-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BZstGiDFy/edpc6ssRwIO0jXhI6qRc2bLeXBcYAMLWlRvknueOpLvVIfZZlzsSLs hg9joHKlYWmhzJ5smiDDSA== 0000891092-04-001219.txt : 20040310 0000891092-04-001219.hdr.sgml : 20040310 20040310171452 ACCESSION NUMBER: 0000891092-04-001219 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOAMERICA INC CENTRAL INDEX KEY: 0001101268 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 223693371 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-29359 FILM NUMBER: 04660915 BUSINESS ADDRESS: STREET 1: C/O GOAMERICA, INC. STREET 2: 433 HACKENSACK AVENUE CITY: HACKENSACK STATE: NJ ZIP: 07601 BUSINESS PHONE: 2019961717 MAIL ADDRESS: STREET 1: C/O GOAMERICA STREET 2: 401 HACKENSACK AVENUE CITY: HACKENSACK STATE: NJ ZIP: 07601 10-K 1 e17167_10k.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 0-29359 GOAMERICA, INC. ------------------------------------------------------ (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) Registrant's telephone number, including area code (201) 996-1717 ----------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- None - -------------------------------- ------------------------------------------ Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: X No: --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes: No: X --- --- The aggregate market value of the voting common equity of the registrant held by non-affiliates (for this purpose, persons and entities other than executive officers, directors, and 5% or more shareholders) of the registrant, as of the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2003), was $15,770,560. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 1, 2004: Class Number of Shares ----- ---------------- Common Stock, $0.01 par value 55,721,868 The following documents are incorporated by reference into the Annual Report on Form 10-K: Portions of the registrant's definitive Proxy Statement for its 2004 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. TABLE OF CONTENTS ----------------- Item Page - ---- ---- PART I 1. Business of the Company................................ 2 2. Properties............................................. 13 3. Legal Proceedings...................................... 13 4. Submission of Matters to a Vote of Security Holders.... 15 4A. Executive Officers of the Registrant................... 16 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters................................. 17 6. Selected Consolidated Financial Data................... 19 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 21 7A. Quantitative and Qualitative Disclosures About Market Risk................................................ 35 8. Financial Statements and Supplementary Data............ 35 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. 35 9A. Controls and Procedures................................ 36 PART III 10. Directors and Executive Officers of the Registrant..... 37 11. Executive Compensation................................. 37 12. Security Ownership of Certain Beneficial Owners and Management.......................................... 37 13. Certain Relationships and Related Transactions......... 37 14. Principal Accountant Fees and Services................. 37 PART IV 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................ 38 SIGNATURES................................................................ 40 EXHIBIT INDEX............................................................. 42 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE..................................................... F-1 1 Each reference in this Annual Report to "GoAmerica," the "Company" or "We," or any variation thereof, is a reference to GoAmerica, Inc. and its subsidiaries, unless the context requires otherwise. Many of GoAmerica's product/service names referred to herein are trademarks, service marks or tradenames of GoAmerica. This Annual Report also includes references to trademarks and tradenames of other companies. The GoAmerica and Wynd Communications names and logos and the names of proprietary products and services offered by GoAmerica and Wynd Communications are trademarks, registered trademarks, service marks or registered service marks of GoAmerica. FORWARD-LOOKING STATEMENTS The statements contained in this Annual Report on Form 10-K that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended) that involve risks and uncertainties. Such forward-looking statements may be identified by the use of forward-looking terminology such as "may," "will," "expect," "estimate," "anticipate," "continue," or similar terms, variations of such terms or the negative of those terms. Such forward-looking statements involve risks and uncertainties, including, but not limited to: (i) our limited operating history; (ii) our ability to successfully manage our strategic alliance with EarthLink; (iii) our dependence on EarthLink to provide billing, customer and technical support to certain of our subscribers; (iv) our ability to respond to the rapid technological change of the wireless data industry and offer new services; (v) our dependence on wireless carrier networks; (vi) our ability to respond to increased competition in the wireless data industry; (vii) our ability to integrate acquired businesses and technologies; (viii) our ability to generate revenue growth; (ix) our ability to increase or maintain gross margins, profitability, liquidity and capital resources; and (x) our ability to manage our remaining operations; and (xi) difficulties inherent in predicting the outcome of regulatory processes. Such risks and others are more fully described in the Risk Factors set forth in Exhibit 99.1 to this Annual Report. Our actual results could differ materially from the results expressed in, or implied by, such forward-looking statements. PART I Item 1. Business of the Company. Recent Developments On March 10, 2004, GoAmerica consummated the second stage of a private placement originally announced in December 2003. Through our initial closing in December 2003 and our second closing on March 10, 2004, we raised net proceeds of approximately $13 million through the issuance of our Common Stock and warrants. As a result of this private placement: o We are in a position to begin executing on a new business strategy that we announced this past December. Our strategy is centered on the pursuit of three priorities, centered on our Wynd Communications subsidiary: (a) growth of Wynd 2 Communications' core wireless services business; (b) development and marketing of new communications services, including branded Internet protocol and video relay services; and (c) streamlined operations to enable superior customer support. We expect that we will require substantially all of the net proceeds from the private placement in order to implement this strategy. o We have averted a liquidity shortage that was plaguing our ability to operate our business. As of February 29, 2004, we had less than $225,000 in cash available to us. o Our accountants are no longer expressing a "going concern" qualification in their opinion regarding our certified consolidated financial statements. o We will use a portion of the net proceeds to settle claims with our creditors. Approximately $300,000 of the net proceeds will be used to repay existing indebtedness, consisting of $120,000 to Verizon Wireless, $100,000 to Metricom and $80,000 to Motient. In addition, $600,000 of the net proceeds will support a letter of credit in favor of Cingular. These actions supplement settlements reached with our real estate lessor and with one of our equipment lessors, which has enabled us to improve our balance sheet substantially. We issued a total of 96,820,797 shares of our Common Stock pursuant to this private placement and issued warrants providing for the issuance of up to 10,180,976 shares of our Common Stock at an exercise price of $0.15 per share. For additional information regarding this private placement, see "Management's Discussion and Analysis of Financial Condition and results of Operations - Liquidity and Capital Resources". General GoAmerica is a wireless data communications service provider, offering solutions primarily for consumers who are deaf, hard of hearing and/or speech-impaired. We currently develop, market and support most of these services through Wynd Communications Corporation, a wholly owned subsidiary of GoAmerica. Wynd Communications offers enhanced services known as WyndTell(R) and WyndPower(TM), which assist our deaf or hard of hearing customers in communicating from most major metropolitan areas in the continental United States and parts of Canada. WyndTell and WyndPower allow customers to send and receive email messages to and from any email service, provide for delivery and acknowledgements of sent messages that are read, send and receive TTY/TDD (text telephone or teletypewriter) messages, faxes, and text-to-speech messages, and access the Internet using such wireless computing devices as Research in Motion, or RIM, wireless handheld devices, certain Motorola paging devices and the T-Mobile Sidekick, Fido hiptop, and SunCom hiptop devices running on Danger Inc.'s hiptop platform. Additionally, GoAmerica continues to support customers who use our proprietary software technology called Go.Web(TM). GoWeb is designed for use mainly by enterprise customers to enable secure wireless access to corporate data and the Internet on numerous wireless computing devices (RIM's, BlackBerry and interactive handheld devices; Microsoft Pocket PC-based personal digital assistants; Palm operating system-based handheld computing devices; and laptop computers). The Wynd Communications and Go.Web services transmit over most major 3 wireless data networks in North America. Our revenues are derived principally from subscription to our value-added wireless data services, for which customers typically pay monthly recurring fees. We derive additional revenue from the sale of wireless communications devices and commissions from the acquisition of subscribers on behalf of various wireless network providers. We continue to engineer our technology to operate with new versions of wireless devices as they emerge. Our principal office is located at 433 Hackensack Avenue, Hackensack, New Jersey 07601, and our voice telephone number is (201) 996-1717 and our TTY number is (201) 527-1520. Our web site is located at www.goamerica.com. We have not incorporated by reference into this Form 10-K any of the information on our web site, and you should not consider it to be a part of this document. Our web site address is included in this document as an inactive textual reference only. Corporate History GoAmerica Communications Corp. was incorporated in Delaware in 1996. In December 1999, GoAmerica, Inc. was incorporated in Delaware and each of the security holders of GoAmerica Communications Corp. exchanged all of their outstanding securities for newly issued securities of GoAmerica, Inc., with GoAmerica Communications Corp. becoming a wholly owned subsidiary of GoAmerica, Inc. GoAmerica, Inc. consummated the initial public offering of its common stock in April 2000. On June 28, 2000, we acquired Wynd Communications and on August 31, 2000, we acquired Hotpaper.com, Inc., a provider of Web-based document automation software, infrastructure and content, which was utilized as the basis for developing components of our value-added suite of services. On November 7, 2000, we acquired substantially all the assets of Flash Creative Management, Inc. ("Flash"). Flash provided consulting services to business customers in the areas of business improvement, strategy and redesign and in software development and integration, a line of business, which we are currently not pursuing. On November 13, 2001, we acquired OutBack Resource Group, Inc., a software development company specializing in wireless and network management and technologies. On September 25, 2002, we revised our Go.Web business model by entering into a strategic alliance with EarthLink, Inc., ("Earthlink") pursuant to which, among other things, EarthLink purchased all of our Cellular Digital Packet Data (also known as "CDPD") subscribers and certain other Go.Web subscribers, EarthLink provides billing, collections and customer service to our Go.Web customers, and EarthLink and GoAmerica collaborate on marketing each other's services, and developing new applications extensions of existing technologies and services. This strategic alliance is described in further detail in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2002. The initial term of this strategic alliance with EarthLink is two years and we cannot predict at this time whether this arrangement will be extended, terminated or restructured. 4 Our Business At December 31, 2003, GoAmerica had approximately 13,184 Wynd subscribers and approximately 61,946 Go.Web subscribers, from which we receive, directly or indirectly, monthly subscription fees. GoAmerica's strategy is to focus its resources on delivering, generally through its Wynd Communications subsidiary, a wide range of communications services to people who are deaf or hard of hearing. In addition to wireless, we have also announced plans to enter, either organically, or through partnerships with current providers, the Telecommunications Relay Services ("TRS") arena. TRS enables standard voice telephone users to talk to people who have difficulty hearing or speaking on the telephone. TRS uses operators, called "communications assistants" ("CA's"), to facilitate telephone calls for such individuals. The main service currently offered by Wynd is WyndTell, which enables deaf, hard of hearing and/or speech-impaired users to communicate with co-workers, friends and family members by means of wireless devices, using communications options such as email, fax, paging, text-to-speech, and Text Telephone ("TTY", sometimes referred to as "TDD") messaging. Additionally, we offer a service called Wynd Power. According to the American Speech and Hearing Association, more than 28 million Americans deal with some level of significant hearing loss. In 1998, Wynd introduced text-based pagers and the concept of "wireless TTY". For a person that is deaf or severely hard of hearing, the TTY or TDD, a text-based communications instrument that operates in North America using an outdated protocol, Baudot 45.5, had traditionally been the centerpiece of communications accessibility, usually requiring a wireline connection. The size and weight of most historical TTY devices and the slow transmission speed of the Baudot protocol makes communicating "on-the-go" a difficult task for a deaf individual. Over the years, advances in regulatory policy and technology have vastly improved the level of communications accessibility available to deaf consumers nationwide. (see "Business - Government Regulation") Wynd's services have evolved over the years to include LiveTTY which permits a deaf consumer, using a RIM wireless handheld device to contact a Telecommunications Relay Service provider to place a "live call". Wynd's technology enables this connection. Wynd demonstrated further enhancements to this service in November 2003, with our planned commercial launch of this enhanced service in 2004. Although some people who are deaf and hard of hearing are still able to use voice-based communications services, telecommunications relay services are a basic necessity for those within this large segment of the population who are profoundly deaf and unable to hear any spoken word. The Internet Relay and Video Relay sectors of telecommunications relay services are growing steadily due to broadband technology developments and the prevalence of the Internet. Internet Relay is available to anyone who has access to the Internet via a computer, wireless handheld device, Web-capable telephone or other devices. Unlike traditional TRS, where a TTY user contacts a TRS center via telephone lines and the CA at the TRS center calls the receiving party via voice telephone, the first leg of an Internet Relay call goes from the callers computer or 5 other Web-capable device, to the TRS relay center via the Internet. Video Relay services enable individuals who use sign language to make calls through CA's who can interpret their calls. The caller signs to the CA with the use of video equipment and the CA voices what is signed to the called party and signs back to the caller. Historically, deaf consumers could only access a relay provider through the use of a TTY. With the development of Internet Relay services, any IP (Internet Protocol)-based device can now be used to access relay services. Now deaf consumers can choose their own relay provider rather than having one chosen for them as the provider for the State in which they live, and the technology is faster than the older "Baudot" protocol. Likewise, broadband technologies and web cam equipment have contributed to the evolution of Internet-based video relay services. The relay concept for video is similar to other relay services; the distinction being that the service allows deaf persons to use sign language in telephone communications. The deaf consumer signs his or her portion of a telephonic conversation to a video relay operator who in turn interprets into words for the hearing party as well as signing to the deaf consumer what is being said by the hearing party. We believe that the potential market for wireless and relay communications among deaf and hard of hearing consumers is largely underserved, providing us with opportunities for additional growth. Subject to capital constraints, we also intend to leverage Wynd's brand awareness and extensive distribution alliances to offer a wider portfolio of products and services that are targeted at or useful to people who are deaf or hard of hearing. We seek to deepen penetration within our installed subscriber base and expand the breadth of our overall customer base by distinguishing our current and future offerings with value-added solutions through increased marketing activities. Our strategy includes the following key elements: Growing our Core Wireless Services Business. Our core wireless services business consists of our WyndTell and WyndPower(TM) product offerings. WyndTell is a comprehensive wireless communication service, used on a variety of computing devices, that includes unlimited messaging airtime and certain value-added services, such as AAA Emergency Roadside services, Tripod Captioned Film Information, and usage, delivery and read message statuses, for a monthly fee. Wynd charges additional fees on a monthly basis for other value-added services such as faxing; text-to-speech messaging; operator assistance and TTY messaging. WyndPower is a supplemental monthly service package designed for customers that desire the value-added aspects of our AAA Emergency Roadside service, TTY messaging and operator assistance services, but may have acquired their wireless device and service plan from a different vendor. Introduction of New Communications Services. The rise in consumer adoption of Internet and video relay, coupled with a favorable competitive, technological and regulatory environment, make entry into the relay business attractive. We continue to evaluate the best method of market entry. In addition to wireless and relay, we see opportunities to offer other communications products and services to consumers who are deaf or hard of hearing and, subject to capital constraints, we intend to explore methods of bringing new products and services to this market in 2004. 6 Channel Expansion into Broader Hard of Hearing Market. Historically, our Wynd business has been focused almost exclusively on meeting the needs of consumers who are profoundly deaf. The profoundly deaf market is the smallest segment of the broader population of people who are deaf or hard of hearing. Through our product development activities and alliances, we expect to design and market products and services that will be attractive to consumers in the broader hard of hearing population. We also intend to expand our channel sales efforts to include distribution partners who are already catering to the needs of consumers who are hard of hearing. Streamline Our Operating Infrastructure. We have recently entered into an agreement with Communications Services for the Deaf (CSD) to serve as our outsourced provider for customer support. The first phase of a three-phase deployment with CSD is complete and we expect to complete the other phases by April 2004. The implementation of this relationship with CSD enables our customers to contact us via voice, TTY, or email on a 7 x 24 basis. Acquisitive Growth and Differentiation Through Targeted Transactions. Subject to our capital constraints, we intend to evaluate additional alliances and acquisitions that we believe will allow us to quickly increase the scale and scope of our business. Go.Web. We continue to distribute and support wireless data technology, applications and software that address the productivity and communications needs of enterprise customers and consumers. In the enterprise market, our solutions are primarily based on our proprietary software technology called Go.Web(TM). By utilizing Go.Web, corporations can improve the productivity of employees by enabling secure wireless access to corporate data on many wireless computing devices and over many wireless data networks. Our Go.Web technology can be hosted and supported in a secure network operations center maintained by GoAmerica or its third party outsourcing provider or installed behind an enterprise's network security system, commonly know as the firewall. Customers who opt to install the software do so by purchasing our proprietary Go.Web Enterprise Server, formally known as Go.Web OnPrem(TM), technology. Our revenues are primarily derived from the sale of our value-added wireless data services, for which customers typically pay monthly recurring fees. We derive additional revenue from commissions from the acquisition of subscribers on behalf of various wireless network providers and EarthLink, Inc. Sales and Marketing Sales We currently sell our services and solutions through two primary channels of distribution: direct and indirect. As of March 1, 2004 we had 4 employees working in our sales department. Direct Distribution. Direct distribution methods consist of those channels in which our personnel take the order directly from the customers, currently comprised of our telesales representatives and our DeafWireless Superstore, an online shopping portal designed for people who are deaf or hard of hearing. Our telesales professionals respond to queries generated as 7 a result of Web site visits and our marketing efforts, which usually list our toll-free sales telephone and TTY numbers. Indirect Distribution. Indirect distribution methods consist of those channels where our distribution alliance partners take the order directly from the customers or refer customers to one of our direct sales representatives. With indirect distribution, we capture new business through dealers and value-added resellers. Dealers offer our products and services to their customers and are paid a commission for each sale. A dealer's commission may consist of a one-time bounty only or may include a small percentage of revenues generated by their customers. Dealers are not responsible for billing or supporting the customer. Our dealer network is focused on products designed for people with hearing loss. Value-added resellers buy GoAmerica services at a discounted wholesale price and then sell these services to their customers at a retail price. Resellers are not paid a commission. Resellers are responsible for selling the GoAmerica service and mobile devices, and billing and supporting the customer. We are responsible for billing the reseller. As part of our strategic alliance with EarthLink, EarthLink resells our Go.Web service through its distribution channels as a part of EarthLink's suite of offerings to its customers. Marketing We typically deploy a marketing mix consisting of direct mail, Internet direct response, print ads in periodicals aimed at deaf and hard of hearing audiences, and tradeshow sponsorship and support. As of March 1, 2004, we had 3 employees working in our marketing department. Technology and Operations Service Infrastructure Data Center. We are presently consolidating our GoWeb and WyndTell production systems into a single data center operated by a third party and intend to be fully relocated by April 2004. This new outsourced facility is designed to provide mission critical services to a variety of large corporate clients. Our outsourcing strategy is to provide our customers with the highest levels of reliability while enabling our company to operate with a lower overall cost structure. We believe this data center is capable of meeting the capacity demands and security standards for services we have developed or are developing for our customers. Technical personnel will monitor network traffic, service quality, and security continually. Wireless Networks. Through our relationships with leading wireless services providers, we are able to offer our customers the ability to use our wireless solutions in most major metropolitan areas in the continental United Stated and parts of Canada. We are a dealer for certain preferred services partners such as EarthLink and, in other cases, we provide wireless services directly to our customers through reseller agreements with wireless network operators such as Cingular Interactive, Motient and Metrocall (formerly WebLink Wireless). This type of wireless resale offering is primarily limited to our WyndTell services. 8 Our Software Technology For our Wynd Communications business, we deploy a combination of licensed technology and custom built software. This technology gives our customers access to wireless messaging and information services specifically geared toward the needs of the deaf and hard of hearing users. We have developed and run gateway technology to connect wireless devices to a variety of traditional TTY devices as well as our proprietary TTY-based applications. Currently, our Wynd software supports the RIM-based family of 95X and 85X devices and the Danger HipTop device. For our continuing Go.Web business, we have developed a proprietary wireless services platform that enables our customers to securely access most types of Web-based data from many leading wireless devices. The Go.Web platform also allows qualified developers to introduce standard Web-based applications for many wireless devices and networks. As a result of our Go.Web development efforts, our engineering staff has acquired substantial wireless and Web formatting expertise, which enables us to develop solutions as new wireless devices are introduced. In addition, the Go.Web compression technology and enhanced wireless transport protocol included in our software provide bandwidth efficiency and maximize data transmission speeds. We also have employed industry standard SSL, or secure sockets layer, and use Certicom's cryptography within the Go.Web infrastructure. The Go.Web Client (Browser). The Go.Web client is easily customized to support the operating platforms of most major wireless computing devices. With version 6.5 of Go.Web, we offer standardized features to all supported device types: o Java - Go.Web is available for Java, which increases the number of potential devices that can utilize Go.Web. o Multi Language support - Go.Web provides a single interface for users to access more Web sites, with support of WML, HDML and HTML. o Mobile Clip Technology - Mobile Clips allow for local content storage on the mobile device. Whether in or out of coverage, Mobile Clips provide form and document access. Combined with WAP Push technology and the Go.Web Queue Manager feature, this provides a solid platform for wireless data access and retrieval. o Push Alerts - The Go.Web client is able to receive WAP Push 1.2 compliant alerts. With this feature, developers are able to set up applications that send alerts to users informing them of a change in schedule, a new appointment or detailed customer contact information. In addition, Mobile Clips can be dynamically pushed to the wireless device. o Go.Web Queue Manager - The Go.Web Queue Manager feature enables applications to be used even when the users find themselves outside of a coverage area. Queue Manager will queue HTTP requests and submit them when the user is back in coverage. o Desktop Sync - Users who are out of wireless coverage can now sync their Queue Manager data through their desktop cradle connection, eliminating the need to always be in wireless coverage. 9 Licensed Software Technology The Cingular Interactive Paging Service, or IPS, is based on server software that we have licensed. We are one of a limited number of companies that have deployed an IPS gateway. This service provides two-way messaging on devices such as the RIM interactive devices. Customer Service, Billing and Fulfillment We provide corporate or individual customer billing for all Wynd Communications customers' subscription fees, devices and modems, and other related fees, while we are currently moving our primary customer support functions to Communications Services for the Deaf (CSD). Resellers such as EarthLink provide the majority of customer support and billing for our Go.Web services. The outsourcing structure enables us to provide our customers with best-in-class support while minimizing our own costs of operations. For product fulfillment, we maintain an inventory of mobile devices for our Wynd Communications customers, which we buy from third-party manufacturers and resellers. EarthLink handles that function for our Go.Web customers. Competition The market for our wireless services is becoming increasingly competitive. The widespread adoption of industry standards in the wireless data communications market may make it easier for new market entrants and existing competitors to introduce services that compete against ours. Our competitors may use the same products and services in competition with us. With time and capital, it would be possible for competitors to replicate our services. We expect that we will compete primarily on the basis of the functionality, breadth, quality and price of our services. Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we do, although none (to our knowledge) are exclusively devoted to consumers who are deaf or hard of hearing as is our Wynd subsidiary. Despite the lack of focus, many of these companies may have greater name recognition and may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can. Competitive pressures may have a material adverse effect on our business and reduce our market share or force us to lower prices to unprofitable levels. Research and Development Most of our product and service offerings are developed internally. We also purchase and license technology. We continue to enhance the features and performance of our existing products and services. In addition, we are continuing to develop new products to meet our customers' expectations of ongoing innovation and enhancement within our suite of products. Our ability to meet our customers' expectations depends on a number of factors, including our ability to identify and respond to emerging technological trends in our target 10 markets, develop and maintain competitive products, enhance our existing products by adding features and functionality that differentiate them from those of our competitors and bring products to market on a timely basis and at competitive prices. Consequently, we have made, and we intend to continue to make, investments in research and development, subject to our capital constraints. Intellectual Property Rights We have not yet obtained patents on our technology that would preclude or inhibit competitors from using our technology. In February 2001, we filed a patent application on certain aspects of our Go.Web technology. The application is presently pending in the United States Patent and Trademark Office and has been filed internationally. Certain aspects of our various technologies rely on perpetual, royalty-free, worldwide licenses under Third party patents relating to wireless products and services. We rely on a combination of patent, copyright, trademark, service mark, trade secret laws, unfair competition law and contractual restrictions to establish and protect certain proprietary rights in our technology and intellectual property. We have received or applied for registration of certain of our GoAmerica and Wynd names and marks in the United States Patent and Trademark Office and in trademark offices in jurisdictions throughout the world, including but not limited to, U.S. federal trademark applications for the marks "GoAmerica", "Go.Web" and "WyndTell"; however, we do not currently have any U.S. federal trademark registrations for these trademarks other than "WyndTell". The steps taken by us to protect our intellectual property may not prove sufficient to prevent misappropriation of our technology or to deter independent third-party development of similar technologies. In addition, the laws of certain foreign countries may not protect our technologies or intellectual property rights to the same extent as do the laws of the United States. We also rely on certain technologies that we license from third parties. These third-party technology licenses may not continue to be available to us on commercially attractive terms. The loss of the ability to use such technology could require us to obtain the rights to use substitute technology, which could be more expensive or offer lower quality or performance, and therefore have a material adverse effect on our business, financial condition or results of operations. Third parties could claim infringement by us with respect to current or future technology. We expect that we and other participants in our markets will be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. Any such claim, whether meritorious or not, could be time consuming, result in costly litigation, cause service or installation interruptions or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements might not be available on terms acceptable to us or at all. As a result, any such claim could have a material adverse effect upon our business, financial condition or results of operations. Government Regulation The enactment of the Americans with Disabilities Act mandated that every State implement a system for Telecommunications Relay Services whereby a deaf consumer, using a TTY connected to the telephone network, could communicate with a hearing person through the use of a relay operator. The FCC has oversight responsibility for Telecommunications Relay Services and maintains guidelines that all States must follow. These services, beginning statewide in California in 1987 and nationally available since 1992, empowered deaf consumers 11 to expand their use of the TTY in telephone conversations with hearing parties as well. At the national level, relay services are funded by common carrier contributions to a reimbursement fund that is administered by the National Exchange Carrier's Association. At the State level, funds for relay can come from rate payer surcharges, tariff charges to the local exchange carrier or taxes as administered by the State. We are not currently subject to direct federal, state or local government regulation, other than regulations that apply to businesses generally. The wireless network carriers we contract with to provide airtime are subject to regulation by the Federal Communications Commission. Changes in FCC regulations could affect the availability of wireless coverage these carriers are willing or able to sell to us. We could also be adversely affected by developments in regulations that govern or may in the future govern the Internet, the allocation of radio frequencies or the placement of cellular towers. Also, changes in these regulations could create uncertainty in the marketplace that could reduce demand for our services or increase the cost of doing business as a result of costs of litigation or increased service delivery cost or could in some other manner have a material adverse effect on our business, financial condition or results of operations. We currently do not collect sales or other taxes with respect to the sale of services or products in states and countries where we believe we are not required to do so. We do collect sales and other taxes in the states in which we have offices and are required by law to do so. One or more jurisdictions have sought to impose sales or other tax obligations on companies that engage in online commerce within their jurisdictions. A successful assertion by one or more jurisdictions that we should collect sales or other taxes on our products and services, or remit payment of sales or other taxes for prior periods, could have a material adverse effect on our business, financial condition or results of operations. Any new legislation or regulation, including legislation, which may be adopted by the United States Congress to regulate the Internet, or the application of laws or regulations from jurisdictions whose laws do not currently apply to our business, could have an adverse effect on our business. Employees As of March 1, 2004, we had a total of 39 full-time employees. None of our employees are covered by a collective bargaining agreement. We believe that our relations with our employees are good. 12 Item 2. Properties. We own no real property. Our principal offices are located at 433 Hackensack Avenue in Hackensack, New Jersey, consisting of approximately 5,000 square feet that we lease on a month-to-month basis. On November 14, 2003, GoAmerica and our GoAmerica Communications Corporation subsidiary entered into two agreements with Stellar Continental LLC ("Stellar"), the lessor of our corporate headquarters at 433 Hackensack Avenue and our former office at 401 Hackensack Avenue, both located in Hackensack, New Jersey. The agreements consisted of a Surrender Agreement and a new Lease Agreement as well as a Common Stock purchase warrant. These agreements enabled us and our subsidiary to cure all prior defaults under the previous lease, which we refer to below as the "Original Lease", and terminated all parties' rights and obligations under the Original Lease, in exchange for (i) Stellar's right to retain $555,755 previously drawn on a letter of credit from our GoAmerica Communications Corporation subsidiary's letter