##### 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, 2007
 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
(State or other jurisdiction of 
incorporation or organization)
    
    75-2564006
(I.R.S. Employer
Identification No.)1515 West 20th Street 
P.O. Box 612787
Dallas/Fort Worth International Airport, Texas
(Address of principal executive offices)
    
    75261
(Zip Code)
 
 þ o
  o o þ
 o þ
 þ o




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##### 



PAGE NUMBERPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at March 31, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three months ended
March 31, 2007 and 2006
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the three months ended
March 31, 2007
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II. OTHER INFORMATION
    
    
    23Item 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    33Certification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350
  2




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March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,158
    
    
    $
    9,589Restricted cash and short-term investments
    
    
    4,121
    
    
    
    250Trade accounts receivable, net of allowance for doubtful
accounts of $0.3 million and $0.5 million, respectively
    
    
    18,444
    
    
    
    26,252Inventory and aircraft supplies
    
    
    2,387
    
    
    
    2,240Deposits and prepaid expenses
    
    
    4,638
    
    
    
    3,732Prepaid aircraft fuel
    
    
    1,415
    
    
    
    1,171Other current assets, net
    
    
    149
    
    
    
    282Total current assets
    
    
    35,312
    
    
    
    43,516Property and equipment, net
    
    
    6,396
    
    
    
    7,411Other long-term assets
    
    
    5,727
    
    
    
    2,896Total assets
    
    $
    47,435
    
    
    $
    53,823LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Current liabilities:Accounts payable  trade
    
    $
    7,344
    
    
    $
    7,235Accrued wages and compensation related expenses
    
    
    2,512
    
    
    
    2,293Other accrued expenses
    
    
    7,578
    
    
    
    15,973Taxes payable, other than income taxes
    
    
    897
    
    
    
    890Current debt
    
    
    9,314
    
    
    
    257Total current liabilities
    
    
    27,645
    
    
    
    26,648Other long-term liabilities
    
    
    127
    
    
    
    135Total liabilities
    
    
    27,772
    
    
    
    26,783Commitments and contingenciesSeries B Redeemable Preferred Stock, $0.01 par value: Authorized
shares  15,000; issued and outstanding  14,550 at
March 31, 2007 and December 31, 2006, respectively; cumulated
dividends of $0.8 million at March 31, 2007 and $0.9 million at December 31,
2006
    
    
    12,142
    
    
    
    12,142Stockholders 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 at March 31, 2007 and December 31, 2006; issued
and outstanding  52,925,896 and 52,827,853 at March 31,
2007 and December 31, 2006, respectively
    
    
    
    
    
    
    Additional capital
    
    
    30,798
    
    
    
    26,425Retained deficit
    
    
    (23,277
    )
    
    
    (11,527
    )Total stockholders equity
    
    
    7,521
    
    
    
    14,898Total liabilities and stockholders equity
    
    $
    47,435
    
    
    $
    53,823
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Three months ended March 31,2007
    
    
    2006Revenue:Scheduled freight network
    
    $
    38,928
    
    
    $
    40,087ACMI
    
    
    308
    
    
    
    Miscellaneous
    
    
    2,729
    
    
    
    Total revenue
    
    
    41,965
    
    
    
    40,087Cost of revenue:Flight expense
    
    
    7,757
    
    
    
    8,568Transportation expense
    
    
    13,762
    
    
    
    9,108Fuel expense
    
    
    10,725
    
    
    
    13,204Maintenance expense
    
    
    3,652
    
    
    
    3,734Freight handling expense
    
    
    8,403
    
    
    
    8,000Depreciation and amortization
    
    
    882
    
    
    
    753Operating overhead expense
    
    
    4,644
    
    
    
    3,021Total cost of revenue
    
    
    49,825
    
    
    
    46,388Gross loss
    
    
    (7,860
    )
    
    
    (6,301
    )General and administrative expense
    
    
    3,512
    
    
    
    2,302Operating loss
    
    
    (11,372
    )
    
    
    (8,603
    )Other (income) expense:Interest expense
    
    
    70
    
    
    
    69Other, net
    
    
    (95
    )
    
    
    (288
    )Net loss
    
    
    (11,347
    )
    
    
    (8,384
    )Preferred stock dividends accreted
    
    
    291
    
    
    
    296Net loss allocable to common stockholders
    
    $
    (11,638
    )
    
    $
    (8,680
    )Basic loss per share
    
    $
    (0.22
    )
    
