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 September 30, 2004
Commission File No. 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
(Address of Principal Executive Offices) (Zip Code)
(201) 996-1717
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: |X| No: |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):
Yes: |_| No: |X|
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of October 31, 2004:
Class Number of Shares
- ---------------------------- ----------------
Common Stock, $.01 par value 2,039,656
GOAMERICA, INC.
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION..................................................................... 1
Item 1. Financial Statements (unaudited).................................................... 1
Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003.... 2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2004 and 2003........................................................ 3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
2004 and 2003...................................................................... 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................................................................... 9
Liquidity and Capital Resources......................................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 14
Item 4. Controls and Procedures............................................................. 15
PART II. OTHER INFORMATION......................................................................... 16
Item 1. Legal Proceedings................................................................... 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds......................... 16
Item 3. Defaults upon Senior Securities..................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................................. 17
Item 5. Other Information................................................................... 18
Item 6. Exhibits............................................................................ 18
SIGNATURES 19
- i -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
-1-
GOAMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
September 30, December 31,
2004 2003
--------- ---------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents ........................................... $ 8,092 $ 568
Accounts receivable, net ............................................ 1,746 1,737
Other receivables ................................................... -- 534
Merchandise inventories, net ........................................ 215 213
Prepaid expenses and other current assets ........................... 477 115
--------- ---------
Total current assets ..................................................... 10,530 3,167
Restricted cash .......................................................... 600 --
Property, equipment and leasehold improvements, net ...................... 1,005 1,606
Goodwill, net ............................................................ 6,000 6,000
Trade names and other intangible assets, net ............................. 345 804
Deferred debt and other financing expense, net ........................... -- 1,091
Other assets ............................................................. 4 297
--------- ---------
$ 18,484 $ 12,965
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable .................................................... $ 406 $ 1,472
Accrued expenses .................................................... 629 3,040
Bridge note payable, net ............................................ -- 625
Deferred revenue .................................................... 351 673
Other current liabilities ........................................... 4 13
--------- ---------
Total current liabilities ................................................ 1,390 5,823
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized: 200,000,000 shares in
2004 and 2003, respectively; issued: 2,062,781 in 2004 and 684,858 in
2003................................................................. 21 7
Additional paid-in capital .......................................... 285,412 271,566
Accumulated deficit ................................................. (268,153) (264,431)
Treasury stock, at cost, 24,063 shares in 2004 and none in 2003 ..... (186) --
--------- ---------
Total stockholders' equity ............................................... 17,094 7,142
--------- ---------
$ 18,484 $ 12,965
========= =========
The accompanying notes are an integral part of these financial statements.
-2-
GOAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
---------------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------------
Revenues:
Subscriber ............................... $ 1,207 $ 2,554 $ 4,596 $ 7,997
Equipment ................................ 50 266 156 917
Other .................................... 113 303 163 643
----------- ----------- ----------- -----------
1,370 3,123 4,915 9,557
Costs and expenses:
Cost of subscriber airtime, net .......... 510 1,105 2,117 2,305
Cost of network operations ............... 132 365 580 1,661
Cost of equipment revenue ................ 35 140 149 1,023
Cost of other revenue .................... 56 -- 56 --
Sales and marketing, net ................. 165 (169) 543 868
General and administrative ............... 1,220 1,891 4,050 7,592
Research and development ................. 126 220 434 1,116
Depreciation and amortization ............ 168 339 664 1,546
Amortization of other intangibles ........ 99 242 534 793
Impairment of goodwill ................... -- -- -- 193
Impairment of long-lived assets .......... -- -- -- 1,052
----------- ----------- ----------- -----------
2,511 4,133 9,127 18,149
----------- ----------- ----------- -----------
Loss from operations .......................... (1,141) (1,010) (4,212) (8,592)
Other income (expense):
Gain on sale of subscribers ................... -- 11 -- 1,756
Settlement gains (losses), net................. (140) -- 1,481 --
Interest income (expense), net ................ 38 (4) (991) (13)
----------- ----------- ----------- -----------
Total other income (expense), net ............. (102) 7 490 1,743
----------- ----------- ----------- -----------
Net loss ...................................... $ (1,243) $ (1,003) $ (3,722) $ (6,849)
=========== =========== =========== ===========
Basic net loss per share ...................... $ (0.61) $ (1.48) $ (2.19) $ (10.10)
=========== =========== =========== ===========
Diluted net loss per share .................... $ (0.61) $ (1.48) $ (2.19) $ (10.10)
=========== =========== =========== ===========
Weighted average shares used in computation of
basic net loss per share ................... 2,040,603 678,883 1,695,766 678,119
Weighted average shares used in computation of
diluted net loss per share ................. 2,040,603 678,883 1,695,766 678,119
The accompanying notes are an integral part of these financial statements.
