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UNITEDSTATESSECURITIES AND EXCHANGECOMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

(MARK ONE)

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

For the quarterly period ended December31,  2006

OR

|        |                                                                                       |
|--------|---------------------------------------------------------------------------------------|
|   | TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF1934 |

For the transition period from                 to                

Commission filenumber:    000-22839

Globecomm SystemsInc.

(Exact name of Registrant asspecified in itscharter)

|                                                             |  |  |                                    |
|-------------------------------------------------------------|--|--|------------------------------------|
| Delaware                                                    |  |  | 11-3225567                         |
| (Stateor other jurisdiction ofincorporation ororganization) |  |  | (I.R.S. EmployerIdentificationNo.) |
| 45Oser Avenue, Hauppauge, NY                                |  |  | 11788                              |
| (Addressof principal executive offices)                     |  |  | (ZipCode)                          |
|                                                             |

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

Indicate by check markwhether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.Yes       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 ExchangeAct.

Large acceleratedfiler                    Acceleratedfiler                   Non-acceleratedfiler   

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

As ofFebruary  5,  2007, there were 16,105,545 shares of theregistrant’s Common Stockoutstanding.

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GLOBECOMMSYSTEMS INC.

Index to the December 31, 2006 Form10-Q

|                  |  |  |                                                                                                                             |  |    |  |  |        |  |
|------------------|--|--|-----------------------------------------------------------------------------------------------------------------------------|--|----|--|--|--------|--|
|             |  |  |                                                                                                                        |  |    |  |  | Page   |  |
|             |  |  | PartI — FinancialInformation                                                                                          |  |    |  |  |   |  |
| Item1.           |  |  | FinancialStatements                                                                                                         |  |    |  |  | 3      |  |
|             |  |  | ConsolidatedBalance Sheets — As of December 31, 2006 (unaudited) andJune 30,2006                                      |  |    |  |  | 3      |  |
|             |  |  | ConsolidatedStatements of Operations (unaudited) — For the three and sixmonths ended December 31, 2006 and2005        |  |    |  |  | 4      |  |
|             |  |  | ConsolidatedStatement of Changes in Stockholders’ Equity (unaudited) —For the six months ended December 31,2006 |  |    |  |  | 5      |  |
|             |  |  | ConsolidatedStatements of Cash Flows (unaudited) — For the six months endedDecember 31, 2006 and2005                  |  |    |  |  | 6      |  |
|             |  |  | Notes toConsolidated Financial 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                                                                                                       |  |    |  |  | 19     |  |
|             |  |  | PartII — OtherInformation                                                                                             |  |    |  |  |   |  |
| Item1.           |  |  | LegalProceedings                                                                                                            |  |    |  |  | 20     |  |
| Item1A.          |  |  | Risk Factors                                                                                                                |  |    |  |  | 20     |  |
| Item2.           |  |  | Unregistered Sales of Equity Securities and Use ofProceeds                                                                  |  |    |  |  | 28     |  |
| Item3.           |  |  | Defaults Upon SeniorSecurities                                                                                              |  |    |  |  | 28     |  |
| Item4.           |  |  | Submission of Matters to a Vote of SecurityHolders                                                                          |  |    |  |  | 28     |  |
| Item 5.          |  |  | OtherInformation                                                                                                            |  |    |  |  | 28     |  |
| Item6.           |  |  | Exhibits                                                                                                                    |  |    |  |  | 29     |  |
| Signatures  |  |  |                                                                                                                             |  | 30 |  |
|                  |

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PART I— FINANCIAL INFORMATION

Item 1.    FinancialStatements

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

|                                                                                                                                            |  |  |                 |   |         |             |  |  |  |   |         |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--|--|-----------------|---|---------|-------------|--|--|--|---|---------|---|
|                                                                                                                                       |  |  | December31,2006 |   |         | June30,2006 |
|                                                                                                                                       |  |  | (Unaudited)     |   |         |        |
| Assets                                                                                                                                     |  |  |                 |   |    |             |  |  |  |   |    |   |
| Currentassets:                                                                                                                             |  |  |                 |   |    |             |  |  |  |   |    |   |
| Cash and cashequivalents                                                                                                                   |  |  |                 | $ | 26,009  |             |  |  |  | $ | 24,512  |   |
| Accountsreceivable,net                                                                                                                     |  |  |                 |   | 37,977  |             |  |  |  |   | 30,837  |   |
| Inventories                                                                                                                                |  |  |                 |   | 14,925  |             |  |  |  |   | 13,058  |   |
| Prepaidexpenses and other currentassets                                                                                                    |  |  |                 |   | 1,449   |             |  |  |  |   | 1,131   |   |
| Deferredincometaxes                                                                                                                        |  |  |                 |   | 22      |             |  |  |  |   | 22      |   |
| Totalcurrent assets                                                                                                                        |  |  |                 |   | 80,382  |             |  |  |  |   | 69,560  |   |
| Fixedassets,net                                                                                                                            |  |  |                 |   | 19,640  |             |  |  |  |   | 15,510  |   |
| Goodwill                                                                                                                                   |  |  |                 |   | 7,204   |             |  |  |  |   | 7,204   |   |
| Otherassets                                                                                                                                |  |  |                 |   | 967     |             |  |  |  |   | 960     |   |
| Totalassets                                                                                                                                |  |  |                 | $ | 108,193 |             |  |  |  | $ | 93,234  |   |
| Liabilitiesand Stockholders’Equity                                                                                                   |  |  |                 |   |    |             |  |  |  |   |    |   |
| Currentliabilities:                                                                                                                        |  |  |                 |   |    |             |  |  |  |   |    |   |
| Accountspayable                                                                                                                            |  |  |                 | $ | 22,452  |             |  |  |  | $ | 19,020  |   |
| Deferredrevenues                                                                                                                           |  |  |                 |   | 5,511   |             |  |  |  |   | 1,691   |   |
| Accruedpayroll and related fringebenefits                                                                                                  |  |  |                 |   | 3,782   |             |  |  |  |   | 2,872   |   |
| Otheraccruedexpenses                                                                                                                       |  |  |                 |   | 1,556   |             |  |  |  |   | 1,966   |   |
| Deferredliabilities                                                                                                                        |  |  |                 |   | 316     |             |  |  |  |   | 316     |   |
| Totalcurrentliabilities                                                                                                                    |  |  |                 |   | 33,617  |             |  |  |  |   | 25,865  |   |
| Otherliabilities                                                                                                                           |  |  |                 |   | 960     |             |  |  |  |   | 353     |   |
| Commitments andcontingencies                                                                                                               |  |  |                 |   |    |             |  |  |  |   |    |   |
| Stockholders’equity:                                                                                                                 |  |  |                 |   |    |             |  |  |  |   |    |   |
| Series A JuniorParticipating, shares authorized, issued and outstanding: none atDecember  31,  2006 and June  30,  2006                    |  |  |                 |   | — |             |  |  |  |   | — |   |
| Commonstock, $.001 par value, 50,000,000 shares authorized, shares issued:16,211,180 at December  31,  2006 and 15,660,524 atJune  30,2006 |  |  |                 |   | 16      |             |  |  |  |   | 16      |   |
| Additional paid-incapital                                                                                                                  |  |  |                 |   | 139,551 |             |  |  |  |   | 135,673 |   |
| Accumulateddeficit                                                                                                                         |  |  |                 |   | (63,170 | )           |  |  |  |   | (65,892 | ) |
| Treasurystock, at cost, 465,351 shares at December  31,  2006 andJune  30,2006                                                             |  |  |                 |   | (2,781  | )           |  |  |  |   | (2,781  | ) |
| Totalstockholders’equity                                                                                                             |  |  |                 |   | 73,616  |             |  |  |  |   | 67,016  |   |
| Totalliabilities and stockholders’equity                                                                                             |  |  |                 | $ | 108,193 |             |  |  |  | $ | 93,234  |   |
|                                                                                                                                            |

Seeaccompanying notes.

