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

FORM 10-K

 ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

For the fiscal year ended June 30, 2004

OR

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

Commission File Number000-22839

GLOBECOMM SYSTEMS INC. (Exact name of registrantas specified in its charter)

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| Delaware(State or other jurisdiction of incorporation or organization) |  | 11-3225567 (I.R.S. Employer IdentificationNo.) |
| 45 Oser Avenue,Hauppauge, NY (Address of principal executive offices)  |  | 11788 (Zip Code)                               |
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Registrant'stelephone number, including area code: (631) 231-9800

Securities registered pursuant to Section 12(b) of the Act:

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| Titleof each class |  | Name of each exchange on whichregistered |
| None               |  | None                                     |
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Securities registered pursuant toSection 12(g) of the Act:Common Stock, $.001 par value(Title of class)

Indicate by check mark whether the registrant:(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes  No 

Indicate by a checkmark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, tothe best of registrant's knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. 

Indicateby check mark whether the registrant is an accelerated filer (asdefined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes No 

As of September 23, 2004, there were14,832,024 shares of the registrant's common stock, $0.001 parvalue, outstanding, and the aggregate market value of the voting stockheld by non-affiliates of the registrant was approximately $100.7million based on the last reported sale price on the Nasdaq NationalMarket on that date.

DOCUMENTS INCORPORATED BY REFERENCE

The Proxy Statement of Globecomm Systems Inc. relative to the 2004Annual Meeting of Stockholders to be held on November 17, 2004, isincorporated by reference into Part III of this Annual Report on Form10-K.

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PART I

Item1.    Business

Overview

Globecomm Systems Inc., orGlobecomm, was incorporated in Delaware in August 1994. We provideend-to-end value-added satellite-based communication solutions byleveraging our core satellite ground segment systems and networkcapabilities, with the satellite communication services capabilitiesthat are generally provided by our wholly-owned subsidiary, NetSatExpress, Inc., or NetSat. The solutions we offer include generalcontracted complex communications networks, militarized commercial offthe shelf products and services, voice over Internet Protocol (orVOIP), video broadcast, business recovery, satellite based terrestrialrestoral, content delivery and other networks on a global basis. Toprovide these solutions, we engineer all the necessary satellite andterrestrial facilities as well as provide the integration servicesrequired to implement those facilities. We also operate and maintainthese communications services on an ongoing basis. Our customersgenerally have network service requirements that require point-to-pointor point-to-multipoint connections via a hybrid network of satelliteand terrestrial facilities, and include communications serviceproviders, commercial enterprises, Internet Service Providers, or ISPs,content providers and government entities. Our solutions business isbuilt on the foundation of our core business as a supplier of groundsegment systems and networks for satellite-based communications. Weprovide these ground segment systems and networks on a contract basis.These implementations include the necessary hardware and software tosupport a wide range of network applications using satellite, broadcastand terrestrial technologies.

Solutions and Products

Our Ground Segment Systems and Networks

Wedesign, engineer, integrate and install satellite-based ground segmentsystems and network solutions for the complex and changingcommunications requirements of our customers. Our satellite groundsegment systems typically consist of earth stations and ancillarysubsystems. An earth station is an integrated system consisting ofantennas, radio signal transmitting and receiving equipment,modulation/demodulation equipment, monitor and control systems andvoice, data and video network interface equipment. Our complexcommunication network solutions may include wireless local loop,microwave links or fiber optic links for the transmission ofcommunications traffic to a central office, video broadcast systems orancillary equipment, such as generators for emergency powerrequirements. Our customizable modular earth stations may be soldseparately as stand-alone ground segment systems or may be used asbuilding blocks to be integrated into a complete ground segment systemor network. We believe that this modular approach allows us to engineerour satellite ground segment systems and networks to serveclient-specific service requirements rapidly, cost-effectively andefficiently with minimal site preparation. All of our earth stationsare configurable to conform to applicable satellite standards.

Modular Building Block Earth Station MBB 2001.    Theseearth stations provide point-to-point high-capacity data links and hubsfor satellite networks. Generally, all electronics are housed in anindoor equipment enclosure.

Commercial Terminal CTF2001TM    This family of earth stations encompasses arange of general purpose, medium-capacity earth stations, and isprincipally used by corporate, common carrier and government networks.Generally, all radio frequency electronics are housed in weatherproofenclosures mounted on the antenna. The satellite modem is housed in anindoor equipment enclosure.

Compact Earth Station CES2001TM    We designed this family of digital earthstations to be used principally to provide limited capacity to areaswith limited or no telecommunications infrastructure. These earthstations integrate radio frequency and satellite modem components intoone antenna mounted package.

MIL-COTS Transportable EarthStationsTM    We designed this family of militarizedtransportable earth stations primarily for United States andinternational government customers. This transportable 

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system group is comprised of transportable andflyaway earth stations designed to be quickly deployed and operatedanywhere in the world in military tactical environments. The latestmodels include auto-acquisition flyaway satellite terminals and HMMWV(High-Mobility Multipurpose Wheeled Vehicle) mounted satelliteterminals that incorporate the latest commercial off the shelf, orCOTS, satellite equipment technology that meet the stringentrequirements of military tactical operations.

OurCommunications Services

We tailor our communicationservices to meet our customers' needs by offering standardizedservices and custom-engineered solutions. Our standardized services maybe sold separately or may be used as building blocks as a part of acustom-engineered solution. We use our expertise in satellitecommunications, Internet Protocol, communications networks andinformation technology in designing our custom-engineeredsolutions.

Globally, telecommunications networks are movingrapidly toward Internet Protocol based networks and services based onthe lower cost of implementation and the flexibility these networksoffer. Satellite-based communications complement this trend as many ofthe regions in the world lack the next generation terrestrial networksrequired to accommodate the rapid and reliable transmission of the vastamounts of information underlying the growth in traffic. We are anetwork service provider that offers next generation network servicesto communication service providers, ISPs, enterprises, broadcasters andgovernments around the world. We combine satellite and terrestrialcommunications networks to provide customers high-speed access servicesto the United States Internet backbone, corporate headquarters,government offices, as well as the public switched telephone network.We currently have customers for which we are providing such networkservices in Africa, the Middle East, Central and South America, Easternand Central Europe and the Asia Pacific Region.

Standardized Services

SkyborneSM    This service offering providespoint to multipoint content delivery of multimedia content. Skyborne isa video, audio and data satellite solution that serves retailers,enterprises, broadcasters, and government agencies. SkyBorne'smission is to provide highly customized and cost-effective broadcastand value-added solutions to these market segments. There are a numberof market trends that may require the SkyBorne solution. Certainretailers are implementing video promotions within their retail outletsand have developed cost models that are leading them to deploynationwide digital signage networks. Corporations are using streamingand stored video for training and internal communications and arefinding that their current terrestrial infrastructures are not able tomeet the demands of video. Retailers desire customization of video andaudio in their outlets and are looking for technologies which allowincreased flexibility and customization. Training has become a moreimportant focus for many enterprises, especially retailers, due toincreased rates of turnover and the quickening pace of market andtechnology changes.

Access PlusTM    Thisservice offering provides point to point and point to multipointInternet connectivity for ISPs, service providers, broadcast,government and enterprise customers. These services provideasymmetrical forward and return links optimized for Internetapplications. We offer two way satellite Internet connectivity as wellas one way satellite Internet connectivity with terrestrial return. OurInternet access services, marketed under the Access PlusTMbrand name, provide high-speed access to the United States Internetbackbone. As part of this offering we provide the necessary satellitetransmission services, terrestrial transit and routing services, earthstations and installation services.

VOIPBackhaul.    This service offering provides backboneconnectivity services for service providers in order to connect publicswitched telephone networks to international long distance carriersthrough a VOIP based satellite link. This allows service providersoverseas to contract with us to act as their gateway to a large numberof international carriers.

Video Broadcast.    Thisservice offering provides video turnaround service for a growing numberof ethnic channels in the United States for broadcasting to audiencesoverseas and for internationally produced channels for broadcasting toaudiences in the United States.

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VSAT Services.    This serviceoffers two way very small aperture terminals, or VSAT, services forInternet Access, voice services, and terrestrial network restoralservices. This service provides the backbone to a number of ourend-to-end solutions.

Field Services, Preventive Maintenanceand Help Desk.    These services are offered as part ofend-to-end solutions and as standalone services for hardware companiesand service providers. When sold to customers on a standalone basis,these outsourced services leverage the facilities and operations staffwe have in place to provide our end-to-end solutions.

Solution Offerings

We have createdcustomizable solution offerings based on our core satellite groundsegment systems and network capabilities and satellite communicationservices to serve our customers. These customizable solution offeringsinclude:

Managed Satellite–TerrestrialNetwork.    This solution allows customers to outsource entiresatellite-terrestrial based communication networks to us. We arecapable of providing a "one stop shopping"solution including licensing, facilities construction and operation andmaintenance anywhere in the world.

Next GenerationVideo Broadcasts.    We provide video broadcast services tolarge enterprises in the United States as well as to content owners.Our value proposition includes the ability to evolve to next generationInternet Protocol based video broadcast services and high qualitycustomer account management. We provide field services for theinstallation and maintenance of VSAT terminals and related facilitiesat customer locations anywhere in the world. We have created nextgeneration solutions to allow our customers to evolve their networks tointeractive distance learning, merchandizing, corporate communicationsand video on demand services.

HybridSatellite/Cellular Hosted Switch.    We are introducing thissolution to allow the sharing of the investment in the mobile switchinfrastructure and network operations expenses among many serviceprovider customers. This solution is being offered from our Long IslandInternational Teleport to customers in North and South America, Africa,Europe and the Middle East. We will implement base stationinfrastructure for our service provider customers and operate andmaintain the associated cellular switching center on an outsourcebasis. Our patent pending technology is being used for this solution,including distributed soft switch technology via satellite.

VOIP Packet Voice ("ClearPacket").    This solution provides VOIP viasatellite that provides toll quality (i.e., carrier class) voiceservices for locations where terrestrial fiber is not available orwhere it does not meet customer cost or quality requirements. We callthese "Clear Packet" voice solutions becausewe connect at the customer's end to a toll quality local switchedvoice infrastructure and we connect at our end (i.e., United Statestermination/origination point) to toll quality public switchedinfrastructure from United States carriers. We are a licensedinternational carrier and have negotiated agreements to terminate andoriginate international traffic at our Long Island InternationalTeleport.

Disaster Recovery/BusinessRestoral.    We offer call center restoral solutions as asubcontractor to Agility Recovery Solutions in the United States. Thisprovides Agility's customers protection against communication andfacility outages. Once an emergency is declared, we restore theircommunications services within 48 hours. We provide thesatellite-terrestrial network behind Agility's offerings and inother cases provide disaster recovery solutions directly to endcustomers.

Satellite Based TerrestrialRestoral.    This solution restores communications whenterrestrial based services are interrupted. It is well suited forcustomers with multiple locations that currently have two terrestrialproviders, one primary and one backup service. In this scenario,customers are finding that the terrestrial backup service is subject tofailure at the same time the primary service fails. We have developedan Internet Protocol satellite network solution to backup frame relayand other terrestrial services. This solution automatically routestraffic through the satellite backup network if the terrestrial servicefails at any location in the customer's network. We are currentlydemonstrating this offering for a number of potential customers.

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Hosted Direct to HomeBroadcast Center.    We have developed a solution that providesall the functionality required for a new service provider to enter thedirect to home service business with a minimal capital investment. Wehave built this solution at our Long Island International Teleport forone of our customers. In addition, we are providing on-going monitoringand operational services for this customer. This facility includestelevision program acquisition (i.e., satellite downlink acquisition,as well as terrestrial program acquisition), program coding, programmultiplexing and transmission, subscriber management and conditionalaccess.

General Contracted Complex CommunicationsNetworks.    We have developed a variety of general contractedcomplex communications networks for Angola, the Island Nation of Tongaand Afghanistan. These infrastructure programs require skills in manydisciplines and we are qualified to bring those skills together atcompetitive costs and in a short time. These projects include theengineering, integration and deployment of complete turn-key solutionscomprised of Internet Protocol based microwave, cellular, broadbandwireless, satellite, and fiber optic networks along with internationalgateway access. We also provide ongoing operations and maintenance ofthese networks.

Supervisory, Control and DataAcquisition, or SCADA Network.    We offer SCADA infrastructureand service solutions to monitor critical infrastructure. Thesesatellite based solutions leverage low cost Internet Protocol VSATtechnology to monitor oil/gas pipelines, electrical power generationand distribution facilities and other critical infrastructure spreadover large geographic areas. We provide monitoring services forcritical infrastructure for our customers who want to outsource theseservices or need us to back up their own monitoring center.

Oursolutions continue to evolve based on changes in markets andtechnology. These solution sets position us to leverage the value inour offerings by providing one stop shopping solutions includingcommunications infrastructure, network services and related back officeservices, as required.

Sales and Marketing

We marketour products and services to communications services providers,commercial enterprises, ISPs, broadcasters and other content providersand government entities. We have structured our sales and marketingapproach to respond effectively to the opportunities in thecommunications services market, as well as the traditional groundsegment systems and networks market. Our marketing activities areorganized regionally, as well as on an industry-specific basis. We useboth direct and indirect sales channels to market our services andproducts. Our direct sales force focuses on industry-specific markets,including government, broadcast and commercial enterprises.

Ourcorporate sales offices sell and market our communications services andground segment systems and networks in the United States andinternationally. We have a corporate sales offices in Washington D.C.to service the U.S. Government, in Dubai, United Arab Emirates toservice the Middle East and East Asia, in Hong Kong to service the AsiaPacific region and China and in Newcastle, United Kingdom to servicethe European Community through our Globecomm Systems Europe Limitedsubsidiary. The corporate sales offices work with the regional businessteams and/or the NetSat service team to make proposals and negotiatecontracts.

Our regional business teams, located in Hauppauge,New York, sell and market our communications services and groundsegment systems and networks internationally in concert with thecorporate sales offices. These regional business teams are responsiblefor orders and programs in the regions to which they are assigned, aswell as for the delivery of our products and services and for accountmanagement of our existing customers. Currently, we have business teamsresponsible for the Americas, the Asia Pacific region, Africa, theMiddle East and Europe. We also have a business team dedicated to thegovernment marketplace.

These regional business teams worktogether with the corporate sales offices to identify, develop andmaintain customer relationships through local sales representatives,sales executives and account managers. Together, they develop close andcontinuing relationships with our customers. Our local salesrepresentatives in these regions provide a local presence and identifyprospective customers for our sales 

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executives. Our account managers may alsofunction as project engineers for network integration and serviceinitiation programs for their accounts. As of June 30, 2004, weemployed 36 persons with sales and marketing responsibility, of which14 are full-time sales executives and 22 have dual engineering andsales and marketing responsibilities. We believe this accountmanagement focus provides continuity and loyalty between our customersand us. We also believe that our approach fosters long-termrelationships that lead to follow-on work and referrals to newcustomers. These accounts also provide us with a market for the newproducts and services that we develop. In addition, we obtain salesleads for new customers through referrals from industry suppliers.

Our marketing program is intended to build national andinternational awareness of our brand. We use direct mailings, printadvertising to targeted markets and trade publications to enhanceawareness and acquire leads for our direct and indirect sales teams. Wecreate brand awareness by participating in industry trade showssponsored by organizations like the International TelecommunicationsUnion, the National Association of Broadcasters and various industryassociations. We also provide marketing information on our web site andconduct joint marketing programs with sales representatives in variousregions to reach new customers.

Customers

We haveestablished a diversified base of customers in a variety of industries.Our customers include communications services providers, commercialenterprises, multinational corporations, ISPs, broadcasters and othercontent providers and government entities. We typically rely upon asmall number of customers for a large portion of our revenues. Onemajor customer, the United Nations, accounted for approximately11% of our consolidated revenues for the fiscal year ended June30, 2004. We expect that in the near term a significant portion of ourrevenues will continue to be derived from one or a limited number ofcustomers (the identity of whom may vary from year to year) as we seekto expand our business and customer base.

Backlog

AtJune 30, 2004, our backlog was approximately $75.4 million compared toapproximately $58.0 million at June 30, 2003. We record an order inbacklog when we receive a firm contract or purchase order, whichidentifies product quantities, sales price, service dates and deliverydates. Backlog represents the amount of unrecorded revenue onundelivered orders and services to be provided and a percentage ofrevenues from sales of products that have been shipped whereinstallation has not been completed and final acceptance has not beenreceived from the customer. Our backlog at any given time is notnecessarily indicative of future period revenues. A substantial portionof our backlog is comprised of large orders, the cancellation of any ofwhich could have a material adverse effect on our operating results.For example, at June 30, 2004, $49.2 million, or approximately65.2%, of our backlog represented contracts with six customers.We cannot assure you that these contracts or any others in our backlogwill not be cancelled or revised. See the section entitled"Risk Factors."

CommunicationsInfrastructure

We built and own the teleport facility locatedat our headquarters in Hauppauge, New York. We are a member of theWorld Teleport Association (WTA) and were awarded the Teleport Operatorof the Year award from the WTA for the year 2000. Our teleport isdesigned to meet the most stringent requirements for high-speed datacommunications requirements. This teleport is used to transmit andreceive signals from satellites positioned to serve customers in LatinAmerica, the United States, Canada, Europe, the Middle East and Africa.Our teleport uses redundant critical systems and uninterruptible powersupplies with back-up power generation.

We also lease teleportservices in Los Angeles to transmit and receive signals from satellitespositioned to serve customers in the Pacific Rim region. Connection tothe United States Internet backbone in Los Angeles is achieved throughleased fiber optic circuits.

We lease transponder capacity tomeet the bandwidth needs of our customers. We lease multiple,redundant, high-capacity fiber connections to provide reliable Internetdata, voice and data traffic to locations in New York City where itinterconnects with telecommunications service providers and the UnitedStates Internet backbone.

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We have built and staff a networkoperations center, or NOC, to manage customer circuits. The NOCoperates twenty-four hours per day, seven days per week to monitorcustomer circuits, respond to customer inquiries and initiate newservices. Customers can purchase or lease from us, as a part of itsservice, the equipment needed at the customers' locations totransmit and receive the satellite signals. We also offer installationand maintenance services for this equipment.

Product Design,Assembly and Testing

We assign a project team to each contractinto which we enter. Each team is led by a project engineer who isresponsible for execution of the project. This includes engineering anddesign, assembly and testing, installation and customer acceptance. Aproject may include engineers, integration specialists, buyer-plannersand an operations team. Our standard satellite ground segment systemsare manufactured using a standard modular production process.Typically, long-term projects require significant customer-specificengineering, drafting and design efforts. Once the system is designed,the integration specialist works with the buyer-planner and theoperations team to assure a smooth transfer from the engineering phaseto the integration phase. The integration phase consists mainly ofintegrating the purchased equipment, components and subsystems into acomplete functioning system. Assembly, integration and test operationsare conducted on both an automated and manual basis.

We providefacilities for complete in-plant testing of all our systems beforedelivery in order to assure all performance specifications will be metduring installation at the customer's site. We employ formaltotal quality management programs and other training programs, and havebeen certified by the International Organization of Standards qualitycertification process for ISO 9001, a standard that enumerates specificrequirements an organization must follow in order to assure consistentquality in the supply of products and services. The certificationprocess qualifies us for access to virtually all domestic andinternational projects, and we believe that this represents acompetitive advantage.

Research and Development

We havedeveloped internal research and development resources in InternetProtocol networks, content delivery networks, broadcast systems,network management systems and system products. The costs of developingnew technologies are funded partially by the investments made by us andpartially by development funded by specific customer programrequirements. This approach provides us with a cost-effective means todevelop new technology, while minimizing our direct research anddevelopment expenditures. Furthermore, we believe that our research anddevelopment capabilities allow us to offer added value in developingsolutions for our customers, while at the same time we maintain theopportunity to develop products through our strategic supplierrelationships. Our internal research and development efforts generallyfocus on the development of products and services not available fromother suppliers to the industry. Current efforts are focused ondeveloping content delivery network services for our enterprisecustomers, broadcast systems technology for our broadcast customers,network management system products for all our earth terminal andnetwork customers and customizable systems for our governmentcustomers. For the years ended June 30, 2004, 2003 and 2002, we haveincurred approximately $1.3 million, $0.8 million, and $1.2 million,respectively, in internal research and development expenses.

Competition

In the satellite ground segment systems andnetworks market, we believe that our ability to compete successfully isbased primarily on management's reputation and the ability toprovide a solution that meets the customer's requirements,including competitive pricing, performance, on-time delivery,reliability and customer support.

In the communications servicesmarket, we believe that our ability to compete successfully is basedprimarily on our reputation and providing prompt delivery andinitiation of service, competitive pricing, consistent and reliableconnections and high-quality customer support.

Our primarycompetitors in the satellite ground segment systems and networks marketgenerally fall into two groups: (1) system integrators like ITT, DataPath and Global Communication Services and (2) 

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equipment manufacturers who also provideintegrated systems, like Andrew Corporation, Tripoint Global, Alcateland ND Satcom AG.

In the end-to-end satellite-basedcommunication solutions and communications services markets, we competewith other satellite communication companies who provide similarservices, like Verestar and Convergent Media Systems. In addition, wemay compete with other communications services providers like Echostarand AT&T, and satellite owners like Panamsat, Loral Skynet, NewSkies Satellites N.V. and Intelsat. We anticipate that our competitorsmay develop or acquire services that provide functionality that issimilar to that provided by our services and that those services may beoffered at significantly lower prices or bundled with other services.In addition, we anticipate that continuing deregulation worldwide isexpected to result in the formation of a significant number of newcompetitive service providers over the next two or three years.

Current and potential participants in the markets in which wecompete have established or may establish cooperative relationshipsamong themselves or with third parties. These cooperative relationshipsmay increase the ability of their products and services to address theneeds of our current and prospective customers. Accordingly, it ispossible that new competitors or alliances among competitors may emergethat will enable them to acquire significant market share rapidly. Webelieve that increased competition is likely to result in pricereductions, reduced gross profit margins and loss of market share, anyof which would have a material adverse effect on our business, resultsof operations and financial condition.

IntellectualProperty

We rely heavily on the technological and creativeskills of our personnel, new product developments, computer programsand designs, frequent product enhancements, reliable product supportand proprietary technological expertise in maintaining our competitiveposition. We have secured patent protection on some of our products,and have secured trademarks and service marks to protect some of ourproducts and services.

We currently have been granted threepatents in the United States, one for remote access to the Internetusing satellites, another for satellite communication with automaticfrequency control and one for 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 additional patents on our technology, if appropriate. Wehave received trademark registration for Globecomm Systems Inc. in theUnited States, the European Community, Russia and the People'sRepublic of China; for GSI in the United States and Russia; and forNetSat Express in the United States, the European Community, Russia,Singapore and Brazil. We have also received trademark registrations inthe United States for Wide Area Network Anywhere, MBB2001, CTF2001,CES2001 and AXXSYS, which relate to our customizable modular earthstations; for Impact, which relates to our customizable ISP solutions;and for the GSI and NetSat logos. We have other trademarks and servicemarks pending and intend to seek registration of other trademarks andservice marks in the future.

