<PAGE>   1

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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ----------------------

                                   FORM 10-Q
(MARK ONE)
[X]    QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 FOR THE QUARTERLY  PERIOD ENDED JUNE 30, 1999

                                                            OR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the transition period from _______________ to ________________.

                        Commission file number 333-64367


                            GOLDEN SKY SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)


           DELAWARE                                     43-1749060
 (State or other jurisdiction               (I.R.S. Employer Identification No.)
of incorporation or organization)


   4700 BELLEVIEW AVENUE, SUITE 300
           KANSAS CITY, MO                                64112
(Address of principal executive offices)                (Zip code)


                                 (816) 753-5544
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                         if changed since last report)

         INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES  X  NO
                                              ---    ---

      AS OF JULY 31, 1999, THE REGISTRANT'S OUTSTANDING COMMON STOCK CONSISTED
OF 1000 SHARES OF COMMON STOCK.


================================================================================

<PAGE>   2





                                TABLE OF CONTENTS


                         PART I - FINANCIAL INFORMATION

<TABLE>

<S>                                                                                                           <C>
Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets as of
           June 30, 1999 (Unaudited) and December 31, 1998..................................................      1

         Condensed Consolidated Statements of Operations for the
           three and six months ended June 30, 1999 and 1998 (Unaudited)....................................      2

         Condensed Consolidated Statements of Cash Flows for the
           six months ended June 30, 1999 and 1998 (Unaudited)..............................................      3

         Notes to Condensed Consolidated Financial Statements (Unaudited)...................................      4

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations..............      7

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.........................................     14


                                            PART II - OTHER INFORMATION

Item 1.  Legal Proceedings..................................................................................   None

Item 2.  Changes in Securities and Use of Proceeds..........................................................   None

Item 3.  Defaults Upon Senior Securities....................................................................   None

Item 4.  Submission of Matters to a Vote of Security Holders................................................   None

Item 5.  Other Information..................................................................................     15

Item 6.  Exhibits and Reports on Form 8-K...................................................................     16
</TABLE>





<PAGE>   3



                            GOLDEN SKY SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                (Dollars in thousands, except per share amounts)


<TABLE>
<CAPTION>


                                                                    DECEMBER 31, 1998      JUNE 30, 1999
                                                                    -----------------    -----------------
                                                                                             (Unaudited)

<S>                                                                 <C>                  <C>
ASSETS
Current assets:
   Cash and cash equivalents ....................................   $           4,460    $          14,749
   Restricted cash, current portion .............................              28,083               23,634
   Subscriber receivables (net of allowance for
     uncollectable accounts of $293 and $728, respectively) .....               8,632               10,109
   Other receivables ............................................               2,465                1,315
   Inventory ....................................................              10,146                6,662
   Prepaid expenses and other ...................................               1,859                2,036
                                                                    -----------------    -----------------
Total current assets ............................................              55,645               58,505
Restricted cash, net of current portion .........................              23,534               11,647
Property and equipment (net of accumulated depreciation of ......               4,994
   $3,214 and $4,518, respectively) .............................               6,212
Intangible assets, net ..........................................             233,139              252,454
Deferred financing costs ........................................              10,541                8,161
Other assets ....................................................                 218                  439
                                                                    -----------------    -----------------
     Total assets ...............................................   $         328,071    $         337,418
                                                                    =================    =================

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
   Trade accounts payable .......................................   $          13,539    $          18,459
   Interest payable .............................................              11,009               10,806
   Current portion of long-term obligations .....................               8,916                3,314
   Unearned revenue .............................................               5,574                7,290
   Accrued payroll and other ....................................               1,403                1,906
                                                                    -----------------    -----------------
Total current liabilities .......................................              40,441               41,775
Long-term obligations, net of current portion:
   12 3/8% Notes ................................................             195,000              195,000
   Bank debt ....................................................              67,000               35,000
   Seller notes payable .........................................               6,912                6,932
   Other notes payable and obligations under capital leases .....                 376                  251
   Minority interest ............................................               2,420                   --
                                                                    -----------------    -----------------
Total long-term obligations, net of current portion .............             271,708              237,183
                                                                    -----------------    -----------------
     Total liabilities ..........................................             312,149              278,958

Commitments and contingencies ...................................

Stockholder's Equity:
   Common Stock, par value $.01; 1,000 shares  authorized,
     issued and outstanding .....................................                  --                   --
   Additional paid-in capital ...................................              97,600              193,880
   Accumulated deficit ..........................................             (81,678)            (135,420)
                                                                    -----------------    -----------------
   Total stockholder's equity ...................................              15,922               58,460
                                                                    -----------------    -----------------
     Total liabilities and stockholder's equity .................   $         328,071    $         337,418
                                                                    =================    =================
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                       1


<PAGE>   4



                            GOLDEN SKY SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             (Dollars in thousands)
                                   (Unaudited)




<TABLE>
<CAPTION>


                                                           THREE MONTHS ENDED JUNE 30,      SIX MONTHS ENDED JUNE 30,
                                                          ----------------------------    ----------------------------
                                                              1998            1999            1998            1999
                                                          ------------    ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>             <C>
Revenue:
   DBS services .......................................   $     16,582    $     31,201    $     30,466    $     60,040
   Lease and other ..................................              267             188             512             385
                                                          ------------    ------------    ------------    ------------
Total revenue .........................................         16,849          31,389          30,978          60,425

Costs and Expenses:
    Costs of DBS services .............................          9,676          19,610          17,926          38,022
    System operations .................................          2,390           4,526           4,177           8,796
    Sales and marketing ...............................          6,617          13,587          11,287          25,507
    General and administrative ........................          1,567           3,692           2,675           6,640
    Depreciation and amortization .....................          5,405           9,140           9,753          17,360
                                                          ------------    ------------    ------------    ------------
Total costs and expenses ..............................         25,655          50,555          45,818          96,325
                                                          ------------    ------------    ------------    ------------

Operating loss ........................................         (8,806)        (19,166)        (14,840)        (35,900)

Non-operating Items:
   Interest and investment income .....................              1             829              29           1,652
   Interest expense ...................................         (2,956)         (8,210)         (5,237)        (16,559)
                                                          ------------    ------------    ------------    ------------
Total non-operating items .............................         (2,955)         (7,381)         (5,208)        (14,907)
                                                          ------------    ------------    ------------    ------------

Loss before income taxes ..............................        (11,761)        (26,547)        (20,048)        (50,807)
Income taxes ..........................................             --              --              --              --

Loss before extraordinary charge ......................        (11,761)        (26,547)        (20,048)        (50,807)
Extraordinary charge on early retirement of debt ......         (2,577)             --          (2,577)         (2,935)
                                                          ------------    ------------    ------------    ------------

Net loss ..............................................   $    (14,338)   $    (26,547)   $    (22,625)   $    (53,742)
                                                          ============    ============    ============    ============
</TABLE>



     See accompanying notes to condensed consolidated financial statements.


