##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended December 31,
2003

Commission File Number: 0-21924

METROCALL HOLDINGS, INC.

(Exact Name of Registrant as Specified in its
Charter)


|                                                                                         |  |                                                    
|---------------------------------------------------------------------------------------- |  | ---------------------------------------------------
|Delaware
    (State of incorporation)                                                    |  | 54-1215634
    (I.R.S. Employer Identification No.)
|                                                                                        
|6677 Richmond Highway, Alexandria, Virginia
    (Address of Principal Executive Offices) |  | 22306
    (Zip Code)                               

Registrants Telephone Number, including
area code: (703) 660-6677

Securities registered pursuant to
Section 12(b) of the Act:

Not applicable


Securities registered pursuant to
Section 12(g) of the Act:

Title of Class




Common Stock ($.01 par value)


Series A Redeemable Preferred Stock ($.01
par value)


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 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 o

Indicate by check mark if the disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrants knowledge in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.  o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange
Rule 12(b-2).  Yes x  No o

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

The aggregate market value of the common stock
held by non-affiliates of the Registrant was approximately
$102,199,896 based on the closing sales price on June 30,
2003.

Common Stock, par value $0.01 
5,462,285 shares outstanding on March 1, 2004

DOCUMENTS INCORPORATED BY REFERENCE:

Parts of the Companys definitive proxy
statement (to be filed with the Commission pursuant to
Regulation 14A within 120 days after the close of the
fiscal year) for its annual meeting currently scheduled to be
held on May 6, 2004 and are incorporated by reference in
response to Part III Items 10, 11, 12, 13 and 14.



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Table of Contents

|           |  |                                                                                           |    |      |    | 
|---------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                           |    | Page
|           |  |                                                                                           |    |     
|Part I    
|Item 1     |  | Business                                                                                  |    |      | 3  | 
|Item 2     |  | Properties                                                                                |    |      | 15 | 
|Item 3     |  | Legal Proceedings                                                                         |    |      | 15 | 
|Item 4     |  | Submission of Matters to a
    Vote of Security Holders                                   |    |      | 15 | 
|Part II   
|Item 5     |  | Market for Metrocalls
    Common Stock and Related Security Holder Matters               |    |      | 15 | 
|Item 6     |  | Selected Financial Data                                                                   |    |      | 17 | 
|Item 7     |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |    |      | 20 | 
|Item 7A    |  | Quantitative and Qualitative
    Disclosures About Market Risk                            |    |      | 43 | 
|Item 8     |  | Financial Statements and
    Supplementary Data                                           |    |      | 43 | 
|Item 9     |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure  |    |      | 43 | 
|Item 9A    |  | Controls and Procedures                                                                   |    |      | 44 | 
|Part III  
|Item 10    |  | Directors and Executive
    Officers of the Registrant                                    |    |      | 44 | 
|Item 11    |  | Executive Compensation                                                                    |    |      | 44 | 
|Item 12    |  | Security Ownership of
    Certain Beneficial Owners and Management                        |    |      | 44 | 
|Item 13    |  | Certain Relationships and
    Related Transactions                                        |    |      | 44 | 
|Item 14    |  | Principal Accountant Fees
    and Services                                                |    |      | 44 | 
|Part IV   
|Item 15    |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                      |    |      | 45 | 
|Signatures |  |                                                                                           | 47 |     



Forward-looking Statements

This Annual Report on Form 10-K includes or
incorporates forward-looking statements. Metrocall has based
these forward-looking statements on its current expectations and
projections about future events. These forward-looking
statements are subject to risks, uncertainties and assumptions
including, among other things those discussed under
Business and Managements Discussion and
Analysis of Financial Condition, and Results of
Operations, and as follows:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | Loss of subscribers of traditional paging
    services and advanced messaging services;                          
|
| |  | Increased competition resulting from
    technological advances;                                                 
|
| |  | Any failure to obtain FCC approvals for licenses;                                                                
|
| |  | Regulatory changes;                                                                                              
|
| |  | Satellite transmission failures;                                                                                 
|
| |  | Inability to maintain cost reductions;                                                                           
|
| |  | Difficult comparison of operating results
    associated with our adoption of fresh-start accounting;            
|
| |  | The challenges to integrate the operating assets
    we acquired from Weblink Wireless, Inc. into our operations;
|
| |  | Dependence on key management personnel; and                                                                      
|
| |  | Voting control of our preferred stockholders;                                                                    

Other matters set forth in this Annual Report on
Form 10-K may also cause actual results to differ
materially from those described in the forward-looking
statements. Metrocall undertakes no obligation to

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update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this Annual
Report on Form 10-K might not occur.





PART I



ITEM
1.     Business


General

Metrocall is a leading provider of local,
regional and national one-way or traditional paging
and two-way or advanced wireless data and messaging
services. Through our nationwide wireless networks, we provide
messaging services to over 1,000 U.S. cities, including the top
100 Standard Metropolitan Statistical Areas (SMSAs). At
December 31, 2003, we had approximately 3.1 million
traditional paging and 360,000 advanced messaging units in
service.

Our principal office is located at 6677 Richmond
Highway, Alexandria, Virginia 22306, and our telephone number is
(703) 660-6677. Our Internet address is www.Metrocall.com.
The Company will make available free of charge on its Internet
website its Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K, and all
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as soon as reasonably practicable after such reports are
electronically filed with, or furnished to, the Securities and
Exchange Commission. The information on our web site is not
incorporated by reference into this Annual Report and should not
be considered a part of this report.

Traditional Paging and Wireless Messaging
Industry Overview

We believe that traditional paging is the most
cost-effective and reliable means of conveying a variety of
information rapidly over a wide geographic area directly to a
mobile person. Traditional paging, as a one-way communications
tool, is a way to communicate at a lower cost than current
two-way communication methods, such as cellular and personal
communication services (PCS) telephones. For example, the
paging and messaging equipment and airtime required to transmit
an average message cost less than the equipment and air time for
cellular and PCS telephones. Furthermore, pagers operate for
longer periods due to superior battery life, often exceeding one
month on a single battery. Numeric and alphanumeric subscribers
generally pay a flat monthly service fee, which covers a fixed
number of messages sent to the subscriber. In addition, these
messaging devices are unobtrusive and mobile.

Although the U.S. traditional paging industry has
hundreds of licensed paging companies, the overall number of
traditional one-way and two-way subscribers has been declining
as the industry continues to face intense competition from
broadband/voice wireless services and other forms of
wireless data delivery. Metrocall continues to compete against a
variety of wireless data delivery companies, including
FCC-licensed, facilities-based Commercial Mobile Radio Service
(CMRS) providers, PCS carriers that offer short text
messaging services (SMS), and several two-way wireless data
companies such as Cingular Wireless and Motient Corporation. We
continue to provide two-way messaging and other short
messaging-based services and applications using our narrowband
PCS network.

Reorganized Metrocall

Exit from
Chapter 11 and Plan of Reorganization

On October 8, 2002 (the Effective
Date), Metrocall, Inc. together with its licensing and
operating subsidiaries Metrocall USA Inc. (Metrocall USA),
Advanced Nationwide Messaging Corporation Inc. (ANMC), MSI Inc.
(MSI), McCaw RCC Communications, Inc. (McCaw), and Mobilfone
Service, LP (Mobilfone), (collectively, the Debtors)
emerged from chapter 11 of the U.S. Bankruptcy Code pursuant to
a Joint Plan of Reorganization (the Plan) that was
confirmed by an order of the U.S. Bankruptcy Court for the
District of Delaware, (the Bankruptcy Court) entered
on September 26, 2002.

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Background

The Debtors filed voluntary petitions for relief
under chapter 11 on June 3, 2002 (the Petition
Date). The chapter 11 cases were jointly administered for
procedural purposes only before the Bankruptcy Court under the
docket of Metrocall, Inc. Case No. 02-11579. Metrocall
Ventures, Inc. (Ventures), one of our subsidiaries, did not file
a voluntary petition and was not a party to the chapter 11
cases. From June 3, 2002 through October 7, 2002, the
Debtors operated their businesses as debtors-in-possession under
the Bankruptcy Code.

Summary
of the Plan

Upon the effectiveness of our Plan, we
implemented a series of operational consolidations and
restructurings pursuant to the Plan, which included the
following:



| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | Each of ANMC, MSI and Mobilfone was merged with
    and into McCaw and all assets and liabilities of these companies
    were conveyed to McCaw;                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (ii)  | Metrocall, Inc. contributed all right, title and
    interest in all of its assets to McCaw other than
    (a) certain intellectual property conveyed to the license
    subsidiary, Metrocall USA, (b) a sufficient amount of cash
    to pay claims and to administer the Metrocall, Inc. estate and
    (c) its ownership interest in Inciscent, Inc., Metrocall
    USA and Ventures. These assets were contributed subject to all
    existing liens in place at that time. McCaw simultaneously
    assumed all of the underlying obligations directly attributable
    to these assets;
|
| | (iii) | Concurrently with the contributions by Metrocall,
    Inc. to McCaw, Metrocall, Inc. contributed certain intellectual
    property (including trademarks, trade names, and copyrights) to
    Metrocall USA. Immediately thereafter, Metrocall USA entered
    into a license agreement with McCaw for the use of the FCC
    licenses and other intellectual property; and                                                                                                                                                                                                                   
|
| | (iv)  | Metrocall, Inc., McCaw and Metrocall USA each
    reorganized and continued in operations pursuant to the Plan.
    Following the mergers and capital contributions described above,
    McCaw and Metrocall USA each reincorporated under the laws of
    the State of Delaware with amended and restated certificates of
    incorporation and by-laws, McCaw was renamed Metrocall, Inc. and
    the registrant, as reorganized, was renamed Metrocall Holdings,
    Inc.                                                                                                                  

The reorganized and reincorporated entities are
as follows: Metrocall Holdings, Inc. (formerly, Metrocall,
Inc.), Metrocall, Inc. (formerly, McCaw) and Metrocall USA,
respectively.

Weblink Wireless, Inc. Asset
Acquisition

On November 18, 2003, we acquired the
substantial majority of the operating assets and assumed certain
of the liabilities of Weblink Wireless, Inc. and certain of its
subsidiaries (Weblink asset acquisition). Metrocall and Weblink
had also entered into a Management and Spectrum Lease Agreement
under which Weblink will provide certain services and resell to
Metrocall the spectrum usage rights granted under FCC licenses
pending the FCCs approval of the transfer of such licenses
to Metrocall.

In connection with these transactions, we issued
to Weblink 500,000 shares of our common stock and warrants to
purchase up to an additional 125,000 shares of common stock at
$40 per share. 25,000 of these warrants were issued at closing.
100,000 additional warrants have been granted (subject to a
25,000 per year vesting) in consideration for Weblinks
services under the Management and Spectrum Lease Agreement but
the vesting of such warrants will accelerate upon the transfer
of the FCC licenses.

Pursuant to the asset acquisition and the
Management and Spectrum Lease Agreement, the acquisition has
provided us with direct access to the two-way network
infrastructure over which we provide our advanced messaging
services and to expand our sales distribution channels to
include wholesale carrier distribution and telemetry services.
As a result of the acquisition, we expect to be able to reduce
the operating costs incurred by each of the companies on a
stand-alone basis. Areas where integration and cost reduction
opportunities are believed to exist include satellite
transmission and delivery; duplicative sales, customer service
and inventory

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distribution functions and redundant back-office
support functions such as human resources, accounting and
executive management.


Metrocalls Business Strategy

Our business objectives and operating strategy
for 2004 will focus on maximizing the amount of cash flows
provided by our operating activities. Key elements of this
strategy will include:



| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | Subscriber retention efforts;                                        
|
| |  | Cost containment and reduction;                                      
|
| |  | Integration of the operations acquired from
    Weblink Wireless; and
|
| |  | Focus on marketing of advanced messaging services.                   

Subscriber retention efforts We expect the demand for our
traditional paging services and the related revenues to continue
to decrease in 2004. For instance, during 2003, revenues
generated from traditional service, rent and maintenance
services decreased $59.2 million to $318.9 million for
the twelve months ended December 31, 2003 from
$378.1 million for the twelve months ended
December 31, 2002. Our subscriber retention efforts will
continue to focus on customer service and sales to our business,
medical and government subscribers. Our subscriber retention
efforts in 2004 will also be focused on retaining the subscriber
base that was acquired in the Weblink asset purchase. Retention
efforts will be supported through our tiered field sales and
corporate service model designed to provide maximum support to
customer accounts based on their size and billing potential. We
believe that these customer accounts provide a higher average
monthly revenue per unit (ARPU) and lower
deactivation percentages than subscribers serviced through
indirect distribution channels.

We believe that new wireless data products and
services offered by the mobile phone companies results in
increased traditional paging deactivations. In 2004, we will
continue to offer advanced messaging services and sell PCS
phones to subscribers that require wireless communication needs
beyond the capabilities of traditional paging. Metrocall
currently sells cellular and PCS phone services through alliance
and dealer agreements with several carriers including AT&T
Wireless, Inc. (AT&T Wireless) and Nextel, Inc.
(Nextel). We believe these offerings assist to
partially offset revenue losses associated with subscriber churn
and enable us to continue to satisfy customer demands for a
broader range of wireless products and services. In 2003, we
recognized service, rent and maintenance revenues of
approximately $6.2 million from these services.

We also believe that maintaining sufficient
levels of customer service continues to be a key factor in
averting subscriber churn. Our customer service representatives
assist subscribers in managing their account activity including
the movement of paging devices between personnel within an
account. In addition, they address customer inquiries from
existing or potential customers. As such, we will continue to
provide customer service at both a field and national level to
address the demands and expectations of our direct subscriber
base.

Cost Containment and
Reduction Our Plan was
predicated on a refinement of our operating structure that would
reduce the amount of costs required to operate our business.
During 2003, the total of our cost of products sold, service,
rent and maintenance, selling and marketing and general and
administrative expenses decreased $88.8 million from a
total of $323.1 million for the twelve months ended
December 31, 2002 to $234.3 million for the twelve
months ended December 31, 2003. In addition, total capital
expenditures decreased $17.2 million over this same period
of time. In 2003, we took several steps to reduce our operating
and capital expenditures from such amounts incurred in 2002.

In February 2003, our Board of Directors removed
our former chief executive officer and appointed our current
CEO, Vincent D. Kelly. Our Board then approved a plan that would
enable us to reorganize our corporate management and sales
distribution function and to further centralize our national
call center services and inventory fulfillment processes. These
measures were necessary to maximize the amount of cash provided
by operating activities for capital expenditures, debt
retirement and preferred stock redemption. We also believe these
reductions were possible due to the rationalization and
centralization efforts we performed in

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2001 and 2002 and as a result of the reduction in
the number of subscribers to which we provide customer service
or inventory fulfillment.


Such containment and reduction initiatives
implemented by us included:

Reorganization of corporate
management Several senior
or corporate management positions were eliminated representing
approximately 25% of all such positions between February and
June 30, 2003. Many of the reductions were taken in
connection with the events described below. Such reductions were
possible because the size of our company in terms of employees,
subscribers and revenues no longer required a management
structure that was designed to support a growth-oriented company
with subscriber levels of over 10 million.

Reorganization of sales
distribution In February
2003, we consolidated the number of field sales regions under
the leadership of regional vice presidents from 6 to 3. The
consolidated regions include: the Eastern region, formerly
comprised of the Northeast, Mid-Atlantic and Southeast regions;
the Central region; and the Western region, formerly comprised
of the West and Northwest regions. The reduction of operating
regions has enabled us to further reduce general and
administrative expenses associated with our field operations as
each operating region had separate administrative support staff,
which now have been combined. In addition, we consolidated a
number of under-performing offices and markets into more
established markets to increase operating margins in those
markets.

In February 2003, we also consolidated our
corporate sales functions under the leadership of one senior
vice president and eliminated the non-core database marketing
sales group. As a result of the reorganization, we eliminated
several corporate sales and marketing positions. The
database-marketing group primarily targeted consumer
subscribers, which are outside of our core business focus.

Centralization of national call centers and
inventory fulfillment In
March 2003, we consolidated our national call center and credit
and collection efforts into one existing location in Pensacola,
Florida. These functions had been performed in two separate
locations: Alexandria, Virginia and Pensacola, Florida. The
consolidation has enabled us to reduce the number of staff and
management positions required. In addition, we achieved certain
operating efficiencies that were not possible earlier until the
conversion of our final billing system platform, which occurred
in December 2002. We now have one common platform under which we
manage our subscriber invoicing, order fulfillment and customer
service support and will be converting the billing platform we
acquired in the Weblink transaction into this platform during
2004.

In connection with the regional consolidation, we
centralized our field customer service and inventory
distribution functions into two primary locations within each
region. This process should enable us to more cost-effectively
provide customer service, data entry and inventory fulfillment
and permit us to reduce our operating expenses yet continue to
maintain adequate levels of customer service.

Other 2003
initiatives The completion
of the plan that began in February 2003 permitted us to gain
several operational efficiencies such as further centralization
of a regional inventory and customer service operations and we
were able to rationalize and eliminate an additional 89
positions in the last three months of 2003 not contemplated in
the February plan.

As a result of all the aforementioned efforts, we
reduced our workforce by approximately 520 positions in 2003.
Severance and related expenses of $6.8 million were incurred and
paid in 2003. For 2004, we expect to build-upon our
centralization efforts of 2003 and to identify further cost
reduction opportunities that may exist within our legacy
operations or through the integration efforts underway with the
Weblink asset acquisition. As part of these efforts, we expect
to deconstruct up to 775 of our transmitter sites supporting
under utilized frequencies in 2004 and 2005.

Integration of the operations acquired from
Weblink Wireless During
the fourth quarter of 2003, we commenced plans to integrate the
assets and operations acquired from Weblink. Please refer to
Weblink Wireless, Inc Asset Acquisition.
above and in Managements Discussion and Analysis for
further descriptions of this acquisition and our plans to
integrate operations.

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Focus on Marketing of Advanced Messaging
Services In November 2003,
we acquired the physical narrowband PCS network and
infrastructure through which we provide our advanced messaging
services from Weblink. Prior to this time, we had a strategic
alliance agreement with Weblink to resell on this network. For
the twelve months ended December 31, 2003, we generated
approximately $61.4 million from these services. As of
December 31, 2003 we had approximately 360,000 advanced
messaging units in service.

In 2004, we expect to continue marketing our
advanced messaging services and continue to provide wholesale
carrier services and telemetry services that Weblink had offered
to its customers. Although we expect to see demand for these
services decrease during 2004 from 2003 levels, we will continue
to directly target business and government customers and provide
separate support to the wholesale carriers that have use of the
network.

Metrocalls Paging and Wireless Messaging
Operations

Services
and Subscribers

Metrocall currently provides several traditional
and advanced wireless data and messaging services, including:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Traditional Paging
    Services As of
    December 31, 2003, we offered traditional paging services
    to approximately 3.1 million subscriber units consisting
    primarily of numeric and alphanumeric messaging services.
    Numeric messaging services permit a subscriber to receive
    messages that are composed entirely of numbers, such as a phone
    number while alphanumeric messages may include numbers and
    letters, which enable a subscriber to receive text messages.
|
| |  | Advanced Wireless Data and Messaging
    Services As of
    December 31, 2003, we provided advanced two-way
    messaging services to 360,000 subscriber units. Such services
    enable subscribers to send and receive messages from other
    hand-held devices or email addresses.                                                                                                                                                                                                        

We also provide enhancements and ancillary
services for our traditional and advanced messaging subscribers
including:



| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | personalized automated answering services, which
    allow a subscriber to record a message that greets callers who
    reach the subscribers voice mailbox;                  
|
| |  | vanity name for advanced messaging devices, which
    allows a subscriber to have an email address that utilizes a
    personalized vanity name instead of a telephone number; 
|
| |  | message protection, which allows a traditional
    subscriber to retrieve any calls that come in during the period
    when the subscriber was beyond the reach of our network;
|
| |  | annual loss protection, which allows subscribers
    of leased messaging devices to limit their cost of replacement
    upon loss or destruction of the device; and            
|
| |  | maintenance services, which are offered to
    subscribers who own their messaging devices.                                                                                    

Our subscribers either buy or lease their
messaging devices. Volume discounts on lease payments and
service fees have been offered to large volume subscribers. In
some instances, our subscribers are resellers that purchase
services at substantially discounted rates, but are responsible
for marketing, billing, collection and related costs with
respect to their customers.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Other Service
    Offerings Metrocall
    provides other wireless messaging and telecommunication services
    which include cellular and PCS phone distribution and system
    applications. We distribute digital broadband and PCS phones and
    other products through distribution or dealer agreements with
    AT&T Wireless, Nextel and other carriers. Metrocalls
    Integrated Resource Management System Application Division
    manages in-house and wide area messaging systems while reducing
    telecommunications costs and provides solutions to
    communications challenges to increase an organizations
    overall efficiency. This division integrates multiple
    communications platforms into one universal system that also
    provides a conduit to the wireless world. By offering these
    products, we fulfill the communications

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| |  |                                                                                                                                                                                                                                  
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | demands of large workforces such as corporations,
    manufacturers, municipalities, and healthcare organizations,
    particularly in campus-like settings. We also provide telemetry
    applications over our two-way network.

Sales and Marketing

Our sales and marketing efforts are focused on
maintaining and attracting business and government subscribers
throughout the United States. Our field operations are divided
into three geographic regions; each is led by a regional vice
president. Our sales personnel are located in over 80 offices in
33 states throughout the United States. In addition, we maintain
several corporate sales groups focused on our national accounts,
advanced messaging and PCS sales, systems applications and other
product offerings. Our field regions either sell our messaging
services and products directly to end-users or to
distributors that resell our airtime services to the ultimate
end-user. Our corporate sales groups are focused
mainly on direct subscriber placements. Set forth below is the
number of messaging devices that we have in service by
geographic region:

Number of Devices in Service

|                                 |  |      |           |      |  |         |           |  |  |  |           | 
|-------------------------------- |  | ---- | --------- | ---- |  | ------- | --------- |  |  |  | --------- | 
|For the Years Ended December 31, |  | 2001 |           | 2002 |  | 2003(a)
|                                 |  |      |           |      |  |        
|OPERATING REGION:                |  |      |           |      |  |         |           |  |  |  |           | 
|Eastern                          |  |      | 2,416,381 |      |  |         | 1,617,732 |  |  |  | 1,731,040 | 
|Central                          |  |      | 1,941,816 |      |  |         | 1,227,430 |  |  |  | 891,343   | 
|Western                          |  |      | 1,096,868 |      |  |         | 874,222   |  |  |  | 842,561   | 
|                                 |  |      |           |      |  |         |           |  |  |  |           | 
|Total                            |  |      | 5,455,065 |      |  |         | 3,719,384 |  |  |  | 3,464,944 | 
|                                 |  |      |           |      |  |         |           |  |  |  |           | 



---



|    |                                                                      
|--- | ---------------------------------------------------------------------
|(a) | Includes 634,000 units acquired in the Weblink
    asset acquisition.

Direct
Distribution Channel

Direct
Sales Our direct sales
field and corporate personnel sell our messaging services and
sell or lease our messaging devices and other products primarily
to businesses, placing special emphasis on fulfilling the
enterprises communication needs. Our direct sales
personnel generally target businesses that have multiple work
locations or have highly mobile employees. Our sales
compensation plans are designed to motivate direct sales
personnel to focus on selling rather than leasing traditional
pagers and advanced wireless data and messaging devices, which
reduces capital requirements, and to increase sales of higher
revenue product enhancements, such as nationwide coverage,
alphanumeric service and voice mail. Approximately
$274.7 million or 86% of our service, rent and maintenance
revenue in 2003 was generated through our direct distribution
channel.

Indirect
Distribution Channels

Our indirect channels provide for the
distribution of airtime services to end-subscribers using an
intermediary party to contract with the end-subscriber. We
contract directly with; and invoice, the intermediary for such
airtime services. There is no contractual relationship that
exists between Metrocall and the end-subscriber. Unless
otherwise described below, we do not normally provide customer
service or billing support to the end-subscriber. Subscriber
units placed in the indirect distribution channels typically
have average monthly revenue per unit in service (ARPU)
statistics below units placed in the direct distribution
channels. In addition, operating costs per unit to provide these
services are significantly below that required in the direct
distribution channels. The subscriber churn in our indirect
distribution channel has been at a much higher rate than
experienced with our direct distribution customers. Retention
efforts in these channels are difficult because of the lack of
visibility to the end-subscriber. We expect that high churn
rates in certain of our indirect distribution channels will
continue in 2004 as we continue to focus our selling and
marketing efforts on our direct distribution channels and the
carrier services channel we acquired in the Weblink asset
acquisition.

8



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Approximately $44.2 million or 14% of our
service, rent and maintenance revenue in 2003 was generated from
our indirect distribution channels. Our indirect channels
include:




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Resellers
    Resellers resell our bulk-paging services to their own business
    clients and individual customers. We issue one monthly bill to
    each reseller; who is responsible for marketing, billing and
    collection and equipment maintenance. Through this channel, we
    achieve high network utilization at low incremental cost, but
    realize much lower ARPU than through other distribution channels.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Strategic
    Partners We have entered
    into contractual agreements with several selected national
    distribution partners who market our paging services to their
    existing and future customers. We supply many of these partners
    with custom branded turnkey solutions for network services,
    which include: products, customer services billing, collections
    and fulfillment. Our strategy is to provide these value-added
    services to enhance the business relationship and margin
    opportunities for both parties. We have entered into alliances
    with companies in the long distance, local exchange, cable,
    Internet, retail, direct response and multi-level marketing
    businesses. These programs help to deliver paging services to
    market segments that our other distribution channels may not
    reach cost-effectively.
|
| |  | Carriers
    Services With our
    acquisition of the Weblink assets, we now provide wholesale
    distribution of two-way messaging and traditional paging
    services to other paging and telecommunications carriers. We
    believe that the advanced messaging network we acquired provides
    a high functionality, large coverage footprint network compared
    to the networks of our current competitors, which makes the
    reselling of the advanced messaging services attractive to other
    paging and telecommunications providers. These companies
    purchase our traditional and advanced messaging services at
    wholesale rates and resell such services under their own brand
    names.                                                                                                                                                           

Our carrier services sales channel has
established numerous strategic relationships with large
telecommunications providers, such as Verizon Wireless Messaging
LLC, Cingular Wireless, BellSouth Telecommunications and
Ameritech Mobile Services, Inc.. These companies utilize their
brand awareness, billing and distribution efficiencies to market
private brand subscriber devices and services using our
transmission network.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Affiliates
    We operate a network of paging carriers or affiliates that
    resell services on the 152.480 MHz private carrier paging
    frequency. These affiliates are independent owners of paging
    systems in various markets throughout the nation who sell
    expanded coverage to their customers. Utilizing Metrocalls
    infrastructure, these independent networks provide wide area and
    nationwide paging on a single channel.

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Set forth below are the respective numbers and
percentages of messaging devices that we service through our
distribution channels:

Ownership of Devices in Service

|                   |                                         |        |  |            |  |         |  |            |   |        |  |            |  |  |  |     |   |  |  |           |  |  |  |     |  
|------------------ | --------------------------------------- | ------ |  | ---------- |  | ------- |  | ---------- | - | ------ |  | ---------- |  |  |  | --- | - |  |  | --------- |  |  |  | --- | -
|                   |                                         |        |  |            |  |        
|                   |                                         | 2001   |  | 2002       |  | 2003(b)
|                   |                                         |        |  |            |  |        
|                   |                                         | Number |  | Percentage |  | Number  |  | Percentage |   | Number |  | Percentage
|                   |                                         |        |  |            |  |         |  |            |   |        |  |           
|Direct channels:   |                                         |        |  |            |  |         |  |            |   |        |  |            |  |  |  |     |   |  |  |           |  |  |  |    
|                   | Company-owned and leased to subscribers |        |  | 1,899,381  |  |         |  | 35         | % |        |  | 1,710,967  |  |  |  | 46  | % |  |  | 1,618,388 |  |  |  | 47  | %
|                   | Customer-owned and maintained           |        |  | 758,505    |  |         |  | 14         | % |        |  | 571,804    |  |  |  | 15  | % |  |  | 711,156   |  |  |  | 21  | %
|                   | Company-owned retail stores (CORS)(a)   |        |  | 117,973    |  |         |  | 2          | % |        |  | 50,281     |  |  |  | 1   | % |  |  |          |  |  |  |    |  
|Indirect channels: |                                         |        |  |            |  |         |  |            |   |        |  |            |  |  |  |     |   |  |  |           |  |  |  |    
|                   | Resellers                               |        |  | 2,102,855  |  |         |  | 39         | % |        |  | 990,421    |  |  |  | 27  | % |  |  | 666,921   |  |  |  | 19  | %
|                   | Strategic partners and affiliates       |        |  | 576,351    |  |         |  | 10         | % |        |  | 395,911    |  |  |  | 11  | % |  |  | 294,524   |  |  |  | 8   | %
|                   | Carrier Services                        |        |  |           |  |         |  |           |   |        |  |           |  |  |  |    |   |  |  | 173,955   |  |  |  | 5   | %
|                   |                                         |        |  |            |  |         |  |            |   |        |  |            |  |  |  |     |   |  |  |           |  |  |  |    
|                   | Total                                   |        |  | 5,455,065  |  |         |  | 100        | % |        |  | 3,719,384  |  |  |  | 100 | % |  |  | 3,464,944 |  |  |  | 100 | %
|                   |                                         |        |  |            |  |         |  |            |   |        |  |            |  |  |  |     |   |  |  |           |  |  |  |    



---



|    |                                                                       
|--- | ----------------------------------------------------------------------
|(a) | Channel ceased as separate reporting unit as of
    December 31, 2002.
|   
|(b) | Includes 634,000 units acquired from Weblink in
    November 2003.    

Network and Equipment

We have developed a paging and messaging system
utilizing technology which achieves solid building penetration,
wide-area coverage and the ability to deliver narrowband
messaging services. Our messaging services are initiated when
telephone calls or short message-based text services are placed
to our company-maintained paging terminals. These terminals have
a modular design that allows significant future expansion by
adding or replacing modules rather than replacing the entire
terminal. Our paging terminals direct pages from the Public
Switched Telephone Network (PSTN) or from the Internet to
our satellite uplink facility located in Stockton, California,
which signals terrestrial network transmitters providing
coverage throughout the service area. We transmit a majority of
our one-way traffic through this facility. All traffic related
to the Weblink acquired assets (two-way and some one-way
traffic) is transmitted through a satellite transmission hub
located in Atlanta, Georgia. Both of these facilities operate 24
hours per day, seven days per week.

We have three exclusive nationwide one-way
frequencies and a nationwide 50/50 KHz narrowband personal
communication (NPCS) license issued by the FCC and are
operating in each of the largest 100 SMSAs. With the
purchase of the Weblink assets and under the Weblink management
and spectrum lease agreement for FCC licenses, we also have
access to 2 additional exclusive nationwide one-way, a 50/50 KHz
and a 50/12.5 KHz NPCS license. We began operating the
nationwide network on one of the three one-way channels in
November 1993. We developed a special home gateway switch that
allows all of our existing regional based paging terminals to
route two-way messaging data to this centralized gateway for
delivery into the two-way ReFLEX 25tm network. We
offer our two-way messaging services using the narrowband
network and infrastructure obtained through the Weblink asset
purchase and the resale arrangement under the management and
spectrum lease agreement. This lease agreement will expire upon
FCC approval of the transfer of the Weblink licenses to
Metrocall. Application for the transfer of the Weblink licenses
has been filed with the FCC and is pending FCC approval.

We are also capable of providing local paging in
many markets served by the nationwide network by using
nationwide transmitters to carry local messages. Services
provided through the nationwide network are marketed to
subscribers directly through our sales force and indirectly
through retailers and resellers. We also operate a series of
regional operating systems or networks consisting of primary
networks serving Arizona,

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California, Utah, Texas, Florida, Illinois,
Oregon, Washington, Colorado and Nevada, and the area from
Boston to the Virginia/ North Carolina border, and a ten
(10) state region in the Southeastern portion of the U.S.


Product
Sourcing and Key Suppliers

Metrocall does not manufacture any of the paging
or messaging devices, infrastructure and other equipment used in
its operations. While the equipment used in Metrocalls
operations is available for purchase from multiple sources,
Metrocall has historically limited the number of suppliers to
achieve volume cost savings and, therefore, depends on such
manufacturers to obtain sufficient inventory. Metrocall
purchases traditional messaging devices from several suppliers.
In November 2001, Motorola, Inc. (Motorola)
announced that it would no longer sell the messaging equipment
used by Metrocall for its traditional or two-way messaging
services. Through June 2002, we continued to receive our
advanced messaging devices from Motorola, since that time, we
have certified one new advanced messaging device and additional
devices are expected to be certified within the next
12 months. With our existing supply of advanced messaging
devices and the certification of new devices, it is our belief
that we will be able to meet forecasted demand.

Metrocall currently receives maintenance and
support services for its network infrastructure components from
GTES, LLC (GTES) through a support services
contract, which will expire in May 2004. In February 2004, GTES
was formed as a venture between our wholly-owned subsidiary,
Metrocall Ventures, Inc. and the former management and employees
of Glenayre Technologies, Inc. paging and infrastructure
operations. Metrocall expects to enter into a new maintenance
agreement with GTES upon the expiration of the current contract.
Metrocall expects that infrastructure and equipment components
will continue to be available for the foreseeable future,
consistent with normal manufacturing and delivery lead times but
cannot provide any assurance that it will not experience
unexpected delays in obtaining equipment in the future.

Management Information Systems, Customer
Invoicing and Services

We have centralized certain operating functions
and utilize common and distributed billing and subscriber
management systems, which permit us to increase our operating
efficiencies and focus regional management on sales and
distribution. The functions centralized into our national
operations center in Alexandria, Virginia include accounting,
management information systems, and inventory and order
fulfillment.

We maintain one national customer service call
center, which is a critical factor in marketing and servicing
the nationwide network to all markets in the United States. Our
center, which is located in Pensacola, Florida processes
customer inquiries from existing and potential customers and
supports our distribution channels initiatives. Our call center
is open seven days per week, 24 hours per day. In addition, we
maintain a customer service center for our strategic national
accounts in Alexandria, Virginia which is responsible for all
support aspects of the customer relationship. Metrocall employs
state-of-the-art call management technology (such as an
automated call distribution system and interactive voice
response capabilities) at both facilities to provide quality
customer service and to track both the productivity and the
quality of the performance of its customer service
representatives.

Competition

Metrocall faces intense competition for
subscribers not only from other providers of traditional paging
services such as Arch Wireless, Inc., Skytel, Inc. and Verizon
Wireless Messaging LLC, but also large mobile telephone carriers
such as AT&T Wireless, Cingular Wireless, Nextel, Sprint
PCS, T-Mobile and Verizon Wireless and others who have or are
developing messaging services that perform comparable functions
to our two-way narrowband PCS services. In addition, providers
of e-mail and similar services available over PDAs such as
Motient Corporation have also developed two-way messaging
devices in competition with our messaging services. Increased
competition from these providers might result in loss of
existing or future subscribers, loss of revenues and increased
expenses to stay competitive.

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Many of our competitors have longer operating
histories and better brand recognition. Several of our
competitors are large diversified telecommunications companies
that serve several markets and possess financial, technical and
other resources greater than those of Metrocall. The intensity
of competition for communication service customers will continue
to increase as wireless communication products and technologies
continue to be developed and offer new and different services
and applications. Further advances in technology could lower the
cost of competing services and/or products to a level at which
Metrocalls pricing for its services and products would
cease to be competitive. We may not be able to develop or
introduce new services and products on a timely basis and at
competitive prices, if at all, and our revenues, profit margins,
inventory costs and cash flows may be adversely affected by
technological developments.

Government Regulation

From time to time, federal and state legislators
propose and enact legislation that affects our business, either
beneficially or adversely, such as by increasing competition or
affecting the costs of operating our business. Additionally, the
FCC and, to a lesser extent, state regulatory bodies, may adopt
rules, regulations or policies that may affect our business. We
cannot predict the impact of such legislative actions on our
operations. The following description of certain regulatory
factors does not purport to be a complete summary of all-present
and proposed legislation and regulations pertaining to our
operations.

Federal
Our operations are subject to extensive regulation by the FCC
under the Communications Act. Under the Communications Act, we
are required to obtain FCC licenses for the use of radio
frequencies to conduct our operations within specified
geographic areas. These licenses set forth the technical
parameters, such as maximum power and antenna height, under
which we may operate the frequencies. We are licensed by the FCC
to operate CMRS messaging services.

The FCC requires messaging licensees to construct
their stations and begin service to the public within a
specified period of time, and failure to do so results in
termination of the authorization. We have timely met all of our
station construction deadlines and anticipate that we will
continue to do so. Several years ago, the FCC adopted rules to
issue most messaging licenses for large, FCC-defined service
areas, and to award those licenses by auction. Licenses for 929
MHz and 931 MHz messaging frequencies are issued for Major
Economic Area or MEA geographic areas;
licenses for exclusive messaging frequencies in lower frequency
bands are licensed in Basic Economic Areas or
BEAs; these wide-area paging licenses
are subject to population coverage benchmarks (one-third of the
service area population at three years and two-thirds at five
years from license grant, or substantial service).
Our licensing subsidiary has participated in two FCC auctions
for paging licenses, and has been awarded 176 licenses covering
areas in which we already provided service under site-specific
licenses. The earliest of the coverage benchmark deadlines for
these licenses was June 12, 2003, and we timely filed
notices of compliance for the affected licenses. Our next
benchmark filings are due in June of 2005. Since we already have
extensive coverage in the subject areas, we anticipate meeting
the remaining benchmarks for these licenses; even if we failed
to do so, we would retain the site-specific authorizations that
we had prior to the auctions.

Our shared messaging frequencies are unaffected
by the wide-area licensing and auction rules. In addition, our
three nationwide messaging frequencies are not subject to
competitive bidding.

The FCC has forbearance authority,
which means it need not enforce against all CMRS licensees the
following common carrier regulations under Title II of the
Communications Act: any interstate tariff requirements,
including regulation of CMRS rates and practices; the collection
of intercarrier contracts; certification concerning interlocking
directorates; and FCC approval relating to market entry and
exit. Additionally, the 1993 Budget Act preempted state
authority over CMRS entry and rate regulation. Under additional
forbearance authority for all telecommunications
services, granted by the Telecommunications Act of 1996 (the
1996 Act), the FCC has not required wireless
carriers to receive prior FCC approval for certain
non-substantial corporate stock transfers and reorganizations.

The FCC issues CMRS Messaging licenses for terms
of 10 years. Our current licenses have expiration dates
ranging from 2004 to 2014. The FCC must approve renewal
applications. In the past, the FCC has routinely granted our
renewal applications. We are required to obtain FCC approval
before we acquire radio

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licenses held by other companies, as well as
transfers of controlling interests of any entities that hold
radio licenses. Although there can be no assurance that any
future renewal or transfer applications we file will be approved
or acted upon in a timely manner by the FCC, we know of no
reason to believe such applications would not be approved or
granted, based upon our experience to date. The FCC has
authority to restrict the operation of licensed radio facilities
or to revoke or modify such licenses. The FCC may adopt changes
to its radio licensing rules at any time, and may impose fines
for violations of its rules.


The Communications Act also places limitations on
foreign ownership of CMRS licenses. These foreign ownership
restrictions limit the percentage of our stockholders
equity that may be owned or voted, directly or indirectly, by
aliens or their representatives, foreign governments or their
representatives, or foreign corporations. Metrocall
Holdings certificate of incorporation permits the
redemption of its equity from stockholders where necessary to
protect its compliance with these requirements.

