<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 2000
REGISTRATION NO. 333-30808
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------
GLOBECOMM SYSTEMS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
<TABLE>
<S> <C>
DELAWARE 11-3225567
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
45 OSER AVENUE, HAUPPAUGE, NEW YORK 11788
(631) 231-9800
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------
DAVID E. HERSHBERG
CHIEF EXECUTIVE OFFICER
GLOBECOMM SYSTEMS INC.
45 OSER AVENUE
HAUPPAUGE, NEW YORK 11788
(631) 231-9800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
Copies to:
<TABLE>
<S> <C>
LUCI STALLER ALTMAN, ESQ.
MICHAEL RACANELLI, ESQ.
RISHI A. VARMA, ESQ. LORRAINE MASSARO, ESQ.
BROBECK, PHLEGER & HARRISON LLP MORRISON & FOERSTER LLP
1633 BROADWAY, 47TH FLOOR 1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10104-0050
(212) 581-1600 (212) 468-8000
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable on or after this Registration Statement is declared effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY OUR EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 10, 2000
PROSPECTUS
2,000,000 SHARES
[GSI LOGO]
COMMON STOCK
----------------
Globecomm Systems Inc. is offering 2,000,000 shares of common stock. Our
shares are listed on the Nasdaq National Market under the symbol "GCOM." On
March 8, 2000, the last reported sale price of our common stock on the Nasdaq
National Market was $35.25 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAVE APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- -----------
<S> <C> <C>
Public Offering Price ........................... $ $
Underwriting Discounts and Commissions .......... $ $
Proceeds to Globecomm Systems Inc. .............. $ $
</TABLE>
- --------------------------------------------------------------------------------
The underwriters have an option to purchase up to an additional 190,000
shares from us and up to an additional 110,000 shares from selling stockholders
to cover over-allotments. The underwriters expect to deliver the shares to
purchasers on or about , 2000.
ING BARINGS C.E. UNTERBERG, TOWBIN
-------------------
March , 2000.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. You should read this entire prospectus carefully, including the
"Risk Factors" section and the financial statements and the notes to those
statements. In addition, we incorporate by reference important business and
financial information in this prospectus.
OUR BUSINESS
We offer end-to-end, value-added satellite-based communications services.
The services we offer include wide area network connectivity, broadband
connectivity to end users, Internet connectivity, intranet extension, media
distribution and other network services on a global basis. To provide these
services, we leverage our engineering experience and satellite services
capabilities. We engineer and provide all the necessary satellite and
terrestrial facilities as well as the integration services required to
implement those facilities. We also operate and maintain these communications
services on an ongoing basis. Our customers generally have operations in areas
of the world where high-speed terrestrial networks are unreliable, too costly
or not readily available. Our customers include communications services
providers, multinational corporations, Internet service providers, content
providers and government entities.
Our services business is built on our core business as a supplier of
ground segment systems and networks for satellite-based communications. Our
ground segment implementations include the necessary hardware and software to
support a wide range of satellite communications applications using fixed
satellite, direct broadcast and mobile satellite systems.
NetSat Express, our majority-owned subsidiary, is an Internet service
provider that combines satellite and terrestrial communication networks to
provide its customers around the world high-speed access services to the United
States Internet backbone. Most of NetSat Express' customers are Internet
service providers located in areas of the world underserved by high-speed
terrestrial networks.
For our fiscal year ended June 30, 1999, our consolidated revenues were
approximately $49.1 million, including approximately $2.7 million for NetSat
Express, and for the six months ended December 31, 1999, our consolidated
revenues were approximately $36.8 million, including approximately $3.6 million
for NetSat Express.
OUR MARKET OPPORTUNITY
Satellite-based communications networks are a rapidly growing segment of
the global communications infrastructure. These networks offer the following
advantages over terrestrial-based communications facilities:
o enable high-speed communications services where terrestrial alternatives
are unavailable or inadequate
o rapid deployment and flexibility in their configuration
o ability to bypass much of the often complex terrestrial networks
o capable of transmitting data simultaneously from one point to multiple
locations
o more cost-effective in some situations than terrestrial alternatives
where the flow of data traffic to the user is greater than the flow of
data from the user
o costs are independent of the distance between sending and receiving
locations
2
<PAGE>
We believe the market for satellite-based communications services is being
driven by the following:
o continued worldwide deregulation of telecommunications markets
o worldwide economic development and the increasing globalization of
businesses
o growth in the Internet outside North America and Western Europe
o growth in new Internet technology-based applications
o increased distribution of television programming and other content to
regional, national and international audiences
o continued technological advancements that reduce the cost of providing
satellite-based communications services
OUR STRATEGY
Our strategy is to leverage our expertise in ground segment systems and
networks to expand our core business and our communications services business.
To implement this strategy, we intend to do the following:
TARGET OPPORTUNITIES TO SUPPLY END-TO-END COMMUNICATIONS SERVICES
WORLDWIDE. We seek to capture recurring revenues by providing end-to-end,
value-added communications services worldwide. Our end-to-end services enable
our customers to address their needs quickly and cost-effectively without
having to integrate products and services from different suppliers and enable
them to outsource their ongoing communications services needs.
FOCUS ON HIGH MARGIN COMPLEX PROJECTS. We will continue to focus on
opportunities to use our technological expertise in high value-added ground
segment systems and network projects. Our emphasis positions us to earn higher
gross margins through the delivery of innovative and cost-effective solutions
tailored to our customers' requirements.
EXPAND EXISTING CUSTOMER RELATIONSHIPS AND TARGET INDUSTRY-SPECIFIC
MARKETS. We seek to expand and strengthen our existing customer relationships
by providing value-added integration and ongoing communications services to our
existing customers. In addition, we are targeting specific industries which we
believe will offer high growth potential and where we believe our expertise and
relationships will provide us with a competitive advantage.
CONTINUE TO DEVELOP STRATEGIC SUPPLIER RELATIONSHIPS. We seek to continue
to establish strategic relationships with suppliers that we believe are in a
position to provide us with products or services that will improve our
competitive position in the markets that we serve.
NETSAT EXPRESS STRATEGY. NetSat Express intends to continue to invest in
its infrastructure to enhance its global reach in providing Internet access and
broaden its service offerings. NetSat Express intends to offer Internet service
providers infrastructure related services including ongoing outsourcing of
software applications. NetSat Express plans on providing transmission services
that ensure the security of sensitive corporate data when transmitted over the
Internet or other shared networks. NetSat Express also intends to provide
content delivery services for corporations and content providers who must
transmit multimedia streams and electronic files to multiple locations around
the globe.
----------------
On February 22, 2000, NetSat Express announced that it intends to make an
initial public offering of shares of its common stock. NetSat Express has not
yet filed a registration statement relating to its securities with the
Securities and Exchange Commission. None of its securities may be sold, nor may
offers to buy be accepted, prior to the time a registration statement is
declared effective by the Securities and Exchange Commission. The offering of
its securities will be made only by means of a prospectus that will be
contained in NetSat Express' effective registration statement. This paragraph
does not constitute an offer to sell or the solicitation of an offer to buy any
securities of NetSat Express, which only will be made by means of a NetSat
Express prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Globecomm ......... 2,000,000 shares
Common stock to be outstanding after the
offering ................................. 11,689,627 shares
Use of proceeds ........................... A revolving credit facility for up to $15 million to NetSat
Express, Inc., our majority-owned subsidiary, for its
working capital and general corporate purposes; and for
our working capital and general corporate purposes.
Nasdaq National Market symbol ............. "GCOM"
</TABLE>
The number of shares of common stock to be outstanding immediately after
the offering is based upon shares outstanding as of February 29, 2000 and does
not include:
o 1,649,636 shares of common stock issuable upon the exercise of
outstanding stock options granted pursuant to our 1997 Stock Incentive
Plan at a weighted exercise price of $9.56 per share: and
o 57,325 shares of common stock issuable upon exercise of warrants, all
with an exercise price of $8.07 per share.
Please see the section of this prospectus entitled "Capitalization" for a
more complete discussion regarding outstanding shares of our common stock and
warrants and options to purchase shares of our common stock and other related
matters.
Unless we specifically state otherwise, the information in this prospectus
does not take into account up to 300,000 shares of common stock which the
underwriters have the option to purchase from us and selling stockholders to
cover over-allotments.
----------------
We were incorporated in Delaware on August 17, 1994. Our principal
executive offices are located at 45 Oser Avenue, Hauppauge, New York 11788, and
our telephone number is (631) 231-9800.
The names Globecomm Systems Inc. (Registered Trademark) , MBB2001
(Registered Trademark) and CTF2001 (Registered Trademark) are registered
trademarks that belong to us. The name NetSat Express, Inc. (Registered
Trademark) is a registered trademark that belongs to NetSat Express, Inc. The
names CES2001, Internet Anywhere, Wide Area Network Anywhere, Intranet Anywhere,
ISDN Anywhere and Bandwidth on Demand Anywhere are trademarks that belong to us.
The name Impact ISP is a trademark that belongs to NetSat Express, Inc. This
prospectus contains the names and trade names of other entities that are the
properties of their respective owners.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 17,
1994
(INCEPTION)
THROUGH SIX MONTHS ENDED
JUNE 30, YEARS ENDED JUNE 30, DECEMBER 31,
------------ ----------------------------------------------------- -----------------------
1995 1996 1997 1998 1999 1998 1999
------------ ------------ ------------ ------------- ------------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues ............................ $ 72 $ 13,476 $ 36,220 $58,105 $49,058 $ 25,175 $ 36,798
Costs of revenues ................... 58 11,238 32,060 49,532 43,516 21,919 31,885
-------- -------- -------- ------- ------- -------- --------
Gross profit ........................ 14 2,238 4,160 8,573 5,542 3,256 4,913
-------- -------- -------- ------- ------- -------- --------
Operating expenses:
Network operations ................. -- -- -- -- 514 204 718
Selling and marketing .............. 346 1,915 3,282 4,187 5,183 2,324 2,426
Research and development ........... -- 712 649 1,188 1,325 550 355
General and administrative ......... 772 1,945 3,449 5,010 6,040 2,656 4,114
Terminated acquisition costs ....... -- -- -- -- 972 972 --
Write-down of investments .......... -- -- -- -- 679 -- --
-------- -------- -------- ------- ------- -------- --------
Total operating expenses ............ 1,118 4,572 7,380 10,385 14,713 6,706 7,613
-------- -------- -------- ------- ------- -------- --------
Loss from operations ................ (1,104) (2,334) (3,220) (1,812) (9,171) (3,450) (2,700)
Other income (expense):
Interest income .................... 54 121 298 1,271 980 610 448
Interest expense ................... (15) (32) (22) (5) (1) -- (317)
Gain on sale of consolidated
subsidiary's common stock......... -- -- -- -- -- -- 2,353
-------- -------- -------- --------- --------- -------- --------
Loss before minority interests in
operations of consolidated
subsidiary ......................... (1,065) (2,245) (2,944) (546) (8,192) (2,840) (216)
Minority interests in operations
of consolidated subsidiary ......... -- -- 275 -- -- -- 614
-------- -------- -------- --------- --------- -------- --------
Net (loss) income ................... $ (1,065) $ (2,245) $ (2,669) $ (546) $(8,192) $ (2,840) $ 398
======== ======== ======== ========= ========= ======== ========
Basic net (loss) income
per common share ................... $ (0.06) $ (0.90) $ (0.31) $ 0.04
========= ========= ======== ========
Diluted net (loss) income
per common share ................... $ (0.06) $ (0.90) $ (0.31) $ 0.04
========= ========= ======== ========
Shares used in the calculation of
basic net (loss) income
per common share ................... 8,553 9,109 9,127 9,268
========= ========= ======== ========
Shares used in the calculation of
diluted net (loss) income
per common share ................... 8,553 9,109 9,127 10,157
========= ========= ======== ========
Pro forma basic and diluted net
loss per common share
(unaudited) ........................ $ (0.44)
========
Shares used in the calculation of
pro forma basic and diluted
net loss per common share
(unaudited) ........................ 6,086
========
</TABLE>
5
<PAGE>
The following as adjusted balance sheet data gives effect to our sale of
2,000,000 shares of common stock in this offering at the assumed offering price
of $35.25 per share, after deducting the underwriting discount and estimated
offering expenses, and the application of the net proceeds from this offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------
ACTUAL AS ADJUSTED
---------- ------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents .................................. $23,071 88,690
Working capital ....................................... 29,742 95,361
Total assets .......................................... 75,890 141,509
Long-term obligations ................................. 12,416 12,416
Minority interests in consolidated subsidiary ......... 1,963 1,963
Series A Participating Preferred stock of consolidated
subsidiary ........................................... 5,000 5,000
Total stockholders' equity ............................ 40,414 106,033
</TABLE>
6
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this prospectus, before you decide to
buy our common stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF OPERATING LOSSES AND NEGATIVE CASH FLOW AND EXPECT OUR
LOSSES TO CONTINUE.
We have incurred significant net losses since we began operating in August
1994. We incurred net losses of $2.7 million during the fiscal year ended June
30, 1997, $0.5 million during the fiscal year ended June 30, 1998, and $8.2
million during the fiscal year ended June 30, 1999. Our net losses include net
losses of $1.5 million during the fiscal year ended June 30, 1997, $1.7 million
during the fiscal year ended June 30, 1998, and $2.1 million during the fiscal
year ended June 30, 1999 for NetSat Express. As of December 31, 1999, our
accumulated deficit was approximately $14.3 million. We anticipate that we will
continue to incur net losses. Our ability to achieve and maintain profitability
will depend upon our ability to generate significant revenues through new
customer contracts and the expansion of our existing products and services,
including our communications services. We cannot assure you that we will be
able to obtain new customer contracts or generate significant additional
revenues from those contracts or any new products or services that we
introduce. Even if we become profitable, we may not sustain or increase our
profits on a quarterly or annual basis in the future.
RISKS ASSOCIATED WITH OPERATING IN INTERNATIONAL MARKETS COULD RESTRICT OUR
ABILITY TO EXPAND GLOBALLY AND HARM OUR BUSINESS AND PROSPECTS.
We market and sell our products and services in the United States and
internationally. We anticipate that international sales will continue to
account for a significant portion of our total revenues for the foreseeable
future. We presently conduct our international sales in the following regions:
Africa, the Pacific Rim region, Australia, Central and South America, Eastern
and Central Europe and the Middle East. There are some risks inherent in
conducting our business internationally, including:
o changes in regulatory requirements could restrict our ability to deliver
services to our international customers;
o export restrictions, tariffs, licenses and other trade barriers could
prevent us from adequately equipping our network facilities;
o differing technology standards across countries may impede our ability
to integrate our products and services across international borders;
o political and economic instability in international markets could impede
our ability to deliver our services to customers and harm our financial
results;
o protectionist laws and business practices favoring local competition may
give unequal bargaining leverage to key vendors in countries where
competition is scarce, significantly increasing our operating costs;
o increased expenses associated with marketing services in foreign
countries;
o decreases in value of foreign currency relative to the U.S. dollar;
o relying on local subcontractors for installation of our products and
services;
o difficulties in staffing and managing foreign operations;
o potentially adverse taxes;
o complying with complex foreign laws and treaties; and
o difficulties in collecting accounts receivable.
7
<PAGE>
These and other risks could impede our ability to manage our international
business effectively, limit the future growth of our business, increase our
costs and require significant management attention.
IF WE ARE NOT SUCCESSFUL IN SELLING OUR COMMUNICATIONS SERVICES TO OUR
CUSTOMERS FOR WHOM WE HAVE HISTORICALLY PROVIDED SATELLITE GROUND SEGMENT
SYSTEMS AND NETWORKS, OUR RESULTS OF OPERATIONS WILL BE HARMED.
We have historically provided our customers with satellite ground segment
systems and networks on a project basis. We currently market our communications
services to our existing customers. These services not only provide the
implementation of the satellite ground segment systems and networks but also
provide the ongoing operation and maintenance of these services. If we are not
successful in selling these communications services to our existing customers,
it will harm our results of operations.
IF NETSAT EXPRESS DOES NOT EXECUTE ITS BUSINESS STRATEGY OR IF THE MARKET FOR
ITS SERVICES FAILS TO DEVELOP OR DEVELOPS MORE SLOWLY THAN IT EXPECTS, OUR
STOCK PRICE MAY BE ADVERSELY AFFECTED.
NetSat Express' future revenues and results of operations are dependent on
its execution of its business strategy and the development of the market for
its current and future services. If NetSat Express does not execute its
business strategy or execute it to the expectation level of public market
analysts, these public market analysts may reduce the value they assign to
NetSat Express. If the market for its current or future services fails to
develop, or develops more slowly than it expects, then public market analysts
may reduce the value they assign to NetSat Express. In the event these
analysts, in either case, reduce the value they assign NetSat Express, it would
have a material adverse affect on the market price of our stock.
CURRENCY DEVALUATIONS IN THE FOREIGN MARKETS IN WHICH WE OPERATE COULD DECREASE
DEMAND FOR OUR PRODUCTS AND SERVICES.
We denominate our foreign sales in U.S. dollars. Consequently, decreases
in the value of local currencies relative to the U.S. dollar in the markets in
which we operate, adversely affect the demand for our products and services by
increasing the price of our products and services in the currencies of the
countries in which they are sold. The difficult economic conditions in the
Pacific Rim region, Russia and other international markets and the resulting
foreign currency devaluations have led to a decrease in demand for our products
and services and the decrease in bookings received by us from these and other
foreign regions has adversely effected our results of operations for the fiscal
year ended June 30, 1999 and the six months ended December 31, 1999. We expect
that these negative trends will continue to adversely impact our results of
operations.
YOU SHOULD NOT RELY ON OUR QUARTERLY OPERATING RESULTS AS AN INDICATION OF OUR
FUTURE RESULTS BECAUSE THEY ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, AND IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, OUR STOCK
PRICE COULD DECLINE SIGNIFICANTLY.
Our future revenues and results of operations may significantly fluctuate
due to a combination of factors, including:
o the length of time needed to initiate and complete customer contracts;
o delays in the booking of new contracts;
o the demand for and acceptance of our existing products and services;
o the cost of providing our products and services;
o the introduction of new and improved products and services by us or our
competitors;
o market acceptance of new products and services;
o the mix of revenue between our standard products, custom-built products
and our communications services;
8
<PAGE>
o the level of demand for our existing products and services in developing
countries with emerging markets for our services;
o the timing of significant marketing programs;
o our ability to hire and retain additional personnel;
o the competition in our markets; and
o general economic conditions in the United States and abroad, including
the difficult economic conditions and currency devaluations in the
Pacific Rim region, Russia and other international markets which have,
and may continue to, adversely impact our quarterly results.
Accordingly, you should not rely on quarter-to-quarter comparisons of our
results of operations as an indication of our future performance. It is
possible that in future periods our results of operations may be below the
expectations of public market analysts and investors, which could cause the
trading price of our common stock to decline.
OUR MARKETS ARE HIGHLY COMPETITIVE AND WE HAVE MANY ESTABLISHED COMPETITORS,
AND WE MAY LOSE MARKET SHARE AS A RESULT.
The markets in which we operate are highly competitive and this
competition could harm our ability to sell our products and services on prices
and terms favorable to us. Our primary competitors in the satellite ground
segment and networks services include vertically integrated satellite systems
providers like Nippon Electric Corporation, and systems integrators like IDB
Systems, a division of MCI WorldCom, Inc.
In the communications services and Internet access services markets, we
compete with other satellite communication companies who provide similar
services, like Loral CyberStar, Inc. and PanAmSat Corporation, as well as other
Internet services providers. In addition, we may compete with other
communications services providers like Teleglobe, Inc. and MCI WorldCom. We
anticipate that our competitors may develop or acquire services that provide
functionality that is similar to that provided by our services and that those
services may be offered at significantly lower prices or bundled with other
services.
These competitors have the financial resources to withstand substantial
price competition and may be in a better position to endure difficult economic
conditions in the Pacific Rim region, Russia and other international markets,
and may be able to respond more quickly than we can to new or emerging
technologies and changes in customer requirements. Moreover, many of our
competitors have more extensive customer bases, broader customer relationships
and broader industry alliances that they could use to their advantage in
competitive situations.
The markets in which we operate have limited barriers to entry and we
expect that we will face additional competition from existing competitors and
new market entrants in the future. Moreover, our current and potential
competitors have established or may establish strategic relationships among
themselves or with third parties to increase the ability of their products and
services to address the needs of our current and prospective customers.
Existing and new competitors with their potential strategic relationships may
rapidly acquire significant market share, which would harm our business and
financial condition.
IF THE SATELLITE COMMUNICATIONS INDUSTRY FAILS TO CONTINUE TO DEVELOP OR NEW
TECHNOLOGY MAKES IT OBSOLETE, OUR BUSINESS AND FINANCIAL CONDITION WILL BE
HARMED.
Our business is dependent on the continued success and development of
satellite communications technology, which competes with terrestrial
communications transport technologies like terrestrial microwave, coaxial cable
and fiber optic communications systems. If the satellite communications
industry fails to continue to develop, or any technological development
significantly improves the cost or efficiency of competing terrestrial systems
relative to satellite systems, then our business and financial condition would
be materially harmed.
9
<PAGE>
WE MAY BE UNABLE TO RAISE ADDITIONAL FUNDS TO MEET OUR CAPITAL REQUIREMENTS IN
THE FUTURE.
We have incurred negative cash flows from operations in each year since
our inception. We believe that our available cash resources, together with the
proceeds of this offering, will be sufficient to meet our working capital and
capital expenditure requirements through March 2001. However, our future
liquidity and capital requirements are difficult to predict, as they depend on
numerous factors, including the success of our existing product and services
offerings as well as competing technological and market developments. We may
need to raise additional funds in order to meet additional working capital
requirements and to support additional capital expenditures. Should this need
arise, additional funds may not be available when needed and, even if
additional funds are available, we may not find the terms favorable or
commercially reasonable. If adequate funds are unavailable, we may be required
to delay, reduce or eliminate some of our operating activities, including
marketing programs, hiring of additional personnel and research and development
programs. If we raise additional funds by issuing equity securities, our
existing stockholders will own a smaller percentage of our capital stock and
new investors may pay less on average for their securities than, and could have
rights superior to, existing stockholders. Please see "Management's Discussion
and Analysis of Financial Condition and Results of Operations-- Liquidity and
Capital Resources" for a more complete description of our historical financial
condition, results of operations and liquidity.
WE RELY ON OUR RELATIONSHIPS WITH RESELLERS IN DEVELOPING COUNTRIES WITH
EMERGING MARKETS FOR SALES OF OUR PRODUCTS AND SERVICES AND THE LOSS OR FAILURE
OF ANY OF THESE RELATIONSHIPS MAY HARM OUR ABILITY TO MARKET AND SELL OUR
SERVICES.
We intend to provide our products and services and NetSat Express'
services almost entirely in developing countries where we have little or no
market experience. We intend to rely on resellers in those markets to provide
their expertise and knowledge of the local regulatory environment in order to
make access to customers in emerging markets easier. If we are unable to
maintain these relationships, or develop new ones in other emerging markets,
our ability to enter into and compete successfully in developing countries
would be adversely affected.
A LIMITED NUMBER OF CUSTOMERS ACCOUNT FOR A HIGH PERCENTAGE OF OUR REVENUE, AND
THE LOSS OF A KEY CUSTOMER WOULD ADVERSELY AFFECT OUR REVENUES, BUSINESS AND
FINANCIAL CONDITION.
We rely on a small number of customers for a large portion of our revenues
and expect that a significant portion of our revenues will continue to be
derived from a limited number of customers. For the six months ended December
31, 1999, four customers accounted for approximately 29.8% of our total
revenues. We anticipate that our operating results in any given period will
continue to depend to a significant extent upon revenues from large contracts
with a small number of customers. As a result of this concentration of our
customer base, a loss of or decrease in business from one or more of these
customers would materially adversely affect our revenues and financial
condition.
OUR INABILITY TO EFFECTIVELY MANAGE OUR GROWTH AND EXPANSION COULD SERIOUSLY
HARM OUR ABILITY TO EFFECTIVELY RUN OUR BUSINESS.
Since our inception, we have continued to increase the scope of our
operations. This growth has placed, and our anticipated growth will continue to
place, a significant strain on our personnel, management, financial and other
resources. Any failure to manage our growth effectively could seriously harm
our ability to respond to customers, monitor the quality of our products and
services and maintain the overall efficiency of our operations. In order to
continue to pursue the opportunities presented by our satellite-based
communications services, we plan to continue to hire a significant number of
key officers and other employees and to increase our operating expenses by
broadening our customer support capabilities, expanding our sales and marketing
operations and improving our operating and financial systems. If we fail to
manage any future growth in an efficient manner, and at a pace consistent with
our business, our revenues, financial condition and business will be harmed.
10
<PAGE>
WE ANTICIPATE SIGNIFICANT REVENUES FROM OUR SIRIUS SATELLITE RADIO CONTRACT AND
A MODIFICATION OR TERMINATION OF THIS CONTRACT COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR REVENUES AND FINANCIAL CONDITION.
We have an agreement with Sirius Satellite Radio, Inc. to provide
equipment for their satellite radio transmission system, which we expect to
generate substantial revenues. Sirius Satellite Radio anticipates beginning
operations of its system at the end of the fourth quarter of 2000. If it is
unable to implement its plan to build a nationwide radio broadcast system, the
market for digital radio declines, or Sirius Satellite Radio modifies or
terminates its agreement with us, our financial condition and results of
operations would be harmed.
WE ARE PAID A FIXED PRICE IN MOST OF OUR CUSTOMER CONTRACTS, AND ANY VARIATION
BETWEEN THE FIXED PRICE AND THE ACTUAL COST OF PERFORMANCE MAY HARM OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
A majority of our customer contracts are on a fixed-price basis. The
profitability of these contracts is subject to inherent uncertainties in the
cost of performance, including costs related to unforeseen obstacles and
unexpected problems encountered in engineering, design, implementation and
testing of our products and services. Because a significant portion of our
revenues is dependent upon a small number of customers, if the fixed price is
significantly less than the actual cost of performance on any one contract, our
financial condition and results of operations could be adversely affected.
IF OUR PRODUCTS AND SERVICES ARE NOT ACCEPTED IN DEVELOPING COUNTRIES WITH
EMERGING MARKETS, OUR REVENUES WILL BE IMPAIRED.
We anticipate that a substantial portion of the growth in the demand for
our products and services will come from customers in developing countries due
to a lack of basic communications infrastructure in these countries. However,
we cannot guarantee an increase in the demand for our products and services in
developing countries or that customers in these countries will accept our
products and services at all. Our ability to penetrate emerging markets in
developing countries is dependent upon various factors including:
o the speed at which communications infrastructure, including terrestrial
microwave, coaxial cable and fiber optic communications systems, which
compete with satellite-based services, is built;
o the effectiveness of our local resellers and sales representatives in
marketing and selling our products and services; and
o the acceptance of our products and services by customers.
If our products and services are not accepted, or the market potential we
anticipate does not develop, our revenues will be impaired.
WE DEPEND UPON CERTAIN KEY PERSONNEL AND MAY NOT BE ABLE TO RETAIN THESE
EMPLOYEES OR RECRUIT ADDITIONAL QUALIFIED PERSONNEL, WHICH WOULD HARM OUR
BUSINESS.
