<PAGE>
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, 2000
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: 1-13002
AQUIS COMMUNICATIONS GROUP, INC.
--------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3281446
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
(Former name, former address and former fiscal year, if
changed since last report)
Not Applicable
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 September 30, 2000 there were 17,611,000 shares of the Registrant's Common
Stock outstanding.
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I Financial Information:
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999.......................... 3
Condensed Consolidated Statements of Operations for the
Three and Nine Month Periods Ended September 30, 2000 and 1999................................................ 4
Condensed Consolidated Statements of Cash Flows for the
Nine Month Periods Ended September 30, 2000 and 1999.......................................................... 5
Notes to Condensed Consolidated Financial Statements.......................................................... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................................ 12
Item 3 - Quantitative and Qualitative Disclosures
About Market Risks................................................................................... 19
Part II Other Information:
Item 1 - Legal Proceedings........................................................................................ 20
Item 2 - Changes in Securities.................................................................................... 20
Item 3 - Defaults Upon Senior Securities.......................................................................... 20
Item 4 - Submission of Matters to a Vote of Security Holders...................................................... 20
Item 5 - Other Information........................................................................................ 20
Item 6 - Exhibits and Reports on Form 8-K......................................................................... 20
Signature ..................................................................................................... 21
</TABLE>
-2-
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS: 2000 1999
-------- --------
<S> <C> <C>
Current assets:
Cash $ 466 $ 973
Accounts receivable, net of allowance for doubtful accounts
of $1,810 at September 30, 2000 and $939 at December 31, 1999 6,085 4,933
Inventory 243 228
Acquisition escrow deposits -- 200
Note receivable, related party, net of allowance of $800 529 --
Prepaid expenses and other current assets 854 1,072
-------- --------
Total current assets 8,177 7,406
Fixed assets, net 11,599 10,461
Intangible assets, net 17,303 20,092
Deferred charges and other assets 1,585 1,365
-------- --------
Total assets $ 38,664 $ 39,324
======== ========
LIABILITIES:
Current liabilities:
Current maturities of long term debt $ 2,140 $ 508
Accounts payable 6,829 6,750
Accrued expenses 1,759 2,535
Deferred revenue 1,081 930
Customer deposits 444 577
-------- --------
Total current liabilities 12,253 11,300
Long term debt, net of current maturities 27,566 25,963
-------- --------
Total liabilities 39,819 37,263
-------- --------
Commitments and contingencies
7.5% Redeemable Preferred Stock, $0.01 par value, 100,000 shares authorized,
15,000 issued at September 30, 2000, none issued 1999 1,575 --
-------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.01 par value, 75,000,000 shares authorized, 17,611,000 and
16,551,000 shares issued and outstanding at September 30, 2000 and
December 31, 1999, respectively 176 166
Additional paid in capital 16,014 13,195
Accumulated deficit (18,870) (11,175)
Note receivable from stockholder (50) (125)
-------- --------
Total stockholders' equity (deficit) (2,730) 2,061
-------- --------
Total liabilities and stockholders' equity (deficit) $ 38,664 $ 39,324
======== ========
</TABLE>
See notes to condensed consolidated financial statements. 3
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Paging services $ 6,641 $ 8,422 $ 21,839 $ 22,533
Internet services 178 39 513 39
Equipment sales 176 256 631 623
----------- ----------- ----------- ------------
Total revenues 6,995 8,717 22,983 23,195
----------- ----------- ----------- ------------
Operating expenses:
Paging services 1,088 2,027 4,326 5,568
Cost of equipment sales 167 288 583 766
Technical operations 1,734 1,685 5,543 3,660
Sales and marketing 783 1,018 2,573 2,655
General and administrative 1,512 1,782 5,311 4,848
Internet operations 511 301 1,395 301
Depreciation and amortization 2,644 3,015 7,580 7,885
Provision for doubtful accounts 216 216 820 685
Costs of/(costs recovered from)
abandoned acquisitions (128) 355 (128) 355
----------- ----------- ----------- ------------
Total operating expenses 8,527 10,687 28,003 26,723
----------- ----------- ----------- ------------
Operating loss (1,532) (1,970) (5,020) (3,528)
Gain on disposal of assets (108) (29) (127) (29)
Interest expense, net 1,073 761 2,802 2,335
----------- ----------- ----------- ------------
Net loss (2,497) (2,702) (7,695) (5,834)
Preferred stock dividends (28) -- (75) --
----------- ----------- ----------- ------------
Loss attributable to common stockholders $ (2,525) $ (2,702) $ (7,770) $ (5,834)
=========== =========== =========== ============
Net loss per common share:
- Basic and diluted $ (0.14) $ (0.17) $ (0.45) $ (0.43)
=========== =========== =========== ============
Weighted average common shares outstanding 17,611,000 16,371,000 17,272,000 13,529,000
=========== =========== =========== ============
</TABLE>
See notes to condensed consolidated financial statements. 4
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,695) $ (5,834)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Depreciation and amortization 7,798 7,942
Cost of beneficial conversion feature of convertible debt 222 --
Amortization of deferred financing costs 280 102
Gain on sale of assets (127) (29)
Provision for doubtful accounts 820 685
Compensation paid with stock options 693 --
Costs of/(cost recoveries from) abandoned acquisitions -- 355
Changes in assets and liabilities, net of businesses acquired:
Accounts receivable (2,037) (3,246)
Inventory (845) (795)
Prepaid expenses and other current assets 339 (329)
Accounts payable and accrued expenses 182 4,591
Deferred revenues and customer deposits (368) (774)
-------- --------
Net cash (used in) provided by operating activities (738) 2,668
-------- --------
Cash flows from investing activities:
Business acquisitions (2,443) (18,940)
Capital expenditures (1,086) (1,171)
Acquisition deposits 200 (1,322)
Deferred business acquisition costs (117) (1,027)
Sale of fixed assets 1,415 499
-------- --------
Net cash used in investing activities (2,031) (21,961)
-------- --------
Cash flows from financing activities:
Net proceeds from stock options exercised 304 --
Issuance of long term debt 4,450 25,315
Repayment of long term debt (1,500) --
Repayment of notes payable to stockholders -- (520)
Repayment of notes payable -- (4,150)
Repayment of capital lease obligations (173) (1,608)
Refinancing of capital lease obligation -- 1,314
Deferred financing and other costs (819) (706)
-------- --------
Net cash provided by financing activities 2,262 19,645
-------- --------
(Decrease) increase in cash (507) 352
Cash, beginning of period 973 --
-------- --------
Cash, end of period $ 466 $ 352
======== ========
</TABLE>
See notes to condensed consolidated financial statements. 5
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except for share information)
1. BASIS OF PRESENTATION:
Aquis Communications Group, Inc. ("Aquis" or the "Company") is a holding
company, incorporated in the State of Delaware. Through its operating companies,
it operates 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 entered the Midwest through a
purchase of certain assets from SourceOne Wireless, Inc. ("SourceOne" or "SOWI")
completed on January 31, 2000. Aquis also resells nationwide and regional
services, offers alpha dispatch, news and other messaging enhancements.
