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, 2003 Commission File
No. 0-29359
GoAmerica, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3693371
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
433 Hackensack Avenue, Hackensack, New Jersey 07601
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Address of Principal Executive Offices) (Zip Code)
(201) 996-1717
-------------------------------
(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No: __
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act):
Yes: __ No: X
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of October 31, 2003:
Class Number of Shares
----- ----------------
Common Stock, $.01 par value 54,341,946
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, 2003 and December 31, 2002.... 2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2003 and 2002........................................................ 3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
2003 and 2002...................................................................... 4
Notes to Condensed Consolidated Financial Statements.................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
General.............................................................................. 10
Critical Accounting Policies and Estimates........................................... 10
Results of Operations................................................................ 11
Liquidity and Capital Resources...................................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................... 16
Item 4. Controls and Procedures.............................................................. 16
PART II. OTHER INFORMATION......................................................................... 17
Item 1. Legal Proceedings................................................................... 17
Item 5. Other Information................................................................... 17
Item 6. Exhibits and Reports on Form 8-K.................................................... 18
SIGNATURES ............................................................................................. 19
-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,
2003 2002
----------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents ......................................... $ 842 $ 4,982
Accounts receivable, net .......................................... 2,714 5,780
Merchandise inventories, net ...................................... 294 1,046
Prepaid expenses and other current assets ......................... 319 520
--------- ---------
Total current assets ................................................... 4,169 12,328
Restricted cash -- 950
Property, equipment and leasehold improvements, net .................... 2,122 4,685
Goodwill, net .......................................................... 6,000 6,193
Trade names and other intangible assets, net ........................... 1,092 1,467
Other assets ........................................................... 745 1,142
--------- ---------
$ 14,128 $ 26,765
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable .................................................. $ 3,206 $ 4,694
Accrued expenses .................................................. 2,420 5,917
Deferred revenue .................................................. 1,083 2,406
Other current liabilities ......................................... 110 348
--------- ---------
Total current liabilities .............................................. 6,819 13,365
Other liabilities ...................................................... 814 383
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized: 200,000,000 shares in
2003 and 2002; issued: 54,341,946 in 2003 and 54,026,057 in 2002 .. 543 540
Additional paid-in capital ........................................ 269,104 269,015
Deferred employee compensation .................................... (79) (314)
Accumulated deficit ............................................... (263,073) (256,224)
--------- ---------
Total stockholders' equity ............................................. 6,495 13,017
--------- ---------
$ 14,128 $ 26,765
========= =========
The accompanying notes are an integral part of these financial statements.
-2-
GOAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------------------------
Revenues:
Subscriber................................ $ 2,554 $ 7,375 $ 7,997 $ 23,260
Equipment................................. 266 1,631 917 5,660
Other..................................... 303 94 643 202
-------------- -------------- ------------- -------------
3,123 9,100 9,557 29,122
Costs and expenses:
Cost of subscriber airtime, net........... 1,105 4,827 2,305 16,765
Cost of network operations................ 365 791 1,661 2,409
Cost of equipment revenue................. 140 2,547 1,023 6,809
Sales and marketing, net................. (169) 1,988 868 6,817
General and administrative................ 1,891 6,927 7,592 22,801
Research and development.................. 220 963 1,116 2,863
Depreciation and amortization............. 339 1,212 1,546 3,613
Amortization of other intangibles......... 242 433 793 1,299
Impairment of goodwill.................... -- 8,400 193 8,400
Impairment of long-lived assets........... -- 5,295 1,052 5,295
-------------- -------------- ------------- -------------
4,133 33,383 18,149 77,071
-------------- -------------- ------------- -------------
Loss from operations........................... (1,010) (24,283) (8,592) (47,949)
Other income (expense):
Gain on sale of subscribers.................... 11 -- 1,756 --
Interest income, net........................... (4) 26 (13) 213
--------------- -------------- -------------- -------------
Total other income............................. 7 26 1,743 213
-------------- -------------- ------------- -------------
Net loss....................................... $ (1,003) $ (24,257) $ (6,849) $ (47,736)
============== ============== ============= =============
Basic net loss per share....................... $ (0.02) $ (0.45) $ (0.13) $ (0.89)
=============== =============== ============== =============
Diluted net loss per share..................... $ (0.02) $ (0.45) $ (0.13) $ (0.89)
=============== =============== ============= =============
Weighted average shares used in computation of
basic net loss per share ................... 54,310,650 53,917,005 54,249,507 53,804,041
Weighted average shares used in
computation of diluted net loss per share... 54,310,650 53,944,004 54,249,507 53,831,040
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,
2003 2002
---------- ----------
Operating activities
Net loss ...................................................... $ (6,849) $ (47,736)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ............................... 1,546 3,613
Amortization of other intangible assets ..................... 793 1,299
Impairment of goodwill ...................................... 193 8,400
Impairment of long-lived assets ............................. 1,052 5,295
Provision for losses (recoveries) on accounts receivable .... (34) 2,690
Accrued loss on sublease .................................... 519 --
Gain on sale of subscribers ................................. (1,756) --
Non-cash employee compensation .............................. 235 1,807
Non-cash rent expense ....................................... 5 29
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ................ 3,100 (486)
Decrease in merchandise inventories ....................... 752 5,051
Decrease in prepaid expenses and other current assets ..... 201 1,093
Decrease in accounts payable .............................. (1,488) (3,598)
Decrease in accrued expenses and other liabilities ........ (3,856) (763)
(Decrease) in deferred revenue ........................ (1,323) (645)
---------- ----------
Net cash used in operating activities ......................... (6,910) (23,951)
Investing activities
Change in other assets and restricted cash .................... 1,347 --
Purchase of property, equipment and leasehold improvements .... (35) (349)
Proceeds from sale of subscribers ............................. 1,756 --
Acquisition of subscribers .................................... (345) --
---------- ----------
Net cash provided by (used) in investing activities ........... 2,723 (349)
Financing activities
Issuance of common stock, net of related expenses ............. 92 126
Payments made on capital lease obligations .................... (45) (566)
---------- ----------
Net cash provided by (used) in financing activities ........... 47 (440)
---------- ----------
Net decrease in cash and cash equivalents ..................... (4,140) (24,740)
Cash and cash equivalents at beginning of period .............. 4,982 34,977
---------- ----------
Cash and cash equivalents at end of period .................... $ 842 $ 10,237
========== ==========
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
The Company acquired through its subsidiary, Wynd Communications Corp.,
approximately 3,229 subscribers from Boundless Depot LLC. The purchase price was
approximately $418 (of which $345 has been paid as of September 30, 2003 and $73
is included in accrued expenses).
