<PAGE>


                       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       December 31, 1998
                               ------------------------------

                                       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 000-22839
                                              -----------

                             Globecomm Systems Inc.
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           Delaware                                    11-3225567
-------------------------------------------------------------------------------
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)

  45 Oser Avenue, Hauppauge, New York                                 11788
-------------------------------------------------------------------------------
(Address of principal executive offices)                           (Zip Code)

                                 (516) 231-9800
               --------------------------------------------------
               Registrant's telephone number, including area code



       -----------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

         Indicate by check [X] 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
   -----    -----

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 9,065,958 shares of
the Company's Common Stock, $.001 par value, were outstanding as of February 8,
1999.


                                       1
<PAGE>



                             GLOBECOMM SYSTEMS INC.

                      Index to December 31, 1998 Form 10-Q


                                                                         Page
                                                                         ----

                        Part I -- Financial Information

Item 1.     Financial Statements......................................     3 
                                                                          
            Consolidated Balance Sheets -- December 31, 1998                
              and June 30, 1998.......................................     3
                                                                          
            Consolidated Statements of Operations -- Three and Six          
              Month Periods Ended December 31, 1998 and 1997..........     5
                                                                          
            Consolidated Statement of Changes in Stockholders'            
              Equity -- Six Month Period Ended December 31, 1998......     6
                                                                          
            Consolidated Statements of Cash Flows --                       
              Six Month Periods Ended December 31, 1998 and 1997......     7
                                                                          
            Notes to Consolidated Financial Statements................     8
                                                                          
Item 2.  Management's Discussion and Analysis of                          
              Financial Condition and Results of Operations...........    11
                                                                          
Item 3.  Quantitative and Qualitative Disclosures About Market Risk...    21
                                                                          


                          Part II -- Other Information
                                                                          
Item 1.     Legal Proceedings.........................................    22
                                                                          
Item 2.     Changes in Securities and Use of Proceeds.................    22
                                                                          
Item 3.     Defaults Upon Senior Securities...........................    22
                                                                          
Item 4.     Submission of Matters to a Vote of Security Holders.......    22
                                                                          
Item 5.     Other Information.........................................    22
                                                                          
Item 6.     Exhibits and Report on Form 8-K...........................    23
                                                                          
            Signatures................................................    27
                                                                        

                                       2
<PAGE>



                        PART I -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                             GLOBECOMM SYSTEMS INC.
                          CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS EXCEPT SHARE DATA)


                                                   DECEMBER 31,      JUNE 30,
                                                       1998            1998
                                                 ------------------------------
                                                    (UNAUDITED)        (1)
 Assets
 Current assets:
    Cash and cash equivalents                         $16,363        $21,342
    Restricted cash                                     4,787          4,416
    Accounts receivable                                18,180         18,017
    Inventories, net                                    2,898          1,583
    Prepaid expenses and other current assets             853            635
                                                 ------------------------------
 TOTAL CURRENT ASSETS                                  43,081         45,993

 Fixed assets, net                                     10,133          9,963
 Investments                                            3,652          2,093
 Other assets                                             293            295
                                                 ------------------------------
 TOTAL ASSETS                                         $57,159        $58,344
                                                 ==============================

                            See accompanying notes.



                                       3
<PAGE>




                             GLOBECOMM SYSTEMS INC.
                    CONSOLIDATED BALANCE SHEETS (CONTINUED)
                        (IN THOUSANDS EXCEPT SHARE DATA)

                                                       DECEMBER 31,  JUNE 30,
                                                          1998         1998
                                                      -------------------------
                                                       (UNAUDITED)     (1)

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
   Accounts payable                                      $15,004      $13,042
   Accrued payroll and related fringe benefits               414          632
   Accrued commissions                                       144          216
   Other accrued expenses and current liabilities            930          422
   Capital lease obligations                                   1           18
                                                      -------------------------
TOTAL CURRENT LIABILITIES                                 16,493       14,330
                                                      =========================

COMMITMENTS

STOCKHOLDERS' EQUITY:
    Preferred stock, $.001 par value; 3,000,000 shares
      authorized, shares issued: none at               
      December 31, 1998 and June 30, 1998                     --           --
    Common stock, $.001 par value; shares 
      authorized: 22,000,000; shares 
      issued: 9,165,908 at December 31, 1998 
      and June 30, 1998                                        9            9
    Treasury stock, at cost, 114,200 shares at 
      December 31, 1998 and none at June 30, 1998           (545)          --
    Additional paid-in capital                            50,567       50,530
    Accumulated deficit                                   (9,365)      (6,525)
                                                      -------------------------
TOTAL STOCKHOLDERS' EQUITY                                40,666       44,014
                                                      -------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                 $57,159      $58,344
                                                      =========================

                            See accompanying notes.

(1)  The balance sheet at June 30, 1998 has been derived from the audited
     financial statements at that date but does not include all of the
     information and footnotes required by generally accepted accounting
     principles for complete financial statements.



                                       4
<PAGE>


                             GLOBECOMM SYSTEMS INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
           (UNAUDITED; IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)


<TABLE>
<CAPTION>
                                        THREE MONTHS ENDED          SIX MONTHS ENDED
                                     DECEMBER 31, DECEMBER 31,   DECEMBER 31, DECEMBER 31,
                                         1998         1997          1998         1997
                                    --------------------------   -------------------------
<S>                                 <C>           <C>            <C>           <C>       
Revenues                            $   11,882    $    16,269    $   25,175    $   30,860
Costs of revenues                       10,352         13,902        22,123        26,821
                                    --------------------------   -------------------------
Gross profit                             1,530          2,367         3,052         4,039
                                    --------------------------   -------------------------

Operating expenses:
     Selling and marketing               1,293            966         2,324         1,797
     Research and development              259            304           550           584
     General and administrative          1,366          1,153         2,656         2,241
     Terminated acquisition               --             --             972          --
                                    --------------------------   -------------------------
Total operating expenses                 2,918          2,423         6,502         4,622
                                    --------------------------   -------------------------

Loss from operations                    (1,388)           (56)       (3,450)         (583)

Interest income, net                       272            379           610           643
                                    --------------------------   -------------------------

Net (loss) income                   $   (1,116)   $       323    $   (2,840)   $       60
                                    ==========================   =========================

Basic (loss) earnings per share     $    (0.12)   $      0.04    $    (0.31)   $     0.01
                                    ==========================   =========================
Diluted (loss) earnings per share   $    (0.12)   $      0.03    $    (0.31)   $     0.01
                                    ==========================   =========================

Weighted Average Shares:
     Basic                           9,092,183      9,078,256     9,126,687     7,954,386
                                    ==========================   =========================
     Diluted                         9,092,183     10,194,301     9,126,687     9,074,131
                                    ==========================   =========================
</TABLE>

                            See accompanying notes.


                                       5
<PAGE>


                             GLOBECOMM SYSTEMS INC.
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                           (UNAUDITED; IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                       ADDITIONAL                      TOTAL
                                 COMMON STOCK        TREASURY STOCK      PAID-IN     ACCUMULATED   STOCKHOLDERS'
                              SHARES     AMOUNT    SHARES     AMOUNT     CAPITAL       DEFICIT         EQUITY
                             -------------------------------------------------------------------------------------
<S>                           <C>         <C>      <C>      <C>        <C>           <C>            <C>    
Balance at June 30,1998         9,166       $ 9        --     $   --     $50,530       $(6,525)       $44,014
                                           
Options granted to employees               
   and directors                                                              37                           37
Purchase of treasury stock       (114)                114       (545)                                    (545)
Net loss                                                                                (2,840)        (2,840)
                             -------------------------------------------------------------------------------------
Balance at December 31, 1998    9,052       $ 9       114     $ (545)    $50,567       $(9,365)       $40,666
                             =====================================================================================
</TABLE>
                                       

                            See accompanying notes.