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

|                                                                                      |  |  |                   |   |        |                  |  |  |                 |   |        |                  |  |  |  |   |        |  |  |  |  |   |        |  |
|--------------------------------------------------------------------------------------|--|--|-------------------|---|--------|------------------|--|--|-----------------|---|--------|------------------|--|--|--|---|--------|--|--|--|--|---|--------|--|
|                                                                                 |  |  | ThreeMonths Ended |   |        | Six MonthsEnded  |
|                                                                                 |  |  | December31,2006   |   |        | December 31,2005 |  |  | December31,2006 |   |        | December 31,2005 |
| Revenuesfrom ground segment systems, networks and enterprise solutions               |  |  |                   | $ | 28,351 |                  |  |  |                 | $ | 22,604 |                  |  |  |  | $ | 45,812 |  |  |  |  | $ | 45,623 |  |
| Revenuesfrom data communications services                                            |  |  |                   |   | 8,370  |                  |  |  |                 |   | 7,308  |                  |  |  |  |   | 16,628 |  |  |  |  |   | 13,865 |  |
| Totalrevenues                                                                        |  |  |                   |   | 36,721 |                  |  |  |                 |   | 29,912 |                  |  |  |  |   | 62,440 |  |  |  |  |   | 59,488 |  |
| Costsand operatingexpenses:                                                          |  |  |                   |   |   |                  |  |  |                 |   |   |                  |  |  |  |   |   |  |  |  |  |   |   |  |
| Costsfrom ground segment systems, networks and enterprisesolutions                   |  |  |                   |   | 23,202 |                  |  |  |                 |   | 18,701 |                  |  |  |  |   | 37,277 |  |  |  |  |   | 38,226 |  |
| Costsfrom data communicationsservices                                                |  |  |                   |   | 6,976  |                  |  |  |                 |   | 6,143  |                  |  |  |  |   | 13,563 |  |  |  |  |   | 11,711 |  |
| Sellingandmarketing                                                                  |  |  |                   |   | 1,766  |                  |  |  |                 |   | 1,615  |                  |  |  |  |   | 3,541  |  |  |  |  |   | 3,129  |  |
| Researchanddevelopment                                                               |  |  |                   |   | 323    |                  |  |  |                 |   | 161    |                  |  |  |  |   | 523    |  |  |  |  |   | 270    |  |
| Generalandadministrative                                                             |  |  |                   |   | 2,951  |                  |  |  |                 |   | 2,552  |                  |  |  |  |   | 5,365  |  |  |  |  |   | 4,808  |  |
| Totalcosts and operatingexpenses                                                     |  |  |                   |   | 35,218 |                  |  |  |                 |   | 29,172 |                  |  |  |  |   | 60,269 |  |  |  |  |   | 58,144 |  |
| Incomefromoperations                                                                 |  |  |                   |   | 1,503  |                  |  |  |                 |   | 740    |                  |  |  |  |   | 2,171  |  |  |  |  |   | 1,344  |  |
| Interestincome                                                                       |  |  |                   |   | 348    |                  |  |  |                 |   | 227    |                  |  |  |  |   | 616    |  |  |  |  |   | 456    |  |
| Incomebefore incometaxes                                                             |  |  |                   |   | 1,851  |                  |  |  |                 |   | 967    |                  |  |  |  |   | 2,787  |  |  |  |  |   | 1,800  |  |
| Provisionfor incometaxes                                                             |  |  |                   |   | 45     |                  |  |  |                 |   | 30     |                  |  |  |  |   | 65     |  |  |  |  |   | 50     |  |
| Netincome                                                                            |  |  |                   | $ | 1,806  |                  |  |  |                 | $ | 937    |                  |  |  |  | $ | 2,722  |  |  |  |  | $ | 1,750  |  |
| Basicnet income per commonshare                                                      |  |  |                   | $ | 0.12   |                  |  |  |                 | $ | 0.06   |                  |  |  |  | $ | 0.18   |  |  |  |  | $ | 0.12   |  |
| Dilutednet income per commonshare                                                    |  |  |                   | $ | 0.11   |                  |  |  |                 | $ | 0.06   |                  |  |  |  | $ | 0.17   |  |  |  |  | $ | 0.11   |  |
| Weighted-averageshares used in the calculation of basic net income per commonshare   |  |  |                   |   | 15,601 |                  |  |  |                 |   | 15,005 |                  |  |  |  |   | 15,409 |  |  |  |  |   | 14,860 |  |
| Weighted-averageshares used in the calculation of diluted net income percommon share |  |  |                   |   | 16,489 |                  |  |  |                 |   | 15,606 |                  |  |  |  |   | 16,181 |  |  |  |  |   | 15,477 |  |
|                                                                                      |

Seeaccompanying notes.

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GLOBECOMM SYSTEMS INC.CONSOLIDATEDSTATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITYFOR THESIX MONTHS ENDED DECEMBER 31, 2006(Inthousands)(Unaudited)

|                                        |  |  |             |  |        |                          |  |  |                    |   |        |               |  |  |                                |   |         |  |  |  |  |   |         |   |  |  |  |  |        |  |  |  |  |   |        |   |  |  |  |   |        |  |
|----------------------------------------|--|--|-------------|--|--------|--------------------------|--|--|--------------------|---|--------|---------------|--|--|--------------------------------|---|---------|--|--|--|--|---|---------|---|--|--|--|--|--------|--|--|--|--|---|--------|---|--|--|--|---|--------|--|
|                                   |  |  | CommonStock |  |        | AdditionalPaid-inCapital |  |  | AccumulatedDeficit |   |        | TreasuryStock |  |  | 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  |  |  |             |  | 507    |                          |  |  |                    |   |   |               |  |  |                                |   | 3,353   |  |  |  |  |   |    |   |  |  |  |  |   |  |  |  |  |   |   |   |  |  |  |   | 3,353  |  |
| Proceedsfrom exercise ofwarrants       |  |  |             |  | 43     |                          |  |  |                    |   |   |               |  |  |                                |   | 344     |  |  |  |  |   |    |   |  |  |  |  |   |  |  |  |  |   |   |   |  |  |  |   | 344    |  |
| Stockcompensationexpense               |  |  |             |  |   |                          |  |  |                    |   |   |               |  |  |                                |   | 159     |  |  |  |  |   |    |   |  |  |  |  |   |  |  |  |  |   |   |   |  |  |  |   | 159    |  |
| Taxbenefit from stock compensationplan |  |  |             |  |   |                          |  |  |                    |   |   |               |  |  |                                |   | 22      |  |  |  |  |   |    |   |  |  |  |  |   |  |  |  |  |   |   |   |  |  |  |   | 22     |  |
| NetIncome                              |  |  |             |  |   |                          |  |  |                    |   |   |               |  |  |                                |   |    |  |  |  |  |   | 2,722   |   |  |  |  |  |   |  |  |  |  |   |   |   |  |  |  |   | 2,722  |  |
| Balanceat December  31,2006            |  |  |             |  | 16,211 |                          |  |  |                    | $ | 16     |               |  |  |                                | $ | 139,551 |  |  |  |  | $ | (63,170 | ) |  |  |  |  | 465    |  |  |  |  | $ | (2,781 | ) |  |  |  | $ | 73,616 |  |
|                                        |

Seeaccompanying notes.

