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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
Commission File No. 0-29359
GoAmerica, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3693371
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
433 Hackensack Avenue, Hackensack, New Jersey 07601
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(Address of Principal Executive Offices) (Zip Code)
(201) 996-1717
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(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
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Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act):
Yes: No: X
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Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of April 30, 2003:
Class Number of Shares
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Common Stock, $.01 par value 54,073,420
GOAMERICA, INC.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION................................................... 1
Item 1. Financial Statements (unaudited)............................... 1
Condensed Consolidated Balance Sheets as of March 31, 2003 and
December 31, 2002................................................. 2
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2003 and 2002.............................. 3
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2003 and 2002.............................. 4
Notes to Condensed Consolidated Financial Statements................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9
General............................................................. 9
Critical Accounting Policies and Estimates......................... 9
Results of Operations.............................................. 10
Liquidity and Capital Resources.................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 13
Item 4. Controls and Procedures........................................ 13
PART II. OTHER INFORMATION....................................................... 14
Item 1. Legal Proceedings.............................................. 14
Item 2. Changes in Securities and Use of Proceeds...................... 14
Item 6. Exhibits and Reports on Form 8-K............................... 15
SIGNATURES ............................................................................... 16
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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GOAMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
March 31, December 31,
2003 2002
----------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents ............................................................... $ 2,800 $ 4,982
Accounts receivable, net ................................................................ 3,550 5,780
Merchandise inventories, net ............................................................ 741 1,046
Prepaid expenses and other current assets ............................................... 277 520
--------- ---------
Total current assets ........................................................................... 7,368 12,328
Restricted cash ................................................................................ 596 950
Property, equipment and leasehold improvements, net ............................................ 4,100 4,685
Goodwill, net .................................................................................. 6,193 6,193
Trade names and other intangible assets, net ................................................... 1,794 1,467
Other assets ................................................................................... 1,004 1,142
--------- ---------
$ 21,055 $ 26,765
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable ........................................................................ $ 4,074 $ 4,694
Accrued expenses ........................................................................ 4,017 5,917
Deferred revenue ........................................................................ 1,531 2,406
Other current liabilities ............................................................... 327 348
--------- ---------
Total current liabilities ...................................................................... 9,949 13,365
Other liabilities .............................................................................. 964 383
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized: 200,000,000 shares in 2003 and 2002; issued:
54,073,420 in 2003 and 54,026,057 in 2002 ............................................... 541 540
Additional paid-in capital .............................................................. 269,027 269,015
Deferred employee compensation .......................................................... (235) (314)
Accumulated deficit ..................................................................... (259,191) (256,224)
--------- ---------
Total stockholders' equity ..................................................................... 10,142 13,017
--------- ---------
$ 21,055 $ 26,765
========= =========
The accompanying notes are an integral part of these financial statements.
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GOAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended March 31,
---------------------------
2003 2002
---------------------------
Revenues:
Subscriber ................................................................................ $ 2,511 $ 8,135
Equipment ................................................................................. 411 2,258
Other ..................................................................................... 181 50
------------ ------------
3,103 10,443
Costs and expenses:
Cost of subscriber airtime ................................................................ 737 6,250
Cost of network operations ................................................................ 712 763
Cost of equipment revenue ................................................................. 397 2,295
Sales and marketing ....................................................................... 600 2,519
General and administrative ................................................................ 3,463 8,327
Research and development .................................................................. 515 1,000
Depreciation and amortization ............................................................. 585 1,172
Amortization of other intangibles ......................................................... 229 433
------------ ------------
7,238 22,759
------------ ------------
Loss from operations ............................................................................. (4,135) (12,316)
Other income (expense):
Gain on sale of subscribers ............................................................... 1,180 --
Interest (expense) income, net ............................................................ (12) 128
------------ ------------
Total other income ............................................................................... 1,168 128
------------ ------------
Net loss ......................................................................................... $ (2,967) $ (12,188)
============ ============
Basic net loss per share ......................................................................... $ (0.05) $ (0.23)
============ ============
Diluted net loss per share ....................................................................... $ (0.05) $ (0.23)
============ ============
Weighted average shares used in computation of basic net loss per
share ...................................................................................... 54,069,736 53,712,199
Weighted average shares used in computation of diluted net loss per
share ...................................................................................... 54,069,736 53,739,198
The accompanying notes are an integral part of these financial statements.
