UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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 (or for 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 registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

 

As of August 2, 2004, 10,085,829 of the registrant’s common shares, par value $0.01, were outstanding.

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets:  June 30, 2004 (Unaudited) and December 31, 2003
	Condensed Consolidated Statements of Operations (Unaudited):  Three and Six Months Ended June 30, 2004 and 2003
	Condensed Consolidated Statements of Cash Flows (Unaudited):  Six Months Ended June 30, 2004 and 2003
	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, Use of Proceeds and Issuer Purchases of Equity Securities
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
SIGNATURES
INDEX TO EXHIBITS

 

2

 

AIRNET SYSTEMS, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

In thousands		June 30, 2004			December 31, 2003
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	1,338		$	125
Accounts receivable, less allowances		21,130			18,647
Inventory and spare parts		7,634			6,589
Taxes receivable		1,388			1,401
Deposits and prepaids		1,985			3,246
Total current assets		33,475			30,008
Net property and equipment		140,093			118,799
Other assets:
Goodwill, net of accumulated amortization		4,018			4,018
Other		382			448
Total assets		$	177,968		$	153,273
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	9,827		$	7,442
Salaries and related liabilities		4,568			4,955
Deferred revenues		2,488			184
Accrued expenses		675			887
Taxes payable		—			76
Deferred income taxes		4			4
Current portion of notes payable		5,348			5,256
Total current liabilities		22,910			18,804
Other liabilities		1,004			1,280
Notes payable, less current portion		53,003			32,520
Deferred tax liability		16,391			16,389
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, 2004 and at December 31, 2003		128			128
Additional paid-in-capital		77,251			77,759
Retained earnings		32,142			31,938
Accumulated other comprehensive loss		(32		)	(35		)
Treasury shares, 2,677 and 2,720 shares held at cost at June 30, 2004 and December 31, 2003, respectively		(24,829		)	(25,510		)
Total shareholders’ equity		84,660			84,280
Total liabilities and shareholders’ equity		$	177,968		$	153,273

 

See notes to condensed consolidated financial statements

 

3

 

AIRNET SYSTEMS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited

 

In thousands, except per share data		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
NET REVENUES
Air transportation, net of excise tax
Delivery services:
Bank services		$	26,230		$	25,682		$	52,062		$	52,005
Express services		12,083			8,631			22,881			17,641
Total delivery services revenues		38,313			34,313			74,943			69,646
Passenger charter services		3,616			1,777			7,253			3,216
Aviation services and other operations		211			494			415			798
Total net revenues		42,140			36,584			82,611			73,660
COSTS AND EXPENSES
Air transportation
Wages and benefits		6,657			6,148			13,003			12,360
Aircraft fuel		6,186			4,951			11,722			9,893
Aircraft maintenance		3,690			2,954			6,880			6,335
Contracted air costs		3,127			2,378			6,197			5,185
Ground courier		7,887			6,174			15,029			12,440
Depreciation		5,050			4,319			9,939			8,511
Insurance, rent and landing fees		2,638			2,384			5,202			4,628
Travel, training and other		2,650			2,165			5,211			4,343
Selling, general and administrative		4,050			3,648			8,009			7,543
Net (gain) loss on disposition of assets		(3		)	—			289			35
Total costs and expenses		41,932			35,121			81,481			71,273
Income from continuing operations		208			1,463			1,130			2,387
Interest expense		407			340			774			742
Income(loss) from continuing operations before income taxes		(199		)	1,123			356			1,645
Provision for income taxes		(86		)	438			153			641
Income(loss) from continuing operations		$	(113	)	$	685		$	203		$	1,004
Income from discontinued operations, net of taxes		$	0		$	39		$	0		$	17
Net income (loss)		$	(113	)	724			$	203		$	1,021
Income (loss) per share - basic and diluted
Continuing operations		$	(0.01	)	$	0.07		$	0.02		$	0.10
Discontinued operations		—			—			—			—
Net income (loss) per share - basic and diluted		$	(0.01	)	$	0.07		$	0.02		$	0.10

 

See notes to condensed consolidated financial statements

 

4

 

AIRNET SYSTEMS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited

 

In thousands		Six Months Ended June 30,
		2004			2003
Operating activities:
Net income		$	203		$	1,021
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		9,939			8,511
Deferred taxes		(3		)	—
Provision for losses on accounts receivable		117			188
Loss on disposition of assets		289			35
Cash provided by (used in) operating assets and liabilities:
Accounts receivable		(2,599		)	725
Inventory and spare parts		(1,045		)	(174		)
Prepaid expenses		1,260			1,254
Accounts payable		2,106			177
Deferred revenues and accrued expenses		2,103			2,126
Taxes payable		(59		)	384
Salaries and related liabilities		(387		)	(507		)
Other, net		62			435
Net assets of discontinued operations		—			397
Net cash provided by operating activities		11,986			14,572
Investing activities:
Purchases of property and equipment		(34,625		)	(8,782		)
Proceeds from sales of property and equipment		3,103			109
Net cash used in investing activities		(31,522		)	(8,673		)
Financing activities:
Proceeds from incentive stock plan programs		80			98
Net borrowings (repayments) under the revolving credit facility		4,000			(6,100		)
Net borrowings (repayments) of long-term debt		16,575			(594		)
Issuance (purchase) of treasury shares		94			(250		)
Net cash provided by (used in) financing activities		20,749			(6,846		)
Net increase (decrease) in cash		1,213			(947		)
Cash and cash equivalents at beginning of period		125			1,054
Cash and cash equivalents at end of period		$	1,338		$	107

 

See notes to condensed consolidated financial statements

 

5

 

AIRNET SYSTEMS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.              Basis of Presentation

 

AirNet Systems, Inc. and its subsidiaries (“AirNet” or the “Company”) operate a fully integrated national air transportation network which provides delivery service for time-critical shipments for customers in the U.S. banking industry and other industries requiring the express delivery of packages.  AirNet also offers passenger charter services and retail aviation fuel sales and related ground services.

