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UNITEDSTATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.20549

FORM 10-K ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGEACT OF 1934

For the fiscal year ended June30,  2006OR TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934Commission File Number000-22839

GLOBECOMM SYSTEMSINC.(exact name of registrant as specified in itscharter)

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| Delaware(State or other jurisdiction of incorporation ororganization) |  |  | 11-3225567(I.R.S. Employer IdentificationNo.) |
| 45 Oser Avenue,Hauppauge, NY (Address of principal executiveoffices)  |  |  | 11788 (ZipCode)                               |
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Registrant's telephonenumber, including area code: (631) 231-9800

Securitiesregistered pursuant to Section 12(b) of theAct:

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| Titleof each class           |  |  | Name of each exchangeon whichregistered                |
| Common Stock, $.001 parvalue |  |  | Nasdaq   Global   Market |
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Securitiesregistered pursuant to Section 12(g) of the Act:None

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct. Yes  No 

Indicate bycheck mark if the registrant is not required to file reports pursuantto Section 13 or Section 15(d) of the Act. Yes No 

Indicate by checkmark whether the registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes No 

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

Indicate by check mark whether theRegistrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of ‘‘acceleratedfiler and large accelerated filer’’ in Rule 12b-2 of theExchange Act. Large accelerated filer    Accelerated filer     Non-accelerated filer 

Indicate bycheck mark whether the registrant is a shell company (as defined byRule 12b-2 of the Exchange Act). Yes  No

Based on the closing sale price on theNasdaq Global Market on December  31,  2005, the lastbusiness day of the registrant’s most recently completed secondfiscal quarter, the aggregate market value of the registrant’scommon stock, $0.001 par value per share (the ‘‘CommonStock’’) held by non-affiliates of the registrant on suchdate was approximately $88.0  million. For purposes of thiscalculation, only executives and directors are deemed to be affiliatesof the registrant.

As of September  11,2006, there were 15,212,511 shares of the registrant’s CommonStock outstanding.

DOCUMENTS INCORPORATED BYREFERENCE

The Proxy Statement of Globecomm Systems Inc.relative to the 2006 Annual Meeting of Stockholders to be held onNovember  16,  2006, is incorporated by reference into PartIII of this Annual Report on Form 10-K.

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PARTI

Item 1.    Business

Overview

GlobecommSystems Inc., or Globecomm, was incorporated in Delaware inAugust  1994. We provide end-to-end value-added satellite-basedcommunication products, services and solutions by leveraging our coresatellite ground segment systems and network capabilities, with thesatellite communication services capabilities that are provided by ourwholly-owned subsidiary, Globecomm Network Services Corp.(‘‘GNSC’’).

The products andservices we offer include: pre-engineered systems, systems design andintegration services, managed network services and life cycle supportservices. To provide these products and services, we engineer all thenecessary satellite and terrestrial facilities as well as provide theintegration services required to implement those facilities. We alsooperate and maintain managed networks and provide life cycle supportservices on an ongoing basis. Our customers generally have networkservice requirements that include point-to-point or point-to-multipointconnections via a hybrid network of satellite and terrestrialfacilities. These customers are communications service providers,commercial enterprises, media and content broadcasters and governmentand government related entities. Our business is global, and we derivemuch of our revenue from developing countries.

Our solutionsbusiness is built on the foundation of our core business as a supplierof ground segment systems and networks for satellite-basedcommunications. We provide these ground segment systems and networks ona contract basis. We provide end to end value added satellite-basedcommunication solutions by combining ground segment systems andnetworks with managed network services and life cycle support services.These solutions include the necessary hardware and software to supporta wide range of network applications using satellite, broadcast andterrestrial technologies.

Products, Services and Solutions

We design, engineer, integrate and install satellite-based groundsegment systems and network solutions for the complex and changingcommunications requirements of our customers. Our satellite groundsegment systems typically consist of earth stations and ancillarysubsystems. An earth station is an integrated system consisting ofantennas, radio signal transmitting and receiving equipment,modulation/demodulation equipment, monitor and control systems andvoice, data and video network interface equipment. Our complexcommunication network solutions may include wireless local loop,microwave links or fiber optic links for the transmission ofcommunications traffic to a central office, video broadcast systems orancillary equipment, such as generators for emergency powerrequirements. Our pre-engineered system products may be sold separatelyas stand-alone ground segment systems or may be used as building blocksto be integrated into a complete ground segment system or network. Webelieve that our pre-engineered system approach allows us to engineerour satellite ground segment systems and networks to serveclient-specific service requirements rapidly, cost-effectively andefficiently with minimal site preparation. All of our earth stationsare configurable to conform to applicable satellite standards. We addvalue to offerings by leveraging our satellite communications systemexpertise to package highly integrated pre-engineered systems and todesign highly flexible computer-based satellite network managementsystems.