Customers include individuals, businesses, government agencies, hospitals and
resellers.
On March 31, 1999, a wholly owned subsidiary of Paging Partners Corporation
("Paging Partners"), merged with Aquis Communications, Inc. ("ACI") in a
transaction accounted for as a reverse acquisition with ACI as the accounting
acquirer. At that time, Paging Partners changed its name to Aquis
Communications Group, Inc. On June 30, 1999, a wholly owned subsidiary of the
Company acquired SunStar Communications, Inc. ("SunStar") pursuant to the
terms of a stock purchase agreement. Due to its ongoing requirements for cash
to fund growth and operations, the assets of this Internet services provider
were sold on August 31, 2000, providing an approximate gain of $900 before
giving effect to a valuation allowance of $800. On January 31, 2000, the
Company completed its acquisition of certain assets of SourceOne Wireless. On
May 22, 2000, Aquis acquired certain paging assets of Suburban Paging, a
regional paging services reseller headquartered in Pennsylvania. These
acquisitions have been accounted for under the purchase method of accounting.
The accompanying unaudited condensed consolidated financial statements include
the accounts of the Company and its subsidiaries, and reflect the merger with
Paging Partners. These statements also include the acquisitions of SunStar, the
net assets of SourceOne and the net assets of Suburban Paging from their dates
of acquisition. The revenues and operating expenses of the Company's Internet
operations are presented separately in the Statement of Operations. A note
receivable in the gross amount of $1,329 and a valuation allowance in the amount
of $800 have both been recorded to reflect the sale of the Internet assets. The
accompanying statements reflect all adjustments considered necessary by
management to present fairly the consolidated financial position as of September
30, 2000 and December 31, 1999, the consolidated results of operations for the
three and nine month periods ended September 30, 2000 and 1999, and the related
consolidated cash flows for the nine month periods ended September 30, 2000 and
1999. All adjustments reflected in the accompanying unaudited condensed
consolidated financial statements are of a normal recurring nature. All
material intercompany accounts and transactions have been eliminated in
consolidation.
The results of operations for the respective interim periods 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.
Continued 6
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(In thousands, except for share information)
2. MERGER AND ACQUISITION TRANSACTIONS:
On January 31, 2000, the Company completed the acquisition (the "Acquisition")
of certain assets of SourceOne, a facilities-based provider of one-way paging
services to subscribers in certain Midwestern states. Previously, on August 2,
1999, the Company entered into an Asset Purchase Agreement (the "Purchase
Agreement") and Agreement Pending Purchase Closing (the "Agreement") with
SourceOne Wireless, Inc. and two of its affiliates. SOWI and its affiliates
filed voluntary petitions for relief under Chapter 11 with the United States
Bankruptcy Court in the Northern District of Illinois between April 29 and July
2, 1999. Pursuant to the Agreement, the Company managed the day-to-day
operations of certain SOWI businesses pending the closing of the Purchase
Agreement. This closing was subject to various approvals, including that of the
Bankruptcy Court and the FCC. During the management period, a reduction of the
purchase price was negotiated, and resulted in a reduced price of $2,250 in cash
and 15,000 shares of the Company's 7.5% cumulative redeemable preferred stock
valued at $1,500. Related acquisition costs totaling about $502 were deferred at
December 31, 1999, and have been treated as a cost of the assets acquired on
January 31, 2000. Costs to acquire the assets of SourceOne were capitalized at
December 31, 1999, including an escrow deposit of $200, since this transaction
was closed after that date. The recorded amounts of the assets acquired and
liabilities assumed are based on their historical fair values; actual
adjustments will be based on final analyses and are not expected to be material.
On November 6, 1998, ACI entered into a merger agreement with Paging Partners
whereby each share of ACI common stock was to be exchanged for 88.92076 shares
of Paging Partners' common stock (the "Merger"). The Merger was consummated on
March 31, 1999, and has been accounted for as a recapitalization of the Company
with ACI as the acquirer (reverse acquisition) under the purchase method of
accounting in accordance with Accounting Principles Board ("APB") Opinion No.