    $
    (0.17
    )Diluted loss per share
    
    $
    (0.22
    )
    
    $
    (0.17
    )Weighted average common shares  basic outstanding  basic
    
    
    53,995,131
    
    
    
    51,675,408Weighted average diluted common shares outstanding  diluted
    
    
    53,995,131
    
    
    
    51,675,408
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\

Common StockNumber of
    
    
    
    
    
    
    Additional
    
    
    RetainedShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance at December 31, 2006
    
    
    52,827,853
    
    
    $
    
    
    
    $
    26,425
    
    
    $
    (11,527
    )
    
    $
    14,898Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,347
    )
    
    
    (11,347
    )Dividends declared for Series B
Redeemable Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (403
    )
    
    
    (403
    )Compensation expense associated
with stock option and restricted
stock unit grants
    
    
    
    
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    172Issue warrants associated with
revolving facility
    
    
    
    
    
    
    
    
    
    
    4,173
    
    
    
    
    
    
    
    4,173Issuance of common stock related
to exercise of options to
acquire stock and conversion of
restricted stock units
    
    
    98,043
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    28Balance at March 31, 2007
    
    
    52,925,896
    
    
    $
    
    
    
    $
    30,798
    
    
    $
    (23,277
    )
    
    $
    7,521
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Three months ended March 31,2007
    
    
    2006Operating activities:Net loss
    
    $
    (11,347
    )
    
    $
    (8,384
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization expense
    
    
    1,016
    
    
    
    832Gain on disposal of property and equipment
    
    
    (265
    )
    
    
    (358
    )Compensation expense related to stock options and
restricted stock units
    
    
    172
    
    
    
    192Write off debt issuance costs
    
    
    470
    
    
    
    Reversal of allowance for doubtful accounts
    
    
    110
    
    
    
    Changes in operating assets and liabilities:Trade accounts receivable
    
    
    7,698
    
    
    
    55Inventory and aircraft supplies
    
    
    (147
    )
    
    
    (100
    )Prepaid expenses and other
    
    
    1,231
    
    
    
    457Accounts payable and accrued expenses
    
    
    (8,463
    )
    
    
    2,236Net cash used in operating activities
    
    
    (9,525
    )
    
    
    (5,070
    )Investing activities:Proceeds from sale of assets
    
    
    670
    
    
    
    570Change in restricted cash
    
    
    (3,871
    )
    
    
    Capital expenditures
    
    
    (178
    )
    
    
    (429
    )Net cash provided by (used in) investing activities
    
    
    (3,379
    )
    
    
    141Financing activities:Net borrowing on revolving facility
    
    
    9,289
    
    
    
    Debt issuance costs
    
    
    (1,604
    )
    
    
    Payments on current debt
    
    
    (240
    )
    
    
    Proceeds from exercise of stock options
    
    
    28
    
    
    
    46Net cash provided by financing activities
    
    
    7,473
    
    
    
    46Net decrease in cash and cash equivalents
    
    
    (5,431
    )
    
    
    (4,883
    )Cash and cash equivalents at beginning of period
    
    
    9,589
    
    
    
    26,650Cash and cash equivalents at end of period
    
    $
    4,158
    
    
    $
    21,767
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Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2007
    
    
    March 31, 2006(in thousands)Flight expense
    
    $
    33
    
    
    $
    31Maintenance expense
    
    
    4
    
    
    
    6Freight handling expense
    
    
    15
    
    
    
    22Operating overhead expense
    
    
    32
    
    
    
    28General and administrative expense
    
    
    88
    
    
    
    105Total compensation expense
    
    $
    172
    
    
    $
    192
   March 31, 2007
    
    
    December 31, 2006(In thousands)Freight handling expense
    
    $
    1,416
    
    
    $
    8,235Equipment lease expense
    
    
    101
    
    
    
    1,990Trucking expense
    
    
    1,284
    
    
    
    863Maintenance expense
    
    
    624
    
    
    
    771Landing and parking expenses
    
    
    927
    
    
    
    714Other
    
    
    3,226
    
    
    
    3,400Total other accrued expenses
    
    $
    7,578
    
    
    $
    15,973
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GroundScheduled
    
    TransportationFreight
    
    Services
    
    Cargo
    
    
    
    
    
    
    
    
    
    ConsolidatedNetwork
    
    Company
    
    Airline
    
    Other
    
    Eliminations
    
    Balance(In thousands)Three months ended March 31, 2007:Revenue from external customers
    