                                       6
<PAGE>




                             GLOBECOMM SYSTEMS INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                         SIX MONTHS ENDED
                                                                                            DECEMBER 31,
                                                                                     1998                 1997
                                                                          -----------------------------------------
                                                                                             (UNAUDITED)
<S>                                                                               <C>                  <C>     
     NET (LOSS) INCOME                                                             $ (2,840)            $     60
                                                                                                     
     OPERATING ACTIVITIES:                                                                           
     Adjustments to reconcile net (loss) income to cash used in operating                            
          activities:                                                                                
          Depreciation and amortization                                                 779                  329
          Amortization of organization costs                                             26                   27
          Stock compensation expense                                                     37                   37
          Changes in operating assets and liabilities:                                               
              Accounts receivable                                                      (163)             (10,070)
              Inventories, net                                                       (1,315)               1,179
              Prepaid expenses and other current assets                                (218)                (436)
              Other assets                                                              (24)                 794
              Accounts payable                                                        1,962               (1,846)
              Accrued payroll and related fringe benefits                              (218)                 128
              Accrued commissions and other accrued expenses                            436                   14
                                                                          -----------------------------------------
     NET CASH USED IN OPERATING ACTIVITIES                                           (1,538)              (9,784)
                                                                          -----------------------------------------

     INVESTING ACTIVITIES:
     Purchases of investments                                                        (1,559)                (606)
     Purchases of fixed assets                                                         (949)              (2,005)
     Restricted cash                                                                   (371)              (2,017)
                                                                          -----------------------------------------
     NET CASH USED IN INVESTING ACTIVITIES                                           (2,879)              (4,628)
                                                                          -----------------------------------------

     FINANCING ACTIVITIES:
     Proceeds from initial public offering of common stock, net                          --               27,904
     Proceeds from exercise of warrants                                                  --                   46
     Proceeds from exercise of stock options                                             --                  201
     Purchases of treasury stock                                                       (545)                  --
     Payments under capital leases                                                      (17)                 (28)
                                                                          -----------------------------------------
     NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                               (562)              28,123
                                                                          -----------------------------------------

     NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                            (4,979)              13,711
     CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                21,342                5,164
                                                                          =========================================
     CASH AND CASH EQUIVALENTS AT END OF PERIOD                                    $ 16,363             $ 18,875
                                                                          =========================================

     SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid for interest                                                        $      1             $      4
                                                                          =========================================
</TABLE>

                            See accompanying notes.



                                       7
<PAGE>



                             Globecomm Systems Inc.
                   Notes to Consolidated Financial Statements
                               December 31, 1998
                                  (Unaudited)

1.       Basis of Presentation

         The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles and reflect all
adjustments consisting of normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the results for the
periods shown. The results of operations for such periods are not necessarily
indicative of the results expected for the full fiscal year or for any future
period. 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 revenue and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.

         The accompanying financial statements should be read in conjunction
with the audited financial statements of the Company for the fiscal year ended
June 30, 1998 and the notes thereto contained in the Company's Annual Report on
Form 10-K, filed with the Securities and Exchange Commission on September 28,
1998.

2.       Summary of Significant Accounting Policies

Basic and Diluted (Loss) Earnings Per Share

         During the year ended June 30, 1998, Financial Accounting Standards
Board's Statement of Financial Accounting Standard No. 128 ("Statement 128"),
"Earnings Per Share" became effective. Statement 128 replaced the previously
reported primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share.

         Basic loss per share for the three and six-month periods ended
December 31, 1998 are based on the weighted average number of common shares
outstanding during the period. Diluted loss per share for the three and
six-month periods ended December 31, 1998 excluded the effect of stock options
and warrants as the effect of inclusion would have been anti-dilutive as the
Company reported a net loss for the periods then ended.

         Basic earnings per share for the three and six-month periods ended
December 31, 1997 are based on the weighted average number of common shares
outstanding during the period.

3.       Treasury Stock

         On September 1, 1998, the Company's Board of Directors authorized the
repurchase of up to $2.0 million of the Company's outstanding common stock. The
repurchase program allows for purchases to be made intermittently, through open
market and privately negotiated transactions. Timing, price, quantity and the
manner of purchase are at the discretion of the Company's management subject to
compliance with the applicable securities laws. Any repurchased shares under
the repurchase program will be used for general corporate purposes. As of
December 31, 1998, the Company had repurchased approximately 114,200 shares of
the Company's common stock under the repurchase program for an aggregate
purchase price of approximately $545,000.



                                       8
<PAGE>

4.       Segment Information

         The Company operates through two business segments. Its Ground Segment
Systems and Networks Segment, through Globecomm Systems Inc., is engaged in the
design, assembly and installation of satellite ground segment systems and
networks which support a wide range of satellite communications applications,
including fixed, mobile and direct broadcast services as well as certain
military applications. The Company's ground segment systems typically consist
of an earth station and ancillary subsystems such as microwave links for
back-haul of traffic to a central office or generators for emergency power
restoral. An earth station is an integrated system consisting of antennas,
transmitting and receiving equipment, modulation/demodulation equipment,
monitor and control systems and voice, data and video network interface
equipment. The Company's ground segment networks typically are comprised of two
or more ground segment systems communicating with a satellite and
interconnected with a terrestrial network. Its Data Communications Services
Segment, through the NetSat Express, Inc. ("NetSat Express") subsidiary, is
engaged in providing high-speed, satellite-delivered data communications to
developing markets worldwide. NetSat Express is currently providing Internet
access to customers who have limited or no access to terrestrial network
infrastructures capable of supporting the economical delivery of such services.

         The Company's reportable segments are business units that offer
different products and services. The reportable segments are each managed
separately because they provide distinct products and services. The basis for
the segment allocation set forth below is the same basis management uses for
internal reporting purposes.

         The following is the business segment information as of and for the
six-month periods ended December 31, 1998 and 1997:

<TABLE>
<CAPTION>


                                                THREE MONTHS ENDED              SIX MONTHS ENDED
                                                   DECEMBER 31,                   DECEMBER 31,
                                                  1998       1997              1998         1997
                                             ------------------------       ------------------------
                                                                            (UNAUDITED; IN THOUSANDS)
<S>                                                                          <C>          <C>
                                                                           
Revenues:                                                                  
   Ground Segment Systems and Networks ..      $11,531      $16,149           $ 24,482    $ 30,652
   Data Communications Services .........          351          120                693         208
                                             ------------------------       ------------------------
Total revenues ..........................      $11,882      $16,269           $ 25,175    $ 30,860
                                             ========================       ========================
                                                                           
(Loss) income from operations:                                             
   Ground Segment Systems and Networks ..      $  (862)     $   263           $ (2,469)   $    194
   Data Communications Services .........         (526)        (319)              (981)       (777)
Interest income, net ....................          272          379                610         643
                                             ------------------------       ------------------------
Net (loss) income .......................      $(1,116)     $   323           $ (2,840)   $     60
                                             ========================       ========================
                                                                           
                                                                           
Depreciation and amortization:                                             
   Ground Segment Systems and Networks ..      $   314      $   167           $    629    $    318
   Data Communications Services .........           75            6                150          11
                                             ------------------------       ------------------------
Total depreciation and amortization .....      $   389      $   173           $    779    $    329
                                             ========================       ========================
                                                                           
Expenditures for long-lived assets:                                        
   Ground Segment Systems and Networks ..      $   759      $   587           $    876    $  1,875
   Data Communications Services .........           69            6                 73         130
                                             ------------------------       ------------------------
Total expenditures for long-lived assets.      $   828      $   593           $    949    $  2,005
                                             ========================       ========================
</TABLE>                                  



                                       9
<PAGE>


4.       Segment Information (continued)


                                           DECEMBER 31, JUNE 30,
                                              1998        1998
                                           (UNAUDITED)
                                           ---------------------
                                              (IN THOUSANDS)
Assets:
  Ground Segment Systems and Networks...... $ 60,690    $60,894
  Data Communications Services.............    1,969      1,169
  Intercompany eliminations................   (5,500)    (3,719)
                                           ---------------------
Total assets............................... $ 57,159    $58,344
                                           =====================




                                      10
<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the actual
events or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below as well as those discussed in other
filings made by the Company with the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q.

