10-Q 1 v05521_10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 Commission File No. 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) (201) 996-1717 ---------------------------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: X No: --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): Yes: No: X --- --- Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of July 31, 2004: Class Number of Shares ----- ---------------- Common Stock, $.01 par value 16,317,245 GOAMERICA, INC. TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION........................................................................... 1 Item 1. Financial Statements (unaudited).......................................................... 1 Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003............... 2 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003........................................................................ 3 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003................................................................................. 4 Notes to Condensed Consolidated Financial Statements.......................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 9 General................................................................................... ... 9 Critical Accounting Policies and Estimates................................................ ... 9 Results of Operations..................................................................... ... 9 Liquidity and Capital Resources........................................................... ... 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................ 15 Item 4. Controls and Procedures............................................................... 15 PART II. OTHER INFORMATION............................................................................... 16 Item 1. Legal Proceedings......................................................................... 16 Item 2. Changes in Securities, Use of Proceeds and Issuers' Purchases of Equity Securities........ 16 Item 3. Defaults upon Senior Securities........................................................... 17 Item 4. Submission of Matters to a Vote of Security Holders....................................... 17 Item 5. Other Information......................................................................... 18 Item 6. Exhibits and Reports on Form 8-K.......................................................... 18 SIGNATURES ................................................................................................... 19
- i - PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -1- GOAMERICA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, DECEMBER 31, 2004 2003 -------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents ........................................... $ 9,099 $ 568 Accounts receivable, net ............................................ 1,764 1,737 Other receivables ................................................... -- 534 Merchandise inventories, net ........................................ 209 213 Prepaid expenses and other current assets ........................... 550 115 --------- --------- Total current assets ..................................................... 11,622 3,167 Restricted cash .......................................................... 600 -- Property, equipment and leasehold improvements, net ................. 1,110 1,606 Goodwill, net ....................................................... 6,000 6,000 Trade names and other intangible assets, net ........................ 369 804 Deferred debt and other financing expense, net ...................... -- 1,091 Other assets ........................................................ 95 297 --------- --------- $ 19,796 $ 12,965 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .................................................... $ 397 $ 1,472 Accrued expenses .................................................... 634 3,040 Bridge note payable, net ............................................ -- 625 Deferred revenue .................................................... 414 673 Other current liabilities ........................................... 8 13 --------- --------- Total current liabilities ................................................ 1,453 5,823 Commitments and contingencies Stockholders' equity: Common stock, $.01 par value, authorized: 200,000,000 shares in 2004 and 2003, respectively; issued: 16,502,245 in 2004 and 5,478,862 in 2003 ............................................................ 165 55 Additional paid-in capital .......................................... 285,268 271,518 Accumulated deficit ................................................. (266,910) (264,431) Treasury stock, at cost, 185,000 shares in 2004 and none in 2003 .... (180) -- --------- --------- Total stockholders' equity ............................................... 18,343 7,142 --------- --------- $ 19,796 $ 12,965 ========= =========
The accompanying notes are an integral part of these financial statements. -2- GOAMERICA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------------ 2004 2003 2004 2003 ------------------------------------------------------------------ REVENUES: Subscriber................................ $ 1,523 $ 2,932 $ 3,389 $ 5,443 Equipment................................. 70 240 106 651 Other..................................... 4 159 50 340 ------------- ------------ ----------- ----------- 1,597 3,331 3,545 6,434 COSTS AND EXPENSES: Cost of subscriber airtime, net........... 739 463 1,607 1,200 Cost of network operations................ 155 584 448 1,296 Cost of equipment revenue................. 80 486 114 883 Sales and marketing, net................. 209 437 378 1,037 General and administrative................ 1,325 2,238 2,830 5,701 Research and development.................. 117 381 308 896 Depreciation and amortization............. 216 622 496 1,207 Amortization of other intangibles......... 183 322 435 551 Impairment of goodwill.................... -- 193 -- 193 Impairment of long-lived assets........... -- 1,052 -- 1,052 ------------- ------------ ----------- ----------- 3,024 6,778 6,616 14,016 ------------- ------------ ----------- ----------- Loss from operations........................... (1,427) (3,447) (3,071) (7,582) OTHER INCOME (EXPENSE): Gain on sale of subscribers.................... -- 565 -- 1,745 Settlement gains, net.......................... -- -- 1,621 -- Interest income (expense), net................. 36 3 (1,029) (9) ------------- ------------ ------------ ------------ Total other income............................. 36 568 592 1,736 ------------- ------------ ----------- ----------- Net loss....................................... $ (1,391) $ (2,879) $ (2,479) $ (5,846) ============= ============ =========== =========== Basic net loss per share....................... $ (0.08) $ (0.53) $ (0.20) $ (1.08) ============== ============= ============ ============ Diluted net loss per share..................... $ (0.08) $ (0.53) $ (0.20) $ (1.08) ============== ============= =========== =========== Weighted average shares used in computation of basic net loss per share.................... 16,450,170 5,411,917 12,209,751 5,409,459 Weighted average shares used in computation of diluted net loss per share.................. 16,450,170 5,411,917 12,209,751 5,409,459
The accompanying notes are an integral part of these financial statements. -3- GOAMERICA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------------------- 2004 2003 --------------------------------- OPERATING ACTIVITIES Net loss............................................................. $ (2,479) $ (5,846) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization of fixed assets...................... 496 1,207 Amortization of other intangible assets............................ 435 551 Impairment of goodwill............................................. -- 193 Impairment of long-lived assets.................................... -- 1,052 Amortization of deferred financing costs........................... 624 -- Amortization of discount on bridge note payable.................... 390 -- Provision for losses (recoveries) on accounts receivable........... -- (20) Common stock issued for interest expense........................... 19 -- Settlement gains, net.............................................. (1,621) -- Accrued loss on sublease........................................... -- 551 Gain on sale of subscribers........................................ -- (1,745) Non-cash employee compensation..................................... -- 158 Non-cash rent expense.............................................. -- 5 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable....................... (27) 3,759 Decrease in other receivables.................................... 534 -- Decrease in merchandise inventories.............................. 4 725 (Increase) decrease in prepaid expenses and other current assets. (435) 90 Decrease in accounts payable..................................... (1,075) (1,545) Decrease in accrued expenses and other liabilities............... (334) (3,123) Decrease in deferred revenue..................................... (259) (1,552) ------------ ------------ Net cash used in operating activities................................ (3,728) (5,540) INVESTING ACTIVITIES Change in other assets and restricted cash........................... (398) 619 Purchase of property, equipment and leasehold improvements........... -- (54) Proceeds from sale of subscribers.................................... -- 1,745 Acquisition of subscribers........................................... -- (236) ----------- ------------ Net cash (used in) provided by investing activities................. (398) 2,074 FINANCING ACTIVITIES Issuance of common stock, net of related expenses.................... 12,770 -- Issuance of common stock for exercise of stock options and warrants.. 211 54 Purchase of treasury stock........................................... (180) -- Increase in deferred financing costs................................. (139) -- Payments made on capital lease obligations........................... (5) (45) ----------- ----------- Net cash provided by financing activities............................ 12,657 9 ----------- ----------- Net increase (decrease) in cash and cash equivalents................. 8,531 (3,457) Cash and cash equivalents at beginning of period..................... 568 4,982 ----------- ----------- Cash and cash equivalents at end of period........................... $ 9,099 $ 1,525 =========== =========== NON-CASH FINANCING ACTIVITIES: Common stock issued in connection with conversion of bridge note..... $ 1,015 $ -- Common stock issued in connection with vendor settlements............ $ 451 $ -- Application of deferred financing costs against proceeds from the $ (606) $ -- sale of stock.....................................................
