SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-29359
GOAMERICA, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3693371
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
433 Hackensack Avenue, Hackensack, New Jersey 07601
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (201) 996-1717
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Each Exchange on Which Registered
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None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes: No: X
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The aggregate market value of the voting common equity of the registrant
held by non-affiliates (for this purpose, persons and entities other than
executive officers, directors, and 5% or more shareholders) of the registrant,
as of the last business day of the registrant's most recently completed second
fiscal quarter (June 30, 2003), was $15,770,560.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 1, 2004:
Class Number of Shares
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Common Stock, $0.01 par value 55,721,868
The following documents are incorporated by reference into the Annual
Report on Form 10-K: Portions of the registrant's definitive Proxy Statement for
its 2004 Annual Meeting of Stockholders are incorporated by reference into Part
III of this Report.
TABLE OF CONTENTS
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Item Page
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PART I 1. Business of the Company................................ 2
2. Properties............................................. 13
3. Legal Proceedings...................................... 13
4. Submission of Matters to a Vote of Security Holders.... 15
4A. Executive Officers of the Registrant................... 16
PART II 5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................. 17
6. Selected Consolidated Financial Data................... 19
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 21
7A. Quantitative and Qualitative Disclosures About Market
Risk................................................ 35
8. Financial Statements and Supplementary Data............ 35
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 35
9A. Controls and Procedures................................ 36
PART III 10. Directors and Executive Officers of the Registrant..... 37
11. Executive Compensation................................. 37
12. Security Ownership of Certain Beneficial Owners and
Management.......................................... 37
13. Certain Relationships and Related Transactions......... 37
14. Principal Accountant Fees and Services................. 37
PART IV 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K............................................ 38
SIGNATURES................................................................ 40
EXHIBIT INDEX............................................................. 42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE..................................................... F-1
1
Each reference in this Annual Report to "GoAmerica," the "Company" or
"We," or any variation thereof, is a reference to GoAmerica, Inc. and its
subsidiaries, unless the context requires otherwise.
Many of GoAmerica's product/service names referred to herein are
trademarks, service marks or tradenames of GoAmerica. This Annual Report also
includes references to trademarks and tradenames of other companies. The
GoAmerica and Wynd Communications names and logos and the names of proprietary
products and services offered by GoAmerica and Wynd Communications are
trademarks, registered trademarks, service marks or registered service marks of
GoAmerica.
FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-K that are not
historical facts are forward-looking statements (within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended) that involve risks and
uncertainties. Such 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 ability to successfully manage our strategic alliance with EarthLink;
(iii) our dependence on EarthLink to provide billing, customer and technical
support to certain of our subscribers; (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 ability to respond to
increased competition in the wireless data industry; (vii) our ability to
integrate acquired businesses and technologies; (viii) our ability to generate
revenue growth; (ix) our ability to increase or maintain gross margins,
profitability, liquidity and capital resources; and (x) our ability to manage
our remaining operations; and (xi) difficulties inherent in predicting the
outcome of regulatory processes. Such risks and others are more fully described
in the Risk Factors set forth in Exhibit 99.1 to this Annual Report. Our actual
results could differ materially from the results expressed in, or implied by,
such forward-looking statements.
PART I
Item 1. Business of the Company.
Recent Developments
On March 10, 2004, GoAmerica consummated the second stage of a private
placement originally announced in December 2003. Through our initial closing in
December 2003 and our second closing on March 10, 2004, we raised net proceeds
of approximately $13 million through the issuance of our Common Stock and
warrants. As a result of this private placement:
o We are in a position to begin executing on a new business strategy
that we announced this past December. Our strategy is centered on
the pursuit of three priorities, centered on our Wynd Communications
subsidiary: (a) growth of Wynd
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Communications' core wireless services business; (b) development and
marketing of new communications services, including branded Internet
protocol and video relay services; and (c) streamlined operations to
enable superior customer support. We expect that we will require
substantially all of the net proceeds from the private placement in
order to implement this strategy.
o We have averted a liquidity shortage that was plaguing our ability
to operate our business. As of February 29, 2004, we had less than
$225,000 in cash available to us.
o Our accountants are no longer expressing a "going concern"
qualification in their opinion regarding our certified consolidated
financial statements.
o We will use a portion of the net proceeds to settle claims with our
creditors. Approximately $300,000 of the net proceeds will be used
to repay existing indebtedness, consisting of $120,000 to Verizon
Wireless, $100,000 to Metricom and $80,000 to Motient. In addition,
$600,000 of the net proceeds will support a letter of credit in
favor of Cingular. These actions supplement settlements reached with
our real estate lessor and with one of our equipment lessors, which
has enabled us to improve our balance sheet substantially.
We issued a total of 96,820,797 shares of our Common Stock pursuant to this
private placement and issued warrants providing for the issuance of up to
10,180,976 shares of our Common Stock at an exercise price of $0.15 per share.
For additional information regarding this private placement, see "Management's
Discussion and Analysis of Financial Condition and results of Operations -
Liquidity and Capital Resources".
General
GoAmerica is a wireless data communications service provider, offering
solutions primarily for consumers who are deaf, hard of hearing and/or
speech-impaired. We currently develop, market and support most of these services
through Wynd Communications Corporation, a wholly owned subsidiary of GoAmerica.
Wynd Communications offers enhanced services known as WyndTell(R) and
WyndPower(TM), which assist our deaf or hard of hearing customers in
communicating from most major metropolitan areas in the continental United
States and parts of Canada. WyndTell and WyndPower allow customers to send and
receive email messages to and from any email service, provide for delivery and
acknowledgements of sent messages that are read, send and receive TTY/TDD (text
telephone or teletypewriter) messages, faxes, and text-to-speech messages, and
access the Internet using such wireless computing devices as Research in Motion,
or RIM, wireless handheld devices, certain Motorola paging devices and the
T-Mobile Sidekick, Fido hiptop, and SunCom hiptop devices running on Danger
Inc.'s hiptop platform. Additionally, GoAmerica continues to support customers
who use our proprietary software technology called Go.Web(TM). GoWeb is designed
for use mainly by enterprise customers to enable secure wireless access to
corporate data and the Internet on numerous wireless computing devices (RIM's,
BlackBerry and interactive handheld devices; Microsoft Pocket PC-based personal
digital assistants; Palm operating system-based handheld computing devices; and
laptop computers). The Wynd Communications and Go.Web services transmit over
most major
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wireless data networks in North America. Our revenues are derived principally
from subscription to our value-added wireless data services, for which customers
typically pay monthly recurring fees. We derive additional revenue from the sale
of wireless communications devices and commissions from the acquisition of
subscribers on behalf of various wireless network providers. We continue to
engineer our technology to operate with new versions of wireless devices as they
emerge.
Our principal office is located at 433 Hackensack Avenue, Hackensack, New
Jersey 07601, and our voice telephone number is (201) 996-1717 and our TTY
number is (201) 527-1520. Our web site is located at www.goamerica.com. We have
not incorporated by reference into this Form 10-K any of the information on our
web site, and you should not consider it to be a part of this document. Our web
site address is included in this document as an inactive textual reference only.
Corporate History
GoAmerica Communications Corp. was incorporated in Delaware in 1996. In
December 1999, GoAmerica, Inc. was incorporated in Delaware and each of the
security holders of GoAmerica Communications Corp. exchanged all of their
outstanding securities for newly issued securities of GoAmerica, Inc., with
GoAmerica Communications Corp. becoming a wholly owned subsidiary of GoAmerica,
Inc. GoAmerica, Inc. consummated the initial public offering of its common stock
in April 2000.
On June 28, 2000, we acquired Wynd Communications and on August 31, 2000,
we acquired Hotpaper.com, Inc., a provider of Web-based document automation
software, infrastructure and content, which was utilized as the basis for
developing components of our value-added suite of services.
On November 7, 2000, we acquired substantially all the assets of Flash
Creative Management, Inc. ("Flash"). Flash provided consulting services to
business customers in the areas of business improvement, strategy and redesign
and in software development and integration, a line of business, which we are
currently not pursuing.
On November 13, 2001, we acquired OutBack Resource Group, Inc., a software
development company specializing in wireless and network management and
technologies.
On September 25, 2002, we revised our Go.Web business model by entering
into a strategic alliance with EarthLink, Inc., ("Earthlink") pursuant to which,
among other things, EarthLink purchased all of our Cellular Digital Packet Data
(also known as "CDPD") subscribers and certain other Go.Web subscribers,
EarthLink provides billing, collections and customer service to our Go.Web
customers, and EarthLink and GoAmerica collaborate on marketing each other's
services, and developing new applications extensions of existing technologies
and services. This strategic alliance is described in further detail in Item 1
of our Annual Report on Form 10-K for the year ended December 31, 2002. The
initial term of this strategic alliance with EarthLink is two years and we
cannot predict at this time whether this arrangement will be extended,
terminated or restructured.
4
Our Business
At December 31, 2003, GoAmerica had approximately 13,184 Wynd subscribers
and approximately 61,946 Go.Web subscribers, from which we receive, directly or
indirectly, monthly subscription fees.
GoAmerica's strategy is to focus its resources on delivering, generally
through its Wynd Communications subsidiary, a wide range of communications
services to people who are deaf or hard of hearing. In addition to wireless, we
have also announced plans to enter, either organically, or through partnerships
with current providers, the Telecommunications Relay Services ("TRS") arena. TRS
enables standard voice telephone users to talk to people who have difficulty
hearing or speaking on the telephone. TRS uses operators, called "communications
assistants" ("CA's"), to facilitate telephone calls for such individuals.
The main service currently offered by Wynd is WyndTell, which enables
deaf, hard of hearing and/or speech-impaired users to communicate with
co-workers, friends and family members by means of wireless devices, using
communications options such as email, fax, paging, text-to-speech, and Text
Telephone ("TTY", sometimes referred to as "TDD") messaging. Additionally, we
offer a service called Wynd Power. According to the American Speech and Hearing
Association, more than 28 million Americans deal with some level of significant
hearing loss.
In 1998, Wynd introduced text-based pagers and the concept of "wireless
TTY". For a person that is deaf or severely hard of hearing, the TTY or TDD, a
text-based communications instrument that operates in North America using an
outdated protocol, Baudot 45.5, had traditionally been the centerpiece of
communications accessibility, usually requiring a wireline connection. The size
and weight of most historical TTY devices and the slow transmission speed of the
Baudot protocol makes communicating "on-the-go" a difficult task for a deaf
individual. Over the years, advances in regulatory policy and technology have
vastly improved the level of communications accessibility available to deaf
consumers nationwide. (see "Business - Government Regulation")
Wynd's services have evolved over the years to include LiveTTY which
permits a deaf consumer, using a RIM wireless handheld device to contact a
Telecommunications Relay Service provider to place a "live call". Wynd's
technology enables this connection. Wynd demonstrated further enhancements to
this service in November 2003, with our planned commercial launch of this
enhanced service in 2004. Although some people who are deaf and hard of hearing
are still able to use voice-based communications services, telecommunications
relay services are a basic necessity for those within this large segment of the
population who are profoundly deaf and unable to hear any spoken word.
The Internet Relay and Video Relay sectors of telecommunications relay
services are growing steadily due to broadband technology developments and the
prevalence of the Internet. Internet Relay is available to anyone who has access
to the Internet via a computer, wireless handheld device, Web-capable telephone
or other devices. Unlike traditional TRS, where a TTY user contacts a TRS center
via telephone lines and the CA at the TRS center calls the receiving party via
voice telephone, the first leg of an Internet Relay call goes from the callers
computer or
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other Web-capable device, to the TRS relay center via the Internet. Video Relay
services enable individuals who use sign language to make calls through CA's who
can interpret their calls. The caller signs to the CA with the use of video
equipment and the CA voices what is signed to the called party and signs back to
the caller. Historically, deaf consumers could only access a relay provider
through the use of a TTY. With the development of Internet Relay services, any
IP (Internet Protocol)-based device can now be used to access relay services.
Now deaf consumers can choose their own relay provider rather than having one
chosen for them as the provider for the State in which they live, and the
technology is faster than the older "Baudot" protocol. Likewise, broadband
technologies and web cam equipment have contributed to the evolution of
Internet-based video relay services. The relay concept for video is similar to
other relay services; the distinction being that the service allows deaf persons
to use sign language in telephone communications. The deaf consumer signs his or
her portion of a telephonic conversation to a video relay operator who in turn
interprets into words for the hearing party as well as signing to the deaf
consumer what is being said by the hearing party.
We believe that the potential market for wireless and relay communications
among deaf and hard of hearing consumers is largely underserved, providing us
with opportunities for additional growth. Subject to capital constraints, we
also intend to leverage Wynd's brand awareness and extensive distribution
alliances to offer a wider portfolio of products and services that are targeted
at or useful to people who are deaf or hard of hearing.
We seek to deepen penetration within our installed subscriber base and
expand the breadth of our overall customer base by distinguishing our current
and future offerings with value-added solutions through increased marketing
activities. Our strategy includes the following key elements:
Growing our Core Wireless Services Business. Our core wireless services
business consists of our WyndTell and WyndPower(TM) product offerings. WyndTell
is a comprehensive wireless communication service, used on a variety of
computing devices, that includes unlimited messaging airtime and certain
value-added services, such as AAA Emergency Roadside services, Tripod Captioned
Film Information, and usage, delivery and read message statuses, for a monthly
fee. Wynd charges additional fees on a monthly basis for other value-added
services such as faxing; text-to-speech messaging; operator assistance and TTY
messaging. WyndPower is a supplemental monthly service package designed for
customers that desire the value-added aspects of our AAA Emergency Roadside
service, TTY messaging and operator assistance services, but may have acquired
their wireless device and service plan from a different vendor.
Introduction of New Communications Services. The rise in consumer adoption
of Internet and video relay, coupled with a favorable competitive, technological
and regulatory environment, make entry into the relay business attractive. We
continue to evaluate the best method of market entry. In addition to wireless
and relay, we see opportunities to offer other communications products and
services to consumers who are deaf or hard of hearing and, subject to capital
constraints, we intend to explore methods of bringing new products and services
to this market in 2004.
6
Channel Expansion into Broader Hard of Hearing Market. Historically, our
Wynd business has been focused almost exclusively on meeting the needs of
consumers who are profoundly deaf. The profoundly deaf market is the smallest
segment of the broader population of people who are deaf or hard of hearing.
Through our product development activities and alliances, we expect to design
and market products and services that will be attractive to consumers in the
broader hard of hearing population. We also intend to expand our channel sales
efforts to include distribution partners who are already catering to the needs
of consumers who are hard of hearing.
Streamline Our Operating Infrastructure. We have recently entered into an
agreement with Communications Services for the Deaf (CSD) to serve as our
outsourced provider for customer support. The first phase of a three-phase
deployment with CSD is complete and we expect to complete the other phases by
April 2004. The implementation of this relationship with CSD enables our
customers to contact us via voice, TTY, or email on a 7 x 24 basis.
Acquisitive Growth and Differentiation Through Targeted Transactions.
Subject to our capital constraints, we intend to evaluate additional alliances
and acquisitions that we believe will allow us to quickly increase the scale and
scope of our business.
Go.Web. We continue to distribute and support wireless data technology,
applications and software that address the productivity and communications needs
of enterprise customers and consumers. 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, formally known as Go.Web OnPrem(TM), technology.
Our revenues are primarily derived from the sale of our value-added
wireless data services, for which customers typically pay monthly recurring
fees. We derive additional revenue from commissions from the acquisition of
subscribers on behalf of various wireless network providers and EarthLink, Inc.
Sales and Marketing
Sales
We currently sell our services and solutions through two primary channels
of distribution: direct and indirect. As of March 1, 2004 we had 4 employees
working in our sales department.
Direct Distribution. Direct distribution methods consist of those channels
in which our personnel take the order directly from the customers, currently
comprised of our telesales representatives and our DeafWireless Superstore, an
online shopping portal designed for people who are deaf or hard of hearing. Our
telesales professionals respond to queries generated as
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a result of Web site visits and our marketing efforts, which usually list our
toll-free sales telephone and TTY numbers.
Indirect Distribution. Indirect distribution methods consist of those
channels where our distribution alliance partners take the order directly from
the customers or refer customers to one of our direct sales representatives.
With indirect distribution, we capture new business through dealers and
value-added resellers.
Dealers offer our products and services to their customers and are paid a
commission for each sale. A dealer's commission may consist of a one-time bounty
only or may include a small percentage of revenues generated by their customers.
Dealers are not responsible for billing or supporting the customer. Our dealer
network is focused on products designed for people with hearing loss.
Value-added resellers buy GoAmerica services at a discounted wholesale
price and then sell these services to their customers at a retail price.
Resellers are not paid a commission. Resellers are responsible for selling the
GoAmerica service and mobile devices, and billing and supporting the customer.
We are responsible for billing the reseller. As part of our strategic alliance
with EarthLink, EarthLink resells our Go.Web service through its distribution
channels as a part of EarthLink's suite of offerings to its customers.
Marketing
We typically deploy a marketing mix consisting of direct mail, Internet
direct response, print ads in periodicals aimed at deaf and hard of hearing
audiences, and tradeshow sponsorship and support. As of March 1, 2004, we had 3
employees working in our marketing department.
Technology and Operations
Service Infrastructure
Data Center. We are presently consolidating our GoWeb and WyndTell
production systems into a single data center operated by a third party and
intend to be fully relocated by April 2004. This new outsourced facility is
designed to provide mission critical services to a variety of large corporate
clients. Our outsourcing strategy is to provide our customers with the highest
levels of reliability while enabling our company to operate with a lower overall
cost structure. We believe this data center is capable of meeting the capacity
demands and security standards for services we have developed or are developing
for our customers. Technical personnel will monitor network traffic, service
quality, and security continually.
Wireless Networks. Through our relationships with leading wireless
services providers, we are able to offer our customers the ability to use our
wireless solutions in most major metropolitan areas in the continental United
Stated and parts of Canada. We are a dealer for certain preferred services
partners such as EarthLink and, in other cases, we provide wireless services
directly to our customers through reseller agreements with wireless network
operators such as Cingular Interactive, Motient and Metrocall (formerly WebLink
Wireless). This type of wireless resale offering is primarily limited to our
WyndTell services.
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Our Software Technology
For our Wynd Communications business, we deploy a combination of licensed
technology and custom built software. This technology gives our customers access
to wireless messaging and information services specifically geared toward the
needs of the deaf and hard of hearing users. We have developed and run gateway
technology to connect wireless devices to a variety of traditional TTY devices
as well as our proprietary TTY-based applications. Currently, our Wynd software
supports the RIM-based family of 95X and 85X devices and the Danger HipTop
device.