OVERVIEW

         The Company designs, assembles and installs satellite ground segment
systems and networks which support a wide range of satellite communications
applications, including fixed, mobile and direct broadcast services as well as
certain military applications. The Company's customers include prime
communications infrastructure contractors, government-owned PTTs, other
telecommunications carriers, producers and distributors of news and
entertainment content and other corporations. The Company's ground segment
systems typically consist of an earth station and ancillary subsystems such as
microwave links for back-haul of traffic to a central office or generators for
emergency power restoral. An earth station is an integrated system consisting
of antennas, transmitting and receiving equipment, modulation/demodulation
equipment, monitor and control systems and voice, data and video network
interface equipment. The Company's ground segment networks typically comprise
of two or more ground segment systems communicating with a satellite and
interconnected with a terrestrial network. NetSat Express, Inc. ("NetSat
Express"), the Company's subsidiary, is engaged in providing high-speed,
satellite-delivered data communications to developing markets worldwide. NetSat
Express is currently providing Internet access to customers who have limited or
no access to terrestrial network infrastructures capable of supporting the
economical delivery of such services.

RESULTS OF OPERATIONS

Three and Six Month Periods Ended December 31, 1998 and 1997

         Revenues. Revenues, which were primarily derived from sales of ground
segment systems and networks, decreased by $4.4 million, or 27.0%, to $11.9
million for the three month period ended December 31, 1998 and decreased by
$5.7 million, or 18.4%, to $25.2 million for the six-month period ended
December 31, 1998 compared to $16.3 million and $30.9 million for the
comparable three and six-month periods ended December 31, 1997, respectively.
The decrease relates primarily to the decrease in the shipment and /or
completion of ground segment systems and networks contracts as a result of a
decline in the bookings of several larger contract orders due to the continuing
difficult economic conditions in the Pacific Rim, Russia and other
international markets.

         Gross Profit. Gross profit decreased by $0.8 million, or 35.4%, to
$1.5 million for the three month period ended December 31, 1998 and decreased
by $1.0 million, or 24.4%, to $3.1 million for the six-month period ended
December 31, 1998 compared to $2.4 million and $4.0 million for the comparable
three and six-month periods ended December 31, 1997, respectively. The decrease
was primarily due to the decrease in the shipment and/or completion of ground
segment systems and networks contracts. Gross profit as a percentage of
revenues decreased from 14.5% to 12.9% and decreased from 13.1% to 12.1% for
the three and six-month periods ended December 31, 1998, respectively, as
compared to the three and six-month periods ended December 31, 1997,
respectively. The decrease was due primarily to a significant negotiated
contract in the second quarter of fiscal 1998, which resulted in a higher gross
profit margin.

         Selling and Marketing. Selling and marketing expenses increased by
$0.3 million, or 33.9%, to $1.3 for the three month period ended December 31,
1998 and increased by $0.5 million, or 29.3%, to $2.3 million for the six-
month period ended December 31, 1998 compared to $1.0 million and $1.8 million
for the comparable three and six-month periods ended December 31, 1997,

                                      11
<PAGE>

respectively. The increase was primarily due to the increase in marketing and
bid and proposal efforts in the Americas, as well as the related increase in
sales and marketing personnel.

         Research and Development. Research and development expenses remained
relatively consistent at $0.3 million and $0.6 million for the three and
six-month periods ended December 31, 1998 and 1997.

         General and Administrative. General and administrative expenses
increased by $0.2 million, or 18.5%, to $1.4 million for the three-month period
ended December 31, 1998 from $1.2 million for the same period in the prior year
and increased as a percentage of revenues to 11.5% from 7.1% for the same
period in the prior year. For the six-month period ended December 31, 1998,
general and administrative expenses increased by $0.4 million, or 18.5%, to
$2.7 million in comparison to $2.2 million for the same period in the prior
year and increased as a percentage of revenues to 10.6% from 7.3% for the same
period in the prior year. The increase in general and administrative expenses
for the three and six-month period resulted from an increase in personnel and
related expenses.

         Terminated Acquisition. Terminated acquisition costs of approximately
$1.0 million for the six-month period ended December 31, 1998 relate to certain
legal, accounting and other expenses associated with the termination of a
proposed acquisition of a mobile satellite communications business during the
first quarter ended September 30, 1998 due to the determination that such
acquisition was not in the best interest of the Company's stockholders.

         NetSat Express. The Company's consolidated subsidiary NetSat Express
experienced an increase in revenues by $111,000, or 92.7%, to $231,000 for the
three-month period ended December 31, 1998 and increased by $277,000, or 133.0%
to $485,000 for the six-month period compared to $120,000 and $208,000 for the
comparable three and six-month periods ended December 31, 1997, respectively.
The increase resulted from the implementation of Access Plus services in
January 1998, as well as an increase in the number of PC Vector equipment sales
and related activations. The loss from operations associated with NetSat
Express increased by $0.2 million, or 64.4%, to $0.5 for the three month period
ended December 31, 1998 and increased by $0.2 million, or 26.3%, to $1.0
million for the six-month period ended December 31, 1998 compared to $0.3
million and $0.8 million for the comparable three and six-month periods ended
December 31, 1997, respectively. The increase was primarily associated with the
implementation of operating NetSat's Network Operations Center on a 24 by 7
basis, an increase in general and administrative expenses and an increase in
selling and marketing efforts for NetSat's Access Plus services.

         Year 2000. The Company is in the process of assessing the anticipated
costs, problems and uncertainties associated with Year 2000 issues. The Company
has initiated a Year 2000 Compliance Plan which includes information technology
("IT") and non-IT systems requiring or which may require modification or
conversion, and supplier, facilities and other operations (such as financial
and banking systems) readiness. The Company is in the process of or has
completed reviews of each of the above areas including identification and
assessment of potential Year 2000 issues, identification and contact with key
suppliers or institutions based on their relative risks associated with product
integrity and continued product deliveries and service. Until such reviews are
complete, the Company will not be able to completely evaluate whether its IT
and non-IT systems will need to be modified or replaced. The Company has
incurred only nominal costs to date and estimates at this time that the total
Year 2000 costs will not be material. The Company is continuing its assessment
which may necessitate refinement of its estimate over time. There can be no
assurance, however, that costs associated with the Company's Year 2000
Compliance Plan will not be higher than anticipated which could have a material
adverse effect on the Company's business, results of operations and financial
condition.

         In association with the Company's Year 2000 Compliance Plan, the
Company is currently developing contingency plans for certain critical
applications. These contingency plans may include, among other actions, manual
workarounds, increasing inventories and adjusting staffing strategies. There
can be no assurance such contingency plans, once developed, will be adequate.



                                      12
<PAGE>

         Since the Company's Year 2000 Compliance Plan is ongoing, all
potential Year 2000 issues have not yet been identified. Therefore the
potential impact of these issues on the Company's financial condition and
results of operations can not be determined at this time. If IT and non-IT
systems used by the Company or its suppliers, the product integrity of products
provided to the Company by its suppliers, or the software applications or
hardware used in systems integrated and sold by the Company, fail or experience
significant difficulties related to the Year 2000, the Company's results of
operations and financial condition could be materially affected. In addition,
there can be no assurance that equipment operated by third parties that
interface with or contain the Company's products will timely achieve Year 2000
compliance. Furthermore, if the Company's ground segment systems and networks
or data communications services were unable to be used by the Company's
customers because of Year 2000 compliance problems, there can be no assurance
that the Company's customers will not commence litigation against the Company
for such systems and networks failure. Any of the foregoing could result in a
material adverse effect on the Company's business, financial condition and
results of operations.