The accompanying notes are an integral part of these financial statements.
-4-
GOAMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
Note 1 - Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X and include the results of
GoAmerica, Inc. (the "Company") and its wholly-owned subsidiaries. Accordingly,
certain information and footnote disclosures required in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted. In the opinion of the Company's
management, the accompanying unaudited financial statements contain all
adjustments (consisting only of normal recurring adjustments except as otherwise
disclosed herein) that the Company considers necessary for the fair presentation
of its financial position as of September 30, 2003 and the results of its
operations for the three and nine month periods ended September 30, 2003 and
2002. These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
The Company has formed strategic relationships with wireless carriers,
software providers, and hardware manufacturers who provide mobile computer users
and deaf and hard of hearing consumers with wireless communications services and
devices that complement the Company's products and services. The Company also
distributes wireless communication devices, principally to customers of its
wireless services, and earns commissions from the procurement of subscribers on
behalf of various wireless network providers and EarthLink, Inc. ("EarthLink").
The Company is highly dependent on EarthLink for billing and collections,
customer support and technical support. The Company also receives monthly
subscriber revenue from its deaf and hard of hearing customers. Additionally,
the Company is highly dependent on EarthLink and other third parties for
wireless communication devices and wireless network connectivity.
The Company operates in a highly competitive environment subject to
rapid technological change and emergence of new technology. Although management
believes that the Company's services are transferable to emerging technologies,
rapid changes in technology could have an adverse financial impact on the
Company.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. However, the Company
has incurred significant operating losses since its inception and, as of
September 30, 2003, has an accumulated deficit of $263,073. As of September 30,
2003, the Company had $842 in cash and cash equivalents ($600 at October 31,
2003). Management's 2003 operating plan includes further reductions in
employee-related expenses as well as additional reductions in sales and
marketing expenditures from levels incurred during 2002. During the nine months
ended September 30, 2003, the Company retained an outside advisor to assist it
in analyzing various steps that it may take to enhance its liquidity. Such steps
may include the sale or other disposition of certain of the Company's assets,
including its Go.Web technology (as discussed in the Company's June 30, 2003
Form 8-K filing), and the redeployment of the net proceeds in aspects of its
business that the Company believes are well positioned for revenue generation
and growth. Subsequently, the Company suspended its active attempts to sell its
assets and has retained a separate outside advisor to explore equity placements
that would enable the Company to continue its operations. Additionally,
management is seeking to renegotiate certain of the Company's long term lease
obligations and other vendor liabilities. The Company is currently in default on
certain of these obligations and liabilities. In the event that management is
unable to achieve its plans, additional reductions in operations may be
necessary. There can be no assurance that the Company will achieve its 2003
operating plan, enter into one or more agreements to enhance liquidity or
successfully renegotiate its long term lease obligations and other vendor
liabilities. The accompanying financial statements do not include any
adjustments that might result from the outcome of this going concern
uncertainty. Although the Company continues to reduce its cash burn, there can
be no assurance that the Company will not elect to seek or be forced into
bankruptcy protection.
Results for the interim period are not necessarily indicative of
results that may be expected for the entire year. During the third quarter of
2003, the Company renegotiated certain contractual obligations. As a result, the
Company recorded a $372 reduction of accruals for certain sales and marketing
costs recorded in prior periods. Additionally, during the second quarter of
2003, the Company renegotiated certain contractual obligations. As a result, the
Company recorded a $763 reduction of accruals for certain subscriber-related
costs recorded in prior periods.
-5-
Note 2 - Significant Accounting Policies:
Recent Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board, "FASB", issued
Statement of Financial Accounting Standards, "SFAS", No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities". SFAS 146 requires recording
costs associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. Adoption of SFAS 146 is required with the
beginning of fiscal year 2003. The adoption of this statement did not have a
significant impact on the Company's results of operations.
In November 2002, the FASB issued FASB Interpretation, "FIN", No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 addresses the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that is has issued.
Under FIN No. 45, recognition and initial measurement provisions are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002,
irrespective of the guarantor's fiscal year end. The adoption of FIN No. 45 did
not have a significant impact on the Company's consolidated financial position
or results of operations.
In January 2003, the FASB issued FASB Interpretation FIN No. 46,
"Consolidation of Variable Interest Entities". FIN No. 46 clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 applies immediately to
variable interest entities (VIE's) created after January 31, 2003, and to VIE's
in which an enterprise obtains an interest after that date. It applies in the
first fiscal year or interim period after December 15, 2003, to VIE's in which
an enterprise holds a variable interest that it acquired before February 1,
2003. FIN 46 applies to public enterprises as of the beginning of the applicable
interim or annual period. The adoption of FIN 46 is not expected to have a
material impact on the Company's consolidated financial position, liquidity, or
results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liability and Equity". SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liability and equity. It also
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 15, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable financial instruments of nonpublic
entities. It is to be implemented by reporting a cumulative effect of a change
in an accounting principal of financial instruments created before the issuance
date of the Statement and still existing at the beginning of the interim period
of adoption. Restatement is not permitted. The adoption of SFAS No. 150 did not
have a material impact on the Company's consolidated financial position or
results of operations.
-6-
Note 3 - Earnings Per Share:
The Company computes net loss per share under the provisions of SFAS
No. 128, "Earnings per Share", and Staff Accounting Bulletin, "SAB", No. 98.
