SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K

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

For the fiscal year ended June 30, 1998

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

For the transition period from to
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Commission file number 000-22839

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

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

45 Oser Avenue, Hauppauge, NY 11788
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (516) 231-9800
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Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
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None None

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

Common Stock, $.001 par value
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Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by a check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

While it is difficult to determine the number of shares owned by
non-affiliates, the registrant estimates that the aggregate market value of
outstanding Common Stock on September 25, 1998, based upon the average bid and
asked prices of such Common Stock on the Nasdaq National Market on September
25, 1998 held by non-affiliates was approximately $9.8 million. For this
computation, the registrant has excluded the market value of all shares of its
Common Stock reported as beneficially owned by officers, directors and certain
significant stockholders. Such exclusion shall not be deemed to constitute an
admission that any such stockholder is an affiliate of the registrant.

As of September 25, 1998, there were outstanding 9,125,908 shares of
the registrant's Common Stock, par value $.001.

DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement of Globecomm Systems Inc. relative to the Annual
Meeting of Stockholders to be held on November 19, 1998, which is incorporated
by reference into Part III of this Form 10-K.

PART I
ITEM I. BUSINESS
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OVERVIEW

Globecomm Systems Inc. (the "Company" or "GSI") designs, assembles and
installs satellite ground segment systems and networks which support a wide
range of satellite communications applications, including fixed, mobile and
direct broadcast services as well as certain military applications. The
Company's customers include prime communications infrastructure contractors,
government-owned PTTs, other telecommunications carriers, producers and
distributors of news and entertainment content and other corporations. The
Company's ground segment systems typically consist of an earth station, which
is an integrated system designed to transmit and receive signals to and from
satellites, together with ancillary subsystems. The Company's ground segment
networks are typically comprised of two or more ground segment systems
communicating with a satellite and interconnected with a terrestrial network.

The Company's revenue grew 60.4% to $58.1 million for the fiscal year
ended June 30, 1998 from $36.2 million for the fiscal year ended June 30, 1997.
During the fiscal year ended June 30, 1998, the Company booked $60.9 million in
contract orders and, at June 30, 1998, had a backlog of $43.6 million of
contract orders. The Company believes that its revenue growth and its ability
to compete are based on its unique combination of competitive advantages which
include: (i) an experienced management group with extensive technological and
engineering expertise, (ii) the proven ability to meet the complex satellite
ground segment requirements of its customers in diverse political, economic and
regulatory environments in various locations around the world and (iii) its
ability to identify, develop and maintain strategic relationships with
developers and suppliers of leading-edge technologies which enhance
performance, reduce costs and broaden the applications of the Company's ground
segment systems and networks.

During fiscal 1997, the Company established a subsidiary, NetSat
Express, Inc. ("NetSat Express"), to develop service revenues by providing
high-speed, satellite-delivered data communications to developing markets
worldwide. NetSat Express is currently providing Internet access to customers
who have limited or no access to terrestrial network infrastructure capable of
supporting the economical delivery of such services. To date, NetSat Express
has generated only limited revenues.

The Company was incorporated in Delaware on August 17, 1994. For
financial information about industry segments and foreign operations, see Note
12 and 13, respectively of the Notes to the Consolidated Financial Statements.

INDUSTRY BACKGROUND

SATELLITE COMMUNICATIONS

Market Structure

Satellite communications systems are comprised of satellites (the
"space segment") and ground-based transmission and reception systems (the
"ground segment"). The space segment consists of one or more satellites in
earth orbit which typically provide continuous communications coverage over a
wide geographic area. Satellites typically contain multiple transponders, each
capable of independently receiving and transmitting one or more signals to or
from multiple users simultaneously. The ground segment consists principally of
one or more earth stations, which provide a communications link to the end user
either directly or through a terrestrial network. An earth station is an
integrated system consisting of antennas, radio signal transmitting and
receiving equipment, modulation/demodulation equipment, monitor and control
systems and voice, data and video network interface equipment.

Satellite communications industry participants include: (i) designers,
manufacturers and integrators of ground segment products, systems and networks,
(ii) communications service providers, which may or may not own the actual
satellites used for transmission and (iii) designers, manufacturers and
operators of satellites. The Company has participated principally in the ground
segment systems and networks portion of the market and has recently expanded
into the satellite-delivered data communications services market through its
NetSat Express subsidiary.

Satellite Service Applications

Satellites provide a number of advantages over terrestrial facilities
for many high-speed communications service applications. First, satellites
enable high-speed communications service where there is no suitable terrestrial
alternative available or where the terrestrial alternative is inadequate.
Second, unlike the cost of terrestrial networks, the cost to provide services
via satellite does not increase with the distance between sending and receiving
stations. Finally, in contrast to the installation of fiber optic cable which
is expensive, time consuming and requires obtaining rights-of-way, satellite
networks can be rapidly installed, upgraded and reconfigured. The three
principal categories of satellite communications service applications are: (i)
fixed satellite services, (ii) mobile satellite services and (iii) direct
broadcast services.

Fixed Satellite Services. Fixed satellite services provide
point-to-point and point-to-multipoint satellite communication of voice, data
and video between fixed land-based earth stations. The introduction of
high-power satellites has created additional growth within the fixed satellite
services segment by enabling the use of smaller, less costly earth stations,
such as very small aperture terminals ("VSATs"), for applications such as
corporate data networks, Internet access and rural telephony. The Company
believes that the fixed satellite services segment will continue to experience
rapid growth due to the expansion of VSAT applications and the planned
implementation of new high-capacity, high-power Ka-band (20-30 GHz) systems
within the next several years. The future Ka-band services are expected to
expand the number of applications provided directly to the home and are
expected to reduce significantly the cost of such services. These systems offer
the additional bandwidth needed for emerging multimedia services that combine
voice and video transmissions, as well as Internet access, expanded telephony
services, and computer networking.

Mobile Satellite Services. Mobile satellite services, which operate
between fixed gateway earth stations and mobile user earth stations
(terminals), provide mobile voice and data transmission capability on land, sea
and air. New mobile satellite services are being developed using low, medium
and geostationary orbiting satellite systems that are designed to bring more
extensive coverage and circuit reliability for mobile telephone and data
services to underserved populations throughout the world.

Direct Broadcast Services. Direct broadcast satellite services provide
a direct transmission link from high-power satellites to customers over a wide
geographic area. Technology which has been successfully deployed by Thomson,
Hughes Network Systems and others for direct-to-home television services is now
being applied to direct broadcast data services, including Internet and
intranet access.

DATA COMMUNICATIONS AND THE INTERNET

The data communications services market is comprised currently of
common carrier data network services, corporate business networks and emerging
applications such as Internet and intranet services. The Company believes that
Internet and intranet services will comprise a significant portion of data
communications services used in developing countries, and that the growth of
data communications services in these regions will rely on satellite
communications to a significant extent.

The Company believes that the use of satellite communications
technology which may be used to bring both the Internet and corporate intranets
to nations that are developing their telecommunications infrastructure will
help those nations rapidly improve their education, access to medical
information, commerce and overall communications.

GROWTH DRIVERS

The Company believes that the growth projected by third parties in the
satellite communications industry will be driven principally by the following
major factors: (i) global deregulation and privatization of government-owned
monopoly telecommunications carriers, (ii) rapidly growing worldwide demand for
communications services in general, including data communications services over
the Internet and corporate intranets, (iii) the relative cost-effectiveness of
satellite communications for many applications and (iv) technological
advancements which broaden applications for and increase the capacity in both
satellite and terrestrial networks. The Company believes that growth in its
addressable ground segment markets has been and will continue to be driven by,
among other things, the growth of satellite-delivered communications services.

Deregulation and Privatization. Rapid deregulation and privatization,
and the implementation of governmental policies aimed at developing modern
telecommunications infrastructure, are occurring globally, as countries seek
the economic benefits of enhanced and expanded telecommunications services.
Through deregulation and privatization, governments are stimulating the
development of competitive telecommunications services in the private sector.
These actions have placed communications carriers under increasing pressure to
achieve greater efficiencies and to offer their services to broader customer
bases at more competitive prices, leading to an increase in capital investment.
In addition, the Company believes that the World Trade Organization proposal
which will provide U.S. and foreign companies with market access to a variety
of telecommunications services and allow foreign ownership of telecommunication
companies will lead to additional increased capital investment in the worldwide
telecommunications market.

Growing Worldwide Demand for Communications Services. Factors
contributing to the growing demand for communications services include
worldwide economic development, governmental policies aimed at improving the
telecommunications infrastructure in developing countries and the increasing
globalization of commerce. In addition to the growth in developing markets, the
terrestrial infrastructure in developed countries is evolving to support the
growing demand for higher bandwidth services in response to the needs of
businesses to communicate with customers and employees located around the world
and to the growing acceptance of the Internet and multimedia applications as
both productivity-enhancing tools and consumer products. The Company expects
demand for these kinds of higher bandwidth services to grow in developing
countries as well. The Company believes that global network infrastructure
development will require significant reliance upon satellite communications
because satellite-delivered communications services can be implemented quickly
and deliver flexible high-speed transmission capacity at relatively low cost
over large geographic areas.

Relative Cost-Effectiveness of Satellite Communications. The relative
cost-effectiveness of satellite communications compared to terrestrial
solutions for many applications is a major factor driving the growth of
satellite communications in areas with rapidly growing telecommunications
infrastructures. The vast geographic areas to be covered, where population
concentrations are separated by large distances, require a technology whose
cost and speed of implementation is relatively insensitive to distance. Unlike
the cost of terrestrial networks, the cost to provide services via satellite
does not increase with the distance between sending and receiving stations. A
single satellite can be configured to deliver both broad beams that cover
entire regions and narrow spot beams that cover only areas of high population
or traffic density.

Technological Advances. Technological advances which increase the
capacity of a single satellite and/or increase the number of potential
applications of its available bandwidth reduce the overall cost of a system or
the service it delivers. This increases the number of potential end users for
the services and expands the available market. Recent technological
developments which make satellite solutions increasingly competitive in cost
and performance with terrestrial-based networks, or as a viable alternative
solution where terrestrial services are not feasible, include bandwith on
demand, digital compression technology, high-power satellites, spot-beam
technology, and onboard processing.

GSI COMPETITIVE ADVANTAGES

The Company believes that it is well positioned to capitalize on the
demand for satellite ground segment systems and networks and satellite-delivered
data communications services and that its future success in these markets will
be based upon its ability to leverage its unique combination of competitive
advantages which include: (i) an experienced management group with extensive
technological and engineering expertise, (ii) the proven ability to meet the
complex satellite ground segment requirements of its customers in diverse
political, economic and regulatory environments in various locations around the
world and (iii) the ability to identify, develop and maintain strategic
relationships with developers and suppliers of leading-edge technologies which
enhance the performance, reduce costs and broaden the applications of the
Company's ground segment systems and networks.

GSI BUSINESS STRATEGY

The Company's business strategy is to expand its market share in its
ground segment systems and networks business, improve its profitability, and
create opportunities to capture recurring service revenues. The Company intends
to execute this strategy by: (i) targeting communication infrastructure
development opportunities worldwide, (ii) focusing on high margin
engineering-intensive system and network projects, (iii) developing strategic
customer relationships, (iv) developing strategic supplier relationships and
(v) entering the data communications services business through NetSat Express.

TARGET INFRASTRUCTURE DEVELOPMENT OPPORTUNITIES

The Company primarily targets developing markets which it believes
will account for a significant portion of the growing demand for ground segment
systems and networks because these markets typically lack terrestrial
infrastructure adequate to support increasing demand for domestic and
international communications services. In addition, in developed countries the
Company targets ground segment infrastructure development projects for emerging
satellite communications applications such as direct broadcast and future
Ka-band systems. The Company has developed an international sales and marketing
organization focused on identifying opportunities for the Company and on
developing key sourcing relationships. In order to increase its access to
project opportunities and limit its exposure to the political and commercial
complexities of doing business in foreign countries, the Company intends to
continue to pursue international opportunities primarily in partnership with
strong local companies or as a subcontractor to larger communications services
and infrastructure providers. Most of the Company's revenues are derived from
sales to customers outside the United States. Revenues from foreign sales
accounted for 69%, 40% and 22% of total revenues in fiscal years 1998, 1997 and
1996, respectively.

FOCUS ON ENGINEERING-INTENSIVE SYSTEM AND NETWORK PROJECTS

The Company seeks to focus its technological expertise on high
value-added system and network projects which require engineering-intensive
design and implementation. This emphasis positions the Company to earn higher
gross margins through the delivery of innovative, cost-effective solutions to
customer performance requirements that are typically priced on a negotiated
basis, as opposed to typically lower-margin competitive bid projects. In
addition, the Company often benefits from the research and design phase of its
more complex projects through the development of proprietary products, systems
and technologies that can be applied cost-effectively to future projects and
which provide the Company with a competitive advantage.

DEVELOP STRATEGIC CUSTOMER RELATIONSHIPS

The Company seeks to build close relationships with customers for whom
it can provide complementary engineering skills by working as part of their
system development teams. A key objective of this strategy is to obtain this
business on a negotiated basis, rather than through the competitive bidding

process, which is likely to carry a lower margin. To date, the Company has
developed strategic relationships with a number of customers through either
alliance agreements, buying agreements, or investment by the strategic customer
in GSI, or investment by GSI in a strategic customer. For example, the Company
has recently acquired an approximately 18.75% equity interest in McKibben
Communications, LLC ("McKibben Communications"). The investment in McKibben
Communications provides the Company access to earth station projects for
McKibben Communications and its customers in the television broadcast industry.
See "-Strategic Relationships."

DEVELOP STRATEGIC SUPPLIER RELATIONSHIPS

The Company seeks to establish strategic relationships with suppliers
that it believes are in a unique position to supply products or services which
will improve the Company's competitive position in one or more of the markets
which it serves. In certain cases, the Company seeks to strengthen such
relationships by investing in such suppliers, and has, through June 30, 1998,
made equity investments of an aggregate of approximately $1.6 million for
minority equity stakes of approximately 11.6%, 10.3%, 17.0% and 6.7% in Shiron
Satellite Communications (1996), Ltd. ("Shiron"), Newpoint Technologies, Inc.
(formerly C-Grams Unlimited, Inc.) ("Newpoint Technologies"), Armer
Communications Engineering Services, Inc. ("Armer") and Joint Communications
Technology Corp. ("JCTC"), respectively. The strategic supplier relationships
with Shiron, Newpoint Technologies and JCTC enable the Company to outsource a
significant portion of its research and development costs and gain access to
advanced technology while preserving the independence to select the best
products and technologies to deliver to its customers on any particular
project. The relationship with Armer allows the Company preferred access to
quality field engineering and installation resources.

