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QUARTERLY REPORT UNDER SECTION 13 0R 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2002
or
[ ] 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 0-23232

ARCH WIRELESS, INC.
(Exact name of Registrant as specified in its Charter)

DELAWARE 31-1358569
(State of incorporation) (I.R.S. Employer Identification No.)

1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MASSACHUSETTS 01581
(address of principal executive offices) (Zip Code)

(508) 870-6700
(Registrant's telephone number, including area code)


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 [X] No [ ]

Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 15,471,054 shares of the
Company's Common Stock ($.001 par value) were outstanding as of August 13, 2002.





ARCH WIRELESS, INC.
QUARTERLY REPORT ON FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION PAGE

Item 1. Financial Statements:

Unaudited Consolidated Condensed Balance Sheets as of June 30, 2002
(Reorganized Company) and December 31, 2001 (Predecessor Company) 3

Unaudited Consolidated Condensed Statements of Operations
for the One Month Ended June 30, 2002 (Reorganized Company),
Two Months Ended May 31, 2002 and Three Months Ended June
30, 2001 (Predecessor Company) 4

Unaudited Consolidated Condensed Statements of Operations
for the One Month Ended June 30, 2002 (Reorganized Company),
Five Months Ended May 31, 2002 and Six Months Ended June 30,
2001 (Predecessor Company) 5

Unaudited Consolidated Condensed Statements of Cash Flows
for the One Month Ended June 30, 2002 (Reorganized Company),
Five Months Ended May 31, 2002 and Six Months Ended June 30,
2001 (Predecessor Company) 6

Unaudited Notes to Consolidated Condensed Financial Statements 7

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14

Item 3. Quantitative and Qualitative Disclosures About Market Risk 25

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 26
Item 3. Defaults upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 27



2




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARCH WIRELESS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited and in thousands)


Reorganized Predecessor
Company Company
------- -------
June 30, December 31,
2002 2001
---- ----

ASSETS

Current assets:
Cash and cash equivalents $ 43,371 $ 72,200
Accounts receivable, net 60,137 90,158
Deposits 20,247 2,624
Prepaid rent 11,865 12,882
Restricted cash -- 34,579
Prepaid expenses and other 13,377 32,010
----------- -----------
Total current assets 148,997 244,453
----------- -----------
Property and equipment 372,993 1,437,763
Less accumulated depreciation and amortization (5,976) (1,031,741)
----------- -----------
Property and equipment, net 367,017 406,022
----------- -----------
Intangible and other assets, net 20,874 1,158
----------- -----------
$ 536,888 $ 651,633
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Current maturities of long-term debt $ 60,766 $ 67,271
Accounts payable 10,291 9,028
Accrued compensation and benefits 11,797 14,618
Accrued network costs 14,465 16,160
Accrued property and sales taxes 15,692 17,070
Accrued interest 1,778 4
Accrued other 17,401 18,611
Customer deposits and deferred revenue 41,889 54,519
----------- -----------
Total current liabilities 174,079 197,281
----------- -----------
Long-term debt, less current maturities 246,067 --
----------- -----------
Other long-term liabilities 150 14,983
----------- -----------
Liabilities subject to compromise -- 2,096,280
----------- -----------
Stockholders' equity (deficit):
Common stock 20 1,824
Additional paid-in capital 121,456 1,107,233
Deferred stock compensation (5,226) --
Accumulated other comprehensive income (5) 1,991
Retained earnings (accumulated deficit) 347 (2,767,959)
----------- -----------
Total stockholders' equity (deficit) 116,592 (1,656,911)
----------- -----------
$ 536,888 $ 651,633
=========== ===========


The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.


3


ARCH WIRELESS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except share and per share amounts)



Reorganized
Company Predecessor Company
------------- ------------------------------
One Month Two Months Three Months
Ended June 30, Ended May 31, Ended June 30,
2002 2002 2001
---- ---- ----

Revenues $ 68,967 $ 131,815 $ 303,399

Operating expenses:
Cost of products sold 1,202 5,016 11,120
Service, rental, and maintenance (exclusive of
depreciation, amortization and stock based
and other compensation shown separately below) 21,374 38,380 76,504
Selling 5,954 13,134 38,968
General and administrative (exclusive of
depreciation, amortization and stock based and
other compensation shown separately below) 23,471 40,540 98,525
Depreciation and amortization 12,567 33,789 1,220,886
Stock based and other compensation 888 -- --
------------- ------------- -------------
Total operating expenses 65,456 130,859 1,446,003
------------- ------------- -------------
Operating income (loss) 3,511 956 (1,142,604)
Interest expense, net (3,016) (904) (52,658)
Gain on extinguishment of debt -- 1,621,355 19,273
Other income (expense) (148) 1,354 (8,319)
------------- ------------- -------------
Income (loss) before reorganization items, net
and fresh start accounting adjustments 347 1,622,761 (1,184,308)
Reorganization items, net -- (16,280) --
Fresh start accounting adjustments -- 47,895 --
------------- ------------- -------------
Income (loss) before income tax benefit and cumulative
effect of change in accounting principle 347 1,654,376 (1,184,308)
Benefit from income taxes -- -- 82,500
------------- ------------- -------------
Income (loss) before cumulative effect of change in
accounting principle 347 1,654,376 (1,101,808)
Cumulative effect of change in accounting principle -- -- --
------------- ------------- -------------
Net income (loss) 347 1,654,376 (1,101,808)
Preferred stock dividend -- -- (1,429)
------------- ------------- -------------
Net income (loss) applicable to common stockholders $ 347 $ 1,654,376 $ (1,103,237)
============= ============= =============

Basic/diluted net income (loss) per common share $ 0.02 $ 9.07 $ (6.08)
============= ============= =============
Basic/diluted weighted average number of common
shares outstanding 20,000,000 182,424,530 181,425,387
============= ============= =============





The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.


4



ARCH WIRELESS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except share and per share amounts)



Reorganized
Company Predecessor Company
------------- ------------------------------
One Month Five Months Six Months
Ended June 30, Ended May 31, Ended June 30,
2002 2002 2001
---- ---- ----

Revenues $ 68,967 $ 365,360 $ 630,828

Operating expenses:
Cost of products sold 1,202 10,426 22,631
Service, rental, and maintenance (exclusive of
depreciation, amortization and stock based
and other compensation shown separately below) 21,374 105,990 157,547
Selling 5,954 35,313 75,624
General and administrative (exclusive of
depreciation, amortization and stock based and
other compensation shown separately below) 23,471 116,668 207,202
Depreciation and amortization 12,567 82,720 1,467,974
Stock based and other compensation 888 -- --
------------- ------------- -------------
Total operating expenses 65,456 351,117 1,930,978
------------- ------------- -------------
Operating income (loss) 3,511 14,243 (1,300,150)
Interest expense, net (3,016) (2,178) (116,585)
Gain on extinguishment of debt -- 1,621,355 34,229
Other income (expense) (148) 110 (16,529)
------------- ------------- -------------
Income (loss) before reorganization items, net
and fresh start accounting adjustments 347 1,633,530 (1,399,035)
Reorganization items, net -- (22,503) --
Fresh start accounting adjustments -- 47,895 --
------------- ------------- -------------
Income (loss) before income tax benefit and cumulative
effect of change in accounting principle 347 1,658,922 (1,399,035)
Benefit from income taxes -- -- 118,000
------------- ------------- -------------
Income (loss) before cumulative effect of change in
accounting principle 347 1,658,922 (1,281,035)
Cumulative effect of change in accounting principle -- -- (6,794)
------------- ------------- -------------
Net income (loss) 347 1,658,922 (1,287,829)
Preferred stock dividend -- -- (2,031)
------------- ------------- -------------
Net income (loss) applicable to common stockholders $ 347 $ 1,658,922 $ (1,289,860)
============= ============= =============

Basic/diluted net income (loss) per common share $ 0.02 $ 9.09 $ (7.40)
============= ============= =============
Basic/diluted weighted average number of common
shares outstanding 20,000,000 182,434,590 174,348,947
============= ============= =============





The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.


5



ARCH WIRELESS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)



Reorganized
Company Predecessor Company
------------- ------------------------------
One Month Five Months Six Months
Ended June 30, Ended May 31, Ended June 30,
2002 2002 2001
---- ---- ----

Net cash provided by (used for) operating activities $ 13,524 $ 77,163 $ (15,435)
--------- --------- ---------

Cash flows from investing activities:

Additions to property and equipment (9,497) (44,474) (71,483)
Additions to intangible and other assets -- -- (3,181)
Proceeds from sale of FCC licenses -- -- 175,000
Acquisition of company, net of cash acquired -- -- 104
--------- --------- ---------
Net cash (used for) provided by investing activities (9,497) (44,474) 100,440
--------- --------- ---------

Cash flows from financing activities:

Issuance of long-term debt -- -- 2,685
Repayment of long-term debt (183) (65,394) (178,111)
Net proceeds from sales of preferred stock -- -- 75,000
--------- --------- ---------
Net cash used for financing activities (183) (65,394) (100,426)
--------- --------- ---------

Effect of exchange rate changes on cash -- 32 225
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 3,844 (32,673) (15,196)
Cash and cash equivalents, beginning of period 39,527 72,200 55,007
--------- --------- ---------
Cash and cash equivalents, end of period $ 43,371 $ 39,527 $ 39,811
========= ========= =========

Supplemental disclosures:
Interest paid $ -- $ 2,257 $ 99,071
Repayment of debt with restricted cash $ -- $ 36,899 $ --
Accretion of long-term debt $ 1,067 $ -- $ 21,083
Issuance of new debt and common stock in exchange
for Predecessor liabilities $ -- $ 416,101 $ --
Reorganization expenses paid $ -- $ 22,503 $ --
Issuance of Predecessor common stock in exchange
for debt $ -- $ -- $ 11,643
Issuance of Predecessor preferred stock in exchange
for debt $ -- $ -- $ 6,936






The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.