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GOAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
---------------------------
2003 2002
---------------------------
Operating activities
Net loss ..................................................................................... $ (2,967) $(12,188)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................................. 585 1,172
Amortization of other intangible assets ................................................... 229 433
Provision for losses on accounts receivable ............................................... 85 807
Accrued loss on sublease .................................................................. 611 --
Gain on sale of subscribers ............................................................... (1,180) --
Non-cash employee compensation ............................................................ 79 610
Non-cash rent expense ..................................................................... 5 12
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ............................................. 2,145 (1,909)
Decrease in merchandise inventories .................................................... 305 859
Decrease in prepaid expenses and other current assets .................................. 242 65
Decrease in accounts payable ........................................................... (620) (757)
(Decrease) increase in accrued expenses and other liabilities .......................... (2,416) 129
(Decrease) increase in deferred revenue ................................................ (875) 468
-------- --------
Net cash used in operating activities ........................................................ (3,772) (10,299)
Investing activities
Change in other assets and restricted cash ................................................... 492 --
Purchase of property, equipment and leasehold improvements ................................... -- (138)
Proceeds from sale of subscribers ............................................................ 1,180 --
Acquisition of subscribers ................................................................... (50) --
-------- --------
Net cash provided by (used in) investing activities .......................................... 1,622 (138)
Financing activities
Issuance of common stock, net of related expenses ............................................ 13 29
Payments made on capital lease obligations ................................................... (45) (276)
-------- --------
Net cash used in financing activities ........................................................ (32) (247)
-------- --------
Net decrease in cash and cash equivalents .................................................... (2,182) (10,684)
Cash and cash equivalents at beginning of period ............................................. 4,982 34,977
-------- --------
Cash and cash equivalents at end of period ................................................... $ 2,800 $ 24,293
======== ========
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
The Company acquired through its subsidiary, Wynd Communications Corp. ("Wynd"),
approximately 4,290 subscribers from Boundless Depot LLC ("Boundless") . The
purchase price of approximately $556 (of which $50 has been paid as of March 31,
2003) will be subject to adjustment for subscriber churn.
The accompanying notes are an integral part of these financial statements.
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GOAMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
Note 1 - Basis of Presentation:
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X and include the
results of GoAmerica, Inc. (the "Company") and its wholly-owned subsidiaries.
Accordingly, certain information and footnote disclosures required in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted. In the opinion of the
Company's management, the accompanying unaudited financial statements contain
all adjustments (consisting only of normal recurring adjustments except as
otherwise disclosed herein) which the Company considers necessary for the fair
presentation of its financial position as of March 31, 2003 and the results of
its operations and its cash flows for the three month periods ended March 31,
2003 and 2002. These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
The Company has formed strategic relationships with wireless
carriers, software providers, and hardware manufacturers who provide the mobile
computer user wireless communications, services and devices that complement the
Company's product and services. The Company also distributes wireless
communication devices, principally to customers of its wireless services, and
earns commissions from the procurement of subscribers on behalf of various
wireless network providers and EarthLink, Inc. ("EarthLink"). The Company is
highly dependent on EarthLink for billing and collections, customer support and
technical support. Additionally, the Company is highly dependent on EarthLink
and other third parties for wireless communication devices and wireless network
connectivity.
The Company operates in a highly competitive environment subject to
rapid technological change and emergence of new technology. Although management
believes that the Company's services are transferable to emerging technologies,
rapid changes in technology could have an adverse financial impact on the
Company.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. However,
the Company has incurred significant operating losses since its inception and,
as of March 31, 2003, has an accumulated deficit of $259.2 million. As of March
31, 2003, the Company had $2.8 million in cash and cash equivalents ($2.0
million at April 30, 2003), exclusive of $596 in restricted cash supporting
certain letters of credit. Management's 2003 operating plan includes further
reductions in employee-related expenses as well as additional reductions in
sales and marketing expenditures from levels incurred during 2002. During the
quarter ended March 31, 2003, the Company decided to retain an outside advisor
to assist it in analyzing various steps that it may take to enhance its
liquidity. Such steps may include the sale or other disposition of certain of
the Company's assets and the redeployment of the net proceeds in aspects of its
business which the Company believes are well positioned for revenue generation
and growth. Additionally, management is actively working to renegotiate the
Company's long term lease obligations. In the event management is unable to
achieve its plans, additional further reductions may be required in
employee-related expenses as well as sales and marketing expenditures. There can
be no assurance that the Company will achieve its 2003 operating plan, enter
into an agreement to enhance liquidity or successfully renegotiate its long term
lease obligations. The accompanying financial statements do not include any
adjustments that might result from the outcome of this going concern
uncertainty. In the event management is unable to achieve its plans or complete
its implementation of the EarthLink agreements, additional further cost
reductions may be required.
Results for the interim period are not necessarily indicative of
results that may be expected for the entire year.