 

The accompanying condensed consolidated financial statements include the accounts of AirNet Systems, Inc. and its subsidiaries.  These financial statements are unaudited and have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003. The results of operations for the quarterly and six month periods ended June 30, 2004 are not necessarily indicative of the results for the full year.

 

The financial information included herein reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the results of interim periods.

 

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in those financial statements and accompanying notes thereto.  Actual results could differ from those estimates.

 

Certain reclassifications have been made in the prior year’s financial statements to conform to the presentation for the three and six month periods ended June 30, 2004.

 

2.               Stock Plans and Awards

 

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

 

The Company accounts for its employee and director stock-based compensation plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.  No stock-based employee compensation cost is reflected in net income, as all options granted have an exercise price equal to the market value of the underlying common shares on the date of grant.  Pro forma information regarding net income and net income per share, as required by SFAS No. 148, has been determined as if the Company had accounted for its employee stock options under the 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 the Black-Scholes option pricing model.

 

6

 

The following table illustrates the effect on net income and net income per share as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (in thousands, except per share data).

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
Net income (loss), as reported		$	(113	)	$	724		$	203		$	1,021
Deduct:  Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(29		)	(28		)	(182		)	(88		)
Pro forma net income (loss)		$	(142	)	$	696		$	21		$	933
Net income (loss) per share – basic and diluted:
As reported		$	(.01	)	$	.07		$	.02		$	.10
Pro forma		$	(.01	)	$	.07		$	.00		$	.09

 

3.              Income Per Share From Continuing Operations

 

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

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
Numerator:
Income(loss) from continuing operations		$	(113	)	$	685		$	203		$	1,004
Denominator:
Basic - weighted average shares outstanding		10,076			10,132			10,063			10,125
Diluted
Stock options–employees, officers, and directors		40			0			35			0
Adjusted weighted average shares outstanding		10,116			10,132			10,098			10,125
Income (loss) per share from continuing operations -
Basic and diluted:		$	(0.01	)	$	0.07		$	0.02		$	0.10

 

Common shares subject to outstanding stock options excluded from the diluted adjusted weighted average shares outstanding calculation, as the exercise price of the stock options exceeded the average fair market value of the underlying common shares for the period, were 729,370 and 709,370 for the three and six month periods ended June 30, 2004.

 

4.     Comprehensive Income

 

Comprehensive income is comprised of net income of the Company and the change in the fair value of interest rate swap agreements, net of income taxes.  Comprehensive income for the six months ended June 30, 2004 and June 30, 2003 was $543,000 and $1,021,000, respectively. Comprehensive income for the three months ended June 30, 2004 and 2003 was $203,000 and $722,000, respectively.

 

7

 

 

5.              Discontinued Operations

 

On August 11, 2003, AirNet Systems, Inc. completed the sale of substantially all of the assets of its Mercury Business Services unit to Mercury Business Services, Inc., a Delaware corporation owned by a group that include the original owners of the Mercury business.

 

The sales price of the transaction was approximately $1.1 million.  Mercury Business Services, Inc. paid approximately $455,000 of the sales price through the issuance of a ninety day promissory note secured by the assets being sold and guaranteed by each of the shareholders of Mercury Business Services, Inc.  Under the terms of the Asset Purchase Agreement, approximately $536,000 of the purchase price was paid with AirNet Systems, Inc. common shares owned by the shareholders of Mercury Business Services, Inc., including 56,000 common shares tendered to AirNet Systems, Inc. prior to closing at $4.30 per share (the closing price of the AirNet Systems, Inc. common shares on the NYSE on July 25, 2003) and 68,494 common shares tendered to AirNet Systems, Inc. on the closing date at $4.31 per share (the average closing price of the AirNet Systems, Inc. common shares on the NYSE on August 4-6, 2003).  The balance of the sales price was paid in cash.

 

AirNet accounted for these operations as discontinued operations.

 

The Mercury Business Services unit had revenues for of $2,487,000 and $4,919,000 for the three months ended June 30, 2003 and the six months ended June 30, 2003, respectively.

 

Pre-tax profit for AirNet’s Mercury Business Services unit was $64,000 and $28,000 for the three months ended June 30, 2003 and for the six months ended June 30, 2003, respectively.

 

6.              Bank Financing Matters

 

In June 2004, AirNet entered into an amended and restated term loan and revolving loan facility (collectively, the “Amended Credit Agreement”) with its banks. The Amended Credit Agreement provides AirNet with a secured revolving credit facility with up to $35.0 million available and a secured term loan in the aggregate amount of $14.0 million.  The amount of revolving loans available under the Amended Credit Agreement is further limited to a borrowing base equal to the aggregate of 80% of eligible accounts receivable, plus 50% of eligible inventory, plus 70% of the market value of certain fixed assets, reduced by the aggregate amount of AirNet’s outstanding letters of credit. As of June 30, 2004, $22.8 million and $13.0 million were outstanding under the secured revolving credit facility and secured term loan, respectively. As of June 30, 2004, AirNet had approximately $10.7 million available to borrow on its secured revolving loan facility.

