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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 June 30, 2002
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
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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 the number of shares outstanding of each of the Registrant's
classes of common stock, as of July 31, 2002:
Class Number of Shares
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Common Stock, $.01 par value 53,883,105
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 June 30,
2002 and December 31, 2001.......................... 2
Condensed Consolidated Statements of Operations for
the Three and Six Months Ended June 30, 2002 and
2001................................................ 3
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2002 and 2001......... 4
Notes to Condensed Consolidated Financial Statements.. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 8
General............................................... 8
Critical Accounting Policies and Estimates............ 8
Results of Operations................................. 9
Liquidity and Capital Resources....................... 11
Item 3. Quantitative and Qualitative Disclosures About Market
Risk................................................ 13
PART II. OTHER INFORMATION............................................... 14
Item 1. Legal Proceedings..................................... 14
Item 2. Changes in Securities and Use of Proceeds............. 14
Item 4. Submission of Matters to a Vote of Security Holders... 14
Item 6. Exhibits and Reports on Form 8-K...................... 15
SIGNATURES................................................................ 16
- i -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- 1 -
GOAMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
June 30, December 31,
2002 2001
-----------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents............................................... $ 15,935 $ 34,977
Accounts receivable, net................................................ 8,767 8,672
Merchandise inventories, net ........................................... 5,021 7,967
Prepaid expenses and other current assets............................... 1,857 2,373
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Total current assets......................................................... 31,580 53,989
Restricted cash.............................................................. 2,031 1,396
Property, equipment and leasehold improvements, net.......................... 12,027 14,158
Goodwill, net................................................................ 14,593 14,593
Trade names and other intangible assets, net................................. 2,084 2,950
Other assets................................................................. 1,187 699
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$ 63,502 $ 87,785
============= ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable........................................................ $ 9,136 $ 9,676
Accrued expenses........................................................ 6,358 7,565
Deferred revenue........................................................ 3,048 2,805
Other current liabilities............................................... 493 651
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Total current liabilities.................................................... 19,035 20,697
Other liabilities............................................................ 283 675
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized: 200,000,000 shares in
2002 and 2001; issued: 53,883,105 in 2002 and 53,709,803 in 2001........ 537 537
Additional paid-in capital.............................................. 269,082 269,053
Deferred employee compensation.......................................... (1,621) (2,842)
Accumulated deficit..................................................... (223,814) (200,335)
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Total stockholders' equity .................................................. 44,184 66,413
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$ 63,502 $ 87,785
============= ==============
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 June 30, Six Months Ended June 30,
------------------------------------------------------------------
2002 2001 2002 2001
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Revenues:
Subscriber................................. $ 7,750 $ 7,080 $ 15,885 $ 12,445
Equipment.................................. 1,770 2,590 4,029 4,979
Other...................................... 60 100 108 345
-------------- -------------- ------------- -------------
9,580 9,770 20,022 17,769
Costs and expenses:
Cost of subscriber airtime................. 5,688 6,841 11,938 8,571
Cost of network operations................. 855 947 1,618 1,702
Cost of equipment revenue.................. 1,967 6,812 4,262 9,722
Sales and marketing........................ 2,310 8,233 4,829 16,012
General and administrative................. 7,547 10,343 15,874 18,402
Research and development................... 900 1,048 1,900 2,329
Depreciation and amortization.............. 1,229 713 2,401 1,273
Amortization of goodwill and other
intangibles................................ 433 4,537 866 9,074
-------------- -------------- ------------- -------------
20,929 39,474 43,688 67,085
-------------- -------------- ------------- -------------
Loss from operations............................ (11,349) (29,704) (23,666) (49,316)
Interest income, net............................ 58 842 187 2,321
-------------- -------------- ------------- -------------
Net loss applicable to common stockholders...... $ (11,291) $ (28,862) $ (23,479) $ (46,995)
============== ============== ============= =============
Basic net loss per share applicable to common
stockholders................................. $ (0.21) $ (0.55) $ (0.44) $ (0.89)
Diluted net loss per share applicable to common
stockholders................................. $ (0.21) $ (0.54) $ (0.44) $ (0.88)
============== ============== ============= =============
Weighted average shares used in computation of
basic net loss per share applicable to common
stockholders................................. 53,780,668 52,707,741 53,735,542 52,641,757
Weighted average shares used in computation of
diluted net loss per share applicable to
common stockholders.......................... 53,807,667 53,274,795 53,762,541 53,208,811
The accompanying notes are an integral part of these financial statements.
