-----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, VgoLzVN4UQvZBmu8ubA8GWegzpseXeJ4umDPsdYjXtMmEOsfr2Pgulbzpxwd2yau lBPt6Xi5U0t60w2ffT7yrg== 0001144204-05-015067.txt : 20050512 0001144204-05-015067.hdr.sgml : 20050512 20050512172353 ACCESSION NUMBER: 0001144204-05-015067 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050512 DATE AS OF CHANGE: 20050512 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-29359 FILM NUMBER: 05825475 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-Q 1 v018003_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 March 31, 2005 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 April 30, 2005: Class Number of Shares ----- ---------------- Common Stock, $.01 par value 2,093,451 GOAMERICA, INC. TABLE OF CONTENTS -----------------
Page ---- PART I. FINANCIAL INFORMATION..................................................................... 1 Item 1. Financial Statements (March 31, 2005 and 2004 is unaudited)............................ 1 Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004........... 2 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004......................................................................... 3 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004......................................................................... 4 Notes to Condensed Consolidated Financial Statements....................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General.................................................................................... 10 Critical Accounting Policies and Estimates................................................. 10 Results of Operations...................................................................... 11 Liquidity and Capital Resources............................................................ 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 17 Item 4. Controls and Procedures................................................................ 17 PART II. OTHER INFORMATION......................................................................... Item 1. Legal Proceedings...................................................................... 18 Item 6. Exhibits............................................................................... 18 SIGNATURES.............................................................................................. 19
-i- PART I. FINANCIAL INFORMATION ----------------------------- ITEM 1. FINANCIAL STATEMENTS - 1 - GOAMERICA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, DECEMBER 31, 2005 2004 -------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents ......................................... $ 7,121 $ 7,098 Accounts receivable, net .......................................... 1,614 1,530 Other receivables ................................................. -- 732 Merchandise inventories, net ...................................... 196 123 Prepaid expenses and other current assets ......................... 258 219 -------------- -------------- Total current assets ................................................... 9,189 9,702 Restricted cash ........................................................ 300 604 Property, equipment and leasehold improvements, net .................... 944 940 Goodwill, net .......................................................... 6,000 6,000 Trade names and other intangible assets, net ........................... 418 639 Other assets ........................................................... 105 101 -------------- -------------- $ 16,956 $ 17,986 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .................................................. $ 241 $ 348 Accrued expenses .................................................. 595 538 Deferred revenue .................................................. 312 285 Other current liabilities ......................................... -- 1 -------------- -------------- Total current liabilities .............................................. 1,148 1,172 Commitments and contingencies Stockholders' equity: Common stock, $.01 par value, authorized: 200,000,000 shares in 2005 and 2004; issued: 2,117,514 in 2005 and 2,117,339 in 2004 21 21 Additional paid-in capital ........................................ 285,856 285,854 Accumulated deficit ............................................... (269,883) (268,875) Treasury stock, at cost, 24,063 shares in 2005 and 2004 ........... (186) (186) -------------- -------------- Total stockholders' equity ............................................. 15,808 16,814 -------------- -------------- $ 16,956 $ 17,986 ============== ==============
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 MARCH 31, -------------------------- 2005 2004 ----------- ----------- REVENUES: Subscriber ................................................... $ 787 $ 1,866 Prepaid services ............................................. 891 -- Equipment .................................................... 102 36 Other ........................................................ 248 46 ----------- ----------- 2,028 1,948 COSTS AND EXPENSES: Cost of subscriber airtime ................................... 285 868 Cost of network operations ................................... 94 293 Cost of equipment revenue .................................... 105 34 Cost of prepaid services ..................................... 830 -- Sales and marketing .......................................... 111 169 General and administrative ................................... 1,244 1,505 Research and development ..................................... 54 191 Depreciation and amortization of fixed assets ................ 130 280 Amortization of other intangibles ............................ 221 252 ----------- ----------- 3,074 3,592 ----------- ----------- Loss from operations .............................................. (1,046) (1,644) Other income (expense): Settlement gains, net ........................................ -- 1,621 Interest income (expense), net ............................... 38 (1,065) ----------- ----------- Total other income ................................................ 38 556 ----------- ----------- Net loss .......................................................... $ (1,008) $ (1,088) =========== =========== Basic net loss per share .......................................... $ (0.48) $ (1.09) =========== =========== Diluted net loss per share ........................................ $ (0.48) $ (1.09) =========== =========== Weighted average shares used in computation of basic net loss per share ....................................................... 2,093,432 996,166 Weighted average shares used in computation of diluted net loss per share ....................................................... 2,093,432 996,166
The accompanying notes are an integral part of these financial statements. - 3 - GOAMERICA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------------- 2005 2004 ------------ ------------ OPERATING ACTIVITIES Net loss ............................................................. $ (1,008) $ (1,088) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization of fixed assets ...................... 130 280 Amortization of other intangible assets ............................ 221 252 Amortization of deferred financing costs ........................... -- 624 Amortization of discount on bridge note payable .................... -- 390 Provision for losses on accounts receivable ........................ 20 1 Common stock issued for interest expense ........................... -- 19 Settlement gains, net .............................................. -- (1,621) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable ....................... (104) 100 Decrease in other receivables .................................... 732 534 (Increase) decrease in merchandise inventories ................... (73) 12 Increase in prepaid expenses and other current assets ............ (39) (318) Decrease in accounts payable ..................................... (107) (904) Increase (decrease) in accrued expenses and other liabilities .... 57 (233) Increase (decrease) in deferred revenue .......................... 27 (150) ------------ ------------ Net cash used in operating activities ................................ (144) (2,102) INVESTING ACTIVITIES Change in other assets and restricted cash ........................... 300 (481) Purchase of property, equipment and leasehold improvements ........... (134) -- ------------ ------------ Net cash provided by (used in) investing activities .................. 166 (481) FINANCING ACTIVITIES Issuance of common stock, net of related expenses .................... -- 12,770 Issuance of common stock for exercise of stock options and warrants .. 2 144 Increase in deferred financing costs ................................. -- (81) Payments made on capital lease obligations ........................... (1) (2) ------------ ------------ Net cash provided by financing activities ............................ 1 12,831 ------------ ------------ Net increase in cash and cash equivalents ............................ 23 10,248 Cash and cash equivalents at beginning of period ..................... 7,098 568 ------------ ------------ Cash and cash equivalents at end of period ........................... $ 7,121 $ 10,816 ============ ============ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING 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 sale $ -- $ (548) of stock