of credit that secured the Original Lease, (ii) our issuing a warrant to Stellar that allows it to acquire up to 1,000,000 shares of our Common Stock at an exercise price of $0.46 per share at any time prior to the close of business on November 13, 2008, and (iii) the execution of a new lease, between our GoAmerica Communications Corporation subsidiary and Stellar for office space at 433 Hackensack Avenue, Hackensack, New Jersey, on a month-to-month basis, renewable each month at Stellar's option, for up to 24 months. These agreements relieved us of approximately $8.1 million of future minimum payments on operating lease obligations. The new lease provides us with significantly reduced monthly rent expenses for our corporate headquarters. These agreements also require us to rent from Stellar any new office space in New Jersey that we require during the term of the new lease, on terms no less favorable than the new lease. The offices of Wynd Communications located in San Luis Obispo, California, consisting of approximately 7,400 square feet, are being consolidated with our Hackensack, New Jersey office, during the first half of 2004. Our lease on the Wynd offices expired on January 31, 2004 and we have negotiated a short extension to allow for transition activities. In addition to the network operating facility at our Hackensack office, we recently moved our primary network operations function from our network operating center in New York City to a co-location third party facility in Leonia, New Jersey. The agreement under which we operated our approximately 7,000 square foot New York City network operating center expired on February 29, 2004. The lease for the offices of OutBack in San Luis Obispo was terminated in December 2003. We believe that our current facilities are adequate to support our existing operations subject to any credit or liquidity matters discussed in "Risk Factors". Item 3. Legal Proceedings. On February 15, 2002, Eagle Truck Lines Inc. (also known as Air Eagle, Inc.) filed suit against GoAmerica, Inc. in the Superior Court of the State of California for the County of Los Angeles seeking payment of $590,000, plus other damages, expenses, interest and costs of suit. This action was removed to the United States District Court for the Central District of California and subsequently, pursuant to a motion brought by GoAmerica, transferred to the District of New 13 Jersey where GoAmerica has moved to have it consolidated with the action described in the next paragraph. This consolidation motion will be decided once a decision in the various motions to dismiss is rendered in the Flash action discussed below. Air Eagle alleges that GoAmerica, as successor in interest to Flash Creative Management, Inc. ("Flash"), failed to perform its obligations under a consulting contract dated July 2, 1999 (the "Contract"), by and between Flash and Air Eagle. Air Eagle alleges that GoAmerica assumed the rights and liabilities under this Contract as a result of its purchase of substantially all of the assets of Flash in November 2000. On June 3, 2002, GoAmerica filed an amended answer and counterclaim, denying the allegations of the complaint and seeking payment from Air Eagle of an amount not less than $589,993.60, plus expenses, interest and costs of suit based on Air Eagle's failure to pay for services rendered by Flash and GoAmerica under the Contract. The Company intends to defend this action and pursue its counterclaim vigorously. In a separate but related matter, on July 31, 2002, GoAmerica filed suit against Flash and certain former officers and shareholders of Flash (the "Flash Defendants") in the United States District Court for the District of New Jersey for violations of federal and state securities law and common law fraud in connection with the sale of the assets of Flash to GoAmerica. In October 2002, each of the Flash Defendants filed answers to GoAmerica's complaint denying all of the Company's charges, with one of the Flash Defendants adding counterclaims against the Company and certain named officers alleging, among other things, fraudulent misrepresentation, violations of state securities law and unjust enrichment in excess of $1 million. The other Flash Defendants have been granted leave to amend their answer to include substantially similar counterclaims against the Company and Company officer defendants. The Company has filed a motion to dismiss the Flash Defendants' counterclaims, and the Flash defendants have filed cross-motions for judgment on the pleadings and for summary judgment seeking dismissal of the Company's claims against them. All pending motions are briefed and have been submitted to the Court for decision. The Company intends to vigorously pursue its claims against Flash and the other named defendants in this action, and to defend the counterclaims asserted. On December 23, 2003, the Company executed a settlement agreement with Eastern Computer Exchange, Inc. ("Eastern Computer") with respect to certain payment obligations pursuant to two equipment leases by agreeing to pay Eastern Computer $350,000 upon closing the financing described in Item 7 of this Annual report on Form 10-K (the "Financing") in exchange for a full release of the Company and its affiliates. Eastern Computer had filed suit against the Company on July 2, 2003 in The United States District Court for the District of New Jersey, seeking monetary amounts of up to approximately $800,000 and dismissed the action without prejudice in October 2003 pending settlement discussions. In the event that the Financing does not close and the Company does not secure alternate financing by March 22, 2004, the Company has acknowledged and agreed to the entry of a judgment against the Company for the full amount of the Company's original debt pursuant to the original litigation. 14 Item 4. Submission of Matters to a Vote of Security Holders. The Annual Meeting of Stockholders was held on December 19, 2003. There were present at the Annual Meeting, in person or by proxy, stockholders holding an aggregate of 45,159,739 shares of Common Stock out of a total number of 54,341,946 shares of Common Stock issued and outstanding and entitled to vote at the Annual Meeting. The results of the vote taken at such Annual Meeting with respect to the election of the nominees to be our Class C directors as elected by the holders of the Common Stock to hold office until the 2006 Annual Meeting were as follows: Nominees For Withheld - -------- --- -------- Aaron Dobrinsky 44,632,545 527,194 Alan Docter 44,745,701 414,038 King Lee 44,662,481 497,258 Joseph Korb and Mark Kristoff continued their terms as Class A directors, such terms expiring at the 2004 Annual Meeting of Stockholders. Daniel Luis continued his term as a Class B director, which term expires at the 2005 Annual Meeting of Stockholders. A Special Meeting of Stockholders of the Company was held on March 10, 2004 at which all of the proposals presented were approved. Those proposals approved the Financing discussed in more detail in Note 18 of this 10-K, authorized the Company's Board of Directors to effect a reverse stock split at one of five pre-determined ratios if necessary to keep the Company's Common Stock listed on the Nasdaq SmallCap Market, and authorized the Company to increase the number of its authorized capital shares. Due to the Special Meeting being held just prior to the filing of this 10-K, the audited results of the stockholder votes on each proposal cannot be included here, but the Company will provide them in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2004. 15 Item 4A. Executive Officers of the Registrant The following table identifies the current executive officers of the Company: CAPACITIES IN IN CURRENT NAME AGE WHICH SERVING POSITION SINCE - ---- --- ------------- -------------- Daniel R. Luis ... 37 Chief Executive Officer and Director 2003 Donald Barnhart .. 46 Chief Financial Officer 2004 Jesse Odom ....... 38 Chief Technology Officer 2000 - ---------- Daniel Luis joined our Board of Directors in January 2003 at the time he was elected our Chief Executive Officer. He previously served as our President and Chief Operating Officer from May 2002 until January 2003. Mr. Luis is also President and Chief Executive Officer of Wynd Communications Corp., which became a wholly owned subsidiary of GoAmerica in June 2000. Mr. Luis joined Wynd in 1994 and has held his current positions with Wynd since 1998. Donald Barnhart joined GoAmerica in 1999 and became its Vice President and Controller in 2000. He was appointed Chief Financial Officer in March 2004. Prior to joining GoAmerica, Mr. Barnhart held various finance positions with Bogen Communications and operated his own accounting and consulting firm. Mr. Barnhart is a CPA in New Jersey. Jesse Odom joined GoAmerica in 1996 as Vice President of Network Operations. He was appointed Chief Technology Officer in November 2000. Prior to joining GoAmerica, Mr. Odom served as Vice President of Network Engineering at American International Ore Corporation from 1991 to 1996. None of our executive officers is related to any other executive officer or to any director of the Company. Our executive officers are elected annually by the Board of Directors and serve at the pleasure of the Board of Directors. 16 PART II Item 5. Market for the Registrant's Common Equity, and Related Stockholder Matters. Market for our Common Stock Our common stock traded on the Nasdaq National Market from our initial public offering in April 2000 until August 28, 2002, at which time our listing moved to the Nasdaq Small Cap Market, where it continues to trade under the symbol "GOAM." The following table sets forth the high and low sales prices for our common stock for the quarters indicated as reported on the Nasdaq National Market and Nasdaq SmallCap Market. Quarter Ended High Low ------------------------------------------------ March 31, 2002 ........ $2.60 $1.05 June 30, 2002 ......... $1.39 $0.25 September 30, 2002 .... $0.59 $0.15 December 31, 2002 ..... $0.73 $0.20 March 31, 2003 ........ $0.46 $0.21 June 30, 2003 ......... $0.74 $0.15 September 30, 2003 .... $0.56 $0.24 December 31, 2003 ..... $1.03 $0.29 As of February 11, 2004, the approximate number of holders of record of our common stock was 261 and the approximate number of beneficial holders of our common stock was 16,000. The market price of our common stock has fluctuated since the date of our initial public offering and is likely to fluctuate in the future. Changes in the market price of our common stock and other securities may result from, among other things: o Quarter-to quarter variations in operating results o Operating results being less than analysts' estimates o Changes in analysts' earnings estimates o Announcements of new technologies, products and services or pricing policies by us or our competitors o Announcements of acquisitions or strategic partnerships by us or our competitors o Developments in existing customer or strategic relationships o Actual or perceived changes in our business strategy o Developments in pending litigation and claims o Sales of large amounts of our common stock o Changes in market conditions in wireless technology and wireless telecommunication o Changes in general economic conditions o Fluctuations in securities markets in general. Our common stock is currently not in compliance with Nasdaq Marketplace Rule 4450(a)(5) which requires that a listed company maintain a minimum bid price of $1.00 per share. The Company received notification from the Nasdaq Listing Qualifications Panel extending until May 31, 2004 GoAmerica's temporary exemption from the $1.00 minimum 17 closing bid price per share requirement for continued listing on The Nasdaq SmallCap Market (pursuant to Nasdaq's newly amended Marketplace Rule 4310(c)(8)(D) as approved by the Securities and Exchange Commission (the "SEC") on December 23, 2003). In providing such additional time, the Nasdaq Listings Qualifications Panel noted that the Company is in compliance with all other Nasdaq listing requirements and that GoAmerica has filed a proxy statement pursuant to which the Company will be seeking shareholder approval of, among other things, granting GoAmerica's Board of Directors the discretion to implement a reverse stock split if such action is required to maintain the Company's listing on the Nasdaq SmallCap Market. If our common stock is delisted by Nasdaq, our common stock would be eligible to trade on the OTC Bulletin Board maintained by Nasdaq, another over-the-counter quotation system, or on the pink sheets, where an investor may find it more difficult to dispose of our shares or obtain accurate quotations as to the market value of our common stock. In addition, we would be subject to a rule promulgated by the Commission that, if we fail to meet criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. Consequently, such rule may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. Delisting from Nasdaq will make trading our common stock more difficult for investors, potentially leading to further declines in our share price. It would also make it more difficult for us to raise additional capital. Further, if we are delisted we could also incur additional costs under state blue sky laws in connection with any sales of our securities. Related Stockholder Matters We have never declared or paid any cash dividends on our common stock. We intend to retain earnings, if any, to fund future growth and the operation of our business. Use of Proceeds On April 6, 2000, the SEC declared effective our Registration Statement on Form S-1 (No. 333-94801) as filed with the SEC in connection with our initial public offering of common stock, which was managed by Bear, Stearns & Co., Inc., Chase H&Q, U.S. Bancorp Piper Jaffray, Wit SoundView and DLJdirect, now Harrisdirect. Pursuant to such Registration Statement, on April 12, 2000 we consummated the issuance and sale of an aggregate of 10,000,000 shares of our common stock, for a gross aggregate offering price of $160 million. We incurred underwriting discounts and commissions of approximately $11.2 million. In connection with such offering, we incurred total expenses of approximately $2.6 million. As of December 31, 2003, approximately $568,000 of the $146.2 million in net proceeds received by us upon consummation of such offering, pending specific application, were invested in short-term, investment-grade, interest-bearing instruments. The remaining $145.6 million of the net proceeds have been specifically applied as follows: (i) $5.1 million for the acquisition of other businesses, (ii) $38.1 million for sales and marketing expenses, (iii) $10.9 million for the purchase of capital assets, and (iv) $91.5 million for working capital needs. 18 Item 6. Selected Consolidated Financial Data. The selected consolidated financial data set forth below with respect to our statement of operations data for the years ended December 31, 2003, 2002 and 2001, and with respect to the consolidated balance sheet data at December 31, 2003 and 2002 are derived from and are qualified by reference to our audited consolidated financial statements and related notes thereto presented elsewhere herein. Our consolidated statement of operations data for the years ended December 31, 2000 and 1999 and consolidated balance sheet data as of December 31, 2001, 2000 and 1999 are derived from audited consolidated financial statements not included in this Annual Report on Form 10-K. The selected consolidated financial data set forth below should be read in conjunction with, and is qualified in its entirety by, our audited consolidated financial statements and related notes thereto and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations", which are included elsewhere in this Annual Report on Form 10-K. 19
Years Ended December 31, ----------------------------------------------------------------- (In thousands, except for per share data) 2003 2002 2001 2000 1999 -------- -------- --------- -------- -------- Consolidated Statement of Operations Data: Revenues: Subscriber ............................. $ 10,108 $ 29,017 $ 28,308 $ 8,535 $ 1,104 Equipment .............................. 1,042 6,560 10,088 5,097 1,420 Other .................................. 728 335 618 242 207 -------- -------- --------- -------- -------- Total revenue ............................ 11,878 35,912 39,014 13,874 2,731 -------- -------- --------- -------- -------- Costs and expenses: Cost of subscriber revenue ............. 2,669 20,434 22,578 7,194 4,051 Cost of equipment revenue .............. 1,152 8,537 20,665 6,090 1,648 Cost of network operations ............. 1,828 3,074 3,264 623 375 Sales and marketing .................... 1,072 8,038 24,700 35,807 3,283 General and administrative ............. 9,617 29,082 40,685 26,853 3,970 Research and development ............... 1,209 3,456 4,174 762 465 Depreciation and amortization of fixed assets ......................... 1,912 4,342 2,987 994 275 Amortization of goodwill and other intangibles .................... 1,081 1,483 18,398 7,247 -- Impairment of goodwill ................. 193 8,400 12,991 -- -- Impairment of other intangible assets ............................... -- -- 12,423 -- -- Impairment of other long-lived assets ............................... 1,202 5,582 97 -- -- Settlement costs ....................... -- -- -- -- 297 -------- -------- --------- -------- -------- Total costs and expenses ................. 21,935 92,428 162,962 85,570 14,364 -------- -------- --------- -------- -------- Loss from operations ..................... (10,057) (56,516) (123,948) (71,696) (11,633) Other income: Gain on sale of subscribers ............ 1,756 -- -- -- -- Settlement gains, net .................. 85 -- -- -- -- Interest (expense) income, net ......... (275) 191 3,099 6,944 165 -------- -------- --------- -------- -------- Total other income ....................... 1,566 191 3,099 6,944 165 -------- -------- --------- -------- -------- Net loss before benefit from income taxes ......................... (8,491) (56,325) (120,849) (64,752) (11,468) Income tax benefit ....................... 284 436 578 -- -- -------- -------- --------- -------- -------- Net loss ................................. (8,207) (55,889) (120,271) (64,752) (11,468) Beneficial conversion feature and accretion of redemption value of mandatorily redeemable convertible preferred stock .......... -- -- -- (30,547) (10,463) -------- -------- --------- -------- -------- Net loss applicable to common stockholders ......................... $ (8,207) $(55,889) $(120,271) $(95,299) $(21,931) ======== ======== ========= ======== ======== Basic net loss per share applicable to common stockholders ............... $ (0.15) $ (1.04) $ (2.27) $ (2.19) $ (1.02) ======== ======== ========= ======== ======== Diluted net loss per share applicable to common stockholders ......................... $ (0.15) $ (1.04) $ (2.25) $ (2.18) $ (1.00) ======== ======== ========= ======== ======== Weighted average shares used in computation of basic net loss per share applicable to common stockholders ......................... 54,259 53,846 53,027 43,426 21,590 Weighted average shares used in computation of diluted net loss per share applicable to common stockholders ......................... 54,259 53,869 53,354 43,678 22,025
20
As of December 31, ----------------------------------------------------------- (In thousands) 2003 2002 2001 2000 1999 ------- ------- ------- -------- -------- Balance Sheet Data: Cash and cash equivalents .......................... $ 568 $ 4,982 $34,977 $114,411 $ 6,344 Working capital (deficit) .......................... (2,656) (1,037) 33,292 113,530 2,426 Total assets ....................................... 12,965 26,765 87,785 207,746 9,757 Series A redeemable convertible preferred stock .... -- -- -- -- 20,755 Series B redeemable convertible preferred stock .... -- -- -- -- -- Total stockholders' equity (deficit) ............... 7,142 13,017 66,413 181,530 (16,659)
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The results shown in this Annual Report of Form 10-K are not necessarily indicative of the results we will achieve in any future periods. Overview GoAmerica, Inc., a Delaware corporation ("We," "Us" or the "Company"), develops and distributes wireless data technology, applications and software that address the productivity and communications needs of enterprise customers, and individuals, with one of our business units concentrating on the deaf, hard of hearing or speech impaired community. In the consumer market, we primarily offer wireless data solutions that are designed for people who are deaf, hard of hearing or speech impaired through our wholly owned subsidiary, Wynd Communications Corporation ("Wynd"). In the enterprise market, our solutions are primarily based on our proprietary software technology called Go.Web(TM). By utilizing Go.Web, businesses can improve the productivity of employees by enabling secure wireless access to corporate data on many wireless computing devices and over many wireless data networks. Our Go.Web technology can be hosted and supported in a secure network operations center maintained by GoAmerica or its third party outsourcing provider or installed behind an enterprise's network security system, commonly know as the firewall. Customers who opt to install the software do so by purchasing our proprietary Go.Web Enterprise Server, formally known as Go.Web OnPrem(TM), technology. Historically, we have derived our revenue primarily from the sale of basic and value-added wireless data services and the sale of related mobile devices to our subscribers. During March 1997, we commenced offering our services to individuals and businesses. Since our inception, we have invested significant capital to build our wireless network operations and e-commerce system as well as our billing system. We have invested additional capital in the development of our software applications Go.Web and Mobile Office(R) as well as other software applications. We have provided mobile devices made by third parties to our customers at prices below our costs for such devices. We have incurred operating losses since our inception and expect to continue to incur operating losses for at least the next several quarters. We will need to 21 significantly improve our overall gross margins, and further reduce our selling, general and administrative expenses to become profitable and sustain profitability on a quarterly or annual basis. We will seek to grow Wynd's business through additional strategic alliances or new service offerings. As a result of our strategic alliance with EarthLink, Inc., or EarthLink, we experienced an overall decline in revenue while gross margins increased and selling, marketing and administrative declined. We have generated and may continue to generate revenues from EarthLink from three primary sources: (i) recurring service revenue; (ii) software revenue; and (iii) activation bounties. We have substantially reduced our costs of subscriber airtime and operating costs as a result of our strategic alliance with EarthLink. Our subscriber revenue primarily consists of monthly service fees, which we recognize as revenue when the services are provided to the subscriber. Subscriber revenue accounted for approximately 85.1%, 80.8% and 72.6% of our total revenue during 2003, 2002 and 2001, respectively. Historically, we offered a variety of mobile data service plans. Our consumer plans, which are marketed through Wynd, provide data usage on multiple mobile devices through variable and fixed monthly fees ranging from $9.95 to $39.95. In the enterprise market, we provide unlimited data usage on any mobile device for a fixed monthly fee, which currently ranges from $1.25 to $17.95. We will continue to derive recurring subscriber revenue from our consumer channels and through the sale of our Go.Web software. We also typically sell third-party mobile devices in conjunction with a service agreement to a new subscriber. Equipment revenue accounted for approximately 8.8%, 18.3% and 25.9% of our total revenue during 2003, 2002 and 2001, respectively. We recognize equipment revenue at the time of the shipment of the mobile device to a subscriber. During 2003, approximately 34% of our subscribers purchased a mobile device upon their initial subscription. Over time, we expect that such percentage will decrease as mobile devices for data transmission become more prevalent. In addition to our subscriber and equipment revenue, we historically have generated other revenue which consists of consulting services relating to the development and implementation of wireless data systems for certain corporate customers. We anticipate that our professional service revenues will decrease as a percentage of our total revenues during 2004 from prior year levels. Additionally, we anticipate during 2004 that the amount of our non-recurring bounty revenues we receive from EarthLink and other wireless providers for selling their wireless services and other product offerings to remain constant with 2003 levels. Our sales and marketing expenses consist primarily of compensation and related costs for marketing personnel, advertising and promotions, travel and entertainment and other related costs. We expect sales and marketing expenses to increase as a percentage of sales during 2004 as compared to 2003 as we introduce new products and services to the consumer marketplace. Our general and administrative expenses consist primarily of compensation and related costs for general corporate and business development, along with rent and other related costs. We expect general and administrative expenses to decrease as a percentage of our annual revenues primarily due to our renegotiation of certain lease agreements combined with our planned consolidation of business operations. Our research and development expenses consist primarily of compensation and related costs and professional service fees. Depreciation and amortization expenses consist primarily of depreciation expenses arising from equipment purchased for our network operations center and other property and equipment purchases. 22 During 1999 and the first quarter of 2000, we granted options to certain of our employees at exercise prices below the deemed fair market value per share of our common stock. Such grants resulted in non-cash employee compensation expenses based on the difference, on the date of grant, between the fair market value and the exercise price of stock options granted to employees. The resulting deferred employee compensation is being amortized over the vesting periods of the grants. During 2003, we incurred an aggregate of $314,000 in non-cash employee compensation, representing the remaining balance of deferred compensation, as a result of stock option and warrant grants during 1999 and the first quarter of 2000 which were granted at prices below the fair market value of our common stock. Net interest expense consists primarily of amortization of deferred debt expense and is partially offset by interest earned on cash and cash equivalents. We expect interest expense to increase during 2004 as compared with 2003 as a result of continued amortization of the deferred debt described above. During 2001, we acquired OutBack Resource Group, Inc., a software development company. The total purchase price of approximately $148,000 included the issuance of 134,996 shares of common stock valued at $0.96 per share and warrants issued at the date of acquisition with an estimated fair market value of approximately $19,000 to purchase an aggregate of 67,500 shares of our common stock at an exercise price of $3.00 per share. As a result of this acquisition, we recorded intangibles of approximately $193,000. During 2003, we identified indicators of possible impairment of our long-lived assets, principally goodwill recorded with regard to the acquisition of Outback. Such indicators included the continued deterioration in the business climate for wireless Internet service providers, significant declines in the market values of our competitors in the wireless Internet services industry, recent changes in our 2004 operating and cash flow forecasts, and changes in our strategic plans for certain of our acquired businesses. We determined that the carrying value of these long-lived assets exceeded their respective fair values, thus requiring a write-down totaling $193,000 of goodwill associated with Outback. On December 19, 2003, we announced plans for a strategic re-focusing premised on the consummation of the financing described below. Our strategy is centered on the pursuit of three priorities, centered on the market currently serviced by our Wynd Communications subsidiary: o growth of Wynd Communications' core wireless services business; o development and marketing of new communications services, including branded Internet protocol and video relay services; and o streamlined operations to enable superior customer support. 23 Critical Accounting Policies and Estimates Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts, inventory valuation and recoverability of our intangible assets. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Historically, we have derived our revenue primarily from the sale of basic and value-added wireless data services and the sale of related mobile devices. Subscriber revenue consists primarily of monthly charges for access and usage and is recognized as the services are provided. We also charged our CDPD subscribers a per kilobyte fee for using a mobile device outside of a designated geographical area, or roaming; such fees are recognized as revenue when collected. We also generally charge a non-refundable activation fee upon initial subscription. To the extent such fees exceed the related costs, they are deferred and recognized ratably over the life of the related service contracts, which is generally six months, one year or two years. Equipment revenue is recognized upon shipment to the end user. We have also provided mobile devices to our customers at prices below our costs as incentives for customers to enter into service agreements. Such incentives are recorded as a deferred asset and amortized against subscriber gross margins over the life of the service agreement. We estimate the collectibility of our trade receivables. A considerable amount of judgment is required in assessing the ultimate realization of these receivables, including analysis of historical collection rates and the current credit-worthiness of significant customers. Significant changes in required reserves have been recorded in recent periods and may occur in the future due to the current market conditions. We write down inventory for estimated excess or obsolete inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. In assessing the recoverability of our goodwill, other intangibles and other long-lived assets, we must make assumptions regarding estimated future cash flows. If such assumptions change in the future, we may be required to record impairment charges for these assets not previously recorded. During 2003, we evaluated the carrying value of certain software and equipment, which were idled upon our most recent transition of certain activities to EarthLink and consolidation of our leased locations. As a result, we have recorded adjustments to the carrying value of specific assets. 24 Results of Operations The following table sets forth for the periods indicated certain financial data as a percentage of revenue: Percentage of Revenue --------------------- Years Ended December 31, -------------------------- 2003 2002 2001 ---- ---- ---- Revenue: Subscriber ................................ 85.1% 80.8% 72.6% Equipment ................................. 8.8 18.3 25.8 Other ..................................... 6.1 0.9 1.6 ----- ----- ----- Total revenue .......................... 100.0 100.0 100.0 Costs and expenses: Cost of subscriber revenue ................ 22.5 56.9 57.9 Cost of equipment revenue ................. 9.7 23.8 53.0 Cost of network operations ................ 15.4 8.6 8.4 Sales and marketing ....................... 9.0 22.4 63.2 General and administrative ................ 81.0 81.0 104.3 Research and development .................. 10.2 9.6 10.7 Depreciation and amortization of fixed assets ................................. 16.1 12.1 7.7 Amortization of goodwill and other intangibles ............................ 9.1 4.1 47.2 Impairment of goodwill .................... 1.6 23.4 33.3 Impairment of other intangible assets ..... -- -- 31.8 Impairment of other long-lived assets ..... 10.1 15.5 0.2 ----- ----- ----- Total costs and expenses ............... 184.7 257.4 417.7 ----- ----- ----- Loss from operations ................... 84.7 157.4 317.7 Other income (expense) ....................... 13.2 0.5 7.9 Income tax benefit ........................... 2.4 1.2 1.5 ----- ----- ----- Net loss ............................... 69.1% 155.7% 308.3% ===== ===== ===== Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Subscriber revenue. Subscriber revenue decreased to $10.1 million for the year ended December 31, 2003 from $29.0 million for the year ended December 31, 2002. The decrease was primarily due to having a smaller average subscriber base in the year ended December 31, 2003 than in the year ended December 31, 2002 as a result of the sale of our CDPD subscribers, as well as a portion of our Cingular and Motient network subscribers, to EarthLink during the fourth quarter 2002. Our subscriber base decreased to 75,130 subscribers at December 31, 2003 from 91,384 subscribers at December 31, 2002. We expect the number of our subscribers to remain relatively constant to levels at December 31, 2003 as we continue to improve our subscriber profile. Our average monthly revenue per user, or ARPU, decreased to $10.10 for the year ended December 31, 2003 from $23.53 for the year ended December 31, 2002. The decline in ARPU was due to an increase in the number of new subscribers from the sale of our Go.Web 25 value added services, which generally have a lower monthly ARPU than our full-service offerings. Equipment revenue. Equipment revenue decreased to $1.0 million for the year ended December 31, 2003 from $6.6 million for the year ended December 31, 2002. This decrease was primarily due to our outsourcing of device provisioning to EarthLink. We anticipate that equipment revenue may increase slightly as we continue to provide devices to new subscribers of our Wynd services. Other revenue. Other revenue increased to $728,000 for the year ended December 31, 2003 from $335,000 for the year ended December 31, 2002. This increase was primarily due to consulting services provided to Earthlink. We anticipate that consulting services will decrease as a result of our decision not to pursue certain consulting projects and consulting services to third parties during 2004. Cost of subscriber revenue. Cost of subscriber revenue decreased to $2.7 million for the year ended December 31, 2003 from $20.4 million for the year ended December 31, 2002. The decrease was primarily due to having a smaller average subscriber base in the year ended December 31, 2003 than in the year ended December 31, 2002 as a result of the sale of our CDPD subscribers as well as a portion of our Cingular and Motient network subscribers, to EarthLink during the fourth quarter of 2002. Additionally, during the third and fourth quarters of 2003, we recorded one-time reductions of accruals for certain subscriber-related costs recorded in prior periods of $763,000 and $750,000, respectively. We expect the number of our subscribers to remain relatively constant to levels at December 31, 2003 as we continue to improve our subscriber profile, which we expect will result in comparable costs of subscriber airtime year over year. Cost of equipment revenue. Cost of equipment revenue decreased to $1.2 million for the year ended December 31, 2003 from $8.5 million for the year ended December 31, 2002. This decrease was primarily due to our outsourcing of device provisioning to EarthLink, as well as decreased inventory related charges of approximately $47,000 for the year ended December 31, 2003 compared to $1.6 million for the year ended December 31, 2002 The inventory related charges primarily relate to wireless modems supporting laptop and older PALM OS based models for which sales were lower than expected and a charge for a lower of cost to market adjustment related to other equipment which remained unsold. We anticipate cost of equipment revenue to increase slightly as we continue to provide devices to new subscribers of our Wynd services. Cost of network operations. Cost of network operations decreased to $1.8 million for the year ended December 31, 2003 from $3.1 million for the year ended December 31, 2002. We expect our cost of network operations to decline further as a result of our planned consolidation of our GoWeb and WyndTell production systems into a single data center operated by a third party provider. Sales and marketing. Sales and marketing expenses decreased to $1.1 million for the year ended December 31, 2003 from $8.0 million for the year ended December 31, 2002. This decrease primarily was due to decreased advertising and marketing activities of $2.0 million including advertising costs paid to third parties of approximately $1.3 million and a decrease in salaries and benefits for personnel performing sales and marketing activities of approximately 26 $3.5 million. Additionally, during the year ended December 31, 2003, we recorded a $372,000 one-time reduction of accruals for certain sales and marketing expenses recorded in prior periods. We expect sales and marketing expenses to increase as a percentage of sales during 2004 as compared to 2003 as we introduce new products and services to the consumer marketplace. General and administrative. General and administrative expenses decreased to $9.6 million for the year ended December 31, 2003 from $29.1 million for the year ended December 31, 2002. This decrease primarily was due to decreased professional fees for infrastructure buildout and general corporate activities of approximately $9.6 million, decreased salaries and benefits for personnel performing business development and general corporate activities of approximately $2.7 million, amounts paid to third parties for professional services of approximately $2.3 million, a decrease in our bad debt expense of approximately $2.7 million, and decreased facility costs of approximately $1.6 million. Additionally, during the fourth quarter of 2003, we recorded one-time reductions of deferred rent for certain long term lease related costs recorded in prior periods of $347,000. We expect general and administrative expenses to decline as a result of our renegotiation of certain lease agreements combined with our planned consolidation of business operations. Research and development. Research and development expense decreased to $1.2 million for the year ended December 31, 2003 from $3.5 million for the year ended December 31, 2002. This decrease primarily was due to decreased salaries and benefits for personnel performing research and development activities. We expect research and development expenses to continue to decline as we utilize internal resources to develop and maintain our WyndTell and Go.Web technologies rather than using outside consultants. Amortization of goodwill and other intangibles. Amortization of goodwill and other intangibles decreased for the year ended December 31, 2003 to $1.1 million from $1.5 million for the year ended December 31, 2002. This decrease primarily was due to certain of our other intangibles being fully amortized as of December 31, 2002. We expect amortization of goodwill and other intangible assets to decline further as a result of additional classes of intangible assets becoming fully amortized during 2004. Impairment of goodwill and other long-lived assets. During the second quarter of 2003 and third quarter of 2002, we identified indicators of possible impairment of our long-lived assets, principally goodwill and other acquired intangible assets recorded upon the acquisitions of Wynd, Hotpaper and Outback. Such indicators included the continued deterioration in the business climate for wireless Internet service providers, significant declines in the market values of our competitors in the wireless Internet services industry, recent changes in our 2004 operating and cash flow forecasts, and changes in our strategic plans for certain of our acquired businesses. With the assistance of independent valuation experts, we performed asset impairment tests and determined the fair value of the impaired long-lived assets for the respective acquired entities. Fair value was determined primarily using the discounted cash flow method. A write-down of goodwill and intangible assets totaling $193,000 and $8.4 million were recorded during the second quarter of 2003 and third quarter of 2002, respectively, reflecting the amount by which the carrying amount of the assets exceed their respective fair values. The write-down consisted of $193,000 and $8.4 million for goodwill during the second quarter of 2003 and third quarter of 2002, respectively. In addition, impairment charges related to property and equipment totaling $1.2 million and $5.6 million were recorded during 2003 and 2002, 27 respectively, in accordance with the Statement of Financial Accounting Standard No. 144, "Accounting for Impairment of Long Lived Assets" and Statement of Financial Accounting Standard No. 121, "Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of". Gain on sale of subscribers. Gain on sale of subscribers resulted from our comprehensive strategic alliance whereby EarthLink purchased all of the Company's cellular digital packet data (CDPD) subscribers as well as certain of the Company's Cingular and Motient network subscribers. As a result of this agreement, we recorded a gain on the sale of subscribers of $1,756,000 during 2003. Settlement Gains, net. The Company entered into agreements with certain of its creditors to relieve the Company of certain debts. As a result, the Company has recorded settlement gains totaling $85,000. Interest (expense) income, net. The Company incurred interest expense of $275,000 for the year ended December 31, 2003 compared to interest income of $191,000 for the year ended December 31, 2002. This change was primarily due to the amortization of deferred debt expense and discount recorded on bridge notes payable. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Subscriber revenue. Subscriber revenue increased to $29.0 million for the year ended December 31, 2002 from $28.3 million for the year ended December 31, 2001. The increase was primarily due to having a larger average subscriber base in the year ended December 31, 2002 than in the year ended December 31, 2001. Our subscriber base decreased to 91,384 subscribers at December 31, 2002 from 140,927 subscribers at December 31, 2001 as a result of the sale of our CDPD subscribers, as well as a portion of our Cingular and Motient network subscribers, to EarthLink during the fourth quarter 2002. Our average monthly revenue per user, or ARPU, decreased to $23.53 for the year ended December 31, 2002 from $25.02 for the year ended December 31, 2001. The decline in ARPU was due to an increase in the number of new subscribers from the sale of our Go.Web value added services, which generally have a lower monthly ARPU than our full-service offerings. During 2001, we began charging our subscribers a per kilobyte fee for roaming, which occurs when a customer uses their service outside of a designated geographic area. Amounts billed to subscribers for roaming that have been recognized as revenue were insignificant to date. Equipment revenue. Equipment revenue decreased to $6.6 million for the year ended December 31, 2002 from $10.1 million for the year ended December 31, 2001. This decrease was primarily due to a decrease in the number of the mobile devices sold during the year ended December 31, 2002 compared to the year ended December 31, 2001. Other revenue. Other revenue decreased to $335,000 for the year ended December 31, 2002 from $618,000 for the year ended December 31, 2001. This decrease was primarily due to our decision not to pursue certain consulting projects and consulting services to third parties during 2002. We anticipate that consulting services will increase as a result of our recent strategic alliance with EarthLink in which we will collaborate on developing new applications and extensions of existing technology, including EarthLink-branded wireless data services, as well as new technologies. 28 Cost of subscriber revenue. Cost of subscriber revenue decreased to $20.4 million for the year ended December 31, 2002 from $22.6 million for the year ended December 31, 2001. This decrease was primarily due to a decrease in roaming costs incurred. Roaming costs decreased to $2.5 million for the year ended December 31, 2002 from $6.5 million for the year ended December 31, 2001. Cost of equipment revenue. Cost of equipment revenue decreased to $8.5 million for the year ended December 31, 2002 from $20.7 million for the year ended December 31, 2001. This decrease primarily was due to decreased inventory related charges of approximately $1.6 million for the year ended December 31, 2002 compared to $8.1 million for the year ended December 31, 2001, as well as a decrease in the number of mobile devices sold during the year ended December 31, 2002 compared to the year ended December 31, 2001. The inventory related charges primarily relate to wireless modems supporting laptop and older PALM OS based models for which sales were lower than expected and a charge for a lower of cost to market adjustment related to other equipment which remained unsold. Cost of network operations. Cost of network operations. Cost of network operations decreased slightly to $3.1 million for the year ended December 31, 2002 from $3.3 million for the year ended December 31, 2001. Sales and marketing. Sales and marketing expenses decreased to $8.0 million for the year ended December 31, 2002 from $24.7 million for the year ended December 31, 2001. This decrease primarily was due to decreased advertising activities of $10.2 million including advertising costs paid to third parties of approximately $4.0 million and a decrease in salaries and benefits for personnel performing sales and marketing activities of approximately $1.6 million. General and administrative. General and administrative expenses decreased to $29.1 million for the year ended December 31, 2002 from $40.7 million for the year ended December 31, 2001. This decrease primarily was due to decreased professional fees for infrastructure buildout and general corporate activities of approximately $3.9 million, decreased salaries and benefits for personnel performing business development and general corporate activities of approximately $3.3 million, and a decrease in our bad debt expense of approximately $1.0 million, and decreased facility costs of approximately $1.5 million. Research and development. Research and development expense decreased to $3.5 million for the year ended December 31, 2002 from $4.2 million for the year ended December 31, 2001. This decrease primarily was due to decreased salaries and benefits for personnel performing research and development activities. Amortization of goodwill and other intangibles. Amortization of goodwill and other intangibles decreased for the year ended December 31, 2002 to $1.5 million from $18.4 million for the year ended December 31, 2001 This decrease primarily was due to the adoption of Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002, which no longer requires goodwill and certain intangible assets to be amortized, but instead tested for impairment at least annually. In addition, the decrease reflects the impact of reduced amortization of Other Intangibles as a result of the impairment charge recorded during the fourth quarter of 2001. 29 Impairment of goodwill and other long-lived assets. During the third quarter of 2002 and fourth quarter of 2001, we identified indicators of possible impairment of our long-lived assets, principally goodwill and other acquired intangible assets recorded upon the acquisitions of Wynd, Hotpaper and Flash. Such indicators included the continued deterioration in the business climate for wireless Internet service providers, significant declines in the market values of our competitors in the wireless Internet services industry, recent changes in our 2003 operating and cash flow forecasts, and changes in our strategic plans for certain of our acquired businesses. With the assistance of independent valuation experts, we performed asset impairment tests and determined the fair value of the impaired long-lived assets for the respective acquired entities. Fair value was determined primarily using the discounted cash flow method. A write-down of goodwill and intangible assets totaling $8.4 and $25.4 million were recorded during the third quarter of 2002 and fourth quarter of 2001, respectively, reflecting the amount by which the carrying amount of the assets exceed their respective fair values. The write-down consisted of $8.4 million and $13.0 million for goodwill during the third quarter of 2002 and fourth quarter of 2001, respectively, and $12.4 million for other acquired intangible assets during the fourth quarter of 2001. In addition, impairment charges related to property and equipment totaling $5.6 million and $97,000 were recorded during 2002 and 2001, respectively in accordance with the Statement of Financial Accounting Standard No. 144, "Accounting for Impairment of Long Lived Assets" and Statement of Financial Accounting Standard No. 121, "Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of". Interest income, net. Interest income decreased to $191,000 for the year ended December 31, 2002 from $3.1 million for the year ended December 31, 2001. This decrease was primarily due to the use of cash to fund our losses from operations. Liquidity and Capital Resources Since our inception, we financed our operations through private placements of our equity securities and our redeemable convertible preferred stock, which resulted in aggregate net proceeds of approximately $18.4 million through December 31, 1999. During the first quarter of 2000, we issued and sold 648,057 shares of Series B Preferred Stock for net proceeds of approximately $24.6 million. In April 2000, we consummated our initial public offering of 10,000,000 shares of our common stock at a price to the public of $16.00 per share, all of which were issued and sold for net proceeds of $146.2 million. We have incurred significant operating losses since our inception and as of December 31, 2003 have an accumulated deficit of $264.4 million. During 2003, we incurred a net loss of $8.2 million and used $7.9 million of cash to fund operating activities. As of December 31, 2003 we had $568,000 in cash and cash equivalents ($210 at February 27, 2004). In execution of our 2003 operating plan, we took steps to reduce our annual payroll by more than 60% and took further actions to reduce sales and marketing expenses. In addition we completed the implementation of the agreements associated with our comprehensive strategic alliance with EarthLink. As a result of the completed implementation of these agreements, we anticipate continuing to generate revenues from three primary sources, (i) recurring service revenue; (ii) software revenue; and (iii) activation bounties. Our 2004 operating plan includes further reductions in facility costs as a result of our successful renegotiation of long term lease obligations and consolidation of our business operations. This will be partially offset by increases in sales and marketing expenditures from levels incurred during 2003 as we introduce new products and services to the consumer marketplace. We currently anticipate that our available cash resources, when coupled 30 with the net proceeds from the financing described below, will be sufficient to fund our operating needs for at least the next 12 months. At this time, we do not have any bank credit facility or other working capital credit line under which we may borrow funds for working capital or other general corporate purposes. During 2003, our available cash decreased substantially. This reduction in liquidity created significant constraints on the manner in which our business operated. Additionally, during 2003 we retained an outside advisor to assist us in analyzing various steps that we may take to enhance our liquidity, which included exploration of the sale or other disposition of certain of our assets. During the fourth quarter of 2003 and in preparation of seeking new investors, we ceased exploration of asset sales and commenced negotiations with certain of our largest creditors. On December 19, 2003, we entered into definitive agreements with multiple investors providing for the investors to purchase shares of our Common Stock and warrants, for an aggregate purchase price of $14.5 million in a private placement offering (the "Financing"). As part of the Financing, on December 19, 2003, we received an approximately $1 million secured bridge loan from the investors. The notes issuable in connection with the bridge financing converted into Common Stock upon consummation of the Financing. The closing of the Financing occurred on March 10, 2004, immediately after our stockholders approved the issuance of the securities issuable pursuant to the Financing. The Company received net proceeds (after estimated expenses) from the Financing of approximately $13 million, including the amount loaned to the Company on December 19, 2003. Approximately $300,000 of the net proceeds will be used to repay existing indebtedness, consisting of $120,000 to Verizon Wireless, $100,000 to Metricom and $80,000 to Motient. In addition, $600,000 of the net proceeds will support a letter of credit in favor of Cingular. Pursuant to the Financing, we issued 96,820,796 shares of Common Stock and issued warrants to purchase a total of 10,992,976 shares of Common Stock at an exercise price of $0.15 per share. In connection with the Financing, we entered into a Registration Rights Agreement that required us to file, not later than February 27, 2004, a registration statement covering the Common Stock sold in the Financing, shares issued or issuable to certain of our creditors, pursuant to agreements executed in advance of the first closing, in settlement of certain historical liabilities, and shares underlying certain warrants. In the event that the registration statement is not (a) timely filed and/or (b) declared effective by the Securities and Exchange Commission by April 27, 2004, then each investor will be entitled to receive additional shares of Common Stock (the "Additional Shares") equal in value to 3% of the shares then owned by such investor, or which the investor then has the right to acquire, for each 30-day period or pro rata portion of such period following the date of the applicable deadline until the applicable condition is met. The Additional Shares issuable by us for failure to meet the registration requirements will not exceed 12% of the total shares then owned by each investor or which each investor then has the right to acquire. Since we were not be able to file the registration statement until after we closed the private placement, we know that we will be required to issue at least 3% of the total shares then owned by each investor or which each investor then has the right to acquire. 31 Net cash used in operating activities was $7.9 million, $29.0 million and $68.5 million for the years ended December 31, 2003, 2002 and 2001, respectively. The principal use of cash in each of these periods was to fund our losses from operations. Net cash provided by/(used in) investing activities was $2.6 million, ($448,000) and ($10.3) million for the years ended December 31, 2003, 2002 and 2001, respectively. For the year ended December 31, 2003, we provided cash by release of funds previously restricted and through the sale of subscribers to Earthlink. These amounts were partially offset from the purchases of property, equipment and leasehold improvements as well as an acquisition of subscribers for our Wynd subsidiary. For the years ended December 31, 2002 and 2001, we used cash in investment activities principally for purchases of property, equipment and leasehold improvements. During 2004, we expect to use cash in investing activities through capital expenditures and increases in restricted cash from creditor settlements. Net cash provided by financing activities was $914,000 for the year ended December 31, 2003. This primarily resulted from the issuance of a note payable in connection with the above-mentioned bridge financing and the issuance of common stock from the exercise of stock options. Net cash used in financing activities was $533,000 and $649,000 for the years ended December 31, 2002 and 2001, respectively. This resulted primarily from payments made on lease obligations and was partially offset by the issuance of common stock upon the exercise of stock options. As of December 31, 2003, our principal commitments consisted of obligations outstanding under operating leases. As of December 31, 2003, future minimum payments for non-cancelable operating leases having terms in excess of one year amounted to $158,000, of which $145,000 is payable in 2004. The following table summarizes our contractual obligations at December 31, 2003, and the effect such obligations are expected to have on our liquidity and cash flow in future periods. Less than 1-3 4-5 After 5 December 31, (In thousands) Total 1 Year Years Years Years Contractual Obligations: Capital Lease Obligations ............ $ 13 $ 13 $ -- $ -- $ -- Operating Lease Obligations ............ 158 145 13 -- -- ---- ---- ---- ---- ---- Total Contractual Cash Obligations ............ $171 $158 $ 13 $ -- $ -- ==== ==== ==== ==== ==== We have employment agreements with certain of our key executives, which provide for fixed compensation and bonuses based upon our operating results. Our maximum aggregate cash liability under the agreements, if we terminated these employees, is approximately $150,000 at December 31, 2003. 32 As of December 31, 2003, we had net operating loss carryforwards of approximately $182.5 million for Federal income tax purposes that will expire through 2021. The state tax benefit during 2003 of $284,000 is attributable to our sale of certain state net operating loss carryforwards. For financial reporting purposes, a valuation allowance has been recognized to offset the deferred tax assets related to these carryforwards. Due to limitations imposed by the Tax Reform Act of 1986, and as a result of a significant change in our ownership in 1999, the utilization of net operating loss carryforwards that arose prior to such ownership change is subject to an annual limitation of $1.4 million. In addition, we acquired additional operating losses through our acquisitions of Wynd and Hotpaper. We believe that an ownership change has occurred with respect to these entities. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards attributable to periods before such change. We have not performed a detailed analysis to determine the amount of the potential limitations. In addition, we have not performed a detailed analysis to determine the amount of the potential limitations as a result of the Financing. Recent Accounting Pronouncements In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan, which is generally before an actual liability has been incurred. Adoption of SFAS 146 is required with the beginning of fiscal year 2003. The adoption of this statement did not have a significant impact on our results of operations. In November 2002, the FASB issued FASB Interpretation, "FIN", No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN No. 45 addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that is has issued. Under FIN No. 45, recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year end. The adoption of FIN No. 45 did not have a significant impact on our consolidated financial position or results of operations. In November 2002, the Emerging Issues Task Force, "EITF", reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Elements" (EITF No. 00-21), which addresses certain aspects of accounting for arrangements that include multiple products or services. Specifically this issue states that in an arrangement with multiple deliverables, the delivered items should be considered a separate unit of accounting if: (1) the delivered items have value to the customer on a standalone basis, (2) there is objective and reliable evidence of the fair value of the undelivered items, and (3) the arrangement includes a general right of return relative to the delivered item, and delivery or performance of the undelivered items is considered probable and substantially within our control. Additionally, the Issue states that the consideration should be allocated among the separate units of accounting based upon their relative fair values. If there is objective and reliable evidence of the fair value of the undelivered items in an arrangement but no such evidence for the delivered items, then the residual method 33 should be used to allocate the consideration. Under the residual method, the amount of consideration allocated to the delivered items equals the total consideration less the aggregate fair value of the undelivered items. Accordingly, the application of EITF No. 00-21 may impact the timing of revenue recognition as well as the allocation between products and services. The adoption of EITF No. 00-21 for transactions entered into after July 1, 2003 did not have a significant impact on our consolidated financial statements. In January 2003, the FASB issued interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities". The primary objectives of this interpretation are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities") and how to determine when and which business enterprise (the "primary beneficiary") should consolidate the variable interest entity. This new model for consolidation applies to an entity in which either (i) the equity investors (if any) do not have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that the primary beneficiary, as well as all other enterprises with a significant variable interest entity, make additional disclosures. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN 46-R are as follows: (i) Special-purpose entities ("SPEs") created prior to February 1, 2003. We must apply either the provisions of FIN 46 or early adopt the provisions of FIN 46-R at the end of the first interim or annual reporting period ending after December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003. We are required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. (iii) All entities, regardless of whether an APE, that were created subsequent to January 31, 2003. The provisions of FIN 46 were applicable for variable interests in entities obtained after January 31, 2003. We do not have any arrangements with variable interest entities that will require consolidation of their financial information in our financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liability and equity. It also requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 15, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting a cumulative effect of a change in an accounting principal of financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of SFAS No. 150 did not have a material impact on our consolidated financial position or results of operations. 34 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We believe that we have limited exposure to financial market risks, including changes in interest rates. At December 31, 2003, all of our available excess funds were cash or cash equivalents. The value of our cash and cash equivalents is not materially affected by changes in interest rates. A hypothetical change in interest rates of 1.0% would result in an annual change in net loss of approximately $10,000 based on cash and cash equivalent balances at December 31, 2003. We currently hold no derivative instruments and do not earn foreign-source income. Item 8. Financial Statements and Supplementary Data. The financial statements and the notes thereto which contain supplementary data required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. A list of the financial statements filed herewith is found at "Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K". Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. As previously announced, on December 20, 2002, our Board of Directors, acting upon the recommendation of our Audit Committee, decided to no longer engage Ernst & Young LLP ("Ernst & Young") as our independent auditor and engaged WithumSmith + Brown P.C. ("WSB") to serve as our independent auditor for the year 2002. Ernst & Young's reports on our consolidated financial statements for each of the years ended December 31, 2001, 2000 and 1999 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. During the years ended December 31, 2001, 2000 and 1999 and through the date of our announcement of a change in accountants, (the "Announcement Date"), there were no disagreements with Ernst & Young on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Ernst & Young's satisfaction, would have caused them to make reference to the subject matter in connection with their report on our consolidated financial statements for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K. During the years ended December 31, 2001, 2000 and 1999 and through the Announcement Date, we did not consult with WSB with respect to the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K. 35 Item 9A. Controls and Procedures. Disclosure controls and procedures. As of the end of the Company's most recently completed fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) covered by this report, the Company carried out an evaluation, with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Changes in internal controls over financial reporting. There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 36 PART III Item 10. Directors and Executive Officers. We maintain a code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, and to persons performing similar functions. A copy of this code of ethics is posted on our website accessible at http://www.goamerica.com/media_center. We will provide information that is responsive to this Item 10 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption "Directors and Executive Officers," and possibly elsewhere therein. That information is incorporated in this Item 10 by reference. Item 11. Executive Compensation. We will provide information that is responsive to this Item 11 regarding compensation paid to our executive officers in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption "Executive Compensation," and possibly elsewhere therein. That information is incorporated in this Item 11 by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. We will provide information that is responsive to this Item 12 regarding ownership of our securities by some beneficial owners and our directors and executive officers in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption "Security Ownership of Certain Beneficial Owners and Management," and possibly elsewhere therein. That information is incorporated in this Item 12 by reference. Item 13. Certain Relationships and Related Transactions. We will provide information that is responsive to this Item 13 regarding transactions with related parties in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption "Certain Relationships and Related Transactions," and possibly elsewhere therein. That information is incorporated in this Item 13 by reference. Item 14. Principal Accountant Fees and Services. We will provide information that is responsive to this Item 14 regarding accounting fees and services in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption "Principal Accountant Fees and Services" or "Accounting Matters", and possibly elsewhere therein. That information is incorporated in this Item 14 by reference. 37 PART IV Item 15. Exhibits, Financial Statements and Reports on Form 8-K. (a)(1) Consolidated Financial Statements. Reference is made to the Index to Consolidated Financial Statements and Financial Statement Schedule on Page F-1. (2) Consolidated Financial Statement Schedule. Reference is made to the Index to Consolidated Financial Statements and Financial Statement Schedule on Page F-1. All other schedules have been omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or Notes thereto. (3) Exhibits. Reference is made to the Exhibit Index on Page E-1 (b) Reports on Form 8-K. During the last quarter of the fiscal year ended December 31, 2003, the Registrant filed six Current Reports on Form 8-K with the Commission: On October 27, 2003, the Company filed a Current Report on Form 8-K (under Items 5 and 7) regarding the Nasdaq Stock Market Listing Qualifications Panel granting the Company additional time, through at least December 1, 2003, to regain compliance with the Nasdaq's one dollar minimum bid price per share rule, and the setting of the 2003 Annual Meeting date and Record Date therefore. On November 19, 2003, the Company filed a Current Report on Form 8-K (under Items 5 and 12) regarding the Company's financial results for the three months ended September 30, 2003 (not deemed "filed" pursuant to the rules of the SEC). On November 24, 2003, the Company filed a Current Report on Form 8-K (under Items 5 and 7) regarding the Company's settlement of its long term lease obligations for the Company's headquarters. On December 1, 2003, the Company filed a Current Report on Form 8-K (under Items 5 and 7) regarding the Company's press release with respect to its anticipated continued listing on the Nasdaq SmallCap Market. 38 On December 23, 2003, the Company filed a Current Report on Form 8-K (under Items 5 and 7) regarding (i) Nasdaq's notification to the Company that its temporary exception to Nasdaq's minimum bid price rule was extended through at least January 30, 2004, (ii) the Company's execution of financing agreements with multiple investors, and (iii) the Company's press releases with respect to strategy and operations. On December 24, 2003, the Company filed a Current Report on Form 8-K (under Items 5 and 7) regarding additional information about its proposed financing and the settlement of a material litigation with Eastern Computer Exchange, Inc. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 10th day of March, 2004. GOAMERICA, INC. By: /s/ Daniel R. Luis ----------------------- Daniel R. Luis Chief Executive Officer 40 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Aaron Dobrinsky Chairman of the Board March 10, 2004 - ------------------------- Aaron Dobrinsky /s/ Daniel R. Luis Chief Executive Officer March 10, 2004 - ------------------------- (Principal Executive Officer) Daniel R. Luis /s/ Donald G. Barnhart Chief Financial Officer March 10, 2004 - ------------------------- (Principal Financial and Donald G. Barnhart Accounting Officer) /s/ Joseph Korb Director March 10, 2004 - ------------------------- Joseph Korb /s/ Alan Docter Director March 10, 2004 - ------------------------- Alan Docter /s/ Mark Kristoff Director March 10, 2004 - ------------------------- Mark Kristoff /s/ King Lee Director March 10, 2004 - ------------------------- King Lee 41 EXHIBIT INDEX++ ITEM 15(c) Exhibit No. Description of Exhibit - ----------- ---------------------- (2) Plan of Acquisition 2.1 Merger Agreement and Plan of Reorganization, dated as of November 13, 2001, by and among GoAmerica, Inc., GoAmerica Acquisition III Corp., OutBack Resource Group, Inc. and certain shareholders thereof (Incorporated by reference to Exhibit 2.1 of GoAmerica's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) (File No. 000-29359) (3) Articles of Incorporation and By-laws 3.1 Amended and Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on May 8, 2000 (Incorporated by reference to Exhibit 3.1 of GoAmerica's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) (File No. 000-29359) 3.2 Amendment No. 1 to Amended and Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on March 10, 2004 (filed herewith) 3.3 By-laws (Incorporated by reference to Exhibit 3.2 of GoAmerica's Registration Statement on Form S-1 which became effective on April 6, 2000) (File No. 333-94801) (4) Instruments defining the rights of security holders, including indentures 4.1 Warrant to Purchase Common Stock of GoAmerica, Inc. issued to Sony Electronics, Inc. by GoAmerica, Inc. on January 1, 2001 (Incorporated by reference to Exhibit 4.3 of GoAmerica's Annual Report on Form 10-K for the fiscal year ended December 31, 2000) (File No. 000-29359) 4.2 Form of Warrant to Purchase Common Stock of GoAmerica, Inc. issued to former shareholders of OutBack Resource Group, Inc. on November 13, 2001 (Incorporated by reference to Exhibit 10.2 of GoAmerica's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) (File No. 000-29359) 42 Exhibit No. Description of Exhibit - ----------- ---------------------- 4.3 Warrant to Purchase Common Stock of GoAmerica, Inc., issued to Stellar Continental LLC on November 14, 2003 (Incorporated by reference to Exhibit 4.1 of GoAmerica's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 24, 2003) (File No. 000-29359) 4.4 Warrant to Purchase Common Stock of GoAmerica, Inc., issued to the Investors and designees of GoAmerica's placement agent upon consummation of the second closing contemplated by the Purchase Agreement included as Exhibit 10.35 below (Incorporated by reference to Exhibit 4.5 of GoAmerica's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 24, 2003) (File No. 000-29359) 4.5 Warrant to Purchase Common Stock of GoAmerica, Inc., issued to Derek Caldwell as nominee for Sunrise Securities Corp. on December [18], 2003 (Incorporated by reference to Exhibit 4.6 of GoAmerica's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 24, 2003) (File No. 000-29359) 4.6 Warrant to Purchase Common Stock of GoAmerica, Inc., issued to Amnon Mandelbaum as nominee for Sunrise Securities Corp. on December [18], 2003 (Incorporated by reference to GoAmerica's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 24, 2003) (File No. 000-29359) (10) Material Contracts 10.1 Form of Invention Assignment and Non-Disclosure Agreement by and between GoAmerica and its employees (Incorporated by reference to Exhibit 10.5 of GoAmerica's Registration Statement on Form S-1 which became effective on April 6, 2000) (File No. 333-94801) 10.2 Form of Indemnification Agreement by and between GoAmerica and each of its directors and executive officers (Incorporated by reference to Exhibit 10.6 of GoAmerica's Registration Statement on Form S-1 which became effective on April 6, 2000) (File No. 333-94801) 10.3# Value Added Reseller Agreement by and between GoAmerica, Wynd and Cingular Interactive, L.P., dated as of December 30, 2003 (filed herewith) 43 Exhibit No. Description of Exhibit - ----------- ---------------------- 10.4= Reseller Agreement for Messaging Services by and between GoAmerica and ARDIS Company (now Motient Communications Inc.), dated August 25, 1999 (Incorporated by reference to Exhibit 10.4 of GoAmerica's Registration Statement on Form S-1 which became effective on April 6, 2000) (File No. 333-94801) 10.7* Amended and Restated Employment Agreement by and between GoAmerica, Inc. and Daniel R. Luis, dated as of May 6, 2002 (Incorporated by reference to Exhibit 10.3 of GoAmerica's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002) (File No. 000-29359) 10.8* Employment Agreement by and between GoAmerica and Aaron Dobrinsky, dated as of May 6, 2002 (Incorporated by reference to Exhibit 10.1 of GoAmerica's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002) (File No. 000-29359) 10.9* Employment Agreement by and between GoAmerica and Joseph Korb, dated as of May 6, 2002 (Incorporated by reference to Exhibit 10.2 of GoAmerica's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002) (File No. 000-29359) 10.10* Employment Agreement by and between GoAmerica and Jesse Odom, dated as of May 6, 2002 (Incorporated by reference to Exhibit 10.5 of GoAmerica's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002) (File No. 000-29359) 10.11* GoAmerica Communications Corp. 1999 Stock Option Plan (Incorporated by reference to Exhibit 10.11 of GoAmerica's Registration Statement on Form S-1 which became effective on April 6, 2000) (File No. 333-94801) 10.12* GoAmerica, Inc. 1999 Stock Plan (Incorporated by reference to Exhibit 10.12 of GoAmerica's Registration Statement on Form S-1 which became effective on April 6, 2000) (File No. 333-94801) 10.13* GoAmerica, Inc. Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.13 of GoAmerica's Registration Statement on Form S-1 which became effective on April 6, 2000) (File No. 333-94801) 44 Exhibit No. Description of Exhibit - ----------- ---------------------- 10.14 Lease Agreement, dated as of November 14, 2003, by and between GoAmerica Communications Corp. and Stellar Continental LLC (Incorporated by reference to Exhibit 10.2 of GoAmerica's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 24, 2003) (File No. 000-29359) 10.15 Surrender Agreement, dated as of November 14, 2003, among GoAmerica, Inc., GoAmerica Communications Corp. and Stellar Continental LLC (Incorporated by reference to Exhibit 10.1 of GoAmerica's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 24, 2003) (File No. 000-29359) 10.16 Purchase Agreement, dated as of December 19, 2003, by and between GoAmerica, Inc. and the Investors set forth therein (Incorporated by reference to Exhibit 4.1 of GoAmerica's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 24, 2003) (File No. 000-29359) 10.17 Registration Rights Agreement, dated as of December 19, 2003, by and between GoAmerica, Inc. and the Investors set forth therein (Incorporated by reference to Exhibit 4.2 of GoAmerica's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 24, 2003) (File No. 000-29359) 10.18= Acquisition Agreement, dated as of September 25, 2002, between EarthLink, Inc., GoAmerica, Inc. and GoAmerica Communications Corp. (Incorporated by reference to GoAmerica's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 10, 2002) (File No. 000-29359) 10.19= Sales Agent Agreement, dated as of September 25, 2002, between EarthLink, Inc., GoAmerica, Inc. and GoAmerica Communications Corp. (Incorporated by reference to GoAmerica's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 10, 2002) (File No. 000-29359) 10.20= Technology Development Agreement, dated as of September 25, 2002, between EarthLink, Inc., GoAmerica, Inc. and GoAmerica Communications Corp. (Incorporated by reference to GoAmerica's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 10, 2002) (File No. 000-29359) 10.21= License Agreement, dated as of September 25, 2002, between EarthLink, Inc., GoAmerica, Inc. and GoAmerica Communications Corp. (Incorporated by reference to GoAmerica's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 10, 2002) (File No. 000-29359) 45 Exhibit No. Description of Exhibit - ----------- ---------------------- (21) Subsidiaries of GoAmerica, Inc. 21.1 List of subsidiaries of GoAmerica, Inc. (filed herewith) (23) Consents of Experts and Counsel 23.1 Consent of WithumSmith+Brown, P.C. (filed herewith) 23.2 Consent of Ernst & Young LLP. (filed herewith) (31) Personal Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.1 Certification of Chief Executive Officer 31.2 Certification of principal financial officer (32) Personal Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer 32.2 Certification of principal financial officer (99) Additional Exhibits 99.1 Risk Factors (filed herewith) # Certain portions of this exhibit have been omitted based upon a request for confidential treatment. The omitted portions of this exhibit have been filed separately with the Securities and Exchange Commission on a confidential basis. = Confidential treatment has been requested and granted (subject to applicable renewals) for a portion of this Exhibit. Confidential materials have been omitted and filed separately with the Securities and Exchange Commission. * Management contract or compensatory plan required to be filed as an exhibit to this form pursuant to Item 15(c). ++ Certain schedules and exhibits to the documents listed in this index are not being filed herewith or have not been previously filed because we believe that the information contained therein is not material. Upon request therefore, we agree to furnish supplementally a copy of any schedule or exhibit to the Securities and Exchange Commission. 46 GOAMERICA, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page ---- Reports of Independent Auditors ........................................ F-2 Consolidated Balance Sheets as of December 31, 2003 and 2002 ........... F-4 Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001 .................................... F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001 .................................... F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001 .................................... F-7 Notes to Consolidated Financial Statements ............................. F-8 Financial Statement Schedule: Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2003, 2002 and 2001 ................................... F-35 All other schedules have been omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or Notes thereto. F-1 Report of Independent Auditors The Board of Directors and Stockholders GoAmerica, Inc. We have audited the accompanying consolidated balance sheets of GoAmerica, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 2003 and 2002. Our audits also included the financial statement schedule for the years ended December 31, 2003 and 2002 as listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of GoAmerica, Inc. as of December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for the years ended December 31, 2003 and 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ WithumSmith + Brown, P.C. New Brunswick, New Jersey March 4, 2004, except for note 18 as to which the date is March 10, 2004 F-2 Report of Independent Auditors The Board of Directors and Stockholders GoAmerica, Inc. We have audited the accompanying consolidated statements of operations, stockholders' equity (deficit) and cash flows for the year ended December 31, 2001. Our audits also included the financial statement schedule for the year ended December 31, 2001 listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of GoAmerica, Inc. for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for the year ended December 31, 2001, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ Ernst & Young LLP MetroPark, New Jersey March 26, 2002 F-3 GOAMERICA, INC. Consolidated Balance Sheets (In thousands, except share and per share data)
December 31, ------------------------ 2003 2002 --------- --------- Assets Current assets: Cash and cash equivalents .............................................. $ 568 $ 4,982 Accounts receivable, less allowance for doubtful accounts of $1,213 in 2003 and $3,418 in 2002 ............................................. 1,737 5,780 Other receivables ...................................................... 534 -- Merchandise inventories, net ........................................... 213 1,046 Prepaid expenses and other current assets .............................. 115 520 --------- --------- Total current assets ...................................................... 3,167 12,328 Restricted cash ........................................................... -- 950 Property, equipment and leasehold improvements, net ....................... 1,606 4,685 Trade names, net of accumulated amortization of $4,019 in 2003 and $3,651 in 2002 ..................................................... 553 921 Other intangible assets, net of accumulated amortization of $6,442 in 2003 and $5,729 in 2002, respectively ............................... 251 546 Goodwill, net ............................................................. 6,000 6,193 Deferred debt and other financing expense, net ............................ 1,091 -- Other assets .............................................................. 297 1,142 --------- --------- Total assets .............................................................. $ 12,965 $ 26,765 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Accounts payable ....................................................... $ 1,472 $ 4,694 Accrued expenses ....................................................... 3,040 5,917 Bridge note payable, net of discount of $390 ........................... 625 -- Deferred revenue ....................................................... 673 2,406 Other current liabilities .............................................. 13 348 --------- --------- Total current liabilities ................................................. 5,823 13,365 Other long term liabilities ............................................... -- 383 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; authorized: 4,351,943 in 2003 and 2002; issued and outstanding: none in 2003 and 2002 ............. -- -- Common stock, $.01 par value; authorized: 200,000,000 in 2003 and 2002; issued and outstanding: 54,788,618 in 2003 and 54,026,057 in 2002, respectively .................................... 548 540 Additional paid-in capital ............................................. 271,025 269,015 Deferred employee compensation ......................................... -- (314) Accumulated deficit .................................................... (264,431) (256,224) --------- --------- Total stockholders' equity ................................................ 7,142 13,017 --------- --------- Total liabilities and stockholders' equity ................................ $ 12,965 $ 26,765 ========= =========
See accompanying notes. F-4 GOAMERICA, INC. Consolidated Statements of operations (In thousands, except share and per share data)
Years ended December 31, ---------------------------------------------- 2003 2002 2001 ----------- ----------- ----------- Revenues: Subscriber ....................................... $ 10,108 $ 29,017 $ 28,308 Equipment ........................................ 1,042 6,560 10,088 Other ............................................ 728 335 618 ----------- ----------- ----------- 11,878 35,912 39,014 Costs and expenses: Cost of subscriber revenue ....................... 2,669 20,434 22,578 Cost of equipment revenue ........................ 1,152 8,537 20,665 Cost of network operations ....................... 1,828 3,074 3,264 Sales and marketing .............................. 1,072 8,038 24,700 General and administrative ....................... 9,617 29,082 40,685 Research and development ......................... 1,209 3,456 4,174 Depreciation and amortization of fixed assets .... 1,912 4,342 2,987 Amortization of goodwill and other intangibles ...................................... 1,081 1,483 18,398 Impairment of goodwill ........................... 193 8,400 12,991 Impairment of other intangible assets ............ -- -- 12,423 Impairment of other long-lived assets ............ 1,202 5,582 97 ----------- ----------- ----------- 21,935 92,428 162,962 ----------- ----------- ----------- Loss from operations ................................ (10,057) (56,516) (123,948) Other income (expense): Gain on sale of subscribers ...................... 1,756 -- -- Settlement gains, net ............................ 85 -- -- Interest (expense) income, net ................... (275) 191 3,099 ----------- ----------- ----------- 1,566 191 3,099 ----------- ----------- ----------- Net loss before benefit from income taxes ........... (8,491) (56,325) (120,849) Income tax benefit ............................... 284 436 578 ----------- ----------- ----------- Net loss ............................................ $ (8,207) $ (55,889) $ (120,271) =========== =========== =========== Basic net loss per share ............................ $ (0.15) $ (1.04) $ (2.27) =========== =========== =========== Diluted net loss per share .......................... $ (0.15) $ (1.04) $ (2.25) =========== =========== =========== Weighted average shares used in computation of basic net loss per share ......................... 54,259,237 53,845,787 53,027,209 Weighted average shares used in computation of diluted net loss per share ....................... 54,259,237 53,869,236 53,353,958
See accompanying notes. F-5 GOAMERICA, INC. Consolidated Statements of Stockholders' Equity (In thousands, except share data)
Common Stock Total --------------------- Additional Deferred stock- Number paid-in employee Accumulated holders' of shares Amount capital compensation deficit equity ---------- ------ ---------- ------------ ----------- ---------- Balance at January 1, 2001 ..................... 53,128,715 $531 $ 268,849 $(7,786) $ (80,064) $ 181,530 Issuance of common stock pursuant to: exercise of employee stock options ............................. 369,642 4 267 -- -- 271 exercise of warrants .................... 130,450 1 (1) -- -- -- purchase of businesses .................. 134,996 1 147 -- -- 148 Purchase of treasury stock .................. (54,000) -- (49) -- -- (49) Adjustment to deferred employee compensation for terminations ............ -- -- (973) 973 -- -- Amortization of deferred employee compensation ............................. -- -- -- 3,971 -- 3,971 Issuance of warrant in exchange for marketing services ....................... -- -- 813 -- -- 813 Net loss .................................... -- -- -- -- (120,271) (120,271) ---------- ---- --------- ------- --------- --------- Balance at December 31, 2001 ................... 53,709,803 537 269,053 (2,842) (200,335) 66,413 Issuance of common stock pursuant to: exercise of employee stock options .............................. 231,018 2 112 -- -- 114 employee stock purchase plan ............. 85,236 1 63 -- -- 64 Adjustment to deferred employee compensation for terminations ............ -- -- (213) 213 -- -- Amortization of deferred employee compensation .............................. -- -- -- 2,315 -- 2,315 Net loss .................................... -- -- -- -- (55,889) (55,889) ---------- ---- --------- ------- --------- --------- Balance at December 31, 2002 ................... 54,026,057 540 269,015 (314) (256,224) 13,017 Issuance of common stock pursuant to: exercise of employee stock options .............................. 714,483 7 251 -- -- 258 employee stock purchase plan ............. 48,078 1 12 -- -- 13 Issuance of warrant to settle lease commitment ............................... -- -- 440 -- -- 440 Issuance of warrant to placement agent to secure bridge note financing ............. -- -- 292 -- -- 292 Fair value of warrants issued to investors as part of bridge note financing ......... -- -- 487 -- -- 487 Value of beneficial conversion feature of convertible bridge note financing ........ -- -- 528 -- -- 528 Amortization of deferred employee compensation ............................. -- -- -- 314 -- 314 Net loss .................................... -- -- -- -- (8,207) (8,207) ---------- ---- --------- ------- --------- --------- Balance at December 31, 2003 ................... 54,788,618 $548 $ 271,025 $ -- $(264,431) $ 7,142 ========== ==== ========= ======= ========= =========
See accompanying notes. F-6 GOAMERICA, INC. Consolidated Statements of Cash Flows (In thousands)
Years ended December 31, ------------------------------------ 2003 2002 2001 ------- -------- --------- Operating activities Net loss ................................................................ $(8,207) $(55,889) $(120,271) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ..................................... 2,993 5,825 21,385 Amortization of debt discount and deferred financing costs ........ 248 -- -- Impairment of goodwill ............................................ 193 8,400 12,991 Impairment of other intangible assets ............................. -- -- 12,423 Impairment of other long-lived assets ............................. 1,202 5,582 97 Provision for losses on accounts receivable ....................... 534 3,221 4,197 Accrued loss on sublease .......................................... 509 -- -- Gain on sale of subscribers ....................................... (1,756) -- -- Non-cash employee compensation .................................... 314 2,315 3,971 Non-cash warrant expense .......................................... 440 -- -- Non-cash marketing expense ........................................ -- -- 2,086 Other non-cash charges ............................................ 7 -- 254 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable ..................... 3,509 (329) (7,852) Increase in other receivables .................................. (534) -- -- Decrease in inventory .......................................... 833 6,921 6,054 Decrease in prepaid expenses and other current assets .......... 405 1,853 1,384 Decrease in accounts payable ................................... (3,374) (4,982) (259) Decrease in accrued expenses and other current liabilities ..... (3,496) (1,532) (5,582) (Decrease) increase in deferred revenue ........................ (1,733) (399) 623 ------- -------- --------- Net cash used in operating activities ................................... (7,913) (29,014) (68,499) Investing activities Purchase of property, equipment and leasehold improvements .............. (35) (451) (9,159) Proceeds from the sale of subscribers ................................... 1,756 -- -- Acquisition of subscribers .............................................. (368) -- -- Purchase of patents ..................................................... -- -- (1,000) Acquisition of businesses, net of cash acquired ......................... -- -- (127) Change in other assets and restricted cash .............................. 1,232 3 -- ------- -------- --------- Net cash provided by (used in) investing activities ..................... 2,585 (448) (10,286) Financing activities Issuance of common stock ................................................ 271 178 271 Issuance of note payable and warrant, net of financing costs of $215 .... 800 -- -- Payments made for deferred financing costs .............................. (112) -- -- Purchase of treasury stock .............................................. -- -- (49) Payments made on capital lease obligations .............................. (45) (711) (871) ------- -------- --------- Net cash provided by (used in) by financing activities ................. 914 (533) (649) ------- -------- --------- Decrease in cash and cash equivalents ................................... (4,414) (29,995) (79,434) Cash and cash equivalents at beginning of year .......................... 4,982 34,977 114,411 ------- -------- --------- Cash and cash equivalents at end of year ................................ $ 568 $ 4,982 $ 34,977 ======= ======== =========
See accompanying notes. F-7 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 1. Description of Business and Basis of Presentation GoAmerica, Inc. (the "Company") is a wireless data communications service provider, offering solutions primarily for consumers who are deaf, hard of hearing and/or speech-impaired. The Company currently develops, markets and supports most of these services through Wynd Communications Corporation ("Wynd"), a wholly owned subsidiary of the Company. Wynd Communications offers enhanced services known as WyndTell(R) and WyndPower(TM), which assist deaf or hard of hearing customers in communicating from most major metropolitan areas in the continental United States and parts of Canada. Additionally, GoAmerica continues to support customers who use our proprietary software technology called Go.Web(TM). GoWeb is designed for use mainly by enterprise customers to enable secure wireless access to corporate data and the Internet on numerous wireless computing devices. The Company's revenues are derived principally from subscriptions to its value-added wireless data services, for which customers typically pay monthly recurring fees. The Company derives additional revenue from the sale of wireless communications devices and commissions from the acquisition of subscribers on behalf of various wireless network providers. The Company is highly dependent on EarthLink, Inc. ("Earthlink") for billing and collections, customer support and technical support for certain of our subscribers. Additionally, the Company is highly dependent on EarthLink and other third parties for wireless communication devices and wireless network connectivity. The Company operates in a highly competitive environment subject to rapid technological change and emergence of new technology. Although management believes its services are transferable to emerging technologies, rapid changes in technology could have an adverse financial impact on the Company. The Company has incurred significant operating losses since its inception and, as of December 31, 2003, has an accumulated deficit of $264,431. During 2003, the Company incurred a net loss of $8,207 and used $7,913 of cash to fund operating activities. As of December 31, 2003 the Company had $568 in cash and cash equivalents ($210 at February 27, 2004, unaudited). In execution of the 2003 operating plan, the Company took steps to reduce its annual payroll by more than 60% and took further actions to reduce sales and marketing expenses, some of which resulted from the implementation of the Earthlink agreements (See Note 3). In light of the Company's financial situation, the Company sought new equity financing and consummated a $14,500 financing in March 2004 with the receipt of $12,000, net of costs, in new equity financing (see note 18). The Company had previously received approximately $800, net of costs of bridge financing, in December 2003 (see note 5). F-8 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 2. Significant Accounting Policies Basis of Consolidation The consolidated financial statements include the accounts of GoAmerica, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Cash Equivalents Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of certain expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates that affect the financial statements include, but are not limited to: collectibility of accounts receivable, amortization periods and recoverability of long-lived assets. Receivables and Credit Policies Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Accounts receivable are stated at the amount billed to the customer. Interest is not billed or accrued. Accounts receivable in excess of 90 days old are considered delinquent. Payments of accounts receivable are allocated to the specific invoices identified on the customer's remittance advice or, if unspecified, are applied to the oldest unpaid invoices. The carrying amount of accounts receivable is reduced by a valuation allowance that reflects the Company's best estimate of the amounts that may not be collected. This estimate is based on reviews of all balances in excess of 90 days from the invoice date and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. The Company reviews its valuation allowance on a quarterly basis. Merchandise Inventories Merchandise inventories, principally wireless devices, are stated at the lower of cost (first-in, first-out) basis or market. There are a limited number of suppliers of the Company's inventory. Inventories are recorded net of a reserve for excess and obsolete merchandise. F-9 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements are stated at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the related assets ranging from two to seven years. Expenditures for maintenance and repairs are charged to expense as incurred. Computer Software Developed or Obtained For Internal Use All direct internal and external costs incurred in connection with the application development stage of software for internal use are capitalized. All other costs associated with internal use software are expensed when incurred. Amounts capitalized are included in property, equipment and leasehold improvements and are amortized on a straight-line basis over three years beginning when such assets are placed in service. Goodwill and Intangible Assets Goodwill and intangible assets result primarily from acquisitions accounted for under the purchase method. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), effective January 1, 2002, goodwill and intangible assets with indefinite lives are no longer being amortized but are subject to impairment by applying a fair value based test. Intangible assets with finite useful lives related to developed technology, customer lists, trade names and other intangibles are being amortized on a straight-line basis over the estimated useful life of the related asset, generally three to five years. Recoverability of Intangible and Other Long Lived Assets In accordance with SFAS No.142, the Company reviews the carrying value of goodwill and intangible assets with indefinite lives annually or in certain circumstances. The Company measures impairment losses by comparing carrying value to fair value. Fair value is determined using discounted cash flow methodology. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," long-lived assets used in operations are reviewed for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair value. F-10 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Prior to January 1, 2002, the Company accounted for its long-lived assets under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance with SFAS No. 121, the Company reviewed the recoverability of long-lived assets using an undiscounted cash flow methodology, whenever events or changes in circumstances indicated that carrying amounts may not be recoverable. The Company measured impairment losses using a discounted cash flow methodology. Revenue and Deferred Revenue The Company derives subscriber revenue from the provision of wireless communication services. Subscriber revenue consists of monthly charges for access and usage and is recognized as the service is provided. Also included in subscriber revenue are one-time non-refundable activation fees. To the extent such fees exceed the related costs, they are deferred and recognized ratably over the life of the related service contracts, generally six or twelve months. Equipment revenue is recognized upon shipment and transfer of title to the end user. The Company provides mobile devices to its customers at prices below its costs as incentives for customers to enter into service agreements. Such incentives are recorded as a deferred asset and are amortized against subscriber gross margins over the life of the customer contract. Sales into retail channels, where a right of return exists, are deferred and recognized at the time such equipment is sold to the end consumer. Consulting revenue, included in other revenue, is recognized as the related services are provided. Software revenue through December 31, 2003 was insignificant. Cost of Revenues Cost of subscriber revenue consists principally of airtime costs charged by carriers. Cost of equipment revenue consists of the cost of equipment sold. Income Taxes Deferred income taxes are determined using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when the expected recognition of a deferred tax asset is considered to be unlikely. Advertising Costs Advertising costs are expensed as incurred. During 2003, 2002 and 2001, advertising expense was approximately $23, $1,019 and $4,900, respectively. Research and Development Costs Research and development costs are expensed as incurred. F-11 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Stock-Based Employee Compensation The Company accounts for employee stock-based compensation in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", using an intrinsic value approach to measure compensation expense, if any. Under this method, compensation expense is recorded on the date of the grant only if the current market price of the underlying stock exceeds the exercise price. Options issued to non-employees are accounted for in accordance with SFAS 123, "Accounting for Stock-Based Compensation", and Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods and Services", using a fair value approach. SFAS No. 123 established accounting and disclosure requirements using a fair value-basis method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123. Had the Company elected to recognize compensation cost based on fair value of the stock options at the date of grant under SFAS 123, such costs would have been recognized ratably over the vesting period of the underlying instruments and the Company's net loss and net loss per common share would have increased to the pro forma amounts indicated in the table below. Year ended December 31, ---------------------------------- 2003 2002 2001 -------- -------- --------- Net loss .................................. $ (8,207) $(55,889) $(120,271) Deduct: Stock-based employee compensation expense included in reported net loss ..... 314 2,315 3,971 Add: Total stock-based employee compensation expense determined under fair value based method for all awards ......... (3,968) (6,966) (9,546) -------- -------- --------- Pro forma net loss ........................ $(11,861) $(60,540) $(125,846) ======== ======== ========= Loss per share - basic, as reported ....... $ (0.15) $ (1.04) $ (2.27) ======== ======== ========= Loss per share - diluted, as reported ..... $ (0.15) $ (1.04) $ (2.25) ======== ======== ========= Pro forma loss per share - basic .......... $ (0.22) $ (1.12) $ (2.37) ======== ======== ========= Pro forma loss per share - diluted ........ $ (0.22) $ (1.12) $ (2.36) ======== ======== ========= The pro forma results above are not intended to be indicative of or a projection of future results. Refer to Note 14 for assumptions used in computing the fair value amounts above. F-12 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Earnings (Loss) Per share The Company computes net loss per share under the provisions of SFAS No. 128, "Earnings per Share" (SFAS 128), and SEC Staff Accounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS 128 and SAB 98, basic loss per share is computed by dividing the Company's net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share excludes potential common shares if the effect is antidilutive. The weighted average number of shares utilized in arriving at basic loss per share reflects an adjustment for 23,449 and 326,749 common shares for the years ended December 31, 2002 and 2001, respectively, for shares held in escrow as a result of the 2001 and 2000 acquisitions. Diluted loss per share is determined in the same manner as basic loss per share except that the number of shares is increased assuming exercise of dilutive stock options and warrants using the treasury stock method. As the Company had a net loss, the impact of the assumed exercise of the stock options and warrants is anti-dilutive and as such, these amounts (except for warrants issued for nominal consideration) have been excluded from the calculation of diluted loss per share. For the years ended December 31, 2003, 2002 and 2001, approximately 14,552,022, 13,670,119 and 13,901,137 of common stock equivalent shares were excluded from the computation of diluted net loss per share. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable. The Company maintains a significant portion of its cash and cash equivalents with two financial institutions. At times these balances exceed the FDIC insured limit of $100. The Company performs periodic credit evaluations of its customers but generally does not require collateral. As of December 31, 2003, the Company had 17% of its accounts receivable with Earthlink. For the year ended December 31, 2003, the Company generated 13% of its total revenue from Earthlink. Fair Value of Financial Instruments The carrying amounts of the Company's financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and notes payable approximate their fair values due to the short maturity of these items. Segment Information In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which establishes standards for the way that a public enterprise reports information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes F-13 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) standards for related disclosures about products and services, geographic areas and major customers. The Company operates in a single segment. The chief operating decision maker allocates resources and assesses the performance associated with wireless services, and related equipment sales on a single segment basis. Consulting services are not a material component of the Company's business. Reclassifications The Company has reclassified certain prior year information to conform with current year presentation. Recent Accounting Pronouncements In June 2002, the Financial Accounting Standards Board, "FASB", issued Statement of Financial Accounting Standards, "SFAS", No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan, which is generally before an actual liability has been incurred. Adoption of SFAS 146 is required with the beginning of fiscal year 2003. The adoption of this statement did not have a significant impact on the Company's results of operations. In November 2002, the FASB issued FASB Interpretation, "FIN", No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN No. 45 addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that is has issued. Under FIN No. 45, recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year end. The adoption of FIN No. 45 did not have a significant impact on the Company's consolidated financial position or results of operations. In November 2002, the Emerging Issues Task Force, "EITF", reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Elements" (EITF No. 00-21), which addresses certain aspects of accounting for arrangements that include multiple products or services. Specifically this issue states that in an arrangement with multiple deliverables, the delivered items should be considered a separate unit of accounting if: (1) the delivered items have value to the customer on a standalone basis, (2) there is objective and reliable evidence of the fair value of the undelivered items, and (3) the arrangement includes a general right of return relative to the delivered item, and delivery or performance of the undelivered items is considered probable and substantially within the Company's control. Additionally, the Issue states that the consideration should be allocated among the separate units of accounting based upon their relative fair values. If there is objective and reliable evidence of the fair value of the undelivered items in an arrangement but no such evidence for the delivered items, then the residual method F-14 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) should be used to allocate the consideration. Under the residual method, the amount of consideration allocated to the delivered items equals the total consideration less the aggregate fair value of the undelivered items. Accordingly, the application of EITF No. 00-21 may impact the timing of revenue recognition as well as the allocation between products and services. The adoption of EITF No. 00-21 for transactions entered into after July 1, 2003 did not have a significant impact on the Company's consolidated financial statements. In January 2003, the FASB issued interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities". The primary objectives of this interpretation are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities") and how to determine when and which business enterprise (the "primary beneficiary") should consolidate the variable interest entity. This new model for consolidation applies to an entity in which either (i) the equity investors (if any) do not have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that the primary beneficiary, as well as all other enterprises with a significant variable interest entity, make additional disclosures. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN 46-R are as follows: (i) Special-purpose entities ("SPEs") created prior to February 1, 2003. The Company must apply either the provisions of FIN 46 or early adopt the provisions of FIN 46-R at the end of the first interim or annual reporting period ending after December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003. The Company is required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. (iii) All entities, regardless of whether an SPE, that were created subsequent to January 31, 2003. The provisions of FIN 46 were applicable for variable interests in entities obtained after January 31, 2003. The Company does not have any arrangements with variable interest entities that will require consolidation of their financial information in our financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liability and equity. It also requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 15, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting a cumulative effect of a change in an accounting principal of financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of SFAS No. 150 did not have a material impact on the Company's consolidated financial position or results of operations. F-15 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 3. Lease Settlements On January 10, 2003, the Company entered into a sublease agreement to partially offset the cost of unused office space at 401 Hackensack Avenue. The sublease agreement was set to expire in April 2007. As a result of this agreement, the Company recorded a loss on sublease of $610. The Company entered into two agreements, each dated as of November 14, 2003, with Stellar Continental LLC ("Stellar"), the lessor of the Company's corporate headquarters at 433 Hackensack Avenue and its office at 401 Hackensack Avenue, both located in Hackensack, New Jersey (collectively, the "Hackensack Offices"). The agreements consist of a Surrender Agreement and a new Lease Agreement as well as a Warrant Certificate (collectively, the "Long Term Lease Settlement"). The Long Term Lease Settlement enabled the Company to cure all prior defaults under the previous lease (the "Original Lease", as described below) and terminated all parties' rights and obligations under the Original Lease, in exchange for (i) Stellar's right to retain $556 previously drawn on the Company's letter of credit that secured the Original Lease, (ii) the Company issuing a Warrant to Stellar that allows Stellar to acquire up to 1,000,000 shares of the Company's Common Stock at an exercise price of 46 cents per share at any time prior to November 14, 2008 and (iii) the execution of a new short term lease between the Company and Stellar for office space at 433 Hackensack Avenue. The Long Term Lease Settlement also requires the Company to rent from Stellar any new office space in the Hackensack, New Jersey area that it may require over the term of the new short term lease, on terms no less favorable than the New Lease. The sublease agreement described above was effectively cancelled by these settlements. Therefore, the Company reversed the remaining $509 of unamortized loss on sublease. The warrant to purchase 1,000,000 shares of the Company's common stock at a price of $0.46 per share was immediately exercisable at the date of grant and expires in five years. The warrant had an estimated fair market value at the date of grant of approximately $440, as determined by using the Black-Scholes method and was recognized by the Company during the fourth quarter of 2003 as an offset to the reversal of the loss on sublease described above. Both items are included in settlement gains, net in the accompanying statement of operations. Such warrant remains outstanding as of December 31, 2003. On December 23, 2003, the Company executed a settlement agreement with Eastern Computer Exchange, Inc. ("Eastern Computer") with respect to certain payment obligations pursuant to two equipment leases (the "Leases") by agreeing to pay Eastern Computer $350 upon closing the financing discussed in note 18 in exchange for a full release of the Company and its affiliates of the claim filed by Eastern Computer. Previously, Eastern Computer had taken back the equipment covered under the Leases. This settlement enabled the Company to cure all prior defaults under the Leases. The Company recorded a loss on this settlement of $7, which is included in settlement gains, net in the accompanying statement of operations. F-16 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 4. Settlement Gains and Changes in Estimates Settlement Gains In December 2003, the Company entered into agreement with a creditor to settle an obligation for less than the recorded amount by making a final cash payment to this vendor prior to December 31, 2003. The Company recorded a gain on settlement of approximately $64 relating to this transaction and has included this item in settlement gains, net in the accompanying statement of operations. During December 2003, the Company entered into other settlement transactions, which by their terms, are not scheduled to consummate until certain events occur in 2004. See Note 11 for details. Changes in Estimates During the year ended December 31, 2003, the Company, as part of its strategic realignment, reviewed certain liability provisions and accrued expenses based on recent discussions with vendors and recorded the following adjustments: o A $347 reduction of general and administrative expenses relating to the elimination of an accrued liability for deferred rent on the Company's lease obligations at 401 and 433 Hackensack Avenue (see note 3). o A $1,513 reduction of accruals for certain subscriber related costs based upon a finalization of amounts owed to vendors. o A $372 reduction of accruals for certain sales and marketing costs recorded in prior periods. The above amounts were recorded as changes in estimates and reductions of the related expenses in the accompanying 2003 statement of operations. 