For our continuing Go.Web business, we have developed a proprietary
wireless services platform that enables our customers to securely access most
types of Web-based data from many leading wireless devices. The Go.Web platform
also allows qualified developers to introduce standard Web-based applications
for many wireless devices and networks. As a result of our Go.Web development
efforts, our engineering staff has acquired substantial wireless and Web
formatting expertise, which enables us to develop solutions as new wireless
devices are introduced. In addition, the Go.Web compression technology and
enhanced wireless transport protocol included in our software provide bandwidth
efficiency and maximize data transmission speeds. We also have employed industry
standard SSL, or secure sockets layer, and use Certicom's cryptography within
the Go.Web infrastructure.
The Go.Web Client (Browser). The Go.Web client is easily customized to
support the operating platforms of most major wireless computing devices. With
version 6.5 of Go.Web, we offer standardized features to all supported device
types:
o Java - Go.Web is available for Java, which increases the number of
potential devices that can utilize Go.Web.
o Multi Language support - Go.Web provides a single interface for
users to access more Web sites, with support of WML, HDML and HTML.
o Mobile Clip Technology - Mobile Clips allow for local content
storage on the mobile device. Whether in or out of coverage, Mobile
Clips provide form and document access. Combined with WAP Push
technology and the Go.Web Queue Manager feature, this provides a
solid platform for wireless data access and retrieval.
o Push Alerts - The Go.Web client is able to receive WAP Push 1.2
compliant alerts. With this feature, developers are able to set up
applications that send alerts to users informing them of a change in
schedule, a new appointment or detailed customer contact
information. In addition, Mobile Clips can be dynamically pushed to
the wireless device.
o Go.Web Queue Manager - The Go.Web Queue Manager feature enables
applications to be used even when the users find themselves outside
of a coverage area. Queue Manager will queue HTTP requests and
submit them when the user is back in coverage.
o Desktop Sync - Users who are out of wireless coverage can now sync
their Queue Manager data through their desktop cradle connection,
eliminating the need to always be in wireless coverage.
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Licensed Software Technology
The Cingular Interactive Paging Service, or IPS, is based on server
software that we have licensed. We are one of a limited number of companies that
have deployed an IPS gateway. This service provides two-way messaging on devices
such as the RIM interactive devices.
Customer Service, Billing and Fulfillment
We provide corporate or individual customer billing for all Wynd
Communications customers' subscription fees, devices and modems, and other
related fees, while we are currently moving our primary customer support
functions to Communications Services for the Deaf (CSD). Resellers such as
EarthLink provide the majority of customer support and billing for our Go.Web
services. The outsourcing structure enables us to provide our customers with
best-in-class support while minimizing our own costs of operations.
For product fulfillment, we maintain an inventory of mobile devices for
our Wynd Communications customers, which we buy from third-party manufacturers
and resellers. EarthLink handles that function for our Go.Web customers.
Competition
The market for our wireless services is becoming increasingly competitive.
The widespread adoption of industry standards in the wireless data
communications market may make it easier for new market entrants and existing
competitors to introduce services that compete against ours. Our competitors may
use the same products and services in competition with us. With time and
capital, it would be possible for competitors to replicate our services. We
expect that we will compete primarily on the basis of the functionality,
breadth, quality and price of our services.
Many of our existing and potential competitors have substantially greater
financial, technical, marketing and distribution resources than we do, although
none (to our knowledge) are exclusively devoted to consumers who are deaf or
hard of hearing as is our Wynd subsidiary. Despite the lack of focus, many of
these companies may have greater name recognition and may be able to adopt more
aggressive pricing policies and offer customers more attractive terms than we
can. Competitive pressures may have a material adverse effect on our business
and reduce our market share or force us to lower prices to unprofitable levels.
Research and Development
Most of our product and service offerings are developed internally. We
also purchase and license technology. We continue to enhance the features and
performance of our existing products and services. In addition, we are
continuing to develop new products to meet our customers' expectations of
ongoing innovation and enhancement within our suite of products.
Our ability to meet our customers' expectations depends on a number of
factors, including our ability to identify and respond to emerging technological
trends in our target
10
markets, develop and maintain competitive products, enhance our existing
products by adding features and functionality that differentiate them from those
of our competitors and bring products to market on a timely basis and at
competitive prices. Consequently, we have made, and we intend to continue to
make, investments in research and development, subject to our capital
constraints.
Intellectual Property Rights
We have not yet obtained patents on our technology that would preclude or
inhibit competitors from using our technology. In February 2001, we filed a
patent application on certain aspects of our Go.Web technology. The application
is presently pending in the United States Patent and Trademark Office and has
been filed internationally. Certain aspects of our various technologies rely on
perpetual, royalty-free, worldwide licenses under Third party patents relating
to wireless products and services. We rely on a combination of patent,
copyright, trademark, service mark, trade secret laws, unfair competition law
and contractual restrictions to establish and protect certain proprietary rights
in our technology and intellectual property. We have received or applied for
registration of certain of our GoAmerica and Wynd names and marks in the United
States Patent and Trademark Office and in trademark offices in jurisdictions
throughout the world, including but not limited to, U.S. federal trademark
applications for the marks "GoAmerica", "Go.Web" and "WyndTell"; however, we do
not currently have any U.S. federal trademark registrations for these trademarks
other than "WyndTell". The steps taken by us to protect our intellectual
property may not prove sufficient to prevent misappropriation of our technology
or to deter independent third-party development of similar technologies. In
addition, the laws of certain foreign countries may not protect our technologies
or intellectual property rights to the same extent as do the laws of the United
States. We also rely on certain technologies that we license from third parties.
These third-party technology licenses may not continue to be available to us on
commercially attractive terms. The loss of the ability to use such technology
could require us to obtain the rights to use substitute technology, which could
be more expensive or offer lower quality or performance, and therefore have a
material adverse effect on our business, financial condition or results of
operations. Third parties could claim infringement by us with respect to current
or future technology. We expect that we and other participants in our markets
will be increasingly subject to infringement claims as the number of services
and competitors in our industry segment grows. Any such claim, whether
meritorious or not, could be time consuming, result in costly litigation, cause
service or installation interruptions or require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements might not be
available on terms acceptable to us or at all. As a result, any such claim could
have a material adverse effect upon our business, financial condition or results
of operations.
Government Regulation
The enactment of the Americans with Disabilities Act mandated that every
State implement a system for Telecommunications Relay Services whereby a deaf
consumer, using a TTY connected to the telephone network, could communicate with
a hearing person through the use of a relay operator. The FCC has oversight
responsibility for Telecommunications Relay Services and maintains guidelines
that all States must follow. These services, beginning statewide in California
in 1987 and nationally available since 1992, empowered deaf consumers
11
to expand their use of the TTY in telephone conversations with hearing parties
as well. At the national level, relay services are funded by common carrier
contributions to a reimbursement fund that is administered by the National
Exchange Carrier's Association. At the State level, funds for relay can come
from rate payer surcharges, tariff charges to the local exchange carrier or
taxes as administered by the State.
We are not currently subject to direct federal, state or local government
regulation, other than regulations that apply to businesses generally. The
wireless network carriers we contract with to provide airtime are subject to
regulation by the Federal Communications Commission. Changes in FCC regulations
could affect the availability of wireless coverage these carriers are willing or
able to sell to us. We could also be adversely affected by developments in
regulations that govern or may in the future govern the Internet, the allocation
of radio frequencies or the placement of cellular towers. Also, changes in these
regulations could create uncertainty in the marketplace that could reduce demand
for our services or increase the cost of doing business as a result of costs of
litigation or increased service delivery cost or could in some other manner have
a material adverse effect on our business, financial condition or results of
operations.
We currently do not collect sales or other taxes with respect to the sale
of services or products in states and countries where we believe we are not
required to do so. We do collect sales and other taxes in the states in which we
have offices and are required by law to do so. One or more jurisdictions have
sought to impose sales or other tax obligations on companies that engage in
online commerce within their jurisdictions. A successful assertion by one or
more jurisdictions that we should collect sales or other taxes on our products
and services, or remit payment of sales or other taxes for prior periods, could
have a material adverse effect on our business, financial condition or results
of operations.
Any new legislation or regulation, including legislation, which may be
adopted by the United States Congress to regulate the Internet, or the
application of laws or regulations from jurisdictions whose laws do not
currently apply to our business, could have an adverse effect on our business.
Employees
As of March 1, 2004, we had a total of 39 full-time employees. None of our
employees are covered by a collective bargaining agreement. We believe that our
relations with our employees are good.
12
Item 2. Properties.
We own no real property. Our principal offices are located at 433
Hackensack Avenue in Hackensack, New Jersey, consisting of approximately 5,000
square feet that we lease on a month-to-month basis. On November 14, 2003,
GoAmerica and our GoAmerica Communications Corporation subsidiary entered into
two agreements with Stellar Continental LLC ("Stellar"), the lessor of our
corporate headquarters at 433 Hackensack Avenue and our former office at 401
Hackensack Avenue, both located in Hackensack, New Jersey. The agreements
consisted of a Surrender Agreement and a new Lease Agreement as well as a Common
Stock purchase warrant. These agreements enabled us and our subsidiary to cure
all prior defaults under the previous lease, which we refer to below as the
"Original Lease", and terminated all parties' rights and obligations under the
Original Lease, in exchange for (i) Stellar's right to retain $555,755
previously drawn on a letter of credit from our GoAmerica Communications
Corporation subsidiary's letter of credit that secured the Original Lease, (ii)
our issuing a warrant to Stellar that allows it to acquire up to 1,000,000
shares of our Common Stock at an exercise price of $0.46 per share at any time
prior to the close of business on November 13, 2008, and (iii) the execution of
a new lease, between our GoAmerica Communications Corporation subsidiary and
Stellar for office space at 433 Hackensack Avenue, Hackensack, New Jersey, on a
month-to-month basis, renewable each month at Stellar's option, for up to 24
months. These agreements relieved us of approximately $8.1 million of future
minimum payments on operating lease obligations. The new lease provides us with
significantly reduced monthly rent expenses for our corporate headquarters.
These agreements also require us to rent from Stellar any new office space in
New Jersey that we require during the term of the new lease, on terms no less
favorable than the new lease.
The offices of Wynd Communications located in San Luis Obispo, California,
consisting of approximately 7,400 square feet, are being consolidated with our
Hackensack, New Jersey office, during the first half of 2004. Our lease on the
Wynd offices expired on January 31, 2004 and we have negotiated a short
extension to allow for transition activities.
In addition to the network operating facility at our Hackensack office, we
recently moved our primary network operations function from our network
operating center in New York City to a co-location third party facility in
Leonia, New Jersey. The agreement under which we operated our approximately
7,000 square foot New York City network operating center expired on February 29,
2004. The lease for the offices of OutBack in San Luis Obispo was terminated in
December 2003. We believe that our current facilities are adequate to support
our existing operations subject to any credit or liquidity matters discussed in
"Risk Factors".
Item 3. Legal Proceedings.
On February 15, 2002, Eagle Truck Lines Inc. (also known as 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
13
Jersey where GoAmerica has moved to have it consolidated with the action
described in the next paragraph. This consolidation 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 December 23, 2003, the Company executed a settlement agreement with
Eastern Computer Exchange, Inc. ("Eastern Computer") with respect to certain
payment obligations pursuant to two equipment leases by agreeing to pay Eastern
Computer $350,000 upon closing the financing described in Item 7 of this Annual
report on Form 10-K (the "Financing") in exchange for a full release of the
Company and its affiliates. Eastern Computer had filed suit against the Company
on July 2, 2003 in The United States District Court for the District of New
Jersey, seeking monetary amounts of up to approximately $800,000 and dismissed
the action without prejudice in October 2003 pending settlement discussions. In
the event that the Financing does not close and the Company does not secure
alternate financing by March 22, 2004, the Company has acknowledged and agreed
to the entry of a judgment against the Company for the full amount of the
Company's original debt pursuant to the original litigation.
14
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders was held on December 19, 2003.
There were present at the Annual Meeting, in person or by proxy,
stockholders holding an aggregate of 45,159,739 shares of Common Stock out of a
total number of 54,341,946 shares of Common Stock issued and outstanding and
entitled to vote at the Annual Meeting. The results of the vote taken at such
Annual Meeting with respect to the election of the nominees to be our Class C
directors as elected by the holders of the Common Stock to hold office until the
2006 Annual Meeting were as follows:
Nominees For Withheld
- -------- --- --------
Aaron Dobrinsky 44,632,545 527,194
Alan Docter 44,745,701 414,038
King Lee 44,662,481 497,258
Joseph Korb and Mark Kristoff continued their terms as Class A directors,
such terms expiring at the 2004 Annual Meeting of Stockholders. Daniel Luis
continued his term as a Class B director, which term expires at the 2005 Annual
Meeting of Stockholders.
A Special Meeting of Stockholders of the Company was held on March 10,
2004 at which all of the proposals presented were approved. Those proposals
approved the Financing discussed in more detail in Note 18 of this 10-K,
authorized the Company's Board of Directors to effect a reverse stock split at
one of five pre-determined ratios if necessary to keep the Company's Common
Stock listed on the Nasdaq SmallCap Market, and authorized the Company to
increase the number of its authorized capital shares. Due to the Special Meeting
being held just prior to the filing of this 10-K, the audited results of the
stockholder votes on each proposal cannot be included here, but the Company will
provide them in its Quarterly Report on Form 10-Q for the quarter ended March
31, 2004.
15
Item 4A. Executive Officers of the Registrant
The following table identifies the current executive officers of the
Company:
CAPACITIES IN IN CURRENT
NAME AGE WHICH SERVING POSITION SINCE
- ---- --- ------------- --------------
Daniel R. Luis ... 37 Chief Executive Officer and Director 2003
Donald Barnhart .. 46 Chief Financial Officer 2004
Jesse Odom ....... 38 Chief Technology Officer 2000
- ----------
Daniel Luis joined our Board of Directors in January 2003 at the time he
was elected our Chief Executive Officer. He previously served as our President
and Chief Operating Officer from May 2002 until January 2003. Mr. Luis is also
President and Chief Executive Officer of Wynd Communications Corp., which became
a wholly owned subsidiary of GoAmerica in June 2000. Mr. Luis joined Wynd in
1994 and has held his current positions with Wynd since 1998.
Donald Barnhart joined GoAmerica in 1999 and became its Vice President and
Controller in 2000. He was appointed Chief Financial Officer in March 2004.
Prior to joining GoAmerica, Mr. Barnhart held various finance positions with
Bogen Communications and operated his own accounting and consulting firm. Mr.
Barnhart is a CPA in New Jersey.
Jesse Odom joined GoAmerica in 1996 as Vice President of Network
Operations. He was appointed Chief Technology Officer in November 2000. Prior to
joining GoAmerica, Mr. Odom served as Vice President of Network Engineering at
American International Ore Corporation from 1991 to 1996.
None of our executive officers is related to any other executive officer
or to any director of the Company. Our executive officers are elected annually
by the Board of Directors and serve at the pleasure of the Board of Directors.
16
PART II
Item 5. Market for the Registrant's Common Equity, and Related Stockholder
Matters.
Market for our Common Stock
Our common stock traded on the Nasdaq National Market from our initial
public offering in April 2000 until August 28, 2002, at which time our listing
moved to the Nasdaq Small Cap Market, where it continues to trade under the
symbol "GOAM."
The following table sets forth the high and low sales prices for our
common stock for the quarters indicated as reported on the Nasdaq National
Market and Nasdaq SmallCap Market.
Quarter Ended High Low
------------------------------------------------
March 31, 2002 ........ $2.60 $1.05
June 30, 2002 ......... $1.39 $0.25
September 30, 2002 .... $0.59 $0.15
December 31, 2002 ..... $0.73 $0.20
March 31, 2003 ........ $0.46 $0.21
June 30, 2003 ......... $0.74 $0.15
September 30, 2003 .... $0.56 $0.24
December 31, 2003 ..... $1.03 $0.29
As of February 11, 2004, the approximate number of holders of record of
our common stock was 261 and the approximate number of beneficial holders of our
common stock was 16,000.
The market price of our common stock has fluctuated since the date of our
initial public offering and is likely to fluctuate in the future. Changes in the
market price of our common stock and other securities may result from, among
other things:
o Quarter-to quarter variations in operating results
o Operating results being less than analysts' estimates
o Changes in analysts' earnings estimates
o Announcements of new technologies, products and services or pricing
policies by us or our competitors
o Announcements of acquisitions or strategic partnerships by us or our
competitors
o Developments in existing customer or strategic relationships
o Actual or perceived changes in our business strategy o Developments
in pending litigation and claims
o Sales of large amounts of our common stock
o Changes in market conditions in wireless technology and wireless
telecommunication
o Changes in general economic conditions
o Fluctuations in securities markets in general.
Our common stock is currently not in compliance with Nasdaq Marketplace
Rule 4450(a)(5) which requires that a listed company maintain a minimum bid
price of $1.00 per share. The Company received notification from the Nasdaq
Listing Qualifications Panel extending until May 31, 2004 GoAmerica's temporary
exemption from the $1.00 minimum
17
closing bid price per share requirement for continued listing on The Nasdaq
SmallCap Market (pursuant to Nasdaq's newly amended Marketplace Rule
4310(c)(8)(D) as approved by the Securities and Exchange Commission (the "SEC")
on December 23, 2003). In providing such additional time, the Nasdaq Listings
Qualifications Panel noted that the Company is in compliance with all other
Nasdaq listing requirements and that GoAmerica has filed a proxy statement
pursuant to which the Company will be seeking shareholder approval of, among
other things, granting GoAmerica's Board of Directors the discretion to
implement a reverse stock split if such action is required to maintain the
Company's listing on the Nasdaq SmallCap Market.
If our common stock is delisted by Nasdaq, our common stock would be
eligible to trade on the OTC Bulletin Board maintained by Nasdaq, another
over-the-counter quotation system, or on the pink sheets, where an investor may
find it more difficult to dispose of our shares or obtain accurate quotations as
to the market value of our common stock. In addition, we would be subject to a
rule promulgated by the Commission that, if we fail to meet criteria set forth
in such rule, imposes various practice requirements on broker-dealers who sell
securities governed by the rule to persons other than established customers and
accredited investors. Consequently, such rule may deter broker-dealers from
recommending or selling our common stock, which may further affect the liquidity
of our common stock.
Delisting from Nasdaq will make trading our common stock more difficult
for investors, potentially leading to further declines in our share price. It
would also make it more difficult for us to raise additional capital. Further,
if we are delisted we could also incur additional costs under state blue sky
laws in connection with any sales of our securities.
