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 September 30, 2008
Commission File No. 0-29359
|
|
|
|
|
|
|
|
|
GoAmerica, Inc.
|
|
|
|
|
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
|
|
|
|
|
Delaware
|
|
|
|
22-3693371
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
|
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
433 Hackensack Avenue, Hackensack, New Jersey
|
|
07601
|
(Address of Principal Executive Offices)
|
|
(Zip Code)
|
|
|
|
|
|
|
|
(201) 996-1717
|
|
|
|
|
(Registrants 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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated
Filer
Accelerated
Filer
Non-accelerated
filer
X
Smaller Reporting
Company
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the Registrants classes of common
stock, October 31, 2008:
|
|
|
|
|
Class
|
|
|
|
Number of Shares
|
|
|
|
Common Stock, $.01 par value
|
|
|
|
9,184,387
|
GOAMERICA, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- i -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- 1 -
GOAMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
December 31,
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,889
|
|
|
$
|
2,368
|
|
Accounts receivable, net
|
|
|
15,005
|
|
|
|
1,960
|
|
Merchandise inventories, net
|
|
|
370
|
|
|
|
206
|
|
Other current assets
|
|
|
1,559
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
35,823
|
|
|
|
4,754
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
542
|
|
|
|
200
|
|
Property, equipment and leasehold improvements, net
|
|
|
7,139
|
|
|
|
917
|
|
Goodwill
|
|
|
75,473
|
|
|
|
6,000
|
|
Identifiable intangible assets, net
|
|
|
58,162
|
|
|
|
--
|
|
Deferred acquisition costs
|
|
|
--
|
|
|
|
5,060
|
|
Deferred financing costs
|
|
|
716
|
|
|
|
1,162
|
|
Other assets
|
|
|
906
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
178,761
|
|
|
$
|
18,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,888
|
|
|
$
|
1,285
|
|
Accrued expenses
|
|
|
11,507
|
|
|
|
3,623
|
|
Deferred revenue
|
|
|
--
|
|
|
|
94
|
|
Loan payable
|
|
|
--
|
|
|
|
3,532
|
|
Current portion of long term debt
|
|
|
400
|
|
|
|
--
|
|
Other current liabilities
|
|
|
132
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
15,927
|
|
|
|
8,622
|
|
|
|
|
|
|
|
|
|
|
Long term debt less current portion, net of discount of $2,080 at September 30, 2008
|
|
|
67,220
|
|
|
|
--
|
|
Accrued preferred dividends
|
|
|
2,417
|
|
|
|
50
|
|
Other long term liabilities
|
|
|
363
|
|
|
|
74
|
|
Deferred tax liability
|
|
|
12,048
|
|
|
|
--
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, authorized: 11,671,180 shares in 2008 and 2007; Series A issued and outstanding: 7,736,944 and 290,135 in
2008 and 2007, respectively; $40,765 liquidation preference
|
|
|
77
|
|
|
|
3
|
|
Common stock, $.01 par value, authorized: 50,000,000 shares in 2008 and 200,000,000 in 2007; issued: 9,184,387 and 2,486,668 in 2008 and 2007,
respectively
|
|
|
92
|
|
|
|
25
|
|
Additional paid-in capital
|
|
|
363,093
|
|
|
|
288,667
|
|
Accumulated deficit
|
|
|
(282,290
|
)
|
|
|
(278,957
|
)
|
Treasury stock, at cost, 24,063 shares in 2008 and 2007
|
|
|
(186
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
80,786
|
|
|
|
9,552
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
178,761
|
|
|
$
|
18,298
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
- 2 -
GOAMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relay services
|
|
$
|
30,644
|
|
|
$
|
4,293
|
|
|
$
|
88,348
|
|
|
$
|
11,787
|
|
Interpreting
|
|
|
5,024
|
|
|
|
--
|
|
|
|
6,285
|
|
|
|
--
|
|
Other
|
|
|
67
|
|
|
|
543
|
|
|
|
814
|
|
|
|
1,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,735
|
|
|
|
4,836
|
|
|
|
95,447
|
|
|
|
13,448
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of relay services
|
|
|
15,972
|
|
|
|
2,999
|
|
|
|
47,607
|
|
|
|
8,074
|
|
Cost of interpreting
|
|
|
3,996
|
|
|
|
--
|
|
|
|
5,235
|
|
|
|
--
|
|
Cost of other
|
|
|
65
|
|
|
|
444
|
|
|
|
959
|
|
|
|
1,393
|
|
Sales and marketing
|
|
|
2,990
|
|
|
|
612
|
|
|
|
8,702
|
|
|
|
1,615
|
|
General and administrative
|
|
|
8,721
|
|
|
|
1,479
|
|
|
|
20,693
|
|
|
|
4,092
|
|
Research and development
|
|
|
1,068
|
|
|
|
59
|
|
|
|
2,479
|
|
|
|
316
|
|
Depreciation and amortization
|
|
|
284
|
|
|
|
94
|
|
|
|
714
|
|
|
|
257
|
|
Amortization of intangible assets
|
|
|
1,811
|
|
|
|
--
|
|
|
|
4,841
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,907
|
|
|
|
5,687
|
|
|
|
91,230
|
|
|
|
15,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
828
|
|
|
|
(851
|
)
|
|
|
4,217
|
|
|
|
(2,299
|
)
|
Other income
(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement losses
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(162
|
)
|
(Loss) gain on interest rate cap agreement
|
|
|
(130
|
)
|
|
|
--
|
|
|
|
111
|
|
|
|
--
|
|
Interest income (expense), net
|
|
|
(1,819
|
)
|
|
|
(10
|
)
|
|
|
(5,092
|
)
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense),
net
|
|
|
(1,949
|
)
|
|
|
(10
|
)
|
|
|
(4,981
|
)
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(1,121
|
)
|
|
|
(861
|
)
|
|
|
(764
|
)
|
|
|
(2,412
|
)
|
Income tax provision
|
|
|
202
|
|
|
|
--
|
|
|
|
202
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,323
|
)
|
|
|
(861
|
)
|
|
|
(966
|
)
|
|
|
(2,412
|
)
|
Preferred dividends
|
|
|
(840
|
)
|
|
|
(20
|
)
|
|
|
(2,367
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(2,163
|
)
|
|
$
|
(881
|
)
|
|
$
|
(3,333
|
)
|
|
$
|
(2,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.24
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(1.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.24
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(1.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
9,159,452
|
|
|
|
2,239,966
|
|
|
|
9,154,637
|
|
|
|
2,216,349
|
|
The accompanying notes are an integral part of these financial statements.
- 3 -
GOAMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
Number
of shares
|
|
Amount
|
|
Number
of shares
|
|
Amount
|
|
Additional
paid in
capital
|
|
Accumulated
deficit
|
|
|
Number
of shares
|
|
Amount
|
|
|
Total stock-
holders
equity
|
|
Balance at January 1, 2008
|
|
290,135
|
|
$
|
3
|
|
2,486,668
|
|
$
|
25
|
|
$
|
288,667
|
|
$
|
(278,957
|
)
|
|
24,063
|
|
$
|
(186
|
)
|
|
$
|
9,552
|
|
Issuance of preferred stock pursuant to Verizon acquisition, net of fees
|
|
6,479,691
|
|
|
64
|
|
--
|
|
|
--
|
|
|
32,475
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
32,539
|
|
Issuance of preferred stock pursuant to Hands On acquisition
|
|
967,118
|
|
|
10
|
|
--
|
|
|
--
|
|
|
4,990
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
5,000
|
|
Issuance of common stock pursuant to Hands On acquisition
|
|
--
|
|
|
--
|
|
6,696,466
|
|
|
67
|
|
|
34,554
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
34,621
|
|
Issuance of common stock pursuant to exercise of employee stock options
|
|
--
|
|
|
--
|
|
1,253
|
|
|
--
|
|
|
5
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
5
|
|
Amortization of deferred employee compensation
|
|
--
|
|
|
--
|
|
--
|
|
|
--
|
|
|
2,402
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
2,402
|
|
Accrued preferred stock dividend
|
|
--
|
|
|
--
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(2,367
|
)
|
|
--
|
|
|
--
|
|
|
|
(2,367
|
)
|
Net loss
|
|
--
|
|
|
--
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(966
|
)
|
|
--
|
|
|
--
|
|
|
|
(966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30,
2008
|
|
7,736,944
|
|
$
|
77
|
|
9,184,387
|
|
$
|
92
|
|
$
|
363,093
|
|
$
|
(282,290
|
)
|
|
24,063
|
|
$
|
(186
|
)
|
|
$
|
80,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
- 4 -
GOAMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(966
|
)
|
|
$
|
(2,412
|
)
|
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of fixed assets
|
|
|
714
|
|
|
|
257
|
|
Amortization of intangible assets
|
|
|
4,841
|
|
|
|
--
|
|
Amortization of debt discount
|
|
|
344
|
|
|
|
--
|
|
Gain on interest rate cap agreement
|
|
|
(111
|
)
|
|
|
--
|
|
Settlement losses
|
|
|
--
|
|
|
|
162
|
|
Provision for losses on accounts receivable
|
|
|
118
|
|
|
|
132
|
|
Non cash employee compensation
|
|
|
2,402
|
|
|
|
569
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(3,477
|
)
|
|
|
(106
|
)
|
Decrease in other receivables
|
|
|
--
|
|
|
|
28
|
|
(Increase) decrease in merchandise inventories
|
|
|
(164
|
)
|
|
|
45
|
|
Increase in other current assets
|
|
|
(477
|
)
|
|
|
23
|
|
Decrease in accounts payable
|
|
|
(4,019
|
)
|
|
|
408
|
|
Increase in accrued expenses and other liabilities
|
|
|
8,475
|
|
|
|
696
|
|
(Decrease) increase in deferred revenue
|
|
|
(94
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
7,586
|
|
|
|
(200
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
Change in other assets and restricted cash
|
|
|
(476
|
)
|
|
|
400
|
|
Acquisition of business, net of acquired cash
|
|
|
(1,888
|
)
|
|
|
--
|
|
Deferred acquisition costs
|
|
|
(3,731
|
)
|
|
|
(1,544
|
)
|
Purchase of property, equipment and leasehold improvements
|
|
|
(3,013
|
)
|
|
|
(365
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(9,108
|
)
|
|
|
(1,509
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of preferred stock
|
|
|
1,700
|
|
|
|
427
|
|
Proceeds from the issuance of debt, net
|
|
|
16,745
|
|
|
|
563
|
|
Proceeds from exercise of stock options
|
|
|
5
|
|
|
|
--
|
|
Payments made on long term debt
|
|
|
(300
|
)
|
|
|
--
|
|
Payments made on capital lease obligations
|
|
|
(107
|
)
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
18,043
|
|
|
|
921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
16,521
|
|
|
|
(788
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
2,368
|
|
|
|
3,870
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
18,889
|
|
|
$
|
3,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid for Interest
|
|
$
|
5,140
|
|
|
$
|
20
|
|
Cash tax payments
|
|
$
|
433
|
|
|
$
|
--
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing Activities:
|
|
|
|
|
|
|
|
|
Acquisition of equipment through capital leases
|
|
$
|
103
|
|
|
$
|
--
|
|
Cash portion of Verizon purchase price withheld from financing
|
|
$
|
44,000
|
|
|
$
|
--
|
|
Cash portion of Hands On purchase price withheld from financing
|
|
$
|
32,282
|
|
|
$
|
--
|
|
Payoff of outstanding Hands On debt withheld from proceeds
|
|
$
|
6,017
|
|
|
$
|
--
|
|
Deferred financing costs withheld from proceeds
|
|
$
|
1,605
|
|
|
$
|
1,162
|
|
Deferred acquisition costs withheld from proceeds
|
|
$
|
3,016
|
|
|
$
|
2,023
|
|
Repayment of credit agreement from proceeds from the issuance of debt
|
|
$
|
3,581
|
|
|
$
|
--
|
|
Agent expenses withheld from proceeds from the sale of preferred stock
|
|
$
|
196
|
|
|
$
|
--
|
|
Cost of issuance of preferred stock withheld from proceeds
|
|
$
|
960
|
|
|
$
|
40
|
|
Cost of issuance of debt withheld from proceeds from the sale of preferred stock
|
|
$
|
--
|
|
|
$
|
35
|
|
Accrued preferred stock dividend
|
|
$
|
2,367
|
|
|
$
|
20
|
|
Interest paid in kind
|
|
$
|
--
|
|
|
$
|
4
|
|
The accompanying notes are an integral part of these financial statements.