The accompanying notes are an integral part of these financial statements. - 4 - GOAMERICA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) NOTE 1 - BASIS OF PRESENTATION: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and include the results of GoAmerica, Inc. and its wholly-owned subsidiaries (collectively, the "Company"). Accordingly, certain information and footnote disclosures required in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of the Company's management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments except as otherwise disclosed herein) which the Company considers necessary for the fair presentation of its financial position as of March 31, 2005 and the results of its operations and its cash flows for the three month periods ended March 31, 2005 and 2004. 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, 2004. The Company is highly dependent on EarthLink, Inc. ("Earthlink") for billing and collections, customer support and technical support for certain of the Company's 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. During the fourth quarter of 2004, the Company commenced selling prepaid calling card services. The Company sells prepaid calling cards in two methods: 1) as a distributor in which the Company has no future obligation to provide the usage embedded in the card and 2) as a Company branded card in which the Company is obligated to provide usage service utilizing its own infrastructure until the obligation to provide the service is either completed or the card expires. Prepaid airtime sold to customers is recorded as deferred revenue prior to the commencement of services and revenue is recognized when airtime is utilized or the card expires. Revenue from calling cards sold to customers in which the Company has no obligation to provide airtime service is recorded at the time of the delivery of the cards to the customer, provided that collection is deemed probable. The Company has incurred significant operating losses since its inception and, as of March 31, 2005, has an accumulated deficit of $269,883. During the three months ended March 31, 2005, the Company incurred a net loss of $1,008 and used $144 of cash to fund operating activities. As of March 31, 2005, the Company had $7,121 in cash and cash equivalents. Results for the interim period are not necessarily indicative of results that may be expected for the entire year. - 5 - 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. In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS 151, "Inventory Costs - An Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance in ARB No. 43, Chapter 4 to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The provisions of SFAS 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS 151 is not expected to have a material effect on the Company's financial condition or results of operations. In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153 amends APB Opinion 29 to eliminate the similar productive asset exception and establishes that exchanges of productive assets should be accounted for at fair value, rather than at carryover basis unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits, (2) the transaction is an exchange transaction to facilitate sales to customers, or (3) the transaction lacks commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of SFAS 153 are effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS 153 is not expected to have a material effect on the Company's financial condition or results of operations. In December 2004, the FASB issued SFAS 123R, "Share-Based Payment". SFAS 123R establishes that employee services received in exchange for share-based payment result in a cost that should be recognized in the income statement as an expense when the services are consumed by the enterprise. It further establishes that those expenses be measured at fair value determined as of the grant date. The provisions of SFAS 123R become effective to the Company beginning January 1, 2006. The Company is currently evaluating the effect the adoption of SFAS 123R will have on the Company's financial condition and results of operations. NOTE 3 - EARNINGS PER SHARE: The Company computes net loss per share under the provisions of SFAS No. 128, "Earnings per Share" (SFAS 128), and 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 three months ended March 31, 2005 and 2004, 290,605 and 285,578 of common stock equivalent shares were excluded from the computation of diluted net loss per share. - 6 - NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS: The Company follows SFAS No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 142, goodwill and other intangible assets with indefinite lives are no longer amortized but are reviewed for impairment annually, or more frequently if impairment indicators arise. The Company believes there are no such impairment indicators at March 31, 2005. The following table summarizes other intangibles subject to amortization at the dates indicated:
March 31, 2005 December 31, 2004 Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Net Amount Amortization Net ------------------------------------------------------------------------------------------------------- Trade Names .. $ 4,572 $ (4,480) $ 92 $ 4,572 $ (4,388) $ 184 Technology ... 3,017 (3,017) -- 3,017 (3,017) -- Customer Lists 2,258 (2,258) -- 2,258 (2,258) -- Other ........ 935 (609) 326 935 (480) 455 ------------------------------------------------------------------------------------------------------- $ 10,782 $ (10,364) $ 418 $ 10,782 $ (10,143) $ 639 =======================================================================================================
Amortization expense for other intangibles totaled $221 and $252 for the three months ended March 31, 2005 and 2004, respectively. Future aggregate amortization expense for intangible assets is estimated to be: Nine Months Ending December 31, 2005 $418 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 presently 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 the fair value of the stock options at the date of grant under SFAS 123, such costs would have been recognized ratably over the vesting period of the underlying instruments and the Company's net loss and net loss per common share would have increased to the pro forma amounts indicated in the table below.
Three months ended March 31, ---------------------------------- 2005 2004 --------------- --------------- Net loss, as reported .......................................................... $ (1,008) $ (1,088) Deduct: Stock-based employee compensation expense included in reported net loss -- -- Add: Total stock-based employee compensation expense determined under fair value based method for all awards .................................................... (413) (992) --------------- --------------- Pro forma net loss ............................................................. $ (1,421) $ (2,080) =============== =============== Loss per share - basic, as reported ............................................ $ (0.48) $ (1.09) =============== =============== Loss per share - diluted, as reported .......................................... $ (0.48) $ (1.09) =============== =============== Pro forma loss per share - basic ............................................... $ (0.68) $ (2.09) =============== =============== Pro forma loss per share - diluted ............................................. $ (0.68) $ (2.09) =============== ===============
The pro forma results above are not intended to be indicative of or a projection of future results. - 7 - NOTE 6 - CONTINGENCIES: On July 31, 2002, GoAmerica filed suit against Flash Creative Management, Inc. ("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 GoAmerica's acquisition of the assets of Flash in November 2000. In October 2002, each of the Flash Defendants filed answers to GoAmerica's complaint denying all of the Company's charges, with the individual 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 Company filed a motion to dismiss the Flash Defendants' counterclaims and the Flash Defendants filed cross-motions for judgment on the pleadings and for summary judgment seeking dismissal of the Company's claims against them. On March 2, 2005, all of the Flash Defendants' counterclaims against GoAmerica and the named GoAmerica officers were dismissed. Additionally, the Flash Defendants' cross-motions to dismiss the Company's claims against them were denied in all respects other than the Company's common law fraud claim. The Company is exploring its options as a result of these favorable dismissals as pretrial activity continues. On September 22, 2004, Boundless Depot, LLC ("Boundless Depot") and Scott Johnson, one of two Boundless Depot shareholders, sued GoAmerica and Wynd Communications in the Superior Court of the State of California for the County of Los Angeles, claiming damages of one million dollars for GoAmerica's refusal to pay Boundless Depot unattained contingent consideration, comprising cash and/or GoAmerica Common Stock, with respect to the Asset Purchase Agreement dated as of February 8, 2003 (the "Deafwireless Agreement"), pursuant to which GoAmerica and Wynd Communications acquired certain Deafwireless assets. The total value of such contingent consideration, if all contingencies had been fully met and amounts paid immediately thereupon, would not have exceeded $211; however, the Company does not believe any of the contingent consideration is owed to Boundless Depot or either of its shareholders since conditions of the Deafwireless Agreement were not met and the Company incurred costs for which it is entitled to receive reimbursement from Boundless Depot or offset against any amounts that may become payable to Boundless Depot. The Company intends to defend this action vigorously and may elect to pursue counterclaims. In the first quarter of 2005, the Company reclassified $300 of restricted cash to operating cash to reflect an informal arrangement between the Company and one of its carrier providers which allowed for a reduction in the amount of the required letter of credit and related supporting cash account. The Company expects to finalize this arrangement including the new letter of credit in the near future. NOTE 7 - BUSINESS SEGMENT INFORMATION: The Company has two reportable business segments: Wireless Data Solutions and Prepaid Services. The operating results of these business segments are distinguishable and regularly reviewed by the Company's executive officers. The Company evaluates the performance of its business segments based primarily on operating income (loss). All overhead is allocated to the business segments, except for certain specific corporate costs, such as corporate management compensation, corporate legal, accounting and governance costs and certain insurance and facilities costs. Operating results presented for the business segments of the Company are as follows (in thousands):
WIRELESS DATA PREPAID SOLUTIONS SERVICES CORPORATE TOTAL --------- -------- --------- ----- THREE MONTHS ENDED MARCH 31, 2005: Revenue .......................... $ 1,072 $ 956 $ -- $ 2,028 Operating loss ................... $ (504) $ (141) $ (401) $ (1,046) -------------- -------------- -------------- -------------- THREE MONTHS ENDED MARCH 31, 2004: Revenue .......................... $ 1,948 $ -- $ -- $ 1,948 Operating loss ................... $ (1,067) $ -- $ (577) $ (1,644) -------------- -------------- -------------- --------------
