UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
Commission File No. 0-29359
GoAmerica, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3693371
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
433 Hackensack Avenue, Hackensack, New Jersey 07601
(Address of Principal Executive Offices) (Zip Code)
(201) 996-1717
(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: _X_ No: ___
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of July 31, 2001:
Class Number of Shares
----- ----------------
Common Stock, $.01 par value 53,531,490
GOAMERICA, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION ........................................................................ 1
Item 1. Financial Statements (unaudited) ........................................................ 1
Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 ...... 2
Condensed Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2001 and 2000 .................................................... 3
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001
and 2000 ........................................................................ 4
Notes to Condensed Consolidated Financial Statements ................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ... 7
General .............................................................................. 7
Results of Operations ................................................................ 7
Liquidity and Capital Resources ...................................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk .............................. 11
PART II. OTHER INFORMATION ........................................................................... 12
Item 2. Changes in Securities and Use of Proceeds ............................................... 12
Item 4. Submission of Matters to a Vote of Security Holders ..................................... 12
Item 6. Exhibits and Reports on Form 8-K ........................................................ 13
SIGNATURES ........................................................................................... 14
-i-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
1
GOAMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
June 30, December 31,
2001 2000
--------------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents .......................................... $ 69,501 $ 114,411
Accounts receivable, net ........................................... 7,466 5,017
Merchandise inventories ............................................ 14,136 14,021
Prepaid expenses and other current assets .......................... 6,135 5,802
--------- ---------
Total current assets .................................................... 97,238 139,251
Restricted cash ......................................................... 802 738
Property, equipment and leasehold improvements, net ..................... 9,639 6,902
Goodwill, net ........................................................... 33,720 40,103
Trade names and other intangible assets, net ............................ 17,368 19,978
Other assets ............................................................ 799 774
--------- ---------
$ 159,566 $ 207,746
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable ................................................... $ 6,401 $ 9,935
Accrued expenses ................................................... 9,897 13,088
Deferred revenue ................................................... 3,660 2,182
Other current liabilities .......................................... 920 515
--------- ---------
Total current liabilities ............................................... 20,878 25,720
Other liabilities ....................................................... 856 496
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, authorized: 4,351,943 shares in
2001 and 2000; issued and outstanding: none in 2001 and 2000 ....... -- --
Common stock, $.01 par value, authorized: 200,000,000 shares in
2001 and 2000; issued and outstanding: 53,365,801 in 2001 and
53,128,715 in 2000 ................................................. 534 531
Additional paid-in capital ......................................... 269,151 268,849
Deferred employee compensation ..................................... (4,794) (7,786)
Accumulated deficit ................................................ (127,059) (80,064)
--------- ---------
Total stockholders' equity .............................................. 137,832 181,530
--------- ---------
$ 159,566 $ 207,746
========= =========
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,
---------------------------------------------------------------------
2001 2000 2001 2000
---------------------------------------------------------------------
Revenues:
Subscriber ........................................ $ 7,080 $ 1,233 $ 12,445 $ 2,010
Equipment ......................................... 2,590 818 4,979 1,477
Other ............................................. 100 4 345 9
------------ ------------ ------------ ------------
9,770 2,055 17,769 3,496
Costs and expenses:
Cost of subscriber airtime ........................ 6,841 1,384 8,571 2,466
Cost of network operations ........................ 947 120 1,702 218
Cost of equipment revenue ......................... 6,812 1,003 9,722 1,893
Sales and marketing ............................... 8,233 8,509 16,012 13,332
General and administrative ........................ 11,391 8,107 20,731 14,693
Depreciation and amortization ..................... 713 147 1,273 248
Amortization of goodwill and other intangibles..... 4,537 75 9,074 75
------------ ------------ ------------ ------------
39,474 19,345 67,085 32,925
------------ ------------ ------------ ------------
Loss from operations ................................... (29,704) (17,290) (49,316) (29,429)
Interest income, net ................................... 842 2,323 2,321 2,511
------------ ------------ ------------ ------------
Net loss ............................................... $ (28,862) $ (14,967) $ (46,995) $ (26,918)