6



ARCH WIRELESS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)

(a) Preparation of Interim Financial Statements - The consolidated
condensed financial statements of Arch Wireless, Inc. have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. The financial information included herein, other than the
consolidated condensed balance sheet as of December 31, 2001, has been prepared
without audit. The consolidated condensed balance sheet at December 31, 2001 has
been derived from, but does not include all the disclosures contained in, the
audited consolidated financial statements for the year ended December 31, 2001.
In the opinion of management, all of these unaudited statements include all
adjustments and accruals consisting only of normal recurring accrual
adjustments, except for those relating to fresh start accounting which are more
fully discussed below, which are necessary for a fair presentation of the
results of all interim periods reported herein. These consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and accompanying notes included in Arch's Annual Report on
Form 10-K/A for the year ended December 31, 2001. The results of operations for
the periods presented are not necessarily indicative of the results that may be
expected for a full year.

(b) Reorganization and Emergence from Chapter 11 - Basis of Presentation -
Certain holders of 12 3/4% Senior Notes due 2007 of Arch Wireless
Communications, Inc. (AWCI), a wholly-owned subsidiary of Arch, filed an
involuntary petition against AWCI on November 9, 2001 under chapter 11 of the
U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of
Massachusetts, Western Division. On December 6, 2001, AWCI consented to the
involuntary petition and the bankruptcy court entered an order for relief with
respect to AWCI under chapter 11 of the Bankruptcy Code. Also on December 6,
2001, Arch (as it existed prior to May 29, 2002, the "Predecessor Company") and
19 of its other wholly-owned, domestic subsidiaries, including Arch Wireless
Holdings, Inc. (AWHI), filed voluntary petitions for relief, under chapter 11,
with the bankruptcy court. These cases are being jointly administered under the
docket for Arch Wireless, Inc., et al., Case No. 01-47330-HJB. From December 6,
2001 through May 28, 2002, Arch and its domestic subsidiaries (collectively, the
"Debtors") operated their businesses and managed their property as
debtors-in-possession under the Bankruptcy Code. On May 15, 2002, the bankruptcy
court entered an order confirming the Debtors' First Amended Joint Plan of
Reorganization, as modified, and the plan became effective on May 29, 2002. As a
result of the bankruptcy court's order confirming the plan of reorganization,
Arch (as it existed on and after May 29, 2002, the "Reorganized Company") and
its domestic subsidiaries now operate as reorganized entities.

The plan of reorganization provided for separate classes of claims and
interests for creditors and equity holders of each of the Debtors. Under the
plan, holders of AWCI's 9 1/2% Senior Notes due 2004 and AWCI's 14% Senior Notes
due 2004 and the lenders under AWHI's credit agreement (collectively, the
"Secured Creditors") received in the aggregate (1) $200 million of new 10%
Senior Subordinated Secured Notes due 2007 issued by AWHI; (2) $100 million of
new 12% Subordinated Secured Compounding Notes due 2009 issued by AWHI; and (3)
14,648,854 shares of new common stock issued by Arch. The unsecured creditors of
AWHI, including the deficiency claims of Secured Creditors, and its subsidiaries
will receive a maximum of 3,600,000 shares of new common stock issued by Arch.
In addition, pursuant to the first modification to the plan, the unsecured
creditors of AWHI, exclusive of the deficiency claims of Secured Creditors, will
receive a pro rata share of a special distribution of 550,000 shares of new
common stock issued by Arch. Unsecured creditors of Arch and its subsidiaries
other than AWCI and AWHI and its subsidiaries received no distribution. The
unsecured creditors of AWCI, including the deficiency claims of the Secured
Creditors, will receive a pro rata share of 66,902 shares of new common stock
issued by Arch. Under the terms of the second modification to the plan, the
unsecured creditors of AWCI, exclusive of Secured Creditor deficiency claims,
will receive a pro rata share of a special distribution of 234,244 shares of new
common stock issued by Arch. The plan provides that exactly 20,000,000 shares
will be issued, however, the number of shares of new common stock to be
distributed to individual former unsecured creditors and the actual distribution
of such shares, is contingent upon the resolution of their individual claims.
Holders of common and preferred equity interests of the Predecessor Company


7


received no distributions under the plan and all pre-petition equity interests
in Arch were cancelled. The plan also provided for the creation of the 2002
Stock Incentive Plan pursuant to which up to 950,000 shares of new common stock
is distributable to management at $0.001 per share, 882,200 of which were
distributed on the effective date of the plan, portions of which will vest on
each of the first three anniversaries following the effective date. Except for
the shares of new common stock issuable pursuant to the 2002 Stock Incentive
Plan, the new common stock issued to the secured and unsecured creditors
constituted 100% of the outstanding common stock on the effective date of the
plan of reorganization.

The accompanying Consolidated Condensed Financial Statements for the two and
five months ended May 31, 2002 have been prepared in accordance with SOP 90-7
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
(SOP 90-7) and on a going concern basis, which contemplates continuity of
operations, realization of assets and liquidation of liabilities in the ordinary
course of business.

As a result of the application of fresh start accounting, the Company's
financial results during the three months ended June 30, 2002 include two
different bases of accounting and, accordingly, the operating results and cash
flows of the Reorganized Company and the Predecessor Company are separately
presented. The Reorganized Company's financial statements are not comparable
with those of the Predecessor Company's (see Note (g)).

During the five months ended May 31, 2002, Arch recorded reorganization
expense of $22.5 million consisting of $15.3 million of professional fees, $3.1
million of accrued retention costs and $4.1 million paid or accrued to settle
specific pre-petition liabilities in conjunction with assumed contracts.
Contractual interest expense not accrued or recorded on pre-petition debt
totaled $30.4 million and $76.0 million for the two and five months ended May
31, 2002, respectively.

(c) Fresh Start Accounting - Although May 29, 2002 was the effective date
of the Company's emergence from bankruptcy, for financial reporting convenience,
Arch accounted for the consummation of the plan as of May 31, 2002.

The fair value of the Reorganized Company's long-term debt and equity on the
effective date of the plan was determined to be $422.0 million ($416.1 million
and $5.9 million related to domestic and Canadian operations, respectively). A
third party financial advisor determined the value related to domestic
operations based on a discounted cash flow analysis utilizing the Company's free
cash flow projections for 2002 through 2006, discounted at rates ranging from
20% to 24%, and included the estimated effects of the Company's net operating
loss carry-forwards. To approximate the value of all future free cash flows
after the projection period, terminal free cash flow multiples ranging from 4.0
to 5.0 were applied to 2006 forecasted free cash flow. Management determined the
value of the Canadian operations.

In connection with Arch's emergence from chapter 11, the Company adopted
fresh start accounting in accordance with SOP 90-7. The reorganization value of
the Company was determined to be $535.2 million, which includes the fair value
of the Reorganized Company's long-term debt and equity plus the fair value of
current liabilities at the date of emergence of $113.2 million. Under SOP 90-7,
the reorganization value was allocated to its tangible and identifiable
intangible assets in accordance with Statement of Financial Accounting Standards
(SFAS) No. 141 "Business Combinations" and liabilities, including debt, were
recorded at their net present values. The net effect of all the fresh start
accounting adjustments resulted in a gain of $47.9 million, which is reflected
in the Predecessor Company financial statements for the two and five months
ended May 31, 2002.

The effects of the plan and the application of fresh start accounting on the
Predecessor Company's consolidated balance sheet were as follows:


8




ARCH WIRELESS, INC.
REORGANIZED CONSOLIDATED CONDENSED BALANCE SHEET
(unaudited and in thousands)



Predecessor Reorganized
Company Company
------- -------
May 31, Debt Fresh Start May 31,
2002 Discharge Adjustments 2002
---- --------- ----------- ----

ASSETS
Current assets:
Cash and cash equivalents $ 39,527 $ -- $ -- $ 39,527
Accounts receivable, net 58,679 -- -- 58,679
Prepaid expenses and other 62,452 -- (16,325)(D) 46,127
----------- ----------- ----------- -----------
Total current assets 160,658 -- (16,325) 144,333
Property and equipment, net 369,022 (54)(A) 564 (E) 369,532
Intangible and other assets, net 265 -- 21,110 (E) 21,375
----------- ----------- ----------- -----------
$ 529,945 $ (54) $ 5,349 $ 535,240
=========== =========== =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 30,190 $ 30,000 (B) $ (24,297)(F) $ 35,893
Accounts payable 8,945 -- -- 8,945
Accrued expenses 61,835 -- -- 61,835
Customer deposits and deferred revenue 58,879 -- (16,413)(D) 42,466
----------- ----------- ----------- -----------
Total current liabilities 159,849 30,000 (40,710) 149,139
Liabilities subject to compromise 2,037,509 (2,037,509)(A) -- --
Long-term debt, less current maturities -- 270,000 (B) -- 270,000
Other long-term liabilities 1,836 -- (1,836)(F) --
Stockholders' equity (deficit) (1,669,249) 1,737,455 (C) 47,895 116,101
----------- ----------- ----------- -----------
$ 529,945 $ (54) $ 5,349 $ 535,240
=========== =========== =========== ===========

- ------------
(A) Discharge of pre-petition obligations including deferred gain on a sale leaseback and write off
of the associated fixed assets since the underlying lease agreement was rejected in conjunction
with the reorganization.

(B) Record new long-term debt issued pursuant to the plan of reorganization.

(C) Record new common stock issued pursuant to the plan of reorganization valued at $116.1 million
and the net gain on extinguishment of debt resulting from notes (A) and (B) above.

(D) Eliminate the deferred cost and related deferred revenue associated with SAB 101 revenue
recognition as the asset has no value and no payment or service obligation exists for the
Reorganized Company.

(E) Adjust property and equipment to the fair value of the assets based on an independent appraisal.

(F) Adjust Canadian debt to fair value. Management determined the value of the bank debt in a manner
consistent with the methodology used to value and restructure Arch's domestic subsidiaries.
Management believes this method is reasonable since no market exists for this debt and the
operations of the Canadian subsidiaries are largely identical to the operations of Arch's domestic
subsidiaries. The Canadian subsidiaries are in default of several financial and other covenants
associated with their bank debt, and are currently operating under a forbearance agreement with
their lenders. The valuation was based on projected cash flows of the Canadian subsidiaries.