Government Regulations

Operations and Use of Satellites

We are subject tovarious federal laws and regulations, which may have negative effectson our business. We operate Federal Communications Commission, or FCC,licensed earth stations in Hauppauge, New York, subject to theCommunications Act of 1934, as amended, or the FCC Act, and the rulesand regulations of the FCC. Pursuant to the FCC Act and FCC rules andregulations, 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 

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to NetSat. These licenses should be renewed bythe FCC in the normal course as long as we remain in compliance withFCC rules and regulations. However, we cannot guarantee that additionallicenses will be granted by the FCC when our existing licenses expire,nor can we assure you that the FCC will not adopt new or modifiedtechnical requirements that will require us to incur expenditures tomodify or upgrade our equipment as a condition of retaining ourlicenses.

We are also required to comply with FCC regulationsregarding the exposure of humans to radio frequency radiation from ourearth stations. These regulations, as well as local land useregulations, restrict our freedom to choose where to locate our earthstations.

NetSat does not currently hold any FCC licenses,permits, or authorizations independent of those held by us, nor does itcurrently provide any FCC regulated services. Therefore, it is notsubject to the FCC Act or FCC rules and regulations. However, NetSatmay hold such licenses, permits, or authorizations, or provide theseservices in the future, and would then be required to comply with theFCC requirements.

Common Carrier Regulation

Wecurrently provide services to our customers on a private carrier and ona common carrier basis. Our operations as a common carrier require usto comply with the FCC's requirements for common carriers. Theserequirements include, but are not limited to, providing our rates andservice terms, being forbidden from unjust and unreasonablediscrimination among customers, notifying the FCC before discontinuingservice and complying with FCC equal employment opportunity regulationsand reporting requirements.

We do not currently providetelecommunications services between points in the same state and so areexempt from state regulation of our services. However, we could becomesubject to state telecommunications regulations if we do provideintrastate telecommunications services.

ForeignOwnership

The FCC Act and FCC regulations imposerestrictions on foreign ownership of our earth stations. Theserequirements generally forbid more than 20% ownership or controlof an FCC licensee by non-United States citizens and more than25% ownership of a licensee's parent by non-United Statescitizens. The FCC may authorize foreign ownership in thelicensee's parent in excess of these percentages. Under currentpolicies, the FCC has granted these authorizations where the applicantdoes not control monopoly or bottleneck facilities and the foreignowners are citizens of countries that are members of the World TradeOrganization or provide equivalent competitive opportunities to UnitedStates citizens.

We may, in the future, be required to seek FCCapproval if foreign ownership of our stock exceeds the thresholdsmentioned above. Failure to comply with these policies could result inan order to divest the offending foreign ownership, fines, denial oflicense renewal and/or license revocation proceedings against thelicensee by the FCC. We have no knowledge of any present foreignownership which would result in a violation of the FCC rules andregulations.

Foreign Regulations

Regulatoryschemes in countries in which we may seek to provide oursatellite-delivered data communications services may impose impedimentson our operations. Some countries in which we operate or intend tooperate have telecommunications laws and regulations that do notcurrently 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 salesrepresentatives typically must obtain authorization for each country inwhich we provide our satellite-delivered data communications services.Although we believe that we or our local sales representatives will beable to obtain the requisite licenses and approvals from the countriesin which we intend to provide products and services, the regulatoryschemes in each country are different, and thus there may be instancesof noncompliance of which we are not aware. Although we believe these

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regulatory schemes will not prevent us frompursuing our business plan, we cannot assure you that our licenses andapprovals are or will remain sufficient in the view of foreignregulatory authorities. In addition, we cannot assure you thatnecessary licenses and approvals will be granted on a timely basis, orat all, in all jurisdictions in which we wish to offer our products andservices or that the applicable restrictions will not be undulyburdensome.

Regulation of the Internet

OurInternet operations (other than the operation of a teleport) are notcurrently subject to direct government regulation in the United Statesor most other countries, and there are currently few laws orregulations directly applicable to access to or commerce on theInternet. However, 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 like user privacy and expression, pricingof products and services, taxation, advertising, intellectual propertyrights, information security or the convergence of traditionalcommunication services with Internet communications.

Weanticipate that a substantial portion of our, or NetSat's,Internet operations will be carried out in countries which may imposegreater regulation of the content of information coming into theircountry than that which is generally applicable in the United States.Examples of this include privacy regulations in Europe and contentrestrictions in countries, such as the People's Republic ofChina. To the extent that we provide content as a part of our Internetservices, it will be subject to laws regulating content. Moreover, theadoption of laws or regulations may decrease the growth of theInternet, which could in turn decrease the demand for our Internetservices, or increase our cost of doing business or otherwisenegatively affect our business. In addition, the applicability to theInternet of existing laws governing issues including propertyownership, copyrights and other intellectual property issues, taxation,libel and personal privacy is uncertain. The vast majority of theselaws were adopted prior to the advent of the Internet and relatedtechnologies and, as a result, do not contemplate or address the uniqueissues of the Internet and related technologies. Changes to these lawsintended to address these issues, including some recently proposedchanges, could create uncertainty in the marketplace. These changescould reduce demand for our products and services or could increase ourcost of doing business as a result of costs of litigation or increasedproduct development costs.

Telecommunications Taxation,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. Sometelecommunications services are subject to special taxation and tocontribution requirements to support services to special groups, likepersons with disabilities. At present, Globecomm is subject to therequirements for support of such special groups; NetSat'soperations are presently deemed not subject to such requirements. Ourservices may be subject to new or increased taxes and contributionrequirements that could affect our profitability, particularly if weare not able to pass them through to customers for either competitiveor regulatory reasons.

Internet services are currently exemptfrom charges that long distance telephone companies pay for access tothe networks of local telephone companies in the United States. Effortshave been made from time to time, and may be made in the future, toeliminate this exemption. If these access charges are imposed ontelephone lines used to reach ISPs and/or if flat rate telephoneservices for Internet access are eliminated or curtailed, the cost tocustomers who access our satellite facilities using telephonecompany-provided facilities could increase to an extent that coulddiscourage the demand for our services. Likewise, the demand for ourservices in other countries may be affected by the availability andcost of local telephone or other telecommunications facilities to reachour facilities or the facilities of our customers.

Exportof Telecommunications Equipment

The sale of our groundsegment systems, networks, and communications service solutions outsidethe United States is subject to compliance with the regulations of theUnited States Export Administration 

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and, in certain instances, withInternational Traffic in Arms regulations. The absence of comparablerestrictions on competitors in other countries may adversely affect ourcompetitive position. In addition, in order to ship our products intoor implement our services in some countries, these products or servicesmust satisfy the technical requirements of the particular country. Ifwe were unable to comply with these requirements with respect to asignificant quantity of our products, our sales in those countriescould be restricted, which could have a material adverse effect on ourbusiness, financial condition and results of operations.

Employees

As of June 30, 2004, we had 155 full-timeemployees, including 74 in engineering and program management, 38 inthe manufacturing, operations support, and network operations, 14 insales and marketing and 29 in management and administration. Ouremployees are not covered by any collective-bargaining agreements. Webelieve that our relations with our employees are good.

Item2.    Properties

We own a facility containing approximately122,000 square feet of space on approximately seven acres located at 45Oser Avenue, Hauppauge, New York. This facility houses our principaloffices and production facilities, as well as the offices and thenetwork operations center of NetSat. We lease office space at a monthlyfee of approximately $3,800 for office and operations facilities forour wholly-owned subsidiary, Globecomm Systems Europe Limited, in theUnited Kingdom. In addition, we have a lease for office space in HongKong at a monthly rental fee of approximately $1,900, a lease foroffice space in Dubai at a monthly rental fee of approximately $2,000and another lease for space in Washington DC at a monthly rental fee ofapproximately $1,600.

Item 3.    Legal proceedings

None.

Item 4.    Submission of Matters to a Vote ofSecurity Holders

None.

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PART II

Item5.    Market for Registrant's Common Stock and RelatedStockholder Matters

Our common stock is quoted on the NasdaqNational Market under the symbol "GCOM." Thefiscal 2004 and 2003 high and low sales prices are as follows:

|                                |  |        |        |        |  |        |        |        |  |  |
|--------------------------------|--|--------|--------|--------|--|--------|--------|--------|--|--|
|                           |  | High   |        | Low    |
| **2004**                       |  |   |   |   |  |   |   |   |
| Quarterended September 30,2003 |  | $      | 5.00   |   |  | $      | 3.05   |   |
| Quarter endedDecember 31, 2003 |  |   | 7.29   |   |  |   | 3.75   |   |
| Quarterended March 31,2004     |  |   | 7.00   |   |  |   | 4.36   |   |
| Quarter ended June30,2004      |  |   | 6.90   |   |  |   | 4.67   |   |
|                           |  |   |   |   |  |   |   |   |
| **2003**                       |  |   |   |   |  |   |   |   |
| Quarterended September 30,2002 |  |   | 5.70   |   |  |   | 2.40   |   |
| Quarter endedDecember 31, 2002 |  |   | 4.75   |   |  |   | 2.60   |   |
| Quarterended March 31,2003     |  |   | 3.99   |   |  |   | 2.34   |   |
| Quarter ended June30, 2003     |  |   | 4.25   |   |  |   | 2.45   |   |
|                                |

At September23, 2004, there were approximately 3,500 stockholders of record of ourcommon stock, as shown in the records of our transfer agent.

Atthe close of the Nasdaq National Market on September 23, 2004, ourmarket price per share was $7.18.

As of June 30, 2004, we hadnot declared or paid dividends on our common stock since inception andwe do not expect to pay dividends in the foreseeable future.

Thetable below sets forth securities we have authorized for issuance underour equity compensation plans.

Equity Compensation PlanInformation as of June 30,2004

|                                                          |  |                                                                                          |           |                                                                          |  |                                                                                                                                           |      |        |  |        |         |        |  |  |
|----------------------------------------------------------|--|------------------------------------------------------------------------------------------|-----------|--------------------------------------------------------------------------|--|-------------------------------------------------------------------------------------------------------------------------------------------|------|--------|--|--------|---------|--------|--|--|
| PlanCategory                                             |  | Number of Securities tobeIssued Upon Exercise of Outstanding Options,Warrants and Rights |           | Weighted-averageExercisePrice of Outstanding Options, Warrants andRights |  | Number of Securities Remaining Available forFuture Issuance Under Equity Compensation Plans(Excluding Securities Reflected in Column (a)) |
|                                                     |  | (a)                                                                                      |           | (b)                                                                      |  | (c)                                                                                                                                       |
| Equitycompensation plan approved by securityholders      |  |                                                                                     | 3,358,892 |                                                                     |  | $                                                                                                                                         | 7.05 |   |  |   | 269,090 |   |
| Equitycompensation plans not approved by securityholders |  |                                                                                     | 55,825    |                                                                     |  | $                                                                                                                                         | 8.07 |   |  |   | — |   |
| Total                                                    |  |                                                                                     | 3,414,717 |                                                                     |  | $                                                                                                                                         | 7.06 |   |  |   | 269,090 |   |
|                                                          |

Theequity compensation plans that were adopted without the approval of thesecurity holders relate to outstanding warrants. During November 1996,we issued ten-year warrants to five consultants to purchase anaggregate of 64,125 shares of common stock at a price per share of$8.07 in consideration for services rendered.

Item6.    Selected Financial Data

Our selected consolidatedfinancial data as of and for each of the five years in the periodsended June 30, have been derived from our audited consolidatedfinancial statements. EBITDA represents loss before minority interestsin operations of our consolidated subsidiary, interest income, interestexpense, provision for income taxes, depreciation and amortizationexpense, a gain on the sale of consolidated 

11

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subsidiary's common stock, a gain onsale of investment and a gain on sale of available-for-sale securities.EBITDA does not represent cash flows defined by accounting principlesgenerally accepted in the United States and does not necessarilyindicate that our cash flows are sufficient to fund all of our cashneeds. We disclose EBITDA since it is a financial measure commonly usedin our industry. EBITDA is not meant to be considered a substitute orreplacement for net loss as prepared in accordance with accountingprinciples generally accepted in the United States. EBITDA may not becomparable to other similarly titled measures of other companies. Werecord an order in backlog when we receive a firm contract or purchaseorder, which identifies product quantities, sales price, service datesand delivery dates. Backlog represents the amount of unrecorded revenueon undelivered orders and services to be provided and a percentage ofrevenues from sales of products that have been shipped whereinstallation has not been completed and final acceptance has not beenreceived from the customer. Our backlog at any given time is notnecessarily indicative of future period revenues.

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Selected Financial Data(Inthousands, except per share data)

|                                                                                              |  |                    |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|----------------------------------------------------------------------------------------------|--|--------------------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                                         |  | YearsEnded June30, |
|                                                                                         |  | 2004               |         | 2003    |  | 2002   |         | 2001    |  | 2000   |
| **Statementsof Operations Data:**                                                            |  |
| Revenues from ground segmentsystems, networks and enterprisesolutions                        |  | $                  | 73,305  |    |  | $      | 40,125  |    |  | $      | 64,101  |    |  | $      | 78,744  |    |  | $      | 69,584  |    |
| Revenuesfrom data communicationsservices                                                     |  |               | 13,931  |    |  |   | 13,903  |    |  |   | 22,478  |    |  |   | 24,170  |    |  |   | 8,987   |    |
| Totalrevenues                                                                                |  |               | 87,236  |    |  |   | 54,028  |    |  |   | 86,579  |    |  |   | 102,914 |    |  |   | 78,571  |    |
| Costsand operatingexpenses:                                                                  |  |               |    |    |  |
| Costs fromground segment                                                                     |  |
| systems, networksandenterprise                                                               |  |
| solutions                                                                                    |  |               | 63,282  |    |  |   | 39,447  |    |  |   | 57,083  |    |  |   | 70,907  |    |  |   | 60,634  |    |
| Costsfrom datacommunications                                                                 |  |
| services                                                                                     |  |               | 12,992  |    |  |   | 17,796  |    |  |   | 26,705  |    |  |   | 22,661  |    |  |   | 10,101  |    |
| Sellingandmarketing                                                                          |  |               | 4,808   |    |  |   | 6,042   |    |  |   | 6,735   |    |  |   | 7,235   |    |  |   | 6,139   |    |
| Researchanddevelopment                                                                       |  |               | 1,328   |    |  |   | 800     |    |  |   | 1,185   |    |  |   | 850     |    |  |   | 784     |    |
| Generalandadministrative                                                                     |  |               | 6,529   |    |  |   | 9,423   |    |  |   | 11,970  |    |  |   | 9,822   |    |  |   | 8,797   |    |
| Assetimpairmentcharge                                                                        |  |               | — |    |  |   | — |    |  |   | 237     |    |  |   | 2,857   |    |  |   | — |    |
| Restructuringcharge                                                                          |  |               | — |    |  |   | — |    |  |   | — |    |  |   | 1,950   |    |  |   | — |    |
| Totalcosts and operatingexpenses                                                             |  |               | 88,939  |    |  |   | 73,508  |    |  |   | 103,915 |    |  |   | 116,282 |    |  |   | 86,455  |    |
| Lossfromoperations                                                                           |  |               | (1,703  | )  |  |   | (19,480 | )  |  |   | (17,336 | )  |  |   | (13,368 | )  |  |   | (7,884  | )  |
| Otherincome (expense):                                                                       |  |
| Interestincome                                                                               |  |               | 271     |    |  |   | 422     |    |  |   | 1,030   |    |  |   | 3,194   |    |  |   | 1,727   |    |
| Interestexpense                                                                              |  |               | — |    |  |   | (539    | )  |  |   | (957    | )  |  |   | (6,579  | )  |  |   | (2,522  | )  |
| Gainon sale of consolidated                                                                  |  |
| subsidiary'scommonstock                                                                      |  |               | — |    |  |   | — |    |  |   | — |    |  |   | — |    |  |   | 2,353   |    |
|   Gainon sale of available-for-salesecurities                                      |  |               | 91      |    |  |   | — |    |  |   | — |    |  |   | — |    |  |   | — |    |
| Gainon sale ofinvestment                                                                     |  |               | — |    |  |   | — |    |  |   | — |    |  |   | 304     |    |  |   | — |    |
| Lossbefore income taxes and minority interests in operations ofconsolidatedsubsidiary        |  |               | (1,341  | )  |  |   | (19,597 | )  |  |   | (17,263 | )  |  |   | (16,449 | )  |  |   | (6,326  | )  |
| Provisionfor incometaxes                                                                     |  |               | — |    |  |   | — |    |  |   | — |    |  |   | (1,600  | )  |  |   | — |    |
| Lossbefore minority interests in operations of consolidatedsubsidiary                        |  |               | (1,341  | )  |  |   | (19,597 | )  |  |   | (17,263 | )  |  |   | (18,049 | )  |  |   | (6,326  | )  |
| Minorityinterests in operations of consolidatedsubsidiary                                    |  |               | — |    |  |   | — |    |  |   | — |    |  |   | (650    | )  |  |   | 2,745   |    |
| Netloss                                                                                      |  | $                  | (1,341  | )  |  | $      | (19,597 | )  |  | $      | (17,263 | )  |  | $      | (18,699 | )  |  | $      | (3,581  | )  |
| Basicand diluted net loss per commonshare                                                    |  | $                  | (0.10   | )  |  | $      | (1.56   | )  |  | $      | (1.36   | )  |  | $      | (1.55   | )  |  | $      | (0.36   | )  |
| Weighted-averageshares used in the calculation of basic and diluted net loss per commonshare |  |               | 13,346  |    |  |   | 12,565  |    |  |   | 12,707  |    |  |   | 12,060  |    |  |   | 10,016  |    |
|                                                                                              |

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|                                                                |  |                    |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|----------------------------------------------------------------|--|--------------------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                           |  | YearsEnded June30, |
|                                                           |  | 2004               |         | 2003    |  | 2002   |         | 2001    |  | 2000   |
| **OtherOperating Data:**                                       |  |
| Netloss                                                        |  | $                  | (1,341  | )  |  | $      | (19,597 | )  |  | $      | (17,263 | )  |  | $      | (18,699 | )  |  | $      | (3,581  | )  |
| Otherexpense(income)                                           |  |               | (362    | )  |  |   | 117     |    |  |   | (73     | )  |  |   | 3,081   |    |  |   | (1,558  | )  |
| Minorityinterest in operations of consolidatedsubsidiary       |  |               | — |    |  |   | — |    |  |   | — |    |  |   | 650     |    |  |   | (2,745  | )  |
| Provisionfor incometaxes                                       |  |               | — |    |  |   | — |    |  |   | — |    |  |   | 1,600   |    |  |   | — |    |
| Depreciationandamortization                                    |  |               | 3,097   |    |  |   | 3,532   |    |  |   | 3,661   |    |  |   | 7,229   |    |  |   | 3,347   |    |
| EBITDA                                                         |  | $                  | 1,394   |    |  | $      | (15,948 | )  |  | $      | (13,675 | )  |  | $      | (6,139  | )  |  | $      | (4,537  | )  |
| Cashflows provided by (used in) operatingactivities            |  |               | 1,613   |    |  |   | (14,714 | )  |  |   | (2,942  | )  |  |   | (11,823 | )  |  |   | (8,925  | )  |
| Cashflows used in investingactivities                          |  |               | (1,871  | )  |  |   | (1,712  | )  |  |   | (2,387  | )  |  |   | (7,446  | )  |  |   | (361    | )  |
| Cashflows provided by (used in) financingactivities            |  |               | 6,421   |    |  |   | (310    | )  |  |   | (1,018  | )  |  |   | (982    | )  |  |   | 62,614  |    |
| Capitalexpenditures, net of non-cash capital leaseexpenditures |  |               | 1,267   |    |  |   | 1,732   |    |  |   | 1,687   |    |  |   | 5,350   |    |  |   | 6,926   |    |
| Backlogat end ofyear                                           |  |               | 75,444  |    |  |   | 58,006  |    |  |   | 80,269  |    |  |   | 101,013 |    |  |   | 100,139 |    |
|                                                                |

|                                                                 |  |         |         |        |  |        |         |        |  |        |         |        |  |        |         |        |  |        |         |        |  |  |
|-----------------------------------------------------------------|--|---------|---------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|                                                            |  | June30, |
|                                                            |  | 2004    |         | 2003   |  | 2002   |         | 2001   |  | 2000   |
| **BalanceSheetData:**                                           |  |    |    |   |  |   |    |   |  |   |    |   |  |   |    |   |  |   |    |   |
| Cashand cashequivalents                                         |  | $       | 28,252  |   |  | $      | 22,016  |   |  | $      | 38,708  |   |  | $      | 45,038  |   |  | $      | 65,289  |   |
| Workingcapital                                                  |  |    | 30,052  |   |  |   | 22,040  |   |  |   | 43,702  |   |  |   | 60,399  |   |  |   | 74,531  |   |
| Totalassets                                                     |  |    | 73,475  |   |  |   | 70,344  |   |  |   | 100,297 |   |  |   | 124,999 |   |  |   | 222,754 |   |
| Long-termliabilities                                            |  |    | 987     |   |  |   | 1,303   |   |  |   | 12,693  |   |  |   | 13,446  |   |  |   | 96,355  |   |
| Minorityinterests in consolidatedsubsidiary                     |  |    | — |   |  |   | — |   |  |   | — |   |  |   | — |   |  |   | 126     |   |
| SeriesA participating preferred stock of consolidatedsubsidiary |  |    | — |   |  |   | — |   |  |   | — |   |  |   | — |   |  |   | 5,000   |   |
| Totalstockholders'equity                                        |  |    | 52,806  |   |  |   | 47,437  |   |  |   | 67,040  |   |  |   | 85,141  |   |  |   | 90,524  |   |
|                                                                 |

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Item7.    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 Annual Report on Form  10-K. 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 and elsewhere in this Annual Report onForm 10-K. We undertake no obligation to update publicly anyforward-looking statements for any reason, even if new informationbecomes available or other events occur in the future.

Overview

Since our inception, a majority of our revenueshave been generated by our ground segment systems, networks andenterprise solutions business. Contracts for these ground segmentsystems and networks and communications services have been fixed-pricecontracts in a majority of cases. Profitability of such contracts issubject to inherent uncertainties as to the cost of performance. Inaddition to possible errors or omissions in making initial estimates,cost overruns may be incurred as a result of unforeseen obstacles,including both physical conditions and unexpected problems encounteredin engineering design and testing. Since our business is frequentlyconcentrated in a limited number of large contracts, a significant costoverrun on any contract could have a material adverse effect on ourbusiness, financial condition and results of operations.

Contract costs generally include purchased material, direct labor,overhead and other direct costs. Anticipated contract losses arerecognized in the period identified. 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 data communicationsservices consist primarily of satellite space segment charges, Internetconnectivity fees and network operations expenses. Satellite spacesegment charges consist of the costs associated with obtainingsatellite bandwidth (the measure of capacity) used in the transmissionof services to and from the satellite leased from operators. Networkoperations expenses consist primarily of costs associated with theoperation of the network operations center on a twenty-four hour a day,seven day a week basis, including personnel and related costs anddepreciation. Selling and marketing expenses consist primarily ofsalaries, travel and living costs for sales and marketing personnel.Research and development expenses consist primarily of salaries andrelated overhead expenses. General and administrative expenses consistof expenses associated with our management, finance, contract andadministrative functions.