5. Bridge Note Payable On December 19, 2003, the Company entered into definitive agreements with multiple investors providing for the investors to purchase 96,666,666 shares of the Company's Common Stock, par value $.01 (the "Common Stock"), for an aggregate purchase price of $14,500 in a private placement offering (the "Financing") "See Note 18-Subsequent Events". As part of this Financing, on December 19, 2003, the Company received net proceeds of approximately $800 from the issuance of 10% Senior Secured Convertible Promissory Notes (the "Notes") and certain warrants. The Notes were purchased by the investors at their par value in proportional amounts to their aggregate investment commitments in the Financing. The principal on the Notes F-17 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) and accrued interest are due and payable on March 18, 2004, subject to extension for up to another 30 days upon the consent of the Company and the holders of a majority-in-interest of the Notes. The Notes are secured by an agreement that pledges the Company's common stock ownership in Wynd as collateral. Upon closing of the Financing after stockholder approval, the Notes and all accrued interest automatically converted into Common Stock at a price of $0.15 per share, subject to certain adjustments. The notes contain a beneficial conversion feature, which has been calculated in the amount of approximately $528 and is reflected as a deferred debt expense in the accompanying 2003 balance sheet. This amount is being amortized as interest expense over the life of the debt. In addition to the Notes, the Company granted to the investors warrants to purchase 1,353,333 shares of the Company's common stock at a price of $0.15 per share. These warrants were immediately exercisable at the date of grant and expire in five years. The warrants had an estimated fair market value at the date of grant of approximately $487, as determined using the Black-Scholes method, which discount is being amortized as interest expense over the life of the debt. The Note Payable is shown on the Balance Sheet at December 31, 2003 net of unamortized discount in the amount of $390. Such warrants remain outstanding as of December 31, 2003. 6. Strategic Alliance with EarthLink, Inc. On September 25, 2002, the Company formed a comprehensive strategic alliance with EarthLink by entering into a series of agreements pursuant to which, among other things (i) EarthLink purchased all of the Company's CDPD subscribers as well as certain of the Company's Cingular and Motient network subscribers (collectively, the "transferred subscribers"); (ii) EarthLink purchased the Company's rights under a credit for $1,400 of inventory from a hardware manufacturer, receiving the Company's equipment pricing at a discount; (iii) the Company and EarthLink will market each other's wireless services in exchange for commissions and/or recurring revenue shares; (iv) EarthLink will provide billing, customer support and network services to most subscribers of the Company's technology; and (v) the Company and EarthLink will collaborate on developing new applications and extensions of existing technology, including EarthLink-branded wireless data services, as well as new technologies. As a result of this strategic alliance and the transfer of subscribers, the Company received and recorded approximately $1,756 of gains on sales of subscribers during 2003 and had remaining $100 of deferred revenue as of December 31, 2003. F-18 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 7. Acquisition On November 13, 2001, the Company acquired OutBack Resource Group, Inc., a software development company. The acquisition was accounted for under the purchase method of accounting, and accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based upon estimates of fair market values at the date of acquisition. The total purchase price of approximately $148 included the issuance of 134,996 shares of common stock valued at $0.96 per share and warrants issued at the date of acquisition with an estimated fair market value of approximately $19 to purchase an aggregate of 67,500 shares of the Company's common stock at an exercise price of $3.00 per share which may be exercised immediately and expire three years from the date thereof. 8. Goodwill and Other Intangible Assets Impairment Charge Recorded Under SFAS No. 142 During the first half of 2003, the Company identified indicators of impairment, including recent changes in the Company's 2003 and 2004 operating and cash flow forecasts, and changes in its strategic plans for certain of its acquired businesses, which required that the Company evaluate the appropriateness of the carrying value of its long-lived assets, principally goodwill recorded upon the acquisitions of Outback. A write-down of goodwill totaling $193 was recorded during the second quarter of 2003, reflecting the amount by which the carrying amount of the respective reporting unit exceeded its respective fair value as determined utilizing estimates of future discounted cash flows. During the first half of 2002, the Company completed the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002, and no adjustment to the carrying value of goodwill was required at that time. During the third quarter of 2002, the Company identified indicators of impairment, including recent changes in the Company's 2002 and 2003 operating and cash flow forecasts, and changes in its strategic plans for certain of its acquired businesses, which required that the Company evaluate the appropriateness of the carrying value of its long-lived assets, principally goodwill recorded upon the acquisitions of Wynd and Hotpaper.com, Inc. ("Hotpaper"). A write-down of goodwill totaling $8,400 was recorded during the third quarter of 2002, reflecting the amount by which the carrying amount of the respective reporting units exceeded their respective fair values as determined utilizing estimates of future discounted cash flows. The Company's annual impairment test indicated that no further impairment had occurred in the fourth quarter of 2002 or during 2003 relative to Wynd. F-19 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Impairment Charges Prior to Adoption of SFAS No. 142 During the year ended December 31, 2001, the Company identified indicators of possible impairment of its long-lived assets, principally goodwill and other acquired intangible assets recorded upon the acquisitions of Wynd, Hotpaper and Flash Creative Management, Inc. ("Flash"). Such indicators included the continued deterioration in the business climate for wireless Internet service providers, significant declines in the market values of the Company's competitors in the wireless Internet services industry, recent changes in the Company's 2002 operating and cash flow forecasts, and changes in the Company's strategic plans for certain of its acquired businesses. With the assistance of independent valuation experts, the Company determined the fair value of the impaired long-lived assets for the respective acquired entities. Fair value was determined primarily using the discounted cash flow method. Write-downs of goodwill and other intangible assets totaling $12,991 and $12,423, respectively, reflect the amount by which the carrying amount of the assets exceeded their respective fair values. The following tables reflect pro forma results of operations of the Company, giving effect to the provisions of SFAS No. 142 for the year ended December 31, 2001: Years Ended December 31, --------------------------------- 2003 2002 2001 --------------------------------- Net loss, as reported $(8,207) $(55,889) $(120,271) Add back: amortization, net of tax of $-0- -- -- 12,794 ------- -------- --------- Pro forma net loss $(8,207) $(55,889) $(107,477) ======= ======== ========= Basic net loss per share, as reported $ (0.15) $ (1.04) $ (2.27) Add back: amortization, net of tax of $-0- -- -- .24 ------- -------- --------- Pro forma $ (0.15) $ (1.04) $ (2.03) ======= ======== ========= Diluted net loss per share, as reported $ (0.15) $ (1.04) $ (2.25) Add back: amortization, net of tax of $-0- -- -- .24 ------- -------- --------- Pro forma $ (0.15) $ (1.04) $ (2.01) ======= ======== ========= F-20 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) The following table summarizes the activity in Goodwill for the periods indicated: Years Ended December 31, 2003 2002 ------------------------ Beginning balance, net $6,193 $14,593 Goodwill acquired during the period -- -- Impairment charge (193) (8,400) Amortization -- -- ------ ------- Ending balance, net $6,000 $ 6,193 ====== ======= The following table summarizes other intangible assets subject to amortization at the dates indicated:
December 31, 2003 December 31, 2002 Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Net Amount Amortization Net ---------------------------------------------------------------------------------------- Trade Names $ 4,572 $ (4,019) $553 $ 4,572 $(3,651) $ 921 Technology 3,017 (2,925) 92 3,017 (2,741) 276 Customer Lists 2,258 (2,168) 90 2,258 (1,988) 270 Other 418 (349) 69 -- -- -- Patents 1,000 (1,000) -- 1,000 (1,000) -- ---------------------------------------------------------------------------------------- $11,265 $(10,461) $804 $10,847 $(9,380) $1,467 ========================================================================================
Aggregate future amortization expense for the above intangible assets is estimated to be: Years Ending December 31, 2004: $621 2005: 183 F-21 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 9. Impairment of Other Long-lived Assets During the year ended December 31, 2003, 2002 and 2001, the Company identified indicators of possible impairment of its other long-lived assets. Such indicators included the continued deterioration in the business climate for wireless Internet service providers, significant declines in the market values of the Company's competitors in the wireless Internet services industry, recent changes in the Company's operating and cash flow forecasts, and changes in our strategic plans. Based on these factors, the Company initiated significant reductions in its workforce resulting in impairment to its property and equipment, principally software and furniture and fixtures. The impairment charge was calculated assuming no salvage value to be obtained from the assets. As a result, the Company recorded impairment charges of $1,202, $5,582 and $97 during the years ended December 31, 2003, 2002 and 2001, respectively, for assets no longer in use. Included in the charge for 2003 is $445, relating to equipment given back to Eastern Computer upon the Company's default on related lease obligations (see note 3). 10. Supplemental Balance Sheet Information Merchandise inventories: During 2001, the Company recorded a write-down of approximately $3,500 in order to reflect inventory at the lower of cost or market. The write-down primarily relates to wireless modems supporting laptop and older PALM OS based models for which sales were lower than expected and a charge for a lower of cost to market adjustment related to other equipment which remained unsold. Additionally, during 2003, 2002 and 2001 the Company recorded reserves for excess inventory quantities of approximately $47, $5,889 and $4,600, respectively. As of December 31, 2003, the Company had applied all reserves for excess inventory quantities to the related merchandise inventory. Property, equipment and leasehold improvements: Property, equipment and leasehold improvements consists of the following: December 31, -------------------- 2003 2002 ------- ------- Furniture, fixtures and equipment ................. $ 754 $ 1,483 Computer equipment and software ................... 6,765 8,679 Leasehold improvements ............................ 265 372 ------- ------- 7,784 10,534 Less accumulated depreciation and amortization .... (6,178) (5,849) ------- ------- $ 1,606 $ 4,685 ======= ======= F-22 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) At December 31, 2002, the Company leased equipment, furniture and fixtures, with a cost basis of $2,169, which is included in property, equipment and leasehold improvements. Accumulated amortization on leased equipment was $893 at December 31, 2002. The amount of such equipment at December 31, 2003 was immaterial. Accrued expenses: Accrued expenses consisted of the following: December 31, ----------------- 2003 2002 ------ ------ Settlement arrangements with vendors ............. $2,072 $ -- Professional fees ................................ 427 1,501 Carrier services ................................. 360 3,234 Employee compensation ............................ 130 486 Maintenance agreements ........................... -- 250 Inventory purchases .............................. -- 150 Dealer commissions ............................... 6 57 Marketing expenses ............................... 15 30 Equipment and leasehold improvement purchases .... -- -- Other ............................................ 30 209 ------ ------ $3,040 $5,917 ====== ====== 11. Commitments and Contingencies On February 15, 2002, Eagle Truck Lines Inc. (a/k/a Air Eagle, Inc.) filed suit against GoAmerica, Inc. in the Superior Court of the State of California for the County of Los Angeles seeking payment of $590, plus other damages, expenses, interest and costs of suit. This action was removed to the United States District Court for the Central District of California and subsequently, pursuant to a motion brought by GoAmerica, transferred to the District of New Jersey where GoAmerica has moved to have it consolidated with the action described in the next paragraph. (This motion will be decided once a decision in the various motions to dismiss is rendered in the Flash action discussed below.) Air Eagle alleges that GoAmerica, as successor in interest to Flash, failed to perform its obligations under a consulting contract dated July 2, 1999 (the "Contract"), by and between Flash and Air Eagle. Air Eagle alleges that GoAmerica assumed the rights and liabilities under this Contract as a result of its purchase of substantially all of the assets of Flash in November 2000. On June 3, 2002, GoAmerica filed an amended answer and counterclaim, denying the allegations of the complaint and seeking payment from Air Eagle of an amount not less than $590, plus expenses, interest and costs of suit based on Air Eagle's failure to pay for services rendered by Flash and GoAmerica under the Contract. The Company intends to defend this action and pursue its counterclaim vigorously. F-23 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) In a separate but related matter, on July 31, 2002, GoAmerica filed suit against Flash and certain former officers and shareholders of Flash (the "Flash Defendants") in the United States District Court for the District of New Jersey for violations of federal and state securities law and common law fraud in connection with the sale of the assets of Flash to GoAmerica. In October 2002, each of the Flash Defendants filed answers to GoAmerica's complaint denying all of the Company's charges, with one of the Flash Defendants adding counterclaims against the Company and certain named officers alleging, among other things, fraudulent misrepresentation, violations of state securities law and unjust enrichment in excess of $1,000. The other Flash Defendants have been granted leave to amend their answer to include substantially similar counterclaims against the Company and Company officer defendants. The Company has filed a motion to dismiss the Flash Defendants' counterclaims, and the Flash defendants have filed cross-motions for judgment on the pleadings and for summary judgment seeking dismissal of the Company's claims against them. All pending motions are briefed and have been submitted to the Court for decision. The Company intends to defend this action vigorously. On December 23, 2003, the Company executed a settlement agreement with Eastern Computer Exchange, Inc. ("Eastern Computer") with respect to certain payment obligations pursuant to two equipment leases (the "Leases") by agreeing to pay Eastern Computer $350 upon closing the financing, as described in note 5, in exchange for a full release of the Company and its affiliates. Eastern Computer had filed suit against the Company on July 2, 2003, seeking monetary amounts of up to approximately $800 and dismissed the action without prejudice in October 2003 pending settlement discussions. In the event that the Financing does not close and the Company does not secure alternate financing by March 22, 2004, the Company has acknowledged and agreed to the entry of a judgment against the Company for the full amount of the Company's original debt pursuant to the original litigation (see note 18). In December 2003, the Company executed a series of settlement agreements with various vendors that provide, upon their consummation, for their reduction of amounts owed by the Company to these vendors. Generally, the terms of the settlement agreements call for the Company to make fixed cash payments or the issuance of shares of the Company's common stock. The consummation of the settlement agreements is contingent upon the Company's complying with all of the terms of the individual agreements. If all such terms and conditions are satisfied, the Company may record approximately $2,072 in additional settlement gains during 2004. F-24 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) The Company is obligated under capital leases for computer and office equipment that expire in December 2004 with imputed interest of 14.87%. Future minimum capital lease payments and future minimum lease payments relating to office space under noncancelable operating leases as of December 31, 2003 are as follows: Capital Operating Year ending December 31, Leases Leases ------- --------- 2004 ..................................................... $ 13 $145 2005 ..................................................... -- 13 2006 ..................................................... -- -- 2007 ..................................................... -- -- 2008 ..................................................... -- -- Thereafter ............................................... -- -- ---- ---- Total minimum lease payments ............................. 13 $158 Less amount representing interest ........................ (--) ==== ---- Present value of net minimum capital lease payments ......................................... 13 Less current portion of capital lease obligations ........ (13) ---- Obligations under capital lease, net of current portion .. $ -- ==== During 2003, 2002 and 2001 total rent expense was approximately $2,139, $3,282 and $3,730, respectively. As of December 31, 2003, the Company had no standby letters of credit outstanding. At December 31, 2002, standby letters of credit totaling approximately $606 were outstanding as security deposits on certain facility leases. As of December 31, 2002, $648 of cash held in the Company's bank accounts was restricted to secure these letters of credit. Approximately $556 was utilized during 2003 to pay off obligations under a letter of credit, which was utilized by the Company's landlord (see note 3). The balance of the cash was utilized to satisfy lease obligations that expired during 2003. In addition to the above, the Company also had $302 in reserve accounts as it relates to its credit card processor as of December 31, 2002. The Company received this restricted cash during 2003. During 2002, the Company entered into employment agreements with certain of its key executives which provide for fixed compensation and bonuses based upon the Company's operating results, as defined. These agreements generally continue until terminated by the employee or the Company and, under certain circumstances, provide for salary continuance for a specified period. The Company's maximum aggregate liability under the agreements if these employees were terminated is approximately $150 at December 31, 2003. On October 9, 2001, the Company entered into a termination agreement with Geoworks Corporation ("Geoworks'), Telcordia Technologies, Inc. and David Rein under which it paid F-25 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) $1,750 which related to the purchase of certain patent licenses from Geoworks, the settlement of all accrued royalties, and other costs and fees associated with the early termination of the Settlement Agreement and Mutual Releases between the parties. As a result, the Company recorded an intangible asset of $1,000 representing the value of the patent licenses purchased with the balance charged to expense in 2001. The patent licenses were fully amortized as of December 31, 2002. 12. Benefit Plan The Company has established a defined contribution plan under Section 401(k) of the Internal Revenue Code, which provides for voluntary employee contributions of up to 15 percent of compensation for employees meeting certain eligibility requirements. The Company does not contribute to the plan. 13. Stockholders' Equity On August 31, 2000, the Company granted Research in Motion Limited, a supplier of wireless devices and related software, a warrant to purchase 333,000 shares of the Company's common stock at $16.00 per share as partial consideration for certain obligations pursuant to certain marketing and strategic alliance agreements. The warrant was exercisable one year after the date of grant and expired in three years. As of December 31, 2000, the warrant had an estimated fair market value of approximately $526 of which, approximately $281 was recognized by the Company during 2000 as sales and marketing expense. During 2001, $233 was recognized by the Company as a reduction to sales and marketing expense as a result of the remeasurement of the fair value of this warrant. The warrant expired during 2003. On November 14, 2000, the Company granted Dell Ventures, L.P., an affiliate of Dell Products, a warrant to purchase 563,864 shares of the Company's common stock at a price of $16.00 per share as partial consideration for certain obligations pursuant to a product distribution agreement. This warrant was immediately exercisable at the date of grant and expired in three years. The warrant had an estimated fair market value at the date of grant of approximately $2,300 of which, approximately $1,500 and $777 was recognized by the Company during 2001 and 2000, respectively, as sales and marketing expense. The warrant expired during 2003. During January 2001, the Company entered into a service agreement with Sony Electronics Inc. with an initial term of one year. In conjunction with the agreement, the Company issued a warrant to purchase 500,000 shares of the Company's common stock at a price of $16.00 per share. Such warrant was exercisable at the date of grant and has a three year term. The agreement also requires the Company to provide up to $3,500 of marketing expenditures. During 2001, the Company incurred a non-cash sales and marketing charge of $765 as a result of the issuance. Such warrant remains outstanding as of December 31, 2003 and will expire in January 2004. F-26 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) On December 19, 2003, the Company granted Sunrise Securities Corp. a warrant to purchase 812,000 shares of the Company's common stock at a price of $0.15 per share as part of their compensation for securing bridge financing for the Company as described in note 5. This warrant was immediately exercisable at the date of grant and expires in five years. The warrant had an estimated fair market value at the date of grant of approximately $292 and was recorded as additional deferred debt expense. Such warrant remains outstanding as of December 31, 2003. The Company also issued warrants in 2003 relating to the settlement of their lease obligations (see note 3) and as part of the bridge note financing (see note 5). As of December 31, 2003, the Company had reserved shares of common stock for issuance as follows: Exercise of common stock options............... 10,816,189 Exercise of common stock purchase warrants..... 3,732,833 Employee stock purchase plan................... 3,866,686 14. Stock Option Plans and Other Stock-Based Compensation On August 3, 1999, the Company adopted the GoAmerica Communications Corp. 1999 Stock Option Plan. This plan provided for the granting of awards to purchase shares of common stock. No further options will be made under the GoAmerica Communications Corp. 1999 Stock Option Plan. In December 1999, the Company's Board of Directors adopted the GoAmerica, Inc. 1999 Stock Plan (the "Plan") as a successor plan to the GoAmerica Communications Corp. 1999 Stock Option Plan, pursuant to which 4,800,000 additional shares of the Company's common stock have been reserved for issuance to selected employees, non-employee directors and consultants. In May 2001, the Company's shareholders approved an increase in the maximum number of shares issuable under the Plan from 4,800,000 to 10,624,743 shares. Under the terms of the Plan, a committee of the Company's Board of Directors may grant options to purchase shares of the Company's common stock to employees and consultants of the Company at such prices that may be determined by the committee. The Plan provides for award grants in the form of incentive stock options and non-qualified stock options. Options granted under the Plan generally vest annually over 4 years and expire after 10 years. F-27 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) The following table summarizes activity on a combined basis for the plans during 2003, 2002 and 2001: Weighted- Number of Average Options Exercise Price ---------- -------------- Outstanding at January 1, 2001 .............. 5,745,554 $5.26 Granted ..................................... 1,095,310 $1.78 Exercised ................................... (369,642) $0.73 Cancelled ................................... (376,067) $8.51 ---------- Outstanding at December 31, 2001 ............ 6,095,155 $4.70 Granted ..................................... 5,796,214 $0.83 Exercised ................................... (231,018) $0.50 Cancelled ................................... (2,436,080) $5.04 ---------- Outstanding at December 31, 2002 ............ 9,224,271 $2.22 Granted ..................................... 975,000 $0.31 Exercised ................................... (714,483) $0.50 Cancelled ................................... (3,328,388) $3.65 ---------- Outstanding at December 31, 2003 ............ 6,156,400 $1.32 ========== Exercisable at December 31, 2003 ............ 3,206,055 $1.97 ========== Exercisable at December 31, 2002 ............ 4,264,247 $2.74 ========== Exercisable at December 31, 2001 ............ 3,354,112 $3.56 ========== Available for grant at December 31, 2003 .... 4,659,789 -- ========== The following table summarizes information about fixed price stock options outstanding at December 31, 2003:
Outstanding Exercisable ------------------------------------------------- ------------------------------- Weighted- Average Weighted- Remaining Weighted- Range of Number Average Contractual Number Average Exercise Prices Outstanding Exercise Price Life Exercisable Exercise Price - --------------- ----------- -------------- ----------- ----------- -------------- $0.25--$0.33 3,007,379 $ 0.30 9.0 years 815,801 $ 0.29 $0.45--$0.56 686,800 $ 0.55 6.4 years 452,500 $ 0.56 $0.71--$1.06 377,581 $ 1.05 5.9 years 363,081 $ 1.05 $1.31--$1.96 1,179,065 $ 1.77 7.7 years 710,035 $ 1.70 $2.03--$2.44 266,575 $ 2.08 6.3 years 262,013 $ 2.08 $5.02--$7.50 577,500 $ 5.43 6.2 years 556,500 $ 5.35 $7.97--$8.27 3,500 $ 7.98 6.8 years 2,625 $ 7.98 $15.00--16.00 58,000 $15.86 6.4 years 43,500 $15.86 --------- --------- 6,156,400 3,206,055 ========= =========
F-28 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) For certain options granted during 2000 and 1999, the Company has recorded pursuant to APB No. 25 approximately $8,457 and $7,799, respectively, of deferred compensation expense representing the difference between the exercise price and the market value of the common stock on the date of grant. These amounts are being amortized over the vesting period of each option and amounted to approximately $314, $2,315 and $3,971 during the years ended December 31, 2003, 2002 and 2001, respectively. The following table discloses, for the year ended December 31, 2003, 2002 and 2001, the number of options granted and certain weighted-average information:
Year ended December 31, -------------------------------------------------------------------------------------------------------------- 2003 2002 2001 --------------------------------- --------------------------------- -------------------------------- Number of Fair Exercise Number of Fair Exercise Number of Fair Exercise Options Value Price Options Value Price Options Value Price --------- ----- -------- --------- ----- -------- --------- ----- -------- Exercise price greater than market price ... -- $ -- $ -- -- $ -- $ -- -- $ -- $ -- Exercise price equals market price ......... 975,000 0.31 0.31 5,796,214 0.83 0.83 1,095,310 1.08 1.78 Exercise price less than market price ... -- -- -- -- -- -- -- -- --
Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS 123 (see note 1). For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions for 2003, 2002 and 2001: weighted-average risk-free interest rate of 4.20%, 4.03% and 5.86% respectively; expected volatility of 1.63, 0.80 and 0.80, respectively; no dividends; and a weighted-average expected life of the options of 2.0 years, 3.0 years and 4.0 years, respectively. In December 1999, the Company's Board of Directors adopted the Employee Stock Purchase Plan effective upon the Company's initial public offering of its common stock, which was completed on April 12, 2000. The Company initially reserved 4,000,000 shares of common stock for issuance under the plan. During 2003 and 2002, there were 48,078 and 85,236 shares, respectively, sold pursuant to the plan. F-29 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 15. Income Taxes Significant components of the Company's deferred tax assets and liabilities are as follows: December 31, -------------------- 2003 2002 -------- -------- Deferred tax assets: Net operating loss carryforwards ................. $ 71,710 $ 70,500 Deferred compensation ............................ 8,635 7,756 Reserves and accruals ............................ 461 1,298 Amortization of Goodwill ......................... 3,964 3,900 Other ............................................ 2,701 3,181 Less valuation allowance ............................ (87,302) (86,050) -------- -------- Deferred tax assets ................................. 169 585 Deferred tax liabilities: Intangible assets ................................ (169) (585) Property, equipment and leasehold improvements ... -- -- -------- -------- Net deferred tax assets ............................. $ -- $ -- ======== ======== A reconciliation setting forth the differences between the effective tax rate of the Company and the U.S. statutory rate is as follows:
Year ended December 31, ------------------------------------ 2003 2002 2001 -------- -------- -------- Statutory federal income tax (benefit) at 34% ......... $ (2,764) $(19,002) $(41,089) State income tax (benefit), net of federal benefit .... (122) (1,911) (3,752) Non-deductible expenses, primarily impairment of goodwill ........................................... 1,350 4,130 2,603 Increase in valuation allowance ....................... 1,252 16,347 41,660 -------- -------- -------- Total ................................................. $ (284) $ (436) $ (578) ======== ======== ========
The state tax benefits recorded in 2003 and 2002 of $284 and $436, respectively, are attributable to the Company's sale of certain state net operating loss carryforwards. At December 31, 2003, the Company had a federal and state net operating loss ("NOL") carryforward of approximately $182,500 and $160,900, respectively. The federal NOL carryforwards expire beginning in 2011 and state NOL's beginning in 2004. The Tax Reform Act of 1986 enacted a complex set of rules limiting the potential utilization of net operating loss and tax credit carryforwards in periods following a corporate "ownership change." In general, for federal income tax purposes, an ownership change is deemed to occur if the percentage of stock of a loss corporation owned (actually, constructively and, in some cases, deemed) by one or more F-30 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) "5% shareholders" has increased by more than 50 percentage points over the lowest percentage of such stock owned during a three-year testing period. During 1999, such a change in ownership occurred. As a result of the change, the Company's ability to utilize certain of its net operating loss carryforwards will be limited to approximately $1,400 of taxable income, per year. In addition, the Company acquired additional net operating losses through its acquisitions of Wynd and Hotpaper. The Company believes that an ownership change has occurred with respect to these entities. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards attributable to periods before the change. The Company has not performed a detailed analysis to determine the amount of the potential limitations. F-31 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 16. Quarterly Financial Data (Unaudited) The table below summarizes the Company's unaudited quarterly operating results for years ended December 31, 2003 and 2002. GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data)
2003 March 31 June 30 September 30 December 31 -------- -------- ------------ ----------- Net revenue and other income ................. $ 3,103 $ 3,331 $ 3,123 $ 2,321 Cost of revenue .............................. (1,846) (1,533) (1,610) (660) Operating expenses ........................... (4,578) (3,056) (1,942) (2,322) Depreciation and amortization expenses ....... (814) (944) (581) (654) Impairment of long-lived assets .............. -- (1,245) -- (150) Gain on sale of subscribers .................. 1,180 565 11 -- Settlement gains, net ........................ -- -- -- 85 Interest (expense) income, net ............... (12) 3 (4) (262) Benefit from income taxes -- -- -- 284 Net (loss) ................................... $ (2,967) $ (2,879) $ (1,003) $(1,358) Net (loss) per common share: - Basic ................................... $ (0.05) $ (0.05) $ (0.02) $ (0.03) - Diluted ................................. $ (0.05) $ (0.05) $ (0.02) $ (0.03) 2002 March 31 June 30 September 30 December 31 -------- -------- ------------ ----------- Net revenue and other income ................. $ 10,443 $ 9,580 $ 9,100 $ 6,789 Cost of revenue .............................. (9,308) (8,510) (8,165) (6,062) Operating expenses ........................... (11,846) (10,757) (9,878) (8,095) Depreciation and amortization expenses ....... (1,605) (1,662) (1,645) (913) Impairment of long-lived assets .............. -- -- (13,695) (287) Interest income, net ......................... 128 58 26 (21) Benefit from income taxes -- -- -- 436 Net (loss) ................................... $(12,188) $(11,291) $(24,257) $(8,153) Net (loss) per common share: - Basic ................................... $ (0.23) $ (0.21) $ (0.45) $ (0.15) - Diluted ................................. $ (0.23) $ (0.21) $ (0.45) $ (0.15)
F-32 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 17. Supplemental Cash Flow Information The table below presents the Company's supplemental disclosure of cash flow information for the years ended December 31, 2003, 2002 and 2001.