The 1996 Act imposes a duty on all
telecommunications carriers to provide interconnection to other
carriers, and requires local exchange carriers (LECs; i.e.,
local telephone companies) to, among other things, establish
reciprocal compensation arrangements for the transport and
termination of calls and provide other telecommunications
carriers access to their network elements on an unbundled basis
on reasonable and non-discriminatory rates, terms and
conditions. The LECs are now prohibited from charging messaging
carriers for the transport and termination of
LEC-originated local calls. This prohibition has lead to certain
cost savings for Metrocall. Moreover, under the 1996 Act and the
FCCs rules, messaging carriers are entitled to
compensation from any LEC for local calls that terminate on a
messaging network. We have interconnection and reciprocal
compensation agreements with a number of LECs. Recently, an FCC
decision that was inconsistent with the FCCs resolution of
our complaint against several LECs for unlawful termination
charges was remanded by the US Court of Appeals for the DC
Circuit. Although we expect that the FCC will render a decision
in that carriers case that is consistent with ours, there
is nothing to prohibit the FCC from revisiting its
interpretation of the 1996 Acts interconnection
requirements.

The 1996 Act also requires the FCC to appoint an
impartial entity to administer telecommunications numbering and
to make numbers available on an equitable basis. In addition,
the 1996 Act requires that state and local zoning regulations
shall not unreasonably discriminate among providers of
functionally equivalent wireless services, and shall
not have the effect of prohibiting the provision of personal
wireless services. The 1996 Act provides for expedited judicial
review of state and local zoning decisions. Additionally, state
and local governments may not regulate the placement,
construction and modification of personal wireless service
facilities on the basis of the environmental effects of radio
frequency emissions, if the facilities comply with the
FCCs requirements. Other provisions of the 1996 Act and
various FCC proceedings, however, may impose additional
regulatory costs. For example, all interstate telecommunications
carriers, including Metrocall, are required to contribute to
universal service; the FCC is currently considering changes to
the contribution mechanism that may increase the amounts paid by
CMRS carriers. Additionally, the FCCs Spectrum Policy Task
Force has proposed regulatory changes that are intended to
provide more access to spectrum for unlicensed operations. The
proposed changes include recommendations of new frequency
allocation models that could result in incumbent licensees
sharing their frequencies with unlicensed operators. A handful
of FCC proceedings to implement portions of the Spectrum Policy
Task Forces recommendations have commenced, and are
pending before the agency. Metrocall and many other wireless
licensees have filed comments with the FCC opposing any changes
to its rules that could lead to potential interference to
licensed operators. The FCC has also recently adopted new rules
to govern the leasing of spectrum; while those new rules may
benefit us (for example, by allowing us to lease and obtain
rental payments for any of our licensed spectrum, these rules
could also harm us by increasing competition from new wireless
entrants. Some FCC rules affecting our business are subject to
pending petitions for FCC reconsideration or Court appeals;
rules that are currently under consideration by the FCC may
likewise be appealed. We cannot predict the final outcome of any
judicial or FCC proceeding or the possible impact of future FCC
proceedings on our business.

State
The 1993 Budget Act and related FCC orders preempt all state and
local rate and entry regulation of all CMRS operators. Entry
regulations typically refer to the process whereby a CMRS
operator must apply to the state to obtain a certificate to
provide service in that state. Rate regulation typically refers
to the requirement that CMRS operators file a tariff describing
our billing rates, terms and conditions by which

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we provide messaging services. Apart from rate
and entry regulations, some states may continue to regulate
other aspects of our business in the form of zoning regulations
(subject to the 1996 Acts prohibition on discrimination
against or among wireless telecommunications carriers), or
health and safety measures. The 1993 Budget Act does
not preempt state authority to regulate such matters. Although
there can be no assurances given with respect to future state
regulatory approvals, based on our experience, we know of no
reason to believe such approvals would not be granted.


In 1997, the FCC held that the Budget Act does
not prohibit states from imposing requirements of CMRS carriers
to contribute to funding universal telephone service
within the states. Approximately 25 states, in addition to the
FCC, now impose such universal service fund
obligations on messaging carriers. Although additional costs are
incurred in contributing to state and federal universal service
funds, these costs/taxes are typically passed on to our
subscribers, as allowed by applicable regulations.

Seasonality

Generally, our operating results are not
significantly affected by seasonal factors.

Trademarks and Service Marks

We use the following trademarks:



| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | IRM*;                                                                                                                                                                         
|
| |  | Metrocall  a registered
    trademark with the U.S. Patent and Trademark Office;                                                                                             
|
| |  | Metrofax;                                                                                                                                                                     
|
| |  | Metrotext  a computer
    program designed for use in transmitting alphanumeric messages
    from personal computers to pagers (copyright registration has
    been granted);
|
| |  | Weblink Wireless;                                                                                                                                                             

Service Marks:

|  |  |                                         |  |                                         
|- |  | --------------------------------------- |  | ----------------------------------------
| |  | Adding Mobility to Business*;         |  | Airware;                              
| |  | Americas Wireless Network;           |  | Communication for the Net Generation*;
| |  | Conveia*;                             |  | Datacall;                             
| |  | DirectView;                           |  | Helping America Communicate*;         
| |  | In Touch;                             |  | IRM*;                                 
| |  | Message Track*;                       |  | Metromessage;                         
| |  | Metrocall;                            |  | Metronet;                             
| |  | One Touch;                            |  | ProNet Communications;                
| |  | ProNet Communications to Go;          |  | The Business Communication Experts*;  
| |  | Your Business Communication Partner*; |  |                                         
| |  | Infoquotes                            |  |                                         
| |  | Inforoam                              |  |                                         
| |  | Omniroam                              |  |                                         
| |  | One Pager No Borders                  |  |                                         
| |  | PageLauncher                          |  |                                         
| |  | Reliable Messaging Made Easy          |  |                                         



---



|  |                    
|- | -------------------
|* | Application pending

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Employees

As of March 3, 2004, we employed 1,511 full
and part-time employees, none of whom is represented by a labor
union. We believe that our relationship with our employees is
good.




ITEM
2.     Properties

We do not hold title to any significant real
property although, Metrocall Ventures, Inc., a wholly-owned
subsidiary, owns interests in certain properties. At
December 31, 2003, we leased commercial office, retail and
storage space, including our executive offices, at more than 221
locations used in our operations. These office leases provided
for monthly payments ranging from approximately $367 to $129,906
and expire, subject to renewal options, on various dates through
2012.

We also lease numerous sites under long-term
leases for our transmitters on commercial broadcast towers,
buildings and other fixed structures. On December 31, 2003,
these transmitter sites were leased for monthly rentals ranging
from approximately $240 to $5,635 that expire, subject to
renewal options, on various dates through January 2016.




ITEM 3.     Legal
Proceedings

Metrocall is subject to certain legal and
regulatory matters in the normal course of business. In the
opinion of management, the outcome of such assertions will not
have a material adverse effect on the financial position or the
results of the operations of Metrocall.




ITEM
4.     Submission OF Matters to a
Vote of Security Holders

None.




PART II




ITEM 5:     Market for The Registrants Common Equity and Related
Stockholder Matters

Under the terms of the Plan, all holders of our
prior outstanding equity securities, including preferred stock,
common stock and options/warrants to acquire such securities
received no distributions and all such equity interests were
cancelled as of the Effective Date. Our prior common stock had
traded on the NASDAQ SmallCap Market through April 12, 2001
and on the OTC Bulletin Board from May 2001 to October 7,
2002 under the symbol MCLLQ. We are authorized to
issue up to 7,500,000 shares of new common stock and are
required to issue 5,000,000 shares of new common stock to
holders of our prior secured bank debt and to our former general
unsecured creditors. As of March 1, 2004 there were
approximately 290 holders of record of the new common stock,
holding 5,461,160 shares of new common stock.
38,840 shares of the new common stock are being held to be
issued to our former creditors to be determined as the claims
adjudication process is completed. We anticipate that the shares
of new common stock will continue to be issued on an incremental
basis as the Bankruptcy Court enters orders allowing and
disallowing claims until all remaining unreconciled and/or
disputed claims have either been reconciled and allowed or
disallowed.

The new common stock was listed on the OTC
Bulletin Board from October 8, 2002 through
December 16, 2003 and has been listed on the NASDAQ
SmallCap under the symbol, MTOH since
December 17, 2003.

The following table indicates the range of high
and low closing prices of our common stock as reported on the
OTC Bulletin Board from October 8, 2002 through
December 16, 2003 and as reported on the NASDAQ SmallCap
from December 17, 2003 through December 31, 2003. The
following table also indicates, for the first three fiscal
quarters of the fiscal year 2002 the range of high and low
closing prices of our common stock

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that was cancelled in connection with our
reorganization as reported on the NASDAQ National Market or the
OTC Bulletin Board.


|                   |  |      |       |     |  |   |       | 
|------------------ |  | ---- | ----- | --- |  | - | ----- | 
|Fiscal Year Ending |  | High |       | Low
|                   |  |      |       |    
|December 31, 2003  |  |      |       |     |  |   |       | 
|First Quarter      |  | $    | 0.40  |     |  | $ | 0.05  | 
|Second Quarter     |  | $    | 25.00 |     |  | $ | 0.35  | 
|Third Quarter      |  | $    | 31.40 |     |  | $ | 21.60 | 
|Fourth Quarter     |  | $    | 76.07 |     |  | $ | 30.00 | 
|                  
|December 31, 2002  |  |      |       |     |  |   |       | 
|First Quarter      |  | $    | 0.11  |     |  | $ | 0.03  | 
|Second Quarter     |  | $    | 0.08  |     |  | $ | 0.01  | 
|Third Quarter      |  | $    | 0.03  |     |  | $ | 0.01  | 
|Fourth Quarter     |  | $    | 0.20  |     |  | $ | 0.01  | 

We have never declared or paid cash dividends on
our common stock. Our ability to pay dividends on our common
stock is restricted as long as shares of the series A preferred
stock are outstanding.

See Security Ownership of Certain
Beneficial Owners and Management  Equity Compensation
Plans for disclosure regarding our equity compensation
plans.

Recent Sales of Unregistered
Securities

On November 18, 2003, we acquired the
substantial majority of operating assets and assumed certain
liabilities of Weblink and as consideration for such
transaction, issued to the Sellers 500,000 shares of our
common stock, an immediately exercisable warrant to purchase up
to 2,000 shares of our common stock at an exercise price of
$40 per share and another warrant to purchase up to
additional 100,000 shares of our common stock at an
exercise price of $40 per share, 25,000 shares of
which vest upon each of the first four anniversaries of the date
of issuance, subject to the vesting of all shares being
accelerated upon transfer of certain FCC licenses held by the
Sellers. The sale was made pursuant to the exemption from
registration available under Section 4(2) of the Securities
Act of 1933, as amended (the Securities Act), for
transactions by an issuer not involving any public offering.

16



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|        |                        
|------- | -----------------------
|ITEM 6. | Selected Financial Data

The following tables set forth selected financial
and other data of Metrocall. The historical financial data has
been derived from the audited consolidated financial statements
for the year ended December 31, 2003, for the period
October 8, 2002 to December 31, 2002, the period
January 1, 2002 to October 7, 2002 and each of the
years in the three-year period ended December 31, 2001. The
selected data should be read in conjunction with,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, Business
and Metrocalls consolidated financial statements, related
notes thereto and other financial information included in the
consolidated financial statements.

As a result of Metrocalls filing a
voluntary petition to reorganize under chapter 11 of the
U.S. Bankruptcy Code on June 3, 2002 and operating as a
debtor-in-possession until October 8, 2002 the selected
financial data for periods prior to October 8, 2002 are not
comparable to periods subsequent to such date. The financial
statements of the Reorganized Company reflect the impact of
adjustments to reflect the fair value of assets and liabilities
under fresh start reporting. As a result, the financial
statements of the Reorganized Company are presented on a
different basis than those of the Predecessor Company and,
therefore, are not comparable in all respects. The results of
operations of the Predecessor Company for the period
January 1, 2002 to October 7, 2002 include several
items related to our emergence from the chapter 11 proceedings
and the related cancellation or discharge of certain of our debt
obligations and equity securities. These items include: a net
gain of $749.8 million from the discharge and termination
of debt; a net gain of $575.5 million due to fresh-start
accounting adjustments; a gain of $80.3 million from the
cancellation of outstanding Preferred Stock; and the cessation
of recording contractual interest of $24.1 million while we
were operating in bankruptcy from June 3, 2002 to the
Effective Date.

On November 18, 2003, the Company acquired
the majority of the operating assets and assumed certain
liabilities of Weblink Wireless, Inc. and certain of its
subsidiaries. The Company has accounted for the asset
acquisition under the purchase method of accounting for
financial reporting purposes pursuant to SFAS No. 141,
Business Combinations,and accordingly the operating
results of the acquired assets have been included in the
consolidated statement of operations for 2003 from their date of
acquisition. Units in service at December 31, 2003 include
approximately 634,000 units acquired in the acquisition.

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|                                                                                                          |                   |                                                                 |          |                     |         |              |          |              |         |      |          |          |         |   |           |           |         |   |        |       |        |   |         |        |         | 
|--------------------------------------------------------------------------------------------------------- | ----------------- | --------------------------------------------------------------- | -------- | ------------------- | ------- | ------------ | -------- | ------------ | ------- | ---- | -------- | -------- | ------- | - | --------- | --------- | ------- | - | ------ | ----- | ------ | - | ------- | ------ | ------- | 
|                                                                                                          |                   |                                                                 |          |                    
|                                                                                                          |                   | Predecessor Company                                             |          | Reorganized Company
|                                                                                                          |                   |                                                                 |          |                    
|                                                                                                          |                   |                                                                 |          | January 1           |         | October 8    |          |             
|                                                                                                          |                   | Year Ended December 31,                                         |          | to                  |         | to           |          | Year Ended  
|                                                                                                          |                   |                                                                 |          | October 7,          |         | December 31, |          | December 31,
|                                                                                                          |                   | 1999                                                            |          | 2000                |         | 2001         |          | 2002         |         | 2002 |          | 2003(d) 
|                                                                                                          |                   |                                                                 |          |                     |         |              |          |              |         |      |          |         
|                                                                                                          |                   |                                                                
|                                                                                                          |                   | Dollars in thousands, except per share, unit, and per unit data
|Consolidated Statements of Operations
    Data:                                                           |                   |                                                                 |          |                     |         |              |          |              |         |      |          |          |         |   |           |           |         |   |        |       |        |   |         |       
|Service, rent and maintenance revenues                                                                    |                   | $                                                               | 548,700  |                     |         | $            | 504,800  |              |         | $    | 460,448  |          |         | $ | 296,813   |           |         | $ | 81,325 |       |        | $ | 318,926 |       
|Product sales                                                                                             |                   |                                                                 | 61,487   |                     |         |              | 57,183   |              |         |      | 43,225   |          |         |   | 24,056    |           |         |   | 4,078  |       |        |   | 17,933  |       
|                                                                                                          |                   |                                                                 |          |                     |         |              |          |              |         |      |          |          |         |   |           |           |         |   |        |       |        |   |         |       
|                                                                                                          |                   | Total revenues                                                  |          |                     | 610,187 |              |          |              | 561,983 |      |          |          | 503,673 |   |           |           | 320,869 |   |        |       | 85,403 |   |         |        | 336,859 | 
|Operating expenses:                                                                                       |                   |                                                                 |          |                     |         |              |          |              |         |      |          |          |         |   |           |           |         |   |        |       |        |   |         |       
|Service, rent and maintenance (exclusive of
    depreciation and amortization shown separately below)     |                   |                                                                 | 154,398  |                     |         |              | 133,667  |              |         |      | 139,326  |          |         |   | 89,250    |           |         |   | 23,004 |       |        |   | 94,098  |       
|Cost of products sold (exclusive of depreciation
    and amortization shown separately below)             |                   |                                                                 | 39,071   |                     |         |              | 37,509   |              |         |      | 26,176   |          |         |   | 13,085    |           |         |   | 1,081  |       |        |   | 4,804   |       
|Selling and marketing maintenance (exclusive of
    depreciation and amortization shown separately below) |                   |                                                                 | 97,051   |                     |         |              | 103,413  |              |         |      | 92,481   |          |         |   | 50,952    |           |         |   | 11,359 |       |        |   | 40,026  |       
|General and administrative (exclusive of
    depreciation and amortization shown separately below)        |                   |                                                                 | 174,592  |                     |         |              | 172,017  |              |         |      | 161,161  |          |         |   | 106,674   |           |         |   | 27,735 |       |        |   | 95,388  |       
|Reorganization expenses(a)                                                                                |                   |                                                                 |         |                     |         |              |         |              |         |      | 15,017   |          |         |   | 19,007    |           |         |   |       |       |        |   | 6,842   |       
|Depreciation                                                                                              |                   |                                                                 | 85,547   |                     |         |              | 111,160  |              |         |      | 111,502  |          |         |   | 50,386    |           |         |   | 10,927 |       |        |   | 33,568  |       
|Amortization                                                                                              |                   |                                                                 | 210,359  |                     |         |              | 175,803  |              |         |      | 74,391   |          |         |   |          |           |         |   | 1,948  |       |        |   | 4,345   |       
|Asset impairment (b)                                                                                      |                   |                                                                 |         |                     |         |              |         |              |         |      | 387,934  |          |         |   |          |           |         |   |       |       |        |   |        |       
|                                                                                                          |                   |                                                                 |          |                     |         |              |          |              |         |      |          |          |         |   |           |           |         |   |        |       |        |   |         |       
|Income/(loss) from operations                                                                             |                   |                                                                 | (150,831 | )                   |         |              | (171,586 | )            |         |      | (504,315 | )        |         |   | (8,485    | )         |         |   | 9,349  |       |        |   | 57,788  |       
|Interest expense                                                                                          |                   |                                                                 | (85,115  | )                   |         |              | (84,169  | )            |         |      | (100,672 | )        |         |   | (39,280   | )         |         |   | (2,580 | )     |        |   | (7,099  | )     
|Interest expense  dividends and
    accretion of series A preferred(c)                                   |                   |                                                                 |         |                     |         |              |         |              |         |      |         |          |         |   |          |           |         |   |       |       |        |   | (12,428 | )     
|Interest and other income (expense)                                                                       |                   |                                                                 | 407      |                     |         |              | (2,450   | )            |         |      | (7,822   | )        |         |   | (822      | )         |         |   | 1,047  |       |        |   | 463     |       
|Gain on early extinguishment of debt                                                                      |                   |                                                                 |         |                     |         |              | 22,876   |              |         |      |         |          |         |   | 749,821   |           |         |   |       |       |        |   |        |       
|Fresh start accounting adjustments                                                                        |                   |                                                                 |         |                     |         |              |         |              |         |      |         |          |         |   | 575,491   |           |         |   |       |       |        |   |        |       
|                                                                                                          |                   |                                                                 |          |                     |         |              |          |              |         |      |          |          |         |   |           |           |         |   |        |       |        |   |         |       
|Income/(loss) before income tax benefit                                                                   |                   |                                                                 | (235,539 | )                   |         |              | (235,329 | )            |         |      | (612,809 | )        |         |   | 1,276,725 |           |         |   | 7,816  |       |        |   | 38,724  |       
|Income tax benefit (provision)                                                                            |                   |                                                                 | 63,055   |                     |         |              | 20,775   |              |         |      |         |          |         |   |          |           |         |   | (3,000 | )     |        |   | (21,754 | )     
|                                                                                                          |                   |                                                                 |          |                     |         |              |          |              |         |      |          |          |         |   |           |           |         |   |        |       |        |   |         |       
|                                                                                                          | Net income/(loss) |                                                                 |          | (172,484            | )       |              |          | (214,554     | )       |      |          | (612,809 | )       |   |           | 1,276,725 |         |   |        | 4,816 |        |   |         | 16,970 |        
|Preferred dividends and accretion(c)                                                                      |                   |                                                                 | (16,462  | )                   |         |              | (9,816   | )            |         |      | (10,391  | )        |         |   | (4,855    | )         |         |   | (2,679 | )     |        |   | (6,084  | )     
|Gain on extinguishment of preferred stock                                                                 |                   |                                                                 |         |                     |         |              |         |              |         |      |         |          |         |   | 80,346    |           |         |   |       |       |        |   |        |       
|Reorganization expense-accretion of liquidation
    preference                                            |                   |                                                                 |         |                     |         |              |         |              |         |      |         |          |         |   | (4,715    | )         |         |   |       |       |        |   |        |       
|Series C preferred exchange inducement                                                                    |                   |                                                                 |         |                     |         |              | (6,308   | )            |         |      |         |          |         |   |          |           |         |   |       |       |        |   |        |       
|Gain on repurchase of preferred stock                                                                     |                   |                                                                 | 2,208    |                     |         |              |         |              |         |      |         |          |         |   |          |           |         |   |       |       |        |   |        |       
|                                                                                                          |                   |                                                                 |          |                     |         |              |          |              |         |      |          |          |         |   |           |           |         |   |        |       |        |   |         |       
|Income/(loss) attributable to common stockholders                                                         |                   | $                                                               | (186,738 | )                   |         | $            | (230,678 | )            |         | $    | (623,200 | )        |         | $ | 1,347,501 |           |         | $ | 2,137  |       |        | $ | 10,886  |       
|                                                                                                          |                   |                                                                 |          |                     |         |              |          |              |         |      |          |          |         |   |           |           |         |   |        |       |        |   |         |       
|Basic earnings/(loss) per share attributable to
    common stockholders                                   |                   | $                                                               | (4.47    | )                   |         | $            | (3.00    | )            |         | $    | (6.93    | )        |         | $ | 14.98     |           |         | $ | 0.43   |       |        | $ | 2.17    |       
|                                                                                                          |                   |                                                                 |          |                     |         |              |          |              |         |      |          |          |         |   |           |           |         |   |        |       |        |   |         |       
|Diluted earnings/(loss) per share attributable to
    common stockholders                                 |                   | $                                                               | (4.47    | )                   |         | $            | (3.00    | )            |         | $    | (6.93    | )        |         | $ | 14.98     |           |         | $ | 0.43   |       |        | $ | 2.11    |       
|                                                                                                          |                   |                                                                 |          |                     |         |              |          |              |         |      |          |          |         |   |           |           |         |   |        |       |        |   |         |       

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---



|   |                                                                                                                                                                                                                                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) | 2001 and 2002 amounts include costs for legal,
    financial and investment banking services received in connection
    with Metrocalls former merger agreement with Weblink,
    which was terminated on May 14, 2001 and other costs
    incurred by the Predecessor Company and its debt holders in
    connection with debt restructuring efforts in 2001 and 2002.
|  
|b) | In 2001, the Predecessor Company wrote down the
    carrying value of its long-lived assets by approximately
    $388.0 million to their estimated fair value as a result of
    their impairment.                                                                                                                                                                      
|  
|c) | Effective July 1, 2003, we adopted
    SFAS 150 which requires dividends and interest in
    redeemable preferred stock to be classified as interest expense
    prospectively.                                                                                                                                                                                         
|  
|d) | 2003 amounts include the operations of Weblink
    beginning November 18, 2003.                                                                                                                                                                                                                                                                                         

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You should find the following definitions below
useful in understanding Metrocalls operating and other
data:



| |   |                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | ARPU is average monthly paging revenue per unit.
    ARPU is calculated by dividing (a) service, rent and
    maintenance revenues for the period by (b) the average
    number of units in service for the period. The ARPU calculation
    excludes revenues derived from non-paging services such PCS and
    cellular commissions.
|
| |  | Average monthly operating expense per unit is
    calculated by dividing (a) total recurring operating
    expenses before reorganization expenses and depreciation and
    amortization for the period by (b) the average number of
    units in service for the period.                                                             

Dollars in thousands, except per share, unit, and
per unit data

|                                                        |  |                         |           |                     |  |            |           |                 |  |                   |           |         |  |   |         |   |  |   |           |   |  |   |           |  
|------------------------------------------------------- |  | ----------------------- | --------- | ------------------- |  | ---------- | --------- | --------------- |  | ----------------- | --------- | ------- |  | - | ------- | - |  | - | --------- | - |  | - | --------- | -
|                                                        |  |                         |           |                    
|                                                        |  | Predecessor Company     |           | Reorganized Company
|                                                        |  |                         |           |                    
|                                                        |  |                         |           |                     |  |           
|                                                        |  | Year Ended December 31, |           | January 1           |  | October 8, |           | Year Ended     
|                                                        |  |                         |           | to                  |  | to         |           | December 31,   
|                                                        |  | 1999                    |           | 2000                |  | 2001       |           | October 7, 2002 |  | December 31, 2002 |           | 2003(d)
|                                                        |  |                         |           |                     |  |            |           |                 |  |                   |           |        
|Operating and Other Data:                               |  |                         |           |                     |  |            |           |                 |  |                   |           |         |  |   |         |   |  |   |           |   |  |   |           |  
|Net cash provided by operating activities               |  | $                       | 53,097    |                     |  | $          | 26,409    |                 |  | $                 | 39,541    |         |  | $ | 42,388  |   |  | $ | 8,696     |   |  | $ | 95,604    |  
|Net cash used in investing activities                   |  | $                       | (76,791   | )                   |  | $          | (109,979  | )               |  | $                 | (41,161   | )       |  | $ | (24,219 | ) |  | $ | (2,671    | ) |  | $ | (4,876    | )
|Net cash provided by (used in) financing
    activities |  | $                       | 18,045    |                     |  | $          | 107,380   |                 |  | $                 | (842      | )       |  | $ | (633    | ) |  | $ | (166      | ) |  | $ | (102,656  | )
|Capital expenditures                                    |  | $                       | 81,890    |                     |  | $          | 95,268    |                 |  | $                 | 41,961    |         |  | $ | 24,095  |   |  | $ | 2,626     |   |  | $ | 9,478     |  
|ARPU                                                    |  | $                       | 7.86      |                     |  | $          | 6.92      |                 |  | $                 | 6.31      |         |  |   |         |   |  | $ | 6.91(a    | ) |  | $ | 7.98      |  
|Average monthly operating expense per unit              |  | $                       | 6.11      |                     |  | $          | 5.61      |                 |  | $                 | 5.39      |         |  |   |         |   |  | $ | 5.42(a    | ) |  | $ | 5.86      |  
|Units in service (end of period)                        |  |                         | 5,927,939 |                     |  |            | 6,254,373 |                 |  |                   | 5,455,065 |         |  |   |         |   |  |   | 3,719,384 |   |  |   | 3,464,944 |  
|Units in service per employee (end of period)           |  |                         | 1,660     |                     |  |            | 1,751     |                 |  |                   | 1,807     |         |  |   |         |   |  |   | 1,913     |   |  |   | 2,759     |  



---



|   |                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) | Amount based on the predecessor and reorganized
    companies for the periods January 1, 2002 to
    October 7, 2002 and October 8, 2002 to
    December 31, 2002 on a combined basis.

|                                                 |  |                     |           |                     |  |      |          |      |  |      |          |   |  |   |         |   |  |   |         |  
|------------------------------------------------ |  | ------------------- | --------- | ------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | - |  | - | ------- | -
|                                                 |  |                     |           |                    
|                                                 |  | Predecessor Company |           | Reorganized Company
|                                                 |  |                     |           |                    
|                                                 |  |                     |           |                    
|                                                 |  | December 31,        |           | December 31,       
|                                                 |  |                     |           |                    
|                                                 |  | 1999                |           | 2000                |  | 2001 |          | 2002 |  | 2003
|                                                 |  |                     |           |                     |  |      |          |      |  |     
|Consolidated Balance Sheet Data:                 |  |                     |           |                     |  |      |          |      |  |      |          |   |  |   |         |   |  |   |         |  
|Working capital (deficit) (a)                    |  | $                   | (36,908   | )                   |  | $    | (764,532 | )    |  | $    | (833,484 | ) |  | $ | (15,334 | ) |  | $ | (3,162  | )
|Cash and cash equivalents                        |  | $                   | 2,787     |                     |  | $    | 26,597   |      |  | $    | 24,135   |   |  | $ | 47,530  |   |  | $ | 35,602  |  
|Total assets                                     |  | $                   | 1,025,547 |                     |  | $    | 757,145  |      |  | $    | 203,470  |   |  | $ | 189,747 |   |  | $ | 195,761 |  
|Total long-term debt, net of current portion (a) |  | $                   | 776,984   |                     |  | $    | 301      |      |  | $    | 220      |   |  | $ | 20,762  |   |  | $ | 41      |  
|Total stockholders equity/(deficit)             |  | $                   | (152,134  | )                   |  | $    | (166,352 | )    |  | $    | (789,237 | ) |  | $ | 715     |   |  | $ | 93,281  |  



---



|   |                                                                                                                                                                                                                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) | At December 31, 2000 and 2001 working
    capital deficit included current debt balance of approximately
    $760.0 million which largely constituted debt with
    scheduled non-current maturities; but which had been classified
    as current debt due to the default of certain debt covenants
    that accelerated the scheduled maturities of debt.




Item
7.     Managements Discussion
and Analysis of Financial Condition and Results of
Operations

You should read the following discussion and
analysis of the financial condition and results of operations of
Metrocall together with the Consolidated Financial Statements
and the notes to the Consolidated Financial

20



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##### Table of Contents



Statements included elsewhere in this Annual
Report and the description of Metrocalls business in
Business.


Overview

We are a leading provider of local, regional and
national one-way or traditional paging and two-way
or advanced wireless data and messaging services in
the United States. Through our nationwide wireless networks, we
provide messaging services to over 1,000 U.S. cities, including
the top 100 Standard Metropolitan Statistical Areas (SMSAs). On
December 31, 2003, we had approximately 3.5 million
units in service, including 360,000 units receiving advanced
data and messaging services.

Emergence from Chapter 11
Proceedings On
October 8, 2002, Metrocall, Inc. together with its
licensing and operating subsidiaries Metrocall USA, ANMC, MSI,
McCaw and Mobilfone, (collectively, the Debtors)
emerged from chapter 11 of the U.S. Bankruptcy Code pursuant to
the Plan that was confirmed by an order of the Bankruptcy Court
entered on September 26, 2002. Metrocall, Inc. and its
subsidiaries are referred to herein as the Predecessor Company
for the periods prior to October 8, 2002. The reorganized
company, Metrocall Holdings, Inc. and its subsidiaries is herein
referred to as the Reorganized Company for the period from
October 8, 2002 to December 31, 2002 and for the year
ended December 31, 2003.

Weblink Asset
Acquisition On
November 18, 2003, we acquired the substantial majority of
the operating assets and assumed certain of the liabilities of
Weblink Wireless, Inc. and certain of its subsidiaries (the
Weblink asset acquisition). Metrocall and Weblink
also entered into a Management and Spectrum Lease Agreement
under which Weblink will provide certain services and resell to
Metrocall the spectrum usage rights granted under FCC licenses
pending the FCCs approval of the transfer of such licenses
to Metrocall. The acquisition and the management and spectrum
lease agreement have provided us with two-way network
infrastructure over which we provide our advanced messaging
services and have expanded our sales distribution channels to
include wholesale carrier distribution and telemetry services.

In connection with these transactions, we issued
500,000 shares of our common stock and warrants that give
Weblink or the warrants holder the ability to purchase up
to 125,000 additional shares of Metrocall common stock at $40
per share (the Warrants). Of the Warrants, 25,000
vested on the closing date with the remaining 100,000 shares
vesting ratably at 25,000 per year on the first four anniversary
dates of the closing. The shares underlying the warrants will
immediately vest upon the transfer of the FCC licenses once the
FCC approves their transfer to Metrocall. We accounted for the
asset acquisition under the purchase method of accounting for
financial reporting purposes pursuant to SFAS No. 141,
Business Combinations, and accordingly the operating
results of the acquired assets have been included in our
consolidated statement of operations for 2003 from their date of
acquisition. The purchase price for the assets acquired was
approximately $42.8 million consisting of stock
consideration of $21.4 million based on the average market
price of our common stock over the 5-day period prior to and
subsequent to the transaction; $1.4 million fair value of
the Warrants and assumed liabilities of $20.0 million,
including accrued severance obligations and estimated exit costs
related to the shut-down of Weblinks former call center
operation.

For the period November 18, 2003 to
December 31, 2003, we recognized total revenues of
approximately $9.1 million on the subscriber units acquired
in the Weblink transaction. The total of cost of products sold,
service, rent and maintenance, selling and marketing and general
and administrative expenses over this same period was
approximately $9.7 million from the operations acquired.
Had the acquisition not occurred, Metrocall would have expensed
and paid Weblink approximately $2.0 million for
Weblinks provisioning of network services to Metrocall
over this period of time. However, such expenses were not
incurred since the transaction took place.

As a result of the acquisition, we expect to
reduce the operating costs incurred by each of the companies on
a stand-alone basis. Areas where redundancies may exist and cost
savings may be realized include certain satellite transmission
and delivery systems; transmitter site locations; duplicative
sales, customer service and inventory distribution functions and
back-office support functions such as human resources,
accounting and executive management. In 2004, we expect to
integrate a substantial portion of the acquired operations into
our operations and to realize cost synergies from the
elimination of many the redundancies described above.

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From the integration activities in 2004, we
expect to recognize approximately $19.0 million of
operating expense synergies and costs to achieve such synergies
of approximately $6.0 million. Expected synergies include
anticipated compensation and benefit savings of
$11.5 million as a result of the elimination of
approximately 280 of the 415 positions we acquired across all
work functions of which 174 positions were eliminated between
January 4 and February 27, 2004; network consolidation
and telecommunications rationalization of $1.9 million as
we begin to combine our network assets; and $6.3 million
related to the elimination of redundant call center, billing and
administrative functions. We expect that a substantial majority
of the integration will be completed during 2004 with certain
network rationalization efforts extending into 2005 and beyond
as a result of continuing transmitter site lease commitments. We
expect to incur severance and other costs of $4.9 million
during 2004 from these activities, of which $2.0 million
had been paid through February 27, 2004 and to incur
capital expenditures of approximately $2.0 million related
to the combination of Weblinks satellite transmission
capabilities into our Stockton facility, which is expected to
occur in the fourth quarter. We can provide no assurance that we
will be able to achieve these expected savings.


Business
Strategy Our business
objectives and operating strategy for 2004 will focus on
maximizing the amount of cash flows provided by our operating
activities. Key elements of this strategy will include:



| |   |                                                             
| | - | ------------------------------------------------------------
| |  | Subscriber retention efforts;                               
|
| |  | Cost containment and reduction;                             
|
| |  | Integration of the operations acquired from
    Weblink; and
|
| |  | Focus on marketing of advanced messaging services.          

Subscriber retention
efforts We expect the
demand for our traditional paging services and the related
revenue to continue to decrease in 2004. Our subscriber
retention efforts will continue to focus on customer service and
sales to our business, medical and government subscribers. Our
subscriber retention efforts in 2004 will also be focused on
retaining the subscriber base that was acquired in the Weblink
asset purchase. Retention efforts will be supported through our
tiered field sales and corporate service model designed to
provide maximum support to customer accounts based on their size
and billing potential. We believe that these customer accounts
provide a higher ARPU and lower deactivation percentages than
subscribers serviced through indirect distribution channels.

We believe that new wireless data products and
services offered by the mobile phone companies results in
increased traditional paging deactivations. In 2004, we will
continue to offer advanced messaging services and sell PCS
phones to subscribers that require wireless communication needs
beyond the capabilities of traditional paging. Metrocall
currently sells cellular and PCS phone services through alliance
and dealer agreements with several carriers including AT&T
Wireless and Nextel. We believe these offerings assist to
partially offset revenue losses associated with subscriber churn
and enable us to continue to satisfy customer demands for a
broader range of wireless products and services. In 2003, we
recognized service, rent and maintenance revenues of
approximately $6.3 million from these services.

We also believe that maintaining sufficient
levels of customer service continues to be a key factor in
averting subscriber churn. Our customer service representatives
assist subscribers in managing their account activity including
the movement of paging devices between personnel within an
account. In addition, they address customer inquiries from
existing or potential customers. As such, we will continue to
provide customer service at both a field and national level to
address the demands and expectations of our direct subscriber
base.

Cost Containment and
Reduction Our Plan was
predicated on a refinement of our operating structure that would
reduce the amount of costs required to operate our business. In
2003, we took several steps to reduce our operating and capital
expenditures.

In February 2003, our Board of Directors
appointed our current CEO, Vincent D. Kelly. Our Board then
approved a plan that would enable us to reorganize our corporate
management and sales distribution function and to further
centralize our national call center services and inventory
fulfillment processes. These measures were necessary to maximize
the amount of net cash provided by operating activities
available for capital

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expenditures and debt retirement and preferred
stock redemption. We also believe these reductions were possible
due to the rationalization and centralization efforts we
performed in 2001 and 2002 and as a result of the reduction in
the number of subscribers to which we provide customer service
or inventory fulfillment.


Such containment and reduction initiatives
implemented by us included:

Reorganization of corporate
management Several senior
or corporate management positions were eliminated representing
approximately 25% of all such positions between February and
June 30, 2003. Many of the reductions were taken in
connection with the events described below. Such reductions were
possible because the size of our company in terms of employees,
subscribers and revenues no longer required a management
structure that was designed to support a growth-oriented company
with subscriber levels of over 10.0 million.

Reorganization of sales
distribution In February
2003, we consolidated the number of field sales regions under
the leadership of regional vice presidents from 6 to 3. The
reduction of operating regions has enabled us to further reduce
general and administrative expenses associated with our field
operations as each operating region had separate administrative
support staff, which now have been combined. In addition, we
consolidated a number of our under-performing offices and
markets into more established markets to increase operating
margins in those markets.

In February 2003, we also consolidated our
corporate sales functions under the leadership of one senior
vice president and eliminated the non-core database marketing
sales group. As a result of the reorganization, we eliminated
several corporate sales and marketing positions. The
database-marketing group primarily targeted consumer
subscribers, which are outside of our core business focus.

Centralization of national call centers and
inventory fulfillment In
March 2003, we consolidated our national call center and credit
and collection efforts into one existing location in Pensacola,
Florida. These functions had been performed in two separate
locations: Alexandria, Virginia and Pensacola, Florida. The
consolidation has enabled us to reduce the number of staff and
management positions required. In addition, we achieved certain
operating efficiencies that were not possible earlier until the
conversion of our final billing system platform, which occurred
in December 2002. We now have one common platform under which we
manage our subscriber invoicing, order fulfillment and customer
service support and will be converting the billing platform we
acquired in the Weblink transaction into this platform during
2004.

In connection with the regional consolidation, we
centralized our field customer service and inventory
distribution functions into two primary locations within each
region. This process should enable us to more cost-effectively
provide customer service, data entry and inventory fulfillment
and permit us to reduce our operating expenses yet continue to
maintain adequate levels of customer service.

Other 2003
initiatives The completion
of the plan that began in February 2003 permitted us to gain
several operational efficiencies such as further centralization
of a regional inventory and customer service operations and we
were able to rationalize and eliminate an additional 89
positions in the last three months of 2003 not contemplated in
the February plan.

As a result of all the aforementioned efforts, we
reduced our workforce by approximately 520 positions in 2003.
Severance and related expenses of $6.8 million were incurred and
paid in 2003. For 2004, we expect to build-upon our
centralization efforts of 2003 and to identify further cost
reduction opportunities that may exist within our legacy
operations or through the integration efforts underway with the
Weblink asset acquisition. As part of these efforts, we expect
to deconstruct approximately up to 775 of our transmitter sites
supporting under utilized or redundant footprint.

