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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 September 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: 000-33343
AQUIS COMMUNICATIONS GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-3281446
- -------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1719A Route 10, Suite 300, Parsippany, NJ 07054
- ---------------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 560-8000
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
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 |_|
As of October 31, 2002 there were 18,158,767 shares of the Registrant's Common
Stock outstanding.
INDEX TO FINANCIAL STATEMENTS
AQUIS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
Part I Financial Information:
Item 1 - Financial Statements:
Consolidated Balance Sheets at September 30, 2002 and December 31, 2001 ...................................... 3
Consolidated Statements of Operations for the Three and Nine Month Periods ended September 30, 2002 and 2001.. 4
Consolidated Statements of Cash Flows for the Nine Month Periods ended September 30, 2002 and 2001............ 5
Notes to Consolidated Financial Statements.................................................................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations................. 9
Item 3 - Quantitative and Qualitative Disclosures About Market Risks........................................... 15
Item 4 - Controls and Procedures............................................................................... 15
Part II Other Information:
Item 1 - Legal Proceedings..................................................................................... 16
Item 2 - Changes in Securities and Use of Proceeds............................................................. 16
Item 3 - Default Upon Senior Securities........................................................................ 16
Item 4 - Submission of Matters to a Vote of Security Holders................................................... 16
Item 5 - Other Information..................................................................................... 16
Item 6 - Exhibits and Reports on Form 8-K...................................................................... 17
Signatures................................................................................................................ 18
2
AQUIS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
September 30, December 31,
2002 2001
------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........................................................................ $ 988 $ 1,084
Accounts receivable (net of allowances of $757 and $1,008, respectively) ......................... 979 2,058
Inventory, net of valuation allowance of $150 at September 30, 2002 .............................. 368 442
Assets held for sale, net ........................................................................ -- 1,010
Prepaid expenses and other current assets ........................................................ 424 328
------------ ------------
Total current assets ......................................................................... 2,759 4,922
Property and equipment, net ........................................................................ 3,592 4,034
Intangible assets, net ............................................................................. 1,844 2,216
Deferred charges and other assets .................................................................. 57 267
------------ ------------
Total assets ................................................................................. $ 8,252 $ 11,439
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt ............................................................. $ 843 $ 28,195
Accounts payable and accrued expenses ............................................................ 2,089 2,938
Accrued interest ................................................................................. -- 3,932
Notes payable .................................................................................... -- 2,000
Deferred revenue ................................................................................. 451 476
Customer deposits ................................................................................ 227 272
------------ ------------
Total current liabilities .................................................................... 3,610 37,813
Long term debt ..................................................................................... 13,868 541
------------ ------------
Total liabilities .................................................................................. 17,478 38,354
------------ ------------
Commitments and contingencies
Series B Redeemable 10% Preferred Stock, $0.01 par value, 301 shares authorized,
300.01 shares issued and outstanding at September 30, 2002 ....................................... 540 --
------------ ------------
7.5% Redeemable Preferred Stock, $0.01 par value, 100,000 shares authorized, 15,000 shares
issued and outstanding at December 31, 2001 ...................................................... -- 1,716
------------ ------------
Stockholders' equity:
Series A Convertible Preferred Stock, $0.01 par value, 200,000 shares authorized,
161,453.172 shares issued and outstanding at September 30, 2002 .................................. 2 --
Common stock, $0.01 par value, 75,000,000 shares authorized, 18,158,767 issued and
outstanding at September 30, 2002 and December 31, 2001, respectively ............................ 182 182
Additional paid-in capital ....................................................................... 17,881 17,937
Accumulated deficit .............................................................................. (27,831) (46,750)
------------ ------------
Net stockholders' equity ......................................................................... (9,766) (28,631)
------------ ------------
Total liabilities and stockholders' equity ................................................... $ 8,252 $ 11,439
============ ============
The accompanying notes are an integral part of these financial statements.
3
AQUIS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- --------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Paging services, rent and maintenance ................ $ 3,257 $ 4,569 $ 10,333 $ 14,373
Equipment sales ...................................... 69 50 199 386
------------ ------------ ------------ ------------
Total revenues .................................. 3,326 4,619 10,532 14,759
------------ ------------ ------------ ------------
Operating expenses:
Cost of paging services excluding depreciation ....... 1,570 1,932 4,805 6,348
Cost of equipment sold excluding depreciation ........ 29 64 90 401
Selling and marketing ................................ 377 421 1,153 1,465
General and administrative ........................... 866 1,383 2,735 4,060
Depreciation and amortization ........................ 580 1,379 1,903 5,491
Provision for doubtful accounts ...................... 207 225 645 672
Recovery of communications costs ..................... (222) -- (222) --
Provision for asset impairment ....................... -- (346) -- 2,230
------------ ------------ ------------ ------------
Total operating expenses ........................ 3,407 5,058 11,109 20,667
------------ ------------ ------------ ------------
Operating loss ......................................... (81) (439) (577) (5,908)
Interest expense, net .................................. (730) (977) (2,493) (2,926)
Gain(Loss) on sale of assets ........................... (9) 457 (82) 457
------------ ------------ ------------ ------------
Income (loss) before extraordinary item ................ (820) (959) (3,152) (8,377)
Extraordinary item: gain on troubled debt restructuring 22,071 -- 22,071 --
------------ ------------ ------------ ------------
Net income (loss) ...................................... 21,251 (959) 18,919 (8,377)
Preferred stock dividends .............................. (13) (29) (69) (85)
------------ ------------ ------------ ------------
Income(Loss) attributable to common stockholders ....... $ 21,238 $ (988) $ 18,850 $ (8,462)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE, basic and diluted:
Extraordinary item ................................... $1.22 -- $1.22 --
Attributable to common stockholders .................. $1.17 $(0.05) $1.04 $(0.47)
Weighted average common shares outstanding ............. 18,159,000 18,292,000 18,159,000 17,962,000
The accompanying notes are an integral part of these financial statements.
