UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
Commission File No. 0-29359
GoAmerica, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3693371
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
433 Hackensack Avenue, Hackensack, New Jersey 07601
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(Address of Principal Executive Offices) (Zip Code)
(201) 996-1717
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(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:
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Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of May 10, 2002:
Class Number of Shares
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Common Stock, $.01 par value 53,768,452
GOAMERICA, INC.
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION..................................................................... 1
Item 1. Financial Statements (unaudited).................................................... 1
Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001........ 2
Condensed Consolidated Statements of Operations for the Three Months Ended March 31,
2002 and 2001...................................................................... 3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
2002 and 2001...................................................................... 4
Notes to Condensed Consolidated Financial Statements.................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
General................................................................................. 8
Results of Operations................................................................... 9
Liquidity and Capital Resources......................................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 12
PART II. OTHER INFORMATION......................................................................... 13
Item 1. Legal Proceedings................................................................... 13
Item 2. Changes in Securities and Use of Proceeds........................................... 13
Item 5. Other Information................................................................... 13
Item 6. Exhibits and Reports on Form 8-K.................................................... 14
SIGNATURES.............................................................................................. 15
-i-
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
1
GOAMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
March 31, December 31,
2002 2001
-----------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents....................................................... $ 24,293 $ 34,977
Accounts receivable, net........................................................ 9,774 8,672
Merchandise inventories, net.................................................... 7,108 7,967
Prepaid expenses and other current assets....................................... 1,455 2,373
------------- --------------
Total current assets................................................................. 42,630 53,989
Restricted cash...................................................................... 2,023 1,396
Property, equipment and leasehold improvements, net.................................. 13,124 14,158
Goodwill, net........................................................................ 14,593 14,593
Trade names and other intangible assets, net......................................... 2,517 2,950
Other assets......................................................................... 925 699
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$ 75,812 $ 87,785
============== ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable................................................................ $ 8,919 $ 9,676
Accrued expenses................................................................ 7,663 7,565
Deferred revenue................................................................ 3,273 2,805
Other current liabilities....................................................... 510 651
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Total current liabilities............................................................ 20,365 20,697
Other liabilities.................................................................... 583 675
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized: 200,000,000 shares in 2002 and 2001;
issued: 53,750,587 in 2002 and 53,709,803 in 2001............................... 537 537
Additional paid-in capital...................................................... 269,082 269,053
Deferred employee compensation.................................................. (2,232) (2,842)
Accumulated deficit............................................................. (212,523) (200,335)
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Total stockholders' equity .......................................................... 54,864 66,413
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$ 75,812 $ 87,785
============= ==============
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 March 31,
----------------------------
2002 2001
----------------------------
Revenues:
Subscriber......................................................... $ 8,135 $ 5,365
Equipment.......................................................... 2,258 2,389
Other.............................................................. 50 245
----------- -----------
10,443 7,999
Costs and Expenses:
Cost of subscriber airtime......................................... 6,250 1,730
Cost of network operations......................................... 763 755
Cost of equipment revenue.......................................... 2,295 2,909
Sales and marketing................................................ 2,519 7,779
General and administrative......................................... 8,327 8,059
Research and development........................................... 1,000 1,281
Depreciation and amortization...................................... 1,172 560
Amortization of goodwill and other intangibles..................... 433 4,537
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22,759 27,610
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Loss from operations.................................................... (12,316) (19,611)
Interest income, net.................................................... 128 1,479
----------- -----------
Net loss applicable to common stockholders.............................. $ (12,188) $ (18,132)
=========== ===========
Basic net loss per share applicable to common stockholders.............. $ (0.23) $ (0.34)
Diluted net loss per share applicable to common stockholders............ $ (0.23) $ (0.34)
============ ============
Weighted average shares used in computation of basic net loss per
share applicable to common stockholders............................. 53,712,199 52,608,875
Weighted average shares used in computation of diluted net loss per
share applicable to common stockholders............................. 53,739,198 53,175,929
The accompanying notes are an integral part of these financial statements.