Note 2 - Significant Accounting Policies:
Recent Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
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an actual liability has been incurred. Adoption of SFAS 146 is required with the
beginning of fiscal year 2003. The adoption of this statement did not have a
significant impact on the Company's results of operations.
In November 2002, the FASB issued FASB Interpretation, "FIN," No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 addresses
the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that is has issued.
Under FIN No. 45, recognition and initial measurement provisions are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002,
irrespective of the guarantor's fiscal year end. The adoption of FIN No. 45 did
not have a significant impact on the Company's consolidated financial position
or results of operations.
In January 2003, the FASB issued FASB Interpretation "FIN" No. 46,
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies immediately to variable interest
entities (VIE's) created after January 31, 2003, and to VIE's in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003, to VIE's in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
FIN 46 applies to public enterprises as of the beginning of the applicable
interim or annual period. The adoption of FIN 46 is not expected to have a
material impact on the Company's consolidated financial position, liquidity, or
results of operations.
Note 3 - Earnings Per Share:
The Company computes net loss per share under the provisions of SFAS
No. 128, "Earnings per Share" ("SFAS 128"), and Staff Accounting Bulletin No. 98
("SAB 98").
Under the provisions of SFAS 128 and SAB 98, basic and diluted net
loss per share is computed by dividing the net loss for the period by the
weighted-average number of shares of Common Stock outstanding during the period.
The calculation of diluted net loss per share excludes potential common shares
if the effect is anti-dilutive. Basic earnings per share is computed by dividing
loss by the weighted-average number of shares of Common Stock outstanding during
the period. The weighted-average number of shares utilized in arriving at basic
earnings per share reflects an adjustment to exclude 26,999 common shares for
the three month period ended March 31, 2002 for outstanding shares held in
escrow as a result of the Company's acquisition during 2001. Diluted earnings
per share is determined in the same manner as basic earnings per share except
that the number of shares does not include the adjustment for escrowed shares
and is increased assuming exercise of dilutive stock options and warrants using
the treasury stock method. As the Company had a net loss, the impact of the
assumed exercise of the stock options, warrants and the assumed preferred stock
conversion is anti-dilutive and as such, these amounts (except for warrants
issued for nominal consideration) have been excluded from the calculation of
diluted earnings per share.
Note 4 - Goodwill and Other Intangible Assets:
Effective July 1, 2001, the Company adopted SFAS No. 141, "Business
Combinations", and effective January 1, 2002, the Company adopted SFAS No. 142,
"Goodwill and Other Intangible Assets". SFAS No.141 requires business
combinations initiated after July 1, 2001 to be accounted for using the purchase
method of accounting. It also specifies the types of intangible assets that are
required to be recognized and reported separate from goodwill. Under SFAS No.
142, goodwill and other intangible assets with indefinite lives are no longer
amortized but are reviewed for impairment annually, or more frequently if
impairment indicators arise.
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The following table summarizes other intangibles subject to
amortization at the dates indicated:
March 31, 2003 December 31, 2002
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
--------------------------------------------------------------------------------------------------
Trade Names $ 4,572 $ (3,743) $ 829 $ 4,572 $ (3,651) $ 921
Technology 3,017 (2,787) 230 3,017 (2,741) 276
Customer Lists 2,258 (2,033) 225 2,258 (1,988) 270
Other 556 (46) 510 -- -- --
Patents 1,000 (1,000) -- 1,000 (1,000) --
--------------------------------------------------------------------------------------------------
$ 11,403 $ (9,609) $ 1,794 $ 10,847 $ (9,380) $ 1,467
==================================================================================================
Amortization expense for other intangibles totaled $229 and $433 for
the three months ended March 31, 2003 and 2002, respectively. Aggregate
amortization expense for intangible assets is estimated to be:
Nine Months Ending December 31, 2003 $ 964
Years Ending December 31,: 2004 647
2005 183
Note 5 - Stock-based Compensation
The Company accounts for employee stock-based compensation in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees", using an intrinsic value approach to measure
compensation expense, if any. Under this method, compensation expense is
recorded on the date of the grant only if the current market price of the
underlying stock exceeds the exercise price. Options issued to non-employees are
accounted for in accordance with SFAS 123, "Accounting for Stock-Based
Compensation", and Emerging Issues Task Force ("EITF") Issue No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods and Services", using a fair
value approach.
SFAS No. 123 established accounting and disclosure requirements
using a fair value-basis method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123. Had the
Company elected to recognize compensation cost based on fair value of the stock
options at the date of grant under SFAS 123, such costs would have been
recognized ratably over the vesting period of the underlying instruments and the
Company's net loss and net loss per common share would have increased to the pro
forma amounts indicated in the table below.