4
AQUIS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
Nine Months Ended September 30,
-------------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net income (loss) .......................................................................... $ 18,919 $ (8,377)
Gain on restructuring of debt and equity ................................................... (22,071) --
Adjustments to reconcile net loss to net cash provided by (used by) operating activities:
Depreciation and amortization .............................................................. 1,903 5,491
Provision for asset impairment ............................................................. -- 2,230
Senior loan costs and amortization of deferred financing costs ............................. -- 425
(Gain) Loss on sale of assets .............................................................. 82 (457)
Stock-based compensation ................................................................... -- 6
Provision for doubtful accounts ............................................................ 645 672
Inventory valuation allowance .............................................................. 150 --
Note due for stock subscription forgiven ................................................... -- 50
Changes in assets and liabilities, net of business acquisitions:
Accounts receivable ..................................................................... 434 882
Inventory ............................................................................... (847) (823)
Prepaid expenses and other current assets ............................................... (101) (239)
Accounts payable and accrued expenses ................................................... 1,559 1,478
Deferred revenues and customer deposits ................................................. (70) (245)
------------ ------------
Net cash provided by operating activities .................................................. 603 1,093
------------ ------------
Cash flows from investing activities:
Acquisition of property, equipment and licenses ............................................ (482) (447)
Sale of property and equipment ............................................................. 1,234 924
------------ ------------
Net cash provided by investing activities .................................................. 752 477
------------ ------------
Cash flows from financing activities:
Repayment of long term debt ................................................................ -- (163)
Repayment of capital lease obligation ...................................................... (20) (11)
Deferred financing and stock registration costs ............................................ (1,431) (174)
------------ ------------
Net cash (used by) financing activities .................................................... (1,451) (348)
------------ ------------
Net increase (decrease) in cash and cash equivalents ......................................... (96) 1,222
Cash and cash equivalents - beginning of period .............................................. 1,084 378
------------ ------------
Cash and cash equivalents - end of period .................................................... $ 988 $ 1,600
============ ============
The accompanying notes are an integral part of these financial statements.
5
AQUIS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)
1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS:
Aquis Communications Group, Inc. (the "Company") is a holding company,
incorporated in the State of Delaware. Through its operating companies, it
operated three regional paging systems providing one-way wireless alpha and
numeric messaging services in portions of sixteen states principally in the
Northeast, the Midwest and the Mid-Atlantic regions of the United States, as
well as the District of Columbia. The Company ceased operations in the Midwest
region concurrent with the sale of all paging assets there, which was fully
consummated in January 2002 with the release from escrow of the proceeds due in
connection with the settlement of all remaining contingencies between the
parties. Aquis also resells nationwide and regional services, offers alpha
dispatch, news and other messaging enhancements and resells cellular and two-way
paging services. Customers include individuals, businesses, government agencies,
hospitals and resellers. Aquis' financial statements are prepared on a going
concern basis for all periods presented, although for prior periods Aquis was in
default of its loan agreements with its senior and junior lenders. Final and
definitive agreements were executed with key creditors on July 1, 2002, and
approved by the FCC in August 2002. That approval effected the transfer of
control of Aquis' paging licenses and the restructuring of Aquis' debt and
equity. As a result, FINOVA, Aquis' senior secured lender, gained control of
Aquis through our issuance of stock and warrants.
The accompanying statements reflect all adjustments considered necessary
by management to present fairly the consolidated financial position as of
September 30, 2002 and December 31, 2001, and the consolidated results of
operations and the related consolidated cash flows for the three and nine month
periods ended September 30, 2002 and 2001. The balance sheet at December 31,
2001 has been derived from the Company's audited financial statements at that
date, that are contained in the Company's Form 10K and is provided for
comparative purposes. All other financial statements are unaudited. In
management's opinion, all adjustments have been made which include only normal
recurring adjustments necessary to fairly present the financial position,
results of operations and changes in cash flows for all periods presented. All
material intercompany accounts and transactions have been eliminated in
consolidation. The results of operations for the interim periods presented are
not necessarily indicative of the results to be expected for the full year.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the published rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Form
10K for the most recent fiscal year.
Aquis' consolidated financial statements as of and for the periods ended
September 30, 2002 and as of and for the year ended December 31, 2001 have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. Excluding
the current period extraordinary gain of nearly $22.1 million resulting from the
restructuring, Aquis incurred losses attributable to common stockholders of
about $3.2 and $8.5 million for the nine months ended September 30, 2002 and
2001, respectively, and $12.0 and $23.8 million during each of the years ended
December 31, 2001 and 2000, respectively. These historical losses caused
defaults under Aquis' loan agreements and prevented the payment of principal and
interest required under the terms of these agreements with FINOVA and AMRO
International, S.A., an unsecured institutional lender. Neither lender exercised
its rights under the loan agreements and AMRO did not exercise its right to
convert its debenture into common stock. Aquis also did not redeem its 7.5%
Redeemable Preferred Stock on January 31, 2002 as required, under which the
total obligation reached $1,785 at the effective date of the restructuring. The
Company's working capital deficit totaled $32,891 at December 31, 2001,
primarily the result of the inclusion of its term debt as a current liability.
At September 30, 2002 after effecting the restructuring of Aquis' debt and
equity, that working capital deficit was reduced to $851. However, Aquis'
history of losses and expectation of further losses in future periods along with
the continuing working capital deficit continue to raise substantial doubt about
the Company's ability to operate as a going concern. Accordingly, the auditors'
opinion on Aquis' financial statements as of and for the years ended December
31, 2001 and 2000 has been qualified, and that qualification as to subsequent
reporting periods may not change as a result of the restructuring, although it
has significantly improved Aquis' financial position and liquidity. Aquis'
ability to remain a going concern and to successfully execute its one-way paging
business plan continues to be dependent on industry, technological and other
factors beyond its unilateral control, including the ability to generate
sufficient cash from operations to meet operating obligations in a declining
industry, continuing supplies of goods and services from its key vendors, an
ongoing ability to limit or reduce operating costs and capital requirements, and
sufficient cash flows to allow it to service its debt as required under its
restructured loan agreements.