Beneficial conversion feature and accretion of
redemption value of mandatorily redeemable
convertible preferred stock ....................... -- (609) -- (30,547)
------------ ------------ ------------ ------------
Net loss applicable to common stockholders ............. $ (28,862) $ (15,576) $ (46,995) $ (57,465)
============ ============ ============ ============
Basic net loss per share applicable to common
stockholders ........................................ $ (0.55) $ (0.34) $ (0.89) $ (1.65)
Diluted net loss per share applicable to common
stockholders ........................................ $ (0.54) $ (0.34) $ (0.88) $ (1.65)
============ ============ ============ ============
Weighted average shares used in computation of
basic net loss per share applicable to common
stockholders ...................................... 52,707,741 45,948,316 52,641,757 34,916,673
Weighted average shares used in computation of
diluted net loss per share applicable to
common stockholders ............................... 53,274,795 45,957,031 53,208,811 34,933,114
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,
-------------------------
2001 2000
-------------------------
Operating activities
Net loss ............................................................ $ (46,995) $ (26,918)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ..................................... 1,273 248
Amortization of intangible assets ................................. 9,074 75
Provision for losses on accounts receivable ....................... 880 140
Non-cash employee compensation .................................... 2,356 11,061
Non-cash rent expense ............................................. 39 73
Non-cash marketing charges ........................................ 1,341 --
Changes in operating assets and liabilities:
Increase in accounts receivable ................................. (3,329) (706)
Increase in merchandise inventories ............................. (115) (149)
Increase in prepaid expenses and other assets ................... (1,317) (4,737)
Decrease in accounts payable .................................... (3,534) (1,641)
(Decrease) increase in accrued expenses ......................... (2,137) 2,216
Increase (decrease) in deferred revenue ......................... 1,478 (42)
--------- ---------
Net cash used in operating activities ............................... (40,986) (20,380)
Investing activities
Purchase of property, equipment and leasehold improvements .......... (3,799) (2,901)
Acquisition of business, net of acquired cash ....................... (82) (237)
--------- ---------
Net cash used in investing activities ............................... (3,881) (3,138)
Financing activities
Proceeds from sale of common stock and stock purchase warrants, net . 176 146,843
Proceeds from sale of preferred stock ............................... -- 24,637
Payments made on capital lease obligations .......................... (219) (91)
--------- ---------
Net cash (used in) provided by financing activities ................. (43) 171,389
--------- ---------
(Decrease) increase in cash and cash equivalents .................... (44,910) 147,871
Cash and cash equivalents at beginning of period .................... 114,411 6,344
--------- ---------
Cash and cash equivalents at end of period .......................... $ 69,501 $ 154,215
========= =========
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 $ --
Common stock issued in connection with sale of preferred stock ...... $ -- $ 3,649
Common stock and stock options issued in connection with
acquisitions ........................................................ $ -- $ 43,490
Common stock issued in connection with cashless warrant exercise .... $ -- $ 3,088
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 generally accepted accounting principles 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 generally accepted accounting principles 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 June 30, 2001 and the results of its operations and
its cash flows for the three and six month periods ended June 30, 2001 and 2000.
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, 2000.
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:
Cost of Network Operations
Effective January 1, 2001, the Company began reporting cost of network
operations as a separate cost component in the statements of operations. Costs
included are facility lease and related employee salaries and benefits.
Previously, these costs were reported as a component of general and
administrative expenses. All prior period results reflect such reclassification.
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 as reductions to equipment revenue. The
adoption of this consensus had no impact on total revenues or on net loss.
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". The
Company is required to adopt these pronouncements beginning January 1, 2002.
SFAS No. 141 requires all business combinations initiated after June 30, 2001 to
be accounted for using the purchase method of accounting. The impact of adopting
SFAS No. 141 is not expected to be significant. SFAS No. 142 changes the
accounting for goodwill and other intangible assets. Goodwill will no longer be
subject to amortization over its estimated useful life. Rather, goodwill will be
subject to at least an annual assessment for impairment by applying a
fair-value-based test. All other acquired intangibles should be separately
recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, or exchanged, regardless of the acquirer's intent to do
so. Other intangibles will be amortized over their useful lives. The Company
will apply the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002. Application of the nonamortization
provisions of the SFAS No. 142 is expected to result in a decrease in the net
loss of approximately $12.8 million ($0.24 per share) per year. During 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 been determined what the effect of these tests will be on
the results of operations and financial position of the Company.