Under the provisions of SFAS 128 and SAB 98, basic and diluted net loss
per share is computed by dividing the net loss for the period by the
weighted-average number of shares of Common Stock outstanding during the period.
The calculation of diluted net loss per share excludes potential common shares
if the effect is anti-dilutive. Basic earnings per share is computed by dividing
loss by the weighted-average number of shares of Common Stock outstanding during
the period. The weighted-average number of shares utilized in arriving at basic
earnings per share reflects an adjustment to exclude 26,999 common shares for
the three and nine month periods ended September 30, 2002 for outstanding shares
held in escrow as a result of the Company's acquisition during 2001. Diluted
earnings per share is determined in the same manner as basic earnings per share
except that the number of shares does not include the adjustment for escrowed
shares and is increased assuming exercise of dilutive stock options and warrants
using the treasury stock method. As the Company had a net loss, the impact of
the assumed exercise of the stock options, warrants and the assumed preferred
stock conversion is anti-dilutive and as such, these amounts (except for
warrants issued for nominal consideration) have been excluded from the
calculation of diluted earnings per share.
Note 4 - Goodwill and Other Intangible Assets:
During the second quarter of 2003, the Company identified indicators of
impairment, including recent changes in the Company's 2003 operating and cash
flow forecasts, and changes in its strategic plans for certain of its acquired
businesses, which required that the Company evaluate the appropriateness of the
carrying value of its long-lived assets, principally goodwill recorded upon the
2001 acquisition of OutBack Resource Group, Inc. ("Outback"). A write-down of
the entire goodwill related to the acquisition of Outback of $193 was recorded
during the second quarter of 2003, reflecting the amount by which the carrying
amount of the respective reporting unit exceeded its respective fair values as
determined utilizing estimates of future discounted cash flows.
The following table summarizes other intangibles subject to
amortization at the dates indicated:
September 30, 2003 December 31, 2002
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
--------------------------------------- ---------------------------------------
Trade Names $ 4,572 $ (3,927) $ 645 $ 4,572 $ (3,651) $ 921
Technology 3,017 (2,879) 138 3,017 (2,741) 276
Customer Lists 2,258 (2,123) 135 2,258 (1,988) 270
Other 418 (244) 174 -- -- --
Patents 1,000 (1,000) -- 1,000 (1,000) --
---------------------------------------------------------------------------------
$ 11,265 $(10,173) $ 1,092 $ 10,847 $ (9,380) $ 1,467
=================================================================================
-7-
Amortization expense for other intangibles totaled $242 and $433 for
the three months ended September 30, 2003 and 2002, respectively, and $793 and
$1,299 for the nine months ended September 30, 2003 and 2002, respectively.
Aggregate amortization expense for intangible assets is estimated to be:
Three Months Ending December 31, 2003 $285
Year Ending December 31, 2004 624
2005 183
Note 5 - Stock-based Compensation
The Company accounts for employee stock-based compensation in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees", using an intrinsic value approach to measure
compensation expense, if any. Under this method, compensation expense is
recorded on the date of the grant only if the current market price of the
underlying stock exceeds the exercise price. Options issued to non-employees are
accounted for in accordance with SFAS 123, "Accounting for Stock-Based
Compensation", and Emerging Issues Task Force ("EITF") Issue No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods and Services", using a fair
value approach.
SFAS No. 123 established accounting and disclosure requirements using a
fair value-basis method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123, the Company has elected to continue to apply
the intrinsic value-based method of accounting described above, and has adopted
the disclosure requirements of SFAS No. 123. Had the Company elected to
recognize compensation cost based on the fair value of the stock options at the
date of grant under SFAS 123, such costs would have been recognized ratably over
the vesting period of the underlying instruments and the Company's net loss and
net loss per common share would have increased to the pro forma amounts
indicated in the table below.
Three months ended September 30, Nine months ended September 30,
---------------------------------- -------------------------------
2003 2002 2003 2002
---------------- -------------- ------------ --------------
Net loss applicable to common stockholders, as ............... $ (1,003) $ (24,257) $ (6,849) $ (47,736)
reported
Deduct: Stock-based employee compensation expense
included in reported net loss ................................ 77 586 235 1,807
Add: Total stock-based employee compensation
expense determined under fair value based method
for all awards ............................................... (1,149) (1,742) (3,447) (5,226)
--------- --------- --------- ---------
Pro forma net loss applicable to common
stockholders ................................................. $ (2,075) $ (25,413) $ (10,061) $ (51,155)
========= ========= ========= =========
Loss per share - basic, as reported........................... $(0.02) $ (0.45) $ (0.13) $ (0.89)
========= ========= ========= =========
Loss per share - diluted, as reported......................... $(0.02) $ (0.45) $ (0.13) $ (0.89)
========= ========= ========= =========
Pro forma loss per share - basic.............................. $(0.04) $ (0.47) $ (0.19) $ (0.95)
========= ========= ========= =========
Pro forma loss per share - diluted............................ $(0.04) $ (0.47) $ (0.19) $ (0.95)
========= ========= ========= =========
The pro forma results above are not intended to be indicative of or a
projection of future results.
-8-
Note 6 - Strategic Alliance with EarthLink, Inc.:
The Company formed a comprehensive strategic alliance with EarthLink by
entering into a series of agreements pursuant to which, among other things,
EarthLink purchased all of the Company's cellular digital packet data (CDPD)
subscribers as well as certain of the Company's Cingular and Motient network
subscribers. As a result of this alliance, the Company recorded a gain on the
sale of subscribers of $1,756 during the nine months ended September 30, 2003.
Additionally, the Company entered into a sublease agreement for a portion of the
Company's principal offices no longer utilized as a result of the Company's
strategic alliance with Earthlink. Accordingly, the Company recorded an accrued
loss on sublease of $611 during the second quarter of 2003, of which $519 is
included in accrued expenses and other long term liabilities as of September 30,
2003.