6
2. TROUBLED DEBT RESTRUCTURING
On July 1, 2002, the Company and its subsidiaries entered into agreements
defining the final terms of its restructuring ("the restructuring") of debt with
its principal lender FINOVA Capital Corporation ("FINOVA"), AMRO International,
S.A. ("AMRO"), an unsecured lender, and the holders of Aquis 7.5% Redeemed
Preferred Stock. In August 2002, Aquis was notified that FCC approval for the
change in control of the Company's paging licenses had been granted, and on
August 12, 2002 the restructuring transaction closed, putting into effect the
restructuring of Aquis' debt and equity and the change in control contemplated
by the related agreements.
The restructuring reduced the Company's outstanding debt significantly, provides
for payment of the restructured obligations in the normal course of business,
provides FINOVA and AMRO with equity in the Company, and thereby transferred
control of Aquis. FINOVA, the Company's senior secured lender, through an
affiliate, Desert Communications I, LLC, acquired a 79.99% equity interest and
voting control of Aquis, along with two secured notes in the total principal
amount of $9,000. In exchange, all then-outstanding debt due to FINOVA was
canceled. Simultaneously, AMRO, the Company's unsecured lender, acquired a 9.9%
equity interest in Aquis and an unsecured subordinated note in the principal
amount of $1,000 in exchange for the forgiveness of all obligations due under
the 11% Convertible Debenture previously outstanding and the cancellation of all
outstanding warrants held by it. The final component of this restructuring
provided the holders of Aquis' 7.5% Redeemable Preferred Stock with a new issue
of non-convertible 10% redeemable preferred stock in the face amount of $300.
The restructuring resulted in an extraordinary gain of approximately $22,071,
net of income taxes that were calculated to be zero. IRC section 108(a)(1)(B)
excludes income from discharge of indebtedness to the extent of Aquis'
insolvency. Net operating loss carryforwards are reduced by the income excluded
as of the first day of the following year.
3. MERGERS, ACQUISITIONS AND DISPOSITIONS:
SourceOne Wireless:
As part of the business plan developed in consideration of its lack of liquidity
and the requirements of its lenders, Aquis signed a letter of intent dated June
7, 2001 for the sale of its Midwest paging operations. On August 31, 2001, a
related Asset Purchase Agreement was executed which provided for a purchase
price of $1.1 million in cash to be paid in exchange for the customer
receivables, the customer lists, all equipment and FCC licenses used in that
operation and specified contract rights under leases and other operating
agreements. Also effective on that date the parties executed an Agreement
Pending Purchase Consummation under which the buyer, on the closing date, would
assume operational management of the business while Aquis would continue to
maintain the licensed communications facilities. A related Escrow Agreement was
funded on October 18, 2001, at which time Aquis had no further rights in the
revenues and expenses of that operation and those were no longer recorded by the
Company. Release from escrow of the proceeds to Aquis was held pending the FCC's
approval of the transfer of the related communications licenses. Such release
was authorized in January 2002 and proceeds of $1,010 were delivered to Aquis.
FINOVA released the liens it held on these assets and allowed Aquis to retain
the proceeds for use in accordance with its business plan.
4. INTANGIBLE ASSETS
Aquis reviews its assets for impairment when events or changes in
circumstances indicate that such costs may not be recoverable in the normal
course of business. Accordingly, as a result of the Company's ongoing losses,
its forecast for continuing losses, its defaults under its pre-restructuring
loan agreements, the declining paging market, the sale of its Midwest paging
assets, and the decision to further consolidate its paging operations over time
into its 900mHz network, Aquis recognized charges for impairment of the carrying
value of its FCC licenses and State certificates, and its Midwest paging assets
in amounts totaling $14,069 during 2000 and 2001. The amount of the impairment
charges was based on the amount of the estimated annual cash flows through
December 31, 2008 discounted to net present value using a discount rate of 20%
and the net realizable value of the Midwest assets sold. The resulting adjusted
carrying value is believed by management to approximate the realizable value of
these assets. Amortization expenses for the periods ended September 30, 2002 and
2001, as a result of these write downs, have declined from earlier comparative
periods accordingly.
5. DEFERRED CHARGES:
The Company deferred into the third quarter of 2002 approximately $623 of
costs incurred as of June 30, 2002 that were associated with the restructuring
of its debt and equity. These were fees paid for investment banking,
consultation and legal costs directly related to this effort. Total costs to
complete the restructuring are estimated to be $1,394. Such capitalized costs
were charged against the gain related to this restructuring, recognized in the
net amount of $22,071 during the quarter ended September 30, 2002.
7
6. LONG-TERM DEBT:
For periods prior to the effective date of Aquis' restructuring, debt due
to Aquis' institutional lenders was classified primarily as currently payable
due to defaults under loan agreements with FINOVA and AMRO. However, in August
2002, the required FCC approval for the change in control of Aquis' FCC licenses
was granted, the restructuring transaction closed on August 12, 2002, and
control of Aquis was transferred to FINOVA. Recognition of the related
extraordinary gain occurred during the quarter ended September 30, 2002.
Under the terms of the restructuring agreements and effective upon receipt
of the FCC approval in early August 2002, Aquis' Senior and Subordinated Lenders
exchanged their debt and accrued unpaid interest due to them for warrants and
preferred stock that could convert into a combined equity position of 89.89%.
FINOVA received two interest-bearing notes; one in the amount of $7,000, payable
over four years, and the other in the amount of $2,000 payable after the
maturity of the Senior Secured Promissory Note of $7,000. The Senior Secured
Subordinated Note of $2,000 may be cancelled if the $7,000 note is paid in full
by March 31, 2006. FINOVA also received Aquis Series A Convertible Preferred
Stock and Common Stock Purchase Warrants that could provide an equity interest
of 79.99%. Warrants for the purchase of 5% would expire if the $7,000 note is
paid in full by March 31, 2006, reducing FINOVA's equity interest to 74.99%.