-3-
GOAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2002 2001
----------------------------
Operating activities
Net loss.................................................................................. $ (12,188) $ (18,132)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................................... 1,172 560
Amortization of intangible assets....................................................... 433 4,537
Provision for losses on accounts receivable............................................. 807 255
Non-cash employee compensation.......................................................... 610 1,339
Non-cash rent expense................................................................... 12 20
Non-cash marketing charges.............................................................. -- 551
Changes in operating assets and liabilities:
Increase in accounts receivable....................................................... (1,909) (2,076)
Decrease (increase) in merchandise inventories........................................ 859 (6,275)
Decrease in prepaid expenses and other assets......................................... 65 1,065
Decrease in accounts payable.......................................................... (757) (219)
Increase (decrease) in accrued expenses............................................... 129 (4,244)
Increase in deferred revenue.......................................................... 468 1,711
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Net cash used in operating activities..................................................... (10,299) (20,908)
Investing activities
Purchase of property, equipment and leasehold improvements................................ (138) (1,314)
Acquisition of business, net of acquired cash............................................. -- (82)
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Net cash used in investing activities..................................................... (138) (1,396)
Financing activities
Proceeds from sale of common stock and stock purchase warrants, net....................... 29 108
Payments made on capital lease obligations................................................ (276) (144)
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Net cash used in financing activities..................................................... (247) (36)
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Decrease in cash and cash equivalents..................................................... (10,684) (22,340)
Cash and cash equivalents at beginning of period.......................................... 34,977 114,411
--------- ------------
Cash and cash equivalents at end of period................................................ $ 24,293 $ 92,071
========= ============
Non-cash investing and financing activities
Acquisition of equipment through capital leases........................................... $ -- $ 211
Issuance of common stock purchase warrants in exchange for sales and marketing services... $ -- $ 765
The accompanying notes are an integral part of these financial statements.
-4-
GOAMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. (the "Company") and its wholly-owned subsidiaries. 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) which the Company
considers necessary for the fair presentation of its financial position as of
March 31, 2002 and the results of its operations and its cash flows for the
three month periods ended March 31, 2002 and 2001. 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 for the
year ended December 31, 2001.
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.
The Company is highly dependent on third-party providers for wireless
communication services.
The Company has incurred significant operating losses since its
inception and as of March 31, 2002 has an accumulated deficit of $212.5 million.
As of March 31, 2002, the Company has $24.3 million in cash and cash
equivalents, exclusive of $2.0 million in restricted cash supporting certain
letters of credit. In order to reduce certain operating expenses, during 2001,
the Company reduced the number of its employees by outsourcing certain operating
functions, modified certain of its pricing strategies to recover the costs
incurred for roaming and, in certain instances, suspended service to a limited
number of subscribers contributing to excessive roaming costs. The Company's
2002 operating plan includes further reductions in headcount as well as
significant reductions of sales and marketing expenditures and capital
expenditures from the levels incurred during 2001. In execution of the 2002
operating plan, during the first quarter and into the second quarter 2002, the
Company took steps to reduce its annual payroll by more than 10% and took
further actions to reduce sales and marketing expenses. In the event management
is unable to achieve its plans, additional further cost reductions may be
required. There can be no assurance that the Company will achieve its 2002
operating plan.
Results for the interim period are not necessarily indicative of
results that may be expected for the entire year. During the first quarter of
2001, the Company renegotiated certain contractual obligations. As a result, the
Company recorded a $1.9 million one-time reduction of accruals for certain
subscriber-related costs recorded in prior periods.
Note 2 - Significant Accounting Policies:
Recent Accounting Pronouncements
In May 2000, the Emerging Issues Task Force, or EITF, reached a
consensus on EITF 00-14, "Accounting for Certain Sales Incentives", which
provides guidance on accounting for discounts, coupons, rebates and free
products, as well as the classification of these discounts, coupons, rebates and
free products in the statement of operations. The Company adopted the provisions
of EITF 00-14 effective April 1, 2001. The adoption of the consensus resulted in
the reclassification of certain sales incentives as a reduction of subscriber
revenues. All prior period results reflect such reclassification. Prior to April
1, 2001, such incentives were recorded entirely as reductions to equipment
revenue. The adoption of this consensus had no impact on total revenues or on
net loss.