CREATE RECURRING SERVICE REVENUE OPPORTUNITIES

The Company seeks to capture recurring revenues by providing data
communications services. The initial application of this strategy is the
Company's NetSat Express subsidiary, formed in alliance with Hughes Network
Systems ("HNS"), to provide satellite-delivered data communications services
such as Internet access, intranet applications and business data applications in
developing countries, using either HNS' low-cost, high-speed DirecPC Terminal
technology or the Company's own satellite network equipment. The Company's
strategy for implementing this objective through NetSat Express includes the
following major elements:

Market Through Strategic Relationships. NetSat Express is working with
strategic partners located in local markets in Eastern Europe who are expected
typically to handle marketing, distribution and support of the NetSat Express
service offerings and would typically provide billing and customer service
functions. The Company selects local market partners based upon, among other
criteria, their in-region marketing experience, knowledge of the local
regulatory environment, operating licenses, existing customers and established
business organizations. The Company is currently providing services in certain
Eastern European countries pursuant to a value-added reseller agreement with
Hughes Olivetti Telecom Limited ("HOT"), an affiliate of HNS, and is selling
Internet access services in Eastern Europe.

Seek Multiple Revenue Sources. Through NetSat Express the Company
generates revenue from multiple sources, including the sales of terminal
equipment to potential subscribers, the transmission of data via satellite, and
the provision of Internet connections.

Target Multinational Customer Base. The Company intends to establish a
diverse, multinational customer base by designing innovative Internet, intranet
and business data service solutions for corporations, governments and
educational institutions in countries with rapidly growing telecommunications
infrastructure requirements based on Internet protocol technology developed by
NetSat Express.

GSI GROUND SEGMENT SYSTEMS AND NETWORKS

The Company designs, assembles and installs ground segment system and
network solutions for the complex and changing communications requirements of
its customers. The Company's ground segment systems typically consist of an
earth station and ancillary subsystems such as microwave links for back-haul of
traffic to a central office or generators for emergency power restoral. An
earth station is an integrated system consisting of antennas, transmitting and
receiving equipment, modulation/demodulation equipment, monitor and control
systems and voice, data and video network interface equipment. The Company's
ground segment networks are typically comprised of two or more ground segment
systems interconnected with a satellite and/or terrestrial communications
network. The Company's Customizable Systems may be sold separately as
stand-alone ground segment systems or may be used as modular building blocks to
be integrated into a complete ground segment system or network. The Company
believes that this modular approach allows it to engineer its ground segment
systems and networks to serve client-specific traffic and service requirements
rapidly, cost-effectively and efficiently.

Customizable Systems

Family of Standard Intelsat Earth Stations. This family of earth
stations, which is used primarily for international voice, data and video
circuit trunking and as gateways for domestic networks using the International
Telecommunications Satellite Organization ("Intelsat") system, is targeted
principally at PTTs and other common carriers. The family consists of earth
stations of varying sizes and capacities, all of which conform to Intelsat
specifications. The Intelsat Standard A earth stations, which have the highest
capacity, feature antennas ranging from 13 to 21 meters in diameter, high-power
amplifiers from 700 to 3,000 watts, radio frequency converters and related
electronics, modems and a UNIX or Microsoft Windows NT based monitoring and
control system. Available options include power monitor systems, de-icing
equipment, uninterruptible power system/backup generators and equipment
shelters. The Company has designed and installed Intelsat Standard A earth
stations in China, Korea, Kuwait, Malaysia, the United Kingdom and the United
States. The Company typically sells these Intelsat Standard A earth stations at
prices ranging from approximately $1.0 million (13-meter antenna) to
approximately $2.0 million (21-meter antenna). The Company is able to provide
smaller, lower capacity earth stations that conform to Intelsat specifications
by customizing its modular building block or commercial terminal families of
earth stations described below.

Modular Building Block ("MBB") Earth Station (MBB2001(TM)). These earth
stations are incorporated in point-to-point data links and hubs for VSAT and
Demand Assigned Multiple Access ("DAMA") networks, and are typically used as
gateways for corporate, common carrier and government networks. These earth
stations can also be configured to conform to the applicable standards of
Intelsat and other satellite systems. Earth stations constructed using MBBs
require minimal site preparation and can be installed rapidly and
cost-effectively due to their modular construction. Antenna sizes range from 4.5
to 9 meters, with high-power amplifiers ranging from 50 to 700 watts. Generally,
all electronics are housed in a single building mounted rack. Available options
include de-icing equipment, tracking equipment, uninterruptible power
system/backup generators and equipment shelters. To date, the Company has
designed and installed MBB earth stations in Brazil, India, Indonesia, Pakistan,
Russia, Thailand and the United States. The Company typically sells these earth
stations at prices ranging from approximately $250,000 to $600,000.

Commercial Terminal Family ("CTF")(CTF2001(TM)). This family of earth
stations, which encompasses a range of general purpose, low-cost
antenna-mounted earth stations, is used primarily for data, voice or video
transmissions from commercial or government premises, and are principally
targeted at corporate, common carrier and government networks. These earth
stations can also be configured to conform to the applicable standards of
Intelsat and other satellite systems. Antenna sizes range from 1.2 to 9.3
meters, with high-power amplifiers ranging from 16 to 400 watts. Generally, all
radio frequency electronics are housed in weatherproof enclosures mounted on
the antenna. To date, the Company has designed and installed CTF

earth stations in India, Korea, Russia, numerous countries in Africa and the
United States. The Company typically sells these earth stations at prices
ranging from approximately $100,000 to $300,000.

Militarized Tactical Earth Station Family. This family of tactical
earth stations is used for military communications applications and is targeted
principally at major defense contractors. These earth stations typically use a
2.4 to 3 meter antennas, are highly transportable, and are designed to be
mounted on a pallet on military vehicles or air-dropped into a combat
environment. The pallet-mounted earth station features an automatic antenna
pointing and multichannel capability. These militarized earth stations are able
to perform under extreme conditions in the military tactical environment and
offer multiband capability: C-band (4-6 GHz), X-band (7-8 GHz) or K-band (12-17
GHz). Prices for these systems range from approximately $250,000 to $1.0
million, depending on the configuration. This technology is now being applied
to a 3 meter X-band antenna for use by the U.S. Army. Certification by the Army
is in progress.

Digital Fly-Away Earth Stations. This group of earth stations is
primarily used for emergency communications and news gathering and is comprised
of highly transportable, modular earth stations designed to be quickly deployed
and installed anywhere in the world. Antenna sizes range from 1.2 to 2.4
meters, with high-power amplifiers up to 350 watts. All components are mounted
in separate cases which are small enough to be easily transported by commercial
carrier. Additional system availability can be achieved through the addition of
redundant modules for critical components. Since these units may be operated in
a variety of harsh environments, the Company conducts environmental stress
screening tests on these components for enhanced reliability. The Company has
sold a number of digital fly-away earth stations to a customer in Portugal and
to Intelsat. The Company markets these earth stations at prices ranging from
approximately $150,000 to $600,000.

Earth Station Management Systems (AxxSys(TM)). The Company's earth
station systems typically employ monitor and control software for system
maintenance developed either by the Company or by its strategic supplier,
Newpoint Technologies. This software permits the station operator to monitor and
control the status of each electronic equipment component at the station from a
remote location and to receive immediate failure reports and analysis. The
Company also offers database applications to integrate maintenance and
operational functions, thereby reducing operating costs. The price of this
software varies substantially and is typically included in the price of the
system or network provided by the Company.

Compact Earth Station Family (CES2001(TM)). This family of earth
stations is designed to be used principally to provide limited capacity (up to
T1/E1 data rates) to areas with limited or no telecommunications
infrastructure. These digital earth stations will integrate radio frequency and
baseband components into one antenna-mounted package. These earth stations
feature a multiband capability and a proprietary L-band (1 to 1.5 GHz)
interface being developed to support a series of modems for a range of
applications, including rural telephony and digital video. These earth stations
may be operated on either preassigned channels or channels assigned on demand,
allowing efficient transponder utilization. Antenna sizes range from 1.2 to 3.7
meters. These earth stations are expected to be marketed for less than $20,000.

Mobile Products Family. GSI Mobile Division ("GSI Mobile") was formed
during the fiscal year ended June 30, 1998 to serve the Mobile Satellite
Services market with mobile high speed data and voice terminals, and
customizable mobile systems. GSI Mobile has recently introduced Explorer II an
Inmarsat high speed data terminal for use in news gathering, emergency
communications, data gathering, and other applications requiring mobility and
high speed data at 64 Kbps. GSI Mobile also has developed Explorer K, a small
aperture K-band satellite news gathering terminal for data rates up to 2Mbps.
GSI Mobile integrates these products with ancillary equipment for the
broadcasting, oil exploration, and other industries which require Internet
Protocol connectivity, video conferencing, store and forward video, secure
communications and other applications.

Ground Segment System Installations

The following are examples of ground segment systems sold by the
Company:

British Telecommunications plc ("BT") Intelsat Standard A System
Upgrade. The Company has designed and installed an Intelsat Standard A ground
segment system upgrade for BT in the United Kingdom for international voice and
digital video transmission. The implementation of this system required the
supply of a new tracking system for an existing BT antenna, an electronics
shelter built to stringent standards, high-power amplifiers, radio frequency
high-power multiplex equipment, up and down converters, and advanced monitor
and control software.

VSAT Hub Systems. The Company has designed and installed a 9-meter
C-band hub earth station for HNS as part of a VSAT network in Brazil. The
Company utilized its MBB family of customizable products to meet an accelerated
delivery schedule. The Company has also entered into a contract to provide a
9-meter C-band hub earth station for AT&T Corporation as part of a VSAT network
in Russia, where the Company is utilizing its CTF of customizable products to
provide a low-cost solution and meet an accelerated delivery schedule.

Teleport TP European Telecommunications Satellite Organization
("Eutelsat") TDMA Earth Station System. The Company has provided HNS with an
earth station for use in the Eutelsat telephony/data network. This earth station
required sophisticated engineering and implementation due to the high data rates
used by Eutelsat's network. The Company incorporated the Newpoint Technologies
earth station management systems into its design to simplify operation of the
earth station by the end user, Teleport TP in Moscow.

ASkyB Direct-to-Home Transmit Systems. The Company has completed a
contract to supply uplink and program acquisition facilities for ASkyB
consisting of four 13-meter transmit antennas with transmit/receive
capabilities in the broadcast satellite services band, seven 6.1 meter receive
only antennas and one Torus (multi-receive) antenna. The transmit facilities
includes eight operational and two backup uplinks for each of the four
antennas. This configuration provides extremely high availability of service as
well as ease of operation. The Company applied its customizable designs in
other direct broadcast system uplinks including Nilesat in Eygpt

Worldspace Processed Feeder Link Stations. The Company was awarded a
contract to develop and supply uplink stations for the new Digital Audio Radio
Satellite System to start service in 1999. This system will distribute broadcast
radio to low cost satellite receivers for customers in Africa, Asia and Latin
America.

GROUND SEGMENT NETWORK INSTALLATIONS

The following are examples of ground segment networks sold or
currently being installed by the Company:

Sonangol Telecommunications Network. The Company was awarded a
contract to provide a satellite and cellular telecommunications network
comprised of a hub earth station and 15 remote earth stations for Sonangol,
U.E.E., a large oil supply consortium with operations in remote areas in Africa
not served by terrestrial communications services. The network will also
provide cost-effective cellular coverage at some of the remote oil company
locations by linking those sites back to the central office mobile subscriber
switch via satellite, as well as trunks from remote areas to the company
headquarters and interconnectivity to the local telephone company at the
capital city.

Thailand Ministry of Health Telemedicine Network. The Company has
completed a subcontract by Loxley Public Company Limited ("Loxley"), a
telecommunications infrastructure provider in Thailand, to design, assemble

and install, together with Loxley, a telemedicine network comprised of 20 earth
stations in Thailand for the Ministry of Health. This network provides video
conferencing and bandwidth on demand for transferring images and data from
diverse types of electronic medical diagnostic tools such as X-ray, CAT scan,
and electrocardiogram machines to and from medical personnel situated in remote
locations.

Hyundai Networks. The Company completed a contract to provide a
corporate network for restoral of terrestrial circuits and for video
broadcasting for Hyundai Electronics Industries Co. Ltd. ("Hyundai") in Korea.
This network is comprised of a hub earth station and 12 remote earth stations
with high-speed data capability and an additional 60 locations with digital
video receive- only capability. In addition, the Company and Hyundai designed,
assembled and installed, on an accelerated schedule, a demonstration private
corporate network comprised of five earth stations in Korea. This network
provides interconnection between up to five Hyundai locations for a broad range
of purposes, including voice, data and video conferencing. The Company is
working with Hyundai to market similar networks to other customers in Korea.

Transworld Communications Services. The company was awarded a contract
to develop and supply trunking earth stations for a network in Russia. These
stations form the backbone of a modern digital telecommunications network for
voice and data services.

NETSAT EXPRESS DATA COMMUNICATIONS SERVICES

The Company's NetSat Express services are designed to provide
broadband access to data communications media such as the Internet, corporate
intranet applications and business data applications by integrating end-user
terminals, satellite communications equipment and international networks.
NetSat Express provides its PC Vector services through a one-way satellite
downlink using an HNS' DirecPC Terminal linked to existing terrestrial
communications infrastructure, and its Access Plus services through a two-way
satellite uplink/downlink using NetSat Express provided satellite networking
equipment. NetSat Express has entered into a value-added reseller agreement
with HOT (a Hughes Network Systems company) for sales of the PC Vector product
in certain Eastern European countries. The value-added reseller arrangement is
not contingent upon the grant of any license from HNS to NetSat Express.

NetSat Express offers a range of options and accessories to permit
value-added resellers to deliver reliable, cost-effective turnkey solutions to
their customers. These options include multimedia PCs, alternative antenna
configurations, local area network servers and custom system configurations.
NetSat Express's Network Operations Center provides 24-hour technical support.
NetSat Express also offers its customers specialized services such as Committed
Information Rate or higher quality of service and economical asymmetrical
access.

STRATEGIC RELATIONSHIPS

A key element of the Company's strategy is to establish strategic
customer and supplier relationships. The Company selects its strategic
suppliers based on many factors, including technical capability and potential
for growth. The Company outsources certain of its research and development
through equity investments in select suppliers.

The following sets forth certain information regarding the Company's
strategic relationships where GSI has made an equity investment. For further
information on the Company's equity investments see Note 5 of the Notes to
Consolidated Financial Statements.

Shiron Satellite Communications (1996), Ltd.

In January 1996, the Company and Shiron Advanced Communications Ltd.
formed Shiron to develop a low-cost satellite modem to be incorporated into
earth station products targeted at bringing communications infrastructure to
rural or remote regions of developing countries. The Company plans to

use the modem in its Compact Earth Station (CES2001) product line and in
connection with the data communications services, including Internet access, it
offers through NetSat Express. The modem has been developed under a grant from
the Israel-United States Binational Industrial Research and Development
Foundation (the "BIRD Foundation") and the BIRD Foundation will receive a
royalty from the proceeds of sales of the modem. The Company and Shiron have
received a second grant from the BIRD Foundation for the development of a
return link via satellite for Internet access applications.

