UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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: / /
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of October 31, 2001:
Class Number of Shares
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Common Stock, $.01 par value 53,487,172
GOAMERICA, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION............................................ 1
Item 1. Financial Statements (unaudited)........................... 1
Condensed Consolidated Balance Sheets as of September 30, 2001
and December 31, 2000.......................................... 2
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2001 and 2000........ 3
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended Septemeber 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 5. Other Information.......................................... 12
Item 6. Exhibits and Reports on Form 8-K........................... 13
SIGNATURES.................................................................. 14
-i-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GOAMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
September 30, December 31,
2001 2000
-----------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents............................................... $ 51,999 $ 114,411
Accounts receivable, net................................................ 9,136 5,017
Merchandise inventories................................................. 14,655 14,021
Prepaid expenses and other current assets............................... 5,444 5,802
------------- --------------
Total current assets......................................................... 81,234 139,251
Restricted cash.............................................................. 811 738
Property, equipment and leasehold improvements, net.......................... 10,620 6,902
Goodwill, net................................................................ 30,521 40,103
Trade names and other intangible assets, net................................. 16,030 19,978
Other assets................................................................. 513 774
------------- --------------
$ 139,729 $ 207,746
============== ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable........................................................ $ 5,965 $ 9,935
Accrued expenses........................................................ 14,414 13,088
Deferred revenue........................................................ 2,347 2,182
Other current liabilities............................................... 789 515
------------- --------------
Total current liabilities.................................................... 23,515 25,720
Other liabilities............................................................ 768 496
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: 53,531,490 in 2001 and 53,128,715 in 2000....... 535 531
Additional paid-in capital.............................................. 269,237 268,849
Deferred employee compensation.......................................... (3,819) (7,786)
Accumulated deficit..................................................... (150,458) (80,064)
Treasury stock, at cost 54,000 shares in 2001 and none in 2000.......... (49) --
------------- --------------
Total stockholders' equity .................................................. 115,446 181,530
------------- --------------
$ 139,729 $ 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 September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2001 2000 2001 2000
-------------- -------------- ------------- -------------
Revenues:
Subscriber................................. $ 7,926 $ 2,681 $ 20,371 $ 4,691
Equipment.................................. 2,484 1,552 7,463 3,029
Other...................................... 207 35 552 44
-------------- -------------- ------------- -------------
10,617 4,268 28,386 7,764
Costs and expenses:
Cost of subscriber airtime................. 6,948 1,888 15,519 4,354
Cost of network operations................. 897 113 2,599 331
Cost of equipment revenue.................. 3,334 1,924 13,056 3,817
Sales and marketing........................ 5,038 12,663 21,050 25,995
General and administrative................. 12,957 5,055 33,688 19,749
Depreciation and amortization.............. 824 327 2,097 562
Amortization of goodwill and other
intangibles................................ 4,537 3,141 13,611 3,228
-------------- -------------- ------------- -------------
34,535 25,111 101,620 58,036
-------------- -------------- ------------- -------------
Loss from operations............................ (23,918) (20,843) (73,234) (50,272)
Interest income, net............................ 519 2,426 2,840 4,937
-------------- -------------- ------------- -------------
Net loss........................................ $ (23,399) $ (18,417) $ (70,394) $ (45,335)
Beneficial conversion feature and accretion of
redemption value of mandatorily redeemable
convertible preferred stock.................. -- -- -- (30,547)
-------------- -------------- ------------- -------------
Net loss applicable to common stockholders...... $ (23,399) $ (18,417) $ (70,394) $ (75,882)
============== ============== ============= =============
Basic net loss per share applicable to common $ (0.44) $ (0.36) $ (1.33) $ (1.88)
stockholders.................................
Diluted net loss per share applicable to common
stockholders................................. $ (0.44) $ (0.36) $ (1.32) $ (1.87)
=============== =============== ============= =============
Weighted average shares used in computation of
basic net loss per share applicable to
common stockholders.......................... 53,380,096 51,277,967 52,810,677 40,410,173
Weighted average shares used in computation of
diluted net loss per share applicable to
common stockholders.......................... 53,517,845 51,707,273 53,233,057 40,565,314
The accompanying notes are an integral part of these financial statements.