Years ended December 31, ------------------------ 2003 2002 2001 ---- ---- ---- Supplemental disclosure of cash flow information: Interest paid ................................................. $ 21 $ 91 $ 169 Non-cash investing and financing activities: Beneficial conversion feature of convertible bridge note payable .................................................... 528 -- -- Issuance of warrant to placement agent to secure financing .... 292 -- -- Restricted cash utilized to pay accrued expenses .............. 556 -- -- Conversion of capital lease obligation into an account payable .................................................... 152 -- -- Accrued expenses related to acquisition of subscribers ........ 50 -- -- Accrued expenses related to the incurrence of deferred financing expense .......................................... 70 -- -- Acquisition of equipment through capital leases ............... -- -- 1,182 Issuance of common stock purchase warrants in exchange for sales and marketing services ........................... -- -- 765 Purchase of businesses, net of cash acquired: Working capital surplus (deficit), net of cash acquired ....... $ -- $ -- $ 40 Property, equipment and leasehold improvements ................ -- -- 1 Goodwill ...................................................... -- -- 152 Trade names ................................................... -- -- -- Other intangibles ............................................. -- -- -- Other assets .................................................. -- -- -- Non-current liabilities ....................................... -- -- -- Common stock, options and warrants issued ..................... -- -- 148
18. Subsequent Event During January 2003, the Company issued 775,000 shares of its common stock as part of certain settlement agreements referenced in note 11. On March 10, 2004, the Company's stockholders at a special meeting of the stockholders approved the following: F-33 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) o Approved the issuance of 89,900,000 shares of the Company's common stock in exchange for cash consideration of $13,485. o Authorized the Board of Directors to amend the Company's restated certificate of incorporation to effect a reverse stock split at one of five different ratios. o Authorize the Board of Directors to amend the Company's restated certificate of incorporation to increase the number of shares of common stock the Company is authorized to issue from 200,000,000 to 350,000,000 shares, resulting in an increase in the total number of authorized shares of capital stock from 204,351,943 to 354,351,943 As a result, the Company issued a total of 96,820,797 shares of its common stock, comprised of the 89,900,000 shares referred to above and 6,920,797 upon the mandatory conversion of the Bridge Notes Payable and related accrued interest. The Company received net proceeds of approximately $12,000 after deducting the $714 cash payment made to the offering placement agent and deferred offering expenses such as professional fees. The Company will utilize certain of the $12,000 of net proceeds as follows; o Payment of the settlement agreement with Eastern Computer in the amount of $350. o Payment to other vendors in which the Company had established settlement agreements with of approximately $300. o Establishment of a standby letter of credit in favor of Cingular in the amount of $600. F-34 GOAMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Schedule II GOAMERICA, INC. FINANCIAL STATEMENT SCHEDULE Valuation and Qualifying Accounts and Reserves Years Ended December 31, 2003, 2002 and 2001
Balance at Additions: Balance at Beginning of Charged to Costs End of Period and Expenses Deductions Period ------------ ---------------- ---------- ---------- Year Ended December 31, 2003 Allowance for doubtful accounts .......... $3,418 $ 534 $ 2,739(1) $1,213 Inventory Reserve ........................ -- 47 47(3) -- Sales allowances, discounts & returns .... 513 134 647(2) -- Year Ended December 31, 2002 Allowance for doubtful accounts .......... $2,675 $3,221 $ 2,478(1) $3,418 Inventory Reserve ........................ 4,740 5,889 10,629(3) -- Sales allowances, discounts & returns .... 1,378 2,686 3,551(2) 513 Year Ended December 31, 2001 Allowance for doubtful accounts .......... $ 388 $4,197 $ 1,910(1) $2,675 Inventory Reserve ........................ 117 4,623 -- 4,740 Sales allowances, discounts & returns .... 245 2,480 1,347(2) 1,378
(1) Uncollectible accounts written-off, net of recoveries. (2) Returns and discounts charged to reserve. (3) Inventory discounts charged to reserve. F-35 EX-10.3 3 e17167ex10_3.txt VALUE ADDED RESELLER AGREEMENT Exhibit 10.3 VALUE ADDED RESELLER AGREEMENT FOR CINGULAR INTERACTIVE SERVICE1 THIS VALUE ADDED RESELLER AGREEMENT is made and entered into as of the 30th day of December, 2003, ("Effective Date") by and between Cingular Interactive L.P. ("Cingular") having an address at 10 Woodbridge Center Drive, Woodbridge New Jersey 07095, and GoAmerica, Inc., ("GoAmerica") and Wynd Communications Corporation ("Wynd"; together with GoAmerica, the "Reseller") having an address at 433 Hackensack Avenue, Hackensack, NJ 07601. Each of GoAmerica, Wynd, and Cingular may be referred to herein individually as a "Party" and collectively as the "Parties". BACKGROUND A - Cingular provides certain two-way wireless Mobitex data communications services using radio base stations and switching facilities implemented and operated by Cingular in the Territory, from time to time; B - Reseller desires to resell and distribute the Cingular Services (as defined below) and Cingular desires to authorize Reseller to resell, the Cingular Services on the terms and conditions set forth herein. For these reasons and in consideration of the mutual covenants in this Agreement, Cingular and Reseller agree as follows. 1. DEFINITIONS The words set forth in this Section 1, when appearing with initial capital letters, shall have the meaning set forth for each in this Section. 1.0 Accessories - Cradles, cables and other related equipment made available from time to time by Cingular for use in conjunction with the Handheld. 1.1 Activate or Activation - shall mean the establishment by Cingular of an initial authorization to, and the maintenance of an ongoing authorization for, Subscriber Handheld to connect to the Cingular Facilities. Each Subscriber shall be assigned a MAN with respect to each Subscriber Handheld authorized to connect to the Cingular Services. 1.2 Affiliate - A company in which Reseller owns at least a 51% controlling interest in the outstanding stock or other equity and which has signed an agreement agreeing to be bound by the terms and conditions of this Agreement to be performed on Reseller's part. - ---------- 1 [*] connotes material that has been omitted pursuant to a request for confidential treatment. Such omitted material has been filed separately on a confidential basis with the Office of the Secretary of the Securities and Exchange Commission. 1 1.3 Agreement - This Value Added Reseller Agreement. 1.4 Cingular Facilities - The radio base stations, computers, gateways and switching facilities implemented and operated by Cingular from time to time to provide the Cingular Services. At Cingular's sole option, such Cingular Facilities maybe expanded, reduced, modified, or replaced during the term hereof. 1.5 Charges - The Charges provided for in Section 6 and Schedule A. 1.6 Cingular - Cingular Interactive L. P., a Delaware Limited Partnership. 1.7 Cingular Service(s) - The services set forth in Schedule A. 1.8 Confidential Information - Information of a party to this Agreement which is provided or disclosed to the other and is marked as confidential or proprietary. If the information is initially disclosed orally then (1) it must be designated as confidential or proprietary at the time of the initial disclosure and (2) within twenty (20) days after disclosure, the information must be reduced to writing and marked as confidential or proprietary. No information of the disclosing party will be considered Confidential Information to the extent the information: i) is publicly known through no fault of the recipient either before or after disclosure; or ii) is in possession of the recipient without obligation of confidence prior to the disclosure, or thereafter is independently developed by recipient's employees or consultants; iii) is received from a third party without an obligation of confidence to the third party; or iv) is independently developed by a party. The parties agree that this Agreement and all the terms and conditions set forth herein shall be "Confidential Information". 1.9 Handheld - A wireless handheld messaging device, including the cradle and cable if ordered (or applicable) and including any software or firmware resident on the device, approved by Cingular for use with the Cingular Services. 1.10 Initial Service Date - The date on which a Subscription is first activated on the Cingular Facilities for the Cingular Service. 1.11 MAN's - Mobitex Authorization Numbers. 1.12 Marks - trade names, corporate logos, service marks and trademarks of each Party. 1.13 Products- collectively the Handheld and the Accessories. 1.14 Reseller Order or Order - An order for Cingular Services or Products issued by Reseller in a form mutually agreed by the parties. This Agreement supersedes any terms or conditions contained in any other forms or orders submitted by Reseller with or in place of the Reseller Order. 1.15 Reseller Service(s) - The services listed in Schedule A that are, sold, licensed or otherwise distributed by Reseller that are not part of this 2 Agreement and where such Reseller Services are used in conjunction with the Cingular Facilities. 1.16 [*] 1.17 Subscriber - A customer of Reseller to which Reseller is reselling or otherwise providing the Cingular Services under this Agreement. 1.18 Subscription - A Handheld or other radio modem device registered and Activated on the network and to which Cingular Service is provided. 1.19 Term - The period of time, including any extension thereof, as provided in Section 10. 1.20 Territory - shall mean the area served by Cingular's Mobitex base stations that are placed at Cingular's sole discretion throughout the United States and Puerto Rico. 2. SOLICITATION OF SUBSCRIBERS. 2.1 Subscribers and Solicitation. Through out the Term of this Agreement Reseller shall diligently solicit Subscribers to the Cingular Services in the Territory. The Subscribers shall be the customers of Reseller and not customers of Cingular. Reseller shall be solely responsible for all risks and expenses incurred in connection with its action in the sale and service of the Cingular Services, the Reseller Services or any other acts required of Reseller pursuant to this Agreement. Reseller shall receive all payments from Subscribers and shall be responsible for all credit verification, deposits, billing, collection, complaints, rebilling and bad debt recovery with respect to Subscribers, for Cingular Service ordered by Reseller. Reseller shall pay all Charges regardless of whether Subscribers have made payment to Reseller. This Agreement only authorizes the Reseller to resell the Cingular Services as part of the Reseller Services, and Reseller may not resell the Cingular Services as a separate or standalone product or service. 2.2 Reseller Staff. Reseller, at its own cost and expense, shall maintain an adequate staff to market the Reseller Services and to support and train the Subscribers with respect to the Reseller Services. 3. THE CINGULAR SERVICES 3.1 Cingular Service. Cingular shall, as soon as is reasonably practicable, Activate Subscriptions submitted to Cingular by Reseller in a form and manner as may be required by Cingular from time to time and where such submission is approved and accepted by Cingular and thereafter provide the Cingular Service to such Subscriptions. Except as otherwise provided in this Agreement, Cingular shall provide the Cingular Services to such Subscription until notified in writing by Reseller to terminate (de-Activate) Cingular Service to the Subscription. Cingular shall have no obligation to activate Subscriptions unless the radio modem device and all software used by the device and any Reseller host have been 3 configured for use with the Cingular Service and have been approved by Cingular for use on the Cingular Facilities. 3.2 Host Connections. Reseller shall be responsible at its own cost and expense to, purchase, obtain and maintain any necessary host connection between a Reseller host and the Cingular network. The Internet host connection provided by Cingular is solely between the Cingular network and the Internet. If any Reseller host is connected to the Cingular network through the Internet, it shall be Reseller's responsibility to connect their host to the Internet. 3.3 Non-Exclusivity. The rights granted to Reseller in this Agreement are not exclusive. Cingular expressly reserves the right without obligation or liability to Reseller to (i) increase or decrease the number of parties it authorizes to solicit subscribers to the Cingular Services and (ii) subject to Section 9.2, at any time market and sell the Cingular Services on its own behalf or through other, including other resellers, agents, distributors and retailers within the Territory and upon such price terms and conditions as Cingular in its sole discretion deems appropriate regardless of whether such third parties serve the same area served by Reseller. Subject to the conditions set forth herein, Reseller may market the Cingular Services and solicit Subscribers (from among all classes of potential users, other than Cingular's subscribers now or hereinafter acquired) within the Territory to the Cingular Services. Nothing herein shall be construed so as to restrict the activities of Cingular, acting alone or in concert with others, in connection with the development, implementation, operation, or provision of any services or facilities whatsoever, whether similar to or competitive with the Cingular Services or the Reseller Services. 3.4 Future Services. In the event that Cingular's parent company, Cingular Wireless LLC, makes a determination to offer its GPRS network for resale to entities similar to Reseller, then Cingular, to the extent that it has authority to do so, shall use commercially reasonable efforts to cause the parent to enter into good faith negotiations with Reseller and with respect to GPRS wireless data reseller agreement. 4. PRODUCTS 4.1 All Handheld's come with MAN's. Neither Reseller nor any Subscriber shall acquire any property interest in any MAN assigned for Reseller's or Subscriber's use. And no property interest is acquired by use of the MAN. Reseller agrees to inform the Subscriber that Subscriber has no property interest in any MAN. 4.2 Purchase of Products. Subject at all times to the availability of Products, Reseller may elect in each Reseller order to purchase certain Products from Cingular in which event, in addition to the Charges for the Cingular Services, Reseller shall pay the price for the Products at the then existing Reseller prices. 4 4.3 Title to Purchased Products. The Products paid for by Reseller shall be the property of Reseller, provided that any Products ordered but not yet paid for shall remain the personal property of Cingular and title (and right of possession without legal process) to the Products sold to Reseller shall remain with Cingular until payments for these Products have been made. Reseller agrees to do all acts necessary to maintain Cingular's title and perfect Cingular's security interest in the Products ordered but not yet paid for until Cingular has been paid for such Products. 4.4 Product Pricing. Cingular shall have the right in its sole reasonable discretion to change Product pricing upon [*] days written notice by Cingular to Reseller. Such changes made by Cingular may include, without limitation, adding or deleting Products, increasing or decreasing prices, or offering for a stated limited time special discounts, rebates or other promotions for some or all of the Products. Any price increase will not apply to any order received prior to the date of such notice if the requested shipment date is less than [*] days from the date of the order. In the event Cingular reduces the price of a Product shown in Schedule A, then (a) such reduction shall apply to any orders received by Cingular from Reseller prior to the date of notice of such reduction but not yet shipped, and (b) Cingular shall issue a credit to Reseller's account for the amount of such reduction for each affected Product shipped to Reseller within [*] days prior to the date of such notice. When reselling a Product purchased from Cingular under this Agreement, Reseller has the right to charge whatever price Reseller deems appropriate. 4.5 No Product Returns to Cingular. Cingular is permitting Reseller to purchase Products from Cingular (subject to availability) as a convenience to Reseller. Reseller shall work directly with the manufacture with respect to all warranty or other Product related issues, and Cingular shall have no responsibility with respect to such Products after the Products have been delivered to Reseller. For the avoidance of doubt, no Product returns are permitted to Cingular except as may be authorized by Cingular from time to time in writing. 5. Trade Name and TradeMarks 5.1 Both parties recognize the right, title and interest of the other party in and to all Marks used by that party and agree to not engage in any activity or commit any act, directly or indirectly, that may contest, dispute or otherwise impair such right, title or interest of the other party. Prior to either parties use of the other's Marks in any manner, the party seeking to use the Mark will submit to the party whose Mark is to be used, for review and approval in writing, a full and complete copy of any document or other media containing such use. Use of the Mark shall be allowed upon receipt of written authorization for such use from the party that owns the mark or name. 5 5.2 The obligations undertaken by the parties pursuant to this Section shall survive termination of this Agreement. In the event of such termination, the parties agree to not register or use any trademarks, trade names or service marks that are the same as or confusingly similar to the Marks of the other party and to surrender or abandon its use or ownership of any trade name or style containing any Mark confusingly similar to that of the other party. 5.3 The parties agree to indemnify, defend, and hold each other harmless in any third-party action relating to the use of the other party's Marks in violation of the provisions of this Agreement. 6. PAYMENT 6.1 Charges. [*] subject to Section 6.7 of this Agreement, Reseller shall pay Cingular the Charges for the Cingular Services as provided in this Section 6 and the Schedule of Charges attached as Schedule A. Reseller shall bear full responsibility for, and shall pay Cingular in accordance with the Schedule of Charges for the provision of all Cingular Services to Subscriptions. Cingular may increase such charges reasonably at any time, after the expiration of the twelve (12) months from the date of this Agreement, upon not less than [*] days notice in writing to Reseller. Reseller expressly acknowledges and agrees that some of the Cingular charges incurred in a billing cycle may not be billed in the billing cycle such charges are incurred. Cingular will make commercially reasonable efforts to bill for all such charges within [*] days from the date such charges are incurred. 6.2 Taxes, Surcharges, Assessments, and Government Fees. Except to the extent that the Reseller demonstrates that it is exempt under applicable law from any such charge, there shall be added to any charges an amount equal to any tariff, duty, levy, tax, exaction or withholding tax, including but not limited to, sales, property, ad valorem and use taxes, or any tax in lieu thereof, imposed by any local, State or Federal government or governmental agency with respect to the Services, or with respect to this Agreement itself, excepting only any taxes on or measured by the income of Cingular. In addition, Cingular may pass through to Customer a proportionate charge for any governmental mandates imposed on Cingular, which there are currently no charges. 6.3 Invoices. On approximately the fifteenth (15th) day of each month following the Initial Service Date, Cingular shall invoice Reseller for the amount of Cingular Services used in connection with Subscriptions calculated in accordance with the applicable rates specified in Schedule A. 6.4 Payment and Late Charges. Reseller shall make payment in full, by Federal wire transfer or by good check for immediately available funds, of each of Cingular's invoices not later than [*] days from the date of Reseller's receipt of such invoice. Any amounts required to be paid hereunder will be deemed paid when such funds are received at the location designated by Cingular from time to time. Without limiting any other remedies that may be available to Cingular, (including but not limited to Cingular drawing down on any letters of credit, deposits or other security interests) if Reseller does not make payment in full for all amounts due within [*] days from the date of Reseller's receipt of such invoice, Cingular, upon written notice to Customer, shall have the right, but not the obligation, to 6 disconnect from the Cingular Services any or all of the MAN's to which such delinquent payment relates and Cingular shall impose and Reseller shall pay a reactivation charge to reactivate such Subscriptions. Nothing contained in this Section 6 shall limit the rights of Cingular to declare Reseller in default upon the occurrence of any of the events set forth in this Agreement, including but not limited to failure to make a payment when due. Cingular shall provide such wire transfer instructions to Reseller with Cingular's first invoice. Acceptance of late or partial payments (even if marked "Paid In Full") shall not waive any of Cingular's rights to collect the full amount due under this Agreement. 6.5 Credit Criteria. Reseller acknowledges and agrees that Reseller must satisfy Cingular's credit criteria in effect from time to time to receive the Cingular Services. Reseller hereby authorizes Cingular to investigate the credit history of Reseller and gives Cingular permission to provide and exchange credit information regarding Reseller with credit reporting agencies. Cingular shall have the right from time to time to request that Reseller provide Cingular with such information and documents, including but not limited to certified or uncertified financial statements, banking references or trade references (collectively, "Credit Information"), as may be necessary or useful in Cingular's sole judgment to enable Cingular to determine Reseller's creditworthiness or continued creditworthiness. Reseller shall provide such information promptly upon Cingular's request. Until such time as Reseller provides Cingular the Credit Information requested, or in the event that in Cingular's sole reasonable judgment the Credit Information provided by Reseller does not provide satisfactory evidence of Reseller's creditworthiness, then, in addition to any other rights Cingular may have under this Agreement or applicable law, but correlative to Reseller's creditworthiness, Cingular shall have the right to reasonably withhold, limit or terminate use of the Cingular Services hereunder, to set such reasonable additional credit terms for activation, use or continued use of the Cingular Services (including but not limited to requiring use of letters of credit) as Cingular may reasonably deem appropriate, or to terminate this Agreement upon written notice to Reseller. 6.6 Other Costs. In addition to other charges due hereunder, Cingular may bill Reseller for Cingular's reasonable cost of complying with any subpoena, court order, or other process relating to Reseller's service. Reseller may bill Cingular for Reseller's reasonable cost of complying with any subpoena, court order, or other process relating to Cingular's business. 6.7 Disputed Charges. If Reseller disputes part of the monthly bill, Reseller is required to notify Cingular in writing and to submit appropriate documentation justifying such dispute to Cingular as soon as it is aware of the dispute, but in no event later than the sixty (60) days after the receipt of such invoice or such dispute is waived. Notwithstanding any such dispute, Reseller shall pay the full amount of any such bill pending the resolution of such dispute. Cingular will respond to Reseller's written dispute within thirty (30) days of receipt of such dispute. Cingular and Reseller shall use good faith and commercially reasonable efforts to resolve all disputes and Cingular shall promptly refund any amounts due upon dispute resolution. If the dispute is not resolved within fifteen (15) days of Reseller's receipt of Cingular's response, the parties may escalate the matter to senior management. 6.8 Deposits and Letters of Credit. 7 6.8.1 Effective January 1, 2004, Wynd shall open, or cause an affiliate of Wynd to open, a letter of credit (the "First L/C") in favor of Cingular, with [*] or another commercial banking institution of Wynd's choice with at least $100,000,000 in assets, subject to Cingular's reasonable approval, in the amount of [*]; provided, however, said First L/C shall only be closed upon the earlier of (i) the issuance of Second L/C (as such term is defined below) or the expiration or termination of the Agreement other than a termination by Cingular for an uncured material breach (as such term is defined below) by Wynd. In the event that Wynd does not make any payment on the date and in the amount as set forth herein, Cingular shall be permitted to draw down (a "First L/C Draw Down") for such unpaid amount upon the First L/C at any time after 12:00 noon on the [*] business days following the day payment was to have been made by Wynd. Within [*] business days of Wynd's receipt from Cingular of a First L/C Draw Down, Wynd shall be obligated to replenish the First L/C to its original amount unless a First L/C Draw Down is made in connection with the expiration or mutual termination of the Agreement. Wynd's failure to replenish the First L/C within the time frames set forth in the paragraph shall be deemed a material breach of this Agreement, and such failure shall give rise to Cingular having the right but not the obligation to terminate this Agreement. 6.8.2 No later than [*] (the "Financing Date"), Wynd shall open, or cause an affiliate of Wynd to open, a second letter of credit (the "Second L/C") in favor of Cingular, with [*] or another commercial banking institution with at least $100,000,000 in assets of Wynd's choice, subject to Cingular's reasonable approval, in the amount of [*] (the "Second L/C Amount"); provided, however, said Second L/C shall only be closed upon the expiration or termination of the Agreement other than a termination by Cingular for an uncured material breach (as such term is defined below) by Wynd. Cingular shall be permitted to draw down (a "Second L/C Draw Down") upon the Second L/C only in the event and to the extent that any invoice remains unpaid by Wynd for more than [*] days from the invoice date as to any payment under this Agreement or the New Reseller Agreement. Wynd agrees that the Second L/C Amount shall always be the greater of (i) [*] or (ii) [*] times the most recent invoice issued by Cingular to Wynd. In the event that the then current Second L/C Amount is less than [*] times the most recent invoice, Wynd shall within [*] days written notice from Cingular, increase the Second L/C Amount such that the Second L/C Amount is equal to [*] times the most recent invoice and such amount shall then be deemed to be the Second L/C Amount. Within [*] business days of its receipt of notice from Cingular of a Second L/C Draw Down, Wynd shall be obligated to replenish the Second L/C to its original amount unless a Second L/C Draw Down is made in connection with the expiration or mutual termination of the Agreement. 6.8.3 The fact that a deposit or other security arrangement has been made by Reseller neither relieves the Reseller from complying with Cingular's requirements on the prompt payment of bills on presentation nor constitutes a waiver or modification of the requirements of Cingular providing for the discontinuance or termination of Service for non-payment of any sums due Cingular for service rendered. 6.8.4 When Service is terminated, the amount of the cash deposit will be credited against the Reseller's final bill and any credit balance that may remain will be refunded within [*] 8 days after full payment. In the event security other than a deposit is posted, Cingular shall release each security [*] days after satisfaction of such accounts. 7. USE OF THE HANDHELDS AND CINGULAR SERVICES 7.1 Handhelds and Other Devices Must Be Approved. Reseller shall be responsible for assuring that all Handhelds and other radio modem devices used by Subscribers have been approved by Cingular for use with the Cingular Services ordered and on the Cingular Facilities in accordance with procedures and technical specifications established by Cingular from time to time during the Term of this Agreement. Furthermore, such Handhelds shall comply with all applicable laws, rules, and regulations, including without limitation the rules and regulations of the Federal Communications Commission ("FCC") concerning the licensing of end users of Specialized Mobile Radio Service facilities and the FCC type approval of end user equipment. 7.2 Requirements for Use of the Cingular Services. Reseller and Subscribers shall use the Cingular Services in compliance with the following requirements. If Reseller or any Subscriber violates any of these requirements, then Cingular shall have the right to terminate Cingular Service to the offending Subscription without notice to Reseller or any Subscriber. 7.2.1 Reseller and its Subscribers shall use the Cingular Services in compliance with Federal Communications Commission ("FCC") and other federal, state and local laws, rules and regulations and shall not under any circumstances represent itself as the FCC authorized provider of the Cingular Services. 7.2.2 Reseller and its Subscribers shall not use the Cingular Services to transmit obscene, indecent, harassing, profane, abusive, false, illegal or deceptive messages. 7.2.3 Reseller and its Subscribers shall not i) activate Handhelds or other radio modem devices unless they are approved by Cingular, ii) activate Handhelds or other radio modem devices which communicate with the Cingular Facilities until they have been registered by Cingular on the Cingular Facilities, iii) use Handhelds or other radio modem devices other than as the radio modem was designed or configured to operate at the time of approval, iv) transmit excessive retry messages or v) permit the Handheld or other radio modem device to consume network capacity that exceeds that reasonably anticipated based on the radio modem and software application design or based on the use intended and disclosed by Reseller to Cingular. 7.3 From time to time Reseller shall provide Cingular selected information related to each Subscriber, such information minimally to contain the MAN and zip code of each Subscriber activated on the Cingular Facilities. Cingular agrees that this is information is confidential and shall only be used to (i) assist in Cingular the planning of the Cingular Facilities, or (ii) to compensate Cingular's commission based sales team. Cingular Service and Coverage Limitations and Recommended Analysis and Testing. Reseller acknowledges that the Cingular Services are subject to transmission limitations 9 caused by conditions such as, operating characteristics of Reseller or Subscriber selected hardware, Handhelds, atmospheric, topographical, operating characteristics of mobile terminal devices, and other like conditions. Cingular recommends that Reseller perform its own coverage analysis and test to determine if the available coverage meets the Subscriber's requirements. Additionally, Cingular Services may be temporarily suspended, refused, limited or curtailed due to governmental regulations or orders, system capacity limitations, limitations imposed by an underlying carrier, or because of equipment modifications, upgrades, repairs or reallocations or other similar activities necessary or proper for the operation or improvement of the Cingular Facilities or the Cingular Services. 7.4 Non-disparagement. Reseller shall not do anything that would tend to discredit, dishonor, reflect adversely upon, or in any manner injure the reputation of Cingular or its services. 8. SINGLE LOCATION SUBSCRIPTIONS Single Location Subscriptions. In the event that Reseller desires to activate or authorize the activation for a single customer over any [*] day period of more than [*] Subscriptions using the Cingular Services where Reseller should reasonably anticipate that such Subscriptions will likely use the Services at a "single location", ("Single Location Subscriptions") then Reseller shall obtain the written approval of Cingular prior to activating or authorizing the activation of any such Subscriptions. In the event that Reseller fails to obtain the necessary pre-approval for Single Location Subscriptions, then Cingular has the right, but not the obligation, to suspend or terminate providing the Services to any or all of the Single Location Subscriptions. A "single location" for purposes of this paragraph means a single building or series of buildings in which Subscribers would connect to the Cingular Facilities through the same base station. The parties agree that the approval process set forth in this paragraph is to assist in Cingular Facility single location capacity planning, and that nothing herein creates any additional or further warranty by Cingular with respect to the Cingular Facilities or Cingular Services. 9. CONFIDENTIAL INFORMATION, CPNI AND ADVERTISING 9.1 Use of Confidential Information. The recipient will use Confidential Information disclosed in connection with performance under this Agreement only for the purposes of performing its obligations under this Agreement. 9.2 Disclosure of Confidential Information. Confidential Information disclosed under this Agreement by one party to the other will be protected by the recipient from further disclosure, publication, and dissemination to the same degree and using the same care and discretion as the recipient applies to protect its own confidential or proprietary information from undesired disclosure, publication and dissemination. Reseller's customer information shall be considered Confidential Information. Except as set forth in 10 the following paragraph, neither party will disclose the other's Confidential Information to any affiliate or other third party, without prior written consent from the other party. If Confidential Information is required by law, regulation, or court order to be disclosed, the recipient must first notify the disclosing party and permit the disclosing party to seek an appropriate protective order. 9.3 Disclosure to Employees and Consultants. Confidential Information disclosed under this Agreement may be disclosed to a receiving party's employees (including contract employees) or consultants who participate in the Cingular Services and who have agreed to a confidentiality obligation at least as restrictive as provided in this Section 9. The receiving party shall maintain adequate procedures to ensure that all of the persons to whom it discloses or provides access to Confidential Information comply with the restrictions set forth herein. 9.4 Irreparable Harm. The parties recognize that disclosure of Confidential Information in violation of this Agreement will result in irreparable harm. Each party shall have the right to injunctive relief in the event of a disclosure in violation of this Agreement. 9.5 Advertising. 9.5.1 Reseller may, at its own expense market, promote, and advertise the Cingular Services. Reseller will not in any manner use, display, broadcast, or disseminate any advertising or promotional material which contains any (i) material misrepresentations, or omits to state a material fact, with regard to Cingular or the Cingular Services, or (ii) statement in derogation of Cingular or the Cingular Services. Anything to the contrary herein notwithstanding, Reseller shall, prior to its proposed use of any advertising or promotional material referring to Cingular, or the Cingular Services, submit a copy of such material to Cingular for Cingular's prior written approval, which approval shall not be unreasonably withheld. 9.5.2 Neither party to this Agreement shall without the written consent of the other party (i) make any news releases, public announcements, or denials or confirmations of the same, concerning all or any part of the Agreement or any discussions or negotiations between the parties, (ii) in any manner advertise or publish the fact that the parties have entered into the Agreement, or (iii) disclose any details of the Agreement (whether or not Confidential Information) to any third parties. The parties deem the terms and conditions of the Agreement to be Confidential Information. 10. TERM 10.1 Initial Term. The initial term of this Agreement shall commence as of the date hereof and shall continue, unless sooner terminated pursuant to the provisions hereof, until the date that shall be Two (2) years after the Effective Date (the "Initial Term"), and shall automatically renew on annual basis subject to Section 10.2 ("each such renewal a "Renewal Term"), unless terminated as provided in Section 11 or unless one party provides the other party of written notice of such party's intent not to renew, such notice to be 11 provided at least [*] days before the expiration of the Initial Term or any Renewal Term as the case may be. 10.2 No Obligation to Renew. Nothing in this Agreement will be deemed to create any express or implied obligation on either party to renew or extend this Agreement or to create any right to continue this Agreement on the same terms and conditions contained herein. Reseller understands that Cingular intends to review its Value Added Reseller strategy from time to time and the terms and conditions of this Agreement on an ongoing basis and may require execution of an amended form of this Agreement as a condition of renewal. 11. TERMINATION 11.1 Legal and Regulatory Requirements. This Agreement shall terminate automatically (with notice reasonably provided thereafter to Reseller) and without liability or further obligation of either party to the other if any of the following events (the "Termination Events") occurs. 