-5-
On August 1, 2001, the FASB issued SFAS No. 144, "Accounting For
Impairment of Long Lived Assets". The Company adopted this pronouncement
effective January 1, 2002. SFAS No. 144 prescribes the accounting for long-lived
assets (excluding goodwill) to be disposed of by sale. SFAS No. 144 retains the
requirement of SFAS No. 121 to measure long-lived asset classified as held for
sale at the lower of its carrying value or fair market value less the cost to
sell. Therefore, discontinued operations are no longer measured on a net
realizable basis, and future operating results are no longer recognized before
they occur. The impact of adopting SFAS No. 144 had no effect on the results of
operations or financial position of the Company.
Note 3 -- Earnings Per Share:
The Company computes net loss per share under the provisions of SFAS
No. 128, "Earnings per Share" ("SFAS 128") and Staff Accounting Bulletin No. 98
("SAB 98").
Under the provisions of SFAS 128 and SAB 98, basic and diluted net loss
per share is computed by dividing the net loss applicable to common stockholders
for the period by the weighted-average number of shares of Common Stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential common shares if the effect is antidilutive. Basic earnings
per share is computed by dividing loss applicable to common stockholders by the
weighted-average number of shares of Common Stock outstanding during the period.
The weighted average number of shares utilized in arriving at basic earnings per
share reflects an adjustment to exclude 26,999 and 567,054 common shares for the
three month periods ended March 31, 2002 and 2001, respectively, for outstanding
shares held in escrow as a result of the Company's acquisitions during 2001 and
2000. Diluted earnings per share is determined in the same manner as basic
earnings per share except that the number of shares does not include the
adjustment for escrowed shares and 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, warrants and
the assumed preferred stock conversion is anti-dilutive and as such, these
amounts (except for warrants issued for nominal consideration) have been
excluded from the calculation of diluted earnings per share.
Note 4 - Goodwill and Other Intangible Assets:
Effective July 1, 2001, the Company adopted SFAS No. 141 "Business
Combinations" and effective January 1, 2002, the Company adopted SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No.141 requires business
combinations initiated after July 1, 2001 to be accounted for using the purchase
method of accounting. It also specifies the types of intangible assets that are
required to be recognized and reported separate from goodwill. 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. During the first half of 2002, the Company will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of January 1, 2002 and as such, the Company has not
yet determined what the effect of these tests will be on the results of
operations and financial position of the Company.
-6-
The following table reflects unaudited pro forma results of operations
of the Company, giving effect to SFAS No. 142 as if it were adopted on January
1, 2001:
Three Months Ended March 31,
2002 2001
------------------------------------------------
Net loss, as reported $ (12,188) $ (18,132)
Add back: amortization expense, net of tax -- 3,199
------------------------------------------------
Pro forma net loss $ (12,188) $ (14,933)
================================================
Basic net loss per common shareholders:
As reported $ (0.23) $ (0.34)
Pro forma $ (0.23) $ (0.28)
Diluted net loss per common shareholders:
As reported $ (0.23) $ (0.34)
Pro forma $ (0.23) $ (0.28)
The following table summarizes the activity in Goodwill for the periods indicated:
Three Months Ended March 31,
2002 2001
------------------------------------------------
Beginning balance, net $ 14,593 $ 40,117
Amortization -- (3,199)
------------------------------------------------
Ending balance, net $ 14,593 $ 36,918
================================================
The following table summarizes Other Intangibles subject to amortization at the dates indicated:
March 31, 2002 December 31, 2001
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
------------------------------------------------------------------------------------------------------------
Trade Names $ 4,572 $(3,374) $ 1,198 $ 4,572 $(3,282) $ 1,290
Technology 3,017 (2,603) 414 3,017 (2,557) 460
Customer Lists 2,258 (1,853) 405 2,258 (1,808) 450
Patents 1,000 (500) 500 1,000 (250) 750
------- ------- -------- --------- ------- -------
$10,847 $(8,330) $ 2,517 $ 10,847 $(7,897) $ 2,950
======= ======= ======== ========= ======= =======
Amortization expense for Other Intangibles totaled $433,000 and $1.3
million for the three months ended March 31, 2002 and 2001, respectively.
Aggregate amortization expense for intangible assets is estimated to be:
Nine Months Ending December 31, 2002 $1,049
Years Ending December 31,: 2003 733
2004 551
2005 184
-7-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
General
GoAmerica, Inc., a Delaware corporation ("We," "Us" or the "Company")
is a wireless data and Internet solutions provider addressing the productivity
and communications needs of business customers. Utilizing our proprietary
Go.Web(TM) technology, our solutions enable corporations to improve the
productivity of their workers by enabling secure wireless access to corporate
data on many wireless computing devices and over many wireless data networks.