Our business had been adverselyaffected, and to some extent continues to be affected, by the recentglobal economic slowdown and, in particular, the significant challengesfacing the telecommunications industry worldwide. Recently, we haveseen improvement in the segments we serve, in particular within theU.S. Government and government related entities marketplace. However,some of the adverse consequences of the downturn continue to impactpricing and competition and we may experience a decline in bookings ofcontract orders as customers and prospects delay projects, which willnegatively impact our business and prospects in the future. We also maybe negatively impacted in the future by a reduction in opportunitiesfrom U.S. Government and government related agencies.

CriticalAccounting Policies

Certain of our accounting policies requirejudgment by management in selecting the appropriate assumptions forcalculating financial estimates. By their nature, these judgments aresubject to an inherent degree of uncertainty. These judgments are basedon our historical experience, terms of existing contracts, ourobservance of trends in the industry, information provided by ourcustomers, and information 

15

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available from other outside sources, asappropriate. Actual results may differ from these judgments underdifferent assumptions or conditions. Our accounting policies thatrequire management to apply significant judgment include:

Revenue Recognition

We recognize revenue inaccordance with Staff Accounting Bulletin No. 104 ("SAB104"), Revenue Recognition, for our production-typecontracts that are sold separately as standard satellite ground segmentsystems when persuasive evidence of an arrangement exists, the sellingprice is fixed or determinable, collectibility is reasonably assured,delivery has occurred and the contractual performance specificationshave been met. Our standard satellite ground segment systems producedin connection with these contracts is typically short-term (less thantwelve months in term) and manufactured using a standard modularproduction process. Such systems require less engineering, drafting anddesign efforts than our long-term complex production-type projects.Revenue is recognized on our standard satellite ground segment systemsupon shipment and acceptance of factory performance testing which iswhen title transfers to the customer. The amount of revenues recordedon each standard production-type contract is reduced by thecustomer's contractual holdback amount, which typically requires10% to 30% of the contract value to be retained by thecustomer until installation and final acceptance is complete. Thecustomer generally becomes obligated to pay 70% to 90% ofthe contract value upon shipment and acceptance of factory performancetesting. Installation is not deemed to be essential to thefunctionality of the system since installation does not requiresignificant changes to the features or capabilities of the equipment,does not require complex software integration and interfacing and wehave not experienced any difficulties installing such equipment. Inaddition, the customer or other third party vendors can install theequipment. The estimated relative fair value of the installationservices is determined by management, which is typically less than thecustomer's contractual holdback percentage. If the holdback isless than the fair value of installation, we will defer recognition ofrevenues, determined on a contract-by-contract basis equal to the fairvalue of the installation services. Payments received in advance bycustomers are deferred until shipment and are presented as deferredrevenues.

We recognize revenue using thepercentage-of-completion method of accounting upon the achievement ofcertain contractual milestones in accordance with Statement of Position81-1, Accounting for Performance of Construction-Type and CertainProduction-Type Contracts, for our 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 inventories balance.

Costs from GroundSegment Systems, Networks and Enterprise Solutions

Costsrelated to our production-type contracts and our non-standard, complexproduction-type contracts rely on estimates based on total expectedcontract costs. We use estimates of the costs applicable to variouselements which we believe are reasonable. Since these contract costsdepend on estimates, which are assessed continually during the term ofthese contracts, costs are subject to revisions as the contractprogresses to completion. Revision in cost estimates are reflected inthe period in which they become known. In the event an estimateindicates that a loss will be incurred at completion, we record thecosts in the period identified.

Goodwill

Goodwill represents the excess of the purchase price over the fairvalue of the net assets acquired primarily from the buyback of theminority interests of NetSat. Beginning in the fiscal year endedJune  30, 

16

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2002 with our adoption of SFAS No. 142,Goodwill and Other Intangible Assets, goodwill and other indefinitelife intangible assets are no longer being amortized, but insteadtested for impairment at least annually.

In assessing goodwill,we must make assumptions regarding the estimated future cash flows andother factors to determine the fair value of our reporting units.Future events could cause us to conclude that impairment indicatorsexist and that the goodwill associated with NetSat is impaired. Anyresulting impairment could have a material adverse effect on ourfinancial condition and results of operations.

Allowancesfor Doubtful Accounts

We maintain allowances for doubtfulaccounts for estimated losses resulting from the inability of ourcustomers to make required payments. We assess the customer'sability to pay based on a number of factors, including our pasttransaction history with the customer and the credit worthiness of thecustomer. An assessment of the inherent risks in conducting ourbusiness with foreign customers is also made since a significantportion of our revenues is international. Management specificallyanalyzes accounts receivable, historical bad debts, customerconcentrations, customer credit-worthiness and current economic trends.If the financial condition of our customers were to deteriorate in thefuture, resulting in an impairment of their ability to 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.

Results of Operations

**FiscalYears Ended June 30, 2004 and 2003**

Revenues from GroundSegment Systems, Networks and Enterprise Solutions.    Revenuesfrom ground segment systems, networks and enterprise solutionsincreased by $33.2 million, or 82.7%, to $73.3 million for thefiscal year ended June 30, 2004 from $40.1 million for the fiscal yearended June 30, 2003. The increase in revenues was primarily the resultof increased infrastructure sales in the U.S. Government and governmentrelated entities marketplace, coupled with increased sales 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 from data communicationsservices were consistent at $13.9 million for the fiscal years endedJune 30, 2004 and 2003. A significant portion of these revenues wasderived from sales of our Access PlusTM service. We expecta shift in revenues from Access PlusTM to other serviceofferings in the future.

Costs from Ground Segment Systems,Networks and Enterprise Solutions.    Costs from ground segmentsystems, networks and enterprise solutions increased by $23.8 million,or 60.4%, to $63.3 million for the fiscal year ended June 30,2004 from $39.4 million for the fiscal year ended June 30, 2003. Theincrease is attributable to a higher revenue base. Costs as apercentage of related revenues decreased to 86.3% for the fiscalyear ended June 30, 2004 from 98.3% for the fiscal year endedJune 30, 2003. The decrease was mainly attributable to cost overrunsincurred on a major project during the year ended June 30, 2003 andincreased margin on revenues related to U.S. Government and governmentrelated entities projects during the year ended June 30, 2004.

Costs from Data Communications Services.    Costs from datacommunications services decreased by $4.8 million, or 27.0%, to$13.0 million for the fiscal year ended June 30, 2004 from $17.8million for the fiscal year ended June 30, 2003. Costs as a percentageof related revenues decreased to 93.3% for the fiscal

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year ended June 30, 2004 from 128.0%for the fiscal year ended June 30, 2003. The decrease in costs wasprimarily due to agreements reached with two of our vendors duringFebruary 2003 and October 2002, in which we significantly reduced ourspace segment transponder costs and obligations.

Selling andMarketing.    Selling and marketing expenses decreased by $1.2million, or 20.4%, to $4.8 million for the fiscal year endedJune 30, 2004 from $6.0 million for the fiscal year ended June 30,2003. The decrease was primarily due to reduced salary, salary relatedexpenses, and travel and living costs for sales and marketing personnelas part of our cost-cutting initiatives.

Research andDevelopment.    Research and development expenses increased by$0.5 million, or 66.0%, to $1.3 million for the fiscal yearended June 30, 2004 from $0.8 million for the fiscal year ended June30, 2003. The increase was due to product research and developmentinitiatives associated with projects currently in progress, researchefforts in remote video monitoring systems and internal development ofnew monitoring and control technologies.

General andAdministrative.    General and administrative expenses decreasedby $2.9 million, or 30.7%, to $6.5 million for the fiscal yearended June 30, 2004 from $9.4 million for the fiscal year ended June30, 2003. As a percentage of revenues, general and administrativeexpenses decreased to 7.5% for the fiscal year ended June 30,2004 from 17.4% for the fiscal year ended June 30, 2003primarily due to the increase in revenues. On an absolute basis, thedecrease in general and administrative expenses for the fiscal yearended June 30, 2004 is primarily due to the non-recurrence of a $1.5million allowance for uncollectible accounts receivable from a majorcustomer recorded in the fiscal year ended June 30, 2003, a reductionin legal expenses related to a settlement reached with a customer inthe Middle East, along with reduction in salaries due to our costcutting initiatives.

Interest Income.    Interestincome decreased by $0.2 million, or 35.8%, to $0.3 million forthe fiscal year ended June 30, 2004 from $0.4 million for the fiscalyear ended June 30, 2003. The decrease was due the reduction of theaverage balance of cash and cash equivalents due to the cash used inour operations during the fiscal year ended June 30, 2003 along with areduction in the interest rates.

Interest Expense.    Interest expense decreased by $0.5 million to zero for the fiscalyear ended June  30, 2004 from $0.5 million for the fiscal yearended June 30, 2003. The decrease was due to the termination of ourcapital lease 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 fiscal year endedJune 30, 2004, related to the sale of an investment that resulted inproceeds of $0.4 million in the year ended June 30, 2004.

**Fiscal Years Ended June 30, 2003 and 2002**

Revenues from Ground Segment Systems, Networks and EnterpriseSolutions.    Revenues from ground segment systems, networks andenterprise solutions decreased by $24.0 million, or 37.4%, to$40.1 million for the fiscal year ended June 30, 2003 from $64.1million for the fiscal year ended June 30, 2002. The decrease relatedto a decrease in shipment and/or completion of contracts as a result ofa decline in bookings of contract orders due to the continueduncertainty surrounding the global economic slowdown in thetelecommunications industry, resulting in customers and prospectscontinuing to delay projects.

Revenues from DataCommunications Services.     Revenues from data communicationsservices decreased by $8.6 million, or 38.1%, to $13.9 millionfor the fiscal year ended June 30, 2003 from $22.5 million for thefiscal year ended June 30, 2002. The decrease reflected changes inmarket conditions, including the global economic slowdown in thetelecommunications industry, pricing pressures in the marketplace andpenetration of fiber into areas where we have traditionally providedservices, coupled with the termination of services from our largestMiddle East customer in August 2002. During February 2003 and October2002, pursuant to agreements reached with two of our vendors, weassigned contracts with future revenues of $35.8 million, which reducedour monthly recurring revenues by approximately $0.4 million.

Costs from Ground Segment Systems, Networks and EnterpriseSolutions.    Costs from ground segment systems, networks andenterprise solutions decreased by $17.6 million, or 30.9%, to$39.4 million 

18

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for the fiscal year ended June 30, 2003 from$57.1 million for the fiscal year ended June 30, 2002. The decrease wasattributable to a lower revenue base. Costs as a percentage of relatedrevenues increased to 98.3% for the fiscal year ended June 30,2003 from 89.1% for the fiscal year ended June 30, 2002. Theincrease was mainly attributable to competitive margin pressure and a$4.4 million charge, principally in the fourth quarter, related to amajor customer for costs to complete certain contracts.

Costsfrom Data Communications Services.    Costs from datacommunications services decreased by $8.9 million, or 33.4%, to$17.8 million for the fiscal year ended June 30, 2003 from $26.7million for the fiscal year ended June 30, 2002. Costs as a percentageof related revenues increased to 128.0% for the fiscal yearended June 30, 2003 from 118.8% for the fiscal year ended June30, 2002. The decrease in costs was primarily due to agreements reachedwith two of our vendors during February 2003 and October 2002, in whichwe significantly reduced our space segment transponder costs andobligations. These agreements will continue to reduce our futuremonthly space segment costs. The increase as a percentage of relatedrevenue was due to a lower revenue base resulting from the terminationof services from our largest Middle East customer in August 2002, theassignment of $35.8 million in contract revenues and payments of $4.1million for termination fees related to our agreements to reduce ourspace segment transponder obligations.

Selling andMarketing.    Selling and marketing expenses decreased by $0.7million, or 10.3%, to $6.0 million for the fiscal year endedJune 30, 2003 from $6.7 million for the fiscal year ended June 30,2002. The decrease was primarily due to reduced salary and salaryrelated expenses, offset by severance costs associated with reductionsin sales and marketing personnel.

Research andDevelopment.    Research and development expenses decreased by$0.4 million, or 32.5%, to $0.8 million for the fiscal yearended June 30, 2003 from $1.2 million for the fiscal year ended June30, 2002. The decrease was attributable to reduced internal developmentof monitoring and control technologies and the non-recurrence of costsassociated with the development of various initial subsystems forsolutions provided to a new customer in fiscal year 2002.

General and Administrative.    General and administrativeexpenses decreased by $2.5 million, or 21.3%, to $9.4 millionfor the fiscal year ended June 30, 2003 from $12.0 million for thefiscal year ended June 30, 2002. General and administrative expenses asa percentage of revenues increased to 17.4% for the fiscal yearended June 30, 2003 from 13.8% for the fiscal year ended June30, 2002, primarily due to the decrease in revenues. The decrease ingeneral and administrative expenses for the fiscal year ended June 30,2003 primarily resulted from the non-recurrence of a $3.2 millionallowance for uncollectible accounts receivable from our largest MiddleEast customer in the fiscal year ended June 30, 2002 (of which $1.0million was recovered during the fourth quarter of fiscal year endedJune 30, 2003), offset by the recording of a $1.5 million expenseprovision related to the risk of non-collection of a receivable from amajor customer and an increase in insurance premiums.

AssetImpairment Charge.     The asset impairment charge of $0.2million for the fiscal year ended June 30, 2002, related to awrite-down of the net carrying value of goodwill relating to theacquisition of a wireless local loop telephone network solutionsbusiness during the fiscal year ended June 30, 1999.

InterestIncome.     Interest income decreased by $0.6 million, or59.0%, to $0.4 million for the fiscal year ended June 30, 2003from $1.0 million for the fiscal year ended June 30, 2002. The decreasewas primarily due to a significant decline in cash and cash equivalentsdue to cash used in operations during the fiscal year ended June 30,2003.

Interest Expense.    Interest expense decreasedby $0.4 million, or 43.7%, to $0.5 million for the fiscal yearended June 30, 2003 from $1.0 million for the fiscal year ended June30, 2002. The decrease was the result of less interest paid on acapital lease obligation, which was terminated in February 2003.

Quarterly Results

The following tables set forth unauditedconsolidated financial information for each of the eight fiscalquarters in the period ended June 30, 2004. We believe that thisinformation has been presented on the same basis as the auditedconsolidated financial statements appearing elsewhere in the AnnualReport on Form 10-K, and we believe all necessary adjustments,consisting only of normal recurring adjustments, 

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have been included in the amounts statedbelow to present fairly the unaudited quarterly results of operationswhen read in conjunction with our audited consolidated financialstatements and related notes included elsewhere in this Annual Reporton Form 10-K. The operating results for any quarter are not necessarilyindicative of the operating results for any future period.

|                                                                                             |  |                                      |         |              |  |              |         |               |  |              |         |             |  |              |         |               |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|---------------------------------------------------------------------------------------------|--|--------------------------------------|---------|--------------|--|--------------|---------|---------------|--|--------------|---------|-------------|--|--------------|---------|---------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                                        |  | ThreeMonths Ended,                   |
|                                                                                        |  | June30,2004                          |         | Mar. 31,2004 |  | Dec. 31,2003 |         | Sept. 30,2003 |  | June 30,2003 |         | Mar.31,2003 |  | Dec. 31,2002 |         | Sept. 30,2002 |
|                                                                                        |  | (In thousands, except per sharedata) |
| **ConsolidatedStatement of Operations Data:**                                               |  |
| Revenues fromground segment systems, networks and enterprise solutions                      |  | $                                    | 17,427  |         |  | $            | 18,956  |          |  | $            | 19,891  |        |  | $            | 17,031  |          |  | $      | 10,876  |    |  | $      | 9,231   |    |  | $      | 11,854  |    |  | $      | 8,164   |    |
| Revenuesfrom data communications services                                                   |  |                                 | 3,387   |         |  |         | 3,305   |          |  |         | 3,809   |        |  |         | 3,430   |          |  |   | 3,170   |    |  |   | 3,261   |    |  |   | 3,202   |    |  |   | 4,270   |    |
| Totalrevenues                                                                               |  |                                 | 20,814  |         |  |         | 22,261  |          |  |         | 23,700  |        |  |         | 20,461  |          |  |   | 14,046  |    |  |   | 12,492  |    |  |   | 15,056  |    |  |   | 12,434  |    |
| Costsand operating expenses:                                                                |  |
| Costs from groundsegment systems, networks and enterprise solutions                         |  |                                 | 14,000  |         |  |         | 16,180  |          |  |         | 17,798  |        |  |         | 15,304  |          |  |   | 12,001  |    |  |   | 8,967   |    |  |   | 10,787  |    |  |   | 7,692   |    |
| Costsfrom data communications services                                                      |  |                                 | 3,381   |         |  |         | 3,138   |          |  |         | 3,255   |        |  |         | 3,218   |          |  |   | 3,326   |    |  |   | 3,697   |    |  |   | 4,484   |    |  |   | 6,289   |    |
| Sellingand marketing                                                                        |  |                                 | 1,347   |         |  |         | 1,219   |          |  |         | 1,126   |        |  |         | 1,116   |          |  |   | 1,282   |    |  |   | 1,513   |    |  |   | 1,615   |    |  |   | 1,632   |    |
| Researchand development                                                                     |  |                                 | 375     |         |  |         | 242     |          |  |         | 236     |        |  |         | 475     |          |  |   | 247     |    |  |   | 131     |    |  |   | 157     |    |  |   | 265     |    |
| Generaland administrative                                                                   |  |                                 | 1,414   |         |  |         | 2,118   |          |  |         | 2,103   |        |  |         | 893     |          |  |   | 2,772   |    |  |   | 2,277   |    |  |   | 2,418   |    |  |   | 1,956   |    |
| Totalcosts and operating expenses                                                           |  |                                 | 20,517  |         |  |         | 22,897  |          |  |         | 24,518  |        |  |         | 21,006  |          |  |   | 19,628  |    |  |   | 16,585  |    |  |   | 19,461  |    |  |   | 17,834  |    |
| Income(loss) from operations                                                                |  |                                 | 297     |         |  |         | (636    | )        |  |         | (818    | )      |  |         | (545    | )        |  |   | (5,582  | )  |  |   | (4,093  | )  |  |   | (4,405  | )  |  |   | (5,400  | )  |
| Otherincome (expense):                                                                      |  |
| Interest income                                                                             |  |                                 | 80      |         |  |         | 63      |          |  |         | 66      |        |  |         | 62      |          |  |   | 63      |    |  |   | 73      |    |  |   | 116     |    |  |   | 170     |    |
| Interestexpense                                                                             |  |                                 | — |         |  |         | — |          |  |         | — |        |  |         | (1      | )        |  |   | — |    |  |   | (76     | )  |  |   | (230    | )  |  |   | (233    | )  |
| Gainon sale of available-for-sale securities                                                |  |                                 | — |         |  |         | — |          |  |         | 91      |        |  |         | — |          |  |   | — |    |  |   | — |    |  |   | — |    |  |   | — |    |
| Netincome (loss)                                                                            |  | $                                    | 377     |         |  | $            | (573    | )        |  | $            | (661    | )      |  | $            | (484    | )        |  | $      | (5,519  | )  |  | $      | (4,096  | )  |  | $      | (4,519  | )  |  | $      | (5,463  | )  |
| Basicand diluted net income (loss) per common share                                         |  | $                                    | 0.03    |         |  | $            | (0.04   | )        |  | $            | (0.05   | )      |  | $            | (0.04   | )        |  | $      | (0.44   | )  |  | $      | (0.33   | )  |  | $      | (0.36   | )  |  | $      | (0.43   | )  |
| Weighted-averageshares used in the calculation of basic net income (loss) per commonshare   |  |                                 | 14,141  |         |  |         | 14,100  |          |  |         | 12,575  |        |  |         | 12,576  |          |  |   | 12,555  |    |  |   | 12,557  |    |  |   | 12,566  |    |  |   | 12,583  |    |
| Weighted-averageshares used in the calculation of diluted net income (loss) per commonshare |  |                                 | 14,593  |         |  |         | 14,100  |          |  |         | 12,575  |        |  |         | 12,576  |          |  |   | 12,555  |    |  |   | 12,557  |    |  |   | 12,566  |    |  |   | 12,583  |    |
|                                                                                             |

Wemay continue to experience significant quarter-to-quarter fluctuationsin our consolidated results of operations, which may result involatility in the price of our common stock. See section entitled"Risk Factors."

Liquidity and CapitalResources

At June 30, 2004, we had working capital of $30.1million, including cash and cash equivalents of $28.3 million,restricted cash of $1.9 million, net accounts receivable of $14.3million, inventories of $3.9 million and prepaid expenses and othercurrent assets of $1.3 million, offset by $15.5 million in accountspayable, $1.1 million in deferred revenue and $3.1 million in accruedexpenses and other current liabilities.

Net cash provided byoperating activities during the fiscal year ended June 30, 2004 was$1.6 million, which primarily related to an increase in accountspayable of $4.7 million relating to the increase in 

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revenues and the timing of vendor payments, adecrease in inventories of $7.5 million due to the timing of shipmentson certain jobs, and non-cash items representing depreciation andamortization expense of $3.1 million primarily related to the networkoperations center and satellite earth station equipment. These amountsprovided were partially offset by the net loss of $1.3 million, anincrease in accounts receivable of $5.4 million due to the increase inrevenues and a decrease in deferred revenues of $6.6  million dueto timing differences between project billings and revenue recognitionmilestones resulting from specific customer contracts.

Net cashused in investing activities during fiscal year ended June 30, 2004 was$1.9 million, which related to the purchase of $1.3 million of fixedassets primarily for our network operations center in order to supportour existing service base and an increase in restricted cash of $1.3million based on certificates of deposit issued as collateral forspecific projects, offset by proceeds received of $0.4 million from thesale of available-for-sale securities and a repayment of a $0.3 millionpromissory note from a related party.

Net cash provided byfinancing activities during fiscal year ended June 30, 2004 was $6.4million. In December 2003, we completed a private placement transactionof equity securities where we issued 1,500,000 shares of common stockat a price of $4.50 per share for an aggregate price of $6,750,000 andissued warrants to purchase up to 750,000 shares of common stock at anexercise price of $5.50 per share. We incurred total expenses ofapproximately $0.6 million, of which approximately $0.5 millionrepresented placement agent commissions and approximately $0.1 millionrepresented other offering expenses. The net proceeds to the Companyafter deducting total expenses were approximately $6.2  million.We also received $0.6 million of proceeds from the exercise of stockoptions and sale of common stock in connection with the employee stockpurchase plan purchase, offset by the purchase of $0.3 million oftreasury stock.