- 8 - NOTE 8 - SUBSEQUENT EVENT: On May 2, 2005, the Company entered into a short term loan agreement with Hands On Video Relay Services, Inc., a Delaware corporation, and Hands On Sign Language Services, Inc., a California corporation (collectively, the "Borrower"), while the Borrower and the Company explore a strategic relationship. The Company may be required to advance up to an aggregate of $500 to the Borrower, for certain purposes upon one or more requests, from the date of the Loan Agreement through the earliest to occur of (a) termination of a no shop agreement, entered into by the same parties concurrent with the Loan Agreement, for any reason other than due to execution of a definitive agreement for a strategic relationship or other transaction among the parties, (b) June 15, 2005, unless a definitive agreement has been executed, and (c) the termination of any definitive agreement reached by the parties before the closing of the transactions described in such definitive agreement. The amount that the Borrower may borrow under the Loan Agreement may increase by up to another $500, for an aggregate of $1,000, during the same period, under certain circumstances. All amounts that the Company advances to the Borrower will be secured, initially, by the assets acquired with such funds and will bear interest at a defined prime rate. If no definitive agreement is entered into by the parties, all principal and accrued interest will be due and payable no later than the 90th day after the expiration of the no shop agreement, which is scheduled to expire on June 15, 2005, unless extended by the parties. The parties are not obligated to enter into a definitive agreement or close any transaction. If the transactions described in any definitive agreement that may be entered into by the parties have not been closed during the 12 month period immediately following any advance made by the Company pursuant to the Loan Agreement, principal and accrued interest will be payable in 12 monthly installments beginning after the 12 month anniversary of the advance. If the Borrower breaches the no shop agreement or any material provision of any definitive agreement, the balance of principal and accrued interest will become immediately due and payable and the Borrower will grant the Company a broader security interest in substantially all of the Borrower's assets until amounts due under the Loan Agreement are paid. - 9 - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General GoAmerica(R) is a communications service provider, offering wireless data solutions primarily for consumers who are deaf, hard of hearing and/or speech-impaired and telecommunication services in the form of prepaid calling cards. We currently develop, market and support most wireless data solutions through Wynd Communications Corporation, a wholly owned subsidiary of GoAmerica. Wynd Communications offers enhanced services known as WyndTell(R) and WyndPower(TM), which assist our deaf or hard of hearing customers in communicating from most major metropolitan areas in the continental United States and parts of Canada. WyndTell and WyndPower allow customers to send and receive email messages to and from any email service, provide for delivery and acknowledgements of sent messages that are read, send and receive TTY/TDD (text telephone or teletypewriter) messages, faxes, and text-to-speech messages, and access the Internet using such wireless computing devices as Research in Motion, or RIM, wireless handheld devices, certain Motorola paging devices and the T-Mobile Sidekick, Fido hiptop, and SunCom hiptop devices running on Danger Inc.'s hiptop platform. In addition to Wyndtell, we began offering "Sprint Relay Wireless, Powered By GoAmerica" as a standard feature across all of the WyndTell service offerings that operate on certain RIM handheld devices and the T-Mobile Sidekick. Additionally, GoAmerica continues to support customers who use our proprietary software technology called Go.Web(TM). 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. The Wynd Communications and Go.Web services transmit over most major wireless data networks in North America. During the fourth quarter of 2004, the Company commenced selling prepaid calling card services. The Company sells prepaid calling cards in two methods: 1) as a distributor in which the Company has no future obligation to provide the usage embedded in the card and 2) as a Company branded card in which the Company is obligated to provide usage service utilizing its own infrastructure until the obligation to provide the service is either completed or the card expires. Our wireless data solutions revenues are derived principally from subscription to our value-added wireless data services, for which customers typically pay monthly recurring fees. We derive additional wireless data solutions 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. - 10 - 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. Equipment revenue is recognized upon shipment to the end user. Prepaid airtime sold to customers is recorded as deferred revenue prior to the commencement of services and revenue is recognized when airtime is utilized or the card expires. Revenue from calling cards sold to customers in which the Company has no obligation to provide airtime service is recorded at the time of the delivery of the cards to the customer, provided that collection is deemed probable. 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 months ended March 31, 2005 and 2004, the percentage relationship to net sales of certain items included in the Company's unaudited consolidated statements of operations.
THREE MONTHS ENDED MARCH 31, ---------------------------------------- 2005 2004 ---------------------------------------- $ % $ % REVENUES: Subscriber ...................... $ 787 38.8 $ 1,866 95.8 Prepaid services ................ 891 43.9 -- -- Equipment ....................... 102 5.0 36 1.8 Other ........................... 248 12.3 46 2.4 ------- ------- ------- ------- 2,028 100.0 1,948 100.0 COSTS AND EXPENSES: Cost of subscriber airtime, net . 285 14.1 868 44.6 Cost of network operations ...... 94 4.6 293 15.0 Cost of equipment revenue ....... 105 5.2 34 1.7 Cost of prepaid services ........ 830 40.9 -- -- Sales and marketing, net ....... 111 5.5 169 8.7 General and administrative ...... 1,244 61.3 1,505 77.3 Research and development ........ 54 2.7 191 9.8 Depreciation and amortization ... 130 6.4 280 14.4 Amortization of other intangibles 221 10.9 252 12.9 ------- ------- ------- ------- 3,074 151.6 3,592 184.4 ------- ------- ------- ------- Loss from operations ................. (1,046) (51.6) (1,644) (84.4) OTHER INCOME (EXPENSE): Settlement gains, net ................ -- -- 1,621 83.2 Interest income (expense), net ....... 38 1.9 (1,065) (54.7) ------- ------- ------- ------- Total other income ................... 38 1.9 556 28.5 ------- ------- ------- ------- Net loss ............................. $(1,008) (49.7) $(1,088) (55.9) ======= ======= ======= =======
- 11 - 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 MARCH 31, -------------------------------------------- CHANGE -------------------------------------------- 2005 2004 $ % REVENUES: Subscriber ...................... $ 787 $ 1,866 $ (1,079) (57.8) Prepaid services ................ 891 -- 891 -- Equipment ....................... 102 36 66 183.3) Other ........................... 248 46 202 439.1) -------- -------- -------- -------- 2,028 1,948 80 4.1 COSTS AND EXPENSES: Cost of subscriber airtime, net . 285 868 (583) (67.2) Cost of network operations ...... 94 293 (199) (67.9) Cost of equipment revenue ....... 105 34 71 208.8) Cost of other revenue ........... 830 -- 830 -- Sales and marketing, net ....... 111 169 (58) (34.3) General and administrative ...... 1,244 1,505 (261) (17.3) Research and development ........ 54 191 (137) (71.7) Depreciation and amortization ... 130 280 (150) (53.6) Amortization of other intangibles 221 252 (31) (12.3) -------- -------- -------- -------- 3,074 3,592 (518) (14.4) -------- -------- -------- -------- Loss from operations ................. (1,046) (1,644) 598 (36.4) OTHER INCOME (EXPENSE): Settlement gains, net ................ -- 1,621 (1,621) -- Interest income (expense), net ....... 38 (1,065) 1,103 (103.6) -------- -------- -------- -------- Total other income ................... 38 556 (518) (93.2) -------- -------- -------- -------- Net loss ............................. $ (1,008) $ (1,088) $ 80 (7.4) ======== ======== ======== ========
Three months ended March 31, 2005 Compared to Three months ended March 31, 2004 CONSOLIDATED Subscriber revenue. Subscriber revenue decreased 58%, to $787,000 for the three months ended March 31, 2005 from $1.9 million for the three months ended March 31, 2004. This decrease was primarily due to declines in our full service offering subscriber base and was partially offset by increased subscribers to our value added WyndPower service. Our subscriber base decreased to 52,772 subscribers at March 31, 2005 from 70,303 subscribers at March 31, 2004. Our average revenue per user (ARPU) decreased to $4.82 for the three months ended March 31, 2005 from $9.00 for the three months ended March 31, 2004. We expect subscriber revenue to decline slightly as subscribers to our higher ARPU full-service offerings continue to decline and are replaced with subscribers to our lower ARPU value added services. Prepaid services revenue. We began marketing prepaid calling cards and as a result recognized $891,000 of prepaid service revenue for the three months ended March 31, 2005. We did not market prepaid calling cards for the corresponding prior period. Equipment revenue. Equipment revenue increased to $102,000 for the three months ended March 31, 2005 from $36,000 for the three months ended March 31, 2004. This increase was primarily due to higher sales of mobile devices as a result of our Global Interactive product line. We expect equipment revenue to increase as we continue to provide devices to new subscribers of our Wynd services and from our sales of equipment to subscribers on behalf of various wireless network providers. Other revenue. Other revenue increased to $248,000 for the three months ended March 31, 2005 from $46,000 for the three months ended March 31, 2004. This increase was primarily due to revenue generated from our Sprint Relay Wireless service and commissions from the acquisition of subscribers on behalf of various wireless network providers. We expect other revenue to increase as the demand for our Sprint Relay Wireless service and commissions earned from various wireless network providers increases. - 12 - Cost of subscriber airtime. Cost of subscriber airtime decreased 67%, to $285,000 for the three months ended March 31, 2005 from $868,000 for the three months ended March 31, 2004. This decrease was primarily due to the decrease in our subscriber base described above. We expect cost of subscriber airtime to decline slightly as subscribers to our higher ARPU full-service offerings continue to decline and are replaced with subscribers to our lower ARPU value added services. Cost of prepaid services revenue. We began marketing prepaid calling cards and as a result incurred $830,000 of costs related to prepaid