We derive our revenue primarily from the sale of basic and value-added
wireless data services and the sale of related mobile devices to our
subscribers. During March 1997, we commenced offering our services to
individuals and businesses. Since our inception, we have invested significant
capital to build our wireless network operations and e-commerce system as well
as our billing system. Recently, we have invested additional capital in the
development of our software applications Go.Web and Mobile Office as well as
other software applications. We provide and expect to continue to provide mobile
devices made by third parties to our customers at prices below our costs for
such devices. We also expect to continue to incur sales and marketing, systems
development and administrative expenses. We have incurred operating losses since
our inception and expect to continue to incur operating losses for at least the
next several quarters. Therefore, we will need to significantly improve our
overall gross margins, further reduce our selling, general and administrative
expenses and generate significant revenue to become profitable and sustain
profitability on a quarterly or annual basis. We will have to increase
substantially our subscriber base in order to achieve our business plan.
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.
Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its condensed consolidated financial statements. We derive 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. We also charge our CDPD subscribers a per kilobyte fee for using a
mobile device outside of a designated geographical area, or roaming, such fees
are recognized as revenue when collected. We also generally charge a
non-refundable activation fee upon initial subscription. To the extent such fees
exceed the related costs, they are deferred and recognized ratably over the life
of the related service contracts which is generally six months, one year or two
years. Equipment revenue is recognized upon shipment to the end user. We also
provide mobile devices to our customers at prices below our costs as incentives
for customers to enter into service agreements. Such incentives are recorded as
a reduction to subscriber and equipment revenue, at the time of sale, allocated
based upon the relative fair value of the equipment and services provided. 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 and other intangibles, 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. On January 1, 2002, we adopted Statement of Financial
Accounting Standard No. 142, "Goodwill and Other Intangible Assets," and will be
required to analyze our goodwill for impairment issues during the first six
months of 2002, and on an annual basis thereafter or upon the occurrence of an
impairment indicator.
-8-
Results of Operations
Three months ended March 31, 2002 Compared to Three months ended March 31, 2001
Subscriber revenue. Subscriber revenue increased 52%, to $8.1 million
for the three months ended March 31, 2002 from $5.4 million for the three months
ended March 31, 2001. The increase was due to having an increased average
subscriber base. Our subscriber base increased to 152,720 subscribers at March
31, 2002 from 71,587 subscribers at March 31, 2001. A significant portion of
such new subscribers were enterprise customers. We expect the number of our
subscribers will increase as a result of our continued leveraging of strategic
agreements. Our average monthly revenue per user, or ARPU, decreased to $23.48
for the three months ended March 31, 2002 from $30.23 for the three months ended
March 31, 2001. The decline in ARPU was due to an increase in the number of new
subscribers from the sale of our Go.Web value added services, which generally
have a lower ARPU than our full-service offerings. During the fourth quarter of
2001, we began charging our customers a per kilobyte fee for roaming. Amounts
billed to subscribers for roaming that have been recognized as revenue have been
insignificant to date.
Equipment revenue. Equipment revenue decreased slightly to $2.3 million
for the three months ended March 31, 2002 from $2.4 million for the three months
ended March 31, 2001. This decrease was primarily due to lower sales prices for
mobile devices sold due to current market conditions.
Other revenue. Other revenue, which consists primarily of revenue
derived from consulting services, decreased to $50,000 for the three months
ended March 31, 2002 from $245,000 for the three months ended March 31, 2001.
This decrease was primarily due to the our decision not to pursue consulting
projects and consulting services to third parties.
Cost of subscriber airtime. Cost of subscriber airtime increased 261%,
to $6.3 million for the three months ended March 31, 2002 from $1.7 million for
the three months ended March 31, 2001. Cost of subscriber airtime consists of
wireless airtime costs. This increase was partially due to an increase in our
subscriber base and a related increase in airtime usage during the three months
ended March 31, 2002 compared to the three months ended March 31, 2001.