Three months ended March 31,
----------------------------
2003 2002
-------------- ----------
Net loss applicable to common stockholders, as reported .................................. $ (2,967) $ (12,188)
Deduct: Stock-based employee compensation expense included in reported net loss .......... 79 610
Add: Total stock-based employee compensation expense determined under fair value
based method for all awards ...................................................... (1,149) (1,742)
-------------- ----------
Pro forma net loss applicable to common stockholders ..................................... $ (4,037) $ (13,320)
============== ==========
Loss per share - basic, as reported ...................................................... $ (0.05) $ (0.23)
============== ==========
Loss per share - diluted, as reported .................................................... $ (0.05) $ (0.23)
============== ==========
Pro forma loss per share - basic ......................................................... $ (0.07) $ (0.25)
============== ==========
Pro forma loss per share - diluted ....................................................... $ (0.07) $ (0.25)
============== ==========
-7-
The pro forma results above are not intended to be indicative of or
a projection of future results.
Note 6 - Strategic Alliance with EarthLink, Inc.
The Company formed a comprehensive strategic alliance with EarthLink
by entering into a series of agreements pursuant to which, among other things,
EarthLink purchased all of the Company's cellular digital packet data (CDPD)
subscribers as well as certain of the Company's Cingular and Motient network
subscribers. As a result of this agreement, the Company recorded a gain on the
sale of subscribers of $1,180 during the three months ended March 31, 2003.
Additionally, the Company entered into a sublease agreement for a portion of the
Company's principal offices no longer utilized as a result of the Company's
strategic alliance with Earthlink. Accordingly, the Company recorded an accrued
loss on sublease of $611 during the three months ended March 31, 2003.
Additionally, as part of the strategic alliance, the Company and
EarthLink entered into an agreement to collaborate on developing new
applications and extensions of existing technology, including EarthLink-branded
wireless data services, as well as new technologies. As a result of this
agreement, the Company recorded approximately $121 of other revenue.
Note 7 - Acquisition of Subscribers
On February 8, 2003, the Company entered into an agreement to
acquire through its subsidiary, Wynd Communications Corp. ("Wynd"),
approximately 4,290 subscribers from Boundless Depot LLC ("Boundless") . The
purchase price of approximately $556 will be subject to adjustment for
subscriber churn and is expected to be satisfied by the issuance of up to
542,317 shares of Common Stock, valued at $139, which will be issued no earlier
then September 5, 2003, and cash consideration totaling $417, which will be
payable in installments over the next 12 months varying in monthly installments
ranging from $15 to $115. The total purchase price will be amortized on a
straight line basis over the next 12 months. As of March 31, 2003, the Company
has recorded an intangible asset of $556. The Company began recognizing revenue
from these subscribers during March 2003.
-8-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
General
GoAmerica, Inc., a Delaware corporation ("We," "Us" or the
"Company"), develops and distributes wireless data technology, applications and
software that address the productivity and communications needs of enterprise
customers and 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. In the consumer market, we primarily
offer wireless data solutions that are designed for people who are deaf, hard of
hearing or speech impaired. We market and support these services through Wynd
Communications, a wholly owned subsidiary of GoAmerica.
Historically, we have derived our revenue primarily from the sale
of basic and value-added wireless data services and the sale of related mobile
devices to our subscribers. During March 1997, we commenced offering our
services to individuals and businesses. Since our inception, we have invested
significant capital to build our wireless network operations and e-commerce
system as well as our billing system. We have invested additional capital in the
development of our software applications Go.Web and Mobile Office(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. Therefore, we will need
to significantly improve our overall gross margins and further reduce our
selling, general and administrative expenses to become profitable and sustain
profitability on a quarterly or annual basis. As a result of our strategic
alliance with EarthLink, Inc., or EarthLink, we anticipate overall revenue to
decline while gross margins should increase and selling, marketing and
administrative expenses should decline. Upon transition of certain subscribers
to EarthLink, we will continue to generate revenues from three primary sources:
(i) recurring service revenue; (ii) software revenue; and (iii) activation
bounties. We have substantially reduced our costs of subscriber airtime and
operating costs as a result of our strategic alliance with EarthLink.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and
Results of Operations discusses our condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and the related
disclosure of contingent assets and liabilities. On an on-going basis,
management evaluates its estimates and judgments, including those related to
revenue recognition, allowance for doubtful accounts, inventory valuation and
recoverability of our intangible assets. Management bases its estimates and
judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Management believes the following critical accounting policies,
among others, affect its more significant judgments and estimates used in the
preparation of its condensed consolidated financial statements. Historically, we
have derived our revenue primarily from the sale of basic and value-added
wireless data services and the sale of related mobile devices. Subscriber
revenue consists primarily of monthly charges for access and usage and is
recognized as the services are provided. We also charged our CDPD subscribers a
per kilobyte fee for using a mobile device outside of a designated geographical
area, or roaming; such fees are recognized as revenue when collected. We also
generally charged a non-refundable activation fee upon initial subscription. To
the extent such fees exceed the related costs, they are deferred and recognized
ratably over the life of the related service contracts, which are generally
either six months, one year or two year agreements. Equipment revenue is
recognized upon shipment to the end user. We also provide mobile devices to our
customers at prices below our costs as incentives for customers to enter into
service agreements. Such incentives are recorded as a reduction to subscriber
and equipment revenue, at the time of sale, allocated based upon the relative
fair value of the equipment and services provided. We estimate the
collectibility of our trade receivables. A considerable amount of judgment is
required in assessing the ultimate realization of these receivables including
analysis of historical collection rates and the current credit-worthiness of
significant customers. Significant changes in required reserves have been
recorded in recent periods and may occur in the future due to current market
conditions. We write down inventory for estimated excess or obsolete inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by management,
additional inventory write-downs may be required. In
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assessing the recoverability of our goodwill and other intangibles, 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 2002, we adopted Statement of Financial Accounting
Standard No. 142, "Goodwill and Other Intangible Assets," and have completed the
required impairment tests of goodwill, and have recorded an adjustment to the
carrying value of goodwill during 2002.