 

The revolving credit facility under the Amended Credit Agreement expires on September 30, 2005 and the secured term loan matures on September 30, 2007.  Quarterly principal payments of $1.0 million are required for the secured term loan beginning in June 2004 and continuing through September 30, 2007. The Amended Credit Agreement is secured by a first lien on all of the property of AirNet and its subsidiaries, other than any interest in real estate and certain excluded fixed assets.  The Amended Credit Agreement permits AirNet and its subsidiaries to incur other indebtedness for the purpose of purchasing or refinancing aircraft and related tangible fixed assets, subject to certain annual limitations.  AirNet has also pledged the interests in its subsidiaries, and each of AirNet’s subsidiaries has guaranteed AirNet’s obligations under the Amended Credit Agreement.  The Amended Credit Agreement contains limitations on operating leases, indebtedness, significant corporate changes including mergers and sales of assets, investments in subsidiaries and acquisitions, liens, capital expenditures, transactions with affiliates, sales of accounts receivable, sale and leaseback transactions and other off-balance sheet liabilities, contingent obligations and hedging transactions.  The Amended Credit Agreement also contains financial covenants that require AirNet to maintain a minimum consolidated tangible net worth and to not exceed fixed charge coverage and leverage ratios specified in the Amended Credit Agreement.  As of June 30, 2004, AirNet was in compliance with these covenants. The Amended Credit Agreement bears interest, at AirNet’s option, at (a) a fixed rate equal to LIBOR plus a margin determined by AirNet’s leverage ratio as defined in the Amended Credit Agreement, or (b) a floating rate based on the greater of the sum of (i) the prime rate established by The Huntington National Bank from time to time plus a margin determined by AirNet’s leverage ratio and (ii) the sum of 0.5% plus the federal funds rate in effect from time to time.  After the effective date of the Amended Credit Agreement, AirNet paid off its three five-year term loans totaling approximately $3.4 million incurred during first quarter 2002.

 

During the second quarter 2004, AirNet entered into four seven-year term loans totaling $22.5 million with fixed interest rates of approximately 6.7%. Each of the term loans is secured by aircraft used in the Passenger Charter fleet. As of June 30, 2004, there was $22.5 million outstanding on these secured term loans, and the net book value of the aircraft securing the loans totaled approximately $28.9 million.  In July 2004, AirNet financed two additional passenger charter Learjet 60’s for the Passenger Charter fleet at $5.0 million each, for a total of $32.5 million in financing related to AirNet’s Passenger Charter services.

 

8

 

AIRNET SYSTEMS, INC.

 

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

 

Safe Harbor Statement

 

Except for the historical information contained in this Form 10-Q, the matters discussed, including, but not limited to, information regarding future economic performance and plans and objectives of AirNet’s management, are forward-looking statements that involve risks and uncertainties. When used in this document, the words “believe”, “anticipate”, “estimate”, “expect”, “intend”, “may”, “plan”, “project” and similar expressions are intended to be among statements that identify forward-looking statements.  Such statements involve risks and uncertainties including, but not limited to, the following which could cause actual results to differ materially from any forward-looking statement: potential regulatory changes by the Federal Aviation Administration (“FAA”), which could increase the regulation of AirNet’s business, or potential regulatory changes by the Federal Reserve which could change the competitive environment of transporting cancelled checks; changes in check processing and shipment patterns of bank customers; adverse weather conditions; potential declines in the values of aircraft in AirNet’s fleet and any related asset impairment charges; the ability to successfully market the passenger charter business in light of global changes in the commercial airline industry; potential changes in locally and federally mandated security requirements; increases in aviation fuel costs not fully offset by AirNet’s fuel surcharge program; potential cost overruns associated with the construction of a new facility at Rickenbacker International Airport; acts of war and terrorist activities; the acceptance of AirNet’s time-critical service offerings within targeted Express markets; technological advances and increases in the use of electronic funds transfers; as well as other economic, competitive and domestic and foreign governmental factors affecting AirNet’s markets, 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 vary materially from those indicated.  Please refer to the sections captioned “Forward-looking statements” and “Risk Factors” in Item 7 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 of AirNet Systems, Inc. (File No. 1-13025) for additional details relating to risk factors that could affect AirNet’s results and cause those results to differ materially from those expressed in forward-looking statements.

 

General

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. AirNet maintains a thorough process to review the application of its accounting policies and to evaluate the appropriateness of the estimates; however, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

 

Management has discussed the development and selection of AirNet’s critical accounting policies and estimates with the Audit Committee of AirNet Systems, Inc.’s Board of Directors and with its independent auditors.  AirNet’s critical accounting policies have not changed significantly from the policies disclosed in Item 7 of AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

 

AirNet’s audited consolidated financial statements for the fiscal year ended December 31, 2003, included in Item 8 of AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, contain additional disclosures regarding AirNet’s significant accounting policies and Item 7 of that Annual Report on Form 10-K includes a summary of AirNet’s critical accounting policies. The information appearing therein may be useful when reading this discussion and analysis of financial condition and results of operations.

 

9

 

Results of Operations

 

Net Revenues

 

In ‘000’s Revenues		3 months  ending June 30, 2004			3 months ending June 30, 2003			$ Increase (Decrease) 2003 to 2004			% Increase (Decrease) 2003 to 2004		6 months ending June 30, 2004			6 months ending June 30, 2003			$ Increase (Decrease) 2003 to 2004			% Increase (Decrease) 2003 to 2004
Package Delivery Services:
Bank Services		$	26,230		$	25,682		$	548		2	%	$	52,062		$	52,005		$	57		0	%
Express Services		12,083			8,631			3,452			40	%	22,881			17,641			5,240			30	%
Total Package Delivery Services		38,313			34,313			4,000			12	%	74,943			69,646			5,297			8	%
Passenger Charter Services		3,616			1,777			1,839			103	%	7,253			3,216			4,037			126	%
Aviation Services		211			494			-283			-57	%	415			798			-383			-48	%
Total Net Revenues		$	42,140		$	36,584		$	5,556		15	%	$	82,611		$	73,660		$	8,951		12	%

 

AirNet has experienced overall net revenue growth for the quarter and six months ended June 30, 2004 over the same periods of the prior year.  This can be attributed to several factors including increased Express shipment volume and growth in Passenger Charter services as well as additional fuel surcharge revenues.