-3-
GOAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
------------------------------
2004 2003
------------------------------
Operating activities
Net loss ............................................................ $ (3,722) $ (6,849)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization of fixed assets ..................... 664 1,546
Amortization of other intangible assets ........................... 534 793
Impairment of goodwill ............................................ -- 193
Impairment of long-lived assets ................................... -- 1,052
Amortization of deferred financing costs .......................... 624 --
Amortization of discount on bridge note payable ................... 390 --
Provision for losses (recoveries) on accounts receivable .......... 51 (34)
Common stock issued for interest expense .......................... 19 --
Settlement gains, net ............................................. (1,481) --
Accrued loss on sublease .......................................... -- 519
Gain on sale of subscribers ....................................... -- (1,756)
Non-cash employee compensation .................................... -- 235
Non-cash rent expense ............................................. -- 5
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ...................... (60) 3,100
Decrease in other receivables ................................... 534 --
(Increase) decrease in merchandise inventories .................. (2) 752
(Increase) decrease in prepaid expenses and other current assets (362) 201
Decrease in accounts payable .................................... (1,066) (1,488)
Decrease in accrued expenses and other liabilities .............. (483) (3,856)
Decrease in deferred revenue .................................... (322) (1,323)
-------- --------
Net cash used in operating activities ............................... (4,682) (6,910)
Investing activities
Change in other assets and restricted cash .......................... (307) 1,347
Purchase of property, equipment and leasehold improvements .......... (63) (35)
Proceeds from sale of subscribers ................................... -- 1,756
Acquisition of intangible assets..................................... (75) (345)
-------- --------
Net cash (used in) provided by investing activities ................. (445) 2,723
Financing activities
Issuance of common stock, net of related expenses ................... 12,770 --
Issuance of common stock for exercise of stock options and warrants . 211 92
Purchase of treasury stock .......................................... (186) --
Increase in deferred financing costs ................................ (139) --
Payments made on capital lease obligations .......................... (5) (45)
-------- --------
Net cash provided by financing activities ........................... 12,651 47
-------- --------
Net increase (decrease) in cash and cash equivalents ................ 7,524 (4,140)
Cash and cash equivalents at beginning of period .................... 568 4,982
-------- --------
Cash and cash equivalents at end of period .......................... $ 8,092 $ 842
======== ========
Non-cash financing activities:
Common stock issued in connection with conversion of bridge note .... $ 1,015 $ --
Common stock issued in connection with vendor settlements ........... $ 451 $ --
Application of deferred financing costs against proceeds from the ... $ (606) $ --
sale of stock
Supplemental Disclosure of Non-Cash Investing Activities:
During 2003, the Company acquired through its subsidiary, Wynd Communications
Corporation, subscribers from Boundless Depot LLC. The purchase price was
approximately $418 (of which $345 was paid as of September 30, 2003).
The accompanying notes are an integral part of these financial statements.
-4-
GOAMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
Note 1 - Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X and include the results of
GoAmerica, Inc. and its wholly-owned subsidiaries (collectively, the "Company").
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 September 30, 2004 and the results
of its operations and its cash flows for the three and nine month periods ended
September 30, 2004 and 2003. 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 (as amended) for the year
ended December 31, 2003.
The Company is highly dependent on EarthLink, Inc. ("Earthlink") for
billing and collections, customer support and technical support for certain of
our subscribers. 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. Additionally, the Company is highly dependent on EarthLink and other
third parties for wireless communication devices and wireless network
connectivity.
The Company has incurred significant operating losses since its
inception and, as of September 30, 2004, has an accumulated deficit of $268,153.
During the nine months ended September 30, 2004, the Company incurred a net loss
of $3,722 and used $4,682 of cash to fund operating activities. As of September
30, 2004 the Company had $8,092 in cash and cash equivalents.
Results for the interim period are not necessarily indicative of
results that may be expected for the entire year.
A one for ten reverse stock split was effected during May 2004.
Additionally, a one for eight reverse stock split was effected during October
2004. The Company retained the current par value of $.01 per share for all
shares of common stock. All references in the financial statements to the number
of shares outstanding, per share amounts, and stock option data of the Company's
common stock have been restated to reflect the effect of both of the reverse
stock splits for all periods presented. Stockholders' equity reflects both of
the reverse stock splits by reclassifying from "Common stock" to "Additional
paid in capital " an amount equal to the par value of the reduced shares arising
from the reverse splits.
Note 2 - Significant Accounting Policies:
Recent Accounting Pronouncements
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 ended after
December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003. The Company
was 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
interpretation applies immediately. The Company does not have any arrangements
with variable interest entities that will require consolidation of their
financial information in the Company's financial statements.
-5-
Note 3 - Earnings Per Share:
The Company computes net loss per share under the provisions of SFAS
No. 128, "Earnings per Share" (SFAS 128), and 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
anti-dilutive. 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 have been excluded from
the calculation of diluted loss per share. For the nine months ended September
30, 2004 and 2003, 290,780 and 179,716 of common stock equivalent shares were
excluded from the computation of diluted net loss per share.
Note 4 - Goodwill and Other Intangible Assets:
The Company follows SFAS No. 141, "Business Combinations", and 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. The Company believes there are no such impairment
indicators at September 30, 2004.
The following table summarizes other intangibles subject to
amortization at the dates indicated:
September 30, 2004 December 31, 2003
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
--------------------------------------------------------------------------------------------------
Trade Names $ 4,572 $ (4,296) $ 276 $ 4,572 $ (4,019) $ 553
Technology 3,017 (3,017) -- 3,017 (2,925) 92
Customer Lists 2,258 (2,258) -- 2,258 (2,168) 90
Other 493 (424) 69 418 (349) 69
Patents 1,000 (1,000) -- 1,000 (1,000) --
--------------------------------------------------------------------------------------------------
$ 11,340 $(10,995) $ 345 $ 11,265 $(10,461) $ 804
==================================================================================================
Amortization expense for other intangibles totaled $534 and $793 for
the nine months ended September 30, 2004 and 2003, respectively. Future
aggregate amortization expense for intangible assets is estimated to be:
Three Months Ending December 31, 2004 $ 112
Year Ending December 31, 2005 233
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.