                                       2
<PAGE>   5



                            GOLDEN SKY SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                                              SIX MONTHS ENDED JUNE 30,
                                                                            ----------------------------
                                                                                 1998            1999
                                                                            ------------    ------------

<S>                                                                         <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................................   $    (22,625)   $    (53,742)
Adjustments to reconcile net loss to net cash used in operating
   activities:
   Depreciation and amortization ........................................          9,753          17,360
   Amortization of deferred financing costs and other ...................            266           1,323
   Extraordinary charge on early retirement of debt .....................          2,577           2,935
   Change in operating assets and liabilities, net of acquisitions:
       Subscriber receivables, net of unearned revenue ..................         (2,035)            304
       Other receivables ................................................           (652)          1,150
       Inventory ........................................................           (679)          3,484
       Prepaid expenses and other .......................................           (633)           (394)
       Trade accounts payable ...........................................            644           4,920
       Interest payable .................................................            (18)           (203)
       Accrued payroll and other ........................................           (837)            484
                                                                            ------------    ------------
Net cash used in operating activities ...................................        (14,239)        (22,379)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of Rural DIRECTV Markets ...................................        (44,514)        (35,160)
Purchases of property and equipment .....................................         (1,360)         (2,143)
Proceeds from interest escrow account ...................................             --          12,158
Investment earnings placed in escrow ....................................             --          (1,271)
Release of amounts reserved for contingent reduction of
   bank debt ............................................................             --           5,449
Other ...................................................................           (690)            (12)
                                                                            ------------    ------------
Net cash used in investing activities ...................................        (46,564)        (20,979)

CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution from Golden Sky DBS, Inc. ..........................             --          95,661
Borrowings on bank debt .................................................         54,000          21,000
Principal payments on bank debt .........................................             --         (53,000)
Principal payments on notes payable and obligations
   under capital leases .................................................         (2,479)         (8,632)
Increase in deferred financing costs ....................................         (3,494)         (1,382)
                                                                            ------------    ------------
Net cash provided by financing activities ...............................         48,027          53,647
                                                                            ------------    ------------

Net increase (decrease) in cash and cash equivalents ....................        (12,776)         10,289
Cash and cash equivalents, beginning of period ..........................         13,632           4,460
                                                                            ------------    ------------
Cash and cash equivalents, end of period ................................   $        856    $     14,749
                                                                            ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
   Cash paid for interest ...............................................   $      2,920    $     15,537
   Property and equipment acquired under capitalized
        Lease obligations ...............................................            439              78
   Issuance of seller notes payable in acquisitions .....................             --           2,925
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       3


<PAGE>   6



                            GOLDEN SKY SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.   ORGANIZATION AND BUSINESS ACTIVITIES

Principal Business

     Golden Sky Systems, Inc. (" Golden Sky Systems" or the "Company") is the
second largest independent provider of DIRECTV subscription television services.
DIRECTV is the leading direct broadcast satellite ("DBS") company serving the
continental United States. Golden Sky Systems is a non-voting affiliate of the
National Rural Telecommunications Cooperative (the "NRTC"). The NRTC has
contracted with Hughes Communications Galaxy, Inc. ("Hughes") for the exclusive
right to distribute DIRECTV programming to homes in certain rural territories
within the continental United States ("Rural DIRECTV Markets"). As of June 30,
1999, Golden Sky Systems has acquired 55 Rural DIRECTV Markets in 23 states
representing approximately 1.9 million households. As of that same date, Golden
Sky Systems served approximately 297,000 subscribers.

     Unless the context otherwise requires, the terms "Golden Sky Systems" and
"the Company" refer to Golden Sky Systems, Inc. and its subsidiaries.

Organization and Legal Structure

     Until February 1999, Golden Sky Systems was a wholly-owned subsidiary of
Golden Sky Holdings, Inc. ("Holdings"). In February 1999, Golden Sky DBS, Inc.
("Golden Sky DBS") was formed for the purpose of completing an offering (the
"13 1/2% Notes Offering") of 13 1/2% Senior Discount Notes due 2007 (the
"13 1/2% Notes"). Upon formation, Golden Sky DBS issued 100 shares of its
common stock to Holdings in exchange for $100 and the subsequent transfer of
all of the capital stock of Systems to Golden Sky DBS. Upon completion of the
aforementioned transfer, Golden Sky Systems became a wholly-owned subsidiary of
Golden Sky DBS.

2.   SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim
financial information. Accordingly, these statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. All significant intercompany accounts and
transactions have been eliminated in consolidation. Operating results for the
three- and six-month periods ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999. For
further information, refer to the consolidated financial statements and
footnotes thereto included in Golden Sky Systems' Annual Report on Form 10-K for
the year ended December 31, 1998.

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for each reporting
period. Actual results could differ from those estimates.



                                       4



<PAGE>   7



                            GOLDEN SKY SYSTEMS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

Advertising Costs

     Advertising costs are expensed as incurred. Such costs aggregated $1.3
million and $966,000 during the three-month periods ended June 30, 1999 and
1998, respectively, and $2.4 million and $1.7 million during the six-month
periods ended June 30, 1999 and 1998, respectively.

Effects of Recently Issued Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS No. 133"). As a result of
the subsequent issuance of FAS No. 137, FAS No. 133 is now effective for fiscal
years beginning after June 15, 2000. FAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities.
Currently, the Company has no derivative instruments or hedging arrangements.
Accordingly, adoption of FAS No. 133 is not expected to have a material effect
on the Company's financial position or results of operations.

Comprehensive Income

     The Company has no components of comprehensive income other than net loss.

Free Programming Promotions

     Certain DIRECTV national sales promotions offer free programming, generally
for periods of one to three months, to new subscribers. The cost of such free
programming is expensed as sales and marketing expense in the period the
services are provided. During the three- and six-month periods ended June 30,
1999, sales and marketing expenses attributable to such promotions totaled $1.9
and $3.0 million, respectively.