Newpoint Technologies, Inc. (formerly C-Grams Unlimited Inc.)

Newpoint Technologies is a supplier of advanced network and earth
station management software. The Company believes its investment in Newpoint
Technologies will provide it with research and development in new software
products aimed at the Company's needs and access to customers who need to
develop optimized solutions for their network management requirements. See "-GSI
Ground Segment Systems and Networks" and "-Research and Development."

Armer Communications Engineering Services, Inc.

Armer is a field engineering company focused on the satellite
communications business. Armer complements the Company's satellite
communications engineering capability by providing qualified field
installation/test personnel for the implementation and test phase of turnkey
projects.

Joint Communications Technology Corp.

JCTC is a product development company with proprietary technology in
low bit rate voice encoding. JCTC produces products for encoding voice,
multiplexing voice and data, and encrypting voice and data for security. The
Company believes its investment in JCTC will provide it with the opportunity to
address optimized solutions for customers.

McKibben Communications, LLC

McKibben Communications provides conditional access and uplink services
to the television industry in Los Angeles. McKibben Communications also
originates sports broadcasts from Los Angeles to Japan for distribution in Japan
by a local satellite provider. GSI and McKibben Communications complement each
other and intend to offer a turnkey solution to broadcasters including design,
installation, and operation of uplink facilities.

SALES AND MARKETING

The Company markets its products and services to prime communications
infrastructure contractors, PTTs, other telecommunications carriers, producers
and distributors of news and entertainment content and other corporations
through sales representatives in foreign countries as well as its sales and
marketing offices in Hauppauge, New York, Atlanta, Georgia, and Hong Kong. The
Company presently employs 35 persons with marketing responsibility, of which 16
are engaged in marketing on a full-time basis.

The Company applies a "project team" approach to identifying,
obtaining and maintaining customer accounts by grouping sales representatives,
marketing executives, business execution teams and account managers together to
develop close and continuing relationships with its customers. The Company's
sales representatives in foreign countries provide local presence and identify
prospective customers for the Company's marketing executives. The marketing
executives and associated business execution teams work together to develop
relationships with these customers, and ultimately obtain orders for the
Company's products or services. The business execution teams manage the
accounts on a day-to-day basis and long-term customers are assigned to an

account manager who usually also functions as a project engineer for that
account. The Company believes that this account management focus provides
continuity and loyalty between the Company and its customers and fosters
long-term relationships that lead to follow-up work and referrals to new
customers.

In addition to obtaining business through its project team approach,
the Company obtains sales leads for new customers through referrals from
existing customers, industry suppliers, and other sources such as participation
in trade shows. The Company also directs its marketing efforts to its strategic
allies, primarily through the Company's senior management. In some cases a
strategic ally may be the prime contractor for a system or network installation
and will subcontract the ground segment of the project to the Company. In other
cases, the strategic ally may recommend the Company as prime contractor for the
design and supply of a system.

The Company's marketing strategy for NetSat Express's Internet access
and data communications services is at an early stage of development. The
Company anticipates that such strategy will be carried out primarily through
value added resellers in each of the countries in which it markets its
services, depending on the capabilities of such partners and resellers, the
nature and location of prospective customers in such countries and the
particular communications infrastructure requirements and regulatory structure
of each potential market. The Company expects that members of senior management
will play a role in developing and maintaining relationships with local value
added resellers and local partners.

CUSTOMERS

The Company's customers include prime communications infrastructure
contractors, PTTs, other telecommunications carriers, producers and distributors
of news and entertainment content and corporations. The Company typically relies
upon a small number of customers for a large portion of its revenues. For
example, approximately 29% of the Company's revenues in fiscal 1998 were derived
from sales to Sonangol, U.E.E. At June 30, 1998, $12.2 million, or approximately
28% of the Company's backlog, was accounted for by a contract between the
Company and Transworld Communications Services, Inc. and $7.1 million, or
approximately 16% of the Company's backlog, was accounted for by a contract
between the Company and Sonangol, U.E.E. The Company expects that in the near
term a significant portion of its revenues will continue to be derived from one
or a limited number of customers (the identity of whom may vary from year to
year) as the Company seeks to expand its business and its customer base. The
reduction, delay, or cancellation of orders from one or more of such significant
customers would have a material adverse effect on the Company's business,
financial condition and results of operations.

BACKLOG

At June 30, 1998, the Company's backlog was approximately $43.6
million (approximately 89% of which is expected to be delivered during fiscal
1999) compared with approximately $40.8 million at June 30, 1997. The Company
records an order in backlog when it receives a firm contract or purchase order
which identifies product quantities, sales price and delivery dates. Backlog
represents the amount of unrecorded revenue on undelivered orders and a
percentage of revenues from sales of products that have been shipped but have
not been accepted by the customer. The Company's backlog at any given time is
not necessarily indicative of future period revenues. While from time to time a
substantial portion of the Company's backlog has been comprised of large
orders, the cancellation of any of which could have a material adverse effect
on the Company's operating results, the Company to date has not experienced
significant changes in its backlog from cancellations or revisions of orders.
See "Risk Factors-Risk of Customer Concentration."

PRODUCT DESIGN, ASSEMBLY AND TESTING

The Company assigns a project team to each contract into which it
enters. The project team is led by a project engineer who is responsible for
execution of the project process, which includes engineering and

design, assembly and testing, installation and customer acceptance. Project
teams generally consist of between two and 10 employees and include engineers,
integration specialists, buyer-planners and an operations team. The Company's
proprietary products and system designs are utilized in the engineering and
design phases of a project. Once a system is designed, the integration
specialist works with the buyer-planner and the operations team to assure a
smooth transfer from the engineering phase to the integration phase. The
integration phase consists mainly of integration of purchased equipment,
components and subsystems into a complete functioning system. Assembly,
integration and test operations are conducted on both an automated and manual
basis, depending primarily on production volume. The Company provides
facilities for complete in-plant testing of all its systems before delivery in
order to assure all performance specifications will be met during installation
at the customer's site.

The Company employs formal Total Quality Management programs and other
training programs, and has been certified by the International Organization of
Standards quality certification process for ISO 9001, a standard sometimes
imposed by foreign buyers, that enumerates certain requirements an organization
must follow in order to assure consistent quality in the supply of products and
services. The certification process qualifies the Company for access to
virtually all international projects, and the Company believes that this
represents a competitive advantage.

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

RESEARCH AND DEVELOPMENT

The Company outsources much of its research and development by making
strategic investments in certain suppliers who perform research and development
for the Company. This provides the Company with a cost-effective way to develop
new technology, while minimizing its direct expenditures. The Company believes
that outsourcing research and development, where the costs are funded partially
by the investments made in its strategic suppliers, allows the Company to
retain its flexibility in developing solutions for its customers, while at the
same time leaving open the opportunity to develop proprietary products through
its strategic supplier relationships.

The Company's internal research and development efforts generally
focus on the development of products not available from other suppliers to the
industry. Current efforts are focused on developing Customizable Systems.
Through June 30, 1998, the Company has incurred approximately $2.5 million in
internal research and development expenses.

COMPETITION

The Company believes that its ability to compete successfully in the
satellite ground segment market is based primarily on its ability to provide a
solution which fits the customer's requirements, as well as on price,
performance, reputation of its management, on-time delivery, reliability and
customer support. The Company believes its success in the satellite-delivered
data communications services market will depend primarily on its ability to

provide prompt delivery and installation, competitive pricing, consistent and
reliable connections, and customer support.

The Company's primary competitors in the satellite ground segment
market generally fall into the following groups: (i) vertically integrated
satellite systems providers such as Nippon Electric Corporation, L3
Communications, Scientific-Atlanta, Inc. and ComSat RSI and (ii) system
integrators such as Engineering & Technical Services and IDB Systems, a
division of LDDS Worldcom Inc. In the satellite-delivered data communications
(including Internet) services market, while the Company expects to cooperate
with many local providers, the Company may compete with other satellite
communication companies as they develop technology in this area as well as
conventional Internet services providers. In addition, the Company may compete
with local governmental PTTs and other local access providers which often have
monopoly rights for certain services including telephony.

The Company anticipates that its competitors may develop or acquire
products that provide functionality that is similar to that provided by the
Company's products and that such products may be offered at significantly
lower prices or bundled with other products. In addition, current and potential
competitors in both markets in which the Company competes have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products and services to address the needs of
the Company's current and prospective customers. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share. Increased competition is likely to result in
price reductions, reduced gross profit margins and loss of market share, any of
which would have a material adverse effect on the Company's business, results
of operations and financial condition. See "Risk Factors-Intense Competition;
Limited Barriers to Entry."

INTELLECTUAL PROPERTY

The Company currently has three patent applications pending in the
United States and a Patent Cooperation Treaty ("PCT") application, corresponding
to one of the United States applications, is pending in a number of foreign
jurisdictions. The Company also intends to seek further patents on its
technology, if appropriate. The Company has filed applications for trademark
registration of Globecomm Systems Inc. in the United States and of NetSat
Express in the United States, Singapore, the European Union, the Russian
Federation and Brazil, and intends to seek registration of other trademarks in
the future. See "Risk Factors-Proprietary Technology; Risk of Infringement."

GOVERNMENT REGULATION

The Company is subject to various federal laws and regulations which
govern the operation of the teleport (a group of transmit earth stations) that
the Company has in operation in Hauppauge, New York. This includes regulation
by the FCC for domestic and international carriage and by government agencies
in other countries. The Company's transmission of voice and data for its data
communications business through the teleport has been licensed by the FCC for
domestic and international service.

The Company has received the license for domestic service, which
required the Company to submit an application which contains technical
information about the teleport and a demonstration of the public interest
aspects of the teleport, including a shareholder list and a statement that the
Company's ownership complies with the FCC's foreign ownership restrictions for
licensees.

The Company has filed applications for both C Band and Ku Band
licenses which have been granted. Presently, the Company is operating Ku Band
international and C Band domestic service at the Teleport.

With respect to international service, the Company has submitted an
application to the FCC for a Certificate of Public Convenience and Necessity
("CPCN") which has been granted. The Company may also be required to file and
maintain tariffs containing the specific rates, terms and conditions applicable
to services. The tariffs can become effective one day after public notice of
grant of the CPCN. No assurance can be given that the Company will receive a
CPCN or successfully file and maintain its tariff.

The Company or its local partners typically must obtain authorization
for each country in which the Company provides its satellite-delivered data
communications services. Although the Company believes that it or its local
partners will be able to obtain the requisite licenses and approvals from the
countries in which the Company intends to provide service, the regulatory
schemes in each country are different and thus there may be instances of
noncompliance of which the Company is not aware. Although the Company believes
these regulatory schemes will not prevent the Company from pursuing its
business plan, there can be no assurance such licenses and approvals are or
will remain sufficient in the view of foreign regulatory authorities, or that
necessary licenses and approvals will be granted on a timely basis in all
jurisdictions in which the Company wishes to offer its services or that
restrictions applicable thereto will not be unduly burdensome.

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

EMPLOYEES

As of June 30, 1998, the Company had 117 full-time employees, including
55 in engineering and program management, 26 in the manufacturing and
manufacturing support group, 16 in sales and marketing, and 20 in management and
administration. The Company's employees are not covered by any
collective-bargaining agreements. The Company believes that its relations with
its employees are good.

ITEM 2. PROPERTIES

During the fiscal year ended June 30, 1998, the Company completed the
renovation of approximately 122,000 square feet of space in a facility on
approximately 7 acres located at 45 Oser Avenue, Hauppauge, New York. These
premises house the principal offices and production facilities of the Company
and NetSat Express. Prior to the completion of the renovation of these
facilities, the Company leased 20,000 square feet of space in an industrial
facility located at 375 Oser Avenue, Hauppauge, New York under an agreement
which terminated on July 31, 1997. The Company has a lease on office space in
Hong Kong at a monthly rental fee (including maintenance fees) of approximately
$3,000. The Company also leases office space in the Atlanta, Georgia, area
under a three-year lease at an initial base monthly rent of $1,750, which
rental amount increases in years two and three of the lease and is currently
approximately $1,900 per month.

ITEM 3. LEGAL PROCEEDINGS

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

None

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock is quoted on the Nasdaq National Market
under the symbol "GCOM". The fiscal 1998 high and low closing prices are as
follows:

High Low
-------------------------
First Quarter (from August 13, 1997 through
September 30, 1997) $ 19.63 $ 11.88
Second Quarter 19.25 10.50
Third Quarter 15.25 9.00
Fourth Quarter 14.25 8.50

At September 25, 1998, there were approximately 2,700 stockholders of
record of the Company's Common Stock, as shown in the records of the Company's
transfer agent.

At the close of the Nasdaq National Market on September 25, 1998, the
Company's market price per share was $5.50.

As of June 30, 1998, the Company had not declared or paid dividends on
its Common Stock since inception and does not expect to pay dividends in the
foreseeable future.

The effective date of the Company's first registration statement (the
"Registration Statement") filed on Form S-1 (Registration No. 333-22425) under
the Securities Act of 1933, as amended, was August 7, 1997. The class of
securities registered was Common Stock. The offering commenced on August 8,
1997 and all securities were sold in the offering. The managing underwriters
for the offering were PaineWebber Incorporated and C.E. Unterberg, Towbin.

Pursuant to the Registration Statement, the Company registered and sold
3,162,500 shares of Common Stock for an aggregate offering price of $31,625,000.
The Company incurred total expenses in the offering of approximately $3,721,000
of which approximately $2,214,000 represented underwriting discounts and
commissions and approximately $1,507,000 represented other expenses. All such
payments were direct or indirect payments to others. The net offering proceeds
to the Company after deducting the total expenses were approximately
$27,904,000.

From the effective date of the Registration Statement to June 30,
1998, the approximate amount of the net offering proceeds used were $3.4
million to fund capital expenditures and investing activities and $12.1 million
for working capital purposes, increased selling and marketing efforts, and
increased internal research and development expenses. All such payments were
direct or indirect payments to others.

