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UNITEDSTATESSECURITIES AND EXCHANGECOMMISSIONWASHINGTON, D.C.20549

FORM10-Q

(MARK ONE)

|        |                                                                                       |
|--------|---------------------------------------------------------------------------------------|
|   | QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |

For the quarterly period endedSeptember  30,2006

OR

|        |                                                                                        |
|--------|----------------------------------------------------------------------------------------|
|   | TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 |

For the transition period from                 to                

Commission file number:000-22839

Globecomm SystemsInc.

(Exact name of Registrant asspecified in itscharter)

|                                                                      |  |  |                                               |
|----------------------------------------------------------------------|--|--|-----------------------------------------------|
| Delaware(Stateor other jurisdiction of incorporation ororganization) |  |  | 11-3225567 (I.R.S.Employer IdentificationNo.) |
| 45 Oser Avenue,Hauppauge, NY (Address of principal executiveoffices) |  |  | 11788 (ZipCode)                               |
|                                                                      |

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

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

Indicate by check markwhether the registrant is a large accelerated filer, an acceleratedfiler, or a non-accelerated filer. See definition of‘‘accelerated filer and large acceleratedfiler’’ in Rule 12b-2 of the Exchange Act. Largeaccelerated filer [    ]    Accelerated filer[X]    Non-accelerated filer[    ]

Indicate by check mark whether the registrantis a shell company (as defined by Rule 12b-2 of the ExchangeAct). Yes [    ]    No [X]

As ofNovember  6,  2006, there were 15,540,000 shares of theregistrant’s Common Stock outstanding.

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GLOBECOMM SYSTEMSINC.

Index to the September  30,  2006 Form10-Q

|                                    |  |  |                                                                                                                                                        |  |  |      |  |    |  |
|------------------------------------|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|------|--|----|--|
|                               |  |  |                                                                                                                                                   |  |  | Page |
| PartI — FinancialInformation |
| Item1.                             |  |  | FinancialStatements                                                                                                                                    |  |  |      |  | 3  |  |
|                               |  |  | Consolidated BalanceSheets — As of September 30, 2006(unaudited)    and June 30,2006                                         |  |  |      |  | 3  |  |
|                               |  |  | Consolidated Statements ofOperations (unaudited) —     For the three months endedSeptember 30, 2006 and2005                  |  |  |      |  | 4  |  |
|                               |  |  | Consolidated Statement ofChanges in Stockholders’ Equity (unaudited) —    For the three months ended September 30,2006 |  |  |      |  | 5  |  |
|                               |  |  | Consolidated Statements ofCash Flows (unaudited) —     For the three months endedSeptember 30, 2006 and2005                  |  |  |      |  | 6  |  |
|                               |  |  | Notes to ConsolidatedFinancial Statements(unaudited)                                                                                                   |  |  |      |  | 7  |  |
| Item2.                             |  |  | Management's Discussion and Analysis of FinancialCondition    and Results ofOperations                                             |  |  |      |  | 12 |  |
| Item3.                             |  |  | Quantitative and Qualitative Disclosures about MarketRisk                                                                                              |  |  |      |  | 18 |  |
| Item 4.                            |  |  | ControlsandProcedures                                                                                                                                  |  |  |      |  | 18 |  |
| PartII — Other Information   |
| Item1.                             |  |  | LegalProceedings                                                                                                                                       |  |  |      |  | 19 |  |
| Item1A.                            |  |  | Risk Factors                                                                                                                                           |  |  |      |  | 19 |  |
| Item2.                             |  |  | Unregistered Sales of Equity Securities and Use ofProceeds                                                                                             |  |  |      |  | 27 |  |
| Item3.                             |  |  | Defaults Upon SeniorSecurities                                                                                                                         |  |  |      |  | 27 |  |
| Item4.                             |  |  | Submission of Matters to a Vote of SecurityHolders                                                                                                     |  |  |      |  | 27 |  |
| Item 5.                            |  |  | OtherInformation                                                                                                                                       |  |  |      |  | 27 |  |
| Item6.                             |  |  | Exhibits                                                                                                                                               |  |  |      |  | 27 |  |
|                               |  |  | Signatures                                                                                                                                             |  |  |      |  | 28 |  |
|                                    |

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PARTI — FINANCIAL INFORMATION

Item 1. FinancialStatements

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

|                                                                                                                                             |  |  |                  |   |         |             |  |  |  |   |         |         |
|---------------------------------------------------------------------------------------------------------------------------------------------|--|--|------------------|---|---------|-------------|--|--|--|---|---------|---------|
|                                                                                                                                        |  |  | September30,2006 |   |         | June30,2006 |
|                                                                                                                                        |  |  | (Unaudited)      |   |         |        |
| Assets                                                                                                                                      |  |  |                  |   |    |        |  |  |  |   |    |    |
| Currentassets:                                                                                                                              |  |  |                  |   |    |        |  |  |  |   |    |    |
| Cash and cashequivalents                                                                                                                    |  |  |                  | $ | 25,773  |        |  |  |  | $ | 24,512  |    |
| Accountsreceivable,net                                                                                                                      |  |  |                  |   | 25,182  |        |  |  |  |   | 30,837  |    |
| Inventories                                                                                                                                 |  |  |                  |   | 14,982  |        |  |  |  |   | 13,058  |    |
| Prepaidexpenses and other currentassets                                                                                                     |  |  |                  |   | 1,012   |        |  |  |  |   | 1,131   |    |
| Deferredincometaxes                                                                                                                         |  |  |                  |   | 22      |        |  |  |  |   | 22      |    |
| Totalcurrent assets                                                                                                                         |  |  |                  |   | 66,971  |        |  |  |  |   | 69,560  |    |
| Fixedassets,net                                                                                                                             |  |  |                  |   | 16,410  |        |  |  |  |   | 15,510  |    |
| Goodwill                                                                                                                                    |  |  |                  |   | 7,204   |        |  |  |  |   | 7,204   |    |
| Otherassets                                                                                                                                 |  |  |                  |   | 961     |        |  |  |  |   | 960     |    |
| Totalassets                                                                                                                                 |  |  |                  | $ | 91,546  |        |  |  |  | $ | 93,234  |    |
| Liabilitiesand Stockholders’Equity                                                                                                    |  |  |                  |   |    |        |  |  |  |   |    |    |
| Currentliabilities:                                                                                                                         |  |  |                  |   |    |        |  |  |  |   |    |    |
| Accountspayable                                                                                                                             |  |  |                  | $ | 13,322  |        |  |  |  | $ | 19,020  |    |
| Deferredrevenues                                                                                                                            |  |  |                  |   | 4,072   |        |  |  |  |   | 1,691   |    |
| Accruedpayroll and related fringebenefits                                                                                                   |  |  |                  |   | 2,276   |        |  |  |  |   | 2,872   |    |
| Otheraccruedexpenses                                                                                                                        |  |  |                  |   | 1,603   |        |  |  |  |   | 1,966   |    |
| Deferredliabilities                                                                                                                         |  |  |                  |   | 316     |        |  |  |  |   | 316     |    |
| Totalcurrentliabilities                                                                                                                     |  |  |                  |   | 21,589  |        |  |  |  |   | 25,865  |    |
| Otherliabilities                                                                                                                            |  |  |                  |   | 1,027   |        |  |  |  |   | 353     |    |
| Commitments andcontingencies                                                                                                                |  |  |                  |   |    |        |  |  |  |   |    |    |
| Stockholders’equity:                                                                                                                  |  |  |                  |   |    |        |  |  |  |   |    |    |
| Series A JuniorParticipating, shares authorized, issued and outstanding: none atSeptember  30,  2006 and June  30,2006                      |  |  |                  |   | — |        |  |  |  |   | — |    |
| Commonstock, $.001 par value, 50,000,000 shares authorized, shares issued:15,819,903 at September  30,  2006 and 15,660,524 atJune  30,2006 |  |  |                  |   | 16      |        |  |  |  |   | 16      |    |
| Additional paid-incapital                                                                                                                   |  |  |                  |   | 136,671 |        |  |  |  |   | 135,673 |    |
| Accumulateddeficit                                                                                                                          |  |  |                  |   | (64,976 | )      |  |  |  |   | (65,892 | )  |
| Treasurystock, at cost, 465,351 shares at September  30,  2006 andJune  30,2006                                                             |  |  |                  |   | (2,781  | )      |  |  |  |   | (2,781  | )  |
| Totalstockholders’equity                                                                                                              |  |  |                  |   | 68,930  |        |  |  |  |   | 67,016  |    |
| Totalliabilities and stockholders’equity                                                                                              |  |  |                  | $ | 91,546  |        |  |  |  | $ | 93,234  |    |
|                                                                                                                                             |

Seeaccompanying notes.