 

Bank Services Revenues

 

In ‘000’s Revenues		3 months  ending June 30, 2004			3 months ending June 30, 2003			$ Increase (Decrease) 2003 to 2004			% Increase (Decrease) 2003 to 2004		6 months  ending June 30, 2004			6 months ending June 30, 2003			$ Increase (Decrease) 2003 to 2004			% Increase (Decrease) 2003 to 2004
Bank Weekday		$	23,831		$	23,840		$	-9-		0	%	$	47,428		$	47,535		$	-107		0	%
Bank Weekend		1,901			1,742			159			9	%	3,807			3,597			210			6	%
Fuel Surcharge		1,150			695			455			65	%	2,104			2,131			-27			-1	%
Federal Excise Tax		-652			-595			-57			10	%	-1,276			-1,258			-18			1	%
Net Revenues		$	26,230		$	25,682		$	548		2	%	$	52,062		$	52,005		$	57		0	%

 

Bank weekday and weekend revenues held constant for the three and six month periods ended June 30, 2004 as compared to the same periods of the prior year.  Increased fuel prices in the quarter of 2004  resulted in significantly higher fuel surcharge revenues compared to the same quarter of 2003.  AirNet believes that lower check delivery volume as a result of historically low interest rates,  the declining use of checks, and the Check 21 Act which becomes effective in October 2004, will contribute to a reduction in bank revenues in future periods, as will increased competitive factors from regional carriers and transportation cost reduction initiatives by AirNet’s Bank customers.  AirNet is unable to predict the ultimate impact of these factors on future periods.

 

Express Services Revenues

 

In ‘000’s Revenues		3 months ending June 30, 2004			3 months ending June 30, 2003			$ Increase (Decrease) 2003 to 2004			% Increase (Decrease) 2003 to 2004		6 months ending June 30, 2004			6 months ending June 30, 2003			$ Increase (Decrease) 2003 to 2004			% Increase (Decrease) 2003 to 2004
Express services		$	12,033		$	8,646		$	3,387		39	%	$	22,830		$	17,640		$	5,190		29	%
Fuel Surcharge		437			246			191			78	%	761			533			228			43	%
Federal Excise Tax		-387			-261			-126			-48	%	-710			-532			-178			33	%
Net Revenues		$	12,083		$	8,631		$	3,452		40	%	$	22,881		$	17,641		$	5,240		30	%

 

Express services revenues continue to increase as a percentage of total revenues, increasing from 24% to 29% of total revenues for both the three and six month periods ended June 30, 2004, compared to the same periods of the prior year.  Shipments using AirNet’s air transportation network were up 9% and 5% for the quarter and year to date, respectively. Shipments sent via commercial airlines and point to point surface shipments were up over 50% and 40% for the quarter and year to date, respectively.   Commercial air and point to point surface shipments incur higher courier costs compared to shipments using AirNet’s airline.  The increase in shipments sent via commercial

 

10

 

airlines is principally due to an increase in shipments outside the AirNet airline’s scheduled delivery times and locations, which generally results in lower gross margins per shipment than shipments carried on AirNet’s airline.

 

Passenger Charter Services Revenues

 

In ‘000’s Revenues		3 months ending June 30, 2004			3 months ending June 30, 2003			$ Increase (Decrease) 2003 to 2004			% Increase (Decrease) 2003 to 2004		6 months ending June 30, 2004			6 months ending June 30 2003			$ Increase (Decrease) 2003 to 2004			% Increase (Decrease) 2003 to 2004
Passenger Charter Services		$	3,616		$	1,777		$	1,839		103	%	$	7,253		$	3,216		$	4,037		126	%

 

Passenger Charter services revenues continue to grow as a percentage of total revenues, as AirNet invests in additional aircraft to support additional passenger charter demand.  Revenues increased from 4.9% to 8.6% of total revenue for the quarter and from 4.4% to 8.8% year to date compared to the same periods of the prior year.  AirNet increased the number of passenger charter aircraft it operates from seven aircraft (two Learjet 60’s and five Learjet 35’s) at June 30, 2003 to fourteen (nine Learjet 60’s and five Learjet 35’s) at June 30, 2004.

 

In ‘000’s Costs and Expenses		3 months ending June 30, 2004			3 months ending June 30, 2003			$ Increase (Decrease) 2003 to 2004			% Increase (Decrease) 2003 to 2004		6 months ending June 30, 2004			6 months ending June 30, 2003			$ Increase (Decrease) 2003 to 2004			% Increase (Decrease) 2003 to 2004
Wages and benefits		$	6,657		$	6,148		$	509		8	%	$	13,003		$	12,360		$	643		5	%
Aircraft fuel		6,186			4,951			1,235			25	%	11,722			9,893			1,829			18	%
Aircraft maintenance		3,690			2,954			736			25	%	6,880			6,335			545			9	%
Contracted air costs		3,127			2,378			749			31	%	6,197			5,185			1,012			20	%
Ground courier		7,887			6,174			1,713			28	%	15,029			12,440			2,589			21	%
Depreciation		5,050			4,319			731			17	%	9,939			8,511			1,428			17	%
Insurance, rent and landing fees		2,638			2,384			254			11	%	5,202			4,628			574			12	%
Travel, training and other		2,650			2,165			485			22	%	5,211			4,343			868			20	%
Selling, general and administrative		4,050			3,648			402			11	%	8,009			7,578			431			6	%
Net loss on disposition of assets		-3			—			-3					289			—			289
Total costs and expenses		$	41,932		$	35,121		$	6,811		19	%	$	81,481		$	71,273		$	10,208		14	%

 

Costs and Expenses

 

As operating activities for AirNet’s Express and Passenger Charter services continue to increase, total operating costs and expenses increased for both the quarter and year to date compared to the same periods of the prior year.

 

Increases in fuel costs, wages, maintenance and depreciation are attributable, in part, to the expansion of AirNet’s Passenger Charter Services.  Seven aircraft, two of which are managed aircraft, have been added to AirNet’s Passenger Charter fleet in the first six months of 2004.  An additional 20 pilots were hired during this six month period to support Passenger Charter Services.  Wages and benefits associated with these additional pilots were $381,000 and $631,000, respectively, for the quarter and year to date.

