Item 1A. Ri
sk Factors
Risks Related to Our Business
Reductions in telecommunications equipment and systems spending have negatively affected our revenues and profitability of our infrastructure solutions segment, which may not be offset by the growth
in our services segment.
During the past several years, as a consequence of the worldwide financial and economic
crisis and business downturn, the global economy has been adversely impacted and nearly all businesses, including ours, have faced uncertain economic environments. As a result of the current global economic conditions, our customers have reduced and
may continue to reduce their budgets for spending on telecommunications equipment and systems. As a consequence, our current customers and other prospective customers may postpone, reduce or even forego the purchase of our products and systems,
which could adversely affect our revenues and profitability. For the three months ended September 30, 2012 and the three years ended June 30, 2012, our infrastructure solutions segment in particular was impacted by these factors and
incurred operating losses. It is currently difficult to assess whether or not future bookings or revenues in this segment will meet or exceed the levels experienced in the recent past. Moreover, the profit margins on future bookings could continue
to be compressed due to competitive pressures. The growth and profitability of our services segment in recent periods may not be sufficient to offset any prolonged continuation of a decline in business in our infrastructure segment.
A limited number of customer contracts, including those in which we provide subcontractor services for a prime contractor, account for a
significant portion of our revenues and profits, and the inability to replace a key customer contract or the failure of the customer to implement its plans, including the loss of a prime contract by a prime contractor, would adversely affect our
results of operations, business and financial condition.
We rely on a small number of customer contracts, including
those in which we provide subcontractor services for a prime contractor, for a large portion of our revenue. In the three months ended September 30, 2012, 23% and 13% of our revenues were derived from US Army CECOM and Inmarsat Government,
respectively. A significant portion of this revenue with US Army CECOM is derived from a multi-year, $74 million agreement which is a pass-through subcontract entailing little risk of unexpected costs and under which we earn comparatively low profit
margins. In addition we performed work as a subcontractor to Inmarsat Government since February 2012 for services for the U.S. Government. Previously similar services were provided to Northrop which had a prime contract with the U.S. Government. Our
contract for these services has an initial term ending December 31, 2013, with the subcontractor under the U.S. Governments contract with Northrops successor, Inmarsat Government, for the next phase of this program, and under which
we expect to continue to provide similar services, albeit at a somewhat lower profit margin. This subcontract is expected to continue to be material to our results of operations and has provided profit margin significantly above our norm. In
addition, we have agreements with two customers to provide equipment and services from which we expect to generate a significant portion of revenues. If our key
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customers are unable to implement their business plans, the market for these customers services declines, political or military conditions make performance impossible or if any or all of
the major customers modify or terminate their agreements with us, or a prime contractor we are working with loses its contract, and we are unable to replace these contracts, our results of operations, business and financial condition would be
materially harmed.
We have derived, from time to time, a substantial portion of our revenues from the government marketplace, and a
downturn or other reduction in defense spending in this marketplace, including as a result of the U.S. militarys withdrawal from combat in Afghanistan would adversely affect us.
In the three months ended September 30, 2012, we derived 61% of our consolidated revenues from the government marketplace. This business,
in particular the service segment therein, tends to have higher gross margins than other markets we serve. A future reduction in the proportion of our business from the government marketplace, or the recent decreases and expected further decreases
in the government agency budgets, would negatively impact our future results of operations.
There are a number of other risks
associated with the government marketplace; specifically, purchasing decisions of agencies are subject to political influence, contracts are subject to cancellation if government funding becomes unavailable, and unsuccessful bidders may challenge
contracts that are awarded to us, which can lead to increased costs, delays and possible loss of contracts. In particular, the mounting government deficits and efforts to reduce expenditures in upcoming budgets and Congressional initiative have
resulted in failures to fund various government programs. A withdrawal of military forces from areas of conflict could result in curtailed spending in military programs in which we participate, particularly in Afghanistan, from which we have
generated a significant amount of revenue in recent periods and from which combat troops are currently expected to be completely withdrawn by the end of 2014.
We often act as a subcontractor, particularly in the government marketplace and our results could be adversely affected by the prime contractors inability to obtain or renew its contracts with
the ultimate customer.