- 3 -
GOAMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
---------------------------------
2002 2001
---------------------------------
Operating activities
Net loss............................................................. $ (23,479) $ (46,995)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization...................................... 2,401 1,273
Amortization of goodwill and intangible assets..................... 866 9,074
Provision for losses on accounts receivable........................ 1,215 880
Non-cash employee compensation..................................... 1,221 2,356
Non-cash rent expense.............................................. 22 39
Non-cash marketing charges......................................... -- 1,341
Changes in operating assets and liabilities:
Increase in accounts receivable.................................. (1,310) (3,329)
Decrease (increase) in merchandise inventories................... 2,946 (115)
Increase in prepaid expenses and other assets.................... (607) (1,317)
Decrease in accounts payable..................................... (540) (3,534)
Decrease in accrued expenses..................................... (1,207) (2,137)
Increase in deferred revenue..................................... 243 1,478
-------------- --------------
Net cash used in operating activities................................ (18,229) (40,986)
Investing activities
Purchase of property, equipment and leasehold improvements........... (270) (3,799)
Acquisition of business, net of acquired cash........................ -- (82)
-------------- --------------
Net cash used in investing activities................................ (270) (3,881)
Financing activities
Proceeds from sale of common stock and stock purchase warrants, net.. 29 176
Payments made on capital lease obligations........................... (572) (219)
-------------- --------------
Net cash used in financing activities................................ (543) (43)
-------------- --------------
Decrease in cash and cash equivalents................................ (19,042) (44,910)
Cash and cash equivalents at beginning of period..................... 34,977 114,411
-------------- --------------
Cash and cash equivalents at end of period........................... $ 15,935 $ 69,501
============== ==============
Non-cash investing and financing activities
Acquisition of equipment through capital leases...................... $ -- $ 211
Issuance of common stock purchase warrants in exchange for sales and
and marketing services............................................... $ -- $ 765
The accompanying notes are an integral part of these financial statements.
- 4 -
GOAMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
Note 1 -- Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X and include the results of GoAmerica,
Inc. (the "Company") and its wholly-owned subsidiaries. Accordingly, certain
information and footnote disclosures required in financial statements prepared
in accordance with accounting principles generally accepted in the United States
have been condensed or omitted. In the opinion of the Company's management, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary for
the fair presentation of its financial position as of June 30, 2002 and the
results of its operations and its cash flows for the three and six month periods
ended June 30, 2002 and 2001. 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, 2001.
The Company operates in a highly competitive environment subject to rapid
technological change and emergence of new technology. Although management
believes its services are transferable to emerging technologies, rapid changes
in technology could have an adverse financial impact on the Company.
The Company is highly dependent on third-party providers for wireless
communication services.
The Company has incurred significant operating losses since its inception
and as of June 30, 2002 has an accumulated deficit of $223.8 million. As of June
30, 2002, the Company had $15.9 million in cash and cash equivalents, exclusive
of $2.0 million in restricted cash supporting certain letters of credit. In
order to reduce certain operating expenses, during 2001, the Company reduced the
number of its employees by outsourcing certain operating functions, modified
certain of its pricing strategies to recover the costs incurred for roaming and,
in certain instances, suspended service to a limited number of subscribers
contributing to excessive roaming costs. The Company's 2002 operating plan
includes further reductions in headcount as well as significant reductions of
sales and marketing expenditures and capital expenditures from the levels
incurred during 2001. In execution of the 2002 operating plan, during the first
half of 2002, the Company took steps to reduce its annual payroll by more than
10% and took further actions to reduce sales and marketing expenses. In the
event management is unable to achieve its plans, additional further cost
reductions may be required. There can be no assurance that the Company will
achieve its 2002 operating plan.
Results for the interim period are not necessarily indicative of results
that may be expected for the entire year. During the first quarter of 2001, the
Company renegotiated certain contractual obligations. As a result, the Company
recorded a $1.9 million one-time reduction of accruals for certain
subscriber-related costs recorded in prior periods.
Note 2 - Significant Accounting Policies:
Recent Accounting Pronouncements
In May 2000, the Emerging Issues Task Force, or EITF, reached a consensus
on EITF 00-14, "Accounting for Certain Sales Incentives", which provides
guidance on accounting for discounts, coupons, rebates and free products, as
well as the classification of these discounts, coupons, rebates and free
products in the statement of operations. The Company adopted the provisions of
EITF 00-14 effective April 1, 2001. The adoption of the consensus resulted in
the reclassification of certain sales incentives as a reduction of subscriber
revenues. All prior period results reflect such reclassification. Prior to April
1, 2001, such incentives were recorded entirely as reductions to equipment
revenue. The adoption of this consensus had no impact on total revenues or on
net loss.