 

Fuel costs increased for both the quarter and year to date as a result of increasing fuel prices, additional fuel purchased at higher retail rates at FBO locations outside of the Port Columbus facility, and additional fuel purchases related to the increase in Passenger Charter Services.  Fuel costs related to Passenger Charter Services increased by $358,000 and $691,000, respectively, for the quarter and year to date.  The increase in fuel costs, net of fuel surcharge, related to AirNet’s package delivery services was $231,000 and $937,000 for the quarter and year to date.

 

Ground courier costs continue to increase as AirNet serves a broader group of customers outside of AirNet’s traditional bank customer.  AirNet’s growing number of Express customers are more costly to serve than the traditional bank customer due to more unscheduled pickup and delivery services and more geographically dispersed locations.  Ground courier costs have risen as Express shipments continue to increase as a proportion of total shipments.  The growth rate in shipments transported either exclusively via point to point surface or commercial airlines is increasing as AirNet expands the number of Express customers; a trend Management believes will continue.

 

Depreciation increased as a result of the addition of five Learjet 60’s (acquired in December 2003, January, May and June 2004) to the Passenger Charter fleet since the end of the 2003 fiscal year and continuing reductions to AirNet’s estimates of aircraft and engine salvage values.

 

11

 

AirNet recognized a net loss on disposition of assets during the six months ended June 30, 2004.  This amount included a loss of approximately $584,000 related to an accident involving one of its cargo aircraft (net of insurance proceeds of $2,300,000).  In addition, as AirNet continues to adjust its aircraft fleet in response to changing customer needs, AirNet sold seven piston aircraft during the six months ended June 30, 2004 resulting in a loss on sale of approximately $114,000.  Offsetting these losses was a gain on the sale of an aircraft of approximately $400,000.

 

Liquidity and Capital Resources

 

Cash flow from operating activities.  Net cash provided by operating activities was $12.0 million for the six months ended June 30, 2004, compared to $14.6 million for the same period in 2003.

 

Bank Financing Matters

 

In June 2004, AirNet entered into an amended and restated term loan and revolving loan facility (collectively, the “Amended Credit Agreement”) with its banks. The Amended Credit Agreement provides AirNet with a secured revolving credit facility with up to $35.0 million available and a secured term loan in the aggregate amount of $14.0 million.  The amount of revolving loans available under the Amended Credit Agreement is further limited to a borrowing base equal to the aggregate of 80% of eligible accounts receivable, plus 50% of eligible inventory, plus 70% of the market value of certain fixed assets, reduced by the aggregate amount of AirNet’s outstanding letters of credit. As of June 30, 2004, $22.8 million and $13.0 million were outstanding under the secured revolving credit facility and secured term loan, respectively. As of June 30, 2004, AirNet had approximately $10.7 million available to borrow on its secured revolving loan facility.

 

The revolving credit facility under the Amended Credit Agreement expires on September 30, 2005 and the secured term loan matures on September 30, 2007.  Quarterly principal payments of $1.0 million are required for the secured term loan beginning in June 2004 and continuing through September 30, 2007. The Amended Credit Agreement is secured by a first lien on all of the property of AirNet and its subsidiaries, other than any interest in real estate and certain excluded fixed assets.  The Amended Credit Agreement permits AirNet and its subsidiaries to incur other indebtedness for the purpose of purchasing or refinancing aircraft and related tangible fixed assets, subject to certain annual limitations.  AirNet has also pledged the interests in its subsidiaries, and each of AirNet’s subsidiaries has guaranteed AirNet’s obligations under the Amended Credit Agreement.  The Amended Credit Agreement contains limitations on operating leases, indebtedness, significant corporate changes including mergers and sales of assets, investments in subsidiaries and acquisitions, liens, capital expenditures, transactions with affiliates, sales of accounts receivable, sale and leaseback transactions and other off-balance sheet liabilities, contingent obligations and hedging transactions.  The Amended Credit Agreement also contains financial covenants that require AirNet to maintain a minimum consolidated tangible net worth and to not exceed fixed charge coverage and leverage ratios specified in the Amended Credit Agreement.  As of June 30, 2004, AirNet was in compliance with these covenants. The Amended Credit Agreement bears interest, at AirNet’s option, at (a) a fixed rate equal to LIBOR plus a margin determined by AirNet’s leverage ratio as defined in the Amended Credit Agreement, or (b) a floating rate based on the greater of the sum of (i) the prime rate established by The Huntington National Bank from time to time plus a margin determined by AirNet’s leverage ratio and (ii) the sum of 0.5% plus the federal funds rate in effect from time to time.  After the effective date of the Amended Credit Agreement, AirNet paid off its three five-year term loans totaling approximately $3.4 million incurred during first quarter 2002.

 

During the second quarter 2004, AirNet entered into four seven-year term loans totaling $22.5 million with fixed interest rates of approximately 6.7%. Each of the term loans is secured by aircraft used in the Passenger Charter fleet. As of June 30, 2004, there was $22.5 million outstanding on these secured term loans, and the net book value of the aircraft securing the loans totaled approximately $28.9 million.  In July 2004, AirNet financed two additional passenger charter Learjet 60’s for the Passenger Charter fleet at $5.0 million each, for a total of $32.5 million in financing related to AirNet’s Passenger Charter services.

 

Investing activities.  Capital expenditures totaled $35.0 million for the six months ended June 30, 2004 versus $8.8 million for the same period in 2003.  Of the 2004 expenditures, $31.6 million was for the purchase of four Learjet 60’s dedicated to Passenger Charter services, major periodic aircraft inspections, and major engine overhauls and related flight equipment..  AirNet anticipates it will spend between $41.5 million and $56 million in total capital expenditures in 2004.  AirNet anticipates it will continue to acquire aircraft and flight equipment as necessary to maintain growth and continue offering quality service to its customers and will evaluate whether future asset acquisitions should be purchases or leases.

