General

Aquis Communications Group, Inc. ("Aquis" or the "Company") was incorporated in Delaware in 1997. Through our operating subsidiary, Aquis Wireless Communications, Inc. ("Aquis Wireless"), we offer messaging services in a nine-state network that provides coverage from Boston to Virginia and Washington D.C., penetrating into New York, New Jersey, Connecticut, Pennsylvania, Maryland, Virginia, Delaware, Rhode Island, and Massachusetts utilizing our 900MHz and 150MHz wireless messaging systems. We also resell nationwide and regional services, offer alpha dispatch, news, data circuits, telecommunications consulting and other messaging enhancements. Customers include businesses, government agencies, hospitals, individual users and resellers. From inception through March 2000, the Company experienced substantial growth primarily as a result of its strategy of acquiring similar businesses. Beginning in April 2000, our strategy shifted from acquiring new businesses to focusing on internal growth, integrating acquired operations and achieving operating efficiencies. In January 2002 we completed the sale of our wireless messaging assets in the Midwest region of the United States. In August of that year we completed a financial restructuring. As of March 15, 2004, Aquis employed 43 non-unionized full and part-time people, and believes that employee relations are good.

The Company's business strategy continues to be centered on maximizing utilization of its own wireless messaging networks. As a result, our reselling activities and our reseller business continue to become a smaller part of our targeted sales and service activities. However, on a supplemental basis, we expect to continue to provide and resell service to customers that may receive messages in over 1,000 U.S. cities, including the top 100 Standard Metropolitan Statistical Areas through interconnect agreements with nationwide wireless messaging providers including Skytel, a division of MCI Worldwide, Metrocall, and Verizon Wireless Messaging Service (formerly AirTouch).

From the start of Aquis' wireless messaging operations at the beginning of 1999 through December 31, 2000, Aquis' subscriber base increased to approximately 342,000 units in service. However, as a result of subscriber attrition, market and asset abandonment and slowing sales, our subscriber base has subsequently declined to approximately 120,000 units as of December 31, 2003. Initial growth was achieved through a combination of internal growth and a program of mergers and acquisitions. Later declines resulted primarily from industry-wide declines in wireless messaging users and Aquis' shortage of wireless messaging devices caused by our lack of capital. Between December 31, 2000 and December 31, 2003, the Company's end-user base declined from approximately 130,000 to 74,000 units in service and our indirect or reseller base declined from 212,000 to approximately 46,000. We believe that the decline in our customer base, and in the size of the wireless messaging industry in general, is largely attributable to the declining costs and technological advances provided by competing services provided by cellular phone, personal communications services ("PCS"), two-way wireless messaging and other mobile messaging services, and uncertainty regarding our long-term viability, as well as that of others in our industry.

Aquis has historically operated traditional wireless messaging systems that provide one-way wireless messaging services to numeric and alphanumeric messaging devices. Such services are available at pricing that is lower than cellular or similar services, but that cost differential has declined over time as these alternative service providers have sought to gain market share through competitive pricing as well as through the offering of more technologically-advanced two-way voice communications. Our lower-cost numeric messaging service allows a user to receive a telephone number or other numerically coded data and to store several such data messages that can be recalled at the convenience of the user. Alphanumeric service adds text messaging capabilities and the ability to receive internet-routed messages. Aquis also offers messaging enhancements, such as voice mail service that can include a personalized greeting, message repeat and retention services that may help a user access messages that were sent at a time when the user's paging device was turned off or was beyond the range of our transmitters, sports and/or weather information, device maintenance and loss protection features that help preserve the value of a subscriber's investment in the device, and other value-added features.