- 5 -
GOAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data, unless otherwise noted)
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 of America 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. The statements are subject to possible adjustments in connection with the annual
audit of the Companys accounts for the year ended December 31, 2008. In the opinion of the Companys 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 September 30, 2008 and the results of its operations and its cash flows for the three and nine month periods
ended September 30, 2008 and 2007. Results for the interim periods are not necessarily indicative of results that may be expected for the entire year or for any other interim period. These financial statements should be read in conjunction with
the Companys audited financial statements and notes thereto included in the Companys Annual Report on Form 10-K, filed March 28, 2008 and as amended on April 29, 2008, for the year ended December 31, 2007.
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. In addition, as of September 30, 2008, the Company had 77% of its accounts receivable
with the National Exchange Carriers Association (NECA). The Company generated 86% and 93% of its total revenue with NECA for the three and nine months ended September 30, 2008, respectively, compared with 89% and 88%, for the three
and nine months ended September 30, 2007, respectively.
The Company has incurred significant operating losses since
its inception and, as of September 30, 2008, has an accumulated deficit of $282,290. During the nine months ended September 30, 2008, the Company recorded a net loss of $966 and provided $7,586 of cash from operating activities. As of
September 30, 2008, the Company had $18,889 in cash and cash equivalents.
Note 2 Significant Accounting Policies:
Revenue Recognition-Relay Services
The Company derives revenue from relay services which is recognized as revenue when services are provided or earned.
The Company derives revenue from interpreting services which is recognized as revenue when services are provided or earned.
The Company derives subscriber revenue from the provision of wireless communication services. Subscriber revenue consists of monthly charges for access and usage and is recognized as the service is provided. Equipment
revenue is recognized upon shipment and transfer of title to the end user. Revenue from commissions is recognized upon activation of subscribers on behalf of third party wireless network providers.
The Company collects sales taxes from its customers when required and maintains a policy to classify these tax collections as a current
liability until remitted to the appropriate state agency and a corresponding reduction of revenue.
- 6 -
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in
accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. SFAS 157 was effective for financial statements issued for fiscal years beginning after November 15, 2007,
with earlier application encouraged, but the issuance of FASB Staff Position SFAS No. 157-2 has delayed the effective date to fiscal years beginning after November 15, 2008 as it relates to non-financial assets and non-financial
liabilities. Any amounts recognized upon adoption as a cumulative-effect adjustment will be recorded to the opening balance of retained earnings in the year of adoption. The adoption of SFAS 157 did not have a material effect on the Companys
financial condition or results of operations.
In February 2007, the FASB issued SFAS No. 159,
Establishing the
Fair Value Option for Financial Assets and Liabilities
(SFAS 159) to permit all entities to choose to elect to measure eligible financial instruments and certain other items at fair value. The decision whether to elect the fair
value option may occur for each eligible item either on a specified election date or according to a preexisting policy for specified types of eligible items. However, that decision must also take place on a date on which criteria under SFAS 159
occurs. Finally, the decision to elect the fair value option shall be made on an instrument-by-instrument basis, except in certain circumstances. An entity shall report unrealized gains and losses on items for which the fair value option has
been elected in earnings at each subsequent reporting date. SFAS 159 applies to fiscal years beginning after November 15, 2007, with early adoption permitted for an entity that has also elected to apply the provisions of SFAS 157. The adoption
of SFAS 159 did not have a material effect on the Companys financial condition or results of operations.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007),
Business Combinations
(SFAS 141(R)), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. SFAS 141(R) applies to fiscal years beginning on
or after December 15, 2008. Earlier adoption is prohibited. The Company is currently evaluating the impact of adopting SFAS 141(R) on its results of operations and financial condition.
In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial Statements an
amendment of ARB No. 51
. (SFAS 160) amends ARB No. 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that
a non-controlling interest in a subsidiary, which was previously referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other
requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated
income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. SFAS 160 applies to fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The
Company is currently evaluating the impact of adopting SFAS 160 on its results of operations and financial condition.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities, and Amendment of FASB Statement No. 133
. (SFAS 161) amends FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS 133), to amend and expand the disclosure requirements of SFAS 133 to provide greater transparency about (i) how and why an entity uses derivative instruments,
(ii) how derivative instruments and related hedge items are accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entitys financial position, results of
operations and cash flows. To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative
instruments and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for the Company on January 1, 2009. The Company is currently evaluating the impact of SFAS 161 on its financial
position, results of operations and cash flows.
- 7 -
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162). SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. GAAP for nongovernmental entities. SFAS 162 is effective 60 days following the Securities and Exchange Commissions approval of the Public Company Accounting Oversight Board auditing amendments to AU
Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect SFAS 162 to have a material effect on its consolidated financial statements.
Note 3 Series A Preferred Stock:
On August 1, 2007, the Company filed a Certificate of Designations, Powers, Preferences and Rights of the Series A Preferred Stock ("Series A Preferred Stock") with the Secretary of State of the State of Delaware. Such certificate
authorized and designated 290,135 shares of Series A Preferred Stock with a par value of $0.01 per share. The Series A Preferred Stock, plus all accrued and unpaid dividends, has a liquidation value of $5.17 per share and is convertible
into shares of Common Stock, at any time after the date of issue, at a conversion price of $5.17, subject to adjustment for stock splits, stock dividends and issuances of additional shares of the Companys common stock for no consideration or
for consideration that is less than the conversion price that is then in effect. The Series A Preferred Stock may be redeemed at the option of the holder or by the Company under certain circumstances.
Each holder shall be entitled to the number of votes equal to the number of shares of Common Stock the Series A Preferred Stock could be
converted into. The shares of Series A Preferred Stock accrue cumulative cash dividends at a rate of 8% per annum, compounded quarterly from the date of issuance. Payment of dividends on the Series A Preferred Stock will be paid in preference
to any dividend on common stock.
On August 1, 2007, the Company sold 290,135 shares of Series A Preferred Stock
to an affiliate ,Clearlake Capital Group LP (Clearlake), at a purchase price of $5.17 per share resulting in net proceeds of approximately $1,460. On August 1, 2007, the Company also entered into an agreement with Clearlake,
which was later amended on September 12, 2007, allowing for the purchase by Clearlake of 7,446,809 additional shares of Series A Preferred Stock, which was effected by Clearlake on January 10, 2008, as allowed under the amended and
restated certificate of incorporation as discussed in note 14, in connection with the acquisitions more fully described in note 11. As of September 30, 2008, the Company had accrued approximately $2,417 of preferred dividends.
Note 4 Credit Agreement:
On August 1, 2007, the Company entered into a Credit Agreement (the Credit Agreement), with Clearlake as administrative agent and collateral agent, pursuant to which the Company received a $1,000 bridge loan, which was
increased by $1,750 on September 14, 2007 and by an additional $750 on October 29, 2007. Interest on the loan was payable on the first business day following the end of each month, at the LIBOR rate, plus 8%. The LIBOR rate utilized for
interest calculations through January 10, 2008 was 5.125%. Interest was payable in cash, except that a portion of the interest equal to 4% is payable in kind in the form of additional loans. The loan was secured by substantially all of the
assets of GoAmerica and its principal subsidiaries and the stock of such principal subsidiaries. The credit agreements contained customary operating and financial covenants, including restrictions on the Companys ability to pay dividends to
its common stockholders, make investments, undertake affiliate transactions, and incur additional indebtedness, in addition to financial compliance requirements. On January 10, 2008, the loan was repaid in full, in the amount of $3,581, upon
the closing of the Companys acquisition of the assets of Verizon TRS Division transaction described in note 11. Included in the amount paid was $50 of accrued interest expense incurred during January 2008.
- 8 -
Note 5 Senior Debt:
First Lien Credit Facilities.
On January 10, 2008, the Company entered
into a Credit Agreement (the First Lien Credit Agreement), dated as of January 10, 2008 (the Closing Date), with Churchill Financial LLC, as administrative agent (the First Lien Administrative Agent), and
Ableco Finance LLC, as collateral agent (the Collateral Agent). The First Lien Credit Agreement provides for term loans of $40,000, all of which was borrowed on the Closing Date, and revolving loan availability of up to $15,000, none of
which was borrowed on the Closing Date. The maturity date of the term loans is January 10, 2014, and the maturity date for revolving loans made from time to time is January 10, 2013. The Company is required to make quarterly repayments of
principal on the term loans in the amount of $100 per quarter. Mandatory prepayments are also required to be made in the case of certain events, including asset sales, a portion of excess cash flow, proceeds from debt issuances and extraordinary
receipts. Voluntary prepayments of principal of the term loans are subject to a prepayment penalty, expressed as a percentage of the principal amount so prepaid, of 2% from the Closing Date through but not including the first anniversary of the
Closing Date, and 1% from the first anniversary of the Closing Date through but not including the second anniversary of the Closing Date. Mandatory prepayments are generally not subject to the payment of penalties except in the case of debt
issuances, where the principal amount of term loans so prepaid is treated as though they were voluntary prepayments.
The
First Lien Credit Agreement contains affirmative and restrictive covenants that require the Company to take or refrain from taking certain actions, including, among other things, the obligation to provide certain financial and other information and
limitations on its ability to incur debt, make investments, pay dividends, change the nature of its business, engage in affiliate transactions, or sell assets. In addition, the Company must comply with financial covenants for maximum consolidated
leverage, maximum amounts of capital expenditures, minimum amount of net revenue, having reserves on its books relating to the earnout provisions under the Asset Purchase Agreement, dated August 1, 2007, by and between Verizon and GoAmerica
Relay Services Corp., as amended, and certain amounts of revolver availability or cash and cash equivalents subject to control agreements in favor of the Collateral Agent. As of September 30, 2008 the Company was compliant with the above
required covenants.
Interest on the loans under the First Lien Credit Agreement is at variable rates which can be linked
to LIBOR plus the applicable margin, or at a base rate of the higher of the U.S. prime rate quoted by
The Wall Street Journal
and the Federal Funds Rate plus 0.5% per annum, plus the applicable margin. The interest rate
increases by 2% in the case of an event of default. The applicable margin is determined as follows:
|
|
|
during the period commencing on the Closing Date and ending on the next date of determination after the fiscal quarter ending September 30, 2008, the
incremental percentage set forth in the applicable column opposite Level I in the table set forth below and;
|
|
|
|
thereafter, as of each date of determination (and until the next such date of determination), a percentage equal to the percentage set forth below in the
applicable column opposite the level corresponding to the Consolidated Senior Leverage Ratio (as defined in the agreement) in effect as of the last day of the most recently ended quarter:
|
|
|
|
|
|
|
|
LEVEL
|
|
CONSOLIDATED SENIOR
LEVERAGE RATIO
|
|
BASE RATE LOANS
|
|
LIBOR RATE LOANS
|
I
|
|
Greater than or equal to 3.0 to 1
|
|
Plus 4 .00
|
|
Plus 5 .00
|
II
|
|
Greater than or equal to 2.00 to 1 and less than 3.00 to 1
|
|
Plus 3 .50
|
|
Plus 4 .50
|
III
|
|
Less than 2.00 to 1
|
|
Plus 3 .25
|
|
Plus 4 .25
|
In accordance with the Guaranty and Security Agreement entered into by the
Company and the Collateral Agent on the Closing Date, the obligations of the Company under the First Lien Credit Agreement are secured by all of the assets of the Company.
In conjunction with the First Lien Credit Agreement, the Company incurred $1,180 of fees paid to the lenders and $425 of financing fees paid to third parties. Amounts paid to the lenders are
presented as debt discount and are recorded as a reduction to the debt and are amortized over the life of the debt. Fees paid to third parties are classified as deferred financing costs and are amortized over the life of the debt.
- 9 -
Second Lien Credit Facilities and Intercreditor Agreement.
Concurrently with entering into the First Lien Credit Agreement, the Company entered into the Second Lien Credit Agreement (the
Second Lien Credit Agreement), dated as of the Closing Date, with the lenders from time to time party thereto, and Clearlake, as administrative agent (the Second Lien Agent). The Second Lien Credit Agreement provides for term
loans of $30,000, all of which was borrowed on the Closing Date. The maturity date of the loans is July 10, 2014, and there are no scheduled amortization payments. Mandatory prepayments, which are not subject to prepayment penalty, are required
to be made in the case of certain events, including asset sales, a portion of excess cash flow, proceeds from debt issuances and extraordinary receipts. Voluntary prepayments of principal of the loans are subject to a prepayment penalty, expressed
as a percentage of the principal amount so prepaid, of 2% from the Closing Date through but not including the first anniversary of the Closing Date, and 1% from the first anniversary of the Closing Date through but not including the fourth
anniversary of the Closing Date. Mandatory prepayments are generally not subject to the payment of penalties except in the case of debt issuances, where the principal amount of loans so prepaid is treated as though they were voluntary prepayments.