Supplemental Disclosure of Non-Cash Investing Activities: During 2003, the Company acquired through its subsidiary, Wynd Communications Corporation, subscribers from Boundless Depot LLC. The purchase price was approximately $418 (of which $236 was paid as of June 30, 2003). The accompanying notes are an integral part of these financial statements. -4- GOAMERICA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) NOTE 1 - BASIS OF PRESENTATION: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and include the results of GoAmerica, Inc. (the "Company") and its wholly-owned subsidiaries. Accordingly, certain information and footnote disclosures required in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of the Company's management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments except as otherwise disclosed herein) which the Company considers necessary for the fair presentation of its financial position as of June 30, 2004 and the results of its operations and its cash flows for the three and six month periods ended June 30, 2004 and 2003. These financial statements should be read in conjunction with the Company's audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K (as amended) for the year ended December 31, 2003. The Company is highly dependent on EarthLink, Inc. ("Earthlink") for billing and collections, customer support and technical support for certain of our subscribers. The Company operates in a highly competitive environment subject to rapid technological change and emergence of new technology. Although management believes its services are transferable to emerging technologies, rapid changes in technology could have an adverse financial impact on the Company. Additionally, the Company is highly dependent on EarthLink and other third parties for wireless communication devices and wireless network connectivity. The Company has incurred significant operating losses since its inception and, as of June 30, 2004, has an accumulated deficit of $266,910. During the six months ended June 30, 2004, the Company incurred a net loss of $2,479 and used $3,728 of cash to fund operating activities. As of June 30, 2004 the Company had $9,099 in cash and cash equivalents. Results for the interim period are not necessarily indicative of results that may be expected for the entire year. A one - for - ten reverse stock split was effected during May 2004. The Company retained the current par value of $.01 per share for all shares of its common stock. All references in the financial statements to the number of shares outstanding, per share amounts, and stock option data of the Company's common stock have been restated to reflect the effect of the reverse stock split for all periods presented. Stockholders' equity reflects the reverse stock split by reclassifying from "Common stock" to "Additional paid in capital" an amount equal to the par value of the reduced shares arising from the reverse split. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: Recent Accounting Pronouncements In January 2003, the FASB issued interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities". The primary objectives of this interpretation are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities") and how to determine when and which business enterprise (the "primary beneficiary") should consolidate the variable interest entity. This new model for consolidation applies to an entity in which either (i) the equity investors (if any) do not have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that the primary beneficiary, as well as all other enterprises with a significant variable interest entity, make additional disclosures. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN 46-R are as follows: (i) Special-purpose entities ("SPEs") created prior to February 1, 2003. The Company must apply either the provisions of FIN 46 or early adopt the provisions of FIN 46-R at the end of the first interim or annual reporting period ended after December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003. The Company was required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. (iii) All entities, regardless of whether an SPE, that were created subsequent to January 31, 2003; the interpretation applies immediately. The Company does not have any arrangements with variable interest entities that will require consolidation of their financial information in the Company's financial statements. -5- NOTE 3 - EARNINGS PER SHARE: The Company computes net loss per share under the provisions of SFAS No. 128, "Earnings per Share" (SFAS 128), and SEC Staff Accounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS 128 and SAB 98, basic loss per share is computed by dividing the Company's net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share excludes potential common shares if the effect is anti-dilutive. Diluted loss per share is determined in the same manner as basic loss per share except that the number of shares is increased assuming exercise of dilutive stock options and warrants using the treasury stock method. As the Company had a net loss, the impact of the assumed exercise of the stock options and warrants is anti-dilutive and as such, these amounts have been excluded from the calculation of diluted loss per share. For the six months ended June 30, 2004 and 2003, 1,939,573 and 1,450,011 of common stock equivalent shares, respectively, were excluded from the computation of diluted net loss per share. NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS: The Company follows SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No.141 requires business combinations initiated after July 1, 2001 to be accounted for using the purchase method of accounting. It also specifies the types of intangible assets that are required to be recognized and reported separate from goodwill. Under SFAS No. 142, goodwill and other intangible assets with indefinite lives are no longer amortized but are reviewed for impairment annually, or more frequently if impairment indicators arise. The following table summarizes other intangibles subject to amortization at the dates indicated:
June 30, 2004 December 31, 2003 Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Net Amount Amortization Net -------------------------------------------------------------------------------------------------------- Trade Names $ 4,572 $ (4,203) $ 369 $ 4,572 $ (4,019) $ 553 Technology 3,017 (3,017) -- 3,017 (2,925) 92 Customer Lists 2,258 (2,258) -- 2,258 (2,168) 90 Other 418 (418) -- 418 (349) 69 Patents 1,000 (1,000) -- 1,000 (1,000) -- -------------------------------------------------------------------------------------------------------- $ 11,265 $(10,896) $ 369 $ 11,265 $(10,461) $ 804 ========================================================================================================
Amortization expense for other intangibles totaled $435 and $551 for the six months ended June 30, 2004 and 2003, respectively. Future aggregate amortization expense for intangible assets is estimated to be: Six Months Ending December 31, 2004 $ 186 Year Ending December 31, 2005 183 -6- NOTE 5 - STOCK-BASED COMPENSATION: The Company accounts for employee stock-based compensation in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", using an intrinsic value approach to measure compensation expense, if any. Under this method, compensation expense is recorded on the date of the grant only if the current market price of the underlying stock exceeds the exercise price. Options issued to non-employees are accounted for in accordance with SFAS 123, "Accounting for Stock-Based Compensation", and Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods and Services", using a fair value approach. SFAS No. 123 established accounting and disclosure requirements using a fair value-basis method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123. Had the Company elected to recognize compensation cost based on fair value of the stock options at the date of grant under SFAS 123, such costs would have been recognized ratably over the vesting period of the underlying instruments and the Company's net loss and net loss per common share would have increased to the pro forma amounts indicated in the table below.
