UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
Commission File No. 0-29359
GoAmerica, Inc.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3693371
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
433 Hackensack Avenue, Hackensack, New Jersey 07601
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(201) 996-1717
-------------------------------
(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: |X| No: |_|
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large Accelerated Filer |_| Accelerated Filer |_| Non-accelerated filer |X|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes: |_| No: |X|
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of October 31, 2006:
Class Number of Shares
----- ----------------
Common Stock, $.01 par value 2,338,451
GOAMERICA, INC.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION............................................. 1
Item 1. Financial Statements (September 30, 2006
and 2005 are unaudited)..................................... 1
Condensed Consolidated Balance Sheets as of September 30, 2006
and December 31, 2005....................................... 2
Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 2006 and 2005........... 3
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2006 and 2005............... 4
Notes to Condensed Consolidated Financial Statements.......... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General....................................................... 12
Critical Accounting Policies and Estimates.................... 12
Results of Operations......................................... 13
Liquidity and Capital Resources............................... 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 19
Item 4. Controls and Procedures....................................... 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 20
Item 6. Exhibits...................................................... 20
SIGNATURES.................................................................. 21
- i -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- 1 -
GOAMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
September 30, December 31,
2006 2005
---------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents ............................................................ $ 3,646 $ 4,804
Accounts receivable, net ............................................................. 1,733 931
Merchandise inventories, net ......................................................... 412 161
Prepaid expenses and other current assets ............................................ 708 110
Assets of discontinued operations .................................................... 147 378
--------- ---------
Total current assets ....................................................................... 6,646 6,384
Restricted cash ............................................................................ -- 300
Property, equipment and leasehold improvements, net ........................................ 542 575
Goodwill, net .............................................................................. 6,000 6,000
Other assets ............................................................................... 140 816
--------- ---------
$ 13,328 $ 14,075
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable ..................................................................... $ 1,043 $ 765
Accrued expenses ..................................................................... 1,103 554
Deferred revenue ..................................................................... 89 66
Other current liabilities ............................................................ 62 19
Liabilities of discontinued operations ............................................... 92 173
--------- ---------
Total current liabilities .................................................................. 2,389 1,577
Other long term liabilities ................................................................ 86 --
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized: 200,000,000 shares in
2006 and 2005; issued: 2,362,514 in 2006 and 2005 .................................... 24 24
Additional paid-in capital ........................................................... 286,228 287,137
Deferred employee compensation ....................................................... -- (1,230)
Accumulated deficit .................................................................. (275,213) (273,247)
Treasury stock, at cost, 24,063 shares in 2006 and 2005 .............................. (186) (186)
--------- ---------
Total stockholders' equity ................................................................. 10,853 12,498
--------- ---------
$ 13,328 $ 14,075
========= =========
The accompanying notes are an integral part of these financial statements.
- 2 -
GOAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------
Revenues:
Subscriber ........................................... $ 328 $ 548 $ 934 $ 1,967
Relay services ....................................... 3,497 329 5,325 774
Commissions .......................................... 559 255 2,045 549
Equipment ............................................ 165 120 266 297
Other ................................................ 2 15 5 127
----------- ----------- ----------- -----------
4,551 1,267 8,575 3,714
Costs and expenses:
Cost of subscriber airtime ........................... 265 208 569 727
Cost of equipment revenue ............................ 178 138 380 382
Cost of network operations ........................... 27 35 81 152
Cost of relay services ............................... 2,342 -- 3,034 --
Sales and marketing .................................. 689 320 1,709 773
General and administrative ........................... 1,105 911 3,267 2,973
Research and development ............................. 38 96 271 255
Depreciation and amortization ........................ 104 119 374 375
Amortization of other intangibles .................... -- 122 -- 564
----------- ----------- ----------- -----------
4,748 1,949 9,685 6,201
----------- ----------- ----------- -----------
Loss from operations ....................................... (197) (682) (1,110) (2,487)
Other income (expense):
Terminated merger costs ............................. -- -- (431) --
Interest income (expense), net ...................... 46 29 146 105
----------- ----------- ----------- -----------
Total other income (expense), net .......................... 46 29 (285) 105
----------- ----------- ----------- -----------
Loss from continuing operations ............................ (151) (653) (1,395) (2,382)
Loss from discontinued operations .......................... (371) (341) (571) (655)
----------- ----------- ----------- -----------
Net loss ................................................... $ (522) $ (994) $ (1,966) $ (3,037)
=========== =========== =========== ===========
Loss per share-Basic and Diluted:
Loss from continuing operations ...................... $ (0.07) $ (0.32) $ (0.60) $ (1.14)
Loss from discontinued operations .................... (0.15) (0.16) (0.24) (0.31)
----------- ----------- ----------- -----------
Basic and Diluted net loss per share ....................... $ (0.22) $ (0.48) $ (0.84) $ (1.45)
=========== =========== =========== ===========
Weighted average shares used in computation of basic
and diluted net loss per share ......................... 2,338,451 2,093,451 2,338,451 2,093,445
The accompanying notes are an integral part of these financial statements.
- 3 -
GOAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2006 2005
-------------------------------
Operating activities
Net loss ..................................................................................... $(1,966) $(3,037)
Adjustments to reconcile loss to net cash used in operating activities:
Depreciation and amortization of fixed assets ............................................. 374 375
Amortization of other intangible assets ................................................... -- 564
Provision for losses on accounts receivable ............................................... 196 36
Non cash employee compensation ............................................................ 321 --
Write off of capitalized terminated merger costs .......................................... 431 --
Changes in operating assets and liabilities:
Increase in accounts receivable ......................................................... (791) (66)
Decrease in other receivables ........................................................... -- 732
Increase in merchandise inventories ..................................................... (251) (211)
Increase in prepaid expenses and other current assets ................................... (145) (137)
Increase in accounts payable ............................................................ 278 322
Increase (decrease) in accrued expenses ................................................. 519 (202)
Decrease in deferred revenue ............................................................ (16) (199)
------- -------
Net cash used in operating activities ........................................................ (1,050) (1,823)
Investing activities
Change in other assets and restricted cash ................................................... 83 (186)
Purchase of property, equipment and leasehold improvements ................................... (147) (116)
------- -------
Net cash used in investing activities ........................................................ (64) (302)
Financing activities
Issuance of common stock for exercise of stock options and warrants .......................... -- 2
Payments made on capital lease obligations ................................................... (44) (38)
------- -------
Net cash used in financing activities ........................................................ (44) (36)
------- -------
Net decrease in cash and cash equivalents .................................................... (1,158) (2,161)
Cash and cash equivalents at beginning of period ............................................. 4,804 7,098
------- -------
Cash and cash equivalents at end of period ................................................... $ 3,646 $ 4,937
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for Interest ....................................................................... $ 7 $ --
Supplemental Disclosure of Non-Cash Investing Activities:
Acquisition of equipment through capital leases .............................................. $ 161 $ 74
The accompanying notes are an integral part of these financial statements.
