UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C.20549

FORM 10-Q

(MARKONE)

[X]    QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,2004

OR

[   ]    TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934

For the transition period from             to             

Commission file number: 000-22839

Globecomm Systems Inc.(Exactname of Registrant as specified in itscharter)

|                                                                     |  |                                             |  |  |  |  |
|---------------------------------------------------------------------|--|---------------------------------------------|--|--|--|--|
| Delaware(Stateor other jurisdiction ofincorporation ororganization) |  | 11-3225567(I.R.S.EmployerIdentificationNo.) |
| 45 OserAvenue,Hauppauge, NY(Address of principal executiveoffices)  |  | 11788(ZipCode)                              |
|                                                                     |

Registrant's telephonenumber, including area code: (631) 231-9800

Indicate bycheck mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subjectto such filing requirements for the past 90 days. Yes [X]   No  [   ]

Indicate by check mark whether the Registrant is an acceleratedfiler (as defined in Rule 12b-2 of the Act). Yes[   ] No [X]

As of May 13, 2004,there were 14,610,133 shares of the Registrant's common stock,$0.001 par value, outstanding.

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GLOBECOMM SYSTEMSINC.

Index to the March 31, 2004 Form 10-Q

|                                     |  |                                                                                                                      |  |        |    |        |  |  |  |  |
|-------------------------------------|--|----------------------------------------------------------------------------------------------------------------------|--|--------|----|--------|--|--|--|--|
|                                |  |                                                                                                                 |  | Page   |
| Part I — FinancialInformation |
| Item1.                              |  | ConsolidatedFinancial Statements                                                                                     |  |   | 3  |   |
|                                |  | Consolidated Balance Sheets — As of March 31,2004 (unaudited) and June 30, 2003                                |  |   | 3  |   |
|                                |  | Consolidated Statements of Operations (unaudited)— For the three and nine months ended March 31, 2004 and2003  |  |   | 4  |   |
|                                |  | Consolidated Statement ofChanges in Stockholders' Equity (unaudited) — For the ninemonths ended March 31, 2004 |  |   | 5  |   |
|                                |  | Consolidated Statements of Cash Flows (unaudited)— For the nine months ended March 31, 2004 and2003            |  |   | 6  |   |
|                                |  | Notes to ConsolidatedFinancial Statements (unaudited)                                                                |  |   | 7  |   |
| Item 2.                             |  | Management'sDiscussion and Analysis of Financial Condition and Results ofOperations                                  |  |   | 13 |   |
| Item 3.                             |  | Quantitativeand Qualitative Disclosures about Market Risk                                                            |  |   | 27 |   |
| Item 4.                             |  | Controls and Procedures                                                                                              |  |   | 27 |   |
| Part II — OtherInformation    |
| Item 1.                             |  | LegalProceedings                                                                                                     |  |   | 28 |   |
| Item 2.                             |  | Changes inSecurities and Use of Proceeds                                                                             |  |   | 28 |   |
| Item3.                              |  | Defaults Upon Senior Securities                                                                                      |  |   | 28 |   |
| Item 4.                             |  | Submission of Matters to a Vote of SecurityHolders                                                                   |  |   | 28 |   |
| Item 5.                             |  | OtherInformation                                                                                                     |  |   | 28 |   |
| Item 6.                             |  | Exhibits andReports on Form 8-K                                                                                      |  |   | 28 |   |
|                                |  | Signatures                                                                                                           |  |   | 29 |   |
|                                     |

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PART I —FINANCIAL INFORMATION

Item 1.     Consolidated FinancialStatements

GLOBECOMM SYSTEMS INC. CONSOLIDATED BALANCESHEETS(In thousands, except sharedata)

|                                                                                                                                       |  |              |         |               |  |        |         |         |  |  |
|---------------------------------------------------------------------------------------------------------------------------------------|--|--------------|---------|---------------|--|--------|---------|---------|--|--|
|                                                                                                                                  |  | March31,2004 |         | June 30, 2003 |
|                                                                                                                                  |  | (Unaudited)  |         |
| **Assets**                                                                                                                            |  |
| Currentassets:                                                                                                                        |  |
| Cash and cashequivalents                                                                                                              |  | $            | 26,317  |          |  | $      | 22,016  |    |
| Restrictedcash                                                                                                                        |  |         | 1,043   |          |  |   | 608     |    |
| Accountsreceivable,net                                                                                                                |  |         | 13,661  |          |  |   | 7,865   |    |
| Inventories                                                                                                                           |  |         | 8,041   |          |  |   | 10,990  |    |
| Prepaidexpenses and other currentassets                                                                                               |  |         | 1,909   |          |  |   | 2,040   |    |
| Deferredincometaxes                                                                                                                   |  |         | 125     |          |  |   | 125     |    |
| Totalcurrent assets                                                                                                                   |  |         | 51,096  |          |  |   | 43,644  |    |
| Fixedassets,net                                                                                                                       |  |         | 16,228  |          |  |   | 17,536  |    |
| Goodwill                                                                                                                              |  |         | 7,204   |          |  |   | 7,204   |    |
| Otherassets                                                                                                                           |  |         | 1,246   |          |  |   | 1,960   |    |
| Totalassets                                                                                                                           |  | $            | 75,774  |          |  | $      | 70,344  |    |
| **Liabilitiesand Stockholders' Equity**                                                                                               |  |
| Currentliabilities:                                                                                                                   |  |
| Accountspayable                                                                                                                       |  | $            | 16,647  |          |  | $      | 10,615  |    |
| Deferredrevenues                                                                                                                      |  |         | 1,884   |          |  |   | 7,666   |    |
| Accruedpayroll and related fringebenefits                                                                                             |  |         | 1,460   |          |  |   | 1,114   |    |
| Otheraccruedexpenses                                                                                                                  |  |         | 2,058   |          |  |   | 1,686   |    |
| Deferredliabilities                                                                                                                   |  |         | 317     |          |  |   | 523     |    |
| Totalcurrentliabilities                                                                                                               |  |         | 22,366  |          |  |   | 21,604  |    |
| Deferredliabilities, less currentportion                                                                                              |  |         | 1,066   |          |  |   | 1,303   |    |
| Commitmentsandcontingencies                                                                                                           |  |
| Stockholders'equity:                                                                                                                  |  |
| Series A Junior Participating, sharesauthorized, issued and outstanding: none at March 31, 2004 and June 30,2003                      |  |         | — |          |  |   | — |    |
| Commonstock, $.001 par value, 22,000,000 shares authorized, shares issued:14,598,383 at March 31, 2004 and 12,980,108 at June 30,2003 |  |         | 15      |          |  |   | 13      |    |
| Additional paid-incapital                                                                                                             |  |         | 130,388 |          |  |   | 123,739 |    |
| Accumulateddeficit                                                                                                                    |  |         | (75,575 | )        |  |   | (73,857 | )  |
| Accumulatedother comprehensive income(loss)                                                                                           |  |         | 295     |          |  |   | (10     | )  |
| Treasurystock, at cost, 465,351 shares at March 31, 2004 and 403,845 at June30,2003                                                   |  |         | (2,781  | )        |  |   | (2,448  | )  |
| Totalstockholders'equity                                                                                                              |  |         | 52,342  |          |  |   | 47,437  |    |
| Totalliabilities and stockholders'equity                                                                                              |  | $            | 75,774  |          |  | $      | 70,344  |    |
|                                                                                                                                       |

Seeaccompanying notes.

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GLOBECOMM SYSTEMS INC.CONSOLIDATEDSTATEMENTS OF OPERATIONS(In thousands, except per share data)(Unaudited)

|                                                                                              |  |                   |         |                   |  |                |         |               |  |        |         |         |  |        |         |         |  |  |
|----------------------------------------------------------------------------------------------|--|-------------------|---------|-------------------|--|----------------|---------|---------------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                                         |  | ThreeMonths Ended |         | Nine Months Ended |
|                                                                                         |  | March 31, 2004    |         | March 31, 2003    |  | March 31, 2004 |         | March31, 2003 |
| Revenues from ground segment systems,networks and enterprisesolutions                        |  | $                 | 18,956  |              |  | $              | 9,231   |          |  | $      | 55,878  |    |  | $      | 29,249  |    |
| Revenuesfrom data communicationsservices                                                     |  |              | 3,305   |              |  |           | 3,261   |          |  |   | 10,544  |    |  |   | 10,733  |    |
| Totalrevenues                                                                                |  |              | 22,261  |              |  |           | 12,492  |          |  |   | 66,422  |    |  |   | 39,982  |    |
| Costsand operating expenses:                                                                 |  |
| Costs from groundsegment systems, networks and enterprisesolutions                           |  |              | 16,180  |              |  |           | 8,967   |          |  |   | 49,282  |    |  |   | 27,446  |    |
| Costsfrom data communicationsservices                                                        |  |              | 3,138   |              |  |           | 3,697   |          |  |   | 9,611   |    |  |   | 14,470  |    |
| Sellingandmarketing                                                                          |  |              | 1,219   |              |  |           | 1,513   |          |  |   | 3,461   |    |  |   | 4,760   |    |
| Researchanddevelopment                                                                       |  |              | 242     |              |  |           | 131     |          |  |   | 953     |    |  |   | 553     |    |
| Generalandadministrative                                                                     |  |              | 2,118   |              |  |           | 2,277   |          |  |   | 5,115   |    |  |   | 6,651   |    |
| Totalcosts and operatingexpenses                                                             |  |              | 22,897  |              |  |           | 16,585  |          |  |   | 68,422  |    |  |   | 53,880  |    |
| Lossfromoperations                                                                           |  |              | (636    | )            |  |           | (4,093  | )        |  |   | (2,000  | )  |  |   | (13,898 | )  |
| Otherincome (expense):                                                                       |  |
| Interestincome                                                                               |  |              | 63      |              |  |           | 73      |          |  |   | 191     |    |  |   | 359     |    |
| Interestexpense                                                                              |  |              | — |              |  |           | (76     | )        |  |   | — |    |  |   | (539    | )  |
| Gainon sale of available-for-salesecurities                                                  |  |              | — |              |  |           | — |          |  |   | 91      |    |  |   | — |    |
| Netloss                                                                                      |  | $                 | (573    | )            |  | $              | (4,096  | )        |  | $      | (1,718  | )  |  | $      | (14,078 | )  |
| Basicand diluted net loss per commonshare                                                    |  | $                 | (0.04   | )            |  | $              | (0.33   | )        |  | $      | (0.13   | )  |  | $      | (1.12   | )  |
| Weighted-average shares usedin the calculation of basic and diluted net loss per commonshare |  |              | 14,100  |              |  |           | 12,557  |          |  |   | 13,080  |    |  |   | 12,569  |    |
|                                                                                              |

Seeaccompanying notes.