Three months ended June 30, Six months ended June 30, --------------------------- -------------------------- 2004 2003 2004 2003 ---------- ------------ ---------- ----------- Net loss, as reported .................................. $ (1,391) $ (2,879) $ (2,479) $ (5,846) Deduct: Stock-based employee compensation expense included in reported net loss .......................... -- 79 -- 158 Add: Total stock-based employee compensation expense determined under fair value based method for all awards ......................................... (992) (1,149) (1,984) (2,298) -------- ---------- -------- --------- Pro forma net loss ..................................... $ (2,383) $ (3,949) $ (4,463) $ (7,986) ======== ========== ======== ========= Loss per share - basic, as reported .................... $ (0.08) $ (0.53) $ (0.20) $ (1.08) ======== ========== ======== ========= Loss per share - diluted, as reported .................. $ (0.08) $ (0.53) $ (0.20) $ (1.08) ======== ========== ======== ========= Pro forma loss per share - basic ....................... $ (0.14) $ (0.73) $ (0.37) $ (1.48) ======== ========== ======== ========= Pro forma loss per share - diluted ..................... $ (0.14) $ (0.73) $ (0.37) $ (1.48) ======== ========== ======== =========
The pro forma results above are not intended to be indicative of or a projection of future results. NOTE 6 - CONTINGENCIES: On December 23, 2003, the Company executed a settlement agreement with Eastern Computer Exchange, Inc. ("Eastern Computer") with respect to certain payment obligations pursuant to two equipment leases (the "Leases") by agreeing to pay Eastern Computer $350 upon closing the financing (see note 7) in exchange for a full release of the Company and its affiliates from a previously filed lawsuit. As of March 31, 2004, the Company had fulfilled all its obligations under the settlement agreement with Eastern Computer. In December 2003, the Company executed a series of settlement agreements with various vendors that provided, upon their consummation, for their reduction of amounts owed by the Company to these vendors. Generally, the terms of the settlement agreements called for the Company to make fixed cash payments or the issuance of shares of the Company's common stock. The consummation of the settlement agreements was contingent upon the Company's complying with all of the terms of the individual agreements, certain of which are as follows: o Cash payments of approximately $300 to vendors with which the Company had established settlement agreements. o Establishment of a standby letter of credit in favor of Cingular, which resulted in restricted cash in the amount of $600. -7- All such terms and conditions were satisfied and, as a result, the Company recorded approximately $1,621 in additional settlement gains during the three months ended March 31, 2004. In addition, approximately $451 of vendor liabilities were satisfied through the issuance of 77,500 shares of the Company's common stock. On August 1, 2004, the Company entered into a new lease agreement for its principal offices located at 433 Hackensack Avenue in Hackensack, New Jersey, consisting of approximately 11,000 square feet with a term of 3 years. NOTE 7 - FINANCING: On March 10, 2004, the Company's stockholders at a special meeting of the stockholders approved the following: o Approved the issuance of 8,990,000 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 Authorized the Board of Directors to amend the Company's restated certificate of incorporation to increase the number of shares of common stock the Company is authorized to issue from 200,000,000 to 350,000,000 shares, resulting in an increase in the total number of authorized shares of capital stock from 204,351,943 to 354,351,943. Such action has not been taken as of June 30, 2004. As a result, the Company issued a total of 9,682,080 shares of its common stock, comprised of the 8,990,000 shares referred to above and 692,080 shares upon the mandatory conversion of the Bridge Notes Payable and related accrued interest. The Company received net proceeds of approximately $12,770. The Company utilized certain of the net proceeds to satisfy settlement agreements (see note 6). In connection with a bridge financing effected on December 19, 2003 which was part of a private placement of securities that was consummated in part on March 10, 2004, the Company issued to the investors in its private placement warrants convertible into 135,333 shares of the Company's Common Stock at an exercise price of $1.50 per share. Warrants for an aggregate of 76,393 unregistered shares of Common Stock were exercised between February 11, 2004 and February 18, 2004. NOTE 8 - STOCKHOLDERS' EQUITY: On August 27, 2003, the Company received a letter from the Nasdaq Stock Market ("Nasdaq") Staff stating that the Company's Common Stock was scheduled to be delisted from the Nasdaq Smallcap Market due to the Common Stock's non-compliance with the $1 minimum bid price per share requirement as set forth in Nasdaq Marketplace Rule 4310 (C) (4). The Company appealed the Nasdaq Staff Determination and subsequently the Nasdaq Listings Qualifications Panel granted the Company a series of temporary exceptions, until May 31, 2004, to regain compliance with the minimum price requirement since the Company continued to meet all of the other listing requirements. On May 14, 2004, the Company filed an amendment to its Amended and Restated Certificate of Incorporation to effect a reverse stock split at a ratio of one-for-ten that had been previously authorized by the Company's stockholders at a Special Meeting of Stockholders on March 10, 2004. The closing bid price per share of the Company's Common Stock did not close at or above $1 during the entire compliance period and on June 3, 2004, the Nasdaq Staff sent a letter to the Company stating that the Company's Common Stock was scheduled to be delisted from the Nasdaq Smallcap Market due to the Common Stock's non-compliance with the $1 minimum bid price per share requirement as set forth in Nasdaq Marketplace Rule 4310 (C) (4). The Company appealed the Nasdaq Staff Determination because it meets all other listing requirements and is awaiting a ruling from the Nasdaq Listing Qualifications Panel. On May 20, 2004, the Company's Board of Directors authorized the repurchase of up to 500,000 shares of its Common Stock pursuant to a new stock buyback program. As of June 30, 2004, the Company had repurchased an aggregate of 185,000 shares of its Common Stock at an average price of $0.977. All purchases under the program have been made in the open market at the Company's discretion. -8- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL GoAmerica(R) is a wireless data communications service provider, offering solutions primarily for consumers who are deaf, hard of hearing and/or speech-impaired. We currently develop, market and support most of these services through Wynd Communications Corporation, a wholly owned subsidiary of GoAmerica. Wynd Communications offers enhanced services known as WyndTell(R) and WyndPower(TM), which assist our deaf or hard of hearing customers in communicating from most major metropolitan areas in the continental United States and parts of Canada. WyndTell and WyndPower allow customers to send and receive email messages to and from any email service, provide for delivery and acknowledgements of sent messages that are read, send and receive TTY/TDD (text telephone or teletypewriter) messages, faxes, and text-to-speech messages, and access the Internet using such wireless computing devices as Research in Motion, or RIM, wireless handheld devices, certain Motorola paging devices and the T-Mobile Sidekick, Fido hiptop, and SunCom hiptop devices running on Danger Inc.'s hiptop platform. Additionally, GoAmerica continues to support customers who use our proprietary software technology called Go.Web(TM). Go.Web is designed for use mainly by enterprise customers to enable secure wireless access to corporate data and the Internet on numerous wireless computing devices (RIM's, BlackBerry and interactive handheld devices; Microsoft Pocket PC-based personal digital assistants; Palm operating system-based handheld computing devices; and laptop computers). The Wynd Communications and Go.Web services transmit over most major wireless data networks in North America. Our revenues are derived principally from subscription to our value-added wireless data services, for which customers typically pay monthly recurring fees. We derive additional revenue from the sale of wireless communications devices and commissions from the acquisition of subscribers on behalf of various wireless network providers. We continue to engineer our technology to operate with new versions of wireless devices as they emerge. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts, inventory valuation and recoverability of our intangible assets. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Historically, we have derived our revenue primarily from the sale of basic and value-added wireless data services and the sale of related mobile devices. Subscriber revenue consists primarily of monthly charges for access and usage and is recognized as the services are provided. We also generally charge a non-refundable activation fee upon initial subscription. To the extent such fees exceed the related costs, they are deferred and recognized ratably over the life of the related service contracts, which is generally six months, one year or two years. Equipment revenue is recognized upon shipment to the end user. We have also provided mobile devices to our customers at prices below our costs as incentives for customers to enter into service agreements. Such incentives are recorded as a deferred asset and amortized against subscriber gross margins over the life of the service agreement. We estimate the collectibility of our trade receivables. A considerable amount of judgment is required in assessing the ultimate realization of these receivables, including analysis of historical collection rates and the current credit-worthiness of significant customers. Significant changes in required reserves have been recorded in recent periods and may occur in the future due to the current market conditions. We write down inventory for estimated excess or obsolete inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. In assessing the recoverability of our goodwill, other intangibles and other long-lived assets, we must make assumptions regarding estimated future cash flows. If such assumptions change in the future, we may be required to record impairment charges for these assets not previously recorded. RESULTS OF OPERATIONS The following table sets forth, for the three and six months ended June 30, 2004 and 2003, the percentage relationship to net sales of certain items included in the Company's unaudited consolidated statements of operations. -9-
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------------------------------------------------------------------- 2004 2003 2004 2003 --------------------------------------------------------------------------------------- $ % $ % $ % $ % REVENUES: Subscriber .......................... $ 1,523 95.4 $ 2,932 88.0 $ 3,389 95.6 $ 5,443 84.6 Equipment ........................... 70 4.4 240 7.2 106 3.0 651 10.1 Other ............................... 4 0.2 159 4.8 50 1.4 340 5.3 -------- -------- -------- -------- -------- -------- -------- -------- 1,597 100.0 3,331 100.0 3,545 100.0 6,434 100.0 COSTS AND EXPENSES: Cost of subscriber airtime, net .... 739 46.3 463 13.9 1,607 45.3 1,200 18.7 Cost of network operations ......... 155 9.7 584 17.5 448 12.6 1,296 20.1 Cost of equipment revenue .......... 80 5.0 486 14.6 114 3.2 883 13.7 Sales and marketing, net .......... 209 13.1 437 13.1 378 10.7 1,037 16.1 General and administrative ......... 1,325 83.0 2,238 67.2 2,830 79.8 5,701 88.6 Research and development ........... 117 7.3 381 11.4 308 8.7 896 13.9 Depreciation and amortization ...... 216 13.5 622 18.7 496 14.0 1,207 18.8 Amortization of other intangibles .. 183 11.5 322 9.7 435 12.3 551 8.6 Impairment of goodwill ............. -- -- 193 5.8 -- -- 193 3.0 Impairment of long-lived assets .... -- -- 1,052 31.6 -- -- 1,052 16.4 -------- -------- -------- -------- -------- -------- -------- -------- 3,024 189.4 6,778 203.5 6,616 186.6 14,016 217.9 -------- -------- -------- -------- -------- -------- -------- -------- Loss from operations (1,427) (89.4) (3,447) (103.5) (3,071) (86.6) (7,582) (117.9) OTHER INCOME (EXPENSE): Gain on sale of subscribers ............... -- -- 565 17.0 -- -- 1,745 27.1 Settlement gains, net ..................... -- -- -- -- 1,621 45.7 -- -- Interest income (expense), net ............ 36 2.3 3 0.1 (1,029) (29.0) (9) (0.1) -------- -------- -------- -------- -------- -------- -------- -------- Total other income ........................ 36 2.3 568 17.1 592 16.7 1,736 27.0 -------- -------- -------- -------- -------- -------- -------- -------- Net loss .................................. $ (1,391) (87.1) $ (2,879) (86.4) $ (2,479) (69.9) $ (5,846) (90.9) ======== ======== ======== ======== ======== ======== ======== ========
The following table sets forth the period over period percentage increases or decreases of certain items included in the Company's unaudited consolidated statements of operations.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ----------------------------------------------------------------------------------- CHANGE CHANGE ----------------------------------------------------------------------------------- 2004 2003 $ % 2004 2003 $ % REVENUES: Subscriber ........................... $ 1,523 $ 2,932 $(1,409) (48.1) $ 3,389 $ 5,443 $(2,054) (37.7) Equipment ............................ 70 240 (170) (70.1) 106 651 (545) (83.7) Other ................................ 4 159 (155) (97.5) 50 340 (290) (85.3) ------- ------- ------- ------ -------- -------- ------- ------- 1,597 3,331 (1,734) (52.1) 3,545 6,434 (2,889) (44.9) COSTS AND EXPENSES: Cost of subscriber airtime, net ...... 739 463 276 59.6 1,607 1,200 407 33.9 Cost of network operations ........... 155 584 (429) (73.5) 448 1,296 (848) (65.4) Cost of equipment revenue ............ 80 486 (406) (83.5) 114 883 (739) (83.7) Sales and marketing, net ............ 209 437 (228) (52.2) 378 1,037 (659) (63.5) General and administrative ........... 1,325 2,238 (913) (40.8) 2,830 5,701 (2,871) (50.4) Research and development ............. 117 381 (264) (69.3) 308 896 (588) (65.6) Depreciation and amortization ........ 216 622 (406) (65.3) 496 1,207 (711) (58.9) Amortization of other intangibles .... 183 322 (139) (43.2) 435 551 (115) (20.9) Impairment of goodwill ............... -- 193 (193) (100.0) -- 193 (193) (100.0) Impairment of long-lived assets ...... -- 1,052 (1,052) (100.0) -- 1,052 (1,052) (100.0) ------- ------- ------- ------ -------- -------- ------- ------- 3,024 6,778 (3,754) (55.4) 6,616 14,016 (7,400) (52.8) ------- ------- ------- ------ -------- -------- ------- ------- Loss from operations ........................... (1,427) (3,447) 2,020 58.6 (3,071) (7,582) 4,511 59.5 OTHER INCOME (EXPENSE): Gain on sale of subscribers .................... -- 565 (565) (100.0) -- 1,745 (1,745) (100.0) Settlement gains, net........................... -- -- -- -- 1,621 -- 1,621 -- Interest income (expense), net ................. 36 3 33 1100.0 (1,029) (9) (1,020) (11333.3) ------- ------- ------- ------ -------- -------- ------- ------- Total other income ............................. 36 568 (522) (91.9) 592 1,736 (1,144) (65.9) ------- ------- ------- ------ -------- -------- ------- ------- Net loss ....................................... $(1,391) $(2,879) $ 1,488 51.7 $ (2,479) $ (5,846) $ 3,367 57.6 ======= ======= ======= ====== ======== ======== ======= =======