In exchange for its prior-issued warrants and its convertible debenture in
the principal amount of $2,000, AMRO was issued Aquis Series A Convertible
Preferred Stock and warrants that provide a 9.9% equity interest and a new note
in the principal amount of $1,000 that will accrue interest at 10% until the
FINOVA debt is paid in full, at which time quarterly cash payments of current
interest will be made. The principal balance of $1,000 and interest accrued
through the date of full payment of FINOVA will become due and payable two years
after maturity of the FINOVA note. Finally, the holders of the prior-outstanding
7.5% redeemable preferred stock exchanged those shares for shares of a new
issue, Series B Redeemable Preferred Stock, without conversion rights, valued at
$300, and accruing dividends at 10% through the date that the AMRO note is paid
in full. This issue will become redeemable at its face value plus accrued unpaid
dividends two years following repayment of the AMRO debt, with current cash
dividends payable during that two year period leading to the redemption date.
7. NET LOSS PER COMMON SHARE:
The Company has adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share", which requires a dual presentation of basic and
diluted earnings per share ("EPS"). Basic EPS is based on the weighted average
number of shares outstanding during the periods presented. Diluted EPS reflects
the potential dilution that could occur if options, warrants, convertible
securities or other contracts requiring the issuance of common stock were
converted into common stock during the periods presented. The Company has not
presented diluted EPS because the effect would be anti-dilutive to losses
recognized before the extraordinary gain on restructuring.
8. SUPPLEMENTAL CASH FLOW DATA and OTHER INFORMATION:
The tables below provides supplemental information to the consolidated
statements of cash flows:
September 30,
2002 2001
------------ ------------
Cash paid for interest ............................................................ $ 170 $ 285
Cash paid for taxes ............................................................... $ _ $_
Vehicles acquired for debt ........................................................ $ 54 $_
Obligations cancelled in connection with restructuring ............................ $ 38,265 $_
Obligations incurred in connection with restructuring, including interest
capitalized pursuant SFAS 15 totaling $4,320.7 .................................. $ 14,621 $_
Value ascribed to stock and warrants issued in connection with restructuring ...... $ 179 $_
During the quarter ended September 30, 2002, the Company settled its claims with
one of its communications service providers that were made under the
Telecommunications Act of 1996. This one-time item is included in the
accompanying statement of operations under the caption "Recovery of
communications costs".
8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
Future revenues, costs, product mix and new product acceptance are all
influenced by a number of factors that are inherently uncertain and difficult to
predict. Therefore, no assurance can be given that financing for such
investments will be available. In addition, no assurance can be given that the
Company's operations will generate positive cash flows.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements made by the Company's management
that are based on current expectations, estimates and projections about the
industries in which the Company operates and management's beliefs and
assumptions. In addition, other written or oral statements that constitute
forward-looking statements may be made by or on behalf of the Company. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," or variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions that
are difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Organization and Basis of Presentation
Aquis Communications Group, Inc. is a holding company, incorporated in the
State of Delaware. Through our operating companies, we operated three regional
paging systems providing one-way wireless alpha and numeric messaging services
in portions of sixteen states principally in the Northeast, the Midwest and the
Mid-Atlantic regions of the United States, as well as the District of Columbia.
We ceased operations in the Midwestern region concurrent with the sale of our
paging assets there, which was fully consummated in January 2002 with the
release from escrow of the proceeds due upon settlement of all remaining
contingencies among the parties. We also resell nationwide and regional
services, offer alpha dispatch, news and other messaging enhancements and resell
cellular service. Customers include individuals, businesses, government
agencies, hospitals and resellers. Our financial statements are prepared on a
going concern basis for all periods presented, although for prior periods we
were in default of our loan agreements with our senior and junior lenders. We
executed agreements with our key creditors on July 1, 2002 that, upon FCC
approval for the transfer of control of our paging licenses and satisfaction or
waiver of other contingencies, would result in the restructuring of our debt and
equity and provide FINOVA, our senior secured lender, with control of Aquis
though the issuance of stock and warrants. That required approval from the FCC
was granted in early August 2002 and the restructuring transaction closed on
August 12, 2002.
Aquis' consolidated financial have historically been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. Excluding the current period
extraordinary gain of nearly $22.1 million resulting from the restructuring, we
incurred losses attributable to common stockholders of about $3.2 and $8.5
million for the nine months ended September 30, 2002 and 2001, respectively, and
$12.0 and $23.8 million during each of the years ended December 31, 2001 and
2000, respectively. These historical losses caused defaults under our loan
covenant agreements and prevented the payment of principal and interest required
under the terms of these agreements with FINOVA and our unsecured lender, AMRO
International, S.A. Neither lender exercised its rights under the loan
agreements and AMRO did not exercise its right to convert its debenture into
common stock. We also did not redeem our 7.5% Redeemable Preferred Stock on
January 31, 2002 as required, under which the total obligation reached $1,785 at
the effective date of the restructuring. Aquis' working capital deficit totaled
$32,891 at December 31, 2001 prior to any effects of the restructuring,
primarily the result of the inclusion of our outstanding term debt as a current
liability. At September 30, 2002 after effecting the restructuring of our debt
and equity, that working capital deficit was reduced to $851. However, our
history of losses and expectation of further losses in future periods along with
the continuing working capital deficit continue to raise substantial doubt about
the Aquis' ability to continue operations as a going concern. Accordingly, the
auditors' opinion on Aquis' financial statements as of and for the years ended
December 31, 2001 and 2000 has been qualified, and that qualification as to
subsequent reporting periods may not change as a result of the restructuring,
although it has significantly improved Aquis' financial position and liquidity.
Our ability to remain a going concern and to successfully execute our one-way
paging business plan continues to be dependent on industry, technological and
other factors beyond our unilateral control. These factors may include the
ability to generate sufficient cash from operations to meet operating
obligations in a declining industry, availability of a continuing supply of
goods and services from our key vendors, an ongoing ability to match the size of
our operating cost structure and capital requirements to our revenue streams
provided by a historically-declining customer base, and sufficient cash flows to
support debt service requirements under our restructured loan agreements.