(d) Long-lived Assets - Intangible and other assets of $20,874 (net of
accumulated amortization) at June 30, 2002 include subscriber lists and FCC
licenses that are being amortized over useful lives ranging from 3 to 5 years.
Intangible and other assets are comprised of the following at June 30, 2002 (in
thousands):


9




Gross Carrying Accumulated
Amount Amortization Net Balance
------ ------------ -----------

Purchased subscriber lists $ 13,072 $ 363 $ 12,709
Purchased Federal Communications Commission licenses 8,300 138 8,162
Other 3 -- 3
------------ ------------ --------------
$ 21,375 $ 501 $ 20,874
============ ============ ============


Aggregate amortization expense for intangible assets for the one month ended
June 30, 2002 was $501,000. Estimated amortization expense for intangible assets
for the remainder of 2002, and for fiscal years 2003 to 2006 is $3,009,000,
$6,018,000, $6,018,000, $3,476,000 and $1,660,000, respectively.

Arch recorded an impairment charge relating to its long-lived assets of
$976.2 million in the second quarter of 2001, which is included in depreciation
and amortization expense in the accompanying statements of operations. These
assets have been recorded at an estimate of their fair values upon emergence
from bankruptcy, however, if the cash flow estimates, or the significant
operating assumptions upon which those fair values are based, change in the
future, Arch may be required to record additional impairment charges related to
its long-lived assets.

(e) Debt - Upon the effective date of the plan, all of Arch's pre-petition
bank debt and senior notes, except debt issued by Arch's Canadian subsidiaries,
were discharged and terminated. The $50 million debtor-in-possession credit
facility obtained by the Debtors in connection with the chapter 11 filing was
also terminated on the effective date of the plan of reorganization. No
borrowings were outstanding on the debtor-in-possession credit facility.

On the effective date of the plan of reorganization, AWHI issued $200 million
of its 10% Senior Subordinated Secured Notes due 2007 and $100 million of its
12% Subordinated Secured Compounding Notes due 2009. The 10% notes accrue
interest at 10% per annum payable semi-annually in arrears. The 10% notes are
secured by a lien on substantially all the assets of Arch, excluding the assets
of Arch's Canadian subsidiaries. AWHI is required to redeem $15 million of the
10% notes semi-annually. AWHI is also required to redeem the 10% notes
semi-annually to the extent AWHI's cash balance exceeds certain levels. AWHI
must also redeem the 10% notes from the net cash proceeds from: (1) the sale of
assets in excess of $2 million and (2) certain amounts from insurance or
condemnation proceeds. AWHI may redeem the 10% notes at any time prior to
maturity, without premium or penalty. If a change of control (as defined in the
indenture) occurs, AWHI will be required to make an offer to purchase the 10%
notes at 100% of the outstanding principal amount plus accrued and unpaid
interest through the purchase date. On July 31, 2002, Arch made a $10 million
optional redemption of the 10% notes, plus accrued interest on the redemption
amount and provided notice that it will make a $15 million optional redemption
on the 10% notes on August 30, 2002. These optional redemption amounts have been
classified as current maturities on the consolidated condensed balance sheet at
June 30, 2002.

The 12% notes accrue interest at 12% per annum payable semi-annually in
arrears. Interest will accrue, and will compound semi-annually until the 10%
notes are repaid in full, and thereafter interest will be paid semi-annually in
cash. The 12% notes are secured by a second lien on substantially all the assets
of Arch, excluding the assets of Arch's Canadian subsidiaries. Arch is
prohibited from redeeming the 12% notes until the 10% notes are paid in full.
Following the repayment in full of the 10% notes, AWHI will be required to
redeem the 12% notes semi-annually to the extent AWHI's cash balance exceeds
certain levels. AWHI must also redeem the 12% notes from the net cash proceeds
from: (1) the sale of assets in excess of $2 million and (2) certain amounts
from insurance or condemnation proceeds once the 10% notes have been paid in
full. AWHI may redeem the 12% notes, after the 10% notes have been repaid in
full, at a redemption price equal to the following percentage of the outstanding
principal amount plus accrued and unpaid interest through the purchase date:
o Prior to May 15, 2007 -- 106%;
o May 15, 2007 to May 14, 2008 -- 104%;


10


o May 15, 2008 to May 14, 2009 -- 102%;
o on or after May 15, 2009 -- 100%.

If a change in control (as defined in the indenture) occurs, AWHI will be
required to make an offer to purchase the 12% notes at 101% of the outstanding
principal amount plus accrued and unpaid interest through the purchase date.

The indentures for the 10% and 12% notes impose restrictions on Arch and its
subsidiaries, including the following:
o prohibition on restricted payments, including cash dividends, redemptions
of stock or stock equivalents and optional payments on debt subordinated
to the notes;
o prohibition on incurring indebtedness;
o prohibition on liens on its assets;
o prohibition on making or maintaining investments except for permitted
cash-equivalent type investments;
o prohibition on consolidations, mergers or sale of assets outside the
ordinary course of business;
o prohibition on transactions with affiliates; and
o compliance with certain quarterly financial covenants including, but not
limited to, (i) minimum earnings before interest, income taxes,
depreciation and amortization, (ii) minimum number of direct units in
service, (iii) minimum total consolidated service, rental and maintenance
revenues and (iv) maximum capital expenditures.

Arch's Canadian subsidiaries are in default under their credit agreements; as
a result Arch has classified this debt as current. At June 30, 2002, the
carrying value of this debt was $5.9 million and the principal balance
outstanding was $30.3 million. The Canadian subsidiaries were not included in
Arch's chapter 11 filing. This debt is non-recourse to Arch Wireless, Inc. or
any of its domestic subsidiaries.

(f) New Common Stock - Upon the effective date of the plan of
reorganization all of the Predecessor Company's preferred and common stock, and
all stock options were cancelled. The Reorganized Company's authorized capital
stock consists of 50,000,000 shares of common stock. Each share of common stock
has a par value of $.001 per share. As of June 30, 2002, Arch had issued and
outstanding 15,471,054 shares of common stock and the remaining 4,528,946 shares
will be issued pursuant to the plan of reorganization from time to time as
administrative claims are resolved. The plan provides that exactly 20,000,000
shares will be issued, however, the number of shares of new common stock to be
distributed to individual former unsecured creditors is contingent upon the
resolution of their individual claims. All 20,000,000 shares were deemed issued
and outstanding for accounting purposes at June 30, 2002.

As provided in the plan of reorganization, the Company adopted the 2002 Stock
Incentive Plan which authorizes the grant of up to 950,000 shares of common
stock of the Reorganized Company to be issued pursuant to the plan. On May 29,
2002, 882,200 shares were issued, at $0.001 per share, to certain members of
continuing management to vest 310,730 shares on each of May 29, 2003 and May 29,
2004 and 260,740 shares on May 29, 2005 subject to adjustment. Any unvested
shares granted under the 2002 Stock Incentive Plan are subject to repurchase by
the Company at the issue price of $0.001 per share if the employment of an
employee entitled to such grant is terminated for any reason. The fair value of
the shares was deemed to be $6.09 per share, therefore, compensation expense of
approximately $5.4 million will be recognized ratably over the three year
vesting period. The remaining shares will become issuable upon resolution of
administrative claims to the extent allowable under the plan of reorganization.

(g) Risks and Other Important Factors - Based on current and anticipated
levels of operations, and efforts to effectively manage working capital, Arch's
management anticipates that the Company's cash flow from operations, together
with cash on hand, will be adequate to meet its anticipated cash requirements
for the foreseeable future.

In the event that cash flows are not sufficient to meet future cash
requirements, Arch may be required to reduce planned capital expenditures, sell
assets or seek additional financing. Arch can provide no assurances that


11


reductions in planned capital expenditures or proceeds from asset sales would be
sufficient to cover shortfalls in available cash or that additional financing
would be available or, if available, offered on acceptable terms.

Arch does not manufacture any of the messaging devices or other equipment
that its customers need to take advantage of its services. The equipment used in
Arch's operations is generally available for purchase from only a few sources.
Historically, Arch has purchased messaging devices primarily from Motorola and
purchased terminals and transmitters primarily from Glenayre Electronics, Inc.

Both Motorola and Glenayre have publicly announced their intentions to
discontinue the production of the messaging devices and network equipment Arch
purchases from them. Arch has entered into a supply agreement with Motorola that
requires Motorola to supply it with messaging devices through September 30,
2002. Arch believes the purchases in accordance with this agreement will be
sufficient to meet its expected inventory requirements through March 31, 2003.
Although Motorola had announced that Multitone Electronics would assume
Motorola's role as a provider of messaging devices, they were unable to reach
agreement with Multitone. Arch is therefore currently negotiating development
agreements with other vendors to obtain alternative sources of messaging
devices.

Arch has entered into an agreement with Glenayre which will provide it with
certain continued services and equipment into 2004 and the option to license
upgrades to its network software under certain circumstances. In addition, Arch
currently has excess network equipment as a result of its efforts to rationalize
and deconstruct many of its one-way messaging networks and from prior
acquisitions of network equipment. Additional network equipment for its two-way
messaging network is also available from another vendor, Sonik Technologies,
Inc.

Significant delays in developing alternative sources of equipment could lead
to disruptions in operations and adverse financial consequences. There can be no
assurance that Arch will be able to secure alternative sources of messaging
devices and all required network equipment.

(h) Recent Accounting Pronouncements - Pursuant to the requirements of
SOP 90-7, which requires entities subject to fresh start accounting to adopt, in
the fresh start reporting period, new accounting principles that will be
required in the financial statements of the emerging entity within 12 months of
the fresh start reporting period, Arch adopted the following pronouncements.

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." Arch adopted the requirements of SFAS No. 142 effective January 1,
2002. SFAS No. 142 requires companies to cease amortization of certain assets
and provides a methodology to test these assets for impairment on a periodic
basis. Arch did not have any assets subject to SFAS No. 142 on its balance sheet
as of January 1, 2002 and therefore the adoption had no impact on Arch's results
of operations or financial condition. Depreciation and amortization expense in
the first quarter of 2001 would have been reduced by $54.4 million had the
provisions of this statement been applied to that period.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." Arch adopted SFAS No 143 on June 1, 2002, the adoption had no
impact on Arch's results of operations or financial condition.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-lived Assets." Arch adopted SFAS No. 144 on January 1, 2002,
the adoption had no impact on Arch's results of operations or financial
condition.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections." In
rescinding SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt,"
and SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements," SFAS No. 145 eliminates the requirement that gains and losses
from the extinguishment of debt be aggregated and classified as an extraordinary
item, net of the related income tax effect. Arch adopted SFAS No. 145 and the
Predecessor Company recorded a $1.6 billion gain on extinguishment of debt in
the two month period ended May 31, 2002. In accordance with SFAS No. 145 this
gain was recognized as other income. In addition, the gain on early
extinguishment of debt recorded in the prior year has been reclassified as other
income.