Our future performance depends on the continued service of our key
technical, managerial and marketing personnel. In particular, we are highly
dependent on our management team, including David Hershberg, Kenneth Miller,
Marni Ehrlich, Burt Liebowitz, Steven Yablonski and Don Woodring. The
employment of any of our key personnel could cease at any time.
Our future success depends upon our ability to attract, retain and
motivate highly-skilled employees. Because the competition for qualified
employees among companies in the satellite communications industry and the
networking industry is intense, we may not be successful in recruiting or
retaining qualified personnel, which would harm our business.
UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY BY THIRD PARTIES MAY DAMAGE OUR
BUSINESS.
We regard our trademarks, trade secrets and other intellectual property as
critical to our success. Unauthorized use of our intellectual property by third
parties may damage our business. We rely on
11
<PAGE>
trademark, trade secret and patent protection and contracts including
confidentiality and license agreements with our employees, customers, strategic
collaborators, consultants and others to protect our intellectual property
rights. Despite our precautions, it may be possible for third parties to obtain
and use our intellectual property without our authorization. Failure to
maintain protection of our intellectual property for any reason could have a
materially adverse effect on our business.
We currently have been granted two patents in the United States for
remote access to the Internet using satellites and for satellite communication
with automatic frequency control. We also have a patent pending in the United
States. We also intend to seek further patents on our technology, if
appropriate. We cannot assure you that patents will be issued for any of our
pending or any future applications or that any claims allowed from such
applications will be of sufficient scope, or be issued in all countries where
our products and services can be sold, to provide meaningful protection or any
commercial advantage to us. Also, our competitors may be able to design around
our patents. The laws of some foreign countries in which our products and
services are or may be developed, manufactured or sold may not protect our
products and services or intellectual property rights to the same extent as do
the laws of the United States and thus make the possibility of piracy of our
technology and products and services more likely.
We have filed applications for trademark registration of Globecomm Systems
Inc. in the United States and various other countries and have received
trademark registrations for NetSat Express in the United States, the European
Community, Russia and Brazil. We intend to seek registration of other
trademarks and service marks in the future. We cannot assure you that
registrations will be granted from any of our pending or future applications,
or that any registrations that are granted will prevent others from using
similar trademarks in connection with related goods and services.
DEFENDING AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD BE TIME
CONSUMING AND EXPENSIVE, AND IF WE ARE NOT SUCCESSFUL, COULD CAUSE SUBSTANTIAL
EXPENSES AND DISRUPT OUR BUSINESS.
We cannot be sure that the products, services, technologies, and
advertising we employ in our business do not or will not infringe valid
patents, trademarks, copyrights or other intellectual property rights held by
third parties. We may be subject to legal proceedings and claims from time to
time relating to the intellectual property of others in the ordinary course of
our business. We may incur substantial expenses in defending against these
third party claims, regardless of their merit. Successful infringement claims
against us may result in substantial monetary liability and/or may materially
disrupt the conduct of, or necessitate the cessation of, our business.
THROUGH ITS OWNERSHIP, OUR OFFICERS AND DIRECTORS AND THEIR AFFILIATES MAY BE
ABLE TO EXERT SUBSTANTIAL INFLUENCE OVER OUR MANAGEMENT.
As of February 29, 2000, our officers and directors, and their affiliates
beneficially own approximately 1.7 million shares, constituting approximately
17% of our outstanding common stock. These stockholders, acting together, may
be able to exert significant influence over the election of directors and other
corporate actions requiring stockholder approval.
WE MAY NOT BE ABLE TO KEEP PACE WITH TECHNOLOGICAL CHANGES WHICH WOULD MAKE OUR
PRODUCTS AND SERVICES BECOME NON-COMPETITIVE AND OBSOLETE.
The telecommunications industry, including satellite-based communications
services and Internet access services, is characterized by rapidly changing
technologies, frequent new product and service introductions and evolving
industry standards. If we are unable, for technological or other reasons, to
develop and introduce new products and services or enhancements to existing
products and services in a timely manner or in response to changing market
conditions or customer requirements, our products and services would become
non-competitive and obsolete, which would harm our business, results of
operations and financial condition.
12
<PAGE>
WE DEPEND ON OUR SUPPLIERS, SOME OF WHICH ARE OUR SOLE OR A LIMITED SOURCE OF
SUPPLY, AND THE LOSS OF THESE SUPPLIERS WOULD MATERIALLY ADVERSELY AFFECT OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We currently obtain most of our critical components and services from
single or limited sources and generally do not maintain significant inventories
or have long-term or exclusive supply contracts with our source vendors. We
have from time to time experienced delays in receiving products from vendors
due to lack of availability, quality control or manufacturing problems,
shortages of materials or components or product design difficulties. We may
experience delays in the future and replacement services or products may not be
available when needed, or at all, or at commercially reasonable rates or
prices. If we were to change some of our vendors, we would have to perform
additional testing procedures on the service or product supplied by the new
vendors, which would prevent or delay the availability of our products and
services. Furthermore, our costs could increase significantly if we need to
change vendors. If we do not get timely deliveries of quality products and
services, or if there are significant increases in the prices of these products
or services, it could have a material adverse effect on our business, results
of operations and financial condition.
WE MAY BE UNABLE TO LEASE TRANSPONDER SPACE ON SATELLITES WHICH COULD LIMIT OUR
ABILITY TO PROVIDE OUR SERVICES TO OUR CUSTOMERS.
We and NetSat Express lease transponder space on satellites in order to
provide communications and Internet services to our customers and the
customers of NetSat Express. The supply of transponder space serving a
geographic region on earth is limited by the number of satellites that are in
orbit above that geographic region. If companies that own and deploy satellites
in orbit underestimate the demand for transponder space in a given geographic
area or they are simply unable to build and launch enough satellites to keep up
with increasing demand, the price for leasing transponder space could rise,
increasing our cost of operations or we simply may not be able to lease enough
transponder space to meet the demands of our customers. We currently anticipate
that the rapid growth in the demand for satellite-based communications in the
Pacific Rim region could lead to a short-term shortage of transponder space in
that region.
WE RELY ON NETSAT EXPRESS, OUR MAJORITY-OWNED SUBSIDIARY, FOR OUR MAIN SUPPLY
OF TRANSPONDER SPACE ON SATELLITES. IF THEIR BUSINESS FAILS OR WE ARE OTHERWISE
UNABLE TO CONTINUE TO RELY ON THEM FOR THIS SUPPLY, OUR BUSINESS MAY BE HARMED.
We currently depend on NetSat Express for a majority of our transponder
space on satellites. We do not have a long-term agreement in place with NetSat
Express, as most of our needs are filled on a purchase order basis. If NetSat
Express is unable to develop its business or if we are unable to continue to
rely on their supply for transponder space, then we will have to find
alternative suppliers. If we are unable to find another supplier of transponder
space or if we are unable to find one on terms favorable to us, then our
business may be harmed.
OUR NETWORK MAY EXPERIENCE SECURITY BREACHES WHICH COULD DISRUPT OUR SERVICES.
Our network infrastructure may be vulnerable to computer viruses,
break-ins, denial of service attacks and similar disruptive problems caused by
our customers or other Internet users. Computer viruses, break-ins, denial of
service attacks or other problems caused by third parties could lead to
interruptions, delays or cessation in service to our customers. There currently
is no existing technology that provides absolute security, and the cost of
minimizing these security breaches could be prohibitively expensive. We may
face liability to customers for such security breaches. Furthermore, these
incidents could deter potential customers and adversely affect existing
customer relationships.
SATELLITES UPON WHICH WE RELY MAY BE DAMAGED OR LOST, OR MALFUNCTION.
The damage, loss or malfunction of any of the satellites used by us, or a
temporary or permanent malfunction of any of the satellites upon which we rely,
would likely result in the interruption of our satellite-based communications
services. This interruption would have a material adverse effect on our
business, results of operations and financial condition.
13
<PAGE>
PROBLEMS RESULTING FROM THE YEAR 2000 PROBLEM COULD RESULT IN A DECREASE IN
SALES OF OUR PRODUCTS AND SERVICES OR REQUIRE US TO REDIRECT OUR RESOURCES.
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately distinguish 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports to date, however, are that computer systems are functioning normally
and the compliance and remediation work accomplished leading up to 2000 was
effective in preventing any problems. Computer experts have warned that there
may still be residual consequences of the change in centuries and any such
difficulties could result in a decrease in sales of our products and services,
an increase in allocation of resources to address Year 2000 problems of our
customers without additional revenue commensurate with such dedication of
resources, or an increase in litigation costs relating to losses suffered by
our customers due to such Year 2000 problems.
RISKS RELATED TO GOVERNMENT APPROVALS
WE ARE SUBJECT TO MANY GOVERNMENT REGULATIONS, AND FAILURE TO COMPLY WITH THEM
WILL HARM OUR BUSINESS.
OPERATIONS AND USE OF SATELLITES
We are subject to various federal laws and regulations which may have
negative effects on our business. We operate earth stations in Hauppauge, New
York, subject to the Communications Act of 1934, as amended, and the rules and
regulations of the Federal Communications Commission, or FCC. Pursuant to the
Act and rules, we have obtained and are required to maintain radio transmission
licenses from the FCC for both domestic and foreign operations of our earth
stations. These licenses should be renewed by the FCC in the normal course as
long as we are in compliance with the FCC rules and regulations. However, we
cannot guarantee that additional licenses will be granted by the FCC when our
existing licenses expire, nor are we assured that the FCC will not adopt new or
modified technical requirements that will require us to incur expenditures to
modify or upgrade our equipment as a condition of retaining our licenses.
We are also required to comply with FCC regulations regarding the exposure
of humans to radio frequency radiation from our earth stations. These
regulations, as well as local land use regulations, restrict our freedom to
choose where to locate our earth stations.
FOREIGN OWNERSHIP
We may, in the future, be required to seek FCC approval for foreign
ownership if we operate as a common carrier and ownership of our stock exceeds
the specified criteria. Failure to comply with these policies may result in an
order to divest the offending foreign ownership, fines, denial of license
renewal, and/or license revocation proceedings against the licensee by the FCC.
FOREIGN REGULATIONS
Regulatory schemes in countries in which we may seek to provide NetSat
Express' services may impose impediments on our operations. Some countries in
which we intend to operate have telecommunications laws and regulations that do
not currently contemplate technical advances in telecommunications technology
like Internet/intranet transmission by satellite. We cannot assure you that the
present regulatory environment in any of those countries will not be changed in
a manner which may have a material adverse impact on our business. Either we or
our local partners typically must obtain authorization for each country in
which we provide our satellite-delivered data communications services. The
regulatory schemes in each country are different, and thus there may be
instances of noncompliance of which we are not aware. We cannot assure you that
our licenses and approvals are or will remain sufficient in the view of foreign
regulatory authorities, or that necessary licenses and approvals will be
granted on a timely basis in all jurisdictions in which we wish to offer our
products and services or that applicable restrictions will not be unduly
burdensome.
14
<PAGE>
REGULATION OF THE INTERNET
Due to the increasing popularity and use of the Internet it is possible
that a number of laws and regulations may be adopted at the local, national or
international levels with respect to the Internet, covering issues including
user privacy and expression, pricing of products and services, taxation,
advertising, intellectual property rights, information security or the
convergence of traditional communication services with Internet communications.
It is anticipated that a substantial portion of our Internet operations will be
carried out in countries which may impose greater regulation of the content of
information coming into the country than that which is generally applicable in
the United States, for example, privacy regulations in Europe and content
restrictions in countries like the Republic of China. To the extent that we
provide content as a part of our Internet services, it will be subject to laws
regulating content. Moreover, the adoption of laws or regulations may decrease
the growth of the Internet, which could in turn decrease the demand for our
Internet services or increase our cost of doing business or in some other
manner have a material adverse effect on our business, operating results and
financial condition. In addition, the applicability to the Internet of existing
laws governing issues including property ownership, copyrights and other
intellectual property issues, taxation, libel and personal privacy is
uncertain. The vast majority of these laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Changes to
these laws intended to address these issues, including some recently proposed
changes, could create uncertainty in the marketplace which could reduce demand
for our products and services, could increase our cost of doing business as a
result of costs of litigation or increased product development costs, or could
in some other manner have a material adverse effect on our business, financial
condition and results of operations.
TELECOMMUNICATIONS TAXATION, SUPPORT REQUIREMENTS, AND ACCESS CHARGES
All telecommunications carriers providing domestic services in the United
States are required to contribute a portion of their gross revenues for the
support of universal telecommunications services; and some telecommunications
services are subject to special taxation and to contribution requirements to
support services to special groups, like persons with disabilities. Our
services may be subject to new or increased taxes and contribution requirements
that could affect our profitability, particularly if we are not able to pass
them through to customers for either competitive or regulatory reasons.
Internet services are currently exempt from charges that long distance
telephone companies pay for access to the networks of local telephone companies
in the United States. Efforts have been made from time to time, and may be made
again in the future, to eliminate this exemption. If these access charges are
imposed on telephone lines used to reach Internet service providers, and/or if
flat rate telephone services for Internet access are eliminated or curtailed,
the cost to customers who access our satellite facilities using telephone
company-provided facilities could increase to an extent that could discourage
the demand for our services. Likewise, the demand for our services in other
countries may be affected by the availability and cost of local telephone or
other telecommunications facilities to reach our facilities.
EXPORT OF TELECOMMUNICATIONS EQUIPMENT
The sale of our ground segment systems, networks, and communications
services outside the United States is subject to compliance with the
regulations of the United States Export Administration Regulations. The absence
of comparable restrictions on competitors in other countries may adversely
affect our competitive position. In addition, in order to ship our products
into other countries, the products must satisfy the technical requirements of
that particular country. If we were unable to comply with these requirements
with respect to a significant quantity of our products, our sales in those
countries could be restricted, which could have a material adverse effect on
our business, financial condition and results of operations.
15
<PAGE>
RISKS RELATED TO THE OFFERING
OUR STOCK PRICE IS HIGHLY VOLATILE.
Our stock price has fluctuated substantially since our initial public
offering, which was completed in August 1997. The market price for our common
stock, like that of the securities of many telecommunications and high
technology industry companies, is likely to remain volatile based on many
factors, including the following:
o quarterly variations in operating results;
o announcements of new technology, products or services by us or any of
our competitors;
o acceptance of satellite-based communication services and Internet access
services in developing countries with emerging markets;
o changes in financial estimates or recommendations by security analysts;
or
o general market conditions.
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. We may become involved in this type of
litigation in the future. Litigation of this type is often extremely expensive
and diverts management's attention and resources, which could significantly
harm our business.
NetSat Express has announced its intentions to make an initial public
offering of shares of its common stock. Because we own a large percentage of
the shares of NetSat Express, an adverse change in the market price of NetSat
Express' common stock, whether or not it accurately reflects the financial
performance or prospects of NetSat Express, may affect the market price of our
common stock. In addition, any perceived delay or actual postponement of an
initial public offering of NetSat Express' common stock may adversely affect
the market price of our common stock. We currently report in our consolidated
financial statements the operations of NetSat Express. The timing and size of
NetSat Express' anticipated offering is dependent on market conditions and
other factors. If NetSat Express completes its anticipated initial public
offering, our equity ownership may decrease to a percentage that would cause us
to no longer consolidate the financial position and results of operations of
NetSat Express. Therefore, we may in the future report our financial statements
without consolidating the financial statements of NetSat Express. If public
market analysts view this change in our financial statement reports negatively,
it could have a material adverse affect on the market price of our stock.
WE MAY SPEND THE NET PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT
AGREE.
We will have broad discretion as to the use of the net proceeds of this
offering. Accordingly, investors in this offering will be relying on
management's judgment with only limited information about our specific
intentions regarding the use of proceeds. We may spend most of the net proceeds
from this offering in ways with which you may not agree. Our failure to apply
these funds effectively could have a material and adverse effect on our
business, results of operations and financial condition.
A THIRD PARTY COULD BE PREVENTED FROM ACQUIRING YOUR SHARES OF STOCK AT A
PREMIUM TO THE MARKET PRICE BECAUSE OF OUR ANTI-TAKEOVER PROVISIONS.
Various provisions with respect to votes in the election of directors,
special meetings of stockholders, and advance notice requirements for
stockholder proposals and director nominations of our amended and restated
certificate of incorporation, bylaws and Section 203 of the General Corporation
Laws of the State of Delaware could make it more difficult for a third party to
acquire us, even if doing so might be beneficial to you and our other
stockholders. In addition, we have a poison pill in place that could make an
acquisition of us by a third party more difficult.
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<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The forward-looking
statements are principally contained in the sections on "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
In some cases, you can identify forward-looking statements by terms like
"intends," "may," "will," "should," "could," "would," "expects," "plans,"
"anticipates," "believes," "estimates," "projects," "predicts," "potential" or
"continue" or other terms of or the negative of those forms or other comparable
terms. Our forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results,
performances or achievements expressed or implied by the forward-looking
statements. These factors are discussed in more detail elsewhere in this
prospectus, including under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Because of these uncertainties, you should not
place undue reliance on our forward-looking statements. We do not intend to
update any of these factors or to publicly announce the result of any revisions
to any of our forward-looking statements contained herein, whether as a result
of new information, future events or otherwise.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of
2,000,000 shares of common stock will be approximately $65.6 million after
deducting underwriting discounts and offering expenses, or approximately
$71.9 million if the underwriters fully exercise their over-allotment option.
We expect to use the net proceeds of this offering as follows:
o a revolving credit facility for up to $15 million to NetSat Express, our
majority-owned subsidiary, for its working capital and general corporate
purposes;
o for working capital; and
o for general corporate purposes.
We are not currently in negotiations to acquire any products or companies.
We will have broad discretion to use the unspecified proceeds as we see fit.
Based upon the current plans, we believe that the net proceeds from this
offering, together with interest thereon, and our existing capital resources
will satisfy our capital requirements through March 2001.
Pending such uses, we intend to invest the net proceeds in
interest-bearing, investment-grade instruments, certificates of deposit or
direct or guaranteed obligations of the United States or its agencies.
DIVIDEND POLICY
We have not declared or paid cash dividends on our common stock in the
past and do not intend to pay dividends on our common stock in the foreseeable
future.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
and as adjusted to reflect the sale of 2,000,000 shares of common stock
pursuant to this offering, assuming an offering price of $35.25 and after
deducting the estimated underwriting discounts and offering expenses. This
table should be read in conjunction with the consolidated financial statements
and related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," appearing elsewhere in the prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------
ACTUAL AS ADJUSTED
------------ ------------
(IN THOUSANDS EXCEPT SHARE
DATA)
(UNAUDITED)
<S> <C> <C>
Capital lease obligations ........................................... $ 11,111 11,111
Minority interests in consolidated subsidiary ....................... 1,963 1,963
Series A Participating Preferred stock of consolidated subsidiary, at
redemption value ................................................... 5,000 5,000
Stockholders' equity:
Preferred stock, $0.001 par value; 3,000,000 shares authorized:
Class A Convertible, shares issued and outstanding: none ......... -- --
Class B Convertible, shares issued and outstanding: none ......... -- --
Series A Junior Participating, shares issued and outstanding:
none ............................................................ -- --
Common stock, $0.001 par value, 22,000,000 shares authorized,
shares issued: 9,712,988 ......................................... 10 12
Additional paid-in capital ......................................... 55,781 121,398
Accumulated deficit ................................................ (14,319) (14,319)
Deferred compensation .............................................. (255) (255)
Treasury stock at cost, 139,638 shares ............................. (803) (803)
--------- --------
Total stockholders' equity .......................................... 40,414 106,033
--------- --------
Total capitalization ................................................ $ 58,488 $124,107
========= ========
</TABLE>
Excludes 1,649,636 shares of common stock issuable upon exercise of
options outstanding as of February 29, 2000 at a weighted average exercise
price of $9.56 per share, and 57,325 shares of common stock issuable upon the
exercise of warrants, all with an exercise price of $8.07 per share.
19
<PAGE>
DILUTION
Our net tangible book value as of December 31, 1999 was approximately
$39.7 million, or $4.14 per share. Net tangible book value per share represents
the amount of our total tangible assets less total liabilities, divided by the
total number of shares of common stock outstanding. After giving effect to the
sale by us of 2,000,000 shares of common stock offered by this prospectus at an
assumed offering price of $35.25 per share and after deducting underwriting
discounts and commissions and estimated offering expenses, the net tangible book
value at December 31, 1999 would have been approximately $105.3 million, or
$9.10 per share. This represents an immediate increase in net tangible book
value of $4.96 per share to existing stockholders and an immediate dilution of
$26.15 per share to new investors in this offering, as illustrated by the
following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share .................................. $ 35.25
Net tangible book value per share before the offering . . . . . . . . . . $ 4.14
Increase per share attributable to new investors . . . . . . . . . . . . 4.96
------
Pro forma net tangible book value per share after the offering . . . . . 9.10
--------
Net tangible book value dilution per share to new investors . . . . . . . $ 26.15
========
</TABLE>
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SELECTED HISTORICAL FINANCIAL DATA
Our selected historical financial data as of and for each of the five years
in the period ended June 30, 1999 have been derived from our audited financial
statements. Our selected historical financial data as of and for the six months
ended December 31, 1998 and 1999 were derived from our unaudited condensed
financial statements. We believe that the unaudited financial data fairly
reflects our results of operations and financial condition for the respective
periods. In the table below, shares used in the calculation of pro forma basic
and diluted net loss were computed on the basis described in the Notes to the
Consolidated Financial Statements. EBITDA represents earnings before minority
interests in operations of our consolidated subsidiary, interest income,
interest expense, net income taxes, depreciation and amortization expense, and a
non-recurring gain or sale of consolidated subsidiary's common stock. EBITDA
does not represent cash flows defined by generally accepted accounting
principles and does not necessarily indicate that our cash flows are sufficient
to fund all of our cash needs. EBITDA is a financial measure commonly used in
our industry and should not be considered in isolation or as a substitute for
net income, cash flows from operating activities or other measures of liquidity
determined in accordance with generally accepted accounting principles. EBITDA
may not be comparable to other similarly titled measures of other companies. We
record an order in backlog when it receives a firm contract or purchase order
which identifies product quantities, sales price, service dates and delivery
dates. Backlog represents the amount of unrecorded revenue on undelivered orders
and services to be provided and a percentage of revenues from sales of products
that have been shipped but have not been shipped but have been accepted by the
customer. Our backlog at any given time is not necessarily indicative of future
period revenues.
21
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 17,
1994
(INCEPTION)
THROUGH YEARS ENDED JUNE 30,
JUNE 30, -----------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues .............................. $ 72 $ 13,476 $ 36,220 $58,105 $49,058
Costs of revenues ..................... 58 11,238 32,060 49,532 43,516
-------- -------- -------- ------- -------
Gross profit .......................... 14 2,238 4,160 8,573 5,542
-------- -------- -------- ------- -------
Operating expenses:
Network operations ................... -- -- -- -- 514
Selling and marketing ................ 346 1,915 3,282 4,187 5,183
Research and development ............. -- 712 649 1,188 1,325
General and administrative ........... 772 1,945 3,449 5,010 6,040
Terminated acquisition costs ......... -- -- -- -- 972
Write-down of investments ............ -- -- -- -- 679
-------- -------- -------- ------- -------
Total operating expenses .............. 1,118 4,572 7,380 10,385 14,713
-------- -------- -------- ------- -------
Loss from operations .................. (1,104) (2,334) (3,220) (1,812) (9,171)
Other income (expense):
Interest income ...................... 54 121 298 1,271 980
Interest expense ..................... (15) (32) (22) (5) (1)
Gains on sale of consolidated
subsidiary's common stock .......... -- -- -- -- --
-------- -------- -------- --------- ---------
Loss before minority interests in
operations of consolidated
subsidiary ........................... (1,065) (2,245) (2,944) (546) (8,192)
Minority interests in operations of
consolidated subsidiary .............. -- -- 275 -- --
-------- -------- -------- --------- ---------
Net (loss) income ..................... $ (1,065) $ (2,245) $ (2,669) $ (546) $(8,192)
======== ======== ======== ========= =========
Basic net (loss) income per
common share ......................... $ (0.06) $ (0.90)
========= =========
Diluted net (loss) income per
common share ......................... $ (0.06) $ (0.90)
========= =========
Shares used in the calculation of
basic net (loss) income per
common share ......................... 8,553 9,109
========= =========
Shares used in the calculation of
diluted net (loss) income per
common share ......................... 8,553 9,109
========= =========
Pro forma basic and diluted net loss
per common share (unaudited) ......... $ (0.44)
========
Shares used in the calculation of
pro forma basic and diluted net
loss per common share
(unaudited) .......................... 6,086
========
<PAGE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-----------------------
1998 1999
------------ ----------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues .............................. $ 25,175 $ 36,798
Costs of revenues ..................... 21,919 31,885
-------- --------
Gross profit .......................... 3,256 4,913
-------- --------
Operating expenses:
Network operations ................... 204 718
Selling and marketing ................ 2,324 2,426
Research and development ............. 550 355
General and administrative ........... 2,656 4,114
Terminated acquisition costs ......... 972 --
Write-down of investments ............ -- --
-------- --------
Total operating expenses .............. 6,706 7,613
-------- --------
Loss from operations .................. (3,450) (2,700)
Other income (expense):
Interest income ...................... 610 448
Interest expense ..................... -- (317)
Gains on sale of consolidated
subsidiary's common stock .......... -- 2,353
-------- --------
Loss before minority interests in
operations of consolidated
subsidiary ........................... (2,840) (216)
Minority interests in operations of
consolidated subsidiary .............. -- 614
-------- --------
Net (loss) income ..................... $ (2,840) $ 398
======== ========
Basic net (loss) income per
common share ......................... $ (0.31) $ 0.04
======== ========
Diluted net (loss) income per
common share ......................... $ (0.31) $ 0.04
======== ========
Shares used in the calculation of
basic net (loss) income per
common share ......................... 9,127 9,268
======== ========
Shares used in the calculation of
diluted net (loss) income per
common share ......................... 9,127 10,157
======== ========
Pro forma basic and diluted net loss
per common share (unaudited) .........
Shares used in the calculation of
pro forma basic and diluted net
loss per common share
(unaudited) ..........................
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 17,
1994
(INCEPTION) SIX MONTHS ENDED
THROUGH YEARS ENDED JUNE 30, DECEMBER 31,
JUNE 30, --------------------------------------------------- ------------------------
1995 1996 1997 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER CONSOLIDATED OPERATING
DATA:
EBITDA ......................... $ (1,036) $ (2,141) $ (2,858) $ (1,096) $ (7,904) $ (2,638) $ (1,592)
Cash flows used in operating
activities .................... (454) (2,510) (1,958) (5,678) (4,408) (1,335) (3,133)
Cash flows (used in) provided by
investing activities .......... (593) (1,714) (8,221) (7,342) (4,435) (3,082) 3,761
Cash flows provided by (used in)
financing activities .......... 4,554 4,151 11,908 29,198 (555) (562) 10,499
Capital expenditures ........... 437 339 6,765 3,678 3,818 1,152 2,393
Backlog at end of period ....... 7,716 11,588 40,807 43,572 63,746 46,388 76,257
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents ................. $3,507 $3,435 $ 5,164 $21,342 $11,944 $16,363 $23,071
Working capital ........................... 2,663 4,727 6,379 31,461 19,450 26,588 29,742
Total assets .............................. 6,375 9,503 33,286 58,619 58,010 57,159 75,890
Long-term liabilities ..................... 109 74 18 -- -- -- 12,416
Minority interests ........................ -- -- -- -- -- -- 1,963
Series A Participating Preferred
stock of consolidated subsidiary ......... -- -- -- -- -- -- 5,000
Total stockholders' equity ................ 3,207 5,730 15,996 44,014 36,257 40,666 40,414
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following management's discussion and analysis in
conjunction with our consolidated financial statements and related notes
included in this prospectus.