The affirmative, negative and financial covenants in the Second Lien Credit Agreement are substantially similar to those set forth in the First Lien Credit Agreement, except that in certain circumstances they are less restrictive than those set
forth in the First Lien Credit Agreement. Loans under the Second Lien Credit Agreement bear interest at LIBOR plus 9% per annum, which rate increases by 2% in the case of an event of default.
In accordance with the Second Guaranty and Security Agreement entered into by the Company and the Second Lien Agent on the Closing Date,
the obligations of the Company under the Second Lien Credit Agreement are secured by all of the assets of the Company and subject to certain exceptions and limitations, and subject to the Intercreditor Agreement (referred to below).
The Intercreditor Agreement, dated as of the Closing Date, by and among the First Lien Administrative Agent, the Collateral Agent and the
Second Lien Agent (the Intercreditor Agreement), provides for and governs, among other things, the relative priorities among the secured parties under the First Lien Obligations and the Second Lien Obligations. The Company acknowledged
the Intercreditor Agreement but is not a party thereto. In conjunction with the Second Lien Credit Agreement, the Company incurred $1,162 of fees paid to the lenders. Amounts paid to lenders are presented as debt discount and are recorded as a
reduction to the debt and are amortized over the life of the debt.
The following table summarizes outstanding long term
debt as of September 30, 2008.
|
|
|
|
|
|
|
As of September 30,
2008
|
|
First lien debt
|
|
$
|
39,700
|
|
Second lien debt
|
|
|
30,000
|
|
|
|
|
|
|
Total debt
|
|
|
69,700
|
|
|
|
|
|
|
Debt discount
|
|
|
(2,080
|
)
|
|
|
|
|
|
Total debt (net of debt discount)
|
|
|
67,620
|
|
Less: current maturities
|
|
|
400
|
|
|
|
|
|
|
Total long term debt
|
|
$
|
67,220
|
|
|
|
|
|
|
Aggregate maturities of long term debt of the Company due within the next five years are as
follows:
|
|
|
|
2009
|
|
$
|
400
|
2010
|
|
|
400
|
2011
|
|
|
400
|
2012
|
|
|
400
|
2013 and thereafter
|
|
|
68,100
|
|
|
|
|
Total long term debt
|
|
$
|
69,700
|
|
|
|
|
- 10 -
During the three and nine months ended September 30, 2008, the Company recognized
$91 and $262, respectively of interest expense from amortization of the debt discount.
On April 8, 2008, the Company
entered into an interest rate cap agreement with Bank of America, N.A. The term of the agreement is three years with an initial notional amount of $35,000 and a premium amount of $265. The agreement calls for a cap rate of 4% and a floating option
of USD-LIBOR-BBA. During the three months ended September 30, 2008, the Company recognized a loss on the agreement of $130. As of September 30, 2008, $376 is recorded in other assets related to this transaction.
The terms of the First Lien Credit Agreement and the Second Lien Credit Agreement both required, among other things, that within 90 days
after the Closing Date thereof, the Company would amend its certificate of incorporation to change the earliest date on which the Series A Preferred Stock is subject to redemption by the holder to a date that is at least one year after the Scheduled
Term Loan Maturity Date (the COI Amendment).
On May 1, 2008, the parties to the Second Lien Credit
Agreement entered into a First Amendment and Waiver to Credit Agreement which extended the 90-day deadline for the completion of the COI Amendment to 180 days and waived any Event of Default resulting from the Company's failure to timely complete
the COI Amendment.
On May 2, 2008, the parties to the First Lien Credit Agreement entered into a First Amendment and
Waiver to Credit Agreement, which extended the 90-day deadline for the completion of the COI Amendment to 180 days and waived any Event of Default resulting from the Company's failure to timely complete the COI Amendment.
On June 26, 2008, the Company amended its certificate of incorporation to, among other things, effect the COI Amendment.
Note 6 Earnings (Loss) Per Share:
The Company computes net loss per share under the provisions of SFAS No. 128,
Earnings per Share
(SFAS 128), and SEC Staff Accounting Bulletin No. 98 (SAB 98).
Under the provisions of SFAS 128 and SAB 98, basic loss per share is computed by dividing the Companys 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 applicable to common stockholders for the nine months ended
September 30, 2008 and 2007, the impact of the assumed exercise of the stock options and warrants is anti-dilutive and as such, 9,526,389 and 682,645, respectively, of common stock equivalent shares were excluded from the computation of diluted
net loss per share as follows:
|
|
|
|
|
|
|
|
|
Common stock equivalent shares:
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Options
|
|
2,379,591
|
|
83,191
|
|
1,705,125
|
|
83,191
|
Warrants
|
|
84,320
|
|
84,320
|
|
84,320
|
|
84,320
|
Preferred stock
|
|
7,736,944
|
|
290,135
|
|
7,736,944
|
|
290,135
|
Non-vested restricted stock
|
|
--
|
|
224,999
|
|
--
|
|
224,999
|
|
|
|
|
|
|
|
|
|
Total
|
|
10,200,855
|
|
682,645
|
|
9,526,389
|
|
682,645
|
|
|
|
|
|
|
|
|
|
- 11 -
Note 7 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 September 30, 2008. The following
table summarizes activity in goodwill during the nine months ended September 30, 2008.
|
|
|
|
|
|
Goodwill
|
Beginning balance January 1, 2008
|
|
$
|
6,000
|
Additions from Verizon acquisition (see note 11)
|
|
|
14,092
|
Additions from Hands On acquisition (see note 11)
|
|
|
53,549
|
Additions from July 2008 Acquisitions (see note 11)
|
|
|
1,832
|
|
|
|
|
Ending balance September 30, 2008
|
|
$
|
75,473
|
|
|
|
|
The following table summarizes activity in other intangible assets during the nine
months ended September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
Customer lists
|
|
|
Technology
|
|
|
Contracts
|
|
|
Total
|
|
Beginning balance January 1, 2008
|
|
$
|
--
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Additions from Verizon acquisition (see note 11)
|
|
|
19,500
|
|
|
11,800
|
|
|
|
--
|
|
|
|
700
|
|
|
|
32,000
|
|
Additions from Hands On acquisition (see note 11)
|
|
|
18,300
|
|
|
10,300
|
|
|
|
1,016
|
|
|
|
--
|
|
|
|
29,616
|
|
Additions from July 2008 acquisitions (see note 11)
|
|
|
--
|
|
|
707
|
|
|
|
277
|
|
|
|
403
|
|
|
|
1,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
|
37,800
|
|
|
22,807
|
|
|
|
1,293
|
|
|
|
1,103
|
|
|
|
63,003
|
|
Accumulated amortization (see note 11)
|
|
|
n/a
|
|
|
(4,344
|
)
|
|
|
(193
|
)
|
|
|
(304
|
)
|
|
|
(4,841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance September 30, 2008
|
|
$
|
37,800
|
|
$
|
18,463
|
|
|
$
|
1,100
|
|
|
$
|
799
|
|
|
$
|
58,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above intangible assets are being amortized over their estimated life as
follows:
|
|
|
Trademarks
|
|
Indefinite
|
Customers Lists
|
|
3 years -5.5 years
|
Technology
|
|
1.5 years -5 years
|
Contracts
|
|
2 years
|
During the three and nine months ended September 30, 2008, the Company
recognized $1,811 and $4,841, respectively, of amortization expense. Amortization expense is expected to be approximately $6,936, $6,748, $3,447, $2,216 and $1,075 for the twelve month periods ended September 30, 2009, 2010, 2011, 2012 and
2013, respectively.
Note 8 Stock-based Compensation:
The Company has a stock-based compensation program that provides our Board of Directors broad discretion in creating employee equity incentives. This program includes incentive and non-statutory
stock options and non-vested stock awards (also known as restricted stock) granted under various plans, the majority of which are stockholder approved. As of September 30, 2008, the Company had 2,961,532 shares of common stock reserved for
future issuance under all of the Companys stock based compensation arrangements.
- 12 -
Effective January 1, 2006, the Company adopted the provisions of SFAS 123R,
requiring the recognition of expense related to the fair value of stock-based compensation awards. The Company elected to use the modified prospective transition method as permitted by SFAS 123R and, therefore, the Company did not restate our
financial results for prior periods. Under this transition method, stock-based compensation expense for the three and nine months ended September 30, 2008 includes compensation expense for all stock-based compensation awards granted prior to,
but not yet vested as of, December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123.
The Company also follows the guidance in EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services for equity
instruments issued to consultants.
During the nine months ended September 30, 2008, the Company issued new stock
options totaling 2,395,000 to certain employees and consultants at an exercise price ranging from $6.00 to $6.93 per share. The fair value of these options was calculated under the Black-Scholes option pricing model with the following assumptions:
|
|
|
Risk free rate
|
|
3.34%-3.78%
|
Volatility
|
|
12.19%-48.03%
|
Expected life
|
|
10 years
|
Dividend yield
|
|
0.00%
|
The Company recognizes compensation expense for stock option awards on a
straight-line basis over the requisite service period of the award. As a result of the option grant referred to above, the Company will recognize a total of $8,106 compensation expense over a service period of one to four years. As of
September 30, 2008, the Company had recognized $1,825 of this expense.
On January 10, 2008 , the Company
acquired Hands on Video Relay Services, Inc. (Hands On) as fully described in note 11. In accordance with the merger agreement 220,498 Hands On stock options were exchanged for 276,246 stock options of the Company. The fair value of the
Companys options exceeded the fair value of the Hands On options by approximately $32 at January 10, 2008 under the Black-Scholes option pricing model with the following assumptions:
|
|
|
Risk free rate
|
|
3.91%
|
Volatility
|
|
48.03%
|
Expected life
|
|
9.08-9.75 years
|
Dividend yield
|
|
0.00%
|
This excess value will be recognized as stock based compensation over the
remaining vesting life of the underlying options. In addition, the Company will also recognize approximately $577 of unamortized stock based compensation which had not been recognized as of the assumption date. As of September 30, 2008, the
Company has recognized approximately $108 of these amounts as stock based compensation.
Stock option activity with respect
to all options for the nine months ended September 30, 2008, is as follows:
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted-Average
Exercise Price
|
Outstanding at January 1, 2008
|
|
80,829
|
|
$
|
73.57
|
Granted
|
|
2,395,000
|
|
|
6.52
|
Assumed
|
|
276,246
|
|
|
2.65
|
Exercised
|
|
1,253
|
|
|
4.19
|
Cancelled
|
|
253,290
|
|
|
10.95
|
|
|
|
|
|
|
Outstanding at September 30, 2008
|
|
2,497,532
|
|
$
|
7.82
|
|
|
|
|
|
|
Exercisable at September 30, 2008
|
|
346,303
|
|
$
|
18.85
|
|
|
|
|
|
|
- 13 -
The following table summarizes information about fixed price stock options outstanding at
September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
Range of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted- Average
Exercise Price
|
|
Weighted- Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic Value
|
$0.24-$6.93
|
|
2,449,966
|
|
$6.06
|
|
9.4 years
|
|
|
$16.00-$26.40
|
|
25,950
|
|
$19.08
|
|
5.4 years
|
|
|
$43.20-$44.80
|
|
4,500
|
|
$43.91
|
|
2.9 years
|
|
|
$84.00-$84.80
|
|
4,271
|
|
$84.50
|
|
2.3 years
|
|
|
$104.80-$151.20
|
|
6,222
|
|
$149.55
|
|
4.3 years
|
|
|
$162.48-$167.20
|
|
2,373
|
|
$166.59
|
|
2.0 years
|
|
|
$401.60-$600.00
|
|
3,750
|
|
$442.52
|
|
2.4 years
|
|
|
$1200.00-$1280.00
|
|
500
|
|
$1280.00
|
|
2.8 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,497,532
|
|
|
|
|
|
$738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
Range of Exercise Prices
|
|
Number
Exercisable
|
|
Weighted- Average
Exercise Price
|
|
Aggregate Intrinsic
Value
|
$0.24-$6.93
|
|
298,737
|
|
$
|
6.19
|
|
|
$16.00-$26.40
|
|
25,950
|
|
$
|
19.08
|
|
|
$43.20-$44.80
|
|
4,500
|
|
$
|
43.91
|
|
|
$84.00-$84.80
|
|
4,271
|
|
$
|
84.50
|
|
|
$104.80-$151.20
|
|
6,222
|
|
$
|
149.55
|
|
|
$162.48-$167.20
|
|
2,373
|
|
$
|
166.59
|
|
|
$401.60-$600.00
|
|
3,750
|
|
$
|
442.52
|
|
|
$1200.00-$1280.00
|
|
500
|
|
$
|
1280.00
|
|
|
|
|
|
|
|
|
|
|
|
|
346,303
|
|
|
|
|
$33
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total pretax
intrinsic value (
i.e
., the difference between the Companys closing stock price on the last trading day of our third quarter of 2008, which was $5.30, and the exercise price, times the number of shares) that would have been received by
the option holders had all option holders exercised their in the money options on September 30, 2008. This amount changes based on the fair market value of the Companys stock.
