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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended
JUNE 30, 1998
ORBITAL IMAGING CORPORATION
(Commission File No. 333-49583)
DELAWARE 54-1660268
------------------------------------------------- ------------------------------------------
(State of Incorporation) (IRS Identification number)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166 (703) 406-5000
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(Address of principal executive offices) (Telephone number)
Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL IMAGING CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
June 30, December 31,
1998 1997
CURRENT ASSETS: ------------- ---------------
Cash and cash equivalents $ 55,557,383 $ 10,883,142
Short-term investments, at market, which approximates cost 83,569,801 11,336,751
Receivables and other current assets 2,004,175 134,163
------------- ---------------
TOTAL CURRENT ASSETS 141,131,359 22,354,056
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated
depreciation of $6,305,402 and $5,144,194, respectively 12,566,299 11,053,898
SATELLITES AND RELATED RIGHTS, at cost, less accumulated
depreciation and amortization of $18,064,158 and
$12,947,213, respectively 138,877,202 104,226,147
LONG-TERM INVESTMENTS, at amortized cost 16,636,417 -
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, LESS
accumulated amortization of $33,572 in 1998 1,980,744 -
DEFERRED FINANCING FEES AND OTHER ASSETS 5,300,217 115,416
------------- ---------------
TOTAL ASSETS $ 316,492,238 $ 137,749,517
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 17,224,240 $ 4,335,026
Current portion of deferred revenue 8,476,614 7,725,141
Deferred tax liabilities, net 579,670 467,550
------------- ---------------
Total current liabilities 26,280,524 12,527,717
LONG-TERM OBLIGATIONS (principal amount $150,000,000) 141,277,419 -
DEFERRED REVENUE, NET OF CURRENT PORTION 27,879,954 29,667,469
DEFERRED TAX LIABILITIES, NET 6,911,723 10,193,678
------------- ---------------
TOTAL LIABILITIES 202,349,620 52,388,864
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Preferred stock, par value $.01; 10,000,000 shares authorized;
Series A $100 cumulative convertible, 2,000,000 shares
authorized, 648,653 shares and 392,887 shares issued and
outstanding, respectively (liquidation value is $66,155,555
and $40,074,474, respectively) 6,487 3,929
Common stock, par value $.01; 75,000,000 shares authorized;
25,214,000 shares issued and outstanding 252,140 252,140
Additional paid-in-capital 139,120,747 108,828,129
Accumulated deficit (25,236,756) (23,723,545)
------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 114,142,618 85,360,653
------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 316,492,238 $ 137,749,517
============= ==============
See accompanying notes to condensed financial statements.
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ORBITAL IMAGING CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
JUNE 30,
-----------------------------
1998 1997
------------- -----------
Revenues $ 2,921,653 $ 195,687
Direct expenses 3,904,016 1,092,607
------------- -----------
Gross profit (loss) (982,363) (896,920)
Selling, general and
administrative expenses 2,241,189 161,733
------------- -----------
Income (loss) from operations (3,223,552) (1,058,653)
Net investment income, net of interest
expense of $2,001,290 and $0, respectively 256,472 367,059
------------- -----------
Income (loss) before provision (benefit)
for income taxes (2,967,080) (691,594)
Provision (benefit) for income taxes (1,453,869) (437,867)
------------- -----------
Net income (loss) $(1,513,211) $ (253,727)
============= ===========
See accompanying notes to condensed financial statements.
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ORBITAL IMAGING CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
---------------------------------
1998 1997
------------- ------------
Revenues $ 5,338,378 $ 304,020
Direct expenses 8,092,950 2,229,621
------------- ------------
Gross profit (loss) (2,754,572) (1,925,601)
Selling, general and
administrative expenses 3,228,221 776,154
------------- ------------
Income (loss) from operations (5,982,793) (2,701,755)
Net investment income, net of interest
expense of $2,001,290 and $0, respectively 1,299,747 367,059
------------- ------------
Income (loss) before provision (benefit)
for income taxes (4,683,046) (2,334,696)
Provision (benefit) for income taxes (3,169,835) (437,867)
------------- ------------
Net income (loss) $(1,513,211) $(1,896,829)
============= ============
See accompanying notes to condensed financial statements.
