                                 | **39**     | ** **                          | $      | (71 | ) | **$** | **17** | ** ** | $ | (112 | ) |
|                                                                                              |   |                                  | ** ** |                                |   |   | ** ** |   |   |
| Cumulative effect of accounting change, net  of taxes                                             |   | —                                | ** ** | —                              |   | — | ** ** | 1,868 |   |
|                                                                                              |   |                                  | ** ** |                                |   |   | ** ** |   |   |
| **Net income**                                                                                    |   | **$**                                 | **724**    | ** **                          | 1,108  |   | **$** | **1,021** | ** ** | $ | 383 |   |
|                                                                                              |   |                                  | ** ** |                                |   |   | ** ** |   |   |
| Income (loss) per share - basic                                                                   |   |                                  | ** ** |                                |   |   | ** ** |   |   |
| Continuing operations                                                                             |   | **$**                                 | **0.07**   | ** **                          | $      | 0.12 |   | **$** | **0.10** | ** ** | $ | 0.23 |   |
| Discontinued operations                                                                           |   | **—**                            | ** ** | $                                   | (0.01  | ) | **—** | ** ** | $ | (0.01 | ) |
| Cumulative effect of accounting change                                                            |   | **—**                            | ** ** | —                              |   | **—** | ** ** | $ | (0.18 | ) |
| Net income per share - basic                                                                      |   | **$**                                 | **0.07**   | ** **                          | $      | 0.11 |   | **$** | **0.10** | ** ** | $ | 0.04 |   |
|                                                                                              |   |                                  | ** ** |                                |   |   | ** ** |   |   |
| Income (loss) per share - diluted                                                                 |   |                                  | ** ** |                                |   |   | ** ** |   |   |
| Continuing operations                                                                             |   | **$**                                 | **0.07**   | ** **                          | $      | 0.12 |   | **$** | **0.10** | ** ** | $ | 0.23 |   |
| Discontinued operations                                                                           |   | **—**                            | ** ** | $                                   | (0.01  | ) | **—** | ** ** | $ | (0.01 | ) |
| Cumulative effect of accounting change                                                            |   | **—**                            | ** ** | —                              |   | **—** | ** ** | $ | (0.18 | ) |
| Net income per share - diluted                                                                    |   | **$**                                 | **0.07**   | ** **                          | $      | 0.11 |   | **$** | **0.10** | ** ** | $ | 0.04 |   |

 

See notes tocondensed consolidated financial statements

 

4

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**AIRNET SYSTEMS, INC.**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS** - Unaudited

 
|                                                                                         |   | **Six Months Ended  June 30,** |       |
|----------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|
| **In thousands**                                                                             |   | **2003**                            |       | **2002** |   |
|                                                                                         |   |                                |       |   |   |
| **Operating activities:**                                                                    |   |                                |       |   |   |
| Net income                                                                                   |   | **$**                               | **1,021**  | ** ** | $ | 383 |   |
| Cumulative effect of accounting change in  2002                                              |   | **—**                          | ** ** | 1,868 |   |
| Adjustments to reconcile net income to net  cash provided by (used in) operating activities: |   |                                | ** ** |   |   |
| Depreciation                                                                                 |   | **8,543**                           | ** ** | 8,710 |   |
| Amortization of intangibles                                                                  |   | **—**                          | ** ** | 14 |   |
| Provision for losses on accounts receivable                                                  |   | **188**                             | ** ** | 192 |   |
| Gain (loss) on disposition of assets                                                         |   | **35**                              | ** ** | (19 | ) |
| Cash provided by (used in) operating assets  and liabilities:                                |   |                                | ** ** |   |   |
| Accounts receivable                                                                          |   | **800**                             | ** ** | (2,026 | ) |
| Inventory and spare parts                                                                    |   | **(174**                            | **)**      | (2,258 | ) |
| Prepaid expenses                                                                             |   | **1,254**                           | ** ** | (63 | ) |
| Accounts payable                                                                             |   | **223**                             | ** ** | 81 |   |
| Deferred income and accrued expenses                                                         |   | **2,126**                           | ** ** | 1,170 |   |
| Taxes payable                                                                                |   | **384**                             | ** ** | 381 |   |
| Salaries and related liabilities                                                             |   | **(569**                            | **)**      | (714 | ) |
| Other, net                                                                                   |   | **435**                             | ** ** | (17 | ) |
| **Net cash provided by  operating activities**                                               |   | **14,266**                          | ** ** | 7,702 |   |
|                                                                                         |   |                                | ** ** |   |   |
| **Investing activities:**                                                                    |   |                                | ** ** |   |   |
| Purchases of property and equipment                                                          |   | **(8,782**                          | **)**      | (17,636 | ) |
| Proceeds from sales of property and  equipment                                               |   | **109**                             | ** ** | 299 |   |
| **Net cash used in investing  activities**                                                   |   | **(8,673**                          | **)**      | (17,337 | ) |
|                                                                                         |   |                                | ** ** |   |   |
| **Financing activities:**                                                                    |   |                                | ** ** |   |   |
| Proceeds from Incentive Stock Plan programs                                                  |   | **98**                              | ** ** | 113 |   |
| Net borrowings (repayments) under the  revolving credit facility                             |   | **(6,100**                          | **)**      | 4,350 |   |
| Net borrowings (repayments) of long-term  debt                                               |   | **(594**                            | **)**      | 5,778 |   |
| Purchase of treasury shares                                                                  |   | **(250**                            | **)**      | — |   |
| **Net cash provided by (used  in) financing activities**                                     |   | **(6,846**                          | **)**      | 10,241 |   |
|                                                                                         |   |                                | ** ** |   |   |
| Net increase (decrease) in cash                                                              |   | **(1,253**                          | **)**      | 606 |   |
| Cash and cash equivalents at beginning of  period                                            |   | **1,484**                           | ** ** | 377 |   |
| **Cash and cash equivalents  at end of period**                                              |   | **$**                               | **231**    | ** ** | $ | 983 |   |