Additionally, as part of the strategic alliance, the Company and
EarthLink entered into an agreement to collaborate on developing new
applications and extensions of existing technology, including EarthLink-branded
wireless data services, as well as new technologies. As a result of this
agreement, the Company recorded approximately $96 and $270 of other revenue for
the three and nine months ended September 30, 2003, respectively.
Note 7 - Impairment of Long Lived Assets:
During the second quarter of 2003, the Company evaluated the carrying
value of certain software and equipment, which were idled upon the most recent
transition of certain activities to EarthLink. As a result of this evaluation,
the Company wrote off specific assets with a carrying value of $1,052. This
charge was included in Impairment of long-lived assets in the Condensed
Consolidated Statements of Operations for the nine months ended September 30,
2003.
Note 8 - Acquisition of Subscribers:
On February 8, 2003, the Company entered into an agreement to acquire
through its subsidiary, Wynd Communications Corp. ("Wynd"), approximately 3,229
subscribers from Boundless Depot LLC ("Boundless") . The purchase price of
approximately $418 has been adjusted for subscriber churn (of which $73 is
included in accrued expenses). As of September 30, 2003, the active acquired
subscribers fell below 65% of the total subscribers transferred and, according
to the agreement, all further cash payments have ceased pending further
reconciliation. The total purchase price will be amortized as an other
intangible asset on a straight line basis over a period of 12 months.
Note 9 - Contingencies:
On July 2, 2003, Eastern Computer Exchange, Inc. ("Eastern Computer")
filed suit against the Company in the United States District Court for the
District of New Jersey with respect to the Company's non-performance of certain
payment obligations pursuant to two equipment leases (the "Leases"). Eastern
Computer demanded and has received from the Company all of the equipment covered
by the Leases. Eastern Computer also seeks monetary amounts related to
obligations under leases ranging from approximately $200,000 to approximately
$800,000. The parties are currently in settlement discussions, however, the
Company cannot predict the outcome of this matter at this time.
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
GoAmerica, Inc., a Delaware corporation ("We," "Us" or the "Company"),
develops and distributes wireless data technology, applications and software
that address the productivity and communications needs of enterprise customers,
and individuals, with one of our business units concentrating on the deaf, hard
of hearing or speech impaired community. In the consumer market, we primarily
offer wireless data solutions that are designed for people who are deaf, hard of
hearing or speech impaired through our wholly owned subsidiary, Wynd
Communications Corporation, ("Wynd"). In the enterprise market, our solutions
are primarily based on our proprietary software technology called Go.Web(TM). By
utilizing Go.Web, corporations can improve the productivity of employees by
enabling secure wireless access to corporate data on many wireless computing
devices and over many wireless data networks. Our Go.Web technology can be
hosted and supported in a secure network operations center maintained by
GoAmerica or its third party outsourcing provider or installed behind an
enterprise's network security system, commonly know as the firewall. Customers
who opt to install the software do so by purchasing our proprietary Go.Web
Enterprise Server technology, formally known as Go.Web OnPrem(TM).
Historically, we have derived our revenue primarily from the sale of
basic and value-added wireless data services and the sale of related mobile
devices to our subscribers. During March 1997, we commenced offering our
services to individuals and businesses. Since our inception, we have invested
significant capital to build our wireless network operations and e-commerce
system as well as our billing system. We have invested additional capital in the
development of our software applications Go.Web and Mobile Office(R), as well as
other software applications. We have provided mobile devices made by third
parties to our customers at prices below our costs for such devices. We have
incurred operating losses since our inception and expect to continue to incur
operating losses for at least the next several quarters. We will need to
significantly improve our overall gross margins and further reduce our selling,
general and administrative expenses to become profitable and sustain
profitability on a quarterly or annual basis. If we are able to attract the
necessary capital, we may seek to grow Wynd's business through additional
strategic alliances or new service offerings. As a result of our strategic
alliance with EarthLink, Inc., or EarthLink, we anticipate overall revenue to
continue to decline while gross margins should continue to increase and selling,
marketing and administrative expenses should decline. We may continue to
generate revenues from EarthLink from three primary sources: (i) recurring
service revenue; (ii) software revenue; and (iii) activation bounties. We have
substantially reduced our costs of subscriber airtime and operating costs as a
result of our strategic alliance with EarthLink.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities. On an on-going basis, management evaluates
its estimates and judgments, including those related to revenue recognition,
allowance for doubtful accounts, inventory valuation and recoverability of our
intangible assets. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its condensed consolidated financial statements. Historically, we
have derived our revenue primarily from the sale of basic and value-added
wireless data services and the sale of related mobile devices. Subscriber
revenue consists primarily of monthly charges for access and usage and is
recognized as the services are provided. We also charged our CDPD subscribers a
per kilobyte fee for using a mobile device outside of a designated geographical
area, or roaming; such fees are recognized as revenue when collected. We also
generally charged a non-refundable activation fee upon initial subscription. To
the extent such fees exceed the related costs, they are deferred and recognized
ratably over the life of the related service contracts, which are generally
either six months, one year or two year agreements. Equipment revenue is
recognized upon shipment to the end user. We also provide mobile devices to our
customers at prices below our costs as incentives for customers to enter into
service agreements. Such incentives are recorded as a reduction to subscriber
and equipment revenue at the time of sale, allocated based upon the relative
fair value of the equipment and services provided. We estimate the
collectibility of our trade receivables. A considerable amount of judgment is
required in assessing the ultimate realization of these receivables including
analysis of historical collection rates and the current credit-worthiness of
significant customers. Significant changes in required reserves have been
recorded in recent periods and may occur in the future due to current market
conditions. We write down inventory for estimated excess or obsolete inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by management,
additional inventory write-downs may be required. In assessing the
-10-
recoverability of our goodwill, other intangibles and other long lived assets,
we must make assumptions regarding estimated future cash flows. If such
assumptions change in the future, we may be required to record impairment
charges for these assets not previously recorded. During the nine months ended
September 30, 2003, we evaluated the carrying value of certain software and
equipment which were idled upon our most recent transition of certain activities
to EarthLink and have recorded an adjustment to the carrying value of specific
assets.