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

|                                                                                      |  |  |                   |   |        |                   |  |  |  |   |        |        |
|--------------------------------------------------------------------------------------|--|--|-------------------|---|--------|-------------------|--|--|--|---|--------|--------|
|                                                                                 |  |  | ThreeMonths Ended |
|                                                                                 |  |  | September30,2006  |   |        | September 30,2005 |
| Revenuesfrom ground segment systems, networks and enterprisesolutions                |  |  |                   | $ | 17,461 |              |  |  |  | $ | 23,019 |   |
| Revenuesfrom data communicationsservices                                             |  |  |                   |   | 8,258  |              |  |  |  |   | 6,557  |   |
| Totalrevenues                                                                        |  |  |                   |   | 25,719 |              |  |  |  |   | 29,576 |   |
| Costsand operatingexpenses:                                                          |  |  |                   |   |   |              |  |  |  |   |   |   |
| Costs from groundsegment systems, networks and enterprisesolutions                   |  |  |                   |   | 14,075 |              |  |  |  |   | 19,525 |   |
| Costsfrom data communicationsservices                                                |  |  |                   |   | 6,587  |              |  |  |  |   | 5,568  |   |
| Sellingandmarketing                                                                  |  |  |                   |   | 1,775  |              |  |  |  |   | 1,514  |   |
| Researchanddevelopment                                                               |  |  |                   |   | 200    |              |  |  |  |   | 109    |   |
| Generalandadministrative                                                             |  |  |                   |   | 2,414  |              |  |  |  |   | 2,256  |   |
| Totalcosts and operatingexpenses                                                     |  |  |                   |   | 25,051 |              |  |  |  |   | 28,972 |   |
| Incomefrom operations                                                                |  |  |                   |   | 668    |              |  |  |  |   | 604    |   |
| Interestincome                                                                       |  |  |                   |   | 268    |              |  |  |  |   | 229    |   |
| Incomebefore incometaxes                                                             |  |  |                   |   | 936    |              |  |  |  |   | 833    |   |
| Provision for incometaxes                                                            |  |  |                   |   | 20     |              |  |  |  |   | 20     |   |
| Netincome                                                                            |  |  |                   | $ | 916    |              |  |  |  | $ | 813    |   |
| Basicnet income per commonshare                                                      |  |  |                   | $ | 0.06   |              |  |  |  | $ | 0.06   |   |
| Dilutednet income per commonshare                                                    |  |  |                   | $ | 0.06   |              |  |  |  | $ | 0.05   |   |
| Weighted-averageshares used in the calculation of basicnet income per commonshare    |  |  |                   |   | 15,219 |              |  |  |  |   | 14,719 |   |
| Weighted-averageshares used in the calculation of diluted net income per commonshare |  |  |                   |   | 15,834 |              |  |  |  |   | 15,336 |   |
|                                                                                      |

Seeaccompanying notes.

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GLOBECOMM SYSTEMS INC.CONSOLIDATEDSTATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITYFOR THETHREE MONTHS ENDED SEPTEMBER 30, 2006(Inthousands)(Unaudited)

|                                          |  |  |             |  |        |                          |  |  |                    |   |        |                |  |  |                          |   |         |        |  |  |  |   |         |         |  |  |  |  |        |        |  |  |  |   |        |         |  |  |  |   |        |        |
|------------------------------------------|--|--|-------------|--|--------|--------------------------|--|--|--------------------|---|--------|----------------|--|--|--------------------------|---|---------|--------|--|--|--|---|---------|---------|--|--|--|--|--------|--------|--|--|--|---|--------|---------|--|--|--|---|--------|--------|
|                                     |  |  | CommonStock |  |        | AdditionalPaid-inCapital |  |  | AccumulatedDeficit |   |        | Treasury Stock |  |  | TotalStockholders'Equity |
|                                     |  |  | Shares      |  |        | Amount                   |  |  | Shares             |   |        | Amount         |
| Balanceat June  30,2006                  |  |  |             |  | 15,661 |                     |  |  |                    | $ | 16     |           |  |  |                          | $ | 135,673 |   |  |  |  | $ | (65,892 | )  |  |  |  |  | 465    |   |  |  |  | $ | (2,781 | )  |  |  |  | $ | 67,016 |   |
| Proceedsfrom exercise of stockoptions    |  |  |             |  | 159    |                     |  |  |                    |   |   |           |  |  |                          |   | 979     |   |  |  |  |   |    |    |  |  |  |  |   |   |  |  |  |   |   |    |  |  |  |   | 979    |   |
| Stockcompensationexpense                 |  |  |             |  |   |                     |  |  |                    |   |   |           |  |  |                          |   | 12      |   |  |  |  |   |    |    |  |  |  |  |   |   |  |  |  |   |   |    |  |  |  |   | 12     |   |
| Taxbenefit from exercise of stockoptions |  |  |             |  |   |                     |  |  |                    |   |   |           |  |  |                          |   | 7       |   |  |  |  |   |    |    |  |  |  |  |   |   |  |  |  |   |   |    |  |  |  |   | 7      |   |
| Netincome                                |  |  |             |  |   |                     |  |  |                    |   |   |           |  |  |                          |   |    |   |  |  |  |   | 916     |    |  |  |  |  |   |   |  |  |  |   |   |    |  |  |  |   | 916    |   |
| Balanceat September  30,2006             |  |  |             |  | 15,820 |                     |  |  |                    | $ | 16     |           |  |  |                          | $ | 136,671 |   |  |  |  | $ | (64,976 | )  |  |  |  |  | 465    |   |  |  |  | $ | (2,781 | )  |  |  |  | $ | 68,930 |   |
|                                          |

Seeaccompanying notes.

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GLOBECOMM SYSTEMS INC.CONSOLIDATEDSTATEMENTS OF CASH FLOWS(Inthousands)(Unaudited)

|                                                                                          |  |  |                   |   |         |                  |  |  |  |   |         |         |
|------------------------------------------------------------------------------------------|--|--|-------------------|---|---------|------------------|--|--|--|---|---------|---------|
|                                                                                     |  |  | ThreeMonths Ended |
|                                                                                     |  |  | September30,2006  |   |         | September30,2005 |
| Operatingactivities:                                                                     |  |  |                   |   |    |             |  |  |  |   |    |    |
| Net income                                                                               |  |  |                   | $ | 916     |             |  |  |  | $ | 813     |    |
| Adjustments toreconcile net income to net cash provided by(used in) operatingactivities: |  |  |                   |   |    |             |  |  |  |   |    |    |
| Depreciationandamortization                                                              |  |  |                   |   | 761     |             |  |  |  |   | 767     |    |
| Provisionfor doubtfulaccounts                                                            |  |  |                   |   | 52      |             |  |  |  |   | 118     |    |
| Stockcompensation expense                                                                |  |  |                   |   | 12      |             |  |  |  |   | — |    |
| Tax benefit fromstock compensation plan                                                  |  |  |                   |   | 7       |             |  |  |  |   | — |    |
| Changesin operating assets andliabilities:                                               |  |  |                   |   |    |             |  |  |  |   |    |    |
| Accountsreceivable                                                                       |  |  |                   |   | 5,603   |             |  |  |  |   | 1,294   |    |
| Inventories                                                                              |  |  |                   |   | (1,924  | )           |  |  |  |   | (2,928  | )  |
| Prepaidexpenses and other currentassets                                                  |  |  |                   |   | 119     |             |  |  |  |   | 105     |    |
| Otherassets                                                                              |  |  |                   |   | (1      | )           |  |  |  |   | (1      | )  |
| Accountspayable                                                                          |  |  |                   |   | (5,698  | )           |  |  |  |   | 1,429   |    |
| Deferredrevenue                                                                          |  |  |                   |   | 2,381   |             |  |  |  |   | (2,435  | )  |
| Accruedpayroll and related fringebenefits                                                |  |  |                   |   | (596    | )           |  |  |  |   | (110    | )  |
| Otheraccruedexpenses                                                                     |  |  |                   |   | (363    | )           |  |  |  |   | (585    | )  |
| Otherliabilities                                                                         |  |  |                   |   | 674     |             |  |  |  |   | (79     | )  |
| Netcash provided by (used in) operatingactivities                                        |  |  |                   |   | 1,943   |             |  |  |  |   | (1,612  | )  |
| Investingactivities:                                                                     |  |  |                   |   |    |             |  |  |  |   |    |    |
| Purchases of fixedassets                                                                 |  |  |                   |   | (1,661  | )           |  |  |  |   | (649    | )  |
| Netcash used in investing activities                                                     |  |  |                   |   | (1,661  | )           |  |  |  |   | (649    | )  |
| Financingactivities:                                                                     |  |  |                   |   |    |             |  |  |  |   |    |    |
| Proceeds fromexercise of stockoptions                                                    |  |  |                   |   | 979     |             |  |  |  |   | 1,015   |    |
| Proceeds fromexercise ofwarrants                                                         |  |  |                   |   | — |             |  |  |  |   | 440     |    |
| Netcash provided by financing activities                                                 |  |  |                   |   | 979     |             |  |  |  |   | 1,455   |    |
| Effectof foreign currency translation oncash                                             |  |  |                   |   | — |             |  |  |  |   | (13     | )  |
| Netincrease (decrease) in cash and cashequivalents                                       |  |  |                   |   | 1,261   |             |  |  |  |   | (819    | )  |
| Cash andcash equivalents at beginning ofperiod                                           |  |  |                   |   | 24,512  |             |  |  |  |   | 25,609  |    |
| Cashand cash equivalents at end ofperiod                                                 |  |  |                   |   | 25,773  |             |  |  |  |   | 24,790  |    |
|                                                                                          |

Seeaccompanying notes.

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GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTSSEPTEMBER  30,2006(Unaudited)

1.     Basis ofPresentation

The accompanying unaudited consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States for interim financialinformation and in accordance with the instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include all ofthe information and footnotes required by accounting principlesgenerally accepted in the United States for complete financialstatements. In the opinion of management, all material adjustments(consisting of normal recurring adjustments) considered necessary for afair presentation of the results for such periods have been included.The consolidated balance sheet at June  30,  2006 has beenderived from the audited consolidated financial statements at that datebut does not include all of the information and footnotes required byaccounting principles generally accepted in the United States forcomplete financial statements. The results of operations for the threemonths ended September  30,  2006, are not necessarilyindicative of the results that may be expected for the full fiscal yearending June  30,  2007, or for any future period.

The accompanying consolidated financial statements should be read inconjunction with the audited consolidated financial statements of theCompany for the fiscal year ended June  30,  2006 and theaccompanying notes thereto contained in the Company's AnnualReport on Form 10-K, filed with the Securities and Exchange Commissionon September  13,  2006.

Principles ofConsolidation

The consolidated financial statements includethe accounts of the Company and its wholly-owned subsidiaries,Globecomm Network Services Corporation(‘‘GNSC’’), and Globecomm Systems EuropeLimited (collectively, the ‘‘Company’’). OnJune  30,  2006, the Company liquidated the GlobecommSystems Europe Limited entity. All significant intercompany balancesand transactions have been eliminated inconsolidation.

Accounting Estimates

Thepreparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires managementto make estimates and assumptions that affect the amounts reported inthe consolidated financial statements and accompanying notes. Actualresults could differ from those estimates.