9
Completion of the restructuring of our debt and equity is a key element in
the viability and the development of our paging business. In order to attain
this element, we had engaged the services of a financial consultant specializing
in the management of distressed businesses, developed and largely implemented
business plans intended to improve our financial performance and our ability to
pay our lenders, and developed and negotiated the aforementioned financial
restructuring. Under those plans, we reduced our operating structure and
expenses through salary reductions, targeted cutbacks and normal attrition. We
also consolidated our communications networks, reducing the number of leased
communications sites from over 330 to about 225 during 2002 alone, and sold
non-core internet and paging properties and equipment. Our marketing strategies
were refocused toward the marketing opportunities in one-way paging resulting
from the efforts of many of our paging industry competitors to market two-way
and other advanced services. Pursuant to these plans, the initiatives of which
are continuing, we collected in January 2002 the proceeds from the sale of our
paging operations in the Midwest of $1,010,000 and have reduced our workforce by
about 50% since December 31, 2000, providing significant employment cost
reductions. We also collected in 2001 the remaining $625,000 balance due for the
sale of our Internet assets. We also settled certain claims under the
Telecommunications Act of 1996 with two of our service providers: one was
settled in 2001 in the net amount of $765,000, and the other was settled during
the third quarter of 2002 resulting in receipt of $260,000. These initiatives
were intended, and did, allow us to pay down amounts due to general creditors
and to invest in paging equipment to better supply our core markets.
We plan to continue many of these elements as implementation and
development of our business plans continues. We believe that our focus on the
one-way paging market, particularly in targeted segments of that market, will be
an important component of these plans for the foreseeable future. We have plans
for further consolidation of our communications networks in targeted regions
where systems utilization and other technical and economic considerations allow,
and to sell off non-core equipment that may be made available as a result. Given
the intensely price-competitive nature of the paging industry at this time and
our expectation that such competition will continue for the foreseeable future,
we can offer no assurance that the aforementioned operational efficiencies or
the effects of the restructuring will guarantee Aquis' ability to achieve
sustainable profitability.
General
Aquis is a leading Northeastern United States provider of paging and other
wireless messaging services and markets one-way paging service and equipment to
customers directly and through resellers. Our subscribers either lease their
pagers from us or purchase their device outright from us, commonly referred to
as "COAM", or customer owned and maintained. We also offer a variety of
messaging enhancements to paging subscribers, and resell two-way paging and
cellular phone service on a small scale.
We generate a substantial majority of our revenue from fixed periodic fees
for paging services that are not generally dependent on usage. Usage sensitive
charges consist primarily of charges for messages exceeding the number included
in a customer's fixed monthly rate plan, and fees charged to resellers for
messages sent to the resellers' subscribers over Aquis' communication network on
a per-character basis under a Telocator Networking Paging Protocol ("TNPP").
During periods prior to October 2001, usage sensitive charges were also made to
subscribers using the "Calling-Party-Pays" service that we operated in
connection with our Midwest paging operations, which we sold at that time.
Our ability to recover initial operating, selling and marketing costs and
to achieve profitability is dependent on the average duration of each customer's
subscription period. For as long as a subscriber continues to utilize the
service, operating results benefit from the recurring fixed fee payments without
the requirement of any incremental selling expenses. Conversely, customer
disconnections adversely affect operating results. Each month a percentage of
existing customers have their service terminated for reasons including failure
to pay, dissatisfaction with service or coverage limitations, or switching to
competing service providers.
This discussion should be read in conjunction with Aquis' consolidated
financial statements and the notes thereto. Some of the following financial data
is presented on a per subscriber or unit basis. Management believes that such a
presentation is useful in understanding year-to-year comparative results by
providing a meaningful basis for comparison, given the differences in business
management and in the number of subscribers of other paging companies.
RESULTS OF OPERATIONS FOR THE PERIODS ENDED SEPTEMBER 30, 2002 AND 2001
Units in Service
Units in service totaled 178,000 and 290,000 at September 30, 2002 and
2001, a decline of about 38.6% including about 18,000 and 31,000 TNPP units
respectively. Approximately 39% of the decline during this period was the result
of the October 2001 sale of our Midwest paging assets and the 44,000 units
serviced through that network. Also during that period, Verizon Wireless, one of
our resellers, reduced its units in service with us from about 43,000 units to
20,000 units as the industry grew smaller and this segment of their paging
business was de-emphasized. Our average monthly churn rates during the nine
months ended September 30, 2002 and 2001 were 5.2% and 5.4% respectively. These
rates were influenced by industry trends in a nationwide contracting paging
market and our own limited ability to procure suitable paging units, negatively
affecting our ability to secure new subscribers or to replace those for our
customers who had lost or damaged their paging units.
10
Revenues
Service revenues for the nine months ended September 30, 2002 and 2001,
respectively, were $10,333,000 and $14,373,000, at decrease of about 28.1%.
Service revenues for the respective three-month periods, were $3,257,000 and
$4,569,000, a decrease of approximately $1,312,000 or about 28.7%. Continuing
churn described above and ongoing industry-wide pricing pressures contributed to
this result. The units disconnected by Verizon and those sold as part of the
Midwest paging operations disposition were primarily reseller units producing
low average monthly revenue per unit, or ARPU, and were the largest individual
factors leading to the 97,500 unit decline in our reseller business during the
periods reported. Our reseller business provided about 49 % of our total units
in service at September 30, 2002, compared to approximately 64% at September 30,
2001. Resellers purchase Aquis' services in bulk and maintain their own billing,
collections and customer service organizations and are therefore provided rates
lower than those made available to Aquis' direct subscribers.
Revenues from sales of paging equipment increased from $50,000 during the
third quarter of 2001 to $69,000 during the corresponding quarter in 2002 due to
an increase in unit volume sales during this quarter. Average unit sales revenue
remained steady during the three-month periods. Aquis continued its strategy of
marketing lower-cost units at reduced sales prices in 2002, but due to continued
industry-wide weak demand and continuing competition from alternative
technologies, about 8,900 fewer units were sold during the nine-month period in
2002.
Cost of Equipment Sales
The cost of equipment sold during the nine and three-month periods ended
September 30, 2002 totaled $90,000 and $29,000, respectively. Costs during the
respective nine and three-month periods in 2001 totaled $401,000 and $64,000. We
sold fewer units during the current year-to-date, and our overall unit costs
have continued to decline since Motorola's decision to exit the pager
manufacturing business.