We believe that the wireless messaging industry is likely to continue to consolidate as the overall messaging marketplace declines. Recently, Metrocall and Arch Wireless announced their intent to merge by the end of this year, creating the largest wireless messaging company in this country. Due to our limited access to additional capital for business acquisitions, our ability to participate in this consolidation will be limited to transactions that will require minimal cash commitments, if any, and that ideally will improve the utilization of our own wireless messaging networks. Accordingly, our participation may necessarily be limited to acquiring bases of subscribers from operators or sales organizations located within our regional service areas, primarily resellers, that have decided to exit the wireless messaging services business. Based on preliminary estimates, we believe that some such opportunities presently exist, but on a limited basis only. We continue to experience interest from certain of our resellers in transferring their declining customer bases to us in exchange for a share of future collected revenues, allowing them to devote more attention to other business activities and allowing Aquis to prolong revenue streams from the underlying wireless messaging units by directly providing a higher level of support to those users.

Aquis derives the substantial majority of its revenues from fixed, periodic (primarily monthly) fees, generally not dependent on usage, charged to subscribers for wireless messaging and wireless messaging services. During the time that a subscriber continues to use our services, operating results benefit from this recurring revenue with minimal requirements for incremental selling expenses or fixed costs. The recurring monthly or other periodic service fee is typically based on several factors, including the type of service provided, primarily alpha or numeric, the geographical region of coverage, the number of wireless messaging units in service for a subscriber, and the period of the customer's service commitment. Our customers either purchase those units most typically from Aquis or lease them from us for a periodic fee. Devices that are leased by our subscribers require a capital outlay to be made by Aquis and accordingly generate slightly more recurring revenue than customer-owned units, which do not require such capital outlays. We also sell wireless messaging devices to resellers who then sell or lease those units to their own customers and provide all sales, billing, collections and other support services at their own cost. Since our resellers incur all costs associated with their end-users, eliminating such costs from Aquis' cost structure for those particular customers, we are able to charge lower recurring service rates to our resellers for these units.

Recent Developments

Effective December 31, 2003, the Company and FINOVA executed the Second Amendment to the Second Amended and Restated Loan Agreement (the "Second Amendment"). This modification of our loan agreements with FINOVA eliminated all financial covenants and eliminated previously scheduled payments of principal and interest. In exchange, Aquis agreed to make quarterly payments to FINOVA in the amount of our total available cash balances less $350,000, which may be retained for use in our business. Prior to the Second Amendment, during 2002, we completed the restructuring of our debt and equity through agreements with our significant creditors of that time.

On July 1, 2002, the Company, its subsidiaries and certain creditors entered into agreements that would effect the restructuring (the "Restructuring") of the Company's long term debt with its principal lender, FINOVA Capital Corporation ("FINOVA"). Under the terms of the Restructuring, the Company's outstanding long-term debt was reduced and the Company's institutional lenders were provided with equity in the Company that resulted in a change in control of the Company. FINOVA and a minority partner, through an affiliate, Desert Communications I, LLC, acquired a 79.99% equity interest and voting control of the Company, along with two secured notes in the total principal amount of $9,000,000. In exchange, all other existing outstanding debts due to FINOVA were cancelled. Simultaneously, AMRO International, S.A. ("AMRO"), the Company's unsecured lender, acquired a 9.9% equity interest in the Company and an unsecured subordinated note in the principal amount of $1,000,000 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 AMRO. The final component of the Restructuring provided the previous holders of Aquis' 7.5% Redeemable Preferred Stock with a new issue of non-convertible redeemable preferred stock in the face amount of $300,000.Previous holders of Aquis' 7.5% Redeemable Preferred Stock in the face amount of $1,500,000 plus unpaid accrued dividends executed agreements providing for the exchange of those securities for new securities. These holders received Aquis' non-convertible Redeemable Preferred Stock, with a face value of $300,000, accruing dividends at the annual rate of 10% and redeemable two years after the payment in full of the AMRO Note.

Marketing

Aquis views traditional numeric and alphanumeric wireless messaging as the most cost-effective and reliable means of communicating messages over a regional area to either mobile or relatively-fixed location users. Although the price gap has continued to shrink between cellular, PCS, two-way and other messaging services, our traditional messaging alternative continues to be the low-cost leader. Additionally, we believe that wireless messaging network buildout and radio signal penetration provides a more thorough and extensive communications medium than that of those competing services. Furthermore, battery life may provide messaging devices with an advantage over other devices that may require more frequent attention to their power supply. Finally, we believe that messaging devices are more convenient and portable, and can be used in a less intrusive manner than cellphones in many applications.