service revenue for the three months ended March 31, 2005. We did not market prepaid calling cards for the corresponding prior period. Cost of network operations. Cost of network operations decreased to $94,000 for the three months ended March 31, 2005 from $293,000 for the three months ended March 31, 2004 as a result of the consolidation of our GoWeb and WyndTell production systems into a single data center operated by a third party provider. We expect our cost of network operations to decline as a percentage of revenue during 2005. Cost of equipment revenue. Cost of equipment revenue increased 209%, to $105,000 for the three months ended March 31, 2005 from $34,000 for the three months ended March 31, 2004. This increase was primarily due to higher sales of mobile devices as a result of our Global Interactive product line. We expect cost of equipment revenue to increase as we continue to provide devices to new subscribers of our Wynd services and from the cost of equipment provided to subscribers on behalf of various wireless network providers. Sales and marketing. Sales and marketing expenses decreased to $111,000 for the three months ended March 31, 2005 from $169,000 for the three months ended March 31, 2004. This decrease primarily was due to our consolidation of operations completed during April of 2004, as well as decreased advertising and marketing activities. We expect sales and marketing expenses to increase as we introduce new products and services to the consumer marketplace. General and administrative. General and administrative expenses decreased 17%, to $1.2 million for the three months ended March 31, 2005 from $1.5 million for the three months ended March 31, 2004 This decrease primarily was due to our consolidation of operations completed during April of 2004. We expect general and administrative expenses to decline as a percentage of revenue during 2005. Research and development. Research and development expense decreased to $54,000 for the three months ended March 31, 2005 from $191,000 for the three months ended March 31, 2004. This decrease primarily was due to a reduction in personnel performing research and development activities. Amortization of other intangibles. Amortization of other intangibles decreased for the three months ended March 31, 2005 to $221,000 from $252,000 for the three months ended March 31, 2004. 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 $1.6 million in 2004. Interest income (expense), net. Interest income increased to $38,000 for the three months ended March 31, 2005 from interest expense of $1.1 million for the three months ended March 31, 2004. This change was primarily due to the amortization of deferred debt expense and discount recorded on bridge notes payable during the three months ended March 31, 2004. WIRELESS DATA SOLUTIONS SEGMENT Subscriber revenue. Subscriber revenue decreased 58%, to $787,000 for the three months ended March 31, 2005 from $1.9 million for the three months ended March 31, 2004. This decrease was primarily due to declines in our full service offering subscriber base and was partially offset by increased subscribers to our value added WyndPower service. Our subscriber base decreased to 52,772 subscribers at March 31, 2005 from 70,303 subscribers at March 31, 2004. Our ARPU decreased to $4.821 for the three months ended March 31, 2005 from $9.00 for the three months ended March 31, 2004. We expect subscriber revenue to decline slightly as subscribers to our higher ARPU full-service offerings continue to decline and are replaced with subscribers to our lower ARPU value added services. - 13 - Equipment revenue. Equipment revenue increased to $38,000 for the three months ended March 31, 2005 from $36,000 for the three months ended March 31, 2004. This increase was primarily due to slightly higher sales of mobile devices. We expect equipment revenue to increase as we continue to provide devices to new subscribers of our Wynd services and from our sales of equipment to subscribers on behalf of various wireless network providers. Other revenue. Other revenue increased to $248,000 for the three months ended March 31, 2005 from $46,000 for the three months ended March 31, 2004. This increase was primarily due to revenue generated from our Sprint Relay Wireless service and commissions from the acquisition of subscribers on behalf of various wireless network providers. We expect other revenue to increase as the demand for our Sprint Relay Wireless service and commissions earned from various wireless network providers increases. Cost of subscriber airtime. Cost of subscriber airtime decreased 67%, to $285,000 for the three months ended March 31, 2005 from $868,000 for the three months ended March 31, 2004. This decrease was primarily due to the decrease in our subscriber base described above. We expect cost of subscriber airtime to decline slightly as subscribers to our higher ARPU full-service offerings continue to decline and are replaced with subscribers to our lower ARPU value added services. Cost of network operations. Cost of network operations decreased to $72,000 for the three months ended March 31, 2005 from $293,000 for the three months ended March 31, 2004 as a result of the consolidation of our GoWeb and WyndTell production systems into a single data center operated by a third party provider. We expect our cost of network operations to decline as a percentage of revenue during 2005. Cost of equipment revenue. Cost of equipment revenue increased to $51,000 for the three months ended March 31, 2005 from $34,000 for the three months ended March 31, 2004. This increase was primarily due to higher sales of mobile devices. We expect cost of equipment revenue to increase as we continue to provide devices to new subscribers of our Wynd services and from our acquisition of subscribers on behalf of various wireless network providers. Sales and marketing. Sales and marketing expenses decreased to $111,000 for the three months ended March 31, 2005 from $169,000 for the three months ended March 31, 2004. This decrease primarily was due to our consolidation of operations completed during April of 2004, as well as decreased advertising and marketing activities. We expect sales and marketing expenses to increase as we introduce new products and services to the consumer marketplace. General and administrative. General and administrative expenses decreased 30%, to $654,000 for the three months ended March 31, 2005 from $928,000 for the three months ended March 31, 2004 This decrease primarily was due to our consolidation of operations completed during April of 2004. We expect general and administrative expenses to decline as a percentage of revenue during 2005. Research and development. Research and development expense decreased to $54,000 for the three months ended March 31, 2005 from $191,000 for the three months ended March 31, 2004. This decrease primarily was due to a reduction in personnel performing research and development activities. Amortization of other intangibles. Amortization of other intangibles decreased for the three months ended March 31, 2005 to $221,000 from $252,000 for the three months ended March 31, 2004. 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 $1.6 million in 2004. Interest income (expense), net. Interest income increased to $38,000 for the three months ended March 31, 2005 from interest expense of $1.1 million for the three months ended March 31, 2004. This change was primarily due to the amortization of deferred debt expense and discount recorded on bridge notes payable during the three months ended March 31, 2004. - 14 - PREPAID SERVICES SEGMENT We have provided certain information regarding results for the quarter ended March 31, 2005. We did not market prepaid calling cards for the corresponding prior period. Prepaid services revenue. We began marketing prepaid calling cards and as a result recognized $891,000 of prepaid service revenue for the three months ended March 31, 2005. Equipment revenue. We recognized $64,000 of equipment revenue from ClearMobile, our prepaid phone product line for the three months ended March 31, 2005. Cost of prepaid services revenue. We began marketing prepaid calling cards and as a result incurred $830,000 of costs related to prepaid service revenue for the three months ended March 31, 2005. Cost of network operations. Cost of network operations related to our prepaid calling cards was $22,000 for the three months ended March 31, 2005. Cost of equipment revenue. Cost of equipment revenue was $54,000 for the three months ended March 31, 2005. General and administrative. General and administrative expenses were $189,000 for the three months ended March 31, 2005. CORPORATE SEGMENT General and administrative. General and administrative expenses decreased to $401,000 for the three months ended March 31, 2005 from $577,000 for the three months ended March 31, 2004. This decrease primarily was due to our consolidation of operations completed during April of 2004. We expect general and administrative expenses to decline as a percentage of revenue during 2005. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we financed our operations through a public offering and private placements of our equity securities. We have incurred significant operating losses since our inception and as of March 31, 2005 have an accumulated deficit of $269.9 million. During the three months ended March 31, 2005, we incurred a net loss of $1.0 million and used $144,000 of cash to fund operating activities. 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 $144,000 for the three months ended March 31, 2005 principally reflecting our net loss and an increase in our accounts receivables and was partially offset by a reduction in other receivables. We provided $166,000 in cash from investing activities during the three months ended March 31, 2005, which primarily resulted from a reduction in cash utilized to support a letter of credit and was partially offset by capitalized costs associated with the development of our i711.com(TM) branded Internet service. Net cash provided by financing activities was $2,000 for the three months ended March 31, 2005, which resulted from the issuance of stock from exercise of certain warrants. As of March 31, 2005, our principal commitments consisted of obligations outstanding under operating leases. As of March 31, 2005, future minimum payments for non-cancelable operating leases having terms in excess of one year amounted to $644,000, of which approximately $290,000 is payable in the next twelve months. - 15 - The following table summarizes GoAmerica's contractual obligations at March 31, 2005, and the effect such obligations are expected to have on its liquidity and cash flow in future periods.