In September 2003, we entered into a one-yearcredit agreement with our existing bank, which provides for a workingcapital credit facility of up to $7.5 million consisting of a $3.75million secured domestic line of credit (the "DomesticLine") and a $3.75 million Export-Import Bank securedguaranteed line of credit (the "EXIM Line").We will be advanced up to 80% of eligible domestic accountsreceivable and 90% of eligible foreign accounts receivable undereach respective line of credit, as defined in the agreement. In March2004, we amended the agreement to allow us to borrow up to $7.5 millionagainst the Domestic Line, reduced by borrowings against the EXIM Line.The amendment also provided eligibility of up to 50% of theamount of our cash and cash equivalents at the bank, up to the $7.5million. In June 2004, we amended the agreement to allow us to borrowup to $10.5 million. Each line of credit bears interest at the greaterof 6.0% or the prime rate plus 2.0% per annum, and iscollateralized by a first security interest on all of our personalproperty. The credit agreement allows us to borrow and apply letters ofcredit against the availability under each line of credit. In addition,the credit agreement contained certain financial and other covenants,deposit requirements, monthly reporting provisions and otherrequirements, as defined in the credit agreement, with which we were incompliance with at June  30, 2004. As of June 30, 2004, noborrowings were outstanding under this credit facility, however, therewere standby letters of credit of approximately $8.6 million, whichwere applied against and reduced the amounts available under thiscredit facility.

We are currently negotiating a new creditfacility with our existing bank. Our current credit agreement has beenextended until October 31, 2004, while we finalize the terms of a newagreement. We have received bank funding approval for a new creditfacility up to $16.5  million with similar terms to our currentcredit agreement. We anticpate entering into a formal agreement priorto October 31, 2004.

We lease satellite space segment servicesand other equipment under various operating lease agreements, whichexpire in various years through fiscal 2009. Future minimum leasepayments due on these leases through June 30, 2005 are approximately$5.7 million.

We have reached a $4.0 million settlement with amajor customer and received initial payments of $3.5 million ($3.0million of which was received in July 2004). This settlement willresult in a non-recurring gain of approximately $1.9 million, whichwill be reflected in our fiscal first quarter ending September 30,2004.

On November 7, 2001, the Board of Directors authorized astock repurchase program whereby we can repurchase up to $2.0 millionof our outstanding stock, representing approximately 3.7% of thetotal 

21

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shares outstanding on that date. SinceNovember 2001, we have repurchased an aggregate of 317,606 shares forapproximately $1.7 million. The timing, price, quantity and manner offuture purchases will be at the discretion of management, depending onmarket conditions and other factors, subject to compliance with theapplicable securities laws.

We expect that our cash and workingcapital requirements for operating activities will increase as wecontinue to implement our business strategy. Management anticipatesadditional working capital requirements for work in progress for ordersas obtained and that we may experience negative cash flows due toquarter to quarter operating performance.

NetSat has had, and weexpect it will continue to have, working capital and additional capitalexpenditure requirements, which have, and may continue to put increasedpressure on our capital resources.

Our future capitalrequirements will depend upon many factors, including the success ofour marketing efforts in the ground segment systems, networks and datacommunications services business, the nature and timing of customerorders and the extent to which we must conduct research and developmentefforts internally. Based on current plans, we believe that ourexisting capital resources will be sufficient to meet working capitalrequirements at least through June 30, 2005. However, we cannot assureyou that there will be no unforeseen events or circumstances that wouldconsume available resources significantly before that time. Forexample, future events occurring in response to the hostilities in Iraqand Afghanistan, or in connection with a war, including, withoutlimitation, future terrorist attacks against the United States or itsallies or military or trade or travel disruptions impacting our abilityto sell and market our products and services in the United States andinternationally may impact our results of operations. In particular, wecurrently have two significant contracts with the Ministry ofCommunication of the Islamic Transitional State of Afghanistan.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.

ContractualObligations and Commercial Commitments

At June 30, 2004, we hadcontractual obligations and commercial commitments as follows (inthousands):

|                                   |  |                       |        |               |  |          |       |          |  |              |       |        |  |   |       |        |  |   |         |        |  |  |
|-----------------------------------|--|-----------------------|--------|---------------|--|----------|-------|----------|--|--------------|-------|--------|--|---|-------|--------|--|---|---------|--------|--|--|
|                              |  | Payments Due byPeriod |
|                              |  | Total                 |        | Lessthan1year |  | 1-3years |       | 4-5years |  | After 5years |
| **ContractualObligations**        |  |
| Operating leases                  |  | $                     | 17,710 |          |  | $        | 5,691 |     |  | $            | 9,037 |   |  | $ | 2,982 |   |  | $ | — |   |
| Totalcontractual cash obligations |  | $                     | 17,710 |          |  | $        | 5,691 |     |  | $            | 9,037 |   |  | $ | 2,982 |   |  | $ | — |   |
|                                   |

    

|                                 |  |                       |       |                                          |  |          |     |          |  |             |       |        |  |   |         |        |  |   |         |        |  |  |
|---------------------------------|--|-----------------------|-------|------------------------------------------|--|----------|-----|----------|--|-------------|-------|--------|--|---|---------|--------|--|---|---------|--------|--|--|
|                            |  |                  |       | Amountof Commitment Expiration PerPeriod |
|                            |  | TotalAmountsCommitted |       | Less than1year                           |  | 1-3years |     | 4-5years |  | Over 5years |
| **Other CommercialCommitments** |  |
| Standby letters of credit       |  | $                     | 8,650 |                                     |  | $        | 939 |     |  | $           | 7,711 |   |  | $ | — |   |  | $ | — |   |
| Totalcommercial commitments     |  | $                     | 8,650 |                                     |  | $        | 939 |     |  | $           | 7,711 |   |  | $ | — |   |  | $ | — |   |
|                                 |

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During fiscal 2001, we entered into twothirty-six month operating lease agreements for satellite space segmenttransponders on two satellites that were expected to be launched inlate 2002 and be operational by March 2003. Future payments due on suchagreements through fiscal 2007 are approximately $6.0 million. Suchsatellite space segment services are scheduled to begin when thesatellite transponders are commercially operational, as defined in theagreements. During fiscal 2003, we learned that the vendor hadexperienced significant delays in the planned launch and operationaldates for the satellites. As a result of these delays, we maintainedthat we had a right to terminate the contracts without cost and haveprovided 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.

Related Party Transactions

DuringJanuary 2003, pursuant to a letter agreement we consolidated the thenoutstanding loan and advances receivable from an individual who is aformer executive officer and a current employee into a $0.3 millionpromissory note. Under the terms of the letter agreement we willforgive the outstanding principal and interest amounts due on thepromissory note in five annual installments beginning in January 2004so long as the former executive officer remains an employee, subject tothe terms of the letter agreement. In March 2004, the Company forgavethe first installment under the promissory note.

RiskFactors

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

We have incurredsignificant net losses since we began operating in August 1994. Weincurred net losses of $1.3 million during the fiscal year ended June30, 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 June30, 2004 our accumulated deficit was $75.2 million. We anticipate thatwe may continue to incur net losses, in any particular quarter, due tothe timing of significant projects even if we achieve profitability inthe fiscal year ending June 30, 2005. Our ability to achieve andmaintain profitability will depend upon our ability to generatesignificant revenues through new profitable customer contracts and theexpansion of our existing products and services, including our datacommunications services. We cannot assure you that we will be able toobtain new profitable customer contracts or generate significantadditional revenues from those contracts or any new products orservices that we introduce. Even if we become profitable, we may notsustain or increase our profits on a quarterly or annual basis in thefuture.

Since sales of satellite communications equipment aredependent on the growth of communications networks, if market demandfor these networks declines, our revenue and profitability are likelyto decline.

We derive, and expect to continue to derive, asignificant amount of revenues from the sale of satellite groundsegment systems and networks. If the long-term growth in demand forcommunications networks 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.

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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,Central and South America, Eastern and Central Europe and the MiddleEast. There are a number of risks inherent in conducting our businessinternationally, including:

|              |                                                                                                                                                                                                                                    |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | generalpolitical and economic instability in international markets, includingthe hostilities in Iraq and Afghanistan, could impede our ability todeliver our products and services to customers and harm our results ofoperations; |

|              |                                                                                                                 |
|--------------|-----------------------------------------------------------------------------------------------------------------|
| •  | changes in regulatoryrequirements could restrict our ability to deliver services to ourinternational 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 the transponder space will beefficiently and substantially utilized or that an increase in orderswill be realized. NetSat has had, and we expect will continue to have,cash requirements, which have and will decrease our cash resources. IfNetSat does not efficiently and substantially utilize its transponderspace capacity and increase its level of orders, its cash requirementsmay increase and our results of operations will be harmed.

Youshould not rely on our quarterly operating results as an indication ofour future results because they are subject to significantfluctuations, and if we fail to meet the expectations of public marketanalysts or investors, our stock price could declinesignificantly.

24

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Our future revenues and results ofoperations may significantly fluctuate due to a combination of factors,including:

|              |                                                          |
|--------------|----------------------------------------------------------|
| •  | delays and/or a decrease inthe booking of new contracts; |

|              |                                                                                                                         |
|--------------|-------------------------------------------------------------------------------------------------------------------------|
| •  | generalpolitical and economic conditions in the United States and abroad,including hostilities in Iraq and Afghanistan; |

|              |                                                                       |
|--------------|-----------------------------------------------------------------------|
| •  | the length of time needed to initiate andcomplete customer contracts; |

|              |                                                                     |
|--------------|---------------------------------------------------------------------|
| •  | thedemand for and acceptance of our existing products and services; |

|              |                                                                                                                                      |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------|
| •  | the cost of providing our products andservices, including the ability to ship and install our products andservices in hostile areas; |

|              |                                                  |
|--------------|--------------------------------------------------|
| •  | the cost ofperformance on fixed price contracts; |

|              |                                                |
|--------------|------------------------------------------------|
| •  | 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 additional personnel; |

|              |                                     |
|--------------|-------------------------------------|
| •  | the competition in our markets; and |

|              |                                                                                                                                                                                     |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | difficult global economic conditions andthe currency devaluations in international markets, which haveadversely impacted and may continue to adversely impact our quarterlyresults. |

Accordingly, you should not rely on quarter-to-quartercomparisons of our results of operations as an indication of our futureperformance. It is possible that in future periods our results ofoperations may be below expectations, which could cause the tradingprice of our common stock to decline.

Our markets are highlycompetitive and we have many established competitors, and we may losemarket share as a result.

The markets in which we operate arehighly competitive and this competition could harm our ability to sellour products and services on prices and terms favorable to us. Ourprimary competitors in the satellite ground segment systems andnetworks market generally fall into two groups: (1) system integrators,like ITT, Data Path, and Global Communication Services, and (2)equipment manufacturers who also provide integrated systems, likeAndrew Corporation, Tripoint Global, Alcatel and ND Satcom AG.

In the end-to-end satellite-based communication solutions andcommunications services markets, we compete with other satellitecommunication companies who provide similar services, like Verestar andConvergent Media Systems. In addition, we may compete with othercommunications service providers like Echostar and AT&T, andsatellite owners like Panamsat, Loral Skynet, New Skies Satellites N.V.and Intelsat. 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.

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.The potential strategic relationships of existing and new competitorsmay rapidly acquire significant market share, which would harm ourbusiness and financial condition.

25

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If the satellite communications industryfails to continue to develop or new technology makes it obsolete ourbusiness and financial condition will be harmed.

Our businessis dependent on the continued success and development of satellitecommunications technology, which competes with terrestrialcommunications transport technologies like terrestrial microwave,coaxial cable and fiber optic communications systems. Fiber opticcommunications systems have penetrated areas in which we havetraditionally provided services. If the satellite communicationsindustry fails to continue to develop, or if any technologicaldevelopment significantly improves the cost or efficiency of competingterrestrial systems relative to satellite systems, then our businessand financial condition would be materially harmed.

We may beunable to raise additional funds to meet our capital requirements inthe future.

We believe that our available cash resources willbe sufficient to meet our working capital and capital expenditurerequirements through June 30, 2005. However, our future liquidity andcapital requirements are difficult to predict, as they depend onnumerous factors, including the success of our existing product andservice offerings, as well as competing technological and marketdevelopments. We may need to raise additional funds in order to meetadditional 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 have agreements withsix customers to provide equipment and services, from which we expectto generate a significant portion of our revenues. If any of thesecustomers is unable to implement its business plan, the market forthese customers' services declines, or if all or any of thecustomers modifies or terminates its agreement with us, and we areunable to replace these contracts, our results of operations, businessand financial condition would be materially harmed.

If ourproducts and services are not accepted in developing countries withemerging markets, our revenues will be impaired.

We anticipatethat a substantial portion of the growth in the demand for our productsand services will come from customers in developing countries due to alack of basic communications infrastructure in these countries.However, we cannot guarantee an increase in the demand for our productsand services in developing countries or that customers in thesecountries will accept our products and services at all. Our ability topenetrate emerging markets in developing countries is dependent uponvarious factors including:

|              |                                                                                                                                                                                              |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the speedat which communications infrastructure, including terrestrialmicrowave, coaxial cable and fiber optic communications systems, whichcompete with satellite-based services, is built; |

|              |                                                                                                                          |
|--------------|--------------------------------------------------------------------------------------------------------------------------|
| •  | the effectiveness of our local resellersand sales representatives in marketing and selling our products andservices; and |

|              |                                                          |
|--------------|----------------------------------------------------------|
| •  | the acceptance of ourproducts and services by customers. |

If our products and servicesare not accepted, or the market potential we anticipate does notdevelop, our revenues will be impaired.

We depend upon certainkey personnel and may not be able to retain these employees.

Our future performance depends on the continued service of our keytechnical, managerial and marketing personnel; in particular, DavidHershberg, Kenneth Miller, Stephen Yablonski and Donald Woodring. Theemployment of any of our key personnel could cease at any time.

26

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Unauthorized use of our intellectualproperty by third parties may damage our business.

We regardour trademarks, trade secrets and other intellectual property asbeneficial to our success. Unauthorized use of our intellectualproperty by third parties may damage our business. We rely ontrademark, trade secret and patent protection and contracts, includingconfidentiality and license agreements with our employees, customers,strategic collaborators, consultants and others to protect ourintellectual property rights. Despite our precautions, it may bepossible for third parties to obtain and use our intellectual propertywithout our authorization.

We currently have been granted threepatents in the United States, one for remote access to the Internetusing satellites, another for satellite communication with automaticfrequency control, and most recently, we have been granted a patentconcerning a monitor and control system for satellite communicationsnetworks and the like. We have two other patents pending in the UnitedStates, one for implementing facsimile and data communications usingInternet Protocols and another for a distributed satellite-basedcellular network. We currently have one Patent Cooperation Treatypatent application pending for implementing facsimile and datacommunications using Internet Protocols. We also intend to seek furtherpatents on our technology, if appropriate. We cannot assure you thatpatents will be issued for any of our pending or future patentapplications or that any claims allowed from such applications will beof sufficient scope, or be issued in all countries where our productsand services can be sold, to provide meaningful protection or anycommercial advantage to us. Also, our competitors may be able to designaround our patents. The laws of some foreign countries in which ourproducts and services are or may be developed, manufactured or sold maynot protect our products and services or intellectual property rightsto the same extent as do the laws of the United States and thus makethe possibility of piracy of our technology and products and servicesmore likely.

We have filed applications for trademarkregistration of Globecomm Systems Inc., Globecomm and GSI in the UnitedStates and various other countries, and have been granted registrationsfor some of these terms in the United States, Europe and Russia. Wehave received trademark registrations for NetSat in the United States,the European Community, Russia, Singapore and Brazil. We have variousother trademarks and service marks registered or pending forregistration in the United States and in other countries and may seekregistration of other trademarks and service marks in the future. Wecannot assure you that registrations will be granted from any of ourpending or future applications, or that any registrations that aregranted will prevent others from using similar trademarks in connectionwith related goods and services.

Defending against intellectualproperty infringement claims could be time consuming and expensive, andif we are not successful, could cause substantial expenses and disruptour business.

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 business. We may incur substantialexpenses in defending against these third party claims, regardless oftheir merit. 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.

27

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We depend on our suppliers, some ofwhich are our sole or a limited source of supply, and the loss of thesesuppliers would materially adversely affect our business, results ofoperations and financial condition.

We currently obtain most ofour critical 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 malfunction orbe damaged or lost.

The damage or loss of any of the satellitesused by us, or the temporary or permanent malfunction of any of thesatellites upon which we rely, would likely result in the interruptionof our satellite-based communications services. This interruption wouldhave a material adverse effect on our business, results of operationsand financial condition.

Risks Related to the SecuritiesMarkets and Ownership of Our Common Stock

Our stock price ishighly volatile.

From July 1, 2003 through June 30, 2004, ourclosing stock price ranged from a low of $3.05 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. |

Additionally, numerousfactors relating to our business may cause fluctuations or declines inour stock price.

The stock markets in general and the marketsfor telecommunications stocks in particular, have experienced extremevolatility that has often been unrelated to the operating performanceof particular 

28

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companies. These broad market fluctuationsmay adversely affect the trading price of our common stock.Accordingly, we cannot assure you that you will be able to resell theshares of common stock at any particular price, or at all.

Athird party could be prevented from acquiring shares of our stock at apremium to the market price because of our anti-takeoverprovisions.

Various provisions with respect to votes in theelection of directors, special meetings of stockholders, and advancenotice requirements for stockholder proposals and director nominationsof our amended and restated certificate of incorporation, bylaws andSection 203 of the General Corporation Law of the State of Delawarecould make it more difficult for a third party to acquire us, even ifdoing so might be beneficial to our stockholders. In addition, we havea poison pill in place and employment provisions with our seniorexecutives that have change of control provisions that could make anacquisition of us by a third party more difficult.

RisksRelated to Government Approvals

We are subject to manygovernment regulations, and failure to comply with them will harmour business.

Operations and Use ofSatellites

We are subject to various federal laws andregulations, which may have negative effects on our business. Weoperate FCC licensed earth stations in Hauppauge, New York, subject tothe FCC Act and the rules 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.

ForeignOwnership

We may, in the future, be required to seek FCCapproval if foreign ownership of our stock exceeds the specifiedcriteria. Failure to comply with these policies could result in anorder to divest the offending foreign ownership, fines, denial oflicense renewal, and/or license revocation proceedings against thelicensee by the FCC.

Foreign Regulations

Regulatory schemes in countries in which we may seek to provide oursatellite-delivered data communications services may impose impedimentson our operations. Some countries in which we intend to operate havetelecommunications laws and regulations that do not currentlycontemplate technical advances in telecommunications technology likeInternet/intranet transmission by satellite. We cannot assure you thatthe present regulatory environment in any of those countries will notbe changed in a manner, which may have a material adverse impact on ourbusiness. Either we or our local partners typically must obtainauthorization for each country in which we provide oursatellite-delivered data 

29

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communications services. The regulatoryschemes in each country are different, and thus there may be instancesof noncompliance of which we are not aware. We cannot assure you thatour licenses and approvals are or will remain sufficient in the view offoreign regulatory authorities, or that necessary licenses andapprovals 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 of the Internet

Due to the increasingpopularity and use of the Internet, it is possible that a number oflaws and regulations may be adopted at the local, national orinternational levels with respect to the Internet, covering issuesincluding user privacy and expression, pricing of products andservices, taxation, advertising, intellectual property rights,information security or the convergence of traditional communicationservices with Internet communications. It is anticipated that asubstantial portion of our Internet operations will be carried out incountries 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 were adopted prior to theadvent of the Internet and related technologies and, as a result, donot contemplate or address the unique issues of the Internet andrelated technologies. Changes to these laws intended to address theseissues, including some recently proposed changes, could createuncertainty in the marketplace which could reduce demand for ourproducts and services, could increase our cost of doing business as aresult of costs of litigation or increased product development costs,or could in some other manner have a material adverse effect on ourbusiness, financial condition and results of operations.

Telecommunications Taxation, Support Requirements, and AccessCharges

All telecommunications carriers providing domesticservices in the United States are required to contribute a portion oftheir gross revenues for the support of universal telecommunicationsservices; and some telecommunications services are subject to specialtaxation and to contribution requirements to support services tospecial groups, like persons with disabilities. Our services may besubject to new or increased taxes and contribution requirements thatcould affect our profitability, particularly if we are not able to passthem through to customers for either competitive or regulatoryreasons.

Internet services are currently exempt from chargesthat long distance telephone companies pay for access to the networksof local telephone companies in the United States. Efforts have beenmade from time to time, and may be made again in the future, toeliminate this exemption. If these access charges are imposed ontelephone lines used to reach Internet service providers and/or if flatrate telephone services for Internet access are eliminated orcurtailed, the cost to customers who access our satellite facilitiesusing telephone company-provided facilities could increase to an extentthat could discourage the demand for our services. Likewise, the demandfor our services in other countries may be affected by the availabilityand cost of local telephone or other telecommunications facilities toreach our facilities. 

Export of TelecommunicationsEquipment

The sale of our ground segment systems,networks, and communications services outside the United States issubject to compliance with the regulations of the United States ExportAdministration and, in certain circumstances, with InternationalTraffic in Arms regulations. The absence of comparable restrictions oncompetitors in other countries may adversely affect our competitiveposition. In addition, in order to ship our products into and implementour services in some countries, the products must satisfy the technicalrequirements of that particular country. If we were unable to complywith such requirements with respect to a significant quantity of ourproducts, our sales in those countries could be restricted, which couldhave a material adverse effect on our business, results of operationsand financial condition. 

30

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Item 7A.    Quantitative andQualitative Disclosures About Market Risk

We are subject to avariety of risks, including foreign currency exchange rate fluctuationsrelating to 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 our 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 fiscal years ended June 30, 2004, 2003and 2002, we had no such foreign currency forward contracts.

Ourresults of operations and cash flows are subject to fluctuations due tochanges in interest rates primarily from our investment of availablecash balances in money market funds with portfolios of investment gradecorporate and government securities. Under our current positions, we donot use interest rate derivative instruments to manage exposure tointerest rate changes.

Item 8.    Financial Statements andSupplementary Data

The information required by this item isincorporated by reference to the Consolidated Financial Statementslisted in Item 15(a) of Part IV of this Annual Report on Form 10-K.

Item 9.    Changes in and Disagreements with Accountants onAccounting and Financial Disclosure

None

Item9A.    Controls and Procedures

We have established disclosurecontrols and procedures to ensure that material information relating tous, including our consolidated subsidiaries, is made known to theofficers who certify our financial reports and to other members ofsenior management and the Board of Directors.

As of the end ofthe period covered by this Annual Report on Form 10-K, an evaluationwas carried out under the supervision and with the participation ofsenior management, including our Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures (as defined in Rules 13a-14(c)and 15d-14(c) under the Securities Exchange Act of 1934, as amended).Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and proceduresare effective for gathering, analyzing and disclosing the informationthat the Company is required to disclose in reports filed under theSecurities Exchange Act of 1934, as amended.

There have been nosignificant changes in our internal control over financial reporting(as defined in Exchange Act Rule 13a-15(f) of the Securities ExchangeAct of 1934, as amended) or in other factors during the fiscal quarterand fiscal year ended June 30, 2004 that materially affected, or arereasonably likely to materially affect, the Company's internalcontrols over financial reporting.

31

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PART III

Item10.    Directors and Executive Officers of the Registrant

Certain information in response to this item is incorporated hereinby reference to "Election of Directors" and"Executive Officers" in Globecomm SystemsInc.'s Proxy Statement to be filed with the Securities andExchange Commission (the "SEC"). Informationon compliance with Section 16(a) of the Exchange Act is incorporatedherein by reference to "Section 16(a) Beneficial OwnershipReporting Compliance" in the Registrant's ProxyStatement to be filed with the SEC.