- 4 -
GOAMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
Note 1 - Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X and include the results of
GoAmerica, Inc. and its wholly-owned subsidiaries (collectively, the "Company").
Accordingly, certain information and footnote disclosures required in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted. In the opinion of the
Company's management, the accompanying unaudited financial statements contain
all adjustments (consisting only of normal recurring adjustments except as
otherwise disclosed herein) which the Company considers necessary for the fair
presentation of its financial position as of September 30, 2006 and the results
of its operations and its cash flows for the three and nine month periods ended
September 30, 2006 and 2005. These financial statements should be read in
conjunction with the Company's audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K (as amended) for the year
ended December 31, 2005.
On September 1, 2006, the Company entered into an agreement to sell
GoAmerica Marketing, Inc. dba GA Prepaid ("GA Prepaid"), its prepaid calling
card division, effective August 31, 2006, at which time the Company ceased
offering prepaid calling cards. The sale closed on October 2, 2006. (see note 7)
The Company operates in a highly competitive environment subject to rapid
technological change and emergence of new technology. Although management
believes its services are transferable to emerging technologies, rapid changes
in technology could have an adverse financial impact on the Company. In
addition, a total of 12% and 24% of the Company's revenue for the three and nine
months ended September 30, 2006 was earned through commissions derived from a
master dealer agreement with T-Mobile.
The Company has incurred significant operating losses since its inception
and, as of September 30, 2006, has an accumulated deficit of $275,213. During
the nine months ended September 30, 2006, the Company incurred a net loss of
$1,966 and used $1,050 of cash to fund operating activities. As of September 30,
2006, the Company had $3,646 in cash and cash equivalents.
Results for the interim period are not necessarily indicative of results
that may be expected for the entire year or for any other interim period.
Certain reclassifications have been made to the previously filed September 30,
2005 financial statements in order to conform them to the current presentation.
Such reclassifications had no effect on the Company's reported net loss.
Note 2 - Significant Accounting Policies:
Revenue Recognition-Relay Services
In June 2006, the Federal Communications Commission certified the Company
as an Internet Protocol Relay and Video Relay Service Provider. As a result, the
Company became eligible to be compensated directly from the Interstate
Telecommunications Relay Services Fund for reimbursement of their i711.com(R)
minutes and began recognizing the full revenue from these minutes along with a
related cost of revenue for the costs associated with these minutes, which is
provided by Nordia. Previously, the Company relied on Nordia to obtain the
reimbursement amounts on the Company's behalf. This previous practice resulted
in the Company recording only a portion of the total revenue from the service
provided as the Company was not the primary obligor.
- 5 -
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements," to eliminate the diversity in practice that exists due to the
different definitions of fair value and the limited guidance for applying those
definitions in GAAP that are dispersed among the many accounting pronouncements
that require fair value measurements. SFAS No. 157 retains the exchange price
notion in earlier definitions of fair value, but clarifies that the exchange
price is the price in an orderly transaction between market participants to sell
an asset or liability in the principal or most advantageous market for the asset
or liability. Moreover, the SFAS states that the transaction is hypothetical at
the measurement date, considered from the perspective of the market participant
who holds the asset or liability. Consequently, fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date (an
exit price), as opposed to the price that would be paid to acquire the asset or
received to assume the liability at the measurement date (an entry price).
SFAS No. 157 also stipulates that, as a market-based measurement, fair
value measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability, and establishes a fair
value hierarchy that distinguishes between (a) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (b) the reporting entity's own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). Finally, SFAS
No. 157 expands disclosures about the use of fair value to measure assets and
liabilities in interim and annual periods subsequent to initial recognition.
Entities are encouraged to combine the fair value information disclosed under
SFAS No. 157 with the fair value information disclosed under other accounting
pronouncements, including SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," where practicable. The guidance in this Statement
applies for derivatives and other financial instruments measured at fair value
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," at initial recognition and in all subsequent periods.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years, although earlier application is encouraged. Additionally, prospective
application of the provisions of SFAS No. 157 is required as of the beginning of
the fiscal year in which it is initially applied, except when certain
circumstances require retrospective application. The Company is currently
evaluating the impact of this statement on its results of operations or
financial position of the Company
In July 2006, the Financial Accounting Standards Board ("FASB") published
FASB Interpretation No. 48 ("FIN No. 48"), Accounting for Uncertainty in Income
Taxes, to address the noncomparability in reporting tax assets and liabilities
resulting from a lack of specific guidance in FASB Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, on the
uncertainty in income taxes recognized in an enterprise's financial statements.
FIN No. 48 will apply to fiscal years beginning after December 15, 2006, with
earlier adoption permitted. The adoption of FIN 48 is not expected to have a
material effect on the Company's financial condition or results of operations.
In November 2004, the FASB issued SFAS 151, "Inventory Costs - An
Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance
in ARB No. 43, Chapter 4 to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). The
provisions of SFAS 151 are effective for inventory costs incurred during fiscal
years beginning after June 15, 2005. The adoption of SFAS 151 did not have a
material effect on the Company's financial condition or results of operations.
In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153 amends APB
Opinion 29 to eliminate the similar productive asset exception and establishes
that exchanges of productive assets should be accounted for at fair value,
rather than at carryover basis unless (1) neither the asset received nor the
asset surrendered has a fair value that is determinable within reasonable
limits, (2) the transaction is an exchange transaction to facilitate sales to
customers, or (3) the transaction lacks commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. The provisions of
SFAS 153 are effective for nonmonetary exchanges occurring in fiscal periods
beginning after June 15, 2005. The adoption of SFAS 153 did not have a material
effect on the Company's financial condition or results of operations.
- 6 -
In December 2004, the FASB issued SFAS 123R, "Share-Based Payment". SFAS
123R establishes that employee services received in exchange for share-based
payment result in a cost that should be recognized in the income statement as an
expense when the services are consumed by the enterprise. It further establishes
that those expenses be measured at fair value determined as of the grant date.
The provisions of SFAS 123R became effective as of the beginning of the first
annual reporting period that begins after June 15, 2005. Furthermore, the Office
of the Chief Accountant (OCA) of the Securities and Exchange Commission issued
Staff Accounting Bulletin 107 to provide clarification of the OCA's
interpretation of SFAS 123R as it applies to share based compensation
arrangements for both employees and non employees. The Company has evaluated the
effect of the adoption of SFAS 123R and has concluded that its adoption did not
have a material affect on the Company's financial condition and results of
operations (see Note 5).
Note 3 - Earnings (Loss) Per Share:
The Company computes net loss per share under the provisions of SFAS No.
128, "Earnings per Share" ("SFAS 128"), and SEC Staff Accounting Bulletin No. 98
("SAB 98").