 

AirNet Systems, Inc. announced a stock repurchase plan in February 2000 allowing AirNet Systems, Inc., to purchase up to $3.0 million of its common shares.  As of the end of the 2001 fiscal year, $2.4 million of common shares had been repurchased, and there has been no repurchase activity under the plan since. As such, purchases of approximately $0.6 million of the common shares of AirNet Systems, Inc., may still be made over time in the

 

12

 

open market or through privately negotiated transactions.  Such future purchases would be considered based on current market conditions, the stock price and funds available for repurchase. AirNet Systems, Inc., acquired 52,410 common shares, outside the repurchase plan, for $249,996 on January 2, 2003 from former Chairman Gerald Mercer under the terms of his retirement agreement.

 

AirNet anticipates that operating cash and capital expenditure requirements will continue to be funded by cash flow from operations, cash on hand, borrowings in conjunction with the Amended Credit Agreement or other sources, including leasing.   There were no material capital commitments at June 30, 2004, other than the Company’s construction of its new office and hangar facility described below.

 

In anticipation of AirNet’s move to its new facility within the Rickenbacker International Airport (“Rickenbacker”), on January 20, 2004, AirNet entered into an agreement to sell its current facility at 3939 International Gateway in Columbus, Ohio (the “Port Columbus Facility”) to the Columbus Regional Airport Authority for $3.9 million.  AirNet has retained the right to continue to occupy the Port Columbus Facility until construction and relocation to the new the Rickenbacker site (the “Rickenbacker Facility”) is complete, which is expected to be the second quarter of 2005.

 

On January 20, 2004, AirNet entered into a Land Lease with the Columbus Regional Airport Authority to lease approximately 8 acres located within Rickenbacker.  Rickenbacker is located in Franklin and Pickaway Counties, Ohio, southeast of Columbus, Ohio, approximately fifteen miles from AirNet’s Port Columbus Facility.  AirNet is constructing a new corporate and operational headquarters at the Rickenbacker Facility.  Construction of the Rickenbacker Facility is anticipated to be completed in the summer of 2005. As of June 30, 2004, $3.6 million has been invested in the construction of the Rickenbacker facility, with a total estimated cost of $12.5 million.  Upon completion of the Rickenbacker Facility, AirNet’s current corporate and operational functions that are conducted at the Port Columbus Facility, and the administrative functions being conducted at 555 Morrison Avenue, will be consolidated at the new Rickenbacker Facility.

 

There have been no material changes in AirNet’s contractual obligations from those disclosed in AirNet System Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, except for new debt as disclosed above.

 

Seasonality and Variability in Quarterly Results

 

AirNet’s operations historically have been somewhat seasonal and somewhat dependent on the number of banking holidays falling during the week.  Because financial institutions are currently AirNet’s principal customers, AirNet’s air system is scheduled primarily around the needs of financial institution customers.  When financial institutions are closed, AirNet does not operate a full system.  AirNet’s fiscal quarter ending December 31 is often the most impacted by bank holidays (including Thanksgiving and Christmas) recognized by its primary customers.  When these holidays fall on Monday through Thursday, AirNet’s revenues and net income are adversely affected. AirNet’s annual results fluctuate as well based on when holidays fall during the week over the course of the year. Operating results are also affected by the weather.  AirNet generally experiences higher maintenance costs during its fiscal quarter ending March 31.  Winter weather often requires additional costs for de-icing, hangar rental and other aircraft services.

 

Item 3.           Quantitative and Qualitative Disclosures About Market Risk

 

Inflation and Interest Rates

 

AirNet is exposed to certain market risks from transactions that are entered into during the normal course of business.  AirNet’s primary market risk exposure relates to interest rate risk.  At June 30, 2004, AirNet had a $35.8 million outstanding balance under its Amended Credit Agreement (described above in “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations”) subject to market rate changes in interest. The Amended Credit Agreement bears interest, at AirNet’s option, at (a) a fixed rate equal to LIBOR plus a margin determined by AirNet’s leverage ratio as defined in the Amended Credit Agreement, or (b) a floating rate based on the greater of the sum of (i) the prime rate established by The Huntington National Bank from time to time plus a margin determined by AirNet’s leverage ratio as definded in the Amended Credit Agreement and  (ii) the sum of 0.5% plus the federal funds rate in effect from time to time.  Assuming borrowing levels at June 30, 2004, a one hundred basis point change in interest rates would impact net interest expense by approximately $358,000 per year.

 

Following the effectiveness of the Amended Credit Agreement,  AirNet paid off three secured term loans which had been secured by aircraft. One of those loans had an interest rate swap agreement associated with it.  This interest rate swap agreement with a notional amount of $3.0 million and a fixed rate of 4.25% plus a margin based on AirNet’s funded debt ratio remains in place.  At June 30, 2004, the aggregate fair value of the interest rate swap was approximately ($31,000).

 

13

 

Fuel Surcharge

 

AirNet assesses its customers a fuel surcharge which is based on the Oil Price Index Summary – Columbus, Ohio (OPIS-CMH index).  As index rates increase above a set threshold, surcharge rates increase.  AirNet’s fuel surcharge program helps offset timing differences between market prices and the OPIS-CHM index used to determine surcharge rates.

 

Item 4.           Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

With the participation of the Chairman of the Board, Chief Executive Officer and President (the principal executive officer) and the Chief Financial Officer, Treasurer and Secretary (the principal financial officer) of AirNet Systems, Inc. (the “Registrant”), the Registrant’s management has evaluated the effectiveness of the Registrant’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Registrant’s Chairman of the Board, Chief Executive Officer and President and the Registrant’s Chief Financial Officer, Treasurer and Secretary have concluded that:

 

•                    information required to be disclosed by the Registrant in this Quarterly Report on Form 10-Q would be accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure;

 

•                    information required to be disclosed by the Registrant in this Quarterly Report on Form 10-Q would be recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms; and

 

•                    the Registrant’s disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that material information relating to the 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.