OVERVIEW
Since our inception, substantially all of our revenue has been generated
by our ground segment systems and networks and communications services
business. Contracts for these ground segment systems and networks and
communications services have been fixed-price contracts in virtually all cases.
Profitability of such contracts is subject to inherent uncertainties as to the
cost of performance. In addition to possible errors or omissions in making
initial estimates, cost overruns may be incurred as a result of unforeseen
obstacles including both physical conditions and unexpected problems
encountered in engineering design and testing. Since our business may at times
be concentrated in a limited number of large contracts, a significant cost
overrun on any contract could have a material adverse effect on our business,
financial condition and results of operations. The period from contract award
through installation of ground segment systems and networks and communications
services supplied by us generally requires from three to 12 months. We use the
percentage of completion method of accounting for contract revenues, upon the
achievement of various milestones. Accordingly, most of the revenue from sales
of products is typically recognized when the product is shipped, with the
balance recognized at the time of acceptance by the customer. Revenues from
providing satellite-based communications services are recognized at the time
the service is performed. Costs of revenues are generally recorded based on the
relationship of the amount of projected final costs to the percentage of
revenue recorded for the specific contract.
Costs of revenues consist primarily of the costs of purchased material,
direct labor and related overhead expenses, project-related travel, living
costs and subcontractor salaries. In addition, cost of revenues relating to
Internet access service fees consists primarily of satellite space segment
charges and Internet connectivity fees. Network operations expenses consist
primarily of costs associated with the operation of NetSat Express' network
operations center on a twenty-four hour a day, seven day a week basis including
personnel and related costs. Selling and marketing expenses consist primarily
of salaries, travel and living costs for sales and marketing personnel.
Research and development expenses consist primarily of salaries and related
overhead expenses paid to engineers. General and administrative expenses
consist of expenses associated with our management, accounting, contract and
administrative functions. We anticipate that research and development will
increase and network operations, selling and marketing and general and
administrative expenses will continue to increase during the next several years
due to expected increases in personnel and related expenses to support our
increasing service base.
24
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth some operating data as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER
YEARS ENDED JUNE 30, 31,
--------------------------------------- -------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL REVENUES:
Revenues .............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of revenues ..................... 88.5 85.2 88.7 87.1 86.6
----- ----- ----- ----- -----
Gross profit .......................... 11.5 14.8 11.3 12.9 13.4
Operating expenses:
Network operations ................... -- -- 1.0 0.8 2.0
Selling and marketing ................ 9.1 7.2 10.6 9.2 6.6
Research and development ............. 1.8 2.1 2.7 2.2 0.9
General and administrative ........... 9.5 8.6 12.3 10.5 11.2
Terminated acquisition costs ......... -- -- 2.0 3.9 --
Write-down of investments ............ -- -- 1.4 -- --
----- ----- ----- ----- -----
Total operating expenses .............. 20.4 17.9 30.0 26.6 20.7
----- ----- ----- ----- -----
Loss from operations .................. ( 8.9) ( 3.1) (18.7) (13.7) ( 7.3)
Other income (expense):
Interest income ...................... 0.8 2.2 2.0 2.4 1.2
Interest expense ..................... -- -- -- -- ( 0.9)
Gain on sale of consolidated
subsidiary's common stock .......... -- -- -- -- 6.4
----- ----- ----- ----- -----
Loss before minority interests in
operations of consolidated
subsidiary ........................... ( 8.1) ( 0.9) (16.7) (11.3) ( 0.6)
Minority interests in operations of
consolidated subsidiary .............. 0.7 -- -- -- 1.7
----- ----- ----- ----- -----
Net (loss) income ..................... ( 7.4)% ( 0.9)% (16.7)% (11.3)% 1.1%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
Revenues. Revenues increased by $11.6 million, or 46.2% from $25.2 million
for the six months ended December 31, 1998 to $36.8 million for the six months
ended December 31, 1999. The increase reflects increased shipments for both
international and domestic projects and an increase in revenues generated by
NetSat Express. Although we experienced increased revenues for the six months
ended December 31, 1999, we expect the trends in revenues that adversely
affected our results of operations for the fiscal year ended June 30, 1999 to
continue to adversely impact us. These trends include the difficult economic
conditions in the Pacific Rim region, Russia and other international markets
and the decrease in bookings received by us from these regions.
Gross Profit. Gross profit increased by $1.7 million, or 50.9% from $3.3
million for the six months ended December 31, 1998 to $4.9 million, for the six
months ended December 31, 1999. The increase reflects increased shipments for
both international and domestic projects and an increase in revenues generated
by NetSat Express. Gross profit as a percentage of revenues increased from
12.9% for the six months ended December 31, 1998 to 13.4% for the six months
ended December 31, 1999. This increase is mainly attributable to an increase in
the NetSat Express gross profit for the six months ended December 31, 1999
compared to the comparable period in the prior year.
Network Operations. Network operations expenses increased by $0.5 million,
or 252.0% from $0.2 million for the six months ended December 31, 1998 to $0.7
million for the six months ended
25
<PAGE>
December 31, 1999. The increase is due to the continuing expansion of NetSat
Express' network operations center and related expenses to support the
increasing service base.
Selling and Marketing. Selling and marketing expenses increased by $0.1
million, or 4.4% from $2.3 million for the six months ended December 31, 1998
to $2.4 million for the six months ended December 31, 1999. This slight
increase is attributable to an increase in NetSat Express' sales and marketing
efforts.
Research and Development. Research and development expenses decreased by
$0.2 million, or 35.5% from $0.6 million for the six months ended December 31,
1998 to $0.4 million for the six months ended December 31, 1999. This decrease
is due to our reduced research and development efforts in the first quarter
ended September 30, 1999.
General and Administrative. General and administrative expenses increased
by $1.5 million, or 54.9% from $2.7 million for the six months ended December
31, 1998 to $4.1 million for the six months ended December 31, 1999. General
and administrative expenses as a percentage of revenues increased from 10.5%
for the six months ended December 31, 1998 to 11.2% for the six months ended
December 31, 1999. The increase in general and administrative expenses for the
six months ended December 31, 1999 mainly resulted from an increase in NetSat
Express' personnel and related expenses.
Terminated Acquisition. Terminated acquisition costs of approximately $1.0
million for the six months ended December 31, 1998 relate to legal, accounting
and other expenses associated with the termination of a proposed acquisition of
a mobile satellite communications business during the first quarter ended
September 30, 1998 due to the determination that the acquisition was not in the
best interest of our stockholders.
Interest Income. Interest income decreased by $0.2 million, or 26.6% from
$0.6 million for the six months ended December 31, 1998 to $0.4 million for the
six months ended December 31, 1999. This decrease was primarily due to the
reduction of cash and cash equivalents during the first quarter ended September
30, 1999 compared to the same period in the prior year.
Interest Expense. Interest expense was minimal for the six months ended
December 31, 1998 and $0.3 million for the six months ended December 31, 1999.
This increase relates to NetSat Express' 15-year capital lease entered into in
September 1999 for satellite space segment on the SatMex 5 satellite.
Gain on Sale of Consolidated Subsidiary's Common Stock. The gain on sale
of consolidated subsidiary's common stock of approximately $2.4 million for the
six months ended December 31, 1999 relates to our sale of 1,400,000 shares of
common stock of NetSat Express at $2.50 per share.
NetSat Express. Our consolidated subsidiary, NetSat Express, experienced
an increase in revenues of $2.9 million, or 420.5% from $0.7 million for the
six months ended December 31, 1998 to $3.6 million for the six months ended
December 31, 1999. The increase resulted from additional service and hardware
revenues derived from new and existing Internet access service customers. The
loss from operations associated with NetSat Express increased by $1.4 million,
or 142.8% from $1.0 million for the six months ended December 31, 1998 to $2.4
million for the six months ended December 31, 1999. The increase was primarily
associated with an increase in general and administrative expenses due to an
increase in NetSat Express personnel and the related expenses and an increase
in network operation expenses.
FISCAL YEARS ENDED JUNE 30, 1998 AND 1999
Revenues. Revenues, which were primarily derived from sales of ground
segment systems and networks, decreased by $9.0 million, or 15.6% from $58.1
million for the fiscal year ended June 30, 1998, to $49.1 million for the
fiscal year ended June 30, 1999. The decrease relates primarily to the decrease
in the shipment and/or completion of ground segment systems and networks
contracts as a result of a decline in the bookings of contract orders due to
the continuing difficult economic conditions in the Pacific Rim, Russia and
other international markets.
26
<PAGE>
Gross Profit. Gross profit decreased by $3.0 million, or 35.4%, from $8.6
million for the fiscal year ended June 30, 1998 to $5.5 million for the fiscal
year ended June 30, 1999. The decrease was primarily due to the decrease in the
shipment and/or completion of ground segment systems and networks contracts.
Gross profit as a percentage of revenues decreased from 14.8% for the fiscal
year ended June 30, 1998 to 11.3% for the fiscal year ended June 30, 1999. The
decrease was due primarily to a significant negotiated contract in the second
and third quarters of fiscal 1998, which resulted in a higher gross profit
margin for the fiscal year ended June 30, 1998, as well as pricing pressures in
the marketplace.
Network Operations. Network operations expenses for the fiscal year ended
June 30, 1999 were $0.5 million and related to the implementation of NetSat
Express' network operations center on a twenty-four hour a day, seven day a
week basis during the current fiscal year.
Selling and Marketing. Selling and marketing expenses increased by $1.0
million, or 23.8%, from $4.2 million for the fiscal year ended June 30, 1998 to
$5.2 million for fiscal year ended June 30, 1999. The increase was primarily
due to the increase in marketing and bid and proposal efforts in the Americas
and Africa, as well as the related increase in sales and marketing personnel.
Research and Development. Research and development expenses increased by
$0.1 million, or 11.5%, from $1.2 million for the fiscal year ended June 30,
1998 to $1.3 million for the fiscal year ended June 30, 1999. The increase was
primarily due to the development of the Explorer-Ku Multimedia Portable
Satellite Earth Station, offset by a decrease in costs associated with custom
solutions.
General and Administrative. General and administrative expenses increased
by $1.0 million, or 20.6%, from $5.0 million for the fiscal year ended June 30,
1998 to $6.0 million for fiscal year ended June 30, 1999 and increased as a
percentage of revenues from 8.6% for the fiscal year ended June 30, 1998 to
12.3% for the fiscal year ended June 30, 1999. The increase in general and
administrative expenses resulted mainly from an increase in personnel and
related expenses.
Terminated Acquisition Costs. Terminated acquisition costs of
approximately $1.0 million for fiscal year ended June 30, 1999, relate to
legal, accounting and other expenses associated with the termination of a
proposed acquisition of a mobile satellite communications business during the
first quarter of the fiscal year ended June 30, 1999 due to the determination
that the acquisition was not in the best interest of our stockholders.
Write-down of investments. Write-down of investments of approximately $0.7
million for fiscal year ended June 30, 1999, related to two investments which
were written down in the fourth quarter ended June 30, 1999. Our management
evaluated the investments and believed it would be appropriate to write-down
the investments to zero.
Interest Income and Interest Expense. Interest income decreased by $0.3
million from $1.3 million for the fiscal year ended June 30, 1998 to $1.0
million for the fiscal year ended June 30, 1999. This decrease was primarily
due to the reduction of cash and cash equivalents from June 30, 1998 to June
30, 1999. Interest expense was minimal for the fiscal years ended June 30, 1998
and 1999.
NetSat Express. Our consolidated subsidiary, NetSat Express, experienced
an increase in revenues of $2.0 million, or 287.9%, from $0.7 million for the
fiscal year ended June 30, 1998 to $2.7 million for the fiscal year ended June
30, 1999. The increase resulted from the implementation of Internet access
services in January 1998, as well as an increase in the equipment sales and
activations. The loss from operations associated with NetSat Express increased
by $0.4 million, or 26.9%, from $1.7 million for the fiscal year ended June 30,
1998 to $2.1 million for the fiscal year ended June 30, 1999. The increase was
primarily associated with an increase in general and administrative expenses
relating to an increase in personnel to support the overall growth of NetSat
Express and the implementation of operating NetSat Express' network operations
center on a twenty-four hour a day, seven day a week basis during the year.
FISCAL YEARS ENDED JUNE 30, 1997 AND 1998
Revenues. Revenues, which were primarily derived from sales of ground
segment systems and networks and communications services, increased by $21.9
million, or 60.4%, from $36.2 million for
27
<PAGE>
the fiscal year ended June 30, 1997 to $58.1 million for the fiscal year ended
June 30, 1998. The increase was primarily the result of a negotiated contract
with Sonangol, U.E.E. as well as an overall increase in the number of shipments
and/or completion of contracts as we continued to expand our businesses.
Gross Profit. Gross profit increased by $4.4 million from $4.2 million for
the fiscal year ended June 30, 1997 to $8.6 million for the fiscal year ended
June 30, 1998. The increase was primarily due to the increase in the shipment
of ground segment systems and networks, and communications services. Gross
profit as a percentage of revenues increased from 11.5% for the fiscal year
ended June 30, 1997 to 14.8% for the fiscal year ended June 30, 1998. The
increase was due primarily to a significant negotiated contract with Sonangol,
U.E.E., which resulted in a higher gross profit margin offset in part by an
increase in orders awarded through a competitive bidding process, which
typically result in lower gross profit margins than negotiated contracts.
Selling and Marketing. Selling and marketing expenses increased by $0.9
million, or 27.6%, from $3.3 million for the fiscal year ended June 30, 1997 to
$4.2 million for the fiscal year ended June 30, 1998. The increase was
primarily due to the increase in the number of bids and proposals we prepared,
as well as an increase in marketing personnel from 25 at June 30, 1997 to 35 at
June 30, 1998. Selling and marketing expenses as a percentage of revenues
decreased from 9.1% for the fiscal year ended June 30, 1997 to 7.2% for the
fiscal year ended June 30, 1998.
Research and Development. Research and development expenses increased by
$0.5 million, or 83.1%, from $0.6 million for the fiscal year ended June 30,
1997 to $1.2 million for the fiscal year ended June 30, 1998 due to an increase
in development costs associated with custom solutions. Research and development
expenses as a percentage of revenues increased from 1.8% for the fiscal year
ended June 30, 1997 to 2.1% for the fiscal year ended June 30, 1998.
General and Administrative. General and administrative expenses increased
by $1.6 million, or 45.3%, from $3.4 million for the fiscal year ended June 30,
1997 to $5.0 million for the fiscal year ended June 30, 1998, but decreased as
a percentage of revenues from 9.5% for the fiscal year ended June 30, 1997 to
8.6% for the fiscal year ended June 30, 1998. The increase in general and
administrative expenses resulted primarily from an increase of approximately
$0.7 million in legal and other costs associated with operating a public
company, and an increase of approximately $0.5 million in personnel and related
expenses to support the continued growth of our business.
Interest Income and Interest Expense. Interest income increased by $1.0
million from $0.3 million for the fiscal year ended June 30, 1997 to $1.3
million for the fiscal year ended June 30, 1998. The increase was primarily the
result of the investment of remaining net proceeds from our initial public
offering. Interest expense was minimal for the fiscal years ended June 30, 1997
and 1998.
NetSat Express. During the fiscal year ended June 30, 1998, our
consolidated subsidiary, NetSat Express, experienced an increase in revenues of
approximately $0.6 million from approximately $0.1 million for the fiscal year
ended June 30, 1997 to approximately $0.7 million. The increase resulted from
the implementation of Internet access services in January 1998, an increase in
the number of PC Vector equipment sales and related activations. The increase
in loss from operations associated with NetSat Express of approximately $0.2
million from $1.5 million for the fiscal year ended June 30, 1997 to $1.7
million for the fiscal year ended June 30, 1998 was mainly attributable to
initial start up costs associated with providing Internet access and PC Vector
services.
QUARTERLY RESULTS
The following tables set forth unaudited financial information for each of
the eight fiscal quarters in the period ended December 31, 1999. We believe
that this information has been presented on the same basis as the audited
consolidated financial statements appearing elsewhere in this prospectus, and
we believe all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the unaudited quarterly results of operations. You should read these quarterly
data in conjunction with our audited consolidated financial statements and
related notes included elsewhere in this prospectus. The operating results for
any quarter are not
28
<PAGE>
necessarily indicative of the operating results for any future period. Some
quarters in fiscal 1999 have been reclassed to conform to the current fiscal
year presentation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998
------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues ........................... $16,261 $10,984 $13,293
Costs of revenues .................. 13,294 9,417 11,673
------- ------- -------
Gross profit ....................... 2,967 1,567 1,620
Operating expenses:
Network operations ............... -- -- 98
Selling and marketing ............ 1,167 1,223 1,031
Research and development ......... 287 317 291
General and administrative ....... 1,235 1,534 1,290
Terminated acquisition costs ..... -- -- 972
Write-down of investments ........ -- -- --
------- ------- -------
Total operating expenses ........... 2,689 3,074 3,682
------- ------- -------
Income (loss) from operations ...... 278 (1,507) (2,062)
Other income (expense):
Interest income .................. 292 332 338
Interest expense ................. (1) -- --
Gain on sale of consolidated
subsidiary's common stock ....... -- -- --
-------- ------- -------
Income (loss) before minority
interests ........................ 569 (1,175) (1,724)
Minority interests in operations
of consolidated subsidiary ....... -- -- --
-------- ------- -------
Net income (loss) .................. $ 569 $(1,175) $(1,724)
======== ======= =======
PERCENTAGE OF TOTAL REVENUES:
Revenues ........................... 00.0% 100.0% 100.0%
Costs of revenues .................. 81.8 85.7 87.8
-------- ------- -------
Gross profit ....................... 18.2 14.3 12.2
Operating expenses:
Network operations ............... -- -- 0.7
Selling and marketing ............ 7.2 11.1 7.8
Research and development ......... 1.7 2.9 2.2
General and administrative ....... 7.6 14.0 9.7
Terminated acquisition costs ..... -- -- 7.3
Write-down of investments ........ -- -- --
-------- ------- -------
Total operating expenses ........... 16.5 28.0 27.7
-------- ------- -------
Income (loss) from operations ...... 1.7 (13.7) (15.5)
Other income (expense):
Interest income .................. 1.8 3.0 2.5
Interest expense ................. -- -- --
Gain on sale of consolidated
subsidiary's common stock ....... -- -- --
-------- ------- -------
Income (loss) before minority
interests ........................ 3.5 (10.7) (13.0)
Minority interests in operations
of consolidated subsidiary ....... -- -- --
-------- ------- -------
Net income (loss) .................. 3.5% (10.7)% (13.0)%
======== ======= =======
<PAGE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1999 1999 1999 1999
------------ ------------ ------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues ........................... $11,882 $ 6,498 $17,385 $19,425 $ 17,373
Costs of revenues .................. 10,246 5,714 15,883 16,917 14,968
------- ------- ------- ------- --------
Gross profit ....................... 1,636 784 1,502 2,508 2,405
Operating expenses:
Network operations ............... 106 113 197 276 442
Selling and marketing ............ 1,293 1,315 1,544 1,045 1,381
Research and development ......... 259 412 363 130 225
General and administrative ....... 1,366 1,474 1,910 1,984 2,130
Terminated acquisition costs ..... -- -- -- -- --
Write-down of investments ........ -- -- 679 -- --
------- ------- ------- ------- --------
Total operating expenses ........... 3,024 3,314 4,693 3,435 4,178
------- ------- ------- ------- --------
Income (loss) from operations ...... (1,388) (2,530) (3,191) (927) (1,773)
Other income (expense):
Interest income .................. 272 204 165 170 277
Interest expense ................. -- -- -- (58) (258)
Gain on sale of consolidated
subsidiary's common stock ....... -- -- -- -- 2,353
------- ------- ------- ------- --------
Income (loss) before minority
interests ........................ (1,116) (2,326) (3,026) (815) 599
Minority interests in operations
of consolidated subsidiary ....... -- -- -- 76 538
------- ------- ------- ------- --------
Net income (loss) .................. $(1,116) $(2,326) $(3,026) $ (739) $ 1,137
======= ======= ======= ======= ========
PERCENTAGE OF TOTAL REVENUES:
Revenues ........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of revenues .................. 86.2 87.9 91.4 87.1 86.2
------- ------- ------- ------- --------
Gross profit ....................... 13.8 12.1 8.6 12.9 13.8
Operating expenses:
Network operations ............... 0.9 1.7 1.1 1.4 2.5
Selling and marketing ............ 10.9 20.2 8.9 5.4 7.9
Research and development ......... 2.2 6.3 2.1 0.7 1.3
General and administrative ....... 11.5 22.8 11.0 10.2 12.3
Terminated acquisition costs ..... -- -- -- -- --
Write-down of investments ........ -- -- 3.9 -- --
------- ------- ------- ------- --------
Total operating expenses ........... 25.5 51.0 27.0 17.7 24.0
------- ------- ------- ------- --------
Income (loss) from operations ...... (11.7) (38.9) (18.4) ( 4.8) (10.2)
Other income (expense):
Interest income .................. 2.3 3.1 1.0 0.9 1.6
Interest expense ................. -- -- -- ( 0.3) ( 1.5)
Gain on sale of consolidated
subsidiary's common stock ....... -- -- -- -- 13.5
------- ------- ------- ------- --------
Income (loss) before minority
interests ........................ ( 9.4) (35.8) (17.4) ( 4.2) 3.4
Minority interests in operations
of consolidated subsidiary ....... -- -- -- 0.4 3.1
------- ------- ------- ------- --------
Net income (loss) .................. ( 9.4)% (35.8)% (17.4)% ( 3.8)% 6.5%
======= ======= ======= ======= ========
</TABLE>
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We may continue to experience significant quarter to quarter fluctuations
in our results of operations, which may result in volatility in the price of
our common stock. Quarterly results of operations may fluctuate as a result of
a variety of factors, including:
o the timing of the initiation and completion of contracts;
o delays in the booking of new contracts;
o the demand for our products and services;
o the cost of providing our products and services;
o the introduction of new or enhanced products and services by us or our
competitors;
o market acceptance of new products and services;
o the mix of revenues between custom-built satellite communications
systems and networks designed for our customers, standard installations
provided to our customers, and communications services provided to our
customers;
o the growth of demand for Internet infrastructure-based products and
services in developing countries;
o the timing of significant marketing programs;
o the extent and timing of the hiring of additional personnel;
o competitive conditions in the industry; and
o general economic conditions in the United States and abroad, including
the difficult economic conditions and currency devaluations in the
Pacific Rim region, Russia and other international markets which have
adversely impacted and may continue to adversely impact quarterly
results.
Due to the foregoing factors, it is likely that in one or more future
quarters our operating results will be below the expectations of public market
analysts and investors. Such an event could have a material adverse effect on
the price of our common stock.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, we had working capital of $29.7 million, including
cash and cash equivalents of $23.1 million, restricted cash of $0.8 million,
accounts receivable of $15.4 million, inventories of $4.8 million and prepaid
and other current assets of $1.7 million, offset by $11.7 million in accounts
payable and $4.4 million in accrued expenses and other current liabilities.
Several factors had an effect on our liquidity during the six months ended
December 31, 1999. First, we used approximately $3.1 million for operating
activities, which primarily relates to a decrease in accounts payable of $7.1
million reflecting the timing of a large payment to a major vendor and a gain on
sale from its consolidated subsidiary's common stock of $2.4 million, offset by
a decrease in accounts receivable of $2.6 million due to timing of receipts from
customers, a decrease in inventory of $1.2 million due to an increase in
shipments and an increase in the deferred liability of $2.1 million due to a
technology agreement entered into in connection with NetSat Express' private
placement of common stock.
The second factor affecting liquidity during the six months ended December
31, 1999 was our financing activities. In August 1999, NetSat Express completed
a private placement of common and preferred stock yielding net proceeds of
approximately $7.0 million, net of issuance costs. These proceeds will be used
to fund NetSat Express' operations, expand marketing initiatives, engineering
efforts and fund capital expansion. In October 1999, we, together with NetSat
Express, entered into a common stock purchase agreement with an investor to
purchase 2,000,000 shares of NetSat Express common stock of which 1,400,000
shares were purchased directly from us (see investing activities below) and
600,000 shares were issued and sold directly by NetSat Express for $1.5
million. The net
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proceeds received by NetSat Express of $1.4 million, net of issuance costs, are
intended to be used to fund operations, expand marketing initiatives,
engineering efforts and fund capital expansion. Management anticipates that
NetSat Express will experience negative cash flow due to the capital investment
required for continued development of its operations and continued loss from
operating activities for an extended period of time. In addition, during the
six months ended December 31, 1999, we received $2.1 million in proceeds from
the exercise of stock options.
The third factor affecting liquidity during the six months ended December
31, 1999, was our investing activities. During the six months ended December
31, 1999, we purchased $2.4 million in fixed assets, restricted cash decreased
$2.7 million due to the expiration of a letter of credit and the redemption of
a certificate of deposit held as collateral, and we received $3.5 million of
net proceeds from the sale of the 1,400,000 shares of NetSat Express common
stock which are intended to be used for general corporate purposes.
We have a $9.0 million credit facility consisting of a $5.0 million secured
domestic line of credit and a $4.0 million secured export-import guaranteed line
of credit. Each line of credit bears interest at the prime rate (8.5% as of
December 31, 1999) plus a variable margin rate ranging from 0.75% to 1.75% (1.0%
per annum at December 31, 1999) and is collateralized by a first security
interest on all our assets. No amounts are outstanding under this credit
facility as of February 29, 2000. We also lease satellite space segment services
and other equipment under various capital and operating lease agreements which
expire in various years through 2014. Future minimum lease payments due on
these leases through the fiscal year ending June 30, 2000 is approximately
$5,635,000.
We expect that our cash and working capital requirements for our operating
activities will continue to increase as we expand our operations.
Our future capital requirements will depend upon many factors, including
the success of our marketing efforts in the ground segment systems, networks,
and communications services business, the nature and timing of customer orders,
the extent to which we are able to locate additional strategic suppliers in
whose technology we wish to invest, the extent to which we must conduct
research and development efforts internally and potential acquisitions of
complementary businesses, products or technologies. Based on current plans, we
believe that our existing capital resources will be sufficient to meet our
capital requirements through March 2001. However, we cannot assure you that
there will be no change that would consume available resources significantly
before that time. Additional funds may not be available when needed and even if
available, additional funds may be raised through financing arrangements and/or
the issuance of preferred or common stock or convertible securities on terms
and prices significantly more favorable than those of the currently outstanding
common stock, which could have the effect of diluting or adversely affecting
the holdings or rights of our existing stockholders. If adequate funds are not
available, we will be required to delay, scale back or eliminate some of our
operating activities, including without limitation, the timing and extent of
our marketing programs, the extent and timing of hiring additional personnel
and our research and development activities and operating activities of NetSat
Express. We cannot assure you that that additional financing will be available
to us on acceptable terms, or at all.