-10- Three months ended June 30, 2004 Compared to Three months ended June 30, 2003 Subscriber revenue. Subscriber revenue decreased 48%, to $1.5 million for the three months ended June 30, 2004 from $2.9 million for the three months ended June 30, 2003. This decrease was primarily due to declines in higher average monthly revenue per user, or ARPU full service offering subscribers as part of our effort to improve the payment profile of our subscriber base. Our subscriber base decreased to 64,332 subscribers at June 30, 2004 from 85,018 subscribers at June 30, 2003. Our ARPU decreased to $7.91 for the three months ended June 30, 2004 from $12.26 for the three months ended June 30, 2003. The decline in ARPU was due to the payment profile effort referenced above. We expect revenue and ARPU to remain relatively constant from our continued leveraging of strategic agreements for the sale of our Go.Web value added services and higher ARPU full-service offerings through Wynd. Equipment revenue. Equipment revenue decreased to $70,000 for the three months ended June 30, 2004 from $240,000 for the three months ended June 30, 2003. This decrease was primarily due to lower sales of mobile devices. We expect equipment revenue to increase slightly as we continue to provide devices to new subscribers of our Wynd services. Other revenue. Other revenue decreased to $4,000 for the three months ended June 30, 2004 from $159,000 for the three months ended June 30, 2003. This decrease was primarily due to our decision not to pursue certain consulting projects and consulting services to third parties during 2004. Cost of subscriber airtime. Cost of subscriber airtime increased 60%, to $739,000 for the three months ended June 30, 2004 from $463,000 for the three months ended June 30, 2003. This increase was primarily due to the recording of one-time reductions of accruals during the three months ended June 30, 2003 for certain subscriber-related costs recorded in prior periods. We expect the number of our subscribers to remain relatively constant to levels at June 30, 2004 as we continue to improve our subscriber profile, which we expect will result in comparable costs. Cost of network operations. Cost of network operations decreased to $155,000 for the three months ended June 30, 2004 from $584,000 for the three months ended June 30, 2003. This reduction reflects our recent consolidation of our Go.Web and WyndTell production systems into a single data center operated by a third party provider. Cost of equipment revenue. Cost of equipment revenue decreased 84%, to $80,000 for the three months ended June 30, 2004 from $486,000 for the three months ended June 30, 2003. This decrease primarily was due to lower sales of mobile devices. In addition, during the second quarter of 2003 a non-cash inventory charge of $200,000 was recorded to value a portion of our remaining inventory at the lower of cost or market. We expect cost of equipment revenue to increase slightly as we continue to provide devices to new subscribers of our Wynd services. Sales and marketing. Sales and marketing expenses decreased 52%, to $209,000 for the three months ended June 30, 2004 from $437,000 for the three months ended June 30, 2003. This decrease primarily was due to decreased advertising and marketing activities, including advertising costs paid to third parties and a decrease in salaries and benefits for personnel performing sales and marketing activities. We expect sales and marketing expenses to increase as a percentage of sales as we introduce new products and services to the consumer marketplace. General and administrative. General and administrative expenses decreased 41%, to $1.3 million for the three months ended June 30, 2004 from $2.2 million for the three months ended June 30, 2003. This decrease primarily was due to decreased professional fees for infrastructure buildout and general corporate activities, decreased salaries and benefits for personnel performing business development and general corporate activities, amounts paid to third parties for professional services, a decrease in our bad debt expense and decreased facility costs. We expect general and administrative expenses to decline slightly as a result of our consolidation of business operations. Research and development. Research and development expense decreased to $117,000 for the three months ended June 30, 2004 from $381,000 for the three months ended June 30, 2003. This decrease primarily was due to a reduction in personnel performing research and development activities. Amortization of other intangibles. Amortization of other intangibles decreased to $183,000 for the three months ended June 30, 2004 from $322,000 for the three months ended June 30, 2003. Impairment of long-lived assets. During the second quarter of 2003, we identified certain indicators of impairment including recent changes in the Company's 2003 operating and cash flow forecasts, and changes in our strategic plans for certain of our acquired businesses which required that we evaluate the -11- appropriateness of the carrying value of our long-lived assets, principally goodwill recorded upon the acquisition of OutBack Resource Group, Inc., ("Outback"). A write-down of goodwill totaling $193,000 was recorded during the second quarter of 2003, reflecting the amount by which the carrying amount of the respective reporting unit exceeded its respective fair value. In addition, as a result of our recent strategic alliance with EarthLink, we evaluated the carrying value of certain software and equipment, which were idled, upon our most recent transition of certain activities to EarthLink. As a result of this evaluation, during the second quarter of 2003, we wrote-off specific assets with a carrying value of $1.1 million. 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 $565,000 during the three months ended June 30, 2003. Interest income. Interest income increased to $36,000 for the three months ended June 30, 2004 from $3,000 for the three months ended June 30, 2003. Six months ended June 30, 2004 Compared to Six months ended June 30, 2003 Subscriber revenue. Subscriber revenue decreased 38%, to $3.4 million for the six months ended June 30, 2004 from $5.4 million for the six months ended June 30, 2003. This decrease was primarily due to declines in higher ARPU full service offering subscribers as part of our effort to improve the payment profile of our subscriber base. Our subscriber base decreased to 64,332 subscribers at June 30, 2004 from 85,018 subscribers at June 30, 2003. Our ARPU decreased to $8.55 for the six months ended June 30 2004 from $15.17 for the six months ended June 30, 2003. The decline in ARPU was due to the payment profile effort referenced above. Equipment revenue. Equipment revenue decreased to $106,000 for the six months ended June 30, 2004 from $651,000 for the six months ended June 30, 2003. This decrease was primarily due to lower sales of mobile devices. Other revenue. Other revenue decreased to $50,000 for the six months ended June 30, 2004 from $340,000 for the six months ended June 30, 2003. This decrease was primarily due to a decline in consulting services provided to third parties. Cost of subscriber airtime. Cost of subscriber airtime increased 34%, to $1.6 million for the six months ended