During January 2008, the Company vested 124,998 shares of restricted stock which represented all remaining restricted shares held by
executive management and directors that were unvested at December 31, 2007. The Company recognized $469 and $569 of expense related to the amortization of these restricted stock awards during the nine months ended September 30, 2008 and
2007, respectively. As of September 30, 2008, there was no unrecognized compensation costs related to non-vested stock.
The following table summarizes the Companys restricted stock activity for the nine months ended September 30, 2008:
|
|
|
|
|
|
|
|
Number
of Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Non vested stock at December 31, 2007
|
|
124,998
|
|
$
|
4.64
|
Granted
|
|
--
|
|
|
--
|
|
|
|
Vested
|
|
124,998
|
|
|
4.64
|
Forfeited
|
|
--
|
|
|
--
|
|
|
|
|
|
|
Non vested stock at September 30, 2008
|
|
--
|
|
$
|
--
|
|
|
|
|
|
|
- 14 -
The following table sets forth the total stock-based compensation expense resulting from
stock options and vested restricted stock awards included in the Companys condensed consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
General and administrative
|
|
$
|
646
|
|
$
|
186
|
|
$
|
2,402
|
|
$
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense before income taxes
|
|
|
646
|
|
|
186
|
|
|
2,402
|
|
|
569
|
Income tax benefit
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense after income taxes
|
|
$
|
646
|
|
$
|
186
|
|
$
|
2,402
|
|
$
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 Commitments and Contingencies:
Various claims and legal proceedings generally incidental to the normal course of business are pending or threatened against the
Company. Although we cannot predict the outcome of these matters, in the opinion of management, any liability arising from them will not have a material adverse effect on our financial position, results of operations or liquidity.
The Company entered into several new employment arrangements with certain officers and significant employees. The employment letters
provide for initial annual base salaries ranging from $185 to $275. Each employee received an option grant ranging from 70,000 to 400,000 shares. The Compensation Committee may award additional bonus payments, option grants or restricted stock
awards in its discretion. In the event of termination without cause or resignation for good reason (as each such term is defined in the agreements), certain severed individual shall be entitled to receive enhanced severance, in an amount equal to
one years base salary, as well as the right to continue in Company health and welfare benefit plans for one year after termination and 90 days outplacement services at a level commensurate with their position. In the event of a change of
control of the Company, as defined in certain executive employment agreements, 25% of the Executives then-unvested stock options shall immediately vest. In addition, after a change of control of the Company, all remaining unvested stock of an
Executive shall immediately vest if (a) such Executives aggregate compensation is substantially diminished, or (b) such Executive is required to relocate more than 100 miles from their then-current residence in order to continue to
perform his duties. Each agreement also provides for a $1 per month expense allowances and reimbursement for additional business travel and entertainment expenses incurred in connection with their duties.
In conjunction with the Companys acquisition of Hands On, the Company assumed operating leases with future minimum lease payments
totaling approximately $6,775. These leases have various expiration dates from 2009 to 2013.
In connection with the
Verizon acquisition, the Company entered into a Managed Services Agreement (MSA), dated August 1, 2007, with Stellar Nordia Services LLC (Stellar Nordia). Under that agreement, Stellar Nordia assumed facilities, employee
and operational responsibilities for the two primary call centers associated with Verizons TRS Division business. Stellar Nordia will provide inbound call relay services to the Company, utilizing Stellar Nordias proprietary platform and
software for the newly acquired traffic from Verizon and for the Companys existing text traffic. In addition, pursuant to a related agreement, Stellar Nordia has, as subcontractor to the Company, assumed and operates under the Companys
supervision, the call centers acquired under the asset purchase agreement for Verizons TRS Division as well as the current, pre-acquisition traffic of the Company. The Company expects to realize material cost savings as compared to Verizon
from utilizing the Stellar Nordia arrangement described in this paragraph.
The MSA also obligated that Stellar Nordia tol
undertake capital expenditures and hiring in preparation for the TRS acquisition, such that Stellar Nordia would be in a position to service existing TRS Division traffic upon consummation of the closing. The MSA obligates the Company to pay certain
fees to Stellar Nordia if the Company elects to terminate the MSA early.
The MSA replaced the Companys existing
agreement with Stellar Nordia upon the closing of the acquisition of Verizons TRS Division. Under the new agreement, provided that one or more of the state contracts are in effect, the Company has agreed to provide Stellar Nordia with rolling
forecasts of its IP relay traffic demand forecasts, and has agreed to certain minimum call traffic commitments with financial penalties for failure to achieve either the traffic forecasts or the call traffic commitments as to such state contracts.
The Company has agreed to pay Stellar Nordia monthly and Stellar Nordia has agreed to bill the Company in U.S. dollars. The Company agreed to reimburse Stellar Nordia for costs incurred in connection with their assuming the workforce, facilities and
operational responsibilities for the two primary call centers associated with Verizons TRS Division business in an amount not to exceed $5.5 million, paid in sixteen quarterly payments. Since the conditions of this agreement were a
requirement of Verizon as a condition of sale, the Company considers these payments to be contingent consideration of the Verizon TRS division consideration in accordance with SFAS No. 141,
Business Combinations
. As of
September 30, 2008 the Company has included approximately $1,031 in the purchase price and will continue to include additional amounts as they are incurred or become measurable.
- 15 -
On August 12, 2008, the Company entered into a sublease with Firemans Fund for
approximately 15,000 square feet in Novato California, for a period of seven years. The Company is obligated for aggregate lease payments of $3,337 over the seven year term of the agreement.
On July 11, 2008 the Company hired Mr. Ahmet Corapcioglu as the Companys new Chief Information Officer, effective
July 14, 2008; the terms of Mr. Corapcioglus employment offer include annual salary of $250,000, eligibility to participate in the management bonus plan, an option to purchase 150,000 shares of the Companys Common Stock, and
six months severance for termination without cause. On September 26, 2008, Mr. Corapcioglus employment with the Company terminated. Pursuant to a separation and releases agreement, Mr. Corapcioglu will receive severance in the
amount of $90 and Company paid health insurance benefits through March 31, 2009. In addition, Mr. Corapcioglu will provide limited transition services until January 31, 2009 as an independent contractor.
Note 10 Settlement of Hands On Litigation:
On May 2, 2005, the Company entered into a loan agreement with Hands On Video Relay Services, Inc., a Delaware corporation, and Hands On Sign Language Services, Inc., a California corporation (collectively, the
"Hands On Entities"). Pursuant to that agreement, all amounts that the Company advanced to Hands On were secured, initially, by the assets acquired with such funds with interest at a defined prime rate. On July 6, 2005, the Company entered
into a merger agreement with the Hands On Entities and their principal stockholders (collectively, Hands On).
On March 1, 2006, the Company announced its receipt of a letter from Hands On in which Hands On purportedly terminated the merger agreement among the parties. Subsequent discussions between the parties did not provide a basis to pursue
the merger. Hands On stockholders had approved the proposed merger with the Company at special meeting of the Hands On stockholder meetings held on February 22, 2006. A Special Meeting of GoAmerica Stockholders relating to the Company's
proposed merger with Hands On was scheduled for March 13, 2006, adjourned from February 27, 2006 in order to allow a quorum to be achieved at the Special Meeting. As of March 6, 2006, the Company had achieved a quorum and received
votes overwhelmingly in favor of the Hands On merger. On March 7, 2006, the Company announced its cancellation of its Special Meeting of Stockholders and its determination not to pursue its proposed merger with Hands On. As a result of the
merger agreement termination, Hands On became obligated to repay its obligations under the loan agreement began July 1, 2006. After the Company received all such payments due through September 30, 2006, Hands On ceased making payments
due leaving an outstanding receivable of $562 at December 31, 2006.
Hands On had indicated that it did not intend to
make any more payments to the Company under the existing terms of the loan agreement and that Hands On was attempting to restructure its debts and raise new capital. In December 2006, the Company commenced litigation against Hands On, seeking
recovery of its loan receivable.
In April 2007, the Company executed a settlement agreement and mutual release related to
its litigation with Hands On in exchange for an immediate $400 cash payment, termination of litigation, mutual release of all loan- and merger-related claims (asserted and otherwise), and other consideration and recorded a settlement loss of $162.
On January 10, 2008, the Company acquired Hands On. (see note 11)
- 16 -
Note 11 Acquisitions:
Acquisition of the assets of Verizon TRS Division:
On January 10, 2008, in an effort to increase its
volume and improve its results of operations, the Company acquired the assets of Verizons TRS Division for $46 million in cash, including acquired working capital of $6 million. The Verizon acquisition was financed through $40 million of
committed senior debt financing funded by the First Lien Administrative Agent and $33.5 million of equity financing, funded by funds managed by Clearlake (Clearlake purchased an additional 6,479,691 shares of Series A Preferred Stock at a price of
$5.17 per share).
The purchase price has been determined as follows:
|
|
|
|
|
Cash consideration
|
|
$
|
46,000
|
|
Transaction costs
|
|
|
6,092
|
|
|
|
|
|
|
|
|
Total purchase consideration and transaction costs
|
|
|
52,092
|
|
Acquired working capital
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
46,092
|
|
|
|
|
|
|
|
|
Under the purchase method of accounting, the total purchase price is allocated to
net tangible assets acquired based on their estimated fair values as of the date of the completion of the acquisition. Based upon preliminary valuation reports, the Company recorded identified intangible assets. The fair value assigned to the
identified intangible assets and goodwill are as follows:
|
|
|
|
Trademarks
|
|
$
|
19,500
|
Customer lists
|
|
|
11,800
|
Contracts
|
|
|
700
|
Goodwill
|
|
|
14,092
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
46,092
|
|
|
|
|
|
|
The fair value of these assets is subject to modification as additional
information may come to managements attention and restructuring decisions are made. Goodwill and trademarks are not amortized for financial reporting purposes, however, the amount will be amortized over a 15 year life for income tax purposes.
In connection with the Verizon acquisition, the Company entered into a Managed Services Agreement, dated August 1,
2007, with Stellar Nordia. (see note 9)
Hands On acquisition:
On January 10, 2008, in an effort to increase its volume and improve its results of operations, the Company acquired Hands On for $35 million in cash and 6,696,466 shares of its common
stock. The cash portion of the consideration was funded by the sale of 967,118 shares of Series A Preferred Stock, at a price of $5.17 per share, to a fund managed by Clearlake and the issuance of $30 million in second lien new debt (see note 5).
- 17 -
In accordance with the merger agreement 220,498 Hands On stock options were exchanged for
276,246 stock options of the Company (see note 8).
The purchase price has been determined as follows:
|
|
|
|
Cash consideration
|
|
$
|
32,282
|
Common shares issued
|
|
|
34,621
|
Transaction costs
|
|
|
6,582
|
|
|
|
|
Total purchase price
|
|
$
|
73,485
|
Under the purchase method of accounting, the total purchase price is allocated to
net tangible assets acquired based on their estimated fair values as of the date of the completion of the acquisition. Based upon preliminary valuation reports, the Company recorded identified intangible assets. The fair values assigned to the
tangible assets acquired, liabilities assumed, identified intangible assets and goodwill are as follows:
|
|
|
|
|
Cash
|
|
$
|
2,635
|
|
Other current assets
|
|
|
7,356
|
|
Property, plant and equipment
|
|
|
3,519
|
|
Long term assets
|
|
|
187
|
|
Current liabilities
|
|
|
(8,845
|
)
|
Deferred tax liability
|
|
|
(11,847
|
)
|
Long term liabilities
|
|
|
(2,685
|
)
|
Trademarks
|
|
|
18,300
|
|
Customer lists
|
|
|
10,300
|
|
Technology
|
|
|
1,016
|
|
Goodwill
|
|
|
53,549
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
$
|
73,485
|
|
|
|
|
|
|
In conjunction with the closing of the Hands On acquisition, the Company assumed
certain outstanding operating and capital lease agreements in force on the date of closing. (see note 9)
July 2008 acquisitions:
On July 1, 2008, in an effort to increase its volume and improve its results of operations, the Company acquired Sign Language
Associates, Inc., a District of Columbia corporation, (SLA) and Visual Language Interpreting, Inc., a Virginia corporation (VLI). In accordance with the merger agreements, the Company issued options to purchase 90,000 shares of the Companys
Common Stock to certain employees of VLI and SLA as part of their employment compensation for their future services to be rendered for the Company. The Company used cash to satisfy all other merger consideration.