4

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GLOBECOMM SYSTEMS INC.CONSOLIDATEDSTATEMENT OF CHANGES IN STOCKHOLDERS' EQUITYFOR THE NINEMONTHS ENDED MARCH 31, 2004 (In thousands)(Unaudited)

|                                                                                                        |  |                                                             |        |                            |  |                     |        |                                              |  |                                        |         |                           |  |        |         |         |  |        |        |         |  |        |        |        |  |        |        |         |  |        |        |         |  |  |
|--------------------------------------------------------------------------------------------------------|--|-------------------------------------------------------------|--------|----------------------------|--|---------------------|--------|----------------------------------------------|--|----------------------------------------|---------|---------------------------|--|--------|---------|---------|--|--------|--------|---------|--|--------|--------|--------|--|--------|--------|---------|--|--------|--------|---------|--|--|
|                                                                                                   |  |         CommonStock |        | Additional Paid-in Capital |  | Accumulated Deficit |        | AccumulatedOther Comprehensive Income (Loss) |  |     Treasury Stock |         | TotalStockholders' Equity |
|                                                                                                   |  | Shares                                                      |        | Amount                     |  | Shares              |        | Amount                                       |  |
| Balance at June 30,2003                                                                                |  |                                                        | 12,980 |                       |  | $                   | 13     |                                         |  | $                                      | 123,739 |                      |  | $      | (73,857 | )  |  | $      | (10    | )  |  |   | 404    |   |  | $      | (2,448 | )  |  | $      | 47,437 |    |
| Proceedsfrom exercise of stockoptions                                                                  |  |                                                        | 99     |                       |  |                |   |                                         |  |                                   | 419     |                      |  |   |    |    |  |   |   |    |  |   |   |   |  |   |   |    |  |   | 419    |    |
| Issuanceof common stock in connection with employee stock purchaseplan                                 |  |                                                        | 19     |                       |  |                |   |                                         |  |                                   | 54      |                      |  |   |    |    |  |   |   |    |  |   |   |   |  |   |   |    |  |   | 54     |    |
| Issuanceof stock options forservices                                                                   |  |                                                        |   |                       |  |                |   |                                         |  |                                   | 8       |                      |  |   |    |    |  |   |   |    |  |   |   |   |  |   |   |    |  |   | 8      |    |
| Purchasesof treasurystock                                                                              |  |                                                        |   |                       |  |                |   |                                         |  |                                   |    |                      |  |   |    |    |  |   |   |    |  |   | 61     |   |  |   | (333   | )  |  |   | (333   | )  |
| Issuanceof common stock and warrants in connection with private placement, netof issuance costs of$580 |  |                                                        | 1,500  |                       |  |                | 2      |                                         |  |                                   | 6,168   |                      |  |   |    |    |  |   |   |    |  |   |   |   |  |   |   |    |  |   | 6,170  |    |
| Comprehensiveloss:                                                                                     |  |
| Netloss                                                                                                |  |                                                        |   |                       |  |                |   |                                         |  |                                   |    |                      |  |   | (1,718  | )  |  |   |   |    |  |   |   |   |  |   |   |    |  |   | (1,718 | )  |
| Gainfrom foreign currencytranslation                                                                   |  |                                                        |   |                       |  |                |   |                                         |  |                                   |    |                      |  |   |    |    |  |   | 110    |    |  |   |   |   |  |   |   |    |  |   | 110    |    |
| Unrealizedgain on available-for-salesecurities                                                         |  |                                                        |   |                       |  |                |   |                                         |  |                                   |    |                      |  |   |    |    |  |   | 195    |    |  |   |   |   |  |   |   |    |  |   | 195    |    |
| Totalcomprehensiveloss                                                                                 |  |                                                        |   |                       |  |                |   |                                         |  |                                   |    |                      |  |   |    |    |  |   |   |    |  |   |   |   |  |   |   |    |  |   | (1,413 | )  |
| Balanceat March 31,2004                                                                                |  |                                                        | 14,598 |                       |  | $                   | 15     |                                         |  | $                                      | 130,388 |                      |  | $      | (75,575 | )  |  | $      | 295    |    |  |   | 465    |   |  | $      | (2,781 | )  |  | $      | 52,342 |    |
|                                                                                                        |

Seeaccompanying notes.

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GLOBECOMM SYSTEMS INC.CONSOLIDATEDSTATEMENTS OF CASH FLOWS(In thousands)(Unaudited)

|                                                                                  |  |                  |         |              |  |        |         |         |  |  |
|----------------------------------------------------------------------------------|--|------------------|---------|--------------|--|--------|---------|---------|--|--|
|                                                                             |  | NineMonths Ended |
|                                                                             |  | March31, 2004    |         | March31,2003 |
| **OPERATINGACTIVITIES:**                                                         |  |
| Netloss                                                                          |  | $                | (1,718  | )       |  | $      | (14,078 | )  |
| Adjustmentsto reconcile net loss to net cash used in operatingactivities:        |  |
| Depreciation andamortization                                                     |  |             | 2,346   |         |  |   | 2,883   |    |
| Changein bad debtexpense                                                         |  |             | (901    | )       |  |   | 108     |    |
| Gain onsale of available-for-salesecurities                                      |  |             | (91     | )       |  |   | — |    |
| Stockcompensationexpense                                                         |  |             | 8       |         |  |   | — |    |
| Change indeferredliabilities                                                     |  |             | (443    | )       |  |   | (1,641  | )  |
| Gainon termination of capitallease                                               |  |             | — |         |  |   | (959    | )  |
| Forgivenessof promissory note to a relatedparty                                  |  |             | 64      |         |  |   | — |    |
| Changesin operating assets and liabilities:                                      |  |
| Accountsreceivable                                                               |  |             | (4,859  | )       |  |   | 4,377   |    |
| Inventories                                                                      |  |             | 3,200   |         |  |   | (3,060  | )  |
| Prepaidexpenses and other currentassets                                          |  |             | 39      |         |  |   | 335     |    |
| Otherassets                                                                      |  |             | 350     |         |  |   | (1,103  | )  |
| Accountspayable                                                                  |  |             | 5,827   |         |  |   | (3,315  | )  |
| Deferredrevenues                                                                 |  |             | (5,840  | )       |  |   | 2,321   |    |
| Accruedpayroll and related fringebenefits                                        |  |             | 341     |         |  |   | 339     |    |
| Otheraccruedexpenses                                                             |  |             | 370     |         |  |   | 130     |    |
| Netcash used in operatingactivities                                              |  |             | (1,307  | )       |  |   | (13,663 | )  |
| **INVESTINGACTIVITIES:**                                                         |  |
| Purchases of fixedassets                                                         |  |             | (1,033  | )       |  |   | (776    | )  |
| Repayment ofpromissory note from a relatedparty                                  |  |             | 300     |         |  |   | — |    |
| Proceeds from saleof available-for-salesecurities                                |  |             | 391     |         |  |   | — |    |
| Restrictedcash                                                                   |  |             | (433    | )       |  |   | — |    |
| Netcash used in investingactivities                                              |  |             | (775    | )       |  |   | (776    | )  |
| **FINANCINGACTIVITIES:**                                                         |  |
| Proceeds from privateplacement                                                   |  |             | 6,170   |         |  |   | — |    |
| Proceedsfrom sale of common stock in connection with employee stock purchaseplan |  |             | 54      |         |  |   | 81      |    |
| Purchases of treasurystock                                                       |  |             | (333    | )       |  |   | (181    | )  |
| Proceeds fromexercise of stockoptions                                            |  |             | 419     |         |  |   | — |    |
| Payments undercapitallease                                                       |  |             | — |         |  |   | (270    | )  |
| Netcash provided by (used in) financingactivities                                |  |             | 6,310   |         |  |   | (370    | )  |
| Effectof foreign currency translation oncash                                     |  |             | 73      |         |  |   | 3       |    |
| Netincrease (decrease) in cash and cashequivalents                               |  |             | 4,301   |         |  |   | (14,806 | )  |
| Cash andcash equivalents at beginning ofperiod                                   |  |             | 22,016  |         |  |   | 38,708  |    |
| Cashand cash equivalents at end ofperiod                                         |  | $                | 26,317  |         |  | $      | 23,902  |    |
|                                                                                  |

Seeaccompanying notes.

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GLOBECOMM SYSTEMSINC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31,2004 (Unaudited)

1.    Basis of Presentation

The accompanying unaudited consolidated financial statements havebeen prepared in accordance with accounting principles generallyaccepted in the United States for interim financial information and inaccordance with the instructions to Form 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all of the informationand footnotes required by accounting principles generally accepted inthe United States for complete financial statements. In the opinion ofmanagement, all material adjustments (consisting of normal recurringadjustments) considered necessary for a fair presentation of theresults for such periods have been included. The consolidated balancesheet at June 30, 2003 has been derived from the audited consolidatedfinancial statements at that date but does not include all of theinformation and footnotes required by accounting principles generallyaccepted in the United States for complete financial statements. Theresults of operations for the three and nine months ended March 31,2004, are not necessarily indicative of the results that may beexpected for the full fiscal year ending June  30, 2004, or forany future period.

The accompanying consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements of the Company for the fiscal year ended June 30,2003 and the accompanying notes thereto contained in theCompany's Annual Report on Form 10-K, filed with the Securitiesand Exchange Commission on September 29, 2003.

Principles ofConsolidation

The consolidated financial statements includethe accounts of the Company and its wholly-owned subsidiaries, NetSatExpress, Inc., or NetSat, and Globecomm Systems Europe Limited(collectively, the "Company"). Allsignificant intercompany balances and transactions have been eliminatedin consolidation.

Sale of Stock by Subsidiary

The Company recognizes changes in the ownership percentage of itssubsidiaries caused by issuances of the subsidiary's stock as anadjustment to additional paid-in capital in the consolidated statementof changes in stockholders' equity.

AccountingEstimates

The preparation of financial statements inconformity with accounting principles generally accepted in the UnitedStates requires management to make estimates and assumptions thataffect the amounts reported in the consolidated financial statementsand accompanying notes. Actual results could differ from thoseestimates.

Revenue Recognition

The Companyrecognizes revenue in accordance with Staff Accounting Bulletin No. 104("SAB 104"), Revenue Recognition, for itsproduction-type contracts that are sold separately as standardsatellite ground segment systems when persuasive evidence of anarrangement exists, the selling price is fixed or determinable,collectibility is reasonably assured, delivery has occurred and thecontractual performance specifications have been met. TheCompany's standard satellite ground segment systems produced inconnection with these contracts are typically short-term (less thantwelve months in term) and manufactured using a standard modularproduction process. Such systems require less engineering, drafting anddesign efforts than the Company's long-term complexproduction-type projects. Revenue is recognized on the Company'sstandard satellite ground segment systems upon shipment and acceptanceof factory performance testing which is when title transfers to thecustomer. The amount of revenues 

7

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recorded on each standard production-typecontract is reduced by the customers' contractual holdbackamount, which typically requires 10% to 30% of thecontract value to be retained by the customer until installation andfinal acceptance is complete. The customer generally becomes obligatedto pay 70% to 90% of the contract value upon shipment andacceptance of factory performance testing. Installation is not deemedto be essential to the functionality of the system since installationdoes not require significant changes to the features or capabilities ofthe system, does not require complex software integration andinterfacing and the Company has not experienced any difficultiesinstalling such equipment. In addition, the customer or other thirdparty vendors can install the system. The estimated relative fair valueof the installation services is determined by management, which istypically less than the customer's contractual holdbackpercentage. If the holdback is less than the fair value ofinstallation, the Company will defer recognition of revenues,determined on a contract-by-contract basis equal to the fair value ofthe installation services. Payments received in advance by customersare deferred until shipment and are presented as deferred revenues inthe accompanying consolidated balance sheets.

The Companyrecognizes revenue using the percentage-of-completion method ofaccounting upon the achievement of certain contractual milestones inaccordance with Statement of Position 81-1 ("SOP81-1"), Accounting for Performance of Construction-Typeand Certain Production-Type Contracts, for its non-standard, complexproduction-type contracts for the production of satellite groundsegment systems and equipment that are generally integrated into thecustomers' satellite ground segment network. The equipment andsystems produced in connection with these contracts are typicallylong-term (in excess of twelve months in term) and require significantcustomer-specific engineering, drafting and design effort in order toeffectively integrate all of the customizable earth station equipmentinto the customers' ground segment network. These contractsgenerally have larger contract values, greater economic risks andsubstantive specific contractual performance requirements due to theengineering and design complexity of such systems and relatedequipment. Progress payments received in advance by customers arenetted against the inventory balances in the accompanying consolidatedbalance sheets.