16, "Business Combinations." The aggregate purchase price of $6,071, which
includes transaction costs, has been allocated to the net assets acquired based
upon their estimated fair market values.
The following unaudited pro forma information presents a summary of the combined
results of operations of the Company as if the Acquisition and the Merger
occurred on January 1, 1999.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
Revenue $ 23,277 $ 32,361
============= =============
Net loss $ (7,691) $ (11,279)
Preferred stock dividends (84) (84)
------------- -------------
Net loss attributable to common stockholders $ (7,775) $ (11,364)
============= =============
Net loss per common share - basic and diluted $ (0.45) $ (0.69)
============= =============
</TABLE>
The pro forma results are based on various assumptions and are not necessarily
indicative of what would have occurred had these transactions been consummated
on January 1, 1999.
Continued 7
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(In thousands, except for share information)
3. SALE OF INTERNET SERVICES BUSINESS
On August 31, 2000, the Company completed the sale of the net assets of its
Internet services business to a private group that included a Director and the
current CEO of the Company. The net assets sold totaled approximately $1,400,
consisted primarily of licenses, other intangibles and receivables, and were net
of current liabilities at August 31, 2000 that totaled approximately $650.
Including those current liabilities at August 31, all of which were assumed by
the purchaser, the total purchase price was approximately $2,966 providing a
gain on this transaction of $908. In consideration for this sale, and in
addition to deposits received by the closing date, Aquis also received a note in
the amount of $1,329, maturing not later than December 31, 2000. The Company has
provided an allowance of $800 against this note for that portion not yet
collected and thereby deferred $800 of the gain provided by this transaction
until further payments are received. The revenues and expenses realized from
Internet operations have been presented separately in the Statements of
Operations and reflect operating losses of $333 and $882 for the three and
nine-month periods ended September 30, 2000. Internet operations during the nine
months ended september 30, 2000 used cash flows of $700, and $277 was invested
in licensing and other assets during that time.
4. LONG-TERM DEBT:
On October 23, 1998, ACI entered into a five-year term loan agreement (the
"Senior Loan Agreement") with FINOVA Capital Corporation ("FINOVA") which
provided a $30,000 credit facility. The FINOVA loan has a term of five years. As
originally agreed, the loan required graduated increasing quarterly principal
repayments ranging from .5% to 3.5% of outstanding principal beginning on July
1, 2000, with the balance due on December 31, 2003. The interest rate was set at
a rate based on Citibank, N.A.'s corporate base rate plus 175 basis points. The
Company could also elect an interest rate on a part of the FINOVA loan based on
a London Inter-Bank Official Overnight Rate plus 450 basis points. The Company's
assets, presently owned and acquired subsequently, and all issued and
outstanding equity interests in the Company's operating subsidiaries,
collateralize this loan. The loan agreement contains various covenants,
including restrictions on capital expenditures and compliance with certain
financial ratios. At December 31, 1999, the Company did not meet its senior debt
leverage requirement.
Continued 8
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(In thousands, except for share information)
On January 26, 2000, the FINOVA loan was amended in connection with the
SourceOne acquisition. The Company borrowed an additional $2,450 from FINOVA on
January 31, 2000 to consummate the acquisition (the "SourceOne Portion"). The
effect of the amendment was to limit the facility to the amount outstanding
after this transaction, or a total of $27,765, to modify certain financial
ratios and to increase the interest rate on the SourceOne Portion to Citibank,
N.A.'s corporate base rate plus 400 basis points. Also, a prepayment of
principal of $1,250 (the "Special Prepayment") was required to be applied to the
outstanding balance of the SourceOne Portion. The Company and FINOVA further
amended the loan agreement on April 12, 2000. The effects of this amendment were
to waive the Company's non-compliance at December 31, 1999, to modify certain
required financial ratios, and to encourage Aquis to make the Special Prepayment
of principal of $1,250 before April 15, 2000. All conditions were satisfied, the
Special Prepayment was paid, and the Company thereby reduced its cost of
borrowings through avoidance of the specified higher interest rates and
reduction of the outstanding loan balance.
On April 10, 2000, Aquis entered into an agreement to obtain a $2 million bridge
loan with AMRO International as interim funding pending completion of additional
prospective financing. The debt is subordinate to the Company's senior debt and
is unsecured. This agreement provides for an interest rate of 11%, a scheduled
maturity date on October 12, 2001 and also provides for interest to accrue until
the earlier of its maturity date or conversion. At the lender's election not
earlier than 120 days from the date of funding, this loan is convertible into
the Company's common stock at 90% of the then-current market value. The cost of
this beneficial conversion feature or discount to market price, estimated at
$222, has been charged against current year results of operations. At the
Company's election, the loan is redeemable at 115% of face value if such
election is made after the initial 118 days subsequent to funding.
Proceeds from this loan were used during April 2000 to make the Special
Prepayment of $1,250 to FINOVA. The balance was used to pay certain fees
incurred in connection with the FINOVA loan modifications arranged during 2000,
to pay certain costs incurred in connection with this bridge loan, and for
general corporate purposes.
On September 27, 2000, the Company and FINOVA agreed to modify the terms of its
Senior Loan Agreement, as amended. These modifications permit the Company to
retain all proceeds from the sale of its Internet operations, give the Company
an option to reduce the scheduled principal payment due on July 1, 2001 from
$514 to $200, and relaxes certain financial ratio covenants through September
30, 2001. In exchange, the Company has agreed to pay a fee of $100. Further,
additional contingent fees of up to $250 per quarter are to be added to the
principal balance due at final maturity if the Company is unable to meet the
financial ratios as amended in April 2000. Finally, a principal payment of
$2,000 is required on or before December 31, 2000 in order to avoid the
assessment of a $500 fee and an interest rate increase of 2%. That fee, at the
Company's election, would also be added to the principal balance otherwise
payable at the maturity date of this loan.