Under the provisions of SFAS 128 and SAB 98, basic loss per share is
computed by dividing the Company's net loss for the period by the
weighted-average number of shares of common stock outstanding during the period.
Diluted net loss per share excludes potential common shares if the effect is
anti-dilutive. Diluted loss per share is determined in the same manner as basic
loss per share except that the number of shares is increased assuming exercise
of dilutive stock options and warrants using the treasury stock method. As the
Company had a net loss, the impact of the assumed exercise of the stock options
and warrants is anti-dilutive and as such, these amounts have been excluded from
the calculation of diluted loss per share. For the nine months ended September
30, 2006 and 2005, 181,428 and 173,532 of common stock equivalent shares,
respectively, were excluded from the computation of diluted net loss per share,
respectively.
Note 4 - Goodwill:
The Company follows SFAS No. 142, "Goodwill and Other Intangible Assets".
Under SFAS No. 142, goodwill and other intangible assets with indefinite lives
are no longer amortized but are reviewed for impairment annually or more
frequently if impairment indicators arise. The Company's goodwill is contained
in its Wynd reporting unit. The Company believes there are no such impairment
indicators relative to this reporting unit at September 30, 2006.
Note 5 - Stock-based Compensation:
The Company has a stock-based compensation program that provides our Board
of Directors broad discretion in creating employee equity incentives. This
program includes incentive and non-statutory stock options and nonvested stock
awards (also known as restricted stock) granted under various plans, the
majority of which are stockholder approved. As of September 30, 2006, the
Company had approximately 455,443 shares of common stock reserved for future
issuance under our equity compensation plan and stock purchase plan.
Effective January 1, 2006, the Company adopted the provisions of SFAS
123R, requiring us to recognize expense related to the fair value of our
stock-based compensation awards. The Company elected to use the modified
prospective transition method as permitted by SFAS 123R and, therefore, we have
not restated our financial results for prior periods. Under this transition
method, stock-based compensation expense for the three and nine months ended
September 30, 2006 includes compensation expense for all stock-based
compensation awards granted prior to, but not yet vested as of December 31,
2005, based on the grant date fair value estimated in accordance with the
original provisions of SFAS 123. The Company did not issue any new stock options
during the nine month period ended September 30, 2006. The Company recognizes
compensation expense for stock option awards on a straight-line basis over the
requisite service period of the award. The Company's adoption of SFAS 123R had
no effect on the Company's basic and diluted loss per share for the three and
nine months ended September 30, 2006.
- 7 -
The following table sets forth the total stock-based compensation expense
resulting from stock options and nonvested restricted stock awards included in
the Company's condensed consolidated statements of operations:
Three Months Ended Nine Months Ended
September 30, 2006 September 30, 2006
------------------ -----------------
Selling, general and administrative ......................................... $ 108 $ 321
------ ------
Stock-based compensation expense before income taxes ........................ 108 321
Income tax benefit .......................................................... -- --
------ ------
Total stock-based compensation expense after income taxes ................... $ 108 $ 321
====== ======
Prior to the adoption of SFAS 123R, the Company applied SFAS No. 123, as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure" ("SFAS 148"), which allowed companies to apply the existing
accounting rules under APB 25 and related Interpretations. In general, as the
exercise price of options granted under these plans was equal to the market
price of the underlying common stock on the grant date, no stock-based employee
compensation cost was recognized in our net income (loss). As required by SFAS
148 prior to the adoption of SFAS 123R, the Company provided pro forma net
income (loss) and pro forma net income (loss) per common share disclosures for
stock-based awards, as if the fair-value-based method defined in SFAS 123 had
been applied.
The following table illustrates the effect on net loss after tax and net
loss per common share as if the Company had applied the fair value recognition
provisions of SFAS 123 to stock-based compensation during the three and nine
month periods ended September 30, 2005:
Three months ended Nine months ended
September 30, 2005 September 30, 2005
------------------ ------------------
Net loss, as reported ................................................................ $ (994) $ (3,037)
Deduct: Stock-based employee compensation expense included in reported net loss ...... -- --
Add: Total stock-based employee compensation expense determined under
fair value based method for all awards ............................................... (413) (1,239)
--------- ---------
Pro forma net loss ................................................................... $ (1,407) $ (4,276)
========= =========
Loss per share - basic, as reported .................................................. $ (0.48) $ (1.45)
========= =========
Loss per share - diluted, as reported ................................................ $ (0.48) $ (1.45)
========= =========
Pro forma loss per share - basic ..................................................... $ (0.67) $ (2.04)
========= =========
Pro forma loss per share - diluted ................................................... $ (0.67) $ (2.04)
========= =========
Prior to the adoption of SFAS 123R, the Company's Board of Directors
approved the acceleration of vesting of certain unvested and "out-of-the-money"
stock options with exercise prices equal to or greater than $4.19 per share
previously awarded to our employees, including our executive officers and
directors, under our equity compensation plans. The acceleration of vesting was
effective for stock options outstanding as of December 29, 2005. Options to
purchase approximately 31,518 shares of common stock or 86% of our outstanding
unvested options were subject to the acceleration. The weighted average exercise
price of the options that were accelerated was $19.93. The Company believes that
because the options that were accelerated had exercise prices in excess of the
current market value of our common stock, the options had limited economic value
and were not fully achieving their original objective of incentive compensation
and employee retention.
- 8 -
Stock option activity for the nine months ended September 30, 2006, is as
follows:
Weighted-Average Aggregate
---------------- Intrinsic Value
Number of Weighted-Average Remaining ---------------
Options Exercise Price Contractual Life
--------- ---------------- ----------------
Outstanding at January 1, 2006 ............... 97,108 $72.59
Granted ...................................... -- --
Exercised .................................... -- --
Cancelled .................................... -- --
------
Outstanding at September 30, 2006 ............ 97,108 $72.59 4.01 $ 10
======
Exercisable at September 30, 2006 ............ 92,108 $76.41 4.27 $ 5
======
The aggregate intrinsic value in the table above represents the total
pretax intrinsic value (i.e., the difference between the Company's closing stock
price on the last trading day of our third quarter of 2006 and the exercise
price, times the number of shares) that would have been received by the option
holders had all option holders exercised their in the money options on September
30, 2006. This amount changes based on the fair market value of the Company's
stock.
As of September 30, 2006, approximately $4 of total unrecognized
compensation cost related to stock options is expected to be recognized over a
weighted-average period of 2 years.