We regularly act as subcontractor to prime contractors (or subcontractors), principally in the
government marketplace. In these subcontractor arrangements, we have no control over the contracting process and we may not be able to influence or control issues that arise between the prime contractor and its customer. Our future success may be
materially impaired if the companies for which we serve as subcontractor cannot obtain or renew their contracts with the ultimate customer, which has happened in the past, including the expiration of the U.S. Governments prime contract with
Northrop. Also, disputes between a prime contractor and its customer could result in a customer terminating the contract, which could negatively impact our operating results, irrespective of the quality of our services as a subcontractor. Similar
considerations apply when we act as a subcontractor to a subcontractor.
Risks associated with operating in international markets,
including areas of conflict, could restrict our ability to expand globally and harm our business and prospects.
We
market and sell a substantial portion of our services and products internationally. We anticipate that international sales will continue to account for a significant portion of our total revenues for the foreseeable future, including revenues from
our acquisitions, with a significant portion of the international revenue coming from developing countries, including countries in areas of conflict like Afghanistan. There are a number of risks inherent in conducting our business internationally,
including:
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general political and economic instability in international markets, including the hostilities in Iraq and Afghanistan, could impede our ability to
deliver our services and products to customers;
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longer payment terms and difficulties in collecting accounts receivable could affect our results of operations;
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changes in regulatory requirements could restrict our ability to deliver services to our international customers, including the addition of a country
to the list of sanctioned countries under the International Emergency Economic Powers Act or similar legislation;
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export restrictions, tariffs, licenses and other trade barriers could prevent us from adequately equipping our network facilities;
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differing technology standards across countries may impede our ability to integrate our services and products across international borders;
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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;
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increased expenses associated with marketing services in foreign countries could affect our ability to compete;
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relying on local subcontractors for installation of our services and products could adversely impact the quality of our services and products;
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difficulties in staffing and managing foreign operations could affect our ability to compete;
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complex foreign laws and treaties could affect our ability to compete; and
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potentially adverse taxes could affect our results of operations.
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These and other risks could impede our ability to manage our international operations effectively, limit the future growth and
profitability of our business, increase our costs and require significant management attention.
Since our service revenue has generally
increased as a percentage of total revenue in prior periods, if our service revenue decreases or margins decrease, our results of operations will be harmed
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Future revenues and results of operations of our services business are dependent on the success of the market for our current and future
services. In the three months ended September 30, 2012, services revenues were 58% of total revenue. While our services revenue generally increased as a percentage of total revenue in prior periods, our services revenue decreased as a
percentage of total revenue in the three months ended September 30, 2012 and the year ended June 30, 2012, due to a significant increase in relatively low margin infrastructure revenue, including from Contract A. In the year ended
June 30, 2012 services revenues were 58% of total revenue, compared to 69% and 60% in fiscal 2011 and 2010, respectively. The service business tends to have significantly higher gross margins than our infrastructure solutions business and has
accounted for all of our profits in the past three fiscal years. Our revenues and results of operations may also be affected by our entry into contracts bearing lower gross margins due to competitive pressures. A future reduction in the proportion
of our services business would disproportionately impact our results of operations.
We derive a substantial portion of our revenues
from fixed-price projects, under which we assume greater financial risk if we fail to accurately estimate the costs of the projects.
We derive a substantial portion of our revenues from fixed-price projects. We assume greater financial risks on a fixed-price project than on a time-and-expense based project. If we miscalculate the
resources or time we need for these fixed-price projects, the costs of completing these projects may exceed our original estimates, which would negatively impact our financial condition and results of operations. In the three months ended
September 30, 2012 we recorded $0.8 million, for additional costs incurred on a fixed-price contract in the infrastructure solutions segment. The additional costs were due in large part to unexpected difficulties and consequential substantial
costs associated with engineering and production issues.
Future acquisitions and strategic investments may divert our resources and
managements attention, results may fall short of expectations and, as a result, our operating results may be difficult to forecast and may be volatile.
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We have made several acquisitions and intend to continue pursuing acquisitions or
investments in complementary businesses, technologies and product lines as a key component of our growth strategy. Any future acquisitions or investments may result in the use of significant amounts of cash, potentially dilutive issuances of equity
securities, incurrence of debt and amortization expenses related to intangibles assets. Acquisitions involve numerous risks, including:
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volatility in reported results due to the reassessment of the valuation of any earn-out provisions included in acquisition transactions;
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failure of the acquisition or investment to meet the expectations upon which we made a decision to proceed;
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difficulties in the integration of the operations, technologies, products and personnel of an acquired business;
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diversion of managements attention from other business concerns;
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substantial transaction costs even if the acquisition is abandoned prior to completion;
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the potential of significant goodwill and intangibles write-offs in the future in the event that an acquisition or investment does not meet
expectations;
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increased expenses associated with the consummation and integration of an acquisition; and
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loss of key employees, customers or suppliers of any acquired business.