5
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 income or 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 567,055 common shares for the three and
six month periods ended June 30, 2001 and 8,715 and 4,537 common shares for the
three and six month periods ended June 30, 2000, respectively, for outstanding
shares held in escrow as a result of the Company's acquisitions during 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. The weighted average number of shares
utilized in arriving at diluted earnings per share presented reflect adjustments
to include 12,084 common shares for the six month period ended June 30, 2000
issuable pursuant to warrants which were previously issued for nominal
consideration. 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 - Inventory:
During the quarter ended June 30, 2001, the Company recorded a write-down
of approximately $3.8 million in order to reflect inventory at the lower of cost
or market. The write-down primarily relates to wireless modems supporting older
PALM OS based models for which sales were lower than expected and a charge for a
lower of cost to market adjustment related to other equipment which remained
unsold.
Note 5 - Warrant Issuance
During January 2001, the Company entered into a service agreement with Sony
Electronics Inc. ("Sony") with an initial term of one year. In conjunction with
this agreement, the Company issued Sony a warrant to purchase up to 500,000
shares of the Company's common stock at an exercise price of $16.00 per share.
This warrant was exercisable at the date of grant and expires in three years.
The warrant had an estimated fair market value at the date of grant of
approximately $765,000 of which approximately $383,000 was recognized by the
Company during the six months ended June 30, 2001 as sales and marketing
expense. The Company will recognize the unamortized portion over the remaining
term of the agreement. Such warrant remains outstanding as of June 30, 2001.
6
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
nationwide wireless Internet services provider. We enable our individual and
business subscribers to access remotely the Internet, email and corporate
intranets in real time through a wide variety of mobile computing and
communications devices. Through our Wireless Internet Connectivity Center, we
offer our subscribers comprehensive and flexible mobile data solutions for
wireless Internet access by providing wireless network services, mobile devices,
software and subscriber service and support.
We derive our revenue primarily from the sale of 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 customer support centers as well as our customized billing
system. Recently, we have invested additional capital in the development of our
software application Go.Web, instant messaging, mobile office and other software
applications. Our plan is to continue to invest in our network operations and
customer support centers, as well as to expand our sales and marketing efforts.
We also expect to continue to incur significant 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 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.
The Company maintains its inventory levels to ensure adequate supply of
wireless devices to its customers. The increase in inventory levels during 2000
and 2001 is based upon the anticipation that the demand for such devices will
continue to increase over future quarters. The Company regularly evaluates the
carrying value of its inventory to ensure that adequate provision is made for
potential excess or obsolete inventory. This evaluation includes an assessment
of days sales in inventory based on anticipated future sales, technological
advances within the wireless industry and historical sales as relevant. The
principal element in the evaluation of inventory levels is the days of
anticipated future days sales in inventory given the Company's rapidly growing
subscriber base and anticipated customer growth over the next 90 to 180 days.
Projection of future sales levels is highly subjective and actual sales
activities may differ from the Company's projections. Should actual sales levels
be less than Management's projections or if changes in technology occur beyond
those anticipated by Management, the Company could be exposed to the possibility
of having excess or obsolete inventory on hand. During the quarter ended June
30, 2001, the Company recorded a write-down of approximately $3.8 million in
order to reflect inventory at the lower of cost or market. The write-down
primarily relates to wireless modems supporting older PALM OS based models for
which sales were lower than expected and a charge for a lower of cost to market
adjustment related to other equipment which remained unsold.
Results of Operations
Three months ended June 30, 2001 Compared to Three months ended June 30, 2000
Subscriber revenue. Subscriber revenue increased 474%, to $7.1 million for
the three months ended June 30, 2001 from $1.2 million for the three months
ended June 30, 2000. The increase was due to increased subscriber levels as well
as the June 2000 acquisition of Wynd Communications Corporation ("Wynd"). Our
subscriber base increased to 100,647 subscribers at June 30, 2001 from 18,367
subscribers at June 30, 2000. We expect the number of our subscribers will
increase as a result of our expanded sales and marketing efforts. Our average
monthly revenue per user (ARPU) decreased to $27.41 for the three months ended
June 30, 2001 from $36.81 for the three months ended June 30, 2000. The decline
in ARPU was due to an increase in the number of new subscribers from our Go.Web
channel partners. During the third quarter 2001, we are implementing new CDPD
plans which offer unlimited usage within a designated nationwide service area
with a limited amount of roaming for a flat monthly fee. Additional roaming
usage under these plans will be billed to the subscriber by the kilobyte.
Equipment revenue. Equipment revenue increased 217%, to $2.6 million for
the three months ended June 30, 2001 from $818,000 for the three months ended
June 30, 2000. This increase was primarily due to an increase in the number of
mobile devices sold during the three months ended June 30, 2001 compared to the
three months ended June 30, 2000.
