##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 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: 0-25202
 KITTY HAWK, INC.
  Delaware
    
    75-2564006(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1515 West 20th StreetP.O. Box 612787Dallas/Fort Worth International Airport, Texas
    
    75261(Address of principal executive offices)
    
    (Zip Code)
 
 þ o
  o o þ
 o þ
 þ o




---



##### 



PAGE NUMBERPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at March 31, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the three months ended
March 31, 2006 and 2005
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the three months ended
March 31, 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2006 and 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    26Certification of Principal Executive Officer - Section 302Certification of Principal Financial Officer - Section 302Certification Pursuant to Section 906
  2




---



##### Table of Contents



March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,767
    
    
    $
    26,650Restricted cash and short-term investments
    
    
    250
    
    
    
    250Trade accounts receivable, net of allowance for doubtful
accounts of $0.1 million
    
    
    15,618
    
    
    
    15,672Assets held for sale
    
    
    135
    
    
    
    135Inventory and aircraft supplies
    
    
    3,033
    
    
    
    2,932Deposits and prepaid expenses
    
    
    1,538
    
    
    
    2,000Prepaid aircraft fuel
    
    
    1,686
    
    
    
    1,727Other current assets, net
    
    
    135
    
    
    
    89Total current assets
    
    
    44,162
    
    
    
    49,455Property and equipment, net
    
    
    6,863
    
    
    
    7,479Total assets
    
    $
    51,025
    
    
    $
    56,934LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Current liabilities:Accounts payable  trade
    
    $
    6,507
    
    
    $
    4,551Accrued wages and compensation related expenses
    
    
    2,067
    
    
    
    1,981Other accrued expenses
    
    
    7,568
    
    
    
    7,273Taxes payable, other than income taxes
    
    
    1,111
    
    
    
    1,068Current debt
    
    
    1,949
    
    
    
    1,949Total current liabilities
    
    
    19,202
    
    
    
    16,822Other long-term liabilities
    
    
    213
    
    
    
    355Total liabilities
    
    
    19,415
    
    
    
    17,177Commitments and contingenciesSeries B Redeemable Preferred Stock, $0.01 par value: Authorized
shares  15,000; issued and outstanding  14,800 at March
31, 2006 and December 31, 2005, respectively
    
    
    12,350
    
    
    
    12,350Stockholders equity:Preferred stock, $0.01 par value: Authorized shares 
9,985,000; none issued
    
    
    
    
    
    
    Common stock, $0.000001 par value: Authorized shares 
100,000,000; issued and outstanding  50,657,302 and
50,310,061 at March 31, 2006 and December 31, 2005,
respectively
    
    
    
    
    
    
    Additional capital
    
    
    24,331
    
    
    
    24,094Retained earnings (deficit)
    
    
    (5,071
    )
    
    
    3,313Total stockholders equity
    
    
    19,260
    
    
    
    27,407Total liabilities and stockholders equity
    
    $
    51,025
    
    
    $
    56,934
  3




---



##### Table of Contents



Three months ended March 31,2006
    
    
    2005Revenue:Scheduled freight
    
    $
    40,087
    
    
    $
    32,842ACMI
    
    
    
    
    
    
    520Miscellaneous
    
    
    
    
    
    
    267Total revenue
    
    
    40,087
    
    
    
    33,629Cost of revenue:Flight expense
    
    
    8,568
    
    
    
    6,606Transportation expense
    
    
    9,108
    
    
    
    2,928Aircraft fuel expense
    
    
    13,204
    
    
    
    11,941Aircraft maintenance expense
    
    
    3,734
    
    
    
    2,547Freight handling expense
    
    
    8,000
    
    
    
    6,259Depreciation and amortization
    
    
    753
    
    
    
    823Operating overhead expense
    
    
    3,021
    
    
    
    2,949Total cost of revenue
    
    
    46,388
    
    
    
    34,053Gross loss
    
    
    (6,301
    )
    
    
    (424
    )General and administrative expense
    
    
    2,302
    
    
    