Results of Operations
Three months ended March 31, 2003 Compared to Three months ended March 31, 2002
Subscriber revenue. Subscriber revenue decreased 69%, to $2.5
million for the three months ended March 31, 2003 from $8.1 million for the
three months ended March 31, 2002. This decrease was primarily due to the sale
of our CDPD subscribers, as well as a portion of our Cingular and Motient
network subscribers, to EarthLink during the fourth quarter 2002. Our subscriber
base decreased to 85,389 subscribers at March 31, 2003 from 152,720 subscribers
at March 31, 2002. Our ARPU decreased to $11.71 for the three months ended March
31, 2003 from $23.487 for the three months ended March 31, 2002. The decline in
ARPU was due to the sale of full-service offering subscribers referenced above.
We expect revenue to increase slightly and ARPU to remain constant from our
continued leveraging of strategic agreements for the sale of our Go.Web value
added services and higher ARPU full-service offerings through Wynd.
Equipment revenue. Equipment revenue decreased to $411,000 for the
three months ended March 31, 2003 from $2.3 million for the three months ended
March 31, 2002. This decrease was primarily due to lower sales of mobile
devices. As a result of our strategic alliance with EarthLink, we anticipate
that equipment revenue will further decline as we will primarily sell mobile
devices through our subsidiary, Wynd Communications Corporation, or Wynd.
Other revenue. Other revenue, which consists primarily of revenue
derived from consulting services, increased to $181,000 for the three months
ended March 31, 2003 from $50,000 for the three months ended March 31, 2002.
This increase was primarily due to our recent strategic alliance with EarthLink
in which we will collaborate on developing new applications and extensions of
existing technology, including EarthLink-branded wireless data services, as well
as new technologies. We anticipate that consulting services may increase as a
result of our recent strategic alliance with EarthLink.
Cost of subscriber airtime. Cost of subscriber airtime decreased
88%, to $737,000 for the three months ended March 31, 2003 from $6.3 million for
the three months ended March 31, 2002. This decrease was primarily due to the
sale of our CDPD subscribers, as well as a portion of our Cingular and Motient
network subscribers, to EarthLink during the fourth quarter 2002. We expect the
number of subscribers and related use of our services to increase slightly as a
result of our continued leveraging of strategic agreements for the sale of our
Go.Web value added services and higher ARPU full-service offerings through Wynd.
Cost of network operations. Cost of network operations decreased
slightly to $712,000 for the three months ended March 31, 2003 from $763,000 for
the three months ended March 31, 2002. We expect cost of network operations to
further decline as a result of decreased salaries and benefits for personnel
performing network operations activities.
Cost of equipment revenue. Cost of equipment revenue decreased 83%,
to $397,000 for the three months ended March 31, 2003 from $2.3 million for the
three months ended March 31, 2002. This decrease primarily was due to lower
sales of mobile devices and was partially offset by a non-cash inventory charge
of $131,000 recorded during the first quarter of 2003 to value a portion of our
remaining inventory at the lower of cost or market. As a result of our strategic
alliance with EarthLink, we anticipate that the cost of equipment revenue will
further decline as we will primarily sell mobile devices through Wynd.