The purchase price of these acquisitions, on an aggregated basis, has been determined as follows:
|
|
|
|
Cash consideration
|
|
$
|
5,007
|
Transaction costs
|
|
|
1,166
|
|
|
|
|
Total aggregated purchase price
|
|
$
|
6,173
|
|
|
|
|
- 18 -
Under the purchase method of accounting, the total purchase price is allocated to net
tangible assets acquired based on their estimated fair values as of the date of the completion of the acquisition. Based upon preliminary valuation reports, the Company recorded identified intangible assets. The fair values assigned to the tangible
assets acquired, liabilities assumed, identified intangible assets and goodwill are as follows:
|
|
|
|
|
Cash
|
|
$
|
645
|
|
Other current assets
|
|
|
3,192
|
|
Property, plant and equipment
|
|
|
301
|
|
Long term assets
|
|
|
270
|
|
Current liabilities
|
|
|
(1,182
|
)
|
Deferred tax liability
|
|
|
(201
|
)
|
Long term liabilities
|
|
|
(71
|
)
|
Contracts
|
|
|
403
|
|
Customer lists
|
|
|
707
|
|
Technology
|
|
|
277
|
|
Goodwill
|
|
|
1,832
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
$
|
6,173
|
|
|
|
|
|
|
|
|
The following unaudited pro forma summary presents the combined results of
operations as if the Verizon, Hands On, SLA and VLI acquisitions described above had occurred as of January 1, 2007, and does not purport to be indicative of the results that would have occurred had the transactions been completed as of that
date or of results that may occur in the future.
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
September 30,
2007
|
|
|
Nine months ended
September 30,
2007
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
33,221
|
|
|
$
|
96,093
|
|
Net loss applicable to common stockholders
|
|
|
(3,189
|
)
|
|
|
(5,390
|
)
|
Net loss per share-basic
|
|
|
(0.35
|
)
|
|
|
(0.59
|
)
|
Net loss per share-diluted
|
|
|
(0.35
|
)
|
|
|
(0.59
|
)
|
Note 12 Income Taxes:
The Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of
FASB Statement No. 109 (FIN 48), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FASB Statement 109,
Accounting for Income Taxes, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Based on the Companys evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements or adjustments to our deferred tax assets and related valuation allowance. The
evaluation was performed for the tax years ended December 31, 2004, 2005, 2006 and 2007, the tax years which remain subject to examination by major tax jurisdictions as of September 30, 2008.
The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments
historically have been minimal and immaterial to our financial results. In the event the Company may have received an assessment for interest and/or penalties, it has been classified in the financial statements as selling, general and administrative
expense.
- 19 -
The Company has federal and state net operating loss (NOL) carryforwards of
approximately $181,500 and $129,400, respectively. The federal NOL carryforwards expire beginning in 2011 and state NOLs beginning in 2008. The Tax Reform Act of 1986 enacted a complex set of rules limiting the potential utilization of net
operating loss and tax credit carryforwards in periods following a corporate ownership change. In general, for federal income tax purposes, an ownership change is deemed to occur if the percentage of stock of a loss corporation owned
(actually, constructively and, in some cases, deemed) by one or more 5% stockholders has increased by more than 50 percentage points over the lowest percentage of such stock owned during a three-year testing period. The Company believes
that an ownership change has occurred with respect to the transactions described in note 11. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards attributable to periods
before the change. The Company has not performed a detailed analysis to determine the amount of the potential limitations.
Note 13 Related Party
Transactions:
The Company entered into certain additional financing and equity agreements with Clearlake, holder of
Series A preferred stock, as a result of the transactions described in notes 5 and 11. On January 10, 2008, all outstanding amounts under the Credit Agreement with Clearlake (more fully described in note 4) were repaid in full. The Company paid
Clearlake approximately $2,716 of interest during the nine months ended September 30, 2008. In addition, the Company has recorded amounts payable to Clearlake in the amount of $326 related to consulting arrangements costs incurred. Clearlake
reserves the right to purchase additional shares of the Companys common stock on the open market.
Note 14 Stockholders Equity:
During the nine months ended September 30, 2008, the Company entered into the following stock related transactions:
|
|
|
Sold shares of Series A Preferred Stock (see note 11).
|
|
|
|
Issued shares of Common Stock in conjunction with the acquisition of Hands On (see note 11).
|
|
|
|
Assumed outstanding stock options of Hands On in conjunction with the acquisition of Hands On (see note 8).
|
|
|
|
Granted stock options to employees and consultants (see note 8).
|
|
|
|
Accelerated the vesting of restricted stock grants (see note 8).
|
|
|
|
1,253 shares were issued upon the exercise of stock options for cash proceeds of $5.
|
|
|
|
In January 2008, the Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware. The amendment included such
provisions as:
|
|
¡
|
increased the number of authorized shares of the Companys preferred stock and Series A Preferred Stock to 11,671,180,
|
|
¡
|
decreased the number of authorized shares of the Companys common stock to 50,000,000,
|
|
¡
|
provided for automatic conversion of the Series A Preferred Stock to common stock if the sale of GoAmerica common stock yields $50 million or more in gross proceeds in an
underwritten public offering and the average closing price of the common stock is $15.00 or more per share over a 90-day period, and
|
|
¡
|
provided for a reduction in the rate of dividends payable on the Series A Preferred Stock from 8% per year to 3% per year if the average closing price of the common stock
is $20.00 or more per share over a 90-day period at any time one year or more after completion of the Hands On merger.
|
|
|
|
Received approval from shareholders at its annual stockholder meeting held on June 25, 2008 to increase the number of options available under approved
amendments to the Companys 2005 Equity Incentive Plan (the 2005 Plan) from 2,000,000 to 3,000,000 shares, and to increase the maximum number of shares subject to award to any individual during any calendar year.
|
|
|
|
Filed a registration statement on Form S-8 registering the increased number of the Compnays stock available under the 2005 Plan.
|
- 20 -
In June 2008, the Company filed a Fourth Amended and Restated Certificate of
Incorporation with the Secretary of State of Delaware. The amendment along with related Bylaw amendments, include provisions that:
|
|
|
Change the earliest date on which our Series A Preferred Stock is subject to redemption at the option of the holder to a date that is a least one year after the
Scheduled Term Loan Maturity Date, as defined in our loan agreements,
|
|
|
|
And allow our stockholders to take action by written consent in lieu of a meeting.
|
Note 15 Subsequent Events:
On October 30, 2008, the Company entered into an amendment to the interest rate cap agreement with Bank of America, N.A.. The amendment calls for a cap rate of 5.5% and a floating option of USD-LIBOR-BBA. In consideration for amending the
agreement the Company received $76.
Note 16 Restructuring Charges Related to Consolidation of Operations:
In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, restructuring costs are recorded
as incurred. Restructuring charges for employee workforce reductions are recorded upon employee notification.
In an effort
to increase its volume and improve operational results the Company made a series of strategic acquisitions in fiscal year 2008. In conjunction with these acquisitions, Management has restructured the entity to enhance operational efficiency. The
Company accrued for restructuring costs in relation to an employee workforce reduction.
During the third quarter and the 9
month period ending September 30, 2008, the restructuring actions included charges of approximately $702 related to workforce reductions.
- 21 -
Item 1A. Risk Factors
In addition to the other information set forth in this Form 10-Q, you should consider the factors discussed in Part 1, Item 1A
Risk Factors of our Form 10-K for year ended December 31, 2007. The risks described in our Form 10-K are not the only risks we face; additional risks not presently known to us or that we do not currently consider significant may
also have an adverse effect on us. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
General
GoAmerica® is a communications service provider, offering solutions primarily for consumers who are deaf, hard of hearing and/or speech impaired, including Internet relay services, interpreting services, wireless subscription and value
added services, and wireless devices and accessories. On January 10, 2008, the Company acquired (1) certain assets of the Telecommunications Relay Services (TRS) division of MCI Communications Services, Inc.
(Verizon), a leading provider of relay services transactions, and (2) Hands On Video Relay Services, Inc. (Hands On), a California-based provider of video relay and interpreting services. On July 1, 2008, the
Company acquired Sign Language Associates, Inc., a District of Columbia corporation, (SLA) and Visual Language Interpreting, Inc., a Virginia corporation (VLI). During the third quarter of fiscal year 2008, the Company began
consolidation efforts in conjunction with these acquisitions including integrating sales & marketing, research & development and general and administrative functions. As a result of these integration efforts the Company has incurred $702 of
restructuring cost. Our i711.com
telecommunications relay service was launched in March 2005 and enables people who are deaf or hard of hearing to call and converse with
hearing parties by using a computer, wireless handheld device or similar unit, through an operator that interprets text to voice and vice versa. In addition, during December 2006, we began offering our i711 Video Relay Service (VRS), the
newest member of the i711.com family of relay services. i711 VRS enables people who are deaf to use sign language to communicate with hearing people using a Windows computer, a web camera, and a broadband Internet connection. We sell wireless
devices and services directly to customers and indirectly through sub-dealers. We have dealer agreements through which we sell devices and earn a commission, also called a bounty, upon activation of the device with an associated service rate plan.
Critical Accounting Policies and Estimates
Managements Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. 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 and note receivable and recoverability of our goodwill and other intangible assets. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Management believes the following critical accounting policies, among others, affect its more
significant judgments and estimates used in the preparation of its consolidated financial statements. We derive our revenue primarily from relay services. Revenue from relay services is recognized as revenue when services are provided or earned.
Revenue from interpreting services is recognized as revenue when services are provided or earned. Revenue from commissions is recognized upon activation of subscribers on behalf of third party wireless network providers. 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. We estimate the collectibility of our trade and note 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 current market conditions. 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.