Item 11.    ExecutiveCompensation

Information in response to this item isincorporated herein by reference to "ExecutiveCompensation and Other Information" in theRegistrant's Proxy Statement to be filed with the SEC.

Item 12.    Security Ownership of Certain Beneficial Owners andManagement

Information in response to this item is incorporatedherein by reference to "Security Ownership of CertainBeneficial Owners and Management" in theRegistrant's Proxy Statement to be filed with the SEC.

Item 13.    Certain Relationships and Related Transactions

Information in response to this item is incorporated herein byreference to "Certain Transactions" in theRegistrant's Proxy Statement to be filed with the SEC.

Item 14.    Principal Accounting Fees and Services

Information in response to this item is incorporated herein byreference to "Report of the Audit Committee of the Boardof Directors" in the Registrant's Proxy Statement tobe filed with the SEC.

32

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PART IV

Item 15.    Exhibits,Financial Statement Schedules, and Reports on Form 8-K

(A) (1)Index to Consolidated Financial Statements

|                                                                                                           |  |        |     |        |  |  |
|-----------------------------------------------------------------------------------------------------------|--|--------|-----|--------|--|--|
| Reportof Independent Registered Public AccountingFirm                                                     |  |   | F-1 |   |
| Consolidated Balance Sheets as ofJune 30, 2004 and 2003                                                   |  |   | F-2 |   |
| ConsolidatedStatements of Operations for the years ended June 30, 2004, 2003 and2002                      |  |   | F-3 |   |
| Consolidated Statements of Changesin Stockholders' Equity for the years ended June 30, 2004, 2003and 2002 |  |   | F-4 |   |
| Consolidated Statements of CashFlows for the years ended June 30, 2004, 2003 and2002                      |  |   | F-5 |   |
| Notes to Consolidated FinancialStatements                                                                 |  |   | F-6 |   |
|                                                                                                           |

(2) Index to ConsolidatedFinancial Statement Schedule

|                                                      |
|------------------------------------------------------|
|                                                      |  |  |  |  |  |  |
| ScheduleII – Valuation and Qualifying Accounts |  |   | S-1 |   |
|                                                      |

All other schedules forwhich provision is made in the applicable accounting regulation fromthe SEC are not required under the related instructions or areinapplicable and therefore have been omitted.

(3) Index ofExhibits

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |  |  |
|------------|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNo. |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.1        |  | Amendedand Restated Certificate of Incorporation (incorporated by reference toExhibit  3.1 of the Registrant's Annual Report on Form 10-Kfor the fiscal year ended June 30,1998).                                                                                                                                                                                                                                                                                              |
| 3.2        |  | Amended and Restated By-laws ofthe Registrant (incorporated by reference to Exhibit 3.2 of theRegistrant's Annual Report on Form 10-K for the fiscal year endedJune 30, 1998).                                                                                                                                                                                                                                                                                                 |
| 4.2        |  | See Exhibits 3.1 and 3.2for provisions of the Amended and Restated Certificate of Incorporationand Amended and Restated By-laws of the Registrant defining rights ofholders of Common Stock of the Registrant (incorporated by reference toExhibit 4.2 of the Registrant's Registration Statement on FormS-1, File No. 333-22425 (the "RegistrationStatement")).                                                                                                               |
| 10.1       |  | EmploymentAgreement dated as of October 9, 2001 by and between the Registrant andDavid E. Hershberg (incorporated by reference to Exhibit 10.9 of theRegistrant's Quarterly Report on Form 10-Q, for the quarter endedSeptember 30, 2001).                                                                                                                                                                                                                                     |
| 10.2       |  | EmploymentAgreement dated as of October 9, 2001 by and between the Registrant andKenneth A. Miller (incorporated by reference to Exhibit 10.10 of theRegistrant's Quarterly Report on Form 10-Q, for the quarter endedSeptember 30, 2001).                                                                                                                                                                                                                                     |
| 10.3       |  | The Amended andRestated 1997 Stock Incentive Plan (incorporated by reference toExhibit 99 of the Registrant's Registration Statement on Form S-8Registration, File No.333-112351).                                                                                                                                                                                                                                                                                             |
| 10.4       |  | 1999 Employee StockPurchase Plan (incorporated by reference to Exhibit 99.8 of theRegistrant's Registration Statement on Form S-8, File No.333-70527).                                                                                                                                                                                                                                                                                                                         |
| 10.5       |  | Rights Agreement, dated asof December 3, 1998, between the Registrant and American Stock Transferand Trust Company, which includes the form of Certificate ofDesignation for the Series A Junior Participating Preferred Stock asExhibit A, the form of Rights Certificate as Exhibit B and the Summaryof Rights to Purchase Series A Preferred Shares as Exhibit C(incorporated by reference to Exhibit 4 of Registrant's CurrentReport on Form 8-K, dated December 3, 1998). |
|            |

33

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|            |  |                                                                                                                                                                                                                                                                                 |  |  |  |  |
|------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNo. |  |                                                                                                                                                                                                                                                                            |
| 10.6       |  | Negotiable PromissoryNote, dated April 1, 2001, between the Registrant and Donald Woodring(incorporated by reference to Exhibit 10.19 of the Registrant'sAnnual Report on Form 10-K for the year ended June 30,2001).                                                           |
| 10.7       |  | Employment Agreement, dated asof October 9, 2001, by and between Stephen C. Yablonski and theRegistrant (incorporated by reference to Exhibit 10.20 of theRegistrant's Quarterly Report on Form 10-Q, for the quarter endedSeptember 30, 2001).                                 |
| 10.8       |  | EmploymentAgreement, dated as of October 9, 2001, by and between Andrew C. Melfiand the Registrant (incorporated by reference to Exhibit 10.21 of theRegistrant's Quarterly Report on Form 10-Q, for the quarter endedSeptember 30, 2001).                                      |
| 10.9       |  | EmploymentAgreement, dated as of October 9, 2001, by and between Donald G.Woodring and the Registrant (incorporated by reference to Exhibit 10.22of the Registrant's Quarterly Report on Form 10-Q, for thequarter ended September 30,2001).                                    |
| 10.10      |  | Employment Agreement, dated asof October 9, 2001, by and between Paul J. Johnson and the Registrant(incorporated by reference to Exhibit 10.23 of the Registrant'sQuarterly Report on Form 10-Q, for the quarter ended September 30,2001).                                      |
| 10.11      |  | Employment Agreement, dated asof October 9, 2001, by and between Paul Eterno and the Registrant(incorporated by reference to Exhibit 10.24 of the Registrant'sQuarterly Report on Form 10-Q, for the quarter ended September 30,2001).                                          |
| 10.12      |  | Promissory Note Secured ByStock Pledge Agreement, dated September 4, 2001, by and between KennethA. Miller and the Registrant (incorporated by reference to Exhibit10.26 of the Registrant's Quarterly Report on Form 10-Q, for thequarter ended September 30,2001).            |
| 10.13*     |  | Settlement Agreement, dated asof October 1, 2002, by and between LoralSkynet, a division of Loral SpaceComCorporation and the Registrant (incorporated by reference to Exhibit10.28 of the Registrant's Quarterly Report on Form 10-Q, for thequarter ended September 30,2002). |
| 10.14      |  | Separation Agreement andGeneral Release, dated as of January 22, 2003, by and between G.Patrick Flemming and the Registrant (incorporated by reference toExhibit 10.29 of the Registrant's Quarterly Report on Form 10-Q,for the quarter ended December 31,2002).               |
| 10.15      |  | Letter Agreement, dated as ofJanuary 31, 2003, by and between Donald G. Woodring and the Registrant(incorporated by reference to Exhibit 10.30 of the Registrant'sQuarterly Report on Form 10-Q, for the quarter ended December 31,2002).                                       |
| 10.16      |  | Loan and Security Agreement,dated as of September 15, 2003, by and between Silicon Valley Bank andthe Registrant (incorporated by reference to Exhibit 10.31 of theRegistrant's Annual Report on Form 10-K for the year ended June30, 2003).                                    |
| 10.17      |  | Loan ModificationAgreement, dated as of October 8, 2003, by and between Silicon ValleyBank and the Registrant (filedherewith).                                                                                                                                                  |
| 10.18      |  | Second Loan ModificationAgreement, dated as of March 2, 2004, by and between Silicon ValleyBank and the Registrant (filedherewith).                                                                                                                                             |
| 10.19      |  | Third Loan ModificationAgreement, dated as of June 2, 2004, by and between Silicon Valley Bankand the Registrant (filedherewith).                                                                                                                                               |
| 10.20      |  | Fourth Loan ModificationAgreement, dated as of September 24, 2004, by and between SiliconValley Bank and the Registrant (filedherewith).                                                                                                                                        |
|            |

34

----

|            |  |                                                                                                                                                                                                                                                                                     |  |  |  |  |
|------------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNo. |  |                                                                                                                                                                                                                                                                                |
| 10.21      |  | Form of SecuritiesPurchase Agreement, dated as of December 31, 2003, by and between theRegistrant and each of the purchasers listed on Exhibit A thereto(incorporated herein by reference to Exhibit 4.5 of theRegistrant's Registration Statement on Form S-3, File No.333-112024. |
| 10.22      |  | Form of Warrant, dated asof December 31, 2003, by and between the Registrant and each of thepurchasers listed on Exhibit A thereto (incorporated herein byreference to Exhibit 4.5 of the Registrant's RegistrationStatement on Form S-3, File No.333-112024).                      |
| 14         |  | Registrant's Code ofEthics and Business Conduct (filedherewith).                                                                                                                                                                                                                    |
| 21         |  | Subsidiaries of the Registrant(filed herewith).                                                                                                                                                                                                                                     |
| 23         |  | Consent of IndependentRegistered Public Accounting Firm (filedherewith).                                                                                                                                                                                                            |
| 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 Financial OfficerCertification required by Rules 13a- 14 and 15d- 14 under theSecurities Exchange Act of 1934, as amended (filedherewith).                                                                                                                                    |
| 32         |  | Certification Pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of SarbanesOxley Act of 2002 (filedherewith).                                                                                                                                                   |
|            |

|  |   |                                                               |
|--|---|---------------------------------------------------------------|
|  | * | Confidentialtreatment granted for portions of this agreement. |

(B)Reports on Form 8-K

We filed a Current Reporton Form 8-K dated December 31, 2003, in which we reported under Item 5that on December 31, 2003, the Company executed definitive agreementsfor a private placement of equity securities, which resulted in theissuance of 1,500,000 shares of its Common Stock, par value $0.001 pershare, and warrants to purchase up to an aggregate of 750,000 shares ofcommon stock.

(C) Exhibits

The responseto this portion of Item 15 is submitted as a separate section of thisreport.

(D) Financial Statement Schedules

The response to this portion of Item 15 is submittedas a separate section of thisreport.

35

----

SIGNATURES

**Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.**

|              |  |                      |  |                          |  |  |  |  |  |  |
|--------------|--|----------------------|--|--------------------------|--|--|--|--|--|--|
|         |  | GLOBECOMMSYSTEMSINC. |
|         |  |                 |  |                     |
| Date:9/28/04 |  | By:                  |  | /s/ DAVID E.HERSHBERG    |
|         |  |                 |  | David E.Hershberg,       |
|         |  |                 |  | Chairman of the Boardand |
|         |  |                 |  | Chief ExecutiveOfficer   |
|              |

**Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacitiesand on the dates indicated.**

|                            |  |                                                                                                  |  |         |
|----------------------------|--|--------------------------------------------------------------------------------------------------|--|---------|
| Signature                  |  | Title                                                                                            |  | Date    |
|                            |
| /s/DAVID E. HERSHBERG      |  | Chairman of the Board and Chief ExecutiveOfficer (Principal ExecutiveOfficer)                    |  | 9/28/04 |
|                            |
| David E.Hershberg          |
|                            |
| /s/ ANDREW C.MELFI         |  | Vice President,Chief Financial Officer and Treasurer (Principal Financial andAccounting Officer) |  | 9/28/04 |
|                            |
| Andrew C. Melfi            |
|                            |
| /s/KENNETH A. MILLER       |  | President and Director                                                                           |  | 9/28/04 |
|                            |
| Kenneth A.Miller           |
|                            |
| /s/ STEPHEN C.YABLONSKI    |  | SeniorVice President, Sales, Marketing and Product Development andDirector                       |  | 9/28/04 |
|                            |
| Stephen C. Yablonski       |
|                            |
| /s/ RICHARD E.CARUSO       |  | Director                                                                                         |  | 9/28/04 |
|                            |
| Richard E.Caruso           |
|                            |
| /s/HARRY L. HUTCHERSON Jr. |  | Director                                                                                         |  | 9/28/04 |
|                            |
| Harry L. HutchersonJr.     |
|                            |
| /s/BRIAN T. MALONEY        |  | Director                                                                                         |  | 9/28/04 |
|                            |
| Brian T.Maloney            |
|                            |
| /s/JACK A. SHAW            |  | Director                                                                                         |  | 9/28/04 |
|                            |
| Jack A.Shaw                |
|                            |
| /s/A. ROBERT TOWBIN        |  | Director                                                                                         |  | 9/28/04 |
|                            |
| A. RobertTowbin            |
|                            |
| /s/C.J. WAYLAN             |  | Director                                                                                         |  | 9/28/04 |
|                            |
| C.J.Waylan                 |
|                            |

36

----

REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Tothe Board of Directors and Stockholders of Globecomm SystemsInc.

We have audited the accompanying consolidated balancesheets of Globecomm Systems Inc. (the"Company") as of June 30, 2004 and 2003 andthe related consolidated statements of operations, changes instockholders' equity and cash flows for each of the three yearsin the period ended June 30, 2004. Our audits also included thefinancial statement schedule listed in the Index at Item 15(a). Theseconsolidated financial statements and schedule are the responsibilityof the Company's management. Our responsibility is to express anopinion on these financial statements and schedule based on ouraudits.

We conducted our audits in accordance with the standardsof the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

Inour opinion, the financial statements referred to above present fairly,in all material respects, the consolidated financial position ofGlobecomm Systems Inc. at June 30, 2004 and 2003, and the consolidatedresults of its operations and its cash flows for each of the threeyears in the period ended June 30, 2004, in conformity with U.S.generally accepted accounting principles. Also, in our opinion, therelated financial statement schedule, when considered in relation tothe basic financial statements taken as a whole, presents fairly in allmaterial respects the information set forth therein.

|  | /s/ ERNST & YOUNG LLP |
|--|---------------------------|

Melville,New YorkAugust 9, 2004

F-1

----

GLOBECOMM SYSTEMS INC. CONSOLIDATEDBALANCE SHEETS (In thousands, except sharedata)

|                                                                                                                    |  |              |         |              |  |        |         |         |  |  |
|--------------------------------------------------------------------------------------------------------------------|--|--------------|---------|--------------|--|--------|---------|---------|--|--|
|                                                                                                               |  | June30, 2004 |         | June 30,2003 |
| **Assets**                                                                                                         |  |
| Currentassets:                                                                                                     |  |
| Cash and cashequivalents                                                                                           |  | $            | 28,252  |         |  | $      | 22,016  |    |
| Restrictedcash                                                                                                     |  |         | 1,903   |         |  |   | 608     |    |
| Accountsreceivable,net                                                                                             |  |         | 14,318  |         |  |   | 7,865   |    |
| Inventories                                                                                                        |  |         | 3,904   |         |  |   | 10,990  |    |
| Prepaidexpenses and other currentassets                                                                            |  |         | 1,274   |         |  |   | 2,040   |    |
| Deferredincometaxes                                                                                                |  |         | 83      |         |  |   | 125     |    |
| Totalcurrent assets                                                                                                |  |         | 49,734  |         |  |   | 43,644  |    |
| Fixedassets,net                                                                                                    |  |         | 15,441  |         |  |   | 17,536  |    |
| Goodwill                                                                                                           |  |         | 7,204   |         |  |   | 7,204   |    |
| Otherassets                                                                                                        |  |         | 1,096   |         |  |   | 1,960   |    |
| Totalassets                                                                                                        |  | $            | 73,475  |         |  | $      | 70,344  |    |
| **Liabilitiesand Stockholders'Equity**                                                                             |  |         |    |         |  |   |    |    |
| Currentliabilities:                                                                                                |  |
| Accountspayable                                                                                                    |  | $            | 15,453  |         |  | $      | 10,615  |    |
| Deferredrevenues                                                                                                   |  |         | 1,083   |         |  |   | 7,666   |    |
| Accruedpayroll and related fringebenefits                                                                          |  |         | 1,154   |         |  |   | 1,114   |    |
| Otheraccruedexpenses                                                                                               |  |         | 1,676   |         |  |   | 1,686   |    |
| Deferredliabilities                                                                                                |  |         | 316     |         |  |   | 523     |    |
| Totalcurrentliabilities                                                                                            |  |         | 19,682  |         |  |   | 21,604  |    |
| Deferredliabilities, less currentportion                                                                           |  |         | 987     |         |  |   | 1,303   |    |
| Commitmentsandcontingencies                                                                                        |  |         |    |         |  |
| Stockholders'equity:                                                                                               |  |         |    |         |  |   |    |    |
| Series A JuniorParticipating, shares authorized, shares issued and outstanding: nonein 2004 and2003                |  |         | — |         |  |   | — |    |
| Commonstock, $.001 par value, 22,000,000 shares authorized, sharesissued  14,628,574 in 2004 and 12,980,108 in2003 |  |         | 15      |         |  |   | 13      |    |
| Additional paid-incapital                                                                                          |  |         | 130,503 |         |  |   | 123,739 |    |
| Accumulateddeficit                                                                                                 |  |         | (75,198 | )       |  |   | (73,857 | )  |
| Accumulatedother comprehensive income(loss)                                                                        |  |         | 267     |         |  |   | (10     | )  |
| Treasurystock, at cost, 465,351 shares in 2004 and 403,845 shares in2003                                           |  |         | (2,781  | )       |  |   | (2,448  | )  |
| Totalstockholders'equity                                                                                           |  |         | 52,806  |         |  |   | 47,437  |    |
| Totalliabilities and stockholders'equity                                                                           |  | $            | 73,475  |         |  | $      | 70,344  |    |
|                                                                                                                    |

Seeaccompanying notes.

F-2

----

GLOBECOMM SYSTEMS INC. CONSOLIDATEDSTATEMENTS OF OPERATIONS (In thousands, except per sharedata)

|                                                                                              |  |                    |         |         |  |        |         |         |  |        |         |         |  |  |
|----------------------------------------------------------------------------------------------|--|--------------------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                                         |  | YearsEnded June30, |
|                                                                                         |  | 2004               |         | 2003    |  | 2002   |
| Revenuesfrom ground segment systems, networks and enterprisesolutions                        |  | $                  | 73,305  |    |  | $      | 40,125  |    |  | $      | 64,101  |    |
| Revenuesfrom data communicationsservices                                                     |  |               | 13,931  |    |  |   | 13,903  |    |  |   | 22,478  |    |
| Totalrevenues                                                                                |  |               | 87,236  |    |  |   | 54,028  |    |  |   | 86,579  |    |
| Costsand operating expenses:                                                                 |  |
| Costs from groundsegment systems, networks and enterprisesolutions                           |  |               | 63,282  |    |  |   | 39,447  |    |  |   | 57,083  |    |
| Costsfrom data communicationsservices                                                        |  |               | 12,992  |    |  |   | 17,796  |    |  |   | 26,705  |    |
| Sellingandmarketing                                                                          |  |               | 4,808   |    |  |   | 6,042   |    |  |   | 6,735   |    |
| Researchanddevelopment                                                                       |  |               | 1,328   |    |  |   | 800     |    |  |   | 1,185   |    |
| Generalandadministrative                                                                     |  |               | 6,529   |    |  |   | 9,423   |    |  |   | 11,970  |    |
| Assetimpairmentcharge                                                                        |  |               | — |    |  |   | — |    |  |   | 237     |    |
| Totalcosts and operatingexpenses                                                             |  |               | 88,939  |    |  |   | 73,508  |    |  |   | 103,915 |    |
| Lossfromoperations                                                                           |  |               | (1,703  | )  |  |   | (19,480 | )  |  |   | (17,336 | )  |
| Otherincome (expense):                                                                       |  |
| Interestincome                                                                               |  |               | 271     |    |  |   | 422     |    |  |   | 1,030   |    |
| Interestexpense                                                                              |  |               | — |    |  |   | (539    | )  |  |   | (957    | )  |
| Gainon sale of available-for-salesecurities                                                  |  |               | 91      |    |  |   | — |    |  |   | — |    |
| Netloss                                                                                      |  | $                  | (1,341  | )  |  | $      | (19,597 | )  |  | $      | (17,263 | )  |
| Basicand diluted net loss per commonshare                                                    |  | $                  | (0.10   | )  |  | $      | (1.56   | )  |  | $      | (1.36   | )  |
| Weighted-averageshares used in the calculation of basic and diluted net loss per commonshare |  |               | 13,346  |    |  |   | 12,565  |    |  |   | 12,707  |    |
|                                                                                              |

Seeaccompanying notes.