Focus on marketing of advanced messaging
services In November
2003, we acquired the physical narrowband PCS network and
infrastructure through which we provide our advanced massaging
services from Weblink. Prior to this time, we had a strategic
alliance agreement with Weblink to resell on this network. For
the twelve months ended December 31, 2003, we generated
approximately $61.4 million from these services. As of
December 31, 2003 we had approximately 360,000 advanced
messaging units in service.

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In 2004, we expect to continue marketing our
advanced messaging services and continue to provide wholesale
carrier services and telemetry services that Weblink had offered
to its customers. Although we expect to see demand for these
services to decrease during 2004 from 2003 levels, we will
continue to directly target business and government customers
and to provide separate support to the wholesale carriers that
have use of the network.

Results of Operations

General
We derive a majority of our revenues from fixed, periodic
(usually monthly) fees, generally not dependent on usage,
charged to subscribers for paging and wireless messaging
services. As long as a subscriber continues on our service, our
operating results benefit from this recurring revenue stream
with minimal requirements for incremental selling expenses or
fixed costs. Revenues are generally dependent on the number of
units in service and the monthly charge per unit. The number of
units in service changes based upon the number of subscribers we
add and the number of subscribers that may deactivate their
service. Our business strategy continues to focus our sales and
marketing efforts on subscriber demographics that provide
greater revenue stability and higher margins mainly in our
direct distribution channels. While we expect to continue
efforts to both maintain and add subscribers, our operating
structure has been scaled back over the past thirty-six months
mainly through reduction-in-force initiatives and office
expenses related to the operations consolidations. We do not
believe any of our cost reduction efforts have diminished our
ability to provide messaging services or customer service.

Our services are marketed through our direct and
indirect sales forces. We focus our efforts on our direct sales
channel which sells or leases devices to enterprise customers in
business, healthcare, government and emergency services sectors.
Our indirect sales force sells access to our networks to third
parties, resellers, or other telecommunications carriers who
then resell the messaging services to their customers. Our
indirect channel, which we have de-emphasized, is characterized
by lower ARPU and has experienced a higher disconnect rate than
our direct channel. In 2004, we expect this channel to continue
with high disconnect rates although we anticipate focusing
customer service and subscriber retention efforts on the carrier
services division that we acquired in the Weblink asset
acquisition.

The following table sets forth units in service
associated with our channels of distribution:

|                     |       |                 |       |            |  |       |    |            |   |       |       |            |  |  |    |     |   |  |       |       |  |  |    |     |  
|-------------------- | ----- | --------------- | ----- | ---------- |  | ----- | -- | ---------- | - | ----- | ----- | ---------- |  |  | -- | --- | - |  | ----- | ----- |  |  | -- | --- | -
|                     |       |                
|                     |       | At December 31,
|                     |       |                
|                     |       |                 |       |            |  |      
|(units in thousands) |       | 2001            |       | 2002       |  | 2003 
|                     |       |                 |       |            |  |      
|                     |       | Units           |       | Percentage |  | Units |    | Percentage |   | Units |       | Percentage
|                     |       |                 |       |            |  |       |    |            |   |       |       |           
|Direct               |       |                 | 2,776 |            |  |       | 51 | %          |   |       | 2,333 |            |  |  | 63 | %   |   |  | 2,330 |       |  |  | 67 | %  
|Indirect             |       |                 | 2,679 |            |  |       | 49 | %          |   |       | 1,386 |            |  |  | 37 | %   |   |  | 1,135 |       |  |  | 33 | %  
|                     |       |                 |       |            |  |       |    |            |   |       |       |            |  |  |    |     |   |  |       |       |  |  |    |    
|                     | Total |                 |       | 5,455      |  |       |    | 100        | % |       |       | 3,719      |  |  |    | 100 | % |  |       | 3,465 |  |  |    | 100 | %
|                     |       |                 |       |            |  |       |    |            |   |       |       |            |  |  |    |     |   |  |       |       |  |  |    |    

The following table sets forth the service, rent
and maintenance revenues realized for each of our distribution
channels:

|                   |       |                                 |         |            |  |         |    |            |   |         |         |            |  |  |    |     |   |   |         |         |  |  |    |     |  
|------------------ | ----- | ------------------------------- | ------- | ---------- |  | ------- | -- | ---------- | - | ------- | ------- | ---------- |  |  | -- | --- | - | - | ------- | ------- |  |  | -- | --- | -
|                   |       |                                
|                   |       | For the Year Ended December 31,
|                   |       |                                
|                   |       |                                 |         |            |  |        
|($s in thousands) |       | 2001                            |         | 2002       |  | 2003   
|                   |       |                                 |         |            |  |        
|                   |       | Revenue                         |         | Percentage |  | Revenue |    | Percentage |   | Revenue |         | Percentage
|                   |       |                                 |         |            |  |         |    |            |   |         |         |           
|Direct (a)         |       | $                               | 351,247 |            |  |         | 77 | %          |   | $       | 313,572 |            |  |  | 83 | %   |   | $ | 274,685 |         |  |  | 86 | %  
|Indirect           |       |                                 | 109,201 |            |  |         | 23 | %          |   |         | 64,566  |            |  |  | 17 | %   |   |   | 44,241  |         |  |  | 14 | %  
|                   |       |                                 |         |            |  |         |    |            |   |         |         |            |  |  |    |     |   |   |         |         |  |  |    |    
|                   | Total |                                 | $       | 460,448    |  |         |    | 100        | % |         | $       | 378,138    |  |  |    | 100 | % |   | $       | 318,926 |  |  |    | 100 | %
|                   |       |                                 |         |            |  |         |    |            |   |         |         |            |  |  |    |     |   |   |         |         |  |  |    |    



---



|   |                                                                                                                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) | Direct service, rent and maintenance revenues
    include $9,951, $6,984 and $6,182 realized for non-paging
    revenue for the twelve months ended December 31, 2001, 2002
    and 2003, respectively.

The demand for our traditional one-way paging
services declined during the three years ended December 31,
2003, and we believe demand will continue to decline for the
foreseeable future. During 2001

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and 2002, units in service decreased by
approximately 799,000 and 1,736,000 respectively, mainly due to
subscriber cancellations. In 2003, our units in service
decreased 254,000 as a result of subscriber cancellations,
however, this decrease includes the positive impact of
approximately 707,000 subscriber units we acquired mainly with
the Weblink asset acquisition described above. In 2004 and for
the foreseeable future, we expect to continue to experience
declines in the number of units in service.


The following table sets forth our net
deactivations associated with our channels of distribution for
each period stated, excluding net units in service that had been
acquired through mergers or acquisitions:

|                     |       |                    |     |       |  |            |       |       |  |  |     |     | 
|-------------------- | ----- | ------------------ | --- | ----- |  | ---------- | ----- | ----- |  |  | --- | --- | 
|                     |       |                   
|                     |       | For the Year      
|                     |       | Ended December 31,
|                     |       |                   
|                     |       | 2001(a)            |     | 2002  |  | 2003(b)(c)
|(units in thousands) |       |                    |     |       |  |           
|Direct               |       |                    | 238 |       |  |            | 443   |       |  |  | 287 |    
|Indirect             |       |                    | 794 |       |  |            | 1,293 |       |  |  | 674 |    
|                     |       |                    |     |       |  |            |       |       |  |  |     |    
|                     | Total |                    |     | 1,032 |  |            |       | 1,736 |  |  |     | 961 | 
|                     |       |                    |     |       |  |            |       |       |  |  |     |    



---



|    |                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Excludes the impact of 233,000 direct devices in
    service acquired in our acquisition of Southeast Paging, Inc. in
    June 2001.                                                                                                       
|   
|(b) | Excludes the impact of 283,000 direct devices
    acquired in our acquisition of the Weblink assets and 350,000
    and 73,000 indirect devices acquired in our acquisition of the
    Weblink assets and other transactions, respectively.
|   
|(c) | Includes net deactivations of Weblink acquired
    units of 10,384 (direct devices) and 11,545 (indirect devices)
    for period November 18, 2003 to December 31, 2003.                                                                   

The revenue per unit we charge a subscriber is
dependent upon a number of factors including, whether the
subscriber is serviced through a direct or indirect channel, the
number of units in the subscribers account, messaging
services provided, geographic coverage and whether the
subscriber leases or owns the messaging device. The ratio of
service, rent and maintenance revenues (excluding revenue for
non-paging services such as revenue recognized for placements of
PCS and cellular devices) for a period to the average units in
service for the same period is a key revenue measurement because
it indicates to us whether monthly charges are increasing or
decreasing. We commonly refer to this term as average monthly
revenue per unit or ARPU.

Our ARPU has increased from $6.41 in 2001 to
$7.98 in 2003. This increase is primarily attributable to the
change in the mix of units in service between our direct and
indirect distribution channels. The percentage of units in our
indirect distribution channel to total units in service has
decreased from 49% at December 31, 2001 to 35% at
December 31, 2003. ARPU for this same period for the
indirect channel has increased from $2.85 to $3.11 while ranging
between $9.86 to $10.94 for the direct channel. The decrease in
indirect units in service relative to the direct units in
service decrease resulted in the overall increase in ARPU
between 2001 and 2003.

The following table reflects the ARPU associated
with each of our distribution channels

|             |  |                    |      |      |  |      |       |  |  |   |       | 
|------------ |  | ------------------ | ---- | ---- |  | ---- | ----- |  |  | - | ----- | 
|             |  |                   
|             |  | For the Year Ended
|             |  | December 31, (a)  
|             |  |                   
|             |  | 2001               |      | 2002 |  | 2003
|             |  |                    |      |      |  |     
|Direct       |  | $                  | 9.86 |      |  | $    | 10.25 |  |  | $ | 10.94 | 
|Indirect     |  | $                  | 2.85 |      |  | $    | 2.69  |  |  | $ | 3.11  | 
|Consolidated |  | $                  | 6.41 |      |  | $    | 6.91  |  |  | $ | 7.98  | 



---



|    |                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | ARPU is derived by dividing the weighted average
    units in service for each distribution channel for the
    respective period into service, rent and maintenance revenue
    (excluding revenues from PCS and cellular placements) and then
    dividing by 12.

Our total revenues which includes the total of
service, rent and maintenance revenues and product sales were
$503.7 million, $406.3 million and $336.9 million
for the years ended December 31, 2001, 2002 and

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2003, respectively. The decrease in our revenues
from 2002 to 2003 was partially offset by total revenues
generated from units in service acquired from Weblink from
November 18, 2003 to December 31, 2003 of
approximately $9.1 million.


The expenses that we categorize as service, rent
and maintenance; selling and marketing; and general and
administrative are very important to our management of overall
expenses:



| |   |                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Service, rent and maintenance:These expenses include the costs
    related to the management, operation and maintenance of our
    networks and the provisioning of our paging and advanced
    messaging services. It also includes costs related to the
    refurbishment of paging devices used by our subscribers and
    inventory fulfillment costs.
|
| |  | Selling and marketing:These expenses include the salaries,
    commissions and administrative costs of our sales force and
    related marketing and advertising expenses.                                                                                                                                                                                
|
| |  | General and administrative:These expenses include costs
    associated with providing customer service, billing and
    collections, bad debts, and other administrative functions such
    as information technology, human resources, executive
    management, finance and accounting.                                                                 

The total of our cost of products sold, service
rent and maintenance, selling and marketing and general and
administrative expenses was $419.1 million,
$323.1 million and $234.3 million for the years ended
December 31, 2001, 2002 and 2003, respectively and
operating margins were 16.7%, 20.5% and 30.4% in these years,
respectively. (The ratio of total revenues less the total of
cost of products sold, service, rent and maintenance, selling
and marketing and general and administrative expenses to revenue
is defined as operating margin.) In 2003, although the total of
these costs and expenses decreased $88.8 million from 2002
levels, this decrease was offset by $9.7 million of
additional expenses as a result of expenses incurred in the
operations acquired in the Weblink asset acquisition as costs to
operate these assets were included in our results of operations
from November 18, 2003 to December 31, 2003, which
served to partially reduce the expense decrease that we realized
for that year.

For financial statement purposes, our results of
operations and cash flows for 2002 have been separated as
pre-and post October 8, 2002 due to a change in basis of
accounting in the underlying assets and liabilities. Please
refer to Notes 1 and 2 of the audited consolidated financial
statements. For purposes of this Managements Discussion
and Analysis, the Predecessor Company financial data has been
compared in the section Discussion of Results of
Operations for the Year Ended December 31, 2003 to the
Results for the period October 8, 2002 to December 31,
2002 and for the Year Ended December 31, 2001 to the period
January 1, 2002 to October 7, 2002. However for
the reasons explained in Notes 1 and 2 and due to other
non-recurring adjustments, our financial statements for the
periods before emerging from bankruptcy protection are not
comparable to the Reorganized Companys financial
statements for the period October 8, 2002 through
December 31, 2002 or to the Year Ended December 31,
2003. The following items are particularly of interest:



| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A net gain of $749.8 million recognized by
    the Predecessor Company in 2002 from the discharge and
    termination of debt upon our emergence from bankruptcy;                  
|
| |  | A net gain of $575.5 million recognized by
    the Predecessor Company in 2002 due to fresh-start accounting
    adjustments;                                                      
|
| |  | A gain of $80.3 million recognized by the
    Predecessor Company in 2002 from the cancellation of outstanding
    Preferred Stock upon our emergence from bankruptcy;             
|
| |  | Reorganization expenses of $19.0 million and
    $15.0 million recognized by the Predecessor Company in 2002
    and 2001, respectively;                                           
|
| |  | The cessation of recording contractual interest
    of $24.1 million by the Predecessor Company while we were
    operating in bankruptcy from June 3, 2002 to
    October 7, 2002.

The following table sets forth the amounts of
revenues, expenses and the percentage of total revenues
represented by certain items in our Consolidated Statements of
Operations and certain other information for

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the period October 8, 2002 to
December 31, 2002 and for the year ended December 31,
2003. (all dollars in thousands):


|                                                                     |                                         |                     |           |                     |         |                |       |          |       |      |        |          |        |  |      |      |       |   |         |         |         |  |      |      |       |  
|-------------------------------------------------------------------- | --------------------------------------- | ------------------- | --------- | ------------------- | ------- | -------------- | ----- | -------- | ----- | ---- | ------ | -------- | ------ |  | ---- | ---- | ----- | - | ------- | ------- | ------- |  | ---- | ---- | ----- | -
|                                                                     |                                         |                     |           |                    
|                                                                     |                                         | Predecessor Company |           | Reorganized Company
|                                                                     |                                         |                     |           |                    
|                                                                     |                                         | Jan 1  Oct 7       |           | % of                |         | Oct 8  Dec 31 |       | % of     |       |      |        | % of    
|                                                                     |                                         | 2002                |           | Revenues            |         | 2002           |       | Revenues |       | 2003 |        | Revenues
|                                                                     |                                         |                     |           |                     |         |                |       |          |       |      |        |         
|REVENUES                                                             |                                         |                     |           |                     |         |                |       |          |       |      |        |          |        |  |      |      |       |   |         |         |         |  |      |     
|Service, rent and maintenance                                        |                                         | $                   | 296,813   |                     |         |                | 92.5  | %        |       | $    | 81,325 |          |        |  | 95.2 | %    |       | $ | 318,926 |         |         |  | 94.7 | %   
|Product sales                                                        |                                         |                     | 24,056    |                     |         |                | 7.5   | %        |       |      | 4,078  |          |        |  | 4.8  | %    |       |   | 17,933  |         |         |  | 5.3  | %   
|                                                                     |                                         |                     |           |                     |         |                |       |          |       |      |        |          |        |  |      |      |       |   |         |         |         |  |      |     
|                                                                     |                                         | Total revenues      |           |                     | 320,869 |                |       |          | 100.0 | %    |        |          | 85,403 |  |      |      | 100.0 | % |         |         | 336,859 |  |      |      | 100.0 | %
|OPERATING EXPENSES                                                   |                                         |                     |           |                     |         |                |       |          |       |      |        |          |        |  |      |      |       |   |         |         |         |  |      |     
|Service, rent and maintenance                                        |                                         |                     | 89,250    |                     |         |                | 27.8  | %        |       |      | 23,004 |          |        |  | 26.9 | %    |       |   | 94,098  |         |         |  | 27.9 | %   
|Cost of products sold                                                |                                         |                     | 13,085    |                     |         |                | 4.1   | %        |       |      | 1,081  |          |        |  | 1.3  | %    |       |   | 4,804   |         |         |  | 1.4  | %   
|Selling and marketing                                                |                                         |                     | 50,952    |                     |         |                | 15.9  | %        |       |      | 11,359 |          |        |  | 13.3 | %    |       |   | 40,026  |         |         |  | 11.9 | %   
|General and administrative                                           |                                         |                     | 106,674   |                     |         |                | 33.2  | %        |       |      | 27,735 |          |        |  | 32.5 | %    |       |   | 95,388  |         |         |  | 28.3 | %   
|Reorganization and restructuring                                     |                                         |                     | 19,007    |                     |         |                | 5.9   | %        |       |      |       |          |        |  |     |      |       |   | 6,842   |         |         |  | 2.0  | %   
|Depreciation                                                         |                                         |                     | 50,386    |                     |         |                | 15.7  | %        |       |      | 10,927 |          |        |  | 12.8 | %    |       |   | 33,568  |         |         |  | 10.0 | %   
|Amortization                                                         |                                         |                     |          |                     |         |                |      |          |       |      | 1,948  |          |        |  | 2.3  | %    |       |   | 4,345   |         |         |  | 1.3  | %   
|                                                                     |                                         |                     |           |                     |         |                |       |          |       |      |        |          |        |  |      |      |       |   |         |         |         |  |      |     
|                                                                     | Total operating expenses                |                     |           | 329,354             |         |                |       | 102.6    | %     |      |        | 76,054   |        |  |      | 89.1 | %     |   |         | 279,071 |         |  |      | 82.8 | %    
|                                                                     |                                         |                     |           |                     |         |                |       |          |       |      |        |          |        |  |      |      |       |   |         |         |         |  |      |     
|                                                                     | Income from operations                  |                     |           | (8,485              | )       |                |       | (2.6     | )%    |      |        | 9,349    |        |  |      | 10.9 | %     |   |         | 57,788  |         |  |      | 17.2 | %    
|Interest expense                                                     |                                         |                     | (39,280   | )                   |         |                | (12.2 | )%       |       |      | (2,580 | )        |        |  | (3.0 | )%   |       |   | (7,099  | )       |         |  | (2.1 | )%  
|Interest expense  dividends and
    accretion of series A preferred |                                         |                     |          |                     |         |                |      |          |       |      |       |          |        |  |     |      |       |   | (12,428 | )       |         |  | (3.7 | )%  
|Interest and other income/(expense), net                             |                                         |                     | (822      | )                   |         |                | (0.3  | )%       |       |      | 1,047  |          |        |  | 1.2  | %    |       |   | 463     |         |         |  | 0.1  | %   
|Fresh start accounting adjustments                                   |                                         |                     | 575,491   |                     |         |                | 179.4 | %        |       |      |       |          |        |  |     |      |       |   |        |         |         |  |     |     
|Gain on early extinguishment of debt                                 |                                         |                     | 749,821   |                     |         |                | 233.7 | %        |       |      |       |          |        |  |     |      |       |   |        |         |         |  |     |     
|                                                                     |                                         |                     |           |                     |         |                |       |          |       |      |        |          |        |  |      |      |       |   |         |         |         |  |      |     
|Income before income tax provision                                   |                                         |                     | 1,276,725 |                     |         |                | 398.0 | %        |       |      | 7,816  |          |        |  | 9.1  | %    |       |   | 38,724  |         |         |  | 11.5 | %   
|Income tax provision                                                 |                                         |                     |          |                     |         |                |      |          |       |      | (3,000 | )        |        |  | (3.5 | )%   |       |   | (21,754 | )       |         |  | (6.5 | )%  
|                                                                     |                                         |                     |           |                     |         |                |       |          |       |      |        |          |        |  |      |      |       |   |         |         |         |  |      |     
|                                                                     | Net income                              |                     |           | 1,276,725           |         |                |       | 398.0    | %     |      |        | 4,816    |        |  |      | 5.6  | %     |   |         | 16,970  |         |  |      | 5.0  | %    
|Preferred dividends and accretion                                    |                                         |                     | (4,855    | )                   |         |                | (1.5  | )%       |       |      | (2,679 | )        |        |  | (3.1 | )%   |       |   | (6,084  | )       |         |  | (1.8 | )%  
|Reorganization Item  accretion of
    Liquidation preference        |                                         |                     | (4,715    | )                   |         |                | (1.5  | )%       |       |      |       |          |        |  |     |      |       |   |        |         |         |  |     |     
|Gain on extinguishment of preferred stock                            |                                         |                     | 80,346    |                     |         |                | 25.0  | %        |       |      |       |          |        |  |     |      |       |   |        |         |         |  |     |     
|                                                                     |                                         |                     |           |                     |         |                |       |          |       |      |        |          |        |  |      |      |       |   |         |         |         |  |      |     
|                                                                     | Income available to common stockholders |                     | $         | 1,347,501           |         |                |       | 420.0    | %     |      | $      | 2,137    |        |  |      | 2.5  | %     |   | $       | 10,886  |         |  |      | 3.2  | %    
|                                                                     |                                         |                     |           |                     |         |                |       |          |       |      |        |          |        |  |      |      |       |   |         |         |         |  |      |     

Discussion of the Results of Operations for
the Year Ended December 31, 2003 to the Results for the
period October 8, 2002 to December 31, 2002 and for
the Year Ended December 31, 2001 to the period
January 1, 2002 to October 7, 2002.

Our financial statements present separate
operating results and cash flows for the Predecessor Company for
periods prior to our emergence from the chapter 11
proceedings, as well as operating results and cash flows for the
Reorganized Company after our emergence from the chapter 11
proceedings. The Predecessor

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Company had no results of operations after the
Effective Date, which was October 7, 2002 for accounting
purposes, and the Reorganized Company had no results prior to
the Effective Date. The Predecessor Company results reflect the
application of fresh-start accounting that resulted
from our chapter 11 reorganization. Consequently, the
Predecessor and Reorganized Company results of operations and
cash flows are not comparable. The Predecessor Company had nine
months and seven days of results and the Reorganized Company had
two months and twenty-four days of results through
December 31, 2002 and the Predecessor Company had twelve
months of operations in 2001.


A discussion of the twelve month period ended
December 31, 2003 to the two months and twenty-four day
period from October 8 to December 31, 2002 for the
Reorganized Company and comparison of the twelve month period
ended December 31, 2001 to the nine months and seven day
period from January 1 to October 7, 2002 for the
Predecessor Company is not meaningful since the primary
explanation for changes in items is the significant difference
in the number of months included in each period. Accordingly, a
detailed comparison of the results of operations for these
periods is not presented.

However, discussions regarding certain operating
trends in revenues and operating expenses are meaningful to an
understanding of our fiscal 2003 results. Those discussions have
been incorporated into the sections Discussion of the
Results of Operations for the Twelve Months Ended
December 31, 2002 and 2003 and Discussion of
the Results of Operations for the Years Ended December 31,
2001 and 2002, presented below.

Discussion of Results of Operations for the
Twelve Months Ended December 31, 2002 and
2003

Consolidated
Revenues

|                                         |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |         |  
|---------------------------------------- | -------------- | ---- | --------- | -------- |  |  | ---- | -------- | - | ------------ | --------- | ------- |  |  | ---- | ----- | - | - | ---------- | ------- | -
|                                         |                |      |           |          |  | 
|                                         |                | 2002 |           | 2003     |  | 
|                                         |                |      |           |          |  | 
|                                         |                |      |           | % of     |  |  |      | % of     |   | Fluctuation 
|                                         |                |      |           | Revenues |  |  |      | Revenues |   | 2002 to 2003
|                                         |                |      |           |          |  |  |      |          |   |             
|Service, rent and maintenance            |                | $    | 378,138   |          |  |  | 93.1 | %        |   | $            | 318,926   |         |  |  | 94.7 | %     |   | $ | (59,212    | )      
|Product sales                            |                |      | 28,134    |          |  |  | 6.9  | %        |   |              | 17,933    |         |  |  | 5.3  | %     |   |   | (10,201    | )      
|                                         |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |        
|                                         | Total revenues |      | $         | 406,272  |  |  |      | 100.0    | % |              | $         | 336,859 |  |  |      | 100.0 | % |   | $          | (69,413 | )
|Non-paging service, rent and maintenance |                | $    | 6,984     |          |  |  | 1.7  | %        |   | $            | 6,182     |         |  |  | 1.8  | %     |   | $ | (802       | )      
|ARPU                                     |                | $    | 6.84      |          |  |  |      |          |   | $            | 7.98      |         |  |  |      |       |   | $ | 1.14       |        
|Ending subscribers in service            |                |      | 3,719,384 |          |  |  |      |          |   |              | 3,464,944 |         |  |  |      |       |   |   | (254,440   | )      
|Average units in service                 |                |      | 4,515,462 |          |  |  |      |          |   |              | 3,264,180 |         |  |  |      |       |   |   | (1,251,282 | )      

Selected
Operating Expenses

|                              |       |      |         |          |  |  |      |          |   |              |        |         |  |  |      |      |   |   |         |         |  
|----------------------------- | ----- | ---- | ------- | -------- |  |  | ---- | -------- | - | ------------ | ------ | ------- |  |  | ---- | ---- | - | - | ------- | ------- | -
|                              |       |      |         |          |  | 
|                              |       | 2002 |         | 2003     |  | 
|                              |       |      |         |          |  | 
|                              |       |      |         | % of     |  |  |      | % of     |   | Fluctuation 
|                              |       |      |         | Revenues |  |  |      | Revenues |   | 2002 to 2003
|                              |       |      |         |          |  |  |      |          |   |             
|Service, rent and maintenance |       | $    | 112,254 |          |  |  | 27.6 | %        |   | $            | 94,098 |         |  |  | 27.9 | %    |   | $ | (18,156 | )      
|Cost of products sold         |       |      | 14,166  |          |  |  | 3.5  | %        |   |              | 4,804  |         |  |  | 1.4  | %    |   |   | (9,362  | )      
|Selling and marketing         |       |      | 62,311  |          |  |  | 15.3 | %        |   |              | 40,026 |         |  |  | 11.9 | %    |   |   | (22,285 | )      
|General and administrative    |       |      | 134,409 |          |  |  | 33.1 | %        |   |              | 95,388 |         |  |  | 28.3 | %    |   |   | (39,021 | )      
|                              |       |      |         |          |  |  |      |          |   |              |        |         |  |  |      |      |   |   |         |        
|                              | Total |      | $       | 323,140  |  |  |      | 79.5     | % |              | $      | 234,316 |  |  |      | 69.5 | % |   | $       | (88,824 | )
|                              |       |      |         |          |  |  |      |          |   |              |        |         |  |  |      |      |   |   |         |        

Consolidated Revenues

Service, rent and maintenance revenues decreased
to $318.9 million for the twelve months ended
December 31, 2003, from $378.1 million for the twelve
months ended December 31, 2002, as the number of units in
service decreased from approximately 3.7 million at
December 31, 2002 to 3.5 million at December 31,
2003. Product sales revenues decreased to $17.9 million or
36.3% for the twelve months ended December 31, 2003, from
$28.1 million for the twelve months ended December 31,
2002. Absent the service, rent and maintenance revenues and
product sales related to the assets acquired from Weblink of
$9.1 million,

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the respective decrease in service, rent and
maintenance revenues and product sales would have been
$68.0 million and $10.5 million, respectively. Please
refer to the discussion below of traditional paging revenues and
advanced messaging revenues for further details.


The following provides discussion of fluctuations
in our net revenues based upon the underlying airtime service
provided (traditional or advanced messaging). (All dollars in
thousands except per unit information):

|                                         |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |         |  
|---------------------------------------- | -------------- | ---- | --------- | -------- |  |  | ---- | -------- | - | ------------ | --------- | ------- |  |  | ---- | ----- | - | - | ---------- | ------- | -
|                                         |                |      |           |          |  | 
|                                         |                | 2002 |           | 2003     |  | 
|                                         |                |      |           |          |  | 
|                                         |                |      |           | % of     |  |  |      | % of     |   | Fluctuation 
|                                         |                |      |           | Revenues |  |  |      | Revenues |   | 2002 to 2003
|                                         |                |      |           |          |  |  |      |          |   |             
|TRADITIONAL REVENUES                     |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |        
|Service, rent and maintenance            |                | $    | 319,454   |          |  |  | 94.4 | %        |   | $            | 260,118   |         |  |  | 94.4 | %     |   | $ | (59,336    | )      
|Product sales                            |                |      | 18,926    |          |  |  | 5.6  | %        |   |              | 15,362    |         |  |  | 5.6  | %     |   |   | (3,564     | )      
|                                         |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |        
|                                         | Total revenues |      | $         | 338,380  |  |  |      | 100.0    | % |              | $         | 275,480 |  |  |      | 100.0 | % |   | $          | (62,900 | )
|                                         |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |        
|Non-paging service, rent and maintenance |                | $    | 6,984     |          |  |  | 2.1  | %        |   | $            | 6,182     |         |  |  | 2.2  | %     |   | $ | (802       | )      
|ARPU                                     |                | $    | 6.06      |          |  |  |      |          |   | $            | 6.94      |         |  |  |      |       |   | $ | 0.88       |        
|Ending subscribers in service            |                |      | 3,514,217 |          |  |  |      |          |   |              | 3,105,081 |         |  |  |      |       |   |   | (409,136   | )      
|Average units in service                 |                |      | 4,294,411 |          |  |  |      |          |   |              | 3,051,326 |         |  |  |      |       |   |   | (1,243,085 | )      

Traditional service, rent and maintenance
revenues decreased to $260.1 million for the twelve months ended
December 31, 2003 from $319.5 million for the twelve
months ended December 31, 2002. During 2003, the number of
subscribers receiving our services decreased approximately
0.4 million to 3.1 million units from
December 31, 2002 and the average number of units in
service for the twelve months ended December 31, 2002 and
2003 decreased from 4.3 million to 3.1 million over the
respective periods. From December 31, 2002, units serviced
through direct distribution channels decreased approximately
40,000. Excluding units acquired in the Weblink asset
acquisition, this decrease would have been approximately 255,000
units. The decrease in revenues and units in service in our
direct distribution channels was the result of a decrease in
demand for traditional paging services; rate compression caused
by the decrease in demand and competitive industry pricing; and
technological alternatives of other wireless products. From
December 31, 2002, units provided through indirect
distribution channels decreased approximately 369,000. Excluding
units acquired primarily in the Weblink transaction, this
decrease would have been approximately 582,000 units. The
decrease in the number of units receiving services through
indirect distribution channels was mainly the result of a
decrease in consumer demand for traditional paging products in
the channel due to technological alternatives such as PCS and
cellular phones that have shifted consumer demand away from
traditional paging products. Our traditional revenues included
approximately $4.1 million related to the traditional
subscriber units we acquired mainly from the Weblink asset
acquisition. Absent this acquisition, the decrease in
traditional service, rent and maintenance revenues would have
been $63.4 million.

Traditional ARPU for the twelve months ended
December 31, 2003 increased $0.88 to $6.94 from $6.06 for
the twelve months ended December 31, 2002. The increase in
ARPU was the result of the continued shift between the number of
subscriber units serviced through direct distribution channels
compared to indirect distribution channels.

In 2004, we expect that revenue generated from
traditional services will continue to decrease in the
foreseeable future which will result in reductions in future
service, rent and maintenance revenues due to a lower volume of
subscribers. We believe that the units acquired in the Weblink
transaction will enable us to generate a higher level of
service, rent and maintenance revenue than we would have
otherwise been able to achieve absent the acquisition. Decreases
in unit levels from December 31, 2003 are expected to occur
due to the continued pressures of competing technologies
attracting existing subscribers and competitive pricing of
paging and other wireless alternatives to paging products.
Although we have a concerted customer retention program, there
is no guarantee that the rate of revenue erosion will slow.

Product sales from traditional paging decreased
$3.5 million to $15.4 million for the twelve months ended
December 31, 2003 from $18.9 million for the twelve
months ended December 31, 2002 and was flat as a

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percentage of revenues at 5.6%. Fluctuations in
traditional product sales were primarily the result of a lower
volume of paging devices sold through our direct distribution
channels during 2003.


|                              |                |      |         |          |  |  |      |          |   |              |         |        |  |  |      |       |   |   |         |        |  
|----------------------------- | -------------- | ---- | ------- | -------- |  |  | ---- | -------- | - | ------------ | ------- | ------ |  |  | ---- | ----- | - | - | ------- | ------ | -
|                              |                |      |         |          |  | 
|                              |                | 2002 |         | 2003     |  | 
|                              |                |      |         |          |  | 
|                              |                |      |         | % of     |  |  |      | % of     |   | Fluctuation 
|                              |                |      |         | Revenues |  |  |      | Revenues |   | 2002 to 2003
|                              |                |      |         |          |  |  |      |          |   |             
|ADVANCED MESSAGING REVENUES   |                |      |         |          |  |  |      |          |   |              |         |        |  |  |      |       |   |   |         |       
|Service, rent and maintenance |                | $    | 58,684  |          |  |  | 86.4 | %        |   | $            | 58,808  |        |  |  | 95.8 | %     |   | $ | 124     |       
|Product sales                 |                |      | 9,208   |          |  |  | 13.6 | %        |   |              | 2,571   |        |  |  | 4.2  | %     |   |   | (6,637  | )     
|                              |                |      |         |          |  |  |      |          |   |              |         |        |  |  |      |       |   |   |         |       
|                              | Total revenues |      | $       | 67,892   |  |  |      | 100.0    | % |              | $       | 61,379 |  |  |      | 100.0 | % |   | $       | (6,513 | )
|                              |                |      |         |          |  |  |      |          |   |              |         |        |  |  |      |       |   |   |         |       
|ARPU                          |                | $    | 22.40   |          |  |  |      |          |   | $            | 23.02   |        |  |  |      |       |   | $ | 0.62    |       
|Ending subscribers in service |                |      | 205,167 |          |  |  |      |          |   |              | 359,863 |        |  |  |      |       |   |   | 154,696 |       
|Average units in service      |                |      | 218,306 |          |  |  |      |          |   |              | 212,854 |        |  |  |      |       |   |   | (5,452  | )     

Advanced messaging service, rent and maintenance
revenues increased to $58.8 million for the twelve months
ended December 31, 2003 from $58.7 million for the
twelve months ended December 31, 2002. Of this increase,
approximately $4.8 million was the result of revenue
recognized on the subscriber units acquired in the Weblink
transaction. Excluding these revenues, service rent and
maintenance revenue would have decreased $4.6 million for
the period due to a lower volume of units receiving services in
our legacy unit base. During 2003 the number of units receiving
our two-way services increased approximately 155,000 to 360,000
subscribers from December 31, 2002 including 184,000
acquired from Weblink and the average number of units in service
for the twelve months ended December 31, 2002 and 2003
decreased from 218,000 to 213,000 over the respective periods.
Excluding units acquired in the Weblink asset acquisition we
would have had net deactivations in subscribers of approximately
29,000 units. ARPU for the twelve months ended December 31,
2003 increased $0.62 to $23.02 from $22.40 for the twelve months
ended December 31, 2002.

In 2004, we expect that revenue generated from
advanced messaging services will increase from 2003 results due
to the higher number of units in service on December 31,
2003 compared to December 31, 2002. We expect our unit
levels receiving advanced messaging services will decrease from
December 31, 2003 totals due to competitive pricing and
technological alternatives offered by other wireless providers
however, we expect that our average units in service will be
higher throughout 2004 than 2003 and as a result we expect to
generate an increase in service, rent and maintenance revenue
from advanced messaging services, however, average revenue per
unit is expected to decrease from 2003 ARPU as the result of a
higher volume of indirect units in service primarily in our
carrier services unit.

Product sales from advanced messaging operations
decreased to $2.6 million for the twelve months ended
December 31, 2003 from $9.2 million for the twelve
months ended December 31, 2002. The decrease in product
sales was the result of selling a lower number of devices
through our direct distribution channel during 2003 and the
placement of a greater number of units that were leased to
subscribers during the period.

Operating Expenses

Service, rent and maintenance
expenses Service, rent and
maintenance expenses decreased to $94.1 million for the
twelve months ended December 31, 2003 from
$112.3 million for the twelve months ended
December 31, 2002 and increased as a percentage of revenue
from 27.6% in 2002 to 27.9% in 2003. Monthly service, rent and
maintenance expense per unit increased $0.33 from $2.07 per unit
for the twelve months ended December 31, 2002 to $2.40 per
unit in 2003. Service, rent and maintenance expenses for 2003
included approximately $6.6 million of expenses associated
with the Weblink assets. Excluding these costs, the decrease in
these expenses would have been $24.7 million. This decrease was
a result of a decreases in subscriber line costs of
$3.4 million, a decrease in transmitter and technical
facility rents of $0.8 million, salaries and other compensation
of $2.5 million, repair and maintenance costs of
$2.4 million and dispatching and third party paging costs
of $9.0 million. Such decreases were the result of
rationalization and re-negotiation of dispatching and
telecommunication contracts; lower compensation expenses from
fewer engineering and inventory fulfillment positions and other
cost cutting initiatives undertaken in connection with

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the events described earlier. The increase in
monthly average service, rent and maintenance expenses per unit
was the result of these events offset by the impact of a lower
average number of units in service for 2003. We expect that
service, rent and maintenance expenses will increase in 2004 as
a result of a full years influence of the Weblink
acquisition on our operating expenses, although decline on a
quarterly basis throughout 2004 as the integration and
rationalization of network infrastructure continues.


Cost of products
sold Cost of products sold
decreased to $4.8 million for the twelve months ended
December 31, 2003 from $14.2 million for the twelve
months ended December 31, 2002. As a percentage of total
revenues, cost of products sold decreased from 3.5% in the 2002
period to 1.4% in 2003. The decrease in cost of products sold
was primarily the result of a lower volume of traditional and
advanced messaging devices sold during 2003 and a lower device
unit cost as a result of the revaluation of the devices cost
basis that occurred upon our emergence from the chapter 11
proceedings in October 2002.

Selling and
Marketing Selling and
marketing expenses decreased to $40.0 million for the twelve
months ended December 31, 2003 from $62.3 million for
the twelve months ended December 31, 2002 and decreased as
a percentage of revenues from 15.3% in 2002 to 11.9% in 2003.
Our selling and marketing expenses for 2003 included selling
expenses of approximately $1.0 million associated with the
Weblink assets. Excluding these expenses, our selling and
marketing expenses decreased $23.3 million for 2003. This
decrease was primarily the result of the reductions in sales
positions in 2003 and the reductions in the following functional
expenses; salaries and commissions of $17.8 million, travel
related expenses of $1.4 million, and a reduction in print
and media advertising of $1.5 million. Monthly selling and
marketing expense per unit decreased $0.13 from $1.15 per unit
in 2002 to $1.02 in 2003. We expect that selling and marketing
expenses will continue to decrease in 2004 at a rate slower than
that experienced in 2003.