11.1.1 Termination is required by the FCC or Cingular loses its authority or licenses to operate the Cingular Facilities by termination, suspension, non-renewal or otherwise. It is provided, however, that in the event Cingular loses its authority or licenses to operate only a part of the Cingular Facilities, then this Agreement shall terminate only as to the part of the Cingular Facilities materially affected. Nothing herein shall be construed to diminish Cingular's responsibility to use all commercially reasonable efforts to maintain all required authority and licenses in full force and effect for the duration of this Agreement. 11.1.2 Termination is required by any law, rule, regulation, or valid order or decision of a court of competent jurisdiction promulgated or made from time to time, including, without limitation, the Telecommunications Act of 1996 and the rules and regulations of the FCC. Nothing herein shall be construed to require Cingular to seek waiver of any law, rule, regulation, or restriction, or seek judicial review or appeal of any court order. 11.2 Events of Default. On the occurrence of any Event of Default (as hereinafter defined), either party may, upon written notice to the defaulting party (the "Defaulting Party"), terminate this Agreement without liability to the Defaulting Party. Each of the following constitutes an Event of Default. 11.2.1 Failure by the Defaulting Party to perform a material term or condition of this Agreement unless such failure is corrected within [*] days of notice from the other party advising the Defaulting Party in reasonable detail of the failure (each an "uncured material breach"). 11.2.2 Reseller's failure to pay any sums due and payable as and when required under this Agreement. 11.2.3. A party's insolvency or failure to pay debts as they come due. 12 11.2.4 [*] 11.2.5. A party becoming subject to any proceeding under the Bankruptcy Act or similar laws, provided that if such proceeding is involuntary, the party shall have ninety (90) days to have such proceeding dismissed before such proceeding becomes an Event of Default. 12 EFFECT OF TERMINATION 12.1 In the event that this Agreement should be terminated or not renewed for any renewal Term as the result of written notice by Cingular to Reseller pursuant to Section 11 above, such termination shall not affect or diminish Reseller's obligation to make payment to Cingular for Services provided before or after the date of termination, and such obligation shall survive termination of this Agreement. 12.2 If the Agreement is terminated for the occurrence of an Event of Default by Reseller, Cingular may thereafter notify the Subscribers in any manner including, but not limited to calling, text messaging, or any other form of communication in order to inform such Subscribers as to how they may maintain Cingular Services, (or Reseller Services to the extent that such Reseller Services are available to Cingular), after termination of this Agreement if they so desire. Reseller agrees to cooperate with Cingular to enable Subscribers to continue Cingular Services with Cingular with minimal disruption after termination including, but not limited to, providing Cingular with its Subscriber list. 12.3 After termination of this Agreement, Cingular has no obligation to continue the Cingular Services for any Subscriber or to arrange for any transfer or return of Products owned by Reseller; however, if Cingular decides to continue the Cingular Services for Subscribers after termination of this Agreement, Cingular and Reseller agree to cooperate to minimize the disruption in providing the Cingular Services for such Subscribers. 12.4 Upon any termination of this Agreement, Reseller shall cease its efforts to activate new subscribers to the Cingular Services, however, the parties agree to cooperate in good faith to effect an orderly wind-down of the prior subscriber relationship created under this Agreement, provided however that Reseller remains in compliance with the terms and conditions of this Agreement. 13. LIMITED WARRANTY 13.1 Reseller Warranties. Reseller represents and warrants to Cingular as follows: 13.3.1 it is a corporation duly organized, validly existing, and in good standing under the laws of the state of its incorporation, and has all requisite corporate power and authority to own, operate, and lease its properties and carry on its business as now being conducted, and to enter into this Agreement and perform its obligations hereunder; 13 13.3.2 the execution and delivery of this Agreement has been duly and validly authorized and approved by all necessary Reseller corporate action and this Agreement is valid and binding upon it in accordance with its terms; 13.3.3 the execution and carrying out of this Agreement and compliance with the provisions hereof by it will not violate any provision of law, will not, with or without the giving of notice and/or the passage of time, conflict with or result in the breach of any of the terms or conditions of, or constitute a default under, any indenture, mortgage, agreement, or other instrument to which it is a party or by which it is bound; 13.3.4 the sale of the Cingular Services shall only be in connection with the sale of the Reseller Services and incidental to the Cingular Services, which shall constitute the principal value to Subscribers of the Cingular Services. 13.4 Cingular Warranties. Cingular represents and warrants to Reseller as follows: 13.4.1 it is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has all requisite power and authority to own, operate, and lease its properties and carry on its business as now being conducted, and to enter into this Agreement and perform its obligations hereunder; 13.4.2 the execution and delivery of this Agreement has been duly and validly authorized and approved by all necessary Cingular partnership action and this Agreement is valid and binding upon it in accordance with its terms; 13.5 Disclaimer. CINGULAR DISCLAIMS ALL OTHER WARRANTIES WITH RESPECT TO THE CINGULAR SERVICES and THE CINGULAR FACILITIES WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO, ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. CINGULAR SHALL HAVE NO LIABILITY FOR PATENT OR COPYRIGHT INFRINGEMENT OR MISAPPROPRIATION OF TRADE SECRETS WITH RESPECT TO any PRODUCTS, OR SOFTWARE USED IN CONNECTION WITH THE SERVICES. 14. INDEMNITY 14.1 Reseller Indemnity. Reseller shall defend, indemnify, and hold harmless Cingular its parents, successors, affiliates and agents from any claims, damages, losses, or expenses (including without limitation attorney fees and costs) incurred by Cingular in connection with all claims, suits, judgments, and causes of action (i) for infringement of patents or other proprietary rights arising from combining with or using any radio modem device , system or service in connection with Cingular Facilities (ii) for libel, slander, defamation or infringement of copyright or other proprietary right with respect to material transmitted by Reseller or Subscribers over the Cingular Facilities or (iii) injury, death or 14 property damage arising in connection with the presence, use or failure of the Cingular Services, Handhelds or other radio modem devices. 15. LIMITATIONS ON LIABILITY 15.1 Limitations on Loss or Damage. Reseller's sole remedies for loss or damage caused by partial or total failure of the Cingular Facilities or for delay or nonperformance of any of the Cingular Services or any other obligation arising from or related to this Agreement, regardless of the form of action, whether in contract, tort (including negligence), strict liability or otherwise, shall be Reseller's actual proven damages, if any, resulting solely from such failure, delay, or nonperformance and limited solely to the amount paid by Reseller to Cingular under this Agreement during such period of failure, delay, or nonperformance. RESELLER RECOGNIZES THAT CINGULAR DOES NOT CONTROL THE INTERNET AND THAT CINGULAR SHALL HAVE NO LIABILITY WHATSOEVER TO RESELLER OR ANY THIRD PARTY CLAIMING BY OR THROUGH RESELLER FOR THE ACCURACY, TIMELINESS OR CONTINUED AVAILABILITY OF THE INTERNET. 15.2 Disclaimer. AS A MATERIAL PART OF THE CONSIDERATION PAID BY RESELLER FOR THE CINGULAR SERVICES, PROVIDED BY CINGULAR, RESELLER ON ITS OWN BEHALF AND ON BEHALF OF THE SUBSCRIBERS, AGREES THAT CINGULAR SHALL IN NO EVENT BE LIABLE FOR AND RESELLER HEREBY WAIVES ITS RIGHT AND THE RIGHT OF THE SUBSCRIBERS TO CLAIM ANY INDIRECT, SPECIAL, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL OR PUNITIVE DAMAGES (INCLUDING LOST PROFITS), DIRECTLY OR INDIRECTLY RELATING TO OR ARISING OUT OF THIS AGREEMENT REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE, AND WHETHER OR NOT SUCH DAMAGES WERE FORESEEN OR UNFORESEEN. THE FOREGOING DISCLAIMER SHALL APPLY IN CIRCUMSTANCES INCLUDING, BUT NOT LIMITED TO, RESELLER'S AND SUBSCRIBERS INABILITY TO USE THE CINGULAR FACILITIES, THE CINGULAR SERVICES, THE SOFTWARE OR THE PRODUCTS, OR ANY PART THEREOF, EITHER SEPARATELY OR IN COMBINATION WITH ANY OTHER COMMUNICATIONS FACILITIES OR IN CONNECTION WITH ANY CINGULAR SERVICES, PERFORMED OR NOT PERFORMED BY CINGULAR UNDER THIS AGREEMENT, OR A THIRD PARTY'S UNAUTHORIZED ACCESS TO RESELLER'S OR A SUBSCRIBERS DATA TRANSMITTED OVER THE CINGULAR FACILITIES OR THE CINGULAR SERVICES. 15.3 Cingular is not liable for damages for any accident or injury occasioned by the use of the Services or the presence of the Handheld. 16. TECHNICAL SUPPORT 15 16.1 Reseller shall provide an adequate staff to receive and investigate complaints and questions from the Subscribers relating to the Reseller Services or the Cingular Services, and will report any trouble with the Cingular Services to Cingular only upon reasonable belief that such trouble is due to reasons other than the malfunctioning of Subscriber's equipment or Resellers Services. Reseller, at no cost to Cingular, shall maintain adequate staff and equipment to test Subscriber's equipment to verify the cause of complaints received by Subscribers with respect to the Reseller Services. 16.2 Reseller shall provide Tier 1 customer support to Subscribers. Tier 1 support is the first level of customer support. Tier 1 support issues involve customers' questions or complaints regarding the handheld features, functionality, installation and operation of the Reseller Services, how to questions, including, but not limited to questions about error messages, questions on how to use the Cingular Services, the Reseller Services, or billing questions. 16.3 Tier 2 problems are of a more technical nature and may include but are not limited to questions concerning Cingular's network. For Tier 2 questions, the Reseller's Customer Support Representative will contact Cingular's Support Group by calling 800-[*]. Reseller shall provide the following information at the time the call is placed to the Cingular Tier 2 support group: MAN (Mobitex Access Number) MSN (Manufacture Serial Number) Detailed description of the problem Location of the radio in respect to surrounding structures List of all troubleshooting steps previously taken Cingular's Support Group will be available on a 24 hour by 7 day a week basis and will respond to Reseller's inquires within 24 hours and provide at least 24 hour rolling updates to any issues that cannot be resolved within 24 hours. 17. INDEPENDENT CONTRACTORS. Reseller and Cingular shall at all times be, and represent themselves to be, solely independent contractors each acting on their own account in all transactions involving the Cingular Services. Nothing in this Agreement shall be construed to make either party (or any person employed by either party) an employee of the other party. Neither party shall have any authority to bind or commit the other party in any respect or to accept legal process on behalf of the other party. Without limiting the generality of the foregoing, neither party shall be liable to any agent, reseller, subcontractor, supplier, employee, or customer of the other party for any commission, compensation, remuneration, benefit, damage, or claim of any nature whatsoever. Reseller shall not, in any manner whatsoever, represent itself as the operator of the Cingular Facilities or the provider of the Cingular Services, but shall identify Cingular as the entity authorized to operate the Cingular Facilities and provide the Cingular Services and represent itself only as an authorized reseller of the Cingular Services. 16 18. DISPUTE RESOLUTION. 18.1 The parties agree to settle any dispute arising out of or related to this Agreement through consultation and negotiation in good faith and in the spirit of mutual cooperation. Any dispute arising out of or related to this Agreement that cannot be resolved by negotiation shall be settled by binding arbitration in accordance with the J.A.M.S./ENDISPUTE Arbitration Rules and Procedures ("Endispute Rules"), as amended by this Agreement. Such arbitration shall be held at a location agreed upon by the parties. The parties will jointly select one (1) independent arbitrator familiar with the wireless telecommunications industry, provided that if the parties cannot agree on an arbitrator, the selection shall be made by J.A.M.S./ENDISPUTE in accordance with the Endispute Rules. Any award rendered by the arbitrator shall be conclusive and binding upon the parties hereto, provided that any such award shall be accompanied by a written opinion of the arbitrator giving the reasons for the award. The costs of arbitration, including the fees and expenses of the arbitrator, shall be shared equally by the parties unless the arbitration award provides otherwise. Each party shall bear the cost of preparing and presenting its case. 18.2 The parties agree that this provision and the arbitrator's authority to grant relief shall be subject to the United States Arbitration Act, 9 U.S.C. 1-16 et seq. ("USAA"), the provisions of this Agreement and the ABA-AAA Code of Ethics for Arbitrators in Commercial Disputes. In the event of a conflict between the USAA and the Endispute Rules, the Endispute Rules shall govern. In no event shall the arbitrator have the authority to make any award that provides for punitive or exemplary damages. The award may be confirmed and enforced in any court of competent jurisdiction. All post-award proceedings shall be governed by the USAA. 18.3 ALL DISCUSSIONS AND DOCUMENTS PREPARED PURSUANT TO ANY ATTEMPT TO RESOLVE A DISPUTE UNDER THIS PROVISION ARE CONFIDENTIAL AND FOR SETTLEMENT PURPOSES ONLY AND SHALL NOT BE ADMITTED IN ANY COURT OR OTHER FORUM AS AN ADMISSION OR OTHERWISE AGAINST A PARTY FOR ANY PURPOSE INCLUDING THE APPLICABILITY OF FEDERAL AND STATE COURT RULES. 19. HIRING OF EMPLOYEES. During the Term of this Agreement and for a period of one (1) year after this Agreement is terminated or performance is completed, whichever is later, neither Cingular nor Reseller shall hire or solicit for employment, directly or indirectly, any employee of the other Party directly involved in performance under this Agreement unless the other Party has either, granted written permission for the employment, or the employee left the employment of the other Party more than one (1) year prior to the hiring or solicitation. Advertisements in newspapers and trade publications by either Party do not constitute solicitation. 20. RIGHT OF FIRST REFUSAL. 17 If at any time during the Term of this Agreement or upon expiration or termination of this Agreement, Reseller receives a bona fide offer from a third party to solely purchase Reseller's Subscriber base obtained under this Agreement, and Reseller desires to accept such offer, Reseller shall cause such offer to be reduced to writing and shall notify Cingular in writing of such offer. After Cingular's receipt of such notice, Cingular shall have a right of first refusal with respect to Reseller's Subscriber base subject to such sale for a period of fifteen (15) calendar days. Cingular may exercise such right of first refusal as to Reseller's Subscriber base subject to such sale by written notice to Reseller, to purchase promptly under the terms and conditions identical in all material respects to the terms and conditions of the third party's offer. Reseller shall not agree to any such sale to a third party until after the date of expiration or termination of this Agreement, unless otherwise consented to, in writing, by Cingular, which consent shall not be unreasonably withheld, delayed or conditioned. 21. NOTICES Except as otherwise provided in this Agreement, all notices or other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person or sent over night delivery by Federal Express or Airborne Express, and, if to Reseller, addressed to Reseller at: GoAmerica, Inc., 433 Hackensack Avenue, Hackensack, New Jersey 07601 to the attention of Chief Executive Officer, with a copy to General Counsel at the same address, and, if to Cingular, addressed to Cingular Interactive, L. P. at 5565 Glenridge Connector, Atlanta, Georgia 30342 to the attention of President, with a copy (which shall not constitute notice) to General Counsel. 22. FORCE MAJUERE Neither Cingular nor Reseller shall be liable to the other for any delay or failure in performance hereunder due to fires, strikes, threatened strikes, stoppage of work, embargoes, requirements imposed by governmental regulations, civil or military authorities, acts of God (including, by way of example, weather conditions), the public enemy, acts of terrorism or other causes which are beyond the control of the party unable to perform. 23. ADDITIONAL UNDERTAKINGS Cingular agrees to provide Reseller certain upgraded gateway software for the Wynd Gateway for [*] and subject to a mutually agreed upon software license, the terms and conditions to be negotiated in good faith (the "Upgrade License"). Contemporaneous with the signing of the Upgrade License, the parties agree to enter into a gateway software maintenance agreement where the annual fee shall be [*] (the "Maintenance Agreement"). If and when the Upgrade License and Maintenance License have been signed by all parties and the required payments therein made to Cingular (the "Gateway Contingency"), then on the first day of the first full month following the satisfaction of the Gateway Contingency, the Activation Fees set forth in Schedule A shall be reduced to [*]. 18 24. GENERAL 24.1 Remedies Nonexclusive. Except where expressly provided, no remedy herein conferred upon either party is intended, nor shall it be construed to be exclusive of any other remedy provided herein or as allowed by law or in equity, but all such remedies shall be cumulative. 24.2 No Third Party Beneficiaries. Except as otherwise specifically stated in this Agreement, the provisions of this Agreement are for the benefit of the parties hereto and not for any other person. 24.3 Precedence Over Purchase Order Terms and Conditions. Any additional or different terms of Reseller's purchase order, whether or not such terms materially alter this Agreement, shall be deemed objected to by Cingular and of no force and effect unless this Agreement is expressly amended by the parties hereto. Execution of a Reseller's purchase order shall not operate as an amendment to this Agreement. Whenever printed, typed, stamped or written provisions of Reseller's purchase order conflict with this Agreement, this Agreement shall control. 24.4 Waivers of Default. Waiver by either party of any default by the other party shall not be deemed a continuing waiver of such default or a waiver of any other default. 24.5 Survival. The terms and conditions and warranties contained in this Agreement that by their sense and context are intended to survive the performance hereof by either or both parties hereunder shall so survive the completion of performance, cancellation or termination of this Agreement. 24.6 Headings and Captions. All paragraph headings and captions used herein and in the schedules hereto are for the convenience of the parties only and shall not be part of the text hereof, or affect the meaning of this Agreement. 24.7 Governing Law. The Agreement shall be construed in accordance with the laws of the State of Georgia applicable to Agreements executed and wholly performed within that State. 24.8 Severability. If a provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not invalidate or render unenforceable the entire Agreement, but rather (unless a failure of consideration would result there from) the entire Agreement shall be construed as if not containing the particular invalid or unenforceable provision or provisions, and the rights and obligations of Cingular and Reseller shall be construed and enforced accordingly. 24.9 Licenses. Reseller shall promptly provide Cingular with all such information as Cingular shall reasonably request with respect to matters relating to Cingular's and Reseller's compliance with the rules and regulations of the FCC. 24.10 Assignment and Delegation. Cingular may assign this Agreement without notice to the Reseller. Reseller shall not assign this Agreement, without the prior written consent of Cingular, which shall not be unreasonably withheld. Cingular may perform all of the Cingular Services to be performed under this Agreement directly or may have some or all of the Cingular Services performed by its subsidiaries, affiliates or subcontractors without notice to the Reseller. 19 24.11 Entire Agreement. This Agreement, together with the schedules, contains the entire agreement between the parties and there are merged hereinto all prior representations, promises, and conditions in connection with the subject matter hereof. Any representations, promises, or conditions not incorporated herein shall not be binding upon either party and this Agreement supersedes and is in lieu of all existing agreements or arrangements between the parties with respect to the subject matter hereof, and this Agreement expressly terminates the Value Added Reseller Agreement, dated as of August 31, 1999 (as amended on March 9, 2000, March 21, 2000 and December 13, 2001, the "GoAmerica Agreement"), but not the Letter Agreement dated May 29, 2003 (the "May 03 Letter"); and the Value Added Reseller Agreement, dated August 15, 1994 (as amended on or about September 1, 1995, May 1, 1996, September 1, 1996, January 1, 1998, August 10, 1998 and November 1, 1999, the "Wynd Agreement"). IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized representatives. GOAMERICA, INC. CINGULAR INTERACTIVE, L.P. By: /s/ Daniel R. Luis By: /s/ Charles Nelson Chief Executive Officer President December 30, 2003 December 30, 2003 20 SCHEDULE A TO VALUE ADDED RESELLER AGREEMENT FOR CINGULAR INTERACTIVE SERVICE - -------------------------------------------------------------------------------- A1 - Pricing Schedule - I. One Time Charges Price Plan 1 - Activation Fee and Reactivation Fee per Subscriber $[*] Price Plan 2- Activation Fee and Reactivation Fee per Subscriber - [*] B. Host/Server Installation Fee ---------------------------- Frame Relay Installation Fee.............................................$ [*] Reconfiguration Fee ......................................$ [*] IAS Installation Fee.............................................$ [*] Reconfiguration Fee..........................................$ [*] C. Optional Services ----------------- Host Group Address Installation Fee .................................$ [*] Host Group Reconfiguration Fee.......................................$ [*] ISDN (Back-Up to other Host Connection)..............................$ [*] Dial-Up (Back-Up to other Host Connection)...........................$ [*] II. Host Connection Charges ----------------------- In addition to Cingular's Host Connectivity Charges set forth below, Reseller arranges and pays for the Leased Line/Frame Relay provided by its carrier of choice and pays for all fees and charges associated with Reseller's choice of connectivity options. III. Leased Line Connections/Frame Relay Connections ----------------------------------------------- X.25 Fixed Connection - 9.6 kbps......................... $ [*] per month X.25 Fixed Connection - 19.2 kbps........................ $ [*] per month X.25 Fixed Connection - 38.4 kbps........................ $ [*] per month 21 X.25 Fixed Connection - 56.0 kbps........................ $ [*] per month X.25 PDN Fixed Connection - 9.6 kbps..................... $ [*] per month Additional Fixed MAN Connection.......................... $ [*] per month Host Group Address....................................... $ [*] per month (Available only with an existing X.25 connection) Frame Relay Connections ----------------------- 16 Kbps (5 packets per second)........................... $ [*] per month 32Kbps (10 packets per second)........................... $ [*] per month 48 Kbps (15 packets per second).......................... $ [*] per month 64 Kbps (20 packets per second).......................... $ [*] per month Host Group Address....................................... $ [*] per month IV. Monthly Subscriber Unit Charges ------------------------------- At the time that Reseller requests Cingular to activate a Subscription on the Cingular Facilities, Reseller shall designate one of the following Price Plans for such Subscription. If the Reseller fails to designate a plan, then the default plan shall be Price Plan 2. Price Plan 1 - (Sometimes referred to as Wynd account #[*]) Monthly Recurring Charge - $ [*] for each Subscription activated on the Cingular Facilitiesfor unlimited usage. Price Plan 2 - (Sometimes referred to as Account #[*]) Monthly Recurring Charge - $ [*] for the first [*] kilobytes of usage for each Subscription activated on the Cingular Facilities. For usage greater than [*] kilobytes, the overage charge is $ [*] for each kilobyte used greater than [*] kilobytes but less than [*] kilobytes, PLUS $ [*] for each kilobyte used greater than [*], but less than [*], PLUS $ [*] for each kilobyte used greater than [*] kilobytes. [*] V. Mobile-to-Mobile Charges ------------------------ [*] The number of bytes contained in Mobile-to-Mobile transmissions shall be listed separately in each monthly invoice issued by Cingular to Reseller, and shall be billed at the then applicable charges in Section IV. VI. Optional Charges ---------------- Monthly Billing Administration Fee....................... $ [*] 23 (Includes monthly Reseller Traffic Detail Report and Host Detail Report in Cingular's standard electronic format and/or hard copy) Troubleshooting Services will be charged at the following rates when Cingular resolves technical problems that are not caused by problems occurring in the Cingular Facilities. Rates do not include expenses incurred for travel, lodging, meals and cost of materials and equipment, which will be charged separately Per Hour (Minimum Charge [*] hours)...................... $ [*] Per Day.................................................. $ [*] A2 - Cingular Services - The Cingular Services to be provided by Cingular under the Agreement shall be: Access to the Cingular Facilities on a usage basis. A3 - Reseller Services - The Reseller Services shall consist of 1. the training, billing, collection and customer support services provided by Reseller to Subscribers for the Reseller Services; and, 2. certain network and routing services provided from Reseller's messaging gateway that utilize the Interactive Paging modules of gateway software licensed by Cingular (f/k/a BellSouth Wireless Data L.P) to Reseller pursuant to the Agreement between RAM/BSE Communications, L.P. and Reseller dated August 15th, 1994, for the limited purpose of providing wireless TTY and related value added services for the deaf and hard of hearing market 24 EX-21.1 4 e17167ex21_1.txt LIST OF SUBSIDIARIES OF GOAMERICA Exhibit 21.1 List of Subsidiaries of GoAmerica, Inc. GoAmerica, Inc. Subsidiaries 1. GoAmerica Communications Corp. (Delaware corporation) 433 Hackensack Avenue Hackensack, New Jersey 07601 2. GoAmerica Marketing, Inc. (Delaware corporation) 433 Hackensack Avenue Hackensack, New Jersey 07601 3. Wynd Communications Corporation (California corporation) 75 Higuera Street, Suite 240 San Luis Obispo, California 93401 4. Hotpaper.com, Inc. (Delaware corporation) 433 Hackensack Avenue Hackensack, New Jersey 07601 5. OutBack Resource Group, Inc. (California corporation) 3450 Broad Street, Suite 103 San Luis Obispo, California 93401 EX-23.1 5 e17167ex23_1.txt CONSENT OF WITHUMSMITH+BROWN, P.C. Exhibit 23.1 Consent of WithumSmith + Brown, P.C. Consent of WithumSmith+Brown, P.C. CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-47736 and 333-90088) pertaining to the GoAmerica Communications Corp. 1999 Stock Option Plan, the GoAmerica, Inc. 1999 Stock Plan and the GoAmerica, Inc. Employee Stock Purchase Plan of our report dated March 4, 2004, except for note 18 as to which the date is March 10, 2004 with respect to the financial statements and schedule of GoAmerica, Inc. for the years ended December 31, 2003 and 2002 included in the Annual Report (Form 10-K) for the year ended December 31, 2003. /s/ WithumSmith+Brown, P.C. New Brunswick, New Jersey March 10, 2004 EX-23.2 6 e17167ex23_2.txt CONSENT OF ERNST & YOUNG Exhibit 23.2 Consent of Ernst & Young LLP CONSENT OF INDEPENDENT AUDITORS CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-47736 and 333-90088) pertaining to the GoAmerica Communications Corp. 1999 Stock Option Plan, the GoAmerica, Inc. 1999 Stock Plan and the GoAmerica, Inc. Employee Stock Purchase Plan of our report dated March 26, 2002, with respect to the financial statements and schedule of GoAmerica, Inc. for the year ended December 31, 2001 included in the Annual Report (Form 10-K) for the year ended December 31, 2003. /s/ Ernst & Young LLP MetroPark, New Jersey March 10, 2004 EX-31.1 7 e17167ex31_1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 31.1 CERTIFICATION I, Daniel R. Luis, certify that: 1. I have reviewed this Annual Report on Form 10-K of GoAmerica, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 10, 2004 /s/ Daniel R. Luis ----------------------- Daniel R. Luis Chief Executive Officer EX-31.2 8 e17167ex31_2.txt CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER Exhibit 31.2 CERTIFICATION I, Donald G. Barnhart, certify that: 1. I have reviewed this Annual Report on Form 10-K of GoAmerica, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 10, 2004 /s/ Donald G. Barnhart ----------------------- Donald G. Barnhart Chief Financial Officer EX-32.1 9 e17167ex32_1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of GoAmerica, Inc. (the "Company") on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission (the "Report"), I, Daniel R. Luis, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934;and (2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and consolidated results of operations of the Company for the periods presented. Dated: March 10, 2004 By: /s/ Daniel R. Luis ----------------------- Daniel R. Luis Chief Executive Officer This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. EX-32.2 10 e17167ex32_2.txt CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of GoAmerica, Inc. (the "Company") on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission (the "Report"), I, Donald G. Barnhart, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934;and (2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and consolidated results of operations of the Company for the periods presented. Dated: March 10, 2004 By: /s/ Donald G. Barnhart ----------------------- Donald G. Barnhart Chief Financial Officer EX-99.1 11 e17167ex99_1.txt RISK FACTORS Exhibit 99.1 Risk Factors Risks Particular To GoAmerica We have historically incurred losses and these losses will continue in the foreseeable future. We have never earned a profit. We had net losses of $8.2 million, $55.9 million, and $120.3 million for the years ended December 31, 2003, 2002 and 2001, respectively. Since our inception, we have invested significant capital to build our wireless network operations and e-commerce systems as well as our billing system. We also have provided mobile devices made by third parties to our customers at prices below our costs for such devices. In addition, although we have reduced our exposure to subscriber-related costs through our strategic alliance with EarthLink in September 2002, our costs of subscriber revenue, consisting principally of our purchase of wireless airtime from network carriers, have historically exceeded our subscriber revenue. Further, we have experienced negative overall gross margins, which consist of margins on our subscriber revenues, equipment sales and other revenue, and may experience negative overall gross margins again in the future. We have incurred operating losses since our inception and expect to continue to incur operating losses for at least the next year. We will need to generate significant revenue to become profitable and sustain profitability on a quarterly and annual basis. We may not achieve or sustain our revenue or profit goals, and our ability to do so depends on the factors specified elsewhere in "Risk Factors" - as well as on a number of factors outside of our control, including the extent to which: o our competitors announce and develop, or lower the prices of, competing services; o wireless network carriers, data providers and manufacturers of mobile devices dedicate resources to selling our services or increase the costs of, or limit the use of, services or devices that we purchase from them; and o prices for our services decrease as a result of reduced demand or competitive pressures. As a result, we may not be able to increase revenue or achieve profitability on a quarterly or annual basis. We may be unable to execute our new business strategy announced in December 2003. Our new business strategy is centered on the pursuit of three priorities, centered on the offering of services to deaf or hard of hearing customers by our Wynd Communications subsidiary. These priorities and the principal risks associated with each priority are: o Growth of Wynd Communications' core wireless services business. We cannot assure you that we will be able to grow our core business profitability. Crucial to any growth will be our ability to increase sales to existing, past and potential customers while controlling our marketing expenses. Growth by means of product or service acquisitions may require additional capital to fund acquisitions and we will confront the risks, described below, inherent in an acquisition strategy. o Development and marketing of new communications services, including branded Internet protocol and video relay services. To remain competitive in our primary marketing areas, we must continue to offer innovative products and services. We will be limited in the extent to which we can focus upon technological development by capital constraints, by the time that it takes to commercialize product and service concepts and by the steps that may be taken by our competitors. In our rapidly changing environment, developments that appear to present significant advantages may become obsolete before we are able to benefit from our development efforts. In recent years, our shortage of liquidity has required us to reduce the amount of resources devoted to marketing. We expect that capital constraints will continue to limit our marketing efforts in the future. o Streamlining of operations to enable superior customer support. Our business model will be materially adversely affected if we are unable to offer superior customer support to deaf and hard of hearing customers. In the past, capital constraints have limited our customer support functions. We rely upon EarthLink to provide customer support in other aspects of our business, but will need to provide customer support on our own or through outsourcing in our Wynd Communications business. In order to provide such support, we have contracted with an experienced third party organization to provide primary and secondary customer and technical support while leveraging internal resources to provide supplemental support. We cannot assure you that our efforts in this area will be successful in improving the quality of the interaction our customers have with us. If we do not respond effectively to these risks, our business could be significantly and adversely affected. We may need additional funds which, if available, could result in increased interest expenses or additional dilution to our stockholders. If additional funds are needed and are not available, our business could be negatively impacted. On March 10, 2004, we consummated the second stage of a private placement announced in December 2003. Through our initial closing in December 2003 and our second closing on March 10, 2004, we raised net proceeds of approximately $13 million through the issuance of this common stock and warrants. We expect that we will require substantially all of the net proceeds from the private placement in order to implement our new business strategy that we announced in December 2003. Our strategy is centered on the pursuit of three priorities, centered on our Wynd Communications subsidiary: (a) growth of Wynd Communications' core wireless services business; (b) development and marketing of new communications services, including branded Internet protocol and video relay services; and (c) streamlined operations to enable superior customer support. If we continue to operate unprofitably, if unanticipated contingencies arise or if new business opportunities are presented to us, it will be necessary for us to raise additional capital either through public or private equity or debt financing to primarily finance the execution of our anticipated strategic initiatives. 