Less than 1 March 31, (In thousands) Total Year 1-3 Years 4-5 Years After 5 Years Contractual Obligations: Capital Lease Obligations . $ -- $ -- $ -- $ -- $ -- Operating Lease Obligation ............. 644 290 354 -- -- ------------- ------------- ------------- ------------- ------------- Total Contractual Cash Obligation ............. $ 644 $ 290 $ 354 $ -- $ -- ============= ============= ============= ============= ============= Other Commercial Commitments: Standby Letter of Credit .. $ 300 $ -- $ 300 $ -- $ -- ------------- ------------- ------------- ------------- ------------- Total Commercial Commitment $ 300 $ -- $ 300 $ -- $ -- ============= ============= ============= ============= =============
For information regarding a short term loan agreement that we entered into with Hands On Video Relay Services, Inc and Hands On Sign Language Services, Inc., see Note 8 of Notes to Condensed Consolidated Financial Statements presented elsewhere herein. 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 relationship 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; (xi) difficulties inherent in predicting the outcome of regulatory processes; and (xii) our limited experience in offering prepaid calling cards. Many of 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, 2004. Our actual results could differ materially from the results expressed in, or implied by, such forward-looking statements. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities". The primary objectives of this interpretation are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities") and how to determine when and which business enterprise (the "primary beneficiary") should consolidate the variable interest entity. This new model for consolidation applies to an entity in which either (i) the equity investors (if any) do not have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that the primary beneficiary, as well as all other enterprises with a significant variable interest entity, make additional disclosures. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN 46-R are as follows: (i) Special-purpose entities ("SPEs") created prior to February 1, 2003. We must apply either the provisions of FIN 46 or early adopt the provisions of FIN 46-R at the end of the first interim or annual reporting period ended after December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003. We were required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. (iii) All entities, regardless of whether an SPE, 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 the Company's financial statements. - 16 - In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS 151, "Inventory Costs - An Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance in ARB No. 43, Chapter 4 to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The provisions of SFAS 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS 151 is not expected to have a material effect on our financial condition or results of operations. In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153 amends APB Opinion 29 to eliminate the similar productive asset exception and establishes that exchanges of productive assets should be accounted for at fair value, rather than at carryover basis unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits, (2) the transaction is an exchange transaction to facilitate sales to customers, or (3) the transaction lacks commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of SFAS 153 are effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS 153 is not expected to have a material effect on our financial condition or results of operations. In December 2004, the FASB issued SFAS 123R, "Share-Based Payment". SFAS 123R establishes that employee services received in exchange for share-based payment result in a cost that should be recognized in the income statement as an expense when the services are consumed by the enterprise. It further establishes that those expenses be measured at fair value determined as of the grant date. The provisions of SFAS 123R become effective to the Company on January 1, 2006. The Company is currently evaluating the effect the adoption of SFAS 123R will have on our financial condition and results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We believe that we have limited exposure to financial market risks, including changes in interest rates. At March 31, 2005, 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 $74,000 based on cash and cash equivalent balances at March 31, 2005. 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. - 17 - PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. On July 31, 2002, GoAmerica filed suit against Flash Creative Management, Inc. ("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 GoAmerica's acquisition of the assets of Flash in November 2000. In October 2002, each of the Flash Defendants filed answers to GoAmerica's complaint denying all of the Company's charges, with the individual 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 Company filed a motion to dismiss the Flash Defendants' counterclaims and the Flash Defendants filed cross-motions for judgment on the pleadings and for summary judgment seeking dismissal of the Company's claims against them. On March 2, 2005, all of the Flash Defendants' counterclaims against GoAmerica and the named GoAmerica officers were dismissed. Additionally, the Flash Defendants' cross-motions to dismiss the Company's claims against them were denied in all respects other than the Company's common law fraud claim. The Company is exploring its options as a result of these favorable dismissals as pretrial activity continues. On September 22, 2004, Boundless Depot, LLC ("Boundless Depot") and Scott Johnson, one of two Boundless Depot shareholders, sued GoAmerica and Wynd Communications in the Superior Court of the State of California for the County of Los Angeles, claiming damages of one million dollars for GoAmerica's refusal to pay Boundless Depot unattained contingent consideration, comprising cash and/or GoAmerica Common Stock, with respect to the Asset Purchase Agreement dated as of February 8, 2003 (the "Deafwireless Agreement"), pursuant to which GoAmerica and Wynd Communications acquired certain Deafwireless assets. The total value of such contingent consideration, if all contingencies had been fully met and amounts paid immediately thereupon, would not have exceeded $211,000; however, the Company does not believe any of the contingent consideration is owed to Boundless Depot or either of its shareholders since conditions of the Deafwireless Agreement were not met and the Company incurred costs for which it is entitled to receive reimbursement from Boundless Depot or offset against any amounts that may become payable to Boundless Depot. The Company intends to defend this action vigorously and may elect to pursue counterclaims. ITEM 6. EXHIBITS. 10.1 Short Term Loan Agreement between Hands On Video Relay Services, Inc. and Hands On Sign Language Services, Inc., and GoAmerica, Inc. 10.2 Letter Agreement, dated May 2, 2005, between GoAmerica, Inc., Hands On Video Relay Services, Inc., Hands on Sign Language Services, Inc., Ronald Obray and Denise Obray. 31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - 18 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOAMERICA, INC. DATE: May 12, 2005 By: /s/ Daniel R. Luis --------------------------------- Daniel R. Luis Chief Executive Officer (Principal Executive Officer) DATE: May 12, 2005 By: /s/ Donald G. Barnhart --------------------------------- Donald G. Barnhart Chief Financial Officer (Principal Financial and Accounting Officer) - 19 - EX-10.1 2 v018003_ex10-1.txt This SHORT TERM LOAN AGREEMENT (including all Exhibits and Schedules, as may be amended from time to time, this "Agreement") is entered into by and among Hands On Video Relay Services, Inc., a Delaware corporation, and Hands On Sign Language Services, Inc., a California corporation (individually and collectively, "Borrower"), on the one hand, and GoAmerica, Inc., a Delaware corporation ("Lender"), on the other hand. (Each of "Borrower" and "Lender" may be referred to below as a "Party", and together, the "Parties".) R E C I T A L S WHEREAS, Borrower has requested that Lender provide Borrower with a short term loan as an inducement to execute and abide by that certain No Shop Agreement described herein; and WHEREAS, Lender is willing to provide the Borrower with and administer such a loan on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: Article 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below: "Advance" means any advance made or to be made by Lender to Borrower as provided in Article 2. "Expanded Collateral" means all of Borrower's property and assets, including Intangible Assets, whether now owned or hereafter acquired or hereafter coming into existence