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ORBITAL IMAGING CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
---------------------------------
1998 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (1,513,211) $ (1,896,829)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 6,831,701 2,004,640
Deferred tax benefit (3,169,835) (437,867)
Other 41,824 4,244
CHANGES IN ASSETS AND LIABILITIES:
Increase in receivables and other current assets (1,366,078) (76,184)
(Increase) decrease in other assets (393,165) 128,450
Increase in accounts payable and accrued expenses 12,607,608 4,800,966
Decrease in deferred revenue (1,036,042) (245,893)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,002,802 4,281,527
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (41,801,609) (29,997,550)
Investment in OrbView-2 license - -
Purchases of held-to-maturity investment securities (32,896,191) -
Purchases of available-for-sale investment securities (71,164,893) (1,942,660)
Maturities of available-for-sale investment securities 15,400,000 -
Sales of available-for-sale investment securities 998,780 -
Payment for business acquisition (4,000,000) -
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (133,463,913) (31,940,210)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 141,000,000 -
Proceeds from issuance of common stock warrants 9,000,000 -
Fees paid to issue long-term obligations and common stock warrants (5,159,824) -
Preferred stock issued in private placement, net 21,295,176 27,055,892
Common stock issued - 31,317,829
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 166,135,352 58,373,721
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 44,674,241 30,715,038
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,883,142 -
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 55,557,383 $ 30,715,038
============== ==============
See accompanying notes to condensed financial statements.
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ORBITAL IMAGING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(UNAUDITED)
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim financial
information reflects all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation of such information.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to instructions, rules and regulations
prescribed by the Securities and Exchange Commission ("SEC"). Although
management believes that the disclosures provided are adequate to make the
information presented not misleading, these unaudited interim condensed
financial statements should be read in conjunction with the audited financial
statements and footnotes thereto for the year ended December 31, 1997, which are
included in Orbital Imaging Corporation's Registration Statement on Form S-4, as
amended, filed with the SEC (File No. 333-49583). Operating results for the
three-month and six-month periods ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the full year.
Orbital Imaging Corporation is hereafter referred to as "ORBIMAGE" or the
"Company."
(1) Income Taxes
The Company has recorded its interim income tax provision
(benefit) based on estimates of the Company's effective tax rate
expected to be applicable for the full fiscal year. Estimated
effective rates recorded during interim periods may be
periodically revised, if necessary, to reflect current estimates.
(2) Reclassifications
Certain reclassifications have been made to the 1997 financial
statements to conform to the 1998 financial statement
presentation.
(3) Related Party Transactions
Pursuant to a procurement contract under which ORBIMAGE is
purchasing from Orbital Sciences Corporation ("Orbital"), the
Company's majority shareholder, various satellites, rights, and
ground systems, the company incurred costs of approximately
$21,426,000 and $22,408,000 for the three months ended June 30,
1998 and 1997, respectively, and approximately $36,863,000 and
$26,683,000 for the six months ended June 30. ORBIMAGE incurred
costs of approximately
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$635,000 and $1,384,000 for the three months ended June 30, 1998
and 1997, respectively, and approximately $1,163,000 and
$2,137,000 for the six months ended June 30, 1998 and 1997,
respectively, under an administrative services agreement with
Orbital.
(4) Financing Activities
On February 25, 1998, ORBIMAGE raised gross proceeds of
$150,000,000 by issuing units ("Units") consisting of (i)
$150,000,000 of 11-5/8% Senior Notes (the "Notes") due 2005,
valued at $141,000,000, and (ii) warrants (the "Warrants"), valued
at $9,000,000, to purchase 1,312,746 shares of ORBIMAGE's common
stock. Interest on the Notes is payable semi-annually beginning
September 1, 1998. An amount equal to two years' interest payable
on the Notes (approximately $33,000,000) was placed in a
restricted account and invested in U.S. Treasury securities. These
investments have maturities ranging from six months to two years
(and have been appropriately reflected as short-term or long-term
investments in the accompanying Condensed Balance Sheets) and are
pledged as security for repayment of interest on the Notes. The
Notes will rank pari passu in right of payment with all existing
and future senior indebtedness of the Company and will rank senior
in right of payment to any future subordinated indebtedness of the
Company. The Warrants are exercisable on February 25, 1999 (or
earlier in the event of a "change of control") and expire on March
1, 2005.