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

|                                                                                           |  |  |                  |   |         |                 |  |  |  |   |         |   |
|-------------------------------------------------------------------------------------------|--|--|------------------|---|---------|-----------------|--|--|--|---|---------|---|
|                                                                                      |  |  | SixMonths Ended  |
|                                                                                      |  |  | December31, 2006 |   |         | December31,2005 |
| OPERATINGACTIVITIES:                                                                      |  |  |                  |   |    |                 |  |  |  |   |    |   |
| Net income                                                                                |  |  |                  | $ | 2,722   |                 |  |  |  | $ | 1,750   |   |
| Adjustmentsto reconcile net income to net cash provided by (used in) operatingactivities: |  |  |                  |   |    |                 |  |  |  |   |    |   |
| Depreciationandamortization                                                               |  |  |                  |   | 1,487   |                 |  |  |  |   | 1,534   |   |
| Provisionfor doubtfulaccounts                                                             |  |  |                  |   | 220     |                 |  |  |  |   | 281     |   |
| Stockcompensation expense                                                                 |  |  |                  |   | 159     |                 |  |  |  |   | 103     |   |
| Tax benefit fromstock compensationplan                                                    |  |  |                  |   | 22      |                 |  |  |  |   | — |   |
| Changesin operating assets andliabilities:                                                |  |  |                  |   |    |                 |  |  |  |   |    |   |
| Accountsreceivable                                                                        |  |  |                  |   | (7,360  | )               |  |  |  |   | (4,363  | ) |
| Inventories                                                                               |  |  |                  |   | (1,867  | )               |  |  |  |   | (4,271  | ) |
| Prepaidexpenses and other currentassets                                                   |  |  |                  |   | (318    | )               |  |  |  |   | (123    | ) |
| Otherassets                                                                               |  |  |                  |   | (7      | )               |  |  |  |   | 16      |   |
| Accountspayable                                                                           |  |  |                  |   | 3,432   |                 |  |  |  |   | 6,077   |   |
| Deferredrevenue                                                                           |  |  |                  |   | 3,820   |                 |  |  |  |   | (2,294  | ) |
| Accruedpayroll and related fringebenefits                                                 |  |  |                  |   | 910     |                 |  |  |  |   | 549     |   |
| Otheraccruedexpenses                                                                      |  |  |                  |   | (410    | )               |  |  |  |   | (143    | ) |
| Otherliabilities                                                                          |  |  |                  |   | 607     |                 |  |  |  |   | (158    | ) |
| Netcash provided by (used in) operatingactivities                                         |  |  |                  |   | 3,417   |                 |  |  |  |   | (1,042  | ) |
| INVESTINGACTIVITIES:                                                                      |  |  |                  |   |    |                 |  |  |  |   |    |   |
| Purchasesof fixedassets                                                                   |  |  |                  |   | (5,617  | )               |  |  |  |   | (993    | ) |
| Netcash used in investing activities                                                      |  |  |                  |   | (5,617  | )               |  |  |  |   | (993    | ) |
| FINANCINGACTIVITIES:                                                                      |  |  |                  |   |    |                 |  |  |  |   |    |   |
| Proceedsfrom exercise of stockoptions                                                     |  |  |                  |   | 3,353   |                 |  |  |  |   | 1,316   |   |
| Proceeds fromexercise ofwarrants                                                          |  |  |                  |   | 344     |                 |  |  |  |   | 440     |   |
| Netcash provided by financing activities                                                  |  |  |                  |   | 3,697   |                 |  |  |  |   | 1,756   |   |
| Effectof foreign currency translation oncash                                              |  |  |                  |   | — |                 |  |  |  |   | (20     | ) |
| Netincrease (decrease) in cash and cashequivalents                                        |  |  |                  |   | 1,497   |                 |  |  |  |   | (299    | ) |
| Cash andcash equivalents at beginning ofperiod                                            |  |  |                  |   | 24,512  |                 |  |  |  |   | 25,609  |   |
| Cashand cash equivalents at end ofperiod                                                  |  |  |                  | $ | 26,009  |                 |  |  |  | $ | 25,310  |   |
|                                                                                           |

Seeaccompanying notes.

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GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTSDECEMBER  31,2006(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 threeand six months ended December  31,  2006, are notnecessarily indicative of the results that may be expected for the fullfiscal year ending June  30,  2007, or for any futureperiod.

The accompanying consolidated financial statementsshould be read in conjunction with the audited consolidated financialstatements of the Company for the fiscal year ended June30,  2006 and the accompanying notes thereto contained in theCompany’s Annual Report on Form 10-K, filed with the Securitiesand Exchange Commission on September  13,  2006.

Principles of Consolidation

The consolidated financialstatements include the accounts of the Company and its wholly-ownedsubsidiaries, 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

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the consolidatedfinancial statements and accompanying notes. Actual results coulddiffer from those estimates.

Revenue Recognition

TheCompany recognizes revenue in accordance with Staff Accounting BulletinNo. 104 (‘‘SAB 104’’), Revenue Recognition, forits production-type contracts that are sold separately as standardsatellite ground segment systems when persuasive evidence of anarrangement exists, the selling price is fixed or determinable,collectibility is reasonably assured, delivery has occurred and thecontractual performance specifications have been met. TheCompany’s standard satellite ground segment systems produced inconnection with these contracts are typically short-term (less thantwelve months in term) and manufactured using a standard modularproduction process. Such systems require less engineering, drafting anddesign efforts than the Company’s long-term complexproduction-type projects. Revenue is recognized on the Company’sstandard satellite ground segment systems upon shipment and acceptanceof factory performance testing which is when title transfers to thecustomer. The amount of revenues recorded on each standardproduction-type contract is reduced by the customer’scontractual holdback amount, which typically requires 10% to30% of the contract value to be retained by the customer untilinstallation and final acceptance is complete. The customer generallybecomes obligated to pay 70% to 90% of the contract valueupon shipment and acceptance of factory performance testing.Installation is not 

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deemed to be essential to the functionality ofthe system since installation does not require significant changes tothe features or capabilities of the system, does not require complexsoftware integration and interfacing and the Company has notexperienced any difficulties installing such equipment. In addition,the customer or other third party vendors can install the system. Theestimated relative fair value of the installation services isdetermined by management, which is typically less than thecustomer’s contractual holdback percentage. If the holdback isless than the fair value of installation, the Company will deferrecognition of revenues, determined on a contract-by-contract basisequal to the fair value of the installation services. Payments receivedin advance by customers are deferred until shipment and are presentedas deferred revenues in the accompanying consolidated balancesheets.

The Company recognizes revenue using thepercentage-of-completion method of accounting upon the achievement ofcertain contractual milestones in accordance with Statement of Position81-1, Accounting for Performance of Construction-Type and CertainProduction-Type Contracts, for its non-standard, complexproduction-type contracts for the production of satellite groundsegment systems and equipment that are generally integrated into thecustomer’s satellite ground segment network. The equipment andsystems produced in connection with these contracts are typicallylong-term (in excess of twelve months in term) and require significantcustomer-specific engineering, drafting and design effort in order toeffectively integrate all of the customizable earth station equipmentinto the customer’s ground segment network. These contractsgenerally have larger contract values, greater economic risks andsubstantive specific contractual performance requirements due to theengineering and design complexity of such systems and relatedequipment. Progress payments received in advance by customers arenetted against the inventory balances in the accompanying consolidatedbalance sheets.

Contract costs generally include purchasedmaterial, direct labor, overhead and other 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, networksand enterprise solutions consist primarily of the costs of purchasedmaterials (including shipping and handling costs), direct labor andrelated overhead expenses, project-related travel and living costs andsubcontractor salaries.

Costs from Data CommunicationsServices

Costs from data communications services relating toInternet-based services consist primarily of satellite space segmentcharges, Internet connectivity fees, voice termination costs andnetwork operations expenses. 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 NetworkOperation Center, on a twenty-four hour a day, seven-day a week basis,including personnel and related costs and depreciation.

Researchand Development

Research and development expenditures areexpensed as incurred.

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 eliminates the ability to account for share-based compensationunder the intrinsic value method permitted by APB 25. This requires theCompany to adopt the fair value model for recognizing compensationexpense for employee stock options, and would have the effect ofreducing the Company’s reported net income and net income pershare.

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On July  1,  2005, the Companyadopted SFAS 123R using a modified prospective application, aspermitted under SFAS 123R. Under this application, the Companyis required to record compensation expense for all awards granted afterthe date of adoption and for the unvested portion of previously grantedawards that remain outstanding at the date of adoption.

Stockcompensation expense was approximately $147,000 and $159,000 for thethree and six months ended December  31,  2006,respectively. Stock compensation expense was approximately $103,000 forthe three and six months ended December  31,  2005. As ofDecember  31,  2006, there was approximately $181,000 ofunrecognized compensation cost related to non-vested stock-basedcompensation. The cost is expected to be recognized over aweighted-average period of 3.4 years.

Goodwill and OtherIntangible Assets

Goodwill represents the excess of the purchaseprice of 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 six months ended December  31,  2006 that wouldresult 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 realizability ofdeferred tax assets, management considers whether it is more likelythan not that some portion or all of the deferred tax assets will berealized. The ultimate realization of the net deferred tax assets isdependent upon the generation of future taxable income prior to theexpiration of any net operating loss carryforwards. For the six monthsended December  31,  2006 and the year ended June30,  2006, due to the uncertainty regarding the Company’sability to utilize its net operating losses in the future, the Companyprovided a valuation allowance against its previously recorded deferredtax assets except for approximately $22,000, representing stateinvestment tax credit carryforwards that will be utilized to offsetstate capital taxes on the Company’s combined state tax return.The tax provision was approximately$45,000 and $65,000 for the threeand six months ended December  31,  2006, respectively, and$30,000 and $50,000 for the three and six months ended December31,  2005, respectively. The tax provision represents theestimated federal alternative minimum tax for theperiod.