Results of Operations
Three months ended September 30, 2003 Compared to Three months ended September
30, 2002
Subscriber revenue. Subscriber revenue decreased 65%, to $2.6 million
for the three months ended September 30, 2003 from $7.4 million for the three
months ended September 30, 2002. This decrease was primarily due to the sale of
our CDPD subscribers, as well as a portion of our Cingular and Motient network
subscribers, to EarthLink during the fourth quarter 2002. Our subscriber base
decreased to 81,371 subscribers at September 30, 2003 from 103,541 subscribers
at September 30, 2002. Our average monthly revenue per user, or ARPU, decreased
to $10.23 for the three months ended September 30, 2003 from $23.22 for the
three months ended September 30, 2002. The decline in ARPU was due to the sale
of full-service offering subscribers referenced above. We expect revenue to
increase slightly and ARPU to remain constant from our continued leveraging of
strategic agreements for the sale of our Go.Web value-added services and higher
ARPU full-service offerings through our subsidiary, Wynd Communications
Corporation, or Wynd.
Equipment revenue. Equipment revenue decreased to $266,000 for the
three months ended September 30, 2003 from $1.6 million for the three months
ended September 30, 2002. This decrease was primarily due to lower sales of
mobile devices as a result of our strategic alliance with EarthLink. We
anticipate that equipment revenue will remain reasonably constant as we continue
to sell mobile devices through Wynd.
Other revenue. Other revenue, which consists primarily of revenue
derived from consulting services, increased to $303,000 for the three months
ended September 30, 2003 from $94,000 for the three months ended September 30,
2002. This increase was primarily due to our strategic alliance with EarthLink
in which we collaborate on developing new applications and extensions of
existing technology, including EarthLink-branded wireless data services, as well
as new technologies. We anticipate consulting services to remain reasonably
constant due to our strategic alliance with Earthlink.
Cost of subscriber airtime. Cost of subscriber airtime decreased 77%,
to $1.1 million for the three months ended September 30, 2003 from $4.8 million
for the three months ended September 30, 2002. This decrease was primarily due
to the sale of our CDPD subscribers, as well as a portion of our Cingular and
Motient network subscribers, to EarthLink during the fourth quarter of 2002. We
expect the number of subscribers and related use of our services to increase
slightly as a result of our continued leveraging of strategic agreements for the
sale of our Go.Web value-added services and higher ARPU full-service offerings
through Wynd
Cost of network operations. Cost of network operations decreased to
$365,000 for the three months ended September 30, 2003 from $791,000 for the
three months ended September 30, 2002. We expect cost of network operations to
further decline as a result of decreased salaries and benefits for personnel
performing network operations activities.
Cost of equipment revenue. Cost of equipment revenue decreased 95%, to
$140,000 for the three months ended September 30, 2003 from $2.5 million for the
three months ended September 30, 2002. This decrease was primarily due to lower
sales of mobile devices as a result of our strategic alliance with EarthLink. We
anticipate that the cost of equipment revenue will remain constant as we
continue to sell mobile devices through Wynd.
Sales and marketing. Sales and marketing expenses decreased 108%, to a
net gain of $169,000 for the three months ended September 30, 2003 from $2.0
million for the three months ended September 30, 2002. This decrease primarily
was due to decreased advertising costs paid to third parties as well as
decreased salaries and benefits for personnel performing sales and marketing
activities. Additionally, during the three months ended September 30, 2003, we
recorded a $372,000 one-time reduction of accruals for certain sales and
marketing expenses recorded in prior periods. We expect sales and marketing
expenses to be limited as a result of leveraging our strategic alliance with
EarthLink and other partners.
-11-
General and administrative. General and administrative expenses
decreased 73%, to $1.9 million for the three months ended September 30, 2003
from $6.9 million for the three months ended September 30, 2002. This decrease
primarily was due to decreased salaries and benefits for personnel performing
business development and general corporate activities and decreased
infrastructure buildout. We expect general and administrative expenses to remain
reasonably constant as a result of our outsourcing of billing, customer support
and network services to EarthLink.
Research and development. Research and development expense decreased to
$220,000 for the three months ended September 30, 2003 from $963,000 for the
three months ended September 30, 2002. This decrease primarily was due to
decreased salaries and benefits for personnel performing research and
development activities. We expect research and development expenses to remain
reasonably constant as we develop applications for our deaf and hard of hearing
customers.
Amortization of goodwill and other intangibles. Amortization of other
intangibles decreased for the three months ended September 30, 2003 to $242,000
from $433,000 for the three months ended September 30, 2002. This decrease
primarily was due to patents being fully amortized. We expect amortization of
other intangibles to remain constant.
Gain on sale of subscribers. Gain on sale of subscribers resulted from
our comprehensive strategic alliance whereby EarthLink purchased all of the
Company's cellular digital packet data (CDPD) subscribers as well as certain of
the Company's Cingular and Motient network subscribers. As a result of this
agreement, we recorded a gain on the sale of subscribers of $11,000 during the
three months ended September 30, 2003.
Nine months ended September 30, 2003 Compared to Nine months ended September 30,
2002
Subscriber revenue. Subscriber revenue decreased 66%, to $8.0 million
for the nine months ended September 30, 2003 from $23.3 million for the nine
months ended September 30, 2002. This decrease was primarily due to the sale of
our CDPD subscribers, as well as a portion of our Cingular and Motient network
subscribers, to EarthLink during the fourth quarter 2002. Our subscriber base
decreased to 81,371 subscribers at September 30, 2003 from 103,541 subscribers
at September 30, 2002. Our ARPU decreased to $10.29 for the nine months ended
September 30, 2003 from $23.75 for the nine months ended September 30, 2002. The
decline in ARPU was due to the sale of full-service offering subscribers
referenced above.
Equipment revenue. Equipment revenue decreased to $917,000 for the nine
months ended September 30, 2003 from $5.7 million for the nine months ended
September 30, 2002. This decrease was primarily due to lower sales of mobile
devices as a result of our strategic alliance with EarthLink.