 

See notes tocondensed consolidated financial statements

 

5

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**AIRNETSYSTEMS, INC.**

 

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

AirNet Systems, Inc. andits subsidiaries (“AirNet” or the “Company”) operate a fully integratednational air transportation network which provides delivery service fortime-critical shipments for customers in the U.S. banking industry and otherindustries requiring the express delivery of packages.  AirNet also offers passenger charterservices and retail aviation fuel sales and related ground services forcustomers at its Columbus, Ohio facility.

 

The accompanyingcondensed consolidated financial statements include the accounts of AirNetSystems, Inc. and its subsidiaries. These financial statements are unaudited and have been prepared pursuantto the rules and regulations of the United States Securities and ExchangeCommission.  Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles have been condensed oromitted as permitted by such rules and regulations.

 

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.  The results of operations forthe three-month and six-month periods presented are not necessarily indicativeof the results to be expected for the year ending December 31, 2003.

 

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 reclassifications have been made in the prior year’s financialstatements to conform to the presentation for the three months and six monthsended June 30, 2003.

 

**2.****              Goodwilland Other Intangible Assets**

 

AirNet adopted Statement of Financial Accounting Standards (SFAS) No.142, *Goodwilland Other Intangible Assets* as of January 1, 2002.  The Company performed the transitionalgoodwill impairment test using the process prescribed in SFAS No. 142 with ameasurement date of January 1, 2002. Under SFAS No. 142, an impairment charge resulting from the transitionalimpairment tests is reflected as a cumulative effect of a change in accountingprinciple in the first quarter of 2002. Based on the results of itstransitional goodwill impairment test, the Company recognized an impairmentloss, net of tax, of $1,868,000, for goodwill related to the Mercury BusinessServices reporting unit as a cumulative effect of a change in accountingprinciple in the first quarter of 2002.

 

6

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**3.****              StockPlans and Awards**

 

SFAS No. 148, *Accounting for Stock-Based Compensation-Transitionand Disclosure*, requires prominent disclosures in both annual andinterim financial statements regarding the method of accounting for stock-basedemployee compensation and the effect of the method used on reported results.

 

The Company accounts for its employee stock-based compensation planunder the recognition and measurement principles of APB Opinion No. 25, *Accountingfor Stock Issued to Employees,* and related interpretations.  No stock-based employee compensation cost isreflected in net income, as all options granted under the plan have an exerciseprice equal to the market value of the underlying common shares on the date ofgrant.  Pro forma information regardingnet income and net income per share, as required by SFAS No. 148, has beendetermined as if the Company had accounted for its employee stock options underthe fair value method of SFAS No. 123, *Accounting for Stock-Based Compensation*.The fair value of these options was estimated at the date of grant using theBlack-Scholes option pricing model.

 

The following table illustrates the effect on net income and net incomeper common share as if the Company had applied the fair value recognitionprovisions of SFAS No. 123 to stock-based employee compensation.

 
|                                                                                                                                         |   | **Three  Months Ended  June 30,** |   | **Six Months  Ended  June 30,** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|--------------------------------------|------------|
|                                                                                                                                         |   | **2003**                               |   | **2002**                             | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                                                                                         |   |                                   |   |                                 |       |   |   |   |   |
| Net income, as reported                                                                                                                      |   | $                                      | 724    |                                 | $          | 1,108 |   | $ | 1,021 |   | $ | 382 |   |
|                                                                                                                                         |   |                                   |   |                                 |       |   |   |   |   |
| Deduct: Total stock-based employee compensation  expense determined under fair value method for all awards, net of related  tax effects |   | (28                                    | )      | (59                                  | )          | (88 | ) | (159 | ) |
|                                                                                                                                         |   |                                   |   |                                 |       |   |   |   |   |
| Pro forma net income                                                                                                                         |   | $                                      | 696    |                                 | $          | 1,049 |   | $ | 933 |   | $ | 223 |   |
|                                                                                                                                         |   |                                   |   |                                 |       |   |   |   |   |
| Net income per common share – basic and diluted:                                                                                        |   |                                   |   |                                 |       |   |   |   |   |
| As reported                                                                                                                                  |   | $                                      | .07    |                                 | $          | .11 |   | $ | .10 |   | $ | .04 |   |
| Pro forma                                                                                                                                    |   | $                                      | .07    |                                 | $          | .10 |   | $ | .09 |   | $ | .02 |   |