We market our wireless messaging products and services through a wholly-owned subsidiary, Aquis Wireless. Aquis Wireless employs a direct sales force that targets business accounts and, to a lesser and declining extent, markets services through an indirect distribution channel consisting primarily of resellers and also including agents. Resellers purchase airtime and resell this airtime to their own subscribers. Aquis Wireless provides one invoice to the reseller and the reseller invoices and collects from its subscribers on an individual basis. Our resellers are generally not exclusive distributors of our wireless messaging services and may provide services of other carriers. Agents offer a branded Aquis Wireless product and receive a commission or margin for doing so, and Aquis Wireless subsequently bills and collects from the subscriber for services sold by its agents.

In past years, we grew our business by broadening our distribution network and expanding our target market to capitalize on the growing appeal of messaging and other wireless products and services. During this time, we emphasized a distribution channel including resellers that was characterized by lower average revenue per unit ("ARPU") and correspondingly lower operating costs. The decline in the wireless messaging industry during recent periods appears to be largely attributable to the reduction in the size of the consumer segment of this market. As a result of price competition from cellular and similar services and technological advances leading to size reductions and enhanced capabilities for the related communications devices, a significant portion of the wireless messaging marketplace has moved to these alternative services. Consequently, our target market emphasizes businesses, government agencies, the medical industry, and certain other commercial groups and organizations.

Approximately 80% of our service revenues for each of 2003 and 2002 were derived from direct subscribers, including those of our aforementioned target markets, with significant representation from medical and governmental users. We believe that these users continue to view wireless messaging as an important wireless communications tool based on the following factors:

o Coverage - wireless messaging typically provides stronger propagation and in-building penetration and rural coverage providing more reliable signal reception

o Battery life - a single AAA or AA battery can power a wireless messaging device 24/7 for more than 4 weeks

o Cost - wireless messaging services can cost one-tenth of many cellular plans

o Message delivery speed - most messages are delivered to the pager in less than 30 seconds

Accordingly, our marketing strategy has remained centered on the medical, governmental and certain other targeted users that value the relative advantages of wireless messaging services. During 2002 and 2003, we engaged a professional marketing consulting firm to conduct market research and analyze the Aquis brand within our targeted markets. This provided for the development of a marketing strategy to pursue, acquire and support this group of potential subscribers and to further enhance the Aquis brand name. In connection with this effort, we continued the development of enhanced wireless messaging-related messaging services designed to increase the perception of the value that may be added through effective use of messaging devices. Finally, we expanded and re-structured our sales organization to better enable our customer support activities to deliver a higher level of customer satisfaction, and to allow more focused efforts to be directed toward identifying and soliciting new business from new customers.

We also operate an inbound call center that accepts orders for products and services and maintain field offices in New Jersey and Virginia for sales and support functions. These two field offices are also available for subscribers to walk in and purchase products and services. Aquis Wireless also maintains an Internet site through which customers may purchase products and services. The web site also allows Aquis Wireless resellers access to maintain their accounts via web based technology and provides bill-paying capabilities.

Sources of Equipment

We do not manufacture any of the equipment used in our operations, all of which is available from a variety of sources. Due to the high degree of compatibility among different models of transmitters, computers and other wireless messaging and voice mail equipment, Aquis has been able to design its networks to limit dependence upon any single source for such equipment. Aquis periodically evaluates its purchasing arrangements for messaging devices to help ensure that the equipment it is offering is current and is available at competitive prices.

We currently purchase our messaging devices from foreign manufacturers as well as secondary market dealers that may supply Motorola and other products. We have conducted internal studies of pager performance in order to help determine the most reliable and cost-effective source of new and quality pre-owned devices, and to identify the most reliable providers of repair services for our customers' damaged units. We believe that available supplies of suitable one-way and other messaging devices are adequate for the foreseeable future.