Related Stockholder Matters
We have never declared or paid any cash dividends on our common stock. We
intend to retain earnings, if any, to fund future growth and the operation of
our business.
Use of Proceeds
On April 6, 2000, the SEC declared effective our Registration Statement on
Form S-1 (No. 333-94801) as filed with the SEC in connection with our initial
public offering of common stock, which was managed by Bear, Stearns & Co., Inc.,
Chase H&Q, U.S. Bancorp Piper Jaffray, Wit SoundView and DLJdirect, now
Harrisdirect. 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 December 31, 2003, approximately $568,000 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 $145.6 million of the net proceeds
have been specifically applied as follows: (i) $5.1 million for the acquisition
of other businesses, (ii) $38.1 million for sales and marketing expenses, (iii)
$10.9 million for the purchase of capital assets, and (iv) $91.5 million for
working capital needs.
18
Item 6. Selected Consolidated Financial Data.
The selected consolidated financial data set forth below with respect to
our statement of operations data for the years ended December 31, 2003, 2002 and
2001, and with respect to the consolidated balance sheet data at December 31,
2003 and 2002 are derived from and are qualified by reference to our audited
consolidated financial statements and related notes thereto presented elsewhere
herein. Our consolidated statement of operations data for the years ended
December 31, 2000 and 1999 and consolidated balance sheet data as of December
31, 2001, 2000 and 1999 are derived from audited consolidated financial
statements not included in this Annual Report on Form 10-K. The selected
consolidated financial data set forth below should be read in conjunction with,
and is qualified in its entirety by, our audited consolidated financial
statements and related notes thereto and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations", which are included
elsewhere in this Annual Report on Form 10-K.
19
Years Ended December 31,
-----------------------------------------------------------------
(In thousands, except for per share data)
2003 2002 2001 2000 1999
-------- -------- --------- -------- --------
Consolidated Statement of
Operations Data:
Revenues:
Subscriber ............................. $ 10,108 $ 29,017 $ 28,308 $ 8,535 $ 1,104
Equipment .............................. 1,042 6,560 10,088 5,097 1,420
Other .................................. 728 335 618 242 207
-------- -------- --------- -------- --------
Total revenue ............................ 11,878 35,912 39,014 13,874 2,731
-------- -------- --------- -------- --------
Costs and expenses:
Cost of subscriber revenue ............. 2,669 20,434 22,578 7,194 4,051
Cost of equipment revenue .............. 1,152 8,537 20,665 6,090 1,648
Cost of network operations ............. 1,828 3,074 3,264 623 375
Sales and marketing .................... 1,072 8,038 24,700 35,807 3,283
General and administrative ............. 9,617 29,082 40,685 26,853 3,970
Research and development ............... 1,209 3,456 4,174 762 465
Depreciation and amortization of
fixed assets ......................... 1,912 4,342 2,987 994 275
Amortization of goodwill and
other intangibles .................... 1,081 1,483 18,398 7,247 --
Impairment of goodwill ................. 193 8,400 12,991 -- --
Impairment of other intangible
assets ............................... -- -- 12,423 -- --
Impairment of other long-lived
assets ............................... 1,202 5,582 97 -- --
Settlement costs ....................... -- -- -- -- 297
-------- -------- --------- -------- --------
Total costs and expenses ................. 21,935 92,428 162,962 85,570 14,364
-------- -------- --------- -------- --------
Loss from operations ..................... (10,057) (56,516) (123,948) (71,696) (11,633)
Other income:
Gain on sale of subscribers ............ 1,756 -- -- -- --
Settlement gains, net .................. 85 -- -- -- --
Interest (expense) income, net ......... (275) 191 3,099 6,944 165
-------- -------- --------- -------- --------
Total other income ....................... 1,566 191 3,099 6,944 165
-------- -------- --------- -------- --------
Net loss before benefit from
income taxes ......................... (8,491) (56,325) (120,849) (64,752) (11,468)
Income tax benefit ....................... 284 436 578 -- --
-------- -------- --------- -------- --------
Net loss ................................. (8,207) (55,889) (120,271) (64,752) (11,468)
Beneficial conversion feature and
accretion of redemption value of
mandatorily redeemable
convertible preferred stock .......... -- -- -- (30,547) (10,463)
-------- -------- --------- -------- --------
Net loss applicable to common
stockholders ......................... $ (8,207) $(55,889) $(120,271) $(95,299) $(21,931)
======== ======== ========= ======== ========
Basic net loss per share applicable
to common stockholders ............... $ (0.15) $ (1.04) $ (2.27) $ (2.19) $ (1.02)
======== ======== ========= ======== ========
Diluted net loss per share
applicable to common
stockholders ......................... $ (0.15) $ (1.04) $ (2.25) $ (2.18) $ (1.00)
======== ======== ========= ======== ========
Weighted average shares used in
computation of basic net loss per
share applicable to common
stockholders ......................... 54,259 53,846 53,027 43,426 21,590
Weighted average shares used in
computation of diluted net loss
per share applicable to common
stockholders ......................... 54,259 53,869 53,354 43,678 22,025
20
As of December 31,
-----------------------------------------------------------
(In thousands)
2003 2002 2001 2000 1999
------- ------- ------- -------- --------
Balance Sheet Data:
Cash and cash equivalents .......................... $ 568 $ 4,982 $34,977 $114,411 $ 6,344
Working capital (deficit) .......................... (2,656) (1,037) 33,292 113,530 2,426
Total assets ....................................... 12,965 26,765 87,785 207,746 9,757
Series A redeemable convertible preferred stock .... -- -- -- -- 20,755
Series B redeemable convertible preferred stock .... -- -- -- -- --
Total stockholders' equity (deficit) ............... 7,142 13,017 66,413 181,530 (16,659)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
You should read the following discussion of our financial condition and
results of operations in conjunction with the consolidated financial statements
and the notes thereto included elsewhere in this Annual Report on Form 10-K. The
results shown in this Annual Report of Form 10-K are not necessarily indicative
of the results we will achieve in any future periods.
Overview
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, businesses can improve the productivity of employees by
enabling secure wireless access to corporate data on many wireless computing
devices and over many wireless data networks. Our Go.Web technology can be
hosted and supported in a secure network operations center maintained by
GoAmerica or its third party outsourcing provider or installed behind an
enterprise's network security system, commonly know as the firewall. Customers
who opt to install the software do so by purchasing our proprietary Go.Web
Enterprise Server, formally known as Go.Web OnPrem(TM), technology.
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
21
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. We will 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
experienced an overall decline in revenue while gross margins increased and
selling, marketing and administrative declined. We have generated and 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.
Our subscriber revenue primarily consists of monthly service fees, which
we recognize as revenue when the services are provided to the subscriber.
Subscriber revenue accounted for approximately 85.1%, 80.8% and 72.6% of our
total revenue during 2003, 2002 and 2001, respectively. Historically, we offered
a variety of mobile data service plans. Our consumer plans, which are marketed
through Wynd, provide data usage on multiple mobile devices through variable and
fixed monthly fees ranging from $9.95 to $39.95. In the enterprise market, we
provide unlimited data usage on any mobile device for a fixed monthly fee, which
currently ranges from $1.25 to $17.95. We will continue to derive recurring
subscriber revenue from our consumer channels and through the sale of our Go.Web
software. We also typically sell third-party mobile devices in conjunction with
a service agreement to a new subscriber. Equipment revenue accounted for
approximately 8.8%, 18.3% and 25.9% of our total revenue during 2003, 2002 and
2001, respectively. We recognize equipment revenue at the time of the shipment
of the mobile device to a subscriber. During 2003, approximately 34% of our
subscribers purchased a mobile device upon their initial subscription. Over
time, we expect that such percentage will decrease as mobile devices for data
transmission become more prevalent.
In addition to our subscriber and equipment revenue, we historically have
generated other revenue which consists of consulting services relating to the
development and implementation of wireless data systems for certain corporate
customers. We anticipate that our professional service revenues will decrease as
a percentage of our total revenues during 2004 from prior year levels.
Additionally, we anticipate during 2004 that the amount of our non-recurring
bounty revenues we receive from EarthLink and other wireless providers for
selling their wireless services and other product offerings to remain constant
with 2003 levels.
Our sales and marketing expenses consist primarily of compensation and
related costs for marketing personnel, advertising and promotions, travel and
entertainment and other related costs. We expect sales and marketing expenses to
increase as a percentage of sales during 2004 as compared to 2003 as we
introduce new products and services to the consumer marketplace. Our general and
administrative expenses consist primarily of compensation and related costs for
general corporate and business development, along with rent and other related
costs. We expect general and administrative expenses to decrease as a percentage
of our annual revenues primarily due to our renegotiation of certain lease
agreements combined with our planned consolidation of business operations. Our
research and development expenses consist primarily of compensation and related
costs and professional service fees. Depreciation and amortization expenses
consist primarily of depreciation expenses arising from equipment purchased for
our network operations center and other property and equipment purchases.
22
During 1999 and the first quarter of 2000, we granted options to certain
of our employees at exercise prices below the deemed fair market value per share
of our common stock. Such grants resulted in non-cash employee compensation
expenses based on the difference, on the date of grant, between the fair market
value and the exercise price of stock options granted to employees. The
resulting deferred employee compensation is being amortized over the vesting
periods of the grants. During 2003, we incurred an aggregate of $314,000 in
non-cash employee compensation, representing the remaining balance of deferred
compensation, as a result of stock option and warrant grants during 1999 and the
first quarter of 2000 which were granted at prices below the fair market value
of our common stock.
Net interest expense consists primarily of amortization of deferred debt
expense and is partially offset by interest earned on cash and cash equivalents.
We expect interest expense to increase during 2004 as compared with 2003 as a
result of continued amortization of the deferred debt described above.
During 2001, we acquired OutBack Resource Group, Inc., a software
development company. The total purchase price of approximately $148,000 included
the issuance of 134,996 shares of common stock valued at $0.96 per share and
warrants issued at the date of acquisition with an estimated fair market value
of approximately $19,000 to purchase an aggregate of 67,500 shares of our common
stock at an exercise price of $3.00 per share. As a result of this acquisition,
we recorded intangibles of approximately $193,000.
During 2003, we identified indicators of possible impairment of our
long-lived assets, principally goodwill recorded with regard to the acquisition
of Outback. Such indicators included the continued deterioration in the business
climate for wireless Internet service providers, significant declines in the
market values of our competitors in the wireless Internet services industry,
recent changes in our 2004 operating and cash flow forecasts, and changes in our
strategic plans for certain of our acquired businesses. We determined that the
carrying value of these long-lived assets exceeded their respective fair values,
thus requiring a write-down totaling $193,000 of goodwill associated with
Outback.
On December 19, 2003, we announced plans for a strategic re-focusing
premised on the consummation of the financing described below. Our strategy is
centered on the pursuit of three priorities, centered on the market currently
serviced by our Wynd Communications subsidiary:
o growth of Wynd Communications' core wireless services business;
o development and marketing of new communications services, including
branded Internet protocol and video relay services; and
o streamlined operations to enable superior customer support.
23
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our 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 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
charge a non-refundable activation fee upon initial subscription. To the extent
such fees exceed the related costs, they are deferred and recognized ratably
over the life of the related service contracts, which is generally six months,
one year or two years. Equipment revenue is recognized upon shipment to the end
user. We have also provided 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 deferred asset and amortized against subscriber
gross margins over the life of the service agreement. We estimate the
collectibility of our trade receivables. A considerable amount of judgment is
required in assessing the ultimate realization of these receivables, including
analysis of historical collection rates and the current credit-worthiness of
significant customers. Significant changes in required reserves have been
recorded in recent periods and may occur in the future due to the current market
conditions. We write down inventory for estimated excess or obsolete inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by management,
additional inventory write-downs may be required. In assessing the
recoverability of our goodwill, 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 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 consolidation of our
leased locations. As a result, we have recorded adjustments to the carrying
value of specific assets.
24
Results of Operations
The following table sets forth for the periods indicated certain financial
data as a percentage of revenue:
Percentage of Revenue
---------------------
Years Ended
December 31,
--------------------------
2003 2002 2001
---- ---- ----
Revenue:
Subscriber ................................ 85.1% 80.8% 72.6%
Equipment ................................. 8.8 18.3 25.8
Other ..................................... 6.1 0.9 1.6
----- ----- -----
Total revenue .......................... 100.0 100.0 100.0
Costs and expenses:
Cost of subscriber revenue ................ 22.5 56.9 57.9
Cost of equipment revenue ................. 9.7 23.8 53.0
Cost of network operations ................ 15.4 8.6 8.4
Sales and marketing ....................... 9.0 22.4 63.2
General and administrative ................ 81.0 81.0 104.3
Research and development .................. 10.2 9.6 10.7
Depreciation and amortization of fixed
assets ................................. 16.1 12.1 7.7
Amortization of goodwill and other
intangibles ............................ 9.1 4.1 47.2
Impairment of goodwill .................... 1.6 23.4 33.3
Impairment of other intangible assets ..... -- -- 31.8
Impairment of other long-lived assets ..... 10.1 15.5 0.2
----- ----- -----
Total costs and expenses ............... 184.7 257.4 417.7
----- ----- -----
Loss from operations ................... 84.7 157.4 317.7
Other income (expense) ....................... 13.2 0.5 7.9
Income tax benefit ........................... 2.4 1.2 1.5
----- ----- -----
Net loss ............................... 69.1% 155.7% 308.3%
===== ===== =====
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
Subscriber revenue. Subscriber revenue decreased to $10.1 million for the
year ended December 31, 2003 from $29.0 million for the year ended December 31,
2002. The decrease was primarily due to having a smaller average subscriber base
in the year ended December 31, 2003 than in the year ended December 31, 2002 as
a result of 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 75,130 subscribers at December 31, 2003
from 91,384 subscribers at December 31, 2002. We expect the number of our
subscribers to remain relatively constant to levels at December 31, 2003 as we
continue to improve our subscriber profile. Our average monthly revenue per
user, or ARPU, decreased to $10.10 for the year ended December 31, 2003 from
$23.53 for the year ended December 31, 2002. The decline in ARPU was due to an
increase in the number of new subscribers from the sale of our Go.Web
25
value added services, which generally have a lower monthly ARPU than our
full-service offerings.
Equipment revenue. Equipment revenue decreased to $1.0 million for the
year ended December 31, 2003 from $6.6 million for the year ended December 31,
2002. This decrease was primarily due to our outsourcing of device provisioning
to EarthLink. We anticipate that equipment revenue may increase slightly as we
continue to provide devices to new subscribers of our Wynd services.
Other revenue. Other revenue increased to $728,000 for the year ended
December 31, 2003 from $335,000 for the year ended December 31, 2002. This
increase was primarily due to consulting services provided to Earthlink. We
anticipate that consulting services will decrease as a result of our decision
not to pursue certain consulting projects and consulting services to third
parties during 2004.
Cost of subscriber revenue. Cost of subscriber revenue decreased to $2.7
million for the year ended December 31, 2003 from $20.4 million for the year
ended December 31, 2002. The decrease was primarily due to having a smaller
average subscriber base in the year ended December 31, 2003 than in the year
ended December 31, 2002 as a result of 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 third and fourth
quarters of 2003, we recorded one-time reductions of accruals for certain
subscriber-related costs recorded in prior periods of $763,000 and $750,000,
respectively. We expect the number of our subscribers to remain relatively
constant to levels at December 31, 2003 as we continue to improve our subscriber
profile, which we expect will result in comparable costs of subscriber airtime
year over year.
Cost of equipment revenue. Cost of equipment revenue decreased to $1.2
million for the year ended December 31, 2003 from $8.5 million for the year
ended December 31, 2002. This decrease was primarily due to our outsourcing of
device provisioning to EarthLink, as well as decreased inventory related charges
of approximately $47,000 for the year ended December 31, 2003 compared to $1.6
million for the year ended December 31, 2002 The inventory related charges
primarily relate to wireless modems supporting laptop and 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. We
anticipate cost of equipment revenue to increase slightly as we continue to
provide devices to new subscribers of our Wynd services.
Cost of network operations. Cost of network operations decreased to $1.8
million for the year ended December 31, 2003 from $3.1 million for the year
ended December 31, 2002. We expect our cost of network operations to decline
further as a result of our planned consolidation of our GoWeb and WyndTell
production systems into a single data center operated by a third party provider.
Sales and marketing. Sales and marketing expenses decreased to $1.1
million for the year ended December 31, 2003 from $8.0 million for the year
ended December 31, 2002. This decrease primarily was due to decreased
advertising and marketing activities of $2.0 million including advertising costs
paid to third parties of approximately $1.3 million and a decrease in salaries
and benefits for personnel performing sales and marketing activities of
approximately
26
$3.5 million. Additionally, during the year ended December 31, 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
increase as a percentage of sales during 2004 as compared to 2003 as we
introduce new products and services to the consumer marketplace.
General and administrative. General and administrative expenses decreased
to $9.6 million for the year ended December 31, 2003 from $29.1 million for the
year ended December 31, 2002. This decrease primarily was due to decreased
professional fees for infrastructure buildout and general corporate activities
of approximately $9.6 million, decreased salaries and benefits for personnel
performing business development and general corporate activities of
approximately $2.7 million, amounts paid to third parties for professional
services of approximately $2.3 million, a decrease in our bad debt expense of
approximately $2.7 million, and decreased facility costs of approximately $1.6
million. Additionally, during the fourth quarter of 2003, we recorded one-time
reductions of deferred rent for certain long term lease related costs recorded
in prior periods of $347,000. We expect general and administrative expenses to
decline as a result of our renegotiation of certain lease agreements combined
with our planned consolidation of business operations.
Research and development. Research and development expense decreased to
$1.2 million for the year ended December 31, 2003 from $3.5 million for the year
ended December 31, 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 continue to decline as we utilize
internal resources to develop and maintain our WyndTell and Go.Web technologies
rather than using outside consultants.
Amortization of goodwill and other intangibles. Amortization of goodwill
and other intangibles decreased for the year ended December 31, 2003 to $1.1
million from $1.5 million for the year ended December 31, 2002. This decrease
primarily was due to certain of our other intangibles being fully amortized as
of December 31, 2002. We expect amortization of goodwill and other intangible
assets to decline further as a result of additional classes of intangible assets
becoming fully amortized during 2004.
Impairment of goodwill and other long-lived assets. During the second
quarter of 2003 and third quarter of 2002, we identified indicators of possible
impairment of our long-lived assets, principally goodwill and other acquired
intangible assets recorded upon the acquisitions of Wynd, Hotpaper and Outback.