 

7

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**4.****              NetIncome Per Share From Continuing Operations**

 

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

** **
|                                                           |   | **Three  Months Ended  June 30,** | ** ** | **Six Months  Ended  June 30,** | ** ** |
|----------------------------------------------------------------|--------|----------------------------------------|------------|--------------------------------------|------------|
|                                                           |   | **2003**                               |       | **2002**                             | ** ** | **2003** | ** ** | **2002** | ** ** |
| Numerator:                                                     |   |                                   |       |                                 |       |   |   |   |   |
| Net income from continuing operations                          |   | $                                      | 685        |                                 | $          | 1,179 |   | $ | 1,004 |   | $ | 2,363 |   |
|                                                           |   |                                   |       |                                 |       |   |   |   |   |
| Denominator:                                                   |   |                                   |       |                                 |       |   |   |   |   |
| Basic – weighted average shares outstanding               |   | 10,132                                 |       | 10,137                               |       | 10,125 |   | 10,134 |   |
|                                                           |   |                                   |       |                                 |       |   |   |   |   |
| Diluted                                                        |   |                                   |       |                                 |       |   |   |   |   |
| Stock options – associates, officers, and  directors      |   | —                                 |       | 159                                  |       | — |   | 167 |   |
| Adjusted weighted average shares  outstanding                  |   | 10,132                                 |       | 10,296                               |       | 10,125 |   | 10,301 |   |
|                                                           |   |                                   |       |                                 |       |   |   |   |   |
| Net income per common share from continuing  operations – |   |                                   |       |                                 |       |   |   |   |   |   |   |   |   |
| basic and diluted:                                             |   | $                                      | 0.07       |                                 | $          | 0.11 |   | $ | 0.10 |   | $ | 0.04 |   |

 

Common shares subject to outstanding stockoptions were excluded from the diluted weighted average shares outstandingcalculation, as the exercise price of the stock options exceeded the averagefair market value of the underlying common shares for the period, were1,125,000 and 1,107,000 for the three months and six months ended June 30,2003, respectively.

 

**5.****              AircraftLeases**

 

On February 1, 2003,AirNet entered into an operating lease for a Cessna Caravan aircraft.  The lease term is for five years and themonthly lease payment is $10,000.

 

**6.****              Comprehensiveincome**

 

Comprehensiveincome is comprised of net income of the Company and the change in the fairvalue of interest rate swap agreements, net of income taxes. Comprehensive income for the six months ended June 30, 2003 andJune 30, 2002 was $1,021,000 and $487,000, respectively. Comprehensiveincome for the three months ended June 30, 2003 was $722,000 andcomprehensive income for the three months ended June 30, 2002 was$1,129,000.

 

8

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**7.****              SubsequentEvents and Discontinued Operations**

 

The Company agreedto sell certain assets of its Mercury Business Services unit that focuses oncustomers with next day transportation needs. The Company has devoted itsresources to providing time critical transportation services. Since these twodivergent business models serve different customers with distinctly differenttransportation needs, the Company decided to divest certain assets of theMercuryBusiness Services unit.

 

The Company soldthe assets, primarily the accounts receivable, personal property andintellectual property to Mercury Business Services, Inc, a Delaware corporationon August 11, 2003 for approximately $1.1 million.

 

Revenues from theMercury Business Services unit, included in income (loss) from discontinuedoperations, for the six months ended June 30, 2003, were $4.9 millioncompared to $4.4 million a year ago. For the quarter ended June 30 2003revenues totaled $2.5 million compared to $2.3 million for the same quarterlast year.

 

Income beforetaxes for the six months ended June 30, 2003 was $28,000 compared to aloss of $184,000 a year ago. For the quarter ended June 30, 2003, incomebefore taxes was $64,000 compared to a loss of $116,000 for the same periodlast year.

 

The Companyexpects to realize an after tax gain on the sale of the assets of less than$100,000.