Product Warranties

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

|          |                                              |
|----------|----------------------------------------------|
| 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 

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period by the weighted-average number ofcommon shares outstanding for the period. For diluted earnings pershare the weighted average shares include the incremental common sharesissuable upon the exercise of stock options and warrants (using thetreasury stock method). The incremental common shares for stock optionsand warrants are excluded from the calculation of diluted net incomeper share, if their effect is anti-dilutive. Diluted net income pershare for the three and six months ended December  31,2006, excludes the effect of approximately 603,000 and 646,000 stockoptions in the calculation of the incremental common shares,respectively, as their effect would have been anti-dilutive. Dilutednet income per share for the three and six months ended December31,  2005, excludes the effect of approximately 2,189,000 and2,207,000 stock options and warrants in the calculation of theincremental common shares, respectively, as their effect would havebeenanti-dilutive.

|          |             |
|----------|-------------|
| 3.  | Inventories |

Inventoriesconsist of thefollowing:

|                                  |  |  |                             |   |        |             |  |  |  |   |        |  |
|----------------------------------|--|--|-----------------------------|---|--------|-------------|--|--|--|---|--------|--|
|                             |  |  | December31,2006 (Unaudited) |   |        | June30,2006 |
|                             |  |  | (Inthousands)               |
| Raw materials and componentparts |  |  |                             | $ | 132    |             |  |  |  | $ | 110    |  |
| Work-in-progress                 |  |  |                             |   | 17,997 |             |  |  |  |   | 14,564 |  |
|                             |  |  |                             |   | 18,129 |             |  |  |  |   | 14,674 |  |
| Lessprogresspayments             |  |  |                             |   | 3,204  |             |  |  |  |   | 1,616  |  |
|                             |  |  |                             | $ | 14,925 |             |  |  |  | $ | 13,058 |  |
|                                  |

|          |                    |
|----------|--------------------|
| 4.  | SegmentInformation |

The Company operates through two business segments.Its ground segment systems, networks and enterprise solutions segment,through Globecomm Systems Inc., is engaged in the design, assembly andinstallation of ground segment systems and networks. Its datacommunications 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 and six months endedDecember  31,  2006 and 2005 and as of December31,  2006 and June  30,  2006:

|  |  |
|--|--|

|                                                                                 |  |  |                          |   |        |                  |  |  |                 |   |        |                 |  |  |  |   |        |   |  |  |  |   |        |   |
|---------------------------------------------------------------------------------|--|--|--------------------------|---|--------|------------------|--|--|-----------------|---|--------|-----------------|--|--|--|---|--------|---|--|--|--|---|--------|---|
|                                                                            |  |  | ThreeMonths Ended        |   |        | Six MonthsEnded  |
|                                                                            |  |  | December31,2006          |   |        | December 31,2005 |  |  | December31,2006 |   |        | December31,2005 |
|                                                                            |  |  | (Unaudited)(Inthousands) |
| Revenues:                                                                       |  |  |                          |   |   |                  |  |  |                 |   |   |                 |  |  |  |   |   |   |  |  |  |   |   |   |
| Groundsegment systems, networks and     enterprisesolutions |  |  |                          | $ | 28,351 |                  |  |  |                 | $ | 22,602 |                 |  |  |  | $ | 45,842 |   |  |  |  | $ | 46,085 |   |
| Datacommunicationsservices                                                      |  |  |                          |   | 8,525  |                  |  |  |                 |   | 7,421  |                 |  |  |  |   | 16,993 |   |  |  |  |   | 14,325 |   |
| Intercompanyeliminations                                                        |  |  |                          |   | (155   | )                |  |  |                 |   | (111   | )               |  |  |  |   | (395   | ) |  |  |  |   | (922   | ) |
| Totalrevenues                                                                   |  |  |                          | $ | 36,721 |                  |  |  |                 | $ | 29,912 |                 |  |  |  | $ | 62,440 |   |  |  |  | $ | 59,488 |   |
| Incomefromoperations:                                                           |  |  |                          |   |   |                  |  |  |                 |   |   |                 |  |  |  |   |   |   |  |  |  |   |   |   |
| Groundsegment systems, networks and     enterprisesolutions |  |  |                          | $ | 1,013  |                  |  |  |                 | $ | 518    |                 |  |  |  | $ | 810    |   |  |  |  | $ | 921    |   |
| Datacommunicationsservices                                                      |  |  |                          |   | 481    |                  |  |  |                 |   | 204    |                 |  |  |  |   | 1,349  |   |  |  |  |   | 315    |   |
| Interestincome                                                                  |  |  |                          |   | 348    |                  |  |  |                 |   | 227    |                 |  |  |  |   | 616    |   |  |  |  |   | 456    |   |
| Intercompanyeliminations                                                        |  |  |                          |   | 9      |                  |  |  |                 |   | 18     |                 |  |  |  |   | 12     |   |  |  |  |   | 108    |   |
| Incomebefore incometaxes                                                        |  |  |                          | $ | 1,851  |                  |  |  |                 | $ | 967    |                 |  |  |  | $ | 2,787  |   |  |  |  | $ | 1,800  |   |
| Depreciationandamortization:                                                    |  |  |                          |   |   |                  |  |  |                 |   |   |                 |  |  |  |   |   |   |  |  |  |   |   |   |
| Groundsegment systems, networks and     enterprisesolutions |  |  |                          | $ | 310    |                  |  |  |                 | $ | 292    |                 |  |  |  | $ | 635    |   |  |  |  | $ | 584    |   |
| Datacommunicationsservices                                                      |  |  |                          |   | 434    |                  |  |  |                 |   | 493    |                 |  |  |  |   | 888    |   |  |  |  |   | 986    |   |
| Intercompanyeliminations                                                        |  |  |                          |   | (18    | )                |  |  |                 |   | (18    | )               |  |  |  |   | (36    | ) |  |  |  |   | (36    | ) |
| Totaldepreciation andamortization                                               |  |  |                          | $ | 726    |                  |  |  |                 | $ | 767    |                 |  |  |  | $ | 1,487  |   |  |  |  | $ | 1,534  |   |
| Expendituresfor long-livedassets:                                               |  |  |                          |   |   |                  |  |  |                 |   |   |                 |  |  |  |   |   |   |  |  |  |   |   |   |
| Groundsegment systems, networks and     enterprisesolutions |  |  |                          | $ | 1,197  |                  |  |  |                 | $ | 208    |                 |  |  |  | $ | 1,297  |   |  |  |  | $ | 379    |   |
| Datacommunicationsservices                                                      |  |  |                          |   | 2,759  |                  |  |  |                 |   | 137    |                 |  |  |  |   | 4,320  |   |  |  |  |   | 614    |   |
| Totalexpenditures for long-livedassets                                          |  |  |                          | $ | 3,956  |                  |  |  |                 | $ | 345    |                 |  |  |  | $ | 5,617  |   |  |  |  | $ | 993    |   |
|                                                                                 |

|                                                         |  |  |                            |   |         |             |  |  |  |   |         |   |
|---------------------------------------------------------|--|--|----------------------------|---|---------|-------------|--|--|--|---|---------|---|
|                                                    |  |  | December31,2006(Unaudited) |   |         | June30,2006 |
|                                                    |  |  | (Inthousands)              |
| Assets:                                                 |  |  |                            |   |    |             |  |  |  |   |    |   |
| Groundsegment systems, networks and enterprisesolutions |  |  |                            | $ | 157,946 |             |  |  |  | $ | 145,125 |   |
| Datacommunicationsservices                              |  |  |                            |   | 17,789  |             |  |  |  |   | 13,256  |   |
| Intercompanyeliminations                                |  |  |                            |   | (67,542 | )           |  |  |  |   | (65,147 | ) |
| Totalassets                                             |  |  |                            | $ | 108,193 |             |  |  |  | $ | 93,234  |   |
|                                                         |

|          |               |
|----------|---------------|
| 5.  | Lineof Credit |

On October  31,  2006, the Company enteredinto a secured credit facility with Citibank, N.A, which expires onNovember  30,  2007. The credit facility is comprised of:(1) a $25  million borrowing base 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 loans may not be drawnin amounts in excess of $20  million. The Line 

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bears interest at the prime rate or LIBORplus 200 basis points, at the discretion of the Company, and iscollateralized by a first security interest on all of the assets of theCompany. The Company can be advanced up to 80% of eligibleaccounts receivable and 100% of unrestricted cash. The creditfacility provides that the Company may borrow and apply letters ofcredit against the availability under the line of credit. In addition,the credit facility contains certain financial and other covenants,deposit requirements, monthly reporting provisions and otherrequirements. The credit facility is uncommitted and advances aresubject to Citibank, N.A.’s approval. As of December31,  2006, no borrowings were outstanding under this creditfacility, however, there were standby letters of credit ofapproximately $17.6  million, which were applied against andreduced the amounts available under this credit facility.