At September 30, 2000, the balance of the Senior Loan outstanding was $26,382
and is subject to floating interest rates. Of that total, $1,200, the SourceOne
Portion, carried an interest rate of 13.5% at that time. The balance was subject
to a rate of 11.25%. The remaining balance of long term debt outstanding
consisted principally of borrowings made pursuant to the bridge loan of April
2000 and to the Installment Loan, discussed below.
During the second quarter of 1999, the Company refinanced the capital lease
obligations that were assumed as a result of the merger with Paging Partners.
Terms of the new obligation (the "Installment Loan") include a principal amount
of $1,300, a 60-month repayment schedule, an interest rate indexed to the yield
for five year Treasury Notes, and is collateralized by the underlying equipment
Continued 9
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(In thousands, except for share information)
5. COMMON STOCK ISSUED:
During the nine months ended September 30, 2000, proceeds from the exercise of
stock options in the amount of $304 were received, net of related transaction
costs. In connection with these transactions, 331,000 shares of the Company's
common stock were issued. In addition, in connection with the purchase of assets
from Suburban Paging in May 2000, the Company issued 319,500 shares as
consideration for the paging assets purchased. Finally, in April 2000, the
Company issued 133,000 shares, valued at $400, to its former President which was
expensed as part of its settlement of a certain employment-related dispute.
In January, 2000, Aquis made cash payments totaling $205, issued a note payable
in the face amount of $350, and issued 275,000 shares of the Company's common
stock valued at $380 to a law firm in exchange for services provided. A former
member of the Board of Directors was a partner in this firm. The note issued in
connection with this transaction is payable in 20 equal monthly installments
bearing interest at the rate of 8.5%. The balance outstanding pursuant to this
note was approximately $235 at September 30, 2000.
6. 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.
7. COSTS OF (COST RECOVERIES FROM) ABANDONED ACQUISITIONS:
The Company settled certain legal proceedings involving Francis Communications
Texas, Inc. ("Francis") in September, 2000 through the return of the escrow
deposit originally made to secure its purchase of certain assets of Francis.
Aquis also recovered the costs of certain professional services incurred by
Aquis in this matter. The net recovery of amounts previously written off in 1999
are presented in the current periods as costs recovered from abandoned
acquisitions.
8. COMMITMENTS AND CONTINGENCIES:
The Company and its former President severed their employment relationship in
September 2000. In connection with that matter, certain options to purchase
600,000 shares of Aquis' common stock did not vest and were accordingly
cancelled, the exercise period for vested options to purchase 300,000 shares
was set at five years, and the results of operations were charged $50 during
the current period for the balance of the salary due under this President's
employment agreement.
Continued 10
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(In thousands, except for share information)
9. SUPPLEMENTAL CASH FLOW DATA:
During the nine months ended September 30, 2000, the Company purchased certain
assets of SourceOne and Suburban Paging. During the nine months ended September
30, 1999, the Company merged with Paging Partners Corporation and acquired
SunStar Communications, Inc. as more fully discussed in Note 1. Cash paid in
connection with these acquisitions is as follows:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
Supplemental information on businesses acquired:
Fair value of assets acquired $ 8,083 $ 11,217
Liabilities assumed (1,801) (3,262)
Exchange of common stock (1,598) (7,197)
Exchange of preferred stock (1,500) --
Accrued or deferred transaction costs (501) (183)
------- --------
Cash paid 2,683 575
Less: cash acquired (240) (170)
------- --------
Net cash paid 2,443 405
Cash paid in connection with BAPCO acquisition -- 18,535
------- --------
Total $ 2,443 $ 18,940
======= ========
</TABLE>
The Company paid cash for interest during the respective nine-month periods
ended September 30, 2000 and 1999 in the amounts of $2,355 and $1,874.
Additional fees to obtain funding and for letters of credit in the amount of
$298 were also paid in 1999.
10. LIQUIDITY:
The Company's management periodically prepares internal projections of cash
flows, EBITDA, and other financial measures. These projections are based on
the Company's business plan, certain operating assumptions and general
conditions in the wireless industry. The assumptions made are believed to be
reasonable, but are subject to uncertainty. As of the date of this Report,
projected financial ratios for the quarter ended December 31, 2001 are less
than those expected to be required under the existing agreement with the
Company's lender. If the Company was unable to meet these cash flow
requirements, it would be in default of certain covenants currently in
effect. In the event of default, the Company's lender could elect to demand
payment of all amounts then outstanding. It is unlikely that the Company's
cash and other liquid resources would be adequate to meet such a demand.
Accordingly, on September 27, 2000, the Company and its lender modified
certain terms of its Senior Loan Agreement, establishing relaxed covenant
standards that better reflected current business plans and expectations.
There is no assurance that the Company's lender will agree to additional
modifications if necessary in the future.