On August 1, 2001, the Financial Accounting Standards Board, or FASB issued
Statement of Financial Accounting Standards , or SFAS No. 144, "Accounting For
Impairment of Long Lived Assets". The Company adopted this pronouncement
effective January 1, 2002. SFAS No. 144 prescribes the accounting for long-lived
assets (excluding goodwill) to be disposed of by sale. SFAS No. 144 retains the
requirement of SFAS No. 121 to measure long-lived assets classified as held for
sale at the lower of their carrying value or fair market value less the cost to
sell. Therefore, discontinued operations are no longer measured on a net
realizable basis, and future
- 5 -
operating results are no longer recognized before they occur. The impact of
adopting SFAS No. 144 had no effect on the results of operations or financial
position of the Company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. Adoption of SFAS 146 is required with the
beginning of fiscal year 2003. The Company does not anticipate a significant
impact on its results of operations from adopting this Statement.
Note 3 -- Earnings Per Share:
The Company computes net loss per share under the provisions of SFAS No.
128, "Earnings per Share" ("SFAS 128") and Staff Accounting Bulletin No. 98
("SAB 98").
Under the provisions of SFAS 128 and SAB 98, basic and diluted net loss per
share is computed by dividing the net loss applicable to common stockholders for
the period by the weighted-average number of shares of Common Stock outstanding
during the period. The calculation of diluted net loss per share excludes
potential common shares if the effect is antidilutive. Basic earnings per share
is computed by dividing loss applicable to common stockholders by the
weighted-average number of shares of Common Stock outstanding during the period.
The weighted average number of shares utilized in arriving at basic earnings per
share reflects an adjustment to exclude 26,999 and 567,054 common shares for the
three and six month periods ended June 30, 2002 and 2001, respectively, for
outstanding shares held in escrow as a result of the Company's acquisitions
during 2001 and 2000. Diluted earnings per share is determined in the same
manner as basic earnings per share except that the number of shares does not
include the adjustment for escrowed shares and is increased assuming exercise of
dilutive stock options and warrants using the treasury stock method. 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. During the first half of 2002, the Company
completed the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of January 1, 2002, and no adjustment to the carrying
value of goodwill was required.
The following tables reflects unaudited pro forma results of operations of
the Company, giving effect to SFAS No. 142 as if it were adopted on January 1,
2000:
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------------------------- -------------------------------
Net loss, as reported $ (11,291) $ (28,862) $ (23,479) $ (46,995)
Add back: amortization expense, net of tax -- 3,199 -- 6,397
------------------------------- -------------------------------
Pro forma net loss $ (11,291) $ (25,663) $ (23,479) $ (40,598)
=============================== ===============================
Basic net loss per common stockholders:
As reported $ (0.21) $ (0.55) $ (0.44) $ (0.89)
Pro forma $ (0.21) $ (0.49) $ (0.44) $ (0.77)
Diluted net loss per common stockholders:
As reported $ (0.21) $ (0.54) $ (0.44) $ (0.88)
Pro forma $ (0.21) $ (0.48) $ (0.44) $ (0.76)
- 6 -
Years Ended December 31,
2001 2000
-------------------------------
Net loss, as reported $ (120,271) $ (95,299)
Add back: amortization expense, net of tax 12,794 4,691
-------------------------------
Pro forma net loss $ (107,477) $ (90,608)
===============================
Basic net loss per common stockholders:
As reported $ (2.27) $ (2.19)
Pro forma $ (2.03) $ (2.09)
Diluted net loss per common stockholders:
As reported $ (2.25) $ (2.18)
Pro forma $ (2.01) $ (2.07)
The following table summarizes the activity in Goodwill for the periods
indicated:
Six Months Ended June 30,
2002 2001
---------------------------
Beginning balance, net $ 14,593 $ 40,117
Amortization -- (6,397)
--------------------------
Ending balance, net $ 14,593 $ 33,720
==========================
The following table summarizes Other Intangibles subject to amortization at
the dates indicated:
June 30, 2002 December 31, 2001
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
---------------------------------------------------- ------------------------------------------------------
Trade Names $ 4,572 $ (3,466) $ 1,106 $ 4,572 $ (3,282) $ 1,290
Technology 3,017 (2,649) 368 3,017 (2,557) 460
Customer Lists 2,258 (1,898) 360 2,258 (1,808) 450
Patents 1,000 (750) 250 1,000 (250) 750
------------------------------------------------------------------------------------------------------------
$ 10,847 $ (8,763) $ 2,084 $ 10,847 $ (7,897) $ 2,950
============================================================================================================
Amortization expense for Other Intangibles totaled $433,000 and $1.3
million for the three months ended June 30, 2002 and 2001, respectively, and
$866,000 and $2.7 million for the six months ended June 30, 2002 and 2001,
respectively. Aggregate amortization expense for intangible assets is estimated
to be:
Six Months Ending December 31, 2002: $ 616
Years Ending December 31,: 2003 733
2004 551
2005 184
- 7 -
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
GoAmerica, Inc., a Delaware corporation ("We," "Us" or the "Company"), is a
wireless data and Internet solutions provider addressing the productivity and
communications needs of business customers. Utilizing our proprietary Go.Web(TM)
technology, our solutions enable corporations to improve the productivity of
their workers by enabling secure wireless access to corporate data on many
wireless computing devices and over many wireless data networks.
