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 June 30, 2003
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 Identification No.)
Incorporation or Organization)
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):
Yes: No: X
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Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of July 31, 2003:
Class Number of Shares
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Common Stock, $.01 par value 54,338,341
GOAMERICA, INC.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Financial Statements (unaudited) . . . . . . . . . . . . . . . 1
Condensed Consolidated Balance Sheets as of June 30, 2003
and December 31, 2002 . . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2003 and 2002 . . . . . . . 3
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2003 and 2002 . . . . . . . . . . . . 4
Notes to Condensed Consolidated Financial Statements. . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 10
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Critical Accounting Policies and Estimates. . . . . . . . . . . . 10
Results of Operations . . . . . . . . . . . . . . . . . . . . . . 11
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . 16
Item 4. Controls and Procedures. . . . . . . . . . . . . . . . . . . . 16
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . 17
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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)
JUNE 30, DECEMBER 31,
2003 2002
------------ ----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,525 $ 4,982
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,041 5,780
Merchandise inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . 321 1,046
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . 430 520
------------ ----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,317 12,328
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 597 950
Property, equipment and leasehold improvements, net . . . . . . . . . . . . . . . 2,480 4,685
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 6,193
Trade names and other intangible assets, net. . . . . . . . . . . . . . . . . . . 1,472 1,467
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 876 1,142
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$ 15,742 $ 26,765
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,149 $ 4,694
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,222 5,917
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 854 2,406
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 348
------------ ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,397 13,365
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 962 383
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized: 200,000,000 shares in 2003 and 2002;
issued: 54,218,418 in 2003 and 54,026,057 in 2002 . . . . . . . . . . . . . . . 542 540
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . 269,067 269,015
Deferred employee compensation .. . . . . . . . . . . . . . . . . . . . . . . . (156) (314)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (262,070) (256,224)
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Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,383 13,017
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$ 15,742 $26,765
============ ==========
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 JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- -------------------------------
2003 2002 2003 2002
-------------- ---------------- -------------- ---------------
REVENUES:
Subscriber. . . . . . . . . . . . . . . . $ 2,932 $ 7,750 $ 5,443 $ 15,885
Equipment . . . . . . . . . . . . . . . . 240 1,770 651 4,029
Other . . . . . . . . . . . . . . . . . . 159 60 340 108
-------------- ---------------- -------------- ---------------
3,331 9,580 6,434 20,022
COSTS AND EXPENSES:
Cost of subscriber airtime. . . . . . . . 463 5,688 1,200 11,938
Cost of network operations. . . . . . . . 584 855 1,296 1,618
Cost of equipment revenue . . . . . . . . 486 1,967 883 4,262
Sales and marketing . . . . . . . . . . . 437 2,310 1,037 4,829
General and administrative. . . . . . . . 2,238 7,547 5,701 15,874
Research and development. . . . . . . . . 381 900 896 1,900
Depreciation and amortization . . . . . . 622 1,229 1,207 2,401
Amortization of other intangibles . . . . 322 433 551 866
Impairment of goodwill. . . . . . . . . . 193 -- 193 --
Impairment of long-lived assets . . . . . 1,052 -- 1,052 --
-------------- ---------------- -------------- ---------------
6,778 20,929 14,016 43,688
-------------- ---------------- -------------- ---------------
Loss from operations. . . . . . . . . . . . (3,447) (11,349) (7,582) (23,666)
OTHER INCOME (EXPENSE):
Gain on sale of subscribers . . . . . . . . 565 -- 1,745 --
Interest income, net. . . . . . . . . . . . 3 58 (9) 187
-------------- ---------------- -------------- ---------------
Total other income. . . . . . . . . . . . . 568 58 1,736 187
-------------- ---------------- -------------- ---------------
Net loss. . . . . . . . . . . . . . . . . . $ (2,879) $ (11,291) $ (5,846) $ (23,479)
============== ================ ============== ===============
Basic net loss per share. . . . . . . . . . $ (0.05) $ (0.21) $ (0.11) $ (0.44)
============== ================ ============== ===============
Diluted net loss per share. . . . . . . . . $ (0.05) $ (0.21) $ (0.11) $ (0.44)
============== ================ ============== ===============
Weighted average shares used in computation
of basic net loss per share . . . . . . . 54,119,170 53,780,668 54,094,590 53,735,542
Weighted average shares used in computation
of diluted net loss per share . . . . . . 54,119,170 53,807,667 54,094,590 53,762,541
The accompanying notes are an integral part of these financial statements.