F-3

----

GLOBECOMMSYSTEMS INC.CONSOLIDATED STATEMENTS OF CHANGES INSTOCKHOLDERS' EQUITYYEARS ENDED JUNE 30, 2004, 2003 AND2002(In thousands)

|                                                                                                         |  |                                     |         |                           |  |                     |         |                                             |  |                                        |         |                           |  |        |         |         |  |        |         |         |  |        |         |        |  |        |         |         |  |        |         |         |  |  |
|---------------------------------------------------------------------------------------------------------|--|-------------------------------------|---------|---------------------------|--|---------------------|---------|---------------------------------------------|--|----------------------------------------|---------|---------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|--------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                                                    |  |     CommonStock |         | AdditionalPaid-in Capital |  | Accumulated Deficit |         | AccumulatedOtherComprehensive Income (Loss) |  |     Treasury Stock |         | TotalStockholders' Equity |
|                                                                                                    |  | Shares                              |         | Amount                    |  | Shares              |         | Amount                                      |  |
| Balance at June 30, 2001                                                                                |  |                                | 12,866  |                      |  | $                   | 13      |                                        |  | $                                      | 123,276 |                      |  | $      | (36,997 | )  |  | $      | (57     | )  |  |   | 148     |   |  | $      | (1,094  | )  |  | $      | 85,141  |    |
| Proceedsfrom exercise of stock options                                                                  |  |                                | 10      |                      |  |                | — |                                        |  |                                   | 38      |                      |  |   | — |    |  |   | — |    |  |   | — |   |  |   | — |    |  |   | 38      |    |
| Issuanceof common stock in connection with employee stock purchase plan                                 |  |                                | 57      |                      |  |                | — |                                        |  |                                   | 247     |                      |  |   | — |    |  |   | — |    |  |   | — |   |  |   | — |    |  |   | 247     |    |
| Purchasesof treasury stock                                                                              |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | — |    |  |   | — |    |  |   | 202     |   |  |   | (1,173  | )  |  |   | (1,173  | )  |
| Issuanceof stock options for services                                                                   |  |                                | — |                      |  |                | — |                                        |  |                                   | 37      |                      |  |   | — |    |  |   | — |    |  |   | — |   |  |   | — |    |  |   | 37      |    |
| Comprehensiveloss:                                                                                      |  |
| Net loss                                                                                                |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | (17,263 | )  |  |   | — |    |  |   | — |   |  |   | — |    |  |   | (17,263 | )  |
| Gainfrom foreign currencytranslation                                                                    |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | — |    |  |   | 128     |    |  |   | — |   |  |   | — |    |  |   | 128     |    |
| Lossfrom available-for-sale securities                                                                  |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | — |    |  |   | (115    | )  |  |   | — |   |  |   | — |    |  |   | (115    | )  |
| Totalcomprehensive loss                                                                                 |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | — |    |  |   | — |    |  |   | — |   |  |   | — |    |  |   | (17,250 | )  |
| Balanceat June 30, 2002                                                                                 |  |                                | 12,933  |                      |  |                | 13      |                                        |  |                                   | 123,598 |                      |  |   | (54,260 | )  |  |   | (44     | )  |  |   | 350     |   |  |   | (2,267  | )  |  |   | 67,040  |    |
| Issuanceof common stock in connection with employee stock purchase plan                                 |  |                                | 47      |                      |  |                | — |                                        |  |                                   | 141     |                      |  |   | — |    |  |   | — |    |  |   | — |   |  |   | — |    |  |   | 141     |    |
| Purchasesof treasury stock                                                                              |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | — |    |  |   | — |    |  |   | 54      |   |  |   | (181    | )  |  |   | (181    | )  |
| Comprehensiveloss:                                                                                      |  |
| Net loss                                                                                                |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | (19,597 | )  |  |   | — |    |  |   | — |   |  |   | — |    |  |   | (19,597 | )  |
| Gainfrom foreign currency translation                                                                   |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | — |    |  |   | 96      |    |  |   | — |   |  |   | — |    |  |   | 96      |    |
| Lossfrom available-for-sale securities                                                                  |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | — |    |  |   | (62     | )  |  |   | — |   |  |   | — |    |  |   | (62     | )  |
| Totalcomprehensive loss                                                                                 |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | — |    |  |   | — |    |  |   | — |   |  |   | — |    |  |   | (19,563 | )  |
| Balanceat June 30, 2003                                                                                 |  |                                | 12,980  |                      |  |                | 13      |                                        |  |                                   | 123,739 |                      |  |   | (73,857 | )  |  |   | (10     | )  |  |   | 404     |   |  |   | (2,448  | )  |  |   | 47,437  |    |
| Proceedsfrom exercise of stock options                                                                  |  |                                | 111     |                      |  |                | — |                                        |  |                                   | 464     |                      |  |   | — |    |  |   | — |    |  |   | — |   |  |   | — |    |  |   | 464     |    |
| Issuanceof common stock in connection with employee stock purchase plan                                 |  |                                | 38      |                      |  |                | — |                                        |  |                                   | 123     |                      |  |   | — |    |  |   | — |    |  |   | — |   |  |   | — |    |  |   | 123     |    |
| Purchasesof treasurystock                                                                               |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | — |    |  |   | — |    |  |   | 61      |   |  |   | (333    | )  |  |   | (333    | )  |
| Issuanceof stock options for services                                                                   |  |                                | — |                      |  |                | — |                                        |  |                                   | 12      |                      |  |   | — |    |  |   | — |    |  |   | — |   |  |   | — |    |  |   | 12      |    |
| Issuanceof common stock and warrants in connection with private placement, netof issuance costs of $583 |  |                                | 1,500   |                      |  |                | 2       |                                        |  |                                   | 6,165   |                      |  |   | — |    |  |   | — |    |  |   | — |   |  |   | — |    |  |   | 6,167   |    |
| Comprehensiveloss:                                                                                      |  |
| Net loss                                                                                                |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | (1,341  | )  |  |   | — |    |  |   | — |   |  |   | — |    |  |   | (1,341  | )  |
| Gainfrom foreign currency translation                                                                   |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | — |    |  |   | 81      |    |  |   | — |   |  |   | — |    |  |   | 81      |    |
| Gainfrom available-for-sale securities                                                                  |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | — |    |  |   | 196     |    |  |   | — |   |  |   | — |    |  |   | 196     |    |
| Totalcomprehensive loss                                                                                 |  |                                | — |                      |  |                | — |                                        |  |                                   | — |                      |  |   | — |    |  |   | — |    |  |   | — |   |  |   | — |    |  |   | (1,064  | )  |
| Balanceat June 30, 2004                                                                                 |  |                                | 14,629  |                      |  | $                   | 15      |                                        |  | $                                      | 130,503 |                      |  | $      | (75,198 | )  |  | $      | 267     |    |  |   | 465     |   |  | $      | (2,781  | )  |  | $      | 52,806  |    |
|                                                                                                         |

Seeaccompanying notes.

F-4

----

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

|                                                                                          |  |                     |         |         |  |        |         |         |  |        |         |         |  |  |
|------------------------------------------------------------------------------------------|--|---------------------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                                     |  | YearsEnded June 30, |
|                                                                                     |  | 2004                |         | 2003    |  | 2002   |
| OPERATING ACTIVITIES:                                                                    |  |
| Net loss                                                                                 |  | $                   | (1,341  | )  |  | $      | (19,597 | )  |  | $      | (17,263 | )  |
| Adjustmentsto reconcile net loss to net cash provided by (used  in)operating activities: |  |
| Depreciation andamortization                                                             |  |                | 3,097   |    |  |   | 3,532   |    |  |   | 3,661   |    |
| Changein deferred liabilities                                                            |  |                | (523    | )  |  |   | (1,834  | )  |  |   | 19      |    |
| Gainon termination of capital lease                                                      |  |                | — |    |  |   | (959    | )  |  |   | — |    |
| (Benefit)provision for doubtful accounts                                                 |  |                | (966    | )  |  |   | 683     |    |  |   | 3,951   |    |
| Deferredincome taxes                                                                     |  |                | 42      |    |  |   | 13      |    |  |   | (138    | )  |
| Stockcompensation expense                                                                |  |                | 12      |    |  |   | — |    |  |   | 37      |    |
| Assetimpairment charge                                                                   |  |                | — |    |  |   | — |    |  |   | 237     |    |
| Gainon sale of available-for-sale securities                                             |  |                | (91     | )  |  |   | — |    |  |   | — |    |
| Changesin operating assets and liabilities:                                              |  |
| Accountsreceivable                                                                       |  |                | (5,412  | )  |  |   | 6,533   |    |  |   | 6,308   |    |
| Inventories                                                                              |  |                | 7,465   |    |  |   | (2,338  | )  |  |   | 6,714   |    |
| Prepaidexpenses and other current assets                                                 |  |                | 671     |    |  |   | (896    | )  |  |   | (443    | )  |
| Otherassets                                                                              |  |                | 564     |    |  |   | (1,617  | )  |  |   | 247     |    |
| Accountspayable                                                                          |  |                | 4,656   |    |  |   | (2,394  | )  |  |   | (2,449  | )  |
| Deferredrevenues                                                                         |  |                | (6,585  | )  |  |   | 4,125   |    |  |   | (2,308  | )  |
| Accruedpayroll and related fringe benefits                                               |  |                | 37      |    |  |   | 155     |    |  |   | 26      |    |
| Otheraccrued expenses                                                                    |  |                | (13     | )  |  |   | (120    | )  |  |   | (1,541  | )  |
| Netcash provided by (used in) operating activities                                       |  |                | 1,613   |    |  |   | (14,714 | )  |  |   | (2,942  | )  |
| INVESTINGACTIVITIES:                                                                     |  |
| Purchases of fixed assets                                                                |  |                | (1,267  | )  |  |   | (1,732  | )  |  |   | (1,687  | )  |
| Repaymentof promissory note from a related party                                         |  |                | 300     |    |  |   | 40      |    |  |   | — |    |
| Restrictedcash                                                                           |  |                | (1,295  | )  |  |   | (20     | )  |  |   | — |    |
| Issuanceof promissory notes to related parties                                           |  |                | — |    |  |   | — |    |  |   | (700    | )  |
| Proceedsfrom the sale of available-for-sale securities                                   |  |                | 391     |    |  |   | — |    |  |   | — |    |
| Netcash used in investing activities                                                     |  |                | (1,871  | )  |  |   | (1,712  | )  |  |   | (2,387  | )  |
| FINANCINGACTIVITIES:                                                                     |  |
| Proceeds from exercise of stock options                                                  |  |                | 464     |    |  |   | — |    |  |   | 38      |    |
| Proceedsfrom private placement                                                           |  |                | 6,167   |    |  |   | — |    |  |   | — |    |
| Proceedsfrom sale of common stock in connection with employee stock purchaseplan         |  |                | 123     |    |  |   | 141     |    |  |   | 247     |    |
| Purchasesof treasury stock                                                               |  |                | (333    | )  |  |   | (181    | )  |  |   | (873    | )  |
| Paymentsunder capital leases                                                             |  |                | — |    |  |   | (270    | )  |  |   | (430    | )  |
| Netcash provided by (used in) financing activities                                       |  |                | 6,421   |    |  |   | (310    | )  |  |   | (1,018  | )  |
| Effectof foreign currency translation on cash                                            |  |                | 73      |    |  |   | 44      |    |  |   | 17      |    |
| Netincrease (decrease) in cash and cash equivalents                                      |  |                | 6,236   |    |  |   | (16,692 | )  |  |   | (6,330  | )  |
| Cashand cash equivalents at beginning of year                                            |  |                | 22,016  |    |  |   | 38,708  |    |  |   | 45,038  |    |
| Cashand cash equivalents at end of year                                                  |  | $                   | 28,252  |    |  | $      | 22,016  |    |  | $      | 38,708  |    |
| SUPPLEMENTALDISCLOSURE OF CASH FLOW INFORMATION:                                         |  |
| Cash paid forinterest                                                                    |  | $                   | — |    |  | $      | 539     |    |  | $      | 957     |    |
|                                                                                          |

Seeaccompanying notes.

F-5

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

June 30,2004

1.    Organization and Description of Business

Globecomm Systems Inc. ("Globecomm") wasincorporated in the State of Delaware on August 17, 1994. TheCompany's core business provides end-to-end, value-addedsatellite-based communications solutions. This business supplies groundsegment systems and networks for satellite-based communicationsincluding hardware and software to support a wide range of satellitesystems. The Company's wholly-owned subsidiary, NetSat Express,Inc. ("NetSat") provides satellitecommunication services capabilities.

2.    Significant Accounting Policies

Principles of Consolidation

The consolidated financialstatements include the accounts of the Company and its wholly-ownedsubsidiaries, NetSat and Globecomm Systems Europe Limited(collectively, the "Company"). Allsignificant intercompany balances and transactions have been eliminatedin consolidation.

Accounting Estimates

The preparationof financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to makeestimates and assumptions that affect the amounts reported in theconsolidated financial statements and accompanying notes. Actualresults could differ from those estimates.

RevenueRecognition

The Company recognizes revenue in accordance withStaff Accounting Bulletin No. 104 ("SAB104"), Revenue Recognition, for its production-typecontracts that are sold separately as standard satellite ground segmentsystems when persuasive evidence of an arrangement exists, the sellingprice is fixed or determinable, collectibility is reasonably assured,delivery has occurred and the contractual performance specificationshave been met. The Company's standard satellite ground segmentsystems produced in connection with these contracts are typicallyshort-term (less than twelve months in term) and manufactured using astandard modular production process. Such systems require lessengineering, drafting and design efforts than the Company'slong-term complex production-type projects. Revenue is recognized onthe Company's standard satellite ground segment systems uponshipment and acceptance of factory performance testing which is whentitle transfers to the customer. The amount of revenues recorded oneach standard production-type contract is reduced by thecustomers' contractual holdback amount, which typically requires10% to 30% of the contract value to be retained by thecustomer until installation and final acceptance is complete. Thecustomer generally becomes obligated to pay 70% to 90% ofthe contract value upon shipment and acceptance of factory performancetesting. Installation is not deemed to be essential to thefunctionality of the system since installation does not requiresignificant changes to the features or capabilities of the system, doesnot require complex software integration and interfacing and theCompany has not experienced any difficulties installing such equipment.In addition, the customer or other third party vendors can install thesystem. The estimated relative fair value of the installation servicesis determined by management, which is typically less than thecustomer's contractual holdback percentage. If the holdback isless than the fair value of installation, the Company will deferrecognition of revenues, determined on a contract-by-contract basisequal to the fair value of the installation services. Payments receivedin advance by customers are deferred until shipment and are presentedas deferred revenues in the accompanying consolidated balancesheets.

The Company recognizes revenue using thepercentage-of-completion method of accounting upon the achievement ofcertain contractual milestones in accordance with Statement of Position81-1, Accounting for Performance of Construction-Type and CertainProduction-Type Contracts, for its 

F-6

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**(Continued)**

2.    Significant Accounting Policies  (Continued)

non-standard, complex production-typecontracts for the production of satellite ground segment systems andequipment that are generally integrated into the customers'satellite ground segment network. The equipment and systems produced inconnection with these contracts are typically long-term (in excess oftwelve months in term) and require significant customer-specificengineering, drafting and design effort in order to effectivelyintegrate all of the customizable earth station equipment into thecustomers' ground segment network. These contracts generally havelarger contract values, greater economic risks and substantive specificcontractual performance requirements due to the engineering and designcomplexity of such systems and related equipment. Progress paymentsreceived in advance by customers are netted against the inventorybalances in the accompanying consolidated balance sheets.

Contract costs generally include purchased material, direct labor,overhead and other direct costs. Anticipated contracted losses arerecognized, as they become known.

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 in the accompanying consolidated balance sheets.

Costs from Ground Segment Systems, Networks and EnterpriseSolutions

Costs from ground segment systems, networks andenterprise solutions consist primarily of the costs of purchasedmaterials (including shipping and handling costs), direct labor andrelated overhead expenses, project-related travel and living costs andsubcontractor salaries.

Costs from Data CommunicationsServices

Costs from data communications services relating toInternet access service fees consist primarily of satellite spacesegment charges, Internet connectivity fees and network operationsexpenses. Satellite space segment charges consist of the costsassociated with obtaining satellite bandwidth (the measure of capacity)used in the transmission of services to and from the satellite leasedfrom operators. Network operations expenses consist primarily of costsassociated with the operation of the Network Operation Center (the"NOC"), on a twenty-four hour a day,seven-day a week basis, including personnel and related costs anddepreciation.

Research and Development

Research anddevelopment expenditures are expensed as incurred.

Inventories

Inventories, which consist primarily ofwork-in-progress from costs incurred in connection with specificcustomer contracts, are stated at the lower of cost (using thefirst-in, first-out method of accounting) or market value. Progresspayments received under long-term contracts are netted againstinventories.

Cash Equivalents

The Company classifieshighly liquid financial instruments with a maturity, at the purchasedate, of three months or less as cash equivalents.

FixedAssets

Fixed assets are stated at cost less accumulateddepreciation and amortization. Major improvements are capitalized andrepairs and maintenance costs are expensed as incurred. Depreciation iscalculated 

F-7

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**(Continued)**

2.    Significant Accounting Policies  (Continued)

using the straight-line method over theestimated useful lives of the assets ranging from three to twenty-fiveyears. Amortization of satellite space segment transponders held undercapital lease is calculated using the straight-line method over theestimated useful life of the satellite transponder. Amortization ofleasehold improvements and leased equipment is calculated using thestraight-line method over the shorter of the lease term or estimateduseful life of the asset.

Fair Value of FinancialInstruments

The recorded amounts of the Company's cashand cash equivalents, accounts receivable, accounts payable, andaccrued liabilities approximate their fair values principally becauseof the short-term nature of these items.

Stock-BasedCompensation

The Company accounts for stock option grants usingthe intrinsic value method prescribed in Accounting Principles BoardOpinion No. 25, Accounting for Stock Issued to Employees, and complieswith the disclosure provisions of Statement of Financial AccountingStandards ("SFAS") No. 123, Accounting forStock-Based Compensation ("SFAS No. 123"), asamended by SFAS No. 148, Accounting for Stock-BasedCompensation-Transition and Disclosure ("SFAS No.148").

Pro-forma information regarding net loss andnet loss per common share is required by SFAS No. 123 and SFAS No. 148,which also requires that the information be determined as if theCompany has accounted for its stock options granted subsequent to July1, 1995 under the fair value method. The fair value of options grantedunder the Company's 1997 Plan was estimated at date of grantusing a Black-Scholes option pricing model with the followingassumptions for the years ended June 30, 2004, 2003 and 2002: risk-freeinterest rate of 3.2% (2004), 3.0% (2003) and 4.2%(2002), volatility factor of the expected market price of theCompany's common stock of .79 (2004), .79 (2003) and .75 (2002),a weighted-average expected life of the option of five years and nodividend yields.

The Black-Scholes option valuation model wasdeveloped for use in estimating the fair value of traded options, whichhave no vesting restrictions and are fully transferable. In addition,option valuation models require the input of highly subjectiveassumptions, including the expected stock price volatility. Because theCompany's stock options have characteristics significantlydifferent from those of traded options, and because changes in thesubjective input assumptions can materially affect the fair valueestimate, in management's opinion, the existing models do notnecessarily provide a reliable single measure of the fair value of itsstock options under the Black-Scholes option valuation model.

For purposes of pro-forma disclosures, the estimated fair value ofthe options is amortized to expense over the options' vestingperiod. The Company's pro-forma information is as follows:

|                                                     |  |                                      |        |         |  |        |         |         |  |        |         |         |  |  |
|-----------------------------------------------------|--|--------------------------------------|--------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                |  | YearsEnded June30,                   |
|                                                |  | 2004                                 |        | 2003    |  | 2002   |
|                                                |  | (inthousands, except per share data) |
| Reported netloss                                    |  | $                                    | (1,341 | )  |  | $      | (19,597 | )  |  | $      | (17,263 | )  |
| Pro-formastock compensationexpense                  |  |                                 | (2,216 | )  |  |   | (2,707  | )  |  |   | (2,690  | )  |
| Pro-formanetloss                                    |  | $                                    | (3,557 | )  |  | $      | (22,304 | )  |  | $      | (19,953 | )  |
| Reportedbasic and diluted net loss per commonshare  |  | $                                    | (0.10  | )  |  | $      | (1.56   | )  |  | $      | (1.36   | )  |
| Pro-formabasic and diluted net loss per commonshare |  | $                                    | (0.27  | )  |  | $      | (1.78   | )  |  | $      | (1.57   | )  |
|                                                     |

Duringthe years ended June 30, 2004, 2003, and 2002, compensation expense of$12,000, $0, and $37,000 was included in the reported net loss.

F-8

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**(Continued)**

2.    Significant Accounting Policies  (Continued)

Goodwill and Other Intangible Assets

Goodwill represents excess of the purchase price over the fair valueof the net assets acquired. In accordance with SFAS No. 142, Goodwilland Other Intangible Assets, goodwill and other indefinite lifeintangible assets are no longer amortized, but instead tested forimpairment at least annually.

Long-Lived Assets

Forother than goodwill and indefinite life intangibles, when impairmentindicators are present, the Company reviews the carrying value of itsassets in determining the ultimate recoverability of their unamortizedvalues using future undiscounted cash flows expected to be generated bythe assets in accordance with the provisions of SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets. If suchassets are considered impaired, the impairment recognized is measuredby the amount by which the carrying amount of the asset exceeds thefuture discounted cash flows. Assets to be disposed of are reported atthe lower of the carrying amount or fair value, less cost to sell.

The Company evaluates the periods of amortization continually indetermining whether later events and circumstances warrant revisedestimates of useful lives. If estimates are changed, the unamortizedcost will be allocated to the increased or decreased number ofremaining periods in the revised lives.

Comprehensive Loss

Comprehensive loss for the years ended June 30, 2004, 2003 and 2002of approximately $1,064,000, $19,563,000 and $17,250,000, respectively,includes a foreign currency translation gain of approximately $81,000,$96,000 and $128,000, respectively, and an unrealized gain (loss) onavailable-for-sale securities of approximately $196,000, ($62,000) and($115,000), respectively.

Product Warranties

TheCompany offers warranties on its contracts, the specific terms andconditions of which vary depending upon the contract and workperformed. Generally, a basic limited warranty, including parts andlabor, is provided to customers for one year. The Company can recoupcertain of these costs through product warranties it holds with itsoriginal equipment manufacturers, which typically are one year in term.Historically, warranty expense has been minimal, however, managementperiodically assesses the need for any additional warranty reserve.

3.    Accounts Receivable

Accounts receivable includeamounts billed but not paid by customers pursuant to retainageprovisions in connection with ground segment systems, networks andenterprise solutions contracts. At June 30, 2004 and 2003, there was $0and $120,000, respectively, billed but not paid by customers underretainage provisions in connection with long-term contracts. Suchbalances are included in accounts receivable in the accompanyingconsolidated balance sheets. Based on the Company's experiencewith similar contracts in recent years, billed receivables relating tolong-term contracts are expected to be collected within one year.

Unbilled amounts relating to long-term contracts include recoverablecosts and accrued profit on progress completed, which have not beenbilled. Such amounts are billed in accordance with the contract terms,typically upon shipment of the product, achievement of contractualmilestones or completion of the contract. At June 30, 2004 and 2003,there were no unbilled amounts relating to long-term contracts includedin the accompanying consolidated balance sheets.

F-9

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**(Continued)**

4.    Inventories

Inventoriesconsist of the following:

|                                  |  |               |       |             |  |        |         |        |  |  |
|----------------------------------|--|---------------|-------|-------------|--|--------|---------|--------|--|--|
|                             |  | June30,2004   |       | June30,2003 |
|                             |  | (Inthousands) |
| Raw materials and componentparts |  | $             | 163   |        |  | $      | 495     |   |
| Work-in-progress                 |  |          | 7,362 |        |  |   | 10,495  |   |
|                             |  |          | 7,525 |        |  |   | 10,990  |   |
| Lessprogress payments            |  |          | 3,621 |        |  |   | — |   |
|                             |  | $             | 3,904 |        |  | $      | 10,990  |   |
|                                  |

5.    FixedAssets

Fixed assets consist of the following:

|                                              |  |               |        |             |  |        |        |        |  |  |
|----------------------------------------------|--|---------------|--------|-------------|--|--------|--------|--------|--|--|
|                                         |  | June30,2004   |        | June30,2003 |
|                                         |  | (Inthousands) |
| Land                                         |  | $             | 1,750  |        |  | $      | 1,750  |   |
| Buildingandimprovements                      |  |          | 6,081  |        |  |   | 5,992  |   |
| Computerequipment                            |  |          | 3,088  |        |  |   | 3,003  |   |
| Machinery andequipment                       |  |          | 2,576  |        |  |   | 2,493  |   |
| NetworkOperationsCenter                      |  |          | 7,703  |        |  |   | 6,848  |   |
| Satellite earthstationequipment              |  |          | 7,869  |        |  |   | 8,304  |   |
| Furniture andfixtures                        |  |          | 1,344  |        |  |   | 1,331  |   |
|                                         |  |          | 30,411 |        |  |   | 29,721 |   |
| Lessaccumulated depreciation andamortization |  |          | 14,970 |        |  |   | 12,185 |   |
|                                         |  | $             | 15,441 |        |  | $      | 17,536 |   |
|                                              |

6.    Goodwill

Effective July 1, 2001, the Company adopted the new rules onaccounting for goodwill and other intangible assets. Under the newrules, goodwill and other indefinite life intangible assets are nolonger amortized, but instead tested for impairment at least annually.The Company completed its annual goodwill impairment tests during thefourth quarter of fiscal 2004 for both its ground segment systems,networks and enterprise solutions and data communications servicesreporting units. Based upon the estimated fair market values, noimpairment was identified and no write-down of the net carrying valueof goodwill was deemed necessary.