We derive 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 provide and expect to continue to provide mobile devices made
by third parties to our customers at prices below our costs for such devices. We
also expect to continue to incur sales and marketing, systems development and
administrative expenses. We have incurred operating losses since our inception
and expect to continue to incur operating losses for at least the next several
quarters. Therefore, we will need to significantly improve our overall gross
margins, further reduce our selling, general and administrative expenses and
generate significant revenue to become profitable and sustain profitability on a
quarterly or annual basis. We will have to substantially increase our revenue
base in order to achieve our business plan.
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. We derive 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 charge our CDPD subscribers a per kilobyte fee for using a
mobile device outside of a designated geographical area, or roaming; such fees
are recognized as revenue when collected. We also generally charge a
non-refundable activation fee upon initial subscription. To the extent such fees
exceed the related costs, they are deferred and recognized ratably over the life
of the related service contracts which is generally six months, one year or two
years. Equipment revenue is recognized upon shipment to the end user. We 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
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 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. On January 1, 2002, we adopted Statement of Financial
Accounting Standard No. 142, "Goodwill and Other Intangible Assets," and have
completed the first of the required impairment tests of goodwill, and no
adjustment was required to the carrying value of goodwill.
- 8 -
Results of Operations
Three months ended June 30, 2002 Compared to Three months ended June 30, 2001
Subscriber revenue. Subscriber revenue increased 10%, to $7.8 million for
the three months ended June 30, 2002 from $7.1 million for the three months
ended June 30, 2001. The increase was due to having an increased average
subscriber base. Our subscriber base increased to 132,800 subscribers at June
30, 2002 from 100,600 subscribers at June 30, 2001. A significant portion of
such new subscribers were enterprise customers. We expect the number of our
overall subscribers will decrease as a result of our planned divestiture of our
CDPD subscribers during the third quarter 2002. As of June 30, 2002, we had
approximately 18,000 CDPD subscribers. Our average monthly revenue per user, or
ARPU, decreased to $22.94 for the three months ended June 30, 2002 from $27.41
for the three months ended June 30, 2001. The decline in ARPU was due to an
increase in the number of new subscribers from the sale of our Go.Web value
added services, which generally have a lower ARPU than our full-service
offerings. During the fourth quarter of 2001, we began charging our customers a
per kilobyte fee for roaming. Amounts billed to subscribers for roaming that
have been recognized as revenue have been insignificant to date. As of June 30,
2002, $952,000 was recorded in accounts receivable and deferred revenue with
respect to roaming charges.
Equipment revenue. Equipment revenue decreased to $1.8 million for the
three months ended June 30, 2002 from $2.6 million for the three months ended
June 30, 2001. This decrease was primarily due to lower sales of mobile devices.
Other revenue. Other revenue, which consists primarily of revenue derived
from consulting services, decreased to $60,000 for the three months ended June
30, 2002 from $100,000 for the three months ended June 30, 2001. This decrease
was primarily due to our decision not to pursue consulting projects and
consulting services to third parties.
Cost of subscriber airtime. Cost of subscriber airtime decreased 17%, to
$5.7 million for the three months ended June 30, 2002 from $6.8 million for the
three months ended June 30, 2001. This decrease was primarily due to a decrease
in roaming costs to $895,000 for the three months ended June 30, 2002 from $2.4
million for the three months ended June 30, 2001 and was partially offset by an
increase in our subscriber base and a related increase in airtime usage. We
expect roaming costs will be eliminated as we execute our planned divestiture of
CDPD subscribers during the third quarter 2002. We expect the number of
subscribers and related use of our services to decrease as a result of our
planned divestiture of CDPD subscribers, which will result in decreased costs of
subscriber airtime.