3.   ACQUISITIONS

     During the six-month period ended June 30, 1999, Golden Sky Systems
acquired eight Rural DIRECTV Markets in five states (the "1999 Acquired
Markets"). The 1999 Acquired Markets represent approximately 124,000 households
and served approximately 18,100 subscribers at the respective acquisition dates.
The Company accounts for its acquisitions using the purchase method. The
Company's condensed consolidated statements of operations for the three- and
six-month periods ended June 30, 1998 and 1999 include the results of operations
of acquired Rural DIRECTV Markets from the respective acquisition dates. The
aggregate purchase price (including direct acquisition costs of $658,000) for
the 1999 Acquired Markets was allocated as follows (in thousands):

<TABLE>

<S>                                        <C>
DIRECTV distribution rights ............   $  30,221
Non-compete agreements .................       4,839
Working capital, net ...................         100
                                           ---------
                                           $  35,160
                                           =========
</TABLE>

         During 1997, Golden Sky Systems acquired a controlling interest in DCE
Satellite Entertainment, LLC ("DCE"). In June 1999, Golden Sky Systems acquired
the remaining ownership interest in DCE that it did not hold in exchange for
cash of $1.0 million and the issuance of seller notes payable totaling $2.9
million.

4.   BANK DEBT

     In February 1999, Golden Sky Systems' bank credit facility (the "Credit
Facility") was amended (the "Amended Credit Facility") to permit, among other
things, the offering of senior discount notes by Golden Sky DBS. The Amended
Credit Facility's term loan commitment amortizes in specified quarterly
installments from

                                       5




<PAGE>   8

                            GOLDEN SKY SYSTEMS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)


March 31, 2002 through maturity on December 31, 2005. The availability of
revolving loan borrowings under the Amended Credit Facility reduces by specified
amounts over the period from March 31, 2001 through maturity on September 30,
2005. In February 1999, Golden Sky Systems repaid all outstanding borrowings
under the revolving loan commitment. Such repayment was funded from the
contribution by Golden Sky DBS of the net proceeds of the 13 1/2% Notes Offering
to Golden Sky Systems and totaled $53.0 million. As of June 30, 1999, no
borrowings were outstanding under the Amended Credit Facility's revolving loan
commitment. As of that same date, outstanding borrowings under the Amended
Credit Facility's term loan commitment totaled $35.0 million. Upon execution of
the Amended Credit Facility, Golden Sky Systems recognized an extraordinary
charge of approximately $2.9 million to write-off unamortized deferred financing
costs associated with the Credit Facility.

     For the three months ended March 31, 1999, Golden Sky Systems exceeded the
limitation on subscriber acquisition costs (i.e., sales and marketing expenses)
prescribed by the Amended Credit Facility. Excluding the effects of DIRECTV's
national sales promotions that offered free programming to new subscribers, and
higher incremental subscriber acquisition costs associated with the conversion
of Primestar subscribers to Golden Sky Systems' DIRECTV service, Golden Sky
Systems would have been in compliance with the Amended Credit Facility's
limitation on subscriber acquisition costs. In June 1999, Golden Sky Systems
received a waiver from the banks for this technical violation. The Amended
Credit Facility's limitation on subscriber acquisition costs was also increased
as part of an amendment that was executed in June 1999. As of June 30, 1999, the
Company was in compliance with all of the covenants of the Amended Credit
Facility.

5.   13 1/2% NOTES OFFERING

     On February 19, 1999, Golden Sky DBS consummated the 13 1/2% Notes
Offering. The 13 1/2% Notes Offering resulted in net proceeds to Golden Sky DBS
of approximately $95.7 million (after initial purchasers' discount and other
offering expenses). The 13 1/2% Notes have an aggregate balance due at stated
maturity of $193.1 million. Cash interest on the 13 1/2% Notes will not accrue
prior to March 1, 2004. Thereafter, cash interest on the 13 1/2% Notes will
accrue at a rate of 13 1/2% per annum and be payable in arrears on March 1 and
September 1 of each year, commencing September 1, 2004. The 13 1/2% Notes mature
on March 1, 2007. Golden Sky DBS contributed the net proceeds of the 13 1/2%
Notes Offering to Golden Sky Systems, which used $53.0 million of the
contributed proceeds to repay existing revolving credit indebtedness.

     Golden Sky Systems is not obligated for repayment of the 13 1/2% Notes and
is restricted as to its ability to make payments to Golden Sky DBS. However,
Golden Sky DBS is dependent on Golden Sky Systems for dividends or other cash
distributions in amounts sufficient to make the required payments.

6.  COMMITMENTS AND CONTINGENCIES

     In November 1999, certain meteoroid events will occur as the earth's orbit
passes through the particulate trail of Comet 55P (Tempel-Tuttle). These
meteoroid events pose a potential threat to all in-orbit geosynchronous
satellites, including DBS satellites. The Company is unable to determine the
impact, if any, these meteoroid events could have on the DBS satellites used by
Hughes for distribution of DIRECTV programming services. In the event the Hughes
DBS satellites are adversely affected by these meteoroid or other events, the
Company's business and results of operations could be adversely impacted.


                                       6

<PAGE>   9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     This report contains forward-looking statements involving known and unknown
risks, uncertainties and other important factors that could cause our actual
results, performance or achievements, or industry results, to differ materially
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such risks, uncertainties and other factors
include, among others: a decrease in subscriber growth; an increase in
subscriber acquisition costs and subscriber equipment subsidies; an unexpected
equipment shortage; impediments to the retransmission of distant broadcast
network signals; an unexpected business interruption due to Year 2000 issues; an
increase in competition; the introduction of new technologies and competitors
into the subscription television business; general business and economic
conditions; and other risk factors described from time to time in our reports
filed with the Securities and Exchange Commission. All statements herein, other
than statements of historical fact, regarding our profitability, financial
position, liquidity and capital requirements are forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurances that those expectations
will prove to have been correct. Certain other important factors that could
cause actual results to differ materially from our expectations ("Cautionary
Statements") are disclosed in this report. All written forward-looking
statements by or attributable to us or persons acting on our behalf contained in
this report are expressly qualified in their entirety by the Cautionary
Statements.

     Unless the context otherwise requires, the terms "we," "our," "us" and
"Golden Sky Systems" refer to Golden Sky Systems, Inc. and its subsidiaries.