In the fourth quarter offiscal 2002, the Company recognized an impairment charge ofapproximately $237,000 in connection with its ground segment systems,networks and enterprise solutions reporting unit, representing the netcarrying value of goodwill relating to the acquisition of a wirelesslocal loop telephone network solutions business in fiscal 1999. Thischarge is included in costs and operating expenses in the accompanyingconsolidated statement of operations for the fiscal year ended June 30,2002.

The net carrying value of goodwill is approximately$7,204,000 at June 30, 2004 and 2003, which relates to the datacommunications services reporting unit.

F-10

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**(Continued)**

7.    Common Stock

Warrants Issued to Consultants

During November 1996, theCompany issued a ten-year warrant to five consultants for services topurchase an aggregate of 64,125 shares of common stock at a price pershare of $8.07, equal to the fair market value of the shares at thedate of issuance. At June 30, 2004, warrants to purchase 55,825 sharesof the Company's common stock noted above are outstanding andexercisable.

Treasury Stock

The Company has a stockrepurchase program under which the Company is authorized to repurchaseup to $2.0 million of its outstanding common stock. Pursuant to thisplan, the Company repurchased approximately 61,000, 54,100, and 202,000shares of common stock in fiscal 2004, 2003 and 2002, at an aggregatecost of approximately $333,000, $181,000 and $1,173,000, respectively.Included in the fiscal 2004 repurchases was approximately 61,000 sharesrepurchased at a fair market price of $5.41 per share from theCompany's President (see Note 11). Included in the fiscal 2002repurchases was 200,000 shares repurchased at a fair market price of$5.82 per share from the Company's Chief Executive Officer (seeNote 11). The repurchase program allows for purchases to be madeintermittently, through open market and privately negotiatedtransactions. Timing, price, quantity and manner of purchases are atthe discretion of the Company's management, depending on marketconditions and other factors, subject to compliance with the applicablesecurities laws.

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 $5.50 per share. The warrants became exercisable onJuly 1, 2004 and will expire on December 31, 2008. The Company incurredtotal expenses of approximately $583,000, of which approximately$456,000 represented placement agent commissions and approximately$127,000 represented other expenses. After deducting total expenses,the net proceeds received by the Company in January 2004 wereapproximately $6,167,000.

8.    Stock Optionand Stock Purchase Plans

On February 26, 1997, theCompany's Board of Directors authorized, and the stockholderssubsequently approved, the 1997 Stock Incentive Plan("1997 Plan"), which authorized the grantingto employees, directors and consultants of the Company options topurchase an aggregate of 2,280,000 shares of the Company's commonstock. In November 2000 and 2001, the Company's stockholdersapproved amendments to the 1997 Plan whereby the number of sharesauthorized for issuance under the 1997 Plan increased by 800,000 sharesin fiscal 2001 and 2002.

Options granted under the 1997 Plan maybe either incentive or non-qualified stock options. The exercise priceof an option shall be determined by the Company's Board ofDirectors or compensation committee of the board at the time of grant,however, in the case of an incentive stock option the exercise pricemay not be less than 100% of the fair market value of such stockat the time of the grant, or less than 110% of such fair marketvalue in the case of options granted to a 10% owner of theCompany's stock.

Employee options generally vest annuallyin equal installments over a four-year period and expire on the tenthanniversary of the date of grant. Director options generally vestannually in equal installments over a three-year period commencing onthe date of grant and expire the earlier of ten years from the date ofgrant or one year from concluding service as a director of theCompany.

F-11

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**(Continued)**

8.    Stock Optionand Stock Purchase Plans  (Continued)

The 1997 Plan provides for an automaticincrease to the number of options authorized for grant by an amountequal to 1% of the shares of common stock outstanding on thelast trading day of each calendar year. During fiscal 2004, 2003 and2002, the Company increased the number of options authorized for grantunder the 1997 Plan pursuant to the automatic 1% provision by140,763, 125,644, and 127,529, respectively. At June 30, 2004, theremaining options available for grant under the 1997 Plan was 269,090.

On September 23, 1998, the Board of Directors adopted, and thestockholders subsequently approved, the 1999 Employee Stock PurchasePlan ("1999 Plan"). Pursuant to the 1999Plan, 400,000 shares of the Company's common stock will bereserved for issuance. The 1999 Plan is intended to provide eligibleemployees of the Company, and its participating affiliates, theopportunity to acquire an interest in the Company at 85% of fairmarket value at date of issuance through participation in thepayroll-deduction based employee stock purchase plan. During the yearsended June 30, 2004, 2003 and 2002, the Company issued 37,684, 47,046and 56,821 shares of its common stock to participating employees inconnection with the 1999 Plan. At June 30, 2004, the remaining sharesavailable for issuance under the 1999 Plan was 159,282.

Thefollowing table summarizes activity in the Company's stock optionplan (in thousands, except per share amounts):

|                                                              |  |                    |        |                               |  |                   |      |                               |  |                   |         |                              |  |        |         |        |  |        |        |         |  |        |       |        |  |  |
|--------------------------------------------------------------|--|--------------------|--------|-------------------------------|--|-------------------|------|-------------------------------|--|-------------------|---------|------------------------------|--|--------|---------|--------|--|--------|--------|---------|--|--------|-------|--------|--|--|
|                                                         |  | YearsEnded June30, |
|                                                         |  | 2004               |        | 2003                          |  | 2002              |
|                                                         |  | SharesUnderOption  |        | Weighted-AverageExercisePrice |  | SharesUnderOption |      | Weighted-AverageExercisePrice |  | SharesUnderOption |         | WeightedAverageExercisePrice |
| Balance,beginning ofyear                                     |  |               | 3,127  |                          |  | $                 | 7.51 |                          |  |              | 2,914   |                         |  | $      | 8.07    |   |  |   | 2,382  |    |  | $      | 9.28  |   |
| Grants                                                       |  |               | 470    |                          |  |              | 3.55 |                          |  |              | 449     |                         |  |   | 3.70    |   |  |   | 734    |    |  |   | 4.79  |   |
| Exercised                                                    |  |               | (111   | )                        |  |              | 4.19 |                          |  |              | — |                         |  |   | — |   |  |   | (10    | )  |  |   | 3.56  |   |
| Canceled                                                     |  |               | (127   | )                        |  |              | 8.09 |                          |  |              | (236    | )                       |  |   | 7.11    |   |  |   | (192   | )  |  |   | 10.86 |   |
| Balance,end ofyear                                           |  |               | 3,359  |                          |  |              | 7.05 |                          |  |              | 3,127   |                         |  |   | 7.51    |   |  |   | 2,914  |    |  |   | 8.07  |   |
| Exercisable,end ofyear                                       |  |               | 2,149  |                          |  | $                 | 8.51 |                          |  |              | 1,821   |                         |  | $      | 8.69    |   |  |   | 1,401  |    |  | $      | 8.87  |   |
| Weighted-averagefair value of options granted during theyear |  |               |   |                          |  | $                 | 2.35 |                          |  |              |    |                         |  | $      | 2.40    |   |  |   |   |    |  | $      | 3.05  |   |
|                                                              |

Thefollowing table summarizes information about stock options outstandingat June 30, 2004 (in thousands, except per share amounts):

F-12

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**(Continued)**

8.    Stock Optionand Stock Purchase Plans  (Continued)

|                        |  |                                                  |       |                               |  |                   |     |                               |  |   |       |        |  |        |         |        |  |        |         |        |  |  |
|------------------------|--|--------------------------------------------------|-------|-------------------------------|--|-------------------|-----|-------------------------------|--|---|-------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
| Rangeof Exercise Price |  | OptionsOutstanding                               |       | OptionsExercisable            |
| NumberOutstanding      |  | Weighted-AvarageRemainingContractualLife (Years) |       | Weighted-AverageExercisePrice |  | NumberExercisable |     | Weighted-AverageExercisePrice |  |
|                   |  |
| $1.47 -$1.47           |  |                                             | 6     |                          |  |              | 9.5 |                          |  | $ | 1.47  |   |  |   | — |   |  |   | — |   |
| $3.10-$4.42            |  |                                             | 1,175 |                          |  |              | 8.3 |                          |  | $ | 3.80  |   |  |   | 268     |   |  | $      | 4.14    |   |
| $4.68-$7.02            |  |                                             | 749   |                          |  |              | 4.7 |                          |  | $ | 5.44  |   |  |   | 587     |   |  | $      | 5.36    |   |
| $7.09-$10.63           |  |                                             | 973   |                          |  |              | 5.0 |                          |  | $ | 7.91  |   |  |   | 862     |   |  | $      | 7.98    |   |
| $10.69- $15.75         |  |                                             | 283   |                          |  |              | 4.8 |                          |  | $ | 12.84 |   |  |   | 259     |   |  | $      | 13.01   |   |
| $17.13 -$25.25         |  |                                             | 155   |                          |  |              | 5.4 |                          |  | $ | 21.19 |   |  |   | 155     |   |  | $      | 21.19   |   |
| $28.00-$28.00          |  |                                             | 18    |                          |  |              | 5.6 |                          |  | $ | 28.00 |   |  |   | 18      |   |  | $      | 28.00   |   |
|                   |  |                                             | 3,359 |                          |  |              | 6.1 |                          |  | $ | 7.05  |   |  |   | 2,149   |   |  | $      | 8.51    |   |
|                        |

TheCompany has reserved approximately 5,241,000 shares of its common stockfor issuance upon exercise of all available and outstanding options andwarrants at June 30, 2004.

9.    Basic and Diluted Net LossPer Common Share

The Company computes net loss per share inaccordance with the provisions of SFAS No. 128, Earnings Per Share.Basic and diluted net loss per common share is computed by dividing thenet loss for the period by the weighted-average number of common sharesoutstanding for the period. Common equivalent shares consist of theincremental common shares issuable upon the conversion of preferredstock (using an if-converted method) and incremental shares issuableupon the exercise of stock options and warrants (using the treasurystock method). Incremental common equivalent shares are excluded fromthe calculation of diluted net loss per share, as their effect isanti-dilutive. Diluted net loss per share for the years ended June 30,2004, 2003 and 2002, excludes the effect of approximately 312,000, 0and 172,000 incremental stock options, respectively, as their effectwould have been anti-dilutive. There were no incremental warrants forthe years ended June 30, 2004, 2003 and 2002, to exclude from dilutednet loss per share.

10.    Pension Plan

The Companymaintains a 401(k) plan, which covers substantially all employees ofthe Company. Participants may elect to contribute from 1% to75% of their pre-tax compensation, subject to elective deferrallimitations under Section 403 of the Internal Revenue Code. The planallows for a matching contribution equal to the discretionarypercentage of a participating employee not to exceed 4% of theircompensation by the Company. The Company contributed approximately $0,$460,000 and $470,000 to the 401(k) plan during the years ended June30, 2004, 2003 and 2002, respectively. In addition, the plan alsoprovides for discretionary profit sharing contributions by the Company.There were no discretionary profit sharing contributions made by theCompany during the years ended June 30, 2004, 2003 and 2002.

11.    Related Party Transactions

During fiscal 2002, the Company advanced $300,000 to an officer ofthe Company. The Company received a promissory note payable onSeptember 30, 2004, which bears interest at an annual rate of5.0% payable quarterly, and secured by a stock pledge agreement.On May 7, 2002, the officer sold 200,000 shares of the Company'scommon stock at a fair market price of $5.82 per share on such date tothe Company in connection with its stock repurchase program. TheCompany deducted amounts outstanding on the promissory note togetherwith accrued interest thereon from the gross proceeds paid to theofficer in connection with this transaction.

F-13

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**(Continued)**

11.    Related Party Transactions  (Continued)

During fiscal 2002, the Company advanced$300,000 to an officer of the Company. The Company received apromissory note payable on September 30, 2004, which bears interest atan annual rate of 5.0% payable quarterly, and secured by a stockpledge agreement. On November 12, 2003, the officer sold approximately61,000 shares of the Company's common stock at a fair marketprice of $5.41 per share to the Company in connection with its stockrepurchase program. On November 12, 2003, the officer paidapproximately $333,000 to the Company to satisfy all amountsoutstanding on the promissory note, together with accrued interestthereon. At June 30, 2003, the principal amounts outstanding under thispromissory note are included in other assets and accrued interestreceivable thereon is included in other current assets in theaccompanying consolidated balance sheets.

During fiscal 2001,the Company advanced $200,000 to a former executive officer of theCompany. The Company received a promissory note payable on December 31,2002 for this advance, which bore interest at an annual rate of5.0% payable quarterly. During fiscal 2002, the Companyincreased the $200,000 loan to $300,000 and amended the promissory noteaccordingly. During fiscal 2003, this former executive officer resignedfrom the board of directors and pursuant to a letter agreement (the"agreement") the Company consolidated thethen outstanding loan and advances receivable from this formerexecutive officer and current employee of the Company into a $321,000promissory note. Under the terms of the letter agreement the Companywill forgive the outstanding principal and interest amounts due on thepromissory note in five annual installments beginning in January 2004so long as the former executive officer remains an employee of theCompany, subject to the terms of the agreement. At June 30, 2004 and2003, the annual installment to be forgiven within one year along withaccrued interest outstanding under this promissory note was included inother current assets in the accompanying consolidated balance sheet.The remaining principal amounts to be forgiven subsequent to one yearare included in other assets in the accompanying consolidated balancesheet.

During fiscal 2001, the Company advanced $40,000 to anofficer of the Company. The Company received a promissory note payableon December 31, 2002 for this advance, which bore interest at an annualrate of 5.0% payable quarterly. During fiscal 2003, the officerrepaid the principal and accrued interest outstanding in full andsatisfied the promissory note.

12.    IncomeTaxes

The Company computes income taxes using the liabilitymethod. Accordingly, deferred tax assets and liabilities are recognizedfor estimated future tax consequences attributable to the differencesbetween the carrying amount of the assets and liabilities for financialstatement and income tax purposes. The deferred tax assets andliabilities are determined by using enacted tax laws and rates ineffect when the differences are expected to reverse. Net deferred taxassets are recorded when it is more likely than not that such taxbenefits will be realized.

During fiscal 2004 and 2003, theCompany recorded a tax provision of approximately $45,000 and $15,000which was recorded in general and administrative expenses. Duringfiscal 2002 the Company recorded a tax benefit of $372,000 relating tostate investment tax credits. During fiscal 2002, approximately $75,000of the tax benefit was recorded as an offset to state and local capitaltaxes, approximately $138,000 was recorded as an offset to the foreignincome tax provision recorded by Globecomm Systems Europe Limited andthe remaining $159,000 was recorded as a reduction in general andadministrative expenses in the accompanying consolidated statement ofoperations.

F-14

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**(Continued)**

12.    IncomeTaxes  (Continued)

Significant components of theCompany's deferred tax assets (liabilities) are as follows:

|                                           |  |              |         |               |  |        |         |         |  |  |
|-------------------------------------------|--|--------------|---------|---------------|--|--------|---------|---------|--|--|
|                                      |  | June30, 2004 |         | June 30, 2003 |
| (Inthousands)                             |  |
| Deferred taxassets:                       |  |
| Net operating losscarryforwards           |  | $            | 29,241  |          |  | $      | 27,092  |    |
| Accrualsand reserves                      |  |         | 1,828   |          |  |   | 2,827   |    |
| Write-downof investments                  |  |         | 806     |          |  |   | 806     |    |
| Stateinvestment tax creditcarryforwards   |  |         | 83      |          |  |   | 125     |    |
|                                      |  |         | 31,958  |          |  |   | 30,850  |    |
| Valuationallowance for deferred taxassets |  |         | (28,623 | )        |  |   | (27,574 | )  |
|                                      |  |         | 3,335   |          |  |   | 3,276   |    |
| Deferredtax liabilities:                  |  |
| Depreciation andamortization              |  |         | (3,180  | )        |  |   | (3,096  | )  |
| Projectsinprogress                        |  |         | (72     | )        |  |   | (55     | )  |
|                                      |  |         | (3,252  | )        |  |   | (3,151  | )  |
|                                      |  |
| Netdeferred taxassets                     |  | $            | 83      |          |  | $      | 125     |    |
|                                           |

Inassessing the realizability of deferred tax assets, managementconsiders whether it is more likely than not that some portion or allof the deferred tax assets will be realized. The ultimate realizationof deferred tax assets is dependent upon the generation of futuretaxable income prior to the expiration of any net operating losscarryforwards. Due to the uncertainty regarding the Company'sability to utilize its net operating losses in the future, the Companyhas provided a valuation allowance against its operating losses andtemporary differences except for approximately $83,000 representingstate investment tax credit carryforwards that will be utilized tooffset state capital taxes on the Company's state tax return.

For the years ended June 30, 2004, 2003 and 2002, the valuationallowance increased approximately $1,049,000, $4,417,000 and$5,756,000, respectively. Approximately $2,148,000 of the remainingvaluation allowance, if recognized, will be allocated directly tostockholders' equity relating to non-qualified dispositions ofstock option exercises.

The Company has available net operatingloss carryforwards of approximately $73,103,000, which are due toexpire beginning in 2015 through 2024. Utilization of the net operatingloss carryforwards may be subject to an annual limitation pursuant tothe ownership change limitations provided by the Internal Revenue Codeand similar state provisions.

The reconciliations of taxprovision (benefit) computed at the U.S. federal statutory tax rates tothe effective income tax rates on pre-tax losses are as follows:

|                                            |  |                    |         |          |  |        |         |          |  |        |         |          |  |  |
|--------------------------------------------|--|--------------------|---------|----------|--|--------|---------|----------|--|--------|---------|----------|--|--|
|                                       |  | YearsEnded June30, |
|                                       |  | 2004               |         | 2003     |  | 2002   |
|                                       |  |
| Taxat U.S. Federal statutoryrate           |  |               | (34     | )%  |  |   | (34     | )%  |  |   | (34     | )%  |
| Lossesfor which no tax benefit wasreceived |  |               | 34      |     |  |   | 34      |     |  |   | 34      |     |
| Statetaxes                                 |  |               | — |     |  |   | — |     |  |   | — |     |
|                                       |  |               | — | %   |  |   | — | %   |  |   | — | %   |
|                                            |

F-15

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(Continued)

13.    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 and networks. Its data communications services segment, throughNetSat, provides satellite communication services capabilities.

The Company's reportable segments are business units thatoffer different products and services. The reportable segments are eachmanaged separately because they provide distinct products andservices.

The following is the Company's business segmentinformation as of and for the years ended June 30, 2004, 2003 and2002:

|                                                         |  |                    |         |         |  |        |         |         |  |        |         |         |  |  |
|---------------------------------------------------------|--|--------------------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                    |  | YearsEnded June30, |
|                                                    |  | 2004               |         | 2003    |  | 2002   |
|                                                    |  | (Inthousands)      |
| Revenues:                                               |  |
| Groundsegment systems, networks and enterprisesolutions |  | $                  | 73,305  |    |  | $      | 40,125  |    |  | $      | 64,101  |    |
| Datacommunicationsservices                              |  |               | 13,931  |    |  |   | 13,903  |    |  |   | 22,478  |    |
| Totalrevenues                                           |  | $                  | 87,236  |    |  | $      | 54,028  |    |  | $      | 86,579  |    |
| Lossfrom operations:                                    |  |
| Ground segment systems,networks and enterprisesolutions |  | $                  | (870    | )  |  | $      | (12,548 | )  |  | $      | (7,149  | )  |
| Datacommunicationsservices                              |  |               | (849    | )  |  |   | (6,946  | )  |  |   | (10,155 | )  |
| Interestincome                                          |  |               | 271     |    |  |   | 422     |    |  |   | 1,030   |    |
| Interestexpense                                         |  |               | — |    |  |   | (539    | )  |  |   | (957    | )  |
| Gainon sale of available-for-salesecurities             |  |               | 91      |    |  |   | — |    |  |   | — |    |
| Intercompanyeliminations                                |  |               | 16      |    |  |   | 14      |    |  |   | (32     | )  |
| Netloss                                                 |  | $                  | (1,341  | )  |  | $      | (19,597 | )  |  | $      | (17,263 | )  |
| Depreciationand amortization:                           |  |
| Ground segment systems,networks and enterprisesolutions |  | $                  | 1,402   |    |  | $      | 1,595   |    |  | $      | 1,598   |    |
| Datacommunicationsservices                              |  |               | 1,711   |    |  |   | 1,951   |    |  |   | 2,075   |    |
| Intercompanyeliminations                                |  |               | (16     | )  |  |   | (14     | )  |  |   | (12     | )  |
| Totaldepreciation andamortization                       |  | $                  | 3,097   |    |  | $      | 3,532   |    |  | $      | 3,661   |    |
|                                                         |

F-16

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GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(Continued)

13.    SegmentInformation  (Continued)

|                                                         |  |                    |       |         |  |        |       |         |  |        |         |        |  |  |
|---------------------------------------------------------|--|--------------------|-------|---------|--|--------|-------|---------|--|--------|---------|--------|--|--|
|                                                    |  | YearsEnded June30, |
|                                                    |  | 2004               |       | 2003    |  | 2002   |
|                                                    |  | (Inthousands)      |
| Expenditures for long-livedassets:                      |  |
| Ground segment systems,networks and enterprisesolutions |  | $                  | 354   |    |  | $      | 187   |    |  | $      | 935     |   |
| Datacommunicationsservices                              |  |               | 915   |    |  |   | 1,585 |    |  |   | 752     |   |
| Intercompanyeliminations                                |  |               | (2    | )  |  |   | (40   | )  |  |   | — |   |
| Totalexpenditures for long-livedassets                  |  | $                  | 1,267 |    |  | $      | 1,732 |    |  | $      | 1,687   |   |
|                                                         |

|                                                         |  |               |         |              |  |             |         |         |  |        |         |         |  |  |
|---------------------------------------------------------|--|---------------|---------|--------------|--|-------------|---------|---------|--|--------|---------|---------|--|--|
|                                                    |  | June30,2004   |         | June 30,2003 |  | June30,2002 |
|                                                    |  | (Inthousands) |
| Assets:                                                 |  |
| Groundsegment systems, networks and enterprisesolutions |  | $             | 125,534 |         |  | $           | 118,180 |    |  | $      | 123,484 |    |
| Datacommunicationsservices                              |  |          | 11,501  |         |  |        | 10,405  |    |  |   | 20,106  |    |
| Intercompanyeliminations                                |  |          | (63,560 | )       |  |        | (58,241 | )  |  |   | (43,293 | )  |
| Totalassets                                             |  | $             | 73,475  |         |  | $           | 70,344  |    |  | $      | 100,297 |    |
|                                                         |

AtJune 30, 2004, 2003 and 2002, the Company had total assets ofapproximately $2,547,000, $3,177,000 and $2,012,000, andlong–lived assets of approximately $100,000, $56,000 and $32,000,respectively, located in the United Kingdom, associated with itswholly-owned subsidiary, Globecomm Systems Europe Limited.