-6-
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 September 30, Nine months ended September 30,
--------------------------------- ---------------------------------
2004 2003 2004 2003
--------------------------------------------------------------------
Net loss, as reported ........................... $ (1,243) $ (1,003) $ (3,722) $ (6,849)
Deduct: Stock-based employee compensation expense
included in reported net loss ................... -- 77 -- 235
Add: Total stock-based employee compensation
expense determined under fair value based method
for all awards .................................. (992) (1,149) (2,976) (3,447)
---------- ---------- ---------- ----------
Pro forma net loss .............................. $ (2,235) $ (2,075) (6,698) $ (10,061)
========== ========== ========== ==========
Loss per share - basic, as reported ............. $ (0.61) $ (1.48) $ (2.19) $ (10.10)
========== ========== ========== ==========
Loss per share - diluted, as reported ........... $ (0.61) $ (1.48) $ (2.19) $ (10.10)
========== ========== ========== ==========
Pro forma loss per share - basic ................ $ (1.10) $ (3.06) $ (3.95) $ (14.84)
========== ========== ========== ==========
Pro forma loss per share - diluted .............. $ (1.10) $ (3.06) $ (3.95) $ (14.84)
========== ========== ========== ==========
The pro forma results above are not intended to be indicative of or a
projection of future results.
Note 6 - Contingencies:
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 (see note 7) in exchange
for a full release of the Company and its affiliates from a previously filed
lawsuit. As of March 31, 2004, the Company had fulfilled all its obligations
under the settlement agreement with Eastern Computer.
In December 2003, the Company executed a series of settlement
agreements with various vendors that provided, upon their consummation, for the
reduction of amounts owed by the Company to these vendors. Generally, the terms
of the settlement agreements called 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 was contingent upon the Company's complying with all of
the terms of the individual agreements, certain of which are as follows:
o Cash payments of approximately $300 to vendors with which the
Company had established settlement agreements.
o Establishment of a standby letter of credit in favor of
Cingular, which resulted in restricted cash in the amount of
$600.
All such terms and conditions were satisfied and, as a result, the
Company recorded approximately $1,621 in additional settlement gains during the
three months ended March 31, 2004. In addition, approximately $451 of vendor
liabilities were satisfied through the issuance of 9,687 shares of the Company's
common stock.
On August 1, 2004, the Company entered into a new lease agreement for
its principal offices located at 433 Hackensack Avenue in Hackensack, New
Jersey, consisting of approximately 11,000 square feet with a term of 3 years.
-7-
On September 22, 2004, two of the Boundless Depot Defendants sued
GoAmerica and Wynd Communications in the Superior Court of the State of
California for the County of Los Angeles, claiming damages of one million
dollars for GoAmerica's refusal to pay unattained contingent consideration,
comprising cash and/or GoAmerica Common Stock, to Boundless Depot in connection
with the Deafwireless Agreement. None of the contractual contingencies of the
Deafwireless Agreement were met and some or all of the Boundless Depot
Defendants remain in breach of their indemnity obligations under other
agreements. The Company does not believe that any of the contingent
consideration is owed. Moreover, even if all contingencies under the
Deafwireless Agreement had been attained, the Company believes that the damages
claimed in this case are excessive since the aggregate value of such contingent
consideration would not be material.
Note 7 - Financing:
On March 10, 2004, the Company's stockholders at a special meeting of
the stockholders approved the following:
o Approved the issuance of 1,123,750 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 Authorized 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 common
and prferred stock from 204,351,943 to 354,351,943. Such
action has not been taken as of September 30, 2004.
As a result, the Company issued a total of 1,210,260 shares of its
common stock, comprised of the 1,123,750 shares referred to above and 86,510
shares upon the mandatory conversion of the Bridge Notes Payable and related
accrued interest. The Company received net proceeds of approximately $12,770.
The Company utilized certain of the net proceeds to satisfy settlement
agreements (see note 6).
In connection with a bridge financing effected on December 19, 2003
which was part of a private placement of securities that was consummated in part
on March 10, 2004, the Company issued to the investors in its private placement
warrants convertible into 16,917 shares of the Company's Common Stock at an
exercise price of $12 per share. Warrants for an aggregate of 9,459 unregistered
shares of Common Stock were exercised between February 11, 2004 and February 18,
2004.
Note 8 - Stockholders' Equity:
On August 27, 2003, the Company received a letter from the Nasdaq Stock
Market ("Nasdaq") Staff stating that the Company's Common Stock was scheduled to
be delisted from the Nasdaq Smallcap Market due to the Common Stock's
non-compliance with the $1 minimum bid price per share requirement as set forth
in Nasdaq Marketplace Rule 4310 (C) (4). The Company appealed the Nasdaq Staff
Determination and subsequently the Nasdaq Listings Qualifications Panel granted
the Company a series of temporary exceptions, until May 31, 2004, to regain
compliance with the minimum price requirement since the Company continued to
meet all of the other listing requirements. On May 14, 2004, the Company filed
an amendment to its Amended and Restated Certificate of Incorporation to effect
a reverse stock split at a ratio of one-for-ten that had been previously
authorized by the Company's stockholders at a Special Meeting of Stockholders on
March 10, 2004. The closing bid price per share of the Company's Common Stock
did not close at or above $1 during the entire compliance period and on June 3,
2004, the Nasdaq Staff sent a letter to the Company stating that the Company's
Common Stock was scheduled to be delisted from the Nasdaq Smallcap Market due to
the Common Stock's non-compliance with the $1 minimum bid price per share
requirement as set forth in Nasdaq Marketplace Rule 4310 (C) (4). The Company
appealed the Nasdaq Staff Determination and, on August 18, 2004, the Nasdaq
Listing Qualifications Panel granted the Company a temporary exception through
October 4, 2004, with interim deadlines for certain actions the Company needed
to complete as part of the process of remedying its bid price deficiency. On
October 1, 2004, the Company filed an amendment to its Amended and Restated
Certificate of Incorporation to effect a reverse stock split at a ratio of
one-for-eight that had been authorized by the Company's stockholders at a
Special Meeting of Stockholders on September 30, 2004. On October 20, 2004, the
Nasdaq Listing Qualifications Panel notified the Company that its bid price
deficiency had been remedied and that the Company's Common Stock would continue
to be listed on The Nasdaq SmallCap Market.