General and administrative
expenses General and
administrative expenses decreased to $95.4 million for the
twelve months ended December 31, 2003 from
$134.4 million for the twelve months ended
December 31, 2002 and decreased as a percentage of net
revenues from 33.1% in 2002 to 28.3% in 2003. Our general and
administrative expenses for 2003 included approximately
$1.9 million associated with operating assets acquired from
Weblink. Excluding these expenses, general and administrative
expenses decreased $40.9 million for 2003. This decrease
was primarily the result of the following functional expense
reductions for 2003; decreases of salaries and compensation
related expenses of $9.4 million due to fewer employee
positions; reductions of bad debt expenses of $12.9 million
primarily due to improved collections and lower levels of
accounts receivable from the reduction in revenues; decrease in
facility rents of $4.3 million due to a reduction in the number
of our field offices; reductions of telephone expenses of
$5.3 million due to fewer calls to our call centers due to
less units in service and $10.7 million of other expense
reductions due to several cost containment initiatives that
focused on the back office centralization and rationalization
partially offset by $600,000 of expenses incurred on merger and
acquisition activities in the fourth quarter 2003.

General and administrative expenses included
stock-based compensation of $679,000 for the twelve months ended
December 31, 2002, which included non-cash compensation
expense associated with series A preferred issued to certain
members of our executive management at the time of our emergence
from the chapter 11 proceedings. Stock-based compensation for
the twelve months ended December 31, 2003 was
$1.7 million and included non-cash compensation related to
the series A preferred issuance described above and expense
recognized from the issuance of options to purchase up to
410,000 shares of our common stock granted to members of senior
management and the board of directors during 2003. During the
fourth quarter of 2003, we incurred approximately $600,000 of
legal and financial advisory fees and expenses in connection
with our efforts, including due diligence and negotiation, on a
potential strategic business combination transaction. Through
February 2004, we have incurred an additional $600,000 of
expenses and expect to incur additional expenses in March and
into the second quarter of 2004 related to such efforts. We have
not reached an agreement on all terms of the transaction and
there can be no assurance that an agreement will be reached or,
if reached, that the regulatory and shareholder approval and
other prerequisites to consummation would be satisfied.

Monthly general and administrative expenses per
unit decreased $0.04 from $2.48 in 2002 to $2.44 per unit in
2003 as a result of these events and the impact of a lower
average number of units in service for 2003.

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We expect that general and administrative
expenses in 2004 will continue to decrease on a full-years basis
compared to 2003 as the integration of the operating assets
acquired from Weblink is completed.


Restructuring
expenses Restructuring
related expenses for the year ended 2003 were approximately
$6.8 million and consisted of severance and other expenses
incurred to implement the plan our Board of Directors approved
in February 2003 as described earlier.

Depreciation and amortization expenses decreased
to $37.9 million for the twelve months ended
December 31, 2003 from $63.3 million for the same
period in 2002. Such expenses for 2003 consisted of depreciation
for infrastructure and subscriber equipment of
$33.6 million and the amortization of intangible assets of
$4.3 million. The decrease for 2003 was due primarily to
the revaluation of our long-lived assets which occurred in
connection with fresh-start accounting on October 8, 2002.

Interest expense for 2003 was $7.1 million
and was comprised of $0.5 million cash interest paid on the
senior notes issued under our plan of reorganization,
$3.8 million related to the issuance and accretion of the
PIK Notes issued under our plan of reorganization, and the
remaining balance of interest on other long-term liabilities.
Interest expense for 2002 was $41.9 million and was primarily
composed of interest on debt that was extinguished through our
plan of reorganization.

Interest expense dividends and accretion of
series A preferred  consisted of dividends paid on
the series A preferred on September 30, 2003 and
December 31, 2003 of $2.5 million and
$1.8 million, respectively and accretion relating to the
amortization of the discount on the series A preferred of
$8.1 million for the six months ended December 31,
2003 pursuant to the provisions of SFAS No. 150. For the
period October 8 to December 31, 2002 and through
June 30, 2003, the Reorganized Company had previously
recognized dividend and accretion of the series A preferred as a
reduction after net income in the computation of income
available to common stockholders.

Income tax
provision Income tax
provision increased to $21.8 million for the twelve months
ended December 31, 2003 from $3.0 million for the same
period in 2002. The provision for 2003 was for a twelve month
period at an effective tax rate of 56.2%. For purposes of
determining the provision and the effective tax rate, interest
expense related to accretion and dividends on series A preferred
stock and accretion on the PIK notes were excluded from our
taxable income computation, which resulted in a
12.4 percentage point increase of our effective income tax
rate. During 2003, we made cash payments for income taxes of
approximately $1.3 million. We anticipate recognition of
provisions for income taxes to be required for the foreseeable
future and the payment of income taxes. Please refer to
Income Taxes under Liquidity and Capital
Resources and Accounting for Income Taxes
under Critical Accounting Policies.

Discussion of the Results of Operations for
the Twelve Months Ended December 31, 2002 and 2001

|                                         |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |         |  
|---------------------------------------- | -------------- | ---- | --------- | -------- |  |  | ---- | -------- | - | ------------ | --------- | ------- |  |  | ---- | ----- | - | - | ---------- | ------- | -
|                                         |                |      |           |          |  | 
|                                         |                | 2001 |           | 2002     |  | 
|                                         |                |      |           |          |  | 
|                                         |                |      |           | % of     |  |  |      | % of     |   | Fluctuation 
|                                         |                |      |           | Revenues |  |  |      | Revenues |   | 2001 to 2002
|                                         |                |      |           |          |  |  |      |          |   |             
|CONSOLIDATED REVENUES                    |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |        
|Service, rent and maintenance revenues   |                | $    | 460,448   |          |  |  | 91.4 | %        |   | $            | 378,138   |         |  |  | 93.0 | %     |   | $ | (82,310    | )      
|Product sales                            |                |      | 43,225    |          |  |  | 8.6  | %        |   |              | 28,134    |         |  |  | 7.0  | %     |   |   | (15,091    | )      
|                                         |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |        
|                                         | Total revenues |      | $         | 503,673  |  |  |      | 100.0    | % |              | $         | 406,272 |  |  |      | 100.0 | % |   | $          | (97,401 | )
|                                         |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |        
|Non-paging service, rent and maintenance |                | $    | 9,951     |          |  |  |      |          |   | $            | 6,984     |         |  |  |      |       |   | $ | (2,967     | )      
|ARPU                                     |                | $    | 6.41      |          |  |  |      |          |   | $            | 6.84      |         |  |  |      |       |   | $ | 0.43       |        
|Ending units in service                  |                |      | 5,455,065 |          |  |  |      |          |   |              | 3,719,384 |         |  |  |      |       |   |   | (1,735,681 | )      
|Average units in service                 |                |      | 5,854,719 |          |  |  |      |          |   |              | 4,515,462 |         |  |  |      |       |   |   | (1,339,257 | )      

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|                              |       |      |         |          |  |  |      |          |   |              |         |         |  |  |      |      |   |   |         |         |  
|----------------------------- | ----- | ---- | ------- | -------- |  |  | ---- | -------- | - | ------------ | ------- | ------- |  |  | ---- | ---- | - | - | ------- | ------- | -
|                              |       |      |         |          |  | 
|                              |       | 2001 |         | 2002     |  | 
|                              |       |      |         |          |  | 
|                              |       |      |         | % of     |  |  |      | % of     |   | Fluctuation 
|                              |       |      |         | Revenues |  |  |      | Revenues |   | 2001 to 2002
|                              |       |      |         |          |  |  |      |          |   |             
|Selected Operating Expenses   |       |      |         |          |  |  |      |          |   |              |         |         |  |  |      |      |   |   |         |        
|Service, rent and maintenance |       | $    | 139,326 |          |  |  | 27.7 | %        |   | $            | 112,254 |         |  |  | 27.6 | %    |   | $ | (27,072 | )      
|Cost of products sold         |       |      | 26,176  |          |  |  | 5.2  | %        |   |              | 14,166  |         |  |  | 3.5  | %    |   |   | (12,010 | )      
|Selling and marketing         |       |      | 92,481  |          |  |  | 18.4 | %        |   |              | 62,311  |         |  |  | 15.3 | %    |   |   | (30,170 | )      
|General and administrative    |       |      | 161,161 |          |  |  | 32.0 | %        |   |              | 134,409 |         |  |  | 33.1 | %    |   |   | (26,752 | )      
|                              |       |      |         |          |  |  |      |          |   |              |         |         |  |  |      |      |   |   |         |        
|                              | Total |      | $       | 419,144  |  |  |      | 83.3     | % |              | $       | 323,140 |  |  |      | 79.5 | % |   | $       | (96,004 | )
|                              |       |      |         |          |  |  |      |          |   |              |         |         |  |  |      |      |   |   |         |        

Revenues

Service, rent and maintenance revenues decreased
to $378.1 million for the twelve months ended
December 31, 2002 from $460.4 million for the twelve
months ended December 31, 2001, as the number of units in
service decreased from approximately 5.5 million at
December 31, 2001 to 3.7 million at December 31,
2002. Product sales revenue decreased to $28.1 million or
for the twelve months ended December 31, 2002, from
$43.2 million for the twelve months ended December 31,
2001. Please refer to the discussion below of traditional paging
revenues and advanced messaging revenues for further details.

The following provides discussion of fluctuations
in our net revenues based upon the underlying service provided
(traditional or advanced messaging). (All dollars in thousands
except per unit information):

|                                         |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |          |  
|---------------------------------------- | -------------- | ---- | --------- | -------- |  |  | ---- | -------- | - | ------------ | --------- | ------- |  |  | ---- | ----- | - | - | ---------- | -------- | -
|                                         |                |      |           |          |  | 
|                                         |                | 2001 |           | 2002     |  | 
|                                         |                |      |           |          |  | 
|                                         |                |      |           | % of     |  |  |      | % of     |   | Fluctuation 
|                                         |                |      |           | Revenues |  |  |      | Revenues |   | 2001 to 2002
|                                         |                |      |           |          |  |  |      |          |   |             
|TRADITIONAL REVENUES                     |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |         
|Service, rent and maintenance            |                | $    | 414,521   |          |  |  | 91.9 | %        |   | $            | 319,454   |         |  |  | 94.4 | %     |   | $ | (95,067    | )       
|Product sales                            |                |      | 36,689    |          |  |  | 8.1  | %        |   |              | 18,926    |         |  |  | 5.6  | %     |   |   | (17,763    | )       
|                                         |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |         
|                                         | Total revenues |      | $         | 451,210  |  |  |      | 100.0    | % |              | $         | 338,380 |  |  |      | 100.0 | % |   | $          | (112,830 | )
|                                         |                |      |           |          |  |  |      |          |   |              |           |         |  |  |      |       |   |   |            |         
|Non-paging service, rent and maintenance |                | $    | 9,951     |          |  |  |      |          |   | $            | 6,984     |         |  |  |      |       |   | $ | (2,967     | )       
|ARPU                                     |                | $    | 5.93      |          |  |  |      |          |   | $            | 6.06      |         |  |  |      |       |   | $ | 0.13       |         
|Ending units in service                  |                |      | 5,223,621 |          |  |  |      |          |   |              | 3,514,217 |         |  |  |      |       |   |   | (1,709,404 | )       
|Average units in service                 |                |      | 5,682,734 |          |  |  |      |          |   |              | 4,294,411 |         |  |  |      |       |   |   | (1,388,323 | )       

Traditional paging service, rent and maintenance
revenue decreased to $319.5 million for the twelve months
ended December 31, 2002 from $414.5 million for the twelve
months ended December 31, 2001. In the 2002 combined period
ended December 31, 2002 the number of subscribers receiving
airtime services decreased approximately 1.7 million to
3.5 million subscribers. Of this decrease, approximately
25% occurred in our direct distribution channels and 75%
occurred in our indirect distribution channels. The decrease in
revenue and units in service in our direct distribution channels
was the result of a decrease in demand for traditional paging
services; rate compression caused by the decrease in demand and
competitive industry pricing; and the conversion of subscribers
to our advanced messaging services. The decrease in our indirect
distribution channels, primarily with resellers, was the result
of the decrease in demand for traditional paging products and
our desire to increase the ARPU in this relatively low ARPU
distribution channel. ARPU increased $0.13 to $6.06 from 2001.

Product sales from traditional paging decreased
to $18.9 million for the twelve months ended
December 31, 2002 from $36.7 million for the twelve
months ended December 31, 2001 and decreased as a
percentage of net revenues from 8.1% in 2001 to 5.6% for the
twelve months ended December 31, 2002. Fluctuations in
traditional product sales were the result of a reduction in the
number of subscriber units sold through direct distribution
channels in 2002.

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|                              |                |      |         |          |  |  |      |          |   |              |         |        |  |  |      |       |   |   |         |        | 
|----------------------------- | -------------- | ---- | ------- | -------- |  |  | ---- | -------- | - | ------------ | ------- | ------ |  |  | ---- | ----- | - | - | ------- | ------ | 
|                              |                |      |         |          |  | 
|                              |                | 2001 |         | 2002     |  | 
|                              |                |      |         |          |  | 
|                              |                |      |         | % of     |  |  |      | % of     |   | Fluctuation 
|                              |                |      |         | Revenues |  |  |      | Revenues |   | 2001 to 2002
|                              |                |      |         |          |  |  |      |          |   |             
|ADVANCED MESSAGING REVENUES   |                |      |         |          |  |  |      |          |   |              |         |        |  |  |      |       |   |   |         |       
|Service, rent and maintenance |                | $    | 45,927  |          |  |  | 87.5 | %        |   | $            | 58,684  |        |  |  | 86.4 | %     |   | $ | 12,757  |       
|Product sales                 |                |      | 6,536   |          |  |  | 12.5 | %        |   |              | 9,208   |        |  |  | 13.6 | %     |   |   | 2,672   |       
|                              |                |      |         |          |  |  |      |          |   |              |         |        |  |  |      |       |   |   |         |       
|                              | Total revenues |      | $       | 52,463   |  |  |      | 100.0    | % |              | $       | 67,892 |  |  |      | 100.0 | % |   | $       | 15,429 | 
|                              |                |      |         |          |  |  |      |          |   |              |         |        |  |  |      |       |   |   |         |       
|ARPU                          |                | $    | 22.25   |          |  |  |      |          |   | $            | 22.40   |        |  |  |      |       |   | $ | 0.15    |       
|Ending units in service       |                |      | 231,444 |          |  |  |      |          |   |              | 205,167 |        |  |  |      |       |   |   | (26,277 | )     
|Average units in service      |                |      | 171,985 |          |  |  |      |          |   |              | 218,306 |        |  |  |      |       |   |   | 46,321  |       

Advanced messaging service, rent and maintenance
revenue increased to $58.7 million for the twelve months
ended December 31, 2002 from $45.9 million for the
twelve months ended December 31, 2001. The increase in
service, rent and maintenance revenues was the result of a
greater average number of subscribers in service in 2002 than in
2001; and a more weighted shift in product placements into our
direct distribution channels in 2002. ARPU for the combined
period ended December 31, 2002 increased by $0.15 to $22.40
from $22.25 in December 31, 2001.

Product
sales Product sales from
advanced messaging operations increased to $9.2 million or
40.1% for the twelve months ended December 31, 2002 from
$6.5 million for the twelve months ended December 31,
2001. The increase in product sales was the result of selling a
greater number of devices through our direct distribution
channel during 2002 than 2001 as a result of a higher volume of
placements made during 2002.

Operating Expenses

Service, rent and maintenance
expenses Service, rent and
maintenance expenses decreased to $112.3 million for the
twelve months ended December 31, 2002 from
$139.3 million for the twelve months ended
December 31, 2001 and decreased as a percentage of total
revenues from 27.7% in 2001 to 27.6% in 2002. Monthly service,
rent and maintenance expense per unit increased from $1.91 per
unit in 2001 to $2.07 per unit in the 2002 combined period. The
decrease of $27.1 million for 2002 in these expenses was
primarily the result of $3.0 million in subscriber line
costs, $2.2 million in rent and tower site costs,
$4.2 million in salary and compensation and
$9.6 million in dispatching and third party paging carrier
costs and a reduction of $8.1 million in other expenses.
Such decreases were the result of rationalization and
re-negotiation of dispatching and subscriber lines costs; lower
compensation expenses from a smaller workforce and other cost
cutting initiatives undertaken in connection with the
preparation for or implementation of our plan of reorganization.
The increase in monthly average service, rent and maintenance
expenses per unit was the result of the above events and the
impact of a lower average number of units in service for 2002.

Cost of products
sold Cost of products sold
decreased to $14.2 million for the twelve months ended
December 31, 2002 from $26.2 million for the twelve
months ended December 31, 2001. The decrease in cost of
products sold was primarily the result of a lower volume of
traditional devices sold during 2002 and a lower device unit
cost as a result of the revaluation of the devices basis that
occurred upon our emergence from the chapter 11 proceedings in
October 2002 partially offset by a higher volume of advanced
messaging units sold in 2002.

Selling and
Marketing Selling and
marketing expenses decreased to $62.3 million for the twelve
months ended December 31, 2002 from $92.5 million for
the twelve months ended December 31, 2001 and decreased as
a percentage of total revenues from 18.4% in 2001 to 15.3% in
2002. The overall expense decrease of $30.2 million was
primarily the result of expense reductions of $22.1 million
in salaries and commissions and other related expenses as a
result of a smaller sales and marketing force, and a
$2.6 million reduction in print and media advertising.
Monthly selling and marketing expense unit decreased from $1.27
per unit in 2001 to $1.15 per unit in 2002 as a result of the
above described events and the impact of a lower average number
of units in service for 2002.

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General and administrative
expenses General and
administrative expenses decreased to $134.4 million for the
twelve months ended December 31, 2002 from
$161.2 million for the twelve months ended
December 31, 2001 and increased as a percentage of total
revenues from 32.0% in 2001 to 33.1% in 2002. The overall
expense decrease of $26.8 million was primarily the result
of the following functional expense reductions: decreases of
salaries and compensation expense reductions of
$8.2 million due to fewer employee positions; reductions of
bad debt expenses of $5.8 million primarily as a result
improved collections experience and lower levels of accounts
receivable; decreases in facilities rents of $5.0 million
primarily as a result of closures of our company-owned stores
channel and $7.8 million of other expenses primarily the
result of several cost containment initiatives that focused on
the back office centralization and rationalization related to
the preparation for or implementation of our plan of
reorganization. Monthly general and administrative expenses per
unit increased $0.19 from $2.21 in 2001 to $2.40 per unit in
2002 as a result of these events and the impact of a lower
average number of units in service for 2002.

Reorganization
expenses Reorganization
expenses increased to $19.0 million for the twelve months ended
December 31, 2002 from $15.0 million for the twelve
months ended December 31, 2001. Such costs for 2002
included approximately $10.6 million costs incurred for
legal, financial and investment banking services received in
connection with our debt restructuring and chapter 11
proceedings described herein, severance costs of approximately
$3.2 million and facility lease exit costs of approximately
$4.7 million related to a 2002 operational restructuring.

Depreciation expenses decreased to
$61.3 million for the twelve months ended December 31,
2002 from $111.5 million for the twelve months ended
December 31, 2001. The decrease in depreciation expense
resulted mainly from a reduction in the basis of our assets, due
to the impairment charges taken during the second and fourth
quarters of 2001 and the revaluation of our long-lived assets
which occurred in connection with fresh start accounting on
October 8, 2002.

Amortization expenses decreased to
$1.9 million for the twelve months ended December 31,
2002 from $74.4 million for the twelve months ended
December 31, 2001. The decrease was primarily the result of a
lower basis of intangible assets as a result of the impairment
write-downs which occurred in the three months ended
June 30, 2001 and December 31, 2001, in which goodwill
and intangible assets were completely written off.

In 2001, we incurred an impairment on long-lived
assets of $387.9 million. Factors that indicated an
impairment of long-lived assets had occurred included a
continued reduction in revenues and operating cash flows, the
termination of a former merger agreement we had with Weblink and
continuing competitive industry and economic conditions. The
amount of write down in each period was equal to the amount by
which the carrying value of our long-lived assets exceeded the
estimated future discounted cash flows of such assets over their
estimated useful lives.

Interest expense decreased to $41.9 million
for the twelve months ended December 31, 2002 from
$100.7 million for the twelve months ended
December 31, 2001. The decrease was the result of the
cessation of interest accruals on the Predecessor Companys
senior subordinated notes from June 3, 2002 through
October 7, 2002, partially offset by $2.6 million of
interest expense that accrued on the notes issued in connection
with the plan of reorganization and other liabilities.

In connection with our emergence from chapter 11,
the Predecessor Company recognized a net gain of
$749.8 million resulting from the discharge and termination
of debt incurred before the bankruptcy filing and a net gain of
$575.5 million resulting from our fresh start accounting
adjustments. See Note 2 to the consolidated financial statements.

In connection with our emergence from
chapter 11, we recorded a gain of $80.3 million
related to the cancellation of the Predecessor Company preferred
stock. See Note 2 to the consolidated financial statements.

Net income for the twelve months ended
December 31, 2002 was $1.3 billion as a result of the
factors described above including the net gains of $749.8
million that resulted from the debt discharge and the
$575.5 million that resulted from our fresh start
accounting adjustments. In 2001, we incurred a net loss of

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$612.8 million as a result of the factors
described above which included the impairment of certain
long-lived assets of $387.9 million.


Liquidity and Capital Resources

Our liquidity position at December 31, 2003
consisted of cash and cash equivalents of approximately
$35.6 million. Our principal source of cash is our net cash
provided by operating activities. We anticipate net cash
provided by operating activities together with our cash and cash
equivalents at December 31, 2003, will be adequate to meet our
anticipated cash requirements for the foreseeable future. In the
event that our net cash provided by operating activities and
cash and cash equivalents are not sufficient to meet future cash
requirements, we may be required to forgo planned capital
expenditures, sell assets or seek additional financing.

Cash Flows

|                                          |  |                     |         |      |  |   |          |  
|----------------------------------------- |  | ------------------- | ------- | ---- |  | - | -------- | -
|                                          |  |                    
|                                          |  | Twelve Months Ended
|                                          |  | December 31,       
|($s in thousands)                        |  |                    
|                                          |  | 2002                |         | 2003
|                                          |  |                     |         |     
|Net cash provided by operating activities |  | $                   | 51,084  |      |  | $ | 95,604   |  
|Net cash used in investing activities     |  | $                   | (26,890 | )    |  | $ | (4,876   | )
|Net cash used in financing activities     |  | $                   | (799    | )    |  | $ | (102,656 | )

Net cash provided by operating activities
increased $44.5 million for the twelve months ended
December 31, 2003 to $95.6 million from
$51.1 million for the twelve months ended December 31,
2002. The increase was the result of the decrease in total
revenues for 2003 more than offset by reductions in our total of
cost of products sold, service, rent and maintenance, selling
and marketing and general and administration expenses; and
changes in working capital.

Net cash used in investing activities decreased
$22.0 million to $4.9 million for the twelve months ended
December 31, 2003 from $26.9 million for the combined
twelve month period ended December 31, 2002. The decrease
was primarily the result of lower capital expenditures in 2003,
which included expenditures of approximately $7.3 million
for pager devices and $2.3 million for paging
infrastructure and computer related equipment. Investing
activities also reflected the impact of cash balances of
$4.2 million acquired along with the Weblink assets offset
by cash paid of approximately $1.0 million for customer
contracts and the business assets of another paging carrier.
Total capital expenditures for 2004 are expected to increase to
$18.0 million including estimated expenditures of up to
$2.0 million required to integrate the satellite
transmission and billing platforms acquired from Weblink. The
amount of actual capital required will depend on a number of
factors including subscriber additions and device replacement
requirements of current subscribers; competitive conditions and
technological developments.

Net cash used in financing activities increased
$101.9 million to $102.7 million for the twelve months
ended December 31, 2003 from $799,000 for the twelve months
ended December 31, 2002. The increase was the result of the
repayments in full of our senior secured and subordinated PIK
notes and redemptions of series A preferred stock issued in
connection with the plan of reorganization. During 2003, we
repaid $81.5 million representing all obligations
outstanding under our senior secured notes and subordinated PIK
notes issued in connection with the plan of reorganization. Such
repayments were made between January and June 30, 2003. In
addition, on September 30, 2003, 1,797,103 shares of series
A preferred were redeemed at approximately $11.13 per share or
an aggregate $20.0 million. We expect to redeem all
remaining shares of the series A preferred during the second
quarter of 2004.

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Debt, Preferred Stock and Other
Obligations:

|                                    |  |              |        |      |  |   |        | 
|----------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                    |  |             
|                                    |  | December 31,
|($s in thousands)                  |  |             
|                                    |  | 2002         |        | 2003
|                                    |  |              |        |     
|Senior secured note(a)              |  | $            | 60,000 |      |  | $ |       | 
|Subordinated PIK note(a)            |  | $            | 20,559 |      |  | $ |       | 
|Series A preferred(a)               |  | $            | 62,071 |      |  | $ | 46,700 | 
|Other debt, including capital lease |  | $            | 2,328  |      |  | $ | 856    | 
|Long-term liabilities               |  | $            | 13,693 |      |  | $ | 3,492  | 



---



|    |                                                   
|--- | --------------------------------------------------
|(a) | Obligation reflected at face or liquidation value.

Senior secured and subordinated PIK
notes As described above,
all obligations were repaid under the senior secured and
subordinated PIK notes issued in connection with the plan of
reorganization between January 1, 2003 and June 30,
2003 with cash on hand at December 31, 2002 and net cash
provided by operating activities from January 1, 2003 to
June 30, 2003.

Series A
Preferred In
connection with the plan of reorganization, we issued 5,993,290
shares of series A preferred and may issue an additional 6,710
shares as we resolve any remaining general unsecured claims
associated with our reorganization.

Dividends accrue on the series A preferred at a
rate of 15% per annum. Prior to July 1, 2003, these
dividends compounded quarterly (but did not become payable) and
increased the initial liquidation preference on the series A
preferred from $10.0 per share on their issuance date in October
2002 to $11.129028 per share on June 30, 2003. Upon
repayment in full of both the senior secured and subordinated
PIK notes on June 30, 2003, dividends that accrued on the
shares after this date are to be paid in cash at the end of each
calendar quarter. During 2003, we paid cash dividends on the
series A preferred of $4.2 million, which was reflected in
interest expense  dividends and accretion on
series A preferred on the accompanying statement of
operations.

After the full retirement of the senior secured
and PIK notes on June 30, 2003, we gained the ability to
begin to redeem shares of series A preferred on a mandatory or
optional basis. We are required to redeem the shares of series A
preferred on a pro-rata basis, together with any and all unpaid
accrued dividends to the redemption date on a quarterly basis by
an amount equal to 100% of Unrestricted Cash over
$10.0 million. Unrestricted cash is defined as cash on hand
with Metrocall Holdings, Inc, Metrocall, Inc. and Metrocall USA,
Inc. excluding (i) cash necessary to make distributions
pursuant to the Plan or to establish reserves as may be required
or permitted under the Plan or otherwise appropriate or
(ii) cash encumbered by permitted liens.

If required, mandatory redemptions are to be made
no later than 65 days following the end of a fiscal
quarter. Pursuant to the series A preferred certificate of
designation, we are required to redeem a minimum number of
shares having an aggregate liquidation preference of
$5.0 million preference amount and to provide holders
between 30 and 60 days notice of redemption with each
redemption. We have the ability to redeem preferred shares at
our option subject to the same minimum redemption amounts and
notice requirements of a mandatory redemption. As of
December 31, 2003, unrestricted cash balances held by
Metrocall Holdings, Metrocall, Inc. and Metrocall USA totaled
approximately $35.0 million. Based on this balance, we were
required to redeem $25.0 million of preferred stock. As of
December 31, 2003, Metrocall had a redemption of $20.0
million scheduled to be made on January 6, 2004 and
subsequent to year-end scheduled a second redemption, as
explained below for March 31, 2004. Pursuant to their
certificate of designation, all of the shares of the series A
preferred must be redeemed on or before December 31, 2006.

In 2003, we had one redemption in which we
redeemed approximately 1.8 million shares of series A preferred
on September 30, 2003 for $20.0 million. As of
December 31, 2003, we had approximately 4.2 million
outstanding shares of series A preferred with an aggregate
liquidation preference of $46.7 million. On January 6,
2004, we had a second redemption in which we redeemed an
additional $20.0 million representing approximately
1.8 million shares. After this redemption, we had
approximately 2.4 million

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outstanding shares of series A preferred with an
aggregate liquidation preference of $26.8 million plus
accrued dividends. On March 1, 2004, we announced that we
would redeem an additional 1,797,103 shares with a liquidation
preference of $11.129028 per share or $20.0 million. Upon
completion of this redemption on March 31, 2004, we expect
to have approximately 608,000 shares of series A preferred
outstanding with an aggregate liquidation preference of
$6.8 million.


Other long-term
liabilities Long-term
liabilities at December 31, 2003 decreased
$10.2 million from $13.7 million at December 31,
2002 to $3.5 million. Such obligations as of December 31,
2002, consisted mainly of accrued engineering charges not yet
payable to Weblink and transmitter removal obligations we had
accrued pursuant to SFAS No. 143, Accounting for
Asset Retirement Obligations. We reflected an obligation
of $10.0 million as of December 31, 2002 representing
the net present value of engineering charges related to the use
and construction of the two-way paging network provided by
Weblink but not payable until October 2004. As a result of the
Weblink asset acquisition, this obligation was eliminated in our
accounting for the transaction.

Income
taxes During 2003, we made
cash payments of income taxes of approximately $1.3 million
based upon our estimates of our taxable income for the year
ended December 31, 2003 for Federal and state purposes. In
2004, based upon our anticipated business plan, the expected
benefit of additional compensation expense from the anticipated
exercise of stock options and the characteristics of our
deferred tax assets, we expect to generate net taxable income
that would require us again to pay income taxes in a range of
$9.0 million to $11.0 million. To the extent that our
taxable income or other assumptions vary from our expectations,
our estimated cash requirements for income taxes may increase or
decrease.

Contractual
Obligations The following
table sets forth our best estimate as to the amounts and timing
of contractual payments for our financing obligations and
contractual payment requirements for device purchase commitments
and lease obligations of our offices, technical facilities and
transmitter sites with lease terms ranging from 1 to
12 years as of December 31, 2003.

|                                         |  |       |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |       |  |  |   |       | 
|---------------------------------------- |  | ----- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---------- | ------ |  |  | - | ------ |  |  | - | ----- |  |  | - | ----- | 
|                                         |  | Total |         | 2004 |  | 2005 |        | 2006 |  | 2007 |        | 2008 |  | Thereafter
|                                         |  |       |         |      |  |      |        |      |  |      |        |      |  |           
|Series A Preferred                       |  | $     | 46,700  |      |  | $    | 46,700 |      |  | $    |       |      |  | $          |       |  |  | $ |       |  |  | $ |      |  |  | $ |      | 
|Capital lease obligations and other debt |  |       | 898     |      |  |      | 864    |      |  |      | 34     |      |  |            |       |  |  |   |       |  |  |   |      |  |  |   |      | 
|Purchase commitments                     |  |       | 13,382  |      |  |      | 7,425  |      |  |      | 3,828  |      |  |            | 2,129  |  |  |   |       |  |  |   |      |  |  |   |      | 
|Operating leases                         |  |       | 118,552 |      |  |      | 44,173 |      |  |      | 31,822 |      |  |            | 19,787 |  |  |   | 14,391 |  |  |   | 6,959 |  |  |   | 1,420 | 
|                                         |  |       |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |       |  |  |   |       | 
|                                         |  | $     | 179,532 |      |  | $    | 99,162 |      |  | $    | 35,684 |      |  | $          | 21,916 |  |  | $ | 14,391 |  |  | $ | 6,959 |  |  | $ | 1,420 | 
|                                         |  |       |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |       |  |  |   |       | 

Inflation

Inflation is presently not a material factor
affecting our business. Traditional one-way paging system
equipment and operating costs have not increased and one-way
pager costs have declined significantly in recent years. This
reduction in costs has been reflected in lower prices charged to
our subscribers. General operating expenses such as salaries,
employee benefits and occupancy costs are, however, subject to
inflationary pressures.

Critical Accounting Policies

Metrocall prepares its financial statements in
conformity with generally accepted accounting principles, which
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Metrocalls
management evaluates these estimates and assumptions on an
on-going basis. Actual results could differ from those estimates.

Revenue
Recognition

We recognize revenue under service, rental and
maintenance agreements with customers as the related services
are performed. We lease (as lessor) pagers and messaging devices
under operating leases. Substan-

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tially all the leases are on a month-to-month
basis. Advance billings for services are deferred and recognized
as revenue when earned. Sales of one-way paging and ancillary
equipment are recognized upon delivery. Prior to July 1,
2003 the we bundled the sale of two-way paging equipment with
the related service and recognized the revenue and related cost
of sales over the expected customer relationship which the
company estimates is one year. Beginning July 1, 2003, we
recorded revenue from two-way messaging equipment sales upon
delivery.


Impairment or
Disposal of Long-Lived Assets

We account for long-lived assets in accordance
with the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS
No. 144 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets is measured by comparing the carrying amount of an asset
to future undiscounted net cash flows expected to be generated
by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds their fair value.
Assets to be disposed of by sale are reflected at the lower of
their carrying amount or fair value less cost to sell.

Reserve for
Doubtful Accounts

Estimates are used in determining the reserve for
doubtful accounts and are based on historical collection
experience, current trends and a percentage of the accounts
receivable aging categories. In determining these percentages we
review historical write-offs, including comparisons of
write-offs to provisions for doubtful accounts as a percentage
of net revenues; compare the ratio of the reserve to gross
receivables to historical levels and monitor collection amounts
and statistics. While write-offs of customer accounts have
historically been within our expectations and the provisions
established, we cannot guarantee that we will continue to
experience the same write-off rates experienced in the past,
which could result in material differences in the reserve for
doubtful accounts and related provisions for write-offs.

Accounting for
Income Taxes

We account for income taxes under the provisions
of SFAS 109, Accounting for Income Taxes.Under the
Statement, deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and tax bases
of existing assets and liabilities, less valuation allowances,
if required. We assess the recoverability of our deferred tax
assets on an ongoing basis. In making this assessment, we are
required to consider all available positive and negative
evidence to determine whether, based on such evidence, it is
more likely than not that some portion or all of our net
deferred tax assets will be realized in future periods. This
assessment requires significant judgment.

When we emerged from the bankruptcy proceedings
in October 2002, we established a valuation allowance against
our net deferred tax assets since based on information available
to us at that time, we believed it was more likely than not that
the deferred assets would not be realized. During the fourth
quarter of 2003, we determined based upon the operating and
taxable income we generated subsequent to October 2002,
repayment of our senior and subordinated PIK notes much earlier
than expected, the redemptions and planned redemptions of our
series A preferred stock and anticipated operating income and
cash flows for future periods that it is more likely than not
that certain of our deferred tax assets will be realized in the
future and as such it was appropriate to release the valuation
allowance recorded against those deferred tax assets.

Under SFAS 109, a reduction in a deferred
tax asset valuation allowance that existed as of the date of the
fresh start accounting are first credited against intangible
assets existing at the date of fresh start accounting and then,
once these assets have been reduced to zero, credited directly
to additional paid-in capital. The partial release of the
valuation allowance reduced the carrying amount of intangible
assets by $3.0 million and $16.2 million for the period
October 8, 2002 to December 31, 2002 and for the year
ended December 31, 2003, respectively. After the reductions
of the intangible assets recorded in connection with our fresh
start

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accounting, additional paid-in capital was
increased by $57.1 million related to deferred tax benefits
realized in 2003 ($4.1 million) and deferred tax assets
expected to be realized in the future ($53.1 million). We
believe that it is more likely than not that our net deferred
tax assets of $53.1 million will be recovered through
reductions in tax liabilities in future periods.


Stock-based
Compensation

In 2003, we implemented a stock option plan to
help us continue to retain the best employees, and to better
align employee interests with those of our shareholders. We
issued options to purchase up to 410,000 shares of our common
stock to certain key employees and members of the Board of
Directors. We accounted for our option grants pursuant to SFAS
No. 123, Accounting for Stock Compensation, which
established a fair-value based method of accounting for stock
compensation plans. We recognize the fair value of the option
grant as compensation expense over the vesting period of the
grant. We estimate the compensation expense for the 2003 grants
will approximate $2.2 million over the total vesting period
of which $0.8 million has been included in our general and
administrative expenses for 2003.

Fresh Start
Accounting

The accompanying financial statements for the
period January 1 to October 7, 2002 have been prepared in
accordance with AICPA Statement of Position 90-7, Financial
Reporting by Entities in Reorganization under the Bankruptcy
Code, (SOP 90-7). Under SOP-90-7, the
Companys reorganization value was allocated to its
tangible and identifiable intangible assets and liabilities,
including debt, were recorded at their net present values.

Factors Affecting Future Operating
Results

There are various factors that could adversely
affect our business, financial condition, prospects and results
of operations. The principal factors are described below.

Over the past several years, technological
advances and increased competition have resulted in reduced
subscribers and revenues in the paging industry. In recent
years, several paging companies, including ours, were subject to
bankruptcy proceedings and had their debt restructured. The
continued decline in the number of subscribers of traditional
paging services and advanced messaging services has had and will
likely continue to adversely impact our industry generally and
our ability to generate cash flow.

Between 1999 and 2003, published industry reports
report a decrease in the number of traditional one-way paging
units from over 40 million in 1999 to approximately
12 million in 2003. In 2002 and 2003, excluding the impact
of the Weblink asset acquisition, we experienced a net decline
in traditional paging units of 1.7 million and
0.8 million, respectively. Because of the fixed costs
necessary to operate our paging infrastructure, subscription
cancellations cannot be fully offset by expense reductions and,
as a result, will likely adversely impact our cash flows.

As a result of the decline in the number of our
subscribers and excluding the impact of the Weblink asset
acquisition, we have experienced a reduction in our annual
revenues from $610.2 million in 1999 to $327.8 million
in 2003, or 46.3% over that period. We believe that the number
of traditional paging and advance messaging service subscribers
will continue to decline for the foreseeable future. While we
will make efforts to replace lost subscribers, the marketing and
other expenses associated with adding subscriptions is high and
could adversely affect our cash flow in the short-term if the
replacement efforts are successful and in the longer term if
they are not successful.

Technological advances by existing and new
competitors in the wireless communications services industry
will result in increased competition for our subscribers and
could reduce our market share and revenues and harm our
financial performance.

We face intense competition for subscribers not
only from other providers of traditional paging services such as
Arch Wireless, Inc., Skytel, Inc., Verizon Wireless Messaging
LLC, SBC Paging and others as well as large mobile telephone
carriers such as AT&T Wireless, Cingular Wireless, Nextel,
Sprint PCS, T-Mobile

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and Verizon Wireless and others who have or are
developing messaging services that perform comparable functions
to our two-way narrowband PCS services. In addition, providers
of e-mail and similar services available over PDAs such as
Motient Corporation have also developed two-way messaging
devices in competition with our messaging services. Increased
competition from these providers might result in loss of
existing or future subscribers, loss of revenues and increased
expenses to stay competitive.


Many of our competitors have longer operating
histories and better brand recognition. Several of our
competitors are large diversified telecommunications companies
that serve several markets and possess financial, technical and
other resources greater than those of Metrocall. Further
advances in technology could lower the cost of competing
services and/or products to a level at which Metrocalls
pricing for its services and products would cease to be
competitive. We may not be able to develop or introduce new
services and products on a timely basis and at competitive
prices, if at all, and our revenues, profit margins, inventory
costs and cash flows may be adversely affected by technological
developments we will be required to remain competitive with
other providers.

Our ability to maintain satisfactory
relationships with our subscribers and deliver high-quality
paging and messaging services could be compromised if satellite
failures occur.