-3-
GOAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
----------------------------------
2001 2000
Operating activities
Net loss............................................................. $ (70,394) $ (45,335)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization...................................... 2,097 562
Amortization of intangible assets.................................. 13,611 3,228
Provision for losses on accounts receivable........................ 1,605 140
Non-cash employee compensation..................................... 3,330 12,128
Non-cash rent expense.............................................. 51 77
Non-cash marketing charges......................................... 1,821 318
Write-down of investment........................................... 287 --
Changes in operating assets and liabilities:
Increase in accounts receivable.................................. (5,724) (1,580)
Increase in merchandise inventories.............................. (634) (4,850)
Increase in prepaid expenses and other assets.................... (1,066) (4,354)
(Decrease) increase in accounts payable.......................... (3,970) 4,670
Increase (decrease) in accrued expenses.......................... 2,425 (2,475)
Increase in deferred revenue................................. 165 427
-------------- --------------
Net cash used in operating activities................................ (56,396) (37,044)
Investing activities
Purchase of property, equipment and leasehold improvements........... (5,604) (4,184)
Acquisition of business, net of acquired cash........................ (82) (977)
Other assets......................................................... -- (300)
-------------- ---------------
Net cash used in investing activities................................ (5,686) (5,461)
Financing activities
Proceeds from sale of common stock and stock purchase warrants, net.. 216 146,843
Proceeds from sale of preferred stock................................ -- 24,637
Purchase of treasury stock........................................... (49) --
Payments made on capital lease obligations........................... (497) (158)
-------------- ---------------
Net cash (used in) provided by financing activities.................. (330) 171,322
--------------- --------------
(Decrease) increase in cash and cash equivalents..................... (62,412) 128,817
Cash and cash equivalents at beginning of period..................... 114,411 6,344
-------------- --------------
Cash and cash equivalents at end of period........................... $ 51,999 $ 135,160
============== ==============
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 $ 526
Common stock issued in connection with sale of preferred stock....... $ -- $ 3,649
Common stock and stock options issued in connection with
acquisitions......................................................... $ -- $ 52,432
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 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 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 September 30, 2001 and the
results of its operations and its cash flows for the three and nine month
periods ended September 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 entirely 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 September 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 the first
half of 2002, the Company will perform the first of the required impairment
tests of goodwill and indefinite lived intangible assets as of January 1, 2002
and as such, the Company has not yet determined what the effect of these tests
will be on the results of operations and financial position of the Company.
-5-
On August 1, 2001, the FASB issued SFAS No. 144, "Accounting For
Impairment of Long Lived Assets". The Company is required to adopt this
pronouncement beginning January 1, 2002. SFAS No. 144 prescribes the accounting
for long-lived assets (excluding goodwill) to be disposed of by sale. SFAS No.
144 retains the requirement of SFAS No. 121 to measure long-lived asset
classified as held for sale at the lower of its carrying value or fair market
value less the cost to sell. Therefore, discontinued operations are no longer
measured on a net realizable basis, and future operating results are no longer
recognized before they occur. The impact of adopting SFAS No. 144 is not
expected to be significant.
Note 3 -- Earnings Per Share:
The Company computes net loss per share under the provisions of SFAS
No. 128, "Earnings per Share" ("SFAS 128") and Staff Accounting Bulletin No. 98
("SAB 98").
Under the provisions of SFAS 128 and SAB 98, basic and diluted net loss
per share is computed by dividing the net loss applicable to common stockholders
for the period by the weighted-average number of shares of Common Stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential common shares if the effect is antidilutive. Basic earnings
per share is computed by dividing loss applicable to common stockholders by the
weighted-average number of shares of Common Stock outstanding during the period.
The weighted average number of shares utilized in arriving at basic earnings per
share reflects an adjustment to exclude 137,749 and 422,380 common shares for
the three and nine month periods ended September 30, 2001, respectively, and
8,715 and 4,537 common shares for the three and nine month periods ended
September 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 nine month period ended September 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 nine months ended September 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 $574,000 was recognized by the
Company during the nine months ended September 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 September 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 data and 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
center. 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 2001
and 2000 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 nine months ended
September 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 September 30, 2001 Compared to Three months ended September
30, 2000
Subscriber revenue. Subscriber revenue increased 196%, to $7.9 million
for the three months ended September 30, 2001 from $2.7 million for the three
months ended September 30, 2000. The increase was due to increased subscriber
levels. Our subscriber base increased to 108,446 subscribers at September 30,
2001 from 30,432 subscribers at September 30, 2000. We expect the number of our
subscribers will increase as a result of our continued leveraging of strategic
agreements. Our average monthly revenue per user (ARPU) decreased to $25.27 for
the three months ended September 30, 2001 from $36.81 for the three months ended
September 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 implemented 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 is being billed to the subscriber by
the kilobyte. Amounts billed to subscribers for roaming have been insignificant
to date.