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

You should read thefollowing discussion of our financial condition and results ofoperations with the consolidated financial statements and related notesincluded elsewhere in this Quarterly Report on Form 10-Q. Thisdiscussion contains, in addition to historical information,forward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995, based on our current expectations,assumptions, estimates and projections. These forward-lookingstatements involve risks and uncertainties. Our actual results coulddiffer materially from those anticipated in these forward-lookingstatements as a result of certain factors, such as, among others,uncertain demand for our services and products due to economic andindustry-specific conditions, the risks associated with operating ininternational markets and our dependence on a limited number ofcontracts for a high percentage of our revenues. These risks and othersare more fully described in the ‘‘RiskFactors’’ section of this Quarterly Report and in our otherfilings with the Securities and Exchange Commission, including ourAnnual Report on Form 10-K and Quarterly Reports on Form 10-Q. Weundertake no obligation to update publicly any forward-lookingstatements for any reason, even if new information becomes available orother events occur in the future.

Overview

Our businessis global and subject to technological and business trends in thetelecommunications marketplace. We derive much of our revenue fromgovernment and government related entities (‘‘governmentmarketplace’’) and developing countries. Our business istherefore affected by geopolitical developments involving areas of theworld in which our customers are located, particularly in developingcountries and areas of the world involved in armed conflicts.

Theproducts and services we offer include: pre-engineered systems, systemsdesign and integration services, managed network services and lifecycle support services. To provide these products and services, weengineer all the necessary satellite and terrestrial facilities as wellas provide the integration services required to implement thosefacilities. We also operate and maintain managed networks and providelife cycle support services on an ongoing basis. Our customersgenerally have network service requirements that include point-to-pointor point-to-multipoint connections via a hybrid network of satelliteand terrestrial facilities. In addition to the government marketplace,these customers are communications service providers, commercialenterprises, and media and content broadcasters.

Since ourproducts and services are often sold into areas of the world which donot have fiber optic land-based networks, a substantial portion of ourrevenues are derived from, and are expected to continue to be derivedfrom, developing countries. These countries carry with them moreenhanced risks of doing business than in developed areas of the world,including the possibility of armed conflicts or the risk that moreadvanced land-based telecommunications will be implemented overtime.

In the three months ended December  31,  2006,20% of our revenues was generated by one customer in thegovernment marketplace. Although the identity of customers andcontracts may vary from period to period, we have been, and expect tocontinue to be, dependent on revenues from a small number of customersor contracts in each period in order to meet our financial goals. Fromtime to time these customers are located in developing countries orotherwise subject to unusual risks.

Revenues related to contractsfor ground segment systems, networks and enterprise solutions and datacommunications services have been fixed-price contracts in a majorityof cases. Profitability of such 

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contracts is subject to inherentuncertainties as to the cost of performance. In addition to possibleerrors or omissions in making initial estimates, cost overruns may beincurred as a result of unforeseen obstacles, including both physicalconditions and unexpected problems encountered in engineering designand testing. Since our business is frequently concentrated in a limitednumber of large contracts, a significant cost overrun on any contractcould have a material adverse effect on our business, financialcondition and results of operations.

Contract costs generallyinclude purchased material, direct labor, overhead and other directcosts. Anticipated contract losses are recognized, as they becomeknown. Costs from ground segment systems, networks and enterprisesolutions consist primarily of the costs of purchased materials(including shipping and handling costs), direct labor and relatedoverhead expenses, project-related travel and living costs andsubcontractor salaries. Costs from data communications services consistprimarily of satellite space segment charges, voice termination costs,network operations expenses and Internet connectivity fees. Satellitespace segment 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 operations center on a twenty-four hour a day,seven day a week basis, including personnel and related costs anddepreciation. Selling and marketing expenses consist primarily ofsalaries, travel and living costs for sales and marketing personnel.Research and development expenses consist primarily of salaries andrelated overhead expenses. General and administrative expenses consistof expenses associated with our management, finance, contract andadministrative functions.

Critical Accounting Policies

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

Revenue Recognition

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 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.

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We recognize revenue using thepercentage-of-completion method of accounting upon the achievement ofcertain contractual milestones in accordance with Statement of Position81-1, Accounting for Performance of Construction-Type and CertainProduction-Type Contracts, for our non-standard, complexproduction-type contracts for the production of satellite groundsegment systems and equipment that are generally integrated into thecustomer’s satellite ground segment network. The equipment andsystems produced in connection with these contracts are typicallylong-term (in excess of twelve months in term) and require significantcustomer-specific engineering, drafting and design effort in order toeffectively integrate all of the customizable earth station equipmentinto the customer’s ground segment network. These contractsgenerally have larger contract values, greater economic risks andsubstantive specific contractual performance requirements due to theengineering and design complexity of such systems and relatedequipment. Progress payments received in advance by customers arenetted against the inventories balance.

The timing of our revenuerecognition is primarily driven by achieving shipment, final acceptanceor other contractual milestones. Project risks including projectcomplexity, political and economic instability in certain regions inwhich we operate, export restrictions, tariffs, licenses and othertrade barriers which may result in the delay of the achievement ofrevenue milestones. A delay in achieving a revenue milestone maynegatively impact our results of operations.

Costs fromGround Segment Systems, Networks and Enterprise Solutions

Costs related to our production-type contracts and ournon-standard, complex production-type contracts rely on estimates basedon total expected contract costs. Typically, these contracts are fixedprice projects. We use estimates of the costs applicable to variouselements which we believe are reasonable. Our estimates, are assessedcontinually during the term of these contracts and costs are subject torevisions as the contract progresses to completion. These estimates aresubjective based on management assessment of project risk. These risksmay include project complexity and political and economic instabilityin certain regions in which we operate. Revisions in cost estimates arereflected in the period in which they become known. A significantrevision in an estimate may negatively impact our results ofoperations. In the event an estimate indicates that a loss will beincurred at completion, we record the loss as it becomes known.

Goodwill Impairment 

Goodwill represents the excessof the purchase price of businesses over the fair value of theidentifiable net assets acquired. In accordance with SFAS No. 142,Goodwill and Other Intangible Assets, goodwill and other indefinitelife intangible assets are no longer amortized, but instead tested forimpairment at least annually. The impairment test for goodwill uses atwo-step approach, which is performed at the reporting unit level. Stepone compares the fair value of the reporting unit (calculated using adiscounted cash flow method) to its carrying value. If the carryingvalue exceeds the fair value, there is a potential impairment and steptwo must be performed. Step two compares the carrying value of thereporting unit’s goodwill to its implied fair value (i.e., fairvalue of the reporting unit less the fair value of the unit’sassets and liabilities, including identifiable intangible assets). Ifthe carrying value of goodwill exceeds its implied fair value, theexcess is required to be recorded as an impairment charge. Theimpairment test is dependent upon estimated future cash flows of thedata communication services segment. There have been no events duringthe six months ended December  31,  2006 that would resultin any goodwill impairment.

Deferred taxassets

In assessing the realizability of deferred taxassets, we consider whether it is more likely than not that someportion or all of the deferred tax assets will be realized. Theultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income prior to the expiration of any netoperating loss carryforwards. Due to the uncertainty regarding ourability to utilize the net operating losses in the future, we haveprovided a valuation allowance against the operating losses andtemporary differences.

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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

Three and SixMonths Ended December  31,  2006 and 2005

Revenues from Ground Segment Systems, Networks and EnterpriseSolutions.    Revenues increased by $5.7  million, or25.4%, to $28.4  million for the three months endedDecember  31,  2006 and increased by $0.2  million,or 0.4%, to $45.8  million for the six months endedDecember  31,  2006, compared to $22.6  million and$45.6  million for the three and six months ended December31,  2005, respectively. The increase in revenues in the threemonths ended December  31,  2006 was primarily driven bythe increase in the pre-engineered systems product line revenue in thegovernment marketplace.