Additionally, during the three months ended March 31, 2001, we recorded a $1.9
million one-time reduction of accruals for certain subscriber-related costs
recorded in prior periods. Excluding the one-time adjustment, cost of subscriber
airtime increased 75%, to $6.3 million for the three months ended March 31, 2002
from $3.6 million for the three months ended March 31, 2001. Roaming costs were
$814,000 for the three months ended March 31, 2002 compared to $718,000 for the
three months ended March 31, 2001. We expect roaming costs either to be
recovered as we now bill our subscribers for these costs or reduced as a result
of our new pricing plan. We expect the number of subscribers and related use of
our services to increase which will result in increased costs of subscriber
airtime.
Cost of network operations. Cost of network operations increased
slightly to $763,000 for the three months ended March 31, 2002 from $755,000 for
the three months ended March 31, 2001.
Cost of equipment revenue. Cost of equipment revenue decreased 21%, to
$2.3 million for the three months ended March 31, 2002 from $2.9 million for the
three months ended March 31, 2001. This decrease primarily was due to a non-cash
inventory charge recorded in 2001 to value our inventory at the lower of cost or
market.
Sales and marketing. Sales and marketing expenses decreased 68%, to
$2.5 million for the three months ended March 31, 2002 from $7.8 million for the
three months ended March 31, 2001. This decrease primarily was due to decreased
advertising costs paid to third parties as well as decreased salaries and
benefits for personnel performing sales and marketing activities. We expect
sales and marketing expenses to decline as a percentage of revenue as we
continue to leverage our channel relationships.
General and administrative. General and administrative expenses
increased 3%, to $8.3 million for the three months ended March 31, 2002 from
$8.1 million for the three months ended March 31, 2001. This increase primarily
was due to the outsourcing of our customer and technical support centers and was
partially offset by decreased salaries and benefits for personnel performing
business development and general corporate activities and decreased
infrastructure buildout. We expect general and administrative expenses to
decline as a percentage of revenue as we complete additional phases of our
infrastructure buildout as well as further cost reductions as set forth in our
2002 operating plan.
-9-
Research and development. Research and development expense decreased
22%, to $1.0 million for the three months ended March 31, 2002 from $1.3 million
for the three months ended March 31, 2001. This decrease primarily was due to
decreased salaries and benefits for personnel performing research and
development activities. We expect research and development expenses to decline
as a percentage of revenue as we continue to develop and maintain our Go.Web
technology.
Amortization of goodwill and other intangibles. Amortization of
goodwill and other intangibles decreased for the three months ended March 31,
2002 to $433,000 from $4.5 million for the three months ended March 31, 2001.
This decrease primarily was due to the adoption of Statement of Financial
Accounting Standard No. 142, "Goodwill and Other Intangible Assets" on January
1, 2002, which no longer requires goodwill and certain intangible assets to be
amortized, but instead tested for impairment at least annually. In addition, the
decrease reflects the impact of reduced amortization of Other Intangibles as a
result of the impairment charge recorded during the fourth quarter 2001.
Interest income. Interest income decreased to $128,000 for the three
months ended March 31, 2002 from $1.5 million for the three months ended March
31, 2001. This decrease primarily was due to the use of cash to fund our losses
from operations and infrastructure buildout.
Liquidity and Capital Resources
Since our inception, we financed our operations through private
placements of our equity securities and our redeemable convertible preferred
stock, which have resulted in aggregate net proceeds of approximately $18.4
million through December 31, 1999. During the first quarter of 2000, we issued
and sold 648,057 shares of Series B Preferred Stock for net proceeds of
approximately $24.6 million. In April 2000, we consummated our initial public
offering of 10,000,000 shares of our common stock at a price to the public of
$16.00 per share, all of which were issued and sold for net proceeds of $146.2
million. As of March 31, 2002, we had $24.3 million in cash and cash equivalents
and $22.3 million of working capital.
