/ÿ/2ÿñH5d 1$&|&A%|Page #*ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿñ'AIRNET SYSTEMS, INC."ñ'CONSOLIDATED BALANCE SHEETSñ^DECEMBER 31,ñ^DECEMBER 31, ñ^1997 ñ^1996ñ"(Restated forñ "ECC Pooling) ñ 'ASSETSñ 'Current assets:!ñ 'Cash and cash equivalentsñ "$ 2,125,137ñ "$ 9,631,663ñ 'Accounts receivable:8ñ'Trade, less allowances of $123,000 and $23,000 atñ"10,966,790ñ"6,440,545/ñ'December 31, 1997 and 1996, respectively/ñ'Shareholders, affiliates, and associates ñ"85,714ñ"207,571ñ'Spare parts and suppliesñ"6,053,488ñ"5,012,284ñ'Deposits and prepaidsñ"5,847,774ñ"3,737,008ñ'Total current assetsñ"25,078,903ñ"25,029,071!ñ'Net property and equipmentñ"67,578,533ñ"45,658,488ñ'Other assets:6ñ'Intangibles, net of accumulated amortization ofñ"5,425,938ñ"1,673,8615ñ'$1,671,000 and $1,334,000 at December 31, 1997ñ'and 1996, respectively+ñ'Investment in partnerships and otherñ"5,902,664ñ"3,018,621ñ'Deferred tax asset ñ"--ñ"4,115,057ñ'Total assetsñ"$103,986,038ñ"$79,495,098+ñ#'LIABILITIES AND SHAREHOLDERS' EQUITYñ%'Current liabilities:ñ&'Accounts payableñ&"$ 4,033,036ñ&"$ 2,938,730'ñ''Salaries and related liabilitiesñ'"1,606,006ñ'"1,677,563ñ('Accrued expensesñ("1,311,366ñ("443,453ñ)'Taxes payableñ)"2,386,256ñ*'Deferred taxesñ*"229,288ñ*"208,995'ñ+'Current portion of notes payable ñ+"23,923 ñ+"-- ñ-'Total current liabilitiesñ-"9,589,875ñ-"5,268,741*ñ/'Notes payable, less current portionñ/"9,705,645ñ/"110,787ñ0'Deferred tax liabilityñ0"4,430,538ñ0"3,397,062ñ2'Shareholders' equity::ñ3'Preferred shares, $.01 par value; 10,000,000 shares7ñ4'authorized; and no shares issued and outstanding ñ4"-- ñ4"--7ñ5'Common shares, $.01 par value; 40,000,000 shares7ñ6'authorized; and 12,753,400 and 12,621,081 shares+ñ7'issued at December 31, 1997 and 1996ñ7"127,534ñ7"126,211!ñ8'Additional paid-in-capitalñ8"79,778,803ñ8"78,008,030ñ9'Retained earningsñ9"5,787,017ñ9"(7,415,733)3ñ:'Treasury shares; 263,570 shares held at costñ:"(5,433,374) ñ:"--!ñ<'Total shareholders' equityñ<"80,259,980ñ<"70,718,5081ñ?'Total liabilities and shareholders' equityñ?"$103,986,038ñ?"$79,495,0985ñA'See notes to consolidated financial statementsñC'AIRNET SYSTEMS, INC.,ñD'CONSOLIDATED STATEMENTS OF OPERATIONSJñF' ñG^YEARS ENDEDñG^YEARS ENDEDñG^YEARS ENDEDñG^THREE MONTHSñH^DECEMBER 31,ñH^SEPTEMBER 30,ñH^SEPTEMBER 30,ñH^DECEMBER 31, ñI^1997 ñI^1996 ñI^1995 ñI^1996!ñK^(Restated for ECC Pooling)!ñK^(Restated for ECC Pooling)!