On May 20, 2004, the Company's Board of Directors authorized the
repurchase of up to 62,500 shares of its Common Stock pursuant to a new stock
buyback program. As of September 30, 2004, the Company had repurchased an
aggregate of 24,063 shares of its Common Stock at an average price of $7.778 per
share. All purchases under the program have been made in the open market at the
Company's discretion.
-8-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
GoAmerica(R) 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. In addition to Wyndtell, we began offering "Sprint Relay
Wireless, Powered By GoAmerica" as a standard feature across all of its WyndTell
service offerings that operate on certain RIM handheld devices and the T-Mobile
Sidekick. Additionally, GoAmerica continues to support customers who use our
proprietary software technology called Go.Web(TM). Go.Web 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
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. Additionally, during the month of September 2004 we expanded our product
portfolio by beginning to offer to our customers prepaid solutions such as
calling cards and wireless services.
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 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 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.
Results of Operations
The following table sets forth, for the three and nine months ended
September 30, 2004 and 2003, the percentage relationship to net sales of certain
items included in the Company's unaudited consolidated statements of operations.
-9-
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------------------------
2004 2003 2004 2003
-------------------------------------------------------------------------------------------
$ % $ % $ % $ %
Revenues:
Subscriber ...................... $ 1,207 88.1 $ 2,554 81.8 $ 4,596 93.5 $ 7,997 83.7
Equipment ....................... 50 3.6 266 8.5 156 3.2 917 9.6
Other ........................... 113 8.3 303 9.7 163 3.3 643 6.7
-------- -------- -------- -------- -------- -------- --------
1,370 100.0 3,123 100.0 4,915 100.0 9,557 100.0
Costs and expenses:
Cost of subscriber airtime, net . 510 37.2 1,105 35.4 2,117 43.1 2,305 24.1
Cost of network operations ...... 132 9.6 365 11.7 580 11.8 1,661 17.4
Cost of equipment revenue ....... 35 2.6 140 4.5 149 3.0 1,023 10.7
Cost of other revenue ........... 56 4.1 -- -- 56 1.1 -- --
Sales and marketing, net ....... 165 12.0 (169) (5.4) 543 11.0 868 9.1
General and administrative ...... 1,220 89.1 1,891 60.6 4,050 82.4 7,592 79.4
Research and development ........ 126 9.2 220 7.0 434 8.8 1,116 11.7
Depreciation and amortization ... 168 12.3 339 10.9 664 13.5 1,546 16.2
Amortization of other intangibles 99 7.2 242 7.7 534 10.9 793 8.3
Impairment of goodwill ......... -- -- -- -- -- -- 193 2.0
Impairment of long-lived assets -- -- -- -- -- -- 1,052 11.0
-------- -------- -------- -------- -------- -------- -------- --------
2,511 183.3 4,133 132.3 9,127 185.7 18,149 189.9
-------- -------- -------- -------- -------- -------- -------- --------
Loss from operations .................... (1,141) (83.3) (1,010) (32.3) (4,212) (85.7) (8,592) (89.9)
Other income (expense):
Gain on sale of subscribers ............. -- -- 11 0.4 -- -- 1,756 18.3
Settlement gains, net ................... (140) (10.2) -- -- 1,481 30.1 -- --
Interest income (expense), net .......... 38 2.8 (4) (0.1) (991) (20.1) (13) (0.1)
-------- -------- -------- -------- -------- -------- -------- --------
Total other income ...................... (102) (7.4) 7 0.2 490 10.0 1,743 18.2
-------- -------- -------- -------- -------- -------- -------- --------
Net loss ................................ $ (1,243) (90.7) $ (1,003) 32.1 $ (3,722) (75.7) $ (6,849) (71.7)
======== ======== ======== ======== ======== ======== ======== ========
The following table sets forth the period over period percentage increases
or decreases of certain items included in the Company's unaudited consolidated
statements of operations.