ITEM 6. SELECTED FINANCIAL DATA

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

PERIOD FROM
AUGUST 17, 1994
YEAR ENDED YEAR ENDED YEAR ENDED (INCEPTION)
JUNE 30, JUNE 30, JUNE 30, THROUGH JUNE 30,
1998 1997 1996 1995
-------------------------------------------------------------------

STATEMENT OF OPERATIONS DATA:
Revenues...................................... $ 58,105 $ 36,220 $ 13,476 $ 72
Costs of revenues............................. 49,532 32,060 11,238 58
-------------------------------------------------------------------
Gross profit.................................. 8,573 4,160 2,238 14
-------------------------------------------------------------------
Operating expenses:
Selling and marketing....................... 4,187 3,282 1,915 346
Research and development.................... 1,188 649 712 -
General and administrative.................. 5,010 3,449 1,945 772
-------------------------------------------------------------------
Total operating expenses...................... 10,385 7,380 4,572 1,118
-------------------------------------------------------------------
Loss from operations.......................... (1,812) (3,220) (2,334) (1,104)
Interest income, net.......................... 1,266 276 89 39
-------------------------------------------------------------------
Loss before minority interests in operations
of consolidated subsidiary.................. (546) (2,944) (2,245) (1,065)
Minority interests in operations of
consolidated subsidiary..................... - 275 - -
-------------------------------------------------------------------
Net loss...................................... $ (546) $ (2,669) $ (2,245) $ (1,065)
===================================================================
Basic and diluted loss per share.............. $ (0.06)
================
Basic and diluted weighted average
Shares................................... 8,553
================
Pro forma net loss per share (unaudited)...... $ (0.44)
=================
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)(1) 6,086
=================

OTHER OPERATING DATA:
EBITDA(2)..................................... $ (1,110) $ (2,858) $ (2,141) $ (1,036)
Cash flows used in operating activities....... (5,894) (1,958) (2,510) (454)
Cash flows used in investing activities....... (7,126) (8,221) (1,714) (593)
Cash flows provided by financing
activities............................... 29,198 11,908 4,151 4,554
Capital expenditures ......................... 3,462 6,765 339 437
Backlog at end of period(3) .................. 43,572 40,807 11,588 7,716

JUNE 30, JUNE 30, JUNE 30,
1998 1997 1996
--------------------------------------------------

BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ 21,342 $ 5,164 $ 3,435
Working capital................................................. 31,663 6,379 4,727
Total assets.................................................... 58,344 33,286 9,503
Long-term debt.................................................. - 18 74
Stockholders' equity............................................ 44,014 15,996 5,730

(1) Computed on the basis described in Note 2 of Notes to Consolidated
Financial Statements.

(2) EBITDA represents earnings before minority interests in operations of
consolidated subsidiary, interest income, net, income taxes, depreciation
and amortization expense. EBITDA does not represent cash flows as defined
by generally accepted accounting principles and does not necessarily
indicate that cash flows are sufficient to fund all the Company's cash
needs. EBITDA is a financial measure commonly used in the Company's
industry and should not be considered in isolation or as a substitute for
net income, cash flows from operating activities or other measures of
liquidity determined in accordance with generally accepted accounting
principles. EBITDA may not be comparable to other similarily titled
measures of other companies.

(3) The Company records an order in backlog when it receives a firm contract
or purchase order which identifies product quantities, sales price and
delivery dates. Backlog represents the amount of unrecorded revenue on
undelivered orders and a percentage of revenues from sales of products
that have been shipped but have not been accepted by the customer. The
Company's backlog at any given time is not necessarily indicative of
future period revenues. See "Business-Backlog."

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Form 10-K contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors" as well as those
discussed elsewhere in this Form 10-K.

OVERVIEW

Since the Company's inception, substantially all of the Company's
revenue has been generated by its satellite ground segment-related operations.
Contracts for these ground segment systems and networks have been in virtually
all cases fixed-price contracts. Profitability of such contracts is subject to
inherent uncertainties as to the cost of performance. In addition to possible
errors or omission in making initial estimates, cost overruns may be incurred
as a result of unforeseen obstacles including both physical conditions and
unexpected problems encountered in engineering design and testing. Since the
Company's business may at certain times be concentrated in a limited number of
large contracts, a significant cost overrun on any contract could have a
material adverse effect on the Company's business, financial condition and
results of operations. The period from contract award through installation of
ground segment systems and networks supplied by the Company generally requires
from three to 12 months. The Company uses the percentage of completion method
of accounting for contract revenues, upon the achievement of certain
milestones. Accordingly, most of the revenue from sales of products is
typically recognized when the product is shipped, with the balance recognized
at the time of acceptance by the customer. Revenues from providing services are
recognized at the time the service is performed. Costs of revenues are
generally recorded based on the relationship of the amount of projected final
costs to the percentage of revenue recorded for the specific contract. See Note
2 of Notes to Consolidated Financial Statements.

Costs of revenues consist primarily of the costs of purchased
material, direct labor and related overhead expenses, project-related travel,
living costs and subcontractor salaries. Selling and marketing expenses consist
primarily of salaries and travel and living costs for sales and marketing
personnel. Research and development expenses consist primarily of salaries and
related overhead expenses paid to engineers. The Company also benefits from
research and development conducted by its strategic suppliers. See
"Business-Research and Development." General and administrative expenses
consist of expenses associated with the Company's management, accounting,
contract and administrative functions. The Company anticipates that selling and
marketing, research and development and general and administrative expenses
will continue to increase during the next several years due to expected
increases in personnel and expenses related to supporting the Company's
expanding customer base.

RESULTS OF OPERATIONS

The following table sets forth certain operating data as a percentage
of total revenues for the periods indicated:

YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30,
1998 1997 1996
---------------------------------------------------------

PERCENTAGE OF TOTAL REVENUES:
Revenues.............................................. 100.0% 100.0% 100.0%
Costs of revenues..................................... 85.2 88.5 83.4
---------------------------------------------------------
Gross profit........................................ 14.8 11.5 16.6
Operating expenses:
Selling and marketing............................... 7.2 9.1 14.2
Research and development............................ 2.1 1.8 5.3
General and administrative.......................... 8.6 9.5 14.4
---------------------------------------------------------
Total operating expenses.............................. 17.9 20.4 33.9
---------------------------------------------------------
Loss from operations.................................. (3.1) (8.9) (17.3)
Interest income, net.................................. 2.2 0.8 0.7
---------------------------------------------------------
Loss before minority interests in operations of
consolidated subsidiary.............................. (0.9) (8.1) (16.6)
Minority interests in operations of consolidated
subsidiary........................................... - 0.7 -
Net loss............................................... (0.9)% (7.4)% (16.6)%

FISCAL YEARS ENDED JUNE 30, 1998 AND 1997

Revenues. Revenues, which were primarily derived from sales of ground
segment systems and networks, increased by $21.9 million, or 60.4%, to $58.1
million for the fiscal year ended June 30, 1998 from $36.2 million for the
fiscal year ended June 30, 1997. The increase was primarily the result of a
negotiated contract with Sonangol, U.E.E. as well as an overall increase in the
number of shipments and/or completion of contracts as the Company continued to
expand its businesses. Revenues for the three month period ended June 30, 1998
decreased by 25.2% to $11.0 million from $14.7 million for the same period in
the previous year as a result of the decline in bookings in previous quarters as
a result of the economic conditions in the Pacific Rim region, Russia and other
international markets. The Company expects the trend in revenues that adversely
affected its results of operations for the three month period ended June 30,
1998 to continue to impact the Company. These trends include the difficult
economic conditions in the Pacific Rim region, Russia and other international
markets and the decrease in bookings received by the Company from these regions.

Gross Profit. Gross profit increased by $4.4 million to $8.6 million
for the fiscal year ended June 30, 1998 from $4.2 million for the fiscal year
ended June 30, 1997. The increase was primarily due to the increase in the
shipment of ground segment systems and networks. Gross profit as a percentage
of revenues was 14.8% for the fiscal year ended June 30, 1998 compared to 11.5%
for the fiscal year ended June 30, 1997. The increase was due primarily to a
significant negotiated contract with Sonangol, U.E.E., which resulted in higher
gross profit margin offset in part by an increase in orders awarded through a
competitive bidding process, which typically result in lower gross profit
margins than negotiated contracts.

Selling and Marketing. Selling and marketing expenses increased by
$0.9 million, or 27.6%, to $4.2 million for the fiscal year ended June 30, 1998
from $3.3 million for the fiscal year ended June 30, 1997. The increase was
primarily due to the increase in the number of bids and proposals prepared by
the Company, as well as an increase in marketing personnel from 25 at
June 30, 1997 to 35 at June 30, 1998. Selling and marketing expenses as a

percentage of revenues was 7.2% for the fiscal year ended June 30, 1998 compared
to 9.1% for the fiscal year ended June 30, 1997.

Research and Development. Research and development expenses increased
by $0.5 million, or 83.1%, to $1.2 for the fiscal year ended June 30, 1998 from
$0.6 million for the fiscal year ended June 30, 1997 due to an increase in
development costs associated with custom solutions. Research and development
expenses as a percentage of revenues increased to 2.1% for the fiscal year
ended June 30, 1998 from 1.8% for the fiscal year ended June 30, 1997.

General and Administrative. General and administrative expenses
increased by $1.6 million, or 45.3%, to $5.0 million for the fiscal year ended
June 30, 1998 from $3.4 million for the fiscal year ended June 30, 1997, but
decreased as a percentage of revenues to 8.6% for the fiscal year ended June
30, 1998 from 9.5% for the fiscal year ended June 30, 1997. The increase in
general and administrative expenses resulted primarily from an increase of
approximately $0.7 million in legal and other costs associated with operating a
public company, and an increase of approximately $0.5 million in personnel and
related expenses to support the continued growth of the Company's business.

Interest Income. Interest income increased by $1.0 million to $1.3
million for the fiscal year ended June 30, 1998 from $0.3 million for the
fiscal year ended June 30, 1997. The increase was primarily the result of the
investment of remaining net proceeds from the Company's initial public
offering.

NetSat Express. During the fiscal year ended June 30, 1998, the
Company's consolidated consolidated subsidiary NetSat Express experienced an
increase in revenues of approximately $0.6 million to approximately $0.7
million from approximately $0.1 million for the year ended June 30, 1997. The
increase resulted from the implementation of Access Plus services in January
1998, an increase in the number of PC Vector equipment sales and related
activations. The increase in loss from operations associated with NetSat
Express of approximately $0.2 million to $1.7 million for the fiscal year ended
June 30, 1998 from $1.5 million for the year ended June 30, 1997 was mainly
attributable to initial start up costs associated with providing Access Plus
and PC Vector services.

FISCAL YEARS ENDED JUNE 30, 1997 AND 1996

Revenues. Revenues, which were derived from sales of ground segment
systems and networks, increased by $22.7 million, or 168.8%, to $36.2 million
for the fiscal year ended June 30, 1997 from $13.5 million for the fiscal year
ended June 30, 1996. The increase was primarily the result of an increase in
the number of shipments and/or completion of contracts from 22 for the fiscal
year ended June 30, 1996 to 47 for the fiscal year ended June 30, 1997.

Gross Profit. Gross profit increased by $1.9 million to $4.2 million
for the fiscal year ended June 30, 1997 from $2.2 million for the fiscal year
ended June 30, 1996. The increase was primarily due to the increase in the
shipment of ground segment systems and networks. Gross profit as a percentage
of revenues was 11.5% for the fiscal year ended June 30, 1997 compared to 16.6%
for the fiscal year ended June 30, 1996. Such decrease was due primarily to an
increase in orders awarded through a competitive bidding process, which
typically result in lower gross profit margins than negotiated contracts and a
contract awarded in the previous year with an unusually high profit margin.

Selling and Marketing. Selling and marketing expenses increased by $1.4
million, or 71.4%, to $3.3 million for the fiscal year ended June 30, 1997 from
$1.9 million for the fiscal year ended June 30, 1996. The increase was
primarily due to the opening of marketing offices in Hong Kong and in Atlanta,
Georgia, the hiring of selling and marketing personnel for NetSat Express,
which accounted for approximately $0.6 million, or 17.5%, of the selling and
marketing expenses for the year and the increase in the number of bids and
proposals prepared by the Company. Selling and marketing expenses as a
percentage of revenues was 9.1% for the fiscal year ended June 30, 1997
compared to 14.2% for the fiscal year ended June 30, 1996.

Research and Development. Research and development expenses decreased
by $0.1 million, or 8.9%, to $0.6 million for the fiscal year ended June 30,
1997 from $0.7 million for the fiscal year ended June 30, 1996 due to a decline
in development costs associated with customizable systems. Research and
development expenses as a percentage of revenues decreased to 1.8% for the
fiscal year ended June 30, 1997 from 5.3% for the fiscal year ended June 30,
1996.

General and Administrative. General and administrative expenses
increased by $1.5 million, or 77.3%, to $3.4 million for the fiscal year ended
June 30, 1997 from $1.9 million for the fiscal year ended June 30, 1996, but
decreased as a percentage of revenues to 9.5% for the fiscal year ended June 30,
1997 from 14.4% for the fiscal year ended June 30, 1996. The increase in general
and administrative expenses resulted from personnel increases to service the
increasing customer base for the Company's ground segment business as well as
the hiring of NetSat Express administrative personnel, which accounted for
approximately $0.6 million, or 17.6%, of the general and administrative expenses
for the year.

QUARTERLY RESULTS

The following tables set forth certain unaudited financial information
for each of the eight fiscal quarters in the period ended June 30, 1998. The
Company believes that this information has been presented on the same basis as
the audited Consolidated Financial Statements appearing elsewhere in the
Prospectus and in the opinion of management all necessary adjustments
(consisting only of normal recurring adjustments) have been included in the
amounts stated below to present fairly the unaudited quarterly results when
read in conjunction with the audited Consolidated Financial Statements of the
Company and related Notes thereto included elsewhere in this Form 10-K. The
operating results for any quarter are not necessarily indicative of the
operating results for any future period.