7
Other revenue. Other revenue, which consists primarily of revenue derived
from consulting services, increased to $100,000 for the three months ended June
30, 2001 from $4,000 for the three months ended June 30, 2000. This increase was
primarily due to the November 2000 acquisition of Flash Creative Management,
Inc. ("Flash"). We have not pursued consulting projects and consulting services
to third parties.
Cost of subscriber airtime. Cost of subscriber airtime increased 394%, to
$6.8 million for the three months ended June 30, 2001 from $1.4 million for the
three months ended June 30, 2000. This increase was due to higher than
anticipated roaming costs incurred, the completion of the acquisition of Wynd,
an increase in our subscriber base and a related increase in airtime usage
during the three months ended June 30, 2001 compared to the three months ended
June 30, 2000. Roaming costs increased to $2.4 million for the three months
ended June 30, 2001. 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 689%, to
$947,000 for the three months ended June 30, 2001 from $120,000 for the three
months ended June 30, 2000. This increase was due to the opening of our Wireless
Internet Connectivity Center in New York City on October 31, 2000.
Cost of equipment revenue. Cost of equipment revenue increased 579%, to
$6.8 million for the three months ended June 30, 2001 from $1.0 million for the
three months ended June 30, 2000. This increase primarily was due to the
write-down of equipment of approximately $3.8 million discussed above as well as
an increase in the number of mobile devices sold during the three months ended
June 30, 2001 compared to the three months ended June 30, 2000.
Sales and marketing. Sales and marketing expenses decreased to $8.2 million
for the three months ended June 30, 2001 from $8.5 million for the three months
ended June 30, 2000. This decrease primarily was due to decreased advertising
costs paid to third parties and was partially offset by increased salaries and
benefits for personnel performing sales and marketing activities and was
incrementally increased as a result of the acquisition of Wynd. We expect sales
and marketing expenses to remain flat to slightly lower as we leverage our
channel relationships.
General and administrative. General and administrative expenses increased
to $11.4 million for the three months ended June 30, 2001 from $8.1 million for
the three months ended June 30, 2000. This increase primarily was due to
increased salaries and benefits for personnel performing business development
and general corporate activities, a one time severance payment to a former
Hotpaper.com, Inc. ("Hotpaper") executive in the amount of $242,000 increased
facility costs and was incrementally increased as a result of the acquisitions
of Wynd, Hotpaper and Flash and was partially offset by a decrease of
approximately $5.0 million in stock-based compensation. We expect general and
administrative expenses to increase as we add personnel and incur additional
expenses related to the anticipated growth of our business.
Amortization of goodwill and other intangibles. For the three months ended
June 30, 2001, the Company incurred $4.5 million of amortization of goodwill and
other intangibles arising from the acquisitions of Wynd, Hotpaper and Flash.
Interest income. Interest income decreased to $842,000 for the three months
ended June 30, 2001 from $2.3 million for the three months ended June 30, 2000.
This decrease primarily was due to utilization of funds for operations and
infrastructure build out.
Six months ended June 30, 2001 Compared to Six months ended June 30, 2000
Subscriber revenue. Subscriber revenue increased 519%, to $12.4 million for
the six months ended June 30, 2001 from $2.0 million for the six months ended
June 30, 2000. The increase was due to increased subscriber levels as well as
the June 2000 acquisition of Wynd. Our subscriber base increased to 100,647
subscribers at June 30, 2001 from 18,367 subscribers at June 30, 2000. We expect
the number of our subscribers will increase as a result of our expanded sales
and marketing efforts. Our ARPU decreased to $27.98 for the six months ended
June 30, 2001 from $34.68 for the six months ended June 30, 2000. The decline in
ARPU was due to an increase in the number of new subscribers from our Go.Web
channel partners.
Equipment revenue. Equipment revenue increased 237%, to $5.0 million for
the six months ended June 30, 2001 from $1.5 million for the six months ended
June 30, 2000. This increase was primarily due to an increase in the number of
mobile devices sold during the six months ended June 30, 2001 compared to the
six months ended June 30, 2000.
8
Other revenue. Other revenue, which consists primarily of revenue derived
from consulting services, increased to $345,000 for the six months ended June
30, 2001 from $9,000 for the six months ended June 30, 2000. This increase was
primarily due to the November 2000 acquisition of Flash.