We have incurred significant operating losses since our inception and
as of March 31, 2002 have an accumulated deficit of $212.5 million. During the
three months ended March 31, 2002, we incurred a net loss of $12.2 million and
used $10.3 million of cash to fund operating activities. As of March 31, 2002 we
had $24.3 million in cash and cash equivalents, exclusive of $2.0 million in
restricted cash supporting certain letters of credit. In order to reduce
operating expenses, during 2001, we reduced the number of our employees by
outsourcing certain operating functions, modified certain of our pricing
strategies to recover the costs incurred for roaming, and, in certain instances,
suspended service to a limited number of subscribers contributing to excessive
roaming costs. Our 2002 operating plan includes further reductions in headcount
as well as significant reductions in sales and marketing expenditures and
capital expenditures from the levels incurred during 2001. In execution of our
2002 operating plan, during the first quarter and into the second quarter 2002,
we took steps to reduce our annual payroll by more than 10% and took further
actions to reduce sales and marketing expenses. In the event we are unable to
achieve our plans, additional further cost reductions may be required. We
currently anticipate that our available cash resources will be sufficient to
fund our operating needs for at least the next 12 months. Thereafter, we may
require additional financing. 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 decreased to $10.3 million for
the three months ended March 31, 2002 from $20.9 million for the three months
ended March 31, 2001. This decrease primarily was due to decreased losses from
operations as well as maintaining decreased levels of mobile device inventories.
Net cash used in investing activities was $138,000 for the three months
ended March 31, 2002 as compared to $1.4 million for the three months ended
March 31, 2001. Cash used in investing activities was principally for purchases
of property, equipment and leasehold improvements.
Net cash used by financing activities was $247,000 for the three months
ended March 31, 2002 as compared to $36,000 for the three months ended March 31,
2001. Cash used in financing activities for the three months ended March 31,
2002 was principally for repayment of capital leases and was partially offset by
proceeds from the exercise of stock options.
As of March 31, 2002, our principal commitments consisted of
obligations outstanding under operating leases. As of March 31, 2002, future
minimum payments for non-cancelable operating leases having terms in excess of
one year amounted to $12.0 million, of which approximately $1.9 million is
payable for the remainder of 2002.
-10-
The following table summarizes GoAmerica's contractual obligations at
March 31, 2002, and the effect such obligations are expected to have on its
liquidity and cash flow in future periods.
Less than 1
March 31, (In thousands) Total Year 1-3 Years 4-5 Years After 5 Years
Contractual Obligations:
Capital Lease Obligations $ 906 $ 585 $ 321 $ -- $ --
Operating Lease 12,007 2,463 3,419 2,808 3,317
Obligation
---------------- -------------- ------------ ------------- --------------
Total Contractual Cash $12,913 $3,048 $3,740 $2,808 $3,317
Obligation
================ ============== ============ ============= ==============
Other Commercial Commitments:
Standby Letter of Credit $ 1,981 $1,375 $ 606 $ -- $ --
Inventory Purchases 1,200 1,200 -- -- --
---------------- -------------- ------------ ------------- --------------
Total Commercial $ 3,181 $2,575 $ 606 $ -- $ --
Commitment
================ ============== ============ ============= ==============
Forward Looking Statements
Statements contained in this Form 10-Q that are not based on historical
fact are "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. 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 need to substantially increase the number of our
subscribers; (iii) our need to improve our systems to monitor our wireless
airtime costs more effectively; (iv) our ability to respond to the rapid
technological change of the wireless data industry and offer new services; (v)
our dependence on wireless carrier networks; (vi) our need to expand our sales
and marketing activities and build the GoAmerica brand; (vii) our ability to
respond to increased competition in the wireless data industry; (viii) our
ability to integrate acquired businesses and technologies; (ix) our ability to
leverage strategic alliances to generate revenue growth; (x) our ability to
increase or maintain gross margins, profitability, liquidity and capital
resources; and (xi) our ability to manage expanded operations. As a result of
such risks and others expressed from time to time in our filings with the
Securities and Exchange Commission, our actual results may differ materially
from the results discussed in or implied by the forward-looking statements
contained herein.
Recent Accounting Pronouncements
In May 2000, the Emerging Issues Task Force, or EITF, reached a
consensus on EITF 00-14, "Accounting for Certain Sales Incentives", which
provides guidance on accounting for discounts, coupons, rebates and free
products, as well as the classification of these discounts, coupons, rebates and
free products in the statement of operations. We adopted the provisions of EITF
00-14 effective April 1, 2001. The adoption of the consensus resulted in the
reclassification of certain sales incentives as a reduction of subscriber
revenues. All prior period results reflect such reclassification. Prior to April
1, 2001, such incentives were recorded entirely as reductions to equipment
revenue. The adoption of this consensus had no impact on total revenues or on
net loss.