Contract costs generally include purchasedmaterial, direct labor, overhead and other indirect costs. Anticipatedcontract losses are recognized, as they become known.

Revenuesfrom data communications services are derived primarily from Internetaccess service fees. Service revenues from Internet access arerecognized ratably over the period in which services are provided.Payments received in advance of providing Internet access services aredeferred until the period such services are provided and are presentedas deferred revenues in the accompanying consolidated balancesheets.

Costs from Ground Segment Systems, Networks andEnterprise Solutions

Costs from ground segment systems,networks and enterprise solutions consist primarily of the costs ofpurchased materials (including shipping and handling costs), directlabor and related overhead expenses, project-related travel and livingcosts and subcontractor salaries.

Costs from DataCommunications Services

Costs from data communicationsservices relating to Internet access service fees consist primarily ofsatellite space segment charges, Internet connectivity fees and networkoperations expenses. Satellite space segment charges consist of thecosts associated with obtaining satellite bandwidth (the measure ofcapacity) used in the transmission of services to and from thesatellite leased from operators and network operations expenses.Network operations expenses consist primarily of costs associated withthe operation of the Network Operation Center, on a twenty-four hour aday, seven-day a week basis, including personnel and related costs anddepreciation.

Research and Development

Researchand development expenditures are expensed as incurred.

Stock-Based Compensation

The Company accounts forstock option grants using the intrinsic value method prescribed inAccounting Principles Board Opinion No. 25 ("APBO No.25"), Accounting for Stock Issued to 

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Employees, and complies with the disclosureprovisions of Statement of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation ("SFAS No.123"), as amended by SFAS No. 148, Accounting forStock-Based Compensation-Transition and Disclosure ("SFASNo. 148").

Goodwill

Goodwillrepresents the excess of the purchase price over the fair value of thenet assets acquired. In accordance with Statement of FinancialAccounting Standards No. 142, Goodwill and Other Intangible Assets("SFAS No. 142"), goodwill and otherindefinite life intangible assets are no longer amortized, but insteadtested for impairment at least annually.

The net carrying valueof goodwill was approximately $7,204,000, at March 31, 2004 and June30, 2003, which relates to the buyback of the minority interests ofNetSat.

Comprehensive Loss

Comprehensive lossfor the three and nine months ended March 31, 2004 of approximately$519,000 and $1,413,000, respectively, includes a foreign currencytranslation gain of approximately $53,000 and $110,000, respectivelyand an unrealized gain on available-for-sale securities ofapproximately $195,000 for the nine months ended March 31, 2004.Comprehensive loss for the three and nine months ended March 31, 2003of approximately $4,126,000 and $14,109,000, respectively, includes aforeign currency translation (loss) gain of approximately ($17,000) and$25,000, respectively, and an unrealized loss on available-for-salesecurities of approximately $13,000 and $56,000, respectively.

Income Taxes

In assessing the realizability ofdeferred tax assets, management considers whether it is more likelythan not that some portion or all of the deferred tax assets will berealized. The ultimate realization of the net deferred tax assets isdependent upon the generation of future taxable income prior to theexpiration of any net operating loss carryforwards. For the nine monthsended March 31, 2004 and the year ended June 30, 2003, due to theuncertainty regarding the Company's ability to utilize its netoperating losses in the future, the Company provided a valuationallowance against its operating losses and temporary differences exceptfor approximately $125,000, representing state investment tax creditcarryforwards that will be utilized during fiscal 2004 to offset statecapital taxes on the Company's combined state tax return.

Product Warranties

The Company offers warrantieson its contracts, the specific terms and conditions of which varydepending upon the contract and work performed. Generally, a basiclimited warranty, including parts and labor, is provided to customersfor one year. The Company can recoup certain of these costs throughproduct warranties it holds with its original equipment manufacturers,which typically are one year in term. Historically, warranty expensehas been minimal, however, management periodically assesses the needfor any additional warranty reserve.

2.    Basic and DilutedNet Loss Per Common Share

The Company computes net loss percommon share in accordance with the provisions of SFAS No. 128,Earnings Per Share. Basic and diluted net loss per common share iscomputed by dividing the net loss for the period by the weighted-average number of common equivalent shares outstanding for the period.Common equivalent shares consist of the incremental common sharesissuable upon the conversion of preferred stock (using an if-convertedmethod) and incremental common shares issuable upon the exercise ofstock options and warrants (using the treasury stock method).Incremental common equivalent shares are excluded from the calculationof diluted net loss per common share, as their effect is anti-dilutive.Diluted net loss per common share for the three and nine months endedMarch 31, 2004 excludes the effect of approximately 491,000 and 268,000stock options, respectively, and approximately 33,000 warrants for thethree months ended March 31, 2004, as their effect would have beenanti-dilutive. Diluted net loss per common share for the three and ninemonths ended March 31, 2003 excludes the effect of approximately 100and 1,600 stock options, respectively, as their effect would have beenanti-dilutive.

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3.    Inventories

Inventoriesconsist of thefollowing:

|                                 |
|---------------------------------|
|                                 |  |  |  |  |  |  |  |  |  |  |
|                            |  | March31, 2004 |  | June 30,2003 |
|                            |  | (Unaudited) |  |   |
|                            |  | (Inthousands) |
| Raw materials andcomponentparts |  | $ | 214 |   |  | $ | 142 |   |
| Work-in-progress                |  |   | 7,827 |   |  |   | 10,848 |   |
|                            |  | $ | 8,041 |   |  | $ | 10,990 |   |
|                                 |

AtMarch 31, 2004 and June 30, 2003, there were no progress payments tonet against inventories under long-term contracts.

4.    FairValue Disclosure of Stock Options

Interim pro-forma informationregarding net loss and net loss per common share is required by SFASNo. 148, Accounting for Stock-Based Compensation - Transition andDisclosure, if the Company accounts for its stock options granted underthe intrinsic value method. The fair value of options granted under theCompany's 1997 Stock Incentive Plan was estimated at the date ofgrant using a Black-Scholes option pricing model.

TheBlack-Scholes option valuation model was developed for use inestimating the fair value of traded options, which have no vestingrestrictions and are fully transferable. In addition, option valuationmodels require the input of highly subjective assumptions, includingthe expected stock price volatility. Because the Company's stockoptions have characteristics significantly different from those oftraded options, and because changes in the subjective input assumptionscan materially affect the fair value estimate, in management'sopinion, the existing models do not necessarily provide a reliablesingle measure of the fair value of its stock options under theBlack-Scholes option valuation model.

For purposes of pro-formadisclosures, the estimated fair value of the options is amortized toexpense over the options' vesting period. The Company'spro-forma information is as follows:

|                                                     |  |                                     |        |                  |  |              |        |              |  |        |        |         |  |        |         |         |  |  |
|-----------------------------------------------------|--|-------------------------------------|--------|------------------|--|--------------|--------|--------------|--|--------|--------|---------|--|--------|---------|---------|--|--|
|                                                |  | ThreeMonths Ended                   |        | Nine MonthsEnded |
|                                                |  | March31,2004                        |        | March 31,2003    |  | March31,2004 |        | March31,2003 |
|                                                |  | (Unaudited)                         |
|                                                |  | (Inthousands, except per sharedata) |
| Reported netloss                                    |  | $                                   | (573   | )           |  | $            | (4,096 | )       |  | $      | (1,718 | )  |  | $      | (14,078 | )  |
| Pro-formastock compensationexpense                  |  |                                | (492   | )           |  |         | (594   | )       |  |   | (1,773 | )  |  |   | (2,057  | )  |
| Pro-formanetloss                                    |  | $                                   | (1,065 | )           |  | $            | (4,690 | )       |  | $      | (3,491 | )  |  | $      | (16,135 | )  |
| Reportedbasic and diluted net loss per commonshare  |  | $                                   | (0.04  | )           |  | $            | (0.33  | )       |  | $      | (0.13  | )  |  | $      | (1.12   | )  |
| Pro-formabasic and diluted net loss per commonshare |  | $                                   | (0.08  | )           |  | $            | (0.37  | )       |  | $      | (0.27  | )  |  | $      | (1.28   | )  |
|                                                     |

Duringthe three and nine months ended March 31, 2004 stock compensationexpense of $5,000 and $8,000 was included in the reported net loss,respectively. There was no stock compensation expense included in thereported net loss during the three and nine months ended March 31,2003.

5.    Private Placement

On December 31, 2003,the Company completed a private placement transaction of equitysecurities and issued 1,500,000 shares of common stock at a price of$4.50 per share for an aggregate price of $6,750,000 and issuedwarrants to purchase up to 750,000 shares of common stock at anexercise price of 

10

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$5.50 per share. The warrants are exercisableon July 1, 2004 and will expire on December 31, 2008. The Companyincurred total expenses of approximately $580,000, of whichapproximately $456,000 represented underwriting commissions andapproximately $124,000 represented other expenses. After deductingtotal expenses, the net proceeds received by the Company in January2004 were approximately $6,170,000.

6.    Related PartyTransaction

In January 2003, the Company entered into a letteragreement with an individual who is a former executive officer andcurrent employee of the Company, pursuant to which the Companyconsolidated the then outstanding loans and advances receivable fromsuch individual into a promissory note of approximately $321,000. Underthe terms of the letter agreement the Company agreed to forgive theoutstanding principal and interest amounts due on the promissory notein five annual installments, so long as the former executive officerremains an employee. In March 2004, the Company forgave the firstinstallment of approximately $64,000.

During fiscal 2002, theCompany advanced $300,000 to an officer of the Company and received apromissory note payable on September 30, 2004, which bore interest atan annual rate of 5.0% payable quarterly, and was secured by astock pledge agreement. On November 12, 2003, the officer sold 61,506shares of the Company's common stock at a fair market price of$5.41 per share to the Company in connection with its stock repurchaseprogram. On November 12, 2003, the officer paid approximately $333,000to the Company to satisfy all amounts outstanding on the promissorynote, together with accrued interest thereon.

7.    SegmentInformation

The Company operates through two business segments.Its ground segment systems, networks and enterprise solutions segment,through Globecomm Systems Inc. and Globecomm Systems Europe Limited, isengaged in the design, assembly and installation of ground segmentsystems, networks and enterprise solutions. Its data communicationsservices segment, through NetSat, is engaged in providing high-speed,satellite-delivered data communications services. NetSat also providesInternet access to customers who have limited or no access to aterrestrial network infrastructure capable of supporting the economicaldelivery of such services.

The Company's reportablesegments are business units that offer different products and services.The reportable segments are each managed separately because theyprovide distinct products and services.