Our Pre-Engineered Systems

Ourpre-engineered systems product line includes a line of a fixedsatellite terminal products under the SummitTM brand, andmobile/transportable satellite terminal products under theExplorerTM brand. Summit satellite terminals are provided withantenna apertures from sub meter to 21 meter in diameter usingpre-engineered building blocks that assure high reliability and rapidresponse. Explorer satellite terminals are provided with antennaapertures from sub meter to 3 meter in diameter using highly integratedelectronics in order to provide ease of operation, low cost, lightweight and small size.

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SummitTM Modular Building BlockEarth Station MBB 2001.®    This satelliteterminal provides point-to-point high-capacity data links and hubs forsatellite networks. Generally, all electronics are housed in an indoorequipment enclosure.

SummitTM Commercial Terminal CTF2001.®    This family of satellite terminalsencompasses a range of general purpose, medium-capacity satelliteterminals, and is principally used by corporate, common carrier andgovernment networks. Generally, all radio frequency electronics arehoused in weatherproof enclosures mounted on the antenna. The satellitemodem is housed in an indoor equipmentenclosure.

SummitTM Compact Earth Station CES2001.®    We designed this family of digitalsatellite terminals to be used principally to provide limited capacityto areas with limited or no telecommunications infrastructure. Thesesatellite terminals integrate radio frequency and satellite modemcomponents into one antenna mounted package.

Auto-ExplorerFly-Away Satellite Terminals.    We designed this family offly-away satellite terminals for ease of operation by non-satellitepersonnel by incorporating automatic satellite acquisition technology.These satellite terminals include an integrated electronics packagedesigned to incorporate the radio frequency, monitor and control andsatellite modem components into an outdoor mounted package. This familyof satellite terminals is designed for use in military tacticalenvironments and is tested and qualified for the appropriate militaryenvironmental standards.

Explorer MIL-COTS HMMVTransportable Satellite Terminals.    We designed this familyof militarized transportable satellite terminals primarily for UnitedStates and international government customers. This transportablesystem group is comprised of transportable earth stations designed tobe quickly deployed and operated anywhere in the world in militarytactical environments. The latest model is a HMMWV (High-MobilityMultipurpose Wheeled Vehicle) mounted satellite terminal thatincorporates the latest commercial off the shelf, or COTS, satelliteequipment technology that meet the stringent requirements of militarytactical operations. Our pre-engineered systems also include a line ofnetwork management systems designed for management and control ofsatellite terrestrial networks including equipment and systems fromvarious manufacturers by providing flexible interface devices that canbe configured to communicate with any serial or discrete monitor andcontrol interface.

AxxSys® NetworkManagement Systems.    We designed this family of computer-basednetwork management systems to monitor and control satellitecommunication equipment and satellite terminal networks. AxxSys-basedNetwork Management Systems provide status reporting locally or remotelyand provide the ability to manage distributed satellite communicationsnetworks on a global basis. Our focus currently is on developing thenext version of AxxSys based on the‘‘.NET’’ operating system for release infiscal 2007. Network management systems are key to simplifyingoperations and maintenance of satellite-based networks and, therefore,add value to the systems and networks we integrate.

SpyGlassCarrier Monitoring Systems.®    We designedthis family of computer-based carrier monitoring tools for serviceproviders who need to monitor and manage their transmissions to ensureservice reliability and availability. Our SpyGlass®family of carrier monitoring tools integrates with the AxxSys NetworkManagement System to provide ease of operation.

Our SystemsDesign and Integration Services

We design, integrate,install, test and commission facilities and complex networks to meetthe needs of our customers. Our custom systems design and integrationservices are largely focused on requirements for satellite earthstations, uplink centers, broadcast centers and next generationnetworks. This segment of our business is based on our core engineeringexpertise in satellite earth stations and network design, broadcastengineering, Internet protocol network engineering and networkmanagement system design.