-3-
GOAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
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2003 2002
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OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,846) $ (23,479)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 1,207 2,401
Amortization of other intangible assets . . . . . . . . . . . . . . . . . 551 866
Impairment of goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . 193 --
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . 1,052 --
Provision for losses (recoveries) on accounts receivable. . . . . . . . . (20) 1,215
Accrued loss on sublease. . . . . . . . . . . . . . . . . . . . . . . . . 551 --
Gain on sale of subscribers . . . . . . . . . . . . . . . . . . . . . . . (1,745) --
Non-cash employee compensation. . . . . . . . . . . . . . . . . . . . . . 158 1,221
Non-cash rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . 5 22
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable. . . . . . . . . . . . . . . 3,759 (1,310)
Decrease in merchandise inventories . . . . . . . . . . . . . . . . . . 725 2,946
Decrease (increase) in prepaid expenses and other current assets. . . . 90 (607)
Decrease in accounts payable. . . . . . . . . . . . . . . . . . . . . . (1,545) (540)
Decrease in accrued expenses and other liabilities. . . . . . . . . . . (3,123) (1,207)
(Decrease) increase in deferred revenue . . . . . . . . . . . . . . . . (1,552) 243
-------------- ---------------
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . (5,540) (18,229)
INVESTING ACTIVITIES
Change in other assets and restricted cash. . . . . . . . . . . . . . . . . 619 --
Purchase of property, equipment and leasehold improvements. . . . . . . . . (54) (270)
Proceeds from sale of subscribers . . . . . . . . . . . . . . . . . . . . . 1,745 --
Acquisition of subscribers. . . . . . . . . . . . . . . . . . . . . . . . . (236) --
-------------- ---------------
Net cash provided by (used) in investing activities . . . . . . . . . . . . 2,074 (270)
FINANCING ACTIVITIES
Issuance of common stock, net of related expenses . . . . . . . . . . . . . 54 29
Payments made on capital lease obligations. . . . . . . . . . . . . . . . . (45) (572)
-------------- ---------------
Net cash provided by (used) in financing activities . . . . . . . . . . . . 9 (543)
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Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . (3,457) (19,042)
Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . 4,982 34,977
-------------- ---------------
Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . $ 1,525 $ 15,935
============== ===============
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
The Company acquired through its subsidiary, Wynd Communications Corp.,
approximately 4,290 subscribers from Boundless Depot LLC. The purchase price of
approximately $556 (of which $236 has been paid as of June 30, 2003 and $320 is
included in accrued expenses) will be subject to adjustment for subscriber
churn.
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. (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 except as otherwise disclosed herein) that
the Company considers necessary for the fair presentation of its financial
position as of June 30, 2003 and the results of its operations and its cash
flows for the three and six month periods ended June 30, 2003 and 2002. 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, 2002.
The Company has formed strategic relationships with wireless carriers,
software providers, and hardware manufacturers who provide the mobile computer
user wireless communications, services and devices that complement the Company's
products and services. The Company also distributes wireless communication
devices, principally to customers of its wireless services, and earns
commissions from the procurement of subscribers on behalf of various wireless
network providers and EarthLink, Inc. ("EarthLink"). The Company is highly
dependent on EarthLink for billing and collections, customer support and
technical support. Additionally, the Company is highly dependent on EarthLink
and other third parties for wireless communication devices and wireless network
connectivity.
The Company operates in a highly competitive environment subject to rapid
technological change and emergence of new technology. Although management
believes that the Company's services are transferable to emerging technologies,
rapid changes in technology could have an adverse financial impact on the
Company.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. However, the Company
has incurred significant operating losses since its inception and, as of June
30, 2003, has an accumulated deficit of $262,100. As of June 30, 2003, the
Company had $1,500 in cash and cash equivalents ($1,200 at July 31, 2003),
exclusive of $597 in restricted cash supporting certain letters of credit.
Management's 2003 operating plan includes further reductions in employee-related
expenses as well as additional reductions in sales and marketing expenditures
from levels incurred during 2002. During the six months ended June 30, 2003, the
Company decided to retain an outside advisor to assist it in analyzing various
steps that it may take to enhance its liquidity. Such steps may include the sale
or other disposition of certain of the Company's assets, including its Go.Web
technology (as discussed in the Company's June 30, 2003 Form 8-K filing), and
the redeployment of the net proceeds in aspects of its business that the Company
believes are well positioned for revenue generation and growth. Additionally,
management is seeking to renegotiate the Company's long term lease obligations
and other vendor liabilities. The Company is currently in default on certain of
these obligations and liabilities. In the event management is unable to achieve
its plans, additional reductions in operations may be necessary. There can be no
assurance that the Company will achieve its 2003 operating plan, enter into an
agreement to enhance liquidity or successfully renegotiate its long term lease
obligations and other vendor liabilities. The accompanying financial statements
do not include any adjustments that might result from the outcome of this going
concern uncertainty. In the event management is unable to achieve its plans,
additional further cost reductions may be required.
Results for the interim period are not necessarily indicative of results
that may be expected for the entire year. During the second quarter of 2003,
the Company renegotiated certain contractual obligations. As a result, the
Company recorded a $763,000 one-time reduction of accruals for certain
subscriber-related costs recorded in prior periods.
-5-
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
Recent Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. Adoption of SFAS 146 is required with the
beginning of fiscal year 2003. The adoption of this statement did not have a
significant impact on the Company's results of operations.
In November 2002, the FASB issued FASB Interpretation, "FIN", No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 addresses the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that is has issued.
Under FIN No. 45, recognition and initial measurement provisions are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002,
irrespective of the guarantor's fiscal year end. The adoption of FIN No. 45 did
not have a significant impact on the Company's consolidated financial position
or results of operations.
In January 2003, the FASB issued FASB Interpretation FIN No. 46,
"Consolidation of Variable Interest Entities". FIN No. 46 clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 applies immediately to
variable interest entities (VIE's) created after January 31, 2003, and to VIE's
in which an enterprise obtains an interest after that date. It applies in the
first fiscal year or interim period beginning after June 15, 2003, to VIE's in
which an enterprise holds a variable interest that it acquired before February
1, 2003. FIN 46 applies to public enterprises as of the beginning of the
applicable interim or annual period. The adoption of FIN 46 is not expected to
have a material impact on the Company's consolidated financial position,
liquidity, or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liability and Equity". SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liability and equity. It also
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 15, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable financial instruments of nonpublic
entities. It is to be implemented by reporting a cumulative effect of a change
in an accounting principal of financial instruments created before the issuance
date of the Statement and still existing at the beginning of the interim period
of adoption. Restatement is not permitted. Management does not expect the
adoption of SFAS No. 150 to have an impact on the Company's consolidated
financial position or results of operations.