Our transmitting infrastructure, switches and other wireless network equipment was purchased primarily from Motorola and Glenayre, which at the time were two of the most technologically advanced leaders in the wireless messaging infrastructure industry. Our wireless messaging networks are controlled through the use of satellites, data circuits and Internet connections. Aquis' switching equipment has a modular design, which permits significant future expansion by adding or replacing modules rather than replacing the entire system. Although Motorola and Glenayre have ceased their manufacture of messaging equipment, we believe that the existing secondary market for transmission equipment and messaging switches is sufficient to meet operating requirements for the foreseeable future. We obtained a one-year software and systems maintenance and support agreement with Glenayre and expect that it can be renewed in 2004 with Glenayre's successors. We also believe that adequate support for existing wireless messaging infrastructure, whether manufactured by Glenayre, Motorola or others will continue to be available. We believe that our inventory of infrastructure components, purchased in anticipation of the departure of Motorola, Glenayre and others from this manufacturing industry, is sufficient for our foreseeable requirements. Aquis believes that its historical investment in the most technologically advanced transmission equipment then-available reduces its cost of maintenance and system expansion over the long term and that its wireless messaging system equipment is among the most technologically sophisticated in the one-way industry.

Competition

Wireless messaging is a highly competitive industry, resulting in competition based on price, infrastructure and messaging device reliability and message delivery time, coverage area and customer service. The financial stability of the service provider has also become an issue that may have some impact on sales efforts. A number of technologies, including cellular telephone service, PCS, enhanced specialized mobile radio, low-speed data networks and mobile satellite services are technological competitors of wireless one- and two-way communications. Through our agreements with WebLink Wireless and BellSouth, Aquis offers two-way messaging services. Aquis believes that one-way wireless messaging will remain one of the lowest cost forms of communications due to the low-cost infrastructure associated with wireless messaging systems, allowing unlimited monthly wireless messaging services to be offered at flat monthly rates as much as 90% lower than some time-limited cellular or PCS calling plans.

The marketing study and evaluation that we commissioned during early 2003 indicated that our strongest competitors are Arch Wireless and Metrocall, who recently announced their intent to complete the merger of their two businesses by the end of this year. We also compete with Verizon Wireless Messaging, formerly AirTouch, WebLink Wireless which merged with Metrocall in November 2003, Skytel, a division of MCIWorldCom, and others. More localized privately owned providers covering smaller geographical areas also compete for customers within the Northeast and Mid-Atlantic markets in which we operate.

The wireless messaging industry in general has steadily declined in recent years, and continues to do so at this time, and many of our competitors have filed for bankruptcy protection and suffered other financial hardships, including Arch, Metrocall and Weblink among others. Although we completed a financial restructuring and made substantial gains in restructuring our operations, our own difficulties have prevented us from taking full advantage of our competitors' weaknesses. Unlike some of our competitors, we have been able to avoid filing for bankruptcy protection, and we hope to benefit from a competitive edge that such an avoidance could provide. The uncertainties experienced by competitors that must proceed through contentious and lengthy bankruptcy issues may be viewed by potential customers as a hurdle to securing the desired level of stability that is important when changing wireless messaging carriers. We also anticipate that one of the effects of the Arch-Metrocall merger may be that customer support during the pre- and post-merger integration period may weaken, providing added incentive for some of the effected customers to more seriously consider our messaging and support capabilities.

Future technological developments in the wireless communications industry and the enhancement of current technologies will likely create new products and services that will compete with the wireless messaging services currently offered by Aquis. At this time, however, Aquis believes that its technological advantages include superior signal penetration into buildings, basements and other hard to reach areas resulting from the stronger transmitting power and higher-ground location of network transmitters. These characteristics also provide greater coverage area using fewer transmitters than required of cellular or PCS systems covering the same geography. Further, a less costly, smaller and more lightweight communications device and longer battery life are viewed as subscriber conveniences that are not matched by currently-available cellular or PCS handsets. Finally, much longer email and other text messages can be sent and received via wireless messaging technologies than through cellular or PCS systems, which continue to limit message size. Conversely, one significant disadvantage facing the wireless messaging industry is that its services are not designed to provide two-way voice communications. There can be no assurance that Aquis will not be adversely affected by developing technological advances.