The following table summarizes the Company's nonvested restricted stock
activity for the nine months ended September 30, 2006:
Weighted
Average
Number of Grant Date
Shares Fair Value
--------- ----------
Non vested stock at December 31, 2005.................. 245,000 $ 5.24
Granted................................................ -- --
Vested................................................. -- --
Forfeited.............................................. -- --
------- ------
Non vested stock at September 30, 2006................. 245,000 $ 5.24
======= ======
As part of the adoption of SFAS 123R, effective January 1, 2006, the
Company eliminated $1,230 of deferred employee compensation against paid in
capital. As of September 30, 2006, $909 of total unrecognized compensation costs
is expected to be recognized over the remaining service period of 2 years. The
Company recognized $108 and $321 of expense related to the amortization of these
restricted stock awards during the three and nine months ended September 30,
2006, respectively.
Note 6 - Contingencies:
On September 22, 2004, Boundless Depot, LLC ("Boundless Depot") and Scott
Johnson, one of two Boundless Depot shareholders, sued GoAmerica and Wynd
Communications in the Superior Court of the State of California for the County
of Los Angeles, claiming damages of $1,000 for GoAmerica's refusal to pay
Boundless Depot unattained contingent consideration, comprised of cash and/or
GoAmerica Common Stock, with respect to the Asset Purchase Agreement dated as of
February 8, 2003 (the "Deafwireless Agreement"), pursuant to which GoAmerica and
Wynd Communications acquired certain Deafwireless assets. The total value of
such contingent consideration, if all contingencies had been fully met and
amounts paid immediately thereupon, would not have exceeded $211; however, the
Company does not believe any of the contingent consideration is owed to
Boundless Depot or either of its shareholders since conditions of the
Deafwireless Agreement were not met and we incurred costs for which we are
entitled to receive reimbursement from Boundless Depot or offset against any
amounts that may become payable to Boundless Depot. Upon petition by GoAmerica
and Wynd Communications, the Court has ordered this matter into arbitration,
which process is now pending. The Company intends to defend this action
vigorously and may elect to pursue counterclaims.
- 9 -
In the first quarter of 2006, the Company reclassified $300 of restricted
cash as of December 31, 2005 to operating cash to reflect an arrangement between
the Company and one of its carrier providers which allowed for the elimination
of the previously required letter of credit and related supporting cash account.
Note 7 - Discontinued Operations:
On September 1, 2006, the Company entered into an agreement to sell
GoAmerica Marketing, Inc., dba GA Prepaid ("GA Prepaid"), its prepaid calling
card division, effective August 31, 2006. The sale closed on October 2, 2006 and
the Company recognized a gain on sale of $6. The Company received total
consideration of $131 which consisted of the purchase price of $75 and working
capital reimbursements totaling $56. The Company was paid $20 at closing and
$111 is payable under a guaranteed promissory note payable in 5 monthly
installments beginning on October 31, 2006.
Total revenues related to the discontinued operations were $894 and $1,027
and $3,644 and $2,452 for the three and nine months ended September 30, 2006 and
2005, respectively. The assets and liabilities of GA Prepaid have been
classified as assets and liabilities of discontinued operations in the Condensed
Consolidated Balance Sheets and the results of operations have been reclassified
as loss from discontinued operations in the Condensed Consolidated Statement of
Operations for all dates and periods presented.
The carrying values of the major classes of assets and liabilities of the
prepaid division are as follows:
September 30, December 31,
2006 2005
----------------------------
Assets:
Accounts receivable, net .......................... $ 16 $223
Prepaid expenses and other current assets ......... 62 25
Property and equipment, net ....................... 69 102
Other assets ...................................... -- 28
---- ----
Total ............................................. $147 $378
==== ====
Liabilities:
Accounts payable and accrued expenses ............. $ 79 $122
Capital lease obligations ......................... 13 25
Deferred income ................................... -- 26
---- ----
Total ............................................. $ 92 $173
==== ====
Note 8 - Termination of Hands On Merger Agreement:
On May 2, 2005, the Company entered into a short term loan agreement with
Hands On Video Relay Services, Inc., a Delaware corporation, and Hands On Sign
Language Services, Inc., a California corporation (collectively, "Hands On").
Pursuant to that agreement, all amounts that the Company advanced to Hands On
are secured, initially, by the assets acquired with such funds with interest at
a defined prime rate.
On March 1, 2006, the Company announced its receipt of a letter from Hands
On, dated March 1, 2006, in which Hands On purportedly terminated the merger
agreement among the parties. Subsequent discussions between the parties did not
provide a basis to pursue the merger. Hands On stockholders had approved the
proposed merger with GoAmerica at special Hands On stockholder meetings held on
February 22, 2006. A Special Meeting of GoAmerica Stockholders relating to the
Company's proposed merger with Hands On was scheduled for March 13, 2006,
adjourned from February 27, 2006 in order to allow GoAmerica to achieve a quorum
with respect to the Special Meeting. As of March 6, 2006, the Company had
achieved a quorum and received votes overwhelmingly in favor of the Hands On
merger. On March 7, 2006, the Company announced its cancellation of its Special
Meeting of Stockholders and its determination not to pursue its proposed merger
with Hands On.
- 10 -
The details of this loan receivable as of September 30, 2006 and December
31, 2005 are as follows:
September 30, December 31,
2006 2005
----------------------------
(Unaudited)
Current portion, included in prepaid expenses
and other current assets ....................... $490 $ --
Long term portion, included in other assets ...... 72 531
---- ----
Total ............................................ $562 $531
==== ====
The Company recorded $27 of interest income on these advances during the
nine months ended September 30, 2006. Accrued interest receivable totaled $29 as
of September 30, 2006. As a result of the termination of the merger agreement,
repayment obligations began July 1, 2006 and were scheduled to continue through
March 2008. The Company received all such payments due through September 30,
2006, however, Hands On failed to make subsequent payments due in October and
November 2006 and all remaining amounts outstanding under the loan agreement
accrue interest at the increased rate of 12%. Hands On has indicated that it
does not intend to make any more payments to the Company under the current terms
of the loan agreement and that Hands On is attempting to restructure its debts
and raise new capital. The Company believes it has sufficient contractual rights
and legal remedies with respect to Hands On's indebtedness to the Company and
therefore has not provided an allowance for doubtful collection as September 30,
2006. The Company intends to pursue repayment vigorously and will evaluate the
collectibility on a quarterly basis.
At December 31, 2005, the Company had incurred approximately $280 of
merger related costs which was capitalized as an other asset. During the period
from January 1, 2006 through September 30, 2006, the Company capitalized an
additional $151 of merger related costs. As a result of the terminated merger,
the Company wrote off a total of $431 of merger related expenses during the nine
months ended September 30, 2006 and such write off is included in other income
(expense), net.
Note 9 - Subsequent Events:
On November 7, 2006, the Company granted to its non-employee members of
the Board of Directors a total of 92,500 restricted shares of our Common Stock
pursuant to the GoAmerica, Inc. 2005 Equity Compensation Plan as part of their
compensation for service on the Company's Board. Additionally, the Company
granted restricted stock awards covering a total of 30,000 shares of our Common
Stock to two consultants of the Company. The shares subject to these restricted
stock awards vest over varying periods of time.