 

Changes in Internal Control Over Financial Reporting

 

In addition, there were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q in the Registrant’s internal control over financial reporting (as defined in Rule 13a -15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

14

 

AIRNET SYSTEMS, INC.

 

PART II - OTHER INFORMATION

 

Item 1.                                     Legal Proceedings.

 

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

 

Item 2.                                     Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

 

(a)                                  Not applicable.

 

(b)                                 Not applicable.

 

(c)                                  Not applicable.

 

(d)                                 Not applicable

 

(e)                                  AirNet Systems, Inc. did not purchase any common shares during the fiscal quarter ended June 30, 2004.  On February 18, 2000, AirNet Systems, Inc. announced a stock repurchase plan under which up to $3.0 million of its common shares may be repurchased from time to time.  These repurchases may be made in open market transactions or through privately negotiated transactions.  As of June 30, 2004, AirNet Systems, Inc. had the authority to still repurchase approximately $0.6 million of its common shares under this stock repurchase plan.

 

Item 3.                                     Defaults Upon Senior Securities.  Not Applicable

 

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

 

(a)          The Annual Meeting of Shareholders (the “Annual Meeting”) of AirNet Systems, Inc. was held on June 4, 2004.  The number of common shares of AirNet Systems, Inc. outstanding and entitled to vote at the Annual Meeting was 10,063,167.  The number of common shares represented in person or by proxy at the Annual Meeting was 9,173,402.

 

(b)         Directors elected at the Annual Meeting:

 

Joel E. Biggerstaff
For:		8,328,263
Withheld:		848,939		Broker non-vote:		-0-
Russell M. Gertmenian
For:		8,336,867
Withheld:		840,335		Broker non-vote:		-0-
David P. Lauer
For:		8,228,137
Withheld:		949,065		Broker non-vote:		-0-
Bruce D. Parker
For:		8,317,029
Withheld:		860,173		Broker non-vote:		-0-
James E. Riddle
For:		8,318,667
Withheld:		858,535		Broker non-vote:		-0-

 

(c)          Matters voted upon at the Annual Meeting

(i)             See Item 4(b) for voting results for directors.

 

15

 

(ii)          Approval of the AirNet Systems, Inc. 2004 Stock Incentive Plan:

 

Common Shares Voted “For”		4,412,110
Common Shares Voted “Against”		1,663,061
Common Shares Voted “Abstain”		8,915
Common Shares Subject to Broker Non-Votes		3,093,116

 

(d)         Not applicable.

 

Item 5.                                     Other Information.

 

In July 2004 Airnet became aware that some of its employees had received a letter from a union regarding potential union representation.  Airnet believes that its relationship with employees is good.

 

In June 2004 Airnet underwent a Regional Aviation Safety Inspection (RASIP) by a team of FAA inspectors to determine compliance with Federal Aviation Regulations.  The FAA and Airnet are currently discussing the outcome of this inspection.

 

Item 6.                                     Exhibits and Reports on Form 8-K.

 

(a)          Exhibits:

 

Exhibit No.		Description
4.1		Amended and Restated Credit Agreement, dated as of May 28, 2004, among AirNet Systems, Inc., the lenders from time to time party thereto, and The Huntington National Bank, as LC Issuer, as Swingline Lender and as Administrative Agent [Incorporated herein by reference from Exhibit 4.1 to the Current Report on Form 8-K, dated June 21, 2004, filed by AirNet Systems, Inc. with the SEC on June 22, 2004 (File No. 1-13025)(the “June 2004 Form 8-K”)]
4.2		Continuing Security Agreement, dated as of May 28, 2004, between AirNet Systems, Inc. and The Huntington National Bank, as lender and as agent [Incorporated herein by reference from Exhibit 4.2 to the June 2004 Form 8-K]
4.3		Continuing Security Agreement, dated as of May 28, 2004, between Float Control, Inc. and The Huntington National Bank, as lender and as agent [Incorporated herein by reference from Exhibit 4.3 to the June 2004 Form 8-K]
4.4		Continuing Security Agreement, dated as of May 28, 2004, between AirNet Management, Inc. and The Huntington National Bank, as lender and as agent [Incorporated herein by reference from Exhibit 4.4 to the June 2004 Form 8-K]
4.5		Continuing Security Agreement, dated as of May 28, 2004, between Jetride, Inc. and The Huntington National Bank, as lender and as agent [Incorporated herein by reference from Exhibit 4.5 to the June 2004 Form 8-K]
4.6		Continuing Security Agreement, dated as of May 28, 2004, between timexpress.com, inc. and The Huntington National Bank, as lender and as agent [Incorporated herein by reference from Exhibit 4.6 to the June 2004 Form 8-K]
4.7		Continuing Security Agreement, dated as of May 28, 2004, between Fast Forward Solutions, LLC and The Huntington National Bank, as lender and as agent [Incorporated herein by reference from Exhibit 4.7 to the June 2004 Form 8-K]

 

16

 

4.8		Stock Pledge Agreement, dated as of May 28, 2004, by AirNet Systems, Inc. in favor of The Huntington National Bank, as agent [Incorporated herein by reference from Exhibit 4.8 to the June 2004 Form 8-K]
4.9		Security Agreement Pledge and Assignment of Membership Interest, dated as of May 28, 2004, between AirNet Systems, Inc. and The Huntington National Bank, as agent [Incorporated herein by reference from Exhibit 4.9 to the June 2004 Form 8-K]
4.10		Mortgage, Security Agreement and Assignment, dated as of May 28, 2994m between AirNet Systems, Inc. and The Huntington National Bank, as agent [Incorporated herein by reference from Exhibit 4.10 to the June 2994 Form 8-K]
4.11		Replacement Subsidiary Guaranty, dated as of May 29, 2004, by AirNet Management, Inc., Float Control, Inc. and Jetride, Inc. in favor of the Huntington National Bank, as agent [Incorporated herein by reference from Exhibit 4.11 to the June 2004 Form 8-K]
4.12		Subsidiary Guaranty, dated as of May 29, 2994, by timexpress.com,  inc. in favor of The Huntington National Bank, as agent [Incorporated herein by reference from Exhibit 4.12 to the June 2004 Form 8-K]
4.13		Subsidiary Guaranty, dated as of May 29, 2004, by Fast Forward Solutions, LLC in favor of The Huntington National Bank, as agent [Incorporated herein by reference from Exhibit 4.13 to the June 2004 Form 8-K]
10.1		AirNet Systems, Inc. 2004 Stock Incentive Plan (reflects amendments through June 4, 2004) [Filed herewith]
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:

 

On May 19, 2004, AirNet Systems, Inc. (the “Registrant”)  filed a Current Report on Form 8-K, dated May 19, 2004, reporting under Item 5.  Other Events and Regulation FD Disclosure,   that on May 17, 2004, Fiserv, Inc. (“Fiserv”) issued a news release announcing that Fiserv and Fast Forward Solutions, LLC (“Fast Forward”), the wholly-owned electronic check processing subsidiary of the Registrant, are pursuing an agreement that will allow Fiserv and Fast Forward to provide a comprehensive substitute check solution including printing and delivery.

 

On June 22, 2004, the Registrant filed a Current Report on Form 8-K, dated June 21, 2004, reporting under Item 2.  Acquisition or Disposition of Assets, that on June 7, 2004, the conditions precedent to the effectiveness of the Amended and Restated Credit Agreement, dated May 28, 2004, among the Registrant, the lenders party thereto and The Huntington National Bank, as LC Issuer, as Swingline Lender and as Administrative Agent, were satisfied.

 

17

 

AIRNET SYSTEMS, INC.

 

SIGNATURES

 

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

 

 

Dated:  August 13, 2004	By:		/s/ Gary W. Qualmann
		Gary W. Qualmann,
		Chief Financial Officer, Treasurer and Secretary
		(Duly Authorized Officer)
		(Principal Financial Officer)
Dated:  August 13, 2004	By:		/s/ Denise D. Brown
		Denise D. Brown,
		Controller
		(Duly Authorized Officer)
		(Principal Accounting Officer)

 

18

 

AIRNET SYSTEMS, INC.

 

INDEX TO EXHIBITS

 

Exhibit No.		Description
4.1		Amended and Restated Credit Agreement, dated as of May 28, 2004, among AirNet Systems, Inc., the lenders from time to time party thereto, and The Huntington National Bank, as LC Issuer, as Swingline Lender and as Administrative Agent (incorporated herein by reference from Exhibit 4.1 to the Current Report on Form 8-K, dated June 21, 2004, filed by AirNet Systems, Inc. with the SEC on June 22, 2004(File No. 1-13025)(the “June 2004 Form 8-K”))
4.2		Continuing Security Agreement, dated as of May 28, 2004, between AirNet Systems, Inc. and The Huntington National Bank, as lender and as agent (incorporated herein by reference from Exhibit 4.2 to the June 2004 Form 8-K)
4.3		Continuing Security Agreement, dated as of May 28, 2004, between Float Control, Inc. and The Huntington National Bank, as lender and as agent (incorporated herein by reference from Exhibit 4.3 to the June 2004 Form 8-K)
4.4		Continuing Security Agreement, dated as of May 28, 2004, between AirNet Management, Inc. and The Huntington National Bank, as lender and as agent (incorporated herein by reference from Exhibit 4.4 to the June 2004 Form 8-K)
4.5		Continuing Security Agreement, dated as of May 28, 2004, between Jetride, Inc. and The Huntington National Bank, as lender and as agent(incorporated herein by reference from Exhibit 4.5 to the June 2004 Form 8-K)
4.6		Continuing Security Agreement, dated as of May 28, 2004, between timexpress.com, inc. and The Huntington National Bank, as lender and as agent (incorporated herein by reference from Exhibit 4.6 to the June 2004 Form 8-K)
4.7		Continuing Security Agreement, dated as of May 28, 2004, between Fast Forward Solutions, LLC and The Huntington National Bank, as lender and as agent (incorporated herein by reference from Exhibit 4.7 to the June 2004 Form 8-K)
4.8		Stock Pledge Agreement, dated as of May 28, 2004, by AirNet Systems, Inc. in favor of The Huntington National Bank, as agent (incorporated herein by reference from Exhibit 4.8 to the June 2004 Form 8-K)
4.9		Security Agreement Pledge and Assignment of Membership Interest, dated as of May 28, 2004, between AirNet Systems, Inc. and The Huntington National Bank, as agent (incorporated herein by reference from Exhibit 4.9 to the June 2004 Form 8-K)
4.10		Mortgage, Security Agreement and Assignment, dated as of May 28, 2994m between AirNet Systems, Inc. and The Huntington National Bank, as agent [Incorporated herein by reference from Exhibit 4.10 to the June 2994 Form 8-K]
4.11		Replacement Subsidiary Guaranty, dated as of May 29, 2004, by AirNet Management, Inc., Float Control, Inc. and Jetride, Inc. in favor of the Huntington National Bank, as agent [Incorporated herein by reference from Exhibit 4.11 to the June 2004 Form 8-K]
4.12		Subsidiary Guaranty, dated as of May 29, 2994, by timexpress.com,  inc. in favor of The Huntington National Bank, as agent [Incorporated herein by reference from Exhibit 4.12 to the June 2004 Form 8-K]
4.13		Subsidiary Guaranty, dated as of May 29, 2004, by Fast Forward Solutions, LLC in favor of The Huntington National Bank, as agent [Incorporated herein by reference from Exhibit 4.13 to the June 2004 Form 8-K]
10.1		AirNet Systems, Inc. 2004 Stock Incentive Plan (reflects amendments through June 4, 2004) [Filed herewith]
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]

 

19