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. If our plans or assumptions change or are inaccurate regarding new lines of business within our target market, timeliness and effectiveness of implementation of new services we expect to offer, and/or weakness or lack of appreciable growth in our core business, we may be required to seek additional capital. If funds are raised through the issuance of equity securities, the percentage ownership of our then-current stockholders will be reduced and the holders of new equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. If additional funds are raised through a bank credit facility or the issuance of debt securities, the holder of such indebtedness would have rights senior to the rights of common stockholders and the terms of such indebtedness could impose restrictions on our operations. If we need to raise additional funds, we may not be able to do so on terms favorable to us, or at all. If additional capital is required but is not available on acceptable terms or at all, we may be required to sell or otherwise dispose of portions of our business in order to sustain our operations and implement our new business plan. We may not be able to effect such sales on satisfactory terms or at all. Our limited cash resources will likely restrict our flexibility and overall operations. In order for us to execute our new business plan, it will be necessary for us to continue to operate under significant budgetary constraints. These constraints limit our ability to respond to business opportunities or issues as they arise. Since the wireless communications industry remains in an early stage and its needs are dynamic, our budgetary constraints may adversely affect our ability to respond to market demands and our ability to compete. Our independent auditors expressed a "going concern" opinion with respect to our 2002 consolidated financial statements. Although our independent auditors have not expressed a going concern opinion with respect to our 2003 consolidated financial statements as a result of our recently completed private placement, our independent auditors did express such a qualification with respect to our 2002 consolidated financial statements. We believe that this qualification materially adversely affected the manner in which third parties did business with us, most notably in connection with the extension of credit and their degree of commitment to any long term agreements. That qualification also made it more difficult for us to obtain capital. We cannot assure you that we will be able to convince third parties to reconsider or relax the measures or restrictions that they have taken or placed on us in the past to protect their credit position or enter into a business relationship with us at all as a result of our recently completed private placement. It remains difficult to predict the outcome of our strategic alliance with EarthLink. We substantially revised our business model when we entered into our strategic alliance with EarthLink in September 2002. While we succeeded in reducing our operating expenses, we cannot yet determine whether: o the businesses that we have retained, primarily Wynd Communications, will be viable enough to support our entire infrastructure; o the operations that we have turned over to EarthLink will be performed in a manner consistent with our expectations; o we will have a continuing relationship with EarthLink beyond the initial term of our strategic alliance, which is scheduled to expire in September 2004; and if so, whether we will derive significant on-going revenues with our continuing relationships with EarthLink, and if not, whether we will be able to profitably maintain those subscribers that we would then service directly again; or o our relationship with EarthLink will cause other potential business partners to refrain from doing business with us or entering into material transactions. We have only a limited operating history, which makes it difficult to evaluate an investment in our common stock. We have only a limited operating history on which you can evaluate our business, financial condition and operating results. We face a number of risks encountered by early stage technology companies that participate in new technology markets, including our ability to: o manage our dependence on wireless data services which have only limited market acceptance to date; o maintain our engineering and support organizations, as well as our distribution channels; o negotiate and maintain favorable usage rates with telecommunications carriers; o retain and expand our subscriber base at profitable rates; o recoup our expenses associated with the wireless devices we resell to subscribers; o manage expanding operations, including our ability to expand our systems if our subscriber base grows substantially; o attract and retain management and technical personnel; and o anticipate and respond to market competition and changes in technologies such as wireless data protocols and wireless devices. We may not be successful in addressing or mitigating these risks and uncertainties, and if we are not successful our business could be significantly and adversely affected. To generate increased revenue we will have to increase substantially the number of our subscribers, which may be difficult to accomplish. In addition to increasing our subscriber base, we will have to limit our churn, or the number of subscribers who deactivate our service. Adding new subscribers will depend to a large extent on the success of our direct and indirect distribution channels and acquisition strategy, and there can be no assurance that they will be successful. Limiting our churn rate will require that we provide our subscribers with a favorable experience in using our wireless service. Our subscribers' experience may be unsatisfactory to the extent that our service malfunctions or our customer care efforts, including our Web site and 800 number customer service efforts, do not meet or exceed subscriber expectations. In addition, factors beyond our control, such as technological limitations of the current generation of wireless devices, which may cause our subscribers' experience with our service to not meet their expectations, could increase our churn rate and adversely affect our revenues. We may acquire or make investments in companies or technologies that could cause loss of value to our stockholders and disruption of our business. Subject to our capital constraints, we intend to continue to explore opportunities to acquire companies or technologies in the future, principally as enhancements to our offerings of products and services to our deaf and hard of hearing customers. Entering into an acquisition entails many risks, any of which could adversely affect our business, including: o failure to integrate the acquired assets and/or companies with our current business; o the price we pay may exceed the value we eventually realize; o loss of share value to our existing stockholders as a result of issuing equity securities as part or all of the purchase price; o potential loss of key employees from either our current business or the acquired business; o entering into markets in which we have little or no prior experience; o diversion of management's attention from other business concerns; o assumption of unanticipated liabilities related to the acquired assets; and o the business or technologies we acquire or in which we invest may have limited operating histories, may require substantial working capital, and may be subject to many of the same risks we are. We have limited resources and we may be unable to support effectively our operations. We must continue to develop and expand our systems and operations in order to remain competitive. Our need to continually innovate has placed, and we expect it to continue to place, significant strain on our managerial, operational and financial resources. Even with the net proceeds from our recently completed private placement, we may be unable to develop and expand our systems and operations or implement our new business plan for one or more of the following reasons: o we may not be able to retain at reasonable compensation rates qualified engineers and other employees necessary to expand our capacity on a timely basis; o we may not be able to dedicate the capital necessary to effectively develop and expand our systems and operations; and o we may not be able to expand our customer service, billing and other related support systems. If we cannot manage our operations effectively, our business and operating results will suffer. Additionally, any failure on our part to develop and maintain our wireless data services if we experience rapid growth could significantly adversely affect our reputation and brand name which could reduce demand for our services and adversely affect our business, financial condition and operating results. Steps we have taken during 2002 and 2003 to respond to our diminished liquidity may negatively impact our ability to do business in the future. We took many steps during 2002 and 2003 that we may not have taken had we had substantial additional liquidity. In addition to our strategic alliance with EarthLink, we implemented substantial cost-cutting measures in recent periods in order to survive. Among other things, we: o reduced our headcount from 225 employees at December 31, 2001 to 40 employees at December 31, 2003; o reduced our expenditures on development from approximately $4,174,000 in 2001 to approximately $1,209,000 in 2003; o reduced our expenditures on advertising from approximately $4,900,000 in 2001 to approximately $23,000 in 2003; and o reduced our office space under lease from approximately 66,000 total square feet at December 31, 2001 to approximately 12,000 total square feet at December 31, 2003. We understand that our business reputation and capacity to do business may have been damaged by the cutbacks which we were forced to implement. If we are unable to restore our reputation and our capacity, our business could be significantly and adversely affected. Our business prospects depend in part on our ability to maintain and improve our services as well as to develop new services. We believe that our business prospects depend in part on our ability to maintain and improve our current services and to develop new services. Our services will have to achieve market acceptance, maintain technological competitiveness and meet an expanding range of customer requirements. As a result of the complexities inherent in our service offerings, major new wireless data services and service enhancements require long development and testing periods. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new services and service enhancements. Additionally, our new services and service enhancements may not achieve market acceptance. If we do not respond effectively and on a timely basis to rapid technological change, our business could suffer. The wireless and data communications industries are characterized by rapidly changing technologies, industry standards, customer needs and competition, as well as by frequent new product and service introductions. Our services are integrated with wireless handheld devices and must also be compatible with the data networks of wireless carriers. In certain aspects of our business, our services must be integrated with the computer systems of corporate customers. We must respond to technological changes affecting both our customers and suppliers. We may not be successful in developing and marketing, on a timely and cost-effective basis, new services that respond to technological changes, evolving industry standards or changing customer requirements. Our success will depend, in part, on our ability to accomplish all of the following in a timely and cost-effective manner: o effectively use and integrate new technologies; o continue to develop our technical expertise; o enhance our wireless data, engineering and system design services; o develop applications for new wireless networks and services; o develop services that meet changing customer needs; o influence and respond to emerging industry standards and other changes; and o advertise and market our services. We depend upon wireless carriers' networks. If we do not have continued access to sufficient capacity on reliable networks, our business will suffer. Our success partly depends on our ability to buy sufficient capacity on or offer our services over the networks of wireless carriers such as Cingular Interactive, Motient, T-Mobile, and WebLink Wireless and on the reliability and security of their systems. We depend on these companies to provide uninterrupted and "bug free" service and would be adversely affected if they failed to provide the required capacity or needed level of service. In recent years, certain wireless carriers experienced financial difficulties and sought protection under the bankruptcy laws. We cannot assure you that these companies will emerge from bankruptcy or that others will not seek similar protection. Such bankruptcies may result in discontinued or interrupted service and fewer network alternatives. In addition, although we have some forward price protection in our existing agreements with certain carriers, we could be adversely affected if wireless carriers were to increase the prices of their services. Our existing agreements with the wireless carriers generally have one-to-three year terms. Some of these wireless carriers are, or could become, our competitors. We depend on third parties for sales of certain of our products and services which could result in variable and unpredictable revenues. We rely substantially on the efforts of others to sell many of our wireless data communications services. We are highly dependent on our EarthLink and other indirect distribution alliance partners for implementation of our sales and marketing initiatives. Should our relationships with our distribution alliance partners cease or be less successful than anticipated, our business, results of operations, and financial conditions would be materially adversely affected. While we monitor the activities of our distributors and resellers, we cannot control how those who sell and market our products and services perform and we cannot be certain that their performance will be satisfactory. If the number of customers we obtain through these efforts is substantially lower than we expect for any reason, this would have a material adverse effect on our business, operating results and financial condition. We depend on retaining key personnel. The loss of our key employees and the inability to recruit talented new personnel could materially adversely affect our business. Due to the technical nature of our services and the dynamic market in which we compete, our performance depends on retaining and hiring certain key employees, including technically proficient personnel. Competitors and others have recruited our employees in recent years as we have found it necessary to implement cost controls that have reduced the attractiveness of employment with us. A major part of our compensation to our key employees is in the form of stock option grants. The prolonged depression in our stock price has made it difficult for us to retain our employees and recruit additional qualified personnel. Wireless data systems failures could harm our business by injuring our reputation or lead to claims of liability for delayed, improper or unsecured transmission of data. A significant barrier to the growth of electronic commerce and wireless data services has been the need for secure and reliable transmission of confidential information. Our existing wireless data services are dependent on near immediate, continuous feeds from various sources. The ability of our subscribers to quickly access data requires timely and uninterrupted connections with our wireless network carriers. Any significant disruption from our backup landline feeds could result in delays in our subscribers' ability to receive such information. In addition, our systems could be disrupted by unauthorized access, computer viruses and other accidental or intentional actions. We may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches. If a third party were able to misappropriate our subscribers' personal or proprietary information or credit card information, we could be subject to claims, litigation or other potential liabilities that could materially adversely impact our business. There can be no assurance that our systems will operate appropriately if we experience a hardware or software failure. A failure in our systems could cause delays in transmitting data and, as a result, we may lose customers or face litigation that could materially adversely affect our business. An interruption in the supply of products and services that we obtain from third parties could cause a decline in sales of our services. In designing, developing and supporting our wireless data services, we rely on wireless carriers, mobile device manufacturers, content providers and software providers. These suppliers may experience difficulty in supplying us products or services sufficient to meet our needs or they may terminate or fail to renew contracts for supplying us these products or services on terms we find acceptable. As our liquidity deteriorated during 2003, our vendors tightened our credit or refused to extend credit to us, making it more difficult for us to obtain suppliers on terms satisfactory to us. Any significant interruption in the supply of any of these products or services could cause a decline in sales of our services, unless and until we are able to replace the functionality provided by these products and services. We also depend on third parties to deliver and support reliable products, enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. We may face increased competition which may negatively impact our prices for our services or cause us to lose business opportunities. The market for our services is becoming increasingly competitive. The widespread adoption of industry standards in the wireless data communications market may make it easier for new market entrants and existing competitors to introduce services that compete against ours. We developed our solutions using standard industry development tools. Many of our agreements with wireless carriers, wireless handheld device manufacturers and data providers are non-exclusive. Our competitors may use the same products and services in competition with us. With time and capital, it would be possible for competitors to replicate our services and offer similar services at a lower price. We expect that we will compete primarily on the basis of the functionality, breadth, quality and price of our services. Our current and potential competitors include: o wireless device manufacturers, such as Palm, Handspring, Motorola, RIM and Danger; o wireless network carriers, such as AT&T Wireless, Verizon Wireless, Cingular Interactive, Sprint PCS, T-Mobile and Nextel Communications, Inc.; Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we do. Additionally, many of these companies have greater name recognition and more established relationships with our target customers. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can. In addition, we have established strategic relationships with many of our potential competitors. In the event such companies decide to compete directly with us, such relationships would likely be terminated, which could have a material adverse effect on our business and reduce our market share or force us to lower prices to unprofitable levels. Our intellectual property rights may not be adequately protected under the current state of the law. Our success substantially depends on our ability to sell services which are dependent on certain intellectual property rights. We currently do not have patents on any of our intellectual property. Although we have applied for U.S. federal trademark protection, we do not have any U.S. federal trademark registrations for the marks "GoAmerica", "Go.Web", or certain of our other marks and we may not be able to obtain such registrations. We rely primarily on trade secret laws, copyright law, trademark law, unfair competition law and confidentiality agreements to protect our intellectual property. To the extent that our technology is not adequately protected by intellectual property law, other companies could develop and market similar products or services which could materially adversely affect our business. We may be sued by third parties for infringement of their proprietary rights and we may incur defense costs and possibly royalty obligations or lose the right to use technology important to our business. The telecommunications and software industries are characterized by protection and vigorous enforcement of applicable intellectual property rights. As the number of participants in our market increases, the possibility of an intellectual property claim against us increases. Any intellectual property claims, with or without merit, could be time consuming and expensive to litigate or settle and could divert management attention from administering our business. A third party asserting infringement claims against us or our customers with respect to our current or future products may materially adversely affect us by, for example, causing us to enter into costly royalty arrangements or forcing us to incur settlement or litigation costs. Research In Motion (RIM), the provider of the BlackBerry email service and associated products, is currently engaged in litigation with NTP, Inc (NTP). NTP is seeking a court injunction preventing RIM from providing BlackBerry email service claiming that NTP is the rightful owner of certain patents supporting this technology. On November 21, 2002 the United States District Court for the Eastern District of Virginia ruled that RIM is infringing upon these patents owned by NTP. This ruling and other rulings made by the Court during the course of this case are currently under appeal by RIM and, in August 2003, the court granted RIM's request to stay the injunction sought by NTP pending the completion of another appeal by RIM's to the Court of Appeals for the Federal Circuit. RIM is also pursuing reexamination of the disputed patents by the U.S. Patent and Trademark Office. No court order has been issued preventing RIM from providing the BlackBerry email service and it is impossible to ascertain how long the reexamination and appeal processes may take. We offer the BlackBerry service and associated products as a dealer for EarthLink, which resells these offerings. If there is a court injunction preventing RIM from providing BlackBerry, then we may not be able to generate anticipated sales of BlackBerry related products. In addition, many of our Go.Web customers who use our technology do so in conjunction with BlackBerry email service. A prolonged court injunction against RIM could result in increased churn amongst customers who pay a recurring fee for our services if these customers are no longer able to use BlackBerry and therefore decide to terminate their wireless data service plan altogether. We may be subject to liability for transmitting certain information, and our insurance coverage may be inadequate to protect us from this liability. We may be subject to claims relating to information transmitted over systems we develop or operate. These claims could take the form of lawsuits for defamation, negligence, copyright or trademark infringement or other actions based on the nature and content of the materials. Although we carry general liability insurance, our insurance may not cover potential claims of this type or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed. Our quarterly operating results are subject to significant fluctuations and, as a result, period-to-period comparisons of our results of operations are not necessarily meaningful. Our quarterly operating results may fluctuate significantly in the future as a result of a variety of factors. These factors include: o the demand for and market acceptance of our services; o downward price adjustments by our competitors on services they offer that are similar to ours; o changes in the mix of services sold by our competitors; o technical difficulties or network downtime affecting wireless communications generally; o the ability to meet any increased technological demands of our customers; and o economic conditions specific to our industry. Therefore, our operating results for any particular quarter may differ materially from our expectations or those of security analysts and may not be indicative of future operating results. The failure to meet expectations may cause the price of our common stock to decline. If we fail to manage growth effectively, our business could be disrupted which could harm our operating results. If we are successful in implementing our new business plan, we may experience growth in our business. In that event, it will be necessary for us to expand our workforce and to train, motivate and manage additional employees as the need for additional personnel arises. Our personnel, systems, procedures and controls may not be adequate to support our future operations. Any failure to effectively manage future growth could have a material adverse effect on our business. We are vulnerable to circumstances outside of our control, which could seriously disrupt our business. Our software, as well as any ancillary hardware, is vulnerable to damage or interruption from: o fire, flood, and other natural disasters; o power loss, computer systems failures, Internet and telecommunications or data network failure, operator negligence, improper operation by or supervision of employees, physical and electronic loss of data or security breaches, misappropriation, and similar events; and o computer viruses. Any disruption in the operation of our software, the loss of employees knowledgeable about such software, or our failure to continue to effectively modify and upgrade such software could interrupt our operations or interfere with our ability to provide service to our customers, which could result in reduced sales and affect our operations and financial performance. Risks Particular To Our Industry The market for our services is new and highly uncertain. The market for wireless data services is still emerging and continued growth in demand for and acceptance of these services remains uncertain. Current barriers to market acceptance of these services include cost, reliability, functionality and ease of use. We cannot be certain that these barriers will be overcome. If the market for our services does not grow or grows slower than we currently anticipate, our business, financial condition and operating results could be materially adversely affected. New laws and regulations that impact our industry could materially adversely affect our business. We are not currently subject to direct regulation by the Federal Communications Commission or any other governmental agency, other than regulations applicable to businesses in general. However, in the future, we may become subject to regulation by the FCC or another regulatory agency. In addition, the wireless carriers who supply us airtime are subject to regulation by the FCC and regulations that affect them could materially adversely affect our business. Our business could suffer significantly depending on the extent to which our activities or those of our customers or suppliers are regulated. Risks Particular To Stock Price Our stock price, like that of many technology companies, has been and may continue to be volatile. We expect that the market price of our common stock will fluctuate as a result of variations in our quarterly operating results and other factors beyond our control. These fluctuations may be exaggerated if the trading volume of our common stock is low. In addition, due to the technology-intensive and emerging nature of our business, the market price of our common stock may rise and fall in response to a variety of factors, including: o announcements of technological or competitive developments; o acquisitions or strategic alliances by us or our competitors; o the gain or loss of a significant customer or order; o changes in estimates of our financial performance or changes in recommendations by securities analysts regarding us or our industry; or o general market or economic conditions. This risk may be heightened because our industry is new and evolving, characterized by rapid technological change and susceptible to the introduction of new competing technologies or competitors. In addition, equity securities of many technology companies have experienced significant price and volume fluctuations. These price and volume fluctuations often have been unrelated to the operating performance of the affected companies. Volatility in the market price of our common stock could result in securities class action litigation. This type of litigation, regardless of the outcome, could result in substantial costs and a diversion of management's attention and resources. We have issued a substantial number of warrants that enable their holders to purchase our common stock at a price of $0.15 per share, which could depress the price at which others will purchase our common stock. As a result of our recently completed private placement, we issued warrants to purchase 11,578,512 shares of our common stock at a price of $0.15 per share. This compares with the following additional securities which were outstanding upon consummation of our private placement: o 161,137,648 shares of our common stock; o options to purchase 10,657,939 share of our common stock; and o warrants to purchase an additional 1,067,500 shares of our common stock, exercisable at prices ranging from $0.46 to $3.00. Of the warrants issued in connection with our private placement, warrants covering 8,255,340 shares of our common stock are immediately exercisable and the balance of the warrants (covering 3,323,172 shares) first become exercisable in September 2005. The significant number of shares that may be issuable at a price which could be less than the current market price of our common stock could adversely affect the market price of our common stock. Our common stock may be delisted from the Nasdaq SmallCap Market because of the low bid price of our common stock. If such delisting occurs, the market price and market liquidity of our common stock may be adversely affected. Our common stock is currently not in compliance with Nasdaq Marketplace Rule 4450(a)(5) which requires that a listed company maintain a minimum bid price of $1.00 per share. Nasdaq has granted us a series of grace periods, the most recent of which will expire on May 31, 2004, to regain compliance with this requirement. In order to regain compliance with this Marketplace Rule and remain listed on the Nasdaq SmallCap Market, GoAmerica's share price must close at a minimum of $1.00 per share for 10 consecutive trading days prior to the end of the grace period. If our common stock is delisted by Nasdaq, our common stock would be eligible to trade on the OTC Bulletin Board maintained by Nasdaq, another over-the-counter quotation system, or on the pink sheets, where an investor may find it more difficult to dispose of our shares or obtain accurate quotations as to the market value of our common stock. In addition, we would be subject to a rule promulgated by the SEC that, if we fail to meet criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. Consequently, such rule may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. Delisting from Nasdaq would make trading our common stock more difficult for investors, potentially leading to further declines in our share price. It would also make it more difficult for us to raise additional capital. Further, if we are delisted we could also incur additional costs under state blue sky laws in connection with any sales of our securities. On March 10, 2004, our stockholders approved a resolution authorizing our board to amend our certificate of incorporation to effect a reverse stock split such that each outstanding 4, 6, 8, 10 or 12 shares of our common stock would be combined, converted and changed into one share of our common stock, depending upon which, if any, of these five ratios is selected by our board. One of the purposes of this resolution is to increase the per share market price of our common stock in order to maintain its listing on the Nasdaq SmallCap Market. However, we cannot assure you that if our board implements any such reverse stock split, it will have the intended effect of increasing the market price of our common stock to the extent necessary to avoid delisting. We cannot predict the outcome of the reverse stock splits that our stockholders have authorized. We cannot predict how investors will react to any reverse stock split that we may implement as a result of the stockholder approval granted on March 10, 2004. Some investors may view the reverse stock split negatively. While the per share price of our common stock may increase as of the effective date of any reverse stock split that may be implemented, that per share price may decline thereafter. Thus, the aggregate market price of a stockholder's common stock may decline as a result of any reverse stock split that may be implemented. If a reverse stock split is implemented, some stockholders may consequently own less than 100 shares of our common stock. A purchase or sale of less than 100 shares, known as an "odd lot" transaction, may result in incrementally higher trading costs through certain brokers, particularly "full service" brokers. Therefore, those stockholders who own less than 100 shares following the effective date of such a reverse split may be required to pay higher transaction costs if they sell their shares of our common stock. While we believe that any such split may result in greater liquidity for our stockholders, it is possible that such liquidity could be adversely affected by the reduced number of shares outstanding after the effective date of the split. If we implement a reverse stock split, the number of shares of common stock that our board may issue without further stockholder approval will increase significantly. If we implement a reverse stock split, the number of issued and outstanding shares will decrease, but the number of authorized shares will not change. Thus, the number of authorized but unissued shares will increase significantly if we implement one of the reverse stock splits authorized by our stockholders. The following table illustrates the effect of 1:4, 1:6, 1:8, 1:10 and 1:12 reverse stock splits, as well as effecting no reverse stock split, on our (i) outstanding shares of common stock, assuming that we are obligated to issue the maximum number of Additional Shares described below, (ii) authorized shares of common stock which are reserved for issuance pursuant to options, warrants, contractual commitments or other arrangements and (iii) shares of common stock which are neither outstanding nor reserved for issuance and are therefore available for issuance. The table does not take into account fractional shares. If we effect a reverse stock split, we will pay cash in lieu of issuing fractional shares. - -------------------------------------------------------------------------------- (iii) (i) (ii) Authorized Shares Shares of Shares of Common of Common Common Stock Stock Reserved Stock Available Reverse Split Ratio Outstanding for Issuance for Issuance - -------------------------------------------------------------------------------- No Reverse Split 168,953,530 27,670,637 153,375,832 - -------------------------------------------------------------------------------- 1:4 42,238,382 6,917,659 300,843,958 - -------------------------------------------------------------------------------- 1:6 28,158,921 4,611,772 317,229,305 - -------------------------------------------------------------------------------- 1:8 21,119,191 3,458,829 325,421,979 - -------------------------------------------------------------------------------- 1:10 16,895,353 2,767,063 330,337,583 - -------------------------------------------------------------------------------- 1:12 14,079,460 2,305,886 333,614,652 - -------------------------------------------------------------------------------- The issuance in the future of additional authorized shares may have the effect of diluting the earnings per share and book value per share, as well as the stock ownership and voting rights, of the currently outstanding shares of our common stock. In addition, the effective increase in the number of authorized, but unissued, shares of our common stock may be construed as having an anti-takeover effect. We could, subject to the board's fiduciary duties and applicable law, issue such additional authorized shares to purchasers who might oppose a hostile takeover bid or any efforts to amend or repeal certain provisions of our restated certificate of incorporation or bylaws. Such a use of these additional authorized shares could render more difficult, or discourage, an attempt to acquire control of us through a transaction opposed by the board. The number of shares of common stock which our board may issue without further approval from our stockholders may also be increased as a result of another amendment to our certificate of incorporation approved by our stockholders. On March 10, 2004, our stockholders also approved an increase in the number of shares of common stock which we may issue from 200,000,000 shares to 350,000,000. This action by our stockholders authorizes our board, in its discretion, to either amend our certificate of incorporation to effect this increase or to elect not to file such an amendment, in which case the stockholder approval will have no effect. As noted above, an increase in our authorized shares may have the effect of diluting the earnings per share and book value per share, as well as the stock ownership and voting rights, of the currently outstanding shares of our common stock and may be construed as having an anti-takeover effect. We will be required to issue additional shares of our common stock if the registration statement for this offering is not declared effective by the SEC on or before April 27, 2004. In connection with our private placement, we executed a registration rights agreement which obligates us to issue certain additional shares of our common stock in the event that we are delayed in effecting the registration of the shares issuable in the private placement. We refer to the shares that we may be required to issue in such event as the "Additional Shares". Our registration rights agreement provides that the maximum number of shares that we may be required to issue as Additional Shares is 12% of the total shares of common stock then owned by each investor in the private placement or which each investor then has the right to acquire. By virtue of the fact that we were unable to initially file this registration statement until the date set forth on the first page of this prospectus, we have already become obligated to issue 2,945,224 Additional Shares. If, by April 27, 2004, the SEC does not declare effective the registration statement of which this prospectus is a part, we will be required to issue more Additional Shares, up to the limit mentioned above. The issuance of Additional Shares will dilute the ownership interests of those stockholders who did not invest in the private placement. We have anti-takeover defenses that could delay or prevent an acquisition and could adversely affect the price of our common stock. Provisions of our certificate of incorporation and bylaws and provisions of Delaware law could delay or prevent an acquisition or change of control of GoAmerica or otherwise adversely affect the price of our common stock. For example, our certificate of incorporation authorizes undesignated preferred stock which our board of directors can designate and issue without further action by our stockholders, establishes a classified board of directors, eliminates the rights of stockholders to call a special meeting of stockholders, eliminates the ability of stockholders to take action by written consent, and requires stockholders to comply with advance notice requirements before raising a matter at a stockholders' meeting. As a Delaware corporation, we are also subject to the Delaware anti-takeover statute contained in Section 203 of the Delaware General Corporation Law. We do not intend to pay dividends on our common stock. We have never paid or declared any cash dividends on our common stock or other securities and intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. -----END PRIVACY-ENHANCED MESSAGE-----