Equipment revenue. Equipment revenue increased 60%, to $2.5 million for
the three months ended September 30, 2001 from $1.6 million for the three months
ended September 30, 2000. This increase was primarily due to an increase in the
number of mobile devices sold during the three months ended September 30, 2001
compared to the three months ended September 30, 2000.
-7-
Other revenue. Other revenue, which consists primarily of revenue
derived from consulting services, increased to $207,000 for the three months
ended September 30, 2001 from $35,000 for the three months ended September 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 268%,
to $6.9 million for the three months ended September 30, 2001 from $1.9 million
for the three months ended September 30, 2000. This increase was due to higher
than anticipated roaming costs incurred, an increase in our subscriber base and
a related increase in airtime usage during the three months ended September 30,
2001 compared to the three months ended September 30, 2000. Roaming costs were
$1.9 million for the three months ended September 30, 2001. We expect roaming
costs to be recovered as we begin to bill our subscribers for these costs. 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 697%,
to $897,000 for the three months ended September 30, 2001 from $113,000 for the
three months ended September 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 73%, to
$3.3 million for the three months ended September 30, 2001 from $1.9 million for
the three months ended September 30, 2000. This increase primarily was due to an
increase in the number of mobile devices sold during the three months ended
September 30, 2001 compared to the three months ended September 30, 2000.
Sales and marketing. Sales and marketing expenses decreased to $5.0
million for the three months ended September 30, 2001 from $12.7 million for the
three months ended September 30, 2000. 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 remain flat to slightly lower as we leverage our
channel relationships.
General and administrative. General and administrative expenses
increased to $13.0 million for the three months ended September 30, 2001 from
$5.1 million for the three months ended September 30, 2000. This increase
primarily was due to increased salaries and benefits for personnel performing
business development and general corporate activities, increased facility costs,
infrastructure buildout and was incrementally increased as a result of the
acquisitions of 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 remain level.
Amortization of goodwill and other intangibles. For the three months
ended September 30, 2001, the Company incurred $4.5 million of amortization of
goodwill and other intangibles arising from the acquisitions of Wynd
Commmunications Corporation ("Wynd"), Hotpaper.com. Inc. ("Hotpaper") and Flash.
Interest income. Interest income decreased to $519,000 for the three
months ended September 30, 2001 from $2.4 million for the three months ended
September 30, 2000. This decrease primarily was due to utilization of funds for
operations and infrastructure build out as well as lower average interest rates
earned on such funds.
Nine months ended September 30, 2001 Compared to Nine months ended September 30,
2000
Subscriber revenue. Subscriber revenue increased 334%, to $20.4 million
for the nine months ended September 30, 2001 from $4.7 million for the nine
months ended September 30, 2000. The increase was due to increased subscriber
levels as well as the June 2000 acquisition of Wynd. Our subscriber base
increased to 108,446 subscribers at September 30, 2001 from 30,432 subscribers
at September 30, 2000. Our ARPU decreased to $27.64 for the nine months ended
September 30, 2001 from $33.85 for the nine months ended September 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 146%, to $7.5 million
for the nine months ended September 30, 2001 from $3.0 million for the nine
months ended September 30, 2000. This increase was primarily due to an increase
in the number of mobile devices sold during the nine months ended September 30,
2001 compared to the nine months ended September 30, 2000.
-8-
Other revenue. Other revenue, which consists primarily of revenue
derived from consulting services, increased to $552,000 for the nine months
ended September 30, 2001 from $44,000 for the nine months ended September 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 257%, to $15.5
million for the nine months ended September 30, 2001 from $4.4 million for the
nine months ended September 30, 2000. Excluding the one-time adjustment, cost of
subscriber airtime increased 301%, to $17.4 million for the nine months ended
September 30, 2001 from $4.4 million for the nine months ended September 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 nine months ended September
30, 2001 compared to the nine months ended September 30, 2000. Roaming costs
were $5.0 million for the nine months ended September 30, 2001.
Cost of network operations. Cost of network operations increased 686%,
to $2.6 million for the nine months ended September 30, 2001 from $331,000 for
the nine months ended September 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 242%, to
$13.1 million for the nine months ended September 30, 2001 from $3.8 million for
the nine months ended September 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 nine months ended
September 30, 2001 compared to the nine months ended September 30, 2000.
Sales and marketing. Sales and marketing expenses decreased to $21.1
million for the nine months ended September 30, 2001 from $26.0 million for the
nine months ended September 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.