 

9

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**AIRNETSYSTEMS, INC.**

 

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

**CONDITION AND RESULTS OF OPERATIONS**

 

**Safe Harbor Statement**

 

Except for thehistorical information contained in this Form 10-Q, the matters discussed,including, but not limited to, information regarding future economicperformance and plans and objectives of AirNet’s management, areforward-looking statements that involve risks and uncertainties. When used inthis document, the words “believe”, “anticipate”, “estimate”, “expect”,“intend”, “may”, “plan”, “project” and similar expressions are intended to beamong statements that identify forward-looking statements.  Such statements involve risks anduncertainties including, but not limited to, the following which could causeactual results to differ materially from any forward-looking statement:  potential regulatory changes by the FederalAviation Administration (“FAA”), which could increase the regulation ofAirNet’s business, or the Federal Reserve, which could change the competitiveenvironment of transporting canceled checks; adverse weather conditions;potential changes in locally and federally mandated security requirements; increasesin aviation fuel costs not fully offset by AirNet’s fuel surcharge program;changes in check processing and shipment patterns of bank customers; acts ofwar and terrorist activities; the impact of a prolonged weakening U.S. economyon time-critical shipment volumes; the acceptance of AirNet’s time-criticalservice offerings within targeted Express markets; technological advances andincreases in the use of electronic funds transfers; as well as other economic,competitive and domestic and foreign governmental factors affecting AirNet’smarkets, prices and other facets of its operations.  Should one or more of these risks or uncertainties materialize,or should underlying assumptions prove incorrect, actual outcomes may varymaterially from those indicated.  Pleaserefer to Item 7 of the Annual Report on Form 10-K for the fiscal year endedDecember 31, 2002 for additional details relating to risk factors thatcould affect AirNet’s results and cause those results to differ materially fromthose expressed in forward-looking statements.

 

**General**

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in accordance with accountingprinciples generally accepted in the United States requires management to adoptaccounting policies and make significant judgements and estimates to developamounts reflected and disclosed in the financial statements. In many cases,there are alternative policies or estimation techniques that could be used. Wemaintain a thorough process to review the application of our accountingpolicies and to evaluate the appropriateness of the estimates; however, evenunder optimal circumstances, estimates routinely require adjustment based onchanging circumstances and the receipt of new or better information.

 

Management has discussedthe development and selection of the Company’s critical accounting policies andestimates with the Audit Committee of our Board of Directors and with ourindependent auditors.

 

10

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AirNet’s 2002audited consolidated financial statements, included in Item 8 of our AnnualReport on Form 10-K for the fiscal year ended December 31, 2002 (File No.1-13025), contain additional disclosures including a summary of AirNet’scritical accounting policies. The information appearing therein may be usefulwhen reading this discussion and analysis of financial condition and results ofoperations.

 

 

**Results of Operations**

 

*Three months endedJune 30, 2003 compared to three months ended June 30, 2002*

 

Net revenues increased 3.3% to $36.6 million forsecond quarter 2003 from $35.4 million in the same quarter last year.  Revenues for Aviation services and Expressservices rose 88.0% and 5.3%, respectively, while Bank services revenuesdeclined 1.3% for the quarter compared to second quarter 2002.  In May 2003, AirNet announced plans tosell certain assets of Mercury Business Services.  Revenue and expense comparisons do not include revenues andexpenses associated with Mercury Business Services as they are reported asdiscontinued operations See Footnote 7, Subsequent Events and DiscontinuedOperations, to Condensed Consolidated Financial Statements.

 

Bank servicesrevenues were $25.7 million for the second quarter 2003 versus $26.0 million ayear ago.  The second quarter 2003results included revenues from several Proof of Delivery (“POD”) routes addedin the fourth quarter 2002, new weekend business, as well as security anddispatch charges implemented in the third quarter of 2002.  These incremental revenues were offset bythe loss of approximately $0.7 million in revenues tied to the loss of theFederal Reserve weekend program in the fourth quarter of last year. AirNet’snew pricing plan for Bank services addresses volume and profitability issuesthrough increased shipment flexibility and incentives.  This pricing strategy gained additionalsupport from customers during the second quarter of 2003.  The company anticipates that this approachwill  stabilize revenues over the longerterm and may result in the recapture of revenues previously removed from thesystem.  The number of bank shipmentsdeclined 6.3% for the second quarter 2003 compared with last year, primarilydue to a 16.3% reduction in weekend shipments resulting primarily from the lossof the Federal Reserve weekend program. Bank services revenues include $0.7million in fuel surcharges for the quarter compared to $0.2 million a year ago.

 

Revenues forExpress services grew 5.3% to $8.6 million for the second quarter 2003 from$8.2 million a year ago.  Totalshipments were 3.4% higher than the second quarter 2002.  Medical revenues continued to grow and wereup 8.6% for the quarter compared with a year ago.  Cargo charter, which is the least predictable piece of AirNet’sExpress business, was the only category that declined over the prior year.  Revenues for Express services include $0.2million in fuel surcharges compared to none in the same period last year.