Cost of Paging Services
Costs of paging services consists principally of technical operating
expenses incurred to operate Aquis' paging network and, to a lesser extent, fees
paid to third party carriers and message dispatch companies. Third party
carriers are utilized when a customer requires service outside of Aquis' service
area, and are most commonly used to provide nationwide coverage. Technical
operating expenses include transmission site rentals, telephone interconnect
services and the costs of network maintenance and engineering.
Total nine-month services costs decreased to $4,805,000 in 2002 from
$6,348,000 in 2001. During the three-month periods, costs totaled $1,570,000 in
2002 compared to $1,932,000 in 2001. Costs of third party paging carriers and
dispatch service providers declined approximately $750,000, to $1,217,000 during
the nine-month period ended September 30, 2002 as compared to the year-earlier
period. This cost reduction was achieved in part as the result of the continued
focusing of our sales efforts more strictly on units serviced by our own
networks, in part as the result of the sale of our Midwest operations, and in
part as a normal result of the churn discussed above. We also reduced technical
operating expenses by about $793,000 through elimination of tower rental costs;
primarily those associated with our former Midwest operations. Employment costs
for technical staff formerly employed in the Midwest were also eliminated as a
result of that sale.
Sales and Marketing
Selling and marketing expenses include the cost to acquire and retain
subscribers, operating costs associated with the sales and marketing
organization, and other advertising and marketing expenses. These costs
decreased for the nine-month periods from $1,465,000 in 2001 to $1,153,000 in
2002, or approximately 21.3%. The decline for the three-month periods was
approximately 10.5%. This was primarily the result of the reduction of the sales
organization, implemented during the three months ended March 31, 2001, and from
lower total commissions resulting from lower sales volume, selling prices and
related weaker demand for paging services in recent periods. Also contributing
to a lesser extent were cost savings associated with the closure of targeted
satellite sales offices.
11
General and Administrative
General and administrative expenses include costs associated with customer
service, field administration and corporate headquarters. These costs for the
nine-month periods decreased slightly as a percentage of service revenues to
approximately 26.5% in 2002 from about 28.2% in 2001. Total costs declined
during these periods by approximately $1,327,000. Cost reductions were primarily
the result of staff reductions made in 2001 and 2002. In addition, lower
professional fees were incurred during the current year to date as year-earlier
business planning efforts were completed, costs of certain public relations were
curtailed and other matters requiring legal assistance were resolved. Other
reductions were derived from lower billing, data processing and postage costs as
the result of the sale of our Midwest customer base and other subscriber
reductions
Depreciation and Amortization
Depreciation and amortization decreased to $1,903,000 in 2002 from
$5,491,000 in the prior year nine-month period. Amortization of intangible
assets decreased significantly as a result of the asset impairment write downs
recorded at December 31, 2000 and 2001. These write downs were made as the
result of our ongoing losses, our forecast for continuing losses, our defaults
under our loan agreements, our decision to continue paging operations through
use of our 900mHz system and gradual phase-out of other frequencies, and the
continuing shrinkage of the paging industry. Accordingly, through December 31,
2001, we recognized total cumulative provisions for impairment of the carrying
value of our FCC licenses and State certificates in the amount of about
$11,700,000. Also contributing to cost reductions of this type was the October
2001 sale of the Midwest paging operating assets, and certain other excess
communications infrastructure equipment throughout 2001 and 2002.
Interest Expense
Net interest expense was $2,493,000 for the nine months ended
September 30, 2002, compared to $2,926,000 for the corresponding period in 2001.
For the respective three-month periods, such costs totaled $730,000 and
$977,000. Gross interest expenses decreased, primarily the result of the accrual
of $500,000 during the nine months ended September 30, 2001, incurred in
connection with our inability to meet specified debt leverage and coverage
ratios required in our agreements with FINOVA at that time. Also effecting this
comparison was an increase in the interest rate applicable to our debt to
FINOVA, which increased to the prime rate plus 6% as the result of our defaults
and the forbearance agreements between the parties. Slightly offsetting these
added costs were reductions in our costs of capital associated with our
financial restructuring, effected in August 2002 and described in greater detail
elsewhere in this report. This financial restructuring effected a net reduction
in obligations due our senior and junior lenders and our preferred stockholders
of about $23,644,000, effective August 12, 2002, significantly lowering Aquis'
interest costs. Finally, interest income recognized in connection with the
outstanding note due from SunStar for the sale of our Internet assets totaled
approximately $168,000 for the nine months ended September 30, 2001. No such
interest income was recognized subsequent to the collection of amounts due under
that note in September 2001.
Income Taxes
No provision for income taxes is reflected in either period as a result of
the Company's net losses in both periods.
Liquidity and Capital Resources
Effective with the closing of the restructuring transaction on August 12,
2002 following notification in early August 2002 that the FCC had approved the
change in control of our FCC licenses, our debt and equity structure was
modified and FINOVA, our senior lender, gained control of Aquis through the
resulting issuance of equity. This restructuring provides our Senior and Junior
Lenders with warrants and preferred stock that convert into a combined equity
position of 89.89% in exchange for all outstanding debt and accrued unpaid
interest due to them. In addition, FINOVA received two notes totaling
$9,000,000, payable over four years, with a $2,000,000 discount and a 5% equity
position reduction available if, under specified conditions, the initial
$7,000,000 of debt principal is paid in full by March 31, 2006. AMRO has
acquired rights to a common stock equity position that could total 9.9% through
the issuance of stock and warrants and received a note in the amount of
$1,000,000 that will accrue interest at 10% until the FINOVA debt is paid in
full, at which time quarterly cash payments of current interest will be made.
The principal balance of $1,000,000 and interest accrued through the date of
full payment of FINOVA are due and payable to AMRO two years after maturity of
the FINOVA note. Finally, the holders of Aquis' 7.5% Redeemable Preferred Stock
exchanged those shares for shares of a new issue preferred stock, redeemable and
without conversion rights, valued at $300,000, and accruing dividends at 10%
through the date that the AMRO note is paid in full. This issue is redeemable at
face value plus accrued unpaid dividends two years following repayment of the
AMRO debt, with current cash dividends payable during that two year period
leading to the redemption date. Before FCC approval was granted we operated
under the terms of a restructuring agreement executed on May 20, 2002 with
FINOVA and AMRO, and under forbearance agreements with those lenders.