- 22 -
Results of Operations
The following table sets forth, for the three and nine months ended September 30, 2008 and 2007, the percentage relationship to net
revenues of certain items included in the Companys unaudited consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relay services
|
|
$
|
30,644
|
|
|
85.8
|
|
|
$
|
4,293
|
|
|
88.8
|
|
|
$
|
88,348
|
|
|
92.6
|
|
|
$
|
11,787
|
|
|
87.6
|
|
Interpreting
|
|
|
5,024
|
|
|
14.1
|
|
|
|
--
|
|
|
--
|
|
|
|
6,285
|
|
|
6.6
|
|
|
|
--
|
|
|
--
|
|
Other
|
|
|
67
|
|
|
0.1
|
|
|
|
543
|
|
|
11.2
|
|
|
|
814
|
|
|
0.8
|
|
|
|
1,661
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,735
|
|
|
100.0
|
|
|
|
4,836
|
|
|
100.0
|
|
|
|
95,447
|
|
|
100.0
|
|
|
|
13,448
|
|
|
100.0
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of relay services
|
|
|
15,972
|
|
|
44.7
|
|
|
|
2,999
|
|
|
62.0
|
|
|
|
47,607
|
|
|
49.9
|
|
|
|
8,074
|
|
|
60.0
|
|
Cost of interpreting services
|
|
|
3,996
|
|
|
11.2
|
|
|
|
--
|
|
|
--
|
|
|
|
5,235
|
|
|
5.5
|
|
|
|
--
|
|
|
--
|
|
Cost of other
|
|
|
65
|
|
|
0.1
|
|
|
|
444
|
|
|
9.2
|
|
|
|
959
|
|
|
1.0
|
|
|
|
1,393
|
|
|
10.4
|
|
Sales and marketing
|
|
|
2,990
|
|
|
8.4
|
|
|
|
612
|
|
|
12.7
|
|
|
|
8,702
|
|
|
9.1
|
|
|
|
1,615
|
|
|
12.0
|
|
General and administrative
|
|
|
8,721
|
|
|
24.4
|
|
|
|
1,479
|
|
|
30.6
|
|
|
|
20,693
|
|
|
21.7
|
|
|
|
4,092
|
|
|
30.4
|
|
Research and development
|
|
|
1,068
|
|
|
3.0
|
|
|
|
59
|
|
|
1.2
|
|
|
|
2,479
|
|
|
2.6
|
|
|
|
316
|
|
|
2.3
|
|
Depreciation and amortization
|
|
|
284
|
|
|
0.8
|
|
|
|
94
|
|
|
1.9
|
|
|
|
714
|
|
|
0.7
|
|
|
|
257
|
|
|
1.9
|
|
Amortization of intangible assets
|
|
|
1,811
|
|
|
5.1
|
|
|
|
--
|
|
|
--
|
|
|
|
4,841
|
|
|
5.1
|
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,907
|
|
|
97.7
|
|
|
|
5,687
|
|
|
117.6
|
|
|
|
91,230
|
|
|
95.6
|
|
|
|
15,747
|
|
|
117.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from operations
|
|
|
828
|
|
|
2.3
|
|
|
|
(851
|
)
|
|
(17.6
|
)
|
|
|
4,217
|
|
|
4.4
|
|
|
|
(2,299
|
)
|
|
(17.1
|
)
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement losses
|
|
|
--
|
|
|
--
|
|
|
|
--
|
|
|
--
|
|
|
|
--
|
|
|
--
|
|
|
|
(162
|
)
|
|
(1.2
|
)
|
Gain on interest rate cap agreement
|
|
|
(130
|
)
|
|
(0.4
|
)
|
|
|
--
|
|
|
--
|
|
|
|
111
|
|
|
0.1
|
|
|
|
--
|
|
|
--
|
|
Interest income (expense), net
|
|
|
(1,819
|
)
|
|
(5.1
|
)
|
|
|
(10
|
)
|
|
(0.2
|
)
|
|
|
(5,092
|
)
|
|
(5.3
|
)
|
|
|
49
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(1,949
|
)
|
|
(5.5
|
)
|
|
|
(10
|
)
|
|
(0.2
|
)
|
|
|
(4,981
|
)
|
|
(5.2
|
)
|
|
|
(113
|
)
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes
|
|
|
(1,121
|
)
|
|
(3.1
|
)
|
|
|
(861
|
)
|
|
(17.8
|
)
|
|
|
(764
|
)
|
|
(0.8
|
)
|
|
|
(2,412
|
)
|
|
(17.9
|
)
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
202
|
|
|
(0.6
|
)
|
|
|
--
|
|
|
--
|
|
|
|
202
|
|
|
(0.2
|
)
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1,323
|
)
|
|
(3.7
|
)
|
|
|
(861
|
)
|
|
(17.8
|
)
|
|
|
(966
|
)
|
|
(1.0
|
)
|
|
|
(2,412
|
)
|
|
(17.9
|
)
|
|
|
|
|
|
|
|
|
|
Preferred dividends
|
|
|
(840
|
)
|
|
(2.4
|
)
|
|
|
(20
|
)
|
|
(0.4
|
)
|
|
|
(2,367
|
)
|
|
(2.5
|
)
|
|
|
(20
|
)
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (loss) applicable to common stockholders
|
|
$
|
(2,163
|
)
|
|
(6.1
|
)
|
|
$
|
(881
|
)
|
|
(18.2
|
)
|
|
$
|
(3,333
|
)
|
|
(3.5
|
)
|
|
$
|
(2,432
|
)
|
|
(18.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 23 -
The following table sets forth the period-over-period percentage increases or decreases
of certain items included in the Companys unaudited consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
(In thousands)
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relay services
|
|
$
|
30,644
|
|
|
$
|
4,293
|
|
|
$
|
26,351
|
|
|
613.8
|
|
|
$
|
88,348
|
|
|
$
|
11,787
|
|
|
$
|
76,561
|
|
|
649.5
|
|
Interpreting
|
|
|
5,024
|
|
|
|
--
|
|
|
|
5,024
|
|
|
--
|
|
|
|
6,285
|
|
|
|
--
|
|
|
|
6,285
|
|
|
--
|
|
Other
|
|
|
67
|
|
|
|
543
|
|
|
|
(476
|
)
|
|
(99.6
|
)
|
|
|
814
|
|
|
|
1,661
|
|
|
|
(847
|
)
|
|
(98.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,735
|
|
|
|
4,836
|
|
|
|
30,899
|
|
|
638.9
|
|
|
|
95,447
|
|
|
|
13,448
|
|
|
|
81,999
|
|
|
609.7
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of relay services
|
|
|
15,972
|
|
|
|
2,999
|
|
|
|
12,973
|
|
|
432.6
|
|
|
|
47,607
|
|
|
|
8,074
|
|
|
|
39,533
|
|
|
489.6
|
|
Cost of interpreting services
|
|
|
3,996
|
|
|
|
--
|
|
|
|
3,996
|
|
|
--
|
|
|
|
5,235
|
|
|
|
--
|
|
|
|
5,235
|
|
|
--
|
|
Cost of other
|
|
|
65
|
|
|
|
444
|
|
|
|
(379
|
)
|
|
(95.5
|
)
|
|
|
959
|
|
|
|
1,393
|
|
|
|
(434
|
)
|
|
(31.2
|
)
|
Sales and marketing
|
|
|
2,990
|
|
|
|
612
|
|
|
|
2,378
|
|
|
388.6
|
|
|
|
8,702
|
|
|
|
1,615
|
|
|
|
7,087
|
|
|
438.8
|
)
|
General and administrative
|
|
|
8,721
|
|
|
|
1,479
|
|
|
|
7,242
|
|
|
489.7
|
|
|
|
20,693
|
|
|
|
4,092
|
|
|
|
16,601
|
|
|
405.7
|
|
Research and development
|
|
|
1,068
|
|
|
|
59
|
|
|
|
1,009
|
|
|
1710.2
|
|
|
|
2,479
|
|
|
|
316
|
|
|
|
2,163
|
|
|
684.5
|
|
Depreciation and amortization
|
|
|
284
|
|
|
|
94
|
|
|
|
190
|
|
|
202.1
|
|
|
|
714
|
|
|
|
257
|
|
|
|
457
|
|
|
177.8
|
|
Amortization of intangible assets
|
|
|
1,811
|
|
|
|
--
|
|
|
|
1,811
|
|
|
--
|
|
|
|
4,841
|
|
|
|
--
|
|
|
|
4,841
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,907
|
|
|
|
5,687
|
|
|
|
29,220
|
|
|
513.8
|
|
|
|
91,230
|
|
|
|
15,747
|
|
|
|
75,463
|
|
|
479.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
828
|
|
|
|
(851
|
)
|
|
|
1,679
|
|
|
197.3
|
|
|
|
4,217
|
|
|
|
(2,299
|
)
|
|
|
6,516
|
|
|
(283.4
|
)
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement losses
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
--
|
|
|
|
--
|
|
|
|
(162
|
)
|
|
|
162
|
|
|
--
|
|
Gain on interest rate cap agreement
|
|
|
(130
|
)
|
|
|
--
|
|
|
|
(130
|
)
|
|
--
|
|
|
|
111
|
|
|
|
--
|
|
|
|
111
|
|
|
--
|
|
Interest income (expense), net
|
|
|
(1,819
|
)
|
|
|
(10
|
)
|
|
|
(1,809
|
)
|
|
(18090.0
|
)
|
|
|
(5,092
|
)
|
|
|
49
|
|
|
|
(5,141
|
)
|
|
(10491.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(1,949
|
)
|
|
|
(10
|
)
|
|
|
(1,939
|
)
|
|
(19390.0
|
)
|
|
|
(4,981
|
)
|
|
|
(113
|
)
|
|
|
(4,868
|
)
|
|
(4308.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes
|
|
|
(1,121
|
)
|
|
|
(861
|
)
|
|
|
(260
|
)
|
|
(30.2
|
)
|
|
|
(764
|
)
|
|
|
(2,412
|
)
|
|
|
(1,648
|
)
|
|
(68.3
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
202
|
|
|
|
--
|
|
|
|
(202
|
)
|
|
--
|
|
|
|
(202
|
)
|
|
|
--
|
|
|
|
(202
|
)
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1,323
|
)
|
|
|
(861
|
)
|
|
|
(462
|
)
|
|
(53.7
|
)
|
|
|
(966
|
)
|
|
|
(2,412
|
)
|
|
|
1,446
|
|
|
60.0
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
|
|
|
(840
|
)
|
|
|
(20
|
)
|
|
|
(820
|
)
|
|
(4100.0
|
)
|
|
|
(2,367
|
)
|
|
|
(20
|
)
|
|
|
(2,347
|
)
|
|
(11735.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
(2,163
|
)
|
|
$
|
(881
|
)
|
|
$
|
(1,282
|
)
|
|
(145.5
|
)
|
|
$
|
(3,333
|
)
|
|
$
|
(2,432
|
)
|
|
$
|
(901
|
)
|
|
(37.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2008 Compared to Three months ended September 30, 2007
Relay services revenue.
Relay services revenue increased 614%, to $30,644 for the three months ended
September 30, 2008 from $4,293 for the three months ended September 30, 2007. This increase was primarily due to (i) the January 10, 2008 acquisition of certain assets of the Verizon TRS Division and of Hands On Video Relay
Services, Inc. (Hands On), a California-based provider of video relay and interpreting services and (ii) the growth in relay service volumes and continuing operational improvements. Our video relay service revenue increased to
$17,052 for the three months ended September 30, 2008 from $403 for the three months ended September 30, 2007. Video relay service revenue represented approximately 56% of total relay service revenue for the three months ended
September 30, 2008 as compared to 9% percent of relay service revenue for the three months ended September 30, 2007. Telecommunications relay service revenue increased to $13,592 for the three months ended September 30, 2008 from
$3,094 for the three months ended September 30, 2007. Telecommunications relay service revenue represented approximately 44% of total relay service revenue for the three months ended September 30, 2008 as compared to 91% percent of total
relay service revenue for the three months ended September 30, 2007. We expect relay services revenue to increase as we expand our user base for both our video and telecommunication relay services.
Interpreting services revenue.
Interpreting services revenue was $5,024 for the three months ended September 30, 2008.
This consisted of certified sign language interpreters providing interpreting services in situations where relay services may not be available or ideal. This increase was due to our July 1, 2008 acquisitions of SLA and VLI and our
January 10, 2008 acquisition of Hands On. There was no such corresponding revenue in 2007. We expect interpreting services revenue to increase as we expand our customer base for these services.
- 24 -
Included in other revenue are the four components listed immediately below:
Commission revenue.
Commission revenue decreased to $24 for the three months ended September 30, 2008 from $190 for the
three months ended September 30, 2007. This decrease primarily was due to decreased acquisition of subscribers on behalf of wireless network providers through our indirect distribution channel. We expect commission revenue to continue to
decrease as we do not intend to concentrate marketing efforts on activities to acquire subscribers on behalf of various wireless network providers.
Subscriber revenue.
Subscriber revenue decreased to $41 for the three months ended September 30, 2008 from $267 for the three months ended September 30, 2007. This decrease was primarily due to
decreases in our full service offering subscriber base. We expect subscriber revenues to decline further as we do not intend to concentrate marketing efforts on these services.
Equipment revenue.
We recognized no equipment revenue for the three months ended September 30, 2008 compared to $83 for the three months ended September 30, 2007. We do not
expect to recognize equipment revenue in the near future as we do not intend to concentrate marketing efforts on activities to acquire subscribers on behalf of various wireless network providers.
Other revenue.
Other revenue decreased to $2 for the three months ended September 30, 2008 from $3 for the three months
ended September 30, 2007.
Cost of relay services revenue.
Cost of relay services revenue increased 433%,
to $15,972 for the three months ended September 30, 2008 from $2,999 for the three months ended September 30, 2007. This increase was primarily due to our January 10, 2008 acquisition of certain assets of Verizons TRS Division
and of Hands On. Our cost of video relay service revenue increased to $9,780 for the three months ended September 30, 2008 from $403 for the three months ended September 30, 2007 and our cost of telecommunications relay service revenue
increased to $6,192 million for the three months ended September 30, 2008 from $2,596 for the three months ended September 30, 2007. We expect cost of relay services revenue to increase as we expand our user base for both our video and
telecommunication relay services.
Cost of interpreting services revenue.
Cost of interpreting services revenue
was $3,996 for the three months ended September 30, 2008. This increase was due to our July 1, 2008 acquisitions of SLA and VLI and our January 10, 2008 acquisition of Hands On. There was no such corresponding cost in 2007. We expect
cost of interpreting services revenue to increase as we expand our customer base for these services.
Included in cost of other revenue
are the three components listed immediately below:
Cost of subscriber revenue.
Cost of subscriber airtime
decreased to $14 for the three months ended September 30, 2008 from $244 for the three months ended September 30, 2007. This decrease was primarily due to decreases in our full service offering subscriber base. We expect cost of subscriber
revenues to decline further as we do not intend to concentrate marketing efforts on these services.
Cost of network
operations.
Cost of network operations decreased to $20 for the three months ended September 30, 2008 as compared to $29 for the three months ended September 30, 2007. We expect our cost of network operations to decline as a
percentage of sales.
Cost of equipment revenue.
Cost of equipment revenue decreased to $31 for the three
months ended September 30, 2008 from $171 for the three months ended September 30, 2007. This decrease was primarily due to lower sales of mobile devices. We expect cost of equipment revenue to decrease further as we do not intend to
concentrate marketing efforts on activities to acquire subscribers on behalf of various wireless network providers.
Sales and marketing.
Sales and marketing expenses increased to $2,990 for the three months ended September 30, 2008 from $612 for the three months ended September 30, 2007. This increase primarily was due to our
January 10, 2008 acquisitions described above and $57 of related restructuring costs We expect sales and marketing expenses to increase as a percentage of sales as we continue to introduce new products and services to the consumer marketplace.