Such indicators included the continued deterioration in the business climate for
wireless Internet service providers, significant declines in the market values
of our competitors in the wireless Internet services industry, recent changes in
our 2004 operating and cash flow forecasts, and changes in our strategic plans
for certain of our acquired businesses. With the assistance of independent
valuation experts, we performed asset impairment tests and determined the fair
value of the impaired long-lived assets for the respective acquired entities.
Fair value was determined primarily using the discounted cash flow method. A
write-down of goodwill and intangible assets totaling $193,000 and $8.4 million
were recorded during the second quarter of 2003 and third quarter of 2002,
respectively, reflecting the amount by which the carrying amount of the assets
exceed their respective fair values. The write-down consisted of $193,000 and
$8.4 million for goodwill during the second quarter of 2003 and third quarter of
2002, respectively. In addition, impairment charges related to property and
equipment totaling $1.2 million and $5.6 million were recorded during 2003 and
2002,
27
respectively, in accordance with the Statement of Financial Accounting Standard
No. 144, "Accounting for Impairment of Long Lived Assets" and Statement of
Financial Accounting Standard No. 121, "Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of".
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 $1,756,000 during
2003.
Settlement Gains, net. The Company entered into agreements with certain of
its creditors to relieve the Company of certain debts. As a result, the Company
has recorded settlement gains totaling $85,000.
Interest (expense) income, net. The Company incurred interest expense of
$275,000 for the year ended December 31, 2003 compared to interest income of
$191,000 for the year ended December 31, 2002. This change was primarily due to
the amortization of deferred debt expense and discount recorded on bridge notes
payable.
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Subscriber revenue. Subscriber revenue increased to $29.0 million for the
year ended December 31, 2002 from $28.3 million for the year ended December 31,
2001. The increase was primarily due to having a larger average subscriber base
in the year ended December 31, 2002 than in the year ended December 31, 2001.
Our subscriber base decreased to 91,384 subscribers at December 31, 2002 from
140,927 subscribers at December 31, 2001 as a result of 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 average monthly
revenue per user, or ARPU, decreased to $23.53 for the year ended December 31,
2002 from $25.02 for the year ended December 31, 2001. The decline in ARPU was
due to an increase in the number of new subscribers from the sale of our Go.Web
value added services, which generally have a lower monthly ARPU than our
full-service offerings. During 2001, we began charging our subscribers a per
kilobyte fee for roaming, which occurs when a customer uses their service
outside of a designated geographic area. Amounts billed to subscribers for
roaming that have been recognized as revenue were insignificant to date.
Equipment revenue. Equipment revenue decreased to $6.6 million for the
year ended December 31, 2002 from $10.1 million for the year ended December 31,
2001. This decrease was primarily due to a decrease in the number of the mobile
devices sold during the year ended December 31, 2002 compared to the year ended
December 31, 2001.
Other revenue. Other revenue decreased to $335,000 for the year ended
December 31, 2002 from $618,000 for the year ended December 31, 2001. This
decrease was primarily due to our decision not to pursue certain consulting
projects and consulting services to third parties during 2002. We anticipate
that consulting services will increase as a result of 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.
28
Cost of subscriber revenue. Cost of subscriber revenue decreased to $20.4
million for the year ended December 31, 2002 from $22.6 million for the year
ended December 31, 2001. This decrease was primarily due to a decrease in
roaming costs incurred. Roaming costs decreased to $2.5 million for the year
ended December 31, 2002 from $6.5 million for the year ended December 31, 2001.
Cost of equipment revenue. Cost of equipment revenue decreased to $8.5
million for the year ended December 31, 2002 from $20.7 million for the year
ended December 31, 2001. This decrease primarily was due to decreased inventory
related charges of approximately $1.6 million for the year ended December 31,
2002 compared to $8.1 million for the year ended December 31, 2001, as well as a
decrease in the number of mobile devices sold during the year ended December 31,
2002 compared to the year ended December 31, 2001. The inventory related charges
primarily relate to wireless modems supporting laptop and 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.
Cost of network operations. Cost of network operations. Cost of network
operations decreased slightly to $3.1 million for the year ended December 31,
2002 from $3.3 million for the year ended December 31, 2001.
Sales and marketing. Sales and marketing expenses decreased to $8.0
million for the year ended December 31, 2002 from $24.7 million for the year
ended December 31, 2001. This decrease primarily was due to decreased
advertising activities of $10.2 million including advertising costs paid to
third parties of approximately $4.0 million and a decrease in salaries and
benefits for personnel performing sales and marketing activities of
approximately $1.6 million.
General and administrative. General and administrative expenses decreased
to $29.1 million for the year ended December 31, 2002 from $40.7 million for the
year ended December 31, 2001. This decrease primarily was due to decreased
professional fees for infrastructure buildout and general corporate activities
of approximately $3.9 million, decreased salaries and benefits for personnel
performing business development and general corporate activities of
approximately $3.3 million, and a decrease in our bad debt expense of
approximately $1.0 million, and decreased facility costs of approximately $1.5
million.
Research and development. Research and development expense decreased to
$3.5 million for the year ended December 31, 2002 from $4.2 million for the year
ended December 31, 2001. 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 goodwill
and other intangibles decreased for the year ended December 31, 2002 to $1.5
million from $18.4 million for the year ended December 31, 2001 This decrease
primarily was due to the adoption of Statement of Financial Accounting Standard
No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002, which no
longer requires goodwill and certain intangible assets to be amortized, but
instead tested for impairment at least annually. In addition, the decrease
reflects the impact of reduced amortization of Other Intangibles as a result of
the impairment charge recorded during the fourth quarter of 2001.
29
Impairment of goodwill and other long-lived assets. During the third
quarter of 2002 and fourth quarter of 2001, we identified indicators of possible
impairment of our long-lived assets, principally goodwill and other acquired
intangible assets recorded upon the acquisitions of Wynd, Hotpaper and Flash.
Such indicators included the continued deterioration in the business climate for
wireless Internet service providers, significant declines in the market values
of our competitors in the wireless Internet services industry, recent changes in
our 2003 operating and cash flow forecasts, and changes in our strategic plans
for certain of our acquired businesses. With the assistance of independent
valuation experts, we performed asset impairment tests and determined the fair
value of the impaired long-lived assets for the respective acquired entities.
Fair value was determined primarily using the discounted cash flow method. A
write-down of goodwill and intangible assets totaling $8.4 and $25.4 million
were recorded during the third quarter of 2002 and fourth quarter of 2001,
respectively, reflecting the amount by which the carrying amount of the assets
exceed their respective fair values. The write-down consisted of $8.4 million
and $13.0 million for goodwill during the third quarter of 2002 and fourth
quarter of 2001, respectively, and $12.4 million for other acquired intangible
assets during the fourth quarter of 2001. In addition, impairment charges
related to property and equipment totaling $5.6 million and $97,000 were
recorded during 2002 and 2001, respectively in accordance with the Statement of
Financial Accounting Standard No. 144, "Accounting for Impairment of Long Lived
Assets" and Statement of Financial Accounting Standard No. 121, "Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of".
Interest income, net. Interest income decreased to $191,000 for the year
ended December 31, 2002 from $3.1 million for the year ended December 31, 2001.
This decrease was primarily due to the use of cash to fund our losses from
operations.
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.
We have incurred significant operating losses since our inception and as
of December 31, 2003 have an accumulated deficit of $264.4 million. During 2003,
we incurred a net loss of $8.2 million and used $7.9 million of cash to fund
operating activities. As of December 31, 2003 we had $568,000 in cash and cash
equivalents ($210 at February 27, 2004). In execution of our 2003 operating
plan, we took steps to reduce our annual payroll by more than 60% and took
further actions to reduce sales and marketing expenses. In addition we completed
the implementation of the agreements associated with our comprehensive strategic
alliance with EarthLink. As a result of the completed implementation of these
agreements, we anticipate continuing to generate revenues from three primary
sources, (i) recurring service revenue; (ii) software revenue; and (iii)
activation bounties. Our 2004 operating plan includes further reductions in
facility costs as a result of our successful renegotiation of long term lease
obligations and consolidation of our business operations. This will be partially
offset by increases in sales and marketing expenditures from levels incurred
during 2003 as we introduce new products and services to the consumer
marketplace. We currently anticipate that our available cash resources, when
coupled
30
with the net proceeds from the financing described below, will be sufficient to
fund our operating needs for at least the next 12 months. 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.
During 2003, our available cash decreased substantially. This reduction in
liquidity created significant constraints on the manner in which our business
operated. Additionally, during 2003 we retained an outside advisor to assist us
in analyzing various steps that we may take to enhance our liquidity, which
included exploration of the sale or other disposition of certain of our assets.
During the fourth quarter of 2003 and in preparation of seeking new investors,
we ceased exploration of asset sales and commenced negotiations with certain of
our largest creditors.
On December 19, 2003, we entered into definitive agreements with multiple
investors providing for the investors to purchase shares of our Common Stock and
warrants, for an aggregate purchase price of $14.5 million in a private
placement offering (the "Financing"). As part of the Financing, on December 19,
2003, we received an approximately $1 million secured bridge loan from the
investors. The notes issuable in connection with the bridge financing converted
into Common Stock upon consummation of the Financing. The closing of the
Financing occurred on March 10, 2004, immediately after our stockholders
approved the issuance of the securities issuable pursuant to the Financing. The
Company received net proceeds (after estimated expenses) from the Financing of
approximately $13 million, including the amount loaned to the Company on
December 19, 2003. Approximately $300,000 of the net proceeds will be used to
repay existing indebtedness, consisting of $120,000 to Verizon Wireless,
$100,000 to Metricom and $80,000 to Motient. In addition, $600,000 of the net
proceeds will support a letter of credit in favor of Cingular. Pursuant to the
Financing, we issued 96,820,796 shares of Common Stock and issued warrants to
purchase a total of 10,992,976 shares of Common Stock at an exercise price of
$0.15 per share.
In connection with the Financing, we entered into a Registration Rights
Agreement that required us to file, not later than February 27, 2004, a
registration statement covering the Common Stock sold in the Financing, shares
issued or issuable to certain of our creditors, pursuant to agreements executed
in advance of the first closing, in settlement of certain historical
liabilities, and shares underlying certain warrants. In the event that the
registration statement is not (a) timely filed and/or (b) declared effective by
the Securities and Exchange Commission by April 27, 2004, then each investor
will be entitled to receive additional shares of Common Stock (the "Additional
Shares") equal in value to 3% of the shares then owned by such investor, or
which the investor then has the right to acquire, for each 30-day period or pro
rata portion of such period following the date of the applicable deadline until
the applicable condition is met. The Additional Shares issuable by us for
failure to meet the registration requirements will not exceed 12% of the total
shares then owned by each investor or which each investor then has the right to
acquire. Since we were not be able to file the registration statement until
after we closed the private placement, we know that we will be required to issue
at least 3% of the total shares then owned by each investor or which each
investor then has the right to acquire.
31
Net cash used in operating activities was $7.9 million, $29.0 million and
$68.5 million for the years ended December 31, 2003, 2002 and 2001,
respectively. The principal use of cash in each of these periods was to fund our
losses from operations.
Net cash provided by/(used in) investing activities was $2.6 million,
($448,000) and ($10.3) million for the years ended December 31, 2003, 2002 and
2001, respectively. For the year ended December 31, 2003, we provided cash by
release of funds previously restricted and through the sale of subscribers to
Earthlink. These amounts were partially offset from the purchases of property,
equipment and leasehold improvements as well as an acquisition of subscribers
for our Wynd subsidiary. For the years ended December 31, 2002 and 2001, we used
cash in investment activities principally for purchases of property, equipment
and leasehold improvements. During 2004, we expect to use cash in investing
activities through capital expenditures and increases in restricted cash from
creditor settlements.
Net cash provided by financing activities was $914,000 for the year ended
December 31, 2003. This primarily resulted from the issuance of a note payable
in connection with the above-mentioned bridge financing and the issuance of
common stock from the exercise of stock options. Net cash used in financing
activities was $533,000 and $649,000 for the years ended December 31, 2002 and
2001, respectively. This resulted primarily from payments made on lease
obligations and was partially offset by the issuance of common stock upon the
exercise of stock options.
As of December 31, 2003, our principal commitments consisted of
obligations outstanding under operating leases. As of December 31, 2003, future
minimum payments for non-cancelable operating leases having terms in excess of
one year amounted to $158,000, of which $145,000 is payable in 2004.
The following table summarizes our contractual obligations at December 31,
2003, and the effect such obligations are expected to have on our liquidity and
cash flow in future periods.
Less than 1-3 4-5 After 5
December 31, (In thousands) Total 1 Year Years Years Years
Contractual Obligations:
Capital Lease
Obligations ............ $ 13 $ 13 $ -- $ -- $ --
Operating Lease
Obligations ............ 158 145 13 -- --
---- ---- ---- ---- ----
Total Contractual Cash
Obligations ............ $171 $158 $ 13 $ -- $ --
==== ==== ==== ==== ====
We have employment agreements with certain of our key executives, which
provide for fixed compensation and bonuses based upon our operating results. Our
maximum aggregate cash liability under the agreements, if we terminated these
employees, is approximately $150,000 at December 31, 2003.
32
As of December 31, 2003, we had net operating loss carryforwards of
approximately $182.5 million for Federal income tax purposes that will expire
through 2021. The state tax benefit during 2003 of $284,000 is attributable to
our sale of certain state net operating loss carryforwards. For financial
reporting purposes, a valuation allowance has been recognized to offset the
deferred tax assets related to these carryforwards. Due to limitations imposed
by the Tax Reform Act of 1986, and as a result of a significant change in our
ownership in 1999, the utilization of net operating loss carryforwards that
arose prior to such ownership change is subject to an annual limitation of $1.4
million. In addition, we acquired additional operating losses through our
acquisitions of Wynd and Hotpaper. We believe that an ownership change has
occurred with respect to these entities. The effect of an ownership change would
be the imposition of an annual limitation on the use of net operating loss
carryforwards attributable to periods before such change. We have not performed
a detailed analysis to determine the amount of the potential limitations. In
addition, we have not performed a detailed analysis to determine the amount of
the potential limitations as a result of the Financing.
Recent Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. Adoption of SFAS 146 is required with the
beginning of fiscal year 2003. The adoption of this statement did not have a
significant impact on our 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.
In November 2002, the Emerging Issues Task Force, "EITF", reached a
consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Elements"
(EITF No. 00-21), which addresses certain aspects of accounting for arrangements
that include multiple products or services. Specifically this issue states that
in an arrangement with multiple deliverables, the delivered items should be
considered a separate unit of accounting if: (1) the delivered items have value
to the customer on a standalone basis, (2) there is objective and reliable
evidence of the fair value of the undelivered items, and (3) the arrangement
includes a general right of return relative to the delivered item, and delivery
or performance of the undelivered items is considered probable and substantially
within our control. Additionally, the Issue states that the consideration should
be allocated among the separate units of accounting based upon their relative
fair values. If there is objective and reliable evidence of the fair value of
the undelivered items in an arrangement but no such evidence for the delivered
items, then the residual method
33
should be used to allocate the consideration. Under the residual method, the
amount of consideration allocated to the delivered items equals the total
consideration less the aggregate fair value of the undelivered items.
Accordingly, the application of EITF No. 00-21 may impact the timing of revenue
recognition as well as the allocation between products and services. The
adoption of EITF No. 00-21 for transactions entered into after July 1, 2003 did
not have a significant impact on our consolidated financial statements.
In January 2003, the FASB issued interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities". The primary objectives of this
interpretation are to provide guidance on the identification of entities for
which control is achieved through means other than through voting rights
("variable interest entities") and how to determine when and which business
enterprise (the "primary beneficiary") should consolidate the variable interest
entity. This new model for consolidation applies to an entity in which either
(i) the equity investors (if any) do not have a controlling financial interest;
or (ii) the equity investment at risk is insufficient to finance that entity's
activities without receiving additional subordinated financial support from
other parties. In addition, FIN 46 requires that the primary beneficiary, as
well as all other enterprises with a significant variable interest entity, make
additional disclosures. Certain disclosure requirements of FIN 46 were effective
for financial statements issued after January 31, 2003. In December 2003, the
FASB issued FIN 46 (revised December 2003), "Consolidation of Variable Interest
Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The
effective dates and impact of FIN 46 and FIN 46-R are as follows: (i)
Special-purpose entities ("SPEs") created prior to February 1, 2003. We must
apply either the provisions of FIN 46 or early adopt the provisions of FIN 46-R
at the end of the first interim or annual reporting period ending after December
15, 2003. (ii) Non-SPEs created prior to February 1, 2003. We are required to
adopt FIN 46-R at the end of the first interim or annual reporting period ending
after March 15, 2004. (iii) All entities, regardless of whether an APE, that
were created subsequent to January 31, 2003. The provisions of FIN 46 were
applicable for variable interests in entities obtained after January 31, 2003.
We do not have any arrangements with variable interest entities that will
require consolidation of their financial information in our financial
statements.
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. 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.
34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We believe that we have limited exposure to financial market risks,
including changes in interest rates. At December 31, 2003, all of our available
excess funds were 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 $10,000 based on cash and cash equivalent balances
at December 31, 2003. We currently hold no derivative instruments and do not
earn foreign-source income.
Item 8. Financial Statements and Supplementary Data.
The financial statements and the notes thereto which contain supplementary
data required to be filed pursuant to this Item 8 are appended to this Annual
Report on Form 10-K. A list of the financial statements filed herewith is found
at "Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K".
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
As previously announced, on December 20, 2002, our Board of Directors,
acting upon the recommendation of our Audit Committee, decided to no longer
engage Ernst & Young LLP ("Ernst & Young") as our independent auditor and
engaged WithumSmith + Brown P.C. ("WSB") to serve as our independent auditor for
the year 2002.
Ernst & Young's reports on our consolidated financial statements for each
of the years ended December 31, 2001, 2000 and 1999 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles.
During the years ended December 31, 2001, 2000 and 1999 and through the
date of our announcement of a change in accountants, (the "Announcement Date"),
there were no disagreements with Ernst & Young on any matter of accounting
principle or practice, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Ernst & Young's satisfaction, would have
caused them to make reference to the subject matter in connection with their
report on our consolidated financial statements for such years; and there were
no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
During the years ended December 31, 2001, 2000 and 1999 and through the
Announcement Date, we did not consult with WSB with respect to the application
of accounting principles to a specific transaction, either completed or
proposed, or the type of audit opinion that might be rendered on our
consolidated financial statements, or any other matters or reportable events as
set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
35
Item 9A. 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 Chief Financial Officer, of the
effectiveness of the Company's disclosure controls and procedures pursuant to
Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company's
Chief Executive Officer and Chief Financial Officer, concluded that the
Company's disclosure controls and procedures are effective in ensuring that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC's rules and forms.