and wherever located, including without limitation all accounts, deposit accounts, inventory, equipment, fixtures, financial assets, contract rights, intellectual property, tangible personal property, and all proceeds, products, offspring, accessions, rents, profits, income, and any other benefits, unless expressly provided otherwise in this Agreement. "Definitive Agreement" means the definitive agreement(s) that is or is contemplated to be executed in order to effect the Transaction. "Default" means any event that, with the giving of any applicable notice or passage of time specified in Section 5.1, or both, would be an Event of Default. "Event of Default" shall have the meaning provided in Section 5.1. "Intangible Assets" means assets of Borrower that are considered intangible assets under generally accepted accounting principles ("GAAP"). "Interest Period" means, as to each Advance, the number of days beginning with receipt of the Advance by Borrower and its repayment in full, as adjusted for any partial repayment(s). "No Shop Agreement" means that letter agreement between Borrower, the Obrays, and Lender executed concurrently with this Agreement. "Obligations" means all present and future obligations of every kind or nature of Borrower at any time and from time to time owed to Lender, whether due or to become due, matured or unmatured, liquidated or unliquidated, or contingent or noncontingent, including obligations of performance as well as obligations of payment, and including interest that accrues to the extent permitted by applicable law after the commencement of any proceeding under any debtor relief law by or against Borrower. "Primary Collateral" shall be those assets acquired by Borrower using proceeds from any Advance hereunder, including any hardware, software, and in the case of the use of the Advance to develop new technology, it shall include that technology. "Request For Loan" means each completed document, substantially in accordance with Exhibit A to this Agreement, submitted by Borrower to Lender requesting an Advance, containing sufficiently detailed information and support documentation reasonably requested from time to time by Lender. 1.2 Any and all defined terms used in this Agreement without definition in Section 1.1 shall have the respective meanings assigned thereto in the No Shop Agreement, Term Sheet or other document duly signed by or on behalf of the Parties substantially simultaneously with this Agreement. 1.3 As used in this Agreement, the word "including" and variations thereof shall not be deemed to be terms of limitation, but rather shall be deemed to be followed at all times by the words "without limitation". Article 2. LOANS AND SECURITY 2.1. Subject to the terms and conditions set forth in this Agreement, at any time and from time to time from the date of this Agreement through the earliest to occur of (a) termination of the No Shop Agreement for any reason other than due to execution of the Definitive Agreement, (b) the Expiration Date, unless the Definitive Agreement has been executed, and (c) termination of the Transaction before its Closing, Lender shall loan Borrower certain amounts, provided that each Advance is made pursuant to a Request for Loan, and that after each such Advance, the aggregate outstanding principal under this Agreement shall not exceed Five Hundred Thousand dollars ($500,000), unless and until the Federal Communications Commission Consumer and Governmental Affairs Bureau releases an order setting the compensation rate for video relay service for the July 1, 2005 - June 30, 2006 fund year consistent with Borrower's business forecasts provided to Lender in connection with this Agreement, in which case the aggregate outstanding principal under this Agreement shall not exceed One Million dollars ($1,000,000). Lender's denial of a Request for Loan or failure to make an Advance to Borrower that is consistent with the Business Plan shall result in the immediate termination of the No Shop Agreement and a discharge of all obligations of Borrower and Ronald E. and Denise E. Obray thereunder, subject to Borrower's prior written notice to Lender of such an improper denial or failure and Lender not curing within three (3) business days of its receipt of such notice. 2.2 Interest. Interest shall accrue throughout each Interest Period at a simple interest rate per annum equal to the highest average prime rate charged by a majority of the 30 largest banks, as published in the Wall Street Journal and shall be payable to Lender on the same terms as any repayment of all Advances. All overdue payments of principal and interest shall bear interest at a simple interest rate per annum of twelve percent (12%). 2.3 Security. (a) As security for the prompt payment in full when due of Borrower's Obligations hereunder, whether now existing or hereafter from time to time arising, Borrower hereby pledges and grants to Lender a Security Interest in and lien on all of Borrower's right, title and interest in, to and under the Primary Collateral, which shall include a first priority interest in all equipment and other assets and rights acquired by Borrower with any Advance, and when perfected, subordinate only to the senior secured claims and interests specified on Schedule 2.3 to this Agreement; provided, however, in the event of the occurrence of any repayment obligation described in Section 2.4(b) hereof, Borrower shall immediately grant to Lender a security interest in and to the Expanded Collateral and the obligations hereunder shall thereafter be secured by a lien in the Expanded Collateral. (b) At any time from and after execution and delivery of this Agreement, Borrower will promptly join with Lender in providing information for, and executing and filing, any and all financing statements, assignments, certificates, instruments and any other documents with respect to the Primary Collateral and, as necessary, to the Expanded Collateral (both the Primary Collateral and the Expanded Collateral are referred to herein as "Collateral") pursuant to the Uniform Commercial Code, any other applicable law or otherwise as may be necessary or appropriate in Lender's sole discretion, in any and all jurisdictions Lender elects, to enable Lender, at Lender's expense, to create, preserve, perfect or otherwise protect or renew any security interest that Lender has and may have at any time, from time to time, in the Collateral and otherwise under this Agreement. In the event, and only to the extent, that Borrower is unable or unwilling to so duly execute and deliver or otherwise perform in accordance with the immediately preceding sentence, Borrower hereby irrevocably and unconditionally authorizes and appoints each of Lender's Chief Executive Officer and Chief Financial Officer as their attorney-in-fact for the limited purpose of acting in Borrower's name and stead to perform all other acts that Lender deems appropriate to perfect and continue the security interests conferred by this Agreement. (c) Upon the acquisition, using funds delivered as an Advance, after the date of this Agreement by Borrower of any equipment covered by a certificate of title or ownership, Borrower shall use all commercially reasonable efforts to cause Lender to be listed as the lienholder on such certificate of title, take all other action required by or consistent with this Section 2.3, and deliver evidence of the same to Lender promptly. 2. 4. Terms of Repayment. (a) So long as there has not been a breach of any material provision of the No Shop Agreement or of the substantially similar provisions contained in the Definitive Agreement, Borrower shall not have any obligation to pay any Interest or to repay any Advance taken under this Agreement during the twelve (12) months following each Advance, except as otherwise expressly provided herein. Upon the conclusion of the twelve-month period following any such Advance, if the Definitive Agreement has not yet then been closed or has been terminated, Borrower shall repay that Advance and all accrued Interest thereon in twelve (12) fully amortized monthly installments of principal and accrued Interest starting on the first day of the second month following the sooner of the termination of the Definitive Agreement or the 12th anniversary of such Advance. (b) (i) In the event of a breach of any material provision of the No Shop Agreement or of the substantially similar provisions contained in the Definitive Agreement or a breach of any material provision of the Definitive Agreement, then the balance of principal and accrued interest due hereunder shall become immediately due and payable. (ii) In the event the Definitive Agreement is not executed (other than due to a breach) and either Borrower is either (x) sold or (y) closes a single or series of financing(s) (by the sale of any securities or debt instrument issued by either Borrower) in which Borrower receives in excess of one million dollars ($1,000,000) in the aggregate, then the balance of principal and accrued interest due hereunder shall become immediately due and payable upon the earlier of the closing of the sale or the financing described herein in subsection (ii). Notwithstanding anything to the contrary in this subsection (ii), in the event the Definitive Agreement is not executed (other than due to a breach), all principal and accrued interest due hereunder shall become due and payable on the ninetieth (90th) day following expiration of the No Shop Agreement. Article 3. REPRESENTATIONS AND WARRANTIES 3.1 Except as otherwise expressly provided herein, Borrower is the sole owner of, and has good, valid and marketable title to, the Collateral, subject to any liens or prior security interest granted to another party, and Borrower's execution, delivery and performance of this Agreement will not conflict with, violate, or cause a default or event of default under any (a) other agreement, understanding or arrangement to which Borrower and/or an Obray is a party or otherwise subject, or (b) license, regulation, judicial order or similar governmental or quasi-governmental directive or proceeding affecting or governing Borrower, the Obrays or any of their assets or rights. 