RevenueRecognition

The Company recognizes revenue in accordancewith Staff Accounting Bulletin No. 104 (‘‘SAB104’’), Revenue Recognition, for its production-typecontracts that are sold separately as standard satellite ground segmentsystems when persuasive evidence of an arrangement exists, the sellingprice is fixed or determinable, collectibility is reasonably assured,delivery has occurred and the contractual performance specificationshave been met. The Company's standard satellite ground segmentsystems produced in connection with these contracts are typicallyshort-term (less than twelve months in term) and manufactured using astandard modular production process. Such systems require lessengineering, drafting and design efforts than the Company'slong-term complex production-type projects. Revenue is recognized onthe Company's standard satellite ground segment systems uponshipment and acceptance of factory performance testing which is whentitle transfers to the customer. The amount of revenues recorded oneach standard production-type contract is reduced by thecustomer’s contractual holdback amount, which typically requires10% to 30% of the contract value to be retained by thecustomer until installation and final acceptance is complete. Thecustomer generally becomes obligated to pay 70% to 90% ofthe contract value upon shipment and acceptance of factory

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performance testing. Installation is notdeemed to be essential to the functionality of the system sinceinstallation does not require significant changes to the features orcapabilities of the system, does not require complex softwareintegration and interfacing and the Company has not experienced anydifficulties installing such equipment. In addition, the customer orother third party vendors can install the system. The estimatedrelative fair value of the installation services is determined bymanagement, which is typically less than the customer'scontractual holdback percentage. If the holdback is less than the fairvalue of installation, the Company will defer recognition of revenues,determined on a contract-by-contract basis equal to the fair value ofthe installation services. Payments received in advance by customersare deferred until shipment and are presented as deferred revenues inthe accompanying consolidated balance sheets.

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

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

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

Costs from Ground Segment Systems, Networks andEnterprise Solutions

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

Costs from DataCommunications Services

Costs from data communicationsservices relating to Internet-based services consist primarily ofsatellite space segment charges, Internet connectivity fees, voicetermination costs and network operations expenses. Satellite spacesegment charges consist of the costs associated with obtainingsatellite bandwidth (the measure of capacity) used in the transmissionof services to and from the satellites leased from operators. Networkoperations expenses consist primarily of costs associated with theoperation of the Network Operation Center, on a twenty-four hour a day,seven-day a week basis, including personnel and related costs anddepreciation.

Research and Development

Researchand development expenditures are expensed asincurred.

Stock-Based Compensation

InDecember  2004, the Financial Accounting Standards Board (FASB)issued SFAS No. 123 (revised 2004), Share-Based Payment, which is arevision of SFAS 123 (‘‘SFAS 123R’’). SFAS123R 

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eliminates the ability to account forshare-based compensation under the intrinsic value method permitted byAPB 25. This requires the Company to adopt the fair value model forrecognizing compensation expense for employee stock options, and wouldhave the effect of reducing the Company’s reported net incomeand net income per share.

On July  1,  2005, theCompany adopted SFAS 123R using a modified prospectiveapplication, as permitted under SFAS 123R. Under thisapplication, the Company is required to record compensation expense forall awards granted after the date of adoption and for the unvestedportion of previously granted awards that remain outstanding at thedate of adoption.

Stock compensation expense was approximately$12,000 and $0 for the three months ended September  30,2006 and 2005, respectively. As of September  30,  2006,there was approximately $174,000 of unrecognized compensation costrelated to non-vested stock-based compensation. The cost is expected tobe recognized over a weighted-average period of 3.5years.

Goodwill and Other IntangibleAssets

Goodwill represents the excess of the purchase priceof businesses over the fair value of the identifiable net assetsacquired. In accordance with SFAS No. 142, Goodwill and OtherIntangible Assets, goodwill and other indefinite life intangible assetsare no longer amortized, but instead tested for impairment at leastannually. The impairment test for goodwill uses a two-step approach,which is performed at the reporting unit level. Step one compares thefair value of the reporting unit (calculated using a discounted cashflow method) to its carrying value. If the carrying value exceeds thefair value, there is a potential impairment and step two must beperformed. Step two compares the carrying value of the reportingunit’s goodwill to its implied fair value (i.e., fair value ofthe reporting unit less the fair value of the unit’s assets andliabilities, including identifiable intangible assets). If the carryingvalue of goodwill exceeds its implied fair value, the excess isrequired to be recorded as an impairment. There have been no eventsduring the three months ended September  30,  2006 thatwould result in any goodwill impairment.

OtherLiabilities

Other liabilities consist primarily of securitydeposits received from customers for long term projects which are dueto the customer beyond one year from the balance sheetdate.

Income Taxes

In assessing the realizabilityof deferred tax assets, management considers whether it is more likelythan not that some portion or all of the deferred tax assets will berealized. The ultimate realization of the net deferred tax assets isdependent upon the generation of future taxable income prior to theexpiration of any net operating loss carryforwards. For the threemonths ended September  30,  2006 and the year endedJune  30,  2006, due to the uncertainty regarding theCompany’s ability to utilize its net operating losses in thefuture, the Company provided a valuation allowance against itspreviously recorded deferred tax assets except for approximately$22,000, representing state investment tax credit carryforwards thatwill be utilized to offset state capital taxes on the Company’scombined state tax return. The tax provision was approximately $20,000for the three months ended September  30,  2006 and 2005.The tax provision represents the estimated federal alternative minimumtax for the period.

Product Warranties

The Companyoffers warranties on its contracts, the specific terms and conditionsof which vary depending upon the contract and work performed.Generally, a basic limited warranty, including parts and labor, isprovided to customers for one year. The Company can recoup certain ofthese costs through product warranties it holds with its originalequipment manufacturers, which typically are one year in term.Historically, warranty expense has been minimal, however, managementperiodically assesses the need for any additional warrantyreserve.

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2.     Basic and Diluted Net Income PerCommon Share

The Company computes net income per share inaccordance with the provisions of SFAS No. 128, Earnings Per Share.Basic net income per common share is computed by dividing the netincome for the period by the weighted-average number of common sharesoutstanding for the period. For diluted earnings per share the weightedaverage shares include the incremental common shares issuable upon theexercise of stock options and warrants (using the treasury stockmethod). The incremental common shares for stock options and warrantsare excluded from the calculation of diluted net income per share, iftheir effect is anti-dilutive. Diluted net income per share for thethree months ended September  30,  2006 and 2005, excludesthe effect of approximately 872,000 and 2,395,000 stock options andwarrants in the calculation of the incremental common shares,respectively, as their effect would have beenanti-dilutive.

3.     Inventories

Inventories consistof thefollowing:

|                                  |  |  |                             |   |        |             |  |  |  |   |        |  |
|----------------------------------|--|--|-----------------------------|---|--------|-------------|--|--|--|---|--------|--|
|                             |  |  | September30,2006(Unaudited) |   |        | June30,2006 |
|                             |  |  | (Inthousands)               |
| Raw materials and componentparts |  |  |                             | $ | 121    |             |  |  |  | $ | 110    |  |
| Work-in-progress                 |  |  |                             |   | 16,595 |             |  |  |  |   | 14,564 |  |
|                             |  |  |                             |   | 16,716 |             |  |  |  |   | 14,674 |  |
| Lessprogresspayments             |  |  |                             |   | 1,734  |             |  |  |  |   | 1,616  |  |
|                             |  |  |                             | $ | 14,982 |             |  |  |  | $ | 13,058 |  |
|                                  |

4.    Segment Information

The Company operates through two businesssegments. Its ground segment systems, networks and enterprise solutionssegment, through Globecomm Systems Inc., is engaged in the design,assembly and installation of ground segment systems and networks. Itsdata communications services segment, through GNSC, provides satellitecommunication services capabilities.

The Company'sreportable segments are business units that offer different productsand services. The reportable segments are each managed separatelybecause they provide distinct products andservices.

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The following is the Company’sbusiness segment information for the three months endedSeptember  30,  2006 and 2005 and as of September30,  2006 and June  30,  2006:

|                                                         |  |  |                   |   |        |                  |  |  |  |   |        |   |
|---------------------------------------------------------|--|--|-------------------|---|--------|------------------|--|--|--|---|--------|---|
|                                                    |  |  | ThreeMonths Ended |
|                                                    |  |  | September30,2006  |   |        | September30,2005 |
|                                                    |  |  | (Unaudited)       |
|                                                    |  |  | (Inthousands)     |
| Revenues:                                               |  |  |                   |   |   |                  |  |  |  |   |   |   |
| Groundsegment systems, networks and enterprisesolutions |  |  |                   | $ | 17,491 |                  |  |  |  | $ | 23,483 |   |
| Datacommunicationsservices                              |  |  |                   |   | 8,468  |                  |  |  |  |   | 6,904  |   |
| Intercompanyeliminations                                |  |  |                   |   | (240   | )                |  |  |  |   | (811   | ) |
| Totalrevenues                                           |  |  |                   | $ | 25,719 |                  |  |  |  | $ | 29,576 |   |
| Income(loss) fromoperations:                            |  |  |                   |   |   |                  |  |  |  |   |   |   |
| Ground segmentsystems, networks and enterprisesolutions |  |  |                   | $ | (203   | )                |  |  |  | $ | 403    |   |
| Datacommunicationsservices                              |  |  |                   |   | 868    |                  |  |  |  |   | 111    |   |
| Interestincome                                          |  |  |                   |   | 268    |                  |  |  |  |   | 229    |   |
| Intercompanyeliminations                                |  |  |                   |   | 3      |                  |  |  |  |   | 90     |   |
| Incomebefore incometaxes                                |  |  |                   | $ | 936    |                  |  |  |  | $ | 833    |   |
| Depreciationand amortization:                           |  |  |                   |   |   |                  |  |  |  |   |   |   |
| Groundsegment systems, networks and enterprisesolutions |  |  |                   | $ | 325    |                  |  |  |  | $ | 292    |   |
| Datacommunicationsservices                              |  |  |                   |   | 454    |                  |  |  |  |   | 493    |   |
| Intercompanyeliminations                                |  |  |                   |   | (18    | )                |  |  |  |   | (18    | ) |
| Totaldepreciation andamortization                       |  |  |                   | $ | 761    |                  |  |  |  | $ | 767    |   |
| Expendituresfor long-livedassets:                       |  |  |                   |   |   |                  |  |  |  |   |   |   |
| Ground segmentsystems, networks and enterprisesolutions |  |  |                   |   | 100    |                  |  |  |  |   | 172    |   |
| Datacommunicationsservices                              |  |  |                   |   | 1,561  |                  |  |  |  |   | 477    |   |
| Totalexpenditures for long-livedassets                  |  |  |                   | $ | 1,661  |                  |  |  |  | $ | 649    |   |
|                                                         |

