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 -