Our ability to maintain and grow our subscriber
base is dependent in large part on our ability to provide
quality uninterrupted paging and messaging capability to our
subscribers. A majority of our paging traffic is transmitted
through our satellite facility in Stockton, California.
Excluding paging traffic generated by the operating assets of
Weblink Wireless that we acquired in November 2003, our
satellite uplink facility in Stockton controls approximately 84%
of the satellite controlled transmitters, while a third party
uplink facility in Raleigh, North Carolina controls
approximately 15% of such transmitters. Weblinks traffic
is controlled by ITC Deltacom, a third party satellite vendor in
Atlanta, Georgia.

The failure or disruption of transmissions by the
Stockton facility or any of the other satellites and other
facilities that transmit our paging traffic could disrupt our
paging and messaging services and adversely affect our ability
to retain or gain more subscribers and sustain or increase
revenues.

Our inability to maintain cost reductions in
the future to reflect reduced revenues and subscribers could
adversely impact our cash flow and results of
operations.

Our reorganization plan, upon which we premised
our exit from chapter 11 proceedings in October 2002, was
predicated on refining our operating structure to reduce the
costs required to operate our business. Since emerging from
chapter 11, we have reduced our operating expenses and continue
to review our technical infrastructure costs; inventory
fulfillment and customer service provisioning; selling and
marketing and general and administrative functions for
additional cost savings. In light of technological advances in
our industry, increased competition from numerous companies and
other factors that may require us to make additional
expenditures, we may not be able to continue the amount of cost
reductions recognized in our legacy business operations at the
same levels that we experienced in 2002 and 2003 and as a result
growth in cash flow and our operating results may be adversely
impacted.

We face challenges in integrating the assets
we acquired from Weblink and, as a result, may not realize any
or all of the expected benefits of the acquisition.

Our acquisition of Weblinks assets created
potential risks, such as the difficulty of integrating the
operations, technology and personnel of the combined operations;
the disruption of our ongoing business, including loss of
management focus on existing businesses; problems retaining key
technical and managerial personnel; and additional expenses of
acquired businesses. We may not succeed in addressing these
risks and our failure to do so may cause us not to realize any
or all of the anticipated benefits of the merger. Our failure to
do so may have a material adverse effect on our business,
financial conditions and operating results.

Our operations could be adversely impacted by
any failure to obtain timely FCC approvals to renew, assign or
transfer licenses necessary for our business.

Our ability to operate and grow our business is
predicated in substantial part on our ability to maintain FCC
licenses. The licenses used in our business are issued by the
FCC for terms of 10 years, although most

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renewal requests are routinely granted. We are
also required to obtain FCC approval before we acquire radio
licenses held by other companies, as well as transfers of
controlling interests of third parties that hold radio licenses.
Although we know of no reason to believe these applications
would not be approved or granted based upon our experience to
date, future renewal, assignment, transfer, major modification
or new applications we file may not be approved or acted upon in
a timely manner by the FCC. The FCC also has the authority to
restrict the operation of licensed radio facilities or to revoke
or modify such licenses. The FCC may adopt changes to its
licensing and operating rules at any time and may impose fines
for violations of its rules which could make it more difficult
and costly for us to operate our business.


Changes in the regulations that govern our
business might increase competition or make it more difficult or
costly to operate our business or comply with its
changes.

The FCC has broad authority to propose and enact
regulations that could adversely affect our business. For
example, periodic FCC auctions of new wireless licenses, or
future FCC regulations which may make new spectrum available for
wireless services, may increase competition by allowing more
providers to enter the wireless market at relatively modest
costs. In January 2004, the FCC also established new spectrum
lease rules, which will provide companies greater flexibility to
lease airtime from FCC licensee holders and increase the level
of competition to which we are subject. Other initiatives
currently being considered, such as rules for smart
radio receivers or new means of calculating acceptable levels of
interference, if adopted, could increase unlicensed wireless
operations and competition in the market.

Although Congress has generally limited the
rights of states to regulate market entry and the rates charged
by commercial mobile radio service, or CMRS, providers like us,
the states retain the ability to regulate other terms and
conditions of CMRS services. We therefore remain subject
to state consumer protection, health and safety and
similar laws, as well as local zoning ordinances affecting our
tower sites. Additionally, state public utility commissions have
the authority to approve our interconnection agreements with
local telephone carriers.

These changes and any other changes to the laws,
rules and regulations to which we are subject may result in
further competition in the already highly competitive wireless
telecommunications industry and make it more difficult or costly
to operate our business.

If we are unable to retain key management
personnel, including our current president and chief executive
officer, we might not be able to find suitable replacements on a
timely basis and our business operations could be adversely
affected.

Our existing operations and our ability to
achieve our goals to maximize net cash provided by operating
activities are dependent to a significant extent upon the
efforts and abilities of certain key individuals, including our
President and Chief Executive Officer, Vincent D. Kelly.
Mr. Kelly has substantial expertise and experience in the
paging and messaging industry, knows the intricacies of our
business operations and is responsible for the development and
implementation of our current business strategy. We have an
employment contract with Mr. Kelly, which includes a
two-year non-compete for a termination of employment for any
reason. We do not carry key man life insurance on
any senior executive. If we are unable to retain Mr. Kelly
or lose his services, it is unlikely we could find someone to
replace him that would have the same degree of expertise,
experience, knowledge and insight into the industry and the
business operations. Even if we are able to identify a suitable
replacement, our business would be impaired from the disruption
associated with changes in management.

Comparisons of recent results with prior
periods are difficult because we adopted fresh-start accounting
when we emerged from bankruptcy.

Upon emergence from bankruptcy in October 2002,
the principles of fresh-start financial accounting were adopted
as described in Note 2 to our consolidated financial statements.
Our adoption of fresh-start accounting means that our
consolidated financial statements for recent periods prepared on
this basis are not comparable with our consolidated financial
statements for periods prior to our emergence from chapter 11
proceedings. This lack of comparability may make it more
difficult for investors to evaluate our financial condition and
results of operations.

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The rights of our preferred stockholders to
control the vote of all matters presented to our stockholders,
including the election of directors, could adversely affect our
common stockholders.

So long as any our series A preferred remains
outstanding, the holders of the preferred stock maintain the
right to cast 95% of the votes generally on all matters that may
be brought to our stockholders. Accordingly, our preferred
stockholders control the power to elect our directors and
officers, to appoint new management and to approve substantially
all actions requiring the approval of our stockholders,
including adopting amendments to our charter and bylaws and
approving mergers, acquisitions or sales of all or substantially
all of our assets or any other significant transaction requiring
stockholder approval.

The interests of the preferred stockholders could
conflict with the interests of common stockholders. For example,
if we encounter financial difficulties or are unable to pay our
debts as they mature, the interests of the preferred
stockholders might conflict with your interests as a common
stockholder. Our preferred stockholders also may have an
interest in approving mergers, acquisitions, divestitures,
financings or other transactions that, in their judgment, could
protect their investment, even though such transactions might
involve risks to you, as holders of our common stock.






|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | Quantitative and Qualitative Disclosures
    about Market Risk

We do not believe that our preferred stock is
subject to significant market risk.






|        |                                               
|------- | ----------------------------------------------
|ITEM 8. | Financial Statements and Supplemental
    Data

|                      |                                                                                                                                                                                                                                                     |        |  |     | 
|--------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ |  | --- | 
|                      |                                                                                                                                                                                                                                                     | Page  
|Description           |                                                                                                                                                                                                                                                     | Number
|                      |                                                                                                                                                                                                                                                     |       
|Financial Statements: |                                                                                                                                                                                                                                                     |        |  |    
|                      | Report of Ernst & Young LLP, Independent
    Auditors                                                                                                                                                                                               |        |  | F-2 | 
|                      | Report of Arthur Andersen LLP, Independent Public
    Accountants                                                                                                                                                                                   |        |  | F-4 | 
|                      | Consolidated Balance Sheets, as of
    December 31, 2002 and 2003                                                                                                                                                                                   |        |  | F-5 | 
|                      | Consolidated Statements of Operations for the
    years ended December 31, 2001, the period from
    January 1 to October 7, 2002, the period from
    October 8 to December 31, 2002, and the year ended
    December 31, 2003.                    |        |  | F-6 | 
|                      | Consolidated Statements of Stockholders
    Equity/(Deficit) for the year ended December 31, 2001, the
    period from January 1 to October 7, 2002, the period
    from October 8 to December 31, 2002, and the year
    ended December 31, 2003. |        |  | F-7 | 
|                      | Consolidated Statements of Cash Flows for the
    year ended December 31, 2001, the period from
    January 1 to October 7, 2002, the period from
    October 8 to December 31, 2002, and the year ended
    December 31, 2003                      |        |  | F-8 | 
|                      | Notes to Consolidated Financial Statements                                                                                                                                                                                                          |        |  | F-9 | 
|                      | Schedule II: Valuation and Qualifying
    Accounts for the year ended December 31, 2001, the period
    from January 1 to October 7, 2002, the period from
    October 8 to December 31, 2002, and the year ended
    December 31, 2003.            |        |  | S-1 | 






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | Changes In and Disagreements with
    Accountants on Accounting and Financial Disclosure

On May 23, 2002, we dismissed our
independent auditors, Arthur Andersen LLP (Arthur Andersen), and
engaged Ernst & Young LLP (Ernst & Young) to
serve as our new independent auditors for the fiscal year ended
December 31, 2002. This decision was recommended by our
Audit Committee and approved by the Board of Directors.

Arthur Andersens reports on our
consolidated financial statements for each of the year ended
December 31, 2001 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to
audit scope or accounting principles. However, they did issue a
modified audit report for these time periods to reflect their
concern that Metrocall may not be able to continue as a going
concern in the future.

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During the year ended December 31, 2001 and
the interim period between December 31, 2001 and the date
of Arthur Andersens dismissal, there were no disagreements
between us and Arthur Andersen on any matter of accounting
principle, financial statement disclosure or auditing scope or
procedure which, if not resolved to Arthur Andersens
satisfaction, would have caused them to make reference to the
subject matter of the disagreement in connection with their
report for such years.

During the years ended December 31, 2001 and
through the date of their appointment as our independent
auditors, neither us nor anyone acting on our behalf consulted
Ernst & Young with respect to the application of
accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might
be rendered on our consolidated financial statements, or any
other matters or reportable events listed in
Items 304(a)(2)(i) and (ii) of Regulation S-K.






|         |                        
|-------- | -----------------------
|ITEM 9A. | Controls and Procedures

As of the end of the period covered by this
annual report, under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer,
management evaluated the effectiveness of the design and
operation of our disclosure controls and procedures. Based on
this evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
are effective in timely accumulating and communicating to
management information required to be disclosed in reports that
we file with the SEC. There have been no significant changes in
our internal controls or in other factors that could
significantly affect those controls subject to the date of our
last evaluation.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 10. | Directors and Executive Officers of the
    Registrant

Additional documents will be filed with the
Commission within 120 days after the close of the fiscal
year and are incorporated by reference into Part III.






|         |                       
|-------- | ----------------------
|ITEM 11. | Executive Compensation

Additional documents will be filed with the
Commission within 120 days after the close of the fiscal
year and are incorporated by reference into Part III.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|ITEM 12. | Security Ownership of Certain Beneficial
    Owners and Management

Additional documents will be filed with the
Commission within 120 days after the close of the fiscal
year and are incorporated by reference into Part III.






|         |                                                   
|-------- | --------------------------------------------------
|ITEM 13. | Certain Relationships and Related
    Transactions

Additional documents will be filed with the
Commission within 120 days after the close of the fiscal
year and are incorporated by reference into Part III.






|         |                                            
|-------- | -------------------------------------------
|ITEM 14. | Principal Accountants Fees and
    Services

Additional documents will be filed with the
Commission within 120 days after the close of the fiscal
year and are incorporated by reference into Part III.

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PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|ITEM 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a)(1) Financial
Statements

The following financial statements are included
in Part II Item 8

|                      |                                                                                                                                                                                                                                                     |        |  |     | 
|--------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ |  | --- | 
|                      |                                                                                                                                                                                                                                                     | Page  
|Description           |                                                                                                                                                                                                                                                     | Number
|                      |                                                                                                                                                                                                                                                     |       
|Financial Statements: |                                                                                                                                                                                                                                                     |        |  |    
|                      | Report of Ernst & Young LLP, Independent
    Auditors                                                                                                                                                                                               |        |  | F-2 | 
|                      | Report of Arthur Andersen LLP, Independent Public
    Accountants                                                                                                                                                                                   |        |  | F-4 | 
|                      | Consolidated Balance Sheets, as of
    December 31, 2002 and 2003                                                                                                                                                                                   |        |  | F-5 | 
|                      | Consolidated Statements of Operations for the
    years ended December 31, 2001, the period from
    January 1 to October 7, 2002, the period from
    October 8 to December 31, 2002, and the year ended
    December 31, 2003.                    |        |  | F-6 | 
|                      | Consolidated Statements of Stockholders
    Equity/(Deficit) for the year ended December 31, 2001, the
    period from January 1 to October 7, 2002, the period
    from October 8 to December 31, 2002, and the year
    ended December 31, 2003. |        |  | F-7 | 
|                      | Consolidated Statements of Cash Flows for the
    year ended December 31, 2001, the period from
    January 1 to October 7, 2002, the period from
    October 8 to December 31, 2002, and the year ended
    December 31, 2003                      |        |  | F-8 | 
|                      | Notes to Consolidated Financial Statements                                                                                                                                                                                                          |        |  | F-9 | 
|                      | Schedule II: Valuation and Qualifying
    Accounts for the year ended December 31, 2001, the period
    from January 1 to October 7, 2002, the period from
    October 8 to December 31, 2002, and the year ended
    December 31, 2003             |        |  | S-1 | 

All other schedules are omitted because they are
not required, inapplicable, or the information is otherwise
shown in the financial statements or notes thereto.

(b) Reports
on Form 8-K

Form 8-K dated October 6, 2003 and
filed October 17, 2003 reporting a press release regarding
Metrocalls effecting a 5 for 1 common stock split through
a stock dividend.

Form 8-K dated November 10, 2003 and
filed November 13, 2003 reporting a press release regarding
the companys third quarter 2003 operating results.

Form 8-K dated November 19, 2003 and
filed November 21, 2003 regarding Metrocalls
acquisition of certain assets and the assumption of certain
liabilities of Weblink Wireless, Inc.

Form 8-K dated and filed December 2,
2003 reporting a press release regarding Metrocalls
announcement of plans to redeem shares of its series A preferred
stock with an aggregate liquidation preference of
$20.0 million.

Form 8-K dated and filed December 3,
2003 regarding Metrocalls participation in an investor
conference to be held on December 3, 2003.

Form 8-K dated and filed December 16,
2003 reporting a press release regarding the commencement of
trading of Metrocalls common stock on the Nasdaq Small Cap
Market beginning December 17, 2003.

45



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##### Table of Contents



(c) Exhibits

EXHIBIT INDEX

|        |      |                     |  |                                                                                                                                                                                                                              
|------- | ---- | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                    
|Number  |      | Exhibit Description
|        |      |                    
|        | 2.1  |                     |  | Debtors Second Amended Joint Plan of
    Reorganization under Chapter 11 of the Bankruptcy Code,
    dated June 18, 2002.(a)                                                                                                 
|        | 2.2  |                     |  | Second Amended Disclosure Statement Pursuant to
    Section 1125 of the Bankruptcy Code with respect to Joint Plan
    of Reorganization for the Debtors under Chapter 11 of the
    Bankruptcy Code, dated July 18, 2002.(a)
|        | 2.3  |                     |  | Order Confirming Metrocall, Inc. Joint Plan of
    Reorganization, excluding exhibits other than the Plan.(b)                                                                                                                
|        | 2.4  |                     |  | Asset Purchase Agreement, dated as of
    November 18, 2003, by and among Metrocall, Metrocall, Inc.,
    WebLink Wireless, Inc. and WebLink Wireless I, L.P.(f)                                                             
|        | 3.1  |                     |  | Amended and Restated Certificate of Incorporation
    of Metrocall.(e)                                                                                                                                                       
|        | 3.2  |                     |  | Certificate of Amendment of Amended and Restated
    Certification of Incorporation of Metrocall filed with the
    Department of State of the State of Delaware on May 13,
    2003.(e)                                     
|        | 3.3  |                     |  | Certificate of Amendment of Amended and Restated
    Certificate of Incorporation of Metrocall filed with the
    Department of State of the State of Delaware on
    September 24, 2003.(e)                                 
|        | 3.4  |                     |  | Amended and Restated Bylaws of Metrocall.(b)                                                                                                                                                                                 
|        | 4.1  |                     |  | Certificate of Designation, Number, Powers,
    Preferences and Relative, Participating, Optional and Other
    Rights of Series A Preferred Stock of Metrocall.(b)                                                          
|        | 4.2  |                     |  | Form of Common Stock Purchase Warrant, dated
    November 18, 2003.(g)                                                                                                                                                       
|        | 4.3  |                     |  | Form of Common Stock Purchase Warrant, dated
    November 18, 2003.(g)                                                                                                                                                       
|        | 4.4  |                     |  | Registration Right Agreement, dated as of
    November 18, 2003, by and between Metrocall Holdings, Inc. and
    WebLink Wireless I, L.P.(g)                                                                                 
|        | 4.5  |                     |  | Metrocall 2003 Stock Option Plan.(h)                                                                                                                                                                                         
|        | 10.1 |                     |  | Employment Agreement between Metrocall and
    William L. Collins, III.(c)                                                                                                                                                   
|        | 10.2 |                     |  | Employment Agreement between Metrocall and
    Vincent D. Kelly.(c)                                                                                                                                                          
|        | 10.3 |                     |  | Restated Employment Agreement dated as of
    February 5, 2003 by and between Metrocall Holdings, Inc.
    and Vincent D. Kelly.(d)                                                                                          
|        | 21.1 |                     |  | Subsidiaries of Metrocall.(c)                                                                                                                                                                                                
|        | 23.1 |                     |  | Consent of Ernst & Young LLP.                                                                                                                                                                                               
|        | 31.1 |                     |  | Rule 13(a) - 14(a)/15(d) - 14(a)
    Certifications.                                                                                                                                                                        
|        | 32.1 |                     |  | Certification pursuant to 18 U.S.C. Section 1350
    (Section 906 of the Sarbanes-Oxley Act of 2002).                                                                                                                       




|    |  |                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------
|   |  | Filed herewith.                                                                                                                    
|(a) |  | Incorporated by reference to Metrocalls
    Quarterly Report on Form 10-Q filed with the Commission on
    August 19, 2002.       
|(b) |  | Incorporated by reference to Metrocalls
    Registration Statement on Form 8-A filed with the
    Commission on October 9, 2002.  
|(c) |  | Incorporated by reference to Metrocalls
    Annual Report on Form 10-K filed with the Commission on
    March 31, 2003.           
|(d) |  | Incorporated by reference to Metrocalls
    Quarterly Report on Form 10-Q filed with the Commission on
    May 14, 2003.          
|(e) |  | Incorporated by reference to Metrocalls
    Quarterly Report on Form 10-Q filed with the Commission on
    November 14, 2003.     
|(f) |  | Incorporated by reference to Metrocalls
    Current Report on Form 8-K filed with the Commission on
    November 21, 2003.        
|(g) |  | Incorporated by reference to Metrocalls
    Registration Statement on Form S-3 filed with the
    Commission on December 18, 2003.
|(h) |  | Incorporated by reference to Metrocalls
    Registration Statement on Form S-8 filed with the
    Commission on October 2, 2003.  

46



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15 (d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on this
25th day of March, 2004



| |                         
| | ------------------------
| | METROCALL HOLDINGS, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ VINCENT D. KELLY

| | 
| | 
| | 



| |                                          
| | -----------------------------------------
| | President and Chief Executive
    Officer



|                                                                                                                                                                                              | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Pursuant to
      the requirements of the Securities and Exchange Act of 1934, this report
      has been signed by the following persons in the capacities and on the dates
      indicated:

|                                           |  |                                                                                        |  |               
|------------------------------------------ |  | -------------------------------------------------------------------------------------- |  | --------------
|Signature                                  |  | Title                                                                                  |  | Date          
|                                           |  |                                                                                        |  |               
|/s/ VINCENT D. KELLYVincent D. Kelly       |  | President and Chief Executive Officer                                                  |  | March 25, 2004
|/s/ GEORGE Z. MORATISGeorge Z. Moratis     |  | Chief Financial Officer and Treasurer (Principal
    Financial and Accounting Officer) |  | March 25, 2004
|/s/ ROYCE YUDKOFFRoyce Yudkoff             |  | Chairman of the Board                                                                  |  | March 25, 2004
|/s/ EUGENE I. DAVISEugene I. Davis         |  | Director                                                                               |  | March 25, 2004
|/s/ NICHOLAS A. GALLOPONicholas A. Gallopo |  | Director                                                                               |  | March 25, 2004
|/s/ DAVID J. LEONARDDavid J. Leonard       |  | Director                                                                               |  | March 25, 2004
|/s/ BRIAN OREILLYBrian OReilly           |  | Director                                                                               |  | March 25, 2004
|/s/ STEVEN D. SCHEIWESteven D. Scheiwe     |  | Director                                                                               |  | March 25, 2004

47



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##### Table of Contents



EXHIBIT INDEX

|        |      |                     |  |                                                                                                                                                                                                                              
|------- | ---- | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                    
|Number  |      | Exhibit Description
|        |      |                    
|        | 2.1  |                     |  | Debtors Second Amended Joint Plan of
    Reorganization under Chapter 11 of the Bankruptcy Code,
    dated June 18, 2002.(a)                                                                                                 
|        | 2.2  |                     |  | Second Amended Disclosure Statement Pursuant to
    Section 1125 of the Bankruptcy Code with respect to Joint Plan
    of Reorganization for the Debtors under Chapter 11 of the
    Bankruptcy Code, dated July 18, 2002.(a)
|        | 2.3  |                     |  | Order Confirming Metrocall, Inc. Joint Plan of
    Reorganization, excluding exhibits other than the Plan.(b)                                                                                                                
|        | 2.4  |                     |  | Asset Purchase Agreement, dated as of
    November 18, 2003, by and among Metrocall, Metrocall, Inc.,
    WebLink Wireless, Inc. and WebLink Wireless I, L.P.(f)                                                             
|        | 3.1  |                     |  | Amended and Restated Certificate of Incorporation
    of Metrocall.(e)                                                                                                                                                       
|        | 3.2  |                     |  | Certificate of Amendment of Amended and Restated
    Certification of Incorporation of Metrocall filed with the
    Department of State of the State of Delaware on May 13,
    2003.(e)                                     
|        | 3.3  |                     |  | Certificate of Amendment of Amended and Restated
    Certificate of Incorporation of Metrocall filed with the
    Department of State of the State of Delaware on
    September 24, 2003.(e)                                 
|        | 3.4  |                     |  | Amended and Restated Bylaws of Metrocall.(b)                                                                                                                                                                                 
|        | 4.1  |                     |  | Certificate of Designation, Number, Powers,
    Preferences and Relative, Participating, Optional and Other
    Rights of Series A Preferred Stock of Metrocall.(b)                                                          
|        | 4.2  |                     |  | Form of Common Stock Purchase Warrant, dated
    November 18, 2003.(g)                                                                                                                                                       
|        | 4.3  |                     |  | Form of Common Stock Purchase Warrant, dated
    November 18, 2003.(g)                                                                                                                                                       
|        | 4.4  |                     |  | Registration Right Agreement, dated as of
    November 18, 2003, by and between Metrocall Holdings, Inc. and
    WebLink Wireless I, L.P.(g)                                                                                 
|        | 4.5  |                     |  | Metrocall 2003 Stock Option Plan.(h)                                                                                                                                                                                         
|        | 10.1 |                     |  | Employment Agreement between Metrocall and
    William L. Collins, III.(c)                                                                                                                                                   
|        | 10.2 |                     |  | Employment Agreement between Metrocall and
    Vincent D. Kelly.(c)                                                                                                                                                          
|        | 10.3 |                     |  | Restated Employment Agreement dated as of
    February 5, 2003 by and between Metrocall Holdings, Inc.
    and Vincent D. Kelly.(d)                                                                                          
|        | 21.1 |                     |  | Subsidiaries of Metrocall.(c)                                                                                                                                                                                                
|        | 23.1 |                     |  | Consent of Ernst & Young LLP.                                                                                                                                                                                               
|        | 32.1 |                     |  | Rule 13(a) - 14(a)/15(d) - 14(a)
    Certifications.                                                                                                                                                                        
|        | 33.1 |                     |  | Certification pursuant to 18 U.S.C. Section 1350
    (Section 906 of the Sarbanes-Oxley Act of 2002).                                                                                                                       




|    |  |                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------
|   |  | Filed herewith.                                                                                                                    
|(a) |  | Incorporated by reference to Metrocalls
    Quarterly Report on Form 10-Q filed with the Commission on
    August 19, 2002.       
|(b) |  | Incorporated by reference to Metrocalls
    Registration Statement on Form 8-A filed with the
    Commission on October 9, 2002.  
|(c) |  | Incorporated by reference to Metrocalls
    Annual Report on Form 10-K filed with the Commission on
    March 31, 2003.           
|(d) |  | Incorporated by reference to Metrocalls
    Quarterly Report on Form 10-Q filed with the Commission on
    May 14, 2003.          
|(e) |  | Incorporated by reference to Metrocalls
    Quarterly Report on Form 10-Q filed with the Commission on
    November 14, 2003.     
|(f) |  | Incorporated by reference to Metrocalls
    Current Report on Form 8-K filed with the Commission on
    November 21, 2003.        
|(g) |  | Incorporated by reference to Metrocalls
    Registration Statement on Form S-3 filed with the
    Commission on December 18, 2003.
|(h) |  | Incorporated by reference to Metrocalls
    Registration Statement on Form S-8 filed with the
    Commission on October 2, 2003.  

48



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                                                                                                                                                    |  |       
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------
|                                                                                                                                                                                                                                                    |  | Page  
|Description                                                                                                                                                                                                                                         |  | Number
|                                                                                                                                                                                                                                                    |  |       
|Financial
    Statements:                                                                                                                                                                                                                           |  |       
|Report of Ernst & Young LLP, Independent
    Auditors                                                                                                                                                                                               |  | F-2   
|Report of Arthur Andersen LLP, Independent Public
    Accountants                                                                                                                                                                                   |  | F-4   
|Consolidated Balance Sheets, as of
    December 31, 2002 and 2003                                                                                                                                                                                   |  | F-5   
|Consolidated Statements of Operations for the
    years ended December 31, 2001, the period from January 1 to
    October 7, 2002, the period from October 8 to
    December 31, 2002, and the year ended December 31,
    2003.                    |  | F-6   
|Consolidated Statements of Stockholders
    Equity/(Deficit) for the year ended December 31, 2001, the
    period from January 1 to October 7, 2002, the period from
    October 8 to December 31, 2002, and the year ended
    December 31, 2003. |  | F-7   
|Consolidated Statements of Cash Flows for the
    year ended December 31, 2001, the period from January 1 to
    October 7, 2002, the period from October 8 to
    December 31, 2002, and the year ended December 31, 2003                          |  | F-8   
|Notes to Consolidated Financial Statements                                                                                                                                                                                                          |  | F-9   
|Schedule II: Valuation and Qualifying
    Accounts for the year ended December 31, 2001, the period
    from January 1 to October 7, 2002, the period from October
    8 to December 31, 2002, and the year ended
    December 31, 2003.            |  | S-1   

F-1



---



##### Table of Contents



Report of Independent Auditors

Board of Directors

Metrocall Holdings, Inc.:


We have audited the accompanying consolidated
balance sheets of Metrocall Holdings, Inc. and subsidiaries as
of December 31, 2003 and 2002, and the related consolidated
statements of operations, stockholders equity/(deficit),
and cash flows for the year ended December 31, 2003, the
period from October 8, 2002 to December 31, 2002
(Reorganized Company) and the period from January 1, 2002
to October 7, 2002 of Metrocall, Inc. and subsidiaries
(Predecessor Company). Our audits also included the financial
statement schedule for the year ended December 31, 2003 and
the periods from October 8, 2002 to December 31, 2002
(Reorganized Company) and January 1, 2002 to
October 7, 2002 (Predecessor Company) listed in the Index
at Item 15(a). These financial statements and schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits. The consolidated
financial statements and schedule of the Predecessor Company for
the year ended December 31, 2001 were audited by other
auditors who have ceased operations and whose report dated
February 15, 2002 expressed an unqualified opinion on those
statements and schedule before the restatement disclosures
described in Note 7 and reclassifications discussed in Note 4,
and included an explanatory paragraph that disclosed substantial
doubt about the Companys ability to continue as a going
concern.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the 2003 and 2002 financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Metrocall
Holdings, Inc. and subsidiaries at December 31, 2003 and
2002, and the consolidated results of their operations and their
cash flows for the year ended December 31, 2003, the period
from October 8, 2002 to December 31, 2002 (Reorganized
Company) and the period from January 1, 2002 to
October 7, 2002 (Predecessor Company), in conformity with
accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule
for the year ended December 31, 2003 and the periods from
October 8, 2002 to December 31, 2002 (Reorganized
Company) and January 1, 2002 to October 7, 2002
(Predecessor Company), when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material aspects the information set forth therein.

As described in Note 1 to the consolidated
financial statements, effective October 8, 2002, the
Company was reorganized under a plan of reorganization confirmed
by the United States Bankruptcy Court for the District of
Delaware. In connection with its reorganization, the Company
applied fresh start accounting on October 7, 2002 as
discussed in Notes 2 and 3.

As discussed in Notes 4 and 7 to the consolidated
financial statements, the Company changed its methods of
accounting for asset retirement obligations, effective
October 7, 2002, and for goodwill and intangible assets,
effective January 1, 2002.

As discussed in Notes 4, 10 and 12 to the
consolidated financial statements, the Company changed its
methods of accounting for stock-based compensation in 2003 and
for redeemable preferred stock, effective July 1, 2003.

As discussed above, the financial statements of
Metrocall, Inc. and subsidiaries (Predecessor Company) for the
year ended December 31, 2001 were audited by other auditors
who have ceased operations. As described in Note 7, these
financial statements have been revised to include the
transitional disclosures required by Statement of Financial
Accounting Standards (Statement) No. 142, Goodwill and
Other

F-2



---



##### Table of Contents



Intangible Assets, which was adopted by the Company as of January 1, 2002. Our
audit procedures with respect to the disclosures in Note 7
with respect to 2001 included (a) agreeing the previously
reported net loss to the previously issued financial statements
and the adjustments to reported net loss representing
amortization expense recognized in those periods related to
goodwill and intangible assets that are no longer being
amortized to the Companys underlying records obtained from
management, and (b) testing the mathematical accuracy for
the reconciliation of adjusted net loss to reported net loss,
and the related loss-per-share amounts. In our opinion, the
disclosures for 2001 in Note 7 are appropriate. Also, as
discussed in Note 4, the Company changed the classification of
costs to refurbish pagers in 2002 and the amount in the 2001
financial statements has been reclassified to conform to the
2002 presentation. We audited the adjustments that were applied
to reclassify such costs reflected in the 2001 financial
statements. Our procedures included (a) agreeing the
reclassified amounts to the Companys underlying records
obtained from management, and (b) testing the mathematical
accuracy of affected amounts within the financial statements. In
our opinion, such reclassifications are appropriate and have
been properly applied. However, we were not engaged to audit,
review, or apply any procedures to the 2001 financial statements
of the Company other than with respect to the disclosures and
reclassifications discussed above and, accordingly, we do not
express an opinion or any form of assurance on the 2001
financial statements taken as a whole.




| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

McLean, Virginia

March 12, 2004


F-3



---



##### Table of Contents



This is a copy of the audit report previously
issued by Arthur Andersen LLP in connection with the
companys filing of its Annual Report of Form 10-K for
the year ended December 31, 2001. This audit report has not
been reissued by Arthur Andersen LLP in connection with this
Annual Report on Form 10-K, nor has Arthur Andersen LLP
provided a consent to include its report in this Annual Report
on Form 10-K. The registrant hereby discloses that the lack
of a consent by Arthur Andersen LLP may impose limitations on
recovery in investors.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To Metrocall, Inc.:

We have audited the accompanying consolidated
balance sheets of Metrocall, Inc. and subsidiaries ( a Delaware
Corporation) as of December 31, 2001 and 2000, and the
related consolidated statements of operations,
stockholders equity/(deficit) and cash flows for each of
the three years in the period ended December 31, 2001.
These financial statements and the schedule referred to below
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of Metrocall, Inc. and subsidiaries as of
December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.

The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the financial statements, the
Company has suffered recurring losses from operations and has
net capital and working capital deficiencies that raise
substantial doubt about its ability to continue as a going
concern. Managements plans in regard to these matters are
also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty relating to the recoverability and
classification of asset carrying amounts or the amount and
classification of liabilities that might result should the
Company be unable to continue as a going concern.

Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The
schedule listed in the index of financial statements is
presented for the purpose of complying with the Securities and
Exchange Commissions rules and is not part of the basic
financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Vienna, Virginia

February 15, 2002


F-4



---



##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share
information)


|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |         |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------------------------- | ------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                                                                                                                           |                                                                                                                                                                                       |                                           
|                                                                                                                                           |                                                                                                                                                                                       | December 31,                              
|                                                                                                                                           |                                                                                                                                                                                       |                                           
|                                                                                                                                           |                                                                                                                                                                                       | 2002                                       |                            | 2003   
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |        
|ASSETS                                                                                                                                    
|CURRENT ASSETS:                                                                                                                            |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|                                                                                                                                           | Cash and cash equivalents                                                                                                                                                             |                                            | $                          | 47,530  |         |         | $      | 35,602  |        
|                                                                                                                                           | Restricted cash                                                                                                                                                                       |                                            |                            | 8,516   |         |         |        | 547     |        
|                                                                                                                                           | Accounts receivable, less allowance for doubtful
    accounts of $6,513 and $6,965 as of December 31, 2002
    and 2003, respectively                                                 |                                            |                            | 24,280  |         |         |        | 27,262  |        
|                                                                                                                                           | Prepaid expenses and other current assets                                                                                                                                             |                                            |                            | 9,795   |         |         |        | 11,431  |        
|                                                                                                                                           | Deferred tax assets, net of allowance                                                                                                                                                 |                                            |                            |        |         |         |        | 2,592   |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            | Total current assets       |         |         | 90,121  |        |         |         | 77,434  | 
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|PROPERTY AND EQUIPMENT:                                                                                                                    |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|                                                                                                                                           | Land, buildings and leasehold improvements                                                                                                                                            |                                            |                            | 3,197   |         |         |        | 2,082   |        
|                                                                                                                                           | Furniture, office equipment and vehicles                                                                                                                                              |                                            |                            | 21,297  |         |         |        | 23,033  |        
|                                                                                                                                           | Paging and plant equipment                                                                                                                                                            |                                            |                            | 58,650  |         |         |        | 72,589  |        
|                                                                                                                                           | Less  Accumulated depreciation and
    amortization                                                                                                                                  |                                            |                            | (10,927 | )       |         |        | (36,422 | )      
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            | 72,217                     |         |         |         | 61,282 |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|INTANGIBLE ASSETS, net of accumulated
    amortization of approximately $1,948 and $107 as of
    December 31, 2002 and 2003, respectively |                                                                                                                                                                                       |                                            | 21,756                     |         |         |         | 1,746  |        
|DEFERRED TAX ASSETS, net of allowance                                                                                                      |                                                                                                                                                                                       |                                            |                           |         |         |         | 50,494 |        
|OTHER ASSETS                                                                                                                               |                                                                                                                                                                                       |                                            | 5,653                      |         |         |         | 4,805  |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            | TOTAL ASSETS               |         | $       | 189,747 |        |         | $       | 195,761 | 
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                  
|CURRENT LIABILITIES:                                                                                                                       |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|                                                                                                                                           | Current maturities of long-term debt                                                                                                                                                  |                                            | $                          | 58,949  |         |         | $      | 815     |        
|                                                                                                                                           | Current maturities of series A redeemable
    preferred                                                                                                                               |                                            |                            |        |         |         |        | 25,000  |        
|                                                                                                                                           | Accounts payable                                                                                                                                                                      |                                            |                            | 8,429   |         |         |        | 9,900   |        
|                                                                                                                                           | Accrued expenses and other current liabilities                                                                                                                                        |                                            |                            | 22,560  |         |         |        | 26,496  |        
|                                                                                                                                           | Deferred revenue and subscriber deposits                                                                                                                                              |                                            |                            | 15,517  |         |         |        | 18,385  |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            | Total current liabilities  |         |         | 105,455 |        |         |         | 80,596  | 
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|CAPITAL LEASE AND OTHER LONG-TERM DEBT, less
    current maturities                                                                        |                                                                                                                                                                                       |                                            | 20,762                     |         |         |         | 41     |        
|OTHER LONG-TERM LIABILITIES                                                                                                                |                                                                                                                                                                                       |                                            | 13,693                     |         |         |         | 3,492  |        
|SERIES A REDEEMABLE PREFERRED STOCK                                                                                                        |                                                                                                                                                                                       |                                            |                           |         |         |         | 18,351 |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            | Total liabilities          |         |         | 139,910 |        |         |         | 102,480 | 
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|COMMITMENTS AND CONTINGENCIES:                                                                                                             |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|SERIES A REDEEMABLE PREFERRED STOCK                                                                                                        |                                                                                                                                                                                       |                                            | 49,122                     |         |         |         |       |        
|STOCKHOLDERS EQUITY:                                                                                                                      |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|                                                                                                                                           | Common stock, par value $.01 per share; 7,500,000
    shares authorized; 4,956,990 shares and 5,461,160 shares issued
    and outstanding at December 31, 2002 and 2003, respectively |                                            |                            | 50      |         |         |        | 55      |        
|                                                                                                                                           | Additional paid-in capital                                                                                                                                                            |                                            |                            | (41     | )       |         |        | 80,661  |        
|                                                                                                                                           | Unearned compensation                                                                                                                                                                 |                                            |                            | (1,431  | )       |         |        | (458    | )      
|                                                                                                                                           | Retained earnings                                                                                                                                                                     |                                            |                            | 2,137   |         |         |        | 13,023  |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            | Total stockholders equity |         |         | 715     |        |         |         | 93,281  | 
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        
|                                                                                                                                           |                                                                                                                                                                                       | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                            | $       | 189,747 |         |        | $       | 195,761 |        
|                                                                                                                                           |                                                                                                                                                                                       |                                            |                            |         |         |         |        |        