- 11 -
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
GoAmerica(R) is a communications service provider, offering solutions
primarily for consumers who are deaf, hard of hearing and/or speech-impaired,
including telecommunications relay services, wireless subscription services and
wireless devices and accessories. Our i711.com(R) telecommunications relay
service which was launched in March 2005, uses Nordia, Inc.'s technology
platform and relay operators (also referred to as Communication Assistants or
"CA's") to facilitate calls, and enables people who are deaf or hard of hearing
to call and "converse" with hearing parties by using a computer, wireless
handheld device or similar unit, through an operator that interprets text to
voice and vice versa. Throughout 2005, we provided a wireless version of relay
services under a license to Sprint-Nextel, which was marketed under a Sprint
brand. During the first quarter of 2006, we began offering our own branded
wireless relay service and terminated our license with Sprint-Nextel. Our
wireless subscription services consist of WyndTell(R) and our Wireless
Toolkit(TM), previously known as WyndPower(TM), which assist our deaf or hard of
hearing customers in communicating from most major metropolitan areas in the
continental United States and parts of Canada. WyndTell and Wireless Toolkit
allow customers to send and receive email messages to and from any email
service, provide for delivery and acknowledgements of sent messages that are
read, send and receive TTY/TDD (text telephone or teletypewriter) messages,
faxes, and text-to-speech messages, and access the Internet using such wireless
computing devices as Research in Motion, or RIM, wireless handheld devices,
certain Motorola paging devices and the T-Mobile Sidekick, Fido hiptop, and
SunCom hiptop devices running on Danger Inc.'s hiptop platform. GoAmerica
continues to offer wireless data products and services to the consumer and
enterprise markets as well as support customers who use our proprietary software
technology called Go.Web(TM). GoWeb is designed for use mainly by enterprise
customers to enable secure wireless access to corporate data and the Internet on
numerous wireless computing devices.
Our wireless data solutions revenues are derived from: (i) subscription to
our value-added wireless data services, for which customers typically pay
monthly recurring fees, (ii) the sale of wireless communications devices, (iii)
relay services and (iv) other revenues from commissions received through the
acquisition of subscribers on behalf of various network providers with which we
do not have reseller agreements. We continue to engineer our technology to
operate with new versions of wireless devices as they emerge.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our condensed consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and the related disclosure of contingent
assets and liabilities. On an on-going basis, management evaluates its estimates
and judgments, including those related to revenue recognition, allowance for
doubtful accounts, inventory valuation and recoverability of our intangible
assets. Management bases its estimates and judgments on historical experience
and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
- 12 -
Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements. Historically, we have
derived our revenue primarily from the sale of basic and value-added wireless
data services and the sale of related mobile devices. Subscriber revenue
consists primarily of monthly charges for access and usage and is recognized as
the services are provided. Equipment revenue is recognized upon shipment to the
end user. Revenue from relay services is recognized as revenue when services are
provided or earned. Revenue from commissions is recognized upon activation of
subscribers on behalf of third party wireless network providers. We estimate the
collectibility of our trade receivables. A considerable amount of judgment is
required in assessing the ultimate realization of these receivables, including
analysis of historical collection rates and the current credit-worthiness of
significant customers. Significant changes in required reserves have been
recorded in recent periods and may occur in the future due to the current market
conditions. We write down inventory for estimated excess or obsolete inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by management,
additional inventory write-downs may be required. In assessing the
recoverability of our goodwill, other intangibles and other long-lived assets,
we must make assumptions regarding estimated future cash flows. If such
assumptions change in the future, we may be required to record impairment
charges for these assets not previously recorded.
Results of Operations
The following table sets forth, for the three and nine months ended
September 30, 2006 and 2005, the percentage relationship to net revenues of
certain items included in the Company's unaudited consolidated statements of
operations.
Three Months Ended September 30, Nine Months Ended September 30,
-----------------------------------------------------------------------------
(In thousands) 2006 2005 $ % 2006 2005 $ %
-----------------------------------------------------------------------------
Revenues:
Subscriber ................................. $ 328 7.2 $ 548 43.3 $ 934 10.9 $ 1,967 53.0
Relay services ............................. 3,497 76.8 329 26.0 5,325 62.1 774 20.8
Commissions ................................ 559 12.3 255 20.1 2,045 23.8 549 14.8
Equipment .................................. 165 3.6 120 9.5 266 3.1 297 8.0
Other ...................................... 2 0.1 15 1.1 5 0.1 127 3.4
------- ----- ------- ----- ------- ----- ------- -----
4,551 100.0 1,267 100.0 8,575 100.0 3,714 100.0
Costs and expenses:
Cost of subscriber airtime ................. 265 5.8 208 16.4 569 6.6 727 19.6
Cost of equipment revenue .................. 178 3.9 138 10.9 380 4.4 382 10.3
Cost of network operations ................. 27 0.6 35 2.8 81 0.9 152 4.1
Cost of relay services ..................... 2,342 51.5 -- -- 3,034 35.4 -- --
Sales and marketing, net .................. 689 15.1 320 25.3 1,709 19.9 773 20.8
General and administrative ................. 1,105 24.3 911 71.8 3,267 38.1 2,973 80.0
Research and development ................... 38 0.8 96 7.6 271 3.2 255 6.9
Depreciation and amortization .............. 104 2.3 119 9.4 374 4.4 375 10.1
Amortization of other intangibles .......... -- -- 122 9.6 -- -- 564 15.2
------- ----- ------- ----- ------- ----- ------- -----
4,748 104.3 1,949 153.8 9,685 112.9 6,201 167.0
------- ----- ------- ----- ------- ----- ------- -----
Loss from operations ............................... (197) (4.3) (682) (53.8) (1,110) (12.9) (2,487) (67.0)
Other income (expense):
Terminated merger costs ............................ -- -- -- -- (431) (5.0) -- --
Interest income (expense), net ..................... 46 1.0 29 2.3 146 1.7 105 2.8
------- ----- ------- ----- ------- ----- ------- -----
Total other income (expense), net .................. 46 1.0 29 2.3 (285) (3.3) 105 2.8
------- ----- ------- ----- ------- ----- ------- -----
Loss from continuing operations .................... (151) (3.3) (653) (51.5) (1.395) (16.2) (2,382) (64.2)
Loss from discontinued operations .................. (371) (8.2) (341) (26.9) (571) (6.7) (655) (17.6)
------- ----- ------- ----- ------- ----- ------- -----
Net loss ........................................... $ (522) (11.5) $ (994) (78.4) $(1,966) (22.9) $(3,037) (81.8)
======= ===== ======= ===== ======= ===== ======= =====
- 13 -
The following table sets forth the period over period percentage increases
or decreases of certain items included in the Company's unaudited consolidated
statements of operations.