-6-
NOTE 3 - EARNINGS PER SHARE:
The Company computes net loss per share under the provisions of SFAS No.
128, "Earnings per Share", and Staff Accounting Bulletin ("SAB") No. 98.
Under the provisions of SFAS 128 and SAB 98, basic and diluted net loss per
share is computed by dividing the net loss 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 anti-dilutive. Basic earnings per share is computed by
dividing loss 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
common shares for the three and six month periods ended June 30, 2002 for
outstanding shares held in escrow as a result of the Company's acquisition
during 2001. 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:
During the second quarter of 2003, the Company identified indicators of
impairment, including recent changes in the Company's 2003 operating and cash
flow forecasts, and changes in its strategic plans for certain of its acquired
businesses, which required that the Company evaluate the appropriateness of the
carrying value of its long-lived assets, principally goodwill recorded upon the
2001 acquisition of OutBack Resource Group, Inc. ("Outback"). A write-down of
the entire goodwill related to acquisition of Outback of $193 was recorded
during the second quarter of 2003, reflecting the amount by which the carrying
amount of the respective reporting unit exceeded its respective fair values as
determined utilizing estimates of future discounted cash flows.
The following table summarizes other intangibles subject to amortization at
the dates indicated:
June 30, 2003 December 31, 2002
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
-----------------------------------------------------------------
Trade Names $ 4,572 $ (3,835) $ 737 $ 4,572 $ (3,651) $ 921
Technology 3,017 (2,833) 184 3,017 (2,741) 276
Customer Lists 2,258 (2,078) 180 2,258 (1,988) 270
Other 556 (185) 371 -- -- --
Patents 1,000 (1,000) -- 1,000 (1,000) --
-----------------------------------------------------------------
$11,403 $ (9,931) $1,472 $10,847 $ (9,380) $1,467
=================================================================
-7-
Amortization expense for other intangibles totaled $267 and $433 for the
three months ended June 30, 2003 and 2002, respectively, and $551 and $866 for
the six months ended June 30, 2003 and 2002, respectively. Aggregate
amortization expense for intangible assets is estimated to be:
Six Months Ending December 31, 2003 $ 642
Year Ending December 31, 2004 647
2005 183
NOTE 5 - STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees", using an intrinsic value approach to measure compensation
expense, if any. Under this method, compensation expense is recorded on the date
of the grant only if the current market price of the underlying stock exceeds
the exercise price. Options issued to non-employees are accounted for in
accordance with SFAS 123, "Accounting for Stock-Based Compensation", and
Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods and Services", using a fair value approach.
SFAS No. 123 established accounting and disclosure requirements using a
fair value-basis method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123, the Company has elected to continue to apply
the intrinsic value-based method of accounting described above, and has adopted
the disclosure requirements of SFAS No. 123. Had the Company elected to
recognize compensation cost based on fair value of the stock options at the date
of grant under SFAS 123, such costs would have been recognized ratably over the
vesting period of the underlying instruments and the Company's net loss and net
loss per common share would have increased to the pro forma amounts indicated in
the table below.
Three months ended June 30, Six months ended June 30,
--------------------------------- -------------------------------
2003 2002 2003 2002
---------------- --------------- -------------- ---------------
Net loss applicable to common stockholders, as
reported . . . . . . . . . . . . . . . . . . . . $ (2,879) $ (11,291) $ (5,846) $ (23,479)
Deduct: Stock-based employee compensation
expense included in reported net loss. . . . . . 79 611 158 1,221
Add: Total stock-based employee compensation
expense determined under fair value based method
for all awards . . . . . . . . . . . . . . . . . (1,149) (1,742) (2,298) (3,484)
---------------- --------------- -------------- ---------------
Pro forma net loss applicable to common
stockholders . . . . . . . . . . . . . . . . . . $ (3,949) $ (12,422) $ (7,986) $ (25,742)
================ =============== ============== ===============
Loss per share - basic, as reported. . . . . . . $ (0.05) $ (0.21) $ (0.11) $ (0.44)
================ =============== ============== ===============
Loss per share - diluted, as reported. . . . . . $ (0.05) $ (0.21) $ (0.11) $ (0.44)
================ =============== ============== ===============
Pro forma loss per share - basic . . . . . . . . $ (0.07) $ (0.23) $ (0.15) $ (0.48)
================ =============== ============== ===============
Pro forma loss per share - diluted . . . . . . . $ (0.07) $ (0.23) $ (0.15) $ (0.48)
================ =============== ============== ===============
The pro forma results above are not intended to be indicative of or a
projection of future results.
-8-
NOTE 6 - STRATEGIC ALLIANCE WITH EARTHLINK, INC.:
The Company formed a comprehensive strategic alliance with EarthLink by
entering into a series of agreements pursuant to which, among other things,
EarthLink purchased all of the Company's cellular digital packet data (CDPD)
subscribers as well as certain of the Company's Cingular and Motient network
subscribers. As a result of this alliance, the Company recorded a gain on the
sale of subscribers of $565 and $1,745 during the three and six months ended
June 30, 2003, respectively. Additionally, the Company entered into a sublease
agreement for a portion of the Company's principal offices no longer utilized as
a result of the Company's strategic alliance with Earthlink. Accordingly, the
Company recorded an accrued loss on sublease of $611 during the six months ended
June 30, 2003.