Our Managed NetworkServices

We tailor our managed network services to meetour customers' needs by offering standardized services forvarious communication applications. Our standardized services may besold separately or may be used as building blocks as a part of acustom-engineered solution. We use our expertise in satellite

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communications, Internet protocol,communications networks and information technology in designing ourcustom-engineered solutions. Our managed network service offeringsinclude Content Delivery, Internet and Data, Telephony and VSATmulti-mode solutions.

Globally, telecommunications networks aremoving rapidly toward Internet protocol-based networks and servicesbased on the lower cost of implementation and the flexibility thesenetworks offer. Satellite-based communications complement this trend asmany of the regions in the world lack the ‘‘nextgeneration’’ terrestrial networks required to accommodatethe rapid and reliable transmission of the vast amounts of informationunderlying the growth in traffic. We are a network service providerthat offers ‘‘next generation’’ networkservices to communication service providers, commercial enterprises,broadcasters and other media and content providers and governments andgovernment related entities around the world. We combine satellite andterrestrial communications networks to provide customers high-speedaccess services to the United States Internet backbone, their corporateheadquarters or government offices, as well as the public switchedtelephone network. We are a licensed international voice carrier andhave bilateral agreements with a number of internationaltelecommunication operators for the origination and termination ofvoice traffic. We currently have customers for which we are providingsuch network services in the United States, Europe, South America,Africa, the Middle East, and Asia.

ContentDelivery.    We offer a complete end-to-end solution formaster control and uplinking services. This service offering providespoint to multipoint content delivery of multimedia content supportingapplications such as United States cable headend distribution viasatellite, satellite-based program acquisition and storage and playoutto support the launch of new service offerings by IPTV providers. Wealso operate a direct to home platform which offers niche broadcastersand BTV (Business Television) customers a flexible and cost-effectivemeans to extend their reach. Our teleport facilities, fiberconnectivity and twenty-four hour per day by seven-day per week networkoperations center allow us to provide ad hoc video services on a widerange of satellites.

Internet and Data.    We offerpoint to point and point to multipoint Internet and Data connectivityfor ISPs, service providers, broadcast, government and enterprisecustomers. Solutions include two way satellite connectivity as well asone-way satellite connectivity with terrestrial return. Shared andCommitted Information Rate services are available and all services areoffered with encryption options. Our Internet access services, marketedunder the Access PlusTM brand name, provide high-speedaccess to the United States Internet backbone. As part of this offeringwe provide the necessary satellite transmission services, terrestrialtransit and routing services, earth stations and installationservices.

Telephony.    We are a licensed operatorthat provides voice termination services around the world. Our voiceservices allow for economical voice termination and originationservices. We own and operate on Cisco based gateway architectures forubiquitous voice services. Our offering provides backbone connectivityservices for service providers in order to connect public switchedtelephone networks to international long distance carriers through aVoIP-based satellite link. This allows service providers overseas tocontract with us to act as their gateway to a large number ofinternational carriers. We also offer hosted soft switching servicesfor telephony providers in order to allow them to provide cellularcoverage in locations otherwise not economical to connect usingtraditional terrestrial means. This allows telephony providers overseasto expand GSM or CDMA networks economically, or to initiate service innew service areas with a minimal capital outlay. In the United States,we provide outsourced hosted soft switch services to ruraltelecommunication companies that allow them to take advantage of ashared platform. We currently have a patent pending for this hostedsoft switch service.

VSAT multi-mode.    We havedeveloped a variety of very small aperture terminals, or VSAT,solutions involving the provisioning of both standard and customizedtwo-way VSAT services for Internet access, voice services, andterrestrial network backup services. We have extended our VSATofferings with the successful launch of a new hub in Dubai, UAE. This,coupled with our VSAT hub at our Long Island International Teleport,provides us with global VSAT coverage. The VSAT solution service linetypically involves custom network design for specific customerapplications. The scope of these services range widely, and the networkcan be serviced out of any other teleports or uplinks asappropriate.

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Our Life Cycle SupportServices

We provide Life Cycle Support Services for NetworkMonitoring and Help Desk, Installation and Maintenance Services andProfessional Engineering. These services are offered as part ofend-to-end solutions and as a standalone service. When sold tocustomers on a standalone basis, these outsourced services leverage thefacilities and operations staff we have in place to provide ourend-to-end solutions.