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------------------------------------------------------
(In thousands) Change Change
---------------------------------------------------------------------------------
2006 2005 $ % 2006 2005 $ %
---------------------------------------------------------------------------------
Revenues:
Subscriber ............................. $ 328 $ 548 $ (220) (40.1) $ 934 $ 1,967 $(1,033) (52.5)
Relay services ......................... 3,497 329 3,168 962.9 5,325 774 4,551 588.0
Commissions ............................ 559 255 304 119.2 2,045 549 1,496 272.5
Equipment .............................. 165 120 45 37.5 266 297 (31) (10.4)
Other .................................. 2 15 (13) (86.7) 5 127 (122) (96.1)
------- ------- ------- ----- ------- ------- ------- -----
4,551 1,267 3,284 259.2 8,575 3,714 4,861 130.9
Costs and expenses:
Cost of subscriber airtime ............. 265 208 57 27.4 569 727 (158) (21.7)
Cost of equipment revenue .............. 178 138 40 29.0 380 382 (2) (0.5)
Cost of network operations ............. 27 35 (8) (22.9) 81 152 (71) (46.7)
Cost of relay services ................. 2,342 -- 2,342 -- 3,034 -- 3,034 --
Sales and marketing, net .............. 689 320 369 115.3 1,709 773 936 121.1
General and administrative ............. 1,105 911 194 21.3 3,267 2,973 9.9
Research and development ............... 38 96 (58) (60.4) 271 255 16 6.3
Depreciation and amortization .......... 104 119 (15) (12.6) 374 375 (1) (0.3)
Amortization of other intangibles ...... -- 122 (122) -- -- 564 (564) (100.0)
------- ------- ------- ----- ------- ------- ------- -----
4,748 1,949 2,799 143.6 9,685 6,201 3,484 56.2
------- ------- ------- ----- ------- ------- ------- -----
Loss from operations ........................... (197) (682) 485 (71.1) (1,110) (2,487) 1,377 (55.4)
Other income (expense):
Terminated merger costs ........................ -- -- -- -- (431) -- (431) (100.0)
Interest income (expense), net ................. 46 29 17 58.6 146 105 41 39.0
------- ------- ------- ----- ------- ------- ------- -----
Total other income (expense), net .............. 46 29 17 58.6 (285) 105 (390) (371.4)
------- ------- ------- ----- ------- ------- ------- -----
Loss from continuing operations ................ (151) (653) 502 (76.9) (1.395) (2,382) 987 (41.4)
Loss from discontinued operations .............. (371) (341) (30) 8.8 (571) (655) 84 (12.8)
------- ------- ------- ----- ------- ------- ------- -----
Net loss ....................................... $ (522) $ (994) $ 472 (47.5) $(1,966) $(3,037) $ 1,071 (35.3)
======= ======= ======= ===== ======= ======= ======= =====
Three months ended September 30, 2006 Compared to Three months ended September
30, 2005
Subscriber revenue. Subscriber revenue decreased 40%, to $328,000 for the
three months ended September 30, 2006 from $548,000 for the three months ended
September 30, 2005. This decrease was primarily due to declines in our Wynd full
service offering subscriber base, as well as our Go.Web customers and was
partially offset by increased subscribers to our value-added WyndPower service.
We expect the number of our subscribers to continue to decline due to additional
deactivations in our Go.Web subscriber base.
Relay services revenue. Relay services revenue increased 963%, to $3.5
million for the three months ended September 30, 2006 from $329,000 for the
three months ended September 30, 2005. This increase was primarily due to our
obtaining FCC certification, allowing us to bill directly for service usage as
opposed to submitting through a third party provider as in prior periods as well
as increased usage of our i711.com(R) telecommunications relay service which was
launched in March 2005. Had we not been certified, relay services revenue would
have increased 268%, to $1.2 million for the three months ended September 30,
2006 from $329,000 for the three months ended September 30, 2005. We expect
relay services revenue to increase as we expand our user base and increase the
number of wireless handheld devices on which our own branded wireless relay
service is available.
Commission revenue. We began earning commissions during 2005 from our
acquisition of subscribers on behalf of various wireless network providers and
recognized $559,000 of commission revenue for the three months ended September
30, 2006 compared to $255,000 for the three months ended September 30, 2005. We
expect commission revenue to increase as we continue to acquire subscribers on
behalf of various wireless network providers.
Equipment revenue. Equipment revenue increased to $165,000 for the three
months ended September 30, 2006 from $120,000 for the three months ended
September 30, 2005. This increase was primarily due to higher sales of mobile
devices. We expect equipment revenue to increase as we continue to provide
devices to new subscribers of our Wynd services and from our sales of equipment
to subscribers on behalf of various wireless network providers.
- 14 -
Other revenue. Other revenue decreased to $2,000 for the three months
ended September 30, 2006 from $15,000 for the three months ended September 30,
2005. We expect other revenue to remain relatively constant as we do not intend
to increase consulting projects and consulting services to third parties in the
near future.
Cost of subscriber airtime. Cost of subscriber airtime increased 27%, to
$265,000 for the three months ended September 30, 2006 from $208,000 for the
three months ended September 30, 2005. This increase was primarily due to
increased costs in our text based wireless services. We expect cost of
subscriber airtime to continue to increase due to additional subscribers for our
text based services.
Cost of network operations. Cost of network operations decreased to
$27,000 for the three months ended September 30, 2006 from $35,000 for the three
months ended September 30, 2005 due to decreased salaries and benefits for
personnel performing network operations activities and decreased facility costs.
We expect our cost of network operations to decline as a percentage of revenue
during 2006.
Cost of equipment revenue. Cost of equipment revenue increased 29%, to
$178,000 for the three months ended September 30, 2006 from $138,000 for the
three months ended September 30, 2005. This increase was primarily due to higher
sales of mobile devices. We expect cost of equipment revenue to increase as we
continue to provide devices to new subscribers of our Wynd services and from the
cost of equipment provided to subscribers on behalf of various wireless network
providers.
Sales and marketing. Sales and marketing expenses increased to $689,000
for the three months ended September 30, 2006 from $320,000 for the three months
ended September 30, 2005. This increase primarily was due to our introduction of
new products and services to the consumer marketplace as well as increased
payments to third parties as compensation for marketing these products. We
expect sales and marketing expenses to increase as a percentage of sales during
2006 as we continue to introduce new products and services to the consumer
marketplace.
General and administrative. General and administrative expenses increased
to $1,105,000 for the three months ended September 30, 2006 from $911,000 for
the three months ended September 30, 2005. This increase was primarily due to
increased salaries and benefits for personnel performing general corporate
activities, including $108,000 in stock-based compensation and was partially
offset by decreased professional services fees. We expect general and
administrative expenses to decline as a percentage of revenue.