Regulation

Aquis' wireless messaging operations are subject to regulation by the Federal Communications Commission (the "FCC") and applicable federal laws and regulations. The FCC has granted licenses to Aquis for the conduct of its business. These licenses establish the particular locations and frequencies authorized for use by Aquis and set technical parameters such as power, tower height and antenna specifications under which Aquis is permitted to use its frequencies. Each FCC license held by Aquis carries construction and operating requirements that must be met within specific timeframes. The FCC does have the authority to auction most new licenses for mobile wireless communications, but currently does not have authority to auction licenses for renewal or modification purposes. It does, however, have the authority to revoke, modify or otherwise restrict the operation of licensed facilities. Further, FCC oversight and revision of rules affecting Aquis and its competitors is ongoing and is subject to change significantly over time. For example, new licenses are now awarded through an auction process, as compared to prior practices of lottery or other means. However, incumbent messaging carriers that hold licenses in geographic regions in which new licenses are being auctioned are entitled to continue to operate without interference from auction winners.

Licenses granted by the FCC to Aquis and others in its industry provide varying terms of up to 10 years, after which renewal applications require FCC approval. In the past, most renewal applications have been routinely granted by the FCC upon a demonstration of compliance with FCC regulations and adequate service to the public. The FCC has previously granted each of Aquis' requests for renewal, but no assurance can be given that all future renewal applications will be similarly granted. No license of Aquis has been revoked or involuntarily modified. In some instances, Aquis must obtain the FCC's approval before any significant changes to its messaging networks can be implemented. However, once the FCC's geographic licensing rules are fully in place, much of these obligations related to license modification are expected to be eliminated.

In order to transfer control of any construction permit or communications station license that is regulated by the FCC, its specific approval must be obtained. This includes the transfer of individual licenses as well as a bulk transfer of controlling interests in licenses as may be involved in the acquisition or disposition of another messaging company. Similarly, FCC approval is required when requests are made to use additional frequencies at existing locations, change service territory, provide new services, change ownership or control of the licenses, or modify the technical specifications of existing licenses or the conditions under which service is provided. The FCC has granted its approval for the change in control of our licenses that occurred as a result of our recently-completed financial restructuring. Aquis has not been denied any such request for which approval has been requested, and knows of no reason to believe that any such request will not be approved, but cannot provide assurance that all such future requests will be granted.

The Communications Act of 1934, as amended, limits foreign ownership in FCC licensed Commercial Mobile Radio Services entities to no more than twenty percent (20%) direct ownership and, without Commission consent, no more than twenty-five (25%) indirect ownership. However, as the result of the World Trade Organization Agreement on Basic Telecommunications Service entered into February 15, 1997 and effective February 5, 1998, the Commission liberalized foreign participation in the U.S. telecommunications market by action taken November 25, 1997. This action allows for an expedited process of approving indirect ownership over the 25% level for World Trade Organization signatories. Aquis' licenses are held by its wholly-owned operating subsidiary, which is subject to the 20% direct ownership limitation. That limitation is not subject to waiver.

Increased demand for telephone numbers, particularly in metropolitan areas, results in depletion of available telephone numbers. Plans to address this shortage have included elements that could impact Aquis' operations. Solutions being evaluated include the pooling of blocks of numbers for use by multiple carriers, the mandatory return of numbers previously allocated and assigned for use, and service-specific plans under which only specified services, such as voice and messaging services, would be assigned numbers in a new area code. Aquis cannot predict which of these alternatives will be implemented, if any, and can provide no assurance that the FCC or a governing state commission will not adopt a solution that will require Aquis to incur substantial expenses in order for it to obtain new telephone numbers for the use of its customers. Under currently existing circumstances, however, management believes that the quantity of numbers available to Aquis will be sufficient for the foreseeable future.