June 30, 2004 from $1.2 million for the six months ended June 30, 2003. This increase was primarily due to the recording of one-time reductions of accruals during the six months ended June 30, 2003 for certain subscriber-related costs recorded in prior periods. Cost of network operations. Cost of network operations decreased to $448,000 for the six months ended June 30, 2004 from $1.3 million for the six months ended June 30, 2003. This reduction reflects our recent consolidation of our Go.Web and WyndTell production systems into a single data center operated by a third party provider. Cost of equipment revenue. Cost of equipment revenue decreased 87%, to $114,000 for the six months ended June 30, 2004 from $883,000 for the six months ended June 30, 2003. This decrease primarily was due to lower sales of mobile devices. In addition, during the six months ended June 30, 2003, a non-cash inventory charge of $331,000 was recorded to value a portion of our remaining inventory at the lower of cost or market. Sales and marketing. Sales and marketing expenses decreased 64%, to $378,000 for the six months ended June 30, 2004 from $1.0 million for the six months ended June 30, 2003. This decrease primarily was due to decreased advertising and marketing activities, including advertising costs paid to third parties and a decrease in salaries and benefits for personnel performing sales and marketing activities. General and administrative. General and administrative expenses decreased 50%, to $2.8 million for the six months ended June 30, 2004 from $5.7 million for the six months ended June 30, 2003. This decrease primarily was due to decreased professional fees for infrastructure buildout and general corporate activities, decreased salaries and benefits for personnel performing business development and general corporate activities, amounts paid to third parties for professional services, a decrease in our bad debt expense and decreased facility costs. Research and development. Research and development expense decreased to $308,000 for the six months ended June 30, 2004 from $896,000 for the six months ended June 30, 2003. This decrease primarily was due to a reduction in personnel performing research and development activities. -12- Amortization of other intangibles. Amortization of other intangibles decreased for the six months ended June 30, 2004 to $435,000 from $551,000 for the six months ended June 30, 2003. Impairment of long-lived assets. During the second quarter of 2003, we identified certain indicators of impairment including changes in the Company's 2003 operating and cash flow forecasts, and changes in our strategic plans for certain of our acquired businesses which required that we evaluate the appropriateness of the carrying value of our long-lived assets, principally goodwill recorded upon the acquisition of OutBack Resource Group, Inc., ("Outback"). A write-down of goodwill totaling $193,000 was recorded during the second quarter of 2003, reflecting the amount by which the carrying amount of the respective reporting unit exceeded its respective fair value. In addition, as a result of our recent strategic alliance with EarthLink, we evaluated the carrying value of certain software and equipment which were idled upon our most recent transition of certain activities to EarthLink. As a result of this evaluation, during the second quarter of 2003, we wrote-off specific assets with a carrying value of $1.1 million. 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 approximately $1.7 million during the six months ended June 30, 2003. Settlement gains. Settlement gains in the amount of approximately $1.6 million resulted from our consummation of certain settlement agreements entered into during 2003 with contingent provisions satisfied by the Company during the three months ended March 31, 2004. Interest expense, net. Interest expense primarily resulted from the amortization of debt discount and deferred debt expense which were incurred as a result of the December 2003 Bridge Note Financing. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we financed our operations through private placements of our equity securities and our redeemable convertible preferred stock, which resulted in aggregate net proceeds of approximately $18.4 million through December 31, 1999. During the first quarter of 2000, we issued and sold shares of Series B Preferred Stock for net proceeds of approximately $24.6 million. In April 2000, we consummated our initial public offering, resulting in net proceeds of $146.2 million. On December 19, 2003, we entered into definitive agreements with multiple investors providing for the investors to purchase shares of our Common Stock and warrants, for an aggregate purchase price of $14.5 million in a private placement offering (the "Financing"). As part of the Financing, on December 19, 2003, we received an approximately $1 million secured bridge loan from the investors. The notes issuable in connection with the bridge financing converted into Common Stock upon consummation of the Financing. The closing of the Financing occurred on March 10, 2004, immediately after our stockholders approved the issuance of the securities issuable pursuant to the Financing. The Company received net proceeds (after estimated expenses) from the Financing of approximately $13 million, including the amount loaned to the Company on December 19, 2003. Approximately $300,000 of the net proceeds were used to repay existing indebtedness, consisting of $120,000 to Verizon Wireless, $100,000 to Metricom and $80,000 to Motient. In addition, $600,000 of the net proceeds were used to support a letter of credit in favor of Cingular. Pursuant to the Financing, we issued 9,682,080 shares of Common Stock and issued warrants to purchase a total of 1,157,851 shares of Common Stock at an exercise price of $1.50 per share. As of June 30, 2004, we had $9.1 million in cash and cash equivalents (exclusive of $600,000 in restricted cash supporting a letter of credit) and working capital of $10.2 million. We have incurred significant operating losses since our inception and as of June 30, 2004 have an accumulated deficit of $266.9 million. During the six months ended June 30, 2004, we incurred a net loss of $2.5 million and used $3.7 million of cash to fund operating activities. 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 will be sufficient to fund our operating needs for at least the next 12 months. At this time, we do not have any bank credit facility or other working capital credit line under which we may borrow funds for working capital or other general corporate purposes. Net cash used in operating activities amounted to $3.7 million for the six months ended June 30, 2004 principally reflecting our net loss and the reduction of accounts payable and accrued expenses occurring after the closing of the Financing described above. -13- We used $398,000 in cash in investing activities during the six months ended June 30, 2004, which primarily resulted from an increase in restricted cash. Net cash provided by financing activities was $12.7 million for the six months ended June 30, 2004, which primarily resulted from closing the Financing described above. As of June 30, 2004, our principal commitments consisted of obligations outstanding under operating leases. As of June 30, 2004, future minimum payments for non-cancelable operating leases having terms in excess of one year amounted to $793,000, of which approximately $200,000 is payable in the next twelve months. The following table summarizes GoAmerica's contractual obligations at June 30, 2004, and the effect such obligations are expected to have on its liquidity and cash flow in future periods.