Research and development. Research and development expense decreased to
$38,000 for the three months ended September 30, 2006 from $96,000 for the three
months ended September 30, 2005. We expect research and development expenses to
remain constant as we utilize internal resources to develop and maintain our
WyndTell and relay technologies rather than using outside consultants.
Amortization of other intangibles. The Company had recorded amortization
of other intangibles of $122,000 for the three months ended September 30, 2005.
The assets were fully amortized as of December 31, 2005.
Interest income (expense), net. Interest income increased to $46,000 for
the three months ended September 30, 2006 from $29,000 for the three months
ended September 30, 2005.
Discontinued operations. The Company recorded a loss from discontinued
operations of $371,000 for the three months ended September 30, 2006 compared to
$341,000 for the three months ended September 30, 2005.
- 15 -
Nine months ended September 30, 2006 Compared to Nine months ended September 30,
2005
Subscriber revenue. Subscriber revenue decreased 53%, to $934,000 for the
nine months ended September 30, 2006 from $2.0 million for the nine months ended
September 30, 2005. This decrease was primarily due to declines in our Wynd full
service offering subscriber base, as well as our Go.Web customers and was
partially offset by increased subscribers to our value-added WyndPower service.
Relay services revenue. Relay services revenue increased 588%, to $5.4
million for the nine months ended September 30, 2006 from $774,000 for the nine
months ended September 30, 2005. This increase was primarily due to our
obtaining FCC certification allowing us to bill directly for service usage as
opposed to submitting through a third party provider as in prior periods as well
as increased usage of our i711.com(R) telecommunications relay service which was
launched in March 2005. Had we not been certified, relay services revenue would
have increased 175%, to $2.1 million for the nine months ended September 30,
2006 from $774,000 for the nine months ended September 30, 2005.
Commission revenue. We began earning commissions during 2005 from our
acquisition of subscribers on behalf of various wireless network providers and
recognized $2.0 million of commission revenue for the nine months ended
September 30, 2006 compared to $549,000 for the nine months ended September 30,
2005.
Equipment revenue. Equipment revenue decreased to $266,000 for the nine
months ended September 30, 2006 from $297,000 for the nine months ended
September 30, 2005. This decrease was primarily due to lower sales prices for
mobile devices.
Other revenue. Other revenue decreased to $5,000 for the nine months ended
September 30, 2006 from $127,000 for the nine months ended September 30, 2005.
This decrease was primarily due to reduced consulting services.
Cost of subscriber airtime. Cost of subscriber airtime decreased 22%, to
$569,000 for the nine months ended September 30, 2006 from $727,000 for the nine
months ended September 30, 2005. This decrease was primarily due to the decrease
in our subscriber base.
Cost of network operations. Cost of network operations decreased to
$81,000 for the nine months ended September 30, 2006 from $152,000 for the nine
months ended September 30, 2005 due to decreased salaries and benefits for
personnel performing network operations activities and decreased facility costs.
Cost of equipment revenue. Cost of equipment revenue decreased slightly to
$380,000 for the nine months ended September 30, 2006 from $382,000 for the nine
months ended September 30, 2005.
Sales and marketing. Sales and marketing expenses increased to $1,709,000
for the nine months ended September 30, 2006 from $773,000 for the nine months
ended September 30, 2005. This increase primarily was due to our introduction of
new products and services to the consumer marketplace as well as increased
payments to third parties as compensation for marketing these products.
General and administrative. General and administrative expenses increased
to $3,267,000 for the nine months ended September 30, 2006 from $2,973,000 for
the nine months ended June 30, 2005. This increase was primarily due to
increased salaries and benefits for personnel performing general corporate
activities, including approximately $321,000 in stock-based compensation.
Research and development. Research and development expense increased to
$271,000 for the nine months ended September 30, 2006 from $255,000 for the nine
months ended September 30, 2005. This increase was primarily due to increased
salaries and benefits for personnel performing research and development
activities.
Amortization of other intangibles. The Company had recorded amortization
of other intangibles of $564,000 for the nine months ended September 30, 2005.
The assets were fully amortized as of December 31, 2005.
Terminated merger costs. The Company recorded terminated merger costs of
$431,000 for the nine months ended September 30, 2006 in connection with the
termination of the merger agreement with Hands On.
Interest income (expense), net. Interest income increased to $146,000 for
the nine months ended September 30, 2006 from $105,000 for the nine months ended
September 30, 2005.
- 16 -
Discontinued operations. The Company recorded a loss from discontinued
operations of $571,000 for the nine months ended September 30, 2006 compared to
$655,000 for the nine months ended September 30, 2005.
Liquidity and Capital Resources
Since our inception, we financed our operations through a public offering
and private placements of our equity securities. We have incurred significant
operating losses since our inception and as of September 30, 2006 have an
accumulated deficit of $275.2 million. During the nine months ended September
30, 2006, we incurred a net loss of $1,966,000, used $1,037,000 of cash to fund
operating activities and overall experienced a decline of $1,158,000 in our cash
and cash equivalents. We currently anticipate that our available cash resources
will be sufficient to fund our operating needs for at least the next 12 months.
At this time, we do not have any bank credit facility or other working capital
credit line under which we may borrow funds for working capital or other general
corporate purposes.
Net cash used in operating activities amounted to $1,050,000 for the nine
months ended September 30, 2006, principally reflecting our loss from
operations.
We used $64,000 in cash from investing activities during the nine months
ended September 30, 2006, which primarily resulted from funds related to
terminated merger costs and advances to Hands On and purchases of fixed assets.
This was partially offset by the reduction of cash utilized to support a letter
of credit in favor of Velocita which is no longer required.
Net cash used in financing activities was $44,000 for the nine months
ended September 30, 2006, which resulted from payments made on capital lease
obligations.
As of September 30, 2006, our principal commitments consisted of
obligations outstanding under operating leases. As of September 30, 2006, future
minimum payments for non-cancelable operating leases having terms in excess of
one year amounted to $452,000, of which approximately $314,000 is payable in the
next twelve months.
The following table summarizes GoAmerica's contractual obligations at
September 30, 2006, and the effect such obligations are expected to have on its
liquidity and cash flow in future periods.
Less than 1
September 30, 2006 (In thousands) Total Year 1-3 Years 4-5 Years After 5 Years
Contractual Obligations:
Capital Lease Obligations ...................... $185 $ 69 $116 $ -- $ --
---- ---- ---- ---- ----
Operating Lease
Obligations ................................. 452 314 75 63 --
---- ---- ---- ---- ----
Total .......................................... $637 $383 $191 $ 63 $ --
==== ==== ==== ==== ====
Forward Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are
not historical facts are forward-looking statements (within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended). Such
forward-looking statements may be identified by the use of forward-looking
terminology such as "may", "will", "expect", "estimate", "anticipate",
"continue", or similar terms, variations of such terms or the negative of those
terms. Such forward-looking statements involve risks and uncertainties,
including, but not limited to: (i) our limited operating history; (ii) our
ability to respond to the rapid technological change of the wireless data
industry and offer new services; (iii) our dependence on wireless carrier
networks; (iv) our ability to respond to increased competition in the wireless
data industry; (v) our ability to integrate acquired businesses and
technologies; (vi) our ability to generate revenue growth; (vii) our ability to
increase or maintain gross margins, profitability, liquidity and capital
resources; and (viii) difficulties inherent in predicting the outcome of
regulatory processes. Many of such risks and others are more fully described in
our Annual Report on Form 10-K for the year ended December 31, 2005. Our actual
results could differ materially from the results expressed in, or implied by,
such forward-looking statements.