OVERVIEW

     Golden Sky Systems is the second largest independent provider of DIRECTV
subscription television services. DIRECTV is the leading direct broadcast
satellite ("DBS") company serving the continental United States. Until February
1999, Systems was a wholly-owned subsidiary of Golden Sky Holdings, Inc. In
February 1999, Golden Sky DBS, Inc. was formed for the purpose of completing a
private offering of its 13 1/2% Senior Discount Notes due 2007. Upon formation,
Golden Sky DBS issued 100 shares of its common stock to Holdings in exchange for
$100 and the subsequent transfer of all of the capital stock of Systems to
Golden Sky DBS. Upon completion of the aforementioned transfer, Systems became a
wholly-owned subsidiary of Golden Sky DBS.

     We were formed in June 1996 to acquire rights to distribute DIRECTV
programming services in rural markets in the United States. We are a non-voting
affiliate of the National Rural Telecommunications Cooperative, or the NRTC as
it is commonly known. The NRTC is a cooperative organization whose members are
engaged in the distribution of telecommunications and other services in rural
America. We acquired our first rural DIRECTV market in November 1996. From our
inception through June 30, 1999, we have acquired 55 rural DIRECTV markets in 23
states serving approximately 1.9 million households. The aggregate purchase
price for these acquisitions totaled approximately $294.9 million, or about $159
per household. Following each acquisition, we have sought to create a strong
local presence in each of our markets. We have established over 70 offices in
our territories and have established dealer relationships with approximately 450
local retailers of direct broadcast satellite ("DBS") equipment. We are
continually evaluating acquisition prospects and we expect to continue to enter
into acquisition agreements to purchase additional rural DIRECTV markets
consistent with our growth strategy. As of June 30, 1999, we were the exclusive
provider of DIRECTV programming to approximately 292,400 subscribers.

     In addition to growth by acquisitions, we have increased our subscriber
base through increased penetration of our rural DIRECTV markets. We believe that
there is a substantial opportunity to increase penetration through local
marketing. Most of the NRTC members from which we acquire rural DIRECTV markets
generally have not engaged in significant marketing efforts, but rather have
relied primarily on the consumer to take the initiative to acquire service.

     We have experienced net losses as well as negative EBITDA (as defined
below) and cash flows from operations since our inception. These shortfalls are
primarily the result of our rapid subscriber growth and acquisitions of rural
DIRECTV markets. In particular, we have incurred significant sales and marketing
expenses in our effort to rapidly build our subscriber base. Many of these
expenses, which are expensed as incurred and include advertising and promotional
expenses, sales commissions and DBS equipment and installation subsidies, are
incurred at or before
                                       7



<PAGE>   10



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION - CONTINUED

the time a new subscriber is activated. As a result, revenue attributable to new
subscribers lags behind the expense incurred in acquiring them. The impact of
this lag generally increases with the rate at which we add subscribers. Our
rapid subscriber growth and related subscriber acquisition costs have been
significant contributors to our net losses and negative EBITDA experienced to
date. We believe that our subscriber acquisition costs will continue to
negatively affect our operating results for at least the next year as we
continue to add new subscribers. However, as long as a subscriber remains in
service, future operating results benefit from a recurring monthly revenue
stream with minimal additional sales and marketing expense. Because we have
experienced a relatively low rate of customer disconnects, or churn, we believe
that our investment in building our subscriber base rapidly will enhance our
cash flow and operating results in the longer term. During the twelve-month
period ended June 30, 1999, our annual churn rate approximated 9.4%, compared to
8.1% and 6.1% during the twelve-month periods ended March 31, 1999 and December
31, 1998, respectively.

     EBITDA represents earnings before interest, taxes, depreciation and
amortization, non-cash charges and extraordinary items. EBITDA is not a measure
of performance under generally accepted accounting principles and should not be
construed as a substitute for consolidated net income or loss as a measure of
performance, or as a substitute for cash flow as a measure of liquidity.
Nevertheless, we believe that EBITDA is a commonly recognized measure of
performance in the communications industry. Many of our financial covenants are
also based upon EBITDA. As a result, investors may use this data to analyze and
compare other communications companies with our company in terms of operating
performance, leverage and liquidity. Further, we believe that EBITDA provides
useful information regarding an entity's ability to incur and service debt.
Changes in our EBITDA may indicate changes in our free cash flows available to
incur and service debt and cover fixed charges. However, EBITDA is not intended
to represent cash flows for the period and should not be considered in isolation
or as a substitute for measures of performance determined in accordance with
generally accepted accounting principles. EBITDA, as we calculate it, is not
necessarily comparable to similarly captioned amounts of other companies.

     During the six months ended June 30, 1999, we:

     o  used net cash of $22.4 million in operating activities;

     o  used net cash of $21.0 million in investing activities; and

     o  provided net cash of $53.6 million from financing activities.

     During the six months ended June 30, 1998, we:

     o  used net cash of $14.2 million in operating activities;

     o  used net cash of $46.6 million in investing activities; and

     o  provided net cash of $48.0 million from financing activities.

     As a result of our historical and anticipated significant growth rate, our
historical operating results may not be comparable from period to period.

RESULTS OF OPERATIONS

Three Months Ended June 30,1999 Compared to the Three Months Ended June 30,
1998.

     Revenue. DBS services revenue for the three months ended June 30, 1999
totaled $31.2 million, which represented an 88% increase as compared to the same
period during the prior year. This increase was principally attributable to the
increase in the number of subscribers to our DIRECTV service, offset somewhat by
lower revenues per subscriber. The average number of subscribers during the
three-month period ended June 30, 1999 increased to approximately 276,100,
compared to approximately 135,100 during the comparable 1998 period. Average
monthly revenue per subscriber approximated $37 and $41 during those same
periods. The decrease in revenue per subscriber resulted primarily from a change
in sales mix toward lower priced services, as well as decreases in pay per view
and sports programming revenues.

                                       8



<PAGE>   11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION - CONTINUED


     Costs of DBS Services. Costs of DBS services increased $9.9 million, or
103%, to $19.6 million during the three-month period ended June 30, 1999. This
increase is consistent with the increase in the average number of subscribers
previously described. As a percentage of DBS services revenue, the costs of DBS
services increased to 62.9% during the three-month period ended June 30, 1999,
compared to 58.4% during the same period of 1998. This increase resulted largely
from a change in sales mix toward lower margin services and increased charges by
DIRECTV for satellite and ground service operations.