Network Monitoring and HelpDesk.    This offering provides twenty-four hour per day byseven-day per week monitoring of satellite and terrestrial networksystems and networks. Status and alarm monitoring coupled with our helpdesk services provides our customers with the ability to outsourcemonitoring of their networks. We provide customers with network troubleshooting and problem resolution support with escalation to technicalresources on duty for problems requiring detailed technical knowledgeof equipment, systems and/or networking. We utilize a Remedy basedtrouble ticket system to track problems through conclusion. Customizedreports are issued by our Help Desk to meet our customersdemand.

Installation and Maintenance.    We offerinstallation and maintenance services of satellite and terrestrialinfrastructure at customer locations anywhere in the world. We have anestablished worldwide network of field technicians to provide on-siteservices for customer networks. These technicians enable us to providecost-effective quick-response services for installation and requiredmaintenance.

ProfessionalEngineering.    Globecomm provides engineering support tosupport hands-on activity for co-located equipment and engineering anddesign support for proposal creation and network architecturedesign.

Solution Offerings

We havecreated customizable solution offerings based on our core satelliteground segment systems and our network capabilities and managed networkservices to serve our customers. These customizable solution offeringsinclude:

Managed Satellite–Terrestrial NetworkServices.    These solutions allow customers to outsourceentire satellite-terrestrial based communication networks to us. We arecapable of providing a ‘‘one stopshopping’’ solution including licensing, facilitiesconstruction and operation and maintenance anywhere in the world.

Next Generation Video Broadcasts.    Weprovide video broadcast services to large enterprises in the UnitedStates as well as to content owners. Our value proposition includes theability to evolve to ‘‘next generation’’Internet protocol-based video broadcast services and high qualitycustomer account management. We provide field services for theinstallation and maintenance of VSAT terminals and related facilitiesat customer locations anywhere in the world. We have created nextgeneration solutions to allow our customers to evolve their networks tointeractive distance learning, merchandizing, corporate communicationsand video on demand services.

Hybrid Satellite/Cellular Hosted Switch.    We introduced this solution toallow the sharing of the investment in the mobile switch infrastructureand network operations expenses among many service provider customers.This solution is being offered from our Long Island InternationalTeleport to customers in North and South America, Africa, Europe andthe Middle East. We also implement base station infrastructure for ourservice provider customers and operate and maintain the associatedcellular switching center on an outsource basis.

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

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

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

Hosted Direct to Home Broadcast Center.    Wehave developed solutions that provide all the functionality requiredfor new service providers to enter the direct to home television andInternet service business with a minimal capital investment. Ourfacilities at the Long Island International Teleport include televisionprogram acquisition (i.e., satellite downlink acquisition, as well asterrestrial program acquisition), program coding, program multiplexingand transmission, subscriber management and conditional access asrequired to provide such services.

Next GenerationSatellite-Based Networks.    We have developed a variety ofcomplex ‘‘next generation’’ satellite-basednetworks for both countrywide intercity communications via satelliteand terrestrial means, and for lower density rural communications VSATnetworks. For example, in Afghanistan we have built a complexcommunication network to interconnect all the provincial capitals forvoice, data and Internet. In addition, we are in the process ofconnecting over 300 small towns and villages around the country toprovide VSAT service for voice and data. These complex‘‘next generation’’ networks use Internetprotocol-based network systems and equipment to provide flexibility inservice creation and the ability to leverage a common communicationsinfrastructure as the platform for all services. These projects includethe engineering, integration and deployment of complete turn-keysolutions comprised of Internet protocol-based microwave, cellular,broadband wireless, satellite and fiber optic networks along withinternational gateway access. We also provide ongoing operations andmaintenance of these networks, Internet services and internationalvoice origination and terminations services.

Supervisory, Control and Data Acquisition (SCADA) andSurveillance Networks.    We offer SCADA and surveillanceinfrastructure and service solutions to monitor critical infrastructureor to provide security for facilities and personnel. Thesesatellite-based solutions leverage low cost Internet protocol VSATtechnology to monitor oil/gas pipelines, electrical power generationand distribution facilities and other critical infrastructure spreadover large geographic areas, or to provide surveillance capabilityusing sophisticated video cameras with capability for 360 degreeviewing remotely. We provide monitoring services for criticalinfrastructure for our customers who want to outsource these servicesor need us to back up their own monitoring center.

Our solutionscontinue to evolve based on changes in markets and technology. Thesesolution sets position us to leverage the value in our offerings byproviding one-stop shopping solutions including communicationsinfrastructure, network services and related back office services, asrequired.