- 17 -
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements," to eliminate the diversity in practice that exists due to the
different definitions of fair value and the limited guidance for applying those
definitions in GAAP that are dispersed among the many accounting pronouncements
that require fair value measurements. SFAS No. 157 retains the exchange price
notion in earlier definitions of fair value, but clarifies that the exchange
price is the price in an orderly transaction between market participants to sell
an asset or liability in the principal or most advantageous market for the asset
or liability. Moreover, the SFAS states that the transaction is hypothetical at
the measurement date, considered from the perspective of the market participant
who holds the asset or liability. Consequently, fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date (an
exit price), as opposed to the price that would be paid to acquire the asset or
received to assume the liability at the measurement date (an entry price).
SFAS No. 157 also stipulates that, as a market-based measurement, fair
value measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability, and establishes a fair
value hierarchy that distinguishes between (a) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (b) the reporting entity's own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). Finally, SFAS
No. 157 expands disclosures about the use of fair value to measure assets and
liabilities in interim and annual periods subsequent to initial recognition.
Entities are encouraged to combine the fair value information disclosed under
SFAS No. 157 with the fair value information disclosed under other accounting
pronouncements, including SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," where practicable. The guidance in this Statement
applies for derivatives and other financial instruments measured at fair value
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," at initial recognition and in all subsequent periods.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years, although earlier application is encouraged. Additionally, prospective
application of the provisions of SFAS No. 157 is required as of the beginning of
the fiscal year in which it is initially applied, except when certain
circumstances require retrospective application. We are currently evaluating the
impact of this statement on our results of operations or financial position.
In July 2006, the Financial Accounting Standards Board ("FASB") published
FASB Interpretation No. 48 ("FIN No. 48"), Accounting for Uncertainty in Income
Taxes, to address the noncomparability in reporting tax assets and liabilities
resulting from a lack of specific guidance in FASB Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, on the
uncertainty in income taxes recognized in an enterprise's financial statements.
FIN No. 48 will apply to fiscal years beginning after December 15, 2006, with
earlier adoption permitted. The adoption of FIN 48 is not expected to have a
material effect on our financial condition or results of operations.
In November 2004, FASB issued SFAS 151, "Inventory Costs - An Amendment of
ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance in ARB No. 43,
Chapter 4 to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). The provisions
of SFAS 151 are effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The adoption of SFAS 151 did not have a material
effect on our financial condition or results of operations.
In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153 amends APB
Opinion 29 to eliminate the similar productive asset exception and establishes
that exchanges of productive assets should be accounted for at fair value,
rather than at carryover basis unless (1) neither the asset received nor the
asset surrendered has a fair value that is determinable within reasonable
limits, (2) the transaction is an exchange transaction to facilitate sales to
customers, or (3) the transaction lacks commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. The provisions of
SFAS 153 are effective for nonmonetary exchanges occurring in fiscal periods
beginning after June 15, 2005. The adoption of SFAS 153 did not have a material
effect on our financial condition or results of operations.
- 18 -
In December 2004, the FASB issued SFAS 123R, "Share-Based Payment". SFAS
123R establishes that employee services received in exchange for share-based
payment result in a cost that should be recognized in the income statement as an
expense when the services are consumed by the enterprise. It further establishes
that those expenses be measured at fair value determined as of the grant date.
The provisions of SFAS 123R become effective as of the beginning of the first
annual reporting period that begins after June 15, 2005. Furthermore, the Office
of the Chief Accountant (OCA) of the Securities and Exchange Commission issued
Staff Accounting Bulletin 107 to provide clarification of the OCA's
interpretation of SFAS 123R as it applies to share based compensation
arrangements for both employees and non employees. The Company has evaluated the
effect of the adoption of SFAS 123R and has concluded that its adoption did not
have a material affect on our financial condition and results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We believe that we have limited exposure to financial market risks,
including changes in interest rates. At September 30, 2006, all of our available
excess funds are cash or cash equivalents. The value of our cash and cash
equivalents is not materially affected by changes in interest rates. A
hypothetical change in interest rates of 1.0% would result in an annual change
in our net loss of approximately $36,000 based on cash and cash equivalent
balances at September 30, 2006. We currently hold no derivative instruments and
do not earn foreign-source income.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures.
As of the end of the Company's most recently completed fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) covered by
this report, the Company carried out an evaluation, with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based
upon that evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the Securities Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms.
Changes in internal controls.
There have been no changes in the Company's internal controls over
financial reporting that occurred during the Company's last fiscal quarter to
which this report relates that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
- 19 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On September 22, 2004, Boundless Depot, LLC ("Boundless Depot") and Scott
Johnson, one of two Boundless Depot shareholders, sued GoAmerica and Wynd
Communications in the Superior Court of the State of California for the County
of Los Angeles, claiming damages of one million dollars for GoAmerica's refusal
to pay Boundless Depot unattained contingent consideration, comprising cash
and/or GoAmerica Common Stock, with respect to the Asset Purchase Agreement
dated as of February 8, 2003 (the "Deafwireless Agreement"), pursuant to which
GoAmerica and Wynd Communications acquired certain Deafwireless assets. The
total value of such contingent consideration, if all contingencies had been
fully met and amounts paid immediately thereupon, would not have exceeded
$211,000; however, the Company does not believe any of the contingent
consideration is owed to Boundless Depot or either of its shareholders since
conditions of the Deafwireless Agreement were not met and the Company incurred
costs for which it is entitled to receive reimbursement from Boundless Depot or
offset against any amounts that may become payable to Boundless Depot. Upon
petition by GoAmerica and Wynd Communications, the Court has ordered this matter
into arbitration, which process is now pending. The Company intends to defend
this action vigorously and may elect to pursue counterclaims.
Item 6. Exhibits.
31.1 Certification of the Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- 20 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOAMERICA, INC.
DATE: November 8, 2006 By: /s/ Daniel R. Luis
-----------------------------
Daniel R. Luis
Chief Executive Officer
(Principal Executive Officer)
DATE: November 8, 2006 By: /s/ Donald G. Barnhart
-----------------------------
Donald G. Barnhart
Chief Financial Officer
(Principal Financial and
Accounting Officer)
- 21 -