Changes in internal controls over financial reporting. There have been no
changes in the Company's internal controls over financial reporting that
occurred during the Company's last fiscal quarter to which this report relates
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
36
PART III
Item 10. Directors and Executive Officers.
We maintain a code of ethics applicable to our principal executive
officer, principal financial officer, principal accounting officer or
controller, and to persons performing similar functions. A copy of this code of
ethics is posted on our website accessible at
http://www.goamerica.com/media_center.
We will provide information that is responsive to this Item 10 in our
definitive proxy statement or in an amendment to this Annual Report not later
than 120 days after the end of the fiscal year covered by this Annual Report, in
either case under the caption "Directors and Executive Officers," and possibly
elsewhere therein. That information is incorporated in this Item 10 by
reference.
Item 11. Executive Compensation.
We will provide information that is responsive to this Item 11 regarding
compensation paid to our executive officers in our definitive proxy statement or
in an amendment to this Annual Report not later than 120 days after the end of
the fiscal year covered by this Annual Report, in either case under the caption
"Executive Compensation," and possibly elsewhere therein. That information is
incorporated in this Item 11 by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
We will provide information that is responsive to this Item 12 regarding
ownership of our securities by some beneficial owners and our directors and
executive officers in our definitive proxy statement or in an amendment to this
Annual Report not later than 120 days after the end of the fiscal year covered
by this Annual Report, in either case under the caption "Security Ownership of
Certain Beneficial Owners and Management," and possibly elsewhere therein. That
information is incorporated in this Item 12 by reference.
Item 13. Certain Relationships and Related Transactions.
We will provide information that is responsive to this Item 13 regarding
transactions with related parties in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days after the end of the
fiscal year covered by this Annual Report, in either case under the caption
"Certain Relationships and Related Transactions," and possibly elsewhere
therein. That information is incorporated in this Item 13 by reference.
Item 14. Principal Accountant Fees and Services.
We will provide information that is responsive to this Item 14 regarding
accounting fees and services in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days after the end of the
fiscal year covered by this Annual Report, in either case under the caption
"Principal Accountant Fees and Services" or "Accounting Matters", and possibly
elsewhere therein. That information is incorporated in this Item 14 by
reference.
37
PART IV
Item 15. Exhibits, Financial Statements and Reports on Form 8-K.
(a)(1) Consolidated Financial Statements.
Reference is made to the Index to Consolidated Financial Statements and
Financial Statement Schedule on Page F-1.
(2) Consolidated Financial Statement Schedule.
Reference is made to the Index to Consolidated Financial Statements and
Financial Statement Schedule on Page F-1.
All other schedules have been omitted because the required information
is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the Consolidated Financial Statements or Notes thereto.
(3) Exhibits.
Reference is made to the Exhibit Index on Page E-1
(b) Reports on Form 8-K.
During the last quarter of the fiscal year ended December 31, 2003, the
Registrant filed six Current Reports on Form 8-K with the Commission:
On October 27, 2003, the Company filed a Current Report on Form 8-K
(under Items 5 and 7) regarding the Nasdaq Stock Market Listing
Qualifications Panel granting the Company additional time, through at
least December 1, 2003, to regain compliance with the Nasdaq's one
dollar minimum bid price per share rule, and the setting of the 2003
Annual Meeting date and Record Date therefore.
On November 19, 2003, the Company filed a Current Report on Form 8-K
(under Items 5 and 12) regarding the Company's financial results for
the three months ended September 30, 2003 (not deemed "filed" pursuant
to the rules of the SEC).
On November 24, 2003, the Company filed a Current Report on Form 8-K
(under Items 5 and 7) regarding the Company's settlement of its long
term lease obligations for the Company's headquarters.
On December 1, 2003, the Company filed a Current Report on Form 8-K
(under Items 5 and 7) regarding the Company's press release with
respect to its anticipated continued listing on the Nasdaq SmallCap
Market.
38
On December 23, 2003, the Company filed a Current Report on Form 8-K
(under Items 5 and 7) regarding (i) Nasdaq's notification to the
Company that its temporary exception to Nasdaq's minimum bid price rule
was extended through at least January 30, 2004, (ii) the Company's
execution of financing agreements with multiple investors, and (iii)
the Company's press releases with respect to strategy and operations.
On December 24, 2003, the Company filed a Current Report on Form 8-K
(under Items 5 and 7) regarding additional information about its
proposed financing and the settlement of a material litigation with
Eastern Computer Exchange, Inc.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 this 10th day of March,
2004.
GOAMERICA, INC.
By: /s/ Daniel R. Luis
-----------------------
Daniel R. Luis
Chief Executive Officer
40
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Aaron Dobrinsky Chairman of the Board March 10, 2004
- -------------------------
Aaron Dobrinsky
/s/ Daniel R. Luis Chief Executive Officer March 10, 2004
- ------------------------- (Principal Executive Officer)
Daniel R. Luis
/s/ Donald G. Barnhart Chief Financial Officer March 10, 2004
- ------------------------- (Principal Financial and
Donald G. Barnhart Accounting Officer)
/s/ Joseph Korb Director March 10, 2004
- -------------------------
Joseph Korb
/s/ Alan Docter Director March 10, 2004
- -------------------------
Alan Docter
/s/ Mark Kristoff Director March 10, 2004
- -------------------------
Mark Kristoff
/s/ King Lee Director March 10, 2004
- -------------------------
King Lee
41
EXHIBIT INDEX++
ITEM 15(c)
Exhibit No. Description of Exhibit
- ----------- ----------------------
(2) Plan of Acquisition
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
(Incorporated by reference to Exhibit 2.1 of GoAmerica's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001) (File
No. 000-29359)
(3) Articles of Incorporation and By-laws
3.1 Amended and Restated Certificate of Incorporation, as filed with the
Secretary of State of the State of Delaware on May 8, 2000
(Incorporated by reference to Exhibit 3.1 of GoAmerica's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000) (File No.
000-29359)
3.2 Amendment No. 1 to Amended and Restated Certificate of
Incorporation, as filed with the Secretary of State of the State of
Delaware on March 10, 2004 (filed herewith)
3.3 By-laws (Incorporated by reference to Exhibit 3.2 of GoAmerica's
Registration Statement on Form S-1 which became effective on April
6, 2000) (File No. 333-94801)
(4) Instruments defining the rights of security holders, including
indentures
4.1 Warrant to Purchase Common Stock of GoAmerica, Inc. issued to Sony
Electronics, Inc. by GoAmerica, Inc. on January 1, 2001
(Incorporated by reference to Exhibit 4.3 of GoAmerica's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000)
(File No. 000-29359)
4.2 Form of Warrant to Purchase Common Stock of GoAmerica, Inc. issued
to former shareholders of OutBack Resource Group, Inc. on November
13, 2001 (Incorporated by reference to Exhibit 10.2 of GoAmerica's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001) (File No. 000-29359)
42
Exhibit No. Description of Exhibit
- ----------- ----------------------
4.3 Warrant to Purchase Common Stock of GoAmerica, Inc., issued to
Stellar Continental LLC on November 14, 2003 (Incorporated by
reference to Exhibit 4.1 of GoAmerica's Current Report on Form 8-K
filed with the Securities and Exchange Commission on November 24,
2003) (File No. 000-29359)
4.4 Warrant to Purchase Common Stock of GoAmerica, Inc., issued to the
Investors and designees of GoAmerica's placement agent upon
consummation of the second closing contemplated by the Purchase
Agreement included as Exhibit 10.35 below (Incorporated by reference
to Exhibit 4.5 of GoAmerica's Current Report on Form 8-K filed with
the Securities and Exchange Commission on December 24, 2003) (File
No. 000-29359)
4.5 Warrant to Purchase Common Stock of GoAmerica, Inc., issued to Derek
Caldwell as nominee for Sunrise Securities Corp. on December [18],
2003 (Incorporated by reference to Exhibit 4.6 of GoAmerica's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 24, 2003) (File No. 000-29359)
4.6 Warrant to Purchase Common Stock of GoAmerica, Inc., issued to Amnon
Mandelbaum as nominee for Sunrise Securities Corp. on December [18],
2003 (Incorporated by reference to GoAmerica's Current Report on
Form 8-K filed with the Securities and Exchange Commission on
December 24, 2003) (File No. 000-29359)
(10) Material Contracts
10.1 Form of Invention Assignment and Non-Disclosure Agreement by and
between GoAmerica and its employees (Incorporated by reference to
Exhibit 10.5 of GoAmerica's Registration Statement on Form S-1 which
became effective on April 6, 2000) (File No. 333-94801)
10.2 Form of Indemnification Agreement by and between GoAmerica and each
of its directors and executive officers (Incorporated by reference
to Exhibit 10.6 of GoAmerica's Registration Statement on Form S-1
which became effective on April 6, 2000) (File No. 333-94801)
10.3# Value Added Reseller Agreement by and between GoAmerica, Wynd and
Cingular Interactive, L.P., dated as of December 30, 2003 (filed
herewith)
43
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.4= Reseller Agreement for Messaging Services by and between GoAmerica
and ARDIS Company (now Motient Communications Inc.), dated August
25, 1999 (Incorporated by reference to Exhibit 10.4 of GoAmerica's
Registration Statement on Form S-1 which became effective on April
6, 2000) (File No. 333-94801)
10.7* Amended and Restated Employment Agreement by and between GoAmerica,
Inc. and Daniel R. Luis, dated as of May 6, 2002 (Incorporated by
reference to Exhibit 10.3 of GoAmerica's Quarterly Report on Form
10-Q for the quarter ended June 30, 2002) (File No. 000-29359)
10.8* Employment Agreement by and between GoAmerica and Aaron Dobrinsky,
dated as of May 6, 2002 (Incorporated by reference to Exhibit 10.1
of GoAmerica's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002) (File No. 000-29359)
10.9* Employment Agreement by and between GoAmerica and Joseph Korb, dated
as of May 6, 2002 (Incorporated by reference to Exhibit 10.2 of
GoAmerica's Quarterly Report on Form 10-Q for the quarter ended June
30, 2002) (File No. 000-29359)
10.10* Employment Agreement by and between GoAmerica and Jesse Odom, dated
as of May 6, 2002 (Incorporated by reference to Exhibit 10.5 of
GoAmerica's Quarterly Report on Form 10-Q for the quarter ended June
30, 2002) (File No. 000-29359)
10.11* GoAmerica Communications Corp. 1999 Stock Option Plan (Incorporated
by reference to Exhibit 10.11 of GoAmerica's Registration Statement
on Form S-1 which became effective on April 6, 2000) (File No.
333-94801)
10.12* GoAmerica, Inc. 1999 Stock Plan (Incorporated by reference to
Exhibit 10.12 of GoAmerica's Registration Statement on Form S-1
which became effective on April 6, 2000) (File No. 333-94801)
10.13* GoAmerica, Inc. Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 10.13 of GoAmerica's Registration Statement on
Form S-1 which became effective on April 6, 2000) (File No.
333-94801)
44
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.14 Lease Agreement, dated as of November 14, 2003, by and between
GoAmerica Communications Corp. and Stellar Continental LLC
(Incorporated by reference to Exhibit 10.2 of GoAmerica's Current
Report on Form 8-K filed with the Securities and Exchange Commission
on November 24, 2003) (File No. 000-29359)
10.15 Surrender Agreement, dated as of November 14, 2003, among GoAmerica,
Inc., GoAmerica Communications Corp. and Stellar Continental LLC
(Incorporated by reference to Exhibit 10.1 of GoAmerica's Current
Report on Form 8-K filed with the Securities and Exchange Commission
on November 24, 2003) (File No. 000-29359)
10.16 Purchase Agreement, dated as of December 19, 2003, by and between
GoAmerica, Inc. and the Investors set forth therein (Incorporated by
reference to Exhibit 4.1 of GoAmerica's Current Report on Form 8-K
filed with the Securities and Exchange Commission on December 24,
2003) (File No. 000-29359)
10.17 Registration Rights Agreement, dated as of December 19, 2003, by and
between GoAmerica, Inc. and the Investors set forth therein
(Incorporated by reference to Exhibit 4.2 of GoAmerica's Current
Report on Form 8-K filed with the Securities and Exchange Commission
on December 24, 2003) (File No. 000-29359)
10.18= Acquisition Agreement, dated as of September 25, 2002, between
EarthLink, Inc., GoAmerica, Inc. and GoAmerica Communications Corp.
(Incorporated by reference to GoAmerica's Current Report on Form 8-K
filed with the Securities and Exchange Commission on October 10,
2002) (File No. 000-29359)
10.19= Sales Agent Agreement, dated as of September 25, 2002, between
EarthLink, Inc., GoAmerica, Inc. and GoAmerica Communications Corp.
(Incorporated by reference to GoAmerica's Current Report on Form 8-K
filed with the Securities and Exchange Commission on October 10,
2002) (File No. 000-29359)
10.20= Technology Development Agreement, dated as of September 25, 2002,
between EarthLink, Inc., GoAmerica, Inc. and GoAmerica
Communications Corp. (Incorporated by reference to GoAmerica's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 10, 2002) (File No. 000-29359)
10.21= License Agreement, dated as of September 25, 2002, between
EarthLink, Inc., GoAmerica, Inc. and GoAmerica Communications Corp.
(Incorporated by reference to GoAmerica's Current Report on Form 8-K
filed with the Securities and Exchange Commission on October 10,
2002) (File No. 000-29359)
45
Exhibit No. Description of Exhibit
- ----------- ----------------------
(21) Subsidiaries of GoAmerica, Inc.
21.1 List of subsidiaries of GoAmerica, Inc. (filed herewith)
(23) Consents of Experts and Counsel
23.1 Consent of WithumSmith+Brown, P.C. (filed herewith)
23.2 Consent of Ernst & Young LLP. (filed herewith)
(31) Personal Certifications Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.1 Certification of Chief Executive Officer
31.2 Certification of principal financial officer
(32) Personal Certifications Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer
32.2 Certification of principal financial officer
(99) Additional Exhibits
99.1 Risk Factors (filed herewith)
# Certain portions of this exhibit have been omitted based upon a request
for confidential treatment. The omitted portions of this exhibit have been
filed separately with the Securities and Exchange Commission on a
confidential basis.
= Confidential treatment has been requested and granted (subject to
applicable renewals) for a portion of this Exhibit. Confidential materials
have been omitted and filed separately with the Securities and Exchange
Commission.
* Management contract or compensatory plan required to be filed as an
exhibit to this form pursuant to Item 15(c).
++ Certain schedules and exhibits to the documents listed in this index are
not being filed herewith or have not been previously filed because we
believe that the information contained therein is not material. Upon
request therefore, we agree to furnish supplementally a copy of any
schedule or exhibit to the Securities and Exchange Commission.
46
GOAMERICA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Page
----
Reports of Independent Auditors ........................................ F-2
Consolidated Balance Sheets as of December 31, 2003 and 2002 ........... F-4
Consolidated Statements of Operations for the years ended
December 31, 2003, 2002 and 2001 .................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2003, 2002 and 2001 .................................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001 .................................... F-7
Notes to Consolidated Financial Statements ............................. F-8
Financial Statement Schedule:
Valuation and Qualifying Accounts and Reserves for the years ended
December 31, 2003, 2002 and 2001 ................................... F-35
All other schedules have been omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the Consolidated
Financial Statements or Notes thereto.
F-1
Report of Independent Auditors
The Board of Directors and Stockholders
GoAmerica, Inc.
We have audited the accompanying consolidated balance sheets of GoAmerica,
Inc. as of December 31, 2003 and 2002, and the related consolidated statements
of operations, stockholders' equity and cash flows for the years ended December
31, 2003 and 2002. Our audits also included the financial statement schedule for
the years ended December 31, 2003 and 2002 as listed in the index at Item 15(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of GoAmerica, Inc.
as of December 31, 2003 and 2002, and the consolidated results of their
operations and their cash flows for the years ended December 31, 2003 and 2002
in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ WithumSmith + Brown, P.C.
New Brunswick, New Jersey
March 4, 2004, except for note 18 as to which the date is March 10, 2004
F-2
Report of Independent Auditors
The Board of Directors and Stockholders
GoAmerica, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the year ended December 31,
2001. Our audits also included the financial statement schedule for the year
ended December 31, 2001 listed in the index at Item 15(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of GoAmerica,
Inc. for the year ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule for the year ended December 31, 2001, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 26, 2002
F-3
GOAMERICA, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31,
------------------------
2003 2002
--------- ---------
Assets
Current assets:
Cash and cash equivalents .............................................. $ 568 $ 4,982
Accounts receivable, less allowance for doubtful accounts of $1,213
in 2003 and $3,418 in 2002 ............................................. 1,737 5,780
Other receivables ...................................................... 534 --
Merchandise inventories, net ........................................... 213 1,046
Prepaid expenses and other current assets .............................. 115 520
--------- ---------
Total current assets ...................................................... 3,167 12,328
Restricted cash ........................................................... -- 950
Property, equipment and leasehold improvements, net ....................... 1,606 4,685
Trade names, net of accumulated amortization of $4,019 in 2003
and $3,651 in 2002 ..................................................... 553 921
Other intangible assets, net of accumulated amortization of $6,442
in 2003 and $5,729 in 2002, respectively ............................... 251 546
Goodwill, net ............................................................. 6,000 6,193
Deferred debt and other financing expense, net ............................ 1,091 --
Other assets .............................................................. 297 1,142
--------- ---------
Total assets .............................................................. $ 12,965 $ 26,765
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ....................................................... $ 1,472 $ 4,694
Accrued expenses ....................................................... 3,040 5,917
Bridge note payable, net of discount of $390 ........................... 625 --
Deferred revenue ....................................................... 673 2,406
Other current liabilities .............................................. 13 348
--------- ---------
Total current liabilities ................................................. 5,823 13,365
Other long term liabilities ............................................... -- 383
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized: 4,351,943 in 2003
and 2002; issued and outstanding: none in 2003 and 2002 ............. -- --
Common stock, $.01 par value; authorized: 200,000,000 in 2003
and 2002; issued and outstanding: 54,788,618 in 2003 and
54,026,057 in 2002, respectively .................................... 548 540
Additional paid-in capital ............................................. 271,025 269,015
Deferred employee compensation ......................................... -- (314)
Accumulated deficit .................................................... (264,431) (256,224)
--------- ---------
Total stockholders' equity ................................................ 7,142 13,017
--------- ---------
Total liabilities and stockholders' equity ................................ $ 12,965 $ 26,765
========= =========
See accompanying notes.