IMPACT OF YEAR 2000
In prior years, we discussed the nature and progress of our plans to
become Year 2000 ready. In late 1999, we completed our remediation and testing
of systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. We incurred minimal costs
during 1999 in connection with remediating our systems. We are not aware of any
material problems resulting from Year 2000 issues, either with our products,
our internal systems, or the products and services of third parties. We will
continue to monitor our mission critical computer applications and those of our
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
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BUSINESS
OVERVIEW
We offer end-to-end, value-added satellite-based communications services.
We do this by leveraging our core satellite ground segment systems and networks
capabilities, and the satellite services capabilities that are generally
provided by our majority-owned subsidiary, NetSat Express, Inc. The services we
offer include wide area network connectivity, broadband connectivity to end
users, Internet connectivity, intranet extension, media distribution and other
network services on a global basis. To provide these services, we engineer all
the necessary satellite and terrestrial facilities as well as provide the
integration services required to implement those facilities. We also operate
and maintain these communications services on an ongoing basis. Our customers
generally have operations in areas of the world where high-speed terrestrial
links are unreliable, too costly, or not readily available and include
communications service providers, multinational corporations, Internet Service
Providers, or ISPs, content providers and government entities. Our service
business is built on the foundation of our core business as a supplier of
ground segment systems and networks for satellite-based communications. We
provide these ground segment systems and networks on a contract basis. These
implementations include the necessary hardware and software to support a wide
range of satellite communications applications using fixed satellite, direct
broadcast and mobile satellite systems.
NetSat Express is an ISP that offers Internet access and related services
to ISPs and other enterprises around the world. NetSat Express combines
satellite and terrestrial communication networks to provide its customers
high-speed access services to the United States Internet backbone. Most of
Netsat Express' customers are ISPs located in geographically dispersed areas of
the world. The equity ownership of NetSat Express is approximately as follows,
excluding 18% in unexercised options and warrants: Globecomm owns 60%, Globix
Corporation owns 12%, Reuters Holdings Switzerland SA owns 12%, George A. Soros
owns 12%, and Hughes Electronics Corporation
owns 4%.
INDUSTRY OVERVIEW
Satellite communications systems consist of satellites, or the space
segment, and ground-based transmitting and receiving systems, or the ground
segment. The space segment consists of one or more satellites orbiting the
earth, which typically provide continuous communications coverage over a wide
geographic area. Satellites usually contain multiple transponders, each capable
of independently receiving and transmitting one or more signals from and to
multiple users simultaneously. A transponder is a device that receives signals
from transmitting earth stations, translates these received signals into
transmit signals and amplifies and transmits these signals to receiving earth
stations. The ground segment consists principally of one or more earth
stations, which provide a communications link to the end user either directly
or through a terrestrial network. An earth station is an integrated system
consisting of antennas, radio signal transmitting and receiving equipment,
modulation/demodulation equipment, monitor and control systems and voice, data
and video network interface equipment.
Satellite communications is a rapidly growing segment of the global
communications infrastructure. Satellites are increasingly becoming important
in light of the growth of the Internet and other broadband applications and the
globalization of communications. New broadband satellite systems offer services
similar to newly built broadband terrestrial systems. Pioneer Consulting, LLC,
an independent research firm, projects that global broadband satellite services
revenues will increase from approximately $230 million in 1999 to approximately
$37 billion is 2008, with broadband business-related revenues increasing from
approximately $150 million to approximately $16 billion during the same time
period.
Satellite communications industry participants include:
o designers, manufacturers and operators of satellites;
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o designers, manufacturers and integrators of ground segment products,
systems and networks; and
o communications services providers, which may or may not own the actual
satellites used for transmission.
The three principal classes of satellite services include:
Fixed Satellite Services. Fixed satellite services are used to provide
communications applications like voice, data and video between fixed land-based
earth stations. These applications include Internet access, business to
business communications, Internet Protocol-based telephony services and cable
and broadcast television distribution. The introduction of high-power
satellites that deliver a wide array of broadband applications has created
additional growth within the fixed satellite services segment. This is enabled
by the use of smaller, less costly earth stations, including very small
aperture terminals. Future higher bandwidth systems are expected to increase
the number of applications and further reduce the cost of providing satellite
services. We believe these systems will offer the additional bandwidth needed
for emerging broadband communications applications.
Direct Broadcast Services. Direct broadcast satellite services provide a
direct transmission link from high-power satellites to customers over a wide
geographic area. These services deliver content cost-effectively by
incorporating the use of smaller satellite receiving antennas and digital video
technology, particularly in areas underserved by cable. These services are used
in direct-to-home television services and are increasingly being used in direct
broadcast data services.
Mobile Satellite Services. Mobile satellite services, which operate
between fixed earth stations and mobile earth stations, or terminals, provide
mobile voice and data transmission capability on land, sea and air. New mobile
satellite services are being developed using satellite systems that orbit at
different altitudes above the earth. These satellite systems are designed to
bring more extensive coverage and circuit reliability for mobile telephone and
data services to users throughout the world.
ADVANTAGES OF SATELLITES OVER TERRESTRIAL ALTERNATIVES
We believe satellites provide the following advantages over terrestrial
alternatives for broadband applications:
o Satellites enable high-speed communications services where terrestrial
alternatives are unavailable or inadequate. Many areas of the world lack
the sophisticated fiber optic cable and digital switching infrastructure
required for the high-speed transmission of data. Satellites are well
suited to connect these areas that cannot be connected efficiently or
cost-effectively by terrestrial transmission systems.
o Satellite networks can be rapidly installed, upgraded and reconfigured.
In contrast, the installation of fiber optic cable is time consuming and
requires obtaining rights-of-way.
o Satellite networks bypass much of the often complex terrestrial
networks. This avoids the service level issues related to potential
terrestrial network congestion as well as the use of multiple network
service providers.
o Satellite networks, because of their broadcast nature, are inherently
capable of multicasting, or transmitting data simultaneously from one
point to multiple locations.
o Satellite networks, in some situations, are more cost-effective than
terrestrial alternatives where the flow of data traffic to the user is
greater than the flow of data from the user. For example, an Internet
user wanting to access a web site sends a small bandwidth request to a
content server that returns a high bandwidth response, which is the web
page viewed. Capacity can go unused on many terrestrial networks due to
this uneven flow of traffic whereas satellite networks are capable of
providing capacity on an imbalanced, or asymmetric, basis.
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o The cost to provide satellite services does not increase with the
distance between sending and receiving locations. In contrast, the cost
of terrestrial network transmission increases with distance.
MARKET OPPORTUNITY AND DRIVERS
Continuing worldwide deregulation of telecommunications services market
Many countries are deregulating their telecommunications services markets
in response to growing consumer and business demands, international
competition, and technological developments. The Global Agreement on Trade in
Services administered by the World Trade Organization provides for the
deregulation of telecommunications markets in the 75 countries which have
signed the agreement. These countries include developed countries in North
America, Western Europe, and Asia and developing countries in Africa, Asia, and
Central and South America. Pioneer Consulting estimates that the number of new
carriers worldwide should grow from the few hundred in existence today to over
10,000 by 2002. This deregulation is creating opportunities for new companies
to compete with the incumbent national telecommunications companies. These new
companies will need to build communications infrastructure and/or buy
communications services. We believe this trend toward deregulation is favorable
to the growth of satellite services, as new service providers can establish
their own infrastructure faster and generally at a lower cost with satellite
communications services than with terrestrial alternatives.
Economic development worldwide and the increasing globalization of
business
We believe that as multinational corporations globalize and expand into
new markets, the demand for diverse and customized communications services will
continue to grow. For many large national or multinational companies operating
in geographically dispersed locations, satellite networks provide the only
opportunity for broadband connectivity as the capacity, quality or availability
of terrestrial infrastructure is often limited or nonexistent in many of these
locations. We believe that these corporations, including those operating in
sectors including energy and transportation which have continually changing
global network needs, will expand their use of satellite-based communications.
Pioneer Consulting estimates that the global business subscriber base for
broadband satellite services will increase from approximately 30,000 businesses
in 1999 to approximately 7 million by 2008.
Growth of the Internet outside North America and Western Europe
The growth of the Internet has been dramatic, and this growth is projected
to continue, particularly outside North America and Western Europe. According
to the 1999 Computer Almanac, the number of Internet users outside North
America and Western Europe is expected to grow from approximately 40 million
users in 1998 to over 275 million users by 2005. Satellite-based communications
are benefiting from this trend as many of these regions lack the terrestrial
networks required to accommodate the rapid and reliable transmission of the
vast amounts of information underlying the Internet. We believe the development
of communications infrastructure in much of the world will in large part depend
upon the rapid installation of satellite communications services. In addition,
according to Pioneer Consulting, 75% of Internet content resides in North
America, which results in greater amounts of data exiting North America than
data entering North America. Satellite-based communications services, in some
situations, are better suited than terrestrial alternatives to cost-effectively
address the imbalance of traffic flows inherent in international Internet usage
today because they provide capacity on an asymmetric basis.
The September 1999 report from TeleGeography estimates that the total
amount of international Internet backbone traffic amounts to 28.9 gigabits, or
Gbps, of which between 15% and 30% is transmitted over satellites. The Irwin
report, Internet Delivery by Satellite, projects that the amount of Internet
data transmitted by satellites worldwide will increase from approximately 10.7
Gbps in 1999, to approximately 42.1 Gbps by 2003, a 293% increase. In terms of
total worldwide satellite capacity, this represents an increase from 5% of
capacity in 1999 to 9% of projected available capacity in 2003.
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New Internet technology-based applications
Corporate intranets and Virtual Private Networks. The technologies which
have been developed for the Internet have been used in the creation of private
corporate networks, or intranets. Intranets provide employees in geographically
dispersed locations with access to corporate databases and other private
corporate information. There is a rapidly growing marketplace for intranet
services in the United States and other developed countries, as corporations
have recognized their benefits. In parts of the world where land-based networks
are inadequate or unavailable, we believe intranets represent a rapidly growing
market for satellite-based communications services. The growth of intranets is
being supported by the evolution of virtual private network technology and
services that ensure the security of sensitive corporate data when transmitted
over the Internet or other shared networks. Virtual private networks offer the
appearance, functionality and usefulness of a dedicated private network at a
lower cost because they use shared networks. Furthermore, virtual private
networks not only allow access to internal corporate information, but can also
be used to provide telephony services using Internet Protocol and to transmit
video or a combination of any of these three.
Content Delivery Services and Multicasting. Content providers and large
ISPs are increasingly using content delivery services that can enhance access
to multimedia and static content for their users and enhance web site response
times by avoiding delays and outages caused by public network congestion. One
implementation being used to improve web site response times involves
broadcasting data simultaneously to geographically dispersed servers that are
closer to the person requesting the information, thereby avoiding potential
congestion that could occur on standard terrestrial networks. This broadcasting
of data from one location to many locations is known as multicasting. Satellite
multicasting is not only used for content delivery services as described above,
but also for the transmission of multimedia content in real time.
Increased distribution of television programming to regional, national and
international audiences
Significant growth in the number of broadcasters creating programming and
the number of channels available to viewers is largely responsible for the
expansion of the global cable and broadcast television markets. The
introduction of digital television technology has also contributed to the
growth in this market by reducing the transmission costs for channels reaching
smaller and more distant audiences.
We believe that the number of smaller programmers will continue to
increase as transmission costs decline, while major programmers will increase
their offerings by expanding the number of regional channels and specialized
versions of their primary channels. Satellites offer advantages in providing
enhanced television to rural markets given the cost and time to install
traditional cable and fiber optic infrastructure.
Continuing technological advancements
We believe a number of technological advances will stimulate demand for
satellite-based communications services:
o Internet Protocol. Internet Protocol is transforming the communications
industry by allowing all forms of communications to be carried in one
format using a standard protocol. Therefore, Internet Protocol allows for
the transmission of voice, video, and data on a single network. These
networks use bandwidth efficiently, thereby reducing transmission costs
and allowing for enhanced applications. We believe the reduction in
transmission costs and enhanced applications will continue to stimulate
demand for communications services worldwide including satellite-based
services.
o Enhancements in satellite technology help reduce costs. The latest
generation of satellites has up to three times more power than satellites
launched in the early 1990s. As technology improves, satellites in the
future will be even more powerful and longer-lived than current
satellites. In addition, we believe satellites in the future will carry
more transponders and therefore provide more transmission capacity. We
expect these new satellites will decrease the cost of capacity, thereby
increasing the demand for satellite-based communications services.
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o Ka-band technology. The Ka-band transponders will offer five to ten
times the bandwidth of today's transponders. Ka-band technology typically
uses smaller, more high-powered spot beams, which allow for smaller
ground antennas and lower cost per data transmitted. The use of Ka-band
technology is expected to lead to less expensive capacity and increase
the demand for satellite-based communications.
o Broadband technology. Broadband technology, increasingly available on
fiber optic networks, sophisticated urban cable networks and through
high-bandwidth telephone line technologies, is creating demand for robust
applications like delivery of multimedia content that narrow-band
technologies cannot satisfy. We believe that satellites can provide the
principal means to deliver broadband applications beyond the geographical
limitations of both existing and future broadband terrestrial networks.
o Compressed digital video. Compressed digital video technology is
designed to compress up to ten high-quality video channels in the same
bandwidth that previously carried a single analog channel. This
technology has lowered the costs of delivering programming via satellite
and cable television systems, thereby permitting more programming options
to be provided to smaller niche markets.
OUR BUSINESS STRATEGY
Our strategy is to leverage our expertise in ground segment systems and
networks to expand our core business and our communications services business.
We believe that this strategy will diversify our revenue stream, broaden and
deepen our customer relationships, enhance customer loyalty, generate recurring
revenues and expand the markets we serve. To implement this strategy, we intend
to do the following:
TARGET OPPORTUNITIES TO SUPPLY END-TO-END COMMUNICATIONS SERVICES
WORLDWIDE. We seek to capture recurring revenues by providing end-to-end,
value-added communications services worldwide. We provide "one-stop-shopping"
customized solutions to meet the specific needs of service providers,
enterprises, and system integrators. The services we package include all
necessary terrestrial and satellite facilities, as well as the integration
services required to implement those facilities. We also seek to operate and
maintain these communications services on an ongoing basis for recurring
service revenues. Our end-to-end services enable our customers to address their
needs quickly and cost-effectively without having to integrate products and
services from different suppliers. Moreover, this allows our customers to
outsource their ongoing communications services needs while providing us with a
recurring revenue stream.
FOCUS ON HIGH MARGIN COMPLEX PROJECTS. We will continue to focus on
opportunities to use our technological expertise in high value-added ground
segment systems and network projects. These projects require
engineering-intensive design and implementation. Our emphasis positions us to
earn higher gross margins through the delivery of innovative and cost-effective
solutions tailored to our customers' requirements. These projects are typically
priced on a negotiated basis, as opposed to being priced on a lower-margin
competitive bid basis. The engineering and implementation of these projects
involves the integration of satellite and terrestrial networks and requires
consulting expertise in the areas of information technology, satellites and
Internet Protocol. We believe we have demonstrated a strong capability in this
specialized field of communications engineering.
EXPAND EXISTING CUSTOMER RELATIONSHIPS AND TARGET INDUSTRY-SPECIFIC
MARKETS. We seek to expand our existing customer relationships by providing
value-added integration and ongoing communications services to our existing
customers. These additional services allow us to increase revenues and maintain
high customer retention by strengthening our relationships with them.
Additionally, we are targeting specific industries like the oil industry and
broadcasting industry which we believe will offer high growth potential and
where we believe our expertise will provide us with a competitive advantage.
Focusing on specific industries allows us to take advantage of our customized
solutions addressing the specific needs of companies in each particular
industry and leverage our experience and relationships in that industry.
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CONTINUE TO DEVELOP STRATEGIC SUPPLIER RELATIONSHIPS. We seek to continue
to establish strategic relationships with suppliers that we believe are in a
position to provide us with products or services that will improve our
competitive position in the markets that we serve.
NETSAT EXPRESS STRATEGY
Internet Access Services, Intranets and Virtual Private Networks. NetSat
Express intends to continue to invest in its infrastructure to enhance its
global reach in providing Internet access and to provide additional services
like intranets and virtual private networks. NetSat Express plans on expanding
its relationships with terrestrial network providers to increase the number of
corporate customers to which it can offer virtual private networks.
Web and Application Hosting and ISP Infrastructure. NetSat Express intends
to provide web and application hosting and ISP infrastructure solutions. NetSat
Express' target customers for this service are ISPs in emerging economies that
wish to open new points of presence, or POPs, or to rapidly increase the
capacity of existing POPs and expand their functionality. Many ISPs outsource
their technology needs so that they can concentrate on building a customer
base. To meet this need NetSat Express, in combination with Globecomm and
Cisco, intends to provide the equipment, software and implementation services
for use at the customers' POP and will host the desired ISP applications using
IBM software and hardware at NetSat Express' facilities. These facilities are
expected to support email, subscriber management, domain addressing and caching
services. This service is being marketed under the brand name Impact ISP.
NetSat Express also intends to re-brand Globix Corporation's complex hosting
capabilities, including co-location and advanced e-commerce solutions.
Content Delivery Networks for Business Customers. NetSat Express intends
to expand its infrastructure to provide electronic content delivery services
for corporations and content providers who must transmit multimedia video
streams and electronic files to multiple locations around the globe. These
content delivery services will enable corporations typically located in the
United States and Western Europe to multicast data anywhere in the world at the
speed they need. NetSat Express anticipates billing its customers on a usage
basis and using digital video broadcasting technology for low cost transmission
of this content. In addition, NetSat Express intends to base its content
delivery services on an open standards architecture.
SERVICES AND PRODUCTS
OUR COMMUNICATIONS SERVICES
We offer end-to-end, value-added satellite-based communications services.
We engineer and provide all the necessary satellite and terrestrial facilities,
as well as provide the integration services required to implement those
facilities. We also operate and maintain these communications services on an
ongoing basis. We tailor these services to meet our customers' needs by
offering standardized services and custom-engineered solutions. Our
standardized services may be sold separately or may be used as building blocks
as a part of a custom-engineered solution. We use our expertise in satellite
communications, Internet Protocol, communications networks and information
technology in designing our custom-engineered solutions.
The following describes some of our standardized services:
Internet Anywhere. This service offering provides high-speed access to the
United States Internet backbone. We provide all the necessary satellite and
terrestrial facilities and integration services in conjunction with our current
re-branding of NetSat Express' Internet access service. For example, we are
under contract to provide a high-speed satellite connection to Bezeq
International's 9-meter earth station in Israel from its United States Internet
backbone connection.
Wide Area Network Anywhere. This service offering provides high speed
networking between major communications points of presence, or POPs. We are
currently providing this service for NTT Communications Corporation, connecting
POPs in Los Angeles and Okinawa, Japan. This is an example of using this
standardized service as a building block in a custom-engineered solution.
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Intranet Anywhere. This service offering provides secure high-speed data
transmission directly to local area networks using standards-based satellite
receiver technology. We intend to offer this service to customers requiring
secure high-speed data transmission between corporate headquarters and one or
more remote offices.
ISDN Anywhere. This service offering provides full-time connections at
rates of 64 kilobits per second, or Kbps, and 128 Kbps to geographically
dispersed locations. We can provide these services to organizations needing
full-time digital connections for voice, data and videoconferencing in
locations around the world where the terrestrial infrastructure is inadequate
or unavailable.
Bandwidth on Demand Anywhere. This service offering provides high speed
data connections for intermittent use through a bandwidth subscription service.
This service provides data rates from 64 Kbps up to 384 Kbps to geographically
dispersed locations. Customers who have high bandwidth requirements would use
this service to reduce their costs when they only need intermittent services,
like emergency communications services. We intend to initiate this service in
early 2000 with coverage of North and South America.
The following is an example of how we provide custom-engineered
communications services for one of our customers:
The Challenge. We were selected by Mercury Communications, Inc., a new
communications service provider in Angola, to design and implement the voice,
data and Internet infrastructure as well as the connections between Angola and
the United States, where the existing communications infrastructure was
inadequate.
The Solution. We designed and continue to build a nationwide voice and
data telecommunications network using a combination of satellite systems,
terrestrial microwave systems and local wireless communications technology. In
addition, we provided Mercury with the information technology infrastructure
necessary to provide Internet access from the United States Internet backbone
to Soyo and Luanda, Angola using satellites. We also provide international
satellite connections for voice and data traffic between Soyo and Luanda, and
Houston, Texas as well as the associated billing services. The voice and data
satellite network we custom-engineered is based on a combination of network
technologies, each designed to enhance delivery of a particular service. We
currently provide network services to operate and maintain these communications
services.
[DIAGRAM OF MERCURY COMMUNICATIONS, INC. NETWORK DEPICTING THE COMMUNICATIONS
SYSTEM INFRASTRUCTURE THAT PROVIDES PHONE SERVICE CONNECTIVITY AND INTERNET
CONNECTIVITY FOR USERS IN ANGOLA USING TERRESTRIAL CONNECTIONS AND WIRELESS
LOCAL LOOP CONNECTIONS WITH THE U.S. PUBLIC TELEPHONE NETWORK AND THE U.S.
INTERNET BACKBONE USING A SATELLITE THAT TRANSMITS TO AND FROM EARTH STATIONS
IN THE UNITED STATES AND ANGOLA.]
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OUR GROUND SEGMENT SYSTEMS AND NETWORKS
We design, engineer, integrate and install satellite-based ground segment
system and network solutions for the complex and changing communications
requirements of our customers. Our ground segment systems typically consist of
an earth station and ancillary subsystems. An earth station is an integrated
system consisting of antennas, radio signal transmitting and receiving
equipment, modulation/demodulation equipment, monitor and control systems and
voice, data and video network interface equipment. Ancillary subsystems may
include microwave links or fiber optic links, for the transmission of
communications traffic to a central office, or generators for emergency power
requirements. Our customizable modular earth stations may be sold separately as
stand-alone ground segment systems or may be used as building blocks to be
integrated into a complete ground segment system or network. We believe that
this modular approach allows us to engineer our ground segment systems and
networks to serve client-specific service requirements rapidly,
cost-effectively and efficiently with minimal site preparation. All of our
earth stations are configurable to conform to applicable satellite standards.
CUSTOMIZABLE MODULAR EARTH STATIONS
Modular Building Block Earth Station. These earth stations provide
point-to-point high-capacity data links and hubs for satellite networks.
Generally, all electronics are housed in an indoor equipment enclosure. We
typically sell these earth stations at prices ranging from approximately
$250,000 to $600,000.
Commercial Terminal Family. This family of earth stations encompass a
range of general purpose, medium-capacity earth stations, and are principally
used by corporate, common carrier and government networks. Generally, all radio
frequency electronics are housed in weatherproof enclosures mounted on the
antenna. The satellite modem is housed in an indoor equipment enclosure. We
typically sell these earth stations at prices ranging from approximately
$100,000 to $300,000.
Compact Earth Station. We designed this family of digital earth stations
to be used principally to provide limited capacity to areas with limited or no
telecommunications infrastructure. These earth stations integrate radio
frequency and satellite modem components into one antenna mounted package. We
typically sell these earth stations at prices ranging from approximately
$20,000 to $45,000.
Explorer C/K Transportable Earth Station. We designed this family of
digital earth stations primarily for emergency communications and news
gathering. The group is comprised of portable, modular earth stations designed
to be quickly deployed and operated anywhere in the world. The latest model,
the Explorer Ku, incorporates technology from the Compact Earth Station product
line to minimize cost, size and weight. All components are mounted in separate
cases, which are small enough to be easily transported by commercial carriers,
including airplanes and trucks. We market these earth stations at prices
ranging from approximately $50,000 to $100,000.
Explorer II Mobile Terminals. We designed this family of digital terminals
to serve the mobile satellite services market for high speed data and voice
terminals with optional video conferencing. We offer the Explorer II, a high
speed data terminal for use in news gathering, emergency communications, data
gathering, and other applications requiring mobility and data at rates of 64
Kbps. We typically sell these earth stations at prices ranging from
approximately $20,000 to $50,000.
RECENT GROUND SEGMENT SYSTEMS AND NETWORKS PROJECTS
We have recently been responsible for, or are in the process of,
designing, engineering, integrating and installing the following ground segment
systems and networks:
Sirius Satellite Radio. We were awarded a contract by Sirius Satellite
Radio, formerly CD Radio, Inc., to build a terrestrial repeater network that
will be deployed in major urban areas throughout the continental United States.
Sirius will broadcast up to 100 channels of music and entertainment programming
to motorists in the continental United States. The network is designed to
augment the signal from Sirius' three orbiting satellites where obstructions
like tall buildings may interfere with the satellite signal. The design of this
network requires sophisticated engineering and the implementation requires
experienced project management to assure timely delivery of installations.
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Worldspace Corporation. We contracted with Worldspace to develop and
supply uplink stations for the first global digital audio radio satellite
system. This system will distribute broadcast radio to low cost satellite
receivers through processed feeder link stations provided by us for customers
in Africa, Asia and Latin America. In 1999, Worldspace launched the AfriStar
satellite, the first in a series of three satellites for global coverage. We
installed the first two processed feeder link stations, and completed testing
with the actual satellite receivers to be sold to customers in Africa.
Thomson-CSF Communications. We were awarded a contract by Thomson to
provide four ground segment systems in a hub and spoke network configuration for
use in providing communications between airports in Central Asia. This private
network includes voice compression technology and a network management system
for the monitoring and remote control of all facilities in the network.
Telkom South Africa Ltd. We were awarded a contract by Telkom South Africa
to supply a Standard B earth station, a standard configuration specified by
Intelsat, in April 1999. Our project team was able to meet our customer's needs
by delivering this earth station and completing installation in South Africa in
45 days.
NETSAT EXPRESS SERVICES
NetSat Express is an ISP that offers Internet access and related services
to ISPs and other enterprises around the world. NetSat Express combines
satellite and terrestrial communications networks to provide customers around
the world high-speed access services to the United States Internet backbone.
NetSat Express currently has customers in Africa, the Asia-Pacific Region,
Australia, Central and South America, Eastern and Central Europe and the Middle
East.
Internet Access Services
NetSat Express' Internet access service, marketed under the Access Plus
brand name, provides high speed access to the United States Internet backbone.
NetSat Express provides the necessary satellite transmission services and
terrestrial transit and routing services. In addition, it currently provides
earth stations and the necessary installation services together with Globecomm.
NetSat Express' services are highly configurable, providing guaranteed levels
of service for its customers. Its services can be implemented through its
worldwide network, and global deployment capabilities through suppliers like
Globecomm. NetSat Express provides a wide variety of circuit sizes, which
allows it to serve large and small ISPs, communications services providers and
corporations. A circuit is comprised of satellite and terrestrial components
that provide the bandwidth needed by the customer. NetSat Express' customers
lease circuits as small as 64 Kbps and as large as 45 Mbps, where a megabit is
1000 times larger than a kilobit. NetSat Express offers two-way circuits,
providing bandwidth to and from the Internet, as well as one-way circuits,
where the customer has its own return circuit through a local terrestrial
connection to the Internet.