THREE MONTHS ENDED
------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1997 1997 1997 1997 1998 1998
---------------------------------------------------------------------------------------------

STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 4,155 $ 9,151 $ 8,226 $ 14,688 $ 14,591 $ 16,269 $ 16,261 $ 10,984
Costs of revenues........... 3,591 7,906 7,239 13,324 12,919 13,902 13,294 9,417
---------------------------------------------------------------------------------------------
Gross profit............... 564 1,245 987 1,364 1,672 2,367 2,967 1,567
Operating expenses:
Selling and marketing.... 554 847 815 1,066 831 966 1,167 1,223
Research and development. 92 137 122 298 280 304 287 317
General and administrative 661 755 1,118 915 1,088 1,153 1,235 1,534
---------------------------------------------------------------------------------------------
Total operating expenses.... 1,307 1,739 2,055 2,279 2,199 2,423 2,689 3,074
---------------------------------------------------------------------------------------------
(Loss) income from operations (743) (494) (1,068) (915) (527) (56) 278 (1,507)
Interest income, net........ 14 56 117 89 264 379 291 332
---------------------------------------------------------------------------------------------
(Loss) income before
minority interests in
operations of consolidated
subsidiary................. (729) (438) (951) (826) (263) 323 569 (1,175)
Minority interests in
operations of consolidated
subsidiary................. 175 100 - - - - - -
---------------------------------------------------------------------------------------------
Net (loss) income......... $ (554) $ (338) $ (951) $ (826) $ (263) $ 323 $ 569 $ (1,175)
=============================================================================================

PERCENTAGE OF TOTAL REVENUES:
Revenues.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of revenues........... 86.4 86.4 88.0 90.7 88.5 85.5 81.8 85.7
---------------------------------------------------------------------------------------------
Gross profit............... 13.6 13.6 12.0 9.3 11.5 14.5 18.2 14.3
Operating expenses:
Selling and marketing.... 13.3 9.3 10.0 7.3 5.7 5.9 7.2 11.1
Research and development. 2.2 1.5 1.5 2.0 1.9 1.8 1.7 2.9
General and administrative 15.9 8.2 13.6 6.2 7.5 7.1 7.6 14.0
---------------------------------------------------------------------------------------------
Total operating expenses.... 31.4 19.0 25.1 15.5 15.1 14.8 16.5 28.0
---------------------------------------------------------------------------------------------
(Loss) income from operations (17.8) (5.4) (13.1) (6.2) (3.6) (0.3) 1.7 (13.7)
Interest income, net........ 0.3 0.6 1.4 0.6 1.8 2.3 1.8 3.0
---------------------------------------------------------------------------------------------
(Loss) income before
minority interests in
operations of consolidated
subsidiary................. (17.5) (4.8) (11.7) (5.6) 1.8 2.0 3.5 (10.7)
Minority interests in
operations of consolidated
subsidiary................. 4.2 1.1 - - - - - -
---------------------------------------------------------------------------------------------
Net (loss) income......... (13.3)% (3.7)% (11.7)% (5.6)% (1.8)% 2.0% 3.5% (10.7)%
=============================================================================================

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

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations to date primarily from the
sale of equity securities and, to a lesser degree, from stockholder loans.
Through June 30, 1998, the Company raised approximately $49.1 million of net
proceeds through a public offering of its Common Stock and private offerings of
its Common Stock and Convertible Preferred Stock. During the fiscal year ended
June 30, 1998, the Company received net proceeds of approximately $28.7 million
from sales of Common Stock through the Company's Initial Public Offering. In
addition, the Company received approximately $0.6 million in proceeds from the
exercise of stock options and warrants during the fiscal year ended June 30,
1998.

At June 30, 1998, the Company had working capital of $31.7 million,
including cash and cash equivalents of $21.3 million, restricted cash of $4.4
million, accounts receivable of $18.0 million, inventories of $1.6 million and
prepaid and other current assets of $0.6 million, offset by $13.0 million in
accounts payable and $1.2 million in accrued expenses.

The Company has experienced negative cash flow from operations since
its inception. Such negative cash flows were due to the net losses, increases
in accounts receivable and decreases in accounts payable during the respective
periods. Net cash used in operating activities for the fiscal years ended June
30, 1998, 1997 and 1996 was $5.9 million, $2.0 million and $2.5 million,
respectively.

Management anticipates that NetSat Express will experience negative
cash flow for at least the next 12 months as a result of additional capital
investments required for continued development of its operations in Eastern
Europe and losses from operations.

Several factors had a major effect on the Company's liquidity during
the fiscal year ended June 30, 1998. First, revenues increased substantially as
a result of a significant increase in contract deliveries and completed
installations. The higher revenues increased the Company's working capital
needs, as accounts receivable increased by approximately $3.7 million and
accounts payable decreased by approximately $3.0 million during the fiscal year
ended June 30, 1998. Offsetting this increase was an increase in accrued
expenses of approximately $0.1 million. Because the Company records progress
payments as an offset to inventory, the approximately $0.7 million decrease in
net inventory during the fiscal year is lower than might be expected based on
the increased level of activity and shipments against progress payments for
contracts completed (a decrease of approximately $3.4 million from June 30,
1997 to June 30, 1998). Inventory levels may be expected to increase as work
proceeds on newly acquired and existing contracts.

The second factor affecting liquidity during the fiscal year ended
June 30, 1998 was the Company's investment activities. The Company increased
its investment in its strategic suppliers by approximately $0.8 million during
the fiscal year and purchased approximately $1.6 million in additional computer,
machinery and test equipment. In addition, the Company completed renovation of
its new office and assembly facility for which it spent approximately $1.0
million in cash on improvements and has spent an additional $0.8 million on
furniture and fixtures.

The third major factor affecting liquidity was the completion of an
initial public offering of Common Stock and the exercise of options and
warrants during the fiscal year ended June 30, 1998. Net proceeds of these

transactions were approximately $29.3 million leaving the Company with cash and
cash equivalents at the end of the fiscal year of approximately $21.3 million,
which does not include $4.4 million of restricted cash.

The Company has incurred losses since its inception and therefore has
not been subject to federal income taxes. Through June 30, 1998, the Company,
for income tax purposes, has generated net operating loss carryforwards of
approximately $8.2 million which may be available to reduce future taxable
income and future tax liabilities. These carryforwards expire through 2013. The
Tax Reform Act of 1986 provides for an annual limitation on the use of net
operating loss carryforwards (following certain ownership changes) that could
significantly limit the Company's ability to utilize these carryforwards. The
exercise of options or warrants or in connection with future sales of equity
could limit the Company's ability to utilize the aforementioned carryforwards to
reduce future taxable income and tax liabilities. Additionally, because the
United States tax laws limit the time during which these carryforwards may be
applied against future taxes, the Company may not be able to take full advantage
of these attributes for federal income tax purposes.

The Company has a $7.5 million credit facility consisting of (1) a
$5.0 million secured domestic line of credit and (2) a $2.5 million secured
export-import guaranteed line of credit. Each line of credit bears interest at
the prime rate plus 1/2% per annum and is collateralized by a first security
interest on all assets.

The Company's future capital requirements will depend upon many
factors, including the extent to which it is able to locate additional
strategic suppliers in whose technology it wishes to invest, the success of the
Company's marketing efforts in both the satellite ground segment and Internet
services fields, the demand, nature and timing of customer orders and the
extent to which it must conduct research and development efforts internally.
Based on current plans, the Company believes that its existing capital
resources will be sufficient to meet its capital requirements for at least the
next 12 months.

RISK FACTORS

LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT

The Company, which was formed in August 1994, has a limited operating
history upon which an evaluation of the Company can be based and has incurred
significant operating losses since its inception. The Company has financed its
operations to date primarily from the sale of equity securities and, to a
lesser degree, from stockholder loans. The Company generated its first revenue
from its ground segment systems and networks business in June 1995 and has
generated only minimal revenues from its satellite-delivered data
communications services business, which commenced operations in July 1996. The
Company incurred operating losses of $1.1 million, $2.3 million, $2.7 million
and $0.5 million during the fiscal years ended June 30, 1995, 1996, 1997 and
1998, respectively and may incur further operating losses as it attempts to
expand its business. The Company's ability to expand its business and generate
additional revenues and future positive operating and net income is dependent,
in large part, on its ability to obtain new contracts and the profitability of
such contracts, and there can be no assurance that the Company will generate
significant additional revenues or report quarterly or annual positive
operating or net income. As of June 30, 1998, the Company had an accumulated
deficit of $6.5 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."

INHERENT RISK OF INTERNATIONAL OPERATIONS

Most of the Company's revenues are derived from sales to customers
outside the United States. The Company anticipates that foreign sales will
continue to account for a significant portion of total revenues in the
foreseeable future. The Company's foreign sales are generally denominated in
U.S. dollars. Consequently, the decrease in the value of foreign currencies
relative to the U.S. dollar, such as the currency devaluations in the Pacific
Rim region, Russia and other international currencies, has adversely affected
and may continue to adversely affect the demand for the Company's products and
services by increasing the price of the Company's products and services in the

currency of the countries in which they are sold. Additional risks inherent in
the Company's international business activities include various and changing
regulatory requirements, costs and risks of relying upon local subcontractors
for the installation of its ground segment systems and networks, increased sales
and marketing expenses, availability of export licenses, tariffs and other trade
barriers, political and economic instability, difficulties in staffing and
managing foreign operations, potentially adverse taxes, complex foreign laws and
treaties and the possibility of difficulty in accounts receivable collections.
The recent economic and monetary crisis in the Pacific Rim countries, including
Korea, Malaysia, Thailand, Philippines, Indonesia and other countries in the
region, as well as the recent economic and monetary declines in Russia, has
resulted in a decreased demand in such countries and other foreign regions for
capital equipment such as the ground segment systems and networks supplied by
the Company. The difficult economic conditions in the Pacific Rim region, Russia
and other international markets and the decrease in bookings received by the
Company from these and other foreign regions have adversely effected the
Company's results of operations for the fourth quarter of 1998 and the Company
expects that these negative trends will continue to adversely impact it. In
addition, the Company is subject to the Foreign Corrupt Practices Act (the
"FCPA") which may place the Company at a competitive disadvantage to foreign
companies, which are not subject to the FCPA. There can be no assurance that any
of these factors will not have a material adverse effect on the Company's
business, financial condition and results of operations.

QUARTERLY FLUCTUATIONS

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

INTENSE COMPETITION; LIMITED BARRIERS TO ENTRY

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

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

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

RELIANCE ON STRATEGIC RELATIONSHIPS

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

In addition, the Company relies on the Personal Earth Station and
DirecPC technologies provided by HNS, a subsidiary of Hughes Electronics Corp.
in connection with the operation of NetSat Express's satellite-delivered data
communications services business. Each project for which NetSat Express uses
HNS' DirecPC technology will require the grant of a license from HNS to NetSat
Express. HNS is under no obligation to grant such licenses and there can be no
assurance that NetSat Express will be able to negotiate such licensing
arrangements with HNS on acceptable terms, or at all. In addition, failure to
maintain a business relationship with HNS would have a material adverse effect
on the Company's business, financial condition and results of operations.

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

RISK OF CUSTOMER CONCENTRATION

The Company typically relies upon a small number of customers for a
large portion of its revenues. For example, approximately 29% of the Company's
revenues in fiscal 1998 were derived from sales to Sonangol, U.E.E. At June 30,
1998, $12.2 million, or approximately 28% of the Company's backlog, was
accounted for by a contract between the Company and Transworld Communications
Services, Inc. and $7.1 million, or approximately 16% of the Company's backlog,
was accounted for by a contract between the Company and Sonangol, U.E.E. The
Company expects that in the near term a significant portion of its revenues
will continue to be derived from one or a limited number of customers (the
identity of whom may vary from period to period) as the Company seeks to expand
its business and its customer base. The reduction, delay, or cancellation of
orders from one or more of such significant customers would have a material
adverse effect on the Company's business, financial condition and results of
operations.

RISK OF MANAGEMENT OF RAPID GROWTH

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

RISK OF FIXED-PRICE CONTRACTS

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

EMPHASIS ON DEVELOPING MARKETS; UNCERTAIN MARKET POTENTIAL

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

results of operations. See "Intense Competition; Limited Barriers to Entry" and
"Reliance on Strategic Relationships."

RAPID INDUSTRY CHANGE; TECHNOLOGICAL OBSOLESCENCE

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

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are
coded to accept only two digit entries in the data code field. These data code
fields will need to accept four digit entries to distinguish 21st century
dates. As a result, in less than two years, computer systems and/or software
used by many companies may need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance. Although the
Company's internal systems as well as the software it installs in its satellite
ground segment systems and networks are designed to be Year 2000 compliant,
there can be no assurance that such systems and software contain all necessary
date code changes.

The Company and its customers may be affected by Year 2000 issues.
Compliance with Year 2000 requirements may disrupt the Company's ability to
continue designing, assembling and installing its satellite ground segment
systems and networks. The Company may also incur certain expenditures in
connection with Year 2000 compliance. Additionally, even if the Company's
internal systems and the software it installs in its ground segment systems and
networks are Year 2000 compliant, there can be no assurance that the equipment
the Company obtains from third-party vendors and incorporates into its ground
segment systems and networks is Year 2000 compliant. If such equipment is not
Year 2000 compliant, it could disrupt the ability of the Company's customers to
use the Company's ground segment systems and networks. In addition, there can
be no assurance that equipment operated by third parties that interface with or
contain the Company's products will timely achieve Year 2000 compliance.
Furthermore, if the Company's ground segment systems and networks were unable
to be used by the Company's customers because of Year 2000 compliance problems,
there can be no assurance that the Company's customers will not commence
litigation against the Company for such systems and networks failure. Any of
the foregoing could result in a material adverse effect on the Company's
business, financial condition and results of operations.

DEPENDENCE UPON SUPPLIERS; SOLE AND LIMITED SOURCES OF SUPPLY

required to perform additional testing procedures upon the components supplied
by such new vendors, which could prevent or delay product shipments.
Additionally, prices could increase significantly in connection with changes of
vendors. Any inability of the Company to obtain timely deliveries of materials
of acceptable quality or timely services, or any significant increase in the
prices of materials or services, could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk of
Fixed-Price Contracts" and "Quarterly Fluctuations".

RISK OF FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS

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

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

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

The Company's Internet operations (other than the operation of a
teleport) are not currently subject to direct government regulation in most
countries, and there are currently few laws or regulations directly applicable
to access to or commerce on the Internet. However, due to the increasing
popularity and use of the Internet, it is likely that a number of laws and
regulations may be adopted at the local, national or international levels with
respect to the Internet, covering issues such as user privacy and expression,
pricing of products and services, taxation, advertising, intellectual property
rights, information security or the convergence of traditional communication
services with Internet communications. For example, the Telecommunications Act
of 1996 (the constitutionality of certain portions of which is currently under
challenge) was recently enacted in the United States, and imposes criminal
penalties via the Communications Decency Act on anyone who distributes obscene,
lascivious or indecent communications over the Internet. It is anticipated

that a substantial portion of the Company's Internet operations will be carried
out in countries which may impose greater regulation of the content of
information coming into the country than that which is generally applicable in
the United States. To the extent that the Company provides content as a part of
its Internet services, it will be subject to any such laws regulating content.
Moreover, the adoption of any such laws or regulations may decrease the growth
of the Internet, which could in turn decrease the demand for the Company's
Internet services or increase the Company's cost of doing business or in some
other manner have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the applicability to the Internet
of existing laws governing issues such as property ownership, copyrights and
other intellectual property issues, taxation, libel and personal privacy is
uncertain. The vast majority of such laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Changes to
such laws intended to address these issues, including some recently proposed
changes, could create uncertainty in the marketplace which could reduce demand
for the Company's services, could increase the Company's cost of doing business
as a result of costs of litigation or increased product development costs, or
could in some other manner have a material adverse effect on the Company's
business, financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL

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

PROPRIETARY TECHNOLOGY; RISK OF INFRINGEMENT

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

The Company generally relies on confidentiality agreements with its
consultants, key employees and sales representatives to protect its proprietary
technological expertise, and generally controls access to and distribution of
its technology, software and other proprietary information. Despite these
precautions, there can be no assurance that such agreements will not be
breached, that the Company will have adequate remedies for any such breach or

that a third party will not copy or otherwise obtain and use the Company's
products or technology without authorization or develop similar products or
technology independently. Failure by the Company to maintain protection of its
proprietary technological expertise for any reason could have a material adverse
effect on the Company's business, financial condition and results of operations.