LIQUIDITY AND CAPITAL RESOURCES

          At December 31, 1998, the Company had working capital of $26.6
million, including cash and cash equivalents of $16.4 million, restricted cash
of $4.8 million, accounts receivable of $18.2 million, inventories of $2.9
million and prepaid and other current assets of $0.9 million, offset by $15.0
million in accounts payable and $1.5 million in accrued expenses and other
current liabilities.

         Several factors had a major effect on the Company's liquidity during
the six-month period ended December 31, 1998. First, inventories increased by
$1.3 million reflecting the timing of purchases to support future shipments
and/or completion of ground segment systems and networks, offset by an increase
in accounts payable and accrued expenses of $2.1 million to support these
inventory purchases, as well as, the timing of receipt and payment to vendors.
The second factor affecting liquidity during the three and six-month period
ended December 31, 1998 was the Company's investment activities. During the
six-month period ended December 31, 1998, the Company purchased $1.0 million in
fixed assets and through its Stock Repurchase Program, repurchased $545,000 or
114,200 shares of the Company's common stock. In addition, during the first
quarter ended September 30, 1998, the Company purchased a $1.5 million equity
interest in McKibben Communications, LLC. McKibben Communications provides
conditional access and uplink services to the television industry in Los
Angeles. McKibben Communications also originates sports broadcasts from Los
Angeles to Japan for the distribution in Japan by a local satellite provider.
The Company and McKibben Communications complement each other and offer a 
turnkey solution to broadcasters including design, installation, and operation 
of uplink facilities.

         The Company's future capital requirements will depend upon many
factors, including the extent to which it is able to locate additional
strategic suppliers in whose technology it wishes to invest, the success of the
Company's marketing efforts in both the Ground Segment Systems and Networks
Segment and the Data Communications Services Segment, the nature and timing of
customer orders, the extent to which it must conduct research and development
efforts internally and potential acquisitions of complementary businesses,
products or technologies. Based on current plans, the Company believes that its
existing capital resources will be sufficient to meet its capital requirements
for at least the next 12 months.

                                      13
<PAGE>

CERTAIN BUSINESS CONSIDERATIONS
RISK FACTORS

LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT

         The Company, which was formed in August 1994, has a limited operating
history upon which an evaluation of the Company can be based and has incurred
significant operating losses since its inception. The Company has financed its
operations to date primarily from the sale of equity securities and, to a
lesser degree, from stockholder loans. The Company generated its first revenue
from its ground segment systems and networks business in June 1995 and has
generated only minimal revenues from its satellite-delivered data
communications services business, which commenced operations in July 1996. The
Company incurred operating losses of $1.1 million, $2.3 million, $2.7 million
and $0.5 million during the fiscal years ended June 30, 1995, 1996, 1997 and
1998, respectively (which amounts for fiscal years ended June 30, 1997 and 1998
include operating losses of $1.5 million and $1.7 million, respectively, for
NetSat Express' data communications services business) and may incur further
operating losses as it attempts to expand its businesses. The Company's ability
to expand its ground segment systems and networks business and data
communications services business and generate additional revenues and positive
operating and net income is dependent, in large part, on its ability to obtain
new contracts and the profitability of such contracts, and there can be no
assurance that the Company will generate significant additional revenues or
report quarterly or annual positive operating or net income. As of December 31,
1998, the Company had an accumulated deficit of $9.4 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."

INHERENT RISK OF INTERNATIONAL OPERATIONS

         Most of the Company's revenues are derived from sales to customers
outside the United States. The Company anticipates that foreign sales will
continue to account for a significant portion of total revenues in the
foreseeable future. The Company's foreign sales are generally denominated in
U.S. dollars. Consequently, the decrease in the value of foreign currencies
relative to the U.S. dollar, such as the currency devaluations in the Pacific
Rim region, Russia and other international currencies, has adversely affected
and may continue to adversely affect the demand for the Company's ground
segment systems and networks and data communications services by increasing the
price of the Company's products and services in the currency of the countries
in which they are sold. The economic and monetary crisis in the Pacific Rim
countries, including Korea, Malaysia, Thailand, Philippines, Indonesia and
other countries in the region, as well as the economic and monetary declines in
Russia, has resulted in a decreased demand in such countries and other foreign
regions for capital equipment such as the ground segment systems and networks
supplied by the Company and NetSat Express' data communications services. The
difficult economic conditions in the Pacific Rim region, Russia and other
international markets and the decrease in bookings received by the Company from
these and other foreign regions adversely effected the Company's results of
operations for the fourth quarter of fiscal year 1998 and the first six months
of fiscal year 1999, and the Company expects that these negative trends will
continue to adversely impact it. Additional risks inherent to the Company's
international business activities include various and changing regulatory
requirements, costs and risks of relying upon local subcontractors for the
installation of its ground segment systems and networks, increased sales and
marketing expenses, availability of export licenses, tariffs and other trade
barriers, political and economic instability, difficulties in staffing and
managing foreign operations, potentially adverse taxes, complex foreign laws
and treaties and the possibility of difficulty in accounts receivable
collections. In addition, the Company is subject to the Foreign Corrupt
Practices Act (the "FCPA") which may place the Company at a competitive
disadvantage to foreign companies, which are not subject to the FCPA. There can
be no assurance that any of these factors will not have a material adverse
effect on the Company's business, financial condition and results of
operations.

QUARTERLY FLUCTUATIONS

         The Company may continue to experience significant quarter to quarter
fluctuations in its results of operations, which may result in volatility in
the price of the Company's Common Stock. Quarterly results of operations may
fluctuate as a result of a variety of factors, including the timing of the
initiation and completion of contracts, delays in the booking of new contracts,
the demand for the Company's ground segment systems and networks and NetSat
Express' data communications services, the introduction of new or enhanced
products and services by the Company or NetSat Express or their competitors,


                                      14
<PAGE>

market acceptance of new products and services, the mix of revenues between
custom-built satellite communications systems and networks designed for its
customers and standard installations provided to its customers, the growth of
demand for Internet infrastructure-based products and services in developing
countries, the timing of significant marketing programs, the extent and timing
of the hiring of additional personnel, competitive conditions in the industry
and general economic conditions in the U.S. and abroad, such as the difficult
economic conditions and currency devaluations in the Pacific Rim region, Russia
and other international markets which have adversely impacted, and may continue
to, adversely impact the Company's quarterly results. See "Inherent Risk of
International Operations". Due to the foregoing factors, it is likely that in
one or more future quarters the Company's operating results will be below the
expectations of public market analysts and investors. Such an event could have
a material adverse effect on the price of the Company's Common Stock.

INTENSE COMPETITION; LIMITED BARRIERS TO ENTRY

         The markets for both ground segment systems and networks and
satellite-delivered data communications services are highly competitive. Many
of the Company's competitors have greater market presence, engineering and
marketing capabilities, and financial, technological and personnel resources
than those available to the Company. As a result, such competitors may be able
to develop and expand their products and services more quickly, adapt more
swiftly to new or emerging technologies and changes in customer requirements,
take advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products and services than
can the Company. In addition, there are limited barriers to entry in the
Company's markets and certain of the Company's strategic suppliers and
customers have technologies and capabilities in the Company's product areas and
could choose to compete with the Company or to replace the Company's products
or services with their own. The entry of new competitors, the decision by a
strategic ally to compete with the Company or the decision by a customer to
develop and employ in-house capability to satisfy its satellite communications
needs could have a material adverse effect on the Company's business, financial
condition and results of operations.