    2,220Operating loss
    
    
    (8,603
    )
    
    
    (2,644
    )Other (income) expense:Interest expense
    
    
    69
    
    
    
    70Other, net
    
    
    (288
    )
    
    
    (602
    )Net loss
    
    $
    (8,384
    )
    
    $
    (2,112
    )Preferred stock dividends
    
    
    296
    
    
    
    Net loss allocable to common stockholders
    
    $
    (8,680
    )
    
    $
    (2,112
    )Basic loss per share
    
    $
    (0.17
    )
    
    $
    (0.04
    )Diluted loss per share
    
    $
    (0.17
    )
    
    $
    (0.04
    )Weighted average common shares outstanding  basic
    
    
    51,675,408
    
    
    
    51,187,563Weighted average diluted common shares outstanding  diluted
    
    
    51,675,408
    
    
    
    51,187,563
  4




---



##### Table of Contents



Common StockRetainedNumber of
    
    
    
    
    
    
    Additional
    
    
    EarningsShares
    
    
    Amount
    
    
    Capital
    
    
    (Deficit)
    
    
    TotalBalance at December 31, 2005
    
    
    50,310,061
    
    
    $
    
    
    
    $
    24,094
    
    
    $
    3,313
    
    
    $
    27,407Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,384
    )
    
    
    (8,384
    )Compensation expense associated
with stock option and restricted
stock unit grants
    
    
    
    
    
    
    
    
    
    
    192
    
    
    
    
    
    
    
    192Issuance of common stock related
to exercise of options to
acquire stock
    
    
    151,875
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    45Issuance of common stock related
to exercise of warrants to
acquire stock
    
    
    195,366
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at March 31, 2006
    
    
    50,657,302
    
    
    $
    
    
    
    $
    24,331
    
    
    $
    (5,071
    )
    
    $
    19,260
  5




---



##### Table of Contents



Three months ended March 31,2006
    
    
    2005Operating activities:Net loss
    
    $
    (8,384
    )
    
    $
    (2,112
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization expense
    
    
    832
    
    
    
    908Gain on disposal of property and equipment
    
    
    (358
    )
    
    
    (51
    )Compensation expense related to stock options and
restricted stock units
    
    
    192
    
    
    
    11Reversal of allowance for doubtful accounts
    
    
    
    
    
    
    (54
    )Changes in operating assets and liabilities:Trade accounts receivable
    
    
    55
    
    
    
    1,077Inventory and aircraft supplies
    
    
    (100
    )
    
    
    (135
    )Prepaid expenses and other
    
    
    457
    
    
    
    (242
    )Accounts payable and accrued expenses
    
    
    2,236
    
    
    
    (1,304
    )Accrued maintenance reserves
    
    
    
    
    
    
    (89
    )Net cash used in operating activities
    
    
    (5,070
    )
    
    
    (1,991
    )Investing activities:Proceeds from sale of assets
    
    
    570
    
    
    
    123Change in restricted cash
    
    
    
    
    
    
    735Capital expenditures
    
    
    (429
    )
    
    
    (1,907
    )Net cash provided by (used in) investing activities
    
    
    141
    
    
    
    (1,049
    )Financing activities:Issue common stock related to exercise of stock options
    
    
    46
    
    
    
    41Net cash provided by financing activities
    
    
    46
    
    
    
    41Net decrease in cash and cash equivalents
    
    
    (4,883
    )
    
    
    (2,999
    )Cash and cash equivalents at beginning of period
    
    
    26,650
    
    
    
    16,284Cash and cash equivalents at end of period
    
    $
    21,767
    
    
    $
    13,285
  6




---



##### Table of Contents



th
    7




---



##### Table of Contents



Three MonthsEndedMarch 31, 2006(in thousands)Flight expense
    
    $
    31Aircraft maintenance expense
    
    
    6Freight handling expense
    
    
    22Operating overhead expense
    
    
    28General and administrative expense
    
    
    105Total compensation expense
    
    $
    192
  Three MonthsEndedMarch 31, 2006Risk free interest rate
    
    
    4.54
    %Expected term (years)
    