Other revenue. Other revenue, which consists primarily of revenue
derived from consulting services, increased to $643,000 for the nine months
ended September 30, 2003 from $202,000 for the nine months ended September 30,
2002. This increase was primarily due to our recent strategic alliance with
EarthLink in which we will collaborate on developing new applications and
extensions of existing technology, including EarthLink-branded wireless data
services, as well as new technologies.
Cost of subscriber airtime. Cost of subscriber airtime decreased 86%,
to $2.3 million for the nine months ended September 30, 2003 from $16.8 million
for the nine months ended September 30, 2002. This decrease was primarily due to
the sale of our CDPD subscribers, as well as a portion of our Cingular and
Motient network subscribers, to EarthLink during the fourth quarter of 2002.
Additionally, during the nine months ended September 30, 2003, we recorded a
$763,000 one-time reduction of accruals for certain subscriber-related costs
recorded in prior periods.
Cost of network operations. Cost of network operations decreased 31% to
$1.7 million for the nine months ended September 30, 2003 from $2.4 million for
the nine months ended September 30, 2002.
Cost of equipment revenue. Cost of equipment revenue decreased 85%, to
$1.0 million for the nine months ended September 30, 2003 from $6.8 million for
the nine months ended September 30, 2002. This decrease primarily was due to
lower sales of mobile devices and was partially offset by a non-cash inventory
charge of $331,000 recorded during the nine months ended September 30, 2003 to
value a portion of our remaining inventory at the lower of cost or market.
-12-
Sales and marketing. Sales and marketing expenses decreased 87%, to
$868,000 for the nine months ended September 30, 2003 from $6.8 million for the
nine months ended September 30, 2002. This decrease primarily was due to
decreased advertising costs paid to third parties as well as decreased salaries
and benefits for personnel performing sales and marketing activities.
Additionally, during the three months ended September 30, 2003, we recorded a
$372,000 one-time reduction of accruals for certain sales and marketing expenses
recorded in prior periods.
General and administrative. General and administrative expenses
decreased 67%, to $7.6 million for the nine months ended September 30, 2003 from
$22.8 million for the nine months ended September 30, 2002. This decrease
primarily was due to decreased salaries and benefits for personnel performing
business development and general corporate activities and decreased
infrastructure buildout.
Research and development. Research and development expense decreased
61%, to $1.1 million for the nine months ended September 30, 2003 from $2.9
million for the nine months ended September 30, 2002. This decrease primarily
was due to decreased salaries and benefits for personnel performing research and
development activities.
Amortization of goodwill and other intangibles. Amortization of other
intangibles decreased for the nine months ended September 30, 2003 to $793,000
from $1.3 million for the nine months ended September 30, 2002. This decrease
primarily was due to patents being fully amortized.
Impairment of long-lived assets. During the nine months ended
September 30, 2003, we identified certain indicators of impairment including
recent changes in the Company's 2003 operating and cash flow forecasts, and
changes in our strategic plans for certain of our acquired businesses which
required that we evaluate the appropriateness of the carrying value of our
long-lived assets, principally goodwill recorded upon the acquisition of OutBack
Resource Group, Inc., ("Outback"). A write-down of goodwill totaling $193,000
was recorded during the nine months ended September 30, 2003, reflecting the
amount by which the carrying amount of the respective reporting unit exceeded
its respective fair value. In addition, as a result of our recent strategic
alliance with EarthLink, we evaluated the carrying value of certain software and
equipment which were idled upon our most recent transition of certain activities
to EarthLink. As a result of this evaluation, during the nine months ended
September 30, 2003, we wrote-off specific assets with a carrying value of $1.1
million.
Gain on sale of subscribers. Gain on sale of subscribers resulted from
our comprehensive strategic alliance whereby EarthLink purchased all of the
Company's cellular digital packet data (CDPD) subscribers as well as certain of
the Company's Cingular and Motient network subscribers. As a result of this
agreement, we recorded a gain on the sale of subscribers of $1.8 million during
the nine months ended September 30, 2003.
Liquidity and Capital Resources
Since our inception, we financed our operations through private
placements of our equity securities and our redeemable convertible preferred
stock, which resulted in aggregate net proceeds of approximately $18.4 million
through December 31, 1999. During the first quarter of 2000, we issued and sold
648,057 shares of Series B Preferred Stock for net proceeds of approximately
$24.6 million. In April 2000, we consummated our initial public offering of
10,000,000 shares of our common stock at a price to the public of $16.00 per
share, all of which were issued and sold for net proceeds of $146.2 million. As
of September 30, 2003, we had $842,000 in cash and cash equivalents and a
working capital deficit of $2.7 million.
-13-
We have incurred significant operating losses since our inception and
as of September 30, 2003 have an accumulated deficit of $263.1 million. During
the nine months ended September 30, 2003, we incurred a net loss of $6.8 million
and used $6.3 million of cash to fund operating activities. As of September 30,
2003 we had $842,000 in cash and cash equivalents ($600,000 at October 31,
2003). During 2002 and into 2003, we took steps to reduce our annual payroll by
more than 40% and took further actions to reduce sales and marketing expenses.
In addition, on September 25, 2002, we formed a comprehensive strategic alliance
with EarthLink by entering into a series of agreements. Pursuant to these
agreements, we may generate revenues from three primary sources: (i) recurring
service revenue; (ii) software revenue; and (iii) activation bounties. The
EarthLink agreements also enable us to reduce our costs of subscriber airtime.
Our 2003 operating plan includes further reductions in headcount as well as
additional reductions in sales and marketing expenditures from levels incurred
during 2002, all of which have been substantially achieved to date. We currently
anticipate that our available cash resources will be sufficient to fund our
operating needs only through January 2004. For us to remain in business beyond
such four month period, we believe we will require additional financing. At this
time, we do not have any bank credit facility or other working capital credit
line under which we may borrow funds for working capital or other general
corporate purposes. We may not be able to raise funds on terms favorable to us,
or at all. As a result of these and related considerations, our independent
auditors issued a going concern opinion in connection with our 2002 financial
statements.