Sales and marketing. Sales and marketing expenses decreased 76%, to
$600,000 for the three months ended March 31, 2003 from $2.5 million for the
three months ended March 31, 2002. This decrease primarily was due to decreased
advertising costs paid to third parties as well as decreased salaries and
benefits for personnel performing sales and marketing activities. We expect
sales and marketing expenses to further decline as a result of leveraging our
strategic alliance with EarthLink and other partners.
General and administrative. General and administrative expenses
decreased 58%, to $3.5 million for the three months ended March 31, 2003 from
$8.3 million for the three months ended March 31, 2002. This decrease primarily
was due to decreased salaries and benefits for personnel performing business
development and general corporate activities and decreased infrastructure
buildout and was partially offset by our accrued loss on sublease. We expect
general and administrative expenses to further decline as a result of our
strategic alliance with EarthLink.
-10-
Research and development. Research and development expense decreased
to $515,000 for the three months ended March 31, 2003 from $1.0 million for the
three months ended March 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 further decline as a
result of our strategic alliance with EarthLink.
Amortization of other intangibles. Amortization of other intangibles
decreased for the three months ended March 31, 2003 to $229,000 from $433,000
for the three months ended March 31, 2002. This decrease primarily was due to
patents being fully amortized. We expect amortization of other intangibles to
remain constant.
Gain on sale of subscribers. Gain on sale of subscribers resulted
from our comprehensive strategic alliance whereby EarthLink purchased all of the
Company's cellular digital packet data (CDPD) subscribers as well as certain of
the Company's Cingular and Motient network subscribers. As a result of this
agreement, we recorded a gain on the sale of subscribers of $1,180 during the
three months ended March 31, 2003.
Liquidity and Capital Resources
Since our inception, we financed our operations through private
placements of our equity securities and our redeemable convertible preferred
stock, which resulted in aggregate net proceeds of approximately $18.4 million
through December 31, 1999. During the first quarter of 2000, we issued and sold
648,057 shares of Series B Preferred Stock for net proceeds of approximately
$24.6 million. In April 2000, we consummated our initial public offering of
10,000,000 shares of our common stock at a price to the public of $16.00 per
share, all of which were issued and sold for net proceeds of $146.2 million. As
of March 31, 2003, we had $2.8 million in cash and cash equivalents and a
working capital deficit of $2.6 million.
We have incurred significant operating losses since our inception
and as of March 31, 2003 have an accumulated deficit of $259.2 million. During
the three months ended March 31, 2003, we incurred a net loss of $3.0 million
and used $3.8 million of cash to fund operating activities. As of March 31, 2003
we had $2.8 million in cash and cash equivalents ($2.0 million at April 30,
2003), exclusive of $596,000 in restricted cash supporting certain letters of
credit. During 2002 and into 2003, we took steps to reduce our annual payroll by
more than 40% and took further actions to reduce sales and marketing expenses.
In addition, on September 25, 2002, we formed a comprehensive strategic alliance
with EarthLink by entering into a series of agreements. Pursuant to these
agreements, we may generate revenues from three primary sources, (i) recurring
service revenue; (ii) software revenue; and (iii) activation bounties. The
Earthlink agreements also enable us to reduce our costs of subscriber airtime.
Our 2003 operating plan includes further reductions in headcount as well as
additional reductions in sales and marketing expenditures from levels incurred
during 2002. Additionally, we are actively working to renegotiate our long term
lease obligations. We currently anticipate that our available cash resources
will be sufficient to fund our operating needs for at least the next four
months. For us to remain in business beyond such four month period, we will
likely require additional financing. At this time, we do not have any bank
credit facility or other working capital credit line under which we may borrow
funds for working capital or other general corporate purposes. We may not be
able to raise funds on terms favorable to us, or at all. As a result of these
and related considerations, our independent auditors have issued a going concern
opinion in connection with our 2002 financial statements.
Over the past twelve months, our available cash has decreased
substantially. This reduction in liquidity creates significant constraints on
the manner in which our business can operate. We have decided to retain an
outside advisor to assist us in analyzing various steps that we may take to
enhance our liquidity. Such steps may include the sale or other disposition of
certain of our assets and the redeployment of the net proceeds in aspects of our
business which we believe are well positioned for revenue generation and growth.
We cannot assure you as to when or whether such steps will be taken and, if
taken, whether such steps will be successful.
Net cash used in operating activities decreased to $3.8 million for
the three months ended March 31, 2003 from $10.3 million for the three months
ended March 31, 2002. This decrease primarily was due to decreased losses from
operations.
We generated $1.6 million in cash in investing activities during the
three months ended March 31, 2003 as compared to using $138,000 in cash for the
three months ended March 31, 2002. Cash provided by investing activities
primarily resulted from the gain on sale of subscribers. Cash used in investing
activities during the three months ended March 31, 2002 was principally for
purchases of property, equipment and leasehold improvements.