F-4
GOAMERICA, INC.
Consolidated Statements of operations
(In thousands, except share and per share data)
Years ended December 31,
----------------------------------------------
2003 2002 2001
----------- ----------- -----------
Revenues:
Subscriber ....................................... $ 10,108 $ 29,017 $ 28,308
Equipment ........................................ 1,042 6,560 10,088
Other ............................................ 728 335 618
----------- ----------- -----------
11,878 35,912 39,014
Costs and expenses:
Cost of subscriber revenue ....................... 2,669 20,434 22,578
Cost of equipment revenue ........................ 1,152 8,537 20,665
Cost of network operations ....................... 1,828 3,074 3,264
Sales and marketing .............................. 1,072 8,038 24,700
General and administrative ....................... 9,617 29,082 40,685
Research and development ......................... 1,209 3,456 4,174
Depreciation and amortization of fixed assets .... 1,912 4,342 2,987
Amortization of goodwill and other
intangibles ...................................... 1,081 1,483 18,398
Impairment of goodwill ........................... 193 8,400 12,991
Impairment of other intangible assets ............ -- -- 12,423
Impairment of other long-lived assets ............ 1,202 5,582 97
----------- ----------- -----------
21,935 92,428 162,962
----------- ----------- -----------
Loss from operations ................................ (10,057) (56,516) (123,948)
Other income (expense):
Gain on sale of subscribers ...................... 1,756 -- --
Settlement gains, net ............................ 85 -- --
Interest (expense) income, net ................... (275) 191 3,099
----------- ----------- -----------
1,566 191 3,099
----------- ----------- -----------
Net loss before benefit from income taxes ........... (8,491) (56,325) (120,849)
Income tax benefit ............................... 284 436 578
----------- ----------- -----------
Net loss ............................................ $ (8,207) $ (55,889) $ (120,271)
=========== =========== ===========
Basic net loss per share ............................ $ (0.15) $ (1.04) $ (2.27)
=========== =========== ===========
Diluted net loss per share .......................... $ (0.15) $ (1.04) $ (2.25)
=========== =========== ===========
Weighted average shares used in computation of
basic net loss per share ......................... 54,259,237 53,845,787 53,027,209
Weighted average shares used in computation of
diluted net loss per share ....................... 54,259,237 53,869,236 53,353,958
See accompanying notes.
F-5
GOAMERICA, INC.
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
Common Stock Total
--------------------- Additional Deferred stock-
Number paid-in employee Accumulated holders'
of shares Amount capital compensation deficit equity
---------- ------ ---------- ------------ ----------- ----------
Balance at January 1, 2001 ..................... 53,128,715 $531 $ 268,849 $(7,786) $ (80,064) $ 181,530
Issuance of common stock pursuant to:
exercise of employee stock
options ............................. 369,642 4 267 -- -- 271
exercise of warrants .................... 130,450 1 (1) -- -- --
purchase of businesses .................. 134,996 1 147 -- -- 148
Purchase of treasury stock .................. (54,000) -- (49) -- -- (49)
Adjustment to deferred employee
compensation for terminations ............ -- -- (973) 973 -- --
Amortization of deferred employee
compensation ............................. -- -- -- 3,971 -- 3,971
Issuance of warrant in exchange for
marketing services ....................... -- -- 813 -- -- 813
Net loss .................................... -- -- -- -- (120,271) (120,271)
---------- ---- --------- ------- --------- ---------
Balance at December 31, 2001 ................... 53,709,803 537 269,053 (2,842) (200,335) 66,413
Issuance of common stock pursuant to:
exercise of employee stock
options .............................. 231,018 2 112 -- -- 114
employee stock purchase plan ............. 85,236 1 63 -- -- 64
Adjustment to deferred employee
compensation for terminations ............ -- -- (213) 213 -- --
Amortization of deferred employee
compensation .............................. -- -- -- 2,315 -- 2,315
Net loss .................................... -- -- -- -- (55,889) (55,889)
---------- ---- --------- ------- --------- ---------
Balance at December 31, 2002 ................... 54,026,057 540 269,015 (314) (256,224) 13,017
Issuance of common stock pursuant to:
exercise of employee stock
options .............................. 714,483 7 251 -- -- 258
employee stock purchase plan ............. 48,078 1 12 -- -- 13
Issuance of warrant to settle lease
commitment ............................... -- -- 440 -- -- 440
Issuance of warrant to placement agent to
secure bridge note financing ............. -- -- 292 -- -- 292
Fair value of warrants issued to investors
as part of bridge note financing ......... -- -- 487 -- -- 487
Value of beneficial conversion feature of
convertible bridge note financing ........ -- -- 528 -- -- 528
Amortization of deferred employee
compensation ............................. -- -- -- 314 -- 314
Net loss .................................... -- -- -- -- (8,207) (8,207)
---------- ---- --------- ------- --------- ---------
Balance at December 31, 2003 ................... 54,788,618 $548 $ 271,025 $ -- $(264,431) $ 7,142
========== ==== ========= ======= ========= =========
See accompanying notes.
F-6
GOAMERICA, INC.
Consolidated Statements of Cash Flows
(In thousands)
Years ended December 31,
------------------------------------
2003 2002 2001
------- -------- ---------
Operating activities
Net loss ................................................................ $(8,207) $(55,889) $(120,271)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ..................................... 2,993 5,825 21,385
Amortization of debt discount and deferred financing costs ........ 248 -- --
Impairment of goodwill ............................................ 193 8,400 12,991
Impairment of other intangible assets ............................. -- -- 12,423
Impairment of other long-lived assets ............................. 1,202 5,582 97
Provision for losses on accounts receivable ....................... 534 3,221 4,197
Accrued loss on sublease .......................................... 509 -- --
Gain on sale of subscribers ....................................... (1,756) -- --
Non-cash employee compensation .................................... 314 2,315 3,971
Non-cash warrant expense .......................................... 440 -- --
Non-cash marketing expense ........................................ -- -- 2,086
Other non-cash charges ............................................ 7 -- 254
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ..................... 3,509 (329) (7,852)
Increase in other receivables .................................. (534) -- --
Decrease in inventory .......................................... 833 6,921 6,054
Decrease in prepaid expenses and other current assets .......... 405 1,853 1,384
Decrease in accounts payable ................................... (3,374) (4,982) (259)
Decrease in accrued expenses and other current liabilities ..... (3,496) (1,532) (5,582)
(Decrease) increase in deferred revenue ........................ (1,733) (399) 623
------- -------- ---------
Net cash used in operating activities ................................... (7,913) (29,014) (68,499)
Investing activities
Purchase of property, equipment and leasehold improvements .............. (35) (451) (9,159)
Proceeds from the sale of subscribers ................................... 1,756 -- --
Acquisition of subscribers .............................................. (368) -- --
Purchase of patents ..................................................... -- -- (1,000)
Acquisition of businesses, net of cash acquired ......................... -- -- (127)
Change in other assets and restricted cash .............................. 1,232 3 --
------- -------- ---------
Net cash provided by (used in) investing activities ..................... 2,585 (448) (10,286)
Financing activities
Issuance of common stock ................................................ 271 178 271
Issuance of note payable and warrant, net of financing costs of $215 .... 800 -- --
Payments made for deferred financing costs .............................. (112) -- --
Purchase of treasury stock .............................................. -- -- (49)
Payments made on capital lease obligations .............................. (45) (711) (871)
------- -------- ---------
Net cash provided by (used in) by financing activities ................. 914 (533) (649)
------- -------- ---------
Decrease in cash and cash equivalents ................................... (4,414) (29,995) (79,434)
Cash and cash equivalents at beginning of year .......................... 4,982 34,977 114,411
------- -------- ---------
Cash and cash equivalents at end of year ................................ $ 568 $ 4,982 $ 34,977
======= ======== =========
See accompanying notes.
F-7
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
1. Description of Business and Basis of Presentation
GoAmerica, Inc. (the "Company") is a wireless data communications service
provider, offering solutions primarily for consumers who are deaf, hard of
hearing and/or speech-impaired. The Company currently develops, markets and
supports most of these services through Wynd Communications Corporation
("Wynd"), a wholly owned subsidiary of the Company. Wynd Communications offers
enhanced services known as WyndTell(R) and WyndPower(TM), which assist deaf or
hard of hearing customers in communicating from most major metropolitan areas in
the continental United States and parts of Canada. Additionally, GoAmerica
continues to support customers who use our proprietary software technology
called Go.Web(TM). GoWeb is designed for use mainly by enterprise customers to
enable secure wireless access to corporate data and the Internet on numerous
wireless computing devices. The Company's revenues are derived principally from
subscriptions to its value-added wireless data services, for which customers
typically pay monthly recurring fees. The Company derives additional revenue
from the sale of wireless communications devices and commissions from the
acquisition of subscribers on behalf of various wireless network providers.
The Company is highly dependent on EarthLink, Inc. ("Earthlink") for
billing and collections, customer support and technical support for certain of
our subscribers. 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 its services are transferable to emerging technologies, rapid changes
in technology could have an adverse financial impact on the Company.
The Company has incurred significant operating losses since its inception
and, as of December 31, 2003, has an accumulated deficit of $264,431. During
2003, the Company incurred a net loss of $8,207 and used $7,913 of cash to fund
operating activities. As of December 31, 2003 the Company had $568 in cash and
cash equivalents ($210 at February 27, 2004, unaudited). In execution of the
2003 operating plan, the Company took steps to reduce its annual payroll by more
than 60% and took further actions to reduce sales and marketing expenses, some
of which resulted from the implementation of the Earthlink agreements (See Note
3).
In light of the Company's financial situation, the Company sought new
equity financing and consummated a $14,500 financing in March 2004 with the
receipt of $12,000, net of costs, in new equity financing (see note 18). The
Company had previously received approximately $800, net of costs of bridge
financing, in December 2003 (see note 5).
F-8
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
2. Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of GoAmerica,
Inc. and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Cash Equivalents
Cash equivalents consist of highly liquid investments with an original
maturity of three months or less when purchased.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, and the reported amounts of
certain expenses during the reporting periods. Actual results could differ from
those estimates. Significant estimates that affect the financial statements
include, but are not limited to: collectibility of accounts receivable,
amortization periods and recoverability of long-lived assets.
Receivables and Credit Policies
Accounts receivable are uncollateralized customer obligations due under
normal trade terms requiring payment within 30 days from the invoice date.
Accounts receivable are stated at the amount billed to the customer. Interest is
not billed or accrued. Accounts receivable in excess of 90 days old are
considered delinquent. Payments of accounts receivable are allocated to the
specific invoices identified on the customer's remittance advice or, if
unspecified, are applied to the oldest unpaid invoices.
The carrying amount of accounts receivable is reduced by a valuation
allowance that reflects the Company's best estimate of the amounts that may not
be collected. This estimate is based on reviews of all balances in excess of 90
days from the invoice date and based on an assessment of current
creditworthiness, estimates the portion, if any, of the balance that will not be
collected. The Company reviews its valuation allowance on a quarterly basis.
Merchandise Inventories
Merchandise inventories, principally wireless devices, are stated at the
lower of cost (first-in, first-out) basis or market. There are a limited number
of suppliers of the Company's inventory. Inventories are recorded net of a
reserve for excess and obsolete merchandise.
F-9
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost.
Depreciation is provided on the straight-line method over the estimated useful
lives of the related assets ranging from two to seven years. Expenditures for
maintenance and repairs are charged to expense as incurred.
Computer Software Developed or Obtained For Internal Use
All direct internal and external costs incurred in connection with the
application development stage of software for internal use are capitalized. All
other costs associated with internal use software are expensed when incurred.
Amounts capitalized are included in property, equipment and leasehold
improvements and are amortized on a straight-line basis over three years
beginning when such assets are placed in service.
Goodwill and Intangible Assets
Goodwill and intangible assets result primarily from acquisitions
accounted for under the purchase method. In accordance with Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"), effective January 1, 2002, goodwill and intangible
assets with indefinite lives are no longer being amortized but are subject to
impairment by applying a fair value based test. Intangible assets with finite
useful lives related to developed technology, customer lists, trade names and
other intangibles are being amortized on a straight-line basis over the
estimated useful life of the related asset, generally three to five years.
Recoverability of Intangible and Other Long Lived Assets
In accordance with SFAS No.142, the Company reviews the carrying value of
goodwill and intangible assets with indefinite lives annually or in certain
circumstances. The Company measures impairment losses by comparing carrying
value to fair value. Fair value is determined using discounted cash flow
methodology.
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," long-lived assets used in operations are reviewed for
impairment whenever events or changes in circumstances indicate that carrying
amounts may not be recoverable. For long-lived assets to be held and used, the
Company recognizes an impairment loss only if its carrying amount is not
recoverable through its undiscounted cash flows and measures the impairment loss
based on the difference between the carrying amount and fair value.
F-10
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Prior to January 1, 2002, the Company accounted for its long-lived assets
under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." In accordance with SFAS No. 121, the
Company reviewed the recoverability of long-lived assets using an undiscounted
cash flow methodology, whenever events or changes in circumstances indicated
that carrying amounts may not be recoverable. The Company measured impairment
losses using a discounted cash flow methodology.
Revenue and Deferred Revenue
The Company derives subscriber revenue from the provision of wireless
communication services. Subscriber revenue consists of monthly charges for
access and usage and is recognized as the service is provided. Also included in
subscriber revenue are one-time non-refundable activation fees. To the extent
such fees exceed the related costs, they are deferred and recognized ratably
over the life of the related service contracts, generally six or twelve months.
Equipment revenue is recognized upon shipment and transfer of title to the end
user. The Company provides mobile devices to its customers at prices below its
costs as incentives for customers to enter into service agreements. Such
incentives are recorded as a deferred asset and are amortized against subscriber
gross margins over the life of the customer contract. Sales into retail
channels, where a right of return exists, are deferred and recognized at the
time such equipment is sold to the end consumer. Consulting revenue, included in
other revenue, is recognized as the related services are provided. Software
revenue through December 31, 2003 was insignificant.
Cost of Revenues
Cost of subscriber revenue consists principally of airtime costs charged
by carriers. Cost of equipment revenue consists of the cost of equipment sold.
Income Taxes
Deferred income taxes are determined using the asset and liability method.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. A valuation allowance is recorded
when the expected recognition of a deferred tax asset is considered to be
unlikely.
Advertising Costs
Advertising costs are expensed as incurred. During 2003, 2002 and 2001,
advertising expense was approximately $23, $1,019 and $4,900, respectively.
Research and Development Costs
Research and development costs are expensed as incurred.
F-11
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Stock-Based Employee Compensation
The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees", using an intrinsic value approach to measure compensation
expense, if any. Under this method, compensation expense is recorded on the date
of the grant only if the current market price of the underlying stock exceeds
the exercise price. Options issued to non-employees are accounted for in
accordance with SFAS 123, "Accounting for Stock-Based Compensation", and
Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods and Services", using a fair value approach.
SFAS No. 123 established accounting and disclosure requirements using a
fair value-basis method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123, the Company has elected to continue to apply
the intrinsic value-based method of accounting described above, and has adopted
the disclosure requirements of SFAS No. 123. Had the Company elected to
recognize compensation cost based on fair value of the stock options at the date
of grant under SFAS 123, such costs would have been recognized ratably over the
vesting period of the underlying instruments and the Company's net loss and net
loss per common share would have increased to the pro forma amounts indicated in
the table below.
Year ended December 31,
----------------------------------
2003 2002 2001
-------- -------- ---------
Net loss .................................. $ (8,207) $(55,889) $(120,271)
Deduct: Stock-based employee compensation
expense included in reported net loss ..... 314 2,315 3,971
Add: Total stock-based employee
compensation expense determined under fair
value based method for all awards ......... (3,968) (6,966) (9,546)
-------- -------- ---------
Pro forma net loss ........................ $(11,861) $(60,540) $(125,846)
======== ======== =========
Loss per share - basic, as reported ....... $ (0.15) $ (1.04) $ (2.27)
======== ======== =========
Loss per share - diluted, as reported ..... $ (0.15) $ (1.04) $ (2.25)
======== ======== =========
Pro forma loss per share - basic .......... $ (0.22) $ (1.12) $ (2.37)
======== ======== =========
Pro forma loss per share - diluted ........ $ (0.22) $ (1.12) $ (2.36)
======== ======== =========
The pro forma results above are not intended to be indicative of or a
projection of future results. Refer to Note 14 for assumptions used in computing
the fair value amounts above.
F-12
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Earnings (Loss) Per share
The Company computes net loss per share under the provisions of SFAS No.
128, "Earnings per Share" (SFAS 128), and SEC Staff Accounting Bulletin No. 98
(SAB 98).
Under the provisions of SFAS 128 and SAB 98, basic loss per share is
computed by dividing the Company's net loss for the period by the
weighted-average number of shares of common stock outstanding during the period.
Diluted net loss per share excludes potential common shares if the effect is
antidilutive. The weighted average number of shares utilized in arriving at
basic loss per share reflects an adjustment for 23,449 and 326,749 common shares
for the years ended December 31, 2002 and 2001, respectively, for shares held in
escrow as a result of the 2001 and 2000 acquisitions. Diluted loss per share is
determined in the same manner as basic loss per share except that the number of
shares 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 and warrants is anti-dilutive and as
such, these amounts (except for warrants issued for nominal consideration) have
been excluded from the calculation of diluted loss per share. For the years
ended December 31, 2003, 2002 and 2001, approximately 14,552,022, 13,670,119 and
13,901,137 of common stock equivalent shares were excluded from the computation
of diluted net loss per share.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. The Company maintains a significant portion of its cash and cash
equivalents with two financial institutions. At times these balances exceed the
FDIC insured limit of $100. The Company performs periodic credit evaluations of
its customers but generally does not require collateral.
As of December 31, 2003, the Company had 17% of its accounts receivable
with Earthlink. For the year ended December 31, 2003, the Company generated 13%
of its total revenue from Earthlink.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and notes payable approximate their fair values due to the short
maturity of these items.
Segment Information
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," which establishes standards for the way that a public enterprise
reports information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes
F-13
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
standards for related disclosures about products and services, geographic areas
and major customers. The Company operates in a single segment. The chief
operating decision maker allocates resources and assesses the performance
associated with wireless services, and related equipment sales on a single
segment basis. Consulting services are not a material component of the Company's
business.
Reclassifications
The Company has reclassified certain prior year information to conform
with current year presentation.