ñK^(Restated for ECC Pooling)ñM'NET REVENUES/ñN'Air transportation, net of excise tax of8ñO'$2,113,000, $716,000 and $1,810,000 for the years6ñP'ended December 31, 1997, September 30, 1996 and3ñQ'1995 and $407,000 for the three months endedñR'December 31, 1996:ñS'Check deliveryñS"$80,707,349ñS"$65,024,522ñS"$58,263,706ñS"$16,811,390ñT'Small package deliveryñT"15,660,080ñT"13,863,772ñT"12,424,306ñT"3,613,636ñU'Fixed base operationsñU"1,394,827ñU"1,063,583ñU"1,006,529ñU"366,432ñW'Total net revenuesñW"97,762,256ñW"79,951,877ñW"71,694,541ñW"20,791,458ñY'COSTS AND EXPENSESñZ'Air transportationñ['Wages and benefitsñ["11,252,976ñ["9,862,436ñ["9,195,208ñ["2,551,549ñ\'Aircraft fuelñ\"10,176,283ñ\"8,177,970ñ\"7,444,878ñ\"2,310,809ñ]'Aircraft maintenanceñ]"7,489,323ñ]"6,551,792ñ]"6,033,739ñ]"1,810,0751ñ^'Ground couriers and other outside servicesñ^"14,817,610ñ^"12,369,737ñ^"11,399,012ñ^"3,192,743$ñ_'Depreciation and amortizationñ_"8,363,196ñ_"8,510,214ñ_"7,391,127ñ_"2,274,088 ñ`'Otherñ`"13,933,358ñ`"8,324,198ñ`"7,782,042ñ`"2,243,936ña'Fixed base operationsña"1,100,741ña"1,033,068ña"955,792ña"309,352*ñb'Selling, general and administrativeñb"8,550,125ñb"11,875,089ñb"13,418,129ñb"1,915,960ñd'Total costs and expensesñd"75,683,612ñd"66,704,504ñd"63,619,927ñd"16,608,512ñf'Income from operationsñf"22,078,644ñf"13,247,373ñf"8,074,614ñf"4,182,946ñg'Interest expenseñg"108,894ñg"1,072,390ñg"1,468,964 ñg"9,623.ñh'Offering-related non-recurring expenses ñh"--ñh"13,704,398 ñh"-- ñh"--(ñj'Income (loss) before income taxesñj"21,969,750ñj"(1,529,415)ñj"6,605,650ñj"4,173,3230ñk'Provision for (benefit from) income taxesñk"8,767,000ñk"1,764,000ñk"(13,150)ñk"1,688,0000ñl'Tax provision due to change in tax status ñl"--ñl"2,435,771 ñl"-- ñl"--ñn'Net income (loss)ñn"$13,202,750ñn"($ 5,729,186)ñn"$ 6,618,800ñn"$ 2,485,323"ñq'Net income per common share ñq"$1.05 ñq"$0.20/ñs'Net Income per share - assuming dilution ñs"$1.04 ñs"$0.20ñw'Pro forma information:3ñx'Historical income (loss) before income taxesñx"($ 1,529,415)ñx"$ 6,605,6504ñy'Pro forma adjustments other than income taxesñy"4,429,470ñy"7,367,337$ñ{'Pro forma income before taxesñ{"2,900,055ñ{"13,972,987 ñ|'Pro forma taxes on incomeñ|"5,618,437ñ|"5,589,195"ñ~'Pro forma net income (loss)ñ~"($ 2,718,382)ñ~"$ 8,383,792-ñ'Pro forma net income (loss) per common*ñ‚'share - basic and assuming dilutionñ‚"($0.34) ñ‚"$1.435ñ„'See notes to consolidated financial statementsñˆ'AIRNET SYSTEMS, INC.,ñ‰'CONSOLIDATED STATEMENTS OF CASH FLOWSñŒ^YEARS ENDEDñŒ^YEARS ENDEDñŒ^YEARS ENDEDñŒ^THREE MONTHSñ^DECEMBER 31,ñ^SEPTEMBER 30,ñ^SEPTEMBER 30,ñ^DECEMBER 31, ñŽ^1997 ñŽ^1996 ñŽ^1995 ñŽ^1996!ñ^(Restated for ECC Pooling)!ñ^(Restated for ECC Pooling)!