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

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

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

RISK OF CONCENTRATED OWNERSHIP

As of September 25, 1998, the Company's officers and directors, and
their affiliates beneficially own approximately 2,236,985 shares, constituting
approximately 23.2% of the Company's outstanding Common Stock. These
stockholders, if acting together, may be able to exert significant influence
over the election of directors and other corporate actions requiring
stockholder approval.

POSSIBLE VOLATILITY OF STOCK PRICE

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

high technology industries. These broad market fluctuations may adversely affect
the market price of the Company's Common Stock. See "Quarterly Fluctuations."

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------

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

The Company's objective to managing its exposure to foreign currency
exchange rate fluctuations is to reduce the impact of adverse fluctuations in
earnings and cash flows associated with foreign currency exchange rates for
certain purchases from foreign vendors, if applicable. Accordingly, the Company
utilizes foreign currency forward contracts to hedge its exposure on firm
commitments denominated in foreign currency. As of June 30, 1998, the Company
has only one such foreign currency forward contract to hedge its exposure
relating to a commitment to purchase approximately U.S. $3.2 million of
equipment from a vendor in Swedish Krona. The Company's hedge with respect to
this transaction reduces, but does not eliminate, the impact of foreign
currency exchange rate movements. If there were an adverse change in the
exchange rate of Swedish Krona of 10%, the expected effect on net income would
be immaterial.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------

The information required by this item is incorporated by reference to
the Consolidated Financial Statements listed in Item 14(a) of Part IV of the
Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
----------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

On November 27, 1996, the Company dismissed PricewaterhouseCoopers LLP
as its independent accountants. The reports of PricewaterhouseCoopers LLP on
the Company's financial statements for the two fiscal years prior to such
dismissal contained no adverse opinion or disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with its audits for the year ended June 30, 1996 and for the
period from August 17, 1994 (inception) through June 30, 1995, and through
November 27, 1996, there have been no disagreements with PricewaterhouseCoopers
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to
make reference thereto in their report on the financial statements for such
years. The decision to change firms was approved by the Company's Board of
Directors. The Company had requested that PricewaterhouseCoopers LLP furnish it
with a letter addressed to the Commission stating whether or not it agrees with
the above statements. A copy of such letter was filed as an exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 333-22425).

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------

Certain information in response to this item is incorporated herein by
reference to "Election of Directors" and "Executive Officers" in Globecomm
Systems Inc.'s Proxy Statement to be filed with the Securities and Exchange
Commission (the "SEC"). Information on compliance with section 16(a) of the
Exchange Act is incorporated herein by reference to "Compliance with Reporting
Requirements" in the Registrant's Proxy Statement to be filed with the SEC.

ITEM 11. EXECUTIVE COMPENSATION
----------------------

Information in response to this item is incorporated herein by
reference to "Executive Compensation and Other Information" in the Registrant's
Proxy Statement to be filed with the SEC.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------

Information in response to this item is incorporated herein by
reference to "Security Ownership of Certain Beneficial Owners and Management"
in the Registrant'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 by
reference to "Certain Transactions" in the Registrant's Proxy Statement to be
filed with the SEC.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------

(A) (1) FINANCIAL STATEMENTS

CONTENTS

Report of Independent Auditors-Ernst & Young LLP......................................... F-1
Report of Independent Accountants-PricewaterhouseCoopers LLP............................. F-2
Consolidated Balance Sheets as of June 30, 1998 and 1997................................. F-3
Consolidated Statements of Operations for the years ended June 30, 1998, 1997 and 1996... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended June 30,
1998, 1997 and 1996.................................................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1998, 1997 and 1996... F-6
Notes to Consolidated Financial Statements............................................... F-7

(2) FINANCIAL STATEMENT SCHEDULES

None

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in
Financial Statements or notes thereto.

(3)EXHIBITS

Exhibit No.
- -----------
3.1 Amended and Restated Certificate of Incorporation (filed herewith)

3.3 Amended and Restated By-Laws of the Registrant (filed herewith)

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

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

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

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

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

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

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

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

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

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

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

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

10.12 1997 Stock Incentive Plan (incorporated by reference to exhibit 10.14
of the Registration Statement).

10.13 Investment Agreement dated August 21, 1998 by and between McKibben
Communications LLC and the Registrant (filed herewith).

16.1 Letter from PricewaterhouseCoopers LLP (incorporated by reference to
exhibit 16.1 of the Registration Statement).

21.1 Subsidiary of the Registrant (filed herewith).

23.1 Consent of Ernst & Young LLP (filed herewith).

23.2 Consent of PricewaterhouseCoopers LLP (filed herewith).

27 Financial Data Schedule (filed herewith).

* Confidential treatment granted for portions of this agreement.

(B) REPORTS ON FORM 8-K

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf of the undersigned, thereunto duly authorized.

GLOBECOMM SYSTEMS INC.

Date

By: /s/ David E. Hershberg 9/28/98
------------------------------------------------------------------------------------- -------
David E. Hershberg, Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date

By: /s/ David E. Hershberg 9/28/98
------------------------------------------------------------------------------------- -------
David E. Hershberg, Chairman of the Board and
Chief Executive Officer (Principal Executive Officer)

By: /s/ Andrew C. Melfi 9/28/98
------------------------------------------------------------------------------------- -------
Andrew C. Melfi, Vice President and Chief Financial Officer (Principal Financial and
Accounting Officer)

By: /s/ Kenneth A. Miller 9/28/98
------------------------------------------------------------------------------------- -------
Kenneth A. Miller, President and Director

By: /s/ Thomas A. DiCicco 9/28/98
------------------------------------------------------------------------------------- -------
Thomas A. DiCicco, Vice President and Director

By: /s/ Donald G. Woodring 9/28/98
------------------------------------------------------------------------------------- -------
Donald G. Woodring, Vice President and Director

By: /s/ Stephen C. Yablonski 9/28/98
------------------------------------------------------------------------------------- -------
Stephen C. Yablonski, Vice President and Director

By: /s/ Herman Fialkov 9/28/98
------------------------------------------------------------------------------------- -------
Herman Fialkov, Director

By: /s/ Shelly A. Harrison 9/28/98
------------------------------------------------------------------------------------- -------
Shelley A. Harrison, Director

By: /s/ Benjamin Duhov 9/28/98
------------------------------------------------------------------------------------- -------
Benjamin Duhov, Director

By: : /s/ C.J. Waylan 9/28/98
------------------------------------------------------------------------------------- -------
C.J. Waylan, Director

By: : /s/ A. Robert Towbin 9/28/98
------------------------------------------------------------------------------------- -------
A. Robert Towbin, Director

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Globecomm Systems Inc.

We have audited the accompanying consolidated balance sheets of
Globecomm Systems Inc. at June 30, 1998 and 1997 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Globecomm Systems Inc. at June 30, 1998 and 1997, and the consolidated results
of its operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.

ERNST & YOUNG LLP

Melville, New York
August 7, 1998

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of Globecomm Systems Inc.

In our opinion, the accompanying consolidated statements of operations, of
changes in stockholders' equity and of cash flows present fairly, in all
material respects, the results of operations and cash flows of Globecomm
Systems Inc. and its subsidiary for the year ended June 30, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
New York, New York
August 23, 1996, except as to Note 1,
which is as of August 5, 1997

F-2

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

JUNE 30, 1998 JUNE 30, 1997
------------- -------------

ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 21,342 $ 5,164
Restricted cash......................................................................... 4,416 1,537
Accounts receivable..................................................................... 18,017 14,350
Inventories, net........................................................................ 1,583 2,293
Prepaid expenses and other current assets............................................... 635 307
-----------------------------------
Total current assets...................................................................... 45,993 23,651
Fixed assets, net......................................................................... 9,963 7,151
Investments............................................................................... 2,093 1,308
Other assets.............................................................................. 295 1,176
-----------------------------------

Total assets.............................................................................. $ 58,344 $ 33,286
===================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 13,042 $ 16,089
Accrued payroll and related fringe benefits............................................. 632 438
Accrued commissions..................................................................... 216 360
Other accrued expenses.................................................................. 422 329
Capital lease obligations............................................................... 18 56
-----------------------------------
Total current liabilities................................................................. 14,330 17,272
Capital lease obligations................................................................. - 18
-----------------------------------
Total liabilities......................................................................... 14,330 17,290
-----------------------------------

Commitments

Stockholders' equity:
Preferred stock, $.001 par value; 3,000,000 shares authorized:
Class A Convertible - shares authorized, issued and outstanding: none at
June 30, 1998 and 172,304 at June 30, 1997........................................ - -
Class B Convertible - shares authorized, issued and outstanding: none at
June 30, 1998 and 514,714 at June 30, 1997........................................ - 1
Common stock, $.001 par value; 22,000,000 shares authorized, shares issued and
outstanding: 9,165,908 at June 30, 1998 and 3,906,119 at June 30, 1997................. 9 4
Additional paid-in capital.............................................................. 50,530 21,970
Accumulated deficit..................................................................... (6,525) (5,979)
-----------------------------------
Total stockholders' equity................................................................ 44,014 15,996
-----------------------------------

Total liabilities and stockholders' equity................................................ $ 58,344 $ 33,286
===================================

See accompanying notes.

F-3

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

YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30,
1998 1997 1996
-----------------------------------------------------

Revenues.................................................................... $ 58,105 $ 36,220 $ 13,476
Costs of revenues........................................................... 49,532 32,060 11,238
-----------------------------------------------------

Gross profit................................................................ 8,573 4,160 2,238
-----------------------------------------------------

Operating expenses:
Selling and marketing..................................................... 4,187 3,282 1,915
Research and development.................................................. 1,188 649 712
General and administrative................................................ 5,010 3,449 1,945
-----------------------------------------------------

Total operating expenses.................................................... 10,385 7,380 4,572
-----------------------------------------------------

Loss from operations........................................................ (1,812) (3,220) (2,334)
Interest income, net of interest expense of $5, $22 and $32 in 1998, 1997
and 1996, respectively.................................................... 1,266 276 89
-----------------------------------------------------
Loss before minority interests in operations of consolidated
subsidiary............................................................... (546) (2,944) (2,245)
Minority interests in operations of consolidated subsidiary................. - 275 -
-----------------------------------------------------
Net loss.................................................................... $ (546) $ (2,669) $ (2,245)

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

Basic and diluted loss per share............................................ $ (0.06)
===================
Basic and diluted weighted average shares................................... 8,553
===================

Pro forma basic and diluted net loss per share (unaudited).................. $ (0.44)
=================

Shares used in computing pro forma basic and diluted net loss per
share (unaudited)........................................................ 6,086
=================

See accompanying notes.

F-4

GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)

PREFERRED STOCK
---------------------------------- ADDITIONAL STOCK TOTAL
CLASS A CLASS B COMMON STOCK PAID-IN SUBSCRIPTIONS ACCUMULATED STOCKHOLDERS'
---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT EQUITY
-----------------------------------------------------------------------------------------------------

Balance at June 30,
1995................ - $ - - $ - 3,506 $ 4 $ 5,168 $ (900) $ (1,065) $ 3,207
Proceeds from stock
subscriptions
receivable.......... 900 900
Sale of common stock
to investor, net of
issuance costs of
$17................. 200 - 915 915
Issuance of common
stock as sales
commissions......... 37 - 174 174
Sale of common stock
to investors........ 11 - 50 50
Issuance of common
stock to consultants 15 - 52 52
Sale of convertible
preferred stock to
investors, net of
issuance costs of
$15................. 156 - 2,485 2,485
Options granted to
employees and
directors........... 192 192
Net loss.............. (2,245) (2,245)
-----------------------------------------------------------------------------------------------------

Balance at June 30,
1996................ 156 - - - 3,769 4 9,036 - (3,310) 5,730

Sale of convertible
preferred stock to
investors, net of
issuance costs of
$2,623; paid in
cash of $1,135 and
53 shares of stock.. 485 1 10,964 10,965
Sale of convertible
preferred stock to
investor............ 16 - 257 257
Exercise of warrants.. 107 - 563 563
Sale of convertible
preferred stock to
investor............ 30 - 824 824
Issuance of common
stock in exchange
for minority shares
in subsidiary....... 30 - 243 243
Options granted to
employees and
directors........... 83 83
Net loss.............. (2,669) (2,669)
-----------------------------------------------------------------------------------------------------

Balance at June 30,
1997................ 172 - 515 1 3,906 4 21,970 - (5,979) 15,996

Conversion of
convertible preferred
stock into common
stock.............. (172) - (515) (1) 1,958 2 (1) -
Proceeds from initial
public offering,
net of issuance
costs of $3,721..... 3,163 3 27,901 27,904
Proceeds from
exercise of stock
options............. 132 - 534 534
Proceeds from
exercise of warrants 7 - 55 55
Options granted to
employees and
directors........... 71 71
Net loss.............. (546) (546)
-----------------------------------------------------------------------------------------------------
Balance at June 30,
1998................ - $ - - $ - 9,166 $ 9 $50,530 $ - $ (6,525) $ 44,014
=====================================================================================================

See accompanying notes.

F-5

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

YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
-----------------------------------------------------------

OPERATING ACTIVITIES
Net loss............................................................... $ (546) $ (2,669) $ (2,245)
Adjustments to reconcile net loss to net cash used in operating
activities:
Stock issued to investor as commission............................... - - 174
Stock issued to consultants for services............................. - - 46
Depreciation and amortization........................................ 650 334 181
Amortization of organization costs................................... 52 28 12
Stock compensation expense........................................... 71 83 192
Minority interests in operations of consolidated subsidiary.......... - (275) -
Changes in operating assets and liabilities:
Accounts receivable.............................................. (3,667) (12,351) (1,930)
Inventories, net................................................. 710 (916) 664
Prepaid expenses and other current assets........................ (328) (73) (224)
Other assets..................................................... 68 (1) (39)
Accounts payable................................................. (3,047) 13,322 338
Accrued payroll and related fringe benefits...................... 194 221 114
Accrued commissions and other accrued expenses................... (51) 339 207
-----------------------------------------------------------
Net cash used in operating activities.................................. (5,894) (1,958) (2,510)
-----------------------------------------------------------

INVESTING ACTIVITIES
Purchases of investments............................................... (785) (1,069) (238)
Purchases of fixed assets.............................................. (3,462) (6,765) (339)
Payment of organization costs.......................................... - (81) -
Restricted cash........................................................ (2,879) (306) (1,136)
-----------------------------------------------------------
Net cash used in investing activities.................................. (7,126) (8,221) (1,713)
-----------------------------------------------------------

FINANCING ACTIVITIES
Proceeds from sales of common stock, net............................... 28,665 - 1,871
Proceeds from sales of preferred stock, net............................ - 12,046 2,485
Proceeds from exercise of warrants..................................... 55 563 -
Proceeds from exercise of stock options................................ 534 - -
Investment from minority stockholders.................................. - 275 -
Loan to stockholder.................................................... - - (150)
Repayment of loan to stockholder....................................... - 150 -
Repayment of loans payable to stockholder.............................. - (315) (21)
Payment of deferred offering costs..................................... - (761) -
Payments under capital leases.......................................... (56) (50) (34)
-----------------------------------------------------------
Net cash provided by financing activities.............................. 29,198 11,908 4,151
-----------------------------------------------------------
Net increase (decrease) in cash and cash equivalents................... 16,178 1,729 (72)
Cash and cash equivalents at beginning of year......................... 5,164 3,435 3,507
-----------------------------------------------------------
Cash and cash equivalents at end of year............................... $ 21,342 $ 5,164 $ $3,435
===========================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest................................................. $ 5 $ 51 $ 13
===========================================================

See accompanying notes.