|                                                         |  |  |                             |   |         |             |  |  |  |   |         |   |
|---------------------------------------------------------|--|--|-----------------------------|---|---------|-------------|--|--|--|---|---------|---|
|                                                    |  |  | September30,2006(Unaudited) |   |         | June30,2006 |
|                                                    |  |  | (Inthousands)               |
| Assets:                                                 |  |  |                             |   |    |             |  |  |  |   |    |   |
| Groundsegment systems, networks and enterprisesolutions |  |  |                             | $ | 142,522 |             |  |  |  | $ | 145,125 |   |
| Datacommunicationsservices                              |  |  |                             |   | 13,437  |             |  |  |  |   | 13,256  |   |
| Intercompanyeliminations                                |  |  |                             |   | (64,413 | )           |  |  |  |   | (65,147 | ) |
| Totalassets                                             |  |  |                             | $ | 91,546  |             |  |  |  | $ | 93,234  |   |
|                                                         |

5.    Line of Credit

At September  30,  2006, the Companyhad a credit agreement in place which provided for a working capitalline of credit of up to $20.0  million, which expired onNovember  1,  2006. The line of credit bore interest at theprime rate and was collateralized by a first security interest on allof the personal property of the Company. The credit agreement allowedthe Company to borrow and apply letters of credit against theavailability under the line of credit. In addition, the creditagreement contained certain financial and other covenants, depositrequirements, monthly reporting provisions and other requirements, asdefined in the credit agreement, with which the Company was incompliance at September  30,  2006. As of September30,  2006, no borrowings were outstanding under this creditfacility, however, there were standby letters of credit ofapproximately $15.4  million, which were applied against andreduced the amounts available under this credit facility.

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On October  31,  2006, theCompany entered into a new secured credit facility with Citibank, N.A,which expires on November  30,  2007. The credit facilityis comprised of: (1) a $25  million borrowing base line ofcredit (the ‘‘Line’’), which is availablefor standby letters of credit, commercial letters of credit and loans;(2) a bridge line of credit in the amount of $7  million,which is to support equipment purchases; and (3) a foreignexchange line in the amount of $10  million. If there are directborrowings under the Line, the commercial letters of credit and loansmay not be drawn in amounts in excess of $20  million. The lineof credit bears interest at the prime rate or LIBOR plus 200 basispoints, at the discretion of the Company, and is collateralized by afirst security interest on all of the assets of the Company. TheCompany can be advanced up to 80% of eligible accountsreceivable and 100% of unrestricted cash. The credit facilityprovides that the Company may borrow and apply letters of creditagainst the availability under the line of credit. In addition, thecredit facility contains certain financial and other covenants, depositrequirements, monthly reporting provisions and other requirements. Thecredit facility is uncommitted and advances are subject to Citibank,N.A.’s approval. As part of the transition to the new creditfacility, Citibank, N.A. will issue a standby letter of creditapproximately $17.5 million to guarantee the outstanding letters ofcredit under the prior credit agreement.

Item 2.Management’s Discussion and Analysis of Financial Condition andResults of Operations.

You should read the following discussionof our financial condition and results of operations with theconsolidated financial statements and related notes included elsewherein this Quarterly Report on Form 10-Q. This discussion contains, inaddition to historical information, forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act of 1995,based on our current expectations, assumptions, estimates andprojections. These forward-looking statements involve risks anduncertainties. Our actual results could differ materially from thoseanticipated in these forward-looking statements as a result of certainfactors, such as, among others, uncertain demand for our services andproducts due to economic and industry-specific conditions, the risksassociated with operating in international markets and our dependenceon a limited number of contracts for a high percentage of our revenues.These risks and others are more fully described in the‘‘Risk Factors’’ section of this QuarterlyReport and in our other filings with the Securities and ExchangeCommission, including our Annual Report on Form 10-K and QuarterlyReports on Form 10-Q. We undertake no obligation to update publicly anyforward-looking statements for any reason, even if new informationbecomes available or other events occur in thefuture.

Overview

Our business is global and subject totechnological and business trends in the telecommunicationsmarketplace. It is also affected by geopolitical developments involvingareas of the world in which our customers are located, particularly indeveloping countries and areas of the world involved in armedconflicts.

The products and services we offerinclude:    pre-engineered systems, systems design and integrationservices, managed network services and life cycle support services. Toprovide these products and services, we engineer all the necessarysatellite and terrestrial facilities as well as provide the integrationservices required to implement those facilities. We also operate andmaintain managed networks and provide life cycle support services on anongoing basis. Our customers generally have network servicerequirements that include point-to-point or point-to-multipointconnections via a hybrid network of satellite and terrestrialfacilities. These customers are communications service providers,commercial enterprises, media and content broadcasters and governmentand government related entities. Our business is global, and we derivemuch of our revenue from developing countries and government andgovernment related entities.

Since our products and services areoften sold into areas of the world which do not have fiber opticland-based networks, a substantial portion of our revenues are derivedfrom, and are expected to continue to be derived from, developingcountries. These countries carry with them more enhanced risks of doingbusiness than in developed areas of the world, including thepossibility of armed conflicts or the risk that more advancedland-based telecommunications will be implemented overtime.

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In the quarter ended September30,  2006, an aggregate of 25% of our revenues weregenerated by sales to two government-related entities. Although theidentity of customers and contracts may vary from period to period, wehave been, and expect to continue to be, dependent on revenues from asmall number of customers or contracts in each period in order to meetour financial goals. From time to time these customers are located indeveloping countries or otherwise subject to unusualrisks.

Revenues related to contracts for ground segment systems,networks and enterprise solutions and data communications services havebeen fixed-price contracts in a majority of cases. Profitability ofsuch contracts is subject to inherent uncertainties as to the cost ofperformance. In addition to possible errors or omissions in makinginitial estimates, cost overruns may be incurred as a result ofunforeseen obstacles, including both physical conditions and unexpectedproblems encountered in engineering design and testing. Since ourbusiness is frequently concentrated in a limited number of largecontracts, a significant cost overrun on any contract could have amaterial adverse effect on our business, financial condition andresults of operations.

Contract costs generally include purchasedmaterial, direct labor, overhead and other direct costs. Anticipatedcontract losses are recognized, as they become known. Costs from groundsegment systems, networks and enterprise solutions consist primarily ofthe costs of purchased materials (including shipping and handlingcosts), direct labor and related overhead expenses, project-relatedtravel and living costs and subcontractor salaries. Costs from datacommunications services consist primarily of satellite space segmentcharges, voice termination costs, network operations expenses andInternet connectivity fees. Satellite space segment charges consist ofthe costs associated with obtaining satellite bandwidth (the measure ofcapacity) used in the transmission of services to and from thesatellites leased from operators. Network operations expenses consistprimarily of costs associated with the operation of the networkoperations center on a twenty-four hour a day, seven day a week basis,including personnel and related costs and depreciation. Selling andmarketing expenses consist primarily of salaries, travel and livingcosts for sales and marketing personnel. Research and developmentexpenses consist primarily of salaries and related overhead expenses.General and administrative expenses consist of expenses associated withour management, finance, contract and administrativefunctions.

Critical Accounting Policies

Certain of ouraccounting policies require judgment by management in selecting theappropriate assumptions for calculating financial estimates. By theirnature, these judgments are subject to an inherent degree ofuncertainty. These judgments are based on our historical experience,the terms of existing contracts, our observance of trends in theindustry, information provided by our customers, and informationavailable from other outside sources, as appropriate. Actual resultsmay differ from these judgments under different assumptions orconditions. Our accounting policies that require management to applysignificant judgment include:

Revenue Recognition

We recognize revenue in accordance with Staff AccountingBulletin No. 104 (‘‘SAB 104’’), RevenueRecognition, for our production-type contracts that are sold separatelyas standard satellite ground segment systems when persuasive evidenceof an arrangement exists, the selling price is fixed or determinable,collectibility is reasonably assured, delivery has occurred and thecontractual performance specifications have been met. Our standardsatellite ground segment systems produced in connection with thesecontracts are typically short-term (less than twelve months in term)and manufactured using a standard modular production process. Suchsystems require less engineering, drafting and design efforts than ourlong-term complex production-type projects. Revenue is recognized onour standard satellite ground segment systems upon shipment andacceptance of factory performance testing which is when title transfersto the customer. The amount of revenues recorded on each standardproduction-type contract is reduced by the customer's contractualholdback amount, which typically requires 10% to 30% ofthe contract value to be retained by the customer until installationand final acceptance is complete. The customer generally becomesobligated to pay 70% to 

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90% of the contract value uponshipment and acceptance of factory performance testing. Installation isnot deemed to be essential to the functionality of the system sinceinstallation does not require significant changes to the features orcapabilities of the equipment, does not require complex softwareintegration and interfacing and we have not experienced anydifficulties installing such equipment. In addition, the customer orother third party vendors can install the equipment. The estimatedrelative fair value of the installation services is determined bymanagement, which is typically less than the customer'scontractual holdback percentage. If the holdback is less than the fairvalue of installation, we will defer recognition of revenues,determined on a contract-by-contract basis equal to the fair value ofthe installation services. Payments received in advance by customersare deferred until shipment and are presented as deferredrevenues.