-11-
Net cash used by financing activities was $32,000 for the three
months ended March 31, 2003 as compared to $247,000 for the three months ended
March 31, 2002. Cash used in financing activities for the three months ended
March 31, 2003 was principally for repayment of capital leases and was partially
offset by proceeds from the sale of stock through our Employee Stock Purchase
Plan.
As of March 31, 2003, our principal commitments consisted of
obligations outstanding under operating leases. As of March 31, 2003, future
minimum payments for non-cancelable operating leases having terms in excess of
one year amounted to $9.6 million, of which approximately $1.9 million is
payable in the next twelve months.
The following table summarizes GoAmerica's contractual obligations
at March 31, 2003, and the effect such obligations are expected to have on its
liquidity and cash flow in future periods.
March 31, (In thousands) Total Less than 1 Year 1-3 Years 4-5 Years After 5 Years
Contractual Obligations:
Capital Lease Obligations $ 338 $ 325 $ 13 $ -- $ --
Operating Lease Obligation 9,614 1,886 3,006 2,389 2,333
------ ------ ------ ------ ------
Total Contractual Cash Obligation $9,952 $2,211 $3,019 $2,389 $2,333
====== ====== ====== ====== ======
Other Commercial Commitments:
Standby Letter of Credit $ 596 $-- $ 596 $ -- $ --
------ ------ ------ ------ ------
Total Commercial Commitment $ 596 $-- $ 596 $ -- $ --
====== ====== ====== ====== ======
Forward Looking Statements
Statements contained in this Form 10-Q that are not based on
historical fact are "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements may be identified by the use of forward-looking terminology such as
"may," "will," "expect," "estimate," "anticipate," "continue," or similar terms,
variations of such terms or the negative of those terms. Such forward-looking
statements involve risks and uncertainties, including, but not limited to: (i)
our limited operating history; (ii) our reduced capital resources and need for
additional liquidity; (iii) our ability to fund our operating needs through
available cash reserves; (iv) the impact on our business from our receiving a
"going concern" opinion from our independent auditors; (v) our ability to
successfully implement our strategic alliance with EarthLink; (vi) our
dependence on EarthLink to provide billing, customer and technical support to
our subscribers; (vii) our ability to respond to the rapid technological change
of the wireless data industry and offer new services; (viii) our dependence on
wireless carrier networks; (ix) our ability to respond to increased competition
in the wireless data industry; (x) our ability to integrate acquired businesses
and technologies; (xi) our ability to leverage strategic alliances to generate
revenue growth; (xii) our ability to increase or maintain gross margins,
profitability, liquidity and capital resources; and (xiii) our ability to manage
our remaining operations. As a result of such risks and others expressed from
time to time in our filings with the Securities and Exchange Commission, our
actual results could differ materially from the results discussed in or implied
by the forward-looking statements contained herein.
Recent Accounting Pronouncements
In June 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. Adoption of SFAS 146 is required with the
beginning of fiscal year 2003. The adoption of this statement did not have a
significant impact on the Company's results of operations.
In November 2002, the FASB issued FASB Interpretation, "FIN," No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 addresses
the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that is has issued.
Under FIN No. 45 recognition and initial measurement provisions are applicable
on a prospective basis to guarantees issued or modified
-12-
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 January 2003, the FASB issued FASB Interpretation "FIN" No. 46,
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies immediately to variable interest
entities (VIE's) created after January 31, 2003, and to VIE's in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003, to VIE's in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
FIN 46 applies to public enterprises as of the beginning of the applicable
interim or annual period. The adoption of FIN 46 is not expected to have a
material impact on our consolidated financial position, liquidity, or results of
operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We believe that we have limited exposure to financial market risks,
including changes in interest rates. At March 31, 2003, all of our available
excess funds are cash or cash equivalents. The value of our cash and cash
equivalents is not materially affected by changes in interest rates. A
hypothetical change in interest rates of 1.0% would result in an annual change
in net loss of approximately $30,000 based on cash and cash equivalent balances
at March 31, 2003. We currently hold no derivative instruments and do not earn
foreign-source income.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures.
Based on their evaluation of our disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934) as of a date within 90 days of the filing date of this Quarterly Report
on Form 10-Q, our chief executive officer and chief financial officer have
concluded that our disclosure controls and procedures are designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms and are operating in an effective manner.
Changes in internal controls.
There have been no significant changes made in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of our most recent evaluation.