The following is theCompany's business segment information for the three and ninemonths ended March 31, 2004 and 2003 and as of March 31, 2004 and June30, 2003:

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|                                                         |  |                   |         |                  |  |              |         |              |  |        |         |         |  |        |         |         |  |  |
|---------------------------------------------------------|--|-------------------|---------|------------------|--|--------------|---------|--------------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                    |  | ThreeMonths Ended |         | Nine MonthsEnded |
|                                                    |  | March31,2004      |         | March 31,2003    |  | March31,2004 |         | March31,2003 |
|                                                    |  | (Unaudited)       |
|                                                    |  | (Inthousands)     |
| Revenues:                                               |  |
| Groundsegment systems, networks and enterprisesolutions |  | $                 | 18,956  |             |  | $            | 9,231   |         |  | $      | 55,878  |    |  | $      | 29,249  |    |
| Datacommunicationsservices                              |  |              | 3,305   |             |  |         | 3,261   |         |  |   | 10,544  |    |  |   | 10,733  |    |
| Totalrevenues                                           |  | $                 | 22,261  |             |  | $            | 12,492  |         |  | $      | 66,422  |    |  | $      | 39,982  |    |
| Lossfrom operations:                                    |  |
| Ground segment systems,networks and enterprisesolutions |  | $                 | (89     | )           |  | $            | (2,735  | )       |  | $      | (1,826  | )  |  | $      | (7,412  | )  |
| Datacommunicationsservices                              |  |              | (551    | )           |  |         | (1,362  | )       |  |   | (186    | )  |  |   | (6,496  | )  |
| Interestincome                                          |  |              | 63      |             |  |         | 73      |         |  |   | 191     |    |  |   | 359     |    |
| Interestexpense                                         |  |              | — |             |  |         | (76     | )       |  |   | — |    |  |   | (539    | )  |
| Gainon sale of available-for-salesecurities             |  |              | — |             |  |         | — |         |  |   | 91      |    |  |   | — |    |
| Intercompanyeliminations                                |  |              | 4       |             |  |         | 4       |         |  |   | 12      |    |  |   | 10      |    |
| Netloss                                                 |  | $                 | (573    | )           |  | $            | (4,096  | )       |  | $      | (1,718  | )  |  | $      | (14,078 | )  |
| Depreciationand amortization:                           |  |
| Ground segment systems,networks and enterprisesolutions |  | $                 | 314     |             |  | $            | 299     |         |  | $      | 1,068   |    |  | $      | 1,321   |    |
| Datacommunicationsservices                              |  |              | 430     |             |  |         | 404     |         |  |   | 1,290   |    |  |   | 1,572   |    |
| Intercompanyeliminations                                |  |              | (4      | )           |  |         | (4      | )       |  |   | (12     | )  |  |   | (10     | )  |
| Totaldepreciation andamortization                       |  | $                 | 740     |             |  | $            | 699     |         |  | $      | 2,346   |    |  | $      | 2,883   |    |
| Expendituresfor long-lived assets:                      |  |
| Ground segmentsystems, networks and enterprisesolutions |  | $                 | 174     |             |  | $            | 17      |         |  | $      | 306     |    |  | $      | 88      |    |
| Datacommunicationsservices                              |  |              | 330     |             |  |         | 224     |         |  |   | 730     |    |  |   | 728     |    |
| Intercompanyeliminations                                |  |              | 22      |             |  |         | (1      | )       |  |   | (3      | )  |  |   | (40     | )  |
| Totalexpenditures for long-livedassets                  |  | $                 | 526     |             |  | $            | 240     |         |  | $      | 1,033   |    |  | $      | 776     |    |
|                                                         |

|                                                         |  |               |         |             |  |        |         |         |  |  |
|---------------------------------------------------------|--|---------------|---------|-------------|--|--------|---------|---------|--|--|
|                                                    |  | March31,2004  |         | June30,2003 |
|                                                    |  | (Unaudited)   |         |        |
|                                                    |  | (Inthousands) |
| Assets:                                                 |  |
| Groundsegment systems, networks and enterprisesolutions |  | $             | 126,382 |        |  | $      | 118,180 |    |
| Datacommunicationsservices                              |  |          | 11,218  |        |  |   | 10,405  |    |
| Intercompanyeliminations                                |  |          | (61,826 | )      |  |   | (58,241 | )  |
| Totalassets                                             |  | $             | 75,774  |        |  | $      | 70,344  |    |
|                                                         |

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Item2.    Management's Discussion and Analysis of FinancialCondition and Results of Operations.

You should read thefollowing discussion of our financial condition and results ofoperations with the consolidated financial statements and related notesincluded elsewhere in this Quarterly Report on Form 10-Q. Thisdiscussion contains, in addition to historical information,forward-looking statements, within the meaning of the PrivateSecurities Litigation Reform Act of 1995, based on our currentexpectations, assumptions, estimates and projections. Theseforward-looking statements involve risks and uncertainties. Our actualresults could differ materially from those anticipated in theseforward-looking statements as a result of certain factors, such as,among others, uncertain demand for our services and products due toeconomic and industry-specific conditions, the risks associated withoperating in international markets and our dependence on a limitednumber of contracts for a high percentage of our revenues. These risksand others are more fully described in the "RiskFactors" section of this Quarterly Report and in our otherfilings with the Securities and Exchange Commission, including ourAnnual Report on Form 10-K and Quarterly Reports on Form 10-Q. Weundertake no obligation to update publicly any forward-lookingstatements for any reason, even if new information becomes available orother events occur in the future.

Overview

Since ourinception, a majority of our revenues have been generated by our groundsegment systems, networks and enterprise solutions business. Contractsfor the ground segment systems, networks and enterprise solutions anddata communications services have been fixed-price contracts in amajority of cases. Profitability of such contracts is subject toinherent uncertainties as to the cost of performance. In addition topossible errors or omissions in making initial estimates, cost overrunsmay be incurred as a result of unforeseen obstacles, including bothphysical conditions and unexpected problems encountered in engineeringdesign and testing. Since our business is frequently concentrated in alimited number of large contracts, a significant cost overrun on anycontract could have a material adverse effect on our business,financial condition and results of operations.

Contract costsgenerally include purchased material, direct labor, overhead and otherdirect costs. Anticipated contract losses are recognized in the periodidentified. Costs from ground segment systems, networks and enterprisesolutions consist primarily of the costs of purchased materials(including shipping and handling costs), direct labor and relatedoverhead expenses, project-related travel and living costs andsubcontractor salaries. Costs from data communications services consistprimarily of satellite space segment charges, Internet connectivityfees and network operations expenses. Satellite space segment chargesconsist of the costs associated with obtaining satellite bandwidth (themeasure of capacity) used in the transmission of services to and fromthe satellite leased from operators. Network operations expensesconsist primarily of costs associated with the operation of the networkoperations center on a twenty-four hour a day, seven-day a week basis,including personnel and related costs and depreciation. Selling andmarketing expenses consist primarily of salaries, travel and livingcosts for sales and marketing personnel. Research and developmentexpenses consist primarily of salaries and related overhead expenses.General and administrative expenses consist of expenses associated withour management, finance, contract and administrative functions.

Our business had been adversely affected, and to some extentcontinues to be affected, by the recent global economic slowdown and,in particular, the significant challenges facing the telecommunicationsindustry worldwide. These challenges include excess bandwidth resultingfrom weak consumer and business demand, which had fallen far short ofexpectations, and the attendant financial distress facing bothtraditional telecommunication carriers and the new generation ofcompetitive local exchange carriers. Moreover, as a result of theuncertainties facing the economy, corporations restricted their capitalexpenditures. The reduction in demand was accompanied by pricingpressures and intensifying competition, while the financialdifficulties of industry participants and customers have created risksassociated with collectibility of accounts receivable. Recently we haveseen improvement in the segments we serve, however, some of the adverseconsequences of the downturn continue to impact pricing and competitionand we may experience a decline in bookings of contract orders ifcustomers and prospects delay projects, which will negatively impactour business and prospects in the future.

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Critical Accounting Policies

Certain of our accounting policies require judgment by management inselecting the appropriate assumptions for calculating financialestimates. By their nature, these judgments are subject to an inherentdegree of uncertainty. These judgments are based on our historicalexperience, terms of existing contracts, our observance of trends inthe industry, information provided by our customers, and informationavailable from other outside sources, as appropriate. Actual resultsmay differ from these judgments under different assumptions orconditions. Our accounting policies that require management to applysignificant judgment include:

Revenue Recognition

Werecognize revenue in accordance with SAB 104, Revenue Recognition, forour production-type contracts that are sold separately as standardsatellite ground segment systems when persuasive evidence of anarrangement exists, the selling price is fixed or determinable,collectibility is reasonably assured, delivery has occurred and thecontractual performance specifications have been met. Our standardsatellite ground segment systems produced in connection with thesecontracts are typically short-term (less than twelve months in term)and manufactured using a standard modular production process. Suchsystems require less engineering, drafting and design efforts than ourlong-term complex production-type projects. Revenue is recognized onour standard satellite ground segment systems upon shipment andacceptance of factory performance testing which is when title transfersto the customer. The amount of revenues recorded on each standardproduction-type contract is reduced by the customer's contractualholdback amount, which typically requires 10% to 30% ofthe contract value to be retained by the customer until installationand final acceptance is complete. The customer generally becomesobligated to pay 70% to 90% of the contract value uponshipment and acceptance of factory performance testing. Installation isnot deemed to be essential to the functionality of the system sinceinstallation does not require significant changes to the features orcapabilities of the equipment, does not require complex softwareintegration and interfacing and we have not experienced anydifficulties installing such equipment. In addition, the customer orother third party vendors can install the equipment. The estimatedrelative fair value of the installation services is determined bymanagement, which is typically less than the customer'scontractual holdback percentage. If the holdback is less than the fairvalue of installation, we will defer recognition of revenues,determined on a contract-by-contract basis equal to the fair value ofthe installation services. Payments received in advance by customersare deferred until shipment and are presented as deferred revenues.

We recognize revenue using the percentage-of-completion method ofaccounting upon the achievement of certain contractual milestones inaccordance with SOP 81-1, Accounting for Performance ofConstruction-Type and Certain Production-Type Contracts, for ournon-standard, complex production-type contracts for the production ofsatellite ground segment systems and equipment that are generallyintegrated into the customers' satellite ground segment network.The equipment and systems produced in connection with these contractsare typically long-term (in excess of twelve months in term) andrequire significant customer-specific engineering, drafting and designeffort in order to effectively integrate all of the customizable earthstation equipment into the customers' ground segment network.These contracts generally have larger contract values, greater economicrisks and substantive specific contractual performance requirements dueto the engineering and design complexity of such systems and relatedequipment. Progress payments received in advance by customers arenetted against the inventories balance.

Revenues from datacommunications services are derived primarily from Internet accessservice fees. Service revenues from Internet access are recognizedratably over the period in which services are provided. Paymentsreceived in advance of providing Internet access services are deferreduntil the period such services are provided and are presented asdeferred revenues.

Costs from Ground Segment Systems, Networksand Enterprise Solutions

Costs related to our production-typecontracts and our non-standard, complex production-type contracts relyon estimates based on total expected contract costs. We use estimatesof the costs applicable 

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to various elements which we believe arereasonable. Since these contract costs depend on estimates, which areassessed continually during the term of these contracts, costs aresubject to revisions as the contract progresses to completion. Revisionin cost estimates are reflected in the period in which they becomeknown. In the event an estimate indicates that a loss will be incurredat completion, we record the costs in the period identified.

Goodwill

Goodwill represents the excess of the purchaseprice over the fair value of the net assets acquired primarily from thebuyback of the minority interests of NetSat. Beginning in the fiscalyear ended June 30, 2002 with our adoption of SFAS No. 142, Goodwilland Other Intangible Assets, goodwill and other indefinite lifeintangible assets are no longer being amortized, but instead tested forimpairment at least annually.

In assessing goodwill, we mustmake assumptions regarding the estimated future cash flows and otherfactors to determine the fair value of our reporting units. Futureevents could cause us to conclude that impairment indicators exist andthat the goodwill associated with NetSat is impaired. Any resultingimpairment could have a material adverse effect on our financialcondition and results of operations.

Allowances for DoubtfulAccounts

We maintain allowances for doubtful accounts forestimated losses resulting from the inability of our customers to makerequired payments. We assess the customer's ability to pay basedon a number of factors, including our past transaction history with thecustomer and the creditworthiness of the customer. An assessment of theinherent risks in conducting our business with foreign customers isalso made since a significant portion of our revenues is international.Management specifically analyzes accounts receivable, historical baddebts, customer concentrations, customer creditworthiness and currenteconomic trends. If the financial condition of our customers were todeteriorate in the future, resulting in an impairment of their abilityto make payments, additional allowances may be required.