Recent amendments to federal communications laws have attempted to increase competition in this industry by lowering or removing barriers to entry, imposing upon telecommunications carriers the duty to interconnect their communications facilities with those of other carriers. The FCC and the 9th Circuit Court of Appeals have interpreted this to mean that local telephone companies must compensate mobile wireless companies for calls originated by local telephone company customers that terminate on a mobile wireless company's network. The FCC has also ruled against the imposition of charges to mobile wireless companies for the use of interconnected facilities or phone numbers. These FCC interpretations and findings are subject to challenge in the courts, and Aquis cannot predict the outcome of these proceedings. Compensation may be determined at the federal or state level, or may be determined based on negotiations between the mobile wireless carriers and the local telephone companies that may be subject to the approval of regulatory authorities. Aquis is in negotiations with local telephone companies but its ability to negotiate refunds and/or future cost reductions related to call traffic terminated within its networks cannot be predicted. During 2002 we negotiated and received a payment of $260,917 from Verizon with respect to these interconnect charges. If these issues are decided in favor of the local phone companies, Aquis may be required to repay interconnect fees or cost reductions earned in the past as a result of the FCC and Circuit Court rulings.

In order to assure the delivery of local phone service to high cost areas and to cover other specified costs and objectives, the FCC has required companies such as Aquis to contribute to a "Universal Service Fund." It has also determined that payphone providers must be compensated for calls to toll-free numbers that are made from payphones. Further, federal law requires that Aquis and others in its industry modify systems and services to the extent necessary to ensure that electronic surveillance or message interceptions can be performed. Because applicable industry technical standards have been established but not acknowledged by all regulatory agencies to date, Aquis cannot determine what compliance modifications or related costs might be required. Additionally, the Omnibus Budget Reconciliation Act of 1993 (the "Budget Act") imposed a structure of regulatory fees, which Aquis is required to pay with respect to its licenses. These fees are revised on an annual basis. Finally, the FCC is continuing to assess the manner in which carriers are permitted to market certain services. The outcome of this proceeding could result in higher costs to administer such marketing programs. There is no assurance that Aquis will be able to continue to pass these costs through to its customers.

In addition to regulation by the FCC, messaging providers are also subject to regulation by state agencies in some states. However, Federal law preempts any state regulation in the case of rates charged to customers or the ability of a carrier to enter a market area. Under certain circumstances, states may petition the FCC for authority to regulate commercial mobile radio service rates. Past petitions seeking rate regulation authority have been denied by the FCC, although this does not guaranty that future filings will meet the same result. On the other hand, some states and localities continue to have authority over many facets of a carriers' operations, including oversight and approval requirements related to acquisitions of assets and license transfers, resolution of consumer complaints, construction and operation of radio transmitters that may be subject to zoning, land use, public health and safety, consumer protection and other legal requirements. Aquis believes that it has made all required filings and has complied with applicable regulations. It knows of no reason to believe that it will not continue to receive approvals as requested of any regulatory agency with oversight authority over its existing operations, although it cannot predict or provide any assurance to that effect.

Risk Factors

This Section summarizes certain risks, among others, that should be considered by stockholders and prospective investors in the Company. Many of these risks are discussed in other sections of this report. If any of the following risks actually occur, Aquis' business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of Aquis' common stock could decline, and stockholders may lose all or part of their investment.