         The Company anticipates that its competitors may develop or acquire
competing products or products that provide functionality that is similar to
that provided by the Company's products and may be offered at significantly
lower prices or bundled with other products. In addition, current and potential
competitors in both markets in which the Company competes have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products and services to address the needs of
the Company's current and prospective customers. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share. Increased competition is likely to result in
price reductions, reduced gross profit margins and loss of market share, any of
which would have a material adverse effect on the Company's business, results
of operations and financial condition. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, financial condition and results of
operations.

         The Company also is dependent on the continued success and development
of the satellite communications industry, which itself competes with other
technologies such as terrestrial microwave, copper wire and fiber optic
communications systems. Any failure of the satellite communications industry to
continue to develop, or any technological development which significantly
improves the capacity, cost or efficiency of such competing systems relative to
satellite systems, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Rapid Industry
Change; Technological Obsolescence."

RELIANCE ON STRATEGIC RELATIONSHIPS

         The Company is dependent on certain customers and suppliers for the
development and expansion of its ground segment system and network business.
However, such relationships are not governed by any contract and accordingly
neither the Company nor such customers or suppliers are obligated to maintain
such strategic relationships. There can be no assurance that the Company will
be able to maintain such strategic relationships, that its strategic customers
and suppliers will continue to assist the Company by developing and expanding
its business and by providing research and development expertise, or that such 


                                      15
<PAGE>

strategic customers and suppliers will not actually compete with the Company in
the future. See "Intense Competition; Limited Barriers to Entry."

         Because the Company intends to provide its satellite-delivered data
communications services almost entirely in developing markets where the Company
has minimal market experience, the Company will also be dependent on local
partners in such markets to provide marketing expertise and knowledge of the
local regulatory environment in order to facilitate the acquisition of
necessary licenses and access to existing customers. The Company has not yet
formally established an alliance with a local partner. The Company's failure to
form and maintain such alliances with local partners, or the preemption or
disruption of such alliances by the actions of the Company's competitors or
otherwise, would adversely affect the Company's ability to penetrate and
compete successfully in such emerging markets. There can be no assurance that
the Company will be able to compete successfully in the future in such markets
or that competition will not have a material adverse effect on the Company's
business, financial condition and results of operations.

RISK OF CUSTOMER CONCENTRATION

         The Company typically relies upon a small number of customers for a
large portion of its revenues. The Company expects that in the near term a
significant portion of its revenues will continue to be derived from one or a
limited number of customers (the identity of whom may vary from period to
period) as the Company seeks to expand its business and its customer base. The
reduction, delay, or cancellation of orders from one or more of such
significant customers would have a material adverse effect on the Company's
business, financial condition and results of operations.

RISK OF MANAGEMENT OF RAPID GROWTH

         The Company has been significantly and rapidly expanding its
operations since its inception. In order to pursue successfully the
opportunities presented by the ground segment and emerging satellite-delivered
communications and Internet/intranet-infrastructure markets, the Company will
be required to continue to expand its operations. Such expansion has placed,
and is expected to continue to place, a significant strain on the Company's
personnel, management, financial and other resources. In order to manage any
future growth effectively, the Company will, among other things, be required to
attract, train, motivate and manage a significantly larger number of employees
successfully to conduct product engineering and management, product
implementation, sales activity and customer support activities; manage higher
working capital requirements; and improve its operating and financial systems.
Any failure to manage any future growth in an efficient manner and at a pace
consistent with the Company's business could have a material adverse effect on
the Company's business, financial condition and results of operations.

RISK OF FIXED-PRICE CONTRACTS

         Virtually all of the Company's contracts for installation of ground
segment systems and networks are on a fixed-price basis. Profitability of such
contracts is subject to inherent uncertainties as to the cost of performance.
In addition to possible errors or omissions in making initial estimates, cost
overruns may be incurred as a result of unforeseen obstacles, including both
physical conditions and unexpected problems encountered in engineering, design
and testing. Since the Company's business may at certain times be concentrated
in a limited number of large contracts, a significant cost overrun on any one


                                      16
<PAGE>

contract could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk of Customer
Concentration."

EMPHASIS ON DEVELOPING MARKETS; UNCERTAIN MARKET POTENTIAL

         The Company believes a substantial portion of the growth in demand for
its ground segment systems and networks and its recently launched
satellite-delivered data communications services will come from customers in
developing countries. There can be no assurance that such increases in demand
will occur or that prospective customers will accept such products and services
in sufficient quantities or at all. The degree to which the Company is able to
penetrate potential markets in developing countries will be affected in major
part by the speed with which other competing elements of the communications
infrastructure, such as telephone lines, other satellite-delivered solutions
and fiber optic cable and television cable, are installed in the developing
countries and with respect to the Company's data communications services, on
the effectiveness of the Company's local partners in such markets. The failure
to have its products and services accepted in developing countries would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Intense Competition; Limited Barriers to Entry" and
"Reliance on Strategic Relationships."

RAPID INDUSTRY CHANGE; TECHNOLOGICAL OBSOLESCENCE

         The telecommunications industry, including the satellite
communications ground segment systems and networks and data communication
services businesses, is characterized by rapid and continuous technological
change. Future technological advances in the telecommunications industry may
result in the availability of new products or services that could compete with
the satellite ground segment products and services provided by the Company or
render the Company's products and services obsolete. There can be no assurance
that the Company will be successful in developing and introducing new products
and services that meet changing customer needs or in responding to
technological changes or evolving industry standards in a timely manner, if at
all, or that services or technologies developed by others will not render the
Company's products or services noncompetitive. Any failure by the Company to
respond to changing market conditions, technological developments, evolving
industry standards or changing customer requirements, or the development of
competing technology or products that render the Company's products and
services noncompetitive or obsolete would have a material adverse effect on the
Company's business, financial condition and results of operations.

YEAR 2000 COMPLIANCE

         Many currently installed computer systems and software products are
coded to accept only two digit entries in the data code field. These data code
fields will need to accept four digit entries to distinguish 21st century
dates. As a result, in less than two years, computer systems and/or software
used by many companies may need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance.

         The Company is in the process of assessing the anticipated costs,
problems and uncertainties associated with Year 2000 issues. The Company has
initiated a Year 2000 Compliance Plan which includes information technology
("IT") and non-IT systems requiring or which may require modification or
conversion, and supplier, facilities and other operations (such as financial
and banking systems) readiness. The Company is in the process of or has
completed reviews of each of the above areas including identification and
assessment of potential Year 2000 issues, identification and contact with key
suppliers or institutions based on their relative risks associated with product
integrity and continued product deliveries and service. Until such reviews are
complete, the Company will not be able to completely evaluate whether its IT
and non-IT systems will need to be modified or replaced. The Company has
incurred only nominal costs to date and estimates at this time that the total
Year 2000 costs will not be material. The Company is continuing its assessment
which may necessitate refinement of its estimate over time. There can be no
assurance, however, that costs associated with the Company's Year 2000
Compliance Plan will not be higher than anticipated which could have a material
adverse effect on the Company's business, results of operations and financial
condition.



                                      17
<PAGE>

         In association with the Company's Year 2000 Compliance Plan, the
Company is currently developing contingency plans for certain critical
applications. These contingency plans may include, among other actions, manual
workarounds, increasing inventories and adjusting staffing strategies. There
can be no assurance such contingency plans, once developed, will be adequate.