14.    Significant Customers and Concentrationsof Credit Risk

The Company designs, assembles and installssatellite ground segment systems, networks and enterprise solutions forcustomers in diversified geographic locations. Credit risk with respectto accounts receivable is concentrated due to the limited number ofcustomers. The timing of cash realization is determined based upon thecontract or service agreements with the customers. The Company performsongoing credit evaluations of its customers' financial conditionand in most cases requires a letter of credit or cash in advance forforeign customers. The Company evaluates the collectibility of accountsreceivable based on numerous factors, including past transactionhistory with customers and their credit worthiness. The Company'sestimate of its allowance for doubtful accounts is periodicallyadjusted when the Company becomes aware of a specific customer'sinability to meet its financial obligations, or as a result of changesin the overall aging of accounts receivable. Allowances related toaccounts receivable at June 30, 2004, 2003 and 2002, are approximately$2,618,000, $4,805,000 and $4,683,000, respectively.

One majorcustomer accounted for approximately 11% of the Company'sconsolidated revenues for the years ended June 30, 2004 and 2002. Nomajor customer accounted for more than 10% of theCompany's consolidated revenues for the year ended June 30,2003.

F-17

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(Continued)

14.    Significant Customers and Concentrationsof Credit Risk  (Continued)

Revenues earned from ground segmentsystems, networks and enterprise solutions are attributed to thegeographic location in which the equipment is shipped. Revenues earnedfrom data communications services are attributed to the geographiclocation in which the services are being provided. Revenues fromforeign sales as a percentage of total consolidated revenues are asfollows:

|                              |  |                    |         |         |  |        |    |         |  |        |    |         |  |  |
|------------------------------|--|--------------------|---------|---------|--|--------|----|---------|--|--------|----|---------|--|--|
|                         |  | YearsEnded June30, |
|                         |  | 2004               |         | 2003    |  | 2002   |
| Africa                       |  |               | 9       | %  |  |   | 7  | %  |  |   | 3  | %  |
| SouthAmerica                 |  |               | 3       | %  |  |   | 13 | %  |  |   | 9  | %  |
| Asia                         |  |               | 13      | %  |  |   | 16 | %  |  |   | 16 | %  |
| Europe(15% in the UK in2002) |  |               | 18      | %  |  |   | 14 | %  |  |   | 31 | %  |
| MiddleEast                   |  |               | 19      | %  |  |   | 12 | %  |  |   | 14 | %  |
| Australia                    |  |               | — |    |  |   | 1  | %  |  |   | 2  | %  |
|                         |  |               | 62      | %  |  |   | 63 | %  |  |   | 75 | %  |
|                              |

Financialinstruments, which potentially subject the Company to concentrations ofcredit risk, consist principally of cash and trade receivables. TheCompany places its cash and cash equivalents with high qualityfinancial institutions. Substantially all cash and cash equivalents areheld in one and three financial institutions at June 30, 2004 and 2003,respectively. Cash equivalents are comprised of short-term debtinstruments and certificates of deposit of direct or guaranteedobligations of the United States, which are held to maturity andapproximate fair market value. At times, cash may be in excess ofFederal Deposit Insurance Company insurance limits.

15.    Commitments and Contingencies

Line of Credit

At June 30, 2004, the Company maintained a$10,500,000 working capital line of credit with a bank, which boreinterest at the greater of 6.0% or the prime rate plus2.0% per annum, and is collateralized by a first securityinterest on all personal property of the Company. The credit facility,which expires in September 2004, contains certain financial covenants,with which the Company was in compliance at June 30, 2004. As of June30, 2004, no amounts were outstanding under this credit facility,however, there were outstanding standby letters of credit, bidproposals and performance guarantees of approximately $8,650,000, whichwere applied against and reduced the amounts available under theworking capital line of credit. The Company will be advanced up to80% of eligible domestic accounts receivable, 90% ofeligible foreign accounts receivable under the line of credit, and50% of the unrestricted cash held at the bank as defined in theagreement. The Company is currently negotiating a new credit facilitywith the existing bank. The current agreement has been extended untilOctober 31, 2004, while the terms of a new agreement are finalized.

The Company provides cash collateral for certain letters of credit.As of June 30, 2004 and 2003, the Company had cash collateral relatedto bid proposals of approximately $0 and $20,000, respectively, andcash collateral related to performance guarantees of approximately$1,903,000 and $588,000, respectively. These amounts are included inrestricted cash in the accompanying consolidated balance sheets.

Lease Transactions

In connection with management'splan to reduce costs, the Company entered into a series of agreementsthat resulted in a reduction of its satellite bandwidth obligations, asfollows:

In April 2001, the Company renegotiated a 15-yearsatellite space segment transponder lease entered into by NetSat duringfiscal 2000, which changed the terms and economics of the agreement andresulted 

F-18

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(Continued)

15.    Commitments and Contingencies  (Continued)

in a change in accounting for such lease fromcapital to operating. Accordingly, the change in accounting reduced theCompany's capital lease obligations by approximately $84,261,000with a corresponding reduction in net fixed assets of approximately$80,620,000, resulting in a deferred liability of approximately$3,641,000, which was being amortized into income over the remainingterm of the lease. During the year ended June 30, 2002, NetSatamortized $300,000 of the deferred liability into income which isincluded as a credit to costs from data communications services,resulting in a balance of approximately $3,341,000 in deferredliabilities in the accompanying consolidated balance sheet at June 30,2002.

In June 2002, NetSat amended the renegotiated satellitespace segment transponder lease to reduce the short-term cashcommitment under such agreement in exchange for a twelve-monthextension of the lease term. As a result of this modification, theCompany will record the remaining lease commitment on a straight-linebasis over the remaining term of the transponder lease. Accordingly,during 2002, the Company recorded a deferred liability of $319,000, toreflect the straight-lining of such lease payments. Such amount isincluded in deferred liabilities in the accompanying consolidatedbalance sheet at June  30, 2002.

In October 2002, theCompany reached an agreement with one of its satellite transpondervendors, which further modified and reduced the Company'ssatellite bandwidth obligations. Under the terms of this agreement, theCompany paid $7,574,000, which included a one-time termination fee of$3,586,000, and $3,988,000, which primarily related to outstandinginvoices and an additional security deposit, assigned $31,573,000 offuture contract revenues to the vendor and reduced the Company'sfuture space segment obligations by $52,209,000. Accordingly, theCompany recorded a charge to costs from data communications services of$782,000 in the second quarter of fiscal 2003, representing thedifference between the $3,586,000 termination fee and the correspondingreduction in the deferred liability of $2,804,920, which was to beamortized into income over the remaining term of the lease. At June 30,2004, the remaining balance in deferred liabilities relating to thislease was $1,303,000, which will be amortized into income over theremaining term of the lease.

In February 2003, the Companyreached an agreement with another of its satellite transponder vendors,which terminated its capital lease and continued the reduction of theCompany's satellite bandwidth obligations. Under the terms ofthis agreement, the Company paid a one-time termination fee of$556,000, assigned $4,557,000 of future contract revenues to the vendorand reduced the Company's future space segment obligations by$16,563,000. The difference between the reduction of capital leaseobligation of $9,835,000 and the reduction of the related net fixedassets of $8,876,000 or $959,000, less the one-time termination fee of$556,000 was recorded as a deferred gain of $403,000. The gain wasdeferred as the Company had guaranteed six months of revenues assignedto the vendor. If the assigned revenues are not paid to the vendor, theCompany will be responsible to satisfy the obligation. The deferredliability will be amortized into income monthly when the guaranteedpayments are satisfied. During the fourth quarter of fiscal 2003, basedon confirmation of payments received by the vendor, the Companyamortized $196,000 of the deferred liability into income which isincluded as a credit to costs from data communications services,resulting in a balance of approximately $207,000 in deferredliabilities in the accompanying consolidated balance sheet at June 30,2003. During fiscal 2004, based on confirmation of payments received bythe vendor, the Company amortized $207,000 of the deferred liabilityinto income which is included as a credit to costs from datacommunications services, resulting in a balance of approximately $0 indeferred liabilities in the accompanying consolidated balance sheet atJune 30, 2004.

Lease Commitments

The Company currentlyleases satellite space segment services, office space, teleportservices and other equipment under various operating leases, whichexpire in various years through 2009. As leases expire, it can beexpected that in the normal course of business they will be renewed orreplaced. Most lease agreements contain renewal options.

F-19

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(Continued)

15.    Commitments and Contingencies  (Continued)

Future minimum lease payments undernon-cancelable operating leases for satellite space segment services,Internet access services, teleport services, office space and otherequipment with terms of one year or more consist of the following atJune 30, 2004 (in thousands):

|        |  |        |        |        |  |  |
|--------|--|--------|--------|--------|--|--|
| 2005   |  | $      | 5,691  |   |
| 2006   |  |   | 5,125  |   |
| 2007   |  |   | 3,912  |   |
| 2008   |  |   | 2,320  |   |
| 2009   |  |   | 662    |   |
|   |  | $      | 17,710 |   |
|        |

Rentexpense for satellite space segment services, Internet access services,teleport services, office space and other equipment was approximately$5,343,000, $8,256,000 and $17,082,000 for the years ended June 30,2004, 2003 and 2002, respectively.

During fiscal 2001, theCompany entered into two thirty-six month operating lease agreementsfor satellite space segment transponders on two satellites that wereexpected to be launched in late 2002 and operational by March 2003.Future payments due on such agreements through fiscal 2007 areapproximately $6,000,000. Such satellite space segment services arescheduled to begin when the satellite transponders are commerciallyoperational, as defined in the agreements. During fiscal 2003, theCompany learned that the vendor has experienced significant delays inthe planned launch and operational dates for the satellites. As ofresult of these delays, the Company maintains that it has a right toterminate the contracts without cost and has provided notification ofsuch termination. The vendor denied the Company's assertion thatit had a right to terminate the contracts without cost. In March 2004,the Company reached a settlement with the vendor wherein it agreed toterminate the contracts and use its best efforts to purchase new spacesegment requirements from the vendor, for up to a total contractedvalue of $1.0 million. In the event the Company does not enter into$1.0 million of new contracts by March 2006, it has agreed to pay thevendor a fixed settlement amount of $0.2 million, which has beenincluded in the future minimum lease payment amounts shown above.

Employment Agreements

During October 2001, the Companyentered into three-year employment agreements with six officers and oneformer officer for an aggregate amount of approximately $1,214,000 peryear. The Company will have certain obligations to these individuals ifthey are terminated. Each employment agreement renews automatically foradditional terms of one year, unless either party provides writtennotice to the other party of its intention to terminate the agreement.During fiscal 2004, the Board of Directors approved increases bringingthe aggregate amount to approximately $1,400,000 per year.

During January 2002, the Company entered into a three-yearemployment agreement with an officer for an amount of $275,000 peryear. The Company had certain obligations to this officer ifterminated. The employment agreement provided that it renewedautomatically for additional terms of one year, unless either partyprovided written notice to the other party of its intention toterminate the agreement. In January 2003, the Company entered into aseparation agreement and general release whereby the employmentrelationship with this officer was terminated. In accordance with theterms of this agreement, the Company agreed to pay the officerseverance of $450,000, consisting of a lump sum payment of $250,000 andan additional $200,000 to be paid monthly for thirty-six monthsbeginning in July 2003, based on certain conditions defined in theagreement. During the year ended June 30, 2004, payments ofapproximately $67,000 were made.

F-20

----

GLOBECOMMSYSTEMS INC. SCHEDULE II—VALUATION AND QUALIFYINGACCOUNTS

|                                                      |  |                             |            |                            |  |                         |           |            |  |                       |           |           |  |        |             |           |  |        |            |        |  |  |
|------------------------------------------------------|--|-----------------------------|------------|----------------------------|--|-------------------------|-----------|------------|--|-----------------------|-----------|-----------|--|--------|-------------|-----------|--|--------|------------|--------|--|--|
|                                                 |  |                        |            | Additions                  |  |
| Description                                          |  | BalanceatBeginning ofPeriod |            | Charged toCostsandExpenses |  | Charged toOtherAccounts |           | Defuctions |  | Balance atEndofPeriod |
| Year ended June 30,2004:                             |  |
| Reserves and allowancesdeducted from asset accounts: |  |
| Reserve forestimated doubtful accountsreceivable     |  | $                           | 4,805,000  |                       |  | $                       | (966,000) | (a)   |  | $                     | —   |      |  | $      | (1,221,000) | (c)  |  | $      | 2,618,000  |   |
| Valuationallowance on deferred taxassets             |  |                        | 27,574,000 |                       |  |                    | —   |       |  |                  | 1,049,000 | (b)  |  |   | —     |      |  |   | 28,623,000 |   |
|                                                 |  | $                           | 32,379,000 |                       |  | $                       | (966,000  | )     |  | $                     | 1,049,000 |      |  | $      | (1,221,000  | )    |  | $      | 31,241,000 |   |
| Yearended June 30, 2003:                             |  |
| Reserves andallowances deducted from assetaccounts:  |  |
| Reserve for estimateddoubtful accountsreceivable     |  | $                           | 4,683,000  |                       |  | $                       | 683,000   |       |  | $                     | —   |      |  | $      | (561,000)   | (c)  |  | $      | 4,805,000  |   |
| Valuationallowance on deferred taxassets             |  |                        | 23,157,000 |                       |  |                    | —   |       |  |                  | 4,417,000 | (b)  |  |   | —     |      |  |   | 27,574,000 |   |
|                                                 |  | $                           | 27,840,000 |                       |  | $                       | 683,000   |       |  | $                     | 4,417,000 |      |  | $      | (561,000    | )    |  | $      | 32,379,000 |   |
| Yearended June 30, 2002:                             |  |
| Reserves andallowances deducted from assetaccounts:  |  |
| Reserve for estimated doubtfulaccountsreceivable     |  | $                           | 1,065,000  |                       |  | $                       | 3,951,000 |       |  | $                     | —   |      |  | $      | (333,000)   | (c)  |  | $      | 4,683,000  |   |
| Valuationallowance on deferred taxassets             |  |                        | 17,401,000 |                       |  |                    | —   |       |  |                  | 5,756,000 | (b)  |  |   | —     |      |  |   | 23,157,000 |   |
|                                                 |  | $                           | 18,466,000 |                       |  | $                       | 3,951,000 |       |  | $                     | 5,756,000 |      |  | $      | (333,000    | )    |  | $      | 27,840,000 |   |
|                                                      |

|     |                                                          |
|-----|----------------------------------------------------------|
| (a) | Recoveryof accounts receivable balances (net ofcharges). |

|     |                                                             |
|-----|-------------------------------------------------------------|
| (b) | Increase in valuation allowance fornet deferred tax assets. |

|     |                                                                                          |
|-----|------------------------------------------------------------------------------------------|
| (c) | Reduction inallowance due to write-off of accounts receivable balances (net ofrecovery). |

S-1

----

Index ofExhibits

|             |      |        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  |
|-------------|------|--------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|
| Exhibit No. |      |   |
|        | 3.1  |   |  | Amendedand Restated Certificate of Incorporation (incorporated by reference toExhibit 3.1 of the Registrant's Annual Report on Form 10-K forthe fiscal year ended June 30,1998).                                                                                                                                                                                                                                                                                              |
|        | 3.2  |   |  | Amended and Restated By-laws ofthe Registrant (incorporated by reference to Exhibit 3.2 of theRegistrant's Annual Report on Form 10-K for the fiscal year endedJune 30, 1998).                                                                                                                                                                                                                                                                                                |
|        | 4.2  |   |  | See Exhibits 3.1 and 3.2for provisions of the Amended and Restated Certificate of Incorporationand Amended and Restated By-laws of the Registrant defining rights ofholders of Common Stock of the Registrant (incorporated by reference toExhibit 4.2 of the Registrant's Registration Statement on FormS-1, File No. 333-22425 (the "RegistrationStatement")).                                                                                                              |
|        | 10.1 |   |  | EmploymentAgreement dated as of October 9, 2001 by and between the Registrant andDavid E. Hershberg (incorporated by reference to Exhibit 10.9 of theRegistrant's Quarterly Report on Form 10-Q, for the quarter endedSeptember 30, 2001).                                                                                                                                                                                                                                    |
|        | 10.2 |   |  | EmploymentAgreement dated as of October 9, 2001 by and between the Registrant andKenneth A. Miller (incorporated by reference to Exhibit 10.10 of theRegistrant's Quarterly Report on Form 10-Q, for the quarter endedSeptember 30, 2001).                                                                                                                                                                                                                                    |
|        | 10.3 |   |  | The Amended andRestated 1997 Stock Incentive Plan (incorporated by reference toExhibit 99 of the Registrant's Registration Statement on Form S-8Registration, File No.333-112351).                                                                                                                                                                                                                                                                                            |
|        | 10.4 |   |  | 1999 Employee StockPurchase Plan (incorporated by reference to Exhibit 99.8 of theRegistrant's Registration Statement on Form S-8, File No.333-70527).                                                                                                                                                                                                                                                                                                                        |
|        | 10.5 |   |  | Rights Agreement, dated asof December 3, 1998, between the Registrant and American Stock Transferand Trust Company, which includes the form of Certificate ofDesignation for the Series A Junior Participating Preferred Stock asExhibit A, the form of Rights Certificate as Exhibit B and the Summaryof Rights to Purchase Series A Preferred Shares as Exhibit C(incorporated by reference to Exhibit 4 of Registrant's CurrentReport on Form 8-K, dated December 3,1998). |
|        | 10.6 |   |  | Negotiable Promissory Note,dated April 1, 2001, between the Registrant and Donald Woodring(incorporated by reference to Exhibit 10.19 of the Registrant'sAnnual Report on Form 10-K for the year ended June 30,2001).                                                                                                                                                                                                                                                         |
|        | 10.7 |   |  | Employment Agreement, dated asof October 9, 2001, by and between Stephen C. Yablonski and theRegistrant (incorporated by reference to Exhibit 10.20 of theRegistrant's Quarterly Report on Form 10-Q, for the quarter endedSeptember 30, 2001).                                                                                                                                                                                                                               |
|        | 10.8 |   |  | EmploymentAgreement, dated as of October 9, 2001, by and between Andrew C. Melfiand the Registrant (incorporated by reference to Exhibit 10.21 of theRegistrant's Quarterly Report on Form 10-Q, for the quarter endedSeptember 30, 2001).                                                                                                                                                                                                                                    |
|        | 10.9 |   |  | EmploymentAgreement, dated as of October 9, 2001, by and between Donald G.Woodring and the Registrant (incorporated by reference to Exhibit 10.22of the Registrant's Quarterly Report on Form 10-Q, for thequarter ended September 30, 2001).                                                                                                                                                                                                                                 |
|             |

----

|             |       |         |  |                                                                                                                                                                                                                                                                                      |  |  |
|-------------|-------|---------|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|
| Exhibit No. |       |    |
|        | 10.10 |    |  | Employment Agreement,dated as of October 9, 2001, by and between Paul J. Johnson and theRegistrant (incorporated by reference to Exhibit 10.23 of theRegistrant's Quarterly Report on Form 10-Q, for the quarter endedSeptember 30, 2001).                                           |
|        | 10.11 |    |  | EmploymentAgreement, dated as of October 9, 2001, by and between Paul Eterno andthe Registrant (incorporated by reference to Exhibit 10.24 of theRegistrant's Quarterly Report on Form 10-Q, for the quarter endedSeptember 30, 2001).                                               |
|        | 10.12 |    |  | Promissory NoteSecured By Stock Pledge Agreement, dated September 4, 2001, by andbetween Kenneth A. Miller and the Registrant (incorporated by referenceto Exhibit 10.26 of the Registrant's Quarterly Report on Form10-Q, for the quarter ended September 30,2001).                 |
|        | 10.13 | *  |  | Settlement Agreement, dated asof October 1, 2002, by and between LoralSkynet, a division of Loral SpaceComCorporation and the Registrant (incorporated by reference to Exhibit10.28 of the Registrant's Quarterly Report on Form 10-Q, for thequarter ended September 30,2002).      |
|        | 10.14 |    |  | Separation Agreement andGeneral Release, dated as of January 22, 2003, by and between G.Patrick Flemming and the Registrant (incorporated by reference toExhibit 10.29 of the Registrant's Quarterly Report on Form 10-Q,for the quarter ended December 31,2002).                    |
|        | 10.15 |    |  | Letter Agreement, dated as ofJanuary 31, 2003, by and between Donald G. Woodring and the Registrant(incorporated by reference to Exhibit 10.30 of the Registrant'sQuarterly Report on Form 10-Q, for the quarter ended December 31,2002).                                            |
|        | 10.16 |    |  | Loan and Security Agreement,dated as of September 15, 2003, by and between Silicon Valley Bank andthe Registrant (incorporated by reference to Exhibit 10.31 of theRegistrant's Annual Report on Form 10-K for the year ended June30, 2003).                                         |
|        | 10.17 |    |  | Loan ModificationAgreement, dated as of October 8, 2003, by and between Silicon ValleyBank and the Registrant (filedherewith).                                                                                                                                                       |
|        | 10.18 |    |  | Second Loan ModificationAgreement, dated as of March 2, 2004, by and between Silicon ValleyBank and the Registrant (filedherewith).                                                                                                                                                  |
|        | 10.19 |    |  | Third Loan ModificationAgreement, dated as of June 2, 2004, by and between Silicon Valley Bankand the Registrant (filedherewith).                                                                                                                                                    |
|        | 10.20 |    |  | Fourth Loan ModificationAgreement, dated as of September 24, 2004, by and between SiliconValley Bank and the Registrant (filedherewith).                                                                                                                                             |
|        | 10.21 |    |  | Form of Securities PurchaseAgreement, dated as of December 31, 2003, by and between the Registrantand each of the purchasers listed on Exhibit A thereto (incorporatedherein by reference to Exhibit 4.5 of the Registrant'sRegistration Statement on Form S-3, File No.333-112024). |
|        | 10.22 |    |  | Form of Warrant, dated asof December 31, 2003, by and between the Registrant and each of thepurchasers listed on Exhibit A thereto (incorporated herein byreference to Exhibit 4.5 of the Registrant's RegistrationStatement on Form S-3, File No.333-112024).                       |
|        | 14    |    |  | Registrant'sCode of Ethics and Business Conduct (filedherewith).                                                                                                                                                                                                                     |
|        | 21    |    |  | Subsidiariesof the Registrant (filed herewith).                                                                                                                                                                                                                                      |
|             |

----

|             |      |        |  |                                                                                                                                                |  |  |
|-------------|------|--------|--|------------------------------------------------------------------------------------------------------------------------------------------------|--|--|
| Exhibit No. |      |   |
|        | 23   |   |  | Consentof Independent Registered Public Accounting Firm (filedherewith).                                                                       |
|        | 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 Financial OfficerCertification required by Rules 13a-14 and 15d-14 under the SecuritiesExchange Act of 1934, as amended (filedherewith). |
|        | 32   |   |  | CertificationPursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of Sarbanes Oxley Act of 2002 (filedherewith).              |
|             |

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|--|
|  |  |
|  |

|   |                                                              |
|---|--------------------------------------------------------------|
| * | Confidentialtreatment granted for portions of thisagreement. |

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