12


In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses accounting for restructuring
and similar costs. SFAS No. 146 supersedes previous accounting guidance,
principally Emerging Issues Task Force Issue (EITF) No. 94-3. Arch has adopted
the provisions of SFAS No. 146. SFAS No. 146 requires that the liability for
costs associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF No. 94-3, a liability for an exit cost was
recognized at the date of the Company's commitment to an exit plan. SFAS No. 146
also establishes that the liability should initially be measured and recorded at
fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing
future restructuring costs as well as the amounts recognized.

(i) Segment Reporting - In conjunction with its emergence from chapter 11
during the quarter ended June 30, 2002, Arch reassessed the segment disclosure
requirements of SFAS 131 "Disclosures about Segments of an Enterprise and
Related Information". Due to various operational changes which occurred before
and during the bankruptcy proceedings, such as the elimination of dedicated
sales and management resources for two-way messaging, Arch no longer believes
that its one-way messaging and two-way messaging operations meet the disclosure
standards of separate operating segments as set forth in SFAS 131. Therefore,
Arch believes it currently has two operating segments: domestic operations and
international operations, but no reportable segments, as international
operations are immaterial to the consolidated entity.

Geographic Information


Reorganized
Company Predecessor Company
------------ -------------------------------------------------------------
One Month Two Months Three Months Five Months Six Months
Ended June 30, Ended May 31, Ended June 30, Ended May 31, Ended June 30,
2002 2002 2001 2002 2001
---- ---- ---- ---- ----

Revenues:
United States $ 67,318 $ 128,625 $ 298,545 $ 357,630 $ 621,058
Canada 1,649 3,190 4,854 7,730 9,770
------------ ------------ ------------ ------------ ------------
Total $ 68,967 $ 131,815 $ 303,399 $ 365,360 $ 630,828
============ ============ ============ ============ ============




Reorganized Company Predecessor Company
June 30, 2002 December 31, 2001
------------- -----------------

Long-lived assets:
United States $ 382,595 $ 392,783
Canada 5,296 14,397
---------------- ----------------
Total $ 387,891 $ 407,180
================ ================







13



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes", "anticipates", "plans", "expects" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause Arch's actual results to
differ materially from those indicated or suggested by such forward-looking
statements. These factors include, without limitation, those set forth below
under the caption "Factors Affecting Future Operating Results".

OVERVIEW

The following discussion and analysis should be read in conjunction with
Arch's consolidated financial statements and notes and the following subsections
of the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" section of Arch's Annual Report on Form 10-K/A: "Petition for
Relief Under Chapter 11," "Overview," "PageNet Merger," "MobileMedia Merger,"
"Results of Operations" and "Inflation".

On May 29, 2002, Arch emerged from proceedings under chapter 11 of the
bankruptcy code. Pursuant to Arch's plan of reorganization, all of its former
equity securities were cancelled and the holders of approximately $1.8 billion
of its former indebtedness received securities which represent substantially all
of Arch's consolidated capitalization, consisting of $200 million aggregate
principal amount of 10% senior subordinated secured notes, $100 million
aggregate principal amount of 12% subordinated secured compounding notes and
approximately 95% of Arch's currently outstanding common stock. All but one of
Arch's former directors have been replaced by new directors, although no changes
have occurred in its senior management. Arch continued to operate its business
throughout the chapter 11 proceedings, and as part of its overall strategy to
increase operating margins, it has continued to reduce expenses by closing
facilities, reducing the number of networks it operates and the number of
persons it employs.

CRITICAL ACCOUNTING POLICIES

The following discussion and analysis of financial condition and results of
operations are based upon Arch's consolidated condensed financial statements,
which have been prepared in conformity with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, expenses and related disclosures. On
an on-going basis, Arch evaluates its estimates and assumptions, including but
not limited to those related to the impairment of long-lived assets, reserves
for doubtful accounts and service credits, revenue recognition and
capitalization of device refurbishment costs. Arch bases its estimates on
historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities. Actual
results may differ from these estimates under different assumptions or
conditions.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets," Arch evaluates
the recoverability of the carrying value of its tangible and intangible assets
based on estimated undiscounted cash flows to be generated from such assets. In
assessing the recoverability of these assets, Arch must project cash flows which
are based on various operating assumptions such as average revenue per unit in
service, the rate at which subscribers discontinue service, sales productivity


14


ratios and workforce productivity ratios. Management develops these cash flow
projections on a periodic basis and continuously reviews the projections based
on actual operating trends.

The projections assume that general economic conditions will continue
unchanged throughout the projection period and that the potential impact of
those economic conditions on capital spending and revenues within each of our
operating regions will not fluctuate. Projected revenues are based on our
estimates of units in service and average revenue per unit. Projected revenues
assume a continued decline in one-way messaging units in service throughout the
projection period, which is partially offset by growth of advanced messaging
units in service. Projected operating expenses are based upon historical
experience and expected market conditions adjusted to reflect an expected
decrease in expenses resulting from cost saving initiatives implemented in
response to the projected decline in total revenues.

Arch recorded an impairment charge relating to its long-lived assets of
$976.2 million in the second quarter of 2001, which is included in depreciation
and amortization expense in the accompanying statements of operations. These
assets have been recorded at an estimate of their fair values upon emergence
from bankruptcy, however, if the cash flow estimates, or the significant
operating assumptions upon which those fair values are based, change in the
future, Arch may be required to record additional impairment charges related to
its long-lived assets.

Reserves for Doubtful Accounts and Service Credits

Arch records two reserves against its gross accounts receivable balance, an
allowance for doubtful accounts and an allowance for service credits. Provisions
for these allowances are recorded on a monthly basis and are included as a
component of general and administrative expense and as a reduction of revenues,
respectively.

Estimates are used in determining the allowance for doubtful accounts and are
based on historical collection experience, current trends and a percentage of
the accounts receivable aging categories. In determining these percentages Arch
reviews historical write-offs, including comparisons of write-offs to provisions
for doubtful accounts and as a percentage of revenues. Arch compares the ratio
of the reserve to gross receivables to historical levels and Arch monitors
amounts collected and related statistics. Arch's allowance for doubtful accounts
was $22.5 million and $42.0 million at June 30, 2002 and December 31, 2001,
respectively. While write-offs of customer accounts have historically been
within our expectations and the provisions established, management cannot
guarantee that future write-off experience will be consistent with historical
rates, which could result in material differences in the allowance for doubtful
accounts and related provisions.

The allowance for service credits and the related provisions are based on
historical credit percentages, current credit and aging trends and days sales
outstanding for each business unit. A range of allowance balances is developed
and an allowance is recorded within that range based on management's assessment
of trends in days sales outstanding, aging characteristics and other operating
factors. Arch's allowance for service credits was $12.9 million on June 30,
2002. While credits issued have been within our expectations and the provisions
established, management cannot guarantee that future credit experience will be
consistent with historical rates, which could result in material differences in
the allowance for service credits and related provisions.

Revenue Recognition

Arch's revenue consists primarily of monthly service and lease revenues
charged to customers on a monthly, quarterly, semi-annual or annual basis.
Revenue also includes sales of messaging devices directly to customers and
resellers. Arch recognizes revenue over the period the service is performed in
accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" (SAB 101). SAB 101 requires that four basic criteria be
met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists, (2) delivery has occurred or services rendered, (3) the fee is fixed or
determinable, and (4) collectibility is reasonably assured. Arch believes,
relative to the sale of one-way messaging devices, that all of these conditions
are met and since the services are deemed not to be essential to the sale of the
devices, product revenue is recognized at the time of shipment.

Arch bundles the sale of two-way messaging devices with the related service
and since, currently, the sale of the service is essential to the functionality
of the device, Arch does not separately account for the sale of the device and


15


the service. Revenue and the related cost of sales are recognized over the
expected customer relationship, which is currently estimated to be two years. If
the assumed length of the customer relationship differed significantly or
technology advances resulted in the service being deemed not to be essential to
the sale of the device; the timing of revenue and expense amortization and the
carrying value of the related deferred revenue and cost could be materially
affected. However, Arch's net income or loss would not be materially affected
since the amount of revenue and expense amortized are substantially the same
amount.

Capitalization of Device Refurbishment Costs

Arch incurs significant costs associated with messaging devices, including
the purchase of new devices as well as the refurbishment of company-owned
devices returned from customers. Device refurbishment falls into two general
categories; cosmetic cleaning and repair of external components (i.e. lenses,
clips, plastics, etc.) and significant refurbishment or replacement of internal
components, including component level repair and changes, which allow the device
to function on different messaging systems and at different frequencies. The
costs associated with significant refurbishment extend the useful life of the
device and allow the Company to forego the purchase of a new messaging device
from equipment manufacturers. Therefore, these costs are capitalized to fixed
assets and depreciated over a one year estimated life.

Arch has approximately 4.5 million leased units in service as of June 30,
2002, which are subject to customer return primarily for cancellation of service
or exchanges for different devices. Arch processes several hundred thousand such
returns on a quarterly basis and most devices returned require either cosmetic
or significant refurbishment. Due to the high volume of devices processed,
specific identification of repairs to specific pieces of equipment is not
practical, therefore, Arch capitalizes a majority of the significant
refurbishment costs incurred. These costs consist of both internal costs,
primarily payroll and related expenses, parts consumed in the repair process,
and third party subcontracted repair services. The capitalization rate was
determined based on an internal product flow and cost analysis of an in-house
repair facility. The capitalization of these expenses results in lower operating
expenses, but higher capital expenditures in each period. For the three and six
month periods ended June 30, 2002, $4.3 million and $8.9 million, respectively,
were capitalized. Arch is in the process of reassessing the assumed
capitalization rate. If the resulting capitalization rate differs from the
historical rate, Arch's service, rental and maintenance expense and capital
expenditures would be affected in equal and opposite amounts and depreciation
expense would differ on a prospective basis.