Cost of subscriber airtime. During the first quarter of 2001, we
renegotiated certain contractual obligations. As a result, we recorded a $1.9
million one-time reduction of accruals for certain subscriber-related costs
recorded in prior periods. Cost of subscriber airtime increased 248%, to $8.6
million for the six months ended June 30, 2001 from $2.5 million for the six
months ended June 30, 2000. Excluding the one-time adjustment, cost of
subscriber airtime increased 326%, to $10.5 million for the six months ended
June 30, 2001 from $2.5 million for the six months ended June 30, 2000. This
increase was due to higher than anticipated roaming costs incurred, the
completion of the acquisition of Wynd, an increase in our subscriber base and a
related increase in airtime usage during the six months ended June 30, 2001
compared to the six months ended June 30, 2000. Roaming costs increased to $3.1
million for the six months ended June 30, 2001. We expect the number of
subscribers and related use of our services to increase which will result in
increased costs of subscriber revenue.
Cost of network operations. Cost of network operations increased 680%, to
$1.7 million for the six months ended June 30, 2001 from $218,000 for the six
months ended June 30, 2000. This increase was due to the opening of our Wireless
Internet Connectivity Center in New York City on October 31, 2000.
Cost of equipment revenue. Cost of equipment revenue increased 414%, to
$9.7 million for the six months ended June 30, 2001 from $1.9 million for the
six months ended June 30, 2000. This increase primarily was due to the
write-down of equipment of approximately $3.8 million discussed above as well as
an increase in the number of mobile devices sold during the six months ended
June 30, 2001 compared to the six months ended June 30, 2000.
Sales and marketing. Sales and marketing expenses increased to $16.0
million for the six months ended June 30, 2001 from $13.3 million for the six
months ended June 30, 2000. This increase primarily was due to increased
salaries and benefits for personnel performing sales and marketing activities,
was incrementally increased as a result of the acquisition of Wynd and was
partially offset by decreased advertising costs paid to third parties.
General and administrative. General and administrative expenses increased
to $20.7 million for the six months ended June 30, 2001 from $14.7 million for
the six months ended June 30, 2000. This increase primarily was due to increased
salaries and benefits for personnel performing business development and general
corporate activities, increased facility costs, was incrementally increased as a
result of the acquisitions of Wynd, Hotpaper and Flash and was partially offset
by a decrease of approximately $8.7 million in stock-based compensation.
Amortization of goodwill and other intangibles. For the six months ended
June 30, 2001, the Company incurred $9.1 million of amortization of goodwill and
other intangibles arising from the acquisitions of Wynd, Hotpaper and Flash.
Interest income. Interest income decreased to $2.3 million for the six
months ended June 30, 2001 from $2.5 million for the six months ended June 30,
2000. This decrease primarily was due to utilization of funds for operations and
infrastructure build out.
Liquidity and Capital Resources
Since our inception through April 12, 2000, we financed our operations
primarily through private placements of our equity securities and our redeemable
convertible preferred stock. On April 12, 2000, we consummated an 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 shares were issued and sold by us. As of June 30,
2001, we had $69.5 million in cash and cash equivalents and $76.4 million of
working capital.
Net cash used in operating activities increased from $20.4 million for the
six months ended June 30, 2000 to $41.0 million for the six months ended June
30, 2001. This increase primarily was due to increased losses from operations.
Net cash used in investing activities was $3.9 million for the six months
ended June 30, 2001. Cash used in investing activities for the six months ended
June 30, 2001 was principally for purchases of property, equipment and leasehold
improvements.
9
Net cash used by financing activities was $43,000 for the six months ended
June 30, 2001. Cash used in financing activities for the six months ended June
30, 2001 was for repayment of capital leases and was partially offset by
proceeds from the exercise of stock options.
As of June 30, 2001, our principal commitments consisted of obligations
outstanding under operating leases. As of June 30, 2001, future minimum payments
for non-cancelable operating leases having terms in excess of one year amounted
to $12.8 million, of which approximately $1.5 million is payable for the
remainder of 2001. We anticipate a substantial increase in our capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and personnel, including the deployment of additional
network equipment. Additionally, we have existing supply agreements with
equipment manufacturers under which we are obligated to purchase an aggregate of
approximately $5 million of wireless devices during 2001.
We believe that our existing available cash, including the proceeds from
our initial public offering, will be adequate to satisfy our current and planned
operations for at least the next 15 months. There can be no assurance, however,
that we will not require additional financing prior to such time to fund our
operations or possible acquisitions.
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 the Company's filings with
the Securities and Exchange Commission, the Company's 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. 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 net loss.
10
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". The
Company is required to adopt these pronouncements beginning January 1, 2002.