- 25 -
General and administrative
. General and administrative expenses increased to
$8,721 for the three months ended September 30, 2008 from $1,479 for the three months ended September 30, 2007. This increase primarily was due to our January 10, 2008 acquisitions of Verizons TRS Division,,Hands On and our
July 1 2008 acquisitions of SLA and VLI, including $646 in stock-based compensation related to the assumption of Hands On options and new stock option grants. In addition, professional service fees increased by approximately $1,444, salaries
and benefits for personnel performing business development and general corporate activities increased by approximately $1,911 and restructuring charges of $425. We expect general and administrative expenses to decline as a percentage of revenue as
our revenues increase.
Research and development
. Research and development expense increased to $1,811 for the three
months ended September 30, 2008 from $59 for the three months ended September 30, 2007. This increase was primarily due to increased salaries and benefits for personnel performing development activities and restructuring related charges of
$220. We expect research and development expenses to increase as we continue to develop and maintain our relay technologies.
Amortization of intangible assets
. We recorded amortization of intangible assets of $1,601 for the three months ended September 30, 2008 related to amortization of identified intangible assets resulting from our January 10,
2008 acquisition of certain assets of Verizons TRS Division and of Hands On.
Gain on interest rate cap
agreement
. We recognized a loss of $130 for the three months ended September 30, 2008 related to an interest rate cap agreement with Bank of America, N.A. There was no corresponding amount in 2007. We expect gain on interest rate cap
agreement to fluctuate as we record changes in the fair market value of the instrument.
Interest income (expense),
net
. We incurred net interest expense of $1,819 for the three months ended September 30, 2008 compared to $10 for the three months ended September 30, 2007. This increase was due to interest expense incurred and amortization of debt
discount in connection with the debt raised by the Company to partially fund our January 10, 2008 acquisitions of Verizons TRS Division and of Hands On and was partially offset by interest income on short-term investments and existing
cash balances. We expect net interest expense to continue at approximately current levels (subject to changes in interest rates).
Nine months ended
September 30, 2008 Compared to Nine months ended September 30, 2007
Relay services
revenue.
Relay services revenue increased 650%, to $88,348 for the nine months ended September 30, 2008 from $11,787 for the nine months ended September 30, 2007. This increase was primarily due to our January 10, 2008
acquisition of certain assets of the Verizons TRS Division and of Hands On Video Relay Services, Inc. (Hands On), a California-based provider of video relay and interpreting services. Our video relay service revenue was $47,999 for
the nine months ended September 30, 2008, and represented approximately 54% of total relay service revenue. Telecommunications relay service revenue was $40,349 for the nine months ended September 30, 2008, and represented approximately
46% of total relay service revenue.
Interpreting services revenue.
Interpreting services revenue was $6,285
for the nine months ended September 30, 2008. This consisted of certified sign language interpreters providing interpreting services in situations where relay services may not be available or ideal. This increase was due to our July 1,
2008 acquisitions of SLA and VLI and our January 10, 2008 acquisition of Hands On. There was no such corresponding revenue in 2007.
Included in other revenue are the four components listed immediately below:
Commission
revenue.
Commission revenue decreased to $334 for the nine months ended September 30, 2008 from $450 for the nine months ended September 30, 2007. This decrease primarily was due to decreased acquisition of subscribers on behalf
of wireless network providers through our indirect distribution channel.
Subscriber revenue.
Subscriber
revenue decreased to $317 for the nine months ended September 30, 2008 from $867 for the nine months ended September 30, 2007. This decrease was primarily due to decreases in our full service offering subscriber base.
Equipment revenue.
Equipment revenue decreased to $141 for the nine months ended September 30, 2008 from $300 for the
nine months ended September 30, 2007. This decrease was primarily due to lower sales of mobile devices.
Other
revenue.
Other revenue decreased to $22 for the nine months ended September 30, 2008 from $44 for the nine months ended September 30, 2007.
- 26 -
Cost of relay services revenue.
Cost of relay services revenue increased
490%, to $47,607 for the nine months ended September 30, 2008 from $8,074 for the nine months ended September 30, 2007. This increase was primarily due to our January 10, 2008 acquisition of certain assets of Verizons TRS
Division and of Hands On. Our cost of video relay service revenue increased to $26,632 for the nine months ended September 30, 2008 from $792 for the nine months ended September 30, 2007 and our cost of telecommunications relay service
revenue increased to $20,975 for the nine months ended September 30, 2008 from $7,282 for the nine months ended September 30, 2007.
Cost of interpreting services revenue.
Cost of interpreting services revenue was $5,235 for the nine months ended September 30, 2008. This increase was due to our July 1, 2008 acquisitions of SLA
and VLI and our January 10, 2008 acquisition of Hands On. There was no such corresponding cost in 2007.
Included
in cost of other revenue are the three components listed immediately below:
Cost of subscriber
revenue.
Cost of subscriber airtime decreased to $271 for the nine months ended September 30, 2008 from $811 for the nine months ended September 30, 2007. This decrease was primarily due to decreases in our full service offering
subscriber base.
Cost of network operations.
Cost of network operations remained constant at $87 for the nine
months ended September 30, 2008 and 2007.
Cost of equipment revenue.
Cost of equipment revenue increased
to $601 for the nine months ended September 30, 2008 from $495 for the nine months ended September 30, 2007. This increase was primarily due to accelerated amortization of free phones previously capitalized.
Sales and marketing.
Sales and marketing expenses increased to $8,702 for the nine months ended September 30, 2008 from
$1,003 for the nine months ended September 30, 2007. This increase primarily was due to our January 10, 2008 acquisitions described above and $57 of related restructuring costs.
General and administrative.
General and administrative expenses increased to $20,693 for the nine months ended
September 30, 2008 from $4,092 for the nine months ended September 30, 2007. This increase primarily was due to our January 10, 2008 acquisitions of Verizons TRS Division,Hands On and our July 1 2008 acquisitions of SLA and
VLI, including $2,402 in stock-based compensation related to the assumption of Hands On options, the accelerated vesting of previously granted restricted stock and new stock option grants. In addition, professional service fees increased by
approximately $1,444 ,salaries and benefits for personnel performing business development and general corporate activities increased by approximately $1,911 and restructuring charges of $425.
Research and development
. Research and development expense increased to $2,479 for the nine months ended September 30, 2008
from $316 for the nine months ended September 30, 2007. This increase was primarily due to increased salaries and benefits for personnel performing development activities and restructuring related charges of $220.
Amortization of intangible assets
. We recorded amortization of intangible assets of $4,841 for the nine months ended
September 30, 2008 related to amortization of identified intangible assets resulting from our January 10, 2008 acquisition of certain assets of Verizons TRS Division and of Hands On.
Gain on interest rate cap agreement
. We recognized a gain of $111 for the nine months ended September 30, 2008 related to an
interest rate cap agreement with Bank of America, N.A. There was no corresponding amount in 2007. We expect gain on interest rate cap agreement to fluctuate as we record changes in the fair market value of the instrument.
Interest income (expense), net
. We incurred net interest expense of $5,092 for the nine months ended September 30, 2008
compared to net interest income of $49 for the nine months ended September 30, 2007. This increase was due to interest expense incurred and amortization of debt discount in connection with the debt raised by the Company to partially fund our
January 10, 2008 acquisitions of Verizons TRS division and of Hands On.
- 27 -
Liquidity and Capital Resources
We have incurred significant operating losses since our inception and as of September 30, 2008 have an accumulated deficit of $282.3
million. During the nine months ended September 30, 2008, the Company recorded a net loss of $966 and provided $7,586 of cash from operating activities. There has been an overall increase of $16,521 in our cash and cash equivalents. As of
September 30, 2008, the Company had $18,889 in cash and cash equivalents. We currently anticipate that our available cash resources will be sufficient to fund our operating needs for at least the next 12 months. The Company secured a $15
million unfunded credit revolver which creates additional liquidity as needed. We currently have no borrowings outstanding under this credit facility.
On January 10, 2008, the Company acquired the assets of Verizons TRS Division for $46 million in cash. The Verizon acquisition was financed through $40 million of committed senior debt financing funded by
the First Lien Administrative Agent and $33.5 million of equity financing, funded by funds managed by Clearlake. Clearlake purchased an additional 6,479,691 shares of Series A Preferred Stock at a price of $5.17 per share.
On January 10, 2008, the Company acquired Hands On for $35 million in cash and approximately 6,700,000 shares of its common stock.
The cash portion of the consideration was funded by the sale of 967,118 shares of Series A Preferred Stock, at a price of $5.17 per share, to a fund managed by Clearlake and the issuance of $30 million in second lien debt.
On July 1, 2008, GoAmerica, Inc., in an effort to increase its volume and improve its results of operations, completed the
acquisitions of Sign Language Associates, Inc., a District of Columbia corporation, (SLA) and Visual Language Interpreting, Inc., a Virginia corporation (VLI). In accordance with the merger agreement with VLI, the Company will issue options to
purchase 90,000 shares of the Companys Common Stock to certain employees of VLI and SLA as part of their employment compensation for their future services to be rendered for the Company. The Company used cash to satisfy all other merger
consideration.
Net cash provided by operating activities amounted to $7,586 for the nine months ended
September 30, 2008, principally resulting from our operating profit and changes in our operating assets and liabilities.
We used $9,108 of cash associated with investing activities during the nine months ended September 30, 2008. Cash used in investing activities was principally for cash paid for acquired entities, deferred acquisition fees and the
purchases of property, equipment and leasehold improvements.
Net cash provided by financing activities was $18,043 for the
nine months ended September 30, 2008, which resulted primarily from the issuance of preferred stock and debt as part of our January 10, 2008 acquisitions described above.
On August 12, 2008, we entered into a sublease with Firemans Fund for approximately 15,000 square feet in Novato California,
for a period of seven years.
As of September 30, 2008, our principal commitments consisted of obligations outstanding
under operating leases. As of September 30, 2008, future minimum payments for non-cancelable operating leases having terms in excess of one year amounted to $12,002, of which approximately $2,970 is payable in the next twelve months.
The following table summarizes GoAmericas contractual obligations at September 30, 2008, and the effect such
obligations are expected to have on its liquidity and cash flow in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008 (In thousands)
|
|
Total
|
|
Less than 1
Year
|
|
1-3 Years
|
|
4-5 Years
|
|
After 5 Years
|
|
|
|
|
|
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Lease Obligations
|
|
$
|
197
|
|
$
|
128
|
|
$
|
69
|
|
$
|
--
|
|
$
|
--
|
Operating Lease Obligations
|
|
|
12,002
|
|
|
2,970
|
|
|
4,295
|
|
|
3,295
|
|
|
1,442
|
Loans payable
|
|
|
69,700
|
|
|
400
|
|
|
800
|
|
|
800
|
|
|
67,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,899
|
|
$
|
3,498
|
|
$
|
5,164
|
|
$
|
4,095
|
|
$
|
69,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial Commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby Letter of Credit
|
|
$
|
150
|
|
$
|
--
|
|
$
|
150
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Commitment
|
|
$
|
150
|
|
$
|
--
|
|
$
|
150
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above table does not reflect amounts payable annually under employment agreements as discussed
below.