RESULTS OF OPERATIONS

For financial statement purposes, the Company's results of operations and
cash flows have been separated as pre- and post-May 31, 2002 due to a change in
basis of accounting in the underlying assets and liabilities. See notes (b) and
(c) of Notes to Consolidated Condensed Financial Statements. For purposes of
this Management's Discussion and Analysis, the Predecessor Company financial
data has been compared in the section "Comparison of the Predecessor Company
Results of Operations for the Two and Five Months Ended May 31, 2002 to the
Three and Six Months Ended June 30, 2001" and certain financial data of the
three and six months ended June 30, 2002 have been combined and discussed in
relation to the corresponding periods of 2001 in the section "Comparison of the
Results of Operations for the Three and Six Months Ended June 30, 2002 and
2001". However, for the reasons described in notes (b) and (c) and due to other
non-recurring adjustments, the Company's financial statements for the periods
before Arch emerged from bankruptcy are not comparable to the Reorganized
Company's financial statements for the one-month ended June 30, 2002, and Arch's
results of operations prior to its emergence from bankruptcy, including the
two-month period ended May 31, 2002, are not indicative of future results. These
items are particularly noteworthy:

o a gain of $1.6 billion recognized in the second quarter of 2002 from the
discharge and termination of debt upon Arch's emergence from bankruptcy;

o a gain of $47.9 million recognized in the second quarter of 2002 due to
fresh start accounting adjustments;


16


o reorganization expenses of $6.2 million and $16.3 million recognized in
the first and second quarters of 2002, respectively and;

o the non-accrual of $45.6 million and $30.4 million of contractual interest
while the Company operated in bankruptcy in the first and second quarters
of 2002, respectively.

Comparison of the Predecessor Company Results of Operations for the Two and
Five Months Ended May 31, 2002 to the Three and Six Months Ended June 30, 2001

The Predecessor Company had no results of operations after the effective date
of the plan of reorganization. Accordingly, there is one fewer month for each
item discussed in each 2002 period which exacerbates the change from the periods
in the prior year. Please see the section "Comparison of the Results of
Operations for the Three and Six Months Ended June 30, 2002 and 2001," below for
additional information.

Revenues decreased to $131.8 million, a 56.6% decrease, and $365.4 million, a
42.1% decrease, for the two and five months ended May 31, 2002, respectively,
from $303.4 million and $630.8 million for the three and six months ended June
30, 2001, respectively, as the number of units in service decreased from 10.2
million at June 30, 2001 to 7.2 million at May 31, 2002 and the two and five
month periods ended May 31, 2002 reflect a one month shorter operating period
than the periods ending June 30, 2001.

Service, rental and maintenance expenses, which consist primarily of
telephone expenses, fees paid to other network providers, site rental expenses
and repairs and maintenance expenses, decreased to $38.4 million, or 30.3% of
net revenues (revenues less cost of products sold), and $106.0 million, or 29.9%
of net revenues, in the two and five months ended May 31, 2002, respectively,
from $76.5 million, or 26.2% of net revenues, and $157.5 million, or 25.9% of
net revenues in the three and six months ended June 30, 2001.

Selling expenses decreased to $13.1 million, or 10.4% of net revenues, and
$35.3 million, or 9.9% of net revenues, for the two and five months ended May
31, 2002, respectively, from $39.0 million, or 13.3% of net revenues, and $75.6
million, or 12.4% of net revenues, for the three and six months ended June 30,
2001. The decrease was due to fewer sales representatives resulting from
continuing efforts to manage sales force productivity such that as units in
service decline fewer sales personnel are required. In conjunction with the
effort to reduce the number of sales personnel, management decided to merge the
responsibilities of its sales representatives to include all product lines:
one-way and two-way messaging.

General and administrative expenses decreased to $40.5 million, or 32.0% of
net revenues, and $116.7 million, or 32.9% of net revenues, for the two and five
months ended May 31, 2002, respectively, from $98.5 million, or 33.7% of net
revenues, and $207.2 million, or 34.1% of net revenues for the three and six
months ended June 30, 2001. The decreases in general and administrative expenses
were due primarily to lower payroll and related expenses, facilities costs,
outside services and bad debt expense.

Depreciation and amortization expenses decreased to $33.8 million and $82.7
million in the two and five months ended May 31, 2002, respectively, from $1.2
billion and $1.5 billion in the three and six months ended June 30, 2001. The
decrease was principally due to a $976.2 million impairment charge, recorded in
June 2001, related to certain one-way messaging equipment, computer equipment
and intangible assets and the associated reduction in the carrying value of the
fixed and intangible assets.

In May 2002, upon emergence from chapter 11, Arch recognized a gain of $1.6
billion resulting from the discharge and termination of debt incurred before the
bankruptcy filing. For the three and six months ended June 30, 2001, Arch
recognized gains of $19.3 million and $34.2 million, respectively, on the
retirement of debt exchanged for Predecessor Company stock.

Net interest expense decreased to $904,000 and $2.2 million for the two and
five months ended May 31, 2002, respectively, from $52.7 million and $116.6
million for the corresponding periods in 2001. As a result of filing for
protection under chapter 11, Arch stopped recording interest expense on its bank
debt and senior notes. Contractual interest which was neither accrued nor
recorded for the two and five months ended May 31, 2002 on debt incurred before
the bankruptcy filing was approximately $30.4 million and $76.0 million,
respectively.


17


Reorganization expense was $16.3 million and $22.5 million in the two and
five months ended May 31, 2002, respectively. These expenses consisted of
professional and other fees associated with Arch's bankruptcy proceedings.

In May 2002, upon emergence from chapter 11, Arch recorded fresh start
accounting adjustments resulting in a gain of $47.9 million. See Note (c) to the
Consolidated Condensed Financial Statements.

Arch recognized an income tax benefit of $82.5 million and $118.0 million for
the three and six months ended June 30, 2001, respectively. The benefit
represented the tax benefit of operating losses incurred subsequent to the
acquisition of PageNet, which were available to offset deferred tax liabilities
arising from the PageNet acquisition.

Comparison of the Results of Operations for the Three and Six Months Ended
June 30, 2002 and 2001

Revenues consist primarily of recurring revenues associated with the
provision of messaging services, rental of leased units and device sales. Device
sales represented less than 10% of total revenues for the three and six months
ended June 30, 2001 and 2002. Arch does not differentiate between service and
rental revenues.

Revenues decreased to $200.8 million, a 33.8% decrease, and $434.3 million, a
31.1% decrease, for the three and six months ended June 30, 2002, respectively,
from $303.4 million and $630.8 million for the three and six months ended June
30, 2001, respectively, as the number of units in service decreased from 10.2
million at June 30, 2001 to 7.0 million at June 30, 2002. Revenues in the three
and six months ended June 30, 2001 and 2002 were adversely affected by the
declining demand for one-way messaging services which led to net subscriber
cancellations of 734,000 and 1,493,000 units in the three and six months ended
June 30, 2002, respectively and 875,000 and 1,659,000 units in the corresponding
periods in 2001.

Two-way messaging revenues increased to $32.0 million, or 15.9% of total
revenues, and $65.5 million, or 15.1% of total revenues, in the three and six
months ended June 30, 2002, respectively, from $22.9 million, or 7.6% of total
revenues, and $40.2 million, or 6.4% of total revenues, in the corresponding
2001 periods. Two-way messaging units in service increased from 282,000 at June
30, 2001 to 376,000 at June 30, 2002.

The demand for one-way messaging services declined in 2000, 2001 and in the
first half of 2002, and Arch believes such demand will continue to decline in
the foreseeable future. Arch believes that future growth in the wireless
messaging industry, if any, will be attributable to advanced messaging and
information services. As a result, Arch expects to continue to experience
significant declines of units in service during the remainder of 2002, as Arch's
addition of two-way messaging subscribers and Arch Wireless Enterprise Solution
(AWES) subscribers, collectively its advanced messaging subscribers, will be
exceeded by its loss of one-way messaging subscribers.

Service, rental and maintenance expenses, which consist primarily of
telephone expenses, fees paid to other network providers, site rental expenses
and repairs and maintenance expenses, decreased to $59.8 million, or 30.7% of
net revenues, and $127.4 million, or 30.1% of net revenues, in the three and six
months ended June 30, 2002, respectively, from $76.5 million, or 26.2% of net
revenues, and $157.5 million, or 25.9% of net revenues in the corresponding
periods in 2001. Since many of these costs are fixed in the short term, Arch has
not been able to reduce service, rental and maintenance expenses to date at the
same rate of decline as units in service and net revenues, resulting in an
increase in these expenses as a percentage of net revenues. The decrease in
expense is primarily a result of lower telephone expenses and fees paid to other
network providers. The decreases in telephone expense of $8.4 million and $14
million for the three and six month periods, respectively, resulted from (1)
permanent savings due to consolidation of network facilities and favorable rate
adjustments and (2) a $4.4 million accrual adjustment due to favorable
settlement of certain contract disputes. The decreases in fees paid to other
network providers were $4 million and $6.9 million for the three and six month
periods, respectively, and were due primarily to the Company's efforts to
migrate customers from other network providers to Arch's networks and to a
lesser extent lower units in service.

Service, rental and maintenance expenses related to two-way messaging,
consisting primarily of site rental expenses, telephone expenses and fees paid
to other network providers, were $11.5 million for each of the three month
periods ended June 30, 2002 and 2001, and $24.3 million and $22.6 million in the
six month periods ended June 30, 2002 and 2001, respectively. The increase for
the six month period related primarily to additional fees paid to other network


18


providers in the current year which resulted from an increased use of other
network providers which occurred in the final two quarters of 2001.

Selling expenses decreased to $19.1 million, or 9.8% of net revenues, and
$41.3 million, or 9.8% of net revenues, for the three and six months ended June
30, 2002, respectively, from $39.0 million, or 13.3% of net revenues, and $75.6
million, or 12.4% of net revenues, for the corresponding periods in 2001. The
decrease was due to fewer sales representatives resulting from continuing
efforts to manage sales force productivity such that as units in service decline
fewer sales personnel are required. In conjunction with the effort to reduce the
number of sales personnel, management decided to merge the responsibilities of
its sales representatives to include all product lines: one-way and two-way
messaging. Therefore, no specific selling expenses are related to the one-way or
two-way messaging product lines.