Sales and Marketing

We market our productsand services to communications service providers, commercialenterprises, broadcasters and other media and content providers, andgovernment and government related entities. We have structured oursales and marketing approach to respond effectively to theopportunities in these markets, as well as to the traditional groundsegment systems and networks market. Our marketing activities areorganized regionally, as well as on an industry-specific basis. We useboth direct and indirect sales channels to market our services andproducts. We also focus on industry-specific markets, includinggovernment, broadcast and commercial enterprises.

Our corporatesales offices sell and market our products and services in the UnitedStates and internationally. We have a corporate sales offices inWashington D.C. to service the U.S. Government, in 

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Dubai, United Arab Emirates to service theMiddle East and East Asia, in Hong Kong to service the Asia Pacificregion, China and India, and in Afghanistan. The corporate salesoffices work with the regional business teams and/or the GNSC serviceteam to prepare proposals and negotiate contracts.

Our regionalbusiness teams, located in Hauppauge, New York, sell and market ourproducts and services internationally in concert with the corporatesales offices. These regional business teams are responsible for ordersin the regions to which they are assigned, as well as for the deliveryof our products and services and for account management of our existingcustomers. Currently, we have business teams responsible for theAmericas, the Asia Pacific region, and the Eastern Atlantic Region(Africa, the Middle East and Europe). We also have a business teamdedicated to the government marketplace. In addition, we have expertteams who are focused on leveraging our know-how in Internet protocolnetworking, broadcast technology, pre-engineered systems, networkmanagement systems and network services to provide added value to ourproducts, services and solutions.

These business and expert teamswork together with the corporate sales offices to identify, develop andmaintain customer relationships through local sales representatives,sales executives and account managers. Together, they develop close andcontinuing relationships with our customers. Our local salesrepresentatives in these regions provide a local presence and identifyprospective customers for our sales executives. Our account managersmay also function as project engineers for network integration andservice initiation programs for their accounts. As of June30,  2006, we employed 37 persons with sales and marketingresponsibility, of which 12 are full-time sales executives and 25 havedual engineering and sales and marketing responsibilities. We believethis account management focus provides continuity and loyalty betweenour customers and us. We also believe that our approach fosterslong-term relationships that lead to follow-on work and referrals tonew customers. These accounts also provide us with a market for the newproducts and services that we develop. In addition, we obtain salesleads through referrals from industry suppliers.

Our marketingprogram is intended to build national and international awareness ofour brand. During the fiscal year we focused our branding on fourproduct types discussed earlier: Pre-Engineering Systems; SystemsDesign and Integration; Managed Network Services; and Life CycleSupport Services. We also focused our message by creating a new tagline; ‘‘a little bit of satellite goes a longway’’. This tag line focuses our employees and customerson the message that Globecomm is expert in applying satellitecommunications know-how in a wide range of applications to provide costeffective communication solutions where the attributes of satellitecommunications are applicable.

We use direct mailings, printadvertising to targeted markets and trade publications to enhanceawareness and acquire leads for our direct and indirect sales teams. Wecreate brand awareness by participating in industry trade showssponsored by organizations like the International TelecommunicationsUnion, the National Association of Broadcasters, AFCEA, CMMA and otherindustry associations. We also provide marketing information on our website and conduct joint marketing programs with sales representatives invarious regions to reach new customers.

Customers

Wehave established a diversified base of customers in a variety ofindustries. Our customers include communications service providers,commercial enterprises, broadcasters and other media and contentproviders, and government and government related entities (U.S. andforeign). We typically rely upon a small number of customers for alarge portion of our revenues. We derived 15% of our revenues inthe year ended June  30,  2006 from one customer, theDepartment of State’s Diplomatic Telecommunications Systems— Program Office. We expect that in the near term a significantportion of our revenues will continue to be derived from one or alimited number of customers (the identity of whom may vary from year toyear) as we seek to expand our business and customer base. In addition,we anticipate that continuing deregulation worldwide will result in theformation of a significant number of new competitive service providersover the next few years, who are potentialcustomers.