12
Our financial restructuring was based on the past and ongoing
restructuring of our business operations. Operating results were, and will
continue to be, favorably impacted by the following:
o Staff and salary reductions through targeted cutbacks, normal attrition,
compensation adjustments and the sale of non-core business operations.
During the nine months ended September 30, 2002, as compared to the
corresponding period of 2001, employment costs for business operations
declined to $2,701,000 from $3,475,000.
o Technical operations improvement plans included financial savings
available through strategically targeted network consolidations involving
co-locating some of our low- and high-band communications equipment,
elimination of Midwest operating costs, and finalization of reciprocal
compensation agreements with some of our communications facilities
providers. Sales of network equipment that become non-essential as a
result of these, or any other initiatives, are also contained in our
business planning. In this regard, compared to 2001 cost levels, during
2002 we reduced site leasing costs by more than $430,000, and have also
cut interconnect and infrastructure communications expenses. In 2001, we
also settled claims with an interconnect services provider for $765,000;
another such claim was settled for approximately $260,000 in 2002. And, we
sold some excess transmitting equipment at or around book value during
2001 and 2002. Such practices are expected to continue as our network is
optimized.
o Targeted non-core remote sales offices were closed or sublet. To date, we
closed or sublet all except 2 of our remote locations, which will be
retained.
o The sale of our Midwest operations for cash. We sold those assets in
October 2001 and received from escrow the proceeds of $1,010,000 in
January 2002 following FCC approval to transfer the underlying FCC
licenses and settlement of remaining disputes.
o Collection of the proceeds of the note due to Aquis for the sale of our
Internet assets was also a key element of our plan for 2001. Discounted
proceeds of $625,000 were collected in September 2001 in accordance with
the revised terms of the note tendered in that August 2000 sale.
o We earmarked a significant portion of the proceeds from the sales,
collections and cost savings noted above for payments to our creditors.
The funds raised from these initiatives, along with the conversion of
$500,000 of invoices currently payable to a long-term note has enabled us
to reduce our total accounts payable and accrued expenses excluding
interest from $6,537,000 at December 31, 2000 to $2,089,000 at September
30, 2002.
Even with the successful completion of the initial phases of our plan,
including our financial restructuring, management can offer no assurance that
our completed efforts to date will prove to be timely or sufficient to ensure
our ability to continue as a going concern. We believe that our business plan as
a niche one-way paging carrier in a declining industry that is moving toward
other communications services is viable, yet our ability to execute this plan is
heavily dependent on industry conditions and technological developments which
are largely beyond our unilateral control. We have been unable to take full
advantage of the financial and other difficulties experienced by many of our
competitors, including among others Arch Wireless and Metrocall, due to our own
performance and the length of time it has taken to finalize the terms of our
financial restructuring. We expect that our operating strategies and business
plans will continue to evolve in step with the paging industry, which continues
to decline. Further staff reductions in addition to the 10% employee reduction
implemented on August 2, 2002 are possible, in an attempt to effect further
improvements in Aquis' operating performance and financial results.
Aquis believes that the completed restructuring and underlying business
plans provide our institutional lenders and existing preferred shareholders
their best opportunity for maximum recovery of amounts due to them in the most
rapid timeframe. A key assumption included in these projections is that the
paging industry will decline at a rate comparable to that of the past year.
Readers are cautioned that these, and other, assumptions used in our projections
are subject to uncertainty. These assumptions may or may not materialize, or
unanticipated events or circumstances could occur that could adversely effect
our projections and actual financial results. Accordingly, no assurances can be
offered that our actual performance will correspond to our projections. However,
based on the assumptions, which are believed to be reasonable, and resulting
projected performance, management believes that projected operating results are
attainable and that resulting cash flows will be sufficient to meet ongoing
short-term requirements.
Aquis' operations provided about $603,000 of net cash during the nine
months ended September 30, 2002, compared to production of about $1,093,000 of
cash during the same period of 2001. However, excluding the effects of changes
in our working capital accounts, operations used $522,000 of cash during 2002
and provided cash of $40,000 during the nine-month period ended September 30,
2001. During the current reporting period, our operations used cash to fund
pager purchases totaling $847,000, and to acquire one-year maintenance contracts
for the servicing of our paging infrastructure. Vendor payables and accruals
were paid down by about $839,000 during the current nine-month period. Accrued
but unpaid interest on our institutional debt increased by accruals of
$2,370,000 through August 12, 2002, at which time our total obligation for
interest of $6,302,000 was forgiven in connection with our debt restructuring.
The need to reduce outstanding accounts payables to vendors continued to be
influenced by the declining telecommunications markets, and the financial
failures of several of our competitors. The uncertainty caused by these events
resulted in increased pressure from our vendors to keep our accounts with them
current.
13
During the nine months ended September 30, 2002 we realized proceeds from
sales of assets totaling $1,234,000, primarily provided by the release from
escrow of the $1,010,000 proceeds from our sale of the Midwest paging assets.
The balance was derived from sales of non-core communications equipment. During
both nine-month periods, we invested cash in paging infrastructure, data
processing equipment and software.
Financing activities consumed $1,451,000 of cash during the nine months
ended September 30, 2002, primarily to pay fees incurred with our investment
banker and other consultants in connection with our financial restructuring.
During the same period in 2001, we paid down certain installment debt as well as
fees incurred in connection with our registration of common stock.
Our ability to continue as a going concern and successfully execute our
one-way paging business plan is dependent on industry and technology factors
that are beyond our control. The recent completion of the realignment of our
debt and equity structure provides Aquis and its primary lender/equity holders
with an attractive opportunity to maximize the return on invested funds, but
does not guarantee future profitability or cash flows sufficient to allow for
the effective or timely execution of Aquis' existing paging-based business plan.
Seasonality
Retail sales were subject to seasonal fluctuations that affect retail
sales generally. Otherwise, the results were generally not significantly
affected by seasonal factors.