SFAS No. 141 requires all business combinations initiated after June 30, 2001 to
be accounted for using the purchase method of accounting. The impact of adopting
SFAS No. 141 is not expected to be significant. SFAS No. 142 changes the
accounting for goodwill and other intangible assets. Goodwill will no longer be
subject to amortization over its estimated useful life. Rather, goodwill will be
subject to at least an annual assessment for impairment by applying a
fair-value-based test. All other acquired intangibles should be separately
recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, or exchanged, regardless of the acquirer's intent to do
so. Other intangibles will be amortized over their useful lives. We will apply
the new rules on accounting for goodwill and other intangible assets beginning
in the first quarter of 2002. Application of the nonamortization provisions of
the SFAS No. 142 is expected to result in a decrease in the net loss of
approximately $12.8 million ($0.24 per share) per year. During 2002, we will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of January 1, 2002 and as such, we have not yet
determined what the effect of these tests will be on the results of operations
and financial position of the Company.
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, 2001 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 $695,000 based on cash and cash equivalent balances
at June 30, 2001. We currently hold no derivative instruments and do not earn
foreign-source income.
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PART II. OTHER INFORMATION
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, 2001, approximately $69.5 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 $76.7 million of the net proceeds
have been specifically applied as follows: (i) $5.1 million for the acquisition
of other businesses; (ii) $23.1 million for sales and marketing expenses; (iii)
$5.7 million for the purchase of capital assets; and (iv) $42.8 million for
working capital needs.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders was held on May 2, 2001.
There were present at the Annual Meeting in person or by proxy stockholders
holding an aggregate of 44,420,390 shares of Common Stock out of a total number
of 53,239,963 shares of Common Stock issued and outstanding and entitled to vote
at the Annual Meeting. The results of the vote taken at such Annual Meeting with
respect to the election of the nominees to be our Class A directors as elected
by the holders of the Common Stock to hold office until the 2004 Annual Meeting
were as follows:
Nominees For Withheld
- -------- --- --------
Joseph Korb 44,109,711 Shares 310,679 Shares
Mark Kristoff 44,109,711 Shares 310,679 Shares
Brian Bailey and Robi Blumenstein continued their terms as Class B
directors, such terms expiring at the 2002 Annual Meeting of Stockholders. Adam
Dell, Aaron Dobrinsky and Alan Docter continued their terms as Class C
directors, such terms expiring at the 2003 Annual Meeting of Stockholders.
A proposal was introduced to approve the amendment to our 1999 Stock Plan
to increase the maximum number of shares of Common Stock available for the award
of incentive stock options under the 1999 Stock Plan from 4,800,000 to
10,624,743. This proposal was approved with the following votes: 31,677,437
shares voted in favor of such proposal, 1,009,380 shares were voted against such
proposal, 37,418 shares abstained from voting, and there were 11,696,155 broker
non-votes.
In addition, a vote of the stockholders was taken at the Annual Meeting on
the proposal to ratify the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 2001. The results of the vote
taken were as follows: 44,387,310 shares voted in favor of such proposal, 27,077
shares were voted against such proposal and 6,003 shares abstained from voting.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1**- Amendment to Supply Agreement by and between GoAmerica and
Sierra Wireless Data, Inc., dated June 29, 2001.
**Confidential treatment has been requested for a portion of this Exhibit
and the Company is awaiting a final determination.. Confidential material have
been omitted and filed separately with the Securities and Exchange Commission.
(b) Reports on Form 8-K.
On June 21, 2001, we filed a Form 8-K/A (Amendment No. 2 to the Form 8-K
originally filed on September 15, 2000 and amended on November 14, 2000) with
respect to our acquisition of Hotpaper.com, Inc. to insert in the Independent
Auditors' Report the name of the city and state where the Independent Auditors
are located.
On June 22, 2001, we filed a Form 8-K/A (Amendment No. 2 to the Form 8-K
originally filed on July 12, 2000 and amended on September 11, 2000) with
respect to our acquisition of Wynd Communications Corporation to insert in the
Independent Auditors' Report the name of the city and state where the
Independent Auditors are located.
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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, 2001 By: /s/ Aaron Dobrinsky
-----------------------------
Aaron Dobrinsky
Chief Executive Officer
(Principal Executive Officer)
DATE: August 14, 2001 By: /s/ Francis J. Elenio
-----------------------------
Francis J. Elenio
Chief Financial Officer
(Principal Financial and
Accounting Officer)
14