/2H8d 1$&%*'AIRNET SYSTEMS, INC.,'CONDENSED CONSOLIDATED BALANCE SHEETS''In thousands, except share data ^SEPTEMBER 30, ^ DECEMBER ^1999 ^1998'(UNAUDITED) 'ASSETS'Current assets: 'Cash and cash equivalents  "$1,086  "$1,142 'Accounts receivable: 'Trade, less allowances  "16,235  "13,077/ 'Shareholders, affiliates, and associates  "274  "163 'Inventory and spare parts  "10,822  "9,386'Taxes refundable "377 "2,001'Deferred taxes "113"-'Deposits and prepaids "2,152 "2,748"---------"---------'Total current assets "31,059 "28,517!'Net property and equipment "84,086 "78,817'Other assets:0'Goodwill, net of accumulated amortization "8,008 "8,2379'Other intangibles, net of accumulated amortization "419 "678+'Investment in partnerships and other "2,413 "2,490'Start-up costs"- "4,223"---------"---------'Total assets"$125,985"$122,962"========="=========+'LIABILITIES AND SHAREHOLDERS' EQUITY 'Current liabilities:!'Accounts payable !"$6,205 !"$5,930'"'Salaries and related liabilities ""2,887 ""1,284#'Accrued expenses #"2,148 #"3,889$'Deferred taxes$"- $"1,814'%'Current portion of notes payable %"27 %"26&"---------&"--------- ''Total current liabilities '"11,267 '"12,943*)'Notes payable, less current portion )"36,359 )"35,480*'Deferred tax liability *"6,064 *"4,865,'Shareholders' equity::-'Preferred shares, $.01 par value; 10,000,000 shares7.'authorized; and no shares issued and outstanding."-."-7/'Common shares, $.01 par value; 40,000,000 shares20'authorized; and 12,753,000 shares issued at/1'September 30, 1999 and December 31, 1998 1"128 1"128!2'Additional paid-in-capital 2"78,228 2"78,4553'Retained earnings 3"13,826 3"11,42364'Treasury shares, 1,351,000 and 1,375,000 shares:5'held at cost at September 30, 1999 and December 31,6'1998, respectively6"(19,887)6"(20,332)7"---------7"---------!8'Total shareholders' equity 8"72,295 8"69,6749"---------9"---------1:'Total liabilities and shareholders' equity:"$125,985:"$122,962;"=========;"=========5='See notes to consolidated financial statements?'AIRNET SYSTEMS, INC.6@'CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS4A'Unaudited In thousands, except per share dataC^THREE MONTHS ENDEDC^THREE MONTHS ENDEDC^NINE MONTHS ENDEDC^NINE MONTHS ENDEDD^SEPTEMBER 30,D^SEPTEMBER 30,D^SEPEMBER 30,D^SEPEMBER 30, E^1999 E^1998 E^1999 E^1998G'NET REVENUES,H'Air transportation, net of excise taxI'Check deliveryI"$24,980I"$24,311I"$74,514I"$70,097J'Express delivery J"8,321 J"5,006 J"20,504 J"13,316&K'Fixed base and other operations K"237 K"327 K"809 K"911L"---------L"---------L"---------L"--------M'Total net revenues M"33,538 M"29,644 M"95,827 M"84,324O'COSTS AND EXPENSESP'Air transportation P"25,577 P"21,478 P"71,972 P"60,406Q'Fixed base operations Q"288 Q"243 Q"851 Q"616*R'Selling, general and administrative R"5,408 R"3,399 R"12,931 R"8,340S"---------S"---------S"---------S"--------T'Total costs and expenses T"31,273 T"25,120 T"85,754 T"69,362U"---------U"---------U"---------U"--------V'Income from operations V"2,265 V"4,524 V"10,073 V"14,962%W'Acquisition termination chargeW"-W"-W"- W"2,350X'Interest expense X"582 X"327 X"1,801 X"782Y"---------Y"---------Y"---------Y"--------!Z'Income before income taxes Z"1,683 Z"4,197 Z"8,272 Z"11,830!['Provision for income taxes ["690 ["1,678 ["3,381 ["4,704\"---------\"---------\"---------\"--------5]'Income before cumulative effect of a change in^'accounting principle ^"993 ^"2,519 ^"4,891 ^"7,1260`'Cumulative effect of writing off start-upa'costs, net of taxa"-a"-a"(2,488)a"-b"---------b"---------b"---------b"--------c'Net income c"$993 c"$2,519 c"$2,403 c"$7,126d"=========d"=========d"=========d"========e'Income per common share2f'Income before cumulative effect of a changeg'in accounting principle g"$0.09 g"$0.20 g"$0.43 g"$0.570h'Cumulative effect of writing off start-up i'costsi"-i"- i"(0.22)i"-j"---------j"---------j"---------j"--------k'Net income k"$0.09 k"$0.20 k"$0.21 k"$0.57l"=========l"=========l"=========l"========2m'Income per common share - assuming dilution2n'Income before cumulative effect of a changeo'in accounting principle o"$0.09 o"$0.20 o"$0.43 o"$0.560p'Cumulative effect of writing off start-up q'costsq"-q"- q"(0.22)q"-r"---------r"---------r"---------r"--------s'Net income s"$0.09 s"$0.20 s"$0.21 s"$0.56t"=========t"=========t"=========t"========5v'See notes to consolidated financial statementsx'AIRNET SYSTEMS, INC.6y'CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS z'Unaudited - In thousands {^NINE MONTHS ENDED{^NINE MONTHS ENDED|^SEPTEMBER 30,|^SEPTEMBER 30, }^1999 }^1998'Operating activities:'Net income"$ 2,403"$ 7,1266'Adjustments to reconcile net income to net cash2'provided by (used in) operating activities:0'Cumulative effect of writing off start-up 'costs "2,488"-'Depreciation "8,438 "7,490'Deferred taxes "(728) "3,685"'Amortization of intangibles "658 "6102'Provision for losses on accounts receivable "285 "105$'Loss on disposition of assets "32 "396'Cash provided by (used in) operating assets and'liabilities:'Accounts receivable"(3,555)"(1,475) 'Inventory and spare parts"(1,435)"(3,543)'Prepaid expenses "596 "(963)'Start-up costs"-"-'Accounts payable "276 "2,967'Accrued expenses"(1,742) "(239)'Taxes payable "3,359"(3,922)''Salaries and related liabilities "1,602 "(420)'Other, net "77"(1,998)"--------"-------0'Net cash provided by operating activities "12,754 "9,462'Investing activities:='Acquisition of Mercury Business Services, Inc., net of'cash acquired"-"(1,761)4'Acquisition of Data Air Courier, Inc., net of'cash acquired"- "(34)*'Purchases of property and equipment"(13,750)"(15,100)-'Payments for covenants not to compete "(170) "(488)4'Proceeds from sales of property and equipment "12 "49"--------"-------,'Net cash used in investing activities"(13,908)"(17,334)'Financing activities:7'Proceeds from 1996 Incentive Stock Plan programs "218 "1,8379'Net borrowings under the revolving credit facility "900 "14,800"'Repayment of long-term debt "(20) "(17)"'Purchase of treasury shares"-"(10,873)"--------"-------0'Net cash provided by financing activities "1,098 "5,747"--------"-------'Net decrease in cash "(56)"(2,125)7'Cash and cash equivalents at beginning of period "1,142 "2,125"--------"-------1'Cash and cash equivalents at end of period "$1,086 "$0"========"=======5'See notes to consolidated financial statements