We recognize revenue using the percentage-of-completionmethod of accounting upon the achievement of certain contractualmilestones in accordance with Statement of Position 81-1, Accountingfor Performance of Construction-Type and Certain Production-TypeContracts, for our non-standard, complex production-type contracts forthe production of satellite ground segment systems and equipment thatare generally integrated into the customer’s satellite groundsegment network. The equipment and systems produced in connection withthese contracts are typically long-term (in excess of twelve months interm) and require significant customer-specific engineering, draftingand design effort in order to effectively integrate all of thecustomizable earth station equipment into the customer’s groundsegment network. These contracts generally have larger contract values,greater economic risks and substantive specific contractual performancerequirements due to the engineering and design complexity of suchsystems and related equipment. Progress payments received in advance bycustomers are netted against the inventories balance.

The timingof our revenue recognition is primarily driven by achieving shipment,final acceptance or other contractual milestones. Project risksincluding project complexity, political and economic instability incertain regions in which we operate, export restrictions, tariffs,licenses and other trade barriers which may result in the delay of theachievement of revenue milestones. A delay in achieving a revenuemilestone may negatively impact our results ofoperations.

Costs from Ground Segment Systems, Networks andEnterprise Solutions 

Costs related to our production-typecontracts and our non-standard, complex production-type contracts relyon estimates based on total expected contract costs. Typically, thesecontracts are fixed price projects. We use estimates of the costsapplicable to various elements which we believe are reasonable. Ourestimates, are assessed continually during the term of these contractsand costs are subject to revisions as the contract progresses tocompletion. These estimates are subjective based on managementassessment of project risk. These risks may include project complexityand political and economic instability in certain regions in which weoperate. Revisions in cost estimates are reflected in the period inwhich they become known. A significant revision in an estimate maynegatively impact our results of operations. In the event an estimateindicates that a loss will be incurred at completion, we record theloss as it becomes known.

Goodwill Impairment

Goodwill represents the excess of the purchase price ofbusinesses over the fair value of the identifiable net assets acquired.In accordance with SFAS No. 142, Goodwill and Other Intangible Assets,goodwill and other indefinite life intangible assets are no longeramortized, but instead tested for impairment at least annually. Theimpairment test for goodwill uses a two-step approach, which isperformed at the reporting unit level. Step one compares the fair valueof the reporting unit (calculated using a discounted cash flow method)to its carrying value. If the carrying value exceeds the fair value,there is a potential impairment and step two must be performed. Steptwo compares the carrying value of the reporting unit’s goodwillto its implied fair value (i.e., fair value of the reporting unit lessthe fair value of the unit’s assets and liabilities, includingidentifiable intangible assets). If the carrying value of goodwillexceeds its implied fair value, the excess is required to be recordedas an impairment charge. The impairment test is dependent uponestimated future cash flows of the data communication services segment.There have been no events during the three months endedSeptember  30,  2006 that would result in any goodwillimpairment.

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Allowances for Doubtful Accounts

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

Inventories 

Inventories consistprimarily of work-in-progress from costs incurred in connection withspecific customer contracts, which are stated at the lower of cost ormarket value. In assessing the realizability of inventories, we arerequired to make estimates of the total contract costs based on thevarious elements of the work-in-progress. It is possible that changesto these estimates could cause a reduction in the net realizable valueof our inventories.

Results of Operations

ThreeMonths Ended September  30,  2006 and 2005

Revenues from Ground Segment Systems, Networks and EnterpriseSolutions.    Revenues decreased by $5.6  million, or24.1%, to $17.5  million for the three months endedSeptember  30,  2006 compared to $23.0  million forthe three months ended September  30,  2005. The decreasein revenues was primarily a result of a delay in the booking of certainmajor contracts late in fiscal 2006.

Revenues from DataCommunication Services.    Revenues increased by $1.7million, or 25.9%, to $8.3  million for the three monthsended September  30,  2006 compared to $6.6  millionfor the three months ended September  30,  2005. Theincrease was due to an increase in life cycle support services to thegovernment marketplace and equipment and services to a major U.S.enterprise customer.

Costs from Ground Segment Systems,Networks and Enterprise Solutions.    Costs from ground segmentsystems, networks and enterprise solutions decreased by $5.5million, or 27.9%, to $14.1  million for the three monthsended September  30,  2006 from $19.5  million forthe three months ended September  30,  2005. The decreasewas mainly attributable to a lower revenue base. The gross marginincreased to 19.4% of sales for the three months endedSeptember  30,  2006 from 15.2% for the three monthsended September  30,  2005. This increase in gross marginwas mainly attributable to revenue related to U.S. Government andgovernment related entities projects. The gross margin percentageexperienced in the three months ended September  30,  2006is higher than the historical norm and higher than the gross marginpercentage expected for the remainder of fiscal year2007.

Costs from Data CommunicationsServices.    Costs from data communications services increasedby $1.0  million, or 18.3%, to $6.6  million for thethree months ended September  30,  2006 from $5.6million for the three months ended September  30,  2005.Gross margin increased to 20.2% of sales for the three monthsended September  30,  2006 compared to 15.1% for thethree months ended September  30,  2005. The increase inthe margin was primarily a result of an increase in sales in thegovernment marketplace within life cycle support services which hashigher margin than the other service offerings, along with consistentfixed costs within the network operation center on a higher revenuebase, partially offset by the decrease in margin in the telephonyservice offering primarily a result of increased minutes terminationcosts from international long distance carriers. The gross marginpercentage experienced in the three months ended September30,  2006 is higher than the historical norm and higher than thegross margin percentage expected for the remainder of fiscal year2007.

Selling and Marketing.    Selling and marketingexpenses increased by $0.3  million, or 17.2%, to$1.8  million for the three months ended September30,  2006 from $1.5  million for the three months

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ended September  30,  2005. Theincrease is a result of an increase in salary and salary relatedexpenses for additional marketing personnel pursuing business in thegovernment and government related entities marketplace, and expensesrelated to a new sales office in Afghanistan.

Research andDevelopment.    Research and development expenses increased by$0.1  million, or 83.5%, to $0.2  million for thethree months ended September  30,  2006 compared to$0.1  million for the three months ended September30,  2005. The increase was principally due to costs associatedwith the next version of AxxysR Network ManagementSystem based on the ‘‘.Net’’ operatingsystem for release in 2007.

General andAdministrative.    General and administrative expensesincreased by $0.2  million, or 7.0%, to $2.4million for the three months ended September  30,  2006from $2.3  million for the three months ended September30,  2005. The increase in general and administrative expenseswas primarily due to an increase in salary and related fringes due toan increase in headcount.

Interest Income.    Interestincome remained consistent for the three months ended September30, 2006 and 2005.

Liquidity and Capital Resources

AtSeptember  30,  2006, we had working capital of$45.4  million, including cash and cash equivalents of$25.8  million, net accounts receivable of $25.2  million,inventories of $15.0  million, prepaid expenses and other currentassets of $1.0  million, offset by $13.3  million inaccounts payable, $4.2  million in accrued expenses and othercurrent liabilities and $4.1  million in deferredrevenues.

Net cash provided by operating activities during thethree months ended September  30,  2006 was $1.9million, which primarily related to a decrease in accounts receivableof $5.6  million due to the timing of billings and collectionsfrom customers, an increase in deferred revenue of $2.4  milliondue to timing differences between project billings and revenuerecognition milestones resulting from specific customer contracts, netincome of $0.9  million, and a non-cash item representingdepreciation and amortization expense of $0.8  million primarilyrelated to the network operations center and satellite earth stationequipment, offset by a decrease in accounts payable of $5.7million relating to the reduction in revenues and the timing of vendorpayments and an increase in inventory of $1.9  million due to thetiming of shipments of certain jobs.

Net cash used in investingactivities during the three months ended September  30,2006 was $1.7  million, which primarily related to the purchaseof teleport and network operations center assets primarily for a largeprogram that we anticipate will be in service on July  1,2007. This program will require significant additional capitalexpenditures for the teleport and network operations center during theyear ending June  30,  2007. We estimate an additional $12million in capital expenditures for the remainder of the year endingJune 30, 2007 primarily for the teleport and network operations centerfor both this large program and other program requirements. We will useour existing working capital and if required the $7 million bridge lineunder our credit facility to meet these capital expenditurerequirements.

Net cash provided by financing activities duringthe three months ended September  30,  2006 was $1.0million, which related to proceeds from the exercise of stockoptions.

At September  30,  2006, we had a creditagreement in place, which provided for a working capital line of creditof up to $20.0  million and which expired on November1,  2006. The line of credit bore interest at the prime rate andwas collateralized by a first security interest on all of our personalproperty. The credit agreement allowed us to borrow and apply lettersof credit against the availability under the line of credit. Inaddition, the credit agreement contained certain financial and othercovenants, deposit requirements, monthly reporting provisions and otherrequirements, as defined in the credit agreement, with which we were incompliance at September  30,  2006. As of September30,  2006, no borrowings were outstanding under this creditfacility, however, there were standby letters of credit ofapproximately $15.4  million, which were applied against andreduced the amounts available under this credit facility.

OnOctober  31,  2006 we entered into a new secured creditfacility with Citibank, N.A, which expires on November30,  2007. The credit facility is comprised of: (1) a$25  million borrowing base 

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line of credit (the‘‘Line’’), which is available for standbyletters of credit, commercial letters of credit and loans; (2) abridge line of credit in the amount of $7  million, which is tosupport equipment purchases; and (3) a foreign exchange line inthe amount of $10  million. If there are direct borrowings underthe Line, the commercial letters of credit and direct borrowings maynot be drawn in amounts in excess of $20  million. The line ofcredit bears interest at the prime rate or LIBOR plus 200 basis points,at our discretion, and is collateralized by a first security intereston all of our assets. The Company can be advanced up to 80% ofeligible accounts receivable and 100% of unrestricted cash. Thecredit facility provides that we may borrow and apply letters of creditagainst the availability under the line of credit. In addition, thecredit facility contains certain financial and other covenants, depositrequirements, monthly reporting provisions and other requirements. Thecredit facility is uncommitted and advances are subject to Citibank,N.A.’s approval. As part of the transition to the new creditfacility, Citibank, N.A. will issue a standby letter of creditapproximately $17.5 million to guarantee the outstanding letters ofcredit under our prior credit agreement.