Cost of network operations. Cost of network operations decreased slightly
to $855,000 for the three months ended June 30, 2002 from $947,000 for the three
months ended June 30, 2001. We expect cost of network operations to remain
relatively consistent.
Cost of equipment revenue. Cost of equipment revenue decreased 71%, to $2.0
million for the three months ended June 30, 2002 from $6.8 million for the three
months ended June 30, 2001. This decrease primarily was due to a non-cash
inventory charge of $3.8 million recorded in 2001 to value our inventory at the
lower of cost or market. The inventory related charges primarily related to
wireless modems supporting laptop and older PALM OS based models for which sales
were lower than expected and a charge for a lower of cost to market adjustment
related to other equipment which remained unsold.
Sales and marketing. Sales and marketing expenses decreased 72%, to $2.3
million for the three months ended June 30, 2002 from $8.2 million for the three
months ended June 30, 2001. 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 decline as a percentage of revenue as we
continue to leverage our channel relationships.
General and administrative. General and administrative expenses decreased
27%, to $7.5 million for the three months ended June 30, 2002 from $10.3 million
for the three months ended June 30, 2001. 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 the outsourcing of our customer and technical support
centers. We expect general and administrative expenses to decline as a
percentage of revenue as a result of our cost reductions set forth in our 2002
operating plan.
Research and development. Research and development expense decreased 14%,
to $900,000 for the three months ended June 30, 2002 from $1.0 million for the
three months ended June 30, 2001. This decrease primarily was due to decreased
salaries and benefits for personnel performing research and development
activities. We expect research and development expenses to decline as a
percentage of revenue as we continue to develop and maintain our Go.Web
technology.
- 9 -
Amortization of goodwill and other intangibles. Amortization of goodwill
and other intangibles decreased for the three months ended June 30, 2002 to
$433,000 from $4.5 million for the three months ended June 30, 2001. This
decrease primarily was due to the adoption of Statement of Financial Accounting
Standard No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002,
which no longer requires goodwill and certain intangible assets to be amortized,
but instead tested for impairment at least annually. In addition, the decrease
reflects the impact of reduced amortization of Other Intangibles as a result of
the impairment charge recorded during the fourth quarter of 2001.
Interest income. Interest income decreased to $58,000 for the three months
ended June 30, 2002 from $842,000 for the three months ended June 30, 2001. This
decrease primarily was due to the use of cash to fund our losses from operations
and infrastructure buildout.
Six months ended June 30, 2002 Compared to Six months ended June 30, 2001
Subscriber revenue. Subscriber revenue increased 28%, to $15.9 million for
the six months ended June 30, 2002 from $12.4 million for the six months ended
June 30, 2001. The increase was due to having an increased average subscriber
base. Our subscriber base increased to 132,800 subscribers at June 30, 2002 from
100,600 subscribers at June 30, 2001. A significant portion of such new
subscribers were enterprise customers. Our average monthly revenue per user, or
ARPU, decreased to $23.48 for the six months ended June 30, 2002 from $30.23 for
the six months ended June 30, 2001. The decline in ARPU was due to an increase
in the number of new subscribers from the sale of our Go.Web value added
services, which generally have a lower ARPU than our full-service offerings.
During the fourth quarter of 2001, we began charging our customers a per
kilobyte fee for roaming. Amounts billed to subscribers for roaming that have
been recognized as revenue have been insignificant to date.
Equipment revenue. Equipment revenue decreased to $4.0 million for the six
months ended June 30, 2002 from $5.0 million for the six months ended June 30,
2001. This decrease was primarily due to lower sales of mobile devices.
Other revenue. Other revenue, which consists primarily of revenue derived
from consulting services, decreased to $108,000 for the six months ended June
30, 2002 from $345,000 for the six months ended June 30, 2001. This decrease was
primarily due to the our decision not to pursue consulting projects and
consulting services to third parties.
Cost of subscriber airtime. Cost of subscriber airtime increased 39%, to
$11.9 million for the six months ended June 30, 2002 from $8.6 million for the
six months ended June 30, 2001. This increase was primarily due to an increase
in our subscriber base and a related increase in airtime usage during the six
months ended June 30, 2002 compared to the six months ended June 30, 2001 and
was partially offset by a decrease in roaming costs to $1.7 million for the six
months ended June 30, 2002 from $3.1 million for the six months ended June 30,
2001. Additionally, during the three months ended March 31, 2001, we recorded a
$1.9 million one-time reduction of accruals for certain subscriber-related costs
recorded in prior periods. Excluding the one-time adjustment, cost of subscriber
airtime increased 13%, to $11.9 million for the six months ended June 30, 2002
from $10.5 million for the six months ended June 30, 2001
Cost of network operations. Cost of network operations decreased slightly
to $1.6 million for the six months ended June 30, 2002 from $1.7 million for the
six months ended June 30, 2001.