14
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
As of September 30, 2002, our $7,000,000 Senior Secured Promissory Note
carried a floating interest rate that is 3.5% over the Citibank Corporate Base
Rate, but not less than 9%. An interest rate increase or decrease of 2% over the
minimum rate would result in a change in annual interest expenses of about
$140,000. All other debt obligations at September 30, 2002 provide fixed
interest rates. Aquis has not, and does not plan to, enter into any derivative
financial instruments for trading or speculative purposes. As of September 30,
2002, Aquis had no other significant material exposure to market risk.
Item 4 - Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures. Within 90 days before
the filing date of this quarterly report (the "Evaluation Date") the
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including, its Chief Executive
Officer and its Chief Financial Officer, of the effectiveness of the
design and operation of the Company's "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)). Based
upon that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures were effective to ensure that material
information relating to the Company is recorded, processed, summarized and
reported in a timely manner.
b) Changes in Internal Controls. The Company has reviewed its internal
controls and there have been no significant changes in such internal
controls or, to the Company's knowledge, in other factors that could
significantly affect such controls, subsequent to the Evaluation Date.
15
Part II Other Information
Item 1 Legal Proceedings.
The Company was a party to a legal proceeding involving a former reseller that
was reported in its Annual Report on Form 10-K for the year ended December 31,
2001. As reported in May, Aquis settled that matter with a payment of $31,500 to
the interests of Fone Zone in April 2002. There were no other significant
developments related to legal proceedings involving the Company at September 30,
2002.
Item 2 Changes in Securities and Use of Proceeds.
On July 2, 2002, Aquis and its senior secured lender, its junior unsecured
lender and its preferred stockholders executed final agreements that resulted in
the restructuring of Aquis' debt and equity positions and the change in control
of Aquis upon FCC approval in August 2002. The restructuring transaction closed
on August 12, 2002 pursuant to which FINOVA has acquired a controlling interest
of 79.99% in the Company in exchange for the cancellation of a significant
portion of outstanding loans due from Aquis to FINOVA. AMRO International, S.A.
acquired interests totaling 9.9% in connection with this transaction. Such
interests were acquired through the issuance of approximately 143,672 shares of
Aquis Series A Convertible Preferred Stock, par value $0.01 to an affiliate of
FINOVA and approximately 17,782 shares of the same issue to AMRO. These shares
are each convertible into 1,000 shares of Aquis common without payment of any
consideration to Aquis. In addition, Series A and B warrants, providing an
exercise price of $0.01, were issued to FINOVA's affiliate for the purchase of
214,601,100 underlying shares of Aquis common stock, 22,394,842 of which will
expire if Aquis pays off the Senior Secured Promissory Note by September 30,
2005. These warrants otherwise expire on August 12, 2012. Similar warrants for
the purchase of 26,560,206 underlying shares were issued to AMRO, expiring at
the same date in 2012.
Finally, holders of the 15,000 outstanding shares of Aquis 7.5% Redeemable
Preferred Stock in the face amount of $1,500,000 exchanged those shares for
301.01 shares of Aquis Series B Redeemable Preferred Stock, accruing dividends
at 10% of their face value $300,000, and redeemable in 2010. Accrued dividends
under the 7.5% Redeemable Preferred Stock totaled $284,486 at the effective time
of the restructuring and was cancelled as part of the exchange for the Series B
Redeemable Preferred Stock.
Item 3 Defaults Upon Senior Securities.
Aquis was in default of its loan agreements with FINOVA and AMRO prior to the
effective date of the financial restructuring. Relief from Aquis' defaults under
these agreements with both lenders and with the holders of Aquis' 7.5%
Redeemable Preferred Stock was obtained when the restructuring of Aquis' debt
and equity was consummated on August 12, 2002 through the closing of the
restructuring transactions with these creditors.
Item 4 Submission of Matters to a Vote of Security Holders. None
Item 5 Other Information.
At the time of and in connection with the change of control effected by the
financial restructuring, all individuals serving on the Board of Directors prior
to August 12, 2002 resigned and were replaced by six representatives appointed
by FINOVA and AMRO.
Mr. Alex E. Stillwell was appointed to succeed Mr. Eugene I. Davis as President
and Chief Executive Officer of Aquis. Mr. Davis relinquished his duties as CEO
at the completion of Aquis' restructuring and conclusion of a transition period,
in October, 2002.
16
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number:
99.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
In a report on Form 8-K dated February 28, 2002, Aquis reported entering
into a term sheet with its senior lender that set forth the terms of the
restructuring of its debt and equity, subject to final negotiations, third party
approvals, and other conditions.
In a report on Form 8-K dated July 1, 2002, Aquis reported that definitive
restructuring agreements had been executed with certain creditors that would
result in exchange of a substantial majority of its outstanding debt for equity
and notes and would result in a change in control of the Company, subject to FCC
approval, and included required proforma financial data therewith.
In a report on Form 8-K dated August 27, 2002, Aquis re-filed those
definitive restructuring agreements and financial data that had been originally
filed on July 1, 2002.
No other reports on Form 8K were filed during the current year.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
Name Title Date
---- ----- ----
/s/ Alex E. Stillwell
- ---------------------------------------------
Alex E. Stillwell Chief Executive Officer, President and Director November 13, 2002
/s/ D. Brian Plunkett
- ---------------------------------------------
D. Brian Plunkett Chief Financial Officer November 13, 2002
18
CERTIFICATIONS
I, Alex E. Stillwell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Aquis Communications
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditor and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 13, 2002
/s/ Alex E. Stillwell
------------------------------
Name: Alex E. Stillwell
Title: Chief Executive Officer
19
CERTIFICATIONS
I, D. Brian Plunkett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Aquis Communications
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditor and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 13, 2002
/s/ D. Brian Plunkett
-------------------------------
Name: D. Brian Plunkett
Title: Chief Financial Officer
20
Exhibit Index
Exhibit Number
(Referenced to Page Number in Rule
Item 601 of 0-3(b) Sequential
Regulation S-K) Description Numbering System
------------- Where Exhibit can be
Found
99.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
21