Additionally, as part of the strategic alliance, the Company and EarthLink
entered into an agreement to collaborate on developing new applications and
extensions of existing technology, including EarthLink-branded wireless data
services, as well as new technologies. As a result of this agreement, the
Company recorded approximately $53 and $174 of other revenue for the three and
six months ended June 30, 2003, respectively.
NOTE 7 - IMPAIRMENT OF LONG LIVED ASSETS:
During the second quarter of 2003, the Company evaluated the carrying value
of certain software and equipment, which were idled upon the most recent
transition of certain activities to EarthLink. As a result of this evaluation,
the Company wrote off specific assets with a carrying value of $1,052. This
charge was included in Impairment of long-lived assets in the Condensed
Consolidated Statements of Operations for the three and six Months Ended June
30, 2003.
NOTE 8 - ACQUISITION OF SUBSCRIBERS:
On February 8, 2003, the Company entered into an agreement to acquire
through its subsidiary, Wynd Communications Corp. ("Wynd"), approximately 4,290
subscribers from Boundless Depot LLC ("Boundless") . The purchase price of
approximately $556 will be subject to adjustment for subscriber churn and may be
satisfied by the issuance of up to 542,317 shares of Common Stock, valued at
$139, which will be issued no earlier then September 5, 2003, and cash
consideration totaling $417 (of which $320 is included in accrued expenses),
which will be payable in installments over the next 12 months varying in monthly
installments ranging from $15 to $115. The total purchase price will be
amortized as an other intangible asset on a straight line basis over a period of
12 months.
NOTE 9 - CONTINGENCIES:
On July 2, 2003, Eastern Computer Exchange, Inc. ("Eastern Computer") filed
suit against the Company in the United States District Court for the District of
New Jersey with respect to the Company's non-performance of certain payment
obligations pursuant to two equipment leases (the "Leases"). Eastern Computer
demanded and has received from the Company all of the equipment covered by the
Leases. Eastern Computer also seeks monetary amounts related to obligations
under leases ranging from approximately $200,000 to approximately $800,000. The
parties are currently in settlement discussions, however there can be no
assurance that such matter will be resolved in the Company's favor.
-9-
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"),
develops and distributes wireless data technology, applications and software
that address the productivity and communications needs of enterprise customers,
consumers and the deaf, hard of hearing or speech impaired community. In the
enterprise market, our solutions are primarily based on our proprietary software
technology called Go.Web. By utilizing Go.Web, corporations can improve the
productivity of employees by enabling secure wireless access to corporate data
on many wireless computing devices and over many wireless data networks. Our
Go.Web technology can be hosted and supported in a secure network operations
center maintained by GoAmerica or its third party outsourcing provider or
installed behind an enterprise's network security system, commonly know as the
firewall. Customers who opt to install the software do so by purchasing our
proprietary Go.Web Enterprise Server, formally known as Go.Web OnPrem(TM),
technology. In the consumer market, we primarily offer wireless data solutions
that are designed for people who are deaf, hard of hearing or speech impaired.
We market and support these services through Wynd Communications Corporation, a
wholly owned subsidiary of GoAmerica.
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 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. We have invested additional capital in the development
of our software applications Go.Web and Mobile Office, as well as other software
applications. We have provided mobile devices made by third parties to our
customers at prices below our costs for such devices. We have incurred operating
losses since our inception and expect to continue to incur operating losses for
at least the next several quarters. We will need to significantly improve our
overall gross margins and further reduce our selling, general and administrative
expenses to become profitable and sustain profitability on a quarterly or annual
basis. As a result of our strategic alliance with EarthLink, Inc., or
EarthLink, we anticipate overall revenue to decline while gross margins should
increase and selling, marketing and administrative expenses should decline. We
may continue to generate revenues from EarthLink from three primary sources: (i)
recurring service revenue; (ii) software revenue; and (iii) activation bounties.
We have substantially reduced our costs of subscriber airtime and operating
costs as a result of our strategic alliance with EarthLink.
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. 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. We also charged 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 charged 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 are generally
either six months, one year or two year agreements. 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 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
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assumptions change in the future, we may be required to record impairment
charges for these assets not previously recorded. During the second quarter of
2003, we evaluated the carrying value of certain software and equipment which
were idled upon our most recent transition of certain activities to EarthLink
and have recorded an adjustment to the carrying value of specific assets.
RESULTS OF OPERATIONS
Three months ended June 30, 2003 Compared to Three months ended June 30, 2002
Subscriber revenue. Subscriber revenue decreased 63%, to $2.9 million for
the three months ended June 30, 2003 from $7.8 million for the three months
ended June 30, 2002. This decrease was primarily due to the sale of our CDPD
subscribers, as well as a portion of our Cingular and Motient network
subscribers, to EarthLink during the fourth quarter 2002. Our subscriber base
decreased to 85,018 subscribers at June 30, 2003 from 132,800 subscribers at
June 30, 2002. Our ARPU decreased to $12.26 for the three months ended June 30,
2003 from $22.94 for the three months ended June 30, 2002. The decline in ARPU
was due to the sale of full-service offering subscribers referenced above. We
expect revenue to increase slightly and ARPU to remain constant from our
continued leveraging of strategic agreements for the sale of our Go.Web
value-added services and higher ARPU full-service offerings through Wynd.