The Company's principal source of liquidity at September 30, 2000 included
cash and cash equivalents of about $466, a note receivable of $1,329 (against
which a valuation allowance of $800 has been provided pending collection)
arising from the sale of its Internet business, and its ability to generate
cash from operations. The Company believes that these resources will be
sufficient to meet the relaxed covenants that are specified by the
modifications made on September 27, 2000 as well as its anticipated working
capital and capital expenditure requirements through at least September 30,
2001. However, if cash from operations is not sufficient to fund the planned
growth of the core business or if the Company experiences further ARPU
deterioration or if certain other contingencies are resolved unfavorably, the
Company is prepared to implement the balance of its alternative business plan
(the "Alternative Plan"). This Alternative Plan in its entirety called for
the sale of the Internet subsidiary and other assets and for a reduction of
planned marketing expenditures and capital expenditures. As discussed, the
Company has sold its Internet assets and has implemented certain staff
reductions through attrition. It must also be noted that cash requirements of
the paging business may vary materially from those now planned as a result of
unforeseen changes that could consume a significant portion of available
resources or as a result of an increased rate of attrition of the customer
base.
11. SUBSEQUENT EVENTS:
In October, 2000, NASDAQ notified the Company that its securities would be
de-listed from the NASDAQ SmallCap Market. Its securities subsequently began
trading on the OTC Bulletin Board under the symbol AQIS.OB.
Continued 11
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In thousands)
ORGANIZATION AND BASIS OF PRESENTATION
Aquis Communications Group, Inc. ("Aquis" or the "Company") is a Delaware
holding company. Through its operating companies, it operates 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 entered the Midwestern region through a purchase of certain assets
from SourceOne Wireless, Inc. ("SourceOne" or "SOWI") completed on January 31,
2000. Aquis also resells nationwide and regional services, offers alpha
dispatch, news and other messaging enhancements. Customers include individuals,
businesses, government agencies, hospitals and resellers.
On March 31, 1999, a wholly owned subsidiary of Paging Partners Corporation
("Paging Partners"), merged with Aquis Communications, Inc. ("ACI") in a
transaction accounted for as a reverse acquisition with ACI as the accounting
acquirer. At that time, Paging Partners changed its name to Aquis Communications
Group, Inc. On June 30, 1999, a wholly owned subsidiary of the Company acquired
SunStar Communications, Inc. Due to its ongoing requirements for cash to fund
growth and operations, Management sold this Internet services provider on August
31, 2000. This transaction will provide a gain of $900 upon collection of the
balance of the purchase price. At September 30, 2000, an allowance of $800 for
the uncollected portion of the note received from the purchaser has been
provided. On January 31, 2000, the Company completed its acquisition of certain
assets of SourceOne. In May, 2000 the Company acquired certain paging assets of
Suburban Paging, a regional paging services reseller headquartered in
Pennsylvania. These matters are also discussed in the condensed consolidated
financial statements of the Company and the notes thereto and this discussion
should be read in conjunction with those statements and related notes.
GENERAL
The Company is a leading provider of paging and other wireless messaging and
communications services and markets one-way paging service and equipment to
customers directly and through resellers. The Company also offers its customers
both customer owned and maintained ("COAM") equipment or lease options for
equipment.
A substantial majority of the Company's revenue is provided by fixed periodic
fees for paging services that are not generally dependent on usage. Usage
sensitive charges consist primarily of charges for that number of messages
exceeding the number of messages included in the fixed basic monthly rate, or
"overcalls", and TNPP fees charged to resellers, and Calling Party Pays ("CPP")
charges and overcalls charged to end users. TNPP fees are charged to resellers
on a per-character basis for messages sent to the reseller's subscribers over
the Company's communications network. CPP fees are charged to the party sending
a message to a company-enabled pager, primarily on the basis of a flat fee per
message. For both the nine and three month periods ended September 30, 2000,
respectively, fixed fee paging revenue provided approximately 86% and 90% of
total revenues, as compared to 94% for the nine months ended September 30,
1999. This change is primarily the result of the CPP services added through the
Company's January 31, 2000 acquisition of the operations of SourceOne and the
TNPP services provided through the Paging Partners March 31, 1999 merger.
The 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. During each subscriber's service period, 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. The average of the "normalized" (excluding the effects of the
cancellation of certain units of Bell Atlantic Mobile and the reseller
subscriber base) monthly disconnection or "churn rates" for the nine-month
periods ended September 30, 2000 and 1999, were 3.5% and 3.3%, respectively.
Continued 12
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In thousands)
Including the effects of the cancelled Bell Atlantic Mobile units and the
reseller base, the churn rate was 3.8% in 2000. The higher churn rate for the
current nine-month period is largely attributed to units that were disconnected
for non-payment by certain mid-west service resellers that were acquired in the
SourceOne purchase and the cancelled Bell Atlantic Mobile units.
REVENUES
Paging services revenues for the nine months ended September 30, 2000 declined
by $694 to $21,839, or about 3%, from those of the corresponding period of 1999.
For the respective three-month periods, paging revenues declined from $8,422 to
$6,641. The decreases are attributed to several factors. First, service was
cancelled for more than 60,000 unprofitable units previously resold to Bell
Atlantic Mobile ("Bell"), as was service to certain reseller units acquired from
Paging Partners. Aquis and Bell entered into a reseller agreement for certain
reseller units in connection with the purchase of assets from Bell at December
31, 1998. Aquis elected to cancel the reseller agreement for certain units in
December, 1999, and for additional units in April, 2000 because these units were
not profitable to the Company. Second, Aquis along with the rest of the industry
has experienced steady pricing pressures. Accordingly, average revenue per unit,
or ARPU, has declined for both its end-user and reseller lines of business.