Less than 1 June 30, (In thousands) Total Year 1-3 Years 4-5 Years After 5 Years Contractual Obligations: Capital Lease Obligations $ 8 $ 8 $ -- $ -- $ -- Operating Lease Obligation 19 12 7 -- -- ---- ---- ---- ----- ----- Total Contractual Cash Obligation $ 27 $ 20 $ 7 $ -- $ -- ==== ==== ==== ===== ===== Other Commercial Commitments: Standby Letter of Credit $600 $ -- $600 $ -- $ -- ---- ---- ---- ----- ----- Total Commercial Commitment $600 $ -- $600 $ -- $ -- ==== ==== ==== ===== =====
FORWARD LOOKING STATEMENTS The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended). Such forward-looking statements may be identified by the use of forward-looking terminology such as "may," "will," "expect," "estimate," "anticipate," "continue," or similar terms, variations of such terms or the negative of those terms. Such forward-looking statements involve risks and uncertainties, including, but not limited to: (i) our limited operating history; (ii) our ability to successfully manage our strategic alliance with EarthLink; (iii) our dependence on EarthLink to provide billing, customer and technical support to certain of our subscribers; (iv) our ability to respond to the rapid technological change of the wireless data industry and offer new services; (v) our dependence on wireless carrier networks; (vi) our ability to respond to increased competition in the wireless data industry; (vii) our ability to integrate acquired businesses and technologies; (viii) our ability to generate revenue growth; (ix) our ability to increase or maintain gross margins, profitability, liquidity and capital resources; (x) our ability to manage our remaining operations; and (xi) difficulties inherent in predicting the outcome of regulatory processes. Such risks and others are more fully described in the Risk Factors set forth in Exhibit 99.1 to our Annual Report on Form 10-K for the year ended December 31, 2003. Our actual results could differ materially from the results expressed in, or implied by, such forward-looking statements. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities". The primary objectives of this interpretation are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities") and how to determine when and which business enterprise (the "primary beneficiary") should consolidate the variable interest entity. This new model for consolidation applies to an entity in which either (i) the equity investors (if any) do not have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that the primary beneficiary, as well as all other enterprises with a significant variable interest entity, make additional disclosures. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN 46-R are as follows: (i) Special-purpose entities ("SPEs") created prior to February 1, 2003. We must -14- apply either the provisions of FIN 46 or early adopt the provisions of FIN 46-R at the end of the first interim or annual reporting period ended after December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003. We were required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. (iii) All entities, regardless of whether an APE, that were created subsequent to January 31, 2003; the interpretation applies immediately. We do not have any arrangements with variable interest entities that will require consolidation of their financial information in our financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We believe that we have limited exposure to financial market risks, including changes in interest rates. At June 30, 2004, all of our available excess funds are cash or cash equivalents. The value of our cash and cash equivalents is not materially affected by changes in interest rates. A hypothetical change in interest rates of 1.0% would result in an annual change in net loss of approximately $90,000 based on cash and cash equivalent balances at June 30, 2004. We currently hold no derivative instruments and do not earn foreign-source income. ITEM 4. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures. As of the end of the Company's most recently completed fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) covered by this report, the Company carried out an evaluation, with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Changes in internal controls. There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. -15- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. On February 15, 2002, Eagle Truck Lines Inc. (a/k/a Air Eagle, Inc.) filed suit against GoAmerica, Inc. in the Superior Court of the State of California for the County of Los Angeles seeking payment of $590,000, plus other damages, expenses, interest and costs of suit. This action was removed to the United States District Court for the Central District of California and subsequently, pursuant to a motion brought by GoAmerica, transferred to the District of New Jersey where GoAmerica has moved to have it consolidated with the action described in the next paragraph. (This motion will be decided once a decision in the various motions to dismiss is rendered in the Flash action discussed below.) Air Eagle alleges that GoAmerica, as successor in interest to Flash Creative Management, Inc. ("Flash"), failed to perform its obligations under a consulting contract dated July 2, 1999 (the "Contract"), by and between Flash and Air Eagle. Air Eagle alleges that GoAmerica assumed the rights and liabilities under this Contract as a result of its purchase of substantially all of the assets of Flash in November 2000. On June 3, 2002, GoAmerica filed an amended answer and counterclaim, denying the allegations of the complaint and seeking payment from Air Eagle of an amount not less than $589,993, plus expenses, interest and costs of suit based on Air Eagle's failure to pay for services rendered by Flash and GoAmerica under the Contract. The 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. In September 2003, Michael Marts, an individual residing in California, sued Boundless Depot, Scott Johnson and Robert Rademacher (collectively, the "Boundless Depot Defendants"), among others, with respect to claims for breach of contract by some or all of the Boundless Depot Defendants. Wynd Communications was named as a co-defendant in the action as the successor-in-interest to the Deafwireless assets that Wynd and the Company acquired as of March 1, 2003 from the Boundless Depot Defendants pursuant to an asset purchase agreement dated as of February 8, 2003. All of the claims, aggregating approximately $433,000, arose prior to execution of the asset purchase agreement, with more than half of the damages claimed arising prior to 2003. Wynd and the Company intend to defend themselves vigorously as well as to seek to be dismissed from the action and to enforce indemnification obligations of the Boundless Depot Defendants pursuant to the asset purchase agreement. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUERS' PURCHASE OF EQUITY SECURITIES. Changes in Securities On May 14, 2004, the Company filed an amendment to its Amended and Restated Certificate of Incorporation to effect a reverse stock split at a ratio of one-for-ten that had been previously authorized by the Company's stockholders at a Special Meeting of Stockholders on March 10, 2004. The par value of the Company's Common Stock and the number of shares of capital stock that the Company is authorized to issue were not affected by the reverse stock split implementation. On May 20, 2004, the Company's Board of Directors authorized the repurchase of up to 500,000 shares of Common Stock pursuant to a new stock buyback program. As of June 30, 2004, the Company had repurchased an aggregate of 185,000 shares of its Common Stock at an average price of $0.977. All purchases under the program have been made in the open market at the Company's discretion. The following table sets forth certain information regarding such repurchases during the quarter ended June 30, 2004: -16-
-------------------------------------------------------------------------------------------------- (C) TOTAL NUMBER OF (D) MAXIMUM NUMBER SHARES PURCHASED AS OF SHARES THAT MAY (A) TOTAL (B) AVERAGE PART OF PUBLICLY YET BE PURCHASED NUMBER OF PRICE PAID ANNOUNCED PLANS OR UNDER THE PLANS OR PERIOD SHARES PURCHASED PER SHARE PROGRAMS PROGRAMS -------------------------------------------------------------------------------------------------- April 1, 2004 through April 30, 2004 - - - - -------------------------------------------------------------------------------------------------- May 1, 2004 through May 185,000 $0.977 185,000 315,000 31, 2004 -------------------------------------------------------------------------------------------------- June 1, 2004 through June - - - - 30, 2004 -------------------------------------------------------------------------------------------------- Total 185,000 $0.977 185,000 315,000 --------------------------------------------------------------------------------------------------
Use of Proceeds (all share amounts below have been adjusted to reflect the one-for-10 reverse stock split described immediately above) On April 6, 2000, the Commission declared effective our Registration Statement on Form S-1 (No. 333-94801) as filed with the Commission in connection with our initial public offering of Common Stock, which was managed by Bear, Stearns & Co., Inc., Chase H&Q, U.S. Bancorp Piper Jaffray, Wit SoundView and DLJdirect, now CSFBdirect. Pursuant to such Registration Statement, on April 12, 2000 we consummated the issuance and sale of an aggregate of 1,000,000 shares of our Common Stock, for a gross aggregate offering price of $160 million. The $146.2 million of net proceeds have been specifically applied as follows: (i) $5.1 million for the acquisition of other businesses; (ii) $38.2 million for sales and marketing expenses; (iii) $10.9 million for the purchase of capital assets; and (iv) $92.0 million for working capital needs. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None -17- ITEM 5. OTHER INFORMATION. On August 27, 2003, the Company received a letter from the Nasdaq Stock Market ("Nasdaq") Staff stating that the Company's Common Stock was scheduled to be delisted from the Nasdaq Smallcap Market due to the Common Stock's non-compliance with the $1 minimum bid price per share requirement as set forth in Nasdaq Marketplace Rule 4310 (C) (4). The Company appealed the Nasdaq Staff Determination and subsequently the Nasdaq Listings Qualifications Panel granted the Company a series of temporary exceptions, until May 31, 2004, to regain compliance with the minimum price requirement since the Company continued to meet all of the other listing requirements. On May 14, 2004, the Company filed an amendment to its Amended and Restated Certificate of Incorporation to effect a reverse stock split at a ratio of one-for-ten that had been previously authorized by the Company's stockholders at a Special Meeting of Stockholders on March 10, 2004. The closing bid price per share of the Company's Common Stock did not close at or above $1 during the entire compliance period and on June 3, 2004, Nasdaq Staff sent a letter to the Company stating that the Company's Common Stock was scheduled to be delisted from the Nasdaq Smallcap Market due to the Common Stock's non-compliance with the $1 minimum bid price per share requirement as set forth in Nasdaq Marketplace Rule 4310 (C) (4). The Company appealed the Nasdaq Staff Determination because it meets all other listing requirements and is awaiting a ruling from the Nasdaq Listing Qualifications Panel . ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) During the quarter ended June 30, 2004, the registrant filed five Reports on Form 8-K with the Commission (excluding reports submitted but not deemed "filed" pursuant to Item 12 of the SEC's rules regarding the filing of current reports): On May 5, 2004, the Company filed a Current Report on Form 8-K regarding the distribution of a press release issued by Sprint regarding Sprint's launch of its Sprint Relay Wireless powered by GoAmerica service (Items 5 and 7). On May 17, 2004, the Company filed a Current Report on Form 8-K regarding the implementation of a one-for-10 reverse stock split (Items 5 and 7). On May 19, 2004, the Company filed a Current Report on Form 8-K regarding the issuance of a press release announcing the inclusion of the new Sprint Wireless Relay service on the Company's WyndTell service offerings (Items 5 and 7). On May 20, 2004, the Company filed a Current Report on Form 8-K regarding the Company's Board of Directors authorization of the repurchase of up to 500,000 shares of the Company's Common Stock pursuant to a new stock buyback program (Items 5 and 7). On June 9, 2004, the Company filed a Current Report on Form 8-K regarding its receipt from the Nasdaq Staff of a delisting determination due to the Company's stock price remaining below $1 bid price per share and the Company's appeal of such determination (Items 5 and 7). -18- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOAMERICA, INC. DATE: August 12, 2004 By: /s/ Daniel R. Luis ------------------------------------- Daniel R. Luis Chief Executive Officer (Principal Executive Officer) DATE: August 12, 2004 By: /s/ Donald G. Barnhart ------------------------------------- Donald G. Barnhart Chief Financial Officer (Principal Financial and Accounting Officer) -19-