     System Operations. System operations costs totaled $4.5 million for the
three-month period ended June 30, 1999, a $2.1 million increase, or 89%, over
the comparable 1998 period. These costs rose as a result of the increased number
of field offices and related activity resulting from our continued acquisition
of rural DIRECTV markets, as well as from subscriber growth. System operations
expenses approximated 14.4% and 14.2% of total revenue during the three-month
periods ended June 30, 1999 and 1998, respectively. We expect that our system
operations expenses will increase as we continue to make acquisitions and open
additional offices. However, many of these expenses are fixed in nature, and we
do not expect that these expenses will increase in direct proportion to revenue.

     Sales and Marketing. Sales and marketing expenses totaled $13.6 million
during the three-month period ended June 30, 1999, an increase of $7.0 million
compared to the same 1998 period. Sales and marketing costs per new subscriber
activation approximated $355 and $300 during the three-month periods ended June
30, 1999 and 1998, respectively. The increase in sales and marketing expenses
resulted from:

     o  an 72% increase in the number of new subscriber activations during the
        three months ended June 30, 1999, as compared to the same period of
        1998;

     o  increased costs associated with free programming provided to new
        subscribers under certain DIRECTV national sales promotions;

     o  costs we experienced from our marketing efforts to convert Primestar
        subscribers to our DIRECTV service (see "-- Liquidity and Capital
        Resources"); and

     o  increased equipment and installation subsidies provided by us to our
        subscribers.

     We expect that our subscriber acquisition costs per new subscriber
activation may be as high as $400 during the remainder of 1999. To the extent
that competition for new subscribers intensifies and we decide to increase our
marketing and promotional efforts, these costs may be higher.

     General and Administrative. During the three-month period ended June 30,
1999, general and administrative expenses totaled $3.7 million, compared to $1.6
million during the comparable 1998 period. The increase in general and
administrative expenses resulted from the addition of administrative resources
necessary to support our growth. As a percentage of revenue, general and
administrative expenses increased to 11.8% during the three-month period ended
June 30, 1999, from 9.3% during the same period in 1998. While there can be no
assurance, we expect that our general and administrative expenses will decrease
as a percentage of revenue over time as these costs, which are partially fixed
in nature, are leveraged over increased subscribers and revenue.

     Earnings Before Interest, Taxes, Depreciation and Amortization, Non-Cash
Charges and Extraordinary Items. EBITDA for the three months ended June 30, 1999
totaled negative $10.0 million, compared to EBITDA of negative $3.4 million
during the three months ended June 30, 1998. This increase in negative EBITDA
principally resulted from the increases in sales and marketing activities and
related new subscriber activations previously described.

     Depreciation and Amortization. Depreciation and amortization expenses
increased $3.7 million to $9.1 million during the three months ended June 30,
1999, compared to $5.4 million during the three months ended June 30, 1998. This
increase primarily reflects the increased amortization of higher intangible
asset balances resulting from our acquisitions of rural DIRECTV markets.

     Interest Expense. Interest expense totaled $8.2 million during the three
months ended June 30, 1999 and $3.0 million during the same 1998 period. This
increase of $5.2 million primarily resulted from higher outstanding debt

                                       9





<PAGE>   12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION - CONTINUED

balances and an increase in our weighted-average interest rate resulting from
the issuance of our 12 3/8% Senior Subordinated Notes Due 2006 (12 3/8% Notes)
in July 1998.

Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998.

     Revenue. DBS services revenue for the six months ended June 30, 1999
totaled $60.0 million, which represented a 97% increase as compared to the same
period during the prior year. This increase was principally attributable to the
increase in the number of subscribers to our DIRECTV service, offset somewhat by
lower revenues per subscriber. The average number of subscribers in our rural
DIRECTV markets during the six-month period ended June 30, 1999 increased to
approximately 259,900, compared to approximately 122,300 during the comparable
1998 period. Average monthly revenue per subscriber approximated $38 and $42
during those same periods. The decrease in revenue per subscriber resulted
primarily from a change in sales mix toward lower priced services.

     Costs of DBS Services. Costs of DBS services increased $20.1 million, or
112%, during the six-month period ended June 30, 1999, to $38.0 million. This
increase is consistent with the increase in the average number of subscribers
previously described. As a percentage of DBS services revenue, the costs of DBS
services increased to 63.3% during the six-month period ended June 30, 1999,
compared to 58.8% during the same period of 1998. This increase resulted largely
from a change in sales mix toward lower margin services and increased charges by
DIRECTV for satellite and ground service operations.

     System Operations. System operations expenses totaled $8.8 million for the
six-month period ended June 30, 1999, a $4.6 million increase, or 111%, over the
comparable 1998 period. These costs rose as a result of the increased number of
field offices and related activity resulting from our continued acquisitions of
rural DIRECTV markets, as well as from subscriber growth. As a percentage of
total revenue, system operations expenses increased to 14.6% during the
six-month period ended June 30, 1999, from 13.5% during the same 1998 period.
The increase in system operations expenses as a percentage of total revenues
resulted primarily from the expansion of our national customer service center in
Kansas City.

     Sales and Marketing. Sales and marketing expenses totaled $25.5 million
during the six-month period ended June 30, 1999, an increase of $14.2 million
compared to the same 1998 period. Sales and marketing costs per new subscriber
activation approximated $370 and $295 during the six-month periods ended June
30, 1999 and 1998, respectively. The increase in sales and marketing expenses
resulted from:

     o  an 79% increase in the number of new subscriber activations during the
        six months ended June 30, 1999, as compared to the same period of 1998;

     o  increased costs associated with free programming provided to new
        subscribers under certain DIRECTV national sales promotions;

     o  costs we experienced from our marketing efforts to convert Primestar
        subscribers to our DIRECTV service (see "-- Liquidity and Capital
        Resources"); and

     o  increased equipment and installation subsidies provided by us to our
        subscribers.

     We expect that our subscriber acquisition costs per new subscriber
activation may be as high as $400 during the remainder of 1999. To the extent
that competition for new subscribers intensifies and we decide to increase our
marketing and promotional efforts, these costs may be higher.

     General and Administrative. During the six-month period ended June 30,
1999, general and administrative expenses totaled $6.6 million, compared to $2.7
million during the comparable 1998 period. As a percentage of total revenue,
general and administrative expenses increased to 11.0% during the six-month
period ended June 30, 1999, from 8.6% during 1998. These increases in general
and administrative expenses resulted from the addition of administrative
resources necessary to support our growth.