General and administrative expenses decreased to $64.0 million, or 32.9% of
net revenues, and $140.1 million, or 33.2% of net revenues, for the three and
six months ended June 30, 2002, respectively, from $98.5 million, or 33.7% of
net revenues, and $207.2 million, or 34.1% of net revenues for the corresponding
periods in 2001. The decreases in general and administrative expenses were due
primarily to lower payroll and related expenses, facilities costs, outside
services and bad debt expense. The decreases in payroll and related expense was
$8.7 million and $23.4 million for the three and six month periods,
respectively. These decreases resulted from fewer employees, consolidation of
operating divisions and reductions in certain functions which tend to vary with
units in service. Facilities costs were $4.4 million and $9.4 million lower in
the 2002 three and six month periods, respectively, due to facilities closures
in conjunction with the PageNet integration and operating division
consolidations. Outside services decreased $4.9 million and $9.2 million in the
three and six month periods, respectively, due primarily to lower consulting and
temporary help expenses in the current year. Bad debt decreased $6.5 million and
$7.9 million in the three and six month periods, respectively, due primarily to
improved collections activities and lower levels of overall accounts receivable
which resulted from the decreases in revenue described above. There are no
specific general and administrative expenses associated with two-way messaging
and minimal costs associated with AWES.

Depreciation and amortization expenses decreased to $46.4 million and $95.3
million in the three and six months ended June 30, 2002, respectively, from $1.2
billion and $1.5 billion in the three and six months ended June 30, 2001. The
decrease was principally due to a $976.2 million impairment charge, recorded in
June 2001, related to certain one-way messaging equipment, computer equipment
and intangible assets and the associated reduction in the carrying value of the
fixed and intangible assets.

Operating income was $4.5 million and $17.8 million for the three and six
months ended June 30, 2002, respectively, compared to operating losses of $1.1
billion and $1.3 billion in the three and six months ended June 30, 2001,
respectively, as a result of the factors outlined above.

Net interest expense decreased to $3.9 million and $5.2 million for the three
and six months ended June 30, 2002, respectively, from $52.7 million and $116.6
million for the corresponding periods in 2001. As a result of filing for
protection under chapter 11, Arch stopped recording interest expense on its bank
debt and senior notes. Contractual interest which was neither accrued nor
recorded for the two and five months ended May 31, 2002 on debt incurred before
the bankruptcy filing was approximately $30.4 million and $76.0 million,
respectively.

Other expense was $38,000 for the six months ended June 30, 2002, compared to
$16.5 million for the six months ended June 30, 2001. In 2001, other expense
included a $4.8 million charge resulting from the application of SFAS No. 133
and a $7.5 million charge resulting from the write-off of a note receivable from
Vast Solutions, Inc., which filed for bankruptcy in April 2001.

Arch recognized an income tax benefit of $82.5 million and $118.0 million for
the three and six months ended June 30, 2001, respectively. The benefit
represented the tax benefit of operating losses incurred subsequent to the
acquisition of PageNet, which were available to offset deferred tax liabilities
arising from the PageNet acquisition.

On January 1, 2001, Arch adopted SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires that every derivative
instrument be recorded in the balance sheet as either an asset or liability


19


measured at its fair value and that changes in the derivative's fair value be
recognized in earnings. Initial application of SFAS No. 133 resulted in a $6.8
million charge in the quarter ended March 31, 2001, which was reported as the
cumulative effect of a change in accounting principle. This charge represented
the impact of initially recording the derivatives at fair value as of January 1,
2001.

Net income was $1.7 billion for both the three and six months ended June 30,
2002, as a result of the factors outlined above including a $1.6 billion gain on
extinguishment of debt. Net losses were $1.1 billion and $1.3 billion for the
corresponding periods in 2001, as a result of the factors outlined above
including the $976.2 million impairment charge.


LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

On May 29, 2002, Arch emerged from its chapter 11 bankruptcy proceeding with
a new capitalization consisting chiefly of:

o $300 million aggregate principal amount of 10% notes and 12% notes issued
by Arch's intermediate subsidiary, Arch Wireless Holdings, Inc., and

o common stock.

Immediately before the bankruptcy proceeding commenced on November 9, 2001,
Arch's consolidated capitalization consisted of approximately $1.8 billion
aggregate principal amount or accreted value of bank debt and notes, as well as
Arch's preferred stock and common stock.

Based on current and anticipated levels of operations, and efforts to
effectively manage working capital, Arch's management anticipates that the
Company's cash flow from operations, together with cash on hand, will be
adequate to meet its anticipated cash requirements for the foreseeable future.

In the event that cash flows are not sufficient to meet future cash
requirements, Arch may be required to reduce planned capital expenditures, sell
assets or seek additional financing. Arch can provide no assurances that
reductions in planned capital expenditures or proceeds from asset sales would be
sufficient to cover shortfalls in available cash or that additional financing
would be available or, if available, offered on acceptable terms.

SOURCES OF FUNDS

Arch's principal sources of cash are cash flow from operations plus cash on
hand.

Cash Flow. Arch's net cash flows from operating, investing and financing
activities for the periods indicated in the table below are as follows:



SIX MONTHS ENDED JUNE 30,
2002 2001
---- ----

Net cash provided by (used in) operating activities.. $ 90.7 $ (15.4)
Net cash (used in) provided by investing activities.. $ (54.0) $ 100.4
Net cash used in financing activities................ $ (65.6) $ (100.4)


Investing activities in 2002 consist solely of capital expenditures.
Financing activities in 2002 consist solely of the repayment of debt.

Investing activities in 2001 included cash inflow of $175.0 million for
specialized mobile radio licenses sold to Nextel Communications, Inc. offset by
$74.6 of capital expenditures. Financing activities in 2001 include an
investment of $75.0 million by Nextel in Arch series F preferred stock and
borrowings by Arch's Canadian subsidiaries of approximately $2.7 million, offset
by the repayment of $178.1 million of long-term debt, including $175.2 million
under Arch's secured credit facility.



20


Borrowings. The following table describes Arch's principal borrowings at June
30, 2002 and associated debt service and amortization requirements.



Principal Amount or
Compounded Value Interest Maturity Date Required Amortization
------------------- -------------------------------------- ------------- ------------------------------

$200 million 10%, payable in cash semi-annually May 15, 2007 $15 million semi-annually
commencing November 15, 2002
plus excess cash - see note
(1) below

$100 million 12%, accruing and compounding semi- May 15, 2009 Upon total repayment of 10%
annually until 10% notes are repaid, notes, semi-annually in
payable in cash thereafter amounts equal to excess cash
- see note (1) below


(1) Excess cash payments are required:

o on each November 15 and May 15 to the extent cash at the prior quarter
end exceeds $45 million prior to October 1, 2004 or $35 million after
such date;
o out of the proceeds of asset sales in excess of $2 million; and
o out of specified kinds of insurance and condemnation proceeds.

Arch will be required to pay approximately $50 million in cash to service
required payments of principal and interest through May 31, 2003 in addition to
any optional redemptions paid during that period. On July 31, 2002, Arch made a
$10 million optional redemption of the 10% notes, plus accrued interest on the
redemption amount and provided notice that it will make a $15 million optional
redemption on the 10% notes, plus accrued interest on the redemption amount, on
August 30, 2002.

CAPITAL EXPENDITURES AND COMMITMENTS

Arch's business requires funds to finance capital expenditures for subscriber
equipment and network system equipment.

Arch's capital expenditures decreased from $74.6 million for the six months
ended June 30, 2001 to $54.0 million for the six months ended June 30, 2002.
These capital expenditures primarily include the purchase and repair of wireless
messaging devices, system and transmission equipment and information systems.
Arch has funded its 2002 capital expenditures with net cash provided by
operating activities.

Arch estimates that capital expenditures for 2002 will be approximately $100
million. These expenditures will be used primarily for messaging devices,
network infrastructure and information systems. However, the actual amount of
the capital Arch requires will depend on a number of factors, including
subscriber growth, the type of products and services demanded by customers,
service revenues, technological developments, competitive conditions and the
nature and timing of Arch's strategy to consolidate its networks.

FACTORS AFFECTING FUTURE OPERATING RESULTS

The following important factors, among others, could cause Arch's actual
operating results to differ materially from those indicated or suggested by
forward-looking statements made in this Form 10-Q or presented elsewhere by
Arch's management from time to time.

BUSINESS RISKS

Arch's recent financial difficulties and bankruptcy may put it at a disadvantage
with suppliers and customers.

During 2001, Arch became unable to meet its financial obligations. Arch
emerged from bankruptcy on May 29, 2002, the effective date of its plan of
reorganization. While Arch was in bankruptcy, it operated within parameters


21


established by its debtor-in-possession financing, and it closed certain
facilities, began reducing the number of networks it operates and reduced the
number of persons it employs. The resulting publicity may continue to make some
suppliers and customers less likely to do business with Arch, even after its
emergence from bankruptcy.

Competition from mobile, cellular and PCS telephone companies is intense. Many
companies have introduced phones and services with substantially the same
features and functions as the advanced messaging products and services provided
by us, and have priced such devices and services competitively. Arch's future
growth and profitability, if any, will depend on the success of its advanced
messaging services.

Arch faces competition from other messaging providers in all markets in which
it operates, as well as from cellular, PCS and other mobile wireless telephone
companies. While certain of Arch's competitors providing wireless messaging and
information services are currently in financial distress, they are in the
process of reorganizing to secure financial and operating stability and continue
to create significant competition for a depleting customer base notwithstanding
the challenges of their reorganization processes. Providers of mobile wireless
phone services such as AT&T Wireless, Cingular, WorldCom, Sprint PCS, Verizon
and Nextel now include wireless messaging as an adjunct service to voice
services. In addition, the availability of coverage for mobile phone services
has increased, making the two types of service and product offerings more
comparable. Cellular and PCS companies seeking to provide wireless messaging
services have been able to bring their products to market faster, at lower
prices or in packages of products that consumers and businesses find more
valuable than those Arch provides. In addition, many of these competitors,
particularly cellular and PCS phone companies, possess greater financial,
technical and other resources than those available to Arch.

Recent declines in Arch's units in service may continue or even accelerate; this
trend may impair the Company's financial results.