NetSat Express also provides a bandwidth capacity bursting option,
allowing bursts of up to the full capacity of a satellite circuit. With
bursting, the customer's guaranteed bandwidth is a part of a shared satellite
channel with other customers who also have guaranteed bandwidths. The bursting
service allows a customer to acquire more bandwidth than its guarantee when
there is available bandwidth on the same shared satellite channel that NetSat
Express has not committed to other customers.
NetSat Express' Strategic Relationships
NetSat Express has developed a number of strategic relationships that are
expected to provide it with access to services and technology that complements
its strategy. An agreement with Globix Corporation provides quality access to
the United States Internet backbone and hosting facilities. An agreement with
Cisco Systems, Inc. provides NetSat Express with support from Cisco in the sale
and service of Cisco networking equipment. A re-marketing agreement with IBM
provides NetSat Express with access to technology and marketing assistance in
the delivery of ISP-related hardware and software solutions. These agreements
all complement NetSat Express' strategy to facilitate the development of ISPs
around the world.
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SALES AND MARKETING
We market our products and services to communications services providers,
multinational corporations, ISPs, content providers and government entities. We
have structured our sales and marketing approach to respond effectively to the
growing opportunities in the communications services market as well as the
traditional ground segment systems and networks market. Our marketing
activities are organized regionally as well as on an industry-specific basis.
We use both direct and indirect sales channels to market our services and
products.
We use regional business teams to sell and market our communications
services and ground segment systems and networks. These business teams are
responsible for orders and programs in the regions to which they are assigned
as well as for the delivery of our products and services, and finally, for
account management of our existing customers. Currently, we have business teams
responsible for the Americas, the Asia-Pacific region, Africa, the Middle East
and Europe. These regional business teams work together to identify, develop
and maintain customer relationships through local sales representatives, sales
executives and account managers. Together, they develop close and continuing
relationships with our customers. Our sales representatives in these regions
provide a local presence and identify prospective customers for our sales
executives. Our account managers may also function as project engineers for
network integration and service initiation programs for their accounts. We
believe this account management focus provides continuity and loyalty between
us and our customers. We also believe that our approach fosters long-term
relationships that lead to follow-on work and referrals to new customers. These
accounts also provide us with a market for the new products and services that
we develop. In addition, we obtain sales leads for new customers through
referrals from industry suppliers.
We also sell to industry-specific markets through direct and indirect
sales channels. These industry-specific markets currently include the oil
industry, the broadcast industry and the United States government. We intend to
expand our direct and indirect sales and marketing efforts to these
industry-specific markets.
We have sales and marketing staff located at our headquarters in
Hauppauge, New York, as well as in Atlanta, Georgia, Hong Kong and the United
Kingdom. Our office in the United Kingdom is part of our Globecomm Systems
Europe Limited subsidiary. These offices provide both sales and technical
support in the regions for which they have responsibility. As of December 31,
1999, we employed 44 persons with sales and marketing responsibility, of which
17 are full-time sales executives and 27 have dual engineering and sales and
marketing responsibilities.
Our marketing program is intended to build national and international
awareness of our brand. We use direct mailings, print advertising to targeted
markets and trade publications to enhance awareness and acquire leads for our
direct and indirect sales teams. We create brand awareness by participating in
industry trade shows sponsored by organizations like the International
Telecommunications Union, the National Association of Broadcasters and the
Communications Managers Association. We also provide marketing information on
our web site and conduct joint marketing programs with sales representatives in
various regions to reach new customers.
NetSat Express' marketing strategy is carried out primarily through
resellers and sales representatives in regions in which NetSat Express markets
its services. NetSat Express is seeking to expand its marketing capabilities
and enter into new regions.
CUSTOMERS
We have established a diversified base of customers in a variety of
industries. Our customers include communications services providers,
multinational corporations, ISPs, content providers and government entities. We
typically rely upon a small number of customers for a large portion of our
revenues. For example, approximately 29.8% of our revenues for the six months
ended December 31, 1999 were derived from sales to four customers. We expect
that in the near term a significant portion of our revenues will continue to be
derived from one or a limited number of customers (the identity of whom may
vary from year to year) as we seek to expand our business and our customer
base.
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BACKLOG
At December 31, 1999, our backlog was approximately $76.3 million compared
to approximately $46.4 million and $63.7 million at December 31, 1998 and June
30, 1999. We record an order in backlog when we receive a firm contract or
purchase order which identifies product quantities, sales price, service dates
and delivery dates. Backlog represents the amount of unrecorded revenue on
undelivered orders and services to be provided and a percentage of revenues from
sales of products that have been shipped but have not been accepted by the
customer. Our backlog at any given time is not necessarily indicative of future
period revenues. A substantial portion of our backlog has been comprised of
large orders, the cancellation of any of which could have a material adverse
effect on our operating results. For example, at December 31, 1999, $22.4
million, or approximately 29.3% of our backlog, was accounted for by a contract
between us and Sirius Satellite Radio. We cannot assure you that this contract
or any other in our backlog will not be cancelled or revised.
COMMUNICATIONS INFRASTRUCTURE
We built and own the teleport facility located at our headquarters in
Hauppauge, New York. We currently lease it, on a short-term basis, to NetSat
Express. We are a member of the World Teleport Association. Our teleport is
designed to meet the most stringent requirements for high speed data
communications requirements. This teleport is used to transmit and receive
signals from satellites positioned to serve customers in Latin America, the
United States, Canada, Europe, the Middle East and Africa. Our teleport uses
redundant critical systems and uninterruptable power supplies with back-up
power generation.
NetSat Express also leases teleport services in Los Angeles to transmit
and receive signals from satellites positioned to serve customers in Australia
and the Pacific Rim region. Connection to the United States Internet backbone
in Los Angeles is achieved through leased fiber optic circuits.
We, along with NetSat Express, lease transponder capacity to meet the
bandwidth needs of our and their customers. NetSat Express leases multiple,
redundant, high-capacity fiber connections to provide reliable Internet data,
voice and data traffic to locations in New York City where it interconnects
with telecommunications service providers and the United States Internet
backbone.
NetSat Express has built and staffed a network operations center, or NOC,
to manage its customer circuits. The NOC operates 24 hours per day, seven days
per week to monitor customer circuits, respond to complaints and initiate new
services. Customers can purchase or lease from us or, from NetSat Express, as a
part of its service the equipment needed at the customers' locations to
transmit and receive the satellite signals. We offer installation and
maintenance services for this equipment.
PRODUCT DESIGN, ASSEMBLY AND TESTING
We assign a project team to each contract into which we enter. Each team
is led by a project engineer who is responsible for execution of the project.
This includes engineering and design, assembly and testing, installation and
customer acceptance. Project teams generally consist of between two and 10
employees and may include engineers, integration specialists, buyer-planners
and an operations team. Our products and system design capabilities are used in
the engineering and design phases of a project. Once a system is designed, the
integration specialist works with the buyer-planner and the operations team to
assure a smooth transfer from the engineering phase to the integration
phase. The integration phase consists mainly of integrating the purchased
equipment, components and subsystems into a complete functioning system.
Assembly, integration and test operations are conducted on both an automated and
manual basis, depending primarily on production volume.
We provide facilities for complete in-plant testing of all our systems
before delivery in order to assure all performance specifications will be met
during installation at the customer's site. We employ formal total quality
management programs and other training programs, and have been certified by the
International Organization of Standards quality certification process for ISO
9001, a standard that enumerates specific requirements an organization must
follow in order to assure consistent quality in the supply of products and
services. The certification process qualifies us for access to virtually all
domestic and international projects, and we believe that this represents a
competitive advantage.
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RESEARCH AND DEVELOPMENT
We have outsourced much of our research and development by making
strategic investments in some of our suppliers who perform research and
development for us. Thus, the costs of developing new technologies are funded
partially by the investments made in these strategic suppliers. This provides
us with a cost-effective means to develop new technology, while minimizing our
direct expenditures. Furthermore, we believe that outsourcing research and
development allows us to retain our flexibility in developing solutions for our
customers, while at the same time providing the opportunity to develop products
through our strategic supplier relationships. Our internal research and
development efforts generally focus on the development of products not
available from other suppliers to the industry. Current efforts are focused on
developing customizable systems. For the years ended June 30, 1997, 1998 and
1999 and for the six months ended December 31, 1998 and 1999, we have incurred
approximately $0.6 million, $1.2 million, $1.3 million, $0.5 million and $0.4
million, respectively, in internal research and development expenses.
COMPETITION
In the satellite ground segment systems and networks market, we believe
that our ability to compete successfully is based primarily on management
reputation and the ability to provide a solution that meets the customer's
requirements, including competitive pricing, performance, on-time delivery,
reliability, and customer support.
In the communications services market, we believe that our ability to
compete successfully is based primarily on management reputation and providing
prompt delivery and initiation of service, competitive pricing, consistent and
reliable connections, and high-quality customer support.
Our primary competitors in the satellite ground segment systems and
networks market generally fall into two groups: (1) vertically integrated
satellite systems providers like Nippon Electric Corporation and (2) system
integrators like IDB Systems, a division of MCI WorldCom Inc.
In the communications services and Internet access services markets, we
compete with other satellite communication companies who provide similar
services, like Loral CyberStar, Inc., and PanAmSat Corporation, as well as
other Internet services providers. In addition, we may compete with other
communications services providers like Teleglobe, Inc. and MCI WorldCom. We
anticipate that our competitors may develop or acquire services that provide
functionality that is similar to that provided by our services and that those
services may be offered at significantly lower prices or bundled with other
services.
Current and potential participants in the markets in which we compete have
established or may establish cooperative relationships among themselves or with
third parties. These cooperative relationships may increase the ability of
their products and services to address the needs of our current and prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge that will enable them to acquire significant market
share rapidly. We believe that increased competition is likely to result in
price reductions, reduced gross profit margins and loss of market share, any of
which would have a material adverse effect on our business, results of
operations and financial condition.
INTELLECTUAL PROPERTY
We rely heavily on the technological and creative skills of our personnel,
new product developments, computer programs and designs, frequent product
enhancements, reliable product support and proprietary technological expertise
in maintaining our competitive position. We have secured patent protection on
some of our products, and have secured trademarks and service marks to protect
some of our products and services.
We currently have two patents in the United States, for remote access to
the Internet using satellites and for satellite communication with automatic
frequency control and have a patent pending in the United States. We also
intend to seek further patents on our technology, if appropriate. We
have filed applications for trademark registration of Globecomm Systems Inc. in
the United States and various other countries. NetSat Express has received
trademark registration for NetSat Express in the
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United States, the European Community, Russia, and Brazil. We have also
received trademark registrations in the United States for MBB2001 and CTF2001,
which are two of our customizable modular earth stations. We intend to seek
registration of other trademarks and service marks in the future.
GOVERNMENT REGULATIONS
OPERATIONS AND USE OF SATELLITES
We are subject to various federal laws and regulations which may have
negative effects on our business. We operate earth stations in Hauppauge, New
York, subject to the Communications Act of 1934, as amended, and the rules and
regulations of the Federal Communications Commission, or FCC. Pursuant to the
Communications Act and rules, we have obtained and are required to maintain
radio transmission licenses from the FCC for both domestic and foreign
operations of our earth stations. These licenses should be renewed by the FCC
in the normal course as long as we are in compliance with the FCC rules and
regulations. However, we cannot guarantee that additional licenses will be
granted by the FCC when our existing licenses expire, nor can we assure you
that the FCC will not adopt new or modified technical requirements that will
require us to incur expenditures to modify or upgrade our equipment as a
condition of retaining our licenses.
We are also required to comply with FCC regulations regarding the exposure
of humans to radio frequency radiation from our earth stations. These
regulations, as well as local land use regulations, restrict our freedom to
choose where to locate our earth stations.
NetSat Express does not currently hold any FCC licenses, permits, or
authorizations, nor does it currently provide any FCC regulated services.
Therefore it is not subject to the Communications Act or the rules and
regulations of the FCC. However, NetSat Express may hold these licenses,
permits, or authorizations, or provide these services in the future, and would
then be required to comply with the FCC requirements mentioned in this
prospectus.
COMMON CARRIER REGULATION
We currently provide services to our customers on a private carrier basis
and not as a common carrier. However, we do have FCC authority to operate as a
common carrier, if we so choose. Were our business methods or the federal
regulatory structure to change such that operating as a common carrier becomes
desirable, we would be required to comply with the FCC's requirements for
common carriers. These requirements include, filing tariffs setting forth our
rates and service terms, being forbidden from unjust and unreasonable
discrimination among customers, notifying the FCC before discontinuing service,
and complying with FCC equal employment opportunity regulations and reporting
requirements.
We do not currently provide telecommunications services between points in
the same state and so are exempt from state regulation of our services.
However, we could become subject to state telecommunications regulations if we
did provide intrastate telecommunications services.
FOREIGN OWNERSHIP
As long as we offer services on a private basis, there are no restrictions
on foreign ownership of our earth stations. If we offered services as a common
carrier, however, we would be subject to statutory requirements that generally
forbid more than 20% ownership or control of an FCC licensee by non-United
States citizens and more than 25% ownership of a licensee's parent by non-United
States citizens. The FCC may authorize foreign ownership in the licensee's
parent in excess of these percentages. Under current policies, the FCC has
liberally granted these authorizations where the applicant does not control
monopoly or bottleneck facilities and the foreign owners are citizens of
countries that are members of the World Trade Organization or provide equivalent
competitive opportunities to United States citizens.
We may, in the future, be required to seek FCC approval for foreign
ownership if we operate as a common carrier and ownership of our stock exceeds
the thresholds mentioned above. Failure to comply with these policies may
result in an order to divest the offending foreign ownership, fines, denial of
license renewal, and/or license revocation proceedings against the licensee by
the FCC. We have no knowledge of the FCC rules and regulations regarding
foreign ownership, if such ownership exceeds the thresholds mentioned above.
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FOREIGN REGULATIONS
Regulatory schemes in countries in which we may seek to provide our
satellite-delivered data communications services may impose impediments on our
operations. Some countries in which we intend to operate have
telecommunications laws and regulations that do not currently contemplate
technical advances in telecommunications technology like Internet/intranet
transmission by satellite. We cannot assure you that the present regulatory
environment in any of those countries will not be changed in a manner which may
have a material adverse impact on our business. Either we or our local sales
representatives typically must obtain authorization for each country in which
we provide our satellite-delivered data communications services. Although we
believe that we or our local sales representatives will be able to obtain the
requisite licenses and approvals from the countries in which we intend to
provide products and services, the regulatory schemes in each country are
different, and thus there may be instances of noncompliance of which we are not
aware. Although we believe these regulatory schemes will not prevent us from
pursuing our business plan, we cannot assure you that our licenses and
approvals are or will remain sufficient in the view of foreign regulatory
authorities. In addition, we cannot assure you that necessary licenses and
approvals will be granted on a timely basis in all jurisdictions in which we
wish to offer our products and services or that restrictions applicable thereto
will not be unduly burdensome.
REGULATION OF THE INTERNET
Our Internet operations (other than the operation of a teleport) are not
currently subject to direct government regulation in the United States or most
other countries, and there are currently few laws or regulations directly
applicable to access to or commerce on the Internet. However, due to the
increasing popularity and use of the Internet it is possible that a number of
laws and regulations may be adopted at the local, national or international
levels with respect to the Internet, covering issues like user privacy and
expression, pricing of products and services, taxation, advertising,
intellectual property rights, information security, or the convergence of
traditional communication services with Internet communications. For example,
the Child Online Protection Act, enacted in the United States in 1998, imposes
civil and criminal penalties on Internet content providers who fail to restrict
minor's access to material that is deemed harmful to them. However, enforcement
of this act is currently judicially enjoined, and its constitutionality is being
adjudicated. We anticipate that a substantial portion of our or NetSat Express'
Internet operations will be carried out in countries which may impose greater
regulation of the content of information coming into their country than that
which is generally applicable in the United States. Examples of this include
privacy regulations in Europe and content restrictions in countries like the
Republic of China. To the extent that we provide content as a part of our
Internet services, it will be subject to laws regulating content. Moreover, the
adoption of laws or regulations may decrease the growth of the Internet, which
could in turn decrease the demand for our Internet services or increase our cost
of doing business or otherwise negatively affect our business. In addition, the
applicability to the Internet of existing laws governing issues including
property ownership, copyrights and other intellectual property issues, taxation,
libel and personal privacy is uncertain. The vast majority of these laws were
adopted prior to the advent of the Internet and related technologies and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies. Changes to these laws intended to address these issues,
including some recently proposed changes, could create uncertainty in the
marketplace. These changes could reduce demand for our products and services or
could increase our cost of doing business as a result of costs of litigation or
increased product development costs.
TELECOMMUNICATIONS TAXATION, SUPPORT REQUIREMENTS, AND ACCESS CHARGES
All telecommunications carriers providing domestic services in the United
States are required to contribute a portion of their gross revenues for the
support of universal telecommunications services. Some telecommunications
services are subject to special taxation and to contribution requirements to
support services to special groups, like persons with disabilities.
Internet services are currently exempt from charges that long distance
telephone companies pay for access to the networks of local telephone companies
in the United States. Efforts have been made from time to time, and may be made
again in the future, to eliminate this exemption. If these access charges are
imposed on telephone lines used to reach Internet service providers, and/or if
flat rate
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telephone services for Internet access are eliminated or curtailed,
the cost to customers who access our satellite facilities using telephone
company-provided facilities could increase to an extent that could discourage
the demand for our services. Likewise, the demand for our services in other
countries may be affected by the availability and cost of local telephone or
other telecommunications facilities to reach our facilities or the facilities
of our customers.
EXPORT OF TELECOMMUNICATIONS EQUIPMENT
The sale of our ground segment systems, networks, and communications
service solutions outside the United States is subject to compliance with the
regulations of the United States Export Administration Regulations. The absence
of comparable restrictions on competitors in other countries may adversely
affect our competitive position. In addition, in order to ship our products or
implement our services into some countries, these products or services must
satisfy the technical requirements of that particular country. If we were
unable to comply with these requirements with respect to a significant quantity
of our products, our sales in Europe could be restricted, which could have a
material adverse effect on our business, financial condition and results of
operations.
EMPLOYEES
As of December 31, 1999, we had 157 full-time employees, including 81 in
engineering and program management, 34 in the manufacturing, manufacturing
support group, and network operations, 17 in sales and marketing, and 25 in
management and administration. Our employees are not covered by any
collective-bargaining agreements. We believe that our relations with our
employees are good.
PROPERTIES
We own approximately 122,000 square feet of space in a facility on
approximately seven acres located at 45 Oser Avenue, Hauppauge, New York. These
premises house our principal offices and production facilities as well as
offices and the network operations center of NetSat Express. We have a lease on
office space in Hong Kong at a monthly rental fee of approximately $3,000. We
are in the second year of a three-year lease for office space in the Atlanta,
Georgia, at a current base monthly rent of $2,050, which rental amount
increases to $2,130 per month in year three of the lease. In addition, we are
in the first year of a five-year lease at a base monthly rent of $3,600 for
office and operations facilities for our Globecomm Systems Europe Limited
subsidiary in the United Kingdom.
LEGAL PROCEEDINGS
We are not currently a party in any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information about our executive officers
and directors as of February 29, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- ----- --------------------------------------------------
<S> <C> <C>
David E. Hershberg ............ 62 Chief Executive Officer and Chairman of the Board
of Directors and Chairman of the Board of
Directors of NetSat Express
Kenneth A. Miller ............. 55 President and Director and Director of NetSat
Express
Donald G. Woodring ............ 52 Vice President--Network and Systems Analysis and
Director
Stephen C. Yablonski .......... 53 Vice President, General Manager and Director
Herman Fialkov ................ 77 Director
Benjamin Duhov ................ 72 Director
C.J. Waylan ................... 58 Director
A. Robert Towbin .............. 64 Director
Richard E. Caruso ............. 53 Director
Paul J. Johnson ............... 44 Vice President--Contracts and Corporate Secretary
Andrew C. Melfi ............... 46 Vice President and Chief Financial Officer
Paul J. Eterno ................ 44 Vice President--Human Resources
Marni S. Ehrlich .............. 46 Chief Executive Officer and Director--NetSat
Express
Burt H. Liebowitz ............. 62 President and Chief Operating Officer and
Director--NetSat Express
William M. Bartens ............ 32 Chief Financial Officer and Treasurer--NetSat
Express
</TABLE>
David E. Hershberg founded Globecomm in 1994 and has served as Chief
Executive Officer and Chairman of the Board of Directors since our inception
and is Chairman of the Board of Directors of NetSat Express, Inc. From 1976 to
1994, Mr. Hershberg was the President of Satellite Transmission Systems, Inc.,
or STS, a provider of satellite ground segment systems and networks, which he
founded and which became a subsidiary of California Microwave, Inc., or CMI,
and which is currently a subsidiary of L3 Communications Corporation. From 1990
to 1994, Mr. Hershberg also served as Group President of the Satellite
Communications Group of CMI, where he also had responsibility for EFData, Inc.,
a manufacturer of satellite communications modems and for Viasat Technology
Corp., a manufacturer of communications systems which specialized in portable
and mobile satellite communications equipment. Mr. Hershberg is a Director of
Primus Telecommunications Group, Inc. a telecommunications company providing
long distance services. In 1998, Mr. Hershberg was given the award of Long
Island Entrepreneur of the Year for Emerging Technology. He holds a B.S.E.E.
from Rensselaer Polytechnic Institute, an M.S.E.E. from Columbia University and
an M.S. in Management Science from Stevens Institute of Technology.
Kenneth A. Miller has served as President and a Director since joining us
in October 1994 and is a Director of NetSat Express, Inc. From 1978 to 1994, he
held various positions with STS, and
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succeeded Mr. Hershberg as President of STS in 1994. Prior to his employment at
STS, Mr. Miller was Manager of Satellite Systems at Comtech and a Satellite
Communications Staff Officer with the United States Army. Mr. Miller holds a
B.S.E.E. from the University of Michigan and an M.B.A. from Hofstra University.
Donald G. Woodring has served as Vice President--Network and Systems
Analysis and a Director since joining us in September 1994. From 1982 to 1994,
he was Assistant Vice President for System Analysis at STS. From 1980 to 1982,
he was employed by the SHAPE Technical Center and from 1972 to 1980 was
employed by the U.S. Department of Defense. Mr. Woodring holds a B.S. from Penn
State University and an M.S.E.E. from Catholic University.
Stephen C. Yablonski has served as Vice President of Commercial Systems
and a Director since joining us in June 1995. Additionally, in November 1999,
he was promoted to the title of general manager. From 1988 to 1995, he was
employed by STS, most recently as Vice President of the Commercial Systems and
Networks Division. Prior to that he was Vice President of Engineering at Argo
Communications, a telecommunications services provider. Mr. Yablonski holds a
B.S.E.E. from Brown University and an M.S.E.E. from the University of
Pennsylvania.
Herman Fialkov has been a Director since January 1995. In 1968, Mr.
Fialkov started the venture capital firm of Geiger & Fialkov and has been
involved in venture investments since that time. He was a General Partner of
PolyVentures Associates I, L.P., a high technology venture capital fund from
1987 to 1999. From 1972 to 1983, he was President and later Chairman of
Standard Microsystems Corporation, a manufacturer and provider of large-scale
integrated circuits and local area network products. He also is a Director of
Primus Telecommunications, Inc. and a Trustee of Polytechnic University. Mr.
Fialkov holds a B.Ad.E. from New York University.
Benjamin Duhov has been a Director since January 1996. Since 1993, he has
been a consultant and the President of Stamford Consulting Group which provides
consulting services to the aerospace industry. He worked for Thomson-CSF Inc.
from June 1975 to October 1993. Mr. Duhov holds a B.S.E.E. from Washington
University.
C. J. Waylan has been a Director since January 1997. Since 1992, he has
served as President, Chief Executive Officer and Director at Constellation
Communications, Inc., a satellite communications provider of voice, data,
positioning and other services to mobile and fixed-site users. From May 1996 to
September 1997, Dr. Waylan served as Executive Vice President of NextWave
Telecom Inc., a provider of wireless personal telecommunications services.
Prior to joining NextWave, Dr. Waylan worked for GTE Corporation from February
1981 to April 1996, where he served as Executive Vice President for GTE
Mobilnet and President of GTE Spacenet Corporation. He was recently elected as
a Director at Radyne Comstream. Dr. Waylan holds a B.S. from the University of
Kansas and an M.S.E.E. and a Ph.D. from the Naval Postgraduate School.
A. Robert Towbin has been a Director since November 1997 and has been a
Managing Director of C.E. Unterberg, Towbin, an investment banking firm, since
September 1995. In January 2000, he was elected to Co-Chairman of C.E.
Unterberg, Towbin. From January 1994 to August 1995 he was the President and
Chief Executive Officer of the Russian-American Enterprise Fund, a U.S.
Government owned investment fund. From 1987 to 1994, he was co-head of
technology banking and a Managing Director of Lehman Brothers. From 1977 to
1986, Mr. Towbin held various executive positions with L.F. Rothschild,
Unterberg, Towbin, an investment banking firm. He also is a Director of Bradley
Real Estate, Inc., Globalstar Telecommunications Ltd., Gerber Scientific, Inc.,
K&F Industries Inc. and TrueTime, Inc. Mr. Towbin holds a B.A. from Dartmouth
College.
Richard E. Caruso has been a Director since February 2000. He currently
serves as President of the application service provider market at Nortel
Networks. From 1983 to 1994, Mr. Caruso held various positions with Bellcore,
including vice president of industry markets. From 1994 to 1999, Mr. Caruso
served as vice president and general manager of digital media projects for IBM
Global Media and Entertainment Industries and general manager of solutions for
IBM Global Telecom and Media Industries. Mr. Caruso holds a B.S. in science
from Rutgers University and an M.S. in science from the New Jersey Institute of
Technology.
48
<PAGE>
Paul J. Johnson has served as Vice President--Contracts since joining us
in October 1996. From 1991 to 1996, he was Director of Contracts for STS. He
holds a B.B.A. from St. Bonaventure University.
Andrew C. Melfi has served as Vice President since September 1997 and as
Chief Financial Officer since joining us in January 1996. From 1982 to 1995, he
was the Controller of STS. From 1980 to 1982, he was the Assistant Controller
of Dorne and Margolin, Inc., a designer and manufacturer of antennas. Mr. Melfi
holds a B.B.A in accounting from Dowling College and an M.B.A. from Dowling
College.
Paul Eterno has served as Vice President of Human Resources since November
1999 and he served as Senior Director of Human Resources from January 1998 to
November 1999. From October 1997 to January 1998, Mr. Eterno served as a
consultant to us. From July 1995 to October 1997 he served as Senior Vice
President of Human Resources for US Computer Group, a turnkey provider of
computer service maintenance and products. Prior to that, he served most
recently as Senior Director of Human Resources at STS, where he was employed
from April 1983 through June 1995. Mr. Eterno holds a B.S. in Management from
the New York Institute of Technology and an M.B.A. in Executive Management from
St. John's University.