-13-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On February 15, 2002, Eagle Truck Lines Inc. (a/k/a Air Eagle, Inc.)
filed suit against GoAmerica, Inc. in the Superior Court of the State of
California for the County of Los Angeles seeking payment of $590,000, plus other
damages, expenses, interest and costs of suit. This action was removed to the
United States District Court for the Central District of California and
subsequently, pursuant to a motion brought by GoAmerica, transferred to the
District of New Jersey where GoAmerica has moved to have it consolidated with
the action described in the next paragraph. (This motion will be decided once a
decision in the various motions to dismiss is rendered in the Flash action
discussed below.) Air Eagle alleges that GoAmerica, as successor in interest to
Flash Creative Management, Inc. ("Flash"), failed to perform its obligations
under a consulting contract dated July 2, 1999 (the "Contract"), by and between
Flash and Air Eagle. Air Eagle alleges that GoAmerica assumed the rights and
liabilities under this Contract as a result of its purchase of substantially all
of the assets of Flash in November 2000. On June 3, 2002, GoAmerica filed an
amended answer and counterclaim, denying the allegations of the complaint and
seeking payment from Air Eagle of an amount not less than $589,993.60, plus
expenses, interest and costs of suit based on Air Eagle's failure to pay for
services rendered by Flash and GoAmerica under the Contract. The Company intends
to defend this action and pursue its counterclaim vigorously.
In a separate but related matter, on July 31, 2002, GoAmerica filed
suit against Flash and certain former officers and shareholders of Flash (the
"Flash Defendants") in the United States District Court for the District of New
Jersey for violations of federal and state securities law and common law fraud
in connection with the sale of the assets of Flash to GoAmerica. In October
2002, each of the Flash Defendants filed answers to GoAmerica's complaint
denying all of the Company's charges, with one of the Flash Defendants adding
counterclaims against the Company and certain named officers alleging, among
other things, fraudulent misrepresentation, violations of state securities law
and unjust enrichment in excess of $1 million. The other Flash Defendants have
been granted leave to amend their answer to include substantially similar
counterclaims against the Company and Company officer defendants. The Company
has filed a motion to dismiss the Flash Defendants' counterclaims, and the Flash
defendants have filed cross-motions for judgment on the pleadings and for
summary judgment seeking dismissal of the Company's claims against them. All
pending motions are briefed and have been submitted to the Court for decision.
The Company intends to vigorously pursue its claims against Flash and the other
named defendants in this action, and to defend the counterclaims asserted.
Item 2. Changes in Securities and Use of Proceeds
Changes in Securities
None
Use of Proceeds
On April 6, 2000, the Commission declared effective our Registration
Statement on Form S-1 (No. 333-94801) as filed with the Commission in connection
with our initial public offering of Common Stock, which was managed by Bear,
Stearns & Co., Inc., Chase H&Q, U.S. Bancorp Piper Jaffray, Wit SoundView and
DLJdirect, now CSFBdirect. Pursuant to such Registration Statement, on April 12,
2000 we consummated the issuance and sale of an aggregate of 10,000,000 shares
of our Common Stock, for a gross aggregate offering price of $160 million. We
incurred underwriting discounts and commissions of approximately $11.2 million.
In connection with such offering, we incurred total expenses of approximately
$2.6 million. As of March 31, 2003, approximately $2.8 million of the $146.2
million in net proceeds received by us upon consummation of such offering,
pending specific application, were invested in short-term, investment-grade,
interest-bearing instruments. The remaining $143.4 million of the net proceeds
have been specifically applied as follows: (i) $5.1 million for the acquisition
of other businesses; (ii) $37.3 million for sales and marketing expenses; (iii)
$10.9 million for the purchase of capital assets; and (iv) $90.1 million for
working capital needs.
-14-
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
99.1 Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
During the quarter ended March 31, 2003, the registrant filed
one Report on Form 8-K with the Commission:
On January 9, 2003, the Company filed a Current Report on Form
8-K with regard to changes in the Company's management and
Board of Directors (Item 5).
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOAMERICA, INC.
DATE: May 14, 2003 By: /s/ Daniel R. Luis
------------------------------------
Daniel R. Luis
Chief Executive Officer
(Principal Executive Officer)
DATE: May 14, 2003 By: /s/ Francis J. Elenio
------------------------------------
Francis J. Elenio
Chief Financial Officer
(Principal Financial and Accounting Officer)
-16-
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
--------------------------
I, Daniel R. Luis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of GoAmerica, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Daniel R. Luis
- ------------------
Daniel R. Luis
Chief Executive Officer
-17-
I, Francis J. Elenio, certify that:
1. I have reviewed this quarterly report on Form 10-Q of GoAmerica, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Francis J. Elenio
- ---------------------
Francis J. Elenio
Chief Financial Officer
(Principal financial officer)
-18-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
99.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
-19-