F-6

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BUSINESS

Globecomm Systems Inc. (the "Company") was incorporated in the State
of Delaware on August 17, 1994. The Company designs, assembles and installs
satellite ground segment systems and networks which support a wide range of
satellite communications applications including fixed, mobile and direct
broadcast services as well as certain military applications.

On July 18, 1997, the Board of Directors authorized and, on August 5,
1997 the stockholders approved a 2.85-for-one stock split of the outstanding
shares of common stock, and amended and restated the Company's certificate of
incorporation increasing the number of authorized shares of common stock to
22,000,000 and preferred stock to 3,000,000, and changing the par value of its
common and preferred stock to $.001. All common stock, stock option and
warrant data has been restated to reflect the stock split.

The Company has incurred operating losses since its inception and had
an accumulated deficit at June 30, 1998 of $6,525,000. Such losses have
resulted principally from general and administrative and selling and marketing
expenses associated with the Company's operations. The Company expects that its
cash and working capital requirements will continue to increase in connection
with the Company's plans to continue to expand operations. Management believes
that its existing capital resources will be sufficient to meet its working
capital needs through June 30, 1999.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the financial statements
of the Company and its majority-owned subsidiary, NetSat Express, Inc. ("NetSat
Express"). All significant intercompany balances and transactions have been
eliminated in consolidation.

ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the financial statements and accompanying notes. Actual
results could differ from those estimates.

REVENUE RECOGNITION

The Company uses the percentage-of-completion method of accounting for
contract revenues, upon the achievement of certain milestones. Accordingly,
revenue from long-term, fixed-price contracts, are generally recorded based on
the relationship of total costs incurred to date to total projected final
costs. Contract costs generally include purchased material, direct labor,
overhead and other indirect costs. Anticipated contracted losses are recognized
as they become known.

Revenues from sales of products and services are generally recognized
when the product is shipped or the service is performed.

INVENTORIES

Inventories, which consist primarily of costs incurred in connection
with specific customer contracts, are stated at the lower of cost or market
value.

F-7

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

CASH EQUIVALENTS

The Company classifies as cash equivalents all highly liquid
instruments with a maturity of three months or less at the time of purchase.

FIXED ASSETS

Fixed assets are stated at cost less accumulated depreciation and
amortization. Depreciation of fixed assets is provided on a straight-line basis
over their estimated useful lives of three to twenty-five years. Certain leased
office equipment has been capitalized. These amounts are included in fixed
assets within the accompanying consolidated balance sheets and are being
amortized over the estimated useful lives of the equipment.

RESEARCH AND DEVELOPMENT

Research and development expenditures are expensed as incurred.

INCOME TAXES

The financial statements have been prepared in conformity with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". This statement requires recognition of deferred income taxes under the
liability method.

BASIC AND DILUTED LOSS PER SHARE AND PRO FORMA BASIC AND DILUTED LOSS PER SHARE

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

Basic loss per share for the year ended June 30, 1998 is based on the
weighted average number of common shares outstanding during the period. Diluted
loss per share for the year ended June 30, 1998 excluded the effect of
approximately 891,000 stock options and approximately 23,000 warrants as the
effect of inclusion would have been anti-dilutive as the Company reported a net
loss for the year ended June 30, 1998.

Pro forma basic loss per share for the year ended June 30, 1997 is
based on the weighted average number of shares of common stock outstanding
including the conversion of the Class A and Class B Convertible Preferred Stock
into common stock, which occurred upon the consummation of the Company's
initial public offering. However, in accordance with Staff Accounting Bulletin
98 of the Securities and Exchange Commission, options to purchase common stock
for nominal consideration have been reflected in diluted loss per share for all
periods presented in a manner similar to a stock split, even if anti-dilutive.
Historical losses per share have not been presented because such amounts are
not deemed meaningful due to the significant change in the Company's capital
structure which occurred in connection with the initial public offering.

F-8

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The book values of cash and cash equivalents, accounts receivable,
accounts payable, and accrued liabilities approximate their fair values
principally because of the short-term maturities of these instruments.

STOCK BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and related Interpretations
in accounting for its stock options because, as discussed below in Note 8, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based-Compensation"
("Statement 123"), requires the use of option valuation models that were not
developed for use in valuing employee and director stock options.

LONG-LIVED ASSETS

When impairment indicators are present, the Company reviews the
carrying value of its long-lived assets to determine the ultimate
recoverability of their unamortized values using future undiscounted cash flow
analyses.

SEGMENT DISCLOSURES

As of June 30, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 supersedes FASB Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of Statement 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information (see Note 12).

3. INVENTORY

Inventory consists of the following:

JUNE 30, 1998 JUNE 30, 1997
------------------------------
(IN THOUSANDS)

Raw materials ........ $ 78 $ 51
Work-in-progress ..... 3,778 7,877
-----------------------
3,856 7,928
Less progress payments 2,273 5,635
-----------------------
$1,583 $2,293
=======================

F-9

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

4. FIXED ASSETS

Fixed assets consist of the following:

JUNE 30, 1998 JUNE 30, 1997
-----------------------------------------
(IN THOUSANDS)

Land.............................................................. $ 1,750 $ -
Building and improvements......................................... 5,261 -
Computer equipment................................................ 1,437 881
Machinery and equipment........................................... 1,409 398
Furniture and fixtures............................................ 933 144
Leasehold improvements............................................ 29 149
Equipment under capital leases.................................... 159 159
Construction in progress.......................................... 91 5,995
-----------------------------------------
11,069 7,726

Less accumulated depreciation and amortization.................... 1,106 575
-----------------------------------------

$ 9,963 $ 7,151
=========================================

5. INVESTMENTS

Investments consists of the following:

JUNE 30, 1998 JUNE 30, 1997
------------------------------------------
(IN THOUSANDS)

Shiron Satellite Communications (1996), Ltd.
("Shiron") (a)............................................... $ 285 $ 285
Euro Broadcasting Corporation
("Euro") (b)................................................. 440 240
Newpoint Technologies, Inc.
("Newpoint Technologies") (c)................................ 950 550
Armer Communications Engineering Services, Inc.
("Armer") (d)................................................ 200 200
Joint Communications Technology Corp.
("JCTC") (e) ................................................ 214 -
Other............................................................. 4 33
------------------------------------------
$ 2,093 $ 1,308
==========================================

(a) On February 12, 1996, the Company purchased 10% of the common stock of
Shiron, an Israeli company, for $150,000 and, during October 1996,
exercised an option to purchase an additional 9% for $135,000. The
Company has an option to purchase up to a total of a 30% interest of
Shiron in accordance with the terms of the purchase agreement. As of
June 30, 1998, the Company's interest in Shiron was diluted to 11.6%.

(b) During August 1996, the Company purchased 19% of the common stock of
Euro, a Delaware corporation, for $240,000 with a one year option to
purchase an additional 10% at a price ranging from $125,000 to $200,000

F-10

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

depending upon the exercise date. In August 1997, the Company exercised
its option to purchase an additional 10% for $200,000. As of June 30,
1998, the Company's interest in Euro was diluted to 22.9%. The
financial position and results of operations of Euro at June 30, 1998
were not material.

(c) On August 30, 1996, the Company purchased 5% of the common stock of
Newpoint Technologies (formerly C-Grams Unlimited Inc.), a New
Hampshire corporation, for approximately $400,000. In May 1997, the
Company purchased an additional 1.6% for $150,000. In August and
September 1997, the Company purchased additional common stock of
Newpoint Technologies for $400,000. As of June 30, 1998, the Company's
interest in Newpoint Technologies has been diluted to 10.3%. The
Company has an option to purchase an additional 9.7% at a price in
accordance with the terms of the agreement.

(d) On November 18, 1996, the Company purchased 15% of the common stock of
Armer, an Arizona corporation, for $150,000 and in March 1997
purchased an additional 2% for $50,000. The Company has an option to
purchase up to an additional 8% at a price of $25,000 for each
additional 1% through December 31, 1997.

(e) On January 13, 1998, the Company purchased 6.7% of the common stock of
JCTC, a New Jersey corporation, for approximately $214,000. The Company
has a two-year option to purchase an additional 6.7% for $200,000. In
addition, the Company has an additional option to purchase up to a
total of 20% interest in JCTC provided the Company has purchased the
first option. The price of the second option will be the then current
market price or the last price for which JCTC's common stock has been
sold.

The above investments have been accounted for at cost, except for Euro
which has been accounted for under the equity method, since the Company does
not have the ability to exercise significant influence over operating and
financial policies of the investees.

6. COMMON STOCK

SALES OF COMMON STOCK

In August 1997, the Company completed an initial public offering of
3,162,500 shares of common stock for an aggregate offering price of
$31,625,000. The Company incurred total expenses in the offering of
approximately $3,721,000 of which approximately $2,214,000 represented
underwriting discounts and commissions and approximately $1,507,000 represented
other related expenses. The net offering proceeds to the Company after
deducting the total expenses were approximately $27,904,000.

During November 1996, a minority shareholder in the Company's
subsidiary, NetSat Express, agreed to exchange its 19,000 shares (representing
approximately 2%) of NetSat Express for approximately 30,000 shares in the
Company. The shares in the Company were valued at $8.07 per share at the date
of the agreement. The transaction was completed during April 1997 and,
accordingly, the Company recorded goodwill of approximately $243,000.

During the year ended June 30, 1996, the Company sold approximately
210,000 shares of its common stock to various investors. Proceeds from the sale
of these shares totaled approximately $966,000, net of related expenses of
approximately $17,000.

F-11

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

In June 1995, the Company completed a private placement offering in
which the Company issued approximately 1,219,000 shares of common stock to
various investors. Proceeds from the issuance of these shares totaled
approximately $5,032,000, including approximately $861,000 of stock
subscriptions received in July 1995, and net of related expenses of
approximately $1,402,000. In satisfaction of these related expenses, the
Company paid approximately $670,000 in cash and issued approximately 156,000
shares of its common stock valued at approximately $732,000. Additionally, in
connection with this offering, the Company sold to one of its investors for
approximately $4,000, a five-year warrant to purchase approximately 107,000
shares of the Company's common stock at a price of $5.26 per share. The warrant
contains certain anti-dilution provisions as specified in the warrant
agreement. On January 24, 1997, the investor exercised the outstanding warrant.

STOCK ISSUED TO CONSULTANTS

During November 1996, the Company issued a ten-year warrant to five
consultants for future services to purchase an aggregate of approximately
64,000 shares of common stock at a price per share of $8.07, equal to the fair
market value of the shares at the date of issuance. During the year ended June
30, 1998, warrants to purchase 6,700 shares of common stock were exercised.

During the year ended June 30, 1996, the Company issued approximately
10,000 shares of its common stock to a consultant in payment for his efforts in
assisting in various Company matters. These shares were purchased by the
consultant at a price of $.04 per share. Consulting expense recorded as a
result of this transaction amounted to approximately $46,000, which represents
the difference between the fair market value of the shares at the date of
issuance and the purchase price.

ISSUANCE OF COMMON STOCK AS COMMISSION

On November 9, 1995, and in connection with the Company's sale of
approximately 200,000 shares of its common stock to an investor also during the
year ended June 30, 1996, the Company entered into a commitment to issue up to
5% of its share capital as follows: (i) 1% of the then outstanding share
capital of the Company upon receipt of sales orders from this stockholder
totaling $1,500,000 and (ii) an additional 1% of the then outstanding share
capital of the Company upon the receipt of each of four subsequent increments
of $3,000,000 in sales orders from this stockholder. This commitment expired in
May 1998.

In November 1995, the Company issued approximately 37,000 shares of
its common stock to this investor, or 1% of the then outstanding share capital.
This issuance resulted in approximately $174,000 of commission expense based on
the fair market value of the shares at the date of issuance, which was also the
date of the agreement. As of June 30, 1996, this entire amount was included in
prepaid expenses within the consolidated balance sheet as the related orders
were not recorded as revenue during the year ended June 30, 1996. Such amount
was included in selling and marketing expense in the accompanying consolidated
statement of operations during the year ended June 30, 1997, the period in
which the related revenue was recognized.

In addition, the investor was granted certain preemptive and other
rights regarding future issuances of securities of the Company including (i) a
preemptive right to purchase up to 15% of the total number of securities
offered in any public offering undertaken by the Company and (ii) the right to
participate in any private offering to the extent required to maintain its
percentage ownership in the Company as well as the right to nominate a director
to the Board of Directors. These rights survive for so long as the investor's
stock ownership does not fall below 5% of the outstanding share capital of the
Company as a result of the investor selling or otherwise disposing of a portion
of its shares.

F-12

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

7. CONVERTIBLE PREFERRED STOCK

In December 1996, the Company issued approximately 485,000 shares
(including approximately 53,000 shares issued as commission) of its Class B
convertible preferred stock ("Class B Convertible") at $28.00 per share to
investors. Proceeds from the sales of these shares totaled $10,965,000, net of
related cash expenses of $1,135,000. In March 1997, and in connection with
certain anti-dilution provisions related to a sale of common stock to an
investor during the year ended June 30, 1996, the Company issued approximately
29,000 shares of Class B Convertible at $28.00 per share.

On May 30, 1996, the Company issued approximately 156,000 shares of
its Class A convertible preferred stock ("Class A Convertible") at $16.00 per
share to investors. Proceeds from the sale of these shares totaled $2,485,000,
net of related expenses of $15,000. In addition, during August 1996, the
Company issued approximately 16,000 shares of Class A Convertible at $16.00 per
share to an investor.

The Class A Convertible and Class B Convertible outstanding at the
time of the Company's initial public offering in August 1997 was converted into
approximately 1,958,000 shares of common stock.