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

F-5



---



##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except share and per share
information)


|                                                                             |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |         |         | 
|---------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ----------------------------- | ---------- | ------------------- | --------- | ------------ | ---------- | ------------ | --------- | - | --------- | ------ | ------ | - | --------- | ------- | ------- | 
|                                                                             |                                                                                                       |                               |            |                    
|                                                                             |                                                                                                       | Predecessor Company           |            | Reorganized Company
|                                                                             |                                                                                                       |                               |            |                    
|                                                                             |                                                                                                       | Year Ended                    |            | January 1 to        |           | October 8 to |            | Year Ended  
|                                                                             |                                                                                                       | December 31,                  |            | October 7,          |           | December 31, |            | December 31,
|                                                                             |                                                                                                       | 2001                          |            | 2002                |           | 2002         |            | 2003        
|                                                                             |                                                                                                       |                               |            |                     |           |              |            |             
|REVENUES:                                                                    |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        
|                                                                             | Service, rent and maintenance revenues                                                                |                               | $          | 460,448             |           |              | $          | 296,813      |           |   | $         | 81,325 |        |   | $         | 318,926 |        
|                                                                             | Product sales                                                                                         |                               |            | 43,225              |           |              |            | 24,056       |           |   |           | 4,078  |        |   |           | 17,933  |        
|                                                                             |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        
|                                                                             |                                                                                                       | Total revenues                |            |                     | 503,673   |              |            |              | 320,869   |   |           |        | 85,403 |   |           |         | 336,859 | 
|OPERATING EXPENSES:                                                          |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        
|                                                                             | Service, rent and maintenance (exclusive of
    depreciation and amortization shown separately below) |                               |            | 139,326             |           |              |            | 89,250       |           |   |           | 23,004 |        |   |           | 94,098  |        
|                                                                             | Cost of products sold (exclusive of depreciation
    and amortization shown separately below)         |                               |            | 26,176              |           |              |            | 13,085       |           |   |           | 1,081  |        |   |           | 4,804   |        
|                                                                             | Selling and marketing (exclusive of depreciation
    and amortization and shown separately below)     |                               |            | 92,481              |           |              |            | 50,952       |           |   |           | 11,359 |        |   |           | 40,026  |        
|                                                                             | General and administrative (exclusive of
    depreciation and amortization shown separately below)    |                               |            | 161,161             |           |              |            | 106,674      |           |   |           | 27,735 |        |   |           | 95,388  |        
|                                                                             | Restructuring expenses                                                                                |                               |            | 15,017              |           |              |            | 19,007       |           |   |           |       |        |   |           | 6,842   |        
|                                                                             | Depreciation                                                                                          |                               |            | 111,502             |           |              |            | 50,386       |           |   |           | 10,927 |        |   |           | 33,568  |        
|                                                                             | Amortization                                                                                          |                               |            | 74,391              |           |              |            |             |           |   |           | 1,948  |        |   |           | 4,345   |        
|                                                                             | Asset impairment                                                                                      |                               |            | 387,934             |           |              |            |             |           |   |           |       |        |   |           |        |        
|                                                                             |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        
|                                                                             |                                                                                                       | Total operating expenses      |            |                     | 1,007,988 |              |            |              | 329,354   |   |           |        | 76,054 |   |           |         | 279,071 | 
|                                                                             |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        
|                                                                             |                                                                                                       | Income/(loss) from operations |            |                     | (504,315  | )            |            |              | (8,485    | ) |           |        | 9,349  |   |           |         | 57,788  | 
|INTEREST EXPENSE                                                             |                                                                                                       |                               | (100,672   | )                   |           |              | (39,280    | )            |           |   | (2,580    | )      |        |   | (7,099    | )      
|INTEREST EXPENSE  DIVIDENDS AND
    ACCRETION OF SERIES A PREFERRED         |                                                                                                       |                               |           |                     |           |              |           |              |           |   |          |        |        |   | (12,428   | )      
|INTEREST AND OTHER INCOME (EXPENSE), NET                                     |                                                                                                       |                               | (7,822     | )                   |           |              | (822       | )            |           |   | 1,047     |        |        |   | 463       |        
|GAIN ON EARLY EXTINGUISHMENT OF DEBT                                         |                                                                                                       |                               |           |                     |           |              | 749,821    |              |           |   |          |        |        |   |          |        
|                                                                             |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        
|INCOME/(LOSS) BEFORE FRESH START ACCOUNTING
    ADJUSTMENTS AND INCOME TAXES |                                                                                                       |                               | (612,809   | )                   |           |              | 701,234    |              |           |   | 7,816     |        |        |   | 38,724    |        
|FRESH START ACCOUNTING ADJUSTMENTS                                           |                                                                                                       |                               |           |                     |           |              | 575,491    |              |           |   |          |        |        |   |          |        
|                                                                             |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        
|INCOME/(LOSS) BEFORE INCOME TAXES                                            |                                                                                                       |                               | (612,809   | )                   |           |              | 1,276,725  |              |           |   | 7,816     |        |        |   | 38,724    |        
|INCOME TAX PROVISION                                                         |                                                                                                       |                               |           |                     |           |              |           |              |           |   | (3,000    | )      |        |   | (21,754   | )      
|                                                                             |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        
|                                                                             |                                                                                                       | Net income/(loss)             |            |                     | (612,809  | )            |            |              | 1,276,725 |   |           |        | 4,816  |   |           |         | 16,970  | 
|PREFERRED DIVIDENDS AND ACCRETION                                            |                                                                                                       |                               | (10,391    | )                   |           |              | (4,855     | )            |           |   | (2,679    | )      |        |   | (6,084    | )      
|REORGANIZATION ITEM  ACCRETION OF
    LIQUIDATION PREFERENCE                |                                                                                                       |                               |           |                     |           |              | (4,715     | )            |           |   |          |        |        |   |          |        
|GAIN ON EXTINGUISHMENT OF PREFERRED STOCK                                    |                                                                                                       |                               |           |                     |           |              | 80,346     |              |           |   |          |        |        |   |          |        
|                                                                             |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        
|                                                                             | Income/(loss)available to common stockholders                                                         |                               | $          | (623,200            | )         |              | $          | 1,347,501    |           |   | $         | 2,137  |        |   | $         | 10,886  |        
|Basic earnings/(loss) per share available to
    common stockholders         |                                                                                                       | $                             | (6.93      | )                   |           | $            | 14.98      |              |           | $ | 0.43      |        |        | $ | 2.17      |        
|                                                                             |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        
|Diluted income/(loss) per share available to
    common stockholders         |                                                                                                       | $                             | (6.93      | )                   |           | $            | 14.98      |              |           | $ | 0.43      |        |        | $ | 2.11      |        
|                                                                             |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        
|Basic weighted-average common shares outstanding                             |                                                                                                       |                               | 89,975,772 |                     |           |              | 89,975,772 |              |           |   | 4,956,990 |        |        |   | 5,017,576 |        
|                                                                             |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        
|Diluted weighted-average common shares outstanding                           |                                                                                                       |                               | 89,975,772 |                     |           |              | 89,975,772 |              |           |   | 4,956,990 |        |        |   | 5,166,764 |        
|                                                                             |                                                                                                       |                               |            |                     |           |              |            |              |           |   |           |        |        |   |           |        

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

F-6



---



##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY/(DEFICIT)

(In thousands, except share
information)


|                           |                                                                                                    |                                   |            |             |   |         |     |              |   |              |         |          |   |   |        |        |   |   |            |           |        |   |          |          |        |  
|-------------------------- | -------------------------------------------------------------------------------------------------- | --------------------------------- | ---------- | ----------- | - | ------- | --- | ------------ | - | ------------ | ------- | -------- | - | - | ------ | ------ | - | - | ---------- | --------- | ------ | - | -------- | -------- | ------ | -
|                           |                                                                                                    |                                   |            |             |   |         |     |              |   |             
|                           |                                                                                                    | Common Stock                      |            |             |   |         |     | Retained     |   |             
|                           |                                                                                                    |                                   |            | Additional  |   |         |     | Earnings     |   |             
|                           |                                                                                                    | Shares                            |            |             |   | Paid-In |     | Unearned     |   | (Accumulated |         |         
|                           |                                                                                                    | Outstanding                       |            | Par Value   |   | Capital |     | Compensation |   | Deficit)     |         | Total   
|                           |                                                                                                    |                                   |            |             |   |         |     |              |   |              |         |         
|Predecessor Company:       |                                                                                                    |                                   |            |             |   |         |     |              |   |              |         |          |   |   |        |        |   |   |            |           |        |   |          |         
|BALANCE, December 31, 2000 |                                                                                                    |                                   | 89,214,532 |             |   | $       | 892 |              |   | $            | 557,057 |          |   |   |       |        |   | $ | (724,301   | )         |        | $ | (166,352 | )       
|                           | Issuances of shares for employee stock purchase
    plan and other                                 |                                   |            | 761,240     |   |         |     | 8            |   |              |         | 307      |   |   |        |       |   |   |            |          |        |   |          | 315      |       
|                           | Preferred dividends and accretion                                                                  |                                   |            |            |   |         |     |             |   |              |         |         |   |   |        |       |   |   |            | (10,391   | )      |   |          | (10,391  | )     
|                           | Net loss                                                                                           |                                   |            |            |   |         |     |             |   |              |         |         |   |   |        |       |   |   |            | (612,809  | )      |   |          | (612,809 | )     
|                           |                                                                                                    |                                   |            |             |   |         |     |              |   |              |         |          |   |   |        |        |   |   |            |           |        |   |          |         
|BALANCE, December 31, 2001 |                                                                                                    |                                   | 89,975,772 |             |   |         | 900 |              |   |              | 557,364 |          |   |   |       |        |   |   | (1,347,501 | )         |        |   | (789,237 | )       
|                           | Preferred dividends and accretion                                                                  |                                   |            |            |   |         |     |             |   |              |         |         |   |   |        |       |   |   |            | (4,855    | )      |   |          | (4,855   | )     
|                           | Reorganization item  accretion of
    liquidation preference                                      |                                   |            |            |   |         |     |             |   |              |         |         |   |   |        |       |   |   |            | (4,715    | )      |   |          | (4,715   | )     
|                           | Gain on cancellation of preferred stock                                                            |                                   |            |            |   |         |     |             |   |              |         |         |   |   |        |       |   |   |            | 80,346    |        |   |          | 80,346   |       
|                           | Net loss including elimination of predecessor
    equity in connection with fresh start accounting |                                   |            | (89,975,772 | ) |         |     | (900         | ) |              |         | (557,364 | ) |   |        |       |   |   |            | 1,276,725 |        |   |          | 718,461  |       
|                           | Issuance of common stock under plan of
    reorganization                                          |                                   |            | 4,956,990   |   |         |     | 50           |   |              |         | (41      | ) |   |        |       |   |   |            |          |        |   |          | 9        |       
|                           | Restricted stock awarded to executives                                                             |                                   |            |            |   |         |     |             |   |              |         |         |   |   |        | (1,550 | ) |   |            |          |        |   |          | (1,550   | )     
|                          
|Reorganized Company:       |                                                                                                    |                                   |            |             |   |         |     |              |   |              |         |          |   |   |        |        |   |   |            |           |        |   |          |         
|BALANCE, October 7, 2002   |                                                                                                    |                                   | 4,956,990  |             |   |         | 50  |              |   |              | (41     | )        |   |   | (1,550 | )      |   |   |           |           |        |   | (1,541   | )       
|                           |                                                                                                    | Preferred dividends and accretion |            |             |  |         |     |              |  |              |         |          |  |   |        |        |  |   |            |           | (2,679 | ) |          |          | (2,679 | )
|                           | Amortization of unearned compensation                                                              |                                   |            |            |   |         |     |             |   |              |         |         |   |   |        | 119    |   |   |            |          |        |   |          | 119      |       
|                           | Net income                                                                                         |                                   |            |             |   |         |     |             |   |              |         |         |   |   |        |       |   |   |            | 4,816     |        |   |          | 4,816    |       
|                           |                                                                                                    |                                   |            |             |   |         |     |              |   |              |         |          |   |   |        |        |   |   |            |           |        |   |          |         
|BALANCE, December 31, 2002 |                                                                                                    |                                   | 4,956,990  |             |   |         | 50  |              |   |              | (41     | )        |   |   | (1,431 | )      |   |   | 2,137      |           |        |   | 715      |         
|                           | Issuance of common stock under plan of
    reorganization                                          |                                   |            | 4,170       |   |         |     |             |   |              |         |         |   |   |        |       |   |   |            |          |        |   |          |         |       
|                           | Issuance of common stock for acquisitions of
    assets and other                                  |                                   |            | 500,000     |   |         |     | 5            |   |              |         | 22,837   |   |   |        |       |   |   |            |          |        |   |          | 22,842   |       
|                           | Preferred dividends and accretion                                                                  |                                   |            |            |   |         |     |             |   |              |         |         |   |   |        |       |   |   |            | (6,084    | )      |   |          | (6,084   | )     
|                           | Compensation related to stock option grants                                                        |                                   |            |            |   |         |     |             |   |              |         | 752      |   |   |        |       |   |   |            |          |        |   |          | 752      |       
|                           | Amortization of unearned compensation                                                              |                                   |            |            |   |         |     |             |   |              |         |         |   |   |        | 973    |   |   |            |          |        |   |          | 973      |       
|                           | Reduction of deferred tax valuation allowance                                                      |                                   |            |            |   |         |     |             |   |              |         | 57,113   |   |   |        |       |   |   |            |          |        |   |          | 57,113   |       
|                           | Net income                                                                                         |                                   |            |            |   |         |     |             |   |              |         |         |   |   |        |       |   |   |            | 16,970    |        |   |          | 16,970   |       
|                           |                                                                                                    |                                   |            |             |   |         |     |              |   |              |         |          |   |   |        |        |   |   |            |           |        |   |          |         
|BALANCE, December 31, 2003 |                                                                                                    |                                   | 5,461,160  |             |   | $       | 55  |              |   | $            | 80,661  |          |   | $ | (458   | )      |   | $ | 13,023     |           |        | $ | 93,281   |         
|                           |                                                                                                    |                                   |            |             |   |         |     |              |   |              |         |          |   |   |        |        |   |   |            |           |        |   |          |         

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

F-7



---



##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


|                                                         |                                                                                               |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |         |        |          |  
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------------------------- | ------------------- | ------- | ------------ | ------ | ------------ | -------- | ------- | ------ | ------ | ------- | ------ | ------- | ------- | ------ | -------- | -
|                                                         |                                                                                               |                                                            |                                                         |                    
|                                                         |                                                                                               | Predecessor Company                                        |                                                         | Reorganized Company
|                                                         |                                                                                               |                                                            |                                                         |                    
|                                                         |                                                                                               | Year Ended                                                 |                                                         | January 1 to        |         | October 8 to |        | Year Ended  
|                                                         |                                                                                               | December 31,                                               |                                                         | October 7,          |         | December 31, |        | December 31,
|                                                         |                                                                                               | 2001                                                       |                                                         | 2002                |         | 2002         |        | 2003        
|                                                         |                                                                                               |                                                            |                                                         |                     |         |              |        |             
|CASH FLOWS FROM OPERATING ACTIVITIES:                    |                                                                                               |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |        
|                                                         | Net income(loss)                                                                              |                                                            | $                                                       | (612,809            | )       |              | $      | 1,276,725    |          |         | $      | 4,816  |         |        | $       | 16,970  |       
|                                                         | Adjustments to reconcile net income/(loss) to net
    cash provided by operating activities  |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |         |       
|                                                         |                                                                                               | Gain on early extinguishment of debt                       |                                                         |                     |        |              |        |              | (749,821 | )       |        |        |        |        |         |         |       |         
|                                                         |                                                                                               | Depreciation and amortization                              |                                                         |                     | 185,893 |              |        |              | 50,386   |         |        |        | 12,875  |        |         |         | 37,913 |         
|                                                         |                                                                                               | Asset impairment                                           |                                                         |                     | 387,934 |              |        |              |         |         |        |        |        |        |         |         |       |         
|                                                         |                                                                                               | Fresh start accounting adjustment                          |                                                         |                     |        |              |        |              | (575,491 | )       |        |        |        |        |         |         |       |         
|                                                         |                                                                                               | Equity in loss of affiliate                                |                                                         |                     | 6,248   |              |        |              | 1,228    |         |        |        |        |        |         |         |       |         
|                                                         |                                                                                               | Amortization of debt financing costs and debt
    discount |                                                         |                     | 18,634  |              |        |              | 1,095    |         |        |        |        |        |         |         |       |         
|                                                         |                                                                                               | Amortization of unearned compensation                      |                                                         |                     |        |              |        |              |         |         |        |        | 119     |        |         |         | 973    |         
|                                                         |                                                                                               | Stock-based compensation                                   |                                                         |                     |        |              |        |              |         |         |        |        |        |        |         |         | 752    |         
|                                                         |                                                                                               | Accretion on and issuance of PIK Note                      |                                                         |                     |        |              |        |              |         |         |        |        | 869     |        |         |         | 3,835  |         
|                                                         |                                                                                               | Interest expense-accretion of Series A
    Preferred       |                                                         |                     |        |              |        |              |         |         |        |        |        |        |         |         | 8,141  |         
|                                                         |                                                                                               | Interest expense  accretion on
    long-term liabilities  |                                                         |                     |        |              |        |              |         |         |        |        |        |        |         |         | 2,592  |         
|                                                         |                                                                                               | Deferred income tax provision                              |                                                         |                     |        |              |        |              |         |         |        |        | 3,000   |        |         |         | 20,256 |         
|                                                         |                                                                                               | Loss on sale of land                                       |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |         | 399    |         
|                                                         | Changes in current assets and liabilities, net of
    effects of acquisitions:                |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |         |       
|                                                         |                                                                                               | Restricted cash                                            |                                                         |                     |        |              |        |              | (10,499  | )       |        |        | 1,983   |        |         |         | 7,969  |         
|                                                         |                                                                                               | Accounts receivable                                        |                                                         |                     | 6,278   |              |        |              | 18,480   |         |        |        | (192    | )      |         |         | 4,943  |         
|                                                         |                                                                                               | Prepaid expenses and other current assets                  |                                                         |                     | (3,650  | )            |        |              | 2,027    |         |        |        | (5,303  | )      |         |         | 85     |         
|                                                         |                                                                                               | Accounts payable                                           |                                                         |                     | (6,387  | )            |        |              | 7,492    |         |        |        | (11,251 | )      |         |         | 697    |         
|                                                         |                                                                                               | Deferred revenues and subscriber deposits                  |                                                         |                     | (4,198  | )            |        |              | (10,210  | )       |        |        | 1,927   |        |         |         | (3,831 | )       
|                                                         |                                                                                               | Accrued interest                                           |                                                         |                     | 60,827  |              |        |              | 30,714   |         |        |        |        |        |         |         |       |         
|                                                         |                                                                                               | Accrued expenses and other liabilities                     |                                                         |                     | 771     |              |        |              | 262      |         |        |        | (147    | )      |         |         | (6,090 | )       
|                                                         |                                                                                               |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |        
|                                                         |                                                                                               |                                                            | Net cash provided by operating activities               |                     |         | 39,541       |        |              |          | 42,388  |        |        |         | 8,696  |         |         |        | 95,604   |  
|                                                         |                                                                                               |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                    |                                                                                               |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |        
|                                                         | Cash paid for acquisitions, net of cash acquired                                              |                                                            |                                                         |                    |         |              |        |             |          |         |        |       |         |        |         | 3,438   |       
|                                                         | Capital expenditures, net                                                                     |                                                            |                                                         | (41,961             | )       |              |        | (24,095      | )        |         |        | (2,626 | )       |        |         | (9,478  | )     
|                                                         | Other                                                                                         |                                                            |                                                         | 800                 |         |              |        | (124         | )        |         |        | (45    | )       |        |         | 1,164   |       
|                                                         |                                                                                               |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |        
|                                                         |                                                                                               |                                                            | Net cash used in investing activities                   |                     |         | (41,161      | )      |              |          | (24,219 | )      |        |         | (2,671 | )       |         |        | (4,876   | )
|                                                         |                                                                                               |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                    |                                                                                               |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |        
|                                                         | Repayment of long-term debt                                                                   |                                                            |                                                         | (735                | )       |              |        | (633         | )        |         |        | (166   | )       |        |         | (82,656 | )     
|                                                         | Redemption of series A preferred                                                              |                                                            |                                                         |                    |         |              |        |             |          |         |        |       |         |        |         | (20,000 | )     
|                                                         | Net proceeds from issuance of common stock                                                    |                                                            |                                                         | 304                 |         |              |        |             |          |         |        |       |         |        |         |        |       
|                                                         | Deferred debt financing costs and other                                                       |                                                            |                                                         | (411                | )       |              |        |             |          |         |        |       |         |        |         |        |       
|                                                         |                                                                                               |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |        
|                                                         |                                                                                               |                                                            | Net cash provided by (used in) financing
    activities |                     |         | (842         | )      |              |          | (633    | )      |        |         | (166   | )       |         |        | (102,656 | )
|                                                         |                                                                                               |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |        
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS |                                                                                               |                                                            | (2,462                                                  | )                   |         |              | 17,536 |              |          |         | 5,859  |        |         |        | (11,928 | )      
|CASH AND CASH EQUIVALENTS, beginning of period           |                                                                                               |                                                            | 26,597                                                  |                     |         |              | 24,135 |              |          |         | 41,671 |        |         |        | 47,530  |        
|                                                         |                                                                                               |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |        
|CASH AND CASH EQUIVALENTS, end of period                 |                                                                                               | $                                                          | 24,135                                                  |                     |         | $            | 41,671 |              |          | $       | 47,530 |        |         | $      | 35,602  |        
|                                                         |                                                                                               |                                                            |                                                         |                     |         |              |        |              |          |         |        |        |         |        |         |        

|                                                                                      |                                                                |                     |        |                     |  |              |       |              |  |   |       |       |  |   |       |        | 
|------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------- | ------ | ------------------- |  | ------------ | ----- | ------------ |  | - | ----- | ----- |  | - | ----- | ------ | 
|                                                                                      |                                                                |                     |        |                    
|                                                                                      |                                                                | Predecessor Company |        | Reorganized Company
|                                                                                      |                                                                |                     |        |                    
|                                                                                      |                                                                | Year Ended          |        | January 1 to        |  | October 8 to |       | Year Ended  
|                                                                                      |                                                                | December 31,        |        | October 7,          |  | December 31, |       | December 31,
|                                                                                      |                                                                | 2001                |        | 2002                |  | 2002         |       | 2003        
|Supplemental disclosures of cash flow information: (in thousands)                     |                                                                |                     |        |                     |  |              |       |             
|Cash payments for interest                                                            |                                                                | $                   | 21,000 |                     |  | $            | 6,800 |              |  | $ | 1,000 |       |  | $ | 798   |       
|Cash payments for income taxes                                                        |                                                                | $                   |       |                     |  | $            |      |              |  | $ |      |       |  | $ | 1,347 |       
|Cash payments for series A preferred
    dividends (interest)                         |                                                                | $                   |       |                     |  | $            |      |              |  | $ |      |       |  | $ | 4,290 |       
|Supplemental disclosure of non-cash investing
    and financing items: (in thousands) |                                                                |                     |        |                     |  |              |       |              |  |   |       |       |  |   |       |       
|                                                                                      | Preferred stock dividends and accretion                        |                     | $      | 10,391              |  |              | $     | 9,570        |  |   | $     | 2,679 |  |   | $     | 6,084  | 
|                                                                                      | Gain on extinguishments of preferred stock                     |                     | $      |                    |  |              | $     | 80,346       |  |   | $     |      |  |   | $     |       | 
|                                                                                      | Common stock and warrants issued to acquire
    Weblink assets |                     | $      |                    |  |              | $     |             |  |   | $     |      |  |   | $     | 22,842 | 

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

F-8



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Organization
and Chapter 11 Emergence

Metrocall Holdings, Inc. together with its
subsidiaries (Metrocall or the Company), is a leading provider
of local, regional and national paging and advanced wireless
data and messaging services in the United States. Through its
nationwide wireless network, Metrocall provides messaging
services to over 1,000 U.S. cities, including the top 100
Standard Metropolitan Statistical Areas.



| |                                                    
| | ---------------------------------------------------
| | Exit from Chapter 11 and Plan of
    Reorganization

On October 8, 2002, (the Effective
Date), Metrocall, Inc. together with its licensing and
operating subsidiaries Metrocall USA Inc. (Metrocall USA),
Advanced Nationwide Messaging Corporation Inc. (ANMC), MSI Inc.
(MSI), McCaw RCC Communications, Inc. (McCaw), and Mobilfone
Service, LP (Mobilfone), (collectively, the Debtors)
emerged from chapter 11 of the U.S. Bankruptcy Code pursuant to
a Joint Plan of Reorganization (the Plan) that was
confirmed by the U.S. Bankruptcy Court for the District of
Delaware, (the Bankruptcy Court) in an order entered
on September 26, 2002. Metrocall, Inc. and its subsidiaries
are referred to herein as the Predecessor Company for the
periods prior to October 8, 2002. The reorganized company,
Metrocall Holdings, Inc., together with its licensing and
operating subsidiaries are collectively referred to herein as
the Reorganized Company for the period from October 8, 2002
through December 31, 2002 and for the year ended
December 31, 2003.



| |           
| | ----------
| | Background

The Predecessor Companys year ended
December 31, 2001 notes to its consolidated financial
statements indicated that it may not be able to continue as a
going concern unless its debt obligations were restructured. The
Debtors filed voluntary petitions for relief under
chapter 11 on June 3, 2002 (the Petition
Date). The chapter 11 cases were jointly administered for
procedural purposes only before the Bankruptcy Court under the
docket of Metrocall, Inc. Case No. 02-11579. Metrocall
Ventures, Inc. (Ventures), one of the Companys
subsidiaries, did not file a voluntary petition and was not a
party to the chapter 11 cases. From June 3, 2002 until
October 7, 2002, the Debtors operated their businesses as
debtors-in-possession under the Bankruptcy Code.

Chapter 11 is the principal business
reorganization chapter of the Bankruptcy Code. Under
chapter 11, a debtor is authorized to continue to operate
its business in the ordinary course and to reorganize its
business for the benefit of its creditors. In addition to
permitting the rehabilitation of the debtor, section 362 of the
Bankruptcy Code generally provides for an automatic stay of
substantially all judicial, administrative and other actions or
proceedings against a debtor and its property, including all
attempts to collect claims or enforce liens that arose prior to
the commencement of the debtors case under chapter 11.
Also, the debtors may assume or reject pre-petition executory
contracts and unexpired leases pursuant to section 365 of the
Bankruptcy Code and other parties to executory contracts or
unexpired leases being rejected may assert rejection damage
claims as permitted thereunder.

Confirmation and consummation of a plan of
reorganization are the principal objectives of a chapter 11
reorganization case. A plan of reorganization sets forth the
means for satisfying claims against, and interests in, a debtor.
On June 3, 2002, the Predecessor Company filed with the
Bankruptcy Court its Proposed Joint Plan of Reorganization,
which was subsequently amended and supplemented on several
occasions (the Plan).

F-9



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                    
| | -------------------
| | Summary of the Plan

Upon the effectiveness of its Plan, the Company
implemented a series of operational consolidations and
restructurings pursuant to the Plan, which included the
following:



| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | Each of ANMC, MSI and Mobilfone were merged with
    and into McCaw and all assets and liabilities of these companies
    were conveyed to McCaw;                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (ii)  | Metrocall, Inc. contributed all right, title and
    interest in all of its assets to McCaw other than
    (a) certain intellectual property conveyed to the license
    subsidiary, Metrocall USA, (b) a sufficient amount of cash
    to pay claims and to administer the Metrocall, Inc. estate and
    (c) its ownership interest in Inciscent, Inc., Metrocall
    USA or Ventures. These assets were contributed subject to all
    existing liens in place at that time. McCaw simultaneously
    assumed all of the underlying obligations directly attributable
    to these assets;
|
| | (iii) | Concurrently with the contributions by Metrocall,
    Inc. to McCaw, Metrocall, Inc. contributed certain intellectual
    property (including trademarks, trade names, and copyrights) to
    Metrocall USA. Immediately thereafter, Metrocall USA entered
    into a license agreement with McCaw for the use of the FCC
    licenses and other intellectual property; and                                                                                                                                                                                                                  
|
| | (iv)  | Metrocall, Inc., McCaw and Metrocall USA each
    reorganized and continued in operations pursuant to the Plan.
    Following the mergers and capital contributions described above,
    McCaw and Metrocall USA each reincorporated under the laws of
    the State of Delaware with amended and restated certificates of
    incorporation and by-laws, McCaw was renamed Metrocall, Inc. and
    the registrant, as reorganized, was renamed Metrocall Holdings,
    Inc.                                                                                                                 

The reorganized and reincorporated entities are
as follows: Metrocall Holdings, Inc. (HoldCo.,
formerly Metrocall, Inc.), Metrocall, Inc. (OpCo.,
formerly McCaw) and Metrocall USA, Inc.
(LicenseCo.), respectively.

The Companys Plan provided for separate
classes of claims and interests for creditors and equity holders
of each of the Debtors. Distributions to creditors of the
Debtors have commenced and include, among other distributions:



| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | The execution by OpCo. of a $60.0 million
    senior secured promissory note and the related loan and security
    agreements in favor of the Debtors senior lenders (under
    our former pre-petition $133.0 million senior secured
    credit facility the Old Credit Facility). OpCo. is
    the direct borrower of the senior lenders as a result of the
    reorganization described above while LicenseCo. together with
    HoldCo. and Ventures each have guaranteed the senior secured
    note. The guaranty of HoldCo. is secured by a pledge of its
    stock and ownership interests in LicenseCo., as well as a pledge
    of its stock and ownership interests in OpCo., Ventures and
    Inciscent, Inc.
|
| | (ii)  | The execution by HoldCo. of $20.0 million
    secured PIK promissory notes and the related loan and security
    agreements in favor of the senior lenders. LicenseCo. and
    Ventures each have guaranteed the secured PIK notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (iii) | The payment by OpCo. to all holders of allowed
    general unsecured claims against any of the consolidated
    operating subsidiaries of 100% of such allowed claims in cash or
    pursuant to any other such arrangement that has been agreed to
    between the parties;                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (iv)  | Cash distributions to holders of allowed tax
    priority claims, administrative claims and convenience claims;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F-10



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (v)    | The distribution by HoldCo. of 5,300,000 shares
    of new Series A Preferred Stock (series A
    preferred), representing 88.3% of the preferred stock to
    be issued and $53.0 million of the total $60.0 million
    initial liquidation preference to holders of the allowed claims
    of the senior lenders;                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (vi)   | HoldCo. beginning November 18, 2002, and
    through interim distributions thereafter (to give effect to
    resolutions of disputed claims through reserves to be
    established), will distribute to the holders of allowed general
    unsecured claims against Metrocall, Inc. 500,000 shares of the
    new Series A Preferred, representing 8.3% of the preferred
    stock to be issued and $5.0 million of the
    $60.0 million initial liquidation preference;                                                                                                                                                                                                                                                                                              
|
| | (vii)  | The issuance by HoldCo. of the remaining 3.4% of
    new Series A Preferred, or 200,000 shares, representing
    $2.0 million of the $60.0 million initial liquidation
    preference for distribution to the Metrocalls senior
    executives subject to and in connection with their respective
    new employment agreements with HoldCo. and OpCo.; and                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (viii) | The issuance by HoldCo. of 2,100,000 shares of
    its new common stock, representing 42% of the shares to be
    issued, to the allowed claims of the senior lenders (subject to
    ratable dilution for the issuance of restricted stock and
    options to employees of OpCo. not to exceed 7%) and, beginning
    on November 18, 2002 and thereafter (to give effect to
    resolutions of disputed claims through reserves to be
    established) 2,900,000 shares of its new common stock,
    representing 58% of the total shares to be issued, to the
    allowed holders of general unsecured claims against Metrocall,
    Inc. (subject to ratable dilution for the issuance of restricted
    stock and options to employees of OpCo. not to exceed 7%).

Holders of the Predecessor Companys
preferred and common stock outstanding prior to the confirmation
date of the Plan received no distributions under the Plan. Such
shares of stock were canceled pursuant to the Plan.



| |                                  
| | ---------------------------------
| | Risks and Other Important Factors

Metrocall is subject to risks and uncertainties
including but not limited to technology advances and
competition; satellite transmission failures; loss of
subscribers; dependence on key management personnel, reliance on
limited suppliers and regulatory changes.

2.     Basis of
Presentation

The Reorganized Companys consolidated
financial statements for the period October 8, 2002 to
December 31, 2002 and for the year ended December 31,
2003 have been prepared in accordance with the American
Institute of Certified Public Accountants Statement of Position,
Financial Reporting by Entities in Reorganization under the
Bankruptcy Code,(SOP 90-7), which provides
guidance for financial reporting by entities that have filed
petitions under the Bankruptcy Code and have reorganized in
accordance with the Bankruptcy Code.

As a result of the application of fresh start
accounting, Metrocalls financial results for the twelve
months ended December 31, 2002 include two different bases
of accounting and, accordingly, the operating results and cash
flows of Reorganized Company and the Predecessor Company are
separately presented. The Reorganized Companys financial
statements are not comparable with those of the Predecessor
Companys.

The accompanying consolidated financial
statements of the Reorganized Company include the accounts of
Metrocall Holdings, Inc. and its wholly-owned subsidiaries
Metrocall, Inc; Metrocall Ventures, Inc. and Metrocall USA, Inc.
a non-operating wholly-owned subsidiary that holds certain
regulatory licenses issued by the Federal Communications
Commission and other intellectual property.

F-11



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The accompanying consolidated financial
statements of the Predecessor Company include the accounts of
Metrocall, Inc. and its wholly owned operating subsidiaries
McCaw RCC Communications, Advanced Nationwide Messaging
Corporation, Mobilfone Service LP, Metrocall Ventures, Inc. and
Metrocall USA, Inc. Please refer to Note 1 for a discussion of
the reorganization of certain of these entities.

All significant inter-company transactions have
been eliminated in consolidation.

3.     Fresh Start
Accounting

Pursuant to SOP 90-7, the fair value of the
Reorganized Companys long-term debt and equity on
October 8, 2002, which was determined to be approximately
$123.5 million, was allocated to long-term debt and equity.
The fair value was based on a discounted cash flow analysis
utilizing cash flow projections through 2006 pursuant to the
Plan. These cash flows were discounted at a discount rate of 25%.

In accordance with SOP 90-7, the reorganization
value of the Reorganized Company allocated to assets was
determined to be $193.6 million, which includes the fair
value of the Reorganized Companys long-term debt and
equity plus the fair value of the current and other liabilities
at the date of emergence of $70.1 million. Under SOP 90-7,
the reorganization value was allocated to its tangible and
identifiable intangible assets in accordance with Statement of
Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and liabilities, including debt,
were recorded at their net present values.

The effects of the Plan and the application of
fresh start accounting as defined by SOP 90-7 on the Predecessor
Companys unaudited consolidated balance sheet through
October 7, 2002 is set forth below. It reflects the pro
forma effect of the cancellation of indebtedness and predecessor
equity under the Plan, the debt and equity consideration issued
under the Plan and the application of fresh start accounting.
The unaudited balance sheet should be reviewed in conjunction
with the corresponding notes and the audited consolidated
financial statements contained herein.

F-12



---



##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                         |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |        |        | 
|---------------------------------------- | --------------------------------------------------------- | ---------------------------- | -------- | --------------- | ------- | --------------- | ------- | --------------- | -------- | - | ------ | ------- | ------- | - | ------- | ------ | ------ | 
|                                         |                                                           |                              |          | Debt, Preferred |         |                 |         |                
|                                         |                                                           | Predecessor                  |          | and Common      |         |                 |         | Reorganized    
|                                         |                                                           | Company                      |          | Stock           |         | Fresh Start     |         | Company        
|                                         |                                                           | October 7, 2002              |          | Discharge (a)   |         | Adjustments (b) |         | October 7, 2002
|                                         |                                                           |                              |          |                 |         |                 |         |                
|Assets                                   |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|Current assets:                          |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|                                         | Cash and cash equivalents                                 |                              | $        | 52,170          |         |                 | $       |                |          |   | $      | (10,499 | )       |   | $       | 41,671 |       
|                                         | Restricted cash                                           |                              |          | 0               |         |                 |         |                |          |   |        | 10,499  |         |   |         | 10,499 |       
|                                         | Accounts receivable, net                                  |                              |          | 24,169          |         |                 |         |                |          |   |        |        |         |   |         | 24,169 |       
|                                         | Prepaid expenses and other current assets                 |                              |          | 9,121           |         |                 |         |                |          |   |        | (4,709  | )       |   |         | 4,412  |       
|                                         |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|                                         | Total current assets                                      |                              |          | 85,460          |         |                 |         |                |          |   |        | (4,709  | )       |   |         | 80,751 |       
|                                         |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|Property and equipment:                  |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|                                         | Land, buildings and leasehold improvements                |                              |          | 6,784           |         |                 |         |                |          |   |        | (3,594  | )       |   |         | 3,190  |       
|                                         | Furniture, office equipment and vehicles                  |                              |          | 62,970          |         |                 |         |                |          |   |        | (42,752 | )       |   |         | 20,218 |       
|                                         | Paging and plant equipment                                |                              |          | 134,221         |         |                 |         |                |          |   |        | (77,112 | )       |   |         | 57,109 |       
|                                         | Less  accumulated depreciation and
    amortization      |                              |          | (111,416        | )       |                 |         |                |          |   |        | 111,416 |         |   |         |       |       
|                                         |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|                                         |                                                           | Total property and equipment |          |                 | 92,559  |                 |         |                 |         |   |        |         | (12,042 | ) |         |        | 80,517 | 
|Intangible and other assets, net         |                                                           |                              | 6,829    |                 |         |                 |         |                 |          |   | 25,482 |         |         |   | 32,311  |       
|                                         |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|                                         |                                                           | $                            | 184,848  |                 |         | $               |        |                 |          | $ | 8,731  |         |         | $ | 193,579 |       
|                                         |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|Liabilities and Stockholders
    Equity |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|Current liabilities:                     |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|                                         | Current maturities of long-term debt                      |                              | $        | 920             |         |                 | $       | 23,000          |          |   | $      |        |         |   | $       | 23,920 |       
|                                         | Accrued expenses and other current liabilities            |                              |          | 43,815          |         |                 |         |                |          |   |        | (765    | )       |   |         | 43,050 |       
|                                         | Deferred revenues and subscriber deposits                 |                              |          | 17,282          |         |                 |         |                |          |   |        | (3,692  | )       |   |         | 13,590 |       
|                                         |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|                                         | Total current liabilities not subject to
    compromise   |                              |          | 62,017          |         |                 |         | 23,000          |          |   |        | (4,457  | )       |   |         | 80,560 |       
|                                         | Liabilities subject to compromise                         |                              |          | 881,580         |         |                 |         | (871,714        | )        |   |        | (9,866  | )       |   |         |       |       
|                                         |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|                                         |                                                           | Total current liabilities    |          |                 | 943,597 |                 |         |                 | (848,714 | ) |        |         | (14,323 | ) |         |        | 80,560 | 
|Long-term liabilities:                   |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|                                         | Long-term debt, less current maturities                   |                              |          | 1,107           |         |                 |         | 54,000          |          |   |        |        |         |   |         | 55,107 |       
|                                         | Other long term liabilities                               |                              |          | 492             |         |                 |         |                |          |   |        | 12,518  |         |   |         | 13,010 |       
|                                         |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|                                         | Total long-term liabilities not subject to
    compromise |                              |          | 1,599           |         |                 |         | 54,000          |          |   |        | 12,518  |         |   |         | 68,117 |       
|                                         | Liabilities subject to compromise                         |                              |          | 6,700           |         |                 |         |                |          |   |        | (6,700  | )       |   |         |       |       
|Redeemable preferred stock               |                                                           |                              | 80,346   |                 |         |                 | (33,903 | )               |          |   |       |         |         |   | 46,443  |       
|Stockholders equity/(deficit)           |                                                           |                              | (847,394 | )               |         |                 | 828,617 |                 |          |   | 17,236 |         |         |   | (1,541  | )     
|                                         |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       
|                                         |                                                           | $                            | 184,848  |                 |         | $               |        |                 |          | $ | 8,731  |         |         | $ | 193,579 |       
|                                         |                                                           |                              |          |                 |         |                 |         |                 |          |   |        |         |         |   |         |       



---



|    |                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | To record the discharge or reclassification of
    prepetition obligations related to debt, preferred stock and
    equity and the issuance of new debt, preferred stock and equity
    (valued at $77.0 million, $46.4 million, and $0,
    respectively).