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We cannot assure you that any acquisition or strategic investment will be consummated, will be successful and will not adversely affect
our business, results of operations or financial condition.
In the event of a catastrophic loss affecting our operations in Hauppauge,
New York, Laurel, Maryland or the Netherlands, our results of operations would be harmed.
The services segments
revenues and results of operations are dependent on the infrastructure of the network operations center and the Kenneth A. Miller International Teleport at our headquarters in Hauppauge, New York, the network operations centers and teleports at our
Laurel, Maryland and Netherlands facilities. A catastrophic event to any of these facilities or to the infrastructure of the surrounding areas would result in significant delays in restoring services capabilities. These capabilities permit us to
offer an integrated suite of services and products and the incapacity of our communications infrastructure would also negatively impact our ability to sell our infrastructure solutions. This would result in the loss of revenues and adversely affect
our business, results of operations and financial condition.
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 services and products on prices and terms favorable to us. Our primary competitors in the infrastructure solutions market generally fall into two groups: (1) system integrators, such as
Thales, Rockwell Collins and SED Systems, and (2) equipment manufacturers who also provide integrated systems, such as General Dynamics, SATCOM Technologies, Viasat Inc., Alcatel and ND Satcom AG.
In the enterprise and broadcast solutions markets, we compete with other communication companies who provide similar services, such as
Encompass Digital Media Inc. and Hughes Networks Systems, LLC. In addition, we may compete with other communications services providers such as CapRock and Inmarsat Government, and satellite owners like SES Americom and Intelsat. 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
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offered at significantly lower prices or bundled with other services. These competitors may have the financial resources to withstand substantial price competition, may be in a better position to
endure difficult economic conditions in 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 than we do 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 services and products to address the needs of our current and prospective customers.
The potential strategic relationships of existing and new competitors may rapidly acquire significant market share, which would harm our business and financial condition.
If our services and products 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 services and products 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 services and products in developing countries or that customers in these countries will accept our
services and products at all. Our ability to penetrate emerging markets in developing countries is dependent upon various factors including:
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the speed at which communications infrastructure, including terrestrial microwave, coaxial cable and fiber optic communications systems, which compete
with satellite-based services, is built;
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the effectiveness of our local resellers and sales representatives in marketing and selling our services and products; and
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the acceptance of our services and products by customers.
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If our services and products are not accepted, or the market potential we anticipate does not develop, our revenues will be impaired.
Since sales of satellite communications equipment are dependent on the growth of communications networks, if market demand for these networks does not increase from recent depressed levels, our
revenue and profitability are likely to decline.
We derive, and expect to continue to derive, a significant amount of
revenues from the sale of satellite infrastructure solutions. If the long-term growth in demand for communications networks does not increase from recent depressed levels, the demand for our infrastructure solutions may decline or grow more slowly
than we expect. Further, increased competition among satellite ground segment systems and network manufacturers has increased pricing pressures and depressed margins. As a result, we may not be able to grow our infrastructure business, our revenues
may decline from current levels and our results of operations may be harmed. The demand for communications networks and the products used in these networks is affected by various factors, many of which are beyond our control. For example, the
uncertain general economic conditions have affected the overall rate of capital spending by many of our customers. Also, many companies have found it difficult to raise capital to finish building their communications networks and, therefore, have
placed fewer orders. Past economic slowdowns resulted in a softening of demand from our customers. We cannot predict the extent to which demand will increase, nor the timing of such demand.
We depend upon certain key personnel and may not be able to retain these employees. If we lose the services of these individuals or cannot hire additional qualified personnel, our business will be
harmed.
Our success also depends to a substantial degree on our ability to attract, motivate and retain
highly-qualified personnel. There is considerable competition for the services of highly-qualified technical and engineering personnel. We may not be able either to retain our current personnel or hire additional qualified personnel if and when
needed.