Revenues from Data CommunicationServices.    Revenues increased by $1.1  million, or14.5%, to $8.4  million for the three months endedDecember  31,  2006 and increased by $2.8  million,or 19.9%, to $16.6  million for the six months endedDecember  31,  2006, compared to $7.3  million and$13.9  million for the three and six months ended December31,  2005, respectively. The increase in the three months endedDecember  31,  2006 was primarily due to an increase inlife cycle support services in the government marketplace. The increasein the six months ended December  31,  2006 was primarilydue to an increase in life cycle support services in the governmentmarketplace and equipment and services to a major U.S enterprisecustomer, along with an increase in telephony services.

Costsfrom Ground Segment Systems, Networks and EnterpriseSolutions.    Costs from ground segment systems, networks andenterprise solutions increased by $4.5  million, or 24.1%,to $23.2  million for the three months ended December31,  2006 and decreased by $0.9  million, or 2.5% to$37.3  million for the six months ended December31,  2006, compared to $18.7  million and $38.2million for the three and six months ended December  31,2005, respectively. The gross margin increased to 18.2% and18.6% for the three and six months ended December31,  2006 from 17.3% and 16.2% for the three andsix months ended December  31,  2005, respectively. Thisincrease in gross margin was mainly attributable to revenue related topre-engineered systems product line in the government marketplace, inparticular one contract with a foreign government customer with ahigher than normal gross margin.

Costs from DataCommunications Services.    Costs from data communicationsservices increased by $0.8  million, or 13.6%, to$7.0  million for the three months ended December31,  2006 and increased by $1.9  million, or 15.8%,to $13.6  million for the six months ended December31,  2006, compared to $6.1  million and $11.7million for the three and six months ended December  31,2005, respectively. The gross margin increased to 16.7% and18.4% for the three and six months ended December31,  2006 from 15.9% and 15.5% for the three andsix months ended December  31,  2005, respectively. Theincrease in the margin was primarily a result of an increase in revenuein the government marketplace within life cycle support services whichhas higher margin than the other service offerings, along withconsistent fixed costs 

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within the network operation center on ahigher revenue base, partially offset by the decrease in margin in thetelephony service offering primarily a result of increased minutestermination costs from international long distance carriers. The grossmargin percentage experienced in the three and six months endedDecember  31,  2006 is higher than our historical norm andhigher than the gross margin percentage expected for the remainder offiscal year 2007.

Selling and Marketing.    Sellingand marketing expenses increased by $0.2  million, or9.3%, to $1.8  million for the three months endedDecember  31,  2006 and increased by $0.4  million,or 13.2%, to $3.5  million for the six months endedDecember  31,  2006, compared to $1.6  million and$3.1  million for the three and six months ended December31,  2005, respectively. The increase is a result of an increasein salary and salary related expenses for additional marketingpersonnel pursuing business in the government marketplace, travel andliving expenses related to marketing efforts exploring new markets andexpenses related to the sales office in Afghanistan.

Researchand Development.    Research and development expenses increasedby $0.2  million, or 100.6%, to $0.3  million forthe three months ended December  31,  2006 and increased by$0.3  million, or 93.7%, to $0.5  million for thesix months ended December  31,  2006, compared to$0.2  million and $0.3  million for the three and sixmonths ended December  31,  2005, respectively. Theincrease was principally due to costs associated with developing thenext version of AxxSysR Network Management System onthe ‘‘.Net’’ operatingsystem.

General and Administrative.    General andadministrative expenses increased by $0.4  million, or15.6%, to $3.0  million for the three months endedDecember  31,  2006 and increased by $0.6  million,or 11.6%, to $5.4  million for the six months endedDecember  31,  2006, compared to $2.6  million and$4.8  million for the three and six months ended December31,  2005, respectively. The increase in general andadministrative expenses was due to an increase in salary and relatedfringes primarily due to the increase in the Company’s pay forperformance plan and salary increases.

InterestIncome.    Interest income increased by $0.1  million, or53.3%, to $0.3  million for the three months endedDecember  31,  2006 and increased by $0.2  million,or 35.1%, to $0.6  million for the six months endedDecember  31,  2006, compared to $0.2  million and$0.5  million for the three and six months ended December31,  2005, respectively, as a result of increased interestrates.

Liquidity and Capital Resources

AtDecember  31,  2006, we had working capital of $46.8million, including cash and cash equivalents of $26.0  million,net accounts receivable of $38.0  million, inventories of$14.9  million, prepaid expenses and other current assets of$1.5  million, offset by $22.5  million in accountspayable, $5.7  million in accrued expenses and other currentliabilities and $5.5  million in deferred revenues.

Netcash provided by operating activities during the six months endedDecember  31,  2006 was $3.4  million, whichprimarily related to an increase in deferred revenue of $3.8million due to timing differences between project billings and revenuerecognition milestones resulting from specific customer contracts, anincrease in accounts payable of $3.4  million relating to theincrease in revenues and inventories and the timing of vendor payments,net income of $2.7  million, a non-cash item representingdepreciation and amortization expense of $1.5  million primarilyrelated to the network operations center and satellite earth stationequipment, an increase in accrued payroll and related fringe benefitsof $0.9  million due to the timing of payroll and the increase inthe 401k match accrual paid once a year in January, and an increase inother liabilities of $0.6  million primarily due to the receiptof a customer deposit for a large program, offset by an increase inaccounts receivable of $7.4  million due to an increase inrevenues in the six months ended December  31,  2006 andthe timing of billings and collections from customers, and an increasein inventory of $1.9  million due to the timing of shipments ofcertain jobs.

Net cash used in investing activities during thesix months ended December  31,  2006 was $5.6million, which primarily related to the purchase of network operationscenter and teleport assets primarily for a large program that weanticipate will be in service on July  1,  2007. Thisprogram will require significant additional capital expenditures forthe network operations center, teleport and facilities upgrade duringthe year ending June  30,  2007. In addition, we areupgrading our facility to meet the requirements of our 

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increase in business levels. We estimate anadditional $10  million in capital expenditures for the remainderof the year ending June  30,  2007 primarily for thenetwork operations center, teleport, and facility upgrade for both thislarge program and other requirements due to the increase in businesslevels. We will use our existing working capital and, if required, the$7  million bridge line under our credit facility to meet thesecapital expenditure requirements.

Net cash provided by financingactivities during the six months ended December  31,  2006was $3.7  million, which related to proceeds from the exercise ofstock options and warrants.

At December  31,  2006,we had a credit facility in place with Citibank, N.A, which expires onNovember  30,  2007. The credit facility is comprised of:(1) a $25  million borrowing base 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 bearsinterest at the prime rate or LIBOR plus 200 basis points, at ourdiscretion, and is collateralized by a first security interest on allof our assets. We can be advanced up to 80% of eligible accountsreceivable and 100% of unrestricted cash. The credit facilityprovides that we may borrow and apply letters of credit against theavailability under the Line. In addition, the credit facility containscertain financial and other covenants, deposit requirements, monthlyreporting provisions and other requirements. The credit facility isuncommitted and advances are subject to Citibank, N.A.’sapproval. As of December  31,  2006, no borrowings wereoutstanding under the credit facility, however, there were standbyletters of credit of approximately $17.6  million, which wereapplied against and reduced the amounts available under thefacility.

We lease satellite space segment services and otherequipment under various operating lease agreements, which expire invarious years through 2009. Future minimum lease payments due on theseleases through December  31,  2007 are approximately$5.5  million.