Inventories

Inventories consist primarily ofwork-in-progress from costs incurred in connection with specificcustomer contracts, which are stated at the lower of cost or marketvalue. In assessing the realizability of inventories, we are requiredto make estimates of the total contract costs based on the variouselements of the work-in-progress. It is possible that changes to theseestimates could cause a reduction in the net realizable value of ourinventories.

Stock-Based Compensation

We currentlymeasure compensation expense for stock option grants using theintrinsic value method prescribed in APBO No. 25, Accounting for StockIssued to Employees. Under this method, we do not record compensationexpense when stock options are granted as long as the exercise price isnot less than the fair market value of the stock when the option isgranted. In accordance with SFAS No. 123, Accounting for Stock-BasedCompensation, and SFAS No. 148, Accounting for Stock-Based Compensation- Transition and Disclosure, we disclose our pro-forma net loss andpro-forma net loss per common share as if the fair value-based methodhad been applied in measuring compensation expense for our stock optiongrants.

Variable Interest Entities

In January 2003, theFASB issued Interpretation No. 46 ("FIN 46"),"Consolidation of Variable InterestEntities", which clarifies the application of AccountingResearch Bulletin No. 51, "Consolidated FinancialStatements", relating to consolidation of certainentities. First, FIN 46 requires identification of our participation invariable interests entities ("VIE"), whichare defined as entities with a level of invested equity that is notsufficient to fund future activities to permit them to operate on astandalone basis, or whose equity holders lack certain characteristicsof a controlling financial interest. Once entities 

15

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are identified as VIE, FIN 46 sets forth amodel to evaluate potential consolidation based on an assessment ofwhich party to the VIE, if any, bears a majority of the exposure to itsexpected losses, or stands to gain from a majority of its expectedreturns. FIN 46 also sets forth certain disclosures regarding interestsin VIE that are deemed significant, even if consolidation is notrequired. This standard became effective in the third quarter of fiscal2004. The adoption of this standard did not have a material impact onour consolidated financial statements.

Results ofOperations

Three and Nine Months Ended March 31, 2004and 2003

Revenues from Ground Segment Systems, Networksand Enterprise Solutions.    Revenues increased by $9.7 million,or 105.4%, to $19.0 million for the three months ended March 31,2004 and increased by $26.6 million, or 91.0%, to $55.9 millionfor the nine months ended March 31, 2004, compared to $9.2 million and$29.2 million for the three and nine months ended March 31, 2003,respectively. The increase in revenues was primarily the result ofincreased infrastructure sales in the U.S. Government and governmentalagencies marketplace, coupled with increased sales activity due to ageneral overall improvement in the telecommunications industry segmentswe serve and the achievement of shipment milestones associated withprojects currently in progress.

Revenues from DataCommunications Services.    Revenues were consistent at $3.3million, for the three months ended March 31, 2004 and 2003 andremained relatively consistent at $10.5 million and $10.7 million,respectively, for the nine months ended March 31, 2004 and 2003.

Costs from Ground Segment Systems, Networks and EnterpriseSolutions.    Costs from ground segment systems, networks andenterprise solutions increased by $7.2 million, or 80.4%, to$16.2 million for the three months ended March 31, 2004 and increasedby $21.8 million, or 79.6%, to $49.3 million for the nine monthsended March 31, 2004, compared to $9.0 million and $27.4 million forthe three and nine months ended March 31, 2003, respectively. Theincrease was attributable to the higher revenue base. Costs as apercentage of related revenues decreased to 85.4% and88.2% for the three and nine months ended March 31, 2004,respectively, compared to 97.1% and 93.8% for the threeand nine months ended March 31, 2003, respectively. The decrease wasmainly attributable to cost overruns incurred on a major project duringthe three and nine months ended March 31, 2003 and increased margin onrevenues related to government and government related entities projectsduring the three and nine months ended March 31, 2004.

Costsfrom Data Communications Services.     Costs from datacommunications services decreased by $0.6 million, or 15.1%, to$3.1 million for the three months ended March 31, 2004 and decreased by$4.9 million, or 33.6%, to $9.6 million for the nine monthsended March 31, 2004, compared to $3.7 million and $14.5 million forthe three and nine months ended March 31, 2003, respectively. Costs asa percentage of related revenues decreased to 94.9% and91.2% for the three and nine months ended March 31, 2004,respectively, compared to 113.4% and 134.8% for the threeand nine months ended March 31, 2003, respectively. These decreaseswere due to agreements reached with two of our vendors during February2003 and October 2002, in which we significantly reduced our spacesegment transponder costs.

Selling and Marketing.    Selling and marketing expenses decreased by $0.3 million, or19.4%, to $1.2 million for the three months ended March 31, 2004and decreased by $1.3 million, or 27.3%, to $3.5 million for thenine months ended March 31, 2004, compared to $1.5 million and $4.8million for the three and nine months ended March 31, 2003,respectively. The decrease was principally due to a reduction insalary, salary related expenses and travel and living costs associatedwith reductions in sales and marketing personnel as part of ourcost-cutting initiatives.

Research andDevelopment.    Research and development expenses increased by$0.1 million, or 84.7%, to $0.2 million for the three monthsended March 31, 2004 and increased by $0.4 million, or 72.3%, to$1.0 million for the nine months ended March 31, 2004, compared to $0.1million and $0.6 million for the three and nine months ended March 31,2003, respectively. The increase was due to product research anddevelopment initiatives associated with projects currently in progress,research efforts in remote video monitoring systems and internaldevelopment of new monitoring and control technologies.

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General andAdministrative.    General and administrative expenses decreasedby $0.2 million, or 7.0%, to $2.1 million for the three monthsended March 31, 2004 and decreased by $1.5 million, or 23.1%, to$5.1 million for the nine months ended March 31, 2004, compared to $2.3million and $6.6 million for the three and nine months ended March 31,2003, respectively. The decrease in general and administrative expensesfor the three months ended March 31, 2004 was primarily due toexecutive incentive compensation paid in the third quarter of 2003. Thedecrease in general and administrative expenses for the nine monthsended March 31, 2004 was primarily due to the recovery of $1.0 millionin August 2003, from a former customer in the Middle East, againstwhich we previously established an allowance for uncollectible accountsreceivable during the fourth quarter of fiscal year ended June 30, 2002and a reduction of salary expenses as part of our cost cuttinginitiatives.

Interest Income.    Interest income forthe three months ended March 31, 2004 and 2003 remained consistent at$0.1 million and decreased by $0.2 million, or 46.8%, to $0.2million for the nine months ended March 31, 2004, compared to $0.4million for the nine months ended March 31, 2003. The decrease was dueto the reduction of the average balance of cash and cash equivalents,due to cash used in our operations during the twelve months ended March31, 2004, plus a reduction in the interest rates.

InterestExpense.    Interest expense decreased to zero for the three andnine months ended March 31, 2004, compared to $0.1 million and $0.5million for the three months and nine months ended March 31, 2003,respectively. The decrease was due to the termination of our capitallease obligation in February 2003.

Gain on Sale ofAvailable-For-Sale Securities.    The gain on sale ofavailable-for-sale securities of $0.1 million for the nine months endedMarch 31, 2004 related to the sale of an investment that resulted inproceeds of $0.4 million during the three months ended December 31,2003.

Liquidity and Capital Resources

At March 31, 2004,we had working capital of $28.7 million, including cash and cashequivalents of $26.3 million, restricted cash of $1.0 million, netaccounts receivable of $13.7 million, inventories of $8.0 million,prepaid expenses and other current assets of $1.9 million and deferredincome taxes of $0.1 million offset by $16.6 million in accountspayable, $1.9 million in deferred revenues and $3.9 million in accruedexpenses and other current liabilities.

Net cash used inoperating activities during the nine months ended March 31, 2004 was$1.3 million, which primarily related to the following uses of cash: adecrease in deferred revenue of $5.8 million associated with theachievement of milestone revenues relating to the increase in businesslevels, an increase in accounts receivable of $5.8 million based onsignificant billings in March 2004 and a decrease in the provision fordoubtful accounts due to the recovery of $1.0 million from a formerMiddle East customer. These uses were partially offset by the followingfactors: a decrease in inventory of $3.2 million from shipments madeassociated with the increase in business levels, an increase inaccounts payable of $5.8 million based on the timing of payments tocertain vendors and non-cash depreciation and amortization expense of$2.3 million primarily related to the network operations center andsatellite earth station equipment.

Net cash used in investingactivities during the nine months ended March 31, 2004 was $0.8million, which primarily related to the purchase of $1.0 million offixed assets mainly for our network operations center and an increasein restricted cash of $0.4 million based on a certificate of depositissued as collateral for a specific project, offset by proceedsreceived of $0.4 million from the sale of available-for-sale securitiesand a repayment of a $0.3 million promissory note from a relatedparty.

Net cash provided by financing activities during the ninemonths ended March 31, 2004 was $6.3 million. In December 2003, wecompleted a private placement transaction of equity securities where weissued 1,500,000 shares of common stock at a price of $4.50 per sharefor an aggregate price of $6,750,000 and issued warrants to purchase upto 750,000 shares of common stock at an exercise price of $5.50 pershare. We incurred total expenses of approximately $580,000, of whichapproximately $456,000 represented underwriting commissions andapproximately $124,000 represented other offering expenses. The netproceeds to the Company after deducting total expenses wereapproximately $6,170,000.

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We also received $0.5 million of proceedsfrom the exercise of stock options and sale of common stock inconnection with the employee stock purchase plan purchase, offset bythe purchase of $0.3 million of treasury stock.

In September2003, we entered into a new one-year credit agreement with our existingbank, which provides for a working capital credit facility of up to$7.5 million consisting of a $3.75 million secured domestic line ofcredit (the "Domestic Line") and a $3.75million Export-Import Bank secured guaranteed line of credit (the"EXIM Line"). We will be advanced up to80% of eligible domestic accounts receivable and 90% ofeligible foreign accounts receivable under each respective line ofcredit, as defined in the agreement. In March 2004, we amended theagreement to allow us to borrow up to $7.5 million against the DomesticLine, reduced by borrowings against the EXIM Line. The amendment alsoprovides eligibility of up to 50% of the amount of our cash andcash equivalents at the bank, up to the $7.5 million. Each line ofcredit bears interest at the greater of 6.0% or the prime rateplus 2.0% per annum, and is collateralized by a first securityinterest on all of our personal property. The credit agreement allowsus to borrow and apply letters of credit against the availability undereach line of credit. In addition, the new credit agreement containscertain financial and other covenants, deposit requirements, monthlyreporting provisions and other requirements, as defined in the creditagreement, with which we were in compliance with at March 31, 2004. Asof March 31, 2004, no borrowings were outstanding under this creditfacility, however, there were standby letters of credit ofapproximately $7.3 million, which were applied against and reduced theamounts available under this credit facility.

We lease satellitespace segment services and other equipment under various operatinglease agreements, which expire in various years through 2008. Futureminimum lease payments due on these leases through March 31, 2005 areapproximately $6.0 million.