Cost of equipment revenue. Cost of equipment revenue decreased 56%, to $4.3
million for the six months ended June 30, 2002 from $9.7 million for the six
months ended June 30, 2001. This decrease primarily was due to a non-cash
inventory charge of $3.8 million recorded in 2001 to value our inventory at the
lower of cost or market. The inventory related charges primarily related to
wireless modems supporting laptop and older PALM OS based models for which sales
were lower than expected and a charge for a lower of cost to market adjustment
related to other equipment which remained unsold.
Sales and marketing. Sales and marketing expenses decreased 70%, to $4.8
million for the six months ended June 30, 2002 from $16.0 million for the six
months ended June 30, 2001. 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.
General and administrative. General and administrative expenses decreased
14%, to $15.9 million for the six months ended June 30, 2002 from $18.4 million
for the six months ended June 30, 2001. 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 the outsourcing of our customer and technical support
centers.
- 10 -
Research and development. Research and development expense decreased 18%,
to $1.9 million for the six months ended June 30, 2002 from $2.3 million for the
six months ended June 30, 2001. This decrease primarily was due to decreased
salaries and benefits for personnel performing research and development
activities.
Amortization of goodwill and other intangibles. Amortization of goodwill
and other intangibles decreased for the six months ended June 30, 2002 to
$866,000 from $9.1 million for the six months ended June 30, 2001. This decrease
primarily was due to the adoption of Statement of Financial Accounting Standard
No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002, which no
longer requires goodwill and certain intangible assets to be amortized, but
instead tested for impairment at least annually. In addition, the decrease
reflects the impact of reduced amortization of Other Intangibles as a result of
the impairment charge recorded during the fourth quarter 2001.
Interest income. Interest income decreased to $187,000 for the six months
ended June 30, 2002 from $2.3 million for the six months ended June 30, 2001.
This decrease primarily was due to the use of cash to fund our losses from
operations and infrastructure buildout.
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 June 30,
2002, we had $15.9 million in cash and cash equivalents and $12.5 million of
working capital.
We have incurred significant operating losses since our inception and as of
June 30, 2002 have an accumulated deficit of $223.8 million. During the six
months ended June 30, 2002, we incurred a net loss of $23.5 million and used
$18.2 million of cash to fund operating activities. As of June 30, 2002 we had
$15.9 million in cash and cash equivalents, exclusive of $2.0 million in
restricted cash supporting certain letters of credit. In order to reduce
operating expenses, during 2001, we reduced the number of our employees by
outsourcing certain operating functions, modified certain of our pricing
strategies to recover the costs incurred for roaming, and, in certain instances,
suspended service to a limited number of subscribers contributing to excessive
roaming costs. Our 2002 operating plan includes further reductions in headcount
as well as significant reductions in sales and marketing expenditures and
capital expenditures from the levels incurred during 2001. In execution of our
2002 operating plan, during the first half of 2002, we took steps to reduce our
annual payroll by more than 10% and took further actions to reduce sales and
marketing expenses. In the event we are unable to achieve our plans, additional
further cost reductions may be required. We currently anticipate that our
available cash resources will be sufficient to fund our operating needs for at
least the next 9 months. Thereafter, we may 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 are continuing to pursue financing on acceptable terms.
We expect to file an application to have our common stock traded on the Nasdaq
Small Cap Market beginning on or about August 29, 2002, but do not believe this
will have a significant impact on our liquidity.
Net cash used in operating activities decreased to $18.2 million for the
six months ended June 30, 2002 from $41.0 million for the six months ended June
30, 2001. This decrease primarily was due to decreased losses from operations as
well as maintaining decreased levels of mobile device inventories.
Net cash used in investing activities was $270,000 for the six months ended
June 30, 2002 as compared to $3.9 million for the six months ended June 30,
2001. Cash used in investing activities was principally for purchases of
property, equipment and leasehold improvements.
Net cash used by financing activities was $543,000 for the six months ended
June 30, 2002 as compared to $43,000 for the six months ended June 30, 2001.
Cash used in financing activities for the six months ended June 30, 2002 was
principally for repayment of capital leases and was partially offset by proceeds
from the exercise of stock options.
As of June 30, 2002, our principal commitments consisted of obligations
outstanding under operating leases. As of June 30, 2002, future minimum payments
for non-cancelable operating leases having terms in excess of one year amounted
to $11.5 million, of which approximately $1.4 million is payable for the
remainder of 2002.