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At December  31,2006, we had contractual obligations and other commercial commitmentsas follows (in thousands):

|                             |  |  |                      |   |       |                |  |  |          |   |       |          |  |  |                 |   |       |  |  |  |  |   |     |  |  |  |  |   |                                 |  |
|-----------------------------|--|--|----------------------|---|-------|----------------|--|--|----------|---|-------|----------|--|--|-----------------|---|-------|--|--|--|--|---|-----|--|--|--|--|---|---------------------------------|--|
|                        |  |  | PaymentsDue byPeriod |
| ContractualObligations      |  |  | Total                |   |       | Less than1year |  |  | 1-3years |   |       | 4-5years |  |  | Morethan5 years |
| Operatingleases             |  |  |                      | $ | 8,852 |                |  |  |          | $ | 5,517 |          |  |  |                 | $ | 3,101 |  |  |  |  | $ | 234 |  |  |  |  | $ |     — |  |
| Totalcontractualobligations |  |  |                      | $ | 8,852 |                |  |  |          | $ | 5,517 |          |  |  |                 | $ | 3,101 |  |  |  |  | $ | 234 |  |  |  |  | $ | —                         |  |
|                             |

|  |  |
|--|--|

|                            |  |  |                                          |   |        |               |  |  |          |   |        |          |  |  |                |   |       |  |  |  |  |   |                                 |  |  |  |  |   |                                 |  |
|----------------------------|--|--|------------------------------------------|---|--------|---------------|--|--|----------|---|--------|----------|--|--|----------------|---|-------|--|--|--|--|---|---------------------------------|--|--|--|--|---|---------------------------------|--|
|                       |  |  | Amountof Commitment Expiration PerPeriod |
| OtherCommercialCommitments |  |  | TotalAmountsCommitted                    |   |        | Lessthan1year |  |  | 1-3years |   |        | 4-5years |  |  | MoreThan5years |
| Standby letters ofcredit   |  |  |                                          | $ | 17,649 |               |  |  |          | $ | 13,196 |          |  |  |                | $ | 4,453 |  |  |  |  | $ |     — |  |  |  |  | $ |     — |  |
| Totalcommercialcommitments |  |  |                                          | $ | 17,649 |               |  |  |          | $ | 13,196 |          |  |  |                | $ | 4,453 |  |  |  |  | $ | —                         |  |  |  |  | $ | —                         |  |
|                            |

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 capital expenditures for a large program and for workin progress for orders as obtained, 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 December  31,  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 deter 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 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, capital expenditures,research and development activities, the timing and extent of ourmarketing programs, and we may be required to reduce headcount. Wecannot assure you that additional financing will be available to us onacceptable terms, or at all.

Item 3.    Quantitative andQualitative Disclosures About Market Risk

We are subject to avariety of risks, including foreign currency exchange rate fluctuationsrelating to certain purchases from foreign vendors. In the normalcourse of business, we assess these risks and have established policiesand procedures to manage our exposure to fluctuations in foreigncurrency values.

Our objective in managing our exposure toforeign currency exchange rate fluctuations is to reduce the impact ofadverse fluctuations in earnings and cash flows associated with foreigncurrency exchange 

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rates. Accordingly, we may utilize from timeto time foreign currency forward contracts to hedge our exposure onfirm commitments denominated in foreign currency. At December31,  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.

Item4.    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 December  31,  2006 that materially affected,or are reasonably likely to materially affect, the Company’sinternal controls over financialreporting. |

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Part II— Other Information

Item 1.    LegalProceedings

None

Item 1A.    Risk Factors

RiskFactors

A limited number of customer contractsaccount for a significant portion of our revenues, and the inability toreplace a key customer contract or the failure of the customer toimplement its plans would adversely affect our results of operations,business and financial condition.

We rely on a small numberof customer contracts for a large portion of our revenue. Specifically,we have agreements with four customers to provide equipment andservices, from which we expect to generate a significant portion of ourrevenues. We derived 20% of our revenues in the three monthsended December  31,  2006 from one customer in thegovernment marketplace. 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 impractical or if all or any of the major customersmodifies or terminates its agreement with us, and we are unable toreplace these contracts, our results of operations, business andfinancial condition would be materially harmed.

We derive asubstantial portion of our revenues from the governmentmarketplace.

We derive a substantial portion of ourrevenues from government marketplace. This business tends to havehigher gross margins than other segments of our business. A futurereduction in the proportion of our business from government marketplacewould negatively impact our results of operations.

Risksassociated with operating in international markets could restrict ourability to expand globally and harm our business and prospects.

We market and sell a substantial portion of our productsand services internationally. We anticipate that international saleswill continue to account for a significant portion of our totalrevenues for the foreseeable future with a significant portion of theinternational revenue coming from developing countries, includingcountries in areas of conflict like Afghanistan. There are a number ofrisks inherent in conducting our business internationally,including:

|  |              |                                                                                                                                                                                                                                    |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | general political andeconomic instability in international markets, including thehostilities in Iraq and Afghanistan, could impede our ability todeliver our products and services to customers and harm our results ofoperations; |

|  |              |                                                                                                |
|--|--------------|------------------------------------------------------------------------------------------------|
|  | •  | difficulties in collectingaccounts receivable could adversely affect our results ofoperations; |

|  |              |                                                                                                                                                                                                                                                                     |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | changes in regulatoryrequirements could restrict our ability to deliver services to ourinternational customers, including the addition of a country to thelist of sanctioned countries under the International Emergency EconomicPowers Act or similar legislation; |

|  |              |                                                                                                                                  |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------|
|  | •  | export restrictions, tariffs, licenses andother trade barriers could prevent us from adequately equipping ournetwork facilities; |

|  |              |                                                                                                                                           |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | differingtechnology standards across countries may impede our ability tointegrate our products and services across 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; |

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|  |              |                                                                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | 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. |

These and other risks couldimpede our ability to manage our international operations effectively,limit the future 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 networkoperation center to provide our service offerings. If our serviceofferings are not accepted, or if the market fails to grow, we cannotassure you that we will be able to realize an appropriate return onthese capital expenditures.

In the event of a catastrophicloss affecting our operations in Hauppauge, New York our results ofoperations would be harmed.

GNSC revenues and results ofoperations are dependant on the infrastructure of the NetworkOperations Center and the Long Island International Teleport at ourheadquarters in Hauppauge, New York. A catastrophic event to thisfacility or to the infrastructure of the surrounding area would resultin significant delays in restoring a majority of the datacommunications services capabilities. These capabilities permit us tooffer an integrated suite of products and services and the incapacityof our communications infrastructure would negatively impact ourability to sell our ground segment systems and networks. This wouldresult in the loss of revenues and adversely affect our business,results of operations and financial condition.

Our marketsare highly competitive and we have many established competitors, and wemay lose market share as a result. 

The markets in which weoperate are highly competitive and this competition could harm ourability to sell our products and services on prices and terms favorableto us. Our primary competitors in the satellite ground segment systemsand networks market generally fall into two groups: (1) systemintegrators, like Thales, Data Path, and SED Systems, and (2) equipmentmanufacturers who also provide integrated systems, like GeneralDynamics SATCOM Technologies, Andrew Corporation, Viasat, Alcatel andND Satcom AG.

In the end-to-end satellite-based enterprisesolutions and broadcast services markets, we compete with othersatellite communication companies who provide similar services, likeAscent Media, Globecast, and Convergent Media Systems. In addition, inmanaged network services we may compete 

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with other communications service providerslike Segovia and satellite owners like SES Americom and Intelsat. Weanticipate that our competitors may develop or acquire services thatprovide functionality that is similar to that provided by our servicesand that those services may be offered at significantly lower prices orbundled with other services. These competitors may have the financialresources to withstand substantial price competition, may be in abetter position to endure difficult economic conditions ininternational markets and may be able to respond more quickly than wecan to new or emerging technologies and changes in customerrequirements. Moreover, many of our competitors have more extensivecustomer bases, broader customer relationships and broader industryalliances than we do that they could use to their advantage incompetitive situations.

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

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

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

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

|  |              |                                                                                                                          |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------|
|  | •  | theeffectiveness of our local resellers and sales representatives inmarketing and selling 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 lossesand negative 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 incur negativecash flows from operations. Our ability to maintain profitability willdepend upon our ability to generate significant revenues through newprofitable customer contracts and the expansion of our existingproducts and services, including our data communications services. Wecannot assure you that we will be able to obtain new profitablecustomer contracts or generate significant additional revenues fromthose contracts or any new products or services that we introduce. Inthe past, we have incurred significant negative cash flows, which mayreoccur if our business plan is not successful. Also, if we are unableto sustain or increase our profits on a quarterly or annual basis inthe future or if our business undergoes a period of rapid growth, ouroperating cash flows may be negatively impacted.

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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 operators has increased pricing pressures.

We depend upon certain key personnel and may not be ableto retain these employees. If we lose the services of these individualsor cannot 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 of which are our sole or a limited source of supply, and the lossof these suppliers could materially adversely affect our business,results of operations and financial condition.

We currentlyobtain most of our critical components and services from limitedsources and generally do not maintain significant inventories or havelong-term or exclusive supply contracts with our vendors. We have fromtime to time experienced delays in receiving products from vendors dueto lack of availability, quality control or manufacturing problems,shortages of materials or components or product design difficulties. Wemay experience delays in the future and replacement services orproducts may not be available when needed, or at all, or atcommercially reasonable rates or prices. If we were to change some ofour vendors, we would have to perform additional testing procedures onthe service or product supplied by the new vendors, which would preventor delay the availability of our products and services. Furthermore,our costs could increase significantly if we need to change vendors. Ifwe do not receive timely deliveries of quality products and services,or if there are significant increases in the prices of these productsor services, it could have a material adverse effect on our business,results of operations and financial condition.