    $
    38,928
    
    
    $
    2,494
    
    
    $
    543
    
    
    $
    
    
    
    $
    
    
    
    $
    41,965Revenue from intersegment operations
    
    
    
    
    
    
    12,948
    
    
    
    11,436
    
    
    
    
    
    
    
    (24,384
    )
    
    
    Depreciation and amortization
    
    
    144
    
    
    
    352
    
    
    
    386
    
    
    
    134
    
    
    
    
    
    
    
    1,016Operating income (loss)
    
    
    (10,875
    )
    
    
    (836
    )
    
    
    339
    
    
    
    
    
    
    
    
    
    
    
    (11,372
    )Interest expense
    
    
    5
    
    
    
    3
    
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    70Other income
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (92
    )
    
    
    
    
    
    
    (95
    )Net income (loss)
    
    $
    (10,880
    )
    
    $
    (836
    )
    
    $
    339
    
    
    $
    30
    
    
    $
    
    
    
    $
    (11,347
    )Total assets
    
    $
    16,380
    
    
    $
    12,970
    
    
    $
    7,721
    
    
    $
    52,833
    
    
    $
    (42,469
    )
    
    $
    47,435Three 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
    )
    
    $
    51,025
    Three Months ended March 31,2007
    
    2006Weighted average shares outstanding  basic
    
    
    53,995,131
    
    
    
    51,675,408Effect of dilutive securities
    
    
    
    
    
    
    Weighted average shares outstanding  diluted
    
    
    53,995,131
    
    
    
    51,675,408Securities excluded from computation due to
antidilutive effect:Due to net loss
    
    
    6,973,303
    
    
    
    23,470,338Due to out-of-the-money
    
    
    24,812,094
    
    
    
    855,666
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Three months endedMarch 31, 2006(in thousands, except pershare data)Revenue
    
    $
    51,242Net loss
    
    $
    (9,107
    )Basic and diluted loss per share
    
    $
    (0.17
    )
      10




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11




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Executive Overview
  Scheduled Freight Network.
     12




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Ground Transportation.
 Cargo Airline.
 Fuel Costs.
    13




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Seasonality.
  Fixed Costs.
 Capital Requirements, Capital Resources and Liquidity
 Capital Requirements.
 Capital Resources.
 New Revolving Facility.
 14




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Liquidity.
   Explanation of Statement of Operations Items
 Revenue.
 
    
    Scheduled freight network revenue,which is generated from our expedited air and ground
freight products provided by our scheduled freight network. We consider expedited freight
service as freight transported on our air product on an overnight or second-morning basis or
on our ground product on a time-definite basis as determined by the customer. 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
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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 contracts with third parties by our cargo airline
under which we generally provide the aircraft, crew, maintenance and insurance; and
    
    Miscellaneous revenue,which is generated from ad-hoc charters provided by our cargo
airline, maintenance revenue, freight handling services provided for third parties,
providing EUV, contracted service to third parties and local transportation trucking
services.
 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;
    
    leased aircraft and engines 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 within our network 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;
    
    leased trucks operated by Kitty Hawk Ground and leased trailers;
    
    driver wages and benefits;
    
    contracted trucking expenses between cities in our scheduled network, including
owner-operator costs and surcharges for diesel fuel not purchased by us, and
    
    pickup and/or final delivery expenses as directed by customers.
 
    
    Fuel Expense,which consists of the all-inclusive cost of all aircraft fuel consumed in
our expedited scheduled air network and on ad-hoc charters that include aircraft fuel in the
charter service, the cost of all taxes, fees and surcharges necessary to deliver the
aircraft fuel into the aircraft and the cost of diesel fuel and all related taxes, fees and
surcharges for trucks operated by our employees.
    
    Maintenance Expense,which consists of costs to maintain airframes and aircraft engines
operated by our cargo airline and trucks operated by our ground transportation company,
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 third party maintenance; and
    
    costs of aircraft and truck parts and supplies.
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
    
    Freight Handling Expense,which consists of the costs of loading and unloading 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 regional hub personnel, other company operated
outstations and field operations managers.
 
    
    Depreciation and Amortization,which consists of depreciation and amortization expense
for our owned airframes and aircraft engines, trucks, trailers, freight-handling equipment
and capitalized software as well as the amortization of certain intangible assets associated
with the acquisition of the operating assets of ACT.
    