Substantial Leverage. Even following the Restructuring, the Company maintains a significant amount of debt pursuant to the Tranche A Note, the Tranche B Note, and the AMRO Note (collectively, the "Notes"). The principal indebtedness under the Notes totals $10 million and the interest payable on the Notes for fiscal year 2004 approximates $554,000. The Tranche A Note (in the principal amount of $7 million) and the Tranche B Note (in the principal amount of $2 million) both mature on June 30, 2006. The AMRO Note (in the principal amount of $1 million) matures on June 30, 2008. Actual future cash flow from operations may not be sufficient to satisfy the Notes. If we are unable to generate sufficient cash flow, then the Company's ability to satisfy its obligations under the Notes will be contingent upon an additional refinancing or obtaining replacement financing. There can be no assurance that the Company can obtain such financing on terms acceptable to the Company or at all. If an event of default occurs under the Notes, the holders of the Notes have the right to exercise all remedies provided thereunder, including but not limited to, accelerating all indebtedness, substantially increasing the interest rate for such indebtedness, offsetting amounts in most of the Company's bank accounts, and selling all assets of the Company to repay such indebtedness.

Auditor's Going Concern Qualification. Prior to December 31, 2003, at which date the Second Amendment to the Second Amended and Restated Loan Agreement with FINOVA became effective, we were required to meet certain financial covenants pursuant to the terms of the Notes and underlying loan agreements, as then amended. That Second Amendment eliminated non-compliance with those financial covenants as a condition of default by eliminating those covenants from our agreements. However, other events of default specified in our agreements have not been eliminated and remain in effect. These may include, but are not limited to, matters related to insolvency, impairment of our ability to operate under the terms of our communications or business licenses, seizure of our operating assets, significant interruptions in the operations of our wireless messaging systems and facilities, or the entry of significant judgements against Aquis. If we fail to cure any such default condition within FINOVA's specifications, we will be in default and FINOVA will have the right to accelerate payment. The acceleration of payments due under the Notes, without refinancing, would have a material adverse effect on the Company's liquidity, business, financial condition and results of operations. The degree to which the Company is leveraged is likely to continue to impair the Company's ability to finance its future operations or pursue its business strategy finance, either through its own cash flows or from additional financing. The Company's independent auditors have added an explanatory paragraph to their opinion covering the Company's consolidated financial statements as of and for the year ended December 31, 2003 that expresses substantial doubt as to the Company's ability to continue as a going concern. This explanatory paragraph reflects the effects of our history of losses, the declining state of the wireless messaging industry and our ability to profitably provide service in our marketplace, our limited ability if any to obtain third party funding to fund any future operating losses that may be realized, and other factors. These factors may impair the Company's business relationships and impair the Company's ability to receive trade credit from its vendors, which could have a further material adverse effect on the Company's business, financial condition, results of operations and cash flows. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

Significant Stockholder. FINOVA, through an affiliate, Desert Communications I, LLC, beneficially owns a 77.32% equity interest in the Company. Furthermore, pursuant to the Restructuring, FINOVA has the contractual right to appoint 3 of the 6 members of the Board of Directors. Accordingly, FINOVA has voting control of a majority of the Company's common stock and controls a significant part of the Board of Directors and, as a result, can control the direction and objectives of the Company. Furthermore, FINOVA may use this control to cause the Company to engage in transactions that FINOVA believes to be in its best interests. Such transactions may include, among others, a sale of substantially all of the Company's assets, a going-private transaction, a merger of the Company with another company or a liquidation of the Company. There can be no assurance that any control exerted by FINOVA over the Company will not conflict with the interests of the Company's minority stockholders.

Declining Wireless Messaging Market. During 2003, we experienced a net decrease in the number of wireless messaging units in service of approximately 50,000 resulting from connecting approximately 34,000 units while disconnecting 84,000 units. We believe that the demand for traditional wireless messaging services has significantly declined industry-wide in recent years and will continue to decline for the foreseeable future. Due to our high level of fixed costs, revenues lost as the result of subscription cancellations cannot be fully offset by expense reductions and therefore would adversely impact our cash flows. While we will make efforts to replace lost subscribers, the marketing and other expenses associated with adding subscribers and units in service is high and could adversely effect our cash flows.

Limited Trading Market. In October 2000, NASDAQ de-listed the Company's common stock and it is no longer listed for trading on the NASDAQ National Market. As a result, trading of the Company's common stock is conducted on the over-the-counter market ("OTC") or, on application by broker-dealers, in the NASD's Electronic Bulletin Board. As a result of the de-listing, the liquidity of the Company's common stock and its price have been adversely affected, which may limit the Company's ability to raise additional capital and may adversely effect our stockholders' ability to realize value for their equity.

Capital Constraints. The Company's ability to raise capital is limited by expected and historical losses, the indebtedness under the Notes, and the resulting going concern qualifications contained in the Company's audit opinion. The Company's assets already serve as collateral under the Tranche A Note, which severely limits the Company's ability to obtain capital from additional sources. Therefore, the Company may not be able to obtain additional financing on terms favorable to it, if at all. If adequate funds are not available or are not available on favorable terms, the Company may not be able to effectively execute its business plan.

Liquidation Value. At December 31, 2003, Aquis' total assets were approximately $3.8 million following the current write off of net intangible and deferred assets in the amount of $1.52 million. These intangible assets consisted primarily of FCC licenses and certificates. Previously, the Company also recognized impairment of its intangible assets at December 31, 2001 and 2000 through writedowns of $2,298,000 and $9,500,000, respectively. The Company also wrote off all previously deferred financing costs in the approximate amount of $1,650,000 as the result of defaults under the loan agreements that were eliminated pursuant to the Restructuring. If the Company defaults under the Notes or the Company was otherwise required to liquidate, the holders of the Notes could proceed against Aquis' assets to satisfy the amounts payable under the Notes. The value of these intangible assets and the Company's fixed and other assets is not expected to be sufficient to satisfy the Notes.

Competition and Technological Advancements. The telecommunications industry is extremely competitive. Some of Aquis' competitors, which include local, regional and national wireless messaging companies, possess substantially greater financial, technical and other resources than we do, and may therefore be better able to compete for subscribers in the one-way wireless messaging marketplace. Moreover, some of Aquis' competitors offer broader network coverage than that provided by Aquis' systems, and some follow a low-price discounting strategy to expand their market shares. In addition, advancements in wireless communications services such as cellular and PCS have created new and lower cost services that compete with Aquis' existing service offerings and have made Aquis' technology obsolete for many applications and customers. Additional competition could result in accelerated reductions in Aquis' subscriber base, declining revenues and smaller operating margins. Narrowband PCS, providing advanced messaging capabilities, and broadband PCS, providing wireless phone service along with wireless messaging capabilities, likely will affect the Company's subscriber base as service becomes more prevalent and prices fall. Aquis' management cannot provide any assurance that Aquis will be able to introduce new and competitive services in a timely fashion, if at all, nor can we represent that our margins, inventory costs or cash flows will be unaffected by these developments.

Government Regulation. Aquis' business is dependent on FCC licenses that may not be renewed. If renewals are not secured, a significant reduction in Aquis' business may result. Aquis' FCC licenses have varying terms of up to 10 years, at the end of which renewal applications must be approved by the FCC. Renewals are typically granted by the FCC upon a demonstration of compliance with FCC regulations and of adequate service to the public. Although the Company is unaware of any circumstances which would prevent the grant of any pending or future renewal applications, the Company cannot assure investors that any of its renewal applications will be free of challenge. There may be competition for the radio spectrum associated with the Company's FCC licenses at the time they expire, which could increase the chances of third party interventions in the renewal proceedings. The Company cannot assure investors that its applications for renewal of its FCC licenses will be granted. Future changes in the regulatory environment may adversely affect Aquis' business, making it harder or more expensive to run the business. The wireless communications industry is subject to regulation by the FCC and various state regulatory agencies. From time to time, legislation and regulations that could potentially adversely affect the Company are proposed by federal and state legislators. The Company cannot assure investors that federal or state legislation or regulations will not be adopted that would adversely affect Aquis' business by making it harder or more expensive to conduct its operations.

Ability to Attract and Retain Management. The Company is highly dependent upon its senior management, and competition for qualified management personnel is intense. The Company's current financial results and capital constraints, among other factors, may limit the Company's ability to attract and retain qualified personnel, which in turn could adversely affect its operating results.

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