Concurrent with the issuance of the Units, ORBIMAGE completed a
private placement of 227,295 shares of 12% Series A Cumulative
Convertible Preferred Stock, raising gross proceeds of
approximately $23,000,000.
(5) Interest Capitalization
The Company capitalizes interest costs in connection with the
construction of satellites and related ground segments and
systems. Approximately $2,547,540 and $4,245,540 has been
capitalized during the three- and six-month periods ended June 30,
1998. The capitalized interest is recorded as part of the
historical cost of the asset to which it relates and will be
amortized over the asset's useful life when placed in service.
(6) Comprehensive Income
In 1998, the company adopted the provisions of Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income." During the three- and six-month periods
ended June 30, 1998 and 1997, there were no differences between
net income, as reported, and comprehensive income.
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(7) Business Acquisition
On April 30, 1998, ORBIMAGE acquired substantially all the assets
of TRIFID Corporation ("TRIFID") for approximately $4,000,000.
Under the terms of the acquisition agreement, an additional
$1,000,000 in purchase price is payable by ORBIMAGE to TRIFID if
certain future revenue targets are achieved. The acquisition was
accounted for using the purchase method of accounting and resulted
in excess of purchase price over net assets acquired of
approximately $2,000,000, which amount will be amortized on a
straight-line basis over 10 years.
The following supplemental financial information presents the
Company's results of operations, on a pro forma basis, as though
the TRIFID acquisition were consummated on January 1, 1997:
Three Months Ended
June 30,
------------------------------
1998 1997
---- ----
Revenues $3,332,000 $1,401,000
Net Income (loss) (1,144,000) (127,000)
Six Months Ended
June 30,
------------------------------
1998 1997
---- ----
Revenues $6,162,000 $1,953,000
Net Income (loss) (1,484,000) (2,383,000)
The allocation of purchase price to net assets acquired may be
adjusted if additional information becomes known about certain
business assumptions used to estimate the fair value of such net
assets.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 1998
AND 1997
Certain statements included in this discussion relating to funding
requirements, capital expenditures, sources and uses of funds, operating results
and "Year 2000" issues are forward-looking statements that involve known and
unknown risks, uncertainties, and other factors that may cause the actual
results, performance or achievements of the Company to differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors may include, but are not limited to,
general and economic business conditions, launch success, satellite performance,
availability of required capital, market acceptance of new products and
technologies, the ability of customers and suppliers to assess timely and
accurately "Year 2000" issues, and U.S. government policies, priorities and
funding of programs. The actual results that ORBIMAGE achieves may differ
materially from any forward-looking statements due to such risks and
uncertainties.
The Company has made a preliminary assessment of potential "Year
2000" issues with respect to various financial and operational computer-related
systems. The Company has developed an initial corrective action plan that
includes (i) reprogramming affected software when appropriate and feasible, (ii)
obtaining vendor-provided software upgrades when available, and (iii) completely
replacing affected systems when necessary. The Company currently expects that
identified "Year 2000" affected systems will be corrected by the end of 1998,
although there can be no assurance that the Company has identified all "Year
2000" affected systems or that its corrective action plan will be timely and
successful. While the Company has not determined to date that "Year 2000" issues
will materially impact its customers or suppliers, it continues to assess risks
associated with such third parties and will develop corrective plans accordingly
as more information becomes available.