Equipment revenue. Equipment revenue decreased to $240,000 for the three
months ended June 30, 2003 from $1.8 million for the three months ended June 30,
2002. This decrease was primarily due to lower sales of mobile devices as a
result of our strategic alliance with EarthLink. We anticipate that equipment
revenue will further decline as we will primarily sell mobile devices through
our subsidiary, Wynd Communications Corporation, or Wynd.
Other revenue. Other revenue, which consists primarily of revenue derived
from consulting services, increased to $159,000 for the three months ended June
30, 2003 from $60,000 for the three months ended June 30, 2002. This increase
was primarily due to our recent strategic alliance with EarthLink in which we
collaborate on developing new applications and extensions of existing
technology, including EarthLink-branded wireless data services, as well as new
technologies. We anticipate that consulting services may increase as a result of
our recent strategic alliance with EarthLink.
Cost of subscriber airtime. Cost of subscriber airtime decreased 92%, to
$463,000 for the three months ended June 30, 2003 from $5.7 million for the
three months ended June 30, 2002. This decrease was primarily due to the sale
of our CDPD subscribers, as well as a portion of our Cingular and Motient
network subscribers, to EarthLink during the fourth quarter of 2002.
Additionally, during the three months ended June 30, 2003, we recorded a
$763,000 one-time reduction of accruals for certain subscriber-related costs
recorded in prior periods. Excluding the one-time adjustment, cost of
subscriber airtime decreased 79%, to $1.2 million for the three months ended
June 30, 2003 from $5.7 million for the three months ended June 30, 2002. Cost
of subscriber airtime excluding such adjustment constitutes a so-called
"non-GAAP financial measure". We believe that disclosure of such measure
provides useful insight with respect to future operations. We expect the number
of subscribers and related use of our services to increase slightly as a result
of our continued leveraging of strategic agreements for the sale of our Go.Web
value-added services and higher ARPU full-service offerings through Wynd
Cost of network operations. Cost of network operations decreased to
$584,000 for the three months ended June 30, 2003 from $855,000 for the three
months ended June 30, 2002. We expect cost of network operations to further
decline as a result of decreased salaries and benefits for personnel performing
network operations activities.
Cost of equipment revenue. Cost of equipment revenue decreased 75%, to
$486,000 for the three months ended June 30, 2003 from $2.0 million for the
three months ended June 30, 2002. This decrease primarily was due to lower sales
of mobile devices and was partially offset by a non-cash inventory charge of
$200,000 recorded during the second quarter of 2003 to value a portion of our
remaining inventory at the lower of cost or market. As a result of our
strategic alliance with EarthLink, we anticipate that the cost of equipment
revenue will further decline as we will primarily sell mobile devices through
Wynd.
Sales and marketing. Sales and marketing expenses decreased 81%, to
$437,000 for the three months ended June 30, 2003 from $2.5 million for the
three months ended June 30, 2002. 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 further decline as a result of leveraging our
strategic alliance with EarthLink and other partners.
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General and administrative. General and administrative expenses decreased
70%, to $2.3 million for the three months ended June 30, 2003 from $7.5 million
for the three months ended June 30, 2002. This decrease primarily was due to
decreased salaries and benefits for personnel performing business development
and general corporate activities and decreased infrastructure buildout. We
expect general and administrative expenses to further decline as a result of our
outsourcing of billing, customer support and network services resulting from our
strategic alliance with EarthLink.
Research and development. Research and development expense decreased to
$381,000 for the three months ended June 30, 2003 from $900,000 for the three
months ended June 30, 2002. This decrease primarily was due to decreased
salaries and benefits for personnel performing research and development
activities. We expect research and development expenses to further decline as a
result of our strategic alliance with EarthLink.
Amortization of goodwill and other intangibles. Amortization of other
intangibles decreased for the three months ended June 30, 2003 to $322,000 from
$433,000 for the three months ended June 30, 2002. This decrease primarily was
due to patents being fully amortized. We expect amortization of other
intangibles to remain constant.
Impairment of long-lived assets. During the second quarter of 2003, we
identified certain indicators of impairment including recent changes in the
Company's 2003 operating and cash flow forecasts, and changes in our strategic
plans for certain of our acquired businesses which required that we evaluate the
appropriateness of the carrying value of our long-lived assets, principally
goodwill recorded upon the acquisition of OutBack Resource Group, Inc.,
("Outback"). A write-down of goodwill totaling $193,000 was recorded during the
second quarter of 2003, reflecting the amount by which the carrying amount of
the respective reporting unit exceeded its respective fair value. In addition,
as a result of our recent strategic alliance with EarthLink, we evaluated the
carrying value of certain software and equipment which were idled upon our most
recent transition of certain activities to EarthLink. As a result of this
evaluation, during the second quarter of 2003, we wrote-off specific assets with
a carrying value of $1.1 million.
Gain on sale of subscribers. Gain on sale of subscribers resulted from our
comprehensive strategic alliance whereby EarthLink purchased all of the
Company's cellular digital packet data (CDPD) subscribers as well as certain of
the Company's Cingular and Motient network subscribers. As a result of this
agreement, we recorded a gain on the sale of subscribers of $565,000 during the
three months ended June 30, 2003.