    Operating Overhead Expense,which consists of direct overhead costs related to operating
our scheduled freight network, ground transportation company and cargo airline, including:
 
    
    wages and benefits for operational managers, sales representatives and customer
service personnel of Kitty Hawk Cargo and Kitty Hawk Ground;
    
    scheduled freight network sales and marketing expenses;
    
    rent and utilities;
    
    bad debt expense; and
    
    general operational office expenses.
 General and Administrative Expenses.
 Critical Accounting Policies
  17




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Results of Operations
  Three Months Ended March 31,2007
    
    2006Revenue:Scheduled freight
    
    
    92.8
    %
    
    
    100.0
    %Other
    
    
    7.2
    
    
    
    Total revenue
    
    
    100.0
    
    
    
    100.0Cost of revenue
    
    
    118.7
    
    
    
    115.7Gross loss
    
    
    (18.7
    )
    
    
    (15.7
    )General and administrative expenses
    
    
    8.3
    
    
    
    5.7Operating loss
    
    
    (27.0
    )
    
    
    (21.4
    )Other (income) expense:Interest expense
    
    
    0.2
    
    
    
    0.2Other income
    
    
    (0.2
    )
    
    
    (0.7
    )Total interest and other (income) expense
    
    
    
    
    
    
    (0.5
    )Net loss
    
    
    (27.0
    )%
    
    
    (20.9
    )%
   General.
 2007
    
    
    2006
    
    
    PercentagePercentage
    
    
    
    
    
    
    Percentage
    
    
    Changeof Total
    
    
    
    
    
    
    of Total
    
    
    from 2006Revenue
    
    
    Revenue
    
    
    Revenue
    
    
    Revenue
    
    
    to 2007(Dollars in thousands)Scheduled freight
    
    $
    38,928
    
    
    
    92.8
    %
    
    $
    40,087
    
    
    
    100.0
    %
    
    
    (2.9
    )%Other:ACMI
    
    
    308
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    100.0Miscellaneous
    
    
    2,729
    
    
    
    6.5
    
    
    
    
    
    
    
    
    
    
    
    100.0Total revenue
    
    $
    41,965
    
    
    
    100.0
    %
    
    $
    40,087
    
    
    
    100.0
    %
    
    
    4.7
 Scheduled Freight Network.
 ACMI.
 18




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Miscellaneous.
  General.
 2007
    
    
    2006
    
    
    PercentagePercentage
    
    
    
    
    
    
    Percentage of
    
    
    ChangeCost of
    
    
    of Total
    
    
    Cost of
    
    
    Total
    
    
    from 2006Revenue
    
    
    Revenue
    
    
    Revenue
    
    
    Revenue
    
    
    to 2007(Dollars in thousands)Flight expense
    
    $
    7,757
    
    
    
    18.5
    %
    
    $
    8,568
    
    
    
    21.4
    %
    
    
    (9.5
    )%Transportation expense
    
    
    13,762
    
    
    
    32.8
    
    
    
    9,108
    
    
    
    22.7
    
    
    
    51.1Fuel expense
    
    
    10,725
    
    
    
    25.6
    
    
    
    13,204
    
    
    
    32.9
    
    
    
    (18.8
    )Maintenance expense
    
    
    3,652
    
    
    
    8.7
    
    
    
    3,734
    
    
    
    9.3
    
    
    
    (2.2
    )Freight handling expense
    
    
    8,403
    
    
    
    20.0
    
    
    
    8,000
    
    
    
    20.0
    
    
    
    5.0Depreciation and amortization
    
    
    882
    
    
    
    2.1
    
    
    
    753
    
    
    
    1.9
    
    
    
    17.1Operating overhead expense
    
    
    4,644
    
    
    
    11.0
    
    
    
    3,021
    
    
    
    7.5
    
    
    
    53.7Total cost of revenue
    
    $
    49,825
    
    
    
    118.7
    %
    
    $
    46,388
    
    
    
    115.7
    %
    
    
    7.4
 Flight Expense.
  Transportation Expense.
 Fuel Expense.
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Maintenance Expense.
 Freight Handling Expense.
 Depreciation and Amortization.
 Operating Overhead Expense.
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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/or diesel
fuel and our ability to recapture increases in the cost of such 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 recent expansion of our ground freight transportation network to
include scheduled deferred freight transportation services, potential competitive reactions
from other carriers;
    
    limitations upon financial and operating flexibility due to the terms of our Revolving Facility;
    
    changes in our capital resources and liquidity;
    
    financial costs and operating limitations imposed by both the current and 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;
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
    
    changes in the cost and availability of ground handling and storage services;
    