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 November 2002, the Emerging Issues Task Force, "EITF", reached a
consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Elements"
(EITF No. 00-21), which addresses certain aspects of accounting for arrangements
that include multiple products or services. Specifically this issue states that
in an arrangement with multiple deliverables, the delivered items should be
considered a separate unit of accounting if: (1) the delivered items have value
to the customer on a standalone basis, (2) there is objective and reliable
evidence of the fair value of the undelivered items, and (3) the arrangement
includes a general right of return relative to the delivered item, and delivery
or performance of the undelivered items is considered probable and substantially
within the Company's control. Additionally, the Issue states that the
consideration should be allocated among the separate units of accounting based
upon their relative fair values. If there is objective and reliable evidence of
the fair value of the undelivered items in an arrangement but no such evidence
for the delivered items, then the residual method
F-14
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
should be used to allocate the consideration. Under the residual method, the
amount of consideration allocated to the delivered items equals the total
consideration less the aggregate fair value of the undelivered items.
Accordingly, the application of EITF No. 00-21 may impact the timing of revenue
recognition as well as the allocation between products and services. The
adoption of EITF No. 00-21 for transactions entered into after July 1, 2003 did
not have a significant impact on the Company's consolidated financial
statements.
In January 2003, the FASB issued interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities". The primary objectives of this
interpretation are to provide guidance on the identification of entities for
which control is achieved through means other than through voting rights
("variable interest entities") and how to determine when and which business
enterprise (the "primary beneficiary") should consolidate the variable interest
entity. This new model for consolidation applies to an entity in which either
(i) the equity investors (if any) do not have a controlling financial interest;
or (ii) the equity investment at risk is insufficient to finance that entity's
activities without receiving additional subordinated financial support from
other parties. In addition, FIN 46 requires that the primary beneficiary, as
well as all other enterprises with a significant variable interest entity, make
additional disclosures. Certain disclosure requirements of FIN 46 were effective
for financial statements issued after January 31, 2003. In December 2003, the
FASB issued FIN 46 (revised December 2003), "Consolidation of Variable Interest
Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The
effective dates and impact of FIN 46 and FIN 46-R are as follows: (i)
Special-purpose entities ("SPEs") created prior to February 1, 2003. The Company
must apply either the provisions of FIN 46 or early adopt the provisions of FIN
46-R at the end of the first interim or annual reporting period ending after
December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003. The Company
is required to adopt FIN 46-R at the end of the first interim or annual
reporting period ending after March 15, 2004. (iii) All entities, regardless of
whether an SPE, that were created subsequent to January 31, 2003. The provisions
of FIN 46 were applicable for variable interests in entities obtained after
January 31, 2003. The Company does not have any arrangements with variable
interest entities that will require consolidation of their financial information
in our financial statements.
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. 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.
F-15
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
3. Lease Settlements
On January 10, 2003, the Company entered into a sublease agreement to
partially offset the cost of unused office space at 401 Hackensack Avenue. The
sublease agreement was set to expire in April 2007. As a result of this
agreement, the Company recorded a loss on sublease of $610.
The Company entered into two agreements, each dated as of November 14,
2003, with Stellar Continental LLC ("Stellar"), the lessor of the Company's
corporate headquarters at 433 Hackensack Avenue and its office at 401 Hackensack
Avenue, both located in Hackensack, New Jersey (collectively, the "Hackensack
Offices"). The agreements consist of a Surrender Agreement and a new Lease
Agreement as well as a Warrant Certificate (collectively, the "Long Term Lease
Settlement").
The Long Term Lease Settlement enabled the Company to cure all prior
defaults under the previous lease (the "Original Lease", as described below) and
terminated all parties' rights and obligations under the Original Lease, in
exchange for (i) Stellar's right to retain $556 previously drawn on the
Company's letter of credit that secured the Original Lease, (ii) the Company
issuing a Warrant to Stellar that allows Stellar to acquire up to 1,000,000
shares of the Company's Common Stock at an exercise price of 46 cents per share
at any time prior to November 14, 2008 and (iii) the execution of a new short
term lease between the Company and Stellar for office space at 433 Hackensack
Avenue. The Long Term Lease Settlement also requires the Company to rent from
Stellar any new office space in the Hackensack, New Jersey area that it may
require over the term of the new short term lease, on terms no less favorable
than the New Lease. The sublease agreement described above was effectively
cancelled by these settlements. Therefore, the Company reversed the remaining
$509 of unamortized loss on sublease.
The warrant to purchase 1,000,000 shares of the Company's common stock at
a price of $0.46 per share was immediately exercisable at the date of grant and
expires in five years. The warrant had an estimated fair market value at the
date of grant of approximately $440, as determined by using the Black-Scholes
method and was recognized by the Company during the fourth quarter of 2003 as an
offset to the reversal of the loss on sublease described above. Both items are
included in settlement gains, net in the accompanying statement of operations.
Such warrant remains outstanding as of December 31, 2003.
On December 23, 2003, the Company executed a settlement agreement with
Eastern Computer Exchange, Inc. ("Eastern Computer") with respect to certain
payment obligations pursuant to two equipment leases (the "Leases") by agreeing
to pay Eastern Computer $350 upon closing the financing discussed in note 18 in
exchange for a full release of the Company and its affiliates of the claim filed
by Eastern Computer. Previously, Eastern Computer had taken back the equipment
covered under the Leases. This settlement enabled the Company to cure all prior
defaults under the Leases. The Company recorded a loss on this settlement of $7,
which is included in settlement gains, net in the accompanying statement of
operations.
F-16
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
4. Settlement Gains and Changes in Estimates
Settlement Gains
In December 2003, the Company entered into agreement with a creditor to
settle an obligation for less than the recorded amount by making a final cash
payment to this vendor prior to December 31, 2003. The Company recorded a gain
on settlement of approximately $64 relating to this transaction and has included
this item in settlement gains, net in the accompanying statement of operations.
During December 2003, the Company entered into other settlement
transactions, which by their terms, are not scheduled to consummate until
certain events occur in 2004. See Note 11 for details.
Changes in Estimates
During the year ended December 31, 2003, the Company, as part of its
strategic realignment, reviewed certain liability provisions and accrued
expenses based on recent discussions with vendors and recorded the following
adjustments:
o A $347 reduction of general and administrative expenses relating to
the elimination of an accrued liability for deferred rent on the
Company's lease obligations at 401 and 433 Hackensack Avenue (see
note 3).
o A $1,513 reduction of accruals for certain subscriber related costs
based upon a finalization of amounts owed to vendors.
o A $372 reduction of accruals for certain sales and marketing costs
recorded in prior periods.
The above amounts were recorded as changes in estimates and reductions of
the related expenses in the accompanying 2003 statement of operations.
5. Bridge Note Payable
On December 19, 2003, the Company entered into definitive agreements with
multiple investors providing for the investors to purchase 96,666,666 shares of
the Company's Common Stock, par value $.01 (the "Common Stock"), for an
aggregate purchase price of $14,500 in a private placement offering (the
"Financing") "See Note 18-Subsequent Events". As part of this Financing, on
December 19, 2003, the Company received net proceeds of approximately $800 from
the issuance of 10% Senior Secured Convertible Promissory Notes (the "Notes")
and certain warrants. The Notes were purchased by the investors at their par
value in proportional amounts to their aggregate investment commitments in the
Financing. The principal on the Notes
F-17
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
and accrued interest are due and payable on March 18, 2004, subject to extension
for up to another 30 days upon the consent of the Company and the holders of a
majority-in-interest of the Notes. The Notes are secured by an agreement that
pledges the Company's common stock ownership in Wynd as collateral. Upon closing
of the Financing after stockholder approval, the Notes and all accrued interest
automatically converted into Common Stock at a price of $0.15 per share, subject
to certain adjustments.
The notes contain a beneficial conversion feature, which has been
calculated in the amount of approximately $528 and is reflected as a deferred
debt expense in the accompanying 2003 balance sheet. This amount is being
amortized as interest expense over the life of the debt.
In addition to the Notes, the Company granted to the investors warrants to
purchase 1,353,333 shares of the Company's common stock at a price of $0.15 per
share. These warrants were immediately exercisable at the date of grant and
expire in five years. The warrants had an estimated fair market value at the
date of grant of approximately $487, as determined using the Black-Scholes
method, which discount is being amortized as interest expense over the life of
the debt. The Note Payable is shown on the Balance Sheet at December 31, 2003
net of unamortized discount in the amount of $390. Such warrants remain
outstanding as of December 31, 2003.
6. Strategic Alliance with EarthLink, Inc.
On September 25, 2002, the Company formed a comprehensive strategic
alliance with EarthLink by entering into a series of agreements pursuant to
which, among other things (i) EarthLink purchased all of the Company's CDPD
subscribers as well as certain of the Company's Cingular and Motient network
subscribers (collectively, the "transferred subscribers"); (ii) EarthLink
purchased the Company's rights under a credit for $1,400 of inventory from a
hardware manufacturer, receiving the Company's equipment pricing at a discount;
(iii) the Company and EarthLink will market each other's wireless services in
exchange for commissions and/or recurring revenue shares; (iv) EarthLink will
provide billing, customer support and network services to most subscribers of
the Company's technology; and (v) the Company and EarthLink will 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 strategic alliance and the transfer of subscribers, the
Company received and recorded approximately $1,756 of gains on sales of
subscribers during 2003 and had remaining $100 of deferred revenue as of
December 31, 2003.
F-18
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
7. Acquisition
On November 13, 2001, the Company acquired OutBack Resource Group, Inc., a
software development company. The acquisition was accounted for under the
purchase method of accounting, and accordingly, the purchase price has been
allocated to the assets acquired and liabilities assumed based upon estimates of
fair market values at the date of acquisition. The total purchase price of
approximately $148 included the issuance of 134,996 shares of common stock
valued at $0.96 per share and warrants issued at the date of acquisition with an
estimated fair market value of approximately $19 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 and expire three years from the date
thereof.
8. Goodwill and Other Intangible Assets
Impairment Charge Recorded Under SFAS No. 142
During the first half of 2003, the Company identified indicators of
impairment, including recent changes in the Company's 2003 and 2004 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 acquisitions of Outback. A write-down of goodwill
totaling $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 value as determined utilizing estimates of future discounted
cash flows.
During the first half of 2002, the Company completed the first of the
required impairment tests of goodwill and indefinite lived intangible assets as
of January 1, 2002, and no adjustment to the carrying value of goodwill was
required at that time. During the third quarter of 2002, the Company identified
indicators of impairment, including recent changes in the Company's 2002 and
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 acquisitions of Wynd and Hotpaper.com, Inc.
("Hotpaper"). A write-down of goodwill totaling $8,400 was recorded during the
third quarter of 2002, reflecting the amount by which the carrying amount of the
respective reporting units exceeded their respective fair values as determined
utilizing estimates of future discounted cash flows. The Company's annual
impairment test indicated that no further impairment had occurred in the fourth
quarter of 2002 or during 2003 relative to Wynd.
F-19
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Impairment Charges Prior to Adoption of SFAS No. 142
During the year ended December 31, 2001, the Company identified indicators
of possible impairment of its long-lived assets, principally goodwill and other
acquired intangible assets recorded upon the acquisitions of Wynd, Hotpaper and
Flash Creative Management, Inc. ("Flash"). Such indicators included the
continued deterioration in the business climate for wireless Internet service
providers, significant declines in the market values of the Company's
competitors in the wireless Internet services industry, recent changes in the
Company's 2002 operating and cash flow forecasts, and changes in the Company's
strategic plans for certain of its acquired businesses. With the assistance of
independent valuation experts, the Company determined the fair value of the
impaired long-lived assets for the respective acquired entities. Fair value was
determined primarily using the discounted cash flow method. Write-downs of
goodwill and other intangible assets totaling $12,991 and $12,423, respectively,
reflect the amount by which the carrying amount of the assets exceeded their
respective fair values.
The following tables reflect pro forma results of operations of the
Company, giving effect to the provisions of SFAS No. 142 for the year ended
December 31, 2001:
Years Ended December 31,
---------------------------------
2003 2002 2001
---------------------------------
Net loss, as reported $(8,207) $(55,889) $(120,271)
Add back: amortization, net of tax of $-0- -- -- 12,794
------- -------- ---------
Pro forma net loss $(8,207) $(55,889) $(107,477)
======= ======== =========
Basic net loss per share, as reported $ (0.15) $ (1.04) $ (2.27)
Add back: amortization, net of tax of $-0- -- -- .24
------- -------- ---------
Pro forma $ (0.15) $ (1.04) $ (2.03)
======= ======== =========
Diluted net loss per share, as reported $ (0.15) $ (1.04) $ (2.25)
Add back: amortization, net of tax of $-0- -- -- .24
------- -------- ---------
Pro forma $ (0.15) $ (1.04) $ (2.01)
======= ======== =========
F-20
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The following table summarizes the activity in Goodwill for the periods
indicated:
Years Ended December 31,
2003 2002
------------------------
Beginning balance, net $6,193 $14,593
Goodwill acquired during the period -- --
Impairment charge (193) (8,400)
Amortization -- --
------ -------
Ending balance, net $6,000 $ 6,193
====== =======
The following table summarizes other intangible assets subject to
amortization at the dates indicated:
December 31, 2003 December 31, 2002
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
----------------------------------------------------------------------------------------
Trade Names $ 4,572 $ (4,019) $553 $ 4,572 $(3,651) $ 921
Technology 3,017 (2,925) 92 3,017 (2,741) 276
Customer Lists 2,258 (2,168) 90 2,258 (1,988) 270
Other 418 (349) 69 -- -- --
Patents 1,000 (1,000) -- 1,000 (1,000) --
----------------------------------------------------------------------------------------
$11,265 $(10,461) $804 $10,847 $(9,380) $1,467
========================================================================================
Aggregate future amortization expense for the above intangible
assets is estimated to be:
Years Ending December 31, 2004: $621
2005: 183
F-21
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
9. Impairment of Other Long-lived Assets
During the year ended December 31, 2003, 2002 and 2001, the Company
identified indicators of possible impairment of its other long-lived assets.
Such indicators included the continued deterioration in the business climate for
wireless Internet service providers, significant declines in the market values
of the Company's competitors in the wireless Internet services industry, recent
changes in the Company's operating and cash flow forecasts, and changes in our
strategic plans. Based on these factors, the Company initiated significant
reductions in its workforce resulting in impairment to its property and
equipment, principally software and furniture and fixtures. The impairment
charge was calculated assuming no salvage value to be obtained from the assets.
As a result, the Company recorded impairment charges of $1,202, $5,582 and $97
during the years ended December 31, 2003, 2002 and 2001, respectively, for
assets no longer in use. Included in the charge for 2003 is $445, relating to
equipment given back to Eastern Computer upon the Company's default on related
lease obligations (see note 3).
10. Supplemental Balance Sheet Information
Merchandise inventories:
During 2001, the Company recorded a write-down of approximately $3,500 in
order to reflect inventory at the lower of cost or market. The write-down
primarily relates to wireless modems supporting laptop and 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.
Additionally, during 2003, 2002 and 2001 the Company recorded reserves for
excess inventory quantities of approximately $47, $5,889 and $4,600,
respectively. As of December 31, 2003, the Company had applied all reserves for
excess inventory quantities to the related merchandise inventory.
Property, equipment and leasehold improvements:
Property, equipment and leasehold improvements consists of the following:
December 31,
--------------------
2003 2002
------- -------
Furniture, fixtures and equipment ................. $ 754 $ 1,483
Computer equipment and software ................... 6,765 8,679
Leasehold improvements ............................ 265 372
------- -------
7,784 10,534
Less accumulated depreciation and amortization .... (6,178) (5,849)
------- -------
$ 1,606 $ 4,685
======= =======
F-22
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
At December 31, 2002, the Company leased equipment, furniture and
fixtures, with a cost basis of $2,169, which is included in property, equipment
and leasehold improvements. Accumulated amortization on leased equipment was
$893 at December 31, 2002. The amount of such equipment at December 31, 2003 was
immaterial.
Accrued expenses:
Accrued expenses consisted of the following:
December 31,
-----------------
2003 2002
------ ------
Settlement arrangements with vendors ............. $2,072 $ --
Professional fees ................................ 427 1,501
Carrier services ................................. 360 3,234
Employee compensation ............................ 130 486
Maintenance agreements ........................... -- 250
Inventory purchases .............................. -- 150
Dealer commissions ............................... 6 57
Marketing expenses ............................... 15 30
Equipment and leasehold improvement purchases .... -- --
Other ............................................ 30 209
------ ------
$3,040 $5,917
====== ======
11. Commitments and Contingencies
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, 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, 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 $590, 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.
F-23
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
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 $1,000. 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 defend this action vigorously.
On December 23, 2003, the Company executed a settlement agreement with
Eastern Computer Exchange, Inc. ("Eastern Computer") with respect to certain
payment obligations pursuant to two equipment leases (the "Leases") by agreeing
to pay Eastern Computer $350 upon closing the financing, as described in note 5,
in exchange for a full release of the Company and its affiliates. Eastern
Computer had filed suit against the Company on July 2, 2003, seeking monetary
amounts of up to approximately $800 and dismissed the action without prejudice
in October 2003 pending settlement discussions. In the event that the Financing
does not close and the Company does not secure alternate financing by March 22,
2004, the Company has acknowledged and agreed to the entry of a judgment against
the Company for the full amount of the Company's original debt pursuant to the
original litigation (see note 18).
In December 2003, the Company executed a series of settlement agreements
with various vendors that provide, upon their consummation, for their reduction
of amounts owed by the Company to these vendors. Generally, the terms of the
settlement agreements call for the Company to make fixed cash payments or the
issuance of shares of the Company's common stock. The consummation of the
settlement agreements is contingent upon the Company's complying with all of the
terms of the individual agreements. If all such terms and conditions are
satisfied, the Company may record approximately $2,072 in additional settlement
gains during 2004.
F-24
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The Company is obligated under capital leases for computer and office
equipment that expire in December 2004 with imputed interest of 14.87%. Future
minimum capital lease payments and future minimum lease payments relating to
office space under noncancelable operating leases as of December 31, 2003 are as
follows:
Capital Operating
Year ending December 31, Leases Leases
------- ---------
2004 ..................................................... $ 13 $145
2005 ..................................................... -- 13
2006 ..................................................... -- --
2007 ..................................................... -- --
2008 ..................................................... -- --
Thereafter ............................................... -- --
---- ----
Total minimum lease payments ............................. 13 $158
Less amount representing interest ........................ (--) ====
----
Present value of net minimum capital
lease payments ......................................... 13
Less current portion of capital lease obligations ........ (13)
----
Obligations under capital lease, net of current portion .. $ --
====
During 2003, 2002 and 2001 total rent expense was approximately $2,139,
$3,282 and $3,730, respectively.