         Since the Company's Year 2000 Compliance Plan is ongoing, all
potential Year 2000 issues have not yet been identified. Therefore the
potential impact of these issues on the Company's financial condition and
results of operations can not be determined at this time. If IT and non-IT
systems used by the Company or its suppliers, the product integrity of products
provided to the Company by its suppliers, or the software applications or
hardware used in systems integrated and sold by the Company, fail or experience
significant difficulties related to the Year 2000, the Company's results of
operations and financial condition could be materially affected. In addition,
there can be no assurance that equipment operated by third parties that
interface with or contain the Company's products will timely achieve Year 2000
compliance. Furthermore, if the Company's ground segment systems and networks
or data communication services were unable to be used by the Company's
customers because of Year 2000 compliance problems, there can be no assurance
that the Company's customers will not commence litigation against the Company
for such systems and networks failure. Any of the foregoing could result in a
material adverse effect on the Company's business, financial condition and
results of operations.

DEPENDENCE UPON SUPPLIERS; SOLE AND LIMITED SOURCES OF SUPPLY

         The Company currently procures most of the critical components and
services for its products from single or limited sources in connection with
specific contracts and does not otherwise carry significant inventories or have
long-term or exclusive supply contracts with its source vendors. The Company
has from time to time experienced delays in receiving products from certain of
its vendors due to quality control or manufacturing problems, shortages of
materials or components or product design difficulties. There can be no
assurance that similar problems will not recur or that replacement products
will be available when needed at commercially reasonable rates, or at all. If
the Company were to change certain of its vendors, the Company would be
required to perform additional testing procedures upon the components supplied
by such new vendors, which could prevent or delay product shipments.
Additionally, prices could increase significantly in connection with changes of
vendors. Any inability of the Company to obtain timely deliveries of materials
of acceptable quality or timely services, or any significant increase in the
prices of materials or services, could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk of
Fixed-Price Contracts" and "Quarterly Fluctuations".

RISK OF FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS

         The Company is subject to various federal laws and regulations which
may have negative effects on the Company. The Company operates a teleport in
Hauppauge, New York, which is subject to FCC Rules and Regulations. The Company
has obtained certain licenses from the FCC for both domestic and international
operation of the teleport and must operate it in compliance with FCC Rules and
Regulations for the term of the license. There can be no assurance that the
Company will be able to obtain additional licenses that may be required or
maintain the necessary licenses.

         Under the FCC Rules and Regulations, non-U.S. citizens or their
representatives, foreign governments, or corporations otherwise subject to
control by non-U.S. citizens, may not own more than 20% of a licensee directly,
or, if the FCC finds it consistent with the public interest, may not own more
than 25% of the parent of a licensee. Non-U.S. citizens may not serve as
officers of a licensee or as members of a licensee's board of directors,
although the FCC may waive this requirement in whole or in part. Failure to
comply with these requirements may result in the FCC issuing an order to the
entity requiring divestiture of alien ownership to bring the entity into
compliance with the FCC Rules and Regulations. In addition, fines, a denial of
renewal or revocation of the license are possible. The Company has no knowledge
of any present foreign ownership which would result in a violation of the FCC
Rules and Regulations, but there can be no assurance that foreign holders will
not in the future hold more than 20% or 25% of the Common Stock of the Company.



                                      18
<PAGE>

         Regulatory schemes in countries in which the Company may seek to
provide its satellite-delivered data communications services may impose
impediments on the Company's operations. Certain countries in which the Company
intends to operate have telecommunications laws and regulations that do not
currently contemplate technical advances in broadcast technology such as
Internet/intranet transmission by satellite. There can be no assurance that the
present regulatory environment in any such country will not be changed in a
manner which may have a material adverse impact on the Company's business. The
Company or its local partners typically must obtain authorization for each
country in which the Company provides its satellite-delivered data
communications services. Although the Company believes that it or its local
partners will be able to obtain the requisite licenses and approvals from the
countries in which the Company intends to provide service, the regulatory
schemes in each country are different and thus there may be instances of
noncompliance of which the Company is not aware. Although the Company believes
these regulatory schemes will not prevent the Company from pursuing its
business plan, there can be no assurance such licenses and approvals are or
will remain sufficient in the view of foreign regulatory authorities, or that
necessary licenses and approvals will be granted on a timely basis in all
jurisdictions in which the Company wishes to offer its services or that
restrictions applicable thereto will not be unduly burdensome.

         The Company's Internet operations (other than the operation of a
teleport) are not currently subject to direct government regulation in most
countries, and there are currently few laws or regulations directly applicable
to access to or commerce on the Internet. However, due to the increasing
popularity and use of the Internet, it is likely that a number of laws and
regulations may be adopted at the local, national or international levels with
respect to the Internet, covering issues such as user privacy and expression,
pricing of products and services, taxation, advertising, intellectual property
rights, information security or the convergence of traditional communication
services with Internet communications. For example, the Telecommunications Act
of 1996 (the constitutionality of certain portions of which is currently under
challenge) was recently enacted in the United States, and imposes criminal
penalties via the Communications Decency Act on anyone who distributes obscene,
lascivious or indecent communications over the Internet. It is anticipated that
a substantial portion of the Company's Internet operations will be carried out
in countries which may impose greater regulation of the content of information
coming into the country than that which is generally applicable in the United
States. To the extent that the Company provides content as a part of its
Internet services, it will be subject to any such laws regulating content.
Moreover, the adoption of any such laws or regulations may decrease the growth
of the Internet, which could in turn decrease the demand for the Company's
Internet services or increase the Company's cost of doing business or in some
other manner have a material adverse effect on the Company's business,
operating results and financial condition. In addition, the applicability to
the Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel and personal
privacy is uncertain. The vast majority of such laws were adopted prior to the
advent of the Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies. Changes to such laws intended to address these issues, including
some recently proposed changes, could create uncertainty in the marketplace
which could reduce demand for the Company's services, could increase the
Company's cost of doing business as a result of costs of litigation or
increased product development costs, or could in some other manner have a
material adverse effect on the Company's business, financial condition and
results of operations.

         The sale of the Company's ground segment systems and networks outside
the United States is subject to compliance with the regulations of the United
States Export Administration Regulations. The absence of comparable
restrictions on competitors in other countries may adversely affect the
Company's competitive position. In addition, in order to ship its products into
European Union countries, the Company must satisfy certain technical
requirements. If the Company were unable to comply with such requirements with
respect to a significant quantity of the Company's products, the Company's
sales in Europe could be restricted, which could have a material adverse effect
on the Company's business, financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL

         The Company's future success depends to a significant extent on its
executive officers and certain technical, managerial and marketing personnel.
The loss of the services of any of these individuals or group of individuals


                                      19
<PAGE>

could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company maintains term life insurance
in the amount of $1.0 million on David E. Hershberg, the Chairman and Chief
Executive Officer of the Company and term life insurance in the amount of $0.5
million for each of Messrs. Miller, DiCicco, Woodring, Yablonski and Melfi, all
of whom are officers of the Company. The Company believes that its future
success also will depend significantly upon its ability to attract, motivate
and retain additional highly skilled technical, managerial and marketing
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in attracting, assimilating and
retaining the personnel it requires to grow and operate profitably.

PROPRIETARY TECHNOLOGY; RISK OF INFRINGEMENT

         The Company relies heavily on the technological and creative skills of
its personnel, new product developments, computer programs and designs,
frequent product enhancements, reliable product support and proprietary
technological expertise in maintaining its competitive position, and lacks
patent protection for its products and services. There can be no assurance that
others will not independently develop or acquire substantially equivalent
techniques or otherwise gain access to the Company's proprietary and
confidential technological expertise or disclose such technologies or that the
Company can ultimately protect its rights to such proprietary technological
expertise.

         The Company generally relies on confidentiality agreements with its
consultants, key employees and sales representatives to protect its proprietary
technological expertise, and generally controls access to and distribution of
its technology, software and other proprietary information. Despite these
precautions, there can be no assurance that such agreements will not be
breached, that the Company will have adequate remedies for any such breach or
that a third party will not copy or otherwise obtain and use the Company's
products or technology without authorization or develop similar products or
technology independently. Failure by the Company to maintain protection of its
proprietary technological expertise for any reason could have a material
adverse effect on the Company's business, financial condition and results of
operations.