- 28 -
Employment Agreements
Effective with the January 10, 2008 closing of the transactions referred to above there were changes to our acquisition of the Verizon TRS Division and our merger with Hands On as described
above, the following changes were made to the employment arrangements with two of the Companys executive officers:
|
|
|
Donald G. Barnharts original employment agreement was superseded by an Agreement Regarding Basic Terms of Employment (the Superseding Employment
Agreement), pursuant to which Mr. Barnhart would serve the Company as Senior Vice President, Accounting, at a base annual salary of $185. The Superseding Employment Agreement provided that Mr. Barnhart would serve on an at will
basis, without a specific term of employment he would be eligible to receive a bonus, and he would receive an option grant of 70,000 shares; the options vesting at the rate of one-forty-eighth of such shares per month, provided Mr. Barnhart
remained employed with the Company on each vesting date. The Superseding Employment Agreement provided that if Mr. Barnharts employment was terminated without Cause or for Good Reason (in each case as defined in the Superseding Employment
Agreement), Mr. Barnhart would be entitled to receive 12 months severance. Effective November 15, 2008, it was anticipated that Mr. Barnharts employment with the Company would terminate pursuant to a separation agreement,
providing for, among other things, the payment of salary continuation and health premiums for a period of twelve (12) months. It was also anticipated that Mr. Barnhart would enter into a consulting agreement with the Company to provide
transition services to the Company as an independent contractor until February 15, 2008. On November 11, 2008, Mr. Barnhart passed away. The Company intends that Mrs. Barnhart, the spouse of Mr. Barnhart, shall be eligible
to receive the salary continuation and health premiums payments for a period of twelve (12) months.
|
|
|
|
Jesse Odom's prior employment agreement was superseded by an Agreement Regarding Basic Terms of Employment (the "Second Superseding Employment Agreement"), pursuant
to which Mr. Odom will serve the Company as Senior Vice President, Technology, at a base annual salary of $200. The Second Superseding Employment Agreement provides that Mr. Odom will serve on an at will basis, without a specific term of
employment. He will be eligible to receive a bonus, and will receive an option grant of 100,000 shares. The options will vest at the rate of one-forty-eighth of such shares per month, provided Mr. Odom remains employed with the Company on each
vesting date. If Mr. Odom's employment is terminated without Cause or for Good Reason (in each case as defined in the Superseding Employment Agreement), Mr. Odom will be entitled to receive 12 months severance. Effective July 18,
2008, Mr. Odom resigned his position as Vice President, Technology, and his employment with the Company terminated.Mr. Odom continuesto provide services as a consultant to the Company pursuant to an indepdent contractors agreement during which
time Mr. Odoms options continue to vest. Effective October 1, 2008 Mr. Odom commenced receiving 12 months of severance pursuant to his separation and release agreement with the Company
|
On March 20, 2008, the Company entered into new employment agreements with Daniel R. Luis, its Chief Executive Officer, and with
Edmond Routhier, its President and Vice Chairman of the Board (collectively, the Executives). Each employment agreement is substantially the same. The employment agreements provide that both Executives are to receive an initial base
salary of $275. Each executive received an option grant of 400,000 shares. The Compensation Committee may award one or both Executives additional bonus payments, option grants or restricted stock awards in its discretion. The agreements are each of
indefinite term; each such agreement provides for an annual salary review, at which time the salaries paid under such agreements may be increased (but not decreased) in the discretion of the Compensation Committee. In the event that either Executive
is terminated without cause or resigns for good reason (as each such term is defined in the agreements), he shall be entitled to receive enhanced severance, in an amount equal to one years base salary, as well as the right to continue in
Company health and welfare benefit plans for one year after termination and 90 days outplacement services at a level commensurate with his position. In the event of a change of control of the Company, as defined in the employment agreements,
25% of the Executives then-unvested stock options shall immediately vest. In addition, after a change of control of the Company, all remaining unvested stock of either Executive shall immediately vest if (a) such Executives
aggregate compensation is substantially diminished, or (b) such Executive is required to relocate more than 100 miles from his then-current residence in order to continue to perform his duties. Each Executive also receives a $1 per month
expense allowances and is reimbursed for additional business travel and entertainment expenses incurred in connection with their duties. Each employment agreement also contains certain confidentiality provisions and requires that the Company
maintain standard directors and officers insurance in the same amount as the Company maintains for other directors and officers.
- 29 -
On April 1, 2008, the Company entered into an Employment Agreement with John R.
Ferron, who was appointed as its Chief Operating Officer on that same date. Until June 2, 2008, Mr. Ferron was employed on a part-time basis as the Company's Chief Operating Officer, and after June 2, 2008, Mr. Ferron was
employed on a full-time basis as the Company's Chief Operating Officer and as its Chief Financial Officer. Mr. Ferron will receive an annual base salary of $130 during the period of his part-time employment, and thereafter will receive an
annual base salary of $260. Upon commencement of his employment, Mr. Ferron also received a cash bonus of $40. On April 2, 2008, Mr. Ferron was granted an option to purchase 275,000 shares of the Company's common stock at an exercise
price of $6.00 per share pursuant to the Company's 2005 Equity Incentive Plan, as amended (the "Plan"). Such option vests in 48 equal monthly installments, commencing on the date of grant and continuing on the first day of each month thereafter. The
Compensation Committee also may make additional option grants or restricted stock awards to Mr. Ferron in its discretion from time to time. Mr. Ferron's Employment Agreement provides for his employment by the Company on an "at will" basis,
and may be terminated by the Company at any time, subject to its obligation to provide severance benefits under certain circumstances as described below. If Mr. Ferron is terminated without cause or resigns for good reason (as each such term is
defined in the Employment Agreement), he will be entitled to receive enhanced severance, in an amount equal to one year's base salary, as well as the right to continue in Company health and welfare benefit plans for one year after termination and 90
days' outplacement services at a level commensurate with his position. In the event of a change of control of the Company (as defined in the Employment Agreement), 25% of Mr. Ferron's then-unvested stock options shall immediately vest. In
addition, after a change of control of the Company, all remaining unvested stock of Mr. Ferron shall immediately vest if (a) Mr. Ferron's aggregate compensation is substantially diminished, or (b) Mr. Ferron is required to
perform the majority of his obligations under the Employment Agreement from an office located more than 100 miles from Los Gatos, California (where he currently resides and intends to establish a small Company office). Mr. Ferron will be
reimbursed for up to $3 per month of direct, incurred expenses for one or more of the following: (a) corporate housing near the Company's northern California offices, (b) office space in Los Gatos, California, and/or (c) use of a car
service, with driver, for business purposes. Mr. Ferron also receives a $1 per month expense allowance and is reimbursed for additional business travel and entertainment expenses incurred in connection with his duties. The employment agreement
also contains certain confidentiality provisions and requires that the Company maintain standard directors and officers insurance covering Mr. Ferron in the same amount as the Company maintains for other directors and officers.
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 ability to integrate our recent acquisitions into our existing businesses and operations; (ii) our ability to respond to the rapid technological change of the telecommunications
relay service (known as TRS) and/or wireless data industries and offer new or enhanced services; (iii) our dependence on wireline and wireless carrier networks and technology platforms supporting our relay services; (iv) our
ability to respond to increased competition in the TRS and/or wireless data industries; (v) our ability to generate revenue growth; (vi) our ability to increase or maintain gross margins, profitability, liquidity and capital resources; and
(vii) difficulties inherent in predicting the outcome of regulatory processes. Many of such risks and others are more fully described in our Annual Report on Form 10-K for the year ended December 31, 2007. Our actual results could differ
materially from the results expressed in, or implied by, such forward-looking statements.
- 30 -
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in
accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. SFAS No. 157 was effective for financial statements issued for fiscal years beginning after November 15,
2007, with earlier application encouraged, but the issuance of FASB Staff Position SFAS No. 157-2 has delayed the effective date to fiscal years beginning after November 15, 2008 as it relates to non-financial assets and non-financial
liabilities. Any amounts recognized upon adoption as a cumulative effect adjustment will be recorded to the opening balance of retained earnings in the year of adoption. The adoption of SFAS No. 157 did not have a material effect on the
Companys financial condition or results of operations.
In February 2007, the FASB issued SFAS No. 159,
Establishing the Fair Value Option for Financial Assets and Liabilities to permit all entities to choose to elect to measure eligible financial instruments and certain other items at fair value. The decision whether to elect the
fair value option may occur for each eligible item either on a specified election date or according to a preexisting policy for specified types of eligible items. However, that decision must also take place on a date on which criteria under SFAS 159
occurs. Finally, the decision to elect the fair value option shall be made on an instrument-by-instrument basis, except in certain circumstances. An entity shall report unrealized gains and losses on items for which the fair value option has
been elected in earnings at each subsequent reporting date. SFAS No. 159 applies to fiscal years beginning after November 15, 2007, with early adoption permitted for an entity that has also elected to apply the provisions of SFAS
No. 157,
Fair Value Measurements.
The adoption of SFAS No. 159 did not have a material effect on the Companys financial condition or results of operations.
In December 2007, the FASB issued SFAS 141 (revised 2007),
Business Combinations
(SFAS 141(R)), which establishes
principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in an acquiree, including the recognition and measurement
of goodwill acquired in a business combination. SFAS 141(R ) applies to fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is currently evaluating the impact of adopting
SFAS 141(R) on its results of operations and financial condition.
In December 2007, the FASB issued SFAS
No. 160,
Non-controlling Interests in Consolidated Financial Statements an amendment of ARB No. 51
. SFAS 160 amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary
and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary, which was previously referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling
interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. SFAS 160 applies to fiscal years beginning
on or after December 15, 2008. Earlier adoption is prohibited. The Company is currently evaluating the impact of adopting SFAS 160 on its results of operations and financial condition.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities, and Amendment of
FASB Statement No. 133
. SFAS 161 amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities, to amend and expand the disclosure requirements of SFAS 133 to provided greater transparency about (i) how and
why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an
entitys financial position, results of operations and cash flows. To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts
of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for the Company on January 1, 2009. The Company is currently evaluating the impact
of SFAS 161 on its financial position, results of operations or cash flows.
In May 2008, the FASB issued SFAS
No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles
to be used in preparing financial statements that are presented in conformity with U.S. GAAP for
- 31 -
nongovernmental entities. SFAS 162 is effective 60 days following the Securities and Exchange Commissions approval of the Public Company Accounting
Oversight Board auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect SFAS 162 to have a material effect on its consolidated
financial statements.
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
We believe that we have limited exposure to financial market risks, including changes in interest rates. At September 30, 2008, 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 our net income of approximately $190,000 based on cash and cash equivalent
balances at September 30, 2008.
On April 8, 2008, the Company entered into an interest rate cap agreement with
Bank of America, N.A. The term of the agreement is three years with an initial notional amount of $35,000. The agreement calls for a cap rate of 4% and a floating option of USD-LIBOR-BBA. A hypothetical change in USD-LIBOR-BBA interest rates of 1.0%
above the cap would result in a decrease in the fair market value of the derivative of $350.
We currently 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 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 Principal 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.
The
Companys internal controls over financial reporting have been negatively impacted by the series of acquisitions entered into during the current year resulting in the identification of material weaknesses in our internal control over financial
reporting.
Description of Material Weaknesses.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be
prevented or detected. In our Form 10-Q for the nine months ended September 30, 2008, management noted it had identified material weaknesses in our internal control over financial reporting.
The acquired Companies did not maintain effective controls over certain financial statement account reconciliations. Specifically,
account reconciliations involving significant general ledger accounts were not designed for proper preparation and timely review and reconciling items were not timely resolved and adjusted. This control deficiency may result in audit adjustments to
the aforementioned accounts and disclosures in the Companys consolidated financial statements as of and for the year ended December 31, 2008.
Because of these material weaknesses, management concluded that our internal control over financial reporting was not effective as of September 30, 2008. Remediation of these weaknesses has not yet been fully
completed and, therefore, these material weaknesses continued to exist as of November 14, 2008. These control deficiencies could result in misstatements of financial statement accounts and disclosures that would result in a material
misstatement of the consolidated financial statements that would not be prevented or detected.
- 32 -
Management Action Plan and Progress to Date
In response to the material weaknesses, Management has taken certain actions and will continue to take further steps to strengthen our
control processes and procedures in order to remediate such material weaknesses. The Company is in the process of converting all acquired companies to a common enterprise system, is centralizing all transaction processing functions in one location
with a common set of controls and procedures, has utilized outside consultants as needed to assist with executing the preparation and/or reviews of reconciliations under our directions, has recruited and will be recruiting additional accounting,
finance and business system personnel who can provide the adequate experience and knowledge to improve the timeliness and effectiveness of our account reconciliations and ultimately the financial reporting processes.
The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance
that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.
We will continue to develop new policies and procedures as well as educate and train our financial reporting department
regarding our existing policies and procedures in a continual effort to improve our internal control over financial reporting, and will be taking further actions as appropriate. We view this as an ongoing effort to which we will devote significant
resources.
We believe that the foregoing actions will improve our internal control over financial reporting, as well as
our disclosure controls and procedures.
- 33 -
PART II. OTHER INFORMATION
Item 1.
|
Legal Proceedings.
|
Various claims and legal proceedings generally incidental to the normal course of business are pending or threatened against us. Although we cannot predict the outcome of these matters, in the opinion of management, any liability
arising from them will not have a material adverse effect on our financial position, results of operations or liquidity.
31.1 Certification of the Chief
Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Principal 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 Principal Financial Officer Pursuant to
18 U.S.C. Section 1350, adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- 34 -
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: November 14, 2008
|
|
|
|
By:
|
|
/s/ Daniel R. Luis
|
|
|
|
|
|
|
Daniel R. Luis
|
|
|
|
|
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
|
DATE: November 14, 2008
|
|
|
|
By:
|
|
/s/ John Ferron
|
|
|
|
|
|
|
John Ferron
|
|
|
|
|
|
|
Chief Financial Officer
(Principal Financial Officer)
|
- 35 -
Goamerica (MM) (NASDAQ:GOAM)
Historical Stock Chart
From Sep 2024 to Oct 2024
Goamerica (MM) (NASDAQ:GOAM)
Historical Stock Chart
From Oct 2023 to Oct 2024