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Our future performance depends on the continued service of our key technical, managerial and
marketing personnel; in particular, David Hershberg, our Chairman and Chief Executive Officer, and Keith Hall, our President and Chief Operating Officer, are key to our success based upon their individual knowledge of the markets in which we
operate. The employment of any of our key personnel could cease at any time, which would harm our future performance.
Satellites upon
which we rely may malfunction or be damaged or lost.
In the delivery of our services, we lease space segment from
various satellite transponder vendors. The damage or loss of any of the satellites used by us, or the 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 could have a material adverse effect on our business, results of operations and financial condition.
We depend on our suppliers, some of which are our sole or a limited source of supply, and the loss of these suppliers could materially adversely
affect our business, results of operations and financial condition.
We currently obtain most of our critical
components and services from limited sources and generally do not maintain significant inventories or have long-term or exclusive supply contracts with our 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 services and products. Furthermore, our costs could increase significantly if we need to change vendors. If we do not receive timely deliveries of quality services and products, 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.
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. We may face liability to customers for such security breaches. Furthermore, these incidents could deter potential customers and adversely affect existing customer relationships.
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. Fiber optic communications systems have penetrated areas in which we have
traditionally provided services. If the satellite communications industry fails to continue to develop, or if 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.
We may not be able to keep pace with technological changes, which
would make our services and products become non-competitive and obsolete.
The telecommunications industry, including
satellite-based communications services, is characterized by rapidly changing technologies, frequent new service and product introductions and evolving industry standards. If we are unable, for technological or other reasons, to develop and
introduce new services and products or
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enhancements to existing services and products in a timely manner or in response to changing market conditions or customer requirements, our services and products would become non-competitive and
obsolete, which would harm our business, results of operations and financial condition.
Unauthorized use of our intellectual property
by third parties may damage our business.
We regard our trademarks, trade secrets and other intellectual property as
beneficial to our success. Unauthorized use of our intellectual property by third parties may damage our business. We rely on trademark, trade secret, 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.
We currently have been granted six patents, and have one patent and one provisional patent application pending in the United
States. We currently have one Patent Cooperation Treaty patent application pending. 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 future patent
applications or that any claims allowed from such applications will be of sufficient scope, or be issued in all countries where our services and products can be sold, to provide meaningful protection or any commercial advantage to us.
We have registered the trademarks Globecomm, GSI and Telaurus in the United States and various other countries, and the trademark Mach 6
in The Netherlands. We have various other trademarks and service marks registered or pending for registration in the United States and in other countries and may 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. Prosecuting infringers and defending against intellectual property infringement claims could be time consuming and expensive, and regardless of whether we are or are not
successful, could cause substantial expenses and disrupt 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, segments of our business.
Risks Related
to the Securities Markets and Ownership of Our Common Stock
Our stock price is volatile.
From October 1, 2011 through October 31, 2012, our stock price ranged from a low of $9.44 per share to a high of $16.00 per
share. The market price of our common stock, like that of the securities of many telecommunications and high technology industry companies, could be subject to significant fluctuations and is likely to remain volatile based on many factors,
including the following:
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quarterly variations in operating results;
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announcements of new technology, products or services by us or any of our competitors;
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changes in financial estimates or recommendations by securities analysts;
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general market conditions; or
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domestic and international economic factors unrelated to our performance.
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Additionally, numerous factors relating to our business may cause fluctuations or declines
in our stock price.
The stock markets in general and the markets for telecommunications stocks in particular have experienced
extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.
Because our common stock is thinly traded, it may be difficult to sell shares of our common stock into the markets without experiencing significant
price volatility.
Our common stock is currently traded on the Nasdaq Global Market. Because of the relatively small
number of shares that are traded as well as the concentration of ownership of our common stock, it may be difficult for an investor to find a purchaser for shares of our common stock without experiencing significant price volatility. Based solely on
information contained in SEC filings, as of October 31, 2012, seven institutional groups of shareholders beneficially own 57% of our outstanding common stock; investment decisions by these shareholders could significantly affect the liquidity
and price of our common stock and could result in a substantial shift in ownership of our company. We cannot guarantee that an active trading market will develop, that our common stock will have a higher trading volume than it has historically had
or that it will maintain its current market price. This illiquidity could have a material adverse effect on the market price of our stock.
A third party could be prevented from acquiring shares of our 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, by-laws and Section 203 of the General Corporation Law 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 our stockholders. In addition, we have entered into employment agreements with our senior executives that have change of control provisions that would add substantial costs to an
acquisition of us by a third party.