On August 1, 2001, the FASB issued SFAS No. 144, "Accounting For
Impairment of Long Lived Assets". We are required to adopt this pronouncement
beginning January 1, 2002. SFAS No. 144 prescribes the accounting for long-lived
assets (excluding goodwill) to be disposed of by sale. SFAS No. 144 retains the
requirement of SFAS No. 121 to measure long-lived asset classified as held for
sale at the lower of its carrying value or fair market value less the cost to
sell. Therefore, discontinued operations are no longer measured on a net
realizable basis, and future operating results are no longer recogninzed before
they occur. The impact of adopting SFAS No. 144 had no effect on our results of
operations or financial position.
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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 March 31, 2002, 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 net loss of approximately $0.2 million based on cash and cash equivalent
balances at March 31, 2002. We currently hold no derivative instruments and do
not earn foreign-source income.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On February 15, 2002, Eagle Truck Lines Inc. (a/k/a AirEagle, Inc.)
filed suit against GoAmerica, Inc. in the Superior Court of the State of
California for the County of Los Angeles seeking payment in an amount not less
than $590,000, plus damages, expenses, interest and costs of suit, based on the
alleged failure of GoAmerica, Inc., as successor in interest to Flash Creative
Management, Inc., to perform its obligations pursuant to a written contract
dated on or about July 2, 1999, by and between Flash and AirEagle. AirEagle
alleged that GoAmerica, Inc. assumed the rights and liabilities under such
contract as a result of its purchase of substantially all of the assets of Flash
in November 2000. AirEagle further alleged that it has completely performed its
obligations under the contract and that GoAmerica has failed to complete its
development services and deliver the software product contemplated by the
contract and was thus unjustly enriched. This matter is in its early stages and
we intend to vigorously defend such matter. There can be no assurance, however,
that such matter will be decided in our favor.
Item 2. Changes in Securities and Use of Proceeds
Changes in Securities
Option Grants
On January 17, 2002, we granted Stock Options to various employees,
officers and directors pursuant to our 1999 Stock Plan. All of such Stock
Options were granted at an exercise price of $1.89 per share, the then current
fair market value of the Common Stock, with four year vesting, except for one
grant which had a shortened vesting schedule. The aggregate number of shares of
common stock underlying such stock option grants totaled 1,647,074.
Use of Proceeds
On April 6, 2000, the Commission declared effective our Registration
Statement on Form S-1 (No. 333-94801) as filed with the Commission in connection
with our initial public offering of Common Stock. Pursuant to such Registration
Statement, on April 12, 2000 we consummated the issuance and sale of an
aggregate of 10,000,000 shares of our Common Stock, for a gross aggregate
offering price of $160 million. We incurred underwriting discounts and
commissions of approximately $11.2 million. In connection with such offering, we
incurred total expenses of approximately $2.6 million. As of March 31, 2002,
approximately $24.3 million of the $146.2 million in net proceeds received by us
upon consummation of such offering, pending specific application, were invested
in short-term, investment-grade, interest-bearing instruments. The remaining
$121.9 million of the net proceeds have been specifically applied as follows:
(i) $5.1 million for the acquisition of other businesses; (ii) $32.0 million for
sales and marketing expenses; (iii) $10.6 million for the purchase of capital
assets; and (iv) $74.2 million for working capital needs.
Item 5. Other Information.
Subsequent Events
Promotion.
Effective May 7, 2002, Daniel Luis was promoted to the position of
President and Chief Operating Officer. In connection with Mr. Luis' promotion,
Joseph Korb resigned from his position as President and assumed the position of
Executive Vice Chairman, Strategy and Strategic Alliances. Mr. Luis will report
directly to Aaron Dobrinsky, our Chairman and Chief Executive Officer.
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Item 6. Exhibits and Reports On Form 8-K.
(b) Reports on Form 8-K.
During the quarter ended March 31, 2002, we did not file any
Current Reports on Form 8-K with the Commission.
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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: May 14, 2002 By: /s/ Aaron Dobrinsky
-------------------
Aaron Dobrinsky
Chief Executive Officer
(Principal Executive Officer)
DATE: May 14, 2002 By: /s/ Francis J. Elenio
---------------------
Francis J. Elenio
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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