General and administrative. General and administrative expenses
increased to $33.7 million for the nine months ended September 30, 2001 from
$19.7 million for the nine months ended September 30, 2000. This increase
primarily was due to increased salaries and benefits for personnel performing
business development and general corporate activities, increased facility costs,
infrastructure buildout, 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 nine months
ended September 30, 2001, the Company incurred $13.6 million of amortization of
goodwill and other intangibles arising from the acquisitions of Wynd, Hotpaper
and Flash.
Interest income. Interest income decreased to $2.8 million for the nine
months ended September 30, 2001 from $4.9 million for the nine months ended
September 30, 2000. This decrease primarily was due to utilization of funds for
operations and infrastructure build out as well as lower average interest rates
earned on such funds.
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
September 30, 2001, we had $52.0 million in cash and cash equivalents and $56.7
million of working capital.
Net cash used in operating activities increased to $56.4 million for
the nine months ended September 30, 2001 from $37.0 million for the nine months
ended September 30, 2000. This increase primarily was due to increased losses
from operations.
Net cash used in investing activities was $5.7 million for the nine
months ended September 30, 2001. Cash used in investing activities for the nine
months ended September 30, 2001 was principally for purchases of property,
equipment and leasehold improvements.
-9-
Net cash used in financing activities was $330,000 for the nine months
ended September 30, 2001. Cash used in financing activities for the nine months
ended September 30, 2001 was for repayment of capital leases and was partially
offset by proceeds from the exercise of stock options.
As a result of the SEC's modification of certain restrictions on share
repurchases, on September 17, 2001 we initiated a share repurchase program and
repurchased an aggregate of 54,000 shares of our Common Stock at an average
price of $0.913 during the five business days ending on September 21, 2001.
As of September 30, 2001, our principal commitments consisted of
obligations outstanding under operating leases. As of September 30, 2001, future
minimum payments for non-cancelable operating leases having terms in excess of
one year amounted to $12.1 million, of which approximately $842,000 is payable
for the remainder of 2001. We anticipate an 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.
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 12 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 total revenues or on
net loss.
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On July 20, 2001, the Financial Accounting Standards Board (FASB)
issued 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 September 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 non amortization 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 has not yet determined what the effect of these tests will
be on the results of operations and financial position of the Company.
On August 1, 2001, the FASB issued SFAS No. 144, "Accounting For
Impairment of Long Lived Assets". The Company is required to adopt this
pronouncement beginning January 1, 2002. SFAS No. 144 prescribes the accounting
for long-lived assets (excluding goodwill) to be disposed of by sale. SFAS No.
144 retains the requirement of SFAS No. 121 to measure long-lived asset
classified as held for sale at the lower of its carrying value or fair market
value less the cost to sell. Therefore, discontinued operations are no longer
measured on a net realizable basis, and future operating results are no longer
recogninzed before they occur. The impact of adopting SFAS No. 144 is not
expected to be significant.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We believe that we have limited exposure to financial market risks,
including changes in interest rates. At September 30, 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 $520,000 based on cash and cash equivalent balances
at September 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
Option Grants
On July 24, 2001, we granted Stock Options to various employees
pursuant to our 1999 Stock Plan. All of such Stock Options were granted at an
exercise price of $1.41 per share, the then current fair market value of the
Common Stock, with four year vesting, except for four grants which had shortened
vesting schedules. The aggregate number of shares of common stock underlying
such stock option grants totaled 255,275.
Use of Proceeds
On April 6, 2000, the Commission declared effective our Registration
Statement on Form S-1 (No. 333-94801) as filed with the Commission in connection
with our initial public offering of Common Stock. Pursuant to such Registration
Statement, on April 12, 2000 we consummated the issuance and sale of an
aggregate of 10,000,000 shares of our Common Stock, for a gross aggregate
offering price of $160 million. We incurred underwriting discounts and
commissions of approximately $11.2 million. In connection with such offering, we
incurred total expenses of approximately $2.6 million. As of September 30, 2001,
approximately $52.0 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
$94.2 million of the net proceeds have been specifically applied as follows: (i)
$5.1 million for the acquisition of other businesses; (ii) $27.0 million for
sales and marketing expenses; (iii) $7.5 million for the purchase of capital
assets; and (iv) $54.6 million for working capital needs.
Item 5. Other Information.
Employment of President and Chief Executive Officer of Wynd Communications
Corporation and Senior Vice President for Corporate Development of GoAmerica,
Inc.