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------------------------
Change Change
2004 2003 $ % 2004 2003 $ %
-------- -------- -------- -------- -------- -------- -------- --------
Revenues:
Subscriber ......................$ 1,207 $ 2,554 $ (1,347) (52.7) $ 4,596 $ 7,997 $ (3,401) (42.5)
Equipment ....................... 50 266 (216) (81.2) 156 917 (761) (83.0)
Other ........................... 113 303 (190) (62.7) 163 643 (480) (74.7)
-------- -------- -------- -------- -------- -------- -------- --------
1,370 3,123 (1,753) (56.1) 4,915 9,557 (4,642) (48.6)
Costs and expenses:
Cost of subscriber airtime, net . 510 1,105 (595) (53.8) 2,117 2,305 (188) (8.2)
Cost of network operations ...... 132 365 (233) (63.8) 580 1,661 (1,081) (65.1)
Cost of equipment revenue ....... 35 140 (105) (75.0) 149 1,023 (874) (85.4)
Cost of other revenue ........... 56 -- 56 -- 56 -- 56 --
Sales and marketing, net ....... 165 (169) 334 (197.6) 543 868 (325) (37.4)
General and administrative ...... 1,220 1,891 (671) (35.5) 4,050 7,592 (3,542) (46.7)
Research and development ........ 126 220 (94) (42.7) 434 1,116 (682) (61.1)
Depreciation and amortization ... 168 339 (171) (50.4) 664 1,546 (882) (57.1)
Amortization of other intangibles 99 242 (143) (59.1) 534 793 (259) (32.7)
Impairment of goodwill ......... -- -- -- -- -- 193 (193) (100..0)
Impairment of long-lived assets -- -- -- -- -- 1,052 (1,052) (100..0)
-------- -------- -------- -------- -------- -------- -------- --------
2,511 4,133 (1,622) (39.2) 9,127 18,149 (9,022) (49.7)
-------- -------- -------- -------- -------- -------- -------- --------
Loss from operations .................... (1,141) (1,010) (131) 13.0 (4,212) (8,592) 4,380 51.0
Other income (expense):
Gain on sale of subscribers ............. -- 11 (11) (100.0) -- 1,756 (1,756) (100.0)
Settlement gains, net ................... (140) -- (140) -- 1,481 -- 1,481 --
Interest income (expense), net .......... 38 (4) 42 1050.0 (991) (13) (978) 7523.1
-------- -------- -------- -------- -------- -------- -------- --------
Total other income ...................... (102) 7 (109) (1557.1) 490 1,743 (1,253) (71.9)
-------- -------- -------- -------- -------- -------- -------- --------
Net loss ................................$ (1,243) $ (1,003) $ (240) 23.9 $ (3,722) $ (6,849) $ 3,127 45.7
======== ======== ======== ======== ======== ======== ======== ========
-10-
Three months ended September 30, 2004 Compared to Three months ended September
30, 2003
Subscriber revenue. Subscriber revenue decreased 53%, to $1.2 million
for the three months ended September 30, 2004 from $2.6 million for the three
months ended September 30, 2003. This decrease was primarily due to declines in
higher average monthly revenue per user, or ARPU, full service offering
subscribers as part of our effort to improve the payment profile of our
subscriber base. This decrease was partially offset by increased subscribers to
our value added WyndPower service. Our subscriber base decreased to 61,171
subscribers at September 30, 2004 from 81,371 subscribers at September 30, 2003.
Our ARPU decreased to $6.41 for the three months ended September 30, 2004 from
$10.23 for the three months ended September 30, 2003. The decline in ARPU
primarily was due to the payment profile effort referenced above. We expect
subscriber revenue and ARPU to decline slightly as subscribers to our higher
ARPU full-service offerings continue to decline and are replaced with
subscribers to our lower ARPU value added services.
Equipment revenue. Equipment revenue decreased to $50,000 for the three
months ended September 30, 2004 from $266,000 for the three months ended
September 30, 2003. This decrease was primarily due to lower sales of mobile
devices. We expect equipment revenue to increase slightly as we continue to
provide devices to new subscribers of our Wynd services.
Other revenue. Other revenue decreased to $113,000 for the three months
ended September 30, 2004 from $303,000 for the three months ended September 30,
2003. This decrease was primarily due to our decision not to pursue certain
consulting projects and consulting services to third parties during 2004 and was
partially offset by revenue generated from our Sprint Relay Wireless service and
our prepaid products. We expect other revenue to increase as the demand for our
Sprint Relay Wireless service and our prepaid products increases.
Cost of subscriber airtime. Cost of subscriber airtime decreased 54%,
to $510,000 for the three months ended September 30, 2004 from $1.1 million for
the three months ended September 30, 2003. This decrease was primarily due to
the decrease in our subscriber base described above. We expect cost of
subscriber airtime to remain relatively constant to levels at September 30, 2004
as we continue to improve our subscriber profile, which we expect will result in
comparable costs.
Cost of network operations. Cost of network operations decreased to
$132,000 for the three months ended September 30, 2004 from $365,000 for the
three months ended September 30, 2003. This reduction reflects our recent
consolidation of our Go.Web and WyndTell production systems into a single data
center operated by a third party provider.
Cost of equipment revenue. Cost of equipment revenue decreased 75%, to
$35,000 for the three months ended September 30, 2004 from $140,000 for the
three months ended September 30, 2003. This decrease primarily was due to lower
sales of mobile devices. We expect cost of equipment revenue to increase
slightly as we continue to provide devices to new subscribers of our Wynd
services.
Sales and marketing. Sales and marketing expenses increased to $165,000
for the three months ended June 30, 2004 from a net gain of $169,000 for the
three months ended September 30, 2003. During the three months ended September
30, 2003, we recorded a $372,000 one-time reduction of accruals for certain
sales and marketing expenses recorded in prior periods. Sales and marketing
expenses include advertising and marketing activities, including advertising
costs paid to third parties and a decrease in salaries and benefits for
personnel performing sales and marketing activities. We expect sales and
marketing expenses to increase as a percentage of sales as we introduce new
products and services to the consumer marketplace.
General and administrative. General and administrative expenses
decreased 36%, to $1.2 million for the three months ended September 30, 2004
from $1.9 million for the three months ended September 30, 2003. This decrease
primarily was due to decreased professional fees for infrastructure buildout and
general corporate activities, decreased salaries and benefits for personnel
performing business development and general corporate activities, amounts paid
to third parties for professional services, a decrease in our bad debt expense
and decreased facility costs. We expect general and administrative expenses to
decline slightly as a result of our consolidation of business operations.
Research and development. Research and development expense decreased to
$126,000 for the three months ended September 30, 2004 from $220,000 for the
three months ended September 30, 2003. This decrease primarily was due to a
reduction in personnel performing research and development activities.