 

Aviation services revenues rose 88.0% to $2.3 millionin the second quarter 2003 compared with $1.2 million the prior year.  This was specifically due to an improvedperformance in the private passenger charter business where revenues increased118.2% or approximately $1.0 million compared to the same quarter a yearago.  Aviation services increased to5.8% of total revenues for the second quarter versus 3.2% last year.

 

An index-based fuel surcharge program based on theOPIS-CMH (Ohio Price Information Service – Columbus, Ohio Station) pricecontinued during 2003.  Approximately$0.9 million in revenues were recorded in second quarter 2003 as a resultof the fuel surcharge program, an increase of $0.7 million from the prioryear, due to significantly higher fuel prices and the modification of the fuelsurcharge program in third quarter 2002. Fuel surcharges were historicallyincluded as a

 

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reduction of fuelexpense. All prior period balances have been reclassified to conform with the2003 presentation.

 

Total costs and**expenses**were $35.1 million forsecond quarter 2003 versus $33.1 million the prior year.

 

Wages and benefitexpenses rose $0.3 million for the quarter compared to last year and wereimpacted by an increase in health care costs, which the Company self-insuresand which are allocated between operational and administrative departments, dueto higher claims.  Additionally, pilotwages to support the growth of the passenger charter initiative and call centerstaffing to support the growth of the Express business, were higher than secondquarter 2002.

 

Aircraft fuel expense increased $0.6 million to $5.0million, despite an improved mix of hours flown by type of aircraft, due tohigher fuel prices.  This increase infuel expense was offset by a $0.7 million increase in fuel surcharge that isreflected in revenues. Aircraft maintenance expense was $0.3 million less thanthe same period last year due in part to the timing of required inspections andrepairs and to a 1.5% reduction in operating hours compared to the same perioda year ago.

 

Contracted aircosts rose $0.3 million due to additional same day and weekend shipments oncommercial airlines, more routes subcontracted to third party providers than ayear ago, and changes in routes directly related to the weekend business.

 

Ground couriercosts rose 2.7% to $6.1 million for second quarter 2003 compared to a year agodue to a 3.4% increase in Express shipments. Progress is being achieved toward our objective to reduce ground costsper shipment, including a transition from team members to vendors andindependent contractors for these services. Operational audits are being conducted in all of our markets in aneffort to determine a more cost effective and appropriate level of third partycontractors in each of them.  Theseefforts will provide us with the information that will allow us to achievegreater flexibility in our cost structure.

 

Other expenses forsecond quarter 2003 included $0.2 million of higher costs for aircraftoperating leases and $0.2 million higher costs for aircraft insurance versusthe second quarter 2002, as the result of a premium increase in third quarter2002 and the addition of aircraft to the fleet.

 

Selling, general and administrative expensefor the quarter increased $0.4 million compared to last year.  The increase was impacted by an increase inhealth care costs and outside services associated with the development of thepassenger charter business and marketing plan, growth of Express servicesrevenues from the government and for professional fees in connection withunderstanding the impact of the Check Clearing Act of the 21stCentury on our Bank services business.

 

*Six months endedJune 30, 2003 compared to six months ended June 30, 2002*

 

Net revenues increased 6.9% to $73.7 million for thefirst six months of 2003 from $68.9 million last year. Bank services revenuesimproved 2.4% for the 2003 year-to-date period, while Express services revenuesrose 11.8% and Aviation services revenues were 74.0% above the same period in2002. Revenue and expense comparisons for the six months ended June 30,2003 compared to the six months ended June 30, 2002, do not includerevenues and expenses associated with Mercury Business Services as they arereported as discontinued operations. See Footnote 7, Subsequent Events andDiscontinued Operations, to Condensed Consolidated Financial Statements.

 

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The increase in Bank services revenues included a $1.9million increase in fuel surcharges. This increase was offset by a 2.9% decreasein bank weekday shipments and a 15.6% decrease in weekend shipments.

 

Express services revenues were $17.6 million for thefirst six months compared to $15.8 million a year ago. Compared to a year agorevenues from Medical customers are up 15.5% while revenues from retail and aircourier customers are down 3.1% and 5.3%, respectively.

 

The growth in Aviation services revenues is the resultof an 86.4% growth in passenger charter revenues.

 

An index-based fuel surcharge program based on theOPIS-CMH (Ohio Price Information Service – Columbus, Ohio Station) pricecontinued during 2003.  Approximately$2.7 million in revenue was recorded in the first six months of 2003 as aresult of the fuel surcharge program, an increase of $2.3 million from theprior year due to significantly higher fuel prices and the modification of thefuel surcharge program in third quarter 2002.

 

Total costs and**expenses**were $71.3 million for thefirst six months of 2003 versus $64.3 million the prior year.

 

Wages and benefitexpenses rose $1.0 million for the first six months of 2003 compared to lastyear and were impacted by an increase in health care costs, which the Companyself-insures, due to higher claims. Additionally, pilot wages to support the growth of the passenger charterinitiative and call center staffing to support the growth of the Expressbusiness were higher than in the same period a year ago.