In 1999, Arch experienced a decrease of 89,000 units in service, excluding
the addition of subscribers from its acquisition of MobileMedia Communications,
Inc. In 2000, units in service decreased by 2,073,000, excluding the addition of
subscribers from Arch's acquisition of Paging Network, Inc.; a decrease of
888,000 units was due to subscriber cancellations and a decrease of 1,185,000
units was due to definitional changes made after the MobileMedia and PageNet
acquisitions to reflect a common definition of units in service. During 2001,
units in service decreased by an additional 3,394,000 units due to subscriber
cancellations. During the first six months of 2002, units in service decreased
by a further 1,493,000 units due to subscriber cancellations. Arch believes that
demand for one-way messaging services has been declining since 1999 and will
continue to decline in the foreseeable future. Arch believes that future growth
in the wireless messaging industry, if any, will be attributable to advanced
messaging and information services. As a result, Arch expects to continue to
experience significant declines in units in service and revenues for the
foreseeable future as the addition of advanced messaging subscribers is exceeded
by the loss of one-way messaging subscribers.

Cancellation of units in service can significantly affect the results of
operations of wireless messaging service providers. The sale and marketing costs
associated with attracting new subscribers are substantial compared to the costs
of providing service to existing customers. Because the wireless messaging
business is characterized by high fixed costs, cancellations directly and
adversely affect earnings before interest, income taxes, depreciation and
amortization.

Revenues and operating results may fluctuate, leading to volatility in security
trading prices and possible liquidity problems.

Arch believes that future fluctuations in its revenues and operating results
may occur due to many factors, particularly the decreased demand for one-way
messaging services and the uncertain market for advanced messaging services. If
either the rate of decline of one-way messaging units exceeds Arch's
expectations, or the growth of advanced messaging units is less than
anticipated, its revenues would be negatively impacted, and such impact could be
material. Arch's debt repayment levels are to a large extent fixed, and are
based in part on past expectations as to future revenues. Arch may be unable to
adjust spending in a timely manner to compensate for any future revenue
shortfall. It is possible that, due to these fluctuations, Arch's revenue or


22


operating results may not meet the expectations of investors and creditors, or
may cause it not to meet the debt repayment schedules or financial covenants
contained in its debt instruments. Failure to make required debt payments or
comply with financial covenants would enable creditors to accelerate repayment
of Arch's debt. In this circumstance, it is unlikely that Arch would have
sufficient liquidity to repay the debt, which would significantly impair the
value of its debt and equity securities and could ultimately result in Arch
having to file for chapter 11 protection.

Operating expenses may not decline at a rate that matches the decline in
revenues, leading to a reduction in available cash flow and possible liquidity
problems.

In order to continue to generate sufficient cash flow to service its
outstanding debt, Arch anticipates significant reductions in operating expenses
to offset the decline in revenues. In particular, site lease and telephone
expense are the most significant costs associated with the operation of its
messaging networks, accounting for approximately 29% of operating expenses for
the first six months of 2002. Reductions in these expenses are dependent on
Arch's ability to successfully rationalize its existing messaging networks,
ultimately resulting in fewer sites on which it is required to pay monthly lease
and telephone interconnection costs. Many of its site leases are consolidated
under master lease agreements with a few large national vendors, and there can
be no assurances that Arch's negotiations with these or other lessors that arise
as a result of its network rationalization will result in a reduction of future
lease payments that is consistent with its strategy.

If Arch's assumed reductions in operating expenses are not met, or if
revenues decline at a more rapid rate than anticipated and that decline cannot
be offset with additional expense reductions, then Arch's cash flow will not
meet the expectations of investors and creditors. Lower than expected cash flow
could cause Arch to fail to make required debt repayments or comply with
financial covenants contained in its debt instruments, either of which would
enable creditors to accelerate repayment of its debt. In this circumstance, it
is unlikely that Arch would have sufficient liquidity to repay the debt, which
would significantly impair the value of its debt and equity securities and could
ultimately result in Arch having to file for chapter 11 protection.

Operating cash flow may be less than anticipated, impairing Arch's ability to
service outstanding debt or refinance such debt.

Revenues may decline at a more rapid rate than expected or Arch may not be
able to reduce spending sufficiently to offset revenue losses. If either or a
combination of these events were to occur, then Arch's cash flow would be
adversely affected, and it may be unable to service its debt or comply with
certain financial covenants. Required cash interest and amortization payments on
Arch's outstanding notes will be approximately $50 million through May 15, 2003
in addition to any optional redemptions during that period. Arch may also fail
to comply with certain financial covenants specified by its existing debt
instruments, involving minimum earnings before interest, income taxes,
depreciation and amortization; direct units in service; total consolidated
service, rental and maintenance revenues, and; capital expenditures for one-way
and advanced messaging.

Arch is dependent on cash flow from operations as its principal source of
liquidity. If Arch is not able to achieve anticipated levels of adjusted
earnings before interest, income taxes, depreciation and amortization, it may
not be able to amend or refinance its existing debt obligations and it may be
precluded from incurring additional indebtedness due to restrictions under
existing or future debt instruments. Further, it is unlikely that additional
external sources of financing will be available to Arch under these
circumstances. If Arch were to fail to make required debt repayments or fail to
comply with financial covenants contained in its debt instruments, creditors
could accelerate repayment of its debt. In this circumstance, it is unlikely
that Arch would have sufficient liquidity to repay the debt, which would
significantly impair the value of its debt and equity securities and could
ultimately result in Arch having to file for chapter 11 protection.

Arch may report net losses in the future.

Arch has reported net losses in the past, other than net income of $1.7
billion in the first six months of 2002 due to nonrecurring items such as the
gain from the cancellation of debt resulting from its chapter 11 reorganization.
Arch expects that it may report net losses in the future and cannot give any
assurance about when, if ever, it is likely to attain profitability, due to the
factors mentioned above.



23


Obsolescence in company-owned wireless units may impose additional costs on
Arch.

Technological change may also adversely affect the value of the wireless
devices Arch owns and leases to its subscribers. If Arch's current subscribers
request more technologically advanced wireless devices, including advanced
messaging devices, Arch could incur additional inventory costs and capital
expenditures if it is required to replace these devices within a short period of
time. Such additional costs or capital expenditures could have a material
adverse effect on Arch's results of operations, and would reduce cash available
to service its outstanding debt obligations. In addition, restrictions under
Arch's existing debt instruments specifically limit the amount it is able to
spend on capital expenditures.

Because Arch currently depends on Motorola for messaging devices and on Glenayre
for other equipment, both of whom have announced their intention to discontinue
production of equipment Arch purchases from them, Arch's operations may be
disrupted if it is unable to obtain equipment or services from alternative
sources in the future.

Arch does not manufacture any of the messaging devices or other equipment
that its customers need to take advantage of its services. The equipment used in
Arch's operations is generally available for purchase from only a few sources.
Historically, Arch has purchased messaging devices primarily from Motorola and
purchased terminals and transmitters primarily from Glenayre Electronics, Inc.

Both Motorola and Glenayre have publicly announced their intentions to
discontinue the production of the messaging devices and network equipment Arch
purchases from them. Arch has entered into a supply agreement with Motorola that
requires Motorola to supply it with messaging devices through September 30,
2002. Arch believes the purchases in accordance with this agreement will be
sufficient to meet its expected inventory requirements through March 31, 2003.
Although Motorola had announced that Multitone Electronics would assume
Motorola's role as a provider of messaging devices, they were unable to reach
agreement with Multitone. Arch is therefore currently negotiating development
agreements with other vendors to obtain alternative sources of messaging
devices.

Arch has entered into an agreement with Glenayre which will provide it with
certain continued services and equipment into 2004 and the option to license
upgrades to its network software under certain circumstances. In addition, Arch
currently has excess network equipment as a result of its efforts to rationalize
and deconstruct many of its one-way messaging networks and from prior
acquisitions of network equipment. Additional network equipment for its two-way
messaging network is also available from another vendor, Sonik Technologies,
Inc.

Significant delays in developing alternative sources of equipment could lead
to disruptions in operations and adverse financial consequences. There can be no
assurance that Arch will be able to secure alternative sources of messaging
devices and all required network equipment.

Restrictions under debt instruments may prevent Arch from declaring dividends,
incurring debt, making acquisitions or taking actions that its management
considers beneficial.

Arch's debt instruments limit or restrict, among other things, its operating
subsidiaries' ability to pay dividends, make investments, incur secured or
unsecured indebtedness, incur liens, dispose of assets, enter into transactions
with affiliates, engage in any merger, consolidation or sale of substantially
all of their assets or cause their subsidiaries to sell or issue stock.

Arch might be prevented from taking some of these actions because it could
not obtain the necessary consents even though it believed that taking the
actions would be beneficial.

In addition to the specific risks described above, an investment in Arch is
also subject to many risks which affect all companies, or all companies in its
industry.


24



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Arch's debt financing consists of variable rate bank debt issued by its
Canadian subsidiaries and fixed rate secured notes.

SENIOR SUBORDINATED SECURED AND SUBORDINATED SECURED COMPOUNDING NOTES, FIXED
RATE DEBT:

Arch's fixed rate secured notes are traded publicly and are subject to market
risk. The fair values of the fixed rate senior notes were based on market quotes
as of June 30, 2002. Trades for the debt issues are infrequent.

Principal Balance Fair Value Stated Interest Rate Scheduled Maturity
- ----------------- ---------- -------------------- ------------------
$200.0 million $150.0 million 10% 2007
$101.1 million $ 25.3 million 12% 2009


CANADIAN SUBSIDIARIES BANK DEBT, VARIABLE RATE DEBT:

Arch considers the fair value of its Canadian subsidiaries' bank debt to be
equal to its carrying value, which was adjusted in conjunction with fresh start
accounting. Management determined the value of the bank debt in a manner
consistent with the methodology used to value and restructure Arch's domestic
subsidiaries. Management believes this method is reasonable since no market
exists for this debt and the Canadian subsidiaries are in the same business as
Arch's domestic subsidiaries. The Canadian subsidiaries are in default of
several financial and other covenants associated with their bank debt, and are
currently operating under a forbearance agreement with their lenders. This
agreement requires additional reporting and imposes additional covenants. The
valuation was based on projected cash flows of the Canadian subsidiaries. If the
actual cash flows were to differ materially from the projected amounts the fair
value of the bank debt may be materially affected. Additionally if provisions of
the forbearance agreement are not met, the lenders may take actions which
maximize their recovery of principal but may be detrimental to long term
projected cash flows. These actions may also result in a material difference in
the fair value of the bank debt.