    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 or
service bulletins;
    
    foreign political instability and acts of war or terrorism;
    
    adverse litigation judgments or awards;
    
    the ability to attract and retain customers and freight volumes for our scheduled freight network;
    
    findings of environmental contamination and/or the cost of remediation;
    
    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.
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Risks Relating to Our Business
 The as-needed nature of our scheduled freight business and the types of industries we serve
subject our business to significant market fluctuations that are beyond our control, and a downward
market fluctuation could have a material adverse effect on our results of operations.
  Our inability to execute upon our plans to increase sales of our ground freight product,
or to manage or to generate sufficient revenues from that line of business, could have a material
adverse effect on our results of operations.
  Our inability to attract and retain sufficient business from customers at economical
prices for our expedited air and deferred ground freight product could impair our ability to
compete and could have a material adverse effect on our results of operations.
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We derive a significant portion of our revenues from a limited number of customers, and
the loss of their business or payment defaults by one or more of them could have a material adverse
effect on our results of operations.
   We have potential liquidity issues and further financing cannot be guaranteed.
  The terms of our Revolving Facility could restrict our operations.
  Our failure to comply with certain covenants in the Revolving Facility could result in an
event of default that could cause acceleration of the repayment of our indebtedness.
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The U.S. freight transportation industry is highly competitive and, if we cannot successfully
compete, our results of operations and profitability may be materially adversely affected.
     We have experienced recent changes in senior management that could adversely affect the
operation of our business.
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ACT has been operated as a private company that is not subject to Sarbanes-Oxley Act
regulations and, therefore, may lack the internal controls and procedures of a public company.
  Writedowns of the value of our aircraft parts and supplies inventory could have a material
adverse effect on our results of operations.
   If we lose access to, or sustain damage to, our Fort Wayne, Indiana facilities, our business
would be interrupted, which could materially adversely affect our business and results of
operations.
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Increases in the cost, or a reduction in the availability, of airframe or aircraft engine
maintenance may result in increased costs.
  Increases in the cost, or decreases in the supply, of aircraft and/or diesel fuel could have a
material adverse effect on our results of operations.
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Increases in the cost, or decreases in the supply, of ground handling and storage services
could significantly disrupt our business.
  The unavailability of aircraft due to unscheduled maintenance, accidents and other events may
result in the loss of revenue and customers.
  The unavailability of trucks, drivers and owner operators, or increases in the cost of
trucking services, may materially adversely affect our results of operations.
  Financial costs and operating limitations imposed by the unionization of our workforce could
create material labor problems for our business.
   A failure of our computer systems could significantly disrupt our business.
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Aircraft or truck accidents and the resulting repercussions could have a material adverse
effect on our business.
  Risks Relating to Government Regulation
 If we lose our authority to conduct flight operations, we will be unable to run our air
freight business.
  FAA safety, training and maintenance regulations may hinder our ability to conduct operations
or may result in fines or increased costs.
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Our trucking operations are highly regulated, and increased direct and indirect costs of
compliance with, or liability for violation of, existing or future regulations could have a
material adverse effect on our business.
   If we improperly ship hazardous materials or contraband, we could incur substantial fines
or damages.
  Our operations are subject to various environmental laws and regulations, the violation
of which could result in substantial fines or penalties.
   Department of Homeland Security and Transportation Security Administration regulations may
result in unanticipated costs.
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The interests of our principal stockholders may be inconsistent with the interests of our
other equity holders and may have an adverse effect on our stock price.
  Stock ownership by non-U.S. citizens could prevent us from operating our business.
  Risks Related to Our Common Stock
 The market price for our common stock may be volatile.
  
    
    our performance and prospects;
    
    the performance and prospects of our major customers;
    
    the limited depth and liquidity of the market for our common stock;
    
    investor perception of us and the industry in which we operate;
    
    general financial and other market conditions;
    
    the cost and supply of fuel; and
    
    domestic and international economic conditions.
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Other companies may have difficulty acquiring us, even if doing so would benefit our
stockholders.
  
    
    a limitation on who may call stockholder meetings;
    
    a prohibition on stockholder action by written consent; and
    
    advance notification procedures for matters to be brought before stockholder meetings.
  We do not anticipate paying cash dividends to our common stockholders in the foreseeable
future.
  
   
   
   
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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. 33




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KITTY HAWK, INC.By:
    /s/ JAMES R. KUPFERSCHMIDJames R. KupferschmidVice President - Finance and Chief Financial
Officer (Authorized officer and principal
financial officer) 34