Contributing to the decline in end-user pricing has been the move toward COAM
pager use, reducing the rental revenues previously derived from leased
equipment. Finally, the percentage of the lower-margin reseller units to total
units in service has increased, reaching 58% at September 30, 2000 as compared
to 55% one year earlier. Partially offsetting the declines were the revenues
added through the merger with Paging Partners on March 31, 1999, the purchase of
traditional and calling party pays operations from SourceOne on January 31,
2000, the acquisition of paging assets from Suburban Paging in May, 2000, and
from internal growth.
Revenues from equipment sales were nearly flat during the nine-month periods,
and, for the three-month period in 2000 declined about 31% from those realized
for the three months ended September 30, 1999. The decline during the
three-month periods resulted from lower total volume, but was offset by more
sales of higher priced alpha pagers during current quarter. In addition to the
effects of marketplace and technological competition, lower overall sales
volume was also effected by the Company's need for additional capital to
purchase paging units for lease or resale. The Company has managed to eliminate
the prior-year pager sales subsidies incurred as a result of its concentration
on margins, rather than volume strategies. Finally, although the Internet
assets were sold on August 31, 2000, Internet services revenues increased
during both the three and nine-month periods of the current year. The
nine-months ended September 30, 1999 included only three months of operations
from the date that these Internet operations were acquired.
COST OF PAGING SERVICES
Cost of service consists of fees paid to third party carriers, and, to a lesser
extent, to message dispatch companies. Third party carriers are utilized when a
customer requires service outside of the Company's service area, and are most
commonly used to provide nationwide coverage. The costs of such services
declined to $4,326 and $1,088 during the nine and three-month periods ended
September 30, 2000, respectively, from $5,568 and $2,027 during the
corresponding periods in 1999. The decreases are primarily attributable to the
cancellation of services to certain Bell Atlantic Mobile reseller units in April
2000 and to the decline in the end-user subscriber base.
COST OF EQUIPMENT SALES
The cost decrease of $121 during the current three-month period was primarily
due to a 40% decrease in the number of units sold during the three months of the
current year and to the Company's shift to lower cost equipment. Costs during
the nine-month periods also decreased, to $583 from $766, due to similar
factors.
Continued 13
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In thousands)
TECHNICAL OPERATIONS
Technical operating expenses include transmission site rentals, telephone
interconnect services and the costs of network maintenance and engineering.
These expenses, excluding those related to Internet operations, totaled $1,734
and $5,543, in the three and nine-month periods ended September 30, 2000,
respectively, as compared to $1,685 and $3,660 in the year-earlier periods. The
increases resulted from the additional costs required to operate the paging
networks acquired from Paging Partners in March 1999 and from SourceOne in
January 2000.
SALES AND MARKETING
Selling and marketing expenses include the cost to acquire and retain
subscribers, operating costs associated with the sales and marketing
organizations, and other advertising and marketing expenses. These costs
decreased to $2,573 and $783 during the nine-month and three-month periods ended
September 30, 2000, or approximately 3% and 23% lower than those of the two
corresponding periods ended in 1999. These three-month decreases resulted from
certain staff reductions in targeted markets and from reduced commission
expenses associated with a revised commission plan implemented at the close of
1999.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include costs associated with customer
service, field administration and corporate headquarters. These costs totaled
$1,512 and $1,782 for the three-month periods ended September 30, 2000 and 1999,
and $5,311 and $4,848 for the nine-month periods then ended, respectively.
During the first quarter of 2000, $693 was incurred in connection with the
issuance of stock options in the hiring of the Company's former President.
Contributing to the cost reductions during the periods presented were certain
administrative and service staff reductions initiated during the fourth quarter
of 1999. Partially offsetting the decreases were increases in billing and data
processing costs due to costs to convert and integrate the SourceOne and
Suburban subscriber data bases and increased professional fees associated with
the various legal matters discussed elsewhere in this document.
INTERNET OPERATIONS
Internet operating expenses include all costs associated with providing Internet
services, such as communications and connectivity costs, sales and marketing
expenses, customer service and other general and administrative support costs,
and depreciation and amortization. Costs incurred during the periods ended in
1999 totaled $301 as compared to $511 and $1,395 for the three and nine-months
ended September 30, 2000 because the operations were acquired on June 30, 1999
and a smaller customer base required a smaller support structure in 1999.
Overall, Internet operating losses totaled $882 and $333 for the nine and
three-month periods ended September 30, 2000, as compared to $262 for both
periods in 1999. The sale of these operations was completed on August 31, 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the nine and three-month periods ended
September 30, 2000 decreased from that of the corresponding periods in 1999 as
the result of the sale of certain excess paging assets. Partially offsetting the
decreased expenses was depreciation of the assets acquired from Paging Partners
for six months in 1999 and of the SourceOne and Suburban Paging assets used for
eight and four months in 2000, respectively.
Continued 14
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In thousands)
INTEREST EXPENSE
Interest expense in the current three and nine month periods of $1,073 and
$2,802, respectively, includes interest on the Company's five year term loan
with FINOVA Capital Corporation ("FINOVA"), its bridge loan and installment loan
with FINOVA, as well as interest on certain other obligations. It also includes
the $222 estimated cost of the beneficial conversion feature granted to AMRO
International in conjunction with the bridge loan. Interest expenses have
increased over those of prior periods as the results of the borrowings incurred
in order to finance the Paging Partners merger and the purchases of SunStar and
SourceOne. Also contributing to the increases are higher interest rates in
effect for the floating rate loans payable to FINOVA. These increases have been
partially offset by the absence of letter of credit fees as incurred in the
first quarter of 1999 in connection with the funding of the Bell Atlantic Paging
acquisition.
PROVISION FOR INCOME TAXES
As of September 30, 2000 and 1999, the Company recorded no deferred tax asset.