Amortization of other intangibles. Amortization of other intangibles
decreased for the three months ended September 30, 2004 to $99,000 from $242,000
for the three months ended September 30, 2003.
Settlement losses. Settlement losses in the amount of $140,000 were
recorded for the three months ended September 30, 2004 as a result of recording
a settlement loss reserve for pending litigation.
-11-
Interest income. Interest income increased to $38,000 for the three
months ended September 30, 2004 from interest expense of $4,000 for the three
months ended September 30, 2003, reflecting our improved cash position.
Nine months ended September 30, 2004 Compared to Nine months ended September 30,
2003
Subscriber revenue. Subscriber revenue decreased 43%, to $4.6 million
for the nine months ended September 30, 2004 from $8.0 million for the nine
months ended September 30, 2003. This decrease was primarily due to declines in
higher ARPU full service offering subscribers as part of our effort to improve
the payment profile of our subscriber base. Our subscriber base decreased to
61,171 subscribers at September 30, 2004 from 81,371 subscribers at September
30, 2003. Our ARPU decreased to $7.49 for the nine months ended September 30
2004 from $10.29 for the nine months ended September 30, 2003. The decline in
ARPU was due to the payment profile effort referenced above.
Equipment revenue. Equipment revenue decreased to $156,000 for the nine
months ended September 30, 2004 from $917,000 for the nine months ended
September 30, 2003. This decrease was primarily due to lower sales of mobile
devices.
Other revenue. Other revenue decreased to $163,000 for the nine months
ended September 30, 2004 from $643,000 for the nine months ended September 30,
2003. This decrease was primarily due to a decline in consulting services
provided to third parties.
Cost of subscriber airtime. Cost of subscriber airtime decreased 8%, to
$2.1 million for the nine months ended September 30, 2004 from $2.3 million for
the nine months ended September 30, 2003. This decrease was primarily due to a
lower subscriber base. Additionally, during the nine months ended September 30,
2003, we recorded a $763,000 one-time reduction of accruals for certain
subscriber-related costs recorded in prior periods.
Cost of network operations. Cost of network operations decreased to
$580,000 for the nine months ended September 30, 2004 from $1.7 million for the
nine months ended September 30, 2003. This reduction reflects our recent
consolidation of our Go.Web and WyndTell production systems into a single data
center operated by a third party provider.
Cost of equipment revenue. Cost of equipment revenue decreased 85%, to
$149,000 for the nine months ended September 30, 2004 from $1.0 million for the
nine months ended September 30, 2003. This decrease primarily was due to lower
sales of mobile devices. In addition, during the nine months ended September 30,
2003, a non-cash inventory charge of $331,000 was recorded to value a portion of
our remaining inventory at the lower of cost or market.
Sales and marketing. Sales and marketing expenses decreased 37%, to
$543,000 for the nine months ended September 30, 2004 from $868,000 for the nine
months ended September 30, 2003. This decrease primarily was due to decreased
advertising and marketing activities, including advertising costs paid to third
parties and a decrease in salaries and benefits for personnel performing sales
and marketing activities. Additionally, during the three months ended September
30, 2003, we recorded a $372,000 one-time reduction of accruals for certain
sales and marketing expenses recorded in prior periods.
General and administrative. General and administrative expenses
decreased 47%, to $4.1 million for the nine months ended September 30, 2004 from
$7.6 million for the nine months ended September 30, 2003. This decrease
primarily was due to decreased professional fees for infrastructure buildout and
general corporate activities, decreased salaries and benefits for personnel
performing business development and general corporate activities, amounts paid
to third parties for professional services, a decrease in our bad debt expense
and decreased facility costs.
Research and development. Research and development expense decreased to
$434,000 for the nine months ended September 30, 2004 from $1.1 million for the
nine months ended September 30, 2003. This decrease primarily was due to a
reduction in personnel performing research and development activities.
Amortization of other intangibles. Amortization of other intangibles
decreased for the nine months ended September 30, 2004 to $534,000 from $793,000
for the nine months ended September 30, 2003.
Impairment of long-lived assets. We did not recognize any impairment
charges during 2004. During the nine months ended September 30, 2003, we
identified certain indicators of impairment including changes in the Company's
2003 operating and cash flow forecasts, and changes in our strategic plans for
certain of our acquired businesses which required that we evaluate the
appropriateness of the carrying value of our long-lived assets, principally
goodwill recorded upon the acquisition of OutBack Resource Group, Inc.,
("Outback"). A write-down of goodwill totaling $193,000 was recorded during the
nine months ended September 30, 2003, reflecting the amount by which the
carrying amount of the respective reporting unit exceeded its respective fair
value. In addition, as a result of our recent strategic alliance with EarthLink,
we evaluated the carrying value of certain software and equipment which were
idled upon our most recent transition of certain activities to EarthLink. As a
result of this evaluation, during the nine months ended September 30, 2003, we
wrote-off specific assets with a carrying value of $1.1 million.
-12-
Gain on sale of subscribers. During 2003, gain on sale of subscribers
resulted from our comprehensive strategic alliance whereby EarthLink purchased
all of the Company's cellular digital packet data (CDPD) subscribers as well as
certain of the Company's Cingular and Motient network subscribers. As a result
of this agreement, we recorded a gain on the sale of subscribers of $1.8 million
during the nine months ended September 30, 2003.
Settlement gains. Settlement gains in the amount of approximately $1.5
million during the nine months ended September 30, 2004 resulted from our
consummation of certain settlement agreements entered into during 2003 with
contingent provisions satisfied by the Company during the three months ended
March 31, 2004 in the amount of $1.6 million and was partially offset by the
recording of a settlement loss reserve for pending litigation, in the amount of
$140,000, during the three months ended September 30, 2004.