At March 31, 2004 we had contractualobligations and commercial commitments as follows (in thousands):

|                                |  |                      |        |                 |  |           |        |           |  |              |        |        |  |        |         |        |  |        |         |        |  |  |
|--------------------------------|--|----------------------|--------|-----------------|--|-----------|--------|-----------|--|--------------|--------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|                           |  | PaymentsDue byPeriod |
|                           |  | Total                |        | Lessthan 1 year |  | 1-3 years |        | 4-5 years |  | After 5years |
| **ContractualObligations**     |  |
| Operatingleases                |  | $                    | 19,257 |            |  | $         | 5,961  |      |  | $            | 9,524  |   |  | $      | 3,772   |   |  | $      | — |   |
| Total contractualobligations   |  | $                    | 19,257 |            |  | $         | 5,961  |      |  | $            | 9,524  |   |  | $      | 3,772   |   |  | $      | — |   |
| **OtherCommercialCommitments** |  |                 |   |            |  |      |   |      |  |         |   |   |  |   |    |   |  |   |    |   |
| Standbyletters ofcredit        |  | $                    | 7,334  |            |  | $         | 3,246  |      |  | $            | 4,088  |   |  | $      | — |   |  | $      | — |   |
| Total commercialcommitments    |  | $                    | 7,334  |            |  | $         | 3,246  |      |  | $            | 4,088  |   |  | $      | — |   |  | $      | — |   |
|                                |

In fiscal 2001,we entered into two contracts with a vendor for satellite space segmentservices on satellites which were scheduled to be launched in late 2002and operational by March 2003, for a total value of approximately $6.0million. Such satellite space segment services were scheduled to beginwhen the satellite transponders were commercially operational, asdefined in the agreements. During fiscal 2003, we learned that thevendor had experienced significant delays in the planned launch andoperations dates for the satellites. As a result of these delays, wemaintained that we had a right to terminate the contracts without costand provided notification of such termination. The vendor denied ourassertion that we had a right to terminate the contracts without cost.In March 2004, we reached a settlement with the vendor wherein weagreed to terminate the contracts and use our best efforts to purchasenew space segment requirements from the vendor, for up to a totalcontracted value of $1.0 million. In the event we do not enter into$1.0 million of new contracts by March 2006, we have agreed to pay thevendor a fixed settlement amount of $0.2 million, which has beenincluded in the "Contractual Obligations"amounts shown above.

On November 7, 2001, our Board of Directorsauthorized a stock repurchase program whereby we can repurchase up to$2.0 million of our outstanding stock, representing approximately3.7% of the total shares outstanding on that date. On November12, 2003, we repurchased 61,506 shares at a fair market price of $5.41per share from an officer of our Company. Since November 2001, we haverepurchased, an aggregate of 317,606 shares for approximately $1.7million. The timing, price, quantity and manner of 

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future purchases will be at the discretion ofmanagement, depending on market conditions and other factors, subjectto compliance with the applicable securities laws.

We expectthat our cash and working capital requirements for operating activitieswill increase as we continue to implement our business strategy.Management anticipates additional working capital requirements for workin progress for orders obtained and that we may experience negativecash flows due to continued operating losses. Our expectation is thatthe working capital requirements will ease as shipments are made on neworders, although we cannot assure you as to the timing and amount ofnew orders.

NetSat has had, and may continue to have, workingcapital requirements, which have, and may continue to put pressure onour capital resources. We have implemented strategies to reduce thedrain on our resources caused by NetSat's losses. We can onlyachieve our goal of improving NetSat's working capital byimproving operating performance. We cannot assure you that we willsuccessfully improve NetSat's operating performance.

Ourfuture capital requirements will depend upon many factors, includingthe success of our marketing efforts in the ground segment systems,networks, and data communications services business, the nature andtiming of customer orders and the extent to which we must conductresearch and development efforts internally. Based on current plans, webelieve that our existing capital resources will be sufficient to meetworking capital requirements for at least the next twelve months.However, we cannot assure you that there will be no unforeseen eventsor circumstances that would consume available resources significantlybefore that time. For example, future events occurring in response tothe war with Iraq, or in connection with any other war, including,without limitation, future terrorist attacks against the United Statesor its allies or military or trade or travel disruptions impacting ourability to sell and market our products and services in the UnitedStates and internationally may impact our results of operations.Unexpected events negatively impacting international commerce,including additional conflicts in the Middle East, could defer ourability to close contracts with international customers. Additionalfunds may not be available when needed and, even if available,additional funds may be raised through financing arrangements and/orthe issuance of preferred or common stock or convertible securities onterms and prices significantly more favorable than those of thecurrently outstanding common stock, which could have the effect ofdiluting or adversely affecting the holdings or rights of our existingstockholders. If adequate funds are unavailable, we may be required todelay, scale back or eliminate some of our operating activities,including, without limitation, the timing and extent of our marketingprograms and research and development activities and further reductionsin headcount. We cannot assure you that additional financing will beavailable to us on acceptable terms, or at all.

RiskFactors

We have a history of operating losses and negativecash flow and expect our losses to continue.

We have incurredsignificant net losses since we began operating in August 1994. Weincurred net losses of $1.7 million during the nine months ended March31, 2004, $19.6 million during the fiscal year ended June 30, 2003 and$17.3 million during the fiscal year ended June 30, 2002. As of March31, 2004, our accumulated deficit was $75.6 million. We anticipate thatwe may continue to incur net losses, although we expect them to be lessin the fiscal year ending June 30, 2004 than those we incurred in thefiscal year ended June 30, 2003. Our ability to achieve and maintainprofitability will depend upon our ability to generate significantrevenues through new profitable customer contracts and the expansion ofour existing products and services, including our data communicationsservices. We cannot assure you that we will be able to obtain newprofitable customer contracts or generate significant additionalrevenues from those contracts or any new products or services that weintroduce. Even if we become profitable, we may not sustain or increaseour profits on a quarterly or annual basis in the future.

Sincesales of satellite communications equipment are dependent on the growthof communications networks, if market demand for these networksdeclines, our revenues and profitability are likely to decline.

We derive, and expect to continue to derive, a significant amount ofrevenues from the sale of satellite ground segment systems andnetworks. If the long-term growth in demand for communications networks

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does not continue to return from recentdepressed levels the demand for our satellite ground segment systemsand networks may decline or grow more slowly than we expect. As aresult, we may not be able to grow our business, our revenues maydecline from current levels and our results of operations may beharmed. The demand for communications networks and the products used inthese networks is affected by various factors, many of which are beyondour control. For example, the uncertain general economic conditionshave affected the overall rate of capital spending by our customers.Also, many companies have found it difficult to raise capital to finishbuilding their communications networks and, therefore, have placedfewer orders with our customers. The economic slowdown resulted in asoftening of demand from our customers. We cannot predict the extent towhich demand will increase. Further, increased competition amongsatellite ground segment systems and networks manufacturers hasincreased pricing pressures.

Risks associated with operating ininternational markets could restrict our ability to expand globally andharm our business and prospects.

We market and sell ourproducts and services in the United States and internationally. Weanticipate that international sales will continue to account for asignificant portion of our total revenues for the foreseeable futurewith a significant portion of the international revenue coming fromdeveloping countries. We presently conduct our international sales inthe following geographic areas: Africa, the Asia-Pacific Region,Australia, Central and South America, Eastern and Central Europe andthe Middle East. There are a number of risks inherent in conducting ourbusiness internationally, including:

|              |                                                                                                                                                                                                             |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | general political and economic instabilityin international markets, including the war in Iraq, could impede ourability to deliver our products and services to customers and harm ourresults of operations; |

|              |                                                                                                                 |
|--------------|-----------------------------------------------------------------------------------------------------------------|
| •  | changes inregulatory requirements could restrict our ability to deliver servicesto our international customers; |

|              |                                                                                                                                  |
|--------------|----------------------------------------------------------------------------------------------------------------------------------|
| •  | exportrestrictions, tariffs, licenses and other trade barriers could preventus from adequately equipping our network facilities; |

|              |                                                                                                                                           |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------|
| •  | differing technology standards acrosscountries may impede our ability to integrate our products and servicesacross international borders; |

|              |                                                                                                                                                                                                               |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | protectionist laws and business practicesfavoring local competition may give unequal bargaining leverage to keyvendors in countries where competition is scarce, significantlyincreasing our operating costs; |

|              |                                                                                                               |
|--------------|---------------------------------------------------------------------------------------------------------------|
| •  | increased expenses associated withmarketing services in foreign countries could affect our ability tocompete; |

|              |                                                                                                                                              |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| •  | relying on localsubcontractors for installation of our products and services couldadversely impact the quality of our products and services; |

|              |                                                                                              |
|--------------|----------------------------------------------------------------------------------------------|
| •  | difficulties in staffing and managingforeign operations could affect our ability to compete; |

|              |                                                                            |
|--------------|----------------------------------------------------------------------------|
| •  | potentially adverse taxes could adverselyaffect our results of operations; |

|              |                                                                           |
|--------------|---------------------------------------------------------------------------|
| •  | complex foreign laws and treaties couldaffect our ability to compete; and |

|              |                                                                                                 |
|--------------|-------------------------------------------------------------------------------------------------|
| •  | difficulties in collecting accountsreceivable could adversely affect our results of operations. |

These and other risks could impede our ability to manage ourinternational operations effectively, limit the future growth of ourbusiness, increase our costs and require significant managementattention. 

If NetSat does not execute its business strategy orif the market for its services fails to develop or develops more slowlythan it expects, our results of operations will be harmed.

NetSat's future revenues and results of operations aredependent on its execution of its business strategy and development ofthe market for its current and future services. Despite the settlementagreements, which modified and reduced our satellite bandwidthobligations, we cannot assure you that 

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the transponder space will be efficiently andsubstantially utilized or that an increase in orders will be realized.NetSat has had, and we expect will continue to have, cash requirements,which have and will decrease our cash resources. If NetSat does notefficiently and substantially utilize its transponder space capacityand increase its level of orders, its cash requirements may increaseand our results of operations will be harmed.

You should notrely on our quarterly operating results as an indication of our futureresults because they are subject to significant fluctuations, and if wefail to meet the expectations of public market analysts or investors,our stock price could decline significantly.

Our futurerevenues and results of operations may significantly fluctuate due to acombination of factors, including:

|              |                                                          |
|--------------|----------------------------------------------------------|
| •  | delays and/or a decrease in the booking ofnew contracts; |

|              |                                                                                                     |
|--------------|-----------------------------------------------------------------------------------------------------|
| •  | general political andeconomic conditions in the United States and abroad, including the warin Iraq; |

|              |                                                                       |
|--------------|-----------------------------------------------------------------------|
| •  | the length of time needed toinitiate and complete customer contracts; |

|              |                                                                     |
|--------------|---------------------------------------------------------------------|
| •  | the demand for and acceptance of ourexisting products and services; |

|              |                                                 |
|--------------|-------------------------------------------------|
| •  | thecost of providing our products and services; |

|              |                                                |
|--------------|------------------------------------------------|
| •  | market acceptance of new products andservices; |

|              |                                                                                                        |
|--------------|--------------------------------------------------------------------------------------------------------|
| •  | the mix of revenue betweenour standard products, custom-built products and our communicationsservices; |

|              |                                              |
|--------------|----------------------------------------------|
| •  | the timing of significantmarketing programs; |

|              |                                          |
|--------------|------------------------------------------|
| •  | our ability tohire and retain personnel; |

|              |                                    |
|--------------|------------------------------------|
| •  | thecompetition in our markets; and |

|              |                                                                                   |
|--------------|-----------------------------------------------------------------------------------|
| •  | difficult global economic conditions anduncertain international currency markets. |

Accordingly, youshould not rely on quarter-to-quarter comparisons of our results ofoperations as an indication of our future performance. It is possiblethat in future periods our results of operations may be belowexpectations, which could cause the trading price of our common stockto decline.

Our markets are highly competitive and we have manyestablished competitors, and we may lose market share as a result.