     Earnings Before Interest, Taxes, Depreciation and Amortization, Non-Cash
Charges and Extraordinary Items. EBITDA for the six months ended June 30, 1999
totaled negative $18.5 million, compared to EBITDA of negative $5.1 million
during the six months ended June 30, 1998. This increase in negative EBITDA
resulted from the increases in sales and marketing activities and related new
subscriber activations previously described.

                                       10



<PAGE>   13

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION - CONTINUED

     Depreciation and Amortization. Depreciation and amortization expenses
increased $7.6 million to $17.4 million during the six months ended June 30,
1999, compared to $9.8 million during the six months ended June 30, 1998. This
increase reflects the amortization of higher intangible asset balances resulting
from our acquisitions of rural DIRECTV markets.

     Interest Expense. Interest expense totaled $16.6 million during the six
months ended June 30, 1999 and $5.2 million during the same 1998 period. This
increase of $11.4 million resulted from higher outstanding debt balances and an
increase in our weighted-average interest rate resulting from the issuance of
our 12 3/8% Notes in July 1998.

LIQUIDITY AND CAPITAL RESOURCES

     Our operations require substantial capital for:

     o  acquisitions of rural DIRECTV markets;

     o  financing subscriber growth (including DBS equipment and installation
        subsidies and marketing and selling expenses);

     o  investments in, and maintenance of, field offices in our rural DIRECTV
        markets;

     o  financing infrastructure development costs necessary to support the
        growth of our business; and

     o  funding of start-up losses and other working capital requirements.

     Our capital expenditures, inclusive of acquisitions of rural DIRECTV
markets, totaled $37.3 million and $45.9 million during the six-month periods
ended June 30, 1999 and 1998, respectively. During those same periods, our net
cash used in operations totaled $22.4 million and $14.2 million, respectively.

     To date, our acquisitions, subscriber growth and operations have been
financed from borrowings under our bank facility, proceeds from our July 1998
offering of 12 3/8% Notes, proceeds from the issuance of capital stock,
contributions by our direct and indirect parent companies, and to a lesser
extent, the issuance of promissory notes to sellers of rural DIRECTV markets.

     During the six months ended June 30, 1999, our net cash flows from
financing activities totaled $53.6 million. This was comprised of:

     o  a capital contribution by Golden Sky DBS of approximately $95.7 million;

     o  net repayments of $32.0 million under Golden Sky Systems' bank credit
        facility;

     o  increased deferred financing costs of $1.4 million resulting from the
        amendment of our bank credit facility; and

     o  repayments of other debt totaling $8.6 million.

     During the six months ended June 30, 1998, our net cash flows from
financing activities totaled $48.0 million. This was comprised of $51.5 million
of net borrowings under our bank credit facility and other debt, less deferred
financing costs of $3.5 million.

Credit Facility

     We have a credit facility with a group of banks that provides for a $150.0
million line of credit to fund acquisitions and working capital requirements. Of
this amount, $35.0 million is in the form of a term loan facility and $115.0
million is in the form of a revolving credit facility, including a letter of
credit sub-limit of $40.0 million. As of June 30, 1999, we had (1) fully
utilized the entire $35.0 million of term loan availability, (2) utilized
approximately $20.6 million of the letter of credit sub-facility and (3) had no
outstanding borrowings under the revolving credit line. Availability under the
revolving credit line depends upon satisfaction of various financial and
operating covenants as well as minimum subscriber base requirements.

                                       11


<PAGE>   14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION - CONTINUED

     The term loan amortizes in specified quarterly installments from March 31,
2002 through maturity on December 31, 2005. Availability of revolving loan
borrowings decreases by specified amounts over the period from March 31, 2001
through maturity on September 30, 2005. Borrowings under the credit facility
bear interest at variable rates calculated on a base rate, which is either the
prime rate or LIBOR, plus an applicable margin, with reductions under some
circumstances, based on leverage.

13 1/2% Notes

     On February 19, 1999, Golden Sky DBS consummated an offering of 13 1/2%
senior discount notes. The offering resulted in net proceeds to Golden Sky DBS
of approximately $95.7 million (after initial purchasers' discount and other
offering expenses). The notes have an aggregate balance due at stated maturity
of $193.1 million. Cash interest on the notes will not accrue prior to March 1,
2004. Thereafter, cash interest on the notes will accrue at a rate of 13 1/2%
per annum and be payable in arrears on March 1 and September 1 of each year,
commencing September 1, 2004. The 13 1/2% Notes mature on March 1, 2007. Golden
Sky DBS contributed the net proceeds of the offering to us. We used $53.0
million of the contributed proceeds to repay existing revolving credit
indebtedness.

     We are not obligated for repayment of the notes and are restricted as to
our ability to make payments to Golden Sky DBS. However, Golden Sky DBS is
dependent on us for dividends or other cash distributions in amounts sufficient
to make the required payments.

Future Capital Requirements

     Our future capital requirements will depend upon a number of factors,
including the extent of our acquisition activities, the rate of our subscriber
growth and the working capital needs necessary to accommodate our anticipated
growth. We expect that increased investments in our administrative and computer
systems will be necessary to support our increased size and continued growth. We
currently subsidize a portion of the cost of DBS equipment and subscriber
installations. The extent of our future subsidies of DBS equipment may
materially affect our liquidity and capital requirements. In addition, our
favorable working capital position relies, in part, upon the existing terms of
our agreements with the NRTC and the timing of required payments to the NRTC.
Excluding costs associated with the acquisition of additional rural DIRECTV
markets, we anticipate that our total capital expenditures, primarily related to
expanding facilities and information systems for our corporate office, customer
service operations and field offices, will approximate $5.0 million during the
year ending December 31, 1999. During 1999, we expect to continue to expand our
marketing efforts in order to increase our subscriber penetration. As of June
30, 1999, we had cash on hand of approximately $14.7 million. As of the same
date, we had approximately $43.3 million available for borrowing under Golden
Sky Systems' revolving credit facility. While we cannot assure you, we believe
our existing cash balances and amounts available for borrowing under the credit
facility will be sufficient to finance our operations during the remainder of
1999.