 

Aircraft fuelexpense increased $1.9 million for the first six months of 2003 compared tolast year, despite an improved mix of hours flown by type of aircraft, due tohigher fuel prices. This increase was offset by a $2.3 million increase in fuelsurcharge that is reflected in revenues. Aircraft maintenance expense was $0.2million more than the same period last year due to harsh winter weatherconditions and increased hours flown compared to the prior year.

 

Contracted aircosts rose $0.7 million for the first six months of 2003 compared to last year,due to additional same day and weekend shipments on commercial airlines, moreroutes flown by third party providers than a year ago, and changes in routesdirectly related to the weekend business.

 

Ground couriercosts also rose $0.7 million for the first six months of 2003 compared to lastyear as a result of an 11.9% increase in Express shipments. Progress is beingachieved toward our objective to reduce ground costs per shipment, including atransition from team members to vendors and independent contractors for theseservices.   Operational audits are beingconducted in all of our markets in an effort to determine a more cost effectiveand appropriate level of third party contractors in each of them.  These efforts will provide us with theinformation that will allow us to achieve greater flexibility in our coststructure.

 

Other expenses forthe first six months of 2003 were $7.8 million compared to $6.6 million a yearago and  included $0.4 million of highercosts for aircraft leases and $0.4 million of higher costs for aircraftinsurance versus the prior year, as the result of a premium increase in thirdquarter 2002 and the addition of aircraft to the fleet throughout 2002. Rampand landing fees also increased $0.1 million compared to the same period lastyear.

 

Selling, general and administrative expensefor the first six months of 2003 increased $1.5 million compared to last year,of which $0.3 million was for one-time severance expenses.  The increase was also impacted by anincrease in health care costs and outside services associated with thedevelopment of the passenger charter business and marketing plan, growth ofExpress services

 

13

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revenues from the government and forprofessional fees in connection with understanding the impact of the CheckClearing Act of the 21st Century on our Bank services business.

 

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**Liquidity and CapitalResources**

 

*Cash flow from operating activities.*  Net cash provided by operating activitieswas $14.3 million for the six months ended June 30, 2003, compared to $7.7million for the same period in 2002. Positively impacting cash flow was $1.7 million in prepayments by bankcustomers under the new pricing strategy implemented during the first quarter2003 and a $0.3 million distribution from Float Control.

 

*Current credit 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 onSeptember 30, 2005 and a five-year $20.0 million unsecured term loan.  The term loan requires quarterly principalinstallments of $1.0 million.  Thecredit agreement bears interest, at the Company’s option, at a fixed rate basedupon LIBOR plus a margin determined by the Company’s leverage ratio as definedin the credit agreement, or a floating rate based on the greater of the primerate and the sum of .5% plus the federal funds rate in effect from time totime.  The new credit agreement requiresthe maintenance of certain minimum tangible net worth and cash flow levels,imposes certain limitations on capital expenditures and the sale of assets, andrestricts the amount of additional debt. As of June 30, 2003, there was $18.0 million outstanding on theunsecured term loan and $15.8 million outstanding and $19.2 million unused andavailable on the unsecured revolving credit facility.

 

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 interestrate based upon LIBOR, secured by two aircraft. As of June 30, 2003 therewas $4.5 million outstanding on these secured term loans, and the net book valueof the aircraft securing the loans totaled approximately $6.8 million.

 

*Investingactivities.* Capital expenditures totaled $8.8 million for the six months endedJune 30, 2003 versus $17.6 million in 2002.  Of the 2003 expenditures, $1.5 million was for the purchase of aLearjet 35 dedicated to passenger charter services, and $5.3 million was formajor periodic aircraft inspections, major engine overhauls and related flightequipment.  AirNet anticipates it willspend between $20 million and $30 million in total capital expenditures in2003.  AirNet anticipates it willcontinue to acquire aircraft and flight equipment as necessary to maintaingrowth and continue offering quality service to its customers and will continueto consider whether future asset acquisitions should be in the form ofpurchases or leases.

 

AirNet Systems, Inc., announced a stock repurchase program inFebruary 2000 allowing AirNet Systems, Inc., to purchase up to $3.0million of its common shares.  As of theend of the 2001 fiscal year, $2.4 million of common shares had beenrepurchased, and there has been no repurchase activity under the program since.As such, purchases of approximately $0.6 million of the  common shares of AirNet Systems, Inc., 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 Systems, Inc., acquired 52,410 common shares, outside the repurchaseprogram, for $249,996 on January 2, 2003 from former Chairman GeraldMercer under the terms of his retirement agreement.

 

AirNet anticipatesthat operating cash and capital expenditure requirements will continue to befunded by cash flow from operations, cash on hand and bank borrowings inconjunction with the credit facility.