    
    6Volatility
    
    
    63.87
    %Dividend yield
    
    
    0
    %Annual forfeiture rate
    
    
    4.00
    %
 8




---



##### Table of Contents



WeightedAvailable for
    
    
    Options/RSUs
    
    
    AverageGrant
    
    
    Outstanding
    
    
    Exercise PriceOutstanding at December 31, 2005
    
    
    765,961
    
    
    
    4,545,727
    
    
    $
    0.60Authorized for grant
    
    
    
    
    
    
    
    
    
    
    Options granted (weighted-average fair value
$0.66)
    
    
    (92,000
    )
    
    
    92,000
    
    
    $
    1.00RSUs granted (weighted-average fair value $1.01)
    
    
    (31,444
    )
    
    
    31,444
    
    
    
    Exercised (total intrinsic value of $0.2 million)
    
    
    
    
    
    
    (151,875
    )
    
    $
    0.30Canceled (weighted average grant date fair value
$0.84)
    
    
    66,959
    
    
    
    (66,959
    )
    
    $
    1.09Outstanding at March 31, 2006
    
    
    709,476
    
    
    
    4,450,337
    
    
    $
    0.67
  Weighted AverageFair Value atOptions/RSUs
    
    
    Grant DateUnvested at January 1, 2006
    
    
    2,343,383
    
    
    $
    0.65Vested during the period (total fair value
of $0.1 million)
    
    
    (248,165
    )
    
    $
    0.41Granted
    
    
    123,444
    
    
    $
    0.75Forfeited
    
    
    (55,625
    )
    
    $
    0.75Unvested at March 31, 2006
    
    
    2,163,037
    
    
    $
    0.68
  WeightedWeighted
    
    
    AverageAverage
    
    
    Exercise
    
    
    AggregateNumber of
    
    
    Remaining
    
    
    Price of
    
    
    IntrinsicOptions/RSUs
    
    
    Life (Years)
    
    
    Options/RSUs
    
    
    Value atExercise Prices
    
    Outstanding
    
    
    Outstanding
    
    
    Outstanding
    
    
    March 31, 2006$-
    
    
    360,344
    
    
    
    
    
    
    
    
    
    
    $
    338,723$0.30 - $0.30
    
    
    2,444,327
    
    
    
    7.33
    
    
    $
    0.30
    
    
    
    2,297,667$0.86 - $0.95
    
    
    60,000
    
    
    
    9.74
    
    
    $
    0.91
    
    
    
    56,400$1.04 - $1.105
    
    
    792,000
    
    
    
    9.75
    
    
    $
    1.05
    
    
    
    744,480$1.14 - $1.17
    
    
    274,000
    
    
    
    9.32
    
    
    $
    1.16
    
    
    
    257,560$1.40 - $1.43
    
    
    269,666
    
    
    
    8.56
    
    
    $
    1.40
    
    
    
    253,486$1.62 - $1.62
    
    
    250,000
    
    
    
    8.17
    
    
    $
    1.62
    
    
    
    235,000Outstanding at
March 31, 2006
    
    
    4,450,337
    
    
    
    8.54
    
    
    $
    0.67
    
    
    $
    4,183,316
 9




---



##### Table of Contents



Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    AggregateNumber of
    
    
    Remaining
    
    
    Exercise
    
    
    IntrinsicOptions/RSUs
    
    
    Contractual
    
    
    Price of
    
    
    Value atExercise Prices
    
    Vested(1)
    
    
    Terms
    
    
    Vested Options/RSUs
    
    
    March 31, 2006$-
    
    
    73,265
    
    
    
    
    
    
    
    
    
    
    $
    68,869$0.30 - $0.30
    
    
    1,938,285
    
    
    
    7.33
    
    
    $
    0.30
    
    
    
    1,821,988$0.86 - $0.95
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $1.04 - $1.105
    
    
    10,000
    
    
    
    9.25
    
    
    $
    1.08
    
    
    
    9,401$1.14 - $1.17
    
    
    2,667
    
    
    