BUSINESS ACQUISITION. On April 30, 1998, ORBIMAGE acquired
substantially all the assets of TRIFID Corporation ("TRIFID") for approximately
$4.0 million. Under the terms of the acquisition agreement, an additional $1.0
million of purchase price is payable by ORBIMAGE to TRIFID if certain revenue
targets are achieved. TRIFID is a leading image processing and product
generation company, providing sophisticated image processing software,
geographic information database and production systems, imaging sensor design
and related engineering services to both governmental and commercial customers.
The acquisition provides ORBIMAGE with the technical personnel and production
capability required to generate high-resolution imagery and derived products.
The acquisition resulted in excess of purchase price over net assets acquired of
approximately $2.0 million, which amount will be amortized over 10 years.
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REVENUES. Revenues for the three-month periods ended June 30, 1998
and 1997 were approximately $2.9 million and $0.2 million, respectively.
Revenues for the six-month periods ended June 30, 1998 and 1997 were
approximately $5.3 million and $0.3 million, respectively. The increase in 1998
revenues is primarily due to the commencement of the OrbView-2 satellite's
commercial operations in November 1997. Revenues during the second quarter of
1998 also included $440,000 in sales generated from the image processing
business acquired from TRIFID in April 1998. Revenues for the comparable 1997
periods were attributable solely to the sale of OrbView-1 imagery products to
NASA.
DIRECT EXPENSES. Direct expenses include costs of operating and
depreciating the OrbView-1 satellite, the license pursuant to which ORBIMAGE has
exclusive worldwide distribution rights for OrbView-2 satellite imagery (the
"OrbView-2 License"), and the related ground assets. Direct expenses for the
three-month periods ended June 30, 1998 and 1997 were approximately $3.9 million
and $1.1 million, respectively. Direct expenses for the six-month periods ended
June 30, 1998 and 1997 were approximately $8.1 million and $2.2 million,
respectively. Direct expenses increased from the 1997 periods to the comparable
1998 periods as a result of the OrbView-2 License amortization, additional
ground station depreciation and increased operating expenses primarily related
to OrbView-2. The Company completed depreciating the OrbView-1 satellite in the
second quarter of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses include the costs of marketing, advertising,
promotion and other selling expenses, as well as the costs of the finance,
administrative and general management functions of the company. SG&A expenses
were approximately $2.2 million and $0.2 million for the three-month periods
ended June 30, 1998 and 1997, respectively. SG&A expenses were approximately
$3.2 million and $.8 million for the six-month periods ended June 30, 1998 and
1997, respectively. The increase in SG&A expenses in 1998 was primarily
attributable to the increase in salaries and related benefits as the Company
expanded its operations and workforce.
INTEREST INCOME AND INTEREST EXPENSE. Interest income reflects
interest earnings on investments made primarily with proceeds from the Company's
financing activities. Interest expense reflects interest incurred on the
Company's 11-5/8% Senior Notes due 2005 (the "Notes"), net of applicable
capitalized interest. Net interest income for the three-month periods ended June
30, 1998 and 1997 was approximately $0.3 million and $0.4 million, respectively.
Net interest income was approximately $1.3 million and $0.4 million for the
six-month periods ended June 30, 1998 and 1997, respectively. Interest expense
was approximately $2.0 million for the three- and six-month periods ended June
30, 1998; ORBIMAGE had no interest expense in the comparable 1997 periods.
Approximately $4.2 million of interest expense has been capitalized in 1998 in
connection with the construction of the OrbView-3 and OrbView-4 satellites and
related ground segments. The capitalized interest is recorded as part of the
historical cost of the asset to which it relates and will be amortized over the
asset's useful life when placed in service.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company recorded an income
tax provision (benefit) of approximately ($1.5 million) and ($0.4 million) for
the three-month periods ended June 30, 1998 and 1997, respectively. The Company
recorded an income tax provision (benefit)
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of approximately ($3.2 million) and ($0.4 million) for the six-month periods
ended June 30, 1998 and 1997, respectively. The tax benefits result from a
reduction in net deferred tax liabilities based on an increase in deferred tax
assets primarily related to net operating losses generated during the period
offset by decreases in deferred tax liabilities for depreciation of satellite
assets which were previously deducted for tax purposes. The Company records its
interim income tax benefit or provision based on estimates of the Company's
effective tax rate expected to be applicable for the full fiscal year. Estimated
effective rates recorded during interim periods may be periodically revised, if
necessary, to reflect current estimates.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998 the Company had approximately $155.8 million of cash
and cash equivalents, and short-and long-term investments (including
approximately $32.9 million of securities pledged as security for repayment of
interest on the Notes) and had total debt outstanding of approximately $141.3
million (principal amount $150.0 million). The Company's current ratio was
approximately 5.4 at June 30, 1998.
On February 25, 1998, ORBIMAGE issued units consisting of the Notes
and Common Stock warrants raising gross proceeds of $150.0 million (the "Units
Offering"). Interest on the Notes is payable semi-annually beginning on
September 1, 1998. Out of net proceeds of approximately $144.8 million, ORBIMAGE
purchased approximately $32.9 million of U.S. Treasury securities in an amount
sufficient to pay the interest on the Notes for the first four interest payment
dates. These securities have maturities ranging from six months to two years and
were placed in a restricted account and pledged as security for repayment of
interest on the Notes. The Notes will rank pari passu in right of payment with
all existing and future senior indebtedness of the Company, and will rank senior
in right of payment to any future subordinated indebtedness of the Company.
Concurrent with the Units Offering, ORBIMAGE completed a private placement of
227,295 shares of Series A Preferred Stock, generating approximately $22.7
million of gross proceeds.
Operating activities provided net cash of approximately $12.0 million
during the first half of 1998. Investing activities used cash of approximately
$133.5 million for the six-month period ended June 30, 1998, primarily for the
net purchases (net of sales and maturities) of short- and long-term investments
and capital expenditures for the OrbView-3 and OrbView-4 satellites and the
related U.S. ground system.
Capital expenditures for the six months ended June 30, 1998 were
approximately $37.6 million (excluding capitalized interest) and consisted
primarily of costs relating to the acquisition of the OrbView-3 and OrbView-4
satellites and the related U.S. ground system. The total cost of the OrbView-1
satellite, the OrbView-3 and OrbView-4 satellites, the OrbView-2 License and the
related U.S. ground system is estimated to be approximately $297.0 million,
which amount includes all satellite design, construction and launch costs, but
excludes insurance costs. Of this amount, ORBIMAGE has spent approximately
$167.0 million through June 30, 1998 and expects to spend approximately $55.0
million through the remainder of 1998, which amount will
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be funded by the Company's cash, cash equivalents, short-term investments and
net cash generated from operations.
The Company expects to fund its future capital expenditures and
negative cash flows from operating activities using cash and cash equivalents
and short-term investments together with advance payments from customers.
ORBIMAGE's ability to generate positive cash flow is dependent on the continued
expansion of commercial services, adequate customer acceptance of ORBIMAGE's
services and numerous other factors. While the Company believes it has
sufficient resources to fund the Company's operations through its positive free
cash flow (expected to occur by the end of 1999, when OrbView-3 is expected to
be operational), additional funding may be necessary in the event of an
OrbView-3 or OrbView-4 launch delay, cost increases or any shortfall in
projected levels of estimated cash flow, or unanticipated expenses. There can be
no assurance that additional capital will be available on favorable terms or on
a timely basis, if at all. ORBIMAGE has incurred losses since its inception and
ORBIMAGE believes that it will continue to do so for the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY- HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - A complete listing of exhibits required is given in
the Exhibit Index that precedes the exhibits filed with this
report
(b) Reports on Form 8-K - Not applicable.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBITAL IMAGING CORPORATION
DATED: August 14, 1998 By: /s/ Gilbert D. Rye
------------------------------------
Gilbert D. Rye, President
and Chief Operating Officer
DATED: August 14, 1998 By: /s/ Armand D. Mancini
------------------------------------
Armand D. Mancini, Vice President
and Principal Financial Officer
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EXHIBIT INDEX
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The following exhibits are filed as part of this report.
Exhibit No. Description
27 Financial Data Schedule
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