We have not paid dividends in the past and do not expect to pay dividends in the future, and any
return on investment may be limited to the value of our stock.
We have never paid cash dividends on our common stock
and do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on our future earnings, capital requirements, financial condition, future prospects and other factors
as the board of directors might deem relevant. If we do not pay dividends our stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
Our business could be negatively affected as a result of actions of activist shareholders.
Responding to actions by activist shareholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees. The perceived uncertainties as to
our future direction may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners.
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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 FCC licensed teleports in Hauppauge, New York, and Laurel, Maryland subject to the Communications Act of 1934, as amended, or the FCC Act, and the
rules and regulations of the FCC. We also have licenses from Agentschap Telecom, the licensing authority in The Netherlands, for the teleports operated by Mach 6 and Carrier to Carrier in The Netherlands. We cannot guarantee that the applicable
government agencies will grant renewals when our existing licenses expire, nor are we assured that the agencies 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 regulations regarding the exposure of humans to radio frequency radiation from our teleports. These regulations, as well as local land use regulations, restrict our freedom to
choose where to locate our teleports. In addition, prior to a third party acquisition of us, we would need to seek approval from the FCC to transfer the radio transmission licenses we have obtained to the third party upon the consummation of the
acquisition. However, we cannot assure you that the FCC will permit the transfer of these licenses. These approvals may make it more difficult for a third party to acquire us.
Common Carrier Regulation
We currently provide services to our
customers on a private carrier and on a common carrier basis. Our operations as a common carrier require us to comply with the FCCs requirements for common carriers. These requirements include, but are not limited to, providing 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.
Foreign Regulations
Regulatory schemes in countries in which we may seek to provide our satellite-delivered 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 that may have a material adverse impact on our business. Either we or our local partners typically must obtain authorization from each country in which we provide our satellite-delivered 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 services and products or that restrictions applicable thereto will not be unduly burdensome.
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 services and products, 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 that may impose greater regulation of the content of information coming into the country than that which is generally applicable in the United
States, including but not limited to privacy regulations in numerous European countries and content restrictions in countries such as the Peoples 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 of existing laws governing issues including property
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ownership, copyrights and other intellectual property issues, taxation, libel, court jurisdiction and personal privacy to the Internet is uncertain. The vast majority of these laws were adopted
prior to the advent of the Internet and related technologies and, as a result, the laws 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 services and products, 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
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, telecommunications relay services for the deaf, and/or other regulatory fees. We are subject to some of these fees, and we may be subject to other fees or 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.
Broadband Internet access services provided by telephone companies are currently classified as Information Services under the Communications Act and therefore not considered a telecommunications service
subject to payment of access charges to local telephone companies in the United States. Should this situation change or other charges be imposed, the increased cost to our customers who use telephone-company provided facilities to connect with
our satellite facilities could discourage the demand for our services. Likewise, the demand for our services in other countries could be affected by the availability and cost of local telephone or other telecommunications services required to
connect with our facilities in those countries.
Export of Telecommunications Equipment
The sale of our infrastructure solutions outside the United States is subject to compliance with the United States Export Administration
Regulations and, in certain circumstances, with the International Traffic in Arms 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 and implement our services in some countries, the products must satisfy the technical requirements of that particular country. If we were unable to comply with such 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, results of operations and financial condition.
Foreign Ownership
We may, in the future, be required to seek FCC or
other government approval if foreign ownership of our stock exceeds certain specified criteria. Failure to comply with these policies could 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, or denial of certain contracts from other United States government agencies.
Foreign Corrupt Practices Act
In light of the nature of countries in which we sell products and services, we are subject to the Foreign Corrupt Practices Act, or the FCPA, which generally prohibits U.S. companies and their
intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment, and requires companies to maintain adequate record-keeping and internal accounting
practices to accurately reflect the transactions of the company. The FCPA applies to companies, individual directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for actions taken by strategic or local partners
or representatives. If we or our intermediaries fail to comply with the requirements of the FCPA, or similar laws of other countries, such as the recently-effective UK Anti-Bribery Act, governmental authorities in the United States or elsewhere, as
applicable, could seek to impose civil and/or criminal penalties, which could have a material adverse effect on our business, results of operations, financial conditions and cash flows.
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