The markets in which we operate are highly competitive and thiscompetition could harm our ability to sell our products and services onprices and terms favorable to us. Our primary competitors in thesatellite ground segment and networks market include systemsintegrators, like IDB Systems, a division of MCI, and equipmentmanufacturers who also provide integrated systems, like AndrewCorporation and Tripoint Global.

In the end-to-endsatellite-based communication solutions and communications servicesmarkets, we compete with other satellite communication companies whoprovide similar services, like Verestar. In addition, we may competewith other communications service providers, like MCI, and satelliteowners, like Panamsat, Loral Skynet, New Skies Satellites N.V. andIntelsat. We anticipate that our competitors may develop or acquireservices that provide functionality that is similar to that provided byour services and that those services may be offered at significantlylower prices or bundled with other services. These competitors may havethe financial resources to withstand substantial price competition andmay be in a better position to endure difficult economic conditions ininternational markets, and may be able to respond more quickly than wecan to new or emerging technologies and changes in customerrequirements. Moreover, many of our competitors have more extensivecustomer bases, broader customer relationships and broader industryalliances than we do that they could use to their advantage incompetitive situations.

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The markets in which we operate havelimited barriers to entry and we expect that we will face additionalcompetition from existing competitors and new market entrants in thefuture. Moreover, our current and potential competitors haveestablished or may establish strategic relationships among themselvesor with third parties to increase the ability of their products andservices to address the needs of our current and prospective customers.Existing and new competitors with their potential strategicrelationships may rapidly acquire significant market share, which wouldharm our business and financial condition.

If the satellitecommunications industry fails to continue to develop or new technologymakes it obsolete, our business and financial condition will beharmed.

Our business is dependent on the continued success anddevelopment of satellite communications technology, which competes withterrestrial communications transport technologies like terrestrialmicrowave, coaxial cable and fiber optic communications systems. Fiberoptic communications systems have penetrated areas in which we havetraditionally provided services. If the satellite communicationsindustry fails to continue to develop, or any technological developmentsignificantly improves the cost or efficiency of competing terrestrialsystems relative to satellite systems, then our business and financialcondition would be materially harmed.

We may be unable to raiseadditional funds to meet our capital requirements in the future.

We have incurred negative cash flows from operations in each yearsince our inception. We believe that our available cash resources willbe sufficient to meet our working capital and capital expenditurerequirements through at least the next twelve months. However, ourfuture liquidity and capital requirements are difficult to predict, asthey depend on numerous factors, including the success of our existingproduct and service offerings, as well as competing technological andmarket developments. We may need to raise additional funds in order tomeet additional working capital requirements and to support additionalcapital expenditures. Should this need arise, additional funds may notbe available when needed and, even if additional funds are available,we may not find the terms favorable or commercially reasonable. Ifadequate funds are unavailable, we may be required to delay, reduce oreliminate some of our operating activities, including marketingprograms and research and development programs. If we raise additionalfunds by issuing equity securities, our existing stockholders will owna smaller percentage of our capital stock and new investors may payless on average for their securities than, and could have rightssuperior to, existing stockholders.

A limited number ofcustomer contracts account for a significant portion of our revenues,and the inability to replace a key customer contract would adverselyaffect our results of operations, business and financialcondition.

We rely on a small number of customer contracts fora large portion of our revenue. Specifically, we currently haveagreements with six customers to provide equipment and services, fromwhich we expect to generate a significant portion of our revenues. Ifany of these customers is unable to implement its business plan, themarket for its services declines, or if all or any of the customersmodifies or terminates its agreement with us, and we are unable toreplace these contracts, our results of operations, business andfinancial condition would be materially harmed.

If our productsand services are not accepted in developing countries with emergingmarkets, our revenues will be impaired.

We anticipate that asubstantial portion of the growth in the demand for our products andservices will come from customers in developing countries due to a lackof basic communications infrastructure in these countries. However, wecannot guarantee an increase in the demand for our products andservices in developing countries or that customers in these countrieswill accept our products and services at all. Our ability to penetrateemerging markets in developing countries is dependent upon variousfactors including:

|              |                                                                                                                                                                                              |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the speed at whichcommunications infrastructure, including terrestrial microwave, coaxialcable and fiber optic communications systems, which compete withsatellite-based services, is built; |

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|              |                                                                                                                          |
|--------------|--------------------------------------------------------------------------------------------------------------------------|
| •  | theeffectiveness of our local resellers and sales representatives inmarketing and selling our products and services; and |

|              |                                                          |
|--------------|----------------------------------------------------------|
| •  | the acceptance of our products andservices by customers. |

If our products and services are notaccepted, or the market potential we anticipate does not develop, ourrevenues will be impaired.

We depend upon certain key personneland we may not be able to retain these employees.

Our futureperformance depends on the continued service of our key technical,managerial and marketing personnel; in particular, David Hershberg,Kenneth Miller, Stephen Yablonski and Donald Woodring. The employmentof any of our key personnel could cease at any time.

Unauthorized use of our intellectual property by third parties maydamage our business.

We regard our trademarks, trade secretsand other intellectual property as beneficial to our success.Unauthorized use of our intellectual property by third parties maydamage our business. We rely on trademark, trade secret and patentprotection and contracts, including confidentiality and licenseagreements with our employees, customers, strategic collaborators,consultants and others to protect our intellectual property rights.Despite our precautions, it may be possible for third parties to obtainand use our intellectual property without our authorization.

Wecurrently have been granted three patents in the United States, one forremote access to the Internet using satellites, another for satellitecommunication with automatic frequency control, and most recently, wehave been granted a patent concerning a monitor and control system forsatellite communications networks and the like. We have two otherpatents pending in the United States, one for implementing facsimileand data communications using Internet protocols and another for adistributed satellite-based cellular network. We currently have onePatent Cooperation Treaty patent application pending for implementingfacsimile and data communications using Internet protocols. We alsointend to seek further patents on our technology, if appropriate. Wecannot assure you that patents will be issued for any of our pending orfuture patent applications or that any claims allowed from suchapplications will be of sufficient scope, or be issued in all countrieswhere our products and services can be sold, to provide meaningfulprotection or any commercial advantage to us. Also, our competitors maybe able to design around our patents. The laws of some foreigncountries in which our products and services are or may be developed,manufactured or sold may not protect our products and services orintellectual property rights to the same extent as do the laws of theUnited States and thus make the possibility of piracy of our technologyand products and services more likely.

We have filedapplications for trademark registration of Globecomm Systems Inc.,Globecomm, and GSI in the United States and various other countries,and have been granted registrations for some of these terms in theUnited States, Europe and Russia. We have received trademarkregistrations for NetSat in the United States, the European Community,Russia, Singapore and Brazil. We have various other trademarks andservice marks registered or pending for registration in the UnitedStates and in other countries and may seek registration of othertrademarks and service marks in the future. We cannot assure you thatregistrations will be granted from any of our pending or futureapplications, or that any registrations that are granted will preventothers from using similar trademarks in connection with related goodsand services.

Defending against intellectual propertyinfringement claims could be time consuming and expensive, and if weare not successful, could cause substantial expenses and disrupt ourbusiness.

We cannot be sure that our products, services,technologies, and advertising we employ in our business do not or willnot infringe valid patents, trademarks, copyrights or otherintellectual property rights held by third parties. We may be subjectto legal proceedings and claims from time to time relating to theintellectual property of others in the ordinary course of our business.Prosecuting infringers and defending against intellectual propertyinfringement claims could be time consuming and expensive, andregardless of whether we are or are not successful, could causesubstantial expenses and disrupt our 

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business. We may incur substantial expensesin defending against these third party claims, regardless of theirmerit. Successful infringement claims against us may result insubstantial monetary liability and/or may materially disrupt theconduct of, or necessitate the cessation of, our business.

Wemay not be able to keep pace with technological changes, which wouldmake our products and services become non-competitive andobsolete.

The telecommunications industry, includingsatellite-based communications services, is characterized by rapidlychanging technologies, frequent new product and service introductionsand evolving industry standards. If we are unable, for technological orother reasons, to develop and introduce new products and services orenhancements to existing products and services in a timely manner or inresponse to changing market conditions or customer requirements, ourproducts and services would become non-competitive and obsolete, whichwould harm our business, results of operations and financialcondition.

We depend on our suppliers, some of which are oursole or a limited source of supply, and the loss of these supplierswould materially adversely affect our business, results of operationsand financial condition.

We currently obtain most of ourcritical components and services from single or limited sources andgenerally do not maintain significant inventories or have long-term orexclusive supply contracts with our vendors. We have from time to timeexperienced delays in receiving products from vendors due to lack ofavailability, quality control or manufacturing problems, shortages ofmaterials or components or product design difficulties. We mayexperience delays in the future and replacement services or productsmay not be available when needed, or at all, or at commerciallyreasonable rates or prices. If we were to change some of our vendors,we would have to perform additional testing procedures on the serviceor product supplied by the new vendors, which would prevent or delaythe availability of our products and services. Furthermore, our costscould increase significantly if we need to change vendors. If we do notreceive timely deliveries of quality products and services, or if thereare significant increases in the prices of these products or services,it could have a material adverse effect on our business, results ofoperations and financial condition.

Our network may experiencesecurity breaches, which could disrupt our services.

Ournetwork infrastructure may be vulnerable to computer viruses,break-ins, denial of service attacks and similar disruptive problemscaused by our customers or other Internet users. Computer viruses,break-ins, denial of service attacks or other problems caused by thirdparties could lead to interruptions, delays or cessation in service toour customers. There currently is no existing technology that providesabsolute security, and the cost of minimizing these security breachescould be prohibitively expensive. We may face liability to customersfor such security breaches. Furthermore, these incidents could deterpotential customers and adversely affect existing customerrelationships.

Satellites upon which we rely may be damaged orlost, or malfunction.

The damage, loss or malfunction of any ofthe satellites used by us, or a temporary or permanent malfunction ofany of the satellites upon which we rely, would likely result in theinterruption of our satellite-based communications services. Thisinterruption would have a material adverse effect on our business,results of operations and financial condition.

Risks Related toGovernment Approvals

We are subject to many governmentregulations, and failure to comply with them will harm ourbusiness.

Operations and Use of Satellites

We aresubject to various federal laws and regulations, which may havenegative effects on our business. We operate Federal CommunicationCommission, or FCC, licensed earth stations in Hauppauge, New York,subject to the Communications Act of 1934, as amended, or the FCC Act,and the rules 

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and regulations of FCC. Pursuant to the FCCAct and rules, we have obtained and are required to maintain radiotransmission licenses from the FCC for both domestic and foreignoperations of our earth stations. We have also obtained and arerequired to maintain authorization issued under Section 214 of the FCCAct to act as a telecommunications carrier, which authorization alsoextends to NetSat. These licenses should be renewed by the FCC in thenormal course as long as we remain in compliance with FCC rules andregulations. However, we cannot guarantee that the FCC will grantadditional licenses when our existing licenses expire, nor are weassured that the FCC will not adopt new or modified technicalrequirements that will require us to incur expenditures to modify orupgrade our equipment as a condition of retaining our licenses. We arealso required to comply with FCC regulations regarding the exposure ofhumans to radio frequency radiation from our earth stations. Theseregulations, as well as local land use regulations, restrict ourfreedom to choose where to locate our earth stations. In addition,prior to a third party acquisition of us, we would need to seekapproval from the FCC to transfer the radio transmission licenses wehave obtained to the third party upon the consummation of theacquisition. However, we cannot assure you that the FCC will permit thetransfer of these licenses. These approvals may make it more difficultfor a third party to acquire us.