ñ^(Restated for ECC Pooling)ñ'Operating activitiesñ‘'Net income (loss)ñ‘"$ 13,202,750ñ‘"($ 5,729,186)ñ‘"$ 6,618,800ñ‘"$ 2,485,3238ñ’'Adjustments to reconcile net income (loss) to net-ñ“'cash provided by operating activities:8ñ”'Offering related non-recurring, non-cash expenses ñ”"--ñ”"13,704,398 ñ”"-- ñ”"--ñ•'Depreciationñ•"8,431,420ñ•"8,584,888ñ•"7,475,979ñ•"2,289,798"ñ–'Amortization of intangiblesñ–"352,902ñ–"351,327ñ–"435,902 ñ–"67,230ñ—'Deferred taxesñ—"5,168,826ñ—"4,202,002 ñ—"--ñ—"1,688,0002ñ˜'Provision for losses on accounts receivable ñ˜"83,656 ñ˜"12,170 ñ˜"12,100 ñ˜"9,000ñ™'Deferred compensation ñ™"--ñ™"445,147ñ™"275,464 ñ™"--+ñš'Loss (gain) on disposition of assetsñš"615,979 ñš"81,931 ñš"73,472ñš"(187,685)2ñ›'Cash provided by (used in) operating assetsñœ'and liabilities:ñ'Accounts receivableñ"(2,588,765)ñ"(419,331)ñ"428,617ñ"996,052ñž'Spare parts and suppliesñž"(1,004,911)ñž"(892,318)ñž"(441,864)ñž"183,633ñŸ'Prepaid expensesñŸ"(2,004,152)ñŸ"(679,264)ñŸ"(749,713)ñŸ"(697,759)ñ 'Accounts payableñ "(149,394)ñ "(698,536)ñ "650,877ñ "(1,224,659)ñ¡'Accrued expensesñ¡"857,276ñ¡"(254,819)ñ¡"180,554ñ¡"(109,906)ñ¢'Taxes payableñ¢"2,386,256 ñ¢"-- ñ¢"-- ñ¢"--'ñ£'Salaries and related liabilitiesñ£"(546,168)ñ£"(409,126)ñ£"258,789ñ£"413,225ñ¤'Other, netñ¤"(2,829,822) ñ¤"22,801 ñ¤"45,538ñ¤"(100,478)0ñ¦'Net cash provided by operating activitiesñ¦"21,975,853ñ¦"18,322,084ñ¦"15,264,515ñ¦"5,811,774ñ¨'Investing activities0ñ©'Acquisition of Pacific Air Charter, Inc.,ñª'net of cash acquiredñª"(240,323) ñª"-- ñª"-- ñª"---ñ«'Acquisition of Data Air Courier, Inc.,ñ¬'net of cash acquiredñ¬"(4,122,922) ñ¬"-- ñ¬"-- ñ¬"--,ñ­'Acquisition of Midway Aviation, Inc.,ñ®'net of cash acquiredñ®"(52,576)ñ®"(2,810,416) ñ®"-- ñ®"--*ñ¯'Acquisition of Float Control, Inc.,ñ°'net of cash acquired ñ°"-- ñ°"-- ñ°"--ñ°"(719,519)*ñ±'Purchases of property and equipmentñ±"(30,061,866)ñ±"(14,341,182)ñ±"(14,587,658)ñ±"(9,168,991)1ñ²'Payments for ECC covenants not to competeñ²"(105,000) ñ²"-- ñ²"-- ñ²"--4ñ³'Proceeds from sales of property and equipmentñ³"592,223 ñ³"--ñ³"321,059ñ³"2,230,000,ñµ'Net cash used in investing activitiesñµ"(33,990,464)ñµ"(17,151,598)ñµ"(14,266,599)ñµ"(7,658,510)ñ·'Financing activities8ñ¸'Proceeds from the issuance of Common Shares - net ñ¸"--ñ¸"82,697,107 ñ¸"-- ñ¸"-- ñ¹'Exercise of stock optionsñ¹"2,100,710 ñ¹"-- ñ¹"-- ñ¹"--(ñº'Purchase of Donald Wright Warrant ñº"--ñº"(29,901,785) ñº"-- ñº"--1ñ»'Proceeds from shareholder notes receivable ñ»"--ñ»"323,096 ñ»"41,287 ñ»"--9ñ¼'Net borrowings under the revolving credit facilityñ¼"9,500,000 ñ¼"--ñ¼"1,350,000 ñ¼"--"ñ½'Repayment of long-term debtñ½"(1,560,205)ñ½"(21,994,710)ñ½"(10,328,874)ñ½"(85,792)3ñ¾'Proceeds from the issuance of long-term debtñ¾"229,568ñ¾"2,760,000ñ¾"11,983,775 ñ¾"--!