The future benefit from the realization of the net operating losses was fully
offset by a related valuation allowance. A full valuation allowance was recorded
due to management's uncertainty about the realizability of the related tax
benefits. However, the amount of the deferred tax assets considered realizable
could be adjusted in the future if estimates of taxable income are revised.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require substantial funds to finance the growth of its
existing operations and customer base, expansion into new markets and strategic
acquisitions. Additional cash requirements include debt service, working capital
and general corporate requirements.
The Company's operations used about $738 of net cash during the current year
to date, while operating activities provided net cash of $2,668 for the nine
months ended September 30, 1999. The primary use of cash during the nine
months ended September 30, 2000 and 1999 was the increase in paging
subscriber receivables in the approximate net amounts of $2,037 and $3,246,
respectively. For the nine months ended September 30, 2000 and 1999,
operating cash flows totaling $182 and $4,591, respectively, were provided by
the growth of accounts payable as a result of the increased paging
infrastructure acquired from Paging Partners and SourceOne, and of the
deferral of payments to other vendors and suppliers, including the deferral
of interest due at the maturity of the bridge loan due to AMRO International
and the non-cash cost of the beneficial conversion feature granted to AMRO in
connection with the convertible debenture issued to them.
Consolidation of the paging industry and continuing concerns about profitability
and liquidity with respect to many companies in the industry has led the
industry and the Company to a marketing strategy intended to focus on operating
margins rather than on subscriber growth. Implementation of corresponding
commission and other related plans has been substantially completed to ensure
alignment of sales objectives and corporate goals to focus on higher-margin
alphanumeric service, as well as value-added services. To improve liquidity,
reduce operating losses and comply with its Agreement with FINOVA, the Company
completed the sale of its Internet assets. In response to the results of its
September 30, 2000 operating activities the Company is pursuing strategies
previously planned.
Continued 15
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In thousands)
o The Company has continued to focus on growth of its core business and
improvement in utilization of its paging system capacity. Through
alternative sales initiatives and additional strategic alliances combining
paging, email and the Internet, along with the use of its paging network to
broadcast information for content providers on a metered basis, the Company
anticipates improvements in operating margins. It has recently signed
several interconnection agreements with Verizon Wireless that are expected
to provide call termination revenues and provide lower operating costs.
o Overall revenues during the nine-month period ended September 30, 2000
were 1% less than those of 1999, and the Company continues to face
competitive pricing pressures in its markets, resulting in decreasing
average revenue per unit, increased subscriber churn rates and lower
operating margins. Total units in service decreased from approximately
391,000 at September 30, 1999 to about 387,000 at September 30, 2000,
and included a shift toward a heavier weighting of lower-revenue
reseller units. The Bell Atlantic Mobile units cancelled in December
1999 and April 2000 was largely offset by the acquired SourceOne and
Suburban subscriber bases. The Company is continuing marketing efforts
to expand its units in service and will continue to explore strategic
acquisitions to grow the customer base.
o The Company is continuing marketing and administrative efforts to regain
some of the resellers lost as a result of certain integration issues
connected with the Paging Partners merger.
o Aquis has signed an agreement with Sprint to market Sprint's PCS
communications services in an effort to leverage the efforts of the
Company's direct sales staff. Sprint is providing the handsets, eliminating
the need for capital investment.
o The Company continues to plan, explore and implement alternatives to offset
these trends by ( i ) negotiating more favorable terms from existing and
alternative paging equipment suppliers, and ( ii )
obtaining third party financing to finance such purchases.
During 2000, the Company used net cash of $3,529 in connection with business
acquisitions and for the purchase of equipment, including $252 of expenditures
related primarily to certain licensing of its Internet activities. This
represents a decline of $16,582 from 1999 net cash used for the same activities
and is primarily related to the $18,535 of cash used in 1999 in connection with
the paging assets purchased from BAPCO.
During the nine months ended September 30, 2000 and 1999, net cash provided from
financing activities totaled $2,262 and $19,645, respectively. The Company
borrowed $2,450 and $2,000 during the current nine-month period to complete the
SourceOne transaction and pay down the FINVOA debt, respectively, and borrowed
$20,500 in January 1999 to complete the asset purchase from BAPCO. Concurrent
with the loan of $2,450 in January, 2000, the Company agreed with its lender to
forego any further borrowings under this facility. In April, 2000, the Company
elected to make an additional payment of $1,250 to reduce the current year loan
of $2,450 from FINOVA in order to avoid the increased interest rates that would
have been assessed in the absence of such a payment. This payment was made
through use of the proceeds of the 11% bridge loan extended to the Company by
AMRO International in April, 2000 in the amount of $2,000. The balance of the
bridge loan was used to pay associated fees, for the purchase of additional
paging equipment and to meet general working capital needs.
The Company was not in compliance with a debt covenant related to its senior
debt leverage at December 31, 1999. Accordingly fees of $200 were paid in
connection with issuance of the amendment and waiver issued by the lender in
April 2000. This amendment also subjects Aquis to certain quarterly contingent
fees if future covenants are not
Continued 16
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In thousands)
met. Scheduled quarterly principal payments to the lender began on July 1, 2000,
with principal payments totaling $1,676 coming due during the twelve months
ending September 30, 2001. Aquis may elect to reduce one of the principal
installments by about $300 in 2001 in exchange for the payment of additional
fees.