    9.25
    
    
    $
    1.14
    
    
    
    2,507$1.40 - $1.43
    
    
    94,333
    
    
    
    8.55
    
    
    $
    1.40
    
    
    
    88,673$1.62 - $1.62
    
    
    168,750
    
    
    
    8.17
    
    
    $
    1.62
    
    
    
    158,625Exercisable at
March 31, 2006
    
    
    2,287,300
    
    
    
    7.94
    
    
    $
    0.44
    
    
    $
    2,150,062
 
 (1)
    
    Each of the outstanding options is currently exercisable. Option
holders who exercise unvested options will receive restricted stock for such
unvested options. The restrictions on such restricted stock will lapse on the
same schedule that the underlying options would have vested.  Compensation expense(in thousands)Nine months ending December 31, 2006
    
    $
    513Year ending December 31, 2007
    
    
    456Year ending December 31, 2008
    
    
    246Year ending December 31, 2009
    
    
    40Total
    
    $
    1,255
  Three MonthsEndedMarch 31, 2005Risk free interest rate
    
    
    4.44
    %Expected term (years)
    
    
    10Volatility
    
    
    47.85
    %Dividend yield
    
    
    0
    %
 10




---



##### Table of Contents



Three MonthsEndedMarch 31, 2005(In thousands,except per share data)Net loss, as reported
    
    $
    (2,112
    )Add: Total stock-based employee compensation
expense determined under the intrinsic
method for all awards
    
    
    11Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards
    
    
    (102
    )Pro forma net loss
    
    $
    (2,203
    )Basic loss per share  as reported
    
    $
    (0.04
    )Basic loss per share  pro forma
    
    $
    (0.04
    )Diluted loss per share  as reported
    
    $
    (0.04
    )Diluted loss per share  pro forma
    
    $
    (0.04
    )
   March 31,
    
    
    December 31,2006
    
    
    2005(In thousands)Freight handling expenses
    
    $
    2,647
    
    
    $
    1,686Landing and parking expenses
    
    
    1,096
    
    
    
    1,178Third party trucking expenses
    
    
    1,048
    
    
    
    1,064Other
    
    
    2,777
    
    
    
    3,345Total other accrued expenses
    
    $
    7,568
    
    
    $
    7,273
     11




---



##### Table of Contents



ScheduledFreight
    
    Cargo
    
    
    
    
    
    
    
    
    
    ConsolidatedNetwork
    
    Airline
    
    Other
    
    Eliminations
    
    Balance(in thousands)Three months ended March 31, 2006:Revenue from external customers
    
    $
    40,087
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    40,087Revenue from intersegment operations
    
    
    
    
    
    
    13,472
    
    
    
    
    
    
    
    (13,472
    )
    
    
    Depreciation and amortization
    
    
    129
    
    
    
    624
    
    
    
    79
    
    
    
    
    
    
    
    832Operating income (loss)
    
    
    (8,764
    )
    
    
    184
    
    
    
    (23
    )
    
    
    
    
    
    
    (8,603
    )Interest expense
    
    
    10
    
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    69Other income
    
    
    
    
    
    
    
    
    
    
    (288
    )
    
    
    
    
    
    
    (288
    )Net income (loss)
    
    $
    (8,774
    )
    
    $
    184
    
    
    $
    206
    
    
    $
    
    
    
    $
    (8,384
    )Total assets
    
    $
    18,647
    
    
    $
    9,735
    
    
    $
    39,197
    
    
    $
    (16,554
    )
    
    $
    51,025Three months ended March 31, 2005:Revenue from external customers
    
    $
    33,069
    
    
    $
    560
    
    
    $
    
    
    
    $
    
    
    
    $
    33,629Revenue from intersegment operations
    
    
    
    
    
    
    10,006
    
    
    
    
    
    
    
    (10,006
    )
    
    
    Depreciation and amortization
    
    
    131
    
    
    
    692
    
    
    
    85
    
    
    
    
    
    
    
    908Operating loss
    
    
    (2,241
    )
    