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The following table summarizes GoAmerica's contractual obligations at
June 30, 2002, and the effect such obligations are expected to have on its
liquidity and cash flow in future periods.
Less than 1
June 30, (In thousands) Total Year 1-3 Years 4-5 Years After 5 Years
Contractual Obligations:
Capital Lease Obligations $ 674 $ 445 $ 229 $ -- $ --
Operating Lease
Obligation 11,455 2,443 3,247 2,722 3,043
---------------- -------------- ------------ ------------- --------------
Total Contractual Cash
Obligation $12,129 $2,888 $3,476 $2,722 $3,043
================ ============== ============ ============= ==============
Other Commercial Commitments:
Standby Letter of Credit $ 1,981 $1,375 $ 606 $ -- $ --
Inventory Purchases 500 500 -- -- --
---------------- -------------- ------------ ------------- --------------
Total Commercial
Commitment $ 2,481 $1,875 $ 606 $ -- $ --
================ ============== ============ ============= ==============
Forward Looking Statements
Statements contained in this Form 10-Q that are not based on historical
fact are "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements may be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "estimate," "anticipate," "continue," or similar terms, variations of
such terms or the negative of those terms. Such forward-looking statements
involve risks and uncertainties, including, but not limited to: (i) our limited
operating history; (ii) our need to substantially increase the number of our
subscribers; (iii) our need to improve our systems to monitor our wireless
airtime costs more effectively; (iv) our ability to respond to the rapid
technological change of the wireless data industry and offer new services; (v)
our dependence on wireless carrier networks; (vi) our need to expand our sales
and marketing activities and build the GoAmerica brand; (vii) our ability to
respond to increased competition in the wireless data industry; (viii) our
ability to integrate acquired businesses and technologies; (ix) our ability to
leverage strategic alliances to generate revenue growth; (x) our ability to
increase or maintain gross margins, profitability, liquidity and capital
resources; (xi) our ability to manage expanded operations; (xii) our ability to
divest our CDPD subscribers; and (xiii) our estimate of our ability to fund our
operating needs through available cash reserves. 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 may differ materially from the results
discussed in or implied by the forward-looking statements contained herein.
Recent Accounting Pronouncements
In May 2000, the Emerging Issues Task Force, or EITF, reached a consensus
on EITF 00-14, "Accounting for Certain Sales Incentives", which provides
guidance on accounting for discounts, coupons, rebates and free products, as
well as the classification of these discounts, coupons, rebates and free
products in the statement of operations. We adopted the provisions of EITF 00-14
effective April 1, 2001. The adoption of the consensus resulted in the
reclassification of certain sales incentives as a reduction of subscriber
revenues. All prior period results reflect such reclassification. Prior to April
1, 2001, such incentives were recorded entirely as reductions to equipment
revenue. The adoption of this consensus had no impact on total revenues or on
net loss.
On August 1, 2001, the Financial Accounting Standards Board, or FASB issued
Statement of Financial Accounting Standards, or SFAS No. 144, "Accounting For
Impairment of Long Lived Assets". We are required to adopt this pronouncement
beginning January 1, 2002. SFAS No. 144 prescribes the accounting for long-lived
assets (excluding goodwill) to be disposed of by sale. SFAS No. 144 retains the
requirement of SFAS No. 121 to measure long-lived asset classified as held for
sale at the lower of its carrying value or fair market value less the cost to
sell. Therefore, discontinued operations are no longer measured on a net
realizable basis, and future operating results are no longer recognized before
they occur. The impact of adopting SFAS No. 144 had no effect on our results of
operations or financial position.
- 12 -
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. Adoption of SFAS 146 is required with the
beginning of fiscal year 2003. We do not anticipate a significant impact on its
results of operations from adopting this Statement.
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 June 30, 2002, 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 $0.2 million based on cash and cash equivalent
balances at June 30, 2002. We currently hold no derivative instruments and do
not earn foreign-source income.
- 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. ("GoAmerica") in the Superior Court of the State of
California for the County of Los Angeles seeking payment of $590,000, plus
damages, expenses, interest and costs of suit. This action was removed to the
United States District Court for the Central District of California pursuant to
a motion brought by GoAmerica and is currently pending in that court. Air Eagle
alleges that GoAmerica, as successor in interest to Flash Creative Management,
Inc. ("Flash"), failed to perform its obligations under a time and materials
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 in the United States District Court
for the District of New Jersey for violations of federal and state securities
laws and common law fraud in connection with the sale of the assets of Flash to
GoAmerica. The Company intends to vigorously pursue its claims against Flash and
the other named defendants in this action.