Six months ended June 30, 2003 Compared to Six months ended June 30, 2002
Subscriber revenue. Subscriber revenue decreased 66%, to $5.4 million for
the six months ended June 30, 2003 from $15.9 million for the six months ended
June 30, 2002. This decrease was primarily due to the sale of our CDPD
subscribers, as well as a portion of our Cingular and Motient network
subscribers, to EarthLink during the fourth quarter 2002. Our subscriber base
decreased to 85,018 subscribers at June 30, 2003 from 132,800 subscribers at
June 30, 2002. Our ARPU decreased to $15.17 for the six months ended June 30,
2003 from $23.48 for the six months ended June 30, 2002. The decline in ARPU was
due to the sale of full-service offering subscribers referenced above.
Equipment revenue. Equipment revenue decreased to $651,000 for the six
months ended June 30, 2003 from $4.0 million for the six months ended June 30,
2002. This decrease was primarily due to lower sales of mobile devices as a
result of our strategic alliance with EarthLink.
Other revenue. Other revenue, which consists primarily of revenue derived
from consulting services, increased to $340,000 for the six months ended June
30, 2003 from $108,000 for the six months ended June 30, 2002. This increase was
primarily due to our recent strategic alliance with EarthLink in which we will
collaborate on developing new applications and extensions of existing
technology, including EarthLink-branded wireless data services, as well as new
technologies.
Cost of subscriber airtime. Cost of subscriber airtime decreased 90%, to
$1.2 million for the six months ended June 30, 2003 from $11.9 million for the
six months ended June 30, 2002. This decrease was primarily due to the sale of
our CDPD subscribers, as well as a portion of our Cingular and Motient network
subscribers, to EarthLink during the fourth quarter of 2002. Additionally,
during the three months ended June 30, 2003, we recorded a $763,000 one-time
reduction of accruals for certain subscriber-related costs recorded in prior
periods. Excluding the one-time adjustment, cost of subscriber airtime
decreased 83%, to $2.0 million for the six months ended June 30, 2003 from $11.9
million for the six months ended June 30, 2002. Cost of subscriber airtime
excluding such adjustment constitutes a so-called "non-GAAP financial measure".
We believe that disclosure of such measure provides useful insight with respect
to future operations.
-12-
Cost of network operations. Cost of network operations decreased slightly
to $1.3 million for the six months ended June 30, 2003 from $1.6 million for the
six months ended June 30, 2002.
Cost of equipment revenue. Cost of equipment revenue decreased 79%, to
$883,000 for the six months ended June 30, 2003 from $4.3 million for the six
months ended June 30, 2002. This decrease primarily was due to lower sales of
mobile devices and was partially offset by a non-cash inventory charge of
$331,000 recorded during the six months ended June 30, 2003 to value a portion
of our remaining inventory at the lower of cost or market.
Sales and marketing. Sales and marketing expenses decreased 79%, to $1.0
million for the six months ended June 30, 2003 from $4.8 million for the six
months ended June 30, 2002. 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.
General and administrative. General and administrative expenses decreased
64%, to $5.7 million for the six months ended June 30, 2003 from $15.9 million
for the six months ended June 30, 2002. This decrease primarily was due to
decreased salaries and benefits for personnel performing business development
and general corporate activities and decreased infrastructure buildout.
Research and development. Research and development expense decreased 53%,
to $896,000 for the six months ended June 30, 2003 from $1.9 million for the six
months ended June 30, 2002. This decrease primarily was due to decreased
salaries and benefits for personnel performing research and development
activities.
Amortization of goodwill and other intangibles. Amortization of other
intangibles decreased for the six months ended June 30, 2003 to $551,000 from
$866,000 for the six months ended June 30, 2002. This decrease primarily was due
to patents being fully amortized.
Impairment of long-lived assets. During the second quarter of 2003, we
identified certain indicators of impairment including recent changes in the
Company's 2003 operating and cash flow forecasts, and changes in our strategic
plans for certain of our acquired businesses which required that we evaluate the
appropriateness of the carrying value of our long-lived assets, principally
goodwill recorded upon the acquisition of OutBack Resource Group, Inc.,
("Outback"). A write-down of goodwill totaling $193,000 was recorded during the
second quarter of 2003, reflecting the amount by which the carrying amount of
the respective reporting unit exceeded its respective fair value. In addition,
as a result of our recent strategic alliance with EarthLink, we evaluated the
carrying value of certain software and equipment which were idled upon our most
recent transition of certain activities to EarthLink. As a result of this
evaluation, during the second quarter of 2003, we wrote-off specific assets with
a carrying value of $1.1 million.
Gain on sale of subscribers. Gain on sale of subscribers resulted from our
comprehensive strategic alliance whereby EarthLink purchased all of the
Company's cellular digital packet data (CDPD) subscribers as well as certain of
the Company's Cingular and Motient network subscribers. As a result of this
agreement, we recorded a gain on the sale of subscribers of $1.7 million during
the six months ended June 30, 2003.
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
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 June 30, 2003, we had $1.5 million in cash and cash equivalents and a working
capital deficit of $3.1 million.
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We have incurred significant operating losses since our inception and as of
June 30, 2003 have an accumulated deficit of $262.1 million. During the six
months ended June 30, 2003, we incurred a net loss of $5.8 million and used $5.5
million of cash to fund operating activities. As of June 30, 2003 we had $1.5
million in cash and cash equivalents ($1.2 million at July 31, 2003), exclusive
of $597,000 in restricted cash supporting certain letters of credit. During
2002 and into 2003, we took steps to reduce our annual payroll by more than 40%
and took further actions to reduce sales and marketing expenses. In addition,
on September 25, 2002, we formed a comprehensive strategic alliance with
EarthLink by entering into a series of agreements. Pursuant to these
agreements, we may generate revenues from three primary sources: (i) recurring
service revenue; (ii) software revenue; and (iii) activation bounties. The
EarthLink agreements also enable us to reduce our costs of subscriber airtime.