We lease satellitespace segment services and other equipment under various operatinglease agreements, which expire in various years through 2009. Futureminimum lease payments due on these leases through September30,  2007 are approximately $6.4  million.

AtSeptember  30,  2006, we had contractual obligations andother commercial commitments as follows (in thousands):

|                                  |  |  |        |   |        |                      |  |  |          |   |       |          |  |  |                  |   |       |  |  |  |  |   |     |  |  |  |  |   |                     |  |
|----------------------------------|--|--|--------|---|--------|----------------------|--|--|----------|---|-------|----------|--|--|------------------|---|-------|--|--|--|--|---|-----|--|--|--|--|---|---------------------|--|
|                             |  |  |   |   |        | PaymentsDue byPeriod |
| ContractualObligations           |  |  | Total  |   |        | Lessthan 1year       |  |  | 1-3years |   |       | 4-5years |  |  | Morethan 5 years |
| Operatingleases                  |  |  |        | $ | 10,799 |                      |  |  |          | $ | 6,389 |          |  |  |                  | $ | 4,106 |  |  |  |  | $ | 304 |  |  |  |  | $ |   — |  |
| Totalcontractual cashobligations |  |  |        | $ | 10,799 |                      |  |  |          | $ | 6,389 |          |  |  |                  | $ | 4,106 |  |  |  |  | $ | 304 |  |  |  |  | $ | —             |  |
|                                  |

|                             |  |  |                       |   |        |                                          |  |  |          |   |       |           |  |  |                  |   |       |  |  |  |  |   |                     |  |  |  |  |   |                     |  |
|-----------------------------|--|--|-----------------------|---|--------|------------------------------------------|--|--|----------|---|-------|-----------|--|--|------------------|---|-------|--|--|--|--|---|---------------------|--|--|--|--|---|---------------------|--|
|                        |  |  |                  |   |        | Amountof Commitment Expiration PerPeriod |
| Other CommercialCommitments |  |  | TotalAmountsCommitted |   |        | Less than 1 year                         |  |  | 1-3years |   |       | 4-5 years |  |  | More Than5 years |
| Standby letters ofcredit    |  |  |                       | $ | 15,435 |                                          |  |  |          | $ | 7,154 |           |  |  |                  | $ | 8,281 |  |  |  |  | $ |   — |  |  |  |  | $ |   — |  |
| Totalcommercialcommitments  |  |  |                       | $ | 15,435 |                                          |  |  |          | $ | 7,154 |           |  |  |                  | $ | 8,281 |  |  |  |  | $ | —             |  |  |  |  | $ | —             |  |
|                             |

Weexpect that our cash and working capital requirements for operatingactivities will increase as we continue to implement our businessstrategy. Management anticipates additional working capitalrequirements for work in progress for orders as obtained and capitalexpenditures for a large program, and that we may periodicallyexperience negative cash flows due to variances in quarter to quarteroperating performance. We will use existing working capital and ifrequired, use our credit facility to meet these additional workingcapital requirements.

Our future capital requirements will dependupon many factors, including the success of our marketing efforts inthe ground segment systems, networks and data communications servicesbusiness, the nature and timing of customer orders and the level ofcapital requirements related to the expansion of our service offerings.Based on current plans, we believe that our existing capital resourceswill be sufficient to meet working capital requirements at leastthrough September  30,  2007. However, we cannot assure youthat there will be no unforeseen events or circumstances that wouldconsume available resources significantly before that time. Forexample, future events occurring in response to the hostilities in Iraqand Afghanistan, or in connection with any armed conflict, including,without limitation, future terrorist attacks against the United Statesor its allies or military or trade or travel disruptions impacting ourability to sell and market our products and services in the UnitedStates and internationally may impact our results of operations.Unexpected events negatively impacting international commerce,including additional conflicts in the Middle East, could defer ourability to close contracts with internationalcustomers.

Additional funds may not be available when needed and,even if available, additional funds may be raised through financingarrangements and/or the issuance of preferred or common stock orconvertible securities on terms and prices significantly more favorablethan those of the currently 

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outstanding common stock, which could havethe effect of diluting or adversely affecting the holdings or rights ofour existing stockholders. If adequate funds are unavailable, we may berequired to delay, scale back or eliminate some of our operatingactivities, including, without limitation, the timing and extent of ourmarketing programs, capital expenditures and research and developmentactivities and we may be required to reduce headcount. We cannot assureyou that additional financing will be available to us on acceptableterms, or at all.

Item 3. Quantitative and QualitativeDisclosures About Market Risk

We are subject to a variety ofrisks, including foreign currency exchange rate fluctuations relatingto certain purchases from foreign vendors. In the normal course ofbusiness, we assess these risks and have established policies andprocedures to manage our exposure to fluctuations in foreign currencyvalues.

Our objective in managing our exposure to foreigncurrency exchange rate fluctuations is to reduce the impact of adversefluctuations in earnings and cash flows associated with foreigncurrency exchange rates. Accordingly, we may utilize from time to timeforeign currency forward contracts to hedge our exposure on firmcommitments denominated in foreign currency. At September30,  2006, we had no outstanding foreign exchangecontracts.

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

Item 4.Controls and Procedures

Quarterly Evaluation of theCompany's Disclosure Controls and InternalControls.

|  |           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (a)  | As of the end of the periodcovered by this Quarterly Report on Form 10-Q, an evaluation wascarried out under the supervision and with the participation of seniormanagement, including our Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the‘‘Exchange Act’’)). Based upon thatevaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures are effective toensure that information required to be disclosed in the reports thatthe Company files or submits under the Exchange Act is accumulated andcommunicated to the Company’s management, including our ChiefExecutive Officer and Chief Financial Officer, to allow timelydecisions regarding requireddisclosure. |

|  |           |                                                                                                                                                                                                                                                                                                                                                      |
|--|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (b)  | There have been no changes in theCompany’s internal controls over financial reporting (as definedin Exchange Act Rule 13a-15(f)) or in other factors during the fiscalquarter ended September  30,  2006 that materiallyaffected, or are reasonably likely to materially affect, theCompany’s internal controls over financialreporting. |

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PartII — Other Information

Item 1. LegalProceedings

None

Item 1A. RiskFactors

Risk Factors

A limitednumber of customer contracts account for a significant portion of ourrevenues, and the inability to replace a key customer contract or thefailure of the customer to implement its plans would adversely affectour results of operations, business and financialcondition.

We rely on a small number of customer contractsfor a large portion of our revenue. Specifically, we have agreementswith three customers to provide equipment and services, from which weexpect to generate a significant portion of our revenues. We derived14% and 11% of our revenues in the three months endedSeptember  30,  2006 from two separate government relatedentities, respectively. Also, we conduct a substantial proportion ofour business in developing countries. If any key customer is unable toimplement its business plan, the market for these customers’services declines, political or military conditions make performanceimpossible or if all or any of the major customers modifies orterminates its agreement with us, and we are unable to replace thesecontracts, our results of operations, business and financial conditionwould be materially harmed.

Risks associated withoperating in international markets could restrict our ability to expandglobally and harm our business and prospects. 

We marketand sell a substantial portion of our products and servicesinternationally. We anticipate that international sales will continueto account for a significant portion of our total revenues for theforeseeable future with a significant portion of the internationalrevenue coming from developing countries, including countries in areasof conflict like Afghanistan. There are a number of risks inherent inconducting our business internationally, including:

|  |              |                                                                                                                                                                                                                                     |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | general political and economic instabilityin international markets, including the hostilities in Iraq andAfghanistan, could impede our ability to deliver our products andservices to customers and harm our results of operations; |

|  |              |                                                                                                |
|--|--------------|------------------------------------------------------------------------------------------------|
|  | •  | difficulties in collecting accountsreceivable could adversely affect our results ofoperations; |

|  |              |                                                                                                                 |
|--|--------------|-----------------------------------------------------------------------------------------------------------------|
|  | •  | changes in regulatoryrequirements could restrict our ability to deliver services to ourinternational customers; |

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

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

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

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

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

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

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

|  |              |                                                                  |
|--|--------------|------------------------------------------------------------------|
|  | •  | potentially adverse taxes couldaffect our results of operations. |

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These and other risks could impede ourability to manage our international operations effectively, limit thefuture growth of our business, increase our costs and requiresignificant management attention.

We derive a substantialportion of our revenues from fixed-price projects, under which weassume greater financial risk if we fail to accurately estimate thecosts of the projects.

We derive a substantial portion ofour revenues from fixed-price projects. We assume greater financialrisks on a fixed-price project than on a time-and-expense basedproject. If we miscalculate the resources or time we need for thesefixed-price projects, the costs of completing these projects may exceedour original estimates, which would negatively impact our results ofoperations.

If GNSC does not execute its business strategyor if the market for its services fails to develop or develops moreslowly than we expect, our results of operations will be harmed.

GNSC’s future revenues and results of operationsare dependent on its execution of its business strategy and developmentof the market for its current and future services. GNSC has had, and weexpect will continue to have, cash requirements, which have decreasedand will continue to decrease our cash resources. If GNSC does notefficiently and substantially utilize its transponder space capacityand increase its level of orders, its cash requirements may increaseand our results of operations will be harmed. In addition, significantcapital expenditures have been required as we have built our contentdelivery and telephony service offerings. If our content delivery andtelephony service offerings are not accepted, or if the market fails togrow, we cannot assure you that we will be able to realize anappropriate return on these capital expenditures.

We derivea substantial portion of our revenues from government and governmentrelated entities.

We derive a substantial portion of ourrevenues from government and government related entities. A futurereduction in opportunities from government and government relatedentities would negatively impact our results ofoperations.

In the event of a catastrophic loss affectingour operations in Hauppauge, New York our results of operations wouldbe harmed.

GNSC revenues and results of operations aredependant on the infrastructure of the Network Operations Center andthe Long Island International Teleport at our headquarters inHauppauge, New York. A catastrophic event to this facility or to theinfrastructure of the surrounding area would result in significantdelays in restoring a majority of the data communications servicescapabilities. These capabilities permit us to offer an integrated suiteof products and services and the incapacity of our communicationsinfrastructure would negatively impact our ability to sell our groundsegment systems and networks. This would result in the loss of revenuesand adversely affect our business, results of operations and financialcondition.