Marni S. Ehrlich has served as Chief Executive Officer and a Director of
NetSat Express since October 1999. Mr. Ehrlich has 20 years of senior
management experience in Internet services, international telecommunications
business and e-business, most notably with IBM and AT&T. From January 1997
through October 1999, Mr. Ehrlich held positions as global solutions director
of IBM's ISP division and was previously program director for IBM's voice and
IP solutions division. From June 1995 through January 1997, he was product
marketing director for AT&T WorldNet Service, and was a founder of the AT&T
Internet service. He jointly holds a patent for Internet radio advertising
mediation, and has lectured worldwide on how to become a valued-added Internet
Service Provider. Mr. Ehrlich holds a B.A. in marketing from Fairleigh
Dickinson University.
Burt H. Liebowitz has served as President, Chief Operating Officer and a
Director of NetSat Express since April 1999. From 1992 to 1999 he served as
Vice President of Technology and Chief Technical Officer for Loral Orion, Inc.
responsible for the development of VSAT products and enterprise software
support for Loral Orion's international networking and Internet access
business. Prior to joining Loral Orion, Mr. Liebowitz was Principal Engineer at
the MITRE Corporation from 1989 to 1992. Mr. Liebowitz is the author of two
books on distributed processing, and numerous articles on the development of
highly reliable, high performance computing and communications systems. He
holds three patents related to data networking over satellites. Mr. Liebowitz
holds a B.E.E. and M.S. in mathematics from Rensselaer Polytechnic Institute,
and an M.S.E.E. from Polytechnic Institute of Brooklyn.
William M. Bartens has served as Chief Financial Officer and Treasurer of
NetSat Express since May 1999 and he served as Controller of Globecomm from
September 1997 to April 1999. From October 1996 through September 1997 he was
an Audit Manager at Ernst & Young LLP and held various audit staff positions
with Ernst & Young LLP from January 1992 through September 1996. Mr. Bartens
holds a B.A. in economics from the State University of New York at Stony Brook
and an M.S. in accounting from Long Island University--C.W. Post.
49
<PAGE>
CERTAIN TRANSACTIONS AND RELATED PARTIES
In August 1999, NetSat Express, Inc. completed a private placement
yielding gross proceeds of $10,000,000. C.E. Unterberg, Towbin acted as
placement agent for such transaction. A. Robert Towbin, a Director of
Globecomm, serves as a Managing Director of C.E. Unterberg, Towbin. C.E.
Unterberg, Towbin was paid an investment advisor fee of $500,000 and issued a
warrant for 200,000 shares of NetSat Express, Inc. common stock at $3.00 per
share relating to this private placement, subject to equitable adjustment for
stock splits.
50
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of February 29, 2000, information with
respect to the beneficial ownership of shares of common stock of: (1) each
stockholder whom we know to beneficially own more than 5% of our outstanding
common stock, (2) each director and each executive officer named in the summary
compensation table in our proxy statement, dated October 15, 1999, (3) each
stockholder who is selling shares in this offering, and (4) all of our
directors and executive officers as a group. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
includes voting and investment power with respect to shares.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
STOCK PERCENTAGE PERCENTAGE
BENEFICIALLY OF SHARES OF SHARES
OWNED BEFORE OUTSTANDING OUTSTANDING
NAME AND ADDRESS OF THE BEFORE THE AFTER THE
BENEFICIAL OWNER(1) OFFERING(2) OFFERING OFFERING
- -------------------------------------------- ------------------ ------------- ------------
<S> <C> <C> <C>
David E. Hershberg ......................... 955,000(3) 9.9% 8.2%
Kenneth A. Miller .......................... 276,254(4) 2.8% 2.3%
Donald G. Woodring ......................... 166,164(5) 1.7% 1.4%
Stephen C. Yablonski ....................... 112,737(6) 1.2% *
Herman Fialkov ............................. 40,151 * *
Benjamin Duhov ............................. 5,700 * *
C.J. Waylan ................................ 42,750(7) * *
A. Robert Towbin ........................... 16,590(8) * *
Richard E. Caruso .......................... -- -- --
All current directors and executive officers
as a group (15 persons) ................... 1,703,278(9) 16.9% 14.1%
</TABLE>
- ----------
* Represents less than 1%
(1) Except as otherwise indicated, the stockholders named in the table have
sole voting and investment power with respect to all shares beneficially
owned by them, and the address of all stockholders listed in the table
is: c/o Globecomm Systems Inc., 45 Oser Avenue, Hauppauge, New York
11788.
(2) The number of shares of common stock outstanding as of February 29, 2000
is 9,689,627. Amounts shown for each stockholder include (i) all shares
of common stock owned by each stockholder and (ii) shares of common stock
underlying options, warrants and rights of first refusal exercisable
within 60 days of February 29, 2000.
(3) Includes 171,000 shares of common stock held by Deerhill Associates, a
family partnership of which Mr. Hershberg is General Managing Partner.
Mr. Hershberg disclaims beneficial ownership of the shares held by
Deerhill Associates except to the extent of his proportionate pecuniary
interest therein.
(4) Includes 84,975 shares of common stock issuable upon exercise of stock
options.
(5) Includes 17,150 shares of common stock held by some members of Mr.
Woodring's family of which Mr. Woodring disclaims beneficial ownership
and 69,687 shares of common stock issuable upon exercise of stock
options.
(6) Consists of 1,485 shares of common stock held by Mr. Yablonski's wife and
sons of which Mr. Yablonski disclaims beneficial ownership and 109,627
shares of common stock issuable upon exercise of stock options.
(7) Consists of 42,750 shares of common stock issuable upon exercise of stock
options.
(8) Includes 10,000 shares of common stock issuable upon the exercise of
stock options.
(9) See Notes (3) through (8) above.
If the underwriters exercise their over-allotment option to purchase up to
300,000 shares of common stock, then the following stockholders will sell up to
the following number of shares and have the following beneficial ownership:
David E. Hershberg, 85,000 shares, 7.3%, and Kenneth A. Miller, 25,000 shares,
2.1%.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting
agreement, dated the date hereof, the underwriters named below, who are
represented by ING Barings LLC and C.E. Unterberg, Towbin, have severally
agreed to purchase from us the number of shares of common stock set forth
opposite their names below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------- -----------------
<S> <C>
ING Barings LLC ................
C.E. Unterberg, Towbin .........
Total ........................ 2,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock of
this offering are subject to approval by their legal counsel and to other terms
and conditions. The underwriters are obligated to purchase and accept delivery
of all the shares of common stock (other than those shares covered by the
over-allotment option described below) if any are purchased.
The underwriters propose initially to offer the shares of common stock in
part directly to the public at the public offering price set forth on the cover
page of this prospectus and in part to dealers (including the underwriters) at
the offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may re-allow, to other dealers, a
concession not in excess of $ per share. After the offering of the shares of
common stock, the public offering price and other selling terms may be changed
by ING Barings LLC at any time without notice.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
------------- --------------
<S> <C> <C>
Per share .......... $ $
Total .............. $ $
</TABLE>
Other expenses of this offering, including the registration fees and the
fees of financial printers, counsel and accountants, payable by us are expected
to be approximately $650,000.
We and our selling stockholders have granted to the underwriters an
option, exercisable within 30 days after the date of this prospectus, to
purchase up to a total of up to 190,000 additional shares of common stock from
us and up to 110,000 additional shares of common stock from selling
stockholders at the public offering price less the underwriting discounts and
commissions. The underwriters may exercise this option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise this option, each underwriter will have a
conditional obligation to purchase its pro rata portion of such additional
shares based on the underwriter's percentage underwriting commitment as
indicated in the table above.
Under an agreement between Globecomm and Thomson-CSF, Thomson was granted
some preemptive and other rights regarding future issuances of our securities,
including (1) a preemptive right to purchase up to 15% of the total number of
securities offered in any public offering undertaken by us, and (2) the right to
participate in any private offering to the extent required to maintain its
percentage ownership in us. These rights survive so long as Thomson's stock
ownership does not fall below 5% of our outstanding share capital as a result of
Thomson selling or otherwise disposing of a portion of its shares. We do not
know whether Thomson will exercise its preemptive rights.
We have agreed to indemnify the underwriters against some types of
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the underwriters may be
52
<PAGE>
required to make in respect of any of those liabilities. These liabilities
generally consist of losses, claims, damages or actions arising from or
relating to the offer, purchase or sale of common stock in this offering by the
underwriters. Indemnification under the Securities Act may be unenforceable as
against public policy.
We, our executive officers and directors, have agreed not to: (1) issue,
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any
shares of common stock or any securities convertible into, exercisable or
exchangeable for, or represent the right to receive common stock, or (2) grant
any options or warrants to purchase common stock or enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any common stock (regardless of whether any of
the transactions described in the first or second clause is to be settled by
the delivery of common stock, or such other securities, in cash or otherwise)
for a period of 120 days after the date of this prospectus without the prior
written consent of ING Barings LLC. This agreement does not apply to any shares
reserved for issuance under existing employee benefit plans. In addition,
during this period, we have also agreed not to file any registration statement
with respect to (other than a Form S-8 registration statement in connection
with shares received under a stock plan, stock ownership plan, employment
agreement or dividend reinvestment plan), and our executive officers and
directors have agreed not to make any demand for, or exercise any right with
respect to, the registration of any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock without the
prior written consent of ING Barings LLC.
Other than in the United States, no action has been taken by us or by the
underwriters that would permit a public offering of the shares of common stock
offered hereby in any jurisdiction where action for that purpose is required.
The shares of common stock offered hereby may not be offered or sold, directly
or indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of that jurisdiction. Persons who come to possess this prospectus
are advised to inform themselves about, and to observe, any restrictions
relating to the offering of the common stock and the distribution of this
prospectus. This prospectus is not an offer to sell or a solicitation of an
offer to buy any shares of common stock offered hereby in any jurisdiction in
which that offer or solicitation is unlawful.
We have been informed that the underwriters do not intend to confirm sales
to any accounts over which they exercise discretionary authority without the
prior written approval of the customer.
Our common stock is quoted on the Nasdaq National Market under the symbol
"GCOM."
Until the distribution of our common stock is completed, rules of the SEC
may limit the ability of the underwriters and the selling group members to bid
for and purchase the common stock. As an exception to these rules, the
representatives of the underwriters are permitted to engage in transactions
that stabilize the price of the common stock. These transactions may consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price
of the common stock.
If the underwriters create a short position in the common stock in
connection with the offering by selling more shares of the common stock than
are set forth on the cover pages of this prospectus, the representatives of the
underwriters may reduce that short position by purchasing the common stock in
the open market. The representatives of the underwriters may elect to reduce
any short position by exercising all or part of the over-allotment option
described above.
The representatives of the underwriters may also impose a penalty bid on
some underwriters and selling group members. This means that if the
representatives purchase shares of the common stock in the open market to
reduce an underwriters' short position or to stabilize the price of the common
stock, it may reclaim the amount of the selling concession from the
underwriters and selling group members who sold those shares as part of the
offering.
53
<PAGE>
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of these purchases. The imposition of a penalty bid
might also have an effect on the price of the common stock if it were to
discourage resales of the common stock.
In addition, in connection with this offering, some of the underwriters
may engage in passive market making transactions in our common stock on the
Nasdaq National Market prior to the pricing and completion of the offering.
Passive market making consists of displaying bids on the Nasdaq National Market
no higher than the bid prices of independent market makers and making purchases
at prices no higher than those independent bids and effected in response to
order flow. Net purchases by a passive market maker on each day are limited to
a specified percentage of the passive market maker's average daily trading
volume in the common stock during a specified period and must be discontinued
when such limit is reached. Passive market making may cause the price of our
common stock to be higher than the price that otherwise would exist in the open
market in the absence of such transactions. If passive market making is
commenced, it may be discontinued at any time.
We make, and each of the underwriters makes, no representation or
prediction as to the direction or magnitude of any effect that the transaction
described above may have on the price of our common stock. In addition, we
make, and each of the underwriters makes, no representation that the
representatives of the underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
LEGAL MATTERS
The validity of the common stock offered in this prospectus will be passed
upon for us by Brobeck, Phleger & Harrison LLP, New York, New York. Other legal
matters in connection with this offering will be passed upon for the
underwriters by Morrison & Foerster LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K
for the year ended June 30, 1999 as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our consolidated financial statements are included elsewhere in the
registration statement and our consolidated financial statements and schedule
are incorporated by reference in reliance upon Ernst & Young LLP's report,
given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file at the public reference facilities of the SEC located at
450 Fifth Street, N.W., Washington D.C. 20549. You may obtain information on
the operation of the SEC's public reference facilities by calling the SEC at
1-800-SEC-0330. You can also access copies of such material electronically on
the SEC's home page on the World Wide Web at http://www.sec.gov. Reports, proxy
statements and other information concerning us is also available for inspection
at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
This prospectus is part of a registration statement (Registration No.
333-30808) we filed with the SEC. The SEC permits us to "incorporate by
reference" the information that we file with them, which means that we can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file with the SEC after the date of this
prospectus will automatically update and supercede this information.
54
<PAGE>
We incorporate by reference the following documents filed by us with the
SEC (File No. 000-22839). We also incorporate by reference any future filings
made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, after the date of this prospectus until the
termination of this offering.
1. Our Annual Report on Form 10-K for the fiscal year ended June 30, 1999.
2. Our Quarterly Report on Form 10-Q, as amended, for the quarters ended
September 30, 1999 and December 31, 1999.
3. Our Proxy Statement dated October 15, 1999, filed in connection with
our 1999 Annual Meeting of Stockholders.
4. The description of our common stock which is contained in our
Registration Statement on Form 8-A filed under the Securities Exchange Act on
July 15, 1997, including any amendment or reports filed for the purpose of
updating such description.
5. The description of our preferred stock purchase rights which is
contained in our Registration Statement on Form 8-A filed under the Securities
Exchange Act on December 4, 1998, including any amendment, or report filed for
the purpose of updating such description.
If you request a copy of any or all of the documents incorporated by
reference, then we will send to you the copies requested at no charge. However,
we will not send exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. You should direct
requests for such copies to: Mr. Andrew C. Melfi, Chief Financial Officer,
Globecomm Systems Inc., 45 Oser Avenue, Hauppauge, New York 11788.
55
<PAGE>
GLOBECOMM SYSTEMS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors ........................................................... F-2
Consolidated Balance Sheets as of June 30, 1998 and 1999 and December 31, 1999
(unaudited) ............................................................................. F-3
Consolidated Statements of Operations for the years ended June 30, 1997, 1998 and 1999
and the six months ended December 31, 1998 and 1999 (unaudited) ......................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
June 30, 1997, 1998 and 1999 and the six months ended December 31, 1999
(unaudited) ............................................................................. F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1997, 1998 and
1999 and the six months ended December 31, 1998 and 1999 (unaudited) .................... F-7
Notes to Consolidated Financial Statements ............................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Globecomm Systems Inc.
We have audited the accompanying consolidated balance sheets of Globecomm
Systems Inc. at June 30, 1998 and 1999 and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Globecomm
Systems Inc. at June 30, 1998 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1999, in conformity with accounting principles generally accepted in
the United States.
/S/ ERNST & YOUNG LLP
Melville, New York
August 24, 1999, except for the fourth paragraph of
Note 16. Commitments and Contingencies, as to which the
date is September 14, 1999
F-2
<PAGE>
GLOBECOMM SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1999 DECEMBER 31, 1999
--------------- --------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 21,342 $ 11,944 $ 23,071
Restricted cash ......................................... 4,416 3,486 832
Accounts receivable, net ................................ 18,017 18,147 15,419
Inventories, net ........................................ 1,656 6,419 4,832
Prepaid expenses and other current assets ............... 635 1,207 1,685
-------- --------- ---------
Total current assets ..................................... 46,066 41,203 45,839
Fixed assets, net ........................................ 10,165 12,684 25,250
Investments .............................................. 2,093 2,961 2,961
Other assets, net of accumulated amortization of $100 and
$197 at June 30, 1998 and 1999 and $279 at December 31,
1999 .................................................... 295 1,162 1,840
-------- --------- ---------
Total assets ............................................. $ 58,619 $ 58,010 $ 75,890
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 13,042 $ 18,749 $ 11,672
Deferred revenue ........................................ 103 299 591
Accrued payroll and related fringe benefits ............. 632 859 676
Accrued commissions ..................................... 216 72 14
Other accrued expenses .................................. 594 1,774 2,349
Deferred liability ...................................... -- -- 420
Capital lease obligations ............................... 18 -- 375
-------- --------- ---------
Total current liabilities ................................ 14,605 21,753 16,097
Capital lease obligations, less current portion .......... -- -- 10,736
Deferred liability, less current portion ................. -- -- 1,680
Minority interests in consolidated subsidiary ............ -- -- 1,963
Series A Participating Preferred stock of consolidated
subsidiary, at redemption value ......................... -- -- 5,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 3,000,000 shares
authorized:
Class A Convertible, shares authorized, issued and
outstanding: none at June 30, 1998 and 1999 and
December 31, 1999 ................................... -- -- --
Class B Convertible, shares authorized, issued and
outstanding: none at June 30, 1998 and 1999 and
December 31, 1999 ................................... -- -- --
Series A Junior Participating, shares authorized,
issued and outstanding: none at June 30, 1998 and
1999 and December 31, 1999 .......................... -- -- --
Common stock, $.001 par value, 22,000,000 shares
authorized, shares issued: 9,165,908 and 9,365,489 at
June 30, 1998 and 1999 and 9,712,988 at December 31,
1999 .................................................. 9 9 10
Additional paid-in capital .............................. 50,530 52,061 55,781
Accumulated deficit ..................................... (6,525) (14,717) (14,319)
Deferred compensation ................................... -- (293) (255)
Treasury stock, at cost, none at June 30, 1998, 139,638
shares at June 30, 1999 and December 31, 1999 ......... -- (803) (803)
-------- --------- ---------
Total stockholders' equity ............................... 44,014 36,257 40,414
-------- --------- ---------
Total liabilities and stockholders' equity ............... $ 58,619 $ 58,010 $ 75,890
======== ========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
-------------------------------------- ----------------------------
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1998 1999
------------ ---------- ------------ -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues .................................... $ 36,220 $ 58,105 $ 49,058 $ 25,175 $ 36,798
Costs of revenues ........................... 32,060 49,532 43,516 21,919 31,885
-------- -------- -------- -------- --------
Gross profit ................................ 4,160 8,573 5,542 3,256 4,913
-------- -------- -------- -------- --------
Operating expenses:
Network operations ......................... -- -- 514 204 718
Selling and marketing ...................... 3,282 4,187 5,183 2,324 2,426
Research and development ................... 649 1,188 1,325 550 355
General and administrative ................. 3,449 5,010 6,040 2,656 4,114
Terminated acquisition costs ............... -- -- 972 972 --
Write-down of investments .................. -- -- 679 -- --
-------- -------- -------- -------- --------
Total operating expenses .................... 7,380 10,385 14,713 6,706 7,613
-------- -------- -------- -------- --------
Loss from operations ........................ (3,220) (1,812) (9,171) (3,450) (2,700)
Other income (expense):
Interest income ............................ 298 1,271 980 610 448
Interest expense ........................... (22) (5) (1) -- (317)
Gain on sale of consolidated subsidiary's
common stock ............................. -- -- -- -- 2,353
-------- -------- -------- -------- --------
Loss before minority interests in
operations of consolidated subsidiary ...... (2,944) (546) (8,192) (2,840) (216)
Minority interests in operations of
consolidated subsidiary .................... 275 -- -- -- 614
-------- -------- -------- -------- --------
Net (loss) income ........................... $ (2,669) $ (546) $ (8,192) $ (2,840) $ 398
======== ======== ======== ======== ========
Basic net (loss) income per common share..... $ (0.06) $ (0.90) $ (0.31) $ 0.04
======== ======== ======== ========
Diluted net (loss) income per common
share ...................................... $ (0.06) $ (0.90) $ (0.31) $ 0.04
======== ======== ======== ========
Weighted-average shares used in the
calculation of net (loss) income per
common share:
Basic .................................... 8,553 9,109 9,127 9,268
======== ======== ======== ========
Diluted .................................. 8,553 9,109 9,127 10,157
======== ======== ======== ========
Pro forma basic and diluted net loss per
common share (unaudited) ................... $ (0.44)
========
Shares used in the calculation of pro forma
basic and diluted net loss per common
share (unaudited) .......................... 6,086
========
</TABLE>
See accompanying notes.
F-4
<PAGE>
GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
--------------------------------------
COMMON
CLASS A CLASS B STOCK
------------------ ------------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- --------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 .................... 156 $ -- -- $ -- 3,769 $ 4
Sale of convertible preferred stock to
investors, net of issuance costs of
$2,623; paid in cash of $1,135 and 53
shares of stock ............................ 485 1
Sale of convertible preferred stock to
investor ................................... 16 --
Exercise of warrants ........................ 107 --
Sale of convertible preferred stock to
investor ................................... 30 --
Issuance of common stock in exchange
for minority shares in subsidiary .......... 30 --
Options granted to employees and
directors ..................................
Net loss ....................................
Balance at June 30, 1997 .................... 172 -- 515 1 3,906 4
Conversion of convertible preferred
stock into common stock .................... (172) -- (515) (1) 1,958 2
Proceeds from initial public offering, net
of issuance costs of $3,721................. 3,163 3
Proceeds from exercise of stock options...... 132 --
Proceeds from exercise of warrants .......... 7 --
Options granted to employees and
directors ..................................
Net loss ....................................
Balance at June 30, 1998 .................... -- -- -- -- 9,166 9
Issuance of common stock in exchange
for minority shares in subsidiary .......... 43 --
Issuance of common stock in connection
with acquisition ........................... 50 --
Proceeds from exercise of stock options...... 39 --
Exercise of stock options in exchange
for shares of common stock ................. 49 --
Issuance of common stock in
connection with employee stock
purchase plan .............................. 18 --
Purchases of treasury stock .................
Options granted to employees and
directors ..................................
Grant of employee stock options .............
Amortization of deferred compensation
Net loss ....................................
Balance at June 30, 1999 .................... -- -- -- -- 9,365 9
Net proceeds from issuance of
consolidated subsidiary's common
stock (unaudited) ..........................
Minority interests resulting from
issuance of consolidated subsidiary's
common stock (unaudited) ...................
Proceeds from exercise of stock options 334 1
Issuance of common stock in connection
with employee stock purchase plan
(unaudited) ................................ 14 --
Options granted to employees and
directors (unaudited) ......................
Amortization of deferred compensation
(unaudited) ................................
Net income (unaudited) ......................
Balance at December 31, 1999 (unaudited) -- $ -- -- $-- 9,713 $10
==== ======= ==== ===== ===== ===
</TABLE>
F-5
<PAGE>
GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TREASURY STOCK TOTAL
PAID-IN ACCUMULATED DEFERRED --------------------- STOCKHOLDERS'
CAPITAL DEFICIT COMPENSATION SHARES AMOUNT EQUITY
------------ ------------- ------------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 9,036 $ (3,310) $ -- -- $ -- $ 5,730
10,964 10,965
257 257
563 563
824 824
243 243
83 83
(2,669) (2,669)
--------- ------- ------ ------- --------
21,970 (5,979) -- -- -- 15,996
(1) --
27,901 27,904
534 534
55 55
71 71
(546) (546)
--------- --------
50,530 (6,525) -- -- -- 44,014
250 250
406 406
148 148
258 26 (258) --
94 94
114 (545) (545)
75 75
300 (300) --
7 7
(8,192) (8,192)
--------- --------
52,061 (14,717) (293) 140 (803) 36,257
3,398 3,398
(1,903) (1,903)
2,069 2,070
119 119
37 37
38 38
398 398
--------- --------
$55,781 $ (14,319) $ (255) 140 $ (803) $ 40,414
========= ========= ======= ====== ======= ========
</TABLE>
F-6
<PAGE>
GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
JUNE 30, JUNE 30, JUNE 30,
1997 1998 1999
-------------- ---------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income ................................................... $ (2,669) $ (546) $ (8,192)
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization ..................................... 362 716 1,267
Stock compensation expense ........................................ 83 71 82
Provision (credit) for doubtful accounts .......................... -- 40 100
Loss on disposal of fixed assets .................................. -- -- 129
Write-down of investments ......................................... -- -- 679
Minority interests in operations of consolidated subsidiary........ (275) -- --
Gain on sale of consolidated subsidiary's common stock ............ -- -- --
Changes in operating assets and liabilities:
Accounts receivable, net ......................................... (12,351) (3,707) (230)
Inventories, net ................................................. (943) 664 (4,763)
Prepaid expenses and other current assets ........................ (73) (328) (572)
Other assets ..................................................... (1) 68 (74)
Accounts payable ................................................. 13,322 (3,047) 5,707
Deferred revenue ................................................. 27 76 196
Accrued payroll and related fringe benefits ...................... 221 194 227
Accrued commissions and other accrued expenses ................... 339 121 1,036
Deferred liability ............................................... -- -- --
---------- -------- --------
Net cash used in operating activities ............................... (1,958) (5,678) (4,408)
---------- -------- --------
INVESTING ACTIVITIES:
Purchases of investments ............................................ (1,069) (785) (1,547)
Purchases of fixed assets ........................................... (6,765) (3,678) (3,818)
Payment of organization costs ....................................... (81) -- --
Restricted cash ..................................................... (306) (2,879) 930
Proceeds from sale of consolidated subsidiary's common stock ........ -- -- --
---------- -------- --------
Net cash (used in) provided by investing activities ................. (8,221) (7,342) (4,435)
FINANCING ACTIVITIES:
Proceeds from sales of common stock, net ............................ -- 28,665 --
Proceeds from sale of common stock in connection with
employee stock purchase plan ....................................... -- -- 94
Proceeds from sales of preferred stock, net ......................... 12,046 -- --
Proceeds from sale of consolidated subsidiary's common stock,
net ................................................................ -- -- --
Proceeds from sale of consolidated subsidiary's preferred stock ..... -- -- --
Proceeds from exercise of warrants .................................. 563 55 --
Proceeds from exercise of stock options ............................. -- 534 148
Purchases of treasury stock ......................................... -- -- (545)
Investment from minority stockholders ............................... 275 -- --
Repayment of loan to stockholder .................................... 150 -- --
Repayment of loans payable to stockholder ........................... (315) -- --
Payment of deferred offering costs .................................. (761) -- (234)
Payments under capital leases ....................................... (50) (56) (18)
---------- -------- --------
Net cash provided by (used in) financing activities ................. 11,908 29,198 (555)
---------- -------- --------
Net increase (decrease) in cash and cash equivalents ................ 1,729 16,178 (9,398)
Cash and cash equivalents at beginning of period .................... 3,435 5,164 21,342
---------- -------- --------
Cash and cash equivalents at end of period .......................... $ 5,164 $21,342 $ 11,944
========== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ............................................. $ 51 $ 5 $ 1
========== ======== ========
<PAGE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- -------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income ................................................... $(2,840) $ 398
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization ..................................... 812 1,108
Stock compensation expense ........................................ 37 75
Provision (credit) for doubtful accounts .......................... (13) 153
Loss on disposal of fixed assets .................................. -- --
Write-down of investments ......................................... -- --
Minority interests in operations of consolidated subsidiary........ -- (614)
Gain on sale of consolidated subsidiary's common stock ............ -- (2,353)
Changes in operating assets and liabilities:
Accounts receivable, net ......................................... (150) 2,575
Inventories, net ................................................. (980) 1,238
Prepaid expenses and other current assets ........................ (218) (478)
Other assets ..................................................... (24) (760)
Accounts payable ................................................. 1,962 (7,077)
Deferred revenue ................................................. (8) 292
Accrued payroll and related fringe benefits ...................... (218) (183)
Accrued commissions and other accrued expenses ................... 305 393
Deferred liability ............................................... -- 2,100
--------- --------
Net cash used in operating activities ............................... (1,335) (3,133)
--------- --------
INVESTING ACTIVITIES:
Purchases of investments ............................................ (1,559) --
Purchases of fixed assets ........................................... (1,152) (2,393)
Payment of organization costs ....................................... -- --
Restricted cash ..................................................... (371) 2,654
Proceeds from sale of consolidated subsidiary's common stock ........ -- 3,500
--------- --------
Net cash (used in) provided by investing activities ................. (3,082) 3,761
FINANCING ACTIVITIES:
Proceeds from sales of common stock, net ............................ -- --
Proceeds from sale of common stock in connection with
employee stock purchase plan ....................................... -- 119
Proceeds from sales of preferred stock, net ......................... -- --
Proceeds from sale of consolidated subsidiary's common stock,
net ................................................................ -- 3,398
Proceeds from sale of consolidated subsidiary's preferred stock ..... -- 5,000
Proceeds from exercise of warrants .................................. -- --
Proceeds from exercise of stock options ............................. -- 2,070
Purchases of treasury stock ......................................... (545) --
Investment from minority stockholders ............................... -- --
Repayment of loan to stockholder .................................... -- --
Repayment of loans payable to stockholder ........................... -- --
Payment of deferred offering costs .................................. -- --
Payments under capital leases ....................................... (17) (88)
--------- --------
Net cash provided by (used in) financing activities ................. (562) 10,499
--------- --------
Net increase (decrease) in cash and cash equivalents ................ (4,979) 11,127
Cash and cash equivalents at beginning of period .................... 21,342 11,944
--------- --------
Cash and cash equivalents at end of period .......................... $16,363 $ 23,071
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ............................................. $ 1 $ 317
========= ========
</TABLE>
See accompanying notes.