As of December 31, 2003, the Company had no standby letters of credit
outstanding. At December 31, 2002, standby letters of credit totaling
approximately $606 were outstanding as security deposits on certain facility
leases. As of December 31, 2002, $648 of cash held in the Company's bank
accounts was restricted to secure these letters of credit. Approximately $556
was utilized during 2003 to pay off obligations under a letter of credit, which
was utilized by the Company's landlord (see note 3). The balance of the cash was
utilized to satisfy lease obligations that expired during 2003. In addition to
the above, the Company also had $302 in reserve accounts as it relates to its
credit card processor as of December 31, 2002. The Company received this
restricted cash during 2003.
During 2002, the Company entered into employment agreements with certain
of its key executives which provide for fixed compensation and bonuses based
upon the Company's operating results, as defined. These agreements generally
continue until terminated by the employee or the Company and, under certain
circumstances, provide for salary continuance for a specified period. The
Company's maximum aggregate liability under the agreements if these employees
were terminated is approximately $150 at December 31, 2003.
On October 9, 2001, the Company entered into a termination agreement with
Geoworks Corporation ("Geoworks'), Telcordia Technologies, Inc. and David Rein
under which it paid
F-25
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
$1,750 which related to the purchase of certain patent licenses from Geoworks,
the settlement of all accrued royalties, and other costs and fees associated
with the early termination of the Settlement Agreement and Mutual Releases
between the parties. As a result, the Company recorded an intangible asset of
$1,000 representing the value of the patent licenses purchased with the balance
charged to expense in 2001. The patent licenses were fully amortized as of
December 31, 2002.
12. Benefit Plan
The Company has established a defined contribution plan under Section
401(k) of the Internal Revenue Code, which provides for voluntary employee
contributions of up to 15 percent of compensation for employees meeting certain
eligibility requirements. The Company does not contribute to the plan.
13. Stockholders' Equity
On August 31, 2000, the Company granted Research in Motion Limited, a
supplier of wireless devices and related software, a warrant to purchase 333,000
shares of the Company's common stock at $16.00 per share as partial
consideration for certain obligations pursuant to certain marketing and
strategic alliance agreements. The warrant was exercisable one year after the
date of grant and expired in three years. As of December 31, 2000, the warrant
had an estimated fair market value of approximately $526 of which, approximately
$281 was recognized by the Company during 2000 as sales and marketing expense.
During 2001, $233 was recognized by the Company as a reduction to sales and
marketing expense as a result of the remeasurement of the fair value of this
warrant. The warrant expired during 2003.
On November 14, 2000, the Company granted Dell Ventures, L.P., an
affiliate of Dell Products, a warrant to purchase 563,864 shares of the
Company's common stock at a price of $16.00 per share as partial consideration
for certain obligations pursuant to a product distribution agreement. This
warrant was immediately exercisable at the date of grant and expired in three
years. The warrant had an estimated fair market value at the date of grant of
approximately $2,300 of which, approximately $1,500 and $777 was recognized by
the Company during 2001 and 2000, respectively, as sales and marketing expense.
The warrant expired during 2003.
During January 2001, the Company entered into a service agreement with
Sony Electronics Inc. with an initial term of one year. In conjunction with the
agreement, the Company issued a warrant to purchase 500,000 shares of the
Company's common stock at a price of $16.00 per share. Such warrant was
exercisable at the date of grant and has a three year term. The agreement also
requires the Company to provide up to $3,500 of marketing expenditures. During
2001, the Company incurred a non-cash sales and marketing charge of $765 as a
result of the issuance. Such warrant remains outstanding as of December 31, 2003
and will expire in January 2004.
F-26
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
On December 19, 2003, the Company granted Sunrise Securities Corp. a
warrant to purchase 812,000 shares of the Company's common stock at a price of
$0.15 per share as part of their compensation for securing bridge financing for
the Company as described in note 5. This warrant was immediately exercisable at
the date of grant and expires in five years. The warrant had an estimated fair
market value at the date of grant of approximately $292 and was recorded as
additional deferred debt expense. Such warrant remains outstanding as of
December 31, 2003.
The Company also issued warrants in 2003 relating to the settlement of
their lease obligations (see note 3) and as part of the bridge note financing
(see note 5).
As of December 31, 2003, the Company had reserved shares of common stock
for issuance as follows:
Exercise of common stock options............... 10,816,189
Exercise of common stock purchase warrants..... 3,732,833
Employee stock purchase plan................... 3,866,686
14. Stock Option Plans and Other Stock-Based Compensation
On August 3, 1999, the Company adopted the GoAmerica Communications Corp.
1999 Stock Option Plan. This plan provided for the granting of awards to
purchase shares of common stock. No further options will be made under the
GoAmerica Communications Corp. 1999 Stock Option Plan.
In December 1999, the Company's Board of Directors adopted the GoAmerica,
Inc. 1999 Stock Plan (the "Plan") as a successor plan to the GoAmerica
Communications Corp. 1999 Stock Option Plan, pursuant to which 4,800,000
additional shares of the Company's common stock have been reserved for issuance
to selected employees, non-employee directors and consultants. In May 2001, the
Company's shareholders approved an increase in the maximum number of shares
issuable under the Plan from 4,800,000 to 10,624,743 shares.
Under the terms of the Plan, a committee of the Company's Board of
Directors may grant options to purchase shares of the Company's common stock to
employees and consultants of the Company at such prices that may be determined
by the committee. The Plan provides for award grants in the form of incentive
stock options and non-qualified stock options. Options granted under the Plan
generally vest annually over 4 years and expire after 10 years.
F-27
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
The following table summarizes activity on a combined basis for the plans
during 2003, 2002 and 2001:
Weighted-
Number of Average
Options Exercise Price
---------- --------------
Outstanding at January 1, 2001 .............. 5,745,554 $5.26
Granted ..................................... 1,095,310 $1.78
Exercised ................................... (369,642) $0.73
Cancelled ................................... (376,067) $8.51
----------
Outstanding at December 31, 2001 ............ 6,095,155 $4.70
Granted ..................................... 5,796,214 $0.83
Exercised ................................... (231,018) $0.50
Cancelled ................................... (2,436,080) $5.04
----------
Outstanding at December 31, 2002 ............ 9,224,271 $2.22
Granted ..................................... 975,000 $0.31
Exercised ................................... (714,483) $0.50
Cancelled ................................... (3,328,388) $3.65
----------
Outstanding at December 31, 2003 ............ 6,156,400 $1.32
==========
Exercisable at December 31, 2003 ............ 3,206,055 $1.97
==========
Exercisable at December 31, 2002 ............ 4,264,247 $2.74
==========
Exercisable at December 31, 2001 ............ 3,354,112 $3.56
==========
Available for grant at December 31, 2003 .... 4,659,789 --
==========
The following table summarizes information about fixed price stock options
outstanding at December 31, 2003:
Outstanding Exercisable
------------------------------------------------- -------------------------------
Weighted-
Average
Weighted- Remaining Weighted-
Range of Number Average Contractual Number Average
Exercise Prices Outstanding Exercise Price Life Exercisable Exercise Price
- --------------- ----------- -------------- ----------- ----------- --------------
$0.25--$0.33 3,007,379 $ 0.30 9.0 years 815,801 $ 0.29
$0.45--$0.56 686,800 $ 0.55 6.4 years 452,500 $ 0.56
$0.71--$1.06 377,581 $ 1.05 5.9 years 363,081 $ 1.05
$1.31--$1.96 1,179,065 $ 1.77 7.7 years 710,035 $ 1.70
$2.03--$2.44 266,575 $ 2.08 6.3 years 262,013 $ 2.08
$5.02--$7.50 577,500 $ 5.43 6.2 years 556,500 $ 5.35
$7.97--$8.27 3,500 $ 7.98 6.8 years 2,625 $ 7.98
$15.00--16.00 58,000 $15.86 6.4 years 43,500 $15.86
--------- ---------
6,156,400 3,206,055
========= =========
F-28
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
For certain options granted during 2000 and 1999, the Company has recorded
pursuant to APB No. 25 approximately $8,457 and $7,799, respectively, of
deferred compensation expense representing the difference between the exercise
price and the market value of the common stock on the date of grant. These
amounts are being amortized over the vesting period of each option and amounted
to approximately $314, $2,315 and $3,971 during the years ended December 31,
2003, 2002 and 2001, respectively.
The following table discloses, for the year ended December 31, 2003, 2002
and 2001, the number of options granted and certain weighted-average
information:
Year ended December 31,
--------------------------------------------------------------------------------------------------------------
2003 2002 2001
--------------------------------- --------------------------------- --------------------------------
Number of Fair Exercise Number of Fair Exercise Number of Fair Exercise
Options Value Price Options Value Price Options Value Price
--------- ----- -------- --------- ----- -------- --------- ----- --------
Exercise price
greater than
market price ... -- $ -- $ -- -- $ -- $ -- -- $ -- $ --
Exercise price
equals market
price ......... 975,000 0.31 0.31 5,796,214 0.83 0.83 1,095,310 1.08 1.78
Exercise price
less than
market price ... -- -- -- -- -- -- -- -- --
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123 (see note
1). For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The fair value
for these options was estimated at the date of grant using the Black-Scholes
option pricing model with the following assumptions for 2003, 2002 and 2001:
weighted-average risk-free interest rate of 4.20%, 4.03% and 5.86% respectively;
expected volatility of 1.63, 0.80 and 0.80, respectively; no dividends; and a
weighted-average expected life of the options of 2.0 years, 3.0 years and 4.0
years, respectively.
In December 1999, the Company's Board of Directors adopted the Employee
Stock Purchase Plan effective upon the Company's initial public offering of its
common stock, which was completed on April 12, 2000. The Company initially
reserved 4,000,000 shares of common stock for issuance under the plan. During
2003 and 2002, there were 48,078 and 85,236 shares, respectively, sold pursuant
to the plan.
F-29
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
15. Income Taxes
Significant components of the Company's deferred tax assets and
liabilities are as follows:
December 31,
--------------------
2003 2002
-------- --------
Deferred tax assets:
Net operating loss carryforwards ................. $ 71,710 $ 70,500
Deferred compensation ............................ 8,635 7,756
Reserves and accruals ............................ 461 1,298
Amortization of Goodwill ......................... 3,964 3,900
Other ............................................ 2,701 3,181
Less valuation allowance ............................ (87,302) (86,050)
-------- --------
Deferred tax assets ................................. 169 585
Deferred tax liabilities:
Intangible assets ................................ (169) (585)
Property, equipment and leasehold improvements ... -- --
-------- --------
Net deferred tax assets ............................. $ -- $ --
======== ========
A reconciliation setting forth the differences between the effective tax
rate of the Company and the U.S. statutory rate is as follows:
Year ended December 31,
------------------------------------
2003 2002 2001
-------- -------- --------
Statutory federal income tax (benefit) at 34% ......... $ (2,764) $(19,002) $(41,089)
State income tax (benefit), net of federal benefit .... (122) (1,911) (3,752)
Non-deductible expenses, primarily impairment
of goodwill ........................................... 1,350 4,130 2,603
Increase in valuation allowance ....................... 1,252 16,347 41,660
-------- -------- --------
Total ................................................. $ (284) $ (436) $ (578)
======== ======== ========
The state tax benefits recorded in 2003 and 2002 of $284 and $436,
respectively, are attributable to the Company's sale of certain state net
operating loss carryforwards.
At December 31, 2003, the Company had a federal and state net operating
loss ("NOL") carryforward of approximately $182,500 and $160,900, respectively.
The federal NOL carryforwards expire beginning in 2011 and state NOL's beginning
in 2004. The Tax Reform Act of 1986 enacted a complex set of rules limiting the
potential utilization of net operating loss and tax credit carryforwards in
periods following a corporate "ownership change." In general, for federal income
tax purposes, an ownership change is deemed to occur if the percentage of stock
of a loss corporation owned (actually, constructively and, in some cases,
deemed) by one or more
F-30
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
"5% shareholders" has increased by more than 50
percentage points over the lowest percentage of such stock owned during a
three-year testing period. During 1999, such a change in ownership occurred. As
a result of the change, the Company's ability to utilize certain of its net
operating loss carryforwards will be limited to approximately $1,400 of taxable
income, per year. In addition, the Company acquired additional net operating
losses through its acquisitions of Wynd and Hotpaper. The Company believes that
an ownership change has occurred with respect to these entities. The effect of
an ownership change would be the imposition of an annual limitation on the use
of net operating loss carryforwards attributable to periods before the change.
The Company has not performed a detailed analysis to determine the amount of the
potential limitations.
F-31
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
16. Quarterly Financial Data (Unaudited)
The table below summarizes the Company's unaudited quarterly operating
results for years ended December 31, 2003 and 2002.
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
2003 March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
Net revenue and other income ................. $ 3,103 $ 3,331 $ 3,123 $ 2,321
Cost of revenue .............................. (1,846) (1,533) (1,610) (660)
Operating expenses ........................... (4,578) (3,056) (1,942) (2,322)
Depreciation and amortization expenses ....... (814) (944) (581) (654)
Impairment of long-lived assets .............. -- (1,245) -- (150)
Gain on sale of subscribers .................. 1,180 565 11 --
Settlement gains, net ........................ -- -- -- 85
Interest (expense) income, net ............... (12) 3 (4) (262)
Benefit from income taxes
-- -- -- 284
Net (loss) ................................... $ (2,967) $ (2,879) $ (1,003) $(1,358)
Net (loss) per common share:
- Basic ................................... $ (0.05) $ (0.05) $ (0.02) $ (0.03)
- Diluted ................................. $ (0.05) $ (0.05) $ (0.02) $ (0.03)
2002 March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
Net revenue and other income ................. $ 10,443 $ 9,580 $ 9,100 $ 6,789
Cost of revenue .............................. (9,308) (8,510) (8,165) (6,062)
Operating expenses ........................... (11,846) (10,757) (9,878) (8,095)
Depreciation and amortization expenses ....... (1,605) (1,662) (1,645) (913)
Impairment of long-lived assets .............. -- -- (13,695) (287)
Interest income, net ......................... 128 58 26 (21)
Benefit from income taxes
-- -- -- 436
Net (loss) ................................... $(12,188) $(11,291) $(24,257) $(8,153)
Net (loss) per common share:
- Basic ................................... $ (0.23) $ (0.21) $ (0.45) $ (0.15)
- Diluted ................................. $ (0.23) $ (0.21) $ (0.45) $ (0.15)
F-32
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
17. Supplemental Cash Flow Information
The table below presents the Company's supplemental disclosure of cash
flow information for the years ended December 31, 2003, 2002 and 2001.
Years ended December 31,
------------------------
2003 2002 2001
---- ---- ----
Supplemental disclosure of cash flow information:
Interest paid ................................................. $ 21 $ 91 $ 169
Non-cash investing and financing activities:
Beneficial conversion feature of convertible bridge note
payable .................................................... 528 -- --
Issuance of warrant to placement agent to secure financing .... 292 -- --
Restricted cash utilized to pay accrued expenses .............. 556 -- --
Conversion of capital lease obligation into an account
payable .................................................... 152 -- --
Accrued expenses related to acquisition of subscribers ........ 50 -- --
Accrued expenses related to the incurrence of deferred
financing expense .......................................... 70 -- --
Acquisition of equipment through capital leases ............... -- -- 1,182
Issuance of common stock purchase warrants in exchange
for sales and marketing services ........................... -- -- 765
Purchase of businesses, net of cash acquired:
Working capital surplus (deficit), net of cash acquired ....... $ -- $ -- $ 40
Property, equipment and leasehold improvements ................ -- -- 1
Goodwill ...................................................... -- -- 152
Trade names ................................................... -- -- --
Other intangibles ............................................. -- -- --
Other assets .................................................. -- -- --
Non-current liabilities ....................................... -- -- --
Common stock, options and warrants issued ..................... -- -- 148
18. Subsequent Event
During January 2003, the Company issued 775,000 shares of its common stock
as part of certain settlement agreements referenced in note 11.
On March 10, 2004, the Company's stockholders at a special meeting of the
stockholders approved the following:
F-33
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
o Approved the issuance of 89,900,000 shares of the Company's common
stock in exchange for cash consideration of $13,485.
o Authorized the Board of Directors to amend the Company's restated
certificate of incorporation to effect a reverse stock split at one
of five different ratios.
o Authorize the Board of Directors to amend the Company's restated
certificate of incorporation to increase the number of shares of
common stock the Company is authorized to issue from 200,000,000 to
350,000,000 shares, resulting in an increase in the total number of
authorized shares of capital stock from 204,351,943 to 354,351,943
As a result, the Company issued a total of 96,820,797 shares of its common
stock, comprised of the 89,900,000 shares referred to above and 6,920,797 upon
the mandatory conversion of the Bridge Notes Payable and related accrued
interest. The Company received net proceeds of approximately $12,000 after
deducting the $714 cash payment made to the offering placement agent and
deferred offering expenses such as professional fees. The Company will utilize
certain of the $12,000 of net proceeds as follows;
o Payment of the settlement agreement with Eastern Computer in the
amount of $350.
o Payment to other vendors in which the Company had established
settlement agreements with of approximately $300.
o Establishment of a standby letter of credit in favor of Cingular in
the amount of $600.
F-34
GOAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Schedule II
GOAMERICA, INC.
FINANCIAL STATEMENT SCHEDULE
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2003, 2002 and 2001
Balance at Additions: Balance at
Beginning of Charged to Costs End of
Period and Expenses Deductions Period
------------ ---------------- ---------- ----------
Year Ended December 31, 2003
Allowance for doubtful accounts .......... $3,418 $ 534 $ 2,739(1) $1,213
Inventory Reserve ........................ -- 47 47(3) --
Sales allowances, discounts & returns .... 513 134 647(2) --
Year Ended December 31, 2002
Allowance for doubtful accounts .......... $2,675 $3,221 $ 2,478(1) $3,418
Inventory Reserve ........................ 4,740 5,889 10,629(3) --
Sales allowances, discounts & returns .... 1,378 2,686 3,551(2) 513
Year Ended December 31, 2001
Allowance for doubtful accounts .......... $ 388 $4,197 $ 1,910(1) $2,675
Inventory Reserve ........................ 117 4,623 -- 4,740
Sales allowances, discounts & returns .... 245 2,480 1,347(2) 1,378
(1) Uncollectible accounts written-off, net of recoveries.
(2) Returns and discounts charged to reserve.
(3) Inventory discounts charged to reserve.
F-35