Company management periodically prepares internal projections of cash flows,
EBITDA, and other financial measures. These projections are based on the
Company's business plan, certain operating assumptions and general conditions in
the wireless industry. The assumptions made are believed to be reasonable, but
are subject to uncertainty. As of the date of this Report, projected financial
ratios for the quarter ended December 31, 2001 are less than those expected to
be required under the existing agreement with FINOVA. If the Company was unable
to meet these cash flow requirements, it would be in default of certain
covenants currently in effect. In the event of default, FINOVA could elect to
demand payment of all amounts then outstanding. It is unlikely that the
Company's cash and other liquid resources would be adequate to meet such a
demand. On September 27, 2000, the Company agreed with FINOVA to modify certain
terms of its existing Senior Loan Agreement. These modifications permit the
Company to retain all proceeds from the sale of its Internet operations and
gives Aquis an option to reduce the scheduled principal payment due on July 1,
2001 from $514 to $200. Financial ratio covenants related to the amount of
senior and total debt outstanding and to its debt service coverage were also
relaxed from original levels through September 31, 2001. In exchange, the
Company has agreed to pay certain fees. Further, additional contingent fees of
up to $250 per quarter will be added to the principal balance due at final
maturity if the Company is unable to meet the financial ratios as amended in
April, 2000. Finally, a principal payment of $2,000 is required on or before
December 31, 2000 in order to avoid the assessment of a $500 fee and an interest
rate increase of 2%. At this time, the Company does not expect to make that
$2,000 payment of principal and the resulting $500 fee would then be expected to
be added to the principal balance otherwise payable at the maturity of this
loan. It is projected that the Company will not be in compliance with its
amended financial ratio covenants at December 31, 2001 absent further
modifications thereto, refinancing of at least a portion of its senior debt, or
other strategic changes in its operating model.
At September 30, 2000, the Company had a working capital deficit of $4,076,
which represents an increase of $182 from the deficit at December 31, 1999. The
Company's working capital is expected to improve with the collection of the
proceeds from the sale of its Internet operations. The Company expects that the
liquidity provided by that transaction, combined with the cash flows from its
paging operations will be sufficient to meet its minimum working capital needs
for the next year.
The Company's principal source of liquidity at September 30, 2000 included cash
and cash equivalents of about $466, a note receivable of $1,329 (against which a
valuation allowance of $800 has been provided pending collection) arising from
the sale of its Internet business, and its ability to generate cash from
operations. The Company believes that these resources will be sufficient to meet
the relaxed covenants that are specified by the modifications made on September
27, 2000 as well as its anticipated working capital and capital expenditure
requirements through at least September 30, 2001. However, if cash from
operations is not sufficient to fund the planned growth of the core business or
if the Company experiences further ARPU deterioration or if certain other
contingencies are resolved unfavorably, the Company is prepared to implement the
balance of its alternative business plan (the "Alternative Plan"). This
Alternative Plan in its entirety called for the sale of the Internet subsidiary
and other assets and for a reduction of planned marketing expenditures and
capital expenditures. As discussed, the Company has sold its Internet assets and
has implemented certain staff reductions through attrition. It must also be
noted that cash requirements of the paging business may vary materially from
those now planned as a result of unforeseen changes that could consume a
significant portion of available resources or as a result of an increased rate
of attrition of the customer base.
Continued 17
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In thousands)
SEASONALITY
Retail sales were subject to seasonal fluctuations that affect retail sales
generally. Otherwise, the results were generally not significantly affected by
seasonal factors.
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 various 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.
Continued 18
<PAGE>
AQUIS COMMUNICATIONS GROUP, INC.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(In thousands)
As of September 30, 2000, the Company had approximately $27,359 of floating-rate
debt outstanding. The Company's management believes the interest rate risk
represented by this debt is not material to its operating results or its
capitalization. The Company has not, and does not plan to, enter into any
derivative financial instruments for trading or speculative purposes. As of
September 30, 2000, the Company had no other significant material exposure to
market risk.
Continued 19
<PAGE>
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
The Company is a party to legal proceedings that have been reported in its
Annual Report on Form 10-K for the year ended December 31, 1999. The Company has
settled the proceedings involving Francis Communications Texas, Inc. ("Francis")
in September, 2000 through the return of the escrow deposit originally made to
secure its purchase of certain assets of Francis and the reimbursement of
certain legal costs incurred by Aquis in this matter. There were no other
significant developments related to legal proceedings involving the Company at
September 30, 2000.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS. None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES. None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
ITEM 5 OTHER INFORMATION.
In October 2000, NASDAQ notified the Company that its securities would
be de-listed from the NASDAQ SmallCap Market. Its securities
subsequently began trading on the OTC Bulletin Board under the symbol
AQIS.OB.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits:
Exhibit 10.1 Second Amendment to Loan Instruments dated as
of September 27, 2000 between the
Company and FINOVA Capital Corporation (1)
Exhibit 27 Financial Data Schedule (2)
(1) Incorporated herein by reference to Exhit 10.31 to the Company's
Registration Statement on Form S-1 filed with the Commission on September 29,
2000, Commission file number 333-46892.
(2) Filed herewith
Continued 20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Issuer
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John B. Frieling Chief Executive Officer November 20, 2000
--------------------
John B. Frieling
/s/ D. Brian Plunkett Chief Financial and Accounting Officer November 20, 2000
---------------------
D. Brian Plunkett
</TABLE>
Continued 21
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Method of Filing
----------- ----------- ----------------
10.1 Second Amendment to Incorporated by reference
Loan Instruments dated to Exhibit 10.31 to the
as of September 27, Company's Registration
2000 between the Statement on Form S-1
Company and FINOVA filed with the Commission
Capital Corporation on September 29, 2000
(Commission File No.
333-46892).
Continued 22