Backlog

At June  30,  2006, ourbacklog was approximately $90.9  million compared toapproximately $76.3  million at June  30,  2005. Thebacklog at June  30,  2006 includes a five-year$22.4  million program 

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from a major media production distributioncompany. We anticipate generating revenue from this program over fiveyears beginning in July  2007. We record an order in backlog whenwe receive a firm contract or purchase order, which identifies productquantities, sales price, service dates and delivery dates. Backlogrepresents the amount of unrecorded revenue on undelivered orders andservices to be provided and a percentage of revenues from sales ofproducts that have been shipped where installation has not beencompleted and final acceptance has not been received from the customer.Our backlog at any given time is not necessarily indicative of futureperiod revenues. A substantial portion of our backlog is comprised oflarge orders, the cancellation of any of which could have a materialadverse effect on our operating results. For example, at June30,  2006, $41.9  million, or approximately 46.1%,of our backlog represented contracts with three customers. We cannotassure you that these contracts or any others in our backlog will notbe cancelled or revised. See the section entitled ‘‘RiskFactors.’’

Communications Infrastructure

We built and own the teleport facility located at our headquartersin Hauppauge, New York. We are a member of the World TeleportAssociation (WTA). Our teleport is designed to meet stringentrequirements for high-speed data communications. This teleport is usedto transmit and receive signals from satellites positioned to servecustomers in Latin America, the United States, Canada, Europe, theMiddle East and Africa. Our teleport uses redundant critical systemsand uninterruptible power supplies with back-up power generation.

We also lease teleport services in Los Angeles and Hong Kong totransmit and receive signals from satellites positioned to servecustomers in the Pacific Rim region. Connection to the United StatesInternet backbone in Los Angeles is achieved through leased fiber opticcircuits.

We lease transponder capacity to meet the bandwidthneeds of our customers. We have multiple, redundant, high-capacityfiber connections to provide reliable Internet data, voice and datatraffic to locations in New York City where it interconnects withtelecommunications service providers and the United States Internetbackbone.

We have built and staff a network operations center,or NOC, to manage customer circuits. The NOC operates twenty-four hoursper day, seven days per week to monitor customer circuits, respond tocustomer inquiries and initiate new services. Customers can purchase orlease from us, as a part of its service, the equipment needed at thecustomers' locations to transmit and receive the satellitesignals. We also offer installation and maintenance services for thisequipment.

Product Design, Assembly and Testing

Weassign a project team to each contract into which we enter. Each teamis led by a project engineer who is responsible for execution of theproject. This includes engineering and design, assembly and testing,installation and customer acceptance. A project may include engineers,integration specialists, buyer-planners and an operations team. Ourstandard satellite ground segment systems are manufactured using astandard modular production process. Typically, long-term projectsrequire significant customer-specific engineering, drafting and designefforts. Once the system is designed, the integration specialist workswith the buyer-planner and the operations team to assure a smoothtransfer from the engineering phase to the integration phase. Theintegration phase consists mainly of integrating the purchasedequipment, components and subsystems into a complete functioningsystem. Assembly, integration and test operations are conducted on bothan automated and manual basis.

We provide facilities forcomplete in-plant testing of all our systems before delivery in orderto assure all performance specifications will be met duringinstallation at the customer's site. We employ formal totalquality management programs and other training programs, and have beencertified by the International Organization of Standards qualitycertification process for ISO 9001, a standard that enumerates specificrequirements an organization must follow in order to assure consistentquality in the supply of products and services. The certificationprocess qualifies us for access to virtually all domestic andinternational projects, and we believe that this represents acompetitive advantage.

Research and Development

We havedeveloped internal research and development resources in Internetprotocol networks, content delivery networks, broadcast systems,network management systems and pre-engineered systems. 

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The costs of developing new technologies arefunded partially by the investments made by us and partially bydevelopment funded by specific customer program requirements. Thisapproach provides us with a cost-effective means to develop newtechnology, while minimizing our direct research and developmentexpenditures. Furthermore, we believe that our research and developmentcapabilities allow us to offer added value in developing solutions forour customers, while at the same time we maintain the opportunity todevelop products through our strategic supplier relationships. Ourinternal research and development efforts generally focus on thedevelopment of products and services not available from other suppliersto the industry. Current efforts are focused on developing SkybornePre-engineered IPTV Head End Systems for our service providercustomers, Pre-engineered AxxSys.Net network management system productsfor all our earth terminal and network customers and Pre-engineeredExplorer satellite systems for our government customers. For the yearsended June  30,  2006, 2005 and 2004, we have incurredapproximately $1.1  million, $1.0  million, and $1.3million, respectively, in internal research and developmentexpenses.

Competition

In the satellite ground segmentsystems and networks market, we believe that our ability to competesuccessfully is based primarily on our reputation and the ability toprovide a solution that meets the customer's requirements,including competitive pricing, performance, on-time delivery,reliability and customer support.