Our networkmay experience 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. Computerviruses, break-ins, denial of service attacks or other problems causedby third parties could lead to 

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interruptions, delays or cessation in serviceto our customers. There currently is no existing technology thatprovides absolute security. We may face liability to customers for suchsecurity breaches. Furthermore, these incidents could deter potentialcustomers and adversely affect existing customerrelationships.

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

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

We 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 leastDecember  31,  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 existing stockholders will own a smaller percentage of our capitalstock and new investors may pay less on average for their securitiesthan, and could have rights superior to, existing stockholders.

Unauthorized use of our intellectual property by third partiesmay damage our business.

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

Wecurrently have been granted four patents in the United States, one forremote access to the Internet using satellites, one for satellitecommunication with automatic frequency control, one for a monitor andcontrol system for satellite communications networks and the like, andone for implementing facsimile and data communications using Internetprotocols. We have one other patent pending in the United States for adistributed satellite-based cellular network. We currently have onePatent Cooperation Treaty patent application pending for implementingfacsimile and data communications using 

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Internet protocols. We also intend to seekfurther patents on our technology, if appropriate. We cannot assure youthat patents will be issued for any of our pending or future patentapplications or that any claims allowed from such applications will beof sufficient scope, or be issued in all countries where our productsand services can be sold, to provide meaningful protection or anycommercial advantage to us. Also, our competitors may be able to designaround our patents. The laws of some foreign countries in which ourproducts and services are or may be developed, manufactured or sold maynot protect our products and services or intellectual property rightsto the same extent as do the laws of the United States and thus makethe possibility of piracy of our technology and products and servicesmore likely.

We have filed applications for trademarkregistration of Globecomm Systems Inc., Globecomm and GSI in the UnitedStates and various other countries, and have been granted registrationsfor some of these terms in the United States, Europe and Russia. Wehave various other trademarks and service marks registered or pendingfor registration in the United States and in other countries and mayseek registration of other trademarks and service marks in the future.We cannot assure you that registrations will be granted from any of ourpending or future applications, or that any registrations that aregranted will prevent others from using similar trademarks in connectionwith related goods and services.

Defending againstintellectual property infringement claims could be time consuming andexpensive, and if we are not successful, could cause substantialexpenses and disrupt our business.

We cannot be sure thatthe products, services, technologies and advertising we employ in ourbusiness do not or will not infringe valid patents, trademarks,copyrights or other intellectual property rights held by third parties.We may be subject to legal proceedings and claims from time to timerelating to the intellectual property of others in the ordinary courseof our business. Prosecuting infringers and defending againstintellectual property infringement claims could be time consuming andexpensive, and regardless of whether we are or are not successful,could cause substantial expenses and disrupt our business. We may incursubstantial expenses in defending against these third party claims,regardless of their merit. Successful infringement claims against usmay result in substantial monetary liability and/or may materiallydisrupt the conduct of, or necessitate the cessation of, segments ofour business.

Risks Related to the Securities Markets andOwnership of Our Common Stock

Our stock price isvolatile.

From January  1,  2006 throughDecember  31,  2006, our stock price ranged from a low of$5.88 per share to a high of $9.70 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.

Because ourcommon stock is thinly traded, it may be difficult to sell shares ofour common stock into the markets without experiencing significantprice volatility.

Our common stock is currently traded onthe Nasdaq Global Market. Because of the relatively small number ofshares that are traded, it may be difficult for an investor to find apurchaser for shares of our 

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common stock without experiencing significantprice volatility. We cannot guarantee that an active trading marketwill develop, that our common stock will have a higher trading volumethan it has historically had or that it will maintain its currentmarket price. This illiquidity could have a material adverse effect onthe market price of our stock.

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

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

We have not paid dividends inthe 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.

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 

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advances in telecommunications technologylike Internet/intranet transmission by satellite. We cannot assure youthat the present regulatory environment in any of those countries willnot be changed in a manner that may have a material adverse impact onour business. Either we or our local partners typically must obtainauthorization from each country in which we provide oursatellite-delivered data communications services. The regulatoryschemes in each country are different, and thus there may be instancesof noncompliance of which we are not aware. We cannot assure you thatour licenses and approvals are or will remain sufficient in the view offoreign regulatory authorities, or that necessary licenses andapprovals will be granted on a timely basis in all jurisdictions inwhich we wish to offer our products and services or that restrictionsapplicable thereto will not be unduly burdensome.

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

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 

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

ForeignOwnership

We may, in the future, be required to seekFCC or other government approval if foreign ownership of our stockexceeds certain specified criteria. Failure to comply with thesepolicies could result in an order to divest the offending foreignownership, fines, denial of license renewal and/or license revocationproceedings against the licensee by the FCC, or denial of certaincontracts from other United States Government Agencies.

Item2.    Unregistered Sales of Equity Securities and Use ofProceeds

None

Item 3.    Defaults Upon SeniorSecurities

None

Item 4.    Submission of Matters to aVote of Security Holders

Matters voted upon at the AnnualMeeting of stockholders held on November  16,  2006 and theresults of the voting were asfollows:

|  |           |                                                                                 |
|--|-----------|---------------------------------------------------------------------------------|
|  | (i)  | The followingindividuals were elected by the Stockholders to serve asDirectors: |

|                        |  |  |     |  |            |          |  |  |  |  |           |  |
|------------------------|--|--|-----|--|------------|----------|--|--|--|--|-----------|--|
| BoardMember            |  |  | For |  |            | Withheld |
| RichardE. Caruso       |  |  |     |  | 12,992,671 |          |  |  |  |  | 1,901,247 |  |
| DavidE.Hershberg       |  |  |     |  | 14,399,412 |          |  |  |  |  | 494,506   |  |
| HarryL. Hutcherson,Jr. |  |  |     |  | 14,395,412 |          |  |  |  |  | 498,506   |  |
| Brian T.Maloney        |  |  |     |  | 14,117,846 |          |  |  |  |  | 776,072   |  |
| KennethA. Miller       |  |  |     |  | 14,394,179 |          |  |  |  |  | 499,739   |  |
| Jack A.Shaw            |  |  |     |  | 14,395,212 |          |  |  |  |  | 498,706   |  |
| A. RobertTowbin        |  |  |     |  | 14,394,429 |          |  |  |  |  | 499,489   |  |
| C.J.Waylan             |  |  |     |  | 14,395,212 |          |  |  |  |  | 498,706   |  |
|                        |

|  |            |                                                                                                                                              |
|--|------------|----------------------------------------------------------------------------------------------------------------------------------------------|
|  | (ii)  | Toapprove the 2006 Stock Incentive Plan was voted upon as follows:7,516,420 shares for; 982,447 shares against; and 42,347 sharesabstaining. |

|  |             |                                                                                                                                                                                                                                          |
|--|-------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (iii)  | To ratify theappointment of Ernst & Young LLP as independent auditors of theCompany for the fiscal year ending June  30,  2007 wasvoted upon as follows: 14,776,958  shares for; 95,294 sharesagainst; and 21,666 shares abstaining. |

Item 5.    OtherInformation

None

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Item 6.    Exhibits

Index toExhibits:

|            |    |    |        |  |  |                                                                                                                                                |
|------------|----|----|--------|--|--|------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNo. |    |    |   |
|            | 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 to 18U.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.

|                        |  |  |                                                                                                                                  |
|------------------------|--|--|----------------------------------------------------------------------------------------------------------------------------------|
|                   |  |  | GLOBECOMMSYSTEMSINC.                (Registrant) |
| Date:February  9, 2007 |  |  | /s/DAVID E. HERSHBERG                                                                                                            |
|                   |  |  | David E.HershbergChairman of the Board and Chief ExecutiveOfficer(Principal ExecutiveOfficer)                                    |
| Date:February  9,2007  |  |  | /s/ ANDREW C.MELFI                                                                                                               |
|                   |  |  | Andrew C. MelfiVicePresident, Chief Financial Officer and Treasurer(PrincipalFinancial and AccountingOfficer)                    |
|                        |

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Index toExhibits:

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

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