         The Company is subject to the risk of alleged infringement of
intellectual property rights of others. Most of the Company's officers and
employees were formerly officers or employees of other companies in the
industry. The Company believes that neither it nor its officers or employees
have violated any agreements with, or obligations to, prior employers. Although
the Company is not aware of any pending or threatened infringement claims with
respect to the Company's current or future products, there can be no assurance
that third parties, including previous employers, will not assert such claims
or that any such claims will not require the Company to enter into license
arrangements or result in protracted and costly litigation, regardless of the
merits of such claims. No assurance can be given that any necessary licenses
will be available or that, if available, such licenses can be obtained on
commercially reasonable terms. Furthermore, litigation may be necessary to
enforce or protect the Company's intellectual property rights, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of
operations.

         The Company currently has three patent applications pending in the
United States and a PCT application, corresponding to one of the United States
applications, is pending in a number of foreign jurisdictions. The Company also
intends to seek further patents on its technology, if appropriate. There can be
no assurance that patents will be issue from any of the Company's pending or
any future applications or that any claims allowed from such applications will
be of sufficient scope or strength, or be issued in all countries where the
Company's products can be sold, to provide meaningful protection or any
commercial advantage to the Company. Also, competitors of the Company may be
able to design around the Company's patents. The laws of certain foreign
countries in which the Company's products are or may be developed, manufactured
or sold may not protect the Company's products or intellectual property rights
to the same extent as do the laws of the United States and thus make the
possibility of piracy of the Company's technology and products more likely.



                                      20
<PAGE>

         The Company has filed applications for trademark registration of
Globecomm Systems Inc. in the United States, China, the European Union and the
Russian Federation and of NetSat Express in the United States, Singapore, the
European Union, the Russian Federation and Brazil, and intends to seek
registration of other trademarks in the future. There can be no assurance that
registrations will be granted from any of the Company's pending or future
applications, or that any registrations that are granted to the Company will
prevent others from using similar trademarks in connection with related goods
and services.

RISK OF CONCENTRATED OWNERSHIP

         As of February 8, 1999, the Company's officers and directors, and
their affiliates beneficially own approximately 2,328,415 shares, constituting
approximately 24.3% of the Company's outstanding Common Stock. These
stockholders, if acting together, may be able to exert significant influence
over the election of directors and other corporate actions requiring
stockholder approval.

POSSIBLE VOLATILITY OF STOCK PRICE

         The market price of the Company's Common Stock could be subject to
wide fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the Company or
its competitors, acceptance of satellite communication services in developing
countries, and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations, which have affected the
market price of securities of many companies in the telecommunications and high
technology industries. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock.

See "Quarterly Fluctuations."

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company is subject to a variety of risks, including foreign
currency exchange rate fluctuations relating to certain purchases from foreign
vendors. In the normal course of business, the Company assesses these risks and
has established policies and procedures to manage its exposure to fluctuations
in foreign currency values.

         The Company's objective to managing its exposure to foreign currency
exchange rate fluctuations is to reduce the impact of adverse fluctuations in
earnings and cash flows associated with foreign currency exchange rates for
certain purchases from foreign vendors, if applicable. Accordingly, the Company
utilizes foreign currency forward contracts to hedge its exposure on firm
commitments denominated in foreign currency. As of December 31, 1998, the
Company had only one such foreign currency forward contract to hedge its
exposure relating to a commitment to purchase approximately U.S. $3.2 million
of equipment from a vendor in Swedish Krona. The Company's hedge with respect
to this transaction reduces, but does not eliminate, the impact of foreign
currency exchange rate movements. If there were an adverse change in the
exchange rate of Swedish Krona of 10%, the expected effect on net income would
be immaterial.



                                      21
<PAGE>


                          PART II -- OTHER INFORMATION

Item 1.   Legal Proceedings

          None

Item 2.   Changes in Securities and Use of Proceeds

          The effective date of the Company's first registration statement (the
          "Registration Statement") filed on Form S-1 (Registration No.
          333-22425) under the Securities Act of 1933, as amended, was August
          7, 1997. The class of securities registered was Common Stock. The
          Company incurred total expenses in the offering of $3,721,000 of
          which $2,214,000 represented underwriting discounts and commissions
          and $1,507,000 represented other expenses. All of such expenses were
          direct or indirect payments to others. The net offering proceeds to
          the Company after deducting the total expenses were $27,904,000.

          From the effective date of the Registration Statement to December 31,
          1998, the approximate amount of net offering proceeds used were $6.8
          million to fund capital expenditures, and investments in strategic
          suppliers, and $14.3 million for working capital purposes, increased
          selling and marketing efforts, and increased internal research and
          development expenses. All of such payments were direct or indirect
          payments to others.

Item 3.   Defaults Upon Senior Securities

          None

Item 4.   Submission of Matters to a Vote of Security Holders

          (a)     The Company's Annual Meeting of Stockholders was held on
                  November 19, 1998 (the "Annual Meeting").

          (b)     The matters voted upon at the Annual Meeting and the results
                  of the voting were as follows:

                  (i)     The following individuals were elected by the
                          Stockholders to serve as Directors:

          Board Member                 In Favor          Withheld
          ------------                 --------          --------

          Benjamin  Duhov             7,091,268            82,268
          Herman Fialkov              7,091,268            82,268
          Shelley A. Harrison         7,091,268            82,268
          David E. Hershberg          7,089,768            83,768
          Kenneth A. Miller           7,091,268            82,268
          A. Robert Towbin            7,091,268            82,268
          C.J. Waylan                 7,091,268            82,268
          Donald G. Woodring          7,091,268            82,268
          Stephen C. Yablonski        7,089,768            83,768


                  (ii)    The approval of the Company's 1999 Employee Stock
                          Purchase Plan was voted upon as follows: 6,447,663
                          shares in favor; 674,431 shares against; and 51,442
                          shares abstaining.

                  (iii)   The appointment of Ernst & Young LLP as independent
                          auditors of the Company to serve for the year ending
                          June 30, 1999 was voted upon as follows: 7,145,398
                          shares in favor; 13,094 shares against; and 15,044
                          shares abstaining.

Item 5.   Other Information

          None



                                      22
<PAGE>

Item 6.   Exhibits and Reports on Form 8-K

          (a)   Exhibits

Exhibit No.
-----------

3.1      Amended and Restated Certificate of Incorporation (filed herewith).

3.1(a)   Certificate of Designation of Series A Junior Participating Preferred
         Stock (filed herewith).

3.3      Amended and Restated By-Laws of the Registrant (incorporated by
         reference to Exhibit 3.3 of the Company's Annual Report on Form 10K
         for the year ended June 30, 1998).

4.2      See Exhibits 3.1 and 3.3 for provisions of the Amended and Restated
         Certificate of Incorporation and Amended and Restated By-Laws of the
         Registrant defining rights of holders of Common Stock of the
         Registrant. (incorporated by reference to Exhibit 4.2 of the
         Registrant's Registration Statement on Form S-1, File No. 333-22425
         (the "Registration Statement")).

10.1     Form of Registration Rights Agreement dated as of February 1997
         (incorporated by reference to exhibit 10.1 of the Registration
         Statement).

10.2     Form of Registration Rights Agreement dated May 30, 1996 (incorporated
         by reference to exhibit 10.2 of the Registration Statement).

10.3     Form of Registration Rights Agreement dated December 31, 1996, as
         amended (incorporated by reference to exhibit 10.3 of the Registration
         Statement).

10.4     Letter Agreement for purchase and sale of 199,500 shares of Common
         Stock dated November 9, 1995 between the Registrant and Thomson-CSF
         (incorporated by reference to exhibit 10.4 of the Registration
         Statement).