We entered into an Employment Agreement with Daniel R. Luis, effective
as of July 1, 2001 (the "Employment Agreement"), which provided for, among other
things, Mr. Luis's employment as President and Chief Executive Officer of our
wholly-owned subsidiary Wynd Communications Corporation. Pursuant to the
Employment Agreement, Mr. Luis will also serve as our Senior Vice President for
Corporate Development.
Cessation of Employment of Chief Operating Officer of GoAmerica, Inc.
During November 2001, David Blumenthal, our Chief Operating Officer,
left the employ of GoAmerica, Inc. We do not currently intend to name a
successor Chief Operating Officer.
Share Repurchase Program
In accordance with the SEC's modification of certain restrictions on
share repurchases, on September 17, 2001 we initiated a share repurchase program
and repurchased an aggregate of 54,000 shares of our Common Stock at an average
price of $0.913 during the five business days ending on September 21, 2001.
Subsequent Events
(a) Agreement with Geoworks Corporation and Telcordia Technologies,
Inc.
We entered into a termination agreement, dated as of October 9, 2001,
with Geoworks Corporation, Telcordia Technologies, Inc. and others (the
"Termination Agreement"), which provided for, among other things, payment to
Geoworks in the amount of $1,750,000 which related to (a) the purchase of
certain patent licenses pursuant to a duly authorized license agreement between
us and Geoworks, (b) accrued royalties, and (c) other costs and fees associated
with the early termination of the Settlement Agreement and Mutual Releases
between Telcordia, GoAmerica and others dated April 22, 1999 (the "Settlement
Agreement"). The Termination Agreement also provided for reciprocal releases
from any claims any party may have had prior to the effective date of the
Termination Agreement relating to the (i) Agreement for License of Software and
the Provision of Ancillary and Maintenance Services, as amended, by and between
Telcordia and our wholly-owned subsidiary GoAmerica Communications Corp., dated
October 12, 1996, (ii) the Settlement Agreement and/or (iii) certain Go.Web
technology.
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(b) Acquisition of Outback Resource Group, Inc.
On November 9, 2001, GoAmerica Acquisition III Corp., a Delaware
corporation and wholly-owned subsidiary of the Company was merged (the "OutBack
Merger") with and into OutBack Resource Group, Inc., a California corporation
("OutBack"), and OutBack became a wholly-owned subsidiary of the Company
pursuant to the terms and conditions of the Merger Agreement and Plan of
Reorganization dated as of November 9, 2001. In the OutBack Merger, the former
shareholders of OutBack received an aggregate of 134,996 newly-issued shares of
the Company's Common Stock (after deducting fractional share amounts and paying
the former Outback shareholders cash in lieu of stock) and received warrants to
purchase an aggregate of 67,500 shares of the Company's Common Stock at an
exercise price of $3.00 per share which may be exercised immediately, in whole
or in part, for three years from the date thereof.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 - Merger Agreement and Plan of Reorganization, dated as of
November 13, 2001, by and among GoAmerica, Inc., GoAmerica Acquisition III
Corp., OutBack Resource Group, Inc. and certain shareholders thereof.*
4.1 - Form of Warrant to Purchase Common Stock of GoAmerica,
Inc. issued to former shareholders of OutBack Resource Group, Inc. on November
13, 2001.
10.1 - Employment Agreement, by and between GoAmerica, Inc.
and Daniel R. Luis, dated as of July 1, 2001.
10.2 + - Termination Agreement and Mutual Releases, by and
between GoAmerica, Telcordia Technologies, Inc., Geoworks Corporation and
others, dated October 9, 2001. *
10.3 - Escrow Agreement, dated as of November 13, 2001, by and
among GoAmerica, Inc., the shareholders of OutBack Resource Group, Inc. and
American Stock Transfer & Trust Company.
* The schedules or exhibits to this document are not being filed herewith
because we believe that the information contained therein is not material. Upon
request therefor, we agree to furnish supplementally a copy of any schedule or
exhibit to the Securities and Exchange Commission.
+ Confidential treatment has been requested for a portion of this Exhibit and
the Company is awaiting a final determination. Confidential materials have been
omitted and filed separately with the Securities and Exchange Commission.
(b) Reports on Form 8-K.
On September 18, 2001, we filed a Form 8-K announcing our
share repurchase program.
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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: November 14, 2001 By: /s/ Aaron Dobrinsky
-------------------------------------
Aaron Dobrinsky
Chief Executive Officer
(Principal Executive Officer)
DATE: November 14, 2001 By: /s/ Francis J. Elenio
-------------------------------------
Francis J. Elenio
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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