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

Our primarycompetitors in the satellite ground segment systems and networks marketgenerally fall into two groups: (1) system integrators like Thales,Data Path and SED Systems and (2) equipment manufacturers who alsoprovide integrated systems, like Andrew Corporation, Viasat, GeneralDynamics, Alcatel and ND Satcom AG.

In the end-to-endsatellite-based enterprise solutions and broadcast services markets, wecompete with other satellite communication companies who providesimilar services, like Ascent Media, Globecast and Convergent MediaSystems. In addition, in managed network services we may compete withother communications services providers like Segovia, and satelliteowners like SES Americom and Intelsat. We anticipate that ourcompetitors may develop or acquire services that provide functionalitythat is similar to that provided by our services and that thoseservices may be offered at significantly lower prices or bundled withother services.

Current and potential participants in themarkets in which we compete have established or may establishcooperative relationships among themselves or with third parties. Thesecooperative relationships may increase the ability of their productsand services to address the needs of our current and prospectivecustomers. Accordingly, it is possible that new competitors oralliances among competitors may emerge that will enable them to acquiresignificant market share rapidly. We believe that increased competitionis likely to result in price reductions, reduced gross profit marginsand loss of market share, any of which would have a material adverseeffect on our business, results of operations and financialcondition.

Intellectual Property

We rely heavily on thetechnological and creative skills of our personnel, new productdevelopments, computer programs and designs, frequent productenhancements, reliable product support and proprietary technologicalexpertise in maintaining our competitive position. We have securedpatent protection on some of our products, and have secured trademarksand service marks to protect some of our products and services.

We currently have been granted four patents in the United States,one for remote access to the Internet using satellites, another forsatellite communication with automatic frequency control, another for amonitor and control system for satellite communications networks andthe like, and another for implementing facsimile and datacommunications using Internet protocols. We have one other patent

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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 Internet protocols. We alsointend to seek additional patents on our technology, if appropriate. Wehave received trademark registration for Globecomm Systems Inc. in theUnited States, the European Community, Russia and the People’sRepublic of China; and for GSI in the United States and Russia. We havealso received trademark registrations in the United States for MBB2001,CTF 2001, CES 2001 and Axxsys, which relate to our pre-engineeredsystems; for Skyborne, relating to our broadcasting services; and forthe GSI logo. We have other trademarks and service marks pending andintend to seek registration of other trademarks and service marks inthe future.

Government Regulations

Operations andUse of Satellites 

We are subject to various federal lawsand regulations, which may have negative effects on our business. Weoperate Federal Communications Commission, or FCC, licensed earthstations in Hauppauge, New York, subject to the Communications Act of1934, as amended, or the FCC Act, and the rules and regulations of theFCC. Pursuant to the FCC Act and FCC rules and regulations, we haveobtained and are required to maintain radio transmission licenses fromthe FCC for both domestic and foreign operations of our earth stations.We have also obtained and are required to maintain authorization issuedunder Section 214 of the FCC Act to act as a telecommunicationscarrier, which authorization also extends to GNSC. These licensesshould be renewed by the FCC in the normal course as long as we remainin compliance with FCC rules and regulations. However, we cannotguarantee that additional licenses will be granted by the FCC when ourexisting licenses expire, nor can we assure you that the FCC will notadopt new or modified technical requirements that will require us toincur expenditures to modify or upgrade our equipment as a condition ofretaining our licenses.

We are also required to comply with FCCregulations regarding the exposure of humans to radio frequencyradiation from our earth stations. These regulations, as well as localland use regulations, restrict our freedom to choose where to locateour earth stations.

The licenses and authorizations held byGlobecomm extend to GNSC and GNSC currently provides services inaccordance with the requirements of the Globecomm licenses andauthorizations. GNSC may in the future seek to obtain licenses and/orauthorizations to provide services in its own name, however, we cannotguarantee that such additional licenses and authorizations will begranted by the FCC.

Common Carrier Regulation 

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

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

Foreign Ownership

The FCC Act and FCC regulations impose restrictions onforeign ownership of our earth stations. These requirements generallyforbid more than 20% ownership or control of an FCC licensee bynon-United States citizens and more than 25% ownership of alicensee's parent by non-United States citizens. The FCC mayauthorize foreign ownership in the licensee's parent in excess ofthese percentages. Under current policies, the FCC has granted theseauthorizations where the applicant does not control monopoly orbottleneck facilities and the foreign owners are citizens of countriesthat are members of the World Trade Organization or provide equivalentcompetitive opportunities to United States citizens.