10.5     Investment Agreement dated February 12, 1996 by and between Shiron
         Satellite Communications (1996) Ltd. and the Registrant (incorporated
         by reference to exhibit 10.5 of the Registration Statement).

10.6*    Stock Purchase Agreement dated as of August 30, 1996 by and between
         C-Grams Unlimited Inc. and the Registrant (incorporated by reference
         to exhibit 10.6 of the Registration Statement).

10.7     Memorandum of Understanding dated December 18, 1996 by and between
         NetSat Express, Inc. and Applied Theory Communications, Inc.
         (incorporated by reference to exhibit 10.7 of the Registration
         Statement).

10.8     Stock Purchase Agreement dated as of August 23, 1996 by and between
         NetSat Express, Inc. and Hughes Network Systems, Inc. (incorporated by
         reference to exhibit 10.8 of the Registration Statement).

10.9     Employment Agreement dated as of January 27, 1997 between the
         Registrant and David E. Hershberg (incorporated by reference to
         exhibit 10.9 of the Registration Statement).

10.10    Employment Agreement dated as of January 27, 1997 between the
         Registrant and Kenneth A. Miller (incorporated by reference to exhibit
         10.10 of the Registration Statement).

10.11    Purchase and Sale Agreement, 45 Oser Avenue, Hauppauge, New York,
         dated December 12, 1996 by and between Eaton Corporation and the
         Registrant (incorporated by reference to exhibit 10.13 of the
         Registration Statement).

10.12    1997 Stock Incentive Plan (incorporated by reference to exhibit 99.1
         of the Registrant's Registration Statement on Form S-8, File No.
         333-70527 (the "S-8 Registration Statement")).

10.13    Investment Agreement dated August 21, 1998 by and between McKibben
         Communications LLC and the Registrant (incorporated by reference to
         Exhibit 10.13 of the Company's Annual Report on Form 10K for the year
         ended June 30, 1998).

10.14    1999 Employee Stock Purchase Plan (incorporated by reference to
         exhibit 99.8 of the S-8 Registration Statement).



                                      23
<PAGE>

10.15    Rights Agreement, dated as of December 3, 1998, between the Company
         and American Stock Transfer and Trust Company, which includes the form
         of Certificate of Designation for the Series A Junior Participating
         Preferred Stock as Exhibit A, the form of Rights Certificate as
         Exhibit B and the Summary of Rights to Purchase Series A Preferred
         Shares as Exhibit C (incorporated by reference to exhibit 4 of
         Registrant's Current Report on Form 8-K dated December 3, 1998).

27       Financial Data Schedule (filed herewith).

* Confidential treatment granted for portions of this agreement.

         (b)      Reports on Form 8-K

                  On December 4, 1998, the Registrant filed a report on Form
         8-K to describe under Item 5 the terms of the Rights Agreement dated
         as of December 3, 1998 between the Company and American Stock Transfer
         and Trust Company, as Rights Agent (the "Rights Agreement"). The
         Registrant filed under Item 7 as Exhibits the Rights Agreement, press
         release and form of letter to stockholders regarding the adoption of
         the Rights Agreement.



                                      24
<PAGE>



INDEX TO EXHIBITS:

Exhibit No.
-----------

3.1      Amended and Restated Certificate of Incorporation (filed herewith).

3.1(a)   Certificate of Designation of Series A Junior Participating Preferred
         Stock (filed herewith).

3.3      Amended and Restated By-Laws of the Registrant (incorporated by
         reference to Exhibit 3.3 of the Company's Annual Report on Form 10K
         for the year ended June 30, 1998).

4.2      See Exhibits 3.1 and 3.3 for provisions of the Amended and Restated
         Certificate of Incorporation and Amended and Restated By-Laws of the
         Registrant defining rights of holders of Common Stock of the
         Registrant. (incorporated by reference to Exhibit 4.2 of the
         Registrant's Registration Statement on Form S-1, File No. 333-22425
         (the "Registration Statement")).

10.1     Form of Registration Rights Agreement dated as of February 1997
         (incorporated by reference to exhibit 10.1 of the Registration
         Statement).

10.2     Form of Registration Rights Agreement dated May 30, 1996 (incorporated
         by reference to exhibit 10.2 of the Registration Statement).

10.3     Form of Registration Rights Agreement dated December 31, 1996, as
         amended (incorporated by reference to exhibit 10.3 of the Registration
         Statement).

10.4     Letter Agreement for purchase and sale of 199,500 shares of Common
         Stock dated November 9, 1995 between the Registrant and Thomson-CSF
         (incorporated by reference to exhibit 10.4 of the Registration
         Statement).

10.5     Investment Agreement dated February 12, 1996 by and between Shiron
         Satellite Communications (1996) Ltd. and the Registrant (incorporated
         by reference to exhibit 10.5 of the Registration Statement).

10.6*    Stock Purchase Agreement dated as of August 30, 1996 by and between
         C-Grams Unlimited Inc. and the Registrant (incorporated by reference
         to exhibit 10.6 of the Registration Statement).

10.7     Memorandum of Understanding dated December 18, 1996 by and between
         NetSat Express, Inc. and Applied Theory Communications, Inc.
         (incorporated by reference to exhibit 10.7 of the Registration
         Statement).

10.8     Stock Purchase Agreement dated as of August 23, 1996 by and between
         NetSat Express, Inc. and Hughes Network Systems, Inc. (incorporated by
         reference to exhibit 10.8 of the Registration Statement).

10.9     Employment Agreement dated as of January 27, 1997 between the
         Registrant and David E. Hershberg (incorporated by reference to
         exhibit 10.9 of the Registration Statement).

10.10    Employment Agreement dated as of January 27, 1997 between the
         Registrant and Kenneth A. Miller (incorporated by reference to exhibit
         10.10 of the Registration Statement).

10.11    Purchase and Sale Agreement, 45 Oser Avenue, Hauppauge, New York,
         dated December 12, 1996 by and between Eaton Corporation and the
         Registrant (incorporated by reference to exhibit 10.13 of the
         Registration Statement).

10.12    1997 Stock Incentive Plan (incorporated by reference to exhibit 99.1
         of the Registrant's Registration Statement on Form S-8, File No.
         333-70527 (the "S-8 Registration Statement")).

10.13    Investment Agreement dated August 21, 1998 by and between McKibben
         Communications LLC and the Registrant (incorporated by reference to
         Exhibit 10.13 of the Company's Annual Report on Form 10K for the year
         ended June 30, 1998).

10.14    1999 Employee Stock Purchase Plan (incorporated by reference to
         exhibit 99.8 of the S-8 Registration Statement).

10.15    Rights Agreement, dated as of December 3, 1998, between the Company
         and American Stock Transfer and Trust Company, which includes the form
         of Certificate of Designation for the Series A Junior Participating
         Preferred Stock as Exhibit A, the form of Rights Certificate as 


                                      25
<PAGE>

         Exhibit B and the Summary of Rights to Purchase Series A Preferred
         Shares as Exhibit C (incorporated by reference to exhibit 4 of
         Registrant's Current Report on Form 8-K dated December 3, 1998).

27       Financial Data Schedule (filed herewith).

* Confidential treatment granted for portions of this agreement.



                                      26
<PAGE>



                                   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.

                                 GLOBECOMM SYSTEMS INC.
                                   (Registrant)

Date: February 11, 1999          /s/ David E. Hershberg
                                 -----------------------
                                 David E. Hershberg
                                 Chief Executive Officer and Chairman 
                                 of the Board of Directors

Date: February 11, 1999          /s/ Andrew C. Melfi
                                 ---------------------
                                 Andrew C. Melfi
                                 Vice President and Chief Financial Officer
                                 (Principal Financial and Accounting Officer)



                                      27