Over the past twelve months, our available cash has decreased
substantially. This reduction in liquidity creates significant constraints on
the manner in which our business can operate. We have retained an outside
advisor to assist us in analyzing various steps that we may take to enhance our
liquidity. We considered, and may ultimately affect, the sale or other
disposition of certain of our assets, including our Go.Web technology, and the
redeployment of the net proceeds in aspects of our business which we believe are
well positioned for revenue generation and growth. We cannot assure you as to
when or whether such steps will be taken and, if taken, whether such steps will
be successful. We recently suspended active attempts to sell our assets and
retained a separate outside advisor to explore equity placements that would
enable us to continue our operations. At the same time, we are seeking to
renegotiate certain of our long term lease obligations and other vendor
liabilities. We currently are default on certain of these obligations and
liabilities. We cannot assure you that we will achieve our 2003 operating plan,
enter into one or more agreements to enhance liquidity or successfully
renegotiate our long term lease obligations and other vendor liabilities.
Although we have been able to reduce our cash burn, we may find it necessary to
elect to seek bankruptcy protection or we may be forced into involuntary
bankruptcy proceedings if we are unsuccessful in renegotiating our lease and
other liabilities or if we are unsuccessful in raising capital. We cannot assure
you that we will be able to effect such renegotiations or raise new capital on
satisfactory terms, or at all.
Net cash used in operating activities decreased to $6.9 million for the
nine months ended September 30, 2003 from $24.0 million for the nine months
ended September 30, 2002. This decrease primarily was due to decreased losses
from operations.
We generated $2.7 million in cash in investing activities during the
nine months ended September 30, 2003 as compared to using $349,000 in cash for
the nine months ended September 30, 2002. Cash provided by investing activities
primarily resulted from the gain on sale of subscribers as well as the release
of restricted cash for draw downs on letters of credit.
We generated $47,000 in cash in financing activities during the nine
months ended September 30, 2003 as compared to using $440,000 for the nine
months ended September 30, 2002. Cash provided by financing activities primarily
resulted from proceeds from the sale of stock through option exercises. As of
September 30, 2003, our principal commitments consisted of obligations
outstanding under operating leases. As of September 30, 2003, future minimum
payments for non-cancelable operating leases having terms in excess of one year
amounted to $8.9 million, of which approximately $2.0 million is payable in the
next twelve months.
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The following table summarizes GoAmerica's contractual obligations at
September 30, 2003, and the effect such obligations are expected to have on its
liquidity and cash flow in future periods.
Less than 1
September 30, (In thousands) Total Year 1-3 Years 4-5 Years After 5 Years
Contractual Obligations:
Capital Lease Obligations $ 145 $ 139 $ 6 $ -- $ --
Operating Lease 8,744 1,813 2,904 2,169 1,858
Obligations
---------- ---------- -------- --------- ---------
Total Contractual Cash $ 8,889 $ 1,952 $ 2,910 $ 2,169 $ 1,858
Obligations
========== ========== ======== ========= =========
Forward Looking Statements
Statements contained in this Form 10-Q that are not based on historical
fact are "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements may be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "estimate," "anticipate," "continue," or similar terms, variations of
such terms or the negative of those terms. Such forward-looking statements
involve risks and uncertainties, including, but not limited to: (i) our limited
operating history; (ii) our reduced capital resources and need for additional
liquidity; (iii) our ability to fund our operating needs through available cash
reserves; (iv) our ability to raise additional equity and renegotiate
liabilities before our cash resources are fully depleted; (v) the impact on our
business from our receiving a "going concern" opinion from our independent
auditors; (vi) our ability to successfully implement our strategic alliance with
EarthLink; (vii) our dependence on EarthLink to provide billing, customer and
technical support to our subscribers; (viii) our ability to respond to the rapid
technological change of the wireless data industry and offer new services; (ix)
our dependence on wireless carrier networks; (x) our ability to respond to
increased competition in the wireless data industry; (xi) our ability to
integrate acquired businesses and technologies; (xii) our ability to leverage
strategic alliances to generate revenue growth; (xiii) our ability to increase
or maintain gross margins, profitability, liquidity and capital resources; and
(xiv) our ability to manage our remaining operations; and (xv) difficulties
inherent in predicting the outcome of regulatory processes. As a result of such
risks and others expressed from time to time in our filings with the Securities
and Exchange Commission, our actual results could differ materially from the
results discussed in or implied by the forward-looking statements contained
herein.
Recent Accounting Pronouncements
In June 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. Adoption of SFAS 146 is required with the
beginning of fiscal year 2003. The adoption of this statement did not have a
significant impact on the Company's results of operations.
In November 2002, the FASB issued FASB Interpretation, "FIN," No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 addresses the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that is has issued.
Under FIN No. 45 recognition and initial measurement provisions are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002,
irrespective of the guarantor's fiscal year end. The adoption of FIN No. 45 did
not have a significant impact on our consolidated financial position or results
of operations.
-15-
In January 2003, the FASB issued FASB Interpretation "FIN" No. 46,
"Consolidation of Variable Interest Entities". FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies immediately to variable interest
entities (VIE's) created after January 31, 2003, and to VIE's in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period after December 15, 2003, to VIE's in which an enterprise
holds a variable interest that it acquired before February 1, 2003. FIN 46
applies to public enterprises as of the beginning of the applicable interim or
annual period. The adoption of FIN 46 is not expected to have a material impact
on our consolidated financial position, liquidity, or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liability and Equity". SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liability and equity. It also
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 15, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable financial instruments of nonpublic
entities. It is to be implemented by reporting a cumulative effect of a change
in an accounting principal of financial instruments created before the issuance
date of the Statement and still existing at the beginning of the interim period
of adoption. Restatement is not permitted. The adoption of SFAS No. 150 did not
have a material impact on our consolidated financial position or results of
operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We believe that we have limited exposure to financial market risks,
including changes in interest rates. At September 30, 2003, all of our available
excess funds are cash or cash equivalents. The value of our cash and cash
equivalents is not materially affected by changes in interest rates. A
hypothetical change in interest rates of 1.0% would result in an annual change
in net loss of approximately $8,000 based on cash and cash equivalent balances
at September 30, 2003. We currently hold no derivative instruments and do not
earn foreign-source income.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures.