     Since December 31, 1998, we have acquired eight rural DIRECTV markets.
These markets include approximately 124,000 households and 18,100 subscribers.
The aggregate purchase price for these recent acquisitions, excluding direct
acquisition costs, was approximately $34.5 million. We are continually
evaluating acquisition prospects and expect to enter into additional acquisition
agreements and complete further acquisitions of rural DIRECTV markets consistent
with our growth strategy. We currently have non-binding letters of intent to
acquire three additional rural DIRECTV markets for aggregate consideration of
approximately $32.5 million in cash. These markets include 161,000 households
and 10,200 subscribers. Completion of these acquisitions is contingent upon
negotiation of satisfactory definitive agreements and other customary conditions
to closing. We cannot assure you that we will complete these or any other future
acquisitions.

     As noted above, our operating costs and working capital requirements are
partly a function of our rights under our agreements with the NRTC and the
NRTC's agreement with Hughes. The NRTC is currently in litigation with Hughes
and its subsidiary DIRECTV over the scope and extent of certain of these rights.
See "Item 5. Other Events." While we are not a party to the suit, the outcome
could have a material adverse effect on the scope and duration of our right to
provide DIRECTV programming in our rural markets, our capital requirements and
our costs of operations. If 12




<PAGE>   15

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION - CONTINUED


determined adversely, this matter could have a material adverse effect upon our
business, financial condition and results of operations.

     Recently, we have experienced increased subscriber acquisition costs due to
greater competition for subscribers. In April 1999, Hughes acquired Primestar,
Inc.'s medium-power broadcast satellite business and high-powered DBS assets.
Subsequent to Hughes' announcement of its proposed acquisition of Primestar,
EchoStar began to offer increased promotional and other incentives to Primestar
customers, as well as to EchoStar retailers, to entice the conversion of
Primestar subscribers to EchoStar's competing DBS service, the DISH Network.
EchoStar is the second largest provider of DBS service in the United States.
Consequently, we have increased our marketing efforts with respect to Primestar
subscribers. Our increased Primestar conversion efforts include, among other
things, discounted equipment and installation prices and higher sales
commissions. We are unable to estimate the number of Primestar subscribers we
may be able to convert to our DIRECTV service. Our subscriber acquisition costs
also have increased during 1999 as a result of recent national DIRECTV
promotions that offer new subscribers one to three months of free programming
services. We expect that our subscriber acquisition costs may approximate as
much as $400 or more on a per new subscriber basis, including the incremental
costs associated with converting existing Primestar subscribers, during the
remainder of 1999.

     We are highly leveraged and expect to increase our leverage as we pursue
further acquisitions of rural DIRECTV markets by borrowing additional funds,
under our credit facility or otherwise, and by the issuance of additional
acquisition-related notes payable. The approximately $9.8 million of seller
notes payable outstanding at June 30, 1999 mature as follows: $2.9 million in
2000, $3.0 million in 2001, $2.9 million in 2002, and $1.0 million in 2003.

     There may be a number of factors, some of which may be beyond our control
or ability to predict, that could require us to raise additional capital. These
factors include possible acquisitions of additional rural DIRECTV markets,
increased costs associated with potential future acquisitions of rural DIRECTV
markets, unexpected increases in operating costs and expenses, subscriber growth
in excess of that currently expected, or an increase in the cost of acquiring
subscribers. Additional financing also may be required to meet our debt service
requirements. There can be no assurance that additional financing will be
available on terms acceptable to us, or at all, and if available, that the
proceeds of this financing would be sufficient to enable us to meet our debt
service requirements or completely execute our business plan.

      On July 9, 1999, Golden Sky DBS filed a registration statement with the
Securities and Exchange Commission for an initial public offering of its common
stock. We can provide no assurance with respect to the proceeds that may result
from the initial public offering of our common stock, or that the offering will
be consummated.

YEAR 2000

     We are in the process of assessing the impact of the year 2000 issue on our
computer systems and operations. Many existing computer systems and applications
currently use two-digit date fields to designate a year. Date sensitive systems
and applications may recognize the year 2000 as 1900 or not at all. The
inability to recognize or properly treat the year 2000 issue may cause computer
systems and applications to fail to process critical financial and operational
information correctly. This issue affects virtually all organizations and can be
very costly and time consuming to correct.

     We have reviewed the year 2000 compliance of our internal systems and
believe that these systems are year 2000 compliant. However, we cannot assure
you that all of the software products that we currently use are in fact year
2000 compliant. We have engaged the services of a consultant to assist in our
assessment of the impact of the year 2000 issue on our computerized systems and
operations. Currently, we believe our costs to successfully mitigate the year
2000 issue will approximate $200,000.

     We rely heavily on contracted data processing services from the NRTC and
DIRECTV for customer service, billing, remittance processing and distribution of
our direct broadcast satellite programming services under our

                                       13




<PAGE>   16

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION - CONTINUED


contractual relationship with the NRTC. The NRTC has informed us that the
majority of the computer systems that provide these services are currently year
2000 compliant, and that the remainder of these systems will be compliant by
September 1999. The NRTC has further informed us that DIRECTV has achieved year
2000 compliance for its billing and authorization systems. In addition to the
NRTC and DIRECTV, we rely heavily on other parties, like suppliers of DBS
equipment, for the successful conduct of our business. We are in the process of
conducting surveys of all of our significant vendors and other pertinent
relationships to assess their readiness for year 2000 processing.

     If our plan is not successful or is not completed in a timely manner, the
year 2000 issue could significantly disrupt our ability to transact business
with our customers and suppliers, and could have a material adverse effect on
our business, financial condition and results of operations. Any failure by the
NRTC, DIRECTV or other companies on which we depend to achieve year 2000
compliance by the end of 1999 could have a material adverse effect on our
business, financial condition and results of operations.

     To date, we have not implemented a year 2000 contingency plan. Contingency
plans for mission critical systems primarily involve development and testing of
manual procedures or the use of alternate systems. Viable contingency plans are
difficult to develop for some third party failures, especially in high-
technology industries like the DBS industry, due to the lack of alternate
suppliers. We will continue to monitor the progress of third party remediation
efforts and contingency plans. Substantial completion of our year 2000
contingency plan is expected in September 1999. There can be no assurance that
any contingency plans we may develop will successfully mitigate any adverse
effects that the year 2000 issue may have on our business, financial condition
and results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Information about our market sensitive financial instruments is provided
below and constitutes a "forward-looking statement." Our major market risk
exposure is changing interest rates under our credit facility. Our policy is to
manage interest rates through the use of floating rate debt. Our objective in
managing our exposure to interest rate changes is to limit the impact of
interest rate changes on earnings and cash flow and to lower our overall
borrowing costs.