F-7
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Globecomm Systems Inc. (the "Company") was incorporated in the State of
Delaware on August 17, 1994. The Company designs, assembles and installs
satellite ground segment systems and networks which support a wide range of
satellite communications applications including fixed, mobile and direct
broadcast services as well as certain military applications. During fiscal
1997, the Company established a subsidiary, NetSat Express, Inc. ("NetSat
Express"), to develop service revenues by providing high-speed,
satellite-delivered data communications to developing markets world wide. In
addition, the Company offers communications services which are typically
comprised of ground segment systems and networks in combination with
terrestrial and space segment services to provide end-to-end service solutions.
On July 18, 1997, the Board of Directors authorized and, on August 5,
1997, the stockholders approved a 2.85-for-one stock split of the outstanding
shares of common stock, and amended and restated the Company's certificate of
incorporation increasing the number of authorized shares of common stock to
22,000,000 and preferred stock to 3,000,000, and changed the par value of its
common and preferred stock to $.001. All common stock, stock options and
warrant data has been restated to reflect the stock split.
The Company has incurred operating losses since its inception and had an
accumulated deficit at June 30, 1999 and December 31, 1999 of approximately
$14,717,000 and $14,319,000, respectively. Such losses have resulted
principally from general and administrative and selling and marketing expenses
associated with the Company's operations. The Company expects that its cash and
working capital requirements will continue to increase as the Company expands
its operations. Management believes that its existing capital resources will be
sufficient to meet its working capital needs through December 31, 2000 (see
Note 9).
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiary, NetSat Express. All significant intercompany
balances and transactions have been eliminated in consolidation.
Interim Consolidated Financial Statements
The consolidated financial statements as of December 31, 1999 and for six
months ended December 31, 1998 and 1999 have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the consolidated
financial position as of December 31, 1999 and the consolidated results of
operations and cash flows for the six months ended December 31, 1998 and 1999
have been made. Certain information and footnote disclosures normally included
in the consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or eliminated.
The results of operations for the six months ended December 31, 1998 and
1999 are not necessarily indicative of the results to be expected for any
future interim period or for the year ending June 30, 2000.
F-8
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Company uses the percentage-of-completion method of accounting for
contract revenues, upon the achievement of certain milestones. Accordingly,
revenue from long-term, fixed-price contracts, are generally recorded based on
the relationship of total costs incurred to date to total projected final
costs. Contract costs generally include purchased material, direct labor,
overhead and other indirect costs. Anticipated contracted losses are recognized
as they become known.
NetSat Express revenues are derived primarily from Internet access service
fees and sales of hardware and equipment. Service revenue from Internet access
is recognized ratably over the period services are provided. Sales of hardware
and equipment are recognized upon shipment. Payments received in advance of
providing Internet access service are deferred until the period such services
are provided and are presented as deferred revenue in the accompanying
consolidated balance sheets.
Cost of Revenues
In addition to contract costs, cost of revenues relating to Internet
access service fees consist primarily of satellite space segment charges and
Internet connectivity fees. Cost of revenues associated with hardware and
equipment sales consist primarily of the purchase of the related products.
Network Operations
Network operations expense consist primarily of costs associated with the
operation of the Network Operation Center (the "NOC"), including teleport
services and maintaining a twenty-four hour a day, seven-day a week staff to
monitor the operations of the NOC.
Research and Development
Research and development expenditures are expensed as incurred.
Inventories
Inventories, which consist primarily of work-in-progress from costs
incurred in connection with specific customer contracts, are stated at the
lower of cost (using the first-in, first-out method of accounting) or market
value, less customer progress payments.
Cash Equivalents
The Company classifies all highly liquid financial instruments with a
maturity of three months or less when purchased as cash equivalents.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets ranging from
F-9
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
three to twenty-five years. Amortization of assets held under capital leases is
calculated using the straight-line method over the estimated useful lives of
the assets. Amortization of leasehold improvements is calculated using the
straight-line method over the shorter of the lease term or estimated useful
lives of the improvement.
Income Taxes
Income taxes are provided using the liability method. Accordingly,
deferred tax assets and liabilities are recognized for future tax consequences
attributable to the difference between the carrying amount of the assets and
liabilities for financial statement and income tax purposes, as determined
under the enacted tax laws and rates that will be in effect when the
differences are expected to reverse.
Fair Value of Financial Instruments
The recorded amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable, and accrued liabilities approximate their fair
values principally because of the short-term nature of these items.
Stock-Based Compensation
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
complies with the disclosure provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based-Compensation" ("Statement 123").
Goodwill
Goodwill represents excess of the purchase price over the fair value of
net assets acquired. Amortization expense relating to goodwill is amortized on
a straight-line basis over periods ranging from five to ten years. Such amounts
are included in other assets in the accompanying consolidated balance sheets.
Long-Lived Assets
When impairment indicators are present, the Company reviews the carrying
value of its assets in determining the ultimate recoverability of their
unamortized values using future undiscounted cash flow analyses expected to be
generated by the assets. If such assets are considered impaired, the impairment
recognized is measured by the amount by which the carrying amount of the asset
exceeds the future discounted cash flows. Assets to be disposed of are reported
at the lower of the carrying amount or fair value, less cost to sell.
The Company evaluates the periods of amortization continually in
determining whether later events and circumstances warrant revised estimates of
useful lives. If estimates are changed, the unamortized cost will be allocated
to the increased or decreased number of remaining periods in the revised lives.
Segment Disclosures
Effective June 30, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("Statement 131").
F-10
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Statement 131 supersedes Statement of Financial Accounting Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise". Statement 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports.
Statement 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company
operates in two business segments, its Ground Segment Systems and Networks
Segment, through Globecomm Systems Inc. and its Data Communications Services
Segment, through NetSat Express (see Note 14).
Reclassifications
Certain balances in the prior periods have been reclassified to conform to
the current period presentation.
3. INVENTORIES
Inventories consists of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1998 1999 1999
---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials and component parts ......... $ 78 $ 87 $ 100
Work-in-progress .......................... 3,576 9,975 8,469
------ ------- ------
3,654 10,062 8,569
Less progress payments .................... 1,998 3,643 3,737
------ ------- ------
$1,656 $ 6,419 $4,832
====== ======= ======
</TABLE>
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1998 1999 1999
---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land .......................................... $ 1,750 $ 1,750 $ 1,750
Building and improvements ..................... 5,261 5,309 5,310
Computer equipment ............................ 1,437 1,410 1,517
Machinery and equipment ....................... 844 2,469 3,037
Network Operations Center ..................... 565 749 1,322
Satellite earth station equipment ............. 148 630 671
Furniture and fixtures ........................ 933 987 1,031
Leasehold improvements ........................ 29 29 29
Equipment under capital leases ................ 159 159 11,199
Construction-in-progress ...................... 158 1,481 2,699
------- ------- -------
11,284 14,973 28,565
Less accumulated depreciation and amortization 1,119 2,289 3,315
------- ------- -------
$10,165 $12,684 $25,250
======= ======= =======
</TABLE>
F-11
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
5. INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1998 1999 1999
---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Shiron Satellite Communications (1996), Ltd.
("Shiron") (a) .............................. $ 285 $ 285 $ 285
Euro Broadcasting Corporation
("Euro") (b) ................................ 440 -- --
Newpoint Technologies, Inc.
("Newpoint Technologies") (c) ............... 950 950 950
Armer Communications Engineering Services, Inc.
("Armer") (d) ............................... 200 200 200
Joint Communications Technology Corp.
("JCTC") (e) ................................ 214 -- --
McKibben Communications, LLC
("McKibben") (f) ............................ -- 1,522 1,522
Other ......................................... 4 4 4
------ ------ ------
$2,093 $2,961 $2,961
====== ====== ======
</TABLE>
(a) On February 12, 1996, the Company purchased 10% of the common stock
of Shiron, an Israeli company, for $150,000 and, during October
1996, exercised an option to purchase an additional 9% for $135,000.
The Company has an option to purchase up to a total of a 20%
interest of Shiron in accordance with the terms of the purchase
agreement. As of June 30, 1999, the Company's interest in Shiron was
diluted to 8.91%.
(b) During August 1996, the Company purchased 19% of the common stock of
Euro, a Delaware corporation, for $240,000 with a one-year option to
purchase an additional 10% at a price ranging from $125,000 to
$200,000 depending upon the exercise date. During August 1997, the
Company exercised its option to purchase an additional 10% for
$200,000. During December 1998, the Company purchased an additional
100,000 shares of Euro's common stock for $25,000. During June 1999,
the Company's management evaluated this investment and believed it
would be appropriate to write-down this investment to zero and
recorded a charge to operations of approximately $465,000.
(c) On August 30, 1996, the Company purchased 5% of the common stock of
Newpoint Technologies, a New Hampshire corporation, for
approximately $400,000. In May 1997, the Company purchased an
additional 1.6% for $150,000. In August and September 1997, the
Company purchased additional common stock of Newpoint Technologies
for $400,000. As of June 30, 1999, the Company's interest in
Newpoint Technologies has been diluted to 10.3%.
(d) On November 18, 1996, the Company purchased 15% of the common stock
of Armer, an Arizona corporation, for $150,000 and in March 1997,
purchased an additional 2% for $50,000.
(e) On January 13, 1998, the Company purchased 6.7% of the common stock
of JCTC, a New Jersey corporation, for approximately $214,000. The
Company has a two-year option to purchase an additional 6.7% for
$200,000. In addition, the Company has an additional option to
purchase up to a total of 20% interest in JCTC provided the Company
has purchased the first option. The price of the second option will
be the then current market price or the last price for which JCTC's
common stock has been sold. During June 1999, the Company's
management evaluated
F-12
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
5. INVESTMENTS (CONTINUED)
this investment and believed it would be appropriate to write-down this
investment to zero and recorded a charge to operations of approximately
$214,000.
(f) On August 20, 1998, the Company purchased 18.75% of the future
profits, losses and equity (subject to certain liquidation and
income preferences) of McKibben, a California limited liability
corporation, for $1.5 million. The Company has a two-year option to
purchase up to an additional 11.25% for $1.5 million and has an
anti-dilution provision. Furthermore, the Company has an "Absolute
Option", whereby it has the right to buy up to 20% of the equity of
McKibben at any time prior to the sale of substantially all of the
assets or an Initial Public offering of McKibben.
The above investments have been accounted for at cost since the Company
does not have the ability to exercise significant influence over operating and
financial policies of the investees.
6. TERMINATED ACQUISITION COSTS
During the year ended June 30, 1999, the Company incurred certain costs in
connection with an attempt to acquire another company. During the first quarter
of fiscal 1999, the Company terminated this proposed acquisition and as a
result incurred costs of approximately $972,000 representing legal, accounting
and other acquisition related costs which have been charged to operations.
7. COMMON STOCK
Issuance of Common Stock in Connection with Acquisition
On May 25, 1999, the Company acquired the business of Global-Net, Inc.
("Global-Net"), a wireless local loop telephone network solutions business,
located in New York, in exchange for 50,000 shares of the Company's common
stock with a fair market value of $8.125 per share on the date of acquisition.
The purchase agreement provides for additional consideration to be paid by the
Company if certain revenue goals are met during the fifteen months subsequent
to the acquisition date. Had this acquisition been consummated as of July 1,
1997, the unaudited pro forma revenues and results of operations would not have
been considered material for the years ended June 30, 1998 and 1999. The
purchase price of approximately $406,000 has been allocated to goodwill and is
being amortized over five-years.
Sales of Common Stock
In June 1995, the Company completed a private placement offering in which
the Company issued approximately 1,219,000 shares of common stock to various
investors. Proceeds from the issuance of these shares totaled approximately
$5,032,000, including approximately $861,000 of stock subscriptions received in
July 1995, and net of related expenses of approximately $1,402,000. In
satisfaction of these related expenses, the Company paid approximately $670,000
in cash and issued approximately 156,000 shares of its common stock valued at
approximately $732,000. Additionally, in connection with this offering, the
Company sold to one of its investors for approximately $4,000, a five-year
warrant to purchase approximately 107,000 shares of the Company's common stock
at a price of $5.26 per share. The warrant contains certain anti-dilution
provisions as specified in the warrant agreement. On January 24, 1997, the
investor exercised the outstanding warrant.
During November 1996, a minority shareholder in NetSat Express agreed to
exchange 19,000 shares (representing approximately 2%) of NetSat Express for
approximately 30,000 shares in the Company. The shares in the Company were
valued at $8.07 per share at the date of the agreement. Accordingly, the
Company recorded goodwill of approximately $243,000, which is being amortized
over ten-years.
F-13
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
7. COMMON STOCK (CONTINUED)
In August 1997, the Company completed an initial public offering of
3,162,500 shares of common stock for an aggregate offering price of
$31,625,000. The Company incurred total expenses in the offering of
approximately $3,721,000 of which approximately $2,214,000 represented
underwriting discounts and commissions and approximately $1,507,000 represented
other related expenses. The net offering proceeds to the Company after
deducting the total expenses were approximately $27,904,000.
During March 1999, a minority shareholder in NetSat Express agreed to
exchange 1,680,000 shares of convertible preferred stock (representing
approximately 14%) of NetSat Express for 42,553 shares in the Company. The
shares in the Company were valued at $5.875 per share at the date of the
agreement. Accordingly, the Company recorded goodwill of approximately $250,000
in connection with this transaction, which is being amortized over five years.
During May 1999, the Company exercised its right to convert its 1,680,000
shares of convertible preferred stock into 1,680,000 shares of common stock of
NetSat Express.
Stock Issued to Consultants
During November 1996, the Company issued a ten-year warrant to five
consultants for future services to purchase an aggregate of approximately
64,000 shares of common stock at a price per share of $8.07, equal to the fair
market value of the shares at the date of issuance. No warrants were exercised
during the year ended June 30, 1997. During the year ended June 30, 1998,
warrants to purchase 6,800 shares of common stock were exercised. No warrants
were exercised during the year ended June 30, 1999, or for the six months ended
December 31, 1999.
Issuance of Common Stock as Commission
In November 1995, the Company issued approximately 37,000 shares of its
common stock to an investor, or 1% of the then outstanding share capital. This
issuance resulted in approximately $174,000 of commission expense based on the
fair market value of the shares at the date of issuance, which was also the
date of the agreement. Such amount was included in selling and marketing
expense in the accompanying consolidated statement of operations during the
year ended June 30, 1997, the period in which the related revenue was
recognized.
In addition, the investor was granted certain preemptive and other rights
regarding future issuances of securities of the Company including (i) a
preemptive right to purchase up to 15% of the total number of securities
offered in any public offering undertaken by the Company and (ii) the right to
participate in any private offering to the extent required to maintain its
percentage ownership in the Company as well as the right to nominate a director
to the Board of Directors. These rights survive for so long as the investor's
stock ownership does not fall below 5% of the outstanding share capital of the
Company as a result of the investor selling or otherwise disposing of a portion
of its shares.
Treasury Stock
On September 1, 1998, the Company's Board of Directors authorized the
repurchase of up to $2.0 million of the Company's outstanding common stock. The
repurchase program allows for purchases to be made intermittently, through open
market and privately negotiated transactions. Timing, price, quantity and the
manner of purchase are at the discretion of the Company's management subject to
compliance with the applicable securities laws. During the year ended June 30,
1999, the Company repurchased approximately 114,000 shares of the Company's
common stock under the repurchase program for an aggregate purchase price of
approximately $545,000.
F-14
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
7. COMMON STOCK (CONTINUED)
During June 1999, an employee of the Company surrendered approximately
26,000 shares of the Company's common stock, with the fair market value at time
of surrender of $10.125 per share, in exchange for the exercise of
approximately 49,000 stock options with exercise prices ranging from $4.68 to
$8.07. Accordingly, the Company recorded approximately 26,000 shares in
treasury stock, which amounted to approximately $258,000, and issued
approximately 49,000 shares of the Company's common stock to the employee.
8. CONVERTIBLE PREFERRED STOCK
On May 30, 1996, the Company issued approximately 156,000 shares of its
Class A convertible preferred stock ("Class A Convertible") at $16.00 per share
to investors. Proceeds from the sale of these shares totaled $2,485,000, net of
related expenses of $15,000. In addition, during August 1996, the Company
issued approximately 16,000 shares of Class A Convertible at $16.00 per share
to an investor.
In December 1996, the Company issued approximately 485,000 shares
(including approximately 53,000 shares issued as commission) of its Class B
convertible preferred stock ("Class B Convertible") at $28.00 per share to
investors. Proceeds from the sales of these shares totaled $10,965,000, net of
related cash expenses of $1,135,000. In March 1997, and in connection with
certain anti-dilution provisions related to a sale of common stock to an
investor during the year ended June 30, 1996, the Company issued approximately
29,000 shares of Class B Convertible at $28.00 per share.
The Class A Convertible and Class B Convertible outstanding at the time of
the Company's initial public offering in August 1997 was converted into
approximately 1,958,000 shares of common stock.
9. CONSOLIDATED SUBSIDIARY'S EQUITY TRANSACTIONS
On August 11, 1999, the Company contributed $3,500,000 of the amount it
was owed at June 30, 1999 from NetSat Express as additional paid-in capital and
entered into a promissory note agreement with NetSat Express for the repayment
of the balance of $3,582,000. The promissory note is due and payable in
seven years and accrues interest (payable monthly) at a variable rate equal to
the Company's cost of funds, which is currently at the prime rate plus 1%.
Amounts owed by NetSat Express to the Company pursuant to the Master Operating
Agreement and for any advances made subsequent to June 30, 1999 are payable
currently.
On August 11, 1999, NetSat Express issued and sold 2,000,000 shares of its
Series A Participating Preferred Stock ("Preferred Stock") for $2.50 per share
and 2,000,000 shares of its common stock for $2.50 per share in a private
offering yielding net proceeds of approximately $6,963,000, net of offering
costs of approximately $937,000. In connection with the common stock offering
NetSat Express entered into a Technology Agreement to purchase $5,000,000 of
services from a company participating in the private common stock offering. As
a result, the Company allocated $2.1 million from the proceeds of the common
stock offering to the value of the Technology Agreement based on an independent
valuation and classified such between current and non-current deferred
liability at December 31, 1999. The Company's common stock ownership percentage
in NetSat Express was reduced from approximately 95% to approximately 81%
following the issuance and sale of the common stock. Accordingly, the Company
recorded a credit to stockholders' equity of approximately $1,700,000
reflecting the increase in its share of the net equity of NetSat Express as a
result of the common stock offering and the $3,500,000 of additional capital
contributed by the Company.
F-15
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
9. CONSOLIDATED SUBSIDIARY'S EQUITY TRANSACTIONS (CONTINUED)
The preferred stock has preference in liquidation and each share of
preferred stock is convertible into one share of common stock at the option of
the holder at any time, or automatically following the third anniversary of the
date of issuance, or following the period of 180 days after an initial public
offering ("IPO") plus sixty consecutive days on which the price per share of
the common stock is equal to or greater than $3.75 per share.
Prior to an IPO the holders of Preferred Stock shall be entitled to
receive an annual dividend on the anniversary date of issuance equal to
0.166667 shares of common stock for each share of Preferred Stock until the
third anniversary date of the Preferred Stock issuance provided that if the
fair market value of the common stock issued as dividends is less than
$2,500,000, the holders of the Preferred Stock will be entitled to receive a
special dividend equal to the shortfall. Additionally, the holder of the
Preferred Stock may purchase up to $5,000,000 in services from NetSat Express
at cost, as defined in the agreement, and payment for such services, at the
option of the holder, may be either in dollars or shares of the NetSat Express'
common stock valued at fair market value. In connection with the sale of
preferred stock and common stock, NetSat Express paid an investment advisor a
fee of $500,000 and issued a warrant to purchase 200,000 shares of common stock
at $3.00 per share which expires in five years.
During October 1999, the Company and NetSat Express entered into a common
stock purchase agreement with an investor to purchase 2,000,000 million shares
of NetSat Express common stock for $2.50 per share, of which 1,400,000 shares
were purchased directly from the Company and 600,000 shares were issued and
sold directly by NetSat Express, yielding net proceeds of approximately
$4,935,000, net of offering costs of $65,000. As a result, the Company recorded
a gain of approximately $2,353,000 from the sale of its 1,400,000 shares of
NetSat Express common stock during the second quarter of fiscal 2000 ended
December 31, 1999. The Company's common stock ownership percentage in NetSat
Express was reduced from approximately 81% to approximately 68.5% following the
issuance and sale of the NetSat Express common stock. Accordingly, the Company
recorded a credit to stockholders' equity of approximately $830,000 reflecting
the increase in its share of the net equity of NetSat Express as a result of
the common stock offering.
On November 11, 1999, the Board of Directors of NetSat Express approved,
effective on November 11, 1999, a two-for-one common stock split in the form of
a common stock dividend of NetSat Express' common stock. Accordingly, the
accompanying consolidated footnotes have been retroactively restated to reflect
the common stock dividend.
In order to comply with NetSat Express' Amended and Restated Certificate
of Incorporation to allow for the effectuation of a preferred stock dividend,
NetSat Express amended the Amended and Restated Certificate of Incorporation,
effective on February 17, 2000, to provide for a two-for-one stock split of its
preferred stock in the form of a dividend of one share of preferred stock for
each share of preferred stock outstanding. Accordingly, the accompanying
consolidated financial statements and footnotes have been restated to reflect
the preferred stock dividend.
10. STOCK OPTION AND STOCK PURCHASE PLANS
In February 1995, the Company adopted a stock option plan (the "Employee
Stock Option Plan"), which provided that the Company may grant employees
options to acquire up to an aggregate of 285,000 shares of the Company's common
stock. During December 1996, the Company increased the number of shares it may
grant to 1,710,000. The options generally vest in equal installments over a
four-year period and expire on the tenth anniversary of the date of grant.
F-16
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
10. STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED)
In June 1995, the Company adopted a stock option plan (the "Director Stock
Option Plan"), which provides that the Company may grant outside directors
options to acquire up to an aggregate of 285,000 shares of the Company's common
stock. The options vest annually in equal installments over a three-year period
commencing on the date of grant. The options expire the earlier of five years
from the date of grant or three years from concluding service as director of
the Company.
On February 26, 1997, the Company's Board of Directors authorized, and the
stockholders subsequently approved, the 1997 Stock Incentive Plan ("1997
Plan"), which serves as a successor plan to the Employee Stock Option Plan and
Director Stock Option Plan. The 1997 Plan provides for an increase of 285,000
shares to previously existing stock option plans, among other matters.
On September 23, 1998, the Company's Board of Directors approved an
increase of 181,335 shares to the 1997 Plan. At June 30, 1999 and December 31,
1999, the remaining shares available for grant under the 1997 Plan was 234,248
and 131,204, respectively.
On September 23, 1998, the Board of Directors adopted, and the
stockholders subsequently approved, the 1999 Employee Stock Purchase Plan
("1999 Plan"). Pursuant to the 1999 Plan, 400,000 shares of the Company's
common stock will be reserved for issuance. The 1999 Plan is intended to
provide eligible employees of the Company, and its participating affiliates,
the opportunity to acquire a propriety interest in the Company at 85% of fair
market value at date of issuance through participation in the payroll-deduction
based employee stock purchase plan. During the year ended June 30, 1999 and for
the six months ended December 31, 1999, the Company issued 18,529 and 14,367
shares, respectively, of its common stock to participating employees in
connection with the 1999 Plan.
Employee Plan
The following table summarizes activity in employee stock options (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999 DECEMBER 31, 1999
----------------------- -------------------- ---------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE OPTION PRICE
----------- ----------- -------- ----------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of period ..... 820 $ 4.46 1,546 $ 6.19 1,667 $ 7.22 1,906 $ 7.32
Grants ........................... 733 $ 8.15 206 $ 13.98 305 $ 7.54 233 $ 19.61
Exercised ........................ -- $ -- (75) $ 4.42 (60) $ 5.09 (290) $ 6.61
Canceled ......................... (7) $ 7.39 (10) $ 7.84 (6) $ 10.64 (130) $ 9.26
------ ------ ----- ------- ------- ------- ----- -------
Balance, end of period ........... 1,546 $ 6.19 1,667 $ 7.22 1,906 $ 7.32 1,719 $ 8.96
====== ====== ===== ======= ====== ======= ===== =======
Weighted-average fair value
of options granted during
the period ...................... $ 3.56 $ 7.96 $ 3.94 $ 15.35
====== ======= ======= =======
</TABLE>
As a result of stock options granted during the years ended June 30, 1995,
1996 and 1997, the Company recorded compensation expense of approximately
$43,000, $56,000, $75,000, $38,000 and $37,000 during the years ended June 30,
1997, 1998, 1999 and for the six months ended December 31, 1998 and 1999,
respectively, based on the difference between the fair market value of the
shares and the option exercise prices at the dates of grant. As of December 31,
1999, remaining compensation
F-17
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
10. STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED)
expense to be recorded through the year ended June 30, 2001 was approximately
$197,000. As of June 30, 1999 and December 31, 1999, approximately 941,000 and
957,000 employee stock options, respectively, were exercisable.