Interest expense, net. Interest expense during the nine months ended
September 30, 2004 primarily resulted from approximately $1.1 million of
amortization of debt discount and deferred debt expense which were incurred as a
result of the December 2003 Bridge Note Financing.
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
shares of Series B Preferred Stock for net proceeds of approximately $24.6
million. In April 2000, we consummated our initial public offering, resulting in
net proceeds of $146.2 million.
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 were 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 were
used to support a letter of credit in favor of Cingular. Pursuant to the
Financing, we issued 1,210,260 shares of Common Stock and issued warrants to
purchase a total of 144,731 shares of Common Stock at an exercise price of
$12.00 per share. As of September 30, 2004, we had $8.1 million in cash and cash
equivalents (exclusive of $600,000 in restricted cash supporting a letter of
credit) and working capital of $9.1 million.
We have incurred significant operating losses since our inception and
as of September 30, 2004 have an accumulated deficit of $268.2 million. During
the nine months ended September 30, 2004, we incurred a net loss of $3.7 million
and used $4.7 million of cash to fund operating activities. Our 2004 operating
plan included further reductions in facility costs as a result of our successful
renegotiation of long term lease obligations and consolidation of our business
operations. We currently anticipate that our available cash resources 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.
Net cash used in operating activities amounted to $4.7 million for the
nine months ended September 30, 2004 principally reflecting our net loss and the
reduction of accounts payable and accrued expenses occurring after the closing
of the Financing described above.
We used $445,000 in cash in investing activities during the nine months
ended September 30, 2004, which primarily resulted from an increase in
restricted cash.
Net cash provided by financing activities was $12.7 million for the
nine months ended September 30, 2004, which primarily resulted from closing the
Financing described above.
As of September 30, 2004, our principal commitments consisted of
obligations outstanding under operating leases. As of September 30, 2004, future
minimum payments for non-cancelable operating leases having terms in excess of
one year amounted to $790,000, of which approximately $269,000 is payable in the
next twelve months.
-13-
The following table summarizes GoAmerica's contractual obligations at
September 30, 2004, and the effect such obligations are expected to have on its
liquidity and cash flow in future periods.
Less than 1
September 30, (In thousands) Total Year 1-3 Years 4-5 Years After 5 Years
Contractual Obligations:
Capital Lease Obligations $ 5 $ 5 $ -- $ -- $ --
Operating Lease 790 269 521 -- --
Obligation
---------------- -------------- ------------ ------------- --------------
Total Contractual Cash $ 795 $ 274 $521 $ -- $ --
Obligation
================ ============== ============ ============= ==============
Other Commercial Commitments:
Standby Letter of Credit $600 $-- $600 $ -- $ --
---------------- -------------- ------------ ------------- --------------
Total Commercial Commitment $600 $-- $600 $ -- $ --
================ ============== ============ ============= ==============
Forward Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are
not historical facts are forward-looking statements (within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended). 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; (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 our Annual Report on Form 10-K for the
year ended December 31, 2003. Our actual results could differ materially from
the results expressed in, or implied by, such forward-looking statements.
Recent Accounting Pronouncements
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 ended after December
15, 2003. (ii) Non-SPEs created prior to February 1, 2003. We were 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 interpretation applies
immediately. We do not have any arrangements with variable interest entities
that will require consolidation of their financial information in our financial
statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We believe that we have limited exposure to financial market risks,
including changes in interest rates. At September 30, 2004, 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 $80,000 based on cash and cash equivalent balances
at September 30, 2004. We currently hold no derivative instruments and do not
earn foreign-source income.
-14-
Item 4. Controls and Procedures
Evaluation of 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.
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.
-15-
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, 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 parties are in
advanced settlement discussions and any agreement will be subject to bankruptcy
court approval as Air Eagle filed for protection in September 2003 under Chapter
11 in California.
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.
In September 2003, Michael Marts, an individual residing in California,
sued Boundless Depot, Scott Johnson and Robert Rademacher (collectively, the
"Boundless Depot Defendants"), among others, with respect to claims for breach
of contract by some or all of the Boundless Depot Defendants. Wynd
Communications was named as a co-defendant in this action (the "Marts Action")
as the successor-in-interest to the Deafwireless assets that Wynd and the
Company acquired as of March 1, 2003 from the Boundless Depot Defendants
pursuant to an asset purchase agreement dated as of February 8, 2003 (the
"Deafwireless Agreement"). All of the claims, aggregating approximately
$433,000, arose prior to execution of the asset purchase agreement, with more
than half of the damages claimed arising prior to 2003. Wynd and the Company
intend to defend themselves vigorously as well as to seek to be dismissed from
the action and to enforce indemnification obligations of the Boundless Depot
Defendants pursuant to the Deafwireless Agreement.
In a separate but related matter, on September 22, 2004, two of the
Boundless Depot Defendants sued GoAmerica and Wynd Communications in the
Superior Court of the State of California for the County of Los Angeles,
claiming damages of one million dollars for GoAmerica's refusal to pay
unattained contingent consideration, comprising cash and/or GoAmerica Common
Stock, to Boundless Depot in connection with the Deafwireless Agreement. None of
the contractual contingencies of the Deafwireless Agreement were met and some or
all of the Boundless Depot Defendants remain in breach of their indemnity
obligations under the Deafwireless Agreement with respect to the Marts Action;
therefore the Company does not believe that any of the contingent consideration
is owed. Moreover, even if all contingencies under the Deafwireless Agreement
had been attained, the Company believes that the damages claimed in this case
are excessive since the aggregate value of such contingent consideration would
not be material. The Company intends to defend this action vigorously and may
elect to pursue counterclaims.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Changes in Securities
On May 14, 2004, the Company filed an amendment to its Amended and
Restated Certificate of Incorporation to effect a reverse stock split at a ratio
of one-for-ten that had been previously authorized by the Company's stockholders
at a Special Meeting of Stockholders on March 10, 2004. The par value of the
Company's Common Stock and the number of shares of capital stock that the
Company is authorized to issue were not affected by the reverse stock split
implementation.