3.2 Neither this Agreement nor any of the security interests underlying it are or will be subordinate(d) in any way to any other agreement, pledge, obligation, lien, claim, understanding, arrangement or encumbrance or priority interest except as identified on Schedule 2.3 to this Agreement. 3.3 Borrower has filed all federal and other material tax returns and reports required to be filed and have paid all federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable except those for which extensions have been sought or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP and no Notice of Lien has been filed or recorded. To Borrower's knowledge, there is no proposed tax assessment against Borrower which would, if the assessment made, have a material adverse effect on Borrower. 3.4 Borrower's assets are insured pursuant to the insurance policies listed in Schedule 3.4 in such amounts, with such deductibles and covering such risks as set forth in those policies, and all such insurance policies are in full force and effect and all premiums due and payable as of the date of this Agreement have been paid. Article 4. NEGATIVE COVENANTS 4.1 The Borrower shall not take any action or fail to act such that Lender's interest or security underlying this Agreement is materially impaired or voided, including the disposition or extraordinary devaluing of or failure to adequately insure any material asset, other than transactions in the ordinary course of Borrower's business without Lender's prior written consent, which shall not be unreasonably withheld. 4.2 The Borrower shall not voluntarily file or consent to the filing on its behalf for bankruptcy protection or other debtor relief permitted otherwise by law without Lendor's prior written consent. Article 5. EVENTS OF DEFAULT AND REMEDIES 5.1 Events of Default. There will be a Default hereunder if any one or more of the following events ("Events of Default") occurs and is continuing, whatever the reason therefor: (a) Borrower's failure to pay or perform any Obligation when due; or (b) Borrower's failure to pay or perform any similar obligation as contemplated in Section 5.1(a) to any party identified on Schedule 2.3 that materially impairs Lender's Collateral; or (c) any breach or other failure to comply with any material provision of this Agreement, the No Shop or Definitive Agreement that is not cured as soon as practicable but in no event later than ten (10) days of written notice thereof; or (d) an adverse final judgment against Borrower in excess of five hundred thousand dollars ($500,000) in any material litigation; (e) Borrower institutes or consents to any proceeding under a debtor relief law, or fails generally to pay its debts as they mature, or makes a general assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator, or similar officer for it or for all or any part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator, or similar officer is appointed without the application or consent of that person and the appointment continues undischarged or unstayed for sixty (60) calendar days; or any proceeding under any debtor relief law relating to any such person or to all or any part of its property is instituted without the consent of that person, and continues undismissed or unstayed for sixty (60) calendar days; or (f) a material adverse ERISA or tax determination is made with respect to Borrower by any relevant governmental or quasi-governmental authority. 5.2 Remedies Upon Event of Default. Without limiting any other rights or remedies of Lender provided for elsewhere in this Agreement or the No Shop Agreement or a Definitive Agreement, or by applicable law or in equity, or otherwise: (a) Lender shall have the right to take possession of or dispose of any Collateral and retain the proceeds therefrom until Lender has received the full amount of any unpaid principal and interest due it under this Agreement. (b) Lender shall have a non-exclusive license (exercisable without payment of royalty or other compensation to Borrower) to use any of Borrower's intellectual property now owned or hereafter acquired by Borrower, including all underlying license rights relating thereto, but only until Lender has received the full amount of any unpaid principal and interest due it under this Agreement, whether by taking possession and disposing of any Collateral or otherwise. (c) In the event and to the extent that (i) Borrower fails to make any of the payments described in this Agreement, or (ii) Lender is compelled by proper authority of any court of competent jurisdiction to forfeit, remit or return any or all of any payments made to Lender under this Agreement to Borrower , a bankruptcy trustee or other authorized third party, pursuant to U.S. Bankruptcy Code (11 U.S.C. 547 or otherwise) or similar judicial authority, as a preference recovery or otherwise, then Borrower shall agree and shall not dispute that Lender's claims shall be reinstated in full, including all amounts forgiven hereunder, net of any of payments received and retained by Lender. Article 6. MISCELLANEOUS 6.1 Additional Actions and Documents. Borrower hereby agrees to take or cause to be taken such further actions, to execute, deliver and file or cause to be executed, delivered and filed such further documents and instruments, at Lender's cost, as may be necessary or as may be reasonably requested in order to fully effectuate the purposes, terms and conditions of this Agreement, whether before, at or after the closing of transactions contemplated hereby or the occurrence of an Event of Default hereunder. 6.2 Release of Collateral. Promptly following performance and payment in full of all of Borrower's Obligations hereunder, the security interests created hereby shall terminate, and Lender shall promptly execute and deliver such documents, at Borrower's expense, as are necessary to effect such termination. 6.3 Waiver. The failure or delay by Lender to assert any of its rights under this letter agreement shall not constitute a waiver of such rights nor shall any single or partial exercise by Lender of any of its rights under this letter agreement preclude any other or further exercise of such rights or any other rights under this letter agreement. 6.4 Notice. All notices, requests, claims, demands, waivers and other communications under this letter agreement shall be in writing and shall be deemed given upon (a) personal delivery, (b) transmitter's confirmation of a receipt of a facsimile transmission, (c) confirmed delivery by standard overnight carrier or when mailed in the United States by certified or registered mail, postage prepaid, addressed to the parties at the following addresses: If to GoAmerica: GoAmerica, Inc. 433 Hackensack Avenue Hackensack, NJ 07601 Facsimile No: (201) 527-1084 Attention: Dan Luis with a copy to: Lowenstein Sandler PC 65 Livingston Avenue Roseland, NJ 07068 Facsmilie No: 973-597-2351 Attention: Peter H. Ehrenberg, Esq. If to Companies: Hands On Video Relay Services, Inc. Hands On Sign Language Services, Inc. 595 Menlo Drive Rocklin, CA 95765-3708 Facsimile No: (888) 900-9477 Attention: Ron Obray with a copy to: DLA Piper Rudnick Gray Cary US LLP 400 Capitol Mall, Suite 2400 Sacramento, CA 95814 Facsimile No.: (916) 930-3201 Attention: Scott W. Pink IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. HANDS ON VIDEO RELAY SERVICES, INC. By: ------------------------------------- Title: ----------------------------------- HANDS ON SIGN LANGUAGE SERVICES, INC. By: ------------------------------------- Title: ----------------------------------- GOAMERICA, INC. By: ------------------------------------- Daniel R. Luis Chief Executive Officer EX-10.2 3 v018003_ex10-2.txt May 2, 2005 CONFIDENTIAL Mr. Ronald E. Obray Chief Executive Officer Hands On Video Relay Services, Inc. Hands On Sign Language Services, Inc. 595 Menlo Drive Rocklin, CA 95765-3708 Dear Mr. Obray: This letter agreement sets forth the terms upon which GoAmerica, Inc., a Delaware corporation ("GoAmerica"), agrees to enter into discussions regarding a potential business combination with Hands On Video Relay Services, Inc., a Delaware corporation, and Hands On Sign Language Services, Inc., a California corporation (individually and together, the "Companies") (the "Transaction"), and certain related matters. In consideration of the substantial amount of resources GoAmerica will expend in evaluating and negotiating the terms of the Transaction, for providing a bridge line of credit to Companies (the "Bridge Line") pursuant to a bridge line credit agreement (the "Bridge Line Agreement") executed by the parties on the same date as this letter agreement, and of the mutual covenants set forth below, GoAmerica and Companies and Ronald and Denise Obray agree as follows: 1. Other Negotiations. Between the date hereof and 11:59 p.m. (California time) on June 15, 2005, or such earlier time and date as GoAmerica and Companies mutually agree to discontinue discussions of the Transaction, or such earlier date if this letter agreement is terminated because GoAmerica denies a Request for Loan or fails to make an Advance to Companies under Section 2.1 of the Bridge Line Agreement or later date as mutually agreed in writing by the parties (the "Expiration Date"), neither Companies nor its officers, directors or agents (including, without limitation, Ronald and Denise Obray) will take any action to solicit, initiate, make, entertain, encourage or seek the submission of, or facilitate inquiries regarding, or enter into any agreement pursuant to, any inquiry, proposal or offer from any corporation, partnership, person or other entity or group (other than discussions with GoAmerica) regarding any acquisition of Companies, any merger or consolidation with or involving Companies or any acquisition of any material portion of the stock or assets of Companies, any other business combination with Companies or any financing of Companies (any such acquisition, merger, consolidation, business combination or financing, a "Sale Transaction"). Companies and Ronald and Denise Obray agree that any such negotiations or activities in progress as of the date hereof will be terminated or suspended during such period. Companies will promptly, and in any event within 24 hours, notify GoAmerica regarding any contact by any third party regarding any offer, proposal or inquiry regarding any. In no event will Companies or Ronald and Denise Obray accept or enter into an agreement concerning any such Sale Transaction prior to the Expiration Date. 2. Governing Law. This letter agreement shall be governed by the laws of the State of Delaware applicable to contracts wholly executed and performed therein. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS LETTER AGREEMENT. 3. General. The parties shall have no obligation to consummate the Transaction, unless and until a definitive agreement is reached, and in such case shall be subject in all respects to the satisfaction of the conditions contained therein, and neither party hereto shall have any liability to the other under this letter agreement if the parties fail for any reason to execute such a definitive agreement. 4. Waiver. The failure or delay by GoAmerica to assert any of its rights under this letter agreement shall not constitute a waiver of such rights nor shall any single or partial exercise by GoAmerica of any of its rights under this letter agreement preclude any other or further exercise of such rights or any other rights under this letter agreement. 5. Notice. All notices, requests, claims, demands, waivers and other communications under this letter agreement shall be in writing and shall be deemed given upon (a) personal delivery, (b) transmitter's confirmation of a receipt of a facsimile transmission, (c) confirmed delivery by standard overnight carrier or when mailed in the United States by certified or registered mail, postage prepaid, addressed to the parties at the following addresses: If to GoAmerica: GoAmerica, Inc. 433 Hackensack Avenue Hackensack, NJ 07601 Facsimile No: (201) 527-1084 Attention: Dan Luis with a copy to: Lowenstein Sandler PC 65 Livingston Avenue Roseland, NJ 07068 Facsimile No. 973-597-2351 Attention: Peter H. Ehrenberg, Esq. If to Companies: Hands On Video Relay Services, Inc. Hands On Sign Language Services, Inc. 595 Menlo Drive Rocklin, CA 95765-3708 Facsimile No: (888) 900-9477 Attention: Ron Obray with a copy to: DLA Piper Rudnick Gray Cary US LLP 400 Capitol Mall, Suite 2400 Sacramento, CA 95814 Facsimile No.: (916) 930-3201 Attention: Scott W. Pink 6. Remedies. As it may be difficult to measure the damages which would result to GoAmerica from a breach by Companies, or any of its officers, directors or agents (including, without limitation, Ronald Obray and Denise Obray) of any of the undertakings, warranties and representations contained in this letter agreement, GoAmerica may seek to have such undertakings, warranties and representations specifically enforced by a court of competent jurisdiction. Companies are aware that irreparable injury or damage may result to GoAmerica in the event of a breach by Companies, or any of its officers, directors or agents, of the terms and provisions of this letter agreement. Therefore, Companies agree that GoAmerica may seek an injunction restraining Companies and its officers, directors and agents from engaging in any activity constituting such breach. 7. No Public Announcement; No Disclosure. The parties shall make no public announcement concerning this letter, their discussions or any other memoranda, letters or agreements between the parties relating to the Transaction, except that any of the parties may at any time make disclosure if it is advised by its legal counsel that such disclosure is required under applicable law or regulatory authority. Except as permitted by the preceding sentence, under no circumstances will party (or any of its officers, directors or agents) discuss or disclose the existence or terms of this letter (or that the parties are holding discussions) with or to any third party other than such legal, accounting and financial advisors of such party who have a need to know such information solely for purposes of assisting that party in regard to the Transaction. Please contact Dan Luis (201) 996-7403 if you have any questions regarding the content of this letter agreement. Otherwise, please indicate the concurrence of the Companies and Ronald and Denise Obray with this letter agreement by executing two copies of it in the space provided below and returning one such copy to me at your earliest convenience. I look forward to the successful completion of the discussions contemplated by this letter agreement. Very truly yours, GOAMERICA, INC. By: -------------------------------------------- Daniel R. Luis Chief Executive Officer AGREED TO AND ACCEPTED: HANDS ON VIDEO RELAY SERVICES, INC. RONALD OBRAY By: ------------------------------- -------------------------------------- Title: ----------------------------- HANDS ON SIGN LANGUAGE SERVICES, INC. DENISE OBRAY By: ------------------------------- -------------------------------------- Title: ----------------------------- EX-31 4 v018003_ex31-1.txt EXHIBIT 31.1 CERTIFICATION I, Daniel R. Luis, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of GoAmerica, Inc.; 2. Based on my knowledge, this 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: May 12, 2005 /s/ Daniel R. Luis ------------------ Daniel R. Luis Chief Executive Officer EX-31 5 v018003_ex31-2.txt EXHIBIT 31.2 CERTIFICATION I, Donald G. Barnhart, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q 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: May 12, 2005 /s/ Donald G. Barnhart ---------------------- Donald G. Barnhart Chief Financial Officer EX-32 6 v018003_ex32-1.txt 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 quarterly report of GoAmerica, Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2005 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: May 12, 2005 /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 7 v018003_ex32-2.txt 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 quarterly report of GoAmerica, Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2005 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: May 12, 2005 /s/ Donald G. Barnhart ---------------------- Donald G. Barnhart Chief Financial Officer This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. -----END PRIVACY-ENHANCED MESSAGE-----