    
    (354
    )
    
    
    (49
    )
    
    
    
    
    
    
    (2,644
    )Interest expense
    
    
    22
    
    
    
    1
    
    
    
    47
    
    
    
    
    
    
    
    70Other income
    
    
    (130
    )
    
    
    (8
    )
    
    
    (464
    )
    
    
    
    
    
    
    (602
    )Net income (loss)
    
    $
    (2,133
    )
    
    $
    (347
    )
    
    $
    368
    
    
    $
    
    
    
    $
    (2,112
    )Total assets
    
    $
    15,875
    
    
    $
    15,911
    
    
    $
    24,585
    
    
    $
    (10,685
    )
    
    $
    45,686
    Three Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005Weighted average shares outstanding  basic
    
    
    51,675,408
    
    
    
    51,187,563Effect of dilutive securities
    
    
    
    
    
    
    Weighted average shares outstanding  diluted
    
    
    51,675,408
    
    
    
    51,187,563Securities excluded from computation due to antidilutive effect:Due to net loss
    
    
    23,470,338
    
    
    
    3,666,105Due to out-of-the-money
    
    
    855,666
    
    
    
    250,000
   12




---



##### Table of Contents



13




---



##### Table of Contents



Executive Overview
  Scheduled Freight Network.
     Cargo Airline.
 14




---



##### Table of Contents



Aircraft Fuel Costs.
   Seasonality.
  Fixed Costs.
 15




---



##### Table of Contents



Capital Requirements, Capital Resources and Liquidity
 Capital Requirements.
 Capital Resources.
 Credit Facility.
    Liquidity.
  16




---



##### Table of Contents



Recent Events
    Results of Operations
 Revenue.
 
    
    Scheduled freight revenue,which is generated from expedited and deferred freight
transportation services provided by our scheduled freight network. It also includes revenue
generated from our fuel and security surcharges. The fuel surcharge seeks to mitigate the
increases in our fuel expense resulting from higher fuel prices. The security surcharge
seeks to mitigate the increased costs of security measures that have been implemented as a
result of regulations adopted by the Transportation Security Administration.
    
    ACMI revenue,which is generated from short to medium-term contracts with third parties
by our cargo airline under which we generally provide the aircraft, crew, maintenance and
insurance; and
 17




---



##### Table of Contents




    
    Miscellaneous revenue,which is generated from ad-hoc charters provided by our cargo
airline, maintenance revenue and freight handling services provided for third parties.
 Cost of Revenue.
 
    
    Flight Expense,which consists of costs related to the flight operations of our cargo airline, including:
 
    
    flight crew member wages, benefits, training and travel;
    
    operating usage and lease expense under an aircraft and engine use agreement and
leased aircraft operated and flown by Kitty Hawk Aircargo;
    
    insurance costs related to aircraft operated and flown by Kitty Hawk Aircargo; and
    
    flight operations and airline management costs, including associated wages and benefits.
 
    
    Transportation Expense,which consists of costs related to the physical movement of
freight between our cargo facilities and which is not otherwise classified as flight
expense, including:
 
    
    third party aircraft charter expense;
    
    aircraft ground operating costs, such as landing and parking fees charged by
airports and the cost of deicing aircraft;
    
    third party trucking expenses, which includes diesel fuel, for cities in our
scheduled freight network; and
    
    pickup and/or final delivery expenses as directed by customers.
 
    
    Aircraft Fuel Expense,which consists of the all-inclusive cost of all aircraft fuel
consumed in our expedited scheduled freight network and on ad-hoc charters that include
aircraft fuel in the charter service, and the cost of all taxes, fees and surcharges
necessary to deliver the aircraft fuel into the aircraft.
 
    
    Maintenance Expense,which consists of costs to maintain airframes and aircraft engines
operated by our cargo airline, including:
 
    
    payments related to the Boeing 737-300SF cargo aircraft power-by-the-hour maintenance contract;
    
    wages and benefits for maintenance, records and maintenance management personnel;
    
    costs for contract mechanics at cargo facility outstations; and
    
    costs of aircraft parts and supplies.
 