-16-
On May 20, 2004, the Company's Board of Directors authorized the
repurchase of up to 62,500 shares of its Common Stock pursuant to a new stock
buyback program. As of September 30, 2004, the Company had repurchased an
aggregate of 24,0630 shares of its Common Stock at an average price of $7.778.
All purchases under the program have been made in the open market at the
Company's discretion. The following table sets forth certain information
regarding such repurchases during the quarter ended September 30, 2004:
----------------------------------------------------------------------------------------------------
(c) Total Number of (d) Maximum Number
Shares Purchased as of Shares that May
(a) Total (b) Average Part of Publicly Yet Be Purchased
Number of Price Paid Announced Plans or Under the Plans or
Period Shares Purchased per Share Programs Programs
----------------------------------------------------------------------------------------------------
July 1, 2004
through July 31,
2004 - - - -
----------------------------------------------------------------------------------------------------
August 1, 2004
through August 938 $6.80 938 38,437
31, 2004
----------------------------------------------------------------------------------------------------
September 1, 2004
through September - - - -
30, 2004
----------------------------------------------------------------------------------------------------
Total 938 $6.80 938 38,437
----------------------------------------------------------------------------------------------------
On October 1, 2004, the Company filed an amendment to its Amended and
Restated Certificate of Incorporation to effect a reverse stock split at a ratio
of one-for-eight that was authorized by the Company's stockholders at a Special
Meeting of Stockholders on September 30, 2004. The par value of the Company's
Common Stock and the number of shares of capital stock that the Company is
authorized to issue were not affected by the reverse stock split implementation.
Item 3. Defaults upon Senior Securities.
None
-17-
Item 4. Submission of Matters to a Vote of Security Holders.
A Special Meeting of Stockholders of GoAmerica, Inc. (the "Company") was held on
September 30, 2004 to vote on a proposal to authorize the Company's Board of
Directors to amend the Company's restated certificate of incorporation to effect
a reverse stock split at one of three different ratios, if required to maintain
the Company's listing on the Nasdaq SmallCap Market
There were present at the Special Meeting, in person or by proxy, stockholders
holding an aggregate of 11,027,669 shares of Common Stock out of a total number
of 16,317,245 shares of Common Stock issued and outstanding and entitled to vote
at the Special Meeting. The result of the vote taken at such Special Meeting
with respect to the proposal presented was as follows:
FOR AGAINST ABSTENTIONS
- ---------- --------- -----------
10,544,774 343,786 29,714
References to numbers of shares of the Company's Common Stock in this Item 4 are
not adjusted for the subsequent one-for-eight reverse stock split that is the
subject of this Item 4.
Item 5. Other Information.
On August 27, 2003, the Company received a letter from the Nasdaq Stock
Market ("Nasdaq") Staff stating that the Company's Common Stock was scheduled to
be delisted from the Nasdaq Smallcap Market due to the Common Stock's
non-compliance with the $1 minimum bid price per share requirement as set forth
in Nasdaq Marketplace Rule 4310 (C) (4). The Company appealed the Nasdaq Staff
Determination and subsequently the Nasdaq Listings Qualifications Panel granted
the Company a series of temporary exceptions, until May 31, 2004, to regain
compliance with the minimum price requirement since the Company continued to
meet all of the other listing requirements. On May 14, 2004, the Company filed
an amendment to its Amended and Restated Certificate of Incorporation to effect
a reverse stock split at a ratio of one-for-ten that had been previously
authorized by the Company's stockholders at a Special Meeting of Stockholders on
March 10, 2004. The closing bid price per share of the Company's Common Stock
did not close at or above $1 during the entire compliance period and on June 3,
2004, Nasdaq Staff sent a letter to the Company stating that the Company's
Common Stock was scheduled to be delisted from the Nasdaq Smallcap Market due to
the Common Stock's non-compliance with the $1 minimum bid price per share
requirement as set forth in Nasdaq Marketplace Rule 4310 (C) (4). The Company
appealed the Nasdaq Staff Determination and, on August 18, 2004, the Nasdaq
Listing Qualifications Panel granted the Company a temporary exception through
October 4, 2004, with interim deadlines for certain actions the Company needed
to complete as part of the process of remedying its bid price deficiency. On
October 1, 2004, the Company filed an amendment to its Amended and Restated
Certificate of Incorporation to effect a reverse stock split at a ratio of
one-for-eight that had been authorized by the Company's stockholders at a
Special Meeting of Stockholders on September 30, 2004. On October 20, 2004, the
Nasdaq Listing Qualifications Panel notified the Company that its bid price
deficiency had been remedied and that the Company's Common Stock would continue
to be listed on The Nasdaq SmallCap Market.
Item 6. Exhibits.
31.1 Certification of the Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
-18-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOAMERICA, INC.
DATE: November 12, 2004 By: /s/ Daniel R. Luis
-----------------------------------
Daniel R. Luis
Chief Executive Officer
(Principal Executive Officer)
DATE: November 12, 2004 By: /s/ Donald G. Barnhart
-----------------------------------
Donald G. Barnhart
Chief Financial Officer
(Principal Financial and Accounting
Officer)
-19-