 

The Company soldcertain assets, primarily the accounts receivable, personal property andintellectual property of its Mercury Business Service unit to Mercury BusinessServices, Inc., a Delaware corporation on August 11, 2003 forapproximately $1.1 million. Mercury Business Services, Inc., paid approximately$455,000 of the purchase price through the issuance of a ninety day promissorynote secured by

 

15

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the assets being sold andguaranteed by the shareholders of Mercury Business Services, Inc. Under termsof the Asset Purchase Agreement, approximately $536,000 of the purchase pricewas paid with AirNet Systems, Inc. common shares owned by the shareholders ofMercury Business Services, Inc., including 56,000 common shares tendered toAirNet Systems, Inc., prior to the closing at $4.30 per common share (theclosing price of the AirNet Systems, Inc., common shares on the NYSE onJuly 25, 2003) and 68,494 common shares tendered to AirNet Systems, Inc.,on the closing date at $4.31 per common share (the average closing price of theAirNet Systems, Inc., common shares on the NYSE on August 4-6, 2003). Thebalance of the purchase price was paid in cash.

 

**Seasonality and Variability inQuarterly 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 revenues 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.

 

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

 

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

 

### **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 June 30, 2003, AirNet hada $30.6 million outstanding balance under our credit agreement subject tomarket rate changes in interest. The credit agreement bears interest, at theCompany’s option, at a fixed rate based upon LIBOR plus a margin determined bythe Company’s leverage ratio as defined in the credit agreement, or a floatingrate based on the greater of the prime rate and the sum of .5% plus the federalfunds rate in effect from time to time. Assuming borrowing levels at June 30, 2003, a one hundred basispoint change in interest rates would impact net interest expense byapproximately $306,000 per year.

 

During first quarter2002, AirNet entered into two five-year term loans totaling approximately $3.0million with fixed interest rates of 5.77%, each secured by an aircraft, and a$3.0 million term loan with a floating interest rate based upon LIBOR, securedby two aircraft. However, in February 2002, AirNet entered into aninterest rate swap agreement with a bank relative to a $3.0 million term loan,with a notional amount of $3.0 million and a fixed rate of 4.25% plus a marginbased on AirNet’s funded debt ratio.  AtJune 30, 2003, the aggregate fair value of the interest rate swap wasapproximately ($105,000).

 

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**Fuel Surcharge**

 

AirNet has historically maintained a fuelsurcharge/rebate program for its Bank customers.  Under this program, as the OPIS-CMH (Ohio Price InformationService – 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, the same customers receivea rebate.  In August 2002, AirNetincreased the fuel surcharge rate to better match its cost structure with theOPIS-CMH index.

 

During 2001 and through January 2002,AirNet’s Express customers paid a 4% temporary fuel surcharge on most revenuesunder a separate program.  In February 2002,AirNet rescinded its 4% fuel surcharge on Express services and implemented asurcharge program using the OPIS-CMH index.

 

**Item 4**.           Controls and Procedures

 

 

With the participation of management ofAirNet Systems, Inc. (the “Registrant”), including the Registrant’s principalexecutive officer and principal financial officer, the Registrant has evaluatedthe effectiveness of the Registrant’s disclosure controls and procedures (asdefined in Rule 13a-15 under the Securities Exchange Act of 1934 (the “ExchangeAct”)) as of the end of the period covered by this Quarterly Report on Form10-Q. Based upon that evaluation, the Registrant’s principal executive officerand principal financial officer have concluded that such disclosure controlsand procedures are effective as of the end of the period covered by thisQuarterly Report on Form 10-Q to ensure that material information relating tothe Registrant and its consolidated subsidiaries is made known to them,particularly during the period for which the Registrant’s periodic reports,including this Quarterly Report on Form 10-Q, are being prepared.

 

In addition, there were no significantchanges during the period covered by this Quarterly Report on Form 10-Q in theRegistrant’s internal control over financial reporting (as defined in Rule13a-15 under the Exchange Act) that have materially affected, or are reasonablylikely to materially affect, the Registrant’s internal control over financialreporting.

 

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**AIRNET SYSTEMS, INC.**

 

**PART II - OTHER INFORMATION**

 

Item 1.                                     Legal Proceedings**.**

 

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

 

Item 2.                                     Changesin Securities and Use of Proceeds. Not Applicable

 

Item 3.                                     DefaultsUpon Senior Securities.  Not Applicable

 

Item 4.                                     Submissionof Matters to a Vote of Security Holders.

 

(a)          The Annual Meeting of Shareholders (the“Annual Meeting”) of AirNet Systems, Inc. was held on May 9, 2003.  The number of common shares of AirNetSystems, Inc. outstanding and entitled to vote at the Annual Meeting was10,112,317.  The number of common sharesrepresented in person or by proxy at the Annual Meeting was 7,956,561.