Foreign Ownership

Wemay, in the future, be required to seek FCC approval if foreignownership of our stock exceeds specified criteria. Failure to complywith these policies could result in an order to divest the offendingforeign ownership, fines, denial of license renewal and/or licenserevocation proceedings against the licensee by the FCC.

ForeignRegulations

Regulatory schemes in countries in which we mayseek to provide our satellite-delivered data communications servicesmay impose impediments on our operations. Some countries in which weintend to operate have telecommunications laws and regulations that donot currently contemplate technical advances in telecommunicationstechnology like Internet/intranet transmission by satellite. We cannotassure you that the present regulatory environment in any of thosecountries will not be changed in a manner, which may have a materialadverse impact on our business. Either we or our local partnerstypically must obtain authorization for each country in which weprovide our satellite-delivered data communications services. Theregulatory schemes in each country are different, and thus there may beinstances of noncompliance of which we are not aware. We cannot assureyou that our licenses and approvals are or will remain sufficient inthe view of foreign regulatory authorities, or that necessary licensesand approvals will be granted on a timely basis in all jurisdictions inwhich we wish to offer our products and services or that restrictionsapplicable thereto will not be unduly burdensome.

Regulation ofthe Internet

Due to the increasing popularity and use of theInternet, it is possible that a number of laws and regulations may beadopted at the local, national or international levels with respect tothe Internet, covering issues including user privacy and expression,pricing of products and services, taxation, advertising, intellectualproperty rights, information security or the convergence of traditionalcommunication services with Internet communications. It is anticipatedthat a substantial portion of our Internet operations will be carriedout in countries that may impose greater regulation of the content ofinformation coming into the country than that which is generallyapplicable in the United States; for example, privacy regulations in 35countries in Europe and content restrictions in countries such as thePeople's Republic of China. To the extent that we provide contentas a part of our Internet services, it will be subject to lawsregulating content. Moreover, the adoption of laws or regulations maydecrease the growth of the Internet, which could in turn decrease thedemand for our Internet services or increase our cost of doing businessor in some other manner have a material adverse effect on our business,operating results and financial condition. In addition, theapplicability of existing laws governing issues including propertyownership, copyrights and other intellectual property issues, taxation,libel, court jurisdiction and personal privacy to the Internet isuncertain. The vast majority of these laws was adopted prior to theadvent of the Internet and related technologies and, as a result, donot contemplate or address the unique 

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issues of the Internet and relatedtechnologies. Changes to these laws intended to address these issues,including some recently proposed changes, could create uncertainty inthe marketplace which could reduce demand for our products andservices, could increase our cost of doing business as a result ofcosts of litigation or increased product development costs, or could insome other manner have a material adverse effect on our business,financial condition and results of operations. For example, a UnitedStates federal law banning states from imposing sales tax on certainInternet access charges expired on October 31, 2003 and, if Congressdoes not implement new legislation reinstating the sales tax ban,states may impose sales taxes on Internet access charges, which couldadversely affect our results of operations.

TelecommunicationsTaxation, Support Requirements, and Access Charges

Alltelecommunications carriers providing domestic services in the UnitedStates are required to contribute a portion of their gross revenues forthe support of universal telecommunications services; and sometelecommunications services are subject to special taxation and tocontribution requirements to support services to special groups, likepersons with disabilities. Our services may be subject to new orincreased taxes and contribution requirements that could affect ourprofitability, particularly if we are not able to pass them through tocustomers for either competitive or regulatory reasons.

Internetservices are currently exempt from charges that long distance telephonecompanies pay for access to the networks of local telephone companiesin the United States. Efforts have been made from time to time, and maybe made again in the future, to eliminate this exemption. If theseaccess charges are imposed on telephone lines used to reach Internetservice providers and/or if flat rate telephone services for Internetaccess are eliminated or curtailed, the cost to customers who accessour satellite facilities using telephone company-provided facilitiescould increase to an extent that could discourage the demand for ourservices. Likewise, the demand for our services in other countries maybe affected by the availability and cost of local telephone or othertelecommunications facilities to reach our facilities. 

Exportof Telecommunications Equipment

The sale of our ground segmentsystems, networks, and communications services outside the UnitedStates is subject to compliance with the regulations of the UnitedStates Export Administration Regulations. The absence of comparablerestrictions on competitors in other countries may adversely affect ourcompetitive position. In addition, in order to ship our products intoother countries, the products must satisfy the technical requirementsof that particular country. If we were unable to comply with suchrequirements with respect to a significant quantity of our products,our sales in those countries could be restricted, which could have amaterial adverse effect on our business, results of operations andfinancial condition.

Risks Related to the Securities Marketsand Ownership of Our Common Stock

Our stock price is highlyvolatile.

From April 1, 2003 through March 31, 2004, ourclosing stock price ranged from a low of $2.45 per share to a high of$7.29 per share. The market price of our common stock, like that of thesecurities of many telecommunications and high technology industrycompanies, could be subject to significant fluctuations and is likelyto remain volatile based on many factors, including thefollowing:

|              |                                           |
|--------------|-------------------------------------------|
| •  | quarterly variations inoperating results; |

|              |                                                                                       |
|--------------|---------------------------------------------------------------------------------------|
| •  | announcements of newtechnology, products or services by us or any of our competitors; |

|              |                                                                                                                               |
|--------------|-------------------------------------------------------------------------------------------------------------------------------|
| •  | acceptance of satellite-basedcommunication services and Internet access services in developingcountries and emerging markets; |

|              |                                                                          |
|--------------|--------------------------------------------------------------------------|
| •  | changes in financial estimates orrecommendations by securities analysts; |

|              |                              |
|--------------|------------------------------|
| •  | general market conditions;or |

|              |                                                                          |
|--------------|--------------------------------------------------------------------------|
| •  | domestic and international economicfactors unrelated to our performance. |

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Additionally, numerous factors relatingto our business may cause fluctuations or declines in our stockprice.

The stock markets in general and the markets fortelecommunications stocks in particular, have experienced extremevolatility that has often been unrelated to the operating performanceof particular companies. These broad market fluctuations may adverselyaffect the trading price of our common stock. Accordingly, we cannotassure you that you will be able to resell the shares of common stockat any particular price, or at all.

A third party could beprevented from acquiring shares of our stock at a premium to the marketprice because of our anti-takeover provisions.

Variousprovisions with respect to votes in the election of directors, specialmeetings of stockholders, and advance notice requirements forstockholder proposals and director nominations of our amended andrestated certificate of incorporation, bylaws and Section 203 of theGeneral Corporation Law of the State of Delaware could make it moredifficult for a third party to acquire us, even if doing so might bebeneficial to our stockholders. In addition, we have a poison pill inplace and employment provisions with our senior executives have changeof control provisions that could make an acquisition of us by a thirdparty more difficult.

Item 3.    Quantitative and QualitativeDisclosures About Market Risk

We are subject to a variety ofrisks, including foreign currency exchange rate fluctuations relatingto certain purchases from foreign vendors and our wholly-ownedsubsidiary, Globecomm Systems Europe Limited, which primarily deals inBritish Pounds Sterling. In the normal course of business, we assessthese risks and have established policies and procedures to manage ourexposure to fluctuations in foreign currency values.

Ourobjective to managing the exposure to foreign currency exchange ratefluctuations is to reduce the impact of adverse fluctuations inearnings and cash flows associated with foreign currency exchangerates. Accordingly, we may utilize from time to time foreign currencyforward contracts to hedge our exposure on firm commitments denominatedin foreign currency. During the nine months ended March 31, 2004 andthe fiscal year ended June 30, 2003, we had no such foreign currencyforward contracts.

Our results of operations and cash flows aresubject to fluctuations due to changes in interest rates primarily fromour investment of available cash balances in money market funds withportfolios of investment grade corporate and government securities.Under our current positions, we do not use interest rate derivativeinstruments to manage exposure to interest rate changes.

Item4.    Controls and Procedures

Quarterly Evaluation of theCompany's Disclosure Controls and Internal Controls.

|  |           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (a)  | As of the end of the period coveredby this Quarterly Report on Form 10-Q, an evaluation was carried outunder the supervision and with the participation of senior management,including our Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of the design and operation of our disclosurecontrols and procedures (as defined in Rules 13a- 14(c) and 15d- 14(c)under the Securities Exchange Act of 1934, as amended). Based upon thatevaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures are effective forgathering, analyzing and disclosing the information that the Company isrequired to disclose in reports filed under the Securities Exchange Actof 1934, as amended. |

|  |           |                                                                                                                                                                                                                                                                                                                                                                                                   |
|--|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (b)  | There havebeen no significant changes in the Company's internal controlsover financial reporting (as defined in Exchange Act Rule 13a-15(f) ofthe Securities Exchange Act of 1934, as amended) or in other factorsduring the fiscal quarter ended March 31, 2004 that materiallyaffected, or are reasonably likely to materially affect, theCompany's internal controls over financial reporting. |

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Part II — Other Information

|                   |                      |
|-------------------|----------------------|
| **Item 1.**  | **LegalProceedings** |

None

|                  |                                              |
|------------------|----------------------------------------------|
| **Item2.**  | **Changes in Securities and Use ofProceeds** |

None

|                  |                                     |
|------------------|-------------------------------------|
| **Item3.**  | **Defaults Upon Senior Securities** |

None

|                  |                                                        |
|------------------|--------------------------------------------------------|
| **Item4.**  | **Submission of Matters to a Vote ofSecurity Holders** |

None

|                  |                       |
|------------------|-----------------------|
| **Item5.**  | **Other Information** |

None

|                  |                                      |
|------------------|--------------------------------------|
| **Item6.**  | **Exhibits and Reports on Form 8-K** |

**(a)    Exhibits**

Index toExhibits:

Exhibit No.

|            |                                                                                                                                                |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1  | Chief Executive OfficerCertification required by Rules 13a-14 and 15d-14 under the SecuritiesExchange Act of 1934, as amended (filedherewith). |

|            |                                                                                                                                                   |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2  | Chief FinancialOfficer Certification required by Rules 13a- 14 and 15d- 14 under theSecurities Exchange Act of 1934, as amended (filed herewith). |

|          |                                                                                                                                        |
|----------|----------------------------------------------------------------------------------------------------------------------------------------|
| 32  | Certification Pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 (filed herewith). |

**(b)    Reports onForm 8-K**

None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalfby the undersigned thereunto duly authorized.

|  | **GLOBECOMM SYSTEMS INC.**(Registrant) |
|--|----------------------------------------|

|                   |  |                                                                                                                |  |  |  |  |
|-------------------|--|----------------------------------------------------------------------------------------------------------------|--|--|--|--|
| Date:May 17,2004  |  | /s/DAVID E. HERSHBERG                                                                                          |
|              |  | David E.HershbergChairman of the Board andChief ExecutiveOfficer(Principal Executive Officer)                  |
| Date: May 17,2004 |  | /s/ ANDREW C. MELFI                                                                                            |
|              |  | Andrew C. Melfi VicePresident, Chief Financial Officer and Treasurer(PrincipalFinancial and AccountingOfficer) |
|                   |

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Index toExhibits:

Exhibit No.

|            |                                                                                                                                                 |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1  | Chief Executive Officer Certificationrequired by Rules 13a-14 and 15d-14 under the Securities Exchange Actof 1934, as amended (filed herewith). |

|            |                                                                                                                                                   |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2  | Chief Financial Officer Certificationrequired by Rules 13a- 14 and 15d- 14 under the Securities Exchange Actof 1934, as amended (filed herewith). |

|          |                                                                                                                                        |
|----------|----------------------------------------------------------------------------------------------------------------------------------------|
| 32  | Certification Pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 (filed herewith). |

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