We may, inthe future, be required to seek FCC approval if foreign ownership ofour stock exceeds the thresholds mentioned above. Failure to complywith these policies could result in an order to divest 

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the offending foreign ownership, fines,denial of license renewal and/or license revocation proceedings againstthe licensee by the FCC. We have no knowledge of any present foreignownership which would result in a violation of the FCC rules andregulations.

Foreign Regulations 

Regulatoryschemes in countries in which we may seek to provide oursatellite-delivered data communications services may impose impedimentson our operations. Some countries in which we operate or intend tooperate have telecommunications laws and regulations that do notcurrently contemplate technical advances in telecommunicationstechnology like Internet/intranet transmission by satellite. We cannotassure you that the present regulatory environment in any of thosecountries will not be changed in a manner which may have a materialadverse impact on our business. Either we or our local salesrepresentatives typically must obtain authorization for each country inwhich we provide our satellite-delivered data communications services.Although we believe that we or our local sales representatives will beable to obtain the requisite licenses and approvals from the countriesin which we intend to provide products and services, the regulatoryschemes in each country are different, and thus there may be instancesof noncompliance of which we are not aware. Although we believe theseregulatory schemes will not prevent us from pursuing our business plan,we cannot assure you that our licenses and approvals are or will remainsufficient in the view of foreign regulatory authorities. In addition,we cannot assure you that necessary licenses and approvals will begranted on a timely basis, or at all, in all jurisdictions in which wewish to offer our products and services or that the applicablerestrictions will not be unduly burdensome.

Regulation ofthe Internet 

Our Internet operations (other than theoperation of a teleport) are not currently subject to direct governmentregulation in the United States or most other countries, and there arecurrently few laws or regulations directly applicable to access to orcommerce on the Internet. However, due to the increasing popularity anduse of the Internet it is possible that a number of laws andregulations may be adopted at the local, national or internationallevels with respect to the Internet, covering issues like user privacyand expression, pricing of products and services, taxation,advertising, intellectual property rights, information security or theconvergence of traditional communication services with Internetcommunications.

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

Telecommunications Taxation,Support Requirements and Access Charges 

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 to new orincreased taxes and contribution requirements that could affect ourprofitability, particularly if we are not able to pass them through tocustomers for either competitive or regulatory reasons.

Internetservices are currently exempt from charges that long distance telephonecompanies pay for access to the networks of local telephone companiesin the United States. Efforts have been made from 

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

Export ofTelecommunications Equipment 

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

Employees

As of June  30,  2006, we had 192full-time employees, including 104 in engineering and programmanagement, 44 in the manufacturing, operations support and networkoperations, 12 in sales and marketing and 32 in management andadministration. Our employees are not covered by anycollective-bargaining agreements. We believe that our relations withour employees are good.

Financial Information About GeographicAreas

Revenues from foreign sales as a percentage of totalrevenues for each of the three years in the period ended June30,  2006 are set forth in Note 13 of the Notes to ConsolidatedFinancial Statements.

Financial Information About BusinessSegments

The sales and operating profits of each businesssegment and the identifiable assets attributable to each businesssegment for each of the three years in the period ended June30,  2006 are set forth in Note 12 of the Notes to ConsolidatedFinancial Statements.

Available information

Wemaintain an Internet website at www.globecommsystems.com whereour Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, CurrentReports on Form 8-K, any amendments to these reports and all other SECdocuments are available without charge, as soon as reasonablypracticable following the time that they are filed with or furnished tothe SEC. Information contained on our website does not constitute apart of this Annual Report on Form 10-K.

Item 1A.    RiskFactors

A limited number of customercontracts account for a significant portion of our revenues, and theinability to replace a key customer contract or the failure of thecustomer to implement its plans would adversely affect our results ofoperations, business and financial condition.

We rely on asmall number of customer contracts for a large portion of our revenue.Specifically, we have agreements with three customers to provideequipment and services, from which we expect to generate a significantportion of our revenues. We derived 15% of our revenues in theyear ended June  30,  2006 from one customer, theDepartment of State’s Diplomatic Telecommunications Systems— Program Office. Also, we conduct a substantialproportion of our business in developing countries. If any key customeris unable to implement its business plan, the market for thesecustomers’ services 

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declines, political or military conditionsmake performance impossible 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 materiallyharmed.

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

We market and sell asubstantial portion of our products and services internationally