Disclosure controls and procedures. As of the end of the Company's
most recently completed fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) covered by this report, the Company carried out
an evaluation, with the participation of the Company's management, including the
Company's Chief Executive Officer and Vice President, Controller, of the
effectiveness of the Company's disclosure controls and procedures pursuant to
Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company's
Chief Executive Officer and Vice President, Controller, concluded that the
Company's disclosure controls and procedures are effective in ensuring that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC's rules and forms.
Changes in internal controls over financial reporting. There have been
no changes in the Company's internal controls over financial reporting that
occurred during the Company's last fiscal quarter to which this report relates
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
-16-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On February 15, 2002, Eagle Truck Lines Inc. (a/k/a Air Eagle, Inc.)
filed suit against GoAmerica, Inc. in the Superior Court of the State of
California for the County of Los Angeles seeking payment of $590,000, plus other
damages, expenses, interest and costs of suit. This action was removed to the
United States District Court for the Central District of California and
subsequently, pursuant to a motion brought by GoAmerica, transferred to the
District of New Jersey where GoAmerica has moved to have it consolidated with
the action described in the next paragraph. (This motion will be decided once a
decision in the various motions to dismiss is rendered in the Flash action
discussed below.) Air Eagle alleges that GoAmerica, as successor in interest to
Flash Creative Management, Inc. ("Flash"), failed to perform its obligations
under a consulting contract dated July 2, 1999 (the "Contract"), by and between
Flash and Air Eagle. Air Eagle alleges that GoAmerica assumed the rights and
liabilities under this Contract as a result of its purchase of substantially all
of the assets of Flash in November 2000. On June 3, 2002, GoAmerica filed an
amended answer and counterclaim, denying the allegations of the complaint and
seeking payment from Air Eagle of an amount not less than $589,993.60, plus
expenses, interest and costs of suit based on Air Eagle's failure to pay for
services rendered by Flash and GoAmerica under the Contract. The Company intends
to defend this action and pursue its counterclaim vigorously.
In a separate but related matter, on July 31, 2002, GoAmerica filed
suit against Flash and certain former officers and shareholders of Flash (the
"Flash Defendants") in the United States District Court for the District of New
Jersey for violations of federal and state securities law and common law fraud
in connection with the sale of the assets of Flash to GoAmerica. In October
2002, each of the Flash Defendants filed answers to GoAmerica's complaint
denying all of the Company's charges, with one of the Flash Defendants adding
counterclaims against the Company and certain named officers alleging, among
other things, fraudulent misrepresentation, violations of state securities law
and unjust enrichment in excess of $1 million. The other Flash Defendants have
been granted leave to amend their answer to include substantially similar
counterclaims against the Company and Company officer defendants. The Company
has filed a motion to dismiss the Flash Defendants' counterclaims, and the Flash
defendants have filed cross-motions for judgment on the pleadings and for
summary judgment seeking dismissal of the Company's claims against them. All
pending motions are briefed and have been submitted to the Court for decision.
The Company intends to vigorously pursue its claims against Flash and the other
named defendants in this action, and to defend the counterclaims asserted.
On July 2, 2003, Eastern Computer Exchange, Inc. ("Eastern Computer")
filed suit against GoAmerica in the United States District Court for the
District of New Jersey with respect to GoAmerica's non-performance of certain
payment obligations pursuant to two equipment leases (the "Leases"). Eastern
Computer demanded and has received from GoAmerica all of the equipment covered
by the Leases. Eastern Computer also seeks monetary amounts related to
obligations under the Leases ranging from approximately $200,000 to
approximately $800,000. The parties are currently in settlement discussions,
however, the Company cannot predict the outcome of this matter at this time.
Item 5. Other Information
On August 27, 2003, the Company received a letter from the Nasdaq Stock
Market ("Nasdaq") Staff stating that the Company's Common Stock was scheduled to
be delisted from the Nasdaq Smallcap Market due to the Common Stock's
non-compliance with the $1 minimum bid price per share requirement as set forth
in Nasdaq Marketplace Rule 4310 (C) (4). The Company appealed the Nasdaq Staff
Determination and on October 21, 2003, the Nasdaq Listings Qualifications Panel
granted the Company additional time, until at least December 1, 2003, to regain
compliance with the minimum price requirement since the Company meets all of the
other listing requirements.
As previously reported, the Company retained an independent contractor
in August 2003 to serve as Interim Chief Financial Officer. During transitional
activities, management redefined the scope of the contractor such that the
general duties of a public company chief financial officer were assumed by
members of the Company's accounting and finance staff and the Company's Vice
President, Controller continues to serve as the Company's principal accounting
officer.
-17-
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
31.1 Certification of the Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Vice President, ControllerPursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Vice President, ControllerPursuant to 18
U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) During the quarter ended September 30, 2003, the registrant
filed two Reports on Form 8-K with the Commission:
On July 1, 2003, the Company filed a Current Report on Form
8-K with regard to the issuance of a press release providing
an update on the Company's strategic initiative process and
refocused business mission (Item 9).
On September 3, 2003, the Company filed a Current Report on
Form 8-K regarding its receipt from Nasdaq Staff of a
delisting determination due to the Company's stock price
remaining below $1 bid price per share and the Company's
appeal of such determination.
-18-
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 13, 2003 By: /s/ Daniel R. Luis
--------------------------------------------
Daniel R. Luis
Chief Executive Officer
(Principal Executive Officer)
DATE: November 13, 2003 By: /s/ Donald G.Barnhart
--------------------------------------------
Donald G. Barnhart
Vice President, Controller
-19-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
31.1 Certification of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Vice President, Controller Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32..2 Certification of the Vice President, Controller Pursuant to 18
U.S.C. Section 1350, Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.