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

The markets in which we operate are highly competitive andthis competition could harm our ability to sell our products andservices on prices and terms favorable to us. Our primary competitorsin the satellite ground segment systems and networks market generallyfall into two groups: (1) system integrators, like Thales, Data Path,and SED Systems, and (2) equipment manufacturers who also provideintegrated systems, like General Dynamics, Andrew Corporation, Viasat,Alcatel and ND Satcom AG.

In the end-to-end satellite-basedenterprise solutions and broadcast services markets, we compete withother satellite communication companies who provide similar services,like Ascent Media, Globecast, and Convergent Media Systems. Inaddition, in managed network services we may compete with othercommunications service providers like Segovia and satellite owners likeSES Americom 

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and Intelsat. We anticipate that ourcompetitors may develop or acquire services that provide functionalitythat is similar to that provided by our services and that thoseservices may be offered at significantly lower prices or bundled withother services. These competitors may have the financial resources towithstand substantial price competition, may be in a better position toendure difficult economic conditions in international markets and maybe able to respond more quickly than we can to new or emergingtechnologies and changes in customer requirements. Moreover, many ofour competitors have more extensive customer bases, broader customerrelationships and broader industry alliances than we do that they coulduse to their advantage in competitive situations.

The markets inwhich we operate have limited barriers to entry, and we expect that wewill face additional competition from existing competitors and newmarket entrants in the future. Moreover, our current and potentialcompetitors have established or may establish strategic relationshipsamong themselves or with third parties to increase the ability of theirproducts and services to address the needs of our current andprospective customers. The potential strategic relationships ofexisting and new competitors may rapidly acquire significant marketshare, which would harm our business and financialcondition.

If our products and services are not accepted indeveloping countries with emerging markets, our revenues will beimpaired. 

We anticipate that a significant portion of thegrowth in the demand for our products and services will come fromcustomers in developing countries due to a lack of basic communicationsinfrastructure in these countries. However, we cannot guarantee anincrease in the demand for our products and services in developingcountries or that customers in these countries will accept our productsand services at all. Our ability to penetrate emerging markets indeveloping countries is dependent upon various factors including:

|  |              |                                                                                                                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | the speed at which communicationsinfrastructure, including terrestrial microwave, coaxial cable andfiber optic communications systems, which compete with satellite-basedservices, is built; |

|  |              |                                                                                                                          |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------|
|  | •  | the effectivenessof our local resellers and sales representatives in marketing andselling our products and services; and |

|  |              |                                                          |
|--|--------------|----------------------------------------------------------|
|  | •  | the acceptance of our products and servicesby customers. |

If our products and services are not accepted, orthe market potential we anticipate does not develop, our revenues willbe impaired.

We have had a history of operating losses andnegative cash flow. Negative cash flows may occur as we pursue ourbusiness plan and our losses may reoccur, which may strain our capitalresources. 

Although we have recently been profitable, wehad incurred significant net losses in the past and may continue torecognize negative cash flows from operations. Our ability to maintainprofitability will depend upon our ability to generate significantrevenues through new profitable customer contracts and the expansion ofour existing products and services, including our data communicationsservices. We cannot assure you that we will be able to obtain newprofitable customer contracts or generate significant additionalrevenues from those contracts or any new products or services that weintroduce. In the past, we have incurred significant negative cashflows, which may reoccur if our business plan is not successful. Also,if we are unable to sustain or increase our profits on a quarterly orannual basis in the future or if our business undergoes a period ofrapid growth, our operating cash flows may be negativelyimpacted.

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Since sales of satellitecommunications equipment are dependent on the growth of communicationsnetworks, if market demand for these networks declines, our revenue andprofitability are likely to decline. 

We derive, and expectto continue to derive, a significant amount of revenues from the saleof satellite ground segment systems and networks. If the long-termgrowth in demand for communications networks does not continue, themarket demand for our satellite ground segment systems and networks maydecline or grow more slowly than we expect. As a result, we may not beable to grow our business, our revenues may decline from current levelsand our results of operations may be harmed. The demand forcommunications networks and the products used in these networks isaffected by various factors, many of which are beyond our control. Forexample, the uncertain general economic conditions have affected theoverall rate of capital spending by many of our customers. Also, manycompanies have found it difficult to raise capital to finish buildingtheir communications networks and, therefore, have placed fewer orders.Past economic slowdowns resulted in a softening of demand from ourcustomers. We cannot predict the extent to which demand will increase.Further, increased competition among satellite ground segment systemsand network manufacturers has increased pricing pressures.

We depend upon certain key personnel and may not be able toretain these employees. If we lose the services of these individuals orcannot hire additional qualified personnel, our business will beharmed.

Our success also depends to a substantial degree onour ability to attract, motivate and retain highly-qualified personnel.There is considerable competition for the services of highly-qualifiedtechnical and engineering personnel. We may not be able either toretain our current personnel or hire additional qualified personnel ifand when needed.

Our future performance depends on the continuedservice of our key technical, managerial and marketing personnel; inparticular, David Hershberg and Kenneth Miller are key to our successbased upon their individual knowledge of the markets in which weoperate. The employment of any of our key personnel could cease at anytime.

Satellites upon which we rely may malfunction or bedamaged or lost. 

In the delivery of our datacommunications services, we lease space segment from various satellitetransponder vendors. The damage or loss of any of the satellites usedby us, or the temporary or permanent malfunction of any of thesatellites upon which we rely, would likely result in the interruptionof our satellite-based communications services. This interruption couldhave a material adverse effect on our business, results of operationsand financial condition.

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

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

Our network mayexperience security breaches, which could disrupt our services.

Our network infrastructure may be vulnerable to computerviruses, break-ins, denial of service attacks and similar disruptiveproblems caused by our customers or other Internet users. Computer

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viruses, break-ins, denial of service attacksor other problems caused by third parties could lead to interruptions,delays or cessation in service to our customers. There currently is noexisting technology that provides absolute security. We may faceliability to customers for such security breaches. Furthermore, theseincidents could deter potential customers and adversely affect existingcustomer relationships.

If the satellite communicationsindustry fails to continue to develop or new technology makes itobsolete, our business and financial condition will be harmed.

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

We maynot be able to keep pace with technological changes, which would makeour products and services become non-competitive and obsolete.

The telecommunications industry, including satellite-basedcommunications services, is characterized by rapidly changingtechnologies, frequent new product and service introductions andevolving industry standards. If we are unable, for technological orother reasons, to develop and introduce new products and services orenhancements to existing products and services in a timely manner or inresponse to changing market conditions or customer requirements, ourproducts and services would become non-competitive and obsolete, whichwould harm our business, results of operations and financialcondition.

We may be unable to raise additional funds tomeet our capital requirements in the future. 

We believethat our available cash resources will be sufficient to meet ourworking capital and capital expenditure requirements through at leastSeptember  30,  2007. However, our future liquidity andcapital requirements are difficult to predict, as they depend onnumerous factors, including the success of our existing product andservice offerings, as well as competing technological and marketdevelopments. We may need to raise additional funds in order to meetadditional working capital requirements and to support additionalcapital expenditures or acquisition of assets or a business. Shouldthis need arise, additional funds may not be available when needed and,even if additional funds are available, we may not find the termsfavorable or commercially reasonable. If adequate funds areunavailable, we may be required to delay, scale back or eliminate someof our operating activities, including, without limitation, the timingand extent of our marketing programs, capital expenditures and researchand development activities and we may be required to reduce headcount.If we raise additional funds by issuing equity securities, our existingstockholders will own a smaller percentage of our capital stock and newinvestors may pay less on average for their securities than, and couldhave rights superior to, existing stockholders.

Unauthorizeduse of our intellectual property by third parties may damage ourbusiness.

We regard our trademarks, trade secrets and otherintellectual property as beneficial to our success. Unauthorized use ofour intellectual property by third parties may damage our business. Werely on trademark, trade secret and patent protection and contracts,including confidentiality and license agreements with our employees,customers, strategic collaborators, consultants and others, to protectour intellectual property rights. Despite our precautions, it may bepossible for third parties to obtain and use our intellectual propertywithout our authorization.

We currently have been granted fourpatents in the United States, one for remote access to the Internetusing satellites, one for satellite communication with automaticfrequency control, one for a 

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monitor and control system for satellitecommunications networks and the like, and one for implementingfacsimile and data communications using Internet protocols. We have oneother patent pending in the United States for a distributedsatellite-based cellular network. We currently have one PatentCooperation Treaty patent application pending for implementingfacsimile and data communications using Internet protocols. We alsointend to seek further patents on our technology, if appropriate. Wecannot assure you that patents will be issued for any of our pending orfuture patent applications or that any claims allowed from suchapplications will be of sufficient scope, or be issued in all countrieswhere our products and services can be sold, to provide meaningfulprotection or any commercial advantage to us. Also, our competitors maybe able to design around our patents. The laws of some foreigncountries in which our products and services are or may be developed,manufactured or sold may not protect our products and services orintellectual property rights to the same extent as do the laws of theUnited States and thus make the possibility of piracy of our technologyand products and services more likely.

We have filedapplications for trademark registration of Globecomm Systems Inc.,Globecomm and GSI in the United States and various other countries, andhave been granted registrations for some of these terms in the UnitedStates, Europe and Russia. We have various other trademarks and servicemarks registered or pending for registration in the United States andin other countries and may seek registration of other trademarks andservice marks in the future. We cannot assure you that registrationswill be granted from any of our pending or future applications, or thatany registrations that are granted will prevent others from usingsimilar trademarks in connection with related goods andservices.

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

We cannot be sure that the products, services,technologies and advertising we employ in our business do not or willnot infringe valid patents, trademarks, copyrights or otherintellectual property rights held by third parties. We may be subjectto legal proceedings and claims from time to time relating to theintellectual property of others in the ordinary course of our business.Prosecuting infringers and defending against intellectual propertyinfringement claims could be time consuming and expensive, andregardless of whether we are or are not successful, could causesubstantial expenses and disrupt our business. We may incur substantialexpenses in defending against these third party claims, regardless oftheir merit. Successful infringement claims against us may result insubstantial monetary liability and/or may materially disrupt theconduct of, or necessitate the cessation of, segments of ourbusiness.