 

(b)         Directors elected at the Annual Meeting:

 
| Joel E. Biggerstaff   |   |      |   |             |   |   |   |
|-----------------------|--------|-----------|--------|------------------|--------|--------|--------|
| For:                  |   | 7,871,334 |   |             |   |   |   |
| Withheld:             |   | 85,227    |   | Broker non-vote: |   | -0     | -      |
|                  |   |      |   |             |   |   |   |
| Russell M. Gertmenian |   |      |   |             |   |   |   |
| For:                  |   | 7,882,500 |   |             |   |   |   |
| Withheld:             |   | 74,061    |   | Broker non-vote: |   | -0     | -      |
|                  |   |      |   |             |   |   |   |
| David P. Lauer        |   |      |   |             |   |   |   |
| For:                  |   | 7,880,900 |   |             |   |   |   |
| Withheld:             |   | 75,661    |   | Broker non-vote: |   | -0     | -      |
|                  |   |      |   |             |   |   |   |
| Bruce D. Parker       |   |      |   |             |   |   |   |
| For:                  |   | 7,879,960 |   |             |   |   |   |
| Withheld:             |   | 76,601    |   | Broker non-vote: |   | -0     | -      |
|                  |   |      |   |             |   |   |   |
| James E. Riddle       |   |      |   |             |   |   |   |
| For:                  |   | 7,660,452 |   |             |   |   |   |
| Withheld:             |   | 296,109   |   | Broker non-vote: |   | -0     | -      |

 

(c)          See Item 4(b) for voting results fordirectors.

 

(d)         Not applicable.

 

Item 5.                                     OtherInformation.  Not applicable.

 

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Item 6.                                     Exhibits andReports on Form 8-K.

 

(a)          Exhibits (filed herewith): 

 
| **Exhibit No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                             |
|-----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 2.1             |   | Asset Purchase Agreement, dated July 15, 2003, by and among  AirNet Systems, Inc., Mercury Business Services, Inc., Andrew R. Cooke, Peter  G. Salisbury and Christopher F. Valente [ incorporated herein by reference to  Exhibit 2.1 to the Current Report on Form 8-K of AirNet Systems, Inc., dated  July 15, 2003, and filed on that day (File No. 1-13025)] |
| 31.1            |   | Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)  [Filed herewith]                                                                                                                                                                                                                                                                                      |
| 31.2            |   | Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)  [Filed herewith]                                                                                                                                                                                                                                                                                      |
| 32.1            |   | Section 1350 Certification (Principal Executive Officer) [Filed  herewith]                                                                                                                                                                                                                                                                                                  |
| 32.2            |   | Section 1350 Certification (Principal Financial Officer) [Filed  herewith]                                                                                                                                                                                                                                                                                                  |

 

(b)         Reports on Form 8-K:

 

OnMay 27, 2003, AirNet Systems, Inc. filed a Current Report on Form 8-Kdated that same day reporting under Item 5. Other Events and Regulation FDDisclosure, , the issuance of a press release on May 23, 2003announcing plans to sell its Mercury Business Services unit.

 

OnMay 8, 2003, AirNet Systems, Inc. furnished to the SEC on a Current Reporton Form 8-K dated May 7, 2003, reporting under Item 9. Regulation FDDisclosure (which information was also deemed provided under Item 12. Resultsof Operations and Financial Condition) that on May 7, 2003, AirNetSystems, Inc., issued a news release announcing results for the three monthsended March 31, 2003.

 

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**AIRNETSYSTEMS, INC.**

 

**SIGNATURE**

** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
| Dated:  August 14, 2003 | By:    | /s/ William R. Sumser                                                                                                                            |   |
|-----------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                              |   | William R. Sumser,                                                                                                                               |
|                              |   |  Chief Financial Officer, Treasurer,   Secretary and Vice President, Finance  (Duly Authorized Officer)  (Principal Financial Officer) |

 

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**AIRNETSYSTEMS, INC.**

 

**INDEX TO EXHIBITS**

** **

 
| **Exhibit No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                             |
|-----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 2.1             |   | Asset Purchase Agreement, dated July 15, 2003, by and among  AirNet Systems, Inc., Mercury Business Services, Inc., Andrew R. Cooke, Peter  G. Salisbury and Christopher F. Valente [ incorporated herein by reference to  Exhibit 2.1 to the Current Report on Form 8-K of AirNet Systems, Inc., dated  July 15, 2003, and filed on that day (File No. 1-13025)] |
| 31.1            |   | Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)  [Filed herewith]                                                                                                                                                                                                                                                                                      |
| 31.2            |   | Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)  [Filed herewith]                                                                                                                                                                                                                                                                                      |
| 32.1            |   | Section 1350 Certification (Principal Executive Officer) [Filed  herewith]                                                                                                                                                                                                                                                                                                  |
| 32.2            |   | Section 1350 Certification (Principal Financial Officer) [Filed  herewith]                                                                                                                                                                                                                                                                                                  |

 

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