F-13



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METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | To record fresh start adjustments to reflect
    assets and liabilities at fair value, including the
    reclassification of cash reserved for payment of administrative
    expenses, general unsecured claims of subsidiaries and tax
    claims to restricted cash.
|   
|(c) | The $33.9 million preferred stock discharge
    represents $80.3 million extinguishment of preferred stock
    of the Predecessor Company, net of $46.4 million fair value of
    preferred stock issued by Reorganized Company.                                      

4.     Significant
Accounting Policies



| |                                                                
| | ---------------------------------------------------------------
| | Use of Estimates in the Preparation of
    Financial Statements

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Significant estimates
include the allowance for doubtful accounts, the deferred tax
valuation allowance and certain accrued liabilities.



| |                    
| | -------------------
| | Revenue Recognition

Metrocall recognizes revenue under service,
rental and maintenance agreements with customers as the related
services are performed. Metrocall leases (as lessor) pagers and
messaging devices under operating leases. Substantially all the
leases are on a month-to-month basis. Advance billings for
services are deferred and recognized as revenue when earned.
Sales of one-way paging and ancillary equipment are recognized
upon delivery. Prior to July 1, 2003 the Company bundled
the sale of two-way paging equipment with the related service
and recognized the revenue and related cost of sales over the
expected customer relationship, which the company estimates is
one year. Beginning July 1, 2003, the Company records
revenue from two-way messaging equipment sales upon delivery.
(See Changes in Accounting for Revenues with Multiple
Deliverables.)



| |            
| | -----------
| | Credit Risk

Metrocalls assets that are exposed to
credit risk primarily consist of its accounts receivable.
Accounts receivable are due from customers, resellers, and
governmental entities located in the United States. The carrying
value of accounts receivable, net of the allowance for doubtful
accounts, approximates fair value.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents consist primarily of
investments, all having maturities of ninety days or less when
purchased. The carrying amount reported in the accompanying
balance sheets for cash equivalents approximates fair value due
to the short-term maturity of these instruments.



| |                
| | ---------------
| | Restricted Cash

In accordance with the Plan, the Company had
approximately $8.5 million and $0.5 million of cash
balances restricted for payment of administrative, disputed
general unsecured claims of subsidiaries, and, disputed tax
claims related to the chapter 11 proceedings at
December 31, 2002 and 2003, respectively.



| |                              
| | -----------------------------
| | Reserve for Doubtful Accounts

Estimates are used in determining the reserve for
doubtful accounts and are based on historical collection
experience, current trends and a percentage of the accounts
receivable aging categories. In determining these percentages
Metrocall reviews historical write-offs, including comparisons
of write-offs to provisions for

F-14



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

doubtful accounts as a percentage of net
revenues; Metrocall compares the ratio of the reserve to gross
receivables to historical levels and Metrocall monitors
collection amounts and statistics.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment of the Predecessor Company
was carried at cost less accumulated depreciation. Property and
equipment of the Reorganized Company was stated at fair value as
of the Effective Date of the Plan. Depreciation is computed
using the straight-line method over the following estimated
useful lives:

|                                     |  |       |     | 
|------------------------------------ |  | ----- | --- | 
|                                     |  | Years
|                                     |  |      
|Buildings and leasehold improvements |  |       | 2   | 
|Furniture and office equipment       |  |       | 5-7 | 
|Vehicles                             |  |       | 3   | 
|Subscriber paging equipment          |  |       | 2   | 
|Transmission and plant equipment     |  |       | 7   | 

New pagers and advanced messaging devices are
depreciated using the half-year convention upon acquisition.
Costs to refurbish pagers are charged to service, rent and
maintenance expense. Prior to 2002 these costs were charged to
depreciation expense and as such the amount for 2001,
$16.2 million, was reclassified to conform to the 2002
presentation. Subscriber equipment sold is recorded in the
consolidated statements of operations at net book value at the
date of sale. Devices leased to customers under operating leases
continue to be depreciated over their remaining useful lives.



| |                  
| | -----------------
| | Intangible Assets

On January 1, 2002, the company adopted the
provisions of SFAS No. 142, Goodwill and Other
Intangible Assets.SFAS No. 142 requires that goodwill
and intangible assets with indefinite lives no longer be
amortized but reviewed annually (or more frequently if
impairment indicators arise) for impairment. Intangible assets
that are not deemed to have indefinite lives continue to be
amortized over their useful lives. SFAS No. 142 did not
have an impact on the Predecessor Company in 2002, however prior
years would have been affected  see Note 7.
As part of fresh start accounting, the Reorganized Company
recorded intangible assets including indefinite lived
intangibles, and therefore applied the provisions of SFAS
No. 142. However, the impact of not amortizing such assets
was nominal. In accordance with SFAS No. 142s
impairment evaluation, indefinite lived intangibles are tested
for impairment annually or more frequently if events or changes
in circumstances indicate that the asset might be impaired.
Intangible assets consisted of the following at
December 31, 2002 and 2003, respectively (dollars in
thousands):

|                                  |  |                   |        |                   |  |              |       |       |  |              |        |     |  |           |       |  |  |   |     |  |  |   |       |  |  |  |   | 
|--------------------------------- |  | ----------------- | ------ | ----------------- |  | ------------ | ----- | ----- |  | ------------ | ------ | --- |  | --------- | ----- |  |  | - | --- |  |  | - | ----- |  |  |  | - | 
|                                  |  |                   |        |                  
|                                  |  | December 31, 2002 |        | December 31, 2003
|                                  |  |                   |        |                  
|                                  |  |                   |        |                   |  | Amortization
|                                  |  |                   |        | Accumulated       |  |              |       |       |  | Accumulated  |        |     |  | Period in
|                                  |  | Gross             |        | Amortization      |  | Net          |       | Gross |  | Amortization |        | Net |  | Years    
|                                  |  |                   |        |                   |  |              |       |       |  |              |        |     |  |          
|Customer lists                    |  | $                 | 17,067 |                   |  | $            | 1,672 |       |  | $            | 15,395 |     |  | $         | 1,277 |  |  | $ | 78  |  |  | $ | 1,199 |  |  |  | 3 | 
|Trademarks, Tradenames and others |  |                   | 5,514  |                   |  |              | 276   |       |  |              | 5,238  |     |  |           | 360   |  |  |   | 29  |  |  |   | 331   |  |  |  | 5 | 
|FCC licenses                      |  |                   | 1,123  |                   |  |              |      |       |  |              | 1,123  |     |  |           | 216   |  |  |   |    |  |  |   | 216   |  |  |  | 0 | 
|                                  |  |                   |        |                   |  |              |       |       |  |              |        |     |  |           |       |  |  |   |     |  |  |   |       |  |  |  |   | 
|                                  |  | $                 | 23,704 |                   |  | $            | 1,948 |       |  | $            | 21,756 |     |  | $         | 1,853 |  |  | $ | 107 |  |  | $ | 1,746 |  |  |  |   | 
|                                  |  |                   |        |                   |  |              |       |       |  |              |        |     |  |           |       |  |  |   |     |  |  |   |       |  |  |  |   | 

The amortization expense for intangible assets
for the year ended December 31, 2001 was
$74.4 million. Amortization expense for the Reorganized
Company was $1.9 million for the period from
October 8, 2002 to December 31, 2002 and
$4.3 million for the year ended December 31, 2003. The
Predecessor Company did not record amortization expense for the
period from January 1, 2002 to October 7, 2002 as all
intangible assets of the Predecessor Company were written off
during 2001. Estimated amortization expense for intangible

F-15



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

assets for each of the next five years are as
follows (in thousands): $480 in 2004; $499 in 2005; $411 in
2006, $73 in 2007 and $67 in 2008.



| |                  
| | -----------------
| | Long-lived Assets

The Company accounts for long-lived assets in
accordance with the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-lived
Assets.SFAS No. 144 requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by comparing the carrying
amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the
assets exceeds their fair value. Assets to be disposed of by
sale are reflected at the lower of their carrying amount or fair
value less cost to sell.



| |                                                           
| | ----------------------------------------------------------
| | Reporting Gains and Losses from Extinguishment
    of Debt

In April 2002, the Financial Accounting Standards
Board (FASB) issued Statement No. 145, Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. The
primary impact of this Statement is to rescind SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt,
which required that gains and losses from extinguishment of debt
that were included in the determination of net income be
aggregated and, if material, classified as an extraordinary item.

The provisions of this Statement related to the
rescissions of Statement 4 were to be applied in fiscal
years beginning after May 15, 2002. Any gain or loss on
extinguishment of debt that was classified as an extraordinary
item in prior periods presented that does not meet the criteria
in Opinion 30 for classification as an extraordinary item shall
be reclassified.

SOP 90-7 requires that changes in accounting
principles that will be required in the financial statements of
the emerging entity within the twelve months following the
adoption of fresh-start reporting should be adopted at the time
fresh-start reporting is adopted. As a result, Metrocall adopted
SFAS 145 as part of fresh start accounting, resulting in
the reclassification of gains from the extinguishment of debt
$749,821,000 in the period January 1, 2002 to
October 7, 2002).



| |                            
| | ---------------------------
| | Asset Retirement Obligation

In connection with its implementation of fresh
start accounting, the Company also adopted SFAS 143,
Accounting for Asset Retirement Obligations. This
statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The
purpose of this statement is to develop consistent accounting
for asset retirement obligations and related costs in financial
statements and provide more information about future cash
outflows, leverage and liquidity regarding retirement
obligations and the gross investment in long-lived assets. The
Company leases approximately 5,800 transmitter locations under
operating leases, many of which require it to remove its
transmitting equipment and deliver the leased premises back to
the landlord at the sites pre-installation condition upon
expiration or early termination of the lease agreement. At
October 7, 2002, the Company recognized a $3.1 million
asset and liability for the estimated fair value of this
retirement obligation. If SFAS 143 had been adopted in 2001, the
impact on the accompanying financial statements as of
December 31, 2001 and for the year then ended and the
period from January 1, 2002 to October 7, 2002 would
not have been significant.

F-16



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following reflects a reconciliation of the
aggregate carrying amount of the asset retirement obligation as
of December 31, 2003 (dollars in thousands):

|                              |                                                              |   |       |        |  
|----------------------------- | ------------------------------------------------------------ | - | ----- | ------ | -
|Balance at October 8, 2002.   |                                                              | $ | 3,069 |       
|                              | Accretion                                                    |   |       | 125    |  
|                              | Settlements of obligations                                   |   |       |       |  
|                              |                                                              |   |       |       
|Balance at December 31, 2002. |                                                              |   | 3,194 |       
|                              | Accretion                                                    |   |       | 437    |  
|                              | Estimated asset retirement obligation of assets
    acquired |   |       | 1,583  |  
|                              | Settlements of obligations                                   |   |       | (255   | )
|                              | Change in estimated liability from change in
    assumption  |   |       | (1,467 | )
|                              |                                                              |   |       |       
|Balance at December 31, 2003. |                                                              | $ | 3,492 |       
|                              |                                                              |   |       |       

In connection with its accounting for the Weblink
asset acquisition, the Company recorded an estimated retirement
obligation related to the network equipment located at leased
antennae sites. In addition, during 2003, the Company extended
the estimated terminal date of certain of the assets to be
removed from a period of five years to ten years, which resulted
in a reduction of the recorded and asset and asset retirement
obligation of approximately $1.5 million.



| |                      
| | ---------------------
| | Restructuring Expense

For the period from January 1, 2002 to
October 7, 2002, the Company recognized $19.0 million
in reorganization expense. These expenses included
$10.6 million for professional fees related to implementing
our plan of reorganization, $3.2 million for the
termination of approximately 575 positions, and
$4.7 million of facility lease exit costs. Through
December 31, 2002, approximately $14.0 million in
reorganization related cash payments had been made and
$3.5 million were settled through issuances of preferred
and common stock in connection with the Plan. In 2003, the
remaining $1.5 million obligation was paid to
professionals. Please refer to Note 6 in regards to the 2003
restructuring.

Earnings
Per Common Share Available to Common Stockholders

Basic earnings per share is computed by dividing
earnings available to common stockholders by the
weighted-average number of common shares outstanding for the
period. Diluted earnings per share is similar to basic earnings
per share, except the weighted-average number of common shares
outstanding is increased to include stock options and warrants,
that dilute earnings. Total stock options outstanding of
7.9 million at December 31, 2001 were excluded from
the computation of diluted earnings (loss) per share
because of their anti-dilutive effect. For the period
January 1, 2002 to October 7, 2002, there was no
dilution caused from outstanding stock options of the
Predecessor Company, as the exercise price of all such options
exceeded the average market price of common stock for this
period. There were no stock options or warrants issued by the
Reorganized Company for the period October 8, 2002 to
December 31, 2002. As a result, the basic and diluted
earnings per share amounts are identical. For the year ended
December 31, 2003, total stock options outstanding of
407,000 and total warrants outstanding of 125,000 were included
in the computation of diluted earnings per share as the exercise
prices of such instruments were below the average market price
of common stock and thus considered dilutive to earnings for the
period.

F-17



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                |                                                                         |                     |          |                     |  |              |           |               |  |   |       |           |  |   |        |           | 
|--------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------- | -------- | ------------------- |  | ------------ | --------- | ------------- |  | - | ----- | --------- |  | - | ------ | --------- | 
|                                                                |                                                                         |                     |          |                    
|                                                                |                                                                         | Predecessor Company |          | Reorganized Company
|                                                                |                                                                         |                     |          |                    
|                                                                |                                                                         | Twelve Months       |          |                     |  |              |           | Twelve Months
|                                                                |                                                                         | Ended               |          | January 1 to        |  | October 8 to |           | Ended        
|                                                                |                                                                         | December 31,        |          | October 7,          |  | December 31, |           | December 31, 
|                                                                |                                                                         | 2001                |          | 2002                |  | 2002         |           | 2003         
|                                                                |                                                                         |                     |          |                     |  |              |           |              
|Income (loss) available to common
    stockholders, as reported |                                                                         | $                   | (623,200 | )                   |  | $            | 1,347,501 |               |  | $ | 2,137 |           |  | $ | 10,886 |          
|Numerator for basic and diluted earnings per
    common share   |                                                                         | $                   | (623,200 | )                   |  | $            | 1,347,501 |               |  | $ | 2,137 |           |  | $ | 10,886 |          
|Denominator:                                                    |                                                                         |                     |          |                     |  |              |           |               |  |   |       |           |  |   |        |          
|                                                                | Denominator for basic earnings per share                                |                     |          | 89,975,772          |  |              |           | 89,975,772    |  |   |       | 4,956,990 |  |   |        | 5,017,576 | 
|                                                                | Effect of dilutive securities:                                          |                     |          |                     |  |              |           |               |  |   |       |           |  |   |        |           | 
|                                                                | Employee stock options and warrants                                     |                     |          |                    |  |              |           |              |  |   |       |          |  |   |        | 149,188   | 
|                                                                |                                                                         |                     |          |                     |  |              |           |               |  |   |       |           |  |   |        |          
|                                                                | Denominator for diluted earnings per
    share-adjusted weighted shares |                     |          |                    |  |              |           |              |  |   |       |          |  |   |        | 5,166,764 | 
|Basic earnings per common share                                 |                                                                         | $                   | (6.93    | )                   |  | $            | 14.98     |               |  | $ | 0.43  |           |  | $ | 2.17   |          
|Diluted earnings per common share                               |                                                                         | $                   | (6.93    | )                   |  | $            | 14.98     |               |  | $ | 0.43  |           |  | $ | 2.11   |          

Change
in Accounting for Redeemable Preferred Stock

Beginning July 1, 2003, the Company adopted
the provisions of SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity. Pursuant to SFAS 150, the series A
preferred, due to its mandatory redemption provisions, has been
classified as a liability on the accompanying balance sheet as
of December 31, 2003. In addition, for periods subsequent
to June 30, 2003, the Reorganized Company recorded
dividends and accretion on the series A preferred as a
component of interest expense in the determination of net income
for that period. Prior to July 1, 2003, dividends and
accretion were excluded from net income and reflected as a
reduction to retained earnings and as a reduction in the
determination of net income available to common stockholders.
Under the provisions of SFAS 150, prior periods (periods ending
prior to July 1, 2003) are not re-classified to conform to
the presentation stipulated by this Statement. Please refer to
Note 10.

Income
Taxes

The Company accounts for income taxes under the
provision of SFAS No. 109, Accounting for Income
Taxes. Deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax
bases of existing assets and liabilities, less valuation
allowances, if required.

Accounting
for Stock Based Compensation

Beginning in 2003, the Reorganized Company
accounts for stock-based compensation pursuant to SFAS
No. 123, Accounting for Stock Compensation, which
establishes a fair-value based method of accounting for stock
compensation plans. The estimated fair value of options issued
is recognized as a general and administrative expense over the
option vesting period.

The Predecessor Company accounted for employee
stock options using the method of accounting prescribed by
Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees,
and the associated interpretations using the intrinsic method.
Generally, no expense is recognized

F-18



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

related to the companys stock options
because the options exercise price is set at the
stocks fair market value on the date the option is
granted. The Predecessor Company followed the disclosure
requirements of SFAS No. 123.

Reclassifications

Certain reclassifications have been made to the
prior year financial statements to conform to the 2003
presentation.

Changes
in Accounting for Revenues with Multiple Deliverables

In November 2002, the Emerging Issues Task Force
(EITF) issued No. 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables. EITF
No. 00-21 addresses certain aspects of accounting by a
vendor for arrangements under which it will perform multiple
revenue-generating activities. The EITF established three
principles: revenue should be recognized separately for separate
units of accounting, revenue for a separate unit of accounting
should be recognized only when the arrangement consideration is
reliably measurable and the earnings process is substantially
complete and consideration should be allocated among the
separate units of accounting in an arrangement based on their
fair values. EITF No. 00-21 was effective for all revenue
arrangements entered into after June 30, 2003. The Company
adopted the EITFs provisions effective July 1, 2003.
Metrocall concluded that revenues associated with two-way
messaging device sales and the provision of related messaging
services represented separable units of accounting. Accordingly,
Metrocall began to recognize two-way service revenue over the
period the service is performed and revenue from two-way device
sales upon delivery. Prior to its adoption, the Company had
bundled the sale of two-way messaging devices with the related
airtime or messaging service and recognized the revenue over the
estimated customer relationship. The impact of the adoption of
EITF No. 00-21 was not material, resulting in approximately
$581,000 of additional revenue and $265,000 of additional income
from operations being recognized in the six months ended
December 31, 2003. In accordance with the transition
provisions of EITF No. 00-21, Metrocall will continue to
recognize previously deferred revenue and expense from the sale
of two-way devices in accordance with the amortization schedules
in place at the time of deferral. At December 31, 2003,
Metrocall had approximately $294,000 of deferred revenue and
$153,000 of deferred expense from the sale of two-way devices
that will be recognized over the next six months.

New
Accounting Pronouncements:

In January 2003, the Financial Accounting
Standards Board issued Financial Interpretation No. 46,
Consolidation of Variable Interest Entities, an
interpretation of ARB 51, as revised with FIN No. 46-R,
in December 2003. FIN No. 46 and FIN No. 46-R provide
guidance on the identification of entities for which control is
achieved through means other than through voting rights called
variable interest entities or VIEs and
how to determine when and which business enterprise should
consolidate the VIE (the primary beneficiary). This
model for consolidation applies to an entity in which either
(1) the equity investors (if any) do not have a controlling
financial interest or (2) the equity investment at risk is
insufficient to finance that entitys activities without
receiving additional subordinated financial support from other
parties. In addition, these interpretations require both the
primary beneficiary and all other enterprises with a significant
variable interest in a VIE to make additional disclosures. The
provisions of FIN No. 46 are applicable to the Company for
any interests entered into after January 31, 2003 and the
provisions of FIN No. 46-R will be effective in the quarter
ended March 31, 2004. As of December 31, 2003,
Metrocall does not have any interests that would change its
current reporting entity or require additional disclosures
outlined in FIN No. 46 or FIN No. 46-R.

F-19



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Segment
Reporting

Metrocall operates in one reportable segment.

5.     Acquisition of
Assets

On November 18, 2003, the Company acquired
the majority of the operating assets and assumed certain
liabilities of Weblink Wireless, Inc. and certain of its
subsidiaries. The results of Weblinks operations have been
included in the Companys consolidated financial statements
since that date. In addition, Metrocall and Weblink also entered
into a Management and Spectrum Lease Agreement under which
Weblink will provide certain services, and lease to Metrocall
the spectrum usage rights granted under FCC licenses pending the
FCCs approval of the transfer of such licenses to
Metrocall. Metrocall acquired the majority of the operating
assets of Weblink including its traditional and advanced
messaging infrastructure and customer contracts. Metrocall and
Weblink, until the acquisition, had been party to several
alliance agreements under which Weblink provided Metrocall
network access in order for Metrocall to provide advanced
messaging (two-way paging) services to its customers. As
consideration for these transactions, the Company issued 500,000
shares of common stock and issued warrants that give Weblink or
the Warrant holders the ability to purchase up to 125,000
additional shares of Metrocall common stock at $40 per share
(the Warrants). Of the Warrants, 25,000 vested on
the closing date with the remaining 100,000 shares vesting
ratably on the first three anniversary dates of the closing. The
shares underlying the warrants will immediately vest, however,
upon the transfer of the FCC licenses once the FCC approves
their transfer to Metrocall.

The Company has accounted for the asset
acquisition under the purchase method of accounting for
financial reporting purposes pursuant to SFAS 141 and
accordingly the operating results of the acquired assets have
been included in the consolidated statement of operations for
2003 from their date of acquisition. The purchase price for the
assets acquired was approximately $42.8 million consisting
of stock consideration of $21.4 million based on the
average market price of the Companys common stock over the
5-day period prior to and subsequent to the transaction;
$1.4 million fair value of the Warrants and assumed
liabilities of $20.0 million. The purchase price has been
allocated as follows:

|                              |                           |                    |        |        | 
|----------------------------- | ------------------------- | ------------------ | ------ | ------ | 
|                              |                           | At                
|                              |                           | November 18,      
|                              |                           | 2003              
|                              |                           | ($s in thousands)
|                              |                           |                   
|Cash                          |                           | $                  | 4,328  |       
|Other current assets          |                           |                    | 9,270  |       
|Property, plant and equipment |                           |                    | 15,994 |       
|Intangible assets             |                           |                    | 928    |       
|Other assets                  |                           |                    | 12,280 |       
|                              |                           |                    |        |       
|                              | Total assets acquired     |                    |        | 42,800 | 
|                              |                           |                    |        |       
|Accrued severance and other   |                           |                    | 4,850  |       
|Other current liabilities     |                           |                    | 13,526 |       
|Long-term liabilities         |                           |                    | 1,583  |       
|                              |                           |                    |        |       
|                              | Total liabilities assumed |                    |        | 19,959 | 
|                              |                           |                    |        |       
|                              | Net assets acquired       |                    | $      | 22,841 | 
|                              |                           |                    |        |       

Under the operating alliance arrangements between
Metrocall and Weblink, Metrocall owed Weblink for unpaid
services and charges provided or incurred by Weblink that were
unpaid by Metrocall as of the acquisition date. As such,
reflected in total assets acquired were approximately
$1.2 million of accounts

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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

receivable and other prepaid expenses and
$12.1 million of engineering charges due under the alliance
agreements beginning in October 2004 and other current
liabilities of $1.2 million that were eliminated upon
consolidation against related assets and liabilities that were
reflected on Metrocalls balance sheet as of the
acquisition date.

The total intangible assets of $0.9 million
include $0.7 million allocated to intangible assets with
finite useful lives and will be amortized over their estimated
useful lives (3 year period for customer contracts and a
5 year period for trademarks and names). Approximately
$0.2 million was allocated to the management agreement in
place between the two companies pending the transfer of the FCC
licenses to Metrocall.

In connection with the transaction, the Company
expects to incur $8.1 million in restructuring costs
primarily as a result of severance and relocation of workforce
and the elimination of duplicate facilities. Such costs have
been recognized by the Company as a liability assumed as of the
acquisition date. These restructuring costs consisted of
$4.9 million of employee termination and other benefits of
approximately 280 employees expected to be paid in 2004;
$0.4 million related to the closure of facilities, $1.6
million of long-term asset retirement obligations and
$1.2 million of other current liabilities. Through
December 31, 2003, $1.2 million of these costs had
been paid. Except for long-term asset retirement obligations,
which are expected to be paid out over the next ten years. The
Company expects to pay out the remaining liability in 2004.

The purchase price allocation may be subject to
adjustment for changes in estimates related to costs to be
incurred to close and exit duplicate facilities, and to settle
pending legal and other contingencies. The resolution of these
matters is not expected to have a material impact on the
Companys financial condition or results of future
operations.

The unaudited pro forma financial information
presented below reflects the revenue and net income of the
company as if the asset acquisition had occurred on
October 8, 2002, the Effective Date of the Plan. The
results are not necessarily indicative of future operating
results or what would have occurred had the acquisition actually
been consummated on that date. In addition, such results below
include the elimination of revenues recognized by Weblink and
expenses incurred by Metrocall as a result of the various
operating agreements between the two companies, which ceased as
of the acquisition date:

|                                                         |         |                    |         |                     |  |   |         |      | 
|-------------------------------------------------------- | ------- | ------------------ | ------- | ------------------- |  | - | ------- | ---- | 
|                                                         |         | October 8, 2002 to |         |                    
|                                                         |         | December 31,       |         | Twelve Months Ended
|                                                         |         | 2002               |         | December 31, 2003  
|                                                         |         |                    |         |                    
|                                                         |         | Unaudited          |         | Unaudited          
|Revenue                                                  |         | $                  | 116,099 |                     |  | $ | 417,900 |     
|Net income                                               |         | $                  | 9,217   |                     |  | $ | 23,698  |     
|Earnings per share available to common
    stockholders: |         |                    |         |                     |  |   |         |     
|                                                         | Basic   |                    | $       | 1.20                |  |   | $       | 3.23 | 
|                                                         | Diluted |                    | $       | 1.20                |  |   | $       | 3.14 | 



| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Total warrants outstanding of $5.0 million
    at December 31, 2003 were excluded from the computation of
    diluted earnings per share for the period October 8 to
    December 31, 2002 because of their anti-dilutive effect.

Warrants

As described above, in connection with the asset
acquisition, the Company granted Weblink 125,000 warrants for
the option to purchase shares of the Companys common
stock. As part of the purchase price, the Company determined the
fair value of the Warrants using a Black-Scholes pricing model.
In computing the estimated fair value, the Company assumed
risk-free interest rates of 1.88%, vesting periods of one to
four years, an expected dividend yield of zero and an expected
volatility of 60.03%. The weighted average fair value

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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of the warrants granted was $11.49 per share. The
estimated fair value of the Warrants was $1.4 million. The
Warrants expire 3 years after date of vesting.

6.     2003
Restructuring

In February 2003, the Companys board of
directors approved a plan that would enable the Company to
reorganize its corporate management and sales distribution
function and to further centralize its national call center
services and inventory fulfillment processes.

Such containment and reduction initiatives
included:

Reorganization of corporate
management Approximately
14 senior or corporate management positions were eliminated
under the plan, all of which occurred by March 31, 2003.

Reorganization of sales
distribution In February
2003 under the plan, the Company consolidated the number of
field sales regions under the leadership of regional vice
presidents from 6 to 3. The consolidated regions include: the
Eastern region, formerly comprised of the Northeast,
Mid-Atlantic and Southeast regions; the Central region; and the
Western region, formerly comprised of the West and Northwest
regions. The Company also consolidated its corporate sales
initiatives under the leadership of one senior vice president
and consolidated the non-core database marketing sales group
into its national call center. As a result of this
consolidation, the Company eliminated several corporate sales
and marketing positions.

Centralization of national call centers and
inventory fulfillment In
March 2003 under the plan, the Company consolidated its national
call center and credit and collection efforts into one existing
location in Pensacola, Florida. These functions had been
performed in two separate locations: Alexandria, Virginia and
Pensacola, Florida. The consolidation enabled the Company to
reduce the number of staff and management positions required.

In connection with the regional consolidation,
the Company centralized its field customer service and inventory
fulfillment functions into one or two main locations within each
region to cost-effectively provide customer service, data entry
and inventory fulfillment and to permit the Company to reduce
its operating expenses while maintaining adequate levels of
customer service. This process had been completed by year-end.

As a result of the centralization efforts
described above that occurred in the first nine months of 2003,
the Company was able to continue its refinement of its operating
structure to better match its present business strategy. As
such, during the three months ended December 31, 2003, the
Company further reduced its personnel by 85 positions comprised
mainly of sales and marketing positions and general and
administrative positions. In connection with these reductions in
personnel, the Company incurred approximately $0.6 million
in severance expenses all of which was paid out by
December 31, 2003.

As a result of the aforementioned cost reduction
plan that occurred during the first nine months of 2003 and the
additional initiatives undertaken in the three months ended
December 31, 2003, the Company reduced its workforce by a
total of 520 positions through December 31, 2003. Severance
expenses of approximately $6.8 million have been recognized
during the twelve months ended December 31, 2003 all of
which were paid by December 31, 2003, consistent with the
Companys severance plan discussed in Note 12.

7.     Long-Lived
Assets and Asset Impairment

All long-lived assets are reviewed for impairment
on a periodic basis and whenever events or changes in
circumstances indicate that the carrying amount should be
reviewed. Impairment is determined by comparing the net book
value to the estimated undiscounted future cash flows expected
to result from use of the assets and their eventual disposition.
For the period October 8, 2002 to December 31, 2002
and for the twelve months ended December 31, 2003,
Metrocall determined that no impairment existed.

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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company adopted SFAS No. 142,
Goodwill and Other Intangible Assets, as required on
January 1, 2002. SFAS 142 requires that goodwill and
intangible assets with indefinite lives no longer be amortized
but reviewed at least annually for impairment. The adoption of
SFAS 142 had no impact on the period January 1, 2002
to October 7, 2002 (as no intangible assets existed during
that period) and had nominal impact in the period from
October 8, 2002 to December 31, 2002. However, prior
years would have been impacted under SFAS 142. As of
January 1, 2001, the Predecessor Company had goodwill
balances related to acquired companies of approximately
$132.6 million, with useful lives of up to ten years. The
Predecessor Company had no intangible assets with indefinite
lives except for its FCC licenses. The following provides pro
forma disclosure of the elimination of goodwill and FCC license
amortization as if the Predecessor Company had adopted the SFAS
in 2001:

|                                                       |                                                         |      |          |         |  
|------------------------------------------------------ | ------------------------------------------------------- | ---- | -------- | ------- | -
|                                                       |                                                         | 2001
|                                                       |                                                         |     
|Reported net loss                                      |                                                         | $    | (612,809 | )      
|                                                       | Add back of goodwill and FCC amortization               |      |          | 24,347  |  
|                                                       | Write-off unamortized goodwill and FCC
    amortization |      |          | (70,493 | )
|                                                       |                                                         |      |          |        
|Adjusted net loss                                      |                                                         | $    | (658,955 | )      
|                                                       |                                                         |      |          |        
|                                                      
|Reported loss per common share  basic
    and diluted |                                                         | $    | (6.93    | )      
|                                                       | Add back goodwill amortization                          |      |          | 0.27    |  
|                                                       | Write-off unamortized goodwill and FCC
    amortization |      |          | (0.78   | )
|                                                       |                                                         |      |          |        
|Adjusted net loss per share  basic and
    diluted    |                                                         | $    | (7.44    | )      
|                                                       |                                                         |      |          |        

The Predecessor Companys reported net loss
for 2001 included a write down of all remaining goodwill and
acquired FCC license balances of $297.6 million. Had the
Predecessor Company adopted SFAS 142 in 2000, net loss for
2001 would have been impacted by the additional write-down of
unamortized goodwill and FCC license balances which would not
have been amortized in 2000.

In June, 2001, the Predecessor Company reviewed
the carrying value of its long lived assets for impairment.
Factors that indicated an impairment may have occurred during
this period included a continued reduction in revenues and
operating cash flows, the termination of its previous merger
agreement with Weblink and continuing competitive industry and
economic conditions. Based on its analysis, which indicated the
net book value of such assets exceeded the estimated
undiscounted future cash flows expected from such assets over
their remaining useful lives, the Predecessor Company determined
that a write-down of $279.7 million to the carrying value
of its intangible assets was necessary.

The estimated fair value of the long-lived assets
was determined by estimating future discounted cash flows of
such assets over their remaining useful lives. The amount of the
write down has been reported in asset impairment on the
accompanying statements of operations of the Predecessor
Company. The amount of the write down affected the carrying
value of the following intangible assets. ($s in
thousands):

|                                    |  |            |         | 
|----------------------------------- |  | ---------- | ------- | 
|Description                         |  | Write Down
|                                    |  |           
|Goodwill                            |  | $          | 107,007 | 
|State certificates and FCC licenses |  |            | 172,698 | 
|                                    |  |            |         | 
|                                    |  | $          | 279,705 | 
|                                    |  |            |         | 

In December 2001, the Predecessor Company again
reviewed the carrying value of its long-lived assets for
impairment. Factors that indicated an impairment had occurred in
this period included a greater than expected decline in actual
and expected future recurring traditional revenues and
subscribers and a slower than expected growth rate in its
advanced messaging business. Based on its analysis, the
Predecessor Company

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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

wrote down the carrying value of its long-lived
assets by approximately $108.3 million to their estimated
fair value, which was determined by estimating future discounted
cash flows of such assets over their remaining useful lives. The
amount of the write down was reported in asset impairment on the
accompanying statements of operations of the Predecessor
Company. The amount of the write down affected the carrying
value of the following assets. ($s in thousands):

|                        |                                     |                                     |         |        |        | 
|----------------------- | ----------------------------------- | ----------------------------------- | ------- | ------ | ------ | 
|Description             |                                     | Write Down                         
|                        |                                     |                                    
|Intangible Assets:      |                                     |                                     |         |       
|                        | State certificates and FCC licenses |                                     | $       | 17,877 |       
|                        | Customer lists                      |                                     |         | 7,415  |       
|                        | Other                               |                                     |         | 907    |       
|                        |                                     |                                     |         |       
|                        |                                     | $                                   | 26,199  |       
|                        |                                     |                                     |         |       
|Property and Equipment: |                                     |                                     |         |       
|                        |                                     | Paging and plant equipment          |         | $      | 74,521 | 
|                        |                                     | Building and leasehold improvements |         |        | 7,509  | 
|                        |                                     |                                     |         |       
|                        |                                     | $                                   | 82,030  |       
|                        |                                     |                                     |         |       
|Total impairment        |                                     | $                                   | 108,229 |       
|                        |                                     |                                     |         |       

In 2001, the total amount of asset impairment
incurred by the Company was approximately $387.9 million.

8.     Supplementary
Balance Sheet Information

Prepaid expenses and other current assets and
accrued expenses and other current liabilities consist of (in
thousands):

|                                               |                                                     |             |   |        |        |  |   |        |        | 
|---------------------------------------------- | --------------------------------------------------- | ----------- | - | ------ | ------ |  | - | ------ | ------ | 
|                                               |                                                     |            
|                                               |                                                     | December 31
|                                               |                                                     |            
|                                               |                                                     | 2002        |   | 2003  
|                                               |                                                     |             |   |       
|Prepaid expenses and other current
    assets: |                                                     |             |   |        |        |  |   |       
|                                               | Deferred cost of sales                              |             | $ | 677    |        |  | $ | 153    |       
|                                               | Inventory                                           |             |   | 571    |        |  |   | 507    |       
|                                               | Prepaid rent                                        |             |   | 3,400  |        |  |   | 5,538  |       
|                                               | Prepaid services                                    |             |   | 3,076  |        |  |   | 2,378  |       
|                                               | Other                                               |             |   | 2,071  |        |  |   | 2,855  |       
|                                               |                                                     |             |   |        |        |  |   |       
|                                               |                                                     | Total       |   | $      | 9,795  |  |   | $      | 11,431 | 
|                                               |                                                     |             |   |        |        |  |   |       
|                                               | Accrued expenses and other current
    liabilities: |             |   |        |        |  |   |        |       
|                                               | Accrued payroll and payroll taxes                   |             | $ | 5,650  |        |  | $ | 7,714  |       
|                                               | Accrued acquisition restructuring                   |             |   |       |        |  |   | 3,675  |       
|                                               | Accrued state and local taxes                       |             |   | 13,520 |        |  |   | 12,689 |       
|                                               | Accrued insurance claims                            |             |   | 1,092  |        |  |   | 702    |       
|                                               | Accrued income tax                                  |             |   |       |        |  |   | 150    |       
|                                               | Other                                               |             |   | 2,298  |        |  |   | 1,566  |       
|                                               |                                                     |             |   |        |        |  |   |       
|                                               |                                                     | Total       |   | $      | 22,560 |  |   | $      | 26,496 | 
|                                               |                                                     |             |   |        |        |  |   |       

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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

9.     Long-Term
Debt

Long-term debt and capital lease obligations
consisted of the following ($s in thousands)

|                                                                          |  |              |        |      |  |   |     | 
|------------------------------------------------------------------------- |  | ------------ | ------ | ---- |  | - | --- | 
|                                                                          |  |             
|                                                                          |  | December 31,
|                                                                          |  |             
|                                                                          |  | 2002         |        | 2003
|                                                                          |  |              |        |     
|Senior Secured Promissory Note                                            |  | $            | 60,000 |      |  | $ |    | 
|Senior Subordinated PIK Promissory Note                                   |  |              | 17,869 |      |  |   |    | 
|Capital lease obligations at a weighted average
    interest rate of 9.7% |  |              | 1,585  |      |  |   | 722 | 
|Other                                                                     |  |              | 257    |      |  |   | 134 | 
|                                                                          |  |              |        |      |  |   |     | 
|                                                                          |  | $            | 79,711 |      |  | $ | 856 | 
|Less  Current portion                                                    |  |              | 58,949 |      |  |   | 815 | 
|                                                                          |  |              |        |      |  |   |     | 
|Long-term portion                                                         |  | $            | 20,762 |      |  | $ | 41  | 
|                                                                          |  |              |        |      |  |   |     | 

Under the Plan and as discussed in Note 1,
the Company issued two promissory notes on October 7, 2002
as partial consideration for amounts outstanding under the
Debtors former credit facility. These notes included a
$60.0 million senior secured promissory note issued by
Metrocall, Inc. and a $20.0 million senior subordinated PIK
promissory note issued by Metrocall Holdings, Inc. Each note is
described below:

Senior Secured Promissory Note (the
Senior Note).The
$60.0 million Senior Note issued by Metrocall, Inc. was
guaranteed by Metrocall Holdings, Inc. and its subsidiaries. The
Senior Note was secured by substantially all of the
Companys assets. The Company recorded the Senior Note at
its fair value of $60 million as part of fresh start
accounting. The Senior Note accrued interest at the prime
lending rate plus a margin of 2.875%. Interest payments were
made on the last business day of each month. The Senior Note was
fully repaid and retired in full, prior to its March 31,
2004 stated maturity date, in three installments of
$35.0 million, $15.0 million and $10.0 million
made on January 7, 2003, March 31, 2003 and
May 12, 2003, respectively. From October 8, 2002
through December 31, 2002 and for the period from
January 1, 2003 to May 12, 2003, the Company made cash
payments of interest of approximately $1.0 million and
$0.6 million, respectively on the note.