Principal Carrying Value Weighted Average Scheduled Interest
Balance and Fair Value Interest Rate Maturity Payments Due
- -------------- -------------- ---------------- --------- ------------
$30.3 million $5.9 million 8.4% 2004 Quarterly




PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Certain holders of 12 3/4% Senior Notes due 2007 of Arch Wireless
Communications, Inc. (AWCI), a wholly-owned subsidiary of Arch, filed an
involuntary petition against AWCI on November 9, 2001 under chapter 11 of the
U.S. Bankruptcy Code in United States Bankruptcy Court for the District of
Massachusetts, Western Division. On December 6, 2001, AWCI consented to the
involuntary petition and the bankruptcy court entered an order for relief with
respect to AWCI under chapter 11 of the Bankruptcy Code. Also on December 6,
2001, Arch and 19 of its other wholly-owned, domestic subsidiaries, including
Arch Wireless Holdings, Inc. (AWHI), filed voluntary petitions for relief, under
chapter 11, with the bankruptcy court. These cases are being jointly
administered under the docket for Arch Wireless, Inc., et al., Case No.
01-47330-HJB. From December 6, 2001 through May 29, 2002, Arch and its domestic
subsidiaries operated their businesses and managed their property as debtors in
possession under the Bankruptcy Code. Arch and substantially all of its domestic
subsidiaries filed a plan of reorganization with the bankruptcy court on January
15, 2002, which was amended on March 13, 2002 and subsequently modified on May
8, 2002 and May 14, 2002. On May 15, 2002, the bankruptcy court entered an order
confirming the plan of reorganization, as modified, and the plan became
effective on May 29, 2002. As a result of the bankruptcy court's order
confirming the plan of reorganization, Arch and its domestic subsidiaries now
operate as reorganized entities.

25


Arch is involved in a number of lawsuits which it does not believe will have
a material adverse effect on its financial condition, results of operations or
cash flows. These lawsuits are subject to the automatic stay provisions of the
bankruptcy code by reason of filing for relief under chapter 11 of the code.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On May 29, 2002, Arch emerged from proceedings under chapter 11 of the
bankruptcy code. Pursuant to Arch's plan of reorganization, all of its former
equity securities, including its common stock, series C preferred stock and
series F preferred stock and all stock options, were cancelled. The following
debt securities of Arch and its subsidiary, Arch Wireless Communications, Inc.,
were also cancelled pursuant to the plan of reorganization:

ISSUER CANCELLED DEBT SECURITY
------ -----------------------
Arch Wireless, Inc. 10 7/8% Senior Discount Notes due 2008
Arch Wireless, Inc. 6 3/4% Convertible Subordinated
Debentures due 2003
Arch Wireless Communications, Inc. 9 1/2% Senior Notes due 2004
Arch Wireless Communications, Inc. 14% Senior Notes due 2004
Arch Wireless Communications, Inc. 12 3/4% Senior Notes due 2007
Arch Wireless Communications, Inc. 13 3/4% Senior Notes due 2008


Pursuant to the plan of reorganization, Arch's subsidiary, Arch Wireless
Holdings, Inc., issued the following new debt securities to Arch's former
creditors:
o $200 million aggregate principal amount of 10% senior subordinated secured
notes due 2007; and
o $100 million aggregate principal amount of 12% subordinated secured
compounding notes due 2009.

Also pursuant to the terms of the plan of reorganization, on May 29, 2002, Arch
issued 15,471,054 shares of common stock, $.001 par value per share. An
additional 4,528,946 shares of common stock have been reserved for issuance and
will be issued in accordance with the plan of reorganization from time to time
as creditors' claims are resolved by the bankruptcy court. Of the 15,471,054
shares of common stock issued on May 29, 2002, 882,200 shares were issued to
certain members of the Company's continuing management under Arch's 2002 Stock
Incentive Plan, which authorizes the distribution of up to 950,000 shares of
common stock to management for a nominal price. The total number of shares of
Arch's common stock issued or reserved for issuance pursuant to the plan,
including shares issued or issuable under the 2002 Stock Incentive Plan, is
20,000,000.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.



ITEM 5. OTHER INFORMATION

In the course of preparing the initial quarterly financial certificate under
Section 10.27(b) of each of the Indentures under which the 10% Senior
Subordinated Secured Notes due 2007 and the 12% Subordinated Secured Compounding
Notes due 2009 (collectively the "Notes") were issued, officers of Arch noted
certain inconsistencies, errors and/or omissions in the Indentures, as follows:

26


o The capital expenditures definition relates to gross expenditures, whereas
the capital expenditures limitation stated in Section 10.25 reflect gross
expenditures net of cost of messaging devices sold by Arch;

o The introductory paragraphs of Sections 10.24 and 10.25 contain wording
that could be read to indicate that, instead of representing maximum
permitted expenditures, as intended, Arch must exceed the amounts
contained therein; and

o As a result of lower values assigned to Arch's inventory of messaging
devices than originally projected in Arch's business plan, Arch expects
its cost of goods sold will be less than projected in the business plan
and, as a result, the minimum EBITDA levels in Section 10.21 of the
Indentures should be higher.

Arch has proposed to enter into supplemental Indentures to address these
inconsistencies, errors and/or omissions, as follows:

o To make the amounts in Section 10.25 reflect gross capital expenditures
consistent with the definition of capital expenditures;

o To correct the introductory paragraphs of Sections 10.24 and 10.25; and

o To correct the amounts in Section 10.21 to reflect higher EBITDA
thresholds.

In order to enter into the supplemental indentures the consent of a majority
of holders, in aggregate principal amount, of the Notes under each Indenture is
required. As of August 14, 2002, Arch had received consents from the requisite
holders of the Notes. Arch will present to the Trustee under each Indenture the
Supplemental Indenture for execution.

Due to the foregoing inconsistencies Arch would not have been in compliance
with Section 10.25 of each Indenture. Section 4.01 (c) of each Indenture
provides that non-compliance with Section 10.25 does not constitute an Event of
Default unless and until, 60 days after holders of at least 25% of the Notes
provides written notice of such non-compliance. Arch has received no such notice
and the consents obtained from Note holders include a waiver of such
non-compliance.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The exhibits listed in the accompanying index to exhibits are filed
as part of this Quarterly Report on Form 10-Q.

(b) The following reports on Form 8-K were filed for the quarter for
which this report is filed:

Current Report on Form 8-K dated April 30, 2002 (reporting the
filing of Arch's March 2002 Operating Report with the bankruptcy
court).

Current Report on Form 8-K dated May 8, 2002 (reporting the filing
of the First Modification to Arch's Amended Joint Plan of
Reorganization with the bankruptcy court).

Current Report on Form 8-K dated May 14, 2002 (reporting the filing
of the Second Modification to Arch's Amended Joint Plan of
Reorganization with the bankruptcy court).

Current Report on Form 8-K dated May 15, 2002 (reporting the
confirmation of Arch's Amended Joint Plan of Reorganization by
the bankruptcy court).

Current Report on Form 8-K dated May 30, 2002 (reporting the filing
of Arch's April 2002 Operating Report with the bankruptcy court).

Current Report on Form 8-K dated June 27, 2002 (reporting the change
in Arch's Certifying Accountant from Arthur Andersen LLP to
PricewaterhouseCoopers LLP).


27



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q for the quarter ended June
30, 2002, to be signed on its behalf by the undersigned thereunto duly
authorized.

ARCH WIRELESS, INC.





Dated: August 14, 2002 By: /S/ J. ROY POTTLE
--------------------------
J. Roy Pottle
Executive Vice President and
Chief Financial Officer



STATEMENT PURSUANT TO 18 U.S.C. SS.1350

Pursuant to 18 U.S.C. ss.1350, each of the undersigned certifies that this
Quarterly Report on Form 10-Q for thE period ended June 30, 2002 fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and that the information contained in this report fairly presents, in
all material respects, the financial condition and results of operations of Arch
Wireless, Inc.

/S/ C. EDWARD BAKER, JR.
--------------------------
Dated: August 14, 2002 C. Edward Baker, Jr.
Chairman and Chief Executive Officer

/S/ J. ROY POTTLE
--------------------------
Dated: August 14, 2002 J. Roy Pottle
Executive Vice President and
Chief Financial Officer


28



EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION

3.1 Restated Certificate of Incorporation (1)
3.2 Restated Bylaws (1)
4.1 Indenture, dated May 29, 2002, among Arch Wireless Holdings,
Inc. the guarantors listed therein and The Bank of New York, as
Trustee, relating to the 10% Senior Subordinated Secured Notes
due 2007 of Arch Wireless Holdings, Inc. (2)
4.2 Indenture, dated May 29, 2002, among Arch Wireless Holdings,
Inc. the guarantors listed therein and The Bank of New York, as
Trustee, relating to the 12% Subordinated Secured Compounding
Notes due 2009 of Arch Wireless Holdings, Inc. (3)
10.1+ 2002 Stock Incentive Plan (1)
10.2+ First Amendment and Restatement to Executive Employment
Agreement, dated May 29, 2002, among Arch Wireless, Inc., Arch
Wireless Holdings, Inc., MobileMedia Communications, Inc.,
Mobile Communications of America and C. Edward Baker, Jr. (1)
10.3+ First Amendment and Restatement to Executive Employment
Agreement, dated May 29, 2002, among Arch Wireless, Inc., Arch
Wireless Holdings, Inc., MobileMedia Communications, Inc.,
Mobile Communications of America and Lyndon R. Daniels (1)
10.4+ First Amendment and Restatement to Executive Employment
Agreement, dated May 29, 2002, among Arch Wireless, Inc., Arch
Wireless Holdings, Inc., MobileMedia Communications, Inc.,
Mobile Communications of America and J. Roy Pottle (1)
10.5 Registration Rights Agreement, dated May 29, 2002, among Arch
Wireless, Inc., Arch Wireless Holdings, Inc. and the parties
listed therein (1)
- -------------------

+ Identifies exhibits constituting a management contract or compensation plan.

(1) Incorporated by reference from the Current Report on Form 8-K of Arch
Wireless, Inc. dated May 15, 2002 and filed on May 30, 2002.

(2) Incorporated by reference from the Application for Qualification of
Indentures under the Trust Indenture Act of 1939 on Form T-3 of Arch Wireless
Holdings, Inc. (File No. 022-28581).

(3) Incorporated by reference from the Application for Qualification of
Indentures under the Trust Indenture Act of 1939 on Form T-3 of Arch Wireless
Holdings, Inc. (File No. 022-28580).

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