Director Plan
Pursuant to the Director Stock Option Plan, in June 1995, the Company
granted certain outside directors options to purchase approximately 128,000
shares of the Company's common stock at $3.51 per share. As a result of these
grants, the Company recorded compensation expense during the years ended June
30, 1997 and 1998, of $40,000 and $15,000, respectively, based on the fair
market value of the shares at the date of grant. As of June 30, 1998, there was
no additional compensation expense to be recorded relating to these grants.
During January 1997, an additional outside director was granted approximately
43,000 options at $8.07 per share, the estimated fair value of such shares on
the date of grant. During November 1997, an additional outside director was
granted 15,000 options at $15.75 per share, the fair value of such shares on
the date of grant. At June 30, 1999 and December 31, 1999, approximately
100,500 and 57,750 options were outstanding of which 76,000 and 38,500 options
were exercisable, and 28,500 and 42,750 options were exercised during the year
ended June 30, 1999 and for the six months ended December 31, 1999,
respectively.
Netsat Express' Stock Option Plan
In May 1999, NetSat Express' Board of Directors authorized, and the
stockholders subsequently approved, the 1999 Stock Incentive Plan ("1999
Incentive Plan"), which provides for the granting of 3,960,000 options to
purchase shares of NetSat Express' common stock. Options granted under the 1999
Incentive Plan may be issued to either employees, consultants or non-employee
directors of NetSat Express or employees of the Company. Options granted to
employees generally vest annually in equal installments over a four-year period
commencing on the date of grant and expire ten years from the date of grant.
Options granted to directors generally vest annually in equal installments over
a three-year period commencing on the date of grant and expire the earlier of
ten-years from the date of grant or one-year from concluding service as
director of NetSat Express.
In connection with the adoption of the 1999 Incentive Plan, NetSat Express
granted options to purchase 1,575,012 shares of its common stock with exercise
prices ranging from $1.50 to $2.50 per share to its employees and to employees
of Globecomm Systems Inc. with a weighted average exercise price of $2.31 per
share, and granted options to purchase 180,000 shares of its common stock with
an exercise price of $2.50 per share to its directors at fair market value at
date of grant. During the six months ended December 31, 1999, NetSat Express
granted options to purchase 1,396,000 shares of its common stock with an
exercise price of $2.50 per share to its employees, and granted options to
purchase 120,000 shares of its common stock with an exercise price of $2.50 per
share to its directors at fair market value at date of grant. As of June 30,
1999 and December 31, 1999, options to purchase approximately 728,000 and
980,000 shares of NetSat Express' common stock, respectively, were exercisable.
In connection with options to purchase 300,000 shares of common stock
granted during May 1999, NetSat Express recorded deferred compensation of
approximately $300,000 based on the difference between the fair market value of
the common stock and the exercise prices of the options at the date of grant.
Deferred compensation is being amortized over the vesting period of the
options. The
F-18
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
10. STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED)
amount recognized as expense during the year ended June 30, 1999 and for the
six months ended December 31, 1999 was approximately $7,000 and $38,000,
respectively.
The following tables summarize information about employee and director
stock options outstanding at June 30, 1999 and December 31, 1999 (option amounts
in thousands)for the Company and its consolidated subsidiary NetSat Express:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1999
------------------------------------------ -----------------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
REMAINING REMAINING
OPTIONS OPTIONS CONTRACTUAL OPTIONS OPTIONS CONTRACTUAL
OUTSTANDING EXERCISABLE LIFE (YEARS) OUTSTANDING EXERCISABLE LIFE (YEARS)
RANGE OF EXERCISE PRICES ------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$1.50 - $2.50 (NetSat Express) 1,575 728 9.8 3,256 980 9.5
$3.51 - $5.06................. 1,078 616 6.7 707 546 6.2
$5.50 - $8.09................. 633 284 7.6 448 288 7.2
$9.00 - $13.25................. 342 82 8.7 290 79 8.4
$14.13 - $18.38................. 134 35 8.3 132 83 7.8
$21.00 - $25.25................. -- -- -- 199 -- 9.9
----- --- --- ----- --- ---
$1.50 - $25.25................. 3,762 1,745 7.4 5,032 1,976 8.7
===== ===== === ===== ===== ===
</TABLE>
The Company and NetSat Express have reserved approximately 3,819,000 and
5,090,000 shares of its common stock for issuance upon exercise of all
outstanding options and warrants at June 30, 1999 and December 31, 1999,
respectively.
Fair Value Disclosures
Pro forma information regarding net loss and net loss per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its stock options granted
subsequent to July 1, 1995 under the fair value method of that Statement. The
fair value of the options granted under the Company's 1997 and 1999 Plans were
estimated at date of grant using a Black-Scholes option pricing model with the
following assumptions for the years ended June 30, 1997, 1998 and 1999:
risk-free interest rate of 6.5%, volatility factor of the expected market price
of the Company's common stock of .40 (1997), .51 (1998) and .91 (1999), a
weighted-average expected life of the option of six-years and no dividend
yields. The fair value of the options granted under the NetSat Express 1999
Incentive Plan was estimated at date of grant using the minimum value option
pricing model with the following assumptions for the year ended June 30, 1999:
no dividend yield, weighted-average expected life of the options of 4.25 years
and a risk free interest rate of 6.0%.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options under the
Black-Scholes option valuation model.
F-19
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
10. STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999
--------------- --------------- --------------
<S> <C> <C> <C>
Pro forma net loss (in thousands) ............................. $ (3,433) $ (1,868) $ (9,851)
======== ========= ========
Basic and diluted pro forma net loss per common share ......... $ (0.56) $ (0.22) $ (1.08)
======== ========= ========
</TABLE>
11. PRO FORMA BASIC AND DILUTED LOSS PER SHARE AND BASIC AND DILUTED (LOSS)
INCOME PER SHARE
Pro forma basic loss per share for the year ended June 30, 1997 is based
on the weighted-average number of shares of common stock outstanding including
the conversion of the Class A and Class B Convertible Preferred Stock into
common stock, which occurred upon the consummation of the Company's initial
public offering. However, in accordance with Staff Accounting Bulletin 98 of
the Securities and Exchange Commission, options to purchase common stock for
nominal consideration have been reflected in diluted loss per share for the
year ended June 30, 1997 in a manner similar to a stock split, even if
anti-dilutive. Historical losses per share have not been presented because such
amounts are not deemed meaningful due to the significant change in the
Company's capital structure which occurred in connection with the initial
public offering.
Basic (loss) income per share for the years ended June 30, 1998, 1999 and
for the six months ended December 31, 1998 and 1999, is based on the
weighted-average number of common shares outstanding during the period. Diluted
loss per share for the years ended June 30, 1998, 1999 and for the six months
ended December 31, 1998 excluded the effect of approximately 891,000, 321,000
and 235,000 stock options, respectively, and approximately 23,000 warrants, as
the effect of inclusion would have been anti-dilutive as the Company reported
net losses for the years ended June 30, 1998 and 1999 and for the six months
ended December 31, 1998. Diluted income per share for the six months ended
December 31, 1999 include the effect of approximately 866,000 stock options and
approximately 23,000 warrants.
12. PENSION PLAN
The Company maintains a 401(k) plan which covers substantially all
employees of the Company. Participants may elect to contribute from 1% to 20%
of their pre-tax compensation. Participant contributions up to 4% of pre-tax
compensation were fully matched by the Company during the years ended June 30,
1997, 1998 and 1999. The plan also provides for discretionary contributions by
the Company. The Company contributed approximately $117,000, $242,000 and
$317,000 to the 401(k) plan during the years ended June 30, 1997, 1998 and
1999, respectively. There were no discretionary contributions made by the
Company during the years ended June 30, 1997, 1998 and 1999.
13. INCOME TAXES
As a result of losses incurred from inception, the Company has available
net operating loss carryforwards ("NOL's") of approximately $14.1 million ($8.6
million and $5.5 million for the Company and NetSat Express, respectively) for
income tax purposes which expire through 2019. However, as a result of
significant ownership changes and separate company limitations it is
anticipated that an annual limitation will be applied to the Company's
utilization of the NOL's.
F-20
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
13. INCOME TAXES (CONTINUED)
As the Company has had cumulative losses and there is no assurance of
future taxable income, a valuation allowance has been established to offset
deferred tax assets. The components of the Company's net deferred tax assets
are as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Projects in progress .............................. $ 157 $ --
Depreciation and amortization ..................... 153 192
------ ------
Total deferred tax liabilities ...................... 310 192
Deferred tax assets:
Net operating loss carryforwards .................. 3,294 5,660
Projects in progress .............................. -- 270
Accruals and reserves ............................. 116 333
Write-down of investments ......................... -- 272
Non-cash compensation charge ...................... -- 33
------ ------
Total deferred tax assets ........................... 3,410 6,568
Valuation allowance for deferred tax assets ......... 3,100 6,376
------ ------
Net deferred tax assets ............................. 310 192
------ ------
Net deferred taxes .................................. $ -- $ --
====== ======
</TABLE>
Approximately $455,000 of the valuation allowance, if recognized, will be
allocated directly to stockholders' equity relating to non-qualified
dispositions of stock option exercises. Due to the gain on the sale of the
consolidated subsidiary's common stock during the six months ended December 31,
1999, it is anticipated the Company will realize taxable income for the year
ended June 30, 2000. As such, the valuation allowance as of December 31, 1999
has been reduced accordingly. For the years ended June 30, 1997, 1998 and 1999,
the valuation allowance increased $1,179,000, $691,000 and $3,276,000,
respectively.
14. SEGMENT INFORMATION
The Company operates through two business segments. Its Ground Segment
Systems and Networks Segment, through Globecomm Systems Inc., is engaged in the
design, assembly and installation of ground segment systems and network
solutions for the complex and changing communications requirements of its
customers. The Company's ground segment systems typically consist of an earth
station and ancillary subsystems such as microwave links for back-haul of
traffic to a central office or generators for emergency power restoral. An
earth station is an integrated system consisting of antennas, transmitting and
receiving equipment, modulation/demodulation equipment, monitor and control
systems and voice, data and video network interface equipment. Its Data
Communications Services Segment, through the NetSat Express subsidiary, is
engaged in providing high-speed, satellite-delivered data communications to
developing markets worldwide. NetSat Express is currently providing Internet
access to customers who have limited or no access to terrestrial network
infrastructure capable of supporting the economical delivery of such services.
The Company's reportable segments are business units that offer different
products and services. The reportable segments are each managed separately
because they provide distinct products and services.
F-21
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
14. SEGMENT INFORMATION (CONTINUED)
The following is business segment information as of and for the years
ended June 30, 1997, 1998 and 1999 and for the six months ended December 31,
1998 and 1999:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
----------------------------------------- -------------------------------
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1998 1999
------------ ------------- -------------- -------------- ----------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Ground Segment Systems and Networks ......... $36,169 $57,419 $46,397 $ 24,482 $36,363
Data Communications Services ................ 51 686 2,661 693 4,089
Intercompany eliminations ................... -- -- -- -- (3,654)
------- ------- ------- -------- -------
Total revenues ............................... $36,220 $58,105 $49,058 $ 25,175 $36,798
======= ======= ======= ======== =======
Loss from operations:
Ground Segment Systems and Networks ......... $(1,766) $ (157) $(7,070) $ (2,469) $ (79)
Data Communications Services ................ (1,454) (1,655) (2,101) (981) (2,378)
Interest income .............................. 298 1,271 980 610 448
Interest expense ............................. (22) (5) (1) -- (317)
Gain on sale of consolidated subsidiary
common stock ................................ -- -- -- -- 2,353
Minority interests in operations of
consolidated subsidiary ..................... 275 -- -- -- 614
Intercompany eliminations .................... -- -- -- -- (243)
-------- -------- -------- -------- -------
Net (loss) income ............................ $(2,669) $ (546) $(8,192) $ (2,840) $ 398
======== ======== ======== ======== =======
Depreciation and amortization:
Ground Segment Systems and Networks ......... $ 338 $ 628 $ 1,007 $ 647 $ 752
Data Communications Services ................ 24 88 260 165 356
-------- -------- -------- -------- -------
Total depreciation and amortization .......... $ 362 $ 716 $ 1,267 $ 812 $ 1,108
======== ======== ======== ======== =======
Expenditures for long-lived assets:
Ground Segment Systems and Networks ......... $ 6,686 $ 2,879 $ 2,907 $ 876 $ 689
Data Communications Services ................ 79 799 911 276 1,737
Intercompany eliminations ................... -- -- -- -- (33)
-------- -------- -------- -------- -------
Total expenditures for long-lived assets ..... $ 6,765 $ 3,678 $ 3,818 $ 1,152 $ 2,393
======== ======== ======== ======== =======
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31,
1997 1998 1999 1999
-------- ----------- ---------- --------
Assets:
Ground Segment Systems and Networks ......... $34,201 $60,894 $62,664 $60,352
Data Communications Services ................ 152 1,279 3,200 25,466
Intercompany eliminations ................... (1,040) (3,554) (7,854) (9,928)
-------- ----------- ---------- --------
Total assets ................................. $33,313 $58,619 $58,010 $75,890
======== =========== ========== ========
</TABLE>
15. SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company designs, assembles and installs satellite ground segment
systems and networks and provides data communications services for customers in
diversified geographic locations. Concentration of credit risk with respect to
accounts receivables is limited due to the limited number of customers and that
a substantial portion of accounts receivables are related to balances owed by
major satellite communication companies. The timing of cash realization is
determined based upon the
F-22
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
15. SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK (CONTINUED)
contract or service agreement with the customers. The Company performs ongoing
credit evaluations of its customers' financial condition and in most cases
requires a letter of credit or cash in advance for foreign customers.
Allowances related to account receivable at June 30, 1998 and 1999 and December
31, 1999, are approximately $40,000, $107,000 and $260,000, respectively.
Credit losses have been within management expectations.
Sales to two major customers accounted for approximately 42% (29% and 13%)
and one major customer accounted for approximately 29% of the Company's net
revenues for the years ended June 30, 1997 and 1998, respectively. No one
customer accounted for more than 10% of sales for the year ended June 30, 1999.
Revenues from foreign sales as a percentage of total consolidated revenue:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30,
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Africa ................ 1% 33% 14%
South America ......... -- 1% 11%
Asia .................. 28% 17% 10%
Europe ................ 11% 9% 7%
Middle East ........... -- 9% 2%
-- -- --
40% 69% 44%
</TABLE>
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
receivables. The Company places its cash and cash equivalents with high quality
financial institutions. Substantially all cash and cash equivalents are held in
two financial institutions at June 30, 1998 and 1999 and December 31, 1999.
Cash equivalents are comprised of short-term debt instruments, certificates of
deposit of direct or guaranteed obligations of the United States, which are
held to maturity and approximate cost. At times, cash may be in excess of FDIC
insurance limits.
16. COMMITMENTS AND CONTINGENCIES
Line of Credit
The Company has a $9.0 million credit facility, as amended, consisting of
(1) a $5.0 million secured domestic line of credit and (2) a $4.0 million
secured export-import guaranteed line of credit at June 30, 1999. This line of
credit expired in December 1999 at which time the Company entered into a new
credit facility with substantially the same terms, which expires in December
2000. Each line of credit bears interest at the prime rate (7.75% and 8.75% at
June 30, 1999 and December 31, 1999) plus a variable margin rate ranging from
0.75% to 1.75% per annum (1% at June 30, 1999 and December 31, 1999) based
on the Company's tangible net worth calculation, as defined in the credit
facility, and is collateralized by a first security interest on all the
Company's assets. The credit facilities contains certain financial covenants,
which the Company is in compliance with at June 30, 1999 and December 31, 1999.
As of June 30, 1998, 1999 and December 31, 1999, no amounts were outstanding
under such credit facilities.
F-23
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Letters of Credit
The Company utilizes standby letters of credit to secure certain bid
proposals and performance guarantees, while NetSat Express utilizes standby
letters of credit to secure certain service agreements with third party vendors
in the normal course of business. As of June 30, 1999 and December 31, 1999,
NetSat Express had a standby letter of credit outstanding of approximately
$185,000 and $595,000, respectively, which is secured by the Company's domestic
credit facility. The Company provides cash collateral for a majority of these
letters of credit. As of June 30, 1998, 1999 and December 31, 1999, cash
collateral related to bid proposals amounted to $588,000, $0 and $48,000,
respectively, and cash collateral related to performance guarantees amounted to
approximately $3,828,000, $3,486,000 and $784,000, respectively. These amounts
are included in restricted cash in the accompanying consolidated balance
sheets.
Lease Commitments
The Company currently leases satellite space segment services, office
space and other equipment under various capital and operating leases which
expire in various years through 2014. As leases expire, it can be expected that
in the normal course of business they will be renewed or replaced. Most lease
agreements contain renewal options.
During September, 1999, NetSat Express signed a 15-year capital lease for
a satellite space segment transponder on the SatMex 5 satellite. This satellite
will provide NetSat Express the capability of providing its services to the
Caribbean Islands and the North, South and Central America regions covered by
the SatMex 5 satellite. Future minimum lease payments under this non-cancelable
capital lease agreement are as follows: 2000 -- $1,098,000; 2001 -- $1,387,000;
2002 -- $1,387,000; 2003 -- $1,387,000; 2004 -- $1,387,000; thereafter --
$13,692,000. Of the $20,338,000 in total minimum lease payments, approximately
$9,227,000 represents interest.
The satellite space segment transponder under this capital lease is
included in fixed assets with a capitalized cost of approximately $11,199,000
at December 31, 1999. No amortization expense was recorded for the six months
ended December 31, 1999 as this asset was not placed into service until January
1, 2000.
During March 2000, NetSat Express signed a 14-year capital lease agreement
for satellite space segment on the Telstar 12 satellite. This satellite will
provide NetSat Express the capability of providing its services to Europe,
Middle East and South America covered by the Telestar 12 satellite. Future
minimum lease payments under this non-cancelable capital lease agreement are as
follows: 2000 -- $1,300,000; 2001 -- $7,942,000; 2002 -- $9,727,000; 2003 --
$9,727,000; 2004 -- $9,727,000; thereafter -- $92,408,000. Of the $130,831,000
in total minimum lease payments, approximately $63,682,000 represents interest.
F-24
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum payments under non-cancelable operating leases for
satellite space segment services, office space and other equipment with initial
terms of one-year or more, consist of the following at June 30, 1999 (in
thousands):
<TABLE>
<CAPTION>
OPERATING
LEASE
----------
<S> <C>
2000 .............. $1,689
2001 .............. 521
2002 .............. 11
------
$2,221
======
</TABLE>
During the period from July through December 1999, NetSat Express entered
into various operating lease agreements for satellite space segment services.
Future minimum lease payments under these non-cancelable operating lease are
as follows: 2000 -- $1,548,000; 2001 -- $1,399,000; 2002 -- $803,000;
2003 -- $267,000.
Rent expense for satellite space segment services, office space and other
equipment was approximately $315,000, $279,000, $1,042,000, $370,000 and
$879,000 for the years ended June 30, 1997, 1998 and 1999 and for the six
months ended December 31, 1998 and 1999, respectively.
Pursuant to several NetSat Express Internet access service agreements,
NetSat Express is the lessor of satellite earth station equipment which leases
are classified as operating leases and expire at various dates through 2004.
Equipment under these operating leases are included in fixed assets in the
accompanying consolidated balance sheets and have a net book value of
approximately $136,000, $524,000 and $500,000 at June 30, 1998 and 1999 and
December 31, 1999, respectively. At June 30, 1999, future minimum lease
payments to be received from equipment under operating leases are approximately
as follows:
<TABLE>
<S> <C>
2000 .............. $243
2001 .............. 227
2002 .............. 114
2003 .............. 21
2004 .............. 18
----
$623
====
</TABLE>
NetSat Express Technology Agreement
In connection with its common stock offering during August 1999 (see
Note 9), NetSat Express entered into a Technology Agreement to purchase
$5,000,000 of services from a company participating in the private stock
offering. Future payments under the Technology Agreement are as follows: 2000 --
$100,000; 2001 -- $390,000; 2002 -- $950,000; 2003 -- $1,370,000; 2004 --
$2,190,000.
Teleport Service Agreements
During the period from July through December, NetSat Express entered into
various operating lease agreements for teleport services. Future minimum
payments under these operating lease agreements are as follows: 2000 --
$1,548,000; 2001 -- $1,399,000; 2002 -- $803,000; 2003 -- $267,000.
Employment Agreements
During January 1997, the Company entered into three-year employment
agreements with two of its officers for an aggregate amount of $325,000 per
year. Effective November 1998, such employment agreements increased to an
aggregate amount of $400,000 per year. The Company will have certain
obligations to the two officers if they are terminated for disability, cause or
following a change in control.
F-25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT
IS LEGAL TO SELL THESE SECURITIES.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary ............................ 2
Risk Factors .................................. 7
Information Regarding Forward-Looking
Statements ................................. 17
Use of Proceeds ............................... 18
Dividend Policy ............................... 18
Capitalization ................................ 19
Dilution ...................................... 20
Selected Historical Financial Data ............ 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................. 24
Business ...................................... 32
Management .................................... 47
Certain Transactions and Related Parties ...... 50
Principal and Selling Stockholders ............ 51
Underwriting .................................. 52
Legal Matters ................................. 54
Experts ....................................... 54
Where You Can Find More Information ........... 54
</TABLE>
<PAGE>
2,000,000 SHARES
[GSI LOGO]
COMMON STOCK
-----------------------------------------------------
PROSPECTUS
-----------------------------------------------------
ING BARINGS
C.E. UNTERBERG, TOWBIN
MARCH , 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions, payable by the company in connection
with the sale of common stock being registered hereby. All of the amounts shown
are estimates except the SEC registration fee and the Nasdaq National Market
additional listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
-----------
<S> <C>
SEC registration fee ............................................ $ 16,400
NASD filing fee ................................................. $ 6,725
Nasdaq National Market additional listing of shares fee ......... $ 17,500
Blue Sky Fees and Expenses ...................................... $ 5,000
Accounting fees and expenses .................................... $125,000
Legal fees and expenses ......................................... $250,000
Printing and engraving expenses ................................. $195,000
Transfer Agent and registrar fees ............................... $ 5,000
Miscellaneous ................................................... $ 30,000
-------
Total ........................................................... $650,625
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under some circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). Article Seven of the Registrant's Amended and Restated
Certificate of Incorporation provides for indemnification of its directors and
officers and permissible indemnification of employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. Reference is
also made to Section of the Underwriting Agreement contained on Exhibit 1.1,
which sets forth some indemnification provisions. The Registrant has liability
insurance for its Directors and Officers.
ITEM 16. EXHIBITS
The following is a list of Exhibits filed as part of the Registration
Statement:
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement
4.2 Provisions of the Amended and Restated Certificate of Incorporation and Amended and
Restated By-laws of the Registrant defining rights of holders of common stock of the
Registrant, incorporated herein by reference to Exhibits 3.1 and 3.3 to the Company's
Form 10-K for the year ended June 30, 1999
5.1 Opinion of Brobeck, Phleger & Harrison LLP
23.1 Consent of Brobeck, Phleger & Harrison LLP (included in the opinion filed as Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, independent auditors
24.1 Power of Attorney (included with signature page)
</TABLE>
- ----------
* to be filed by amendment
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities offered hereby, a post-effective amendment to this
Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in
II-2
<PAGE>
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on our behalf by the undersigned, thereunto
duly authorized, in Hauppauge, New York, on March 10, 2000.
GLOBECOMM SYSTEMS, INC.
By: /s/ *
------------------------------
David E. Hershberg
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on March 10, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------- --------------------------------------------------
<S> <C>
/s/ * Chairman of the Board and Chief Executive Officer
- --------------------------------- (Principal Executive Officer)
David E. Hershberg
/s/ Andrew C. Melfi Vice President and Chief Financial Officer
- --------------------------------- (Principal Financial and Accounting Officer)
Andrew C. Melfi
/s/ * President and Director
- ---------------------------------
Kenneth A. Miller
/s/ * Vice President and Director
- ---------------------------------
Donald G. Woodring
/s/ *
- --------------------------------- Vice President and Director
Stephen C. Yablonski
/s/ * Director
- ---------------------------------
Herman Fialkov
/s/ * Director
- ---------------------------------
Benjamin Duhov
/s/ * Director
- ---------------------------------
C.J. Waylan
/s/ * Director
- ---------------------------------
A. Robert Towbin
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------- ---------
<S> <C>
/s/ * Director
- ---------------------------------
Richard E. Caruso
</TABLE>
*By: /s/ Andrew C. Melfi
-----------------------------
Andrew C. Melfi, Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement
4.2 Provisions of the Amended and Restated Certificate of Incorporation and Amended and
Restated By-laws of the Registrant defining rights of holders of common stock of the
Registrant, incorporated herein by reference to Exhibits 3.1 and 3.3 to the Company's Form
10-K for the year ended June 30, 1999.
5.1 Opinion of Brobeck, Phleger & Harrison LLP
23.1 Consent of Brobeck, Phleger & Harrison LLP (included in the opinion filed as Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, independent auditors
24.1 Power of Attorney (included with signature page)
</TABLE>
* to be filed by amendment
<PAGE>
EXHIBIT 5.1
[BROBECK PHLEGER & HARRISON LLP LOGO]
1633 BROADWAY, 47TH FLOOR
NEW YORK
TELEPHONE: (212) 581-1600 NEW YORK 10019
FACSIMILE: (212) 586-7878 www.brobeck.com
March 10, 2000
Globecomm Systems Inc.
45 Oser Avenue
Hauppauge, NY 11788
Re: Globecomm Systems Inc. Registration Statement on Form S-3
(No. 333-30808)
Ladies and Gentlemen:
We have acted as counsel to Globecomm Systems, Inc., a Delaware
corporation (the "Company"), in connection with (i) the proposed issuance and
sale by the Company and (ii) the proposed sale by certain selling stockholders
of up to an aggregate of 2,300,000 shares of the Company's Common Stock (the
"Shares") pursuant to the Company's Registration Statement on Form S-3 (the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the requirements of
Item 16 of Form S-3 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion,
<PAGE>
Globecomm Systems Inc. March , 2000
Page 2
whether by implication or otherwise, as to any other matters relating to the
Company, the selling stockholders or the Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 24, 1999 (except for the fourth paragraph of
Note 16. Commitments and Contingencies, as to which the date is September 14,
1999) in Amendment No. 1 to the Registration Statement (Form S-3 --
Registration No. 333-30808) and related Prospectus of Globecomm Systems Inc.
for the registration of 2,000,000 shares of its common stock and to the
incorporation by reference therein of our report dated August 24, 1999 (except
for the last paragraph of Note 16. Subsequent Events, as to which the date is
September 14, 1999), with respect to the consolidated financial statements and
schedule of Globecomm Systems Inc. included in its Annual Report (Form 10-K)
for the year ended June 30, 1999, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Melville, New York
March 10, 2000