8. STOCK OPTION PLANS

In February 1995, the Company adopted a stock option plan (the
"Employee Stock Option Plan"), which provided that the Company may grant
employees options to acquire up to an aggregate of 285,000 shares of the
Company's common stock. During December 1996, the Company increased the number
of shares it may grant to 1,710,000. The options generally vest in equal
installments over a four-year period and expire on the tenth anniversary of the
date of grant.

In June 1995, the Company adopted a stock option plan (the "Director
Stock Option Plan"), which provides that the Company may grant outside
directors options to acquire up to an aggregate of 285,000 shares of the
Company's common stock. The options vest annually in equal installments over a
three-year period commencing on the date of grant. The options expire the
earlier of five years from the date of grant or three years from concluding
service as director of the Company.

On February 26, 1997, the Company's Board of Directors authorized, and
the stockholders subsequently approved, the 1997 Stock Incentive Plan ("1997
Plan"), which serves as a successor plan to the Employee Stock Option Plan and
Director Stock Option Plan. The 1997 Plan provides for an increase of 285,000
shares to previously existing stock option plans, among other matters.

F-13

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

EMPLOYEE PLAN

The following table summarizes activity in employee stock options (in
thousands except for per share amounts):

YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
----------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDER OPTION EXERCISE PRICE UNDER OPTION EXERCISE PRICE UNDER OPTION EXERCISE PRICE
----------------------------------------------------------------------------------------

Balance, beginning of year 1,546 $ 6.19 820 $ 4.46 209 $ 3.51
Grants.................... 206 $13.98 733 $ 8.15 730 $ 4.57
Exercised................. (75) $ 4.42 - $ - - $ -
Canceled.................. (10) $ 7.84 (7) $ 7.39 (119) $ 3.51
-------------- --------------- --------------
Balance, end of year...... 1,667 $ 7.22 1,546 $ 6.19 820 $ 4.46
============== =============== ==============
Weighted-average fair
value of options
granted during the year $ 7.96 $ 3.56 $ 2.26

As a result of stock options granted during the years ended June 30,
1997, 1996 and 1995, the Company recorded compensation expense of approximately
$56,000, $43,000 and $99,000 during the years ended June 30, 1998, 1997 and
1996, respectively, based on the difference between the fair market value of
the shares and the option exercise prices at the dates of grant. As of June 30,
1998, remaining compensation expense to be recorded through the year ended June
30, 2001 was approximately $309,000. As of June 30, 1998, approximately 567,000
employee stock options were exercisable.

DIRECTOR PLAN

Pursuant to the Director Stock Option Plan, in June 1995, the Company
granted certain outside directors options to purchase approximately 128,000
shares of the Company's common stock at $3.51 per share. As a result of these
grants, the Company recorded compensation expense during the years ended June
30, 1998, 1997 and 1996, of $15,000, $40,000 and $93,000, respectively, based
on the fair market value of the shares at the date of grant. As of June 30,
1998, there was no additional compensation expense to be recorded relating to
these grants. During January 1997, an additional outside director was granted
approximately 43,000 options at $8.07 per share, the estimated fair value of
such shares on the date of grant. During November 1997, an additional outside
director was granted 15,000 options at $15.75 per share, the fair value of such
shares on the date of grant. As of June 30, 1998, approximately 86,000 options
were exercisable and 57,000 were exercised during the year ended June 30, 1998.

STATEMENT 123

Pro forma information regarding net loss and net loss per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its stock options granted
subsequent to July 1, 1995 under the fair value method of that Statement. The
fair value for these options was estimated using a Black-Scholes option pricing
model with the following weighted-average assumptions for the years ended

F-14

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

June 30, 1998, 1997 and 1996: risk-free interest rate of 6.5%, volatility factor
of the expected market price of the Company's common stock of .51 (1998) and .40
(1997 and 1996), a weighted-average expected life of the option of six years and
no dividend yields.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.

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

YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
--------------------------------------

Pro forma net loss (in thousands)....... $ (1,868) $ (3,433)
Pro forma net loss per share............ $ (0.22) $ (0.56)

The following tables summarize information about employee and director stock
options outstanding at June 30, 1998 (option amounts in thousands):

WEIGHTED-
AVERAGE
RANGE OF REMAINING
EXERCISE OPTIONS OPTIONS CONTRACTUAL
PRICES OUTSTANDING EXERCISABLE LIFE (YEARS)
- -------------------------------------------------------------------------
$3.51 - $4.68 879 477 7.3
$7.02 - $10.50 695 171 8.5
$11.38 - $15.75 204 5 9.3
$17.13 - $18.38 18 0 9.3
=========================================================================
$3.51 - $18.38 1,796 653 8.0
=========================================================================

The Company has reserved approximately 2,205,000 shares of common
stock for issuance upon exercise of all outstanding options and warrants at
June 30, 1998.

9. RELATED PARTY TRANSACTIONS

NOTE RECEIVABLE FROM STOCKHOLDER

On December 8, 1995, the Company loaned $150,000 to an employee, who
is also a stockholder of the Company. Interest was receivable at an annual rate
of 5%. The note was due on June 30, 1996 and was extended until June 30, 1997.
On June 13, 1997, the full amount of principal plus accrued interest in the
aggregate amount of approximately $153,000 was repaid.

F-15

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

NOTE AND LOAN PAYABLE TO STOCKHOLDER

On October 28, 1994, the Company received $315,000 in exchange for a
note payable to the Company's chief executive officer, who is also a
stockholder of the Company. Interest is payable at an annual rate of 6%.
Principal and any unpaid interest are payable in full upon demand at any time
on or after October 28, 1995. Interest expense related to this note was
approximately $9,000 and $19,000, during the years ended June 30, 1997 and
1996, respectively. The note payable and accrued interest was paid on January
14, 1997.

During the period ended June 30, 1995, the Company also received
non-interest bearing working capital loan advances of approximately $81,000
from the Company's chief executive officer, of which $60,000 was repaid during
the period ended June 30, 1995 and approximately $21,000 was repaid during the
year ended June 30, 1996.

10. PENSION PLAN

The Company maintains a 401(k) plan which covers substantially all
employees of the Company. Participants may elect to contribute from 1% to 20%
of their pre-tax compensation. Participant contributions up to 4% of pre-tax
compensation were fully matched by the Company during the years ended June 30,
1998, 1997 and 1996. The plan also provides for discretionary contributions by
the Company. The Company contributed approximately $242,000, $117,000 and
$42,000 to the plan during the years ended June 30, 1998, 1997 and 1996,
respectively. There were no discretionary contributions made by the Company
during the years ended June 30, 1998, 1997 and 1996.

11. INCOME TAXES

As a result of losses incurred from inception, the Company has
available net operating loss carryforwards ("NOL's") of approximately $8.2
million ($5.1 million and $3.1 million for Globecomm Systems Inc. and NetSat
Express, respectively) for income tax purposes which expire through 2013.
However, as a result of significant ownership changes and separate company
limitations it is anticipated that an annual limitation will be applied to the
Company's utilization of the NOL's.

As the Company has had cumulative losses and there is no assurance of
future taxable income, a valuation allowance has been established to offset
deferred tax assets. The components of the Company's net deferred tax assets
are as follows:

JUNE 30, 1998 JUNE 30, 1997
(IN THOUSANDS)
-----------------------------------------

Deferred tax liabilities:
Projects in progress............................................... $ 157 $ -
Depreciation and amortization...................................... 153 16
-----------------------------------------

Total deferred tax liabilities....................................... 310 16
Deferred tax assets:
Net operating loss carryforwards................................... 3,294 2,045
Projects in progress............................................... - 307
Accruals........................................................... 116 73
-----------------------------------------

Total deferred tax assets........................................... 3,410 2,425
Valuation allowance for deferred tax assets.......................... 3,100 (2,409)
-----------------------------------------

Net deferred tax assets.............................................. 310 16
-----------------------------------------

Net deferred taxes................................................... $ - $ -
=========================================

F-16

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

At June 30, 1996, the Company had a valuation allowance for deferred
tax assets of $1,230,000. In addition, approximately $455,000 of the valuation
allowance, if recognized, will be allocated directly to stockholders' equity
relating to non-qualified dispositions of stock option exercises.

12. SEGMENT INFORMATION

The Company operates through two business segments. Its Ground Segment
Systems and Networks Segment, through Globecomm Systems Inc., is engaged in the
design, assembly and installation of ground segment systems and network
solutions for the complex and changing communications requirements of its
customers. The Company's ground segment systems typically consist of an earth
station and ancillary subsystems such as microwave links for back-haul of
traffic to a central office or generators for emergency power restoral. An
earth station is an integrated system consisting of antennas, transmitting and
receiving equipment, modulation/demodulation equipment, monitor and control
systems and voice, data and video network interface equipment. Its Data
Communications Services Segment, through the NetSat Express subsidiary, is
engaged in providing high-speed, satellite-delivered data communications to
developing markets worldwide. NetSat Express is currently providing Internet
access to customers who have limited or no access to terrestrial network
infrastructure capable of supporting the economical delivery of such services.

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

The following is business segment information as of and for the years
ended June 30, 1998 and 1997, as NetSat Express commenced operations during
July 1996:

YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1998 1997
------------------------------------
(IN THOUSANDS)

Revenues:
Ground Segment Systems and Networks........................$ 57,419 $ 36,169
Data Communications Services............................... 686 51
------------------------------------
Total revenues...............................................$ 58,105 $ 36,220
====================================

Loss from operations:
Ground Segment Systems and Networks........................$ (157) $ (1,766)
Data Communications Services............................... (1,655) (1,454)
Interest income, net......................................... 1,266 276
Minority interests in operations of consolidated
subsidiary................................................ - 275
------------------------------------

Net Loss.....................................................$ (546) $ (2,669)
====================================

F-17

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

12. SEGMENT INFORMATION (CONTINUED)

JUNE 30, 1998 JUNE 30, 1997
-------------------------------------
(IN THOUSANDS)

Assets:
Ground Segment Systems and Networks.. $ 60,894 $ 34,201
Data Communications Services......... 1,169 125
Intercompany eliminations............ (3,719) (1,040)
-------------------------------------
Total assets........................... $ 58,344 $ 33,286
=====================================

Depreciation and amortization:
Ground Segment Systems and Networks.. $ 592 $ 326
Data Communications Services......... 58 8
-------------------------------------
Total depreciation and amortization.... $ 650 $ 334
=====================================

Expenditures for long-lived assets:
Ground Segment Systems and Networks.. $ 2,878 $ 6,686
Data Communications Services......... 584 79
-------------------------------------
Total expenditures for long-lived
assets............................... $ 3,462 $ 6,765
=====================================

13. SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK

The Company designs, assembles and installs satellite ground segment
systems and networks for customers in diversified geographic locations. The
Company performs ongoing credit evaluations of its customers' financial
condition and in most cases requires a letter of credit or cash in advance for
foreign customers. Historically, the Company has not incurred significant
losses from trade receivables.

Sales to one major customer accounted for approximately 29% and two
major customers accounted for approximately 42% (29% and 13%) and 61% (43% and
18%) of the Company's net revenues for the years ended June 30, 1998, 1997 and
1996, respectively.

Revenues from foreign sales accounted for 69% (33% Africa, 17% Asia,
9% Middle East, 9% Europe and 1% South America), 40% (28% Asia, 11% Europe and
1% Africa) and 22% (13% Europe, 5% Africa and 4% Asia) of total revenues for
the years ended June 30, 1998, 1997 and 1996, respectively.

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
receivables. The Company places its cash and cash equivalents with high quality
financial institutions. Substantially all cash and cash equivalents are held in
two financial institutions at June 30, 1998. Cash equivalents are comprised of
short-term debt instruments, certificates of deposit or direct or guaranteed
obligations of the United States, which are held to maturity and approximate
cost. At times, cash may be in excess of FDIC insurance limits.

14. FINANCIAL INSTRUMENTS

The Company has entered into a foreign currency forward contract
designed to minimize the exposure to exchange rate fluctuations on a purchase
commitment denominated in Swedish Krona. At June 30, 1998, this contract, which
matures on December 18, 1998, was for the purchase of Swedish Krona for a

F-18

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

total of approximately $3.2 million. Gains or losses which relate to such
contracts are recognized upon payment of the purchase commitment as an
adjustment to the carrying value of the related inventory.

15. COMMITMENTS

LINE OF CREDIT

LETTERS OF CREDIT

The Company utilizes standby letters of credit to secure certain bid
proposals and performance guarantees in the normal course of business. The
Company provides cash collateral for a majority of these letters of credit. As
of June 30, 1998 and 1997, cash collateral related to bid proposals amounted to
approximately $588,000 and $1,257,000, respectively, and cash collateral
related to performance guarantees amounted to approximately $3,828,000, and
$280,000, respectively. These amounts are included in restricted cash in the
accompanying consolidated balance sheets.

LEASE COMMITMENTS

Future minimum payments under non-cancelable leases for office space
and equipment with terms of one year or more, consist of the following at June
30, 1998 (in thousands):

CAPITAL OPERATING
LEASES LEASES
--------------------------------

Year ending June 30, 1999...................... $ 19 $ 107
Year ending June 30, 2000...................... - 6
Year ending June 30, 2001...................... - 1
--------------------------------
Total minimum lease payments................... 19 $ 114
================
Less amounts representing interest............. 1
--------------
Present value of net minimum lease payments.... $ 18
==============

EMPLOYMENT AGREEMENTS

During January 1997, the Company entered into three-year employment
agreements with two of its officers for an aggregate amount of $325,000 per
year. The Company will have certain obligations to the two officers if they are
terminated for disability, cause or following a change in control.

16. SUBSEQUENT EVENTS (UNAUDITED)

On August 20, 1998, the Company purchased 18.75% of the future
profits, losses and equity (subject to certain liquidation and income
preference) of McKibben Communications, LLC, a California limited liability
corporation, for $1.5 million. The Company has a two-year option to purchase up
to an additional 11.25% for $1.5 million.

F-19

GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

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

F-20

INDEX TO EXHIBITS:
- ------------------
Exhibit No.
- -----------
3.1 Amended and Restated Certificate of Incorporation (filed herewith)

3.3 Amended and Restated By-Laws of the Registrant (filed herewith)

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

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

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

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

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

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

10.12 1997 Stock Incentive Plan (incorporated by reference to exhibit 10.14
of the Registration Statement).

10.13 Investment Agreement dated August 21, 1998 by and between McKibben
Communications LLC and the Registrant (filed herewith).

16.2 Letter from PricewaterhouseCoopers LLP (incorporated by reference to
exhibit 16.1 of the Registration Statement).

21.1 Subsidiary of the Registrant (filed herewith).

23.1 Consent of Ernst & Young LLP (filed herewith).

23.2 Consent of PricewaterhouseCoopers LLP (filed herewith).

27 Financial Data Schedule (filed herewith).

* Confidential treatment granted for portions of this agreement.