Our 2003 operating plan includes further reductions in headcount as well as
additional reductions in sales and marketing expenditures from levels incurred
during 2002. Additionally, we are actively working to renegotiate our long term
lease obligations and other vendor liabilities. The Company currently is in
default of certain of such obligations and liabilities. We currently anticipate
that our available cash resources will be sufficient to fund our operating needs
for at least the next three months. For us to remain in business beyond such
three month period, we will likely 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. We may not be able to raise funds on terms favorable to us, or at
all. As a result of these and related considerations, our independent auditors
issued a going concern opinion in connection with our 2002 financial statements.
Over the past twelve months, our available cash has decreased
substantially. This reduction in liquidity creates significant constraints on
the manner in which our business can operate. We have retained an outside
advisor to assist us in analyzing various steps that we may take to enhance our
liquidity. Such steps may include the sale or other disposition of certain of
our assets, including our Go.Web technology, and the redeployment of the net
proceeds in aspects of our business which we believe are well positioned for
revenue generation and growth. We cannot assure you as to when or whether such
steps will be taken and, if taken, whether such steps will be successful.
Net cash used in operating activities decreased to $5.5 million for the six
months ended June 30, 2003 from $18.2 million for the six months ended June 30,
2002. This decrease primarily was due to decreased losses from operations.
We generated $2.1 million in cash in investing activities during the six
months ended June 30, 2003 as compared to using $270,000 in cash for the six
months ended June 30, 2002. Cash provided by investing activities primarily
resulted from the gain on sale of subscribers. Cash used in investing activities
during the six months ended June 30, 2002 was principally for purchases of
property, equipment and leasehold improvements.
We generated $9,000 in cash in financing activities during the six months
ended June 30, 2003 as compared to using $543,000 for the six months ended June
30, 2002. Cash provided by financing activities primarily resulted from proceeds
from the sale stock through option exercises. Cash used by financing activities
during the six months ended June 30, 2002 was principally for repayment of
capital leases and was partially offset by proceeds from the sale of stock
through our Employee Stock Purchase Plan.
As of June 30, 2003, our principal commitments consisted of obligations
outstanding under operating leases. As of June 30, 2003, future minimum payments
for non-cancelable operating leases having terms in excess of one year amounted
to $9.3 million, of which approximately $2.0 million is payable in the next
twelve months.
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The following table summarizes GoAmerica's contractual obligations at June
30, 2003, and the effect such obligations are expected to have on its liquidity
and cash flow in future periods.
Less than 1
June 30, (In thousands) Total Year 1-3 Years 4-5 Years After 5 Years
Contractual Obligations:
Capital Lease Obligations $ 242 $ 232 $ 10 $ -- $ --
Operating Lease
Obligations 9,284 1,960 2,950 2,278 2,096
------ ------------ ---------- ---------- --------------
Total Contractual Cash
Obligations $9,526 $ 2,192 $ 2,960 $ 2,278 $ 2,096
====== ============ ========== ========== ==============
Other Commercial Commitments:
Standby Letter of Credit $ 597 $ -- $ 597 $ -- $ --
------ ------------ ---------- ---------- --------------
Total Commercial Commitments $ 597 $ -- $ 597 $ -- $ --
====== ============ ========== ========== ==============
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 reduced capital resources and need for additional
liquidity; (iii) our ability to fund our operating needs through available cash
reserves; (iv) our ability to consummate our proposed divestiture of Go.Web
assets promptly and on a satisfactory basis; (v) the impact on our business from
our receiving a "going concern" opinion from our independent auditors; (vi) our
ability to successfully implement our strategic alliance with EarthLink; (vii)
our dependence on EarthLink to provide billing, customer and technical support
to our subscribers; (viii) our ability to respond to the rapid technological
change of the wireless data industry and offer new services; (ix) our dependence
on wireless carrier networks; (x) our ability to respond to increased
competition in the wireless data industry; (xi) our ability to integrate
acquired businesses and technologies; (xii) our ability to leverage strategic
alliances to generate revenue growth; (xiii) our ability to increase or
maintain gross margins, profitability, liquidity and capital resources; and
(xiv) our ability to manage our remaining 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 could differ materially from the results
discussed in or implied by the forward-looking statements contained herein.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires recording
costs associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. Adoption of SFAS No. 146 is required
with the beginning of fiscal year 2003. The adoption of this statement did not
have a significant impact on the Company's results of operations.
In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 addresses the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that is has issued.
Under FIN No. 45 recognition and initial measurement provisions are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002,
irrespective of the guarantor's fiscal year end. The adoption of FIN No. 45 did
not have a significant impact on our consolidated financial position or results
of operations.