Item 2. Changes in Securities and Use of Proceeds
Changes in Securities
On April 12, 2002, we granted Stock Options to an officer pursuant to our
1999 Stock Plan. Such Stock Options were granted at an exercise price of $1.89
per share, the then current fair market value of the Common Stock, with four
year vesting. The aggregate number of shares of common stock underlying such
stock option grants totaled 236,037.
On May 1, 2002, we granted Stock Options to various employees pursuant to
our 1999 Stock Plan. All of such Stock Options were granted at an exercise price
of $0.78 per share, the then current fair market value of the Common Stock, with
four year vesting. The aggregate number of shares of common stock underlying
such stock option grants totaled 74,600.
On May 29, 2002, we granted Stock Options to various employees and officers
pursuant to our 1999 Stock Plan. All of such Stock Options were granted at an
exercise price of $0.54 per share, the then current fair market value of the
Common Stock, with four year vesting. The aggregate number of shares of common
stock underlying such stock option grants totaled 282,130.
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 June 30, 2002, approximately $15.9 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 $130.3 million of the net proceeds
have been specifically applied as follows: (i) $5.1 million for the acquisition
of other businesses; (ii) $34.0 million for sales and marketing expenses; (iii)
$10.8 million for the purchase of capital assets; and (iv) $80.4 million for
working capital needs.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders was held on May 15, 2002.
There were present at the Annual Meeting, in person or by proxy,
stockholders holding an aggregate of 46,883,689 shares of Common Stock out of a
total number of 53,740,587 shares of Common Stock issued and outstanding and
entitled to vote at the Annual Meeting. The results of the vote taken at such
Annual Meeting with respect to the election of the nominees to be our Class B
directors as elected by the holders of the Common Stock to hold office until the
2005 Annual Meeting were as follows:
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Nominees For Withheld
- -------- --- --------
Robi Blumenstein 46,011,762 Shares 871,927 Shares
Brian Bailey 46,012,844 Shares 870,845 Shares
Adam Dell, Aaron Dobrinsky and Alan Docter continued their terms as Class C
directors, such terms expiring at the 2003 Annual Meeting of Stockholders.
Joseph Korb and Mark Kristoff continued their terms as Class A directors, such
terms expiring at the 2004 Annual Meeting of Stockholders.
In addition, a vote of the stockholders was taken at the Annual Meeting on
the proposal to ratify the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 2002. The results of the vote
taken were as follows: 46,795,976 shares voted in favor of such proposal, 80,910
shares were voted against such proposal and 6,803 shares abstained from voting.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1- Employment Agreement by and between GoAmerica, Inc. and Aaron
Dobrinsky, dated as of May 6, 2002.
10.2- Employment Agreement by and between GoAmerica, Inc. and Joseph
Korb, dated as of May 6, 2002.
10.3- Amended and Restated Employment Agreement by and between
GoAmerica, Inc. and Daniel R. Luis, dated as of May 6, 2002.
10.4- Employment Agreement by and between GoAmerica, Inc. and Francis
J. Elenio, dated as of May 6, 2002.
10.5- Employment Agreement by and between GoAmerica, Inc. and Jesse
Odom, dated as of May 6, 2002
99.1 Statement Pursuant to 18 U.S.C. ss. 1350
(b) Reports on Form 8-K.
During the quarter ended June 30, 2002, we did not file any Current
Reports on Form 8-K with the Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOAMERICA, INC.
DATE: August 2, 2002 By: /s/ Aaron Dobrinsky
------------------------------------
Aaron Dobrinsky
Chief Executive Officer
(Principal Executive Officer)
DATE: August 2, 2002 By: /s/ Francis J. Elenio
------------------------------------
Francis J. Elenio
Chief Financial Officer
(Principal Financial and Accounting
Officer)
- 16 -
EXHIBIT INDEX
10.1 Employment Agreement by and between GoAmerica, Inc. and Aaron Dobrinsky,
dated as of May 6, 2002.
10.2 Employment Agreement by and between GoAmerica, Inc. and Joseph Korb, dated
as of May 6, 2002.
10.3 Amended and Restated Employment Agreement by and between GoAmerica, Inc.
and Daniel R. Luis, dated as of May 6, 2002.
10.4 Employment Agreement by and between GoAmerica, Inc. and Francis J. Elenio,
dated as of May 6, 2002.
10.5 Employment Agreement by and between GoAmerica, Inc. and Jesse Odom, dated
as of May 6, 2002
99.1 Statement Pursuant to 18 U.S.C. ss. 1350
- 17 -