    
    Freight Handling Expense,which consists of costs to handle the loading and unloading
of freight on aircraft and trucks operating within our scheduled freight network,
including:
 
    
    wages and benefits for our Fort Wayne, Indiana hub sort and ramp operations
personnel;
    
    contract services to warehouse, load and unload aircraft and trucks principally
at outstation cargo facilities; and
    
    wages and benefits for our outstation cargo facility personnel and field
operations managers.
 
    
    Depreciation and Amortization,which consists of depreciation and amortization expenses
for our owned airframes and aircraft engines and freight-handling equipment.
 18




---



##### Table of Contents




    
    Operating Overhead Expense,which consists of direct overhead costs related to
operating our scheduled freight network and cargo airline, including:
 
    
    wages and benefits for operational managers and customer service personnel of Kitty Hawk Cargo;
    
    scheduled freight network sales and marketing expenses;
    
    rent and utilities;
    
    bad debt expense;
    
    general operational office expenses; and
    
    induction costs related to the Boeing 737-300SF cargo aircraft during 2005.
 General and Administrative Expenses.
 Critical Accounting Policies
  19




---



##### Table of Contents



Three months ended March 31,2006
    
    
    2005Revenue:Scheduled freight
    
    
    100.0
    %
    
    
    97.7
    %Other
    
    
    
    
    
    
    2.3Total revenue
    
    
    100.0
    
    
    
    100.0Cost of revenue
    
    
    115.7
    
    
    
    101.3Gross loss
    
    
    (15.7
    )
    
    
    (1.3
    )General and administrative expenses
    
    
    5.7
    
    
    
    6.6Operating loss from continuing operations
    
    
    (21.4
    )
    
    
    (7.9
    )Other (income) expense:Interest expense
    
    
    0.2
    
    
    
    0.2Other income
    
    
    (0.7
    )
    
    
    (1.8
    )Total interest and other (income) expense
    
    
    (0.5
    )
    
    
    (1.6
    )Net loss
    
    
    (20.9
    )%
    
    
    (6.3
    )%
 Revenue
 General.
 Three months ended March 31,2006
    
    
    2005
    
    
    PercentagePercentage
    
    
    
    
    
    
    Percentage
    
    
    Changeof Total
    
    
    
    
    
    
    of Total
    
    
    from 2005Revenue
    
    
    Revenue
    
    
    Revenue
    
    
    Revenue
    
    
    to 2006(Dollars in thousands)Scheduled freight
    
    $
    40,087
    
    
    
    100.0
    %
    
    $
    32,842
    
    
    
    97.7
    %
    
    
    22.1
    %Other:ACMI
    
    
    
    
    
    
    
    
    
    
    520
    
    
    
    1.5
    
    
    
    (100.0
    )Miscellaneous
    
    
    
    
    
    
    
    
    
    
    267
    
    
    
    0.8
    
    
    
    (100.0
    )Total revenue
    
    $
    40,087
    
    
    
    100.0
    %
    
    $
    33,629
    
    
    
    100.0
    %
    
    
    19.2
 Scheduled Freight.
 20




---



##### Table of Contents



Cost of Revenue
 General.
 Three months ended March 31,2006
    
    
    2005
    
    
    PercentagePercentage
    
    
    
    
    
    
    Percentage
    
    
    ChangeCost of
    
    
    of Total
    
    
    Cost of
    
    
    of Total
    
    
    from 2005Revenue
    
    
    Revenue
    
    
    Revenue
    
    
    Revenue
    
    
    to 2006(Dollars in thousands)Flight expense
    
    $
    8,568
    
    
    
    21.4
    %
    
    $
    6,606
    
    
    
    19.6
    %
    
    
    29.7
    %Transportation expense
    
    
    9,108
    
    
    
    22.7
    
    
    
    2,928
    
    
    
    8.7
    
    
    
    211.1Aircraft fuel expense
    
    
    13,204
    
    
    
    32.9
    
    
    