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In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 clarifies the application of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN 46 applies immediately to variable interest entities
("VIE's") created after January 31, 2003, and to VIE's in which an enterprise
obtains an interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to VIE's in which an enterprise
holds a variable interest that it acquired before February 1, 2003. FIN No. 46
applies to public enterprises as of the beginning of the applicable interim or
annual period. The adoption of FIN No. 46 is not expected to have a material
impact on our consolidated financial position, liquidity, or results of
operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liability and Equity". SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liability and equity. It
also requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 15, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003, except for mandatorily redeemable financial instruments of nonpublic
entities. It is to be implemented by reporting a cumulative effect of a change
in an accounting principal of financial instruments created before the issuance
date of the Statement and still existing at the beginning of the interim period
of adoption. Restatement is not permitted. We do not expect the adoption of
SFAS No. 150 to have an impact on our consolidated financial position or 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 June 30, 2003, 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 $15,000 based on cash and cash equivalent balances
at June 30, 2003. We currently hold no derivative instruments and do not earn
foreign-source income.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
Disclosure controls and procedures. As of the end of the Company's most
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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 over financial reporting. 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 15, 2002, Eagle Truck Lines Inc. (a/k/a Air Eagle, Inc.) filed
suit against GoAmerica, Inc. in the Superior Court of the State of California
for the County of Los Angeles seeking payment of $590,000, plus other damages,
expenses, interest and costs of suit. This action was removed to the United
States District Court for the Central District of California and subsequently,
pursuant to a motion brought by GoAmerica, transferred to the District of New
Jersey where GoAmerica has moved to have it consolidated with the action
described in the next paragraph. (This motion will be decided once a decision
in the various motions to dismiss is rendered in the Flash action discussed
below.) Air Eagle alleges that GoAmerica, as successor in interest to Flash
Creative Management, Inc. ("Flash"), failed to perform its obligations under a
consulting contract dated July 2, 1999 (the "Contract"), by and between Flash
and Air Eagle. Air Eagle alleges that GoAmerica assumed the rights and
liabilities under this Contract as a result of its purchase of substantially all
of the assets of Flash in November 2000. On June 3, 2002, GoAmerica filed an
amended answer and counterclaim, denying the allegations of the complaint and
seeking payment from Air Eagle of an amount not less than $589,993.60, plus
expenses, interest and costs of suit based on Air Eagle's failure to pay for
services rendered by Flash and GoAmerica under the Contract. The Company
intends to defend this action and pursue its counterclaim vigorously.
In a separate but related matter, on July 31, 2002, GoAmerica filed suit
against Flash and certain former officers and shareholders of Flash (the "Flash
Defendants") in the United States District Court for the District of New Jersey
for violations of federal and state securities law and common law fraud in
connection with the sale of the assets of Flash to GoAmerica. In October 2002,
each of the Flash Defendants filed answers to GoAmerica's complaint denying all
of the Company's charges, with one of the Flash Defendants adding counterclaims
against the Company and certain named officers alleging, among other things,
fraudulent misrepresentation, violations of state securities law and unjust
enrichment in excess of $1 million. The other Flash Defendants have been
granted leave to amend their answer to include substantially similar
counterclaims against the Company and Company officer defendants. The Company
has filed a motion to dismiss the Flash Defendants' counterclaims, and the Flash
defendants have filed cross-motions for judgment on the pleadings and for
summary judgment seeking dismissal of the Company's claims against them. All
pending motions are briefed and have been submitted to the Court for decision.
The Company intends to vigorously pursue its claims against Flash and the other
named defendants in this action, and to defend the counterclaims asserted.
On July 2, 2003, Eastern Computer Exchange, Inc. ("Eastern Computer") filed
suit against GoAmerica in the United States District Court for the District of
New Jersey with respect to GoAmerica's non-performance of certain payment
obligations pursuant to two equipment leases (the "Leases"). Eastern Computer
demanded and has received from GoAmerica all of the equipment covered by the
Leases. Eastern Computer also seeks monetary amounts related to obligations
under leases ranging from approximately $200,000 to approximately $800,000. The
parties are currently in settlement discussions, however GoAmerica cannot be
sure of a satisfactory resolution at this time and will defend against the
claims fully, if necessary.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Changes in Securities
None
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, which was managed by Bear,
Stearns & Co., Inc., Chase H&Q, U.S. Bancorp Piper Jaffray, Wit SoundView and
DLJdirect, now CSFBdirect. 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 June 30, 2003, approximately $1.5 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 $144.7 million of
the net proceeds have been specifically applied as follows: (i) $5.1 million
for the acquisition of other businesses; (ii) $37.7 million for sales and
marketing expenses; (iii) $11.0 million for the purchase of capital assets; and
(iv) $90.9 million for working capital needs.
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ITEM 5. OTHER INFORMATION
Resignation of Employment of Chief Financial Officer of GoAmerica, Inc.
On August 14, 2003, Francis J. Elenio, our Chief Financial Officer,
Secretary and Treasurer, announced his resignation as Chief Financial Officer
and Secretary effective August 15, 2003. The Company intends to retain an
interim Chief Financial Officer on an independent contractor basis and Mr.
Elenio will continue to provide certain consulting services to the Company
during this transition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 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.
(b) During the quarter ended June 30, 2003, the registrant filed two
Reports on Form 8-K with the Commission:
On April 9, 2003, the Company filed a Current Report on Form 8-K with
regard to the issuance of a press release regarding financial results
for the three months and year ended December 31, 2003 (Item 9).
On June 30, 2003, the Company filed a Current Report on Form 8-K with
regard to the issuance of a press release providing an update on the
Company's strategic initiative process and refocused business mission
(Item 9).
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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: August 14, 2003 By: /s/ Daniel R. Luis
--------------------------------
Daniel R. Luis
Chief Executive Officer
(Principal Executive Officer)
DATE: August 14, 2003 By: /s/ Francis J. Elenio
--------------------------------
Francis J. Elenio
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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.
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