Risks Related to the Securities Markets and Ownershipof Our Common Stock

Our stock price isvolatile.

From October  1,  2005 throughSeptember  30,  2006, our stock price ranged from a low of$5.88 per share to a high of $8.91 per share. The market price of ourcommon stock, like that of the securities of many telecommunicationsand high technology industry companies, could be subject to significantfluctuations and is likely to remain volatile based on many factors,including the following:

|  |              |                                          |
|--|--------------|------------------------------------------|
|  | •  | quarterlyvariations in operatingresults; |

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

|  |              |                                                                          |
|--|--------------|--------------------------------------------------------------------------|
|  | •  | changes in financialestimates or recommendations by securities analysts; |

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

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

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

The stock markets in general and the markets fortelecommunications stocks in particular have experienced extremevolatility that has often been unrelated to the operating performanceof particular companies. These broad market fluctuations may adverselyaffect the trading price of our common stock.

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Because our common stock is thinlytraded, it may be difficult to sell shares of our common stock into themarkets without experiencing significant pricevolatility.

Our common stock is currently traded on theNasdaq Global Market. Because of the relatively small number of sharesthat are traded, it may be difficult for an investor to find apurchaser for shares of our common stock without experiencingsignificant price volatility. We cannot guarantee that an activetrading market will develop, that our common stock will have a highertrading volume than it has historically had or that it will maintainits current market price. This illiquidity could have a materialadverse effect on the market price of our stock.

A thirdparty could be prevented from acquiring shares of our stock at apremium to the market price because of our anti-takeover provisions.

Various provisions with respect to votes in the electionof directors, special meetings of stockholders, and advance noticerequirements for stockholder proposals and director nominations of ouramended and restated certificate of incorporation, by-laws and Section203 of the General Corporation Law of the State of Delaware could makeit more difficult for a third party to acquire us, even if doing somight be beneficial to our stockholders. In addition, we have a poisonpill in place and employment provisions with our senior executives thathave change of control provisions that could make an acquisition of usby a third party more difficult.

We have not paid dividendsin the past and do not expect to pay dividends in the future, and anyreturn on investment may be limited to the value of ourstock.

We have never paid cash dividends on our commonstock and do not anticipate paying cash dividends on our common stockin the foreseeable future. The payment of dividends on our common stockwill depend on our future earnings, capital requirements, financialcondition, future prospects and other factors as the board of directorsmight deem relevant. If we do not pay dividends our stock may be lessvaluable because a return on your investment will only occur if ourstock price appreciates.

Risks Related to GovernmentApprovals

We are subject to many government regulations, andfailure to comply with them will harm our business.

Operations and Use of Satellites 

We are subject tovarious federal laws and regulations, which may have negative effectson our business. We operate FCC licensed earth stations in Hauppauge,New York, subject to the Communications Act of 1934, as amended (the‘‘FCC Act’’), and the rules and regulationsof FCC. Pursuant to the FCC Act and rules, we have obtained and arerequired to maintain radio transmission licenses from the FCC for bothdomestic and foreign operations of our earth stations. We have alsoobtained and are required to maintain authorization issued underSection 214 of the FCC Act to act as a telecommunications carrier,which authorization also extends to GNSC. These licenses should berenewed by the FCC in the normal course as long as we remain incompliance with FCC rules and regulations. However, we cannot guaranteethat the FCC will grant additional licenses when our existing licensesexpire, nor are we assured that the FCC will not adopt new or modifiedtechnical requirements that will require us to incur expenditures tomodify or upgrade our equipment as a condition of retaining ourlicenses. We are also required to comply with FCC regulations regardingthe exposure of humans to radio frequency radiation from our earthstations. These regulations, as well as local land use regulations,restrict our freedom to choose where to locate our earth stations. Inaddition, prior to a third party acquisition of us, we would need toseek approval from the FCC to transfer the radio transmission licenseswe have obtained to the third party upon the consummation of theacquisition. However, we cannot assure you that the FCC will permit thetransfer of these licenses. These approvals may make it more difficultfor a third party to acquire us.

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Foreign Regulations

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

Regulationof the Internet 

Due to the increasing popularity and useof the Internet, it is possible that a number of laws and regulationsmay be adopted at the local, national or international levels withrespect to the Internet, covering issues including user privacy andexpression, pricing of products and services, taxation, advertising,intellectual property rights, information security or the convergenceof traditional communication services with Internet communications. Itis anticipated that a substantial portion of our Internet operationswill be carried out in countries that may impose greater regulation ofthe content of information coming into the country than that which isgenerally applicable in the United States, including but not limited toprivacy regulations in numerous European countries and contentrestrictions in countries such as the People’s Republic ofChina. To the extent that we provide content as a part of our Internetservices, it will be subject to laws regulating content. Moreover, theadoption of laws or regulations may decrease the growth of theInternet, which could in turn decrease the demand for our Internetservices or increase our cost of doing business or in some other mannerhave a material adverse effect on our business, operating results andfinancial condition. In addition, the applicability of existing lawsgoverning issues including property ownership, copyrights and otherintellectual property issues, taxation, libel, court jurisdiction andpersonal privacy to the Internet is uncertain. The vast majority ofthese laws were adopted prior to the advent of the Internet and relatedtechnologies and, as a result, the laws do not contemplate or addressthe unique issues of the Internet and related technologies. Changes tothese laws intended to address these issues, including some recentlyproposed changes, could create uncertainty in the marketplace whichcould reduce demand for our products and services, could increase ourcost of doing business as a result of costs of litigation or increasedproduct development costs, or could in some other manner have amaterial adverse effect on our business, financial condition andresults of operations.

Telecommunications Taxation, SupportRequirements, and Access Charges

Telecommunicationscarriers providing domestic services in the United States are requiredto contribute a portion of their gross revenues for the support ofuniversal telecommunications services, telecommunications relayservices for the deaf, and/or other regulatory fees. We are subject tosome of these fees, and we may be subject to other fees or new orincreased taxes and contribution requirements that could affect ourprofitability, particularly if we are not able to pass them through tocustomers for either competitive or regulatory reasons.

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

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could discourage the demand for our services.Likewise, the demand for our services in other countries may beaffected by the availability and cost of local telephone or othertelecommunications facilities to reach our facilities.

Export of Telecommunications Equipment 

The sale ofour ground segment systems, networks, and communications servicesoutside the United States is subject to compliance with the regulationsof the United States Export Administration and, in certaincircumstances, with International Traffic in Arms regulations. Theabsence of comparable restrictions on competitors in other countriesmay adversely affect our competitive position. In addition, in order toship our products into and implement our services in some countries,the products must satisfy the technical requirements of that particularcountry. If we were unable to comply with such requirements withrespect to a significant quantity of our products, our sales in thosecountries could be restricted, which could have a material adverseeffect on our business, results of operations and financialcondition.

Foreign Ownership

We may, in thefuture, be required to seek FCC or other government approval if foreignownership of our stock exceeds certain specified criteria. Failure tocomply with these policies could result in an order to divest theoffending foreign ownership, fines, denial of license renewal and/orlicense revocation proceedings against the licensee by the FCC, ordenial of certain contracts from other United States GovernmentAgencies.

Item 2. Unregistered Sales of Equity Securities andUse of Proceeds

None

Item 3. Defaults Upon SeniorSecurities

None

Item 4. Submission of Matters to a Voteof Security Holders

None

Item 5. OtherInformation

None

Item 6. Exhibits

Index toExhibits:

ExhibitNo.

|            |                                                                                                                                                                                                                                                          |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1  | Credit Facility Letter,dated October  25,  2006 from Citibank, N.A. to GlobecommSystems Inc. and countersigned on October  31,  2006(incorporated by reference to Exhibit 10.1 of the Registrant'sCurrent Report on Form 8-K filed on November  6,2006). |

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

|            |                                                                                                                                                |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2  | Chief Financial OfficerCertification required by Rules 13a-14 and 15d-14 under the SecuritiesExchange Act of 1934, as amended (filedherewith). |

|          |                                                                                                                                       |
|----------|---------------------------------------------------------------------------------------------------------------------------------------|
| 32  | Certification Pursuant to18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002 (filedherewith). |

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SIGNATURES

Pursuantto the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.

|  | GLOBECOMM SYSTEMSINC.                (Registrant) |
|--|-----------------------------------------------------------------------------------------------------------------------------------|

    

|                         |  |                       |
|-------------------------|--|-----------------------|
| Date:November  9,  2006 |  | /s/ DAVID E.HERSHBERG |
|                         |  |                       |

|  |  |                                                                                                 |
|--|--|-------------------------------------------------------------------------------------------------|
|  |  | David E. HershbergChairman of the Boardand Chief Executive Officer (Principal ExecutiveOfficer) |
|  |  |                                                                                                 |

|                        |  |                     |
|------------------------|--|---------------------|
| Date: November  9,2006 |  | /s/ ANDREW C. MELFI |
|                        |  |                     |

|  |  |                                                                                                                |
|--|--|----------------------------------------------------------------------------------------------------------------|
|  |  | Andrew C.MelfiVice President, Chief Financial Officer and Treasurer(Principal Financial and AccountingOfficer) |
|  |  |                                                                                                                |

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Indexto Exhibits:

Exhibit No.

|            |                                                                                                                                                                                                                                                          |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1  | Credit Facility Letter, datedOctober  25,  2006 from Citibank, N.A. to Globecomm SystemsInc. and countersigned on October  31,  2006 (incorporatedby reference to Exhibit 10.1 of the Registrant's Current Reporton Form 8-K filed on November  6,2006). |

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

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

|          |                                                                                                                                       |
|----------|---------------------------------------------------------------------------------------------------------------------------------------|
| 32  | Certification Pursuantto 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002 (filedherewith). |

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