Senior Subordinated PIK Promissory Note (the
PIK Note).The
$20.0 million PIK note was issued by Metrocall Holdings,
Inc. and was guaranteed by Metrocall USA, Inc. and Metrocall
Ventures, Inc. and was secured by the Companys investments
in the common stock of its subsidiaries. The Company recorded
the PIK Note at its estimated fair value of approximately
$17.0 million as part of its fresh start accounting. The
note accrued interest at a rate of 12% per annum due quarterly
in arrears by issuance of additional PIK notes until the Senior
Note was fully repaid on May 12, 2003. Thereafter, interest
was due and payable monthly in arrears in cash.

The Company recorded approximately
$0.3 million and $2.7 million of additional interest
expense for the period October 8, 2002 through
December 31, 2002 and for the period January 1, 2003
through June 30, 2003, respectively as it accreted to the
$20.0 million face amount of the initial PIK Note issued
under the Plan. Such accretion was based upon the effective
interest method over the maturity period of the PIK Note until
the accretion was accelerated for the early repayments made on
the note balance. For the period October 8, 2002 through
December 31, 2002 and January 1, 2003 through
May 12, 2003, the Company issued approximately $0.6 and
$0.9 million, respectively in additional PIK Notes to
reflect accrued but unpaid interest on the notes for the
respective periods. From October 8, 2002 through
December 31, 2002 and for the period from January 1,
2003 to June 30, 2003, the Company made cash payments of
interest of approximately $0 and $0.2 on the note. The PIK Note
was fully repaid and retired in full prior to its stated
maturity date of December 31, 2004 in two installments of
$10.0 million and $11.5 million on May 30, 2003
and June 30, 2003, respectively.

F-25



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The estimated fair value of the long-term debt
excluding capital lease obligations is listed below. For
December 31, 2002, the fair value of the senior notes and
PIK Note is based on discounted cash flows ($s in
thousands):

|                                     |  |                   |        |              |  |          |        |       |  |   |     |  |  |   |     | 
|------------------------------------ |  | ----------------- | ------ | ------------ |  | -------- | ------ | ----- |  | - | --- |  |  | - | --- | 
|                                     |  |                   |        |              |  |         
|                                     |  |                   |        | December 31,
|                                     |  | December 31, 2002 |        | 2003        
|                                     |  |                   |        |             
|                                     |  | Carrying          |        | Fair         |  | Carrying |        | Fair 
|                                     |  | Amount            |        | Value        |  | Amount   |        | Value
|                                     |  |                   |        |              |  |          |        |      
|Senior and PIK notes                 |  | $                 | 77,310 |              |  | $        | 77,500 |       |  | $ |    |  |  | $ |    | 
|Other                                |  | $                 | 257    |              |  |          | 257    |       |  |   | 134 |  |  |   | 134 | 
|                                     |  |                   |        |              |  |          |        |       |  |   |     |  |  |   |     | 
|Total debt, excluding capital leases |  | $                 | 77,567 |              |  | $        | 77,757 |       |  | $ | 134 |  |  | $ | 134 | 
|                                     |  |                   |        |              |  |          |        |       |  |   |     |  |  |   |     | 

10.     Series A
Redeemable Preferred Stock

At December 31, 2002 and 2003, the
authorized preferred stock of the Company consisted of
8.5 million shares of 15% cumulative Series A
Preferred Stock, par value $0.01 per share (series A preferred).
As of December 31, 2002 and 2003, 5,992,572 shares and
4,196,187 shares of the series A preferred were outstanding,
respectively with a liquidation preference of approximately
$62.07 million and $46.7 million, respectively.

Under the Plan, Metrocall Holdings, Inc. was to
issue 6.0 million shares of series A preferred with an
initial liquidation of $60.0 million or $10.0 per share.
Through December 31, 2003, Metrocall had issued 5,993,290
of such shares and may issue up to an additional 6,710 shares to
satisfy unresolved claims in accordance with the Plan. From
their issuance date through June 30, 2003, dividends on the
series A preferred accrued at a rate of 15% per annum compounded
quarterly (but did not become payable) and increased the initial
liquidation preference from $10.0 per share on their issuance
date on October 7, 2002 to approximately $10.35 per share and
$11.13 per share as of December 31, 2002 and June 30, 2003,
respectively. Following the repayment of the Senior and PIK
Notes on June 30, 2003, dividends that accrued subsequent
to that date became payable in cash on the last day of each
fiscal quarter end. The Company paid cash dividends of
approximately $2.5 million and $1.8 million on
September 30, 2003 and December 31, 2003, respectively.

After the repayment of the Senior and PIK notes,
the series A preferred became redeemable on a pro-rata basis,
together with any and all unpaid accrued dividends to the
redemption date on a quarterly basis by an amount equal to 100%
of Unrestricted Cash over $10.0 million. Unrestricted cash
is defined as cash on hand with Metrocall Holdings, Inc,
Metrocall, Inc. and Metrocall USA, Inc. excluding (i) cash
necessary to make distributions pursuant to the Plan or to
establish reserves as may be required or permitted under the
Plan or otherwise appropriate or (ii) cash encumbered by
permitted liens. Pursuant to their certificate of designation,
all of the shares of the series A preferred must be redeemed on
or before December 31, 2006.

Holders of series A preferred have voting rights
which in the aggregate constitute 95% of the total voting power
of Metrocall Holdings, Inc. In the event that any portion of the
series A preferred is redeemed by the Company, the voting rights
attributable to each remaining share shall increase
proportionately such that the series A preferred shall continue
to hold 95% of the total voting stock of Metrocall Holdings,
Inc. until such time that the series A preferred has been fully
redeemed at which time all of the voting power shall vest with
holders of the common stock.

The series A preferred shall rank senior to any
capital stock of Metrocall Holdings, Inc. The Company may not,
without the consent of holders of the shares of the series A
preferred, authorize or issue parity or senior stock or any
obligation or security convertible or exchangeable into, or
evidencing a right to purchase shares of any class or series of
parity or senior stock. The terms parity or senior stock
includes warrants, rights, calls or options exercisable for or
convertible into that type of stock.

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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In the event of any sale or merger with respect
to all or substantially all of the assets of Metrocall Holdings,
Inc., or any liquidation, dissolution or winding up of the
Company, the holders of the series A preferred shall receive
payment of the then current liquidation preference of the series
A preferred, together with any and all accrued and unpaid
dividends not included or then added to the liquidation
preference, before any payments to holders of any other capital
stock of the Company.

Mandatory redemptions will be made on a quarterly
basis no later than 65 days following and end of a fiscal
quarter. Pursuant to the series A preferred certificate of
designation, the Company is required to redeem a minimum number
of shares having an aggregate liquidation preference of
$5.0 million preference amount and to provide holders
between 30 and 60 days notice of redemption with each
redemption. Metrocall also has the ability to redeem preferred
shares at its option subject to the same minimum redemption
amounts and notice requirements of a mandatory redemption.

On August 29, 2003, the Company provided
notice of a pro-rata voluntary redemption of 1,797,103 shares at
approximately $11.13 per share for an aggregate of
$20.0 million. This voluntary redemption occurred on
September 30, 2003. As of December 31, 2003, the Company
had 4,196,187 shares of series A preferred outstanding after
this redemption with an aggregate liquidation preference of
$46.7 million. At December 31, 2003, based on the
Companys ending cash and cash equivalents balances,
unrestricted cash balances as defined above were approximately
$35.0 million. As a result, $25.0 million of series A
preferred became subject to a mandatory redemption and has been
accreted to the present value of the amount to be paid at
settlement and classified as a current liability on the
accompanying balance sheet. Of this liability, approximately
1,793,000 shares were redeemed on January 6, 2004 for
aggregate proceeds of approximately $11.15 per share or
$20.0 million and approximately 449,000 shares amounting to
aggregate liquidation amounts of $5.0 million were
scheduled for redemption on March 31, 2004. After the
redemption made on January 6, 2004, the Company had
approximately 2,404,000 shares of series A preferred outstanding
with an aggregate liquidation preference of approximately
$26.7 million. On March 1, 2004, the Company announced
that it would redeem an additional 1,797,103 shares with an
aggregate liquidation preference of $20.0 million including
the $5.0 million mandatory redemption amount described
above, on March 31 2004. Upon completion of this
redemption, Metrocall will have approximately 608,000 shares of
series A preferred outstanding with a liquidation preference of
approximately $6.7 million.

The Company is accreting the series A preferred,
which was recorded at its fair value of $46.4 million on
October 7, 2002, to its initial liquidation value over its
stated maturity period ending December 31, 2006. Included
in the accompanying statements of operations for the period
October 8, 2002 through December 31, 2002 and for the
twelve months ended December 31, 2003 were accretion of
$0.7 million and $2.7 million, respectively, related
to this discount. In addition, the Company also recorded
additional accretion of $3.2 million associated with the
acceleration of the amortization of this discount for those
shares of series A preferred that were redeemed on
September 30, 2003 and $3.7 million associated with
the acceleration of the amortization of this discount that
became contractually redeemable on December 31, 2003,
related to shares that were redeemed on January 6, 2004
were scheduled to be on March 31, 2004.

Beginning July 1, 2003, upon its adoption of
SFAS No. 150, the series A preferred, due to its mandatory
redemption provisions, has been classified as a liability on the
accompanying balance sheet as of December 31, 2003. In
addition, for periods subsequent to June 30, 2003, the
Reorganized Company recorded dividends and accretion on the
series A preferred as a component on interest expense in the
determination of net income for that period. Prior to
July 1, 2003, dividends and accretion had been excluded
from net income and reflected as a reduction to retained
earnings and as a reduction in the determination of net income
available to common stockholders. Under the provisions of SFAS
150, prior periods (periods ending prior to July 1, 2003)
are not reclassified to conform to the presentation stipulated
by this Statement.

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METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As such, dividends and accretion on series A
preferred for the period October 8, 2002 through
December 31, 2002 and for the year ended December 31,
2003 consisted of ($s in thousands):

|                                                                      |                                                                                                 |                   |       |                   |  |   |        |       | 
|--------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ----------------- | ----- | ----------------- |  | - | ------ | ----- | 
|                                                                      |                                                                                                 | October 8 to      |       | Year Ended       
|                                                                      |                                                                                                 | December 31, 2002 |       | December 31, 2003
|                                                                      |                                                                                                 |                   |       |                  
|Interest expense  dividends and
    accretion on series A preferred: |                                                                                                 |                   |       |                   |  |   |        |      
|                                                                      | Dividends paid                                                                                  |                   |       |                  |  |   | $      | 4,288 | 
|                                                                      | Accretion                                                                                       |                   |       |                  |  |   |        | 1,272 | 
|                                                                      | Accelerated accretion of unamortized discount of
    shares redeemed or required to be redeemed |                   |       |                  |  |   |        | 6,868 | 
|                                                                      |                                                                                                 |                   |       |                   |  |   |        |      
|                                                                      |                                                                                                 |                   |      |                   |  | $ | 12,428 |      
|Preferred dividends and accretion:                                    |                                                                                                 |                   |       |                   |  |   |        |      
|                                                                      | Accrued dividends                                                                               |                   | $     | 2,000             |  |   | $      | 4,695 | 
|                                                                      | Accretion                                                                                       |                   |       | 679               |  |   |        | 1,389 | 
|                                                                      |                                                                                                 |                   |       |                   |  |   |        |      
|                                                                      |                                                                                                 | $                 | 2,679 |                   |  | $ | 6,084  |      

The impact of the adoption of SFAS 150 was to
reduce 2003 net income by $12.4 million. The change had no
impact on earnings per share. The estimated fair value of the
series A preferred at December 31, 2002 and 2003 is listed
below. The fair value was based on the closing marking price per
share of the stock as of the respective date ($s in
thousands):

|                         |  |                   |        |                   |  |          |        |       |  |   |        |  |  |   |        | 
|------------------------ |  | ----------------- | ------ | ----------------- |  | -------- | ------ | ----- |  | - | ------ |  |  | - | ------ | 
|                         |  |                   |        |                  
|                         |  | December 31, 2002 |        | December 31, 2003
|                         |  |                   |        |                  
|                         |  | Carrying          |        | Fair              |  | Carrying |        | Fair 
|                         |  | Amount            |        | Value             |  | Amount   |        | Value
|                         |  |                   |        |                   |  |          |        |      
|Series A Preferred notes |  | $                 | 49,122 |                   |  | $        | 46,442 |       |  | $ | 43,351 |  |  | $ | 48,256 | 
|                         |  |                   |        |                   |  |          |        |       |  |   |        |  |  |   |        | 

11.     Common
Stock

General

At December 31, 2003, the authorized common
stock of the Company consisted of 7.5 million shares, par
value $0.01 per share. On October 16, 2003, the Company
implemented a 5 for 1 stock split effected through a common
stock dividend. Each holder of record of the common stock, as of
October 6, 2003, received 4 additional shares of common
stock as a dividend for each share held. The dividend was
declared by the Companys board of directors on
September 25, 2003 following shareholders approval of
an increase in the number of shares of authorized common stock
from 1.2 million shares to 7.5 million shares. Common
stock share information and the computation of basic and diluted
earnings per share have been adjusted retroactively for all
periods presented for the Reorganized Company.

At December 31, 2002 and 2003, there were
4,956,990 and 5,461,160 shares of common stock outstanding,
respectively. At December 31, 2002, approximately 43,010
shares of common stock were available for issuance to satisfy
remaining claims under the Plan. During the twelve months ended
December 31, 2003, the Company issued 4,170 of these shares
in connection with claims resolved. At December 31, 2003,
38,840 shares were available for issuance under the Plan.

Holders of the common stock have voting rights
which in the aggregate constitute 5% of the total voting power
of Metrocall Holdings, Inc. until the series A preferred has
been fully redeemed. Cash dividend payments on common stock are
not permitted until the Series A Preferred is fully
redeemed.

Due to FCC limitations on the foreign ownership
of FCC licenses, no more than 20 percent of the
Companys common stock may, in the aggregate, be owned
directly, or voted by a foreign government, a

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METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

foreign corporation, or resident of a foreign
country. The Companys amended and restated certificate of
incorporation permits the redemption of the common stock from
stockholders, where necessary, to protect its regulatory
licenses. Such stock may be redeemed at fair market value or, if
the stock was purchased within one year of such redemption, at
the lower of fair market value or such holders purchase
price.

Predecessor
Company Capital Stock:

Prior to the Effective Date, the Predecessor
Company had 89,975,772 outstanding shares of common stock and
321,385 outstanding shares of Series A Preferred that were
cancelled under the Plan on the Effective Date.

In conjunction with the fresh-start accounting,
the historical amounts of Series A Preferred, common stock,
additional paid-in-capital and accumulated deficit of the
Predecessor Company were eliminated as of October 7, 2002.

12.     Employee
Stock Option and Other Benefit Plans

In connection with its Plan, the Company issued
200,000 shares of its series A preferred stock on the Effective
Date to certain of its executives subject to a three-year
restriction period. The awards were recorded at fair value of
$7.75 per share on the date of grant, with a corresponding
amount recorded as unearned compensation. The unearned
compensation is being amortized over the restriction period. The
Reorganized Company recognized approximately $0.1 million
and $1.0 million of compensation expense in the period from
October 8, 2002 to December 31, 2002 and the year
ended December 31, 2003, respectively, related to the stock
awards.

Stock
Option Plan

On March 25, 2003, the company implemented a
stock option plan as amended on September 24, 2003 for use
to reward and retain employees and directors (the 2003
Stock Option Plan). Under the 2003 Stock Option
Plan, options to purchase up to an aggregate of 410,000
shares of common stock were reserved for grants to employees and
directors (Qualified Directors). If any option granted under the
Plan expires or terminates prior to exercise in full, the shares
subject to that option shall be available for future grants.
Substantially all employees and Qualified Directors of Metrocall
are eligible to participate in the 2003 Stock Option Plan.

On May 7, 2003, the Company granted
nonqualified options for the purchase of up to 350,000 shares of
common stock to certain of its employees at an exercise price of
$0.566 per share. Of the options granted on May 7, 2003,
3,000 shares were forfeited during 2003. The options vest over a
24-month period with half of the common stock available for
issuance on May 7, 2004 and 2005, respectively and expire
ten years after their date of the grant. On September 25,
2003, the board of directors approved grants of 10,000 options
to each of the six Qualified Directors. The additional 60,000
options were granted at an exercise price of $0.566 per share
and shall only become vested and exercisable if the Qualified
Director is re-elected as a director of Metrocall upon the
expiration of his applicable current term as a director (either
at the 2004 annual meeting of stockholders for four of the
non-employee directors, or at the 2005 annual meeting of
stockholders for two of the non-employee directors). These
options expire in 2013. The Company accounted for these grants
using the method of accounting prescribed by SFAS 123 and
recognized stock-based compensation expense for the grant
equaling its fair value over the vesting period of each option
grant.

The fair value of each option grant was estimated
on the date of grant using the Black-Scholes option pricing
model. In computing these amounts, the Company assumed risk-free
interest rates for the 347,000 and 60,000 shares of 1.37% and
1.47%, respectively, an expected life and vesting periods as
noted above, an expected dividend yield of zero and an expected
volatility of 62.12% and 60.61%, respectively. The weighted

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METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

average fair value per share (computed consistent
with SFAS No. 123) of options granted in May and September
was $1.48 and $28.84, respectively. The total expense for the
option grants over the total vesting period will be
approximately $2.2 million of which stock-based
compensation expense of approximately $0.8 million was
recognized and reflected as a general and administrative expense
in the twelve months ended December 31, 2003. The impact of
adopting SFAS 123 was to reduce net income by $0.5 million
and basic and diluted earnings per share by $0.09 per share.

Profit
Sharing Plan and Retirement Benefits

The Metrocall, Inc. Savings and Retirement Plan
(the Savings Plan), a combination employee savings
plan and discretionary profit-sharing plan, is open to all
employees working a minimum of twenty hours per week with at
least six months of service. The Plan qualifies under section
401(k) of the Internal Revenue Code (the IRC). Under
the Savings Plan, participating employees may elect to
voluntarily contribute on a pretax basis between 1% and 15% of
their salary up to the annual maximum established by the IRC.
Metrocall has agreed to match 50% of the employees
contribution, up to 4% of each participants gross salary.
Contributions made by Metrocall vest 20% per year beginning on
the second anniversary of the participants employment.
Other than Metrocalls matching obligations, discussed
above, profit sharing contributions are discretionary.
Metrocalls matching contributions under the Savings Plan
recorded were $1.7 million and $0.9 million for the
year ended December 31, 2001 and the period January 1 to
October 7, 2002, respectively; and $0.2 million and
$0.9 million for the period October 8 to December 31,
2002 and year ended December 31, 2003, respectively.

Metrocall,
Inc. Severance Plan

The Metrocall, Inc. Severance Pay Plan for
Regular Employees (the Severance Plan) provides for
severance payments on a discretionary basis for full and
part-time regular employees who are terminated involuntarily,
for reasons other than their own and under specific
circumstances. The Severance Plan constitutes a formal Employee
Welfare Benefit Plan under the Employee Retirement Income
Security Act of 1974, as amended. Under the Severance Plan, the
severance benefit shall be the equivalent of two weeks
compensation for each full year of service with the Company, up
to a maximum of twenty-six (26) weeks compensation, less
all sums owed by the participant to the Company. Severance
amounts paid under this plan were $1.5 million and
$3.1 million for the year ended December 31, 2001 and
the period January 1 to October 7, 2002; and
$0.1 million and $6.8 million for the period October 8
to December 31, 2002 and year ended December 31, 2003,
respectively.

Metrocall,
Inc. Key Employee Retention Plan

The Metrocall, Inc. Key Employee Retention Plan
(the KERP) was established by the Companys
Board of Directors in 2001 to promote the long-term financial
interests of the Company and its stockholders by providing key
employees with an incentive to remain employed with the Company
so they can actively perform their duties with full attention
and dedication while a Retention Event or Change in Control of
the Company is pending. Under the KERP, a Retention Event means
the first to occur of the following: (1) the date a Change
in Control occurs; or (2) there is consummated an exchange
or series of exchanges of at least $250 million in accreted
value of the Companys notes for the Companys equity
securities. For purposes of the KERP, a Change in Control means
the first to occur of the following: (1) acquisition of
more than 50% of the combined voting power of the Companys
then outstanding securities that have a right to vote for the
election of directors; (2) there is consummated a merger,
consolidation or other business combination of the Company,
other than a merger, consolidation or business combination which
would result in the voting securities of the Company outstanding
immediately prior to such transaction continuing to represent a
majority of the combined voting power of the securities having
the right to vote for the election of directors generally of the
Company or the surviving entity or any parent thereof
outstanding immediately after such

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METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

transaction; (3) there is consummated an
agreement for the sale, lease, or other disposition by the
Company of all or substantially all of the Companys
assets, other than a sale, lease or other disposition by the
Company of all or substantially all of the Companys assets
to an entity, at least a majority of the combined voting power
of the outstanding securities of which are owned by the
stockholders of the Company in substantially the same
proportions as their ownership of the Company immediately prior
to such sale; or (4) there has been an entry by a court of
competent jurisdiction of an order confirming a plan of
reorganization of the Company under chapter 11 of the Bankruptcy
Code.

All full time regular employees of the Company
who have been designated as a participant and have had a
retention percentage and severance percentage established by the
Board of Directors may participate. The KERP provides for a
retention bonus benefit to be paid to each participant as they
provide service in the event that a Change in Control occurs.
Such benefit would be paid in four equal installments beginning
within 5-business days after the Change in Control occurs and
each subsequent three-month period. On September 26, 2002,
a Change of Control in the Company occurred, as such the Company
was obligated to pay out a total of $3.7 million over the
four installment periods. Approximately $1.8 million was
expensed under the KERP in 2002 ($0.9 million under
Predecessor Company and $0.9 million under Reorganized
Company) and an additional $1.9 million was expensed during
2003 as a result of the Change in Control.

The KERP also provides for a severance benefit to
each participant in the event that the participants
employment is involuntarily terminated by the Company, the
participant terminates for good reason (as defined
in the KERP) or the Participant dies or becomes disabled during
the 24-consecutive months period immediately following a Change
in Control.

For the period October 8, 2002 through
December 31, 2002 and for the year ended December 31,
2003 $0.8 million and $2.9 million, respectively, were paid
out under this plan.

13.     Contingencies
and Commitments

Metrocall is subject to certain legal and
regulatory matters in the normal course of business. In the
opinion of management, the outcome of such assertions will not
have a material adverse effect on the financial position or the
results of the operations of Metrocall.

Lease
Obligations and Other Commitments

Metrocall has various operating lease
arrangements (as lessee) for office space and communications
equipment sites. Rental expenses related to operating leases
were approximately ($s in thousands) $52,704 for
the year ended December 31, 2001; $35,700 and $9,600 for
the period January 1, 2002 to October 7, 2002 and
October 8, 2002 and December 31, 2002, respectively
and $38,140 for the year ended December 31, 2003.

Minimum rental payments as of December 31,
2003, required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year are
as follows ($s in thousands): $44,173 in 2004, $31,822 in
2005, $19,787 in 2006, $14,391 in 2007; $6,959 in 2008 and
$1,420 thereafter.

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METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

14.     Income
Taxes

The components of net deferred tax assets
(liabilities) were as follows as of December 31, 2002
and 2003 ($s in thousands):

|                                                                    |                                           |      |   |          |   |   |        |         |  
|------------------------------------------------------------------- | ----------------------------------------- | ---- | - | -------- | - | - | ------ | ------- | -
|                                                                    |                                           | 2002 |   | 2003    
|                                                                    |                                           |      |   |         
|Gross current deferred tax assets (liabilities):                    |                                           |      |   |          |   |   |        |        
|                                                                    | Other current deferred tax assets         |      | $ | 3,629    |   |   | $      | 5,377   |  
|                                                                    | Other current deferred tax liabilities    |      |   | (3,543   | ) |   |        | (1,053  | )
|                                                                    | Valuation allowance                       |      |   | (86      | ) |   |        | (1,732  | )
|                                                                    |                                           |      |   |          |   |   |        |        
|                                                                    | Total current deferred tax asset, net     |      |   |         |   |   |        | 2,592   |  
|Gross deferred tax assets (liabilities):                            |                                           |      |   |          |   |   |        |        
|                                                                    | Intangibles                               |      |   | 71,566   |   |   |        | 68,777  |  
|                                                                    | Property and equipment                    |      |   | 10,261   |   |   |        | 8,215   |  
|                                                                    | Other long-term deferred tax assets       |      |   | 5,015    |   |   |        | 273     |  
|                                                                    | AMT credit carryforwards                  |      |   |         |   |   |        | 1,351   |  
|                                                                    | Net operating loss carryforwards          |      |   | 16,784   |   |   |        | 4,548   |  
|                                                                    | Capital loss carryforwards                |      |   |         |   |   |        | 1,098   |  
|                                                                    | Valuation allowance                       |      |   | (103,626 | ) |   |        | (33,768 | )
|                                                                    |                                           |      |   |          |   |   |        |        
|                                                                    | Total non-current deferred tax asset, net |      |   |         |   |   |        | 50,494  |  
|                                                                    |                                           |      |   |          |   |   |        |        
|Net deferred tax assets (liabilities) after
    valuation allowance |                                           | $    |  |          |   | $ | 53,086 |        
|                                                                    |                                           |      |   |          |   |   |        |        

Pursuant to SFAS 109, the Company is required to
evaluate the recoverability of its deferred tax assets on an
ongoing basis. The evaluation should consider all available
evidence, both positive and negative, to determine whether,
based on the weight of that evidence, it is more likely than not
that some portion or all of the Companys net deferred tax
assets will not be realized in future periods. Upon emergence
from the Chapter 11 proceedings on the Effective Date, the
Company had not generated income before income tax expense for
any recent prior year and was experiencing continued revenue
decline in its operations. Since positive evidence of
realizability did not exist, the Company established a valuation
allowance that equaled its total net deferred tax asset at that
time. For the period October 8, 2002 to December 31, 2002,
Metrocall generated approximately $8.0 million of income
before income tax expense. Although this was positive evidence,
management did not believe it was sufficient to overcome the
negative evidence discussed above, therefore the full valuation
allowance was retained at December 31, 2002.

During the quarter ended December 31, 2003,
management determined the available positive evidence carried
more weight than the historical negative evidence and concluded
it was more likely than not that certain of its net deferred tax
assets would be realized in future periods. Therefore, the
Company reduced its valuation allowance related to deferred tax
benefits expected to be realized by approximately
$53.0 million. The positive evidence the Company considered
in its evaluation includes operating income and cash flows for
2002 and 2003; the retirement of the Senior Secured and PIK
notes, redemptions in 2003 and planned redemptions of the series
A preferred stock in 2004; and anticipated operating income and
cash flows for future periods in sufficient amounts to realize a
portion of the net deferred tax assets.

Net operating loss and other tax credit
carryforwards totaling $7.0 million will not be realizable due
to a change of control as defined by IRS regulations, which
occurred in January, 2004. Accordingly, a valuation allowance
remains against these and certain other deferred tax assets.

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METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Under the provisions of SFAS 109 and SOP 90-7,
tax benefits realized from reductions in the deferred tax
valuation allowance that existed in fresh start accounting are
first credited against the intangible assets that were recorded
in the fresh start accounting, and then, once these assets have
been reduced to zero, credited directly to additional paid in
capital. The Company reduced the carrying value of intangible
assets by $3.0 million and $16.3 million for the
period October 8, 2002 to December 31, 2002 and the
year ended December 31, 2003, respectively, as a result of
the realization of deferred tax benefits. Also, in the fourth
quarter of 2003, additional paid-in capital was increased by
$57.1 million related to deferred tax benefits realized in
2003 ($4.1 million) and deferred tax assets expected to be
realized in the future ($53.1 million).

The income tax provision for the year ended
December 31, 2001; January 1 to October 7, 2002;
October 8 to December 31, 2002 and for the year ended
December 31, 2003 was composed of the following ($s
in thousands):

|                                     |            |                     |   |                     |   |              |   |              |   |   |        |   |        |   |         |   |         |  
|------------------------------------ | ---------- | ------------------- | - | ------------------- | - | ------------ | - | ------------ | - | - | ------ | - | ------ | - | ------- | - | ------- | -
|                                     |            |                     |   |                    
|                                     |            | Predecessor Company |   | Reorganized Company
|                                     |            |                     |   |                    
|                                     |            | Year Ended          |   | January 1 to        |   | October 8 to |   | Year Ended  
|                                     |            | December 31,        |   | October 7,          |   | December 31, |   | December 31,
|                                     |            | 2001                |   | 2002                |   | 2002         |   | 2003        
|                                     |            |                     |   |                     |   |              |   |             
|Total income tax (provision)/benefit |            |                     |   |                     |   |              |   |              |   |   |        |   |        |   |         |  
|                                     | Current   |                     |   |                     |   |              |   |              |   |   |        |   |        |   |         |   |        
|                                     |            | Federal             |   | $                   |  |              |   | $            |  |   |        | $ |       |   |         | $ | (1,351  | )
|                                     |            | State               |   |                     |  |              |   |              |  |   |        |   |       |   |         |   | (147    | )
|                                     |            |                     |   |                     |   |              |   |              |   |   |        |   |        |   |         |  
|                                     |            | $                   |  |                     |   | $            |  |              |   | $ |       |   |        | $ | (1,498  | )
|                                     | Deferred  |                     |   |                     |   |              |   |              |   |   |        |   |        |   |         |   |        
|                                     |            | Federal             |   | $                   |  |              |   | $            |  |   |        | $ | (2,460 | ) |         | $ | (16,580 | )
|                                     |            | State               |   |                     |  |              |   |              |  |   |        |   | (540   | ) |         |   | (3,676  | )
|                                     |            |                     |   |                     |   |              |   |              |   |   |        |   |        |   |         |  
|                                     |            | $                   |  |                     |   | $            |  |              |   | $ | (3,000 | ) |        | $ | (20,256 | )
|                                     |            |                     |   |                     |   |              |   |              |   |   |        |   |        |   |         |  
|                                     |            | $                   |  |                     |   | $            |  |              |   | $ | (3,000 | ) |        | $ | (21,754 | )
|                                     |            |                     |   |                     |   |              |   |              |   |   |        |   |        |   |         |  

The provision for income taxes for the year ended
December 31, 2001; January 1 to October 7, 2002;
October 8 to December 31, 2002 and for the year ended
December 31, 2003 results in effective rates that differ
from the Federal statutory rate as follows:

|                                                                         |  |                     |       |                     |  |              |       |              |  |  |      |   |  |  |      |  
|------------------------------------------------------------------------ |  | ------------------- | ----- | ------------------- |  | ------------ | ----- | ------------ |  |  | ---- | - |  |  | ---- | -
|                                                                         |  |                     |       |                    
|                                                                         |  | Predecessor Company |       | Reorganized Company
|                                                                         |  |                     |       |                    
|                                                                         |  | Year Ended          |       | January 1 to        |  | October 8 to |       | Year Ended  
|                                                                         |  | December 31,        |       | October 7,          |  | December 31, |       | December 31,
|                                                                         |  | 2001                |       | 2002                |  | 2002         |       | 2003        
|                                                                         |  |                     |       |                     |  |              |       |             
|Statutory Federal income tax rate                                        |  |                     | 35.0  | %                   |  |              | 35.0  | %            |  |  | 35.0 | % |  |  | 35.0 | %
|State income taxes, net of Federal tax benefit                           |  |                     | 4.6   |                     |  |              | 4.6   |              |  |  | 4.6  |   |  |  | 4.0  |  
|Change in valuation allowance                                            |  |                     | (14.9 | )                   |  |              |      |              |  |  |     |   |  |  |     |  
|Series A preferred dividends and accretion
    and accretion on PIK Note |  |                     |      |                     |  |              |      |              |  |  |     |   |  |  | 12.4 |  
|Permanent differences                                                    |  |                     | (23.7 | )                   |  |              | (38.6 | )            |  |  |     |   |  |  | 4.8  |  
|Other                                                                    |  |                     | (1.0  | )                   |  |              | (1.0  | )            |  |  | (1.3 | ) |  |  |     |  
|                                                                         |  |                     |       |                     |  |              |       |              |  |  |      |   |  |  |      |  
|Effective tax rate                                                       |  |                     | 0.0   | %                   |  |              | 0.0   | %            |  |  | 38.3 | % |  |  | 56.2 | %
|                                                                         |  |                     |       |                     |  |              |       |              |  |  |      |   |  |  |      |  

For purposes of determining the Companys
income tax provision, accretion on the PIK note and dividends
and accretion of series A preferred stock are excluded from the
determination of taxable income and

F-33



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##### Table of Contents



METROCALL HOLDINGS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

consequently provide an increase in the effective
income tax rate reflected in the accompanying statement of
operations.

15.     Unaudited
Quarterly Financial Data

The following table of unaudited quarterly
financial data has been prepared from the financial records of
Metrocall, without audit, and reflects all adjustments that are,
in the opinion of management, necessary for a fair presentation
of the results of operations for the interim periods presented
($s in thousands, except per share amount). All periods
for 2002 reflect results of the Predecessor Company, except the
December 31, 2002 period, which reflects Reorganized
Company results.

|                                                                          |  |          |         |         |  |              |        |             |  |      |         |         |  |         |        |         |  |   |           |   |  |   |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------------------------------- |  | -------- | ------- | ------- |  | ------------ | ------ | ----------- |  | ---- | ------- | ------- |  | ------- | ------ | ------- |  | - | --------- | - |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                                          |  |          |         |         |  |              |        |            
|                                                                          |  | March 31 |         | June 30 |  | September 30 |        | December 31
|                                                                          |  |          |         |         |  |              |        |            
|                                                                          |  | 2002     |         | 2003    |  | 2002         |        | 2003        |  | 2002 |         | 2003(a) |  | 2002(b) |        | 2003(d)
|                                                                          |  |          |         |         |  |              |        |             |  |      |         |         |  |         |        |        
|Revenues                                                                  |  | $        | 12,068  |         |  | $            | 87,389 |             |  | $    | 106,484 |         |  | $       | 82,785 |         |  | $ | 102,316   |   |  | $ | 79,614 |  |  | $ | 85,403 |  |  | $ | 87,071 | 
|Income/(loss) from operations                                             |  | $        | (9,508  | )       |  | $            | 6,792  |             |  | $    | 2,655   |         |  | $       | 14,046 |         |  | $ | (1,632    | ) |  | $ | 19,428 |  |  | $ | 9,349  |  |  | $ | 17,523 | 
|Income /(loss) attributable to common
    stockholders(c)                 |  | $        | (32,029 | )       |  | $            | (23    | )           |  | $    | (22,729 | )       |  | $       | 3,290  |         |  | $ | 1,402,259 |   |  | $ | 5,582  |  |  | $ | 2,137  |  |  | $ | 2,038  | 
|Basic earnings (loss) per share attributable
    to common stockholders   |  | $        | (0.36   | )       |  | $            | (0.00  | )           |  | $    | (0.25   | )       |  | $       | 0.66   |         |  | $ | 14.98     |   |  | $ | 1.13   |  |  | $ | 0.43   |  |  | $ | 0.39   | 
|Diluted earnings (loss) per share
    attributable to common stockholders |  | $        | (0.36   | )       |  | $            | (0.00  | )           |  | $    | (0.25   | )       |  | $       | 0.64   |         |  | $ | 14.98     |   |  | $ | 1.08   |  |  | $ | 0.43   |  |  | $ | 0.37   | 



---

The sum of the per share amounts may not equal
the annual amounts because of the changes in the
weighted-average number of shares outstanding during the year.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Predecessor Company September 30, 2002
    results include the period from October 1, 2002 to
    October 7, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(b) | Reorganized Company December 31, 2002
    results include the period from October 8, 2002 to
    December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(c) | Income (loss) attributable to common
    stockholders for the period ended September 30, 2002
    includes several items related to our emergence from the chapter
    11 proceedings and the related cancellation or discharge of
    certain of our debt obligations and equity securities. These
    items include: a net gain of $749.8 million from the
    discharge and termination of debt; a net gain of
    $575.5 million due to fresh-start accounting adjustments; a
    gain of $80.3 million from the cancellation of outstanding
    Preferred Stock; and the cessation of recording contractual
    interest of $64.4 million while we were operating in
    bankruptcy from June 3, 2002 to the Effective Date.
|(d) | Includes the operating results of the acquired
    assets from Weblink for the period November 18, 2003 to
    December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F-34



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##### Table of Contents



SCHEDULE II

METROCALL HOLDINGS, INC. AND
SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

Year Ended December 31, 2001,


the periods from January 1, 2002 to
October 7, 2002


and October 8, 2002 to December 31,
2002,


Year Ended December 31, 2003


(In Thousands)


|                                        |                                 |            |   |            |  |             |   |               |  |            |   |       |  |  |   |        |  |  |   |       | 
|--------------------------------------- | ------------------------------- | ---------- | - | ---------- |  | ----------- | - | ------------- |  | ---------- | - | ----- |  |  | - | ------ |  |  | - | ----- | 
|                                        |                                 |            |   |            |  |             |   |              
|                                        |                                 |            |   | Additions  |  |             |   |              
|                                        |                                 |            |   |            |  |             |   |              
|                                        |                                 | Balance at |   | Charged to |  |             |   |               |  | Balance at
|                                        |                                 | Beginning  |   | Costs and  |  |             |   |               |  | End of    
|Description                             |                                 | of Year    |   | Expenses   |  | Acquired(1) |   | Deductions(2) |  | Year      
|                                        |                                 |            |   |            |  |             |   |               |  |           
|Predecessor Company                     |                                 |            |   |            |  |             |   |               |  |            |   |       |  |  |   |        |  |  |   |      
|Year ended December 31, 2001            |                                 |            |   |            |  |             |   |               |  |            |   |       |  |  |   |        |  |  |   |      
|                                        | Allowance for doubtful accounts |            | $ | 5,494      |  |             | $ | 20,393        |  |            | $ | 1,946 |  |  | $ | 20,297 |  |  | $ | 7,536 | 
|                                        |                                 |            |   |            |  |             |   |               |  |            |   |       |  |  |   |        |  |  |   |      
|January 1  October 7, 2002             |                                 |            |   |            |  |             |   |               |  |            |   |       |  |  |   |        |  |  |   |      
|                                        | Allowance for doubtful accounts |            | $ | 7,536      |  |             | $ | 13,578        |  |            |   |      |  |  | $ | 14,440 |  |  | $ | 6,674 | 
|                                        |                                 |            |   |            |  |             |   |               |  |            |   |       |  |  |   |        |  |  |   |      
|Reorganized Company                     |                                 |            |   |            |  |             |   |               |  |            |   |       |  |  |   |        |  |  |   |      
|October 8, 2002 
    December 31, 2002 |                                 |            |   |            |  |             |   |               |  |            |   |       |  |  |   |        |  |  |   |      
|                                        | Allowance for doubtful accounts |            | $ | 6,674      |  |             | $ | 1,744         |  |            |   |      |  |  | $ | 1,905  |  |  | $ | 6,513 | 
|                                        |                                 |            |   |            |  |             |   |               |  |            |   |       |  |  |   |        |  |  |   |      
|Year Ended December 31, 2003            |                                 |            |   |            |  |             |   |               |  |            |   |       |  |  |   |        |  |  |   |      
|                                        | Allowance for doubtful accounts |            | $ | 6,513      |  |             | $ | 2,403         |  |            | $ | 1,275 |  |  | $ | 3,226  |  |  | $ | 6,965 | 
|                                        |                                 |            |   |            |  |             |   |               |  |            |   |       |  |  |   |        |  |  |   |      



---



|    |                                                            
|--- | -----------------------------------------------------------
|(1) | Allowance for doubtful accounts of businesses
    acquired.
|   
|(2) | Deductions represent write-offs of accounts
    receivable.

S-1