    11,941
    
    
    
    35.5
    
    
    
    10.6Aircraft maintenance expense
    
    
    3,734
    
    
    
    9.3
    
    
    
    2,547
    
    
    
    7.6
    
    
    
    46.6Freight handling expense
    
    
    8,000
    
    
    
    20.0
    
    
    
    6,259
    
    
    
    18.6
    
    
    
    27.8Depreciation and amortization
    
    
    753
    
    
    
    1.9
    
    
    
    823
    
    
    
    2.5
    
    
    
    (8.5
    )Operating overhead expense
    
    
    3,021
    
    
    
    7.5
    
    
    
    2,949
    
    
    
    8.8
    
    
    
    2.4Total cost of revenue
    
    $
    46,388
    
    
    
    115.7
    %
    
    $
    34,053
    
    
    
    101.3
    %
    
    
    36.2
 Flight Expense.
  Transportation Expense.
 Aircraft Fuel Expense.
 21




---



##### Table of Contents



Aircraft Maintenance Expense.
 Freight Handling Expense.
 Depreciation and Amortization.
 Operating Overhead Expense.
 Gross Loss
  General and Administrative Expense
  Other Income
  22




---



##### Table of Contents



Income Taxes
  Forward-Looking Statements
    
    
    loss of key suppliers, significant customers or key management personnel;
    
    increased competition, including the possible impact of any mergers, alliances or
combinations of competitors;
    
    increases in the cost and/or decreases in the availability of aircraft fuel and diesel
fuel and our ability to recapture increases in the cost of aircraft fuel and diesel fuel
through the use of fuel surcharges and/or price increases;
    
    with respect to our scheduled freight network, the continuing high cost of aircraft and
diesel fuel leading to a higher total price for our services which impacts the freight
purchasing decision for our customers and/or shippers resulting in a shift to less
expensive modes of transportation;
    
    with respect to our expansion of our freight transportation network to include
scheduled LTL deferred freight transportation services, potential competitive reactions
from other LTL carriers;
    
    limitations upon financial and operating flexibility due to the terms of our Credit Facility;
    
    changes in our capital resources and liquidity;
    
    financial costs and operating limitations imposed by both the current and the potential
additional future unionization of our workforce;
    
    payment defaults by our customers;
    
    write-downs of the value of our aircraft parts, airframes or aircraft engines;
    
    changes in the cost of Boeing 737-300SF cargo aircraft maintenance outside the scope of
our power-by-the-hour maintenance agreement and/or changes in the cost of Boeing 727-200
cargo aircraft maintenance;
    
    changes in general economic conditions;
    
    changes in the cost and availability of ground handling and storage services;
 23




---



##### Table of Contents




    
    changes in the cost and availability of aircraft or replacement parts;
    
    changes in our business strategy or development plans;
    
    changes in government regulation and policies, including regulations affecting
maintenance requirements for, and availability of, aircraft and airworthiness directives;
    
    foreign political instability and acts of war or terrorism;
    
    adverse litigation judgments or awards;
    
    the ability to successfully integrate and operate our LTL ground network;
    
    the ability to attract sufficient customers and freight volumes for our LTL ground network;
    
    findings of environmental contamination;
    
    limitations in our ability to find, acquire and integrate replacement aircraft for our
Boeing 727-200 cargo aircraft under terms and conditions that are satisfactory to us; and
    
    limitations in our ability to offset income with our future deductible tax attributes.
  
   
  Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Controls.
 24




---



##### Table of Contents



General Motors.
 Other.
 
   
   
   
   
   25




---



##### Table of Contents



Exhibit No.
    
    
    
    EXHIBIT31.1*
    
    
    
    Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.31.2*
    
    
    
    Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.32.1*
    
    
    
    Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Each document marked with an asterisk is filed or furnished herewith. 26




---



##### Table of Contents



KITTY HAWK, INC.By:
    /s/ JAMES R. KUPFERSCHMIDJames R. KupferschmidVice President  Finance and Chief Financial
Officer (Authorized officer and principal
financial officer) 27