ñ¿'Purchase of treasury stockñ¿"(5,761,988) ñ¿"-- ñ¿"-- ñ¿"--$ñÀ'Distributions to shareholders ñÀ"--ñÀ"(23,807,806)ñÀ"(4,125,946) ñÀ"--:ñÂ'Net cash provided by (used in) financing activitiesñÂ"4,508,085ñÂ"10,075,902ñÂ"(1,079,758)ñÂ"(85,792)&ñÅ'Net increase (decrease) in cashñÅ"(7,506,526)ñÅ"11,246,388ñÅ"(81,842)ñÅ"(1,932,528)7ñÆ'Cash and cash equivalents at beginning of periodñÆ"9,631,663ñÆ"317,803ñÆ"399,645ñÆ"11,564,1911ñÉ'Cash and cash equivalents at end of periodñÉ"$ 2,125,137ñÉ"$11,564,191ñÉ"$ 317,803ñÉ"$ 9,631,6635ñË'See notes to consolidated financial statementsñÏ'AIRNET SYSTEMS, INC.(ñÐ'CONSOLIDATED STATEMENTS OF EQUITYñÓ' ñÖ^Common SharesñÖ^Common SharesñÖ^Additionalñ×^Number ofñ×^Paid-inñ×^Retained ñØ^Shares ñØ^AmountñØ^CapitalñØ^Earnings9ñÚ'Balance October 1, 1994 - restated for ECC PoolingñÚ"5,856,561ñÚ"$58,566ñÚ"$482,709ñÚ"$18,164,186ñÜ'Net income ñÜ"-- ñÜ"-- ñÜ"--ñÜ"6,618,800ñÝ'Repayment of notes ñÝ"-- ñÝ"-- ñÝ"-- ñÝ"-- ñÞ'Shareholder distributions ñÞ"-- ñÞ"-- ñÞ"--ñÞ"(4,125,946)!ñà'Balance September 30, 1995ñà"5,856,561 ñà"58,566ñà"482,709ñà"20,657,040ñâ'Net loss ñâ"-- ñâ"-- ñâ"--ñâ"(5,729,186)ñã'Repayment of notes ñã"-- ñã"-- ñã"-- ñã"-- ñä'Shareholder distributions ñä"-- ñä"-- ñä"--ñä"(2,807,806)9ñå'Issuance of Common Shares, net of Offering-relatedñæ'expensesñæ"6,440,000 ñæ"64,400ñæ"82,632,507 ñæ"--7ñç'AAA distributions related to S Corp shareholders ñç"-- ñç"-- ñç"--ñç"(21,000,000)(ñè'Purchase of Donald Wright Warrant ñè"-- ñè"--ñè"(29,901,785) ñè"--)ñé'Exercise of Jeffrey Wright Warrantñé"167,227 ñé"1,672ñé"(1,472) ñé"--Añê'Reclassification of undistributed S Corp retained earnings ñê"-- ñê"--ñê"1,021,104ñê"(1,021,104)Cñë'Tax benefit related to cancellation of Donald Wright Warrant ñë"-- ñë"--ñë"7,000,000 ñë"--5ñì'Compensation expense related to stock purchaseñí'agreements ñí"-- ñí"--ñí"14,830,039 ñí"--!ñï'Balance September 30, 1996ñï"12,463,788ñï"124,638ñï"76,063,102ñï"(9,901,056)ññ'Net income ññ"-- ññ"-- ññ"--ññ"2,485,323?ñò'Issuance of Common Shares - acquisition of Float Controlñò"157,293 ñò"1,573ñò"1,944,928 ñò"-- ñô'Balance December 31, 1996ñô"12,621,081ñô"126,211ñô"78,008,030ñô"(7,415,733)ñö'Net income ñö"-- ñö"-- ñö"--ñö"13,202,750%ñ÷'ECC cash for fractional shares ñ÷"-- ñ÷"-- ñ÷"(29) ñ÷"--ñø'Exercise stock optionsñø"128,525 ñø"1,285ñø"1,821,536 ñø"--2ñù'Exercise stock options with treasury shares ñù"-- ñù"--ñù"(103,483) ñù"--8ñú'Issue shares for Associate Stock Purchase Program ñú"3,794 ñú"38 ñú"52,749 ñú"--ñû'Purchase treasury shares ñû"-- ñû"-- ñû"-- ñû"-- ñý'Balance December 31, 1997ñý"12,753,400ñý"$127,534ñý"$79,778,803ñý"$5,787,017