     We currently have $35.0 million of outstanding borrowings under the
variable rate term loan portion of our credit facility. This loan is to be
repaid in 15 consecutive quarterly installments of approximately $88,000,
beginning on March 31, 2002, with approximately $33.7 million due as a final
payment at maturity on December 31, 2005. Interest on the loan is calculated on
a base rate, which is either the lender's prime rate or LIBOR, plus an
applicable margin.

     At December 31, 1998, we had $32.0 million of borrowings outstanding under
the $115.0 million revolving loan commitment of its credit facility. Interest on
revolving loan borrowings also is calculated on a base rate, which is either the
lenders' prime rate or LIBOR, plus an applicable margin. All outstanding
borrowings under the revolving loan commitment were repaid in February 1999 from
the capital contribution by Golden Sky DBS of net proceeds of its 13 1/2% Notes.
As of June 30, 1999, no borrowings were outstanding under the credit facility's
revolving loan commitment. Availability of revolving loan borrowings under the
credit facility reduces by specified amounts quarterly from March 31, 2001
through maturity on September 30, 2005.

                                       14




<PAGE>   17



                           PART II - OTHER INFORMATION

ITEM 5.  OTHER INFORMATION

     We have the exclusive right to distribute certain DIRECTV programming to
homes in 55 rural territories within the continental United States through
contractual arrangements with the National Rural Telecommunications Cooperative
(the "NRTC"). The NRTC obtained the right to distribute DIRECTV programming in
approximately 250 rural markets in the United States through a 1992 agreement
with Hughes Communications ("Hughes"), the parent of DIRECTV (the "DBS
Distribution Agreement").

     In May 1999, Hughes acquired United States Satellite Broadcasting Company,
Inc. ("USSB"). Prior to its acquisition by Hughes, USSB operated a DBS service
providing 28 channels of video programming consisting of multiple channels of
HBO, Showtime, Cinemax and The Movie Channel. The video programming provided by
USSB was complementary to DIRECTV's DBS service. After completing its
acquisition of USSB, Hughes combined its DIRECTV business with USSB's assets to
expand its programming lineup through the addition of HBO, Showtime, Cinemax and
The Movie Channel.

     On June 3, 1999, the NRTC filed suit against DIRECTV and Hughes
(collectively "DIRECTV") seeking a court order requiring DIRECTV to provide NRTC
members and affiliates with HBO, Showtime, Cinemax and The Movie Channel
programming for exclusive distribution in the NRTC's rural markets and a
temporary restraining order and preliminary injunction preventing DIRECTV from
providing, marketing, selling or billing for this programming in the NRTC's
rural markets. On June 17, 1999, the court denied the NRTC's request for a
temporary restraining order and preliminary injunction. On July 12, 1999, the
NRTC amended its complaint to seek a declaratory judgment that, if the court
determines that the NRTC does not have the exclusive right to provide HBO,
Showtime, Cinemax and The Movie Channel programming in its rural markets, then
the NRTC has the non-exclusive right to distribute this programming in its rural
markets. In July 1999, DIRECTV filed a motion to dismiss this portion of the
NRTC's complaint on the grounds that it fails to state a claim upon which relief
may be granted because DIRECTV is in the process of negotiating USSB programming
distribution rights with the NRTC and the DBS Distribution Agreement requires
the parties to arbitrate any claims regarding the terms and conditions of such
rights.

     In July 1999, DIRECTV filed a counterclaim against the NRTC. In the
counterclaim, DIRECTV seeks the following declaratory judgments:

     1.  That DBS-1, the first satellite launched by Hughes, is the only
         relevant satellite for determining the expiration date of the NRTC's
         rights (other than its right of first refusal) under the DBS
         Distribution Agreement; and

     2.  That the DIRECTV-1R satellite that Hughes intends to launch in
         September 1999 is a successor satellite to DBS-1 within the meaning of
         the DBS Distribution Agreement; that DIRECTV appropriately and
         prudently exercised its discretion, including its sole discretion to
         determine when and under what conditions a successor satellite should
         be launched, in determining to launch DIRECTV-1R in order to prevent a
         disruption in service; that the NRTC's right of first refusal under the
         DBS Distribution Agreement will be based on the satellite expiration
         date of DBS-1; and that the NRTC has no right to programming services
         on more than 20 channels of transponder capacity pursuant to its right
         of first refusal.

     A trial date has not been set on the merits of this lawsuit. While Golden
Sky is not a party to the suit, the outcome could have a material adverse effect
on the scope and duration of our right to provide DIRECTV programming in our
rural markets and our costs of operations. If determined adversely, this matter
could have a material adverse effect upon our business, financial condition and
results of operations.

                                       15



<PAGE>   18



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits.


         10.1    Amendment and Waiver, dated as of June 14, 1999, among Golden
                 Sky Holdings, Inc., Golden Sky Systems, Inc., various banks,
                 Paribas (formerly known as Banque Paribas), as Syndication
                 Agent, Fleet National Bank, as Administrative Agent and General
                 Electric Capital Corporation, as Documentation Agent
                 (incorporated by reference to Exhibit 10.24 to Golden Sky DBS,
                 Inc.'s Registration Statement on Form S-4 (Commission File No.
                 333-76413) which became effective on July 28, 1999).

         27.1    Financial Data Schedule.

(b)      Reports on Form 8-K

         No reports on Form 8-K were filed during the quarter ended June 30,
         1999.

                                       16



<PAGE>   19



                                   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.


                                       GOLDEN SKY SYSTEMS, INC.

                                       By:  /s/ John R. Hager
                                          --------------------------------------
                                                John R. Hager
                                                Chief Financial Officer
                                                (Principal Financial and
                                                Accounting Officer)

Date:    August 13, 1999


                                       17


<PAGE>   20


                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>

        EXHIBIT
        NUMBER   DESCRIPTION
        -------  -----------

<S>              <C>
         10.1    Amendment and Waiver, dated as of June 14, 1999, among Golden
                 Sky Holdings, Inc., Golden Sky Systems, Inc., various banks,
                 Paribas (formerly known as Banque Paribas), as Syndication
                 Agent, Fleet National Bank, as Administrative Agent and General
                 Electric Capital Corporation, as Documentation Agent
                 (incorporated by reference to Exhibit 10.24 to Golden Sky DBS,
                 Inc.'s Registration Statement on Form S-4 (Commission File No.
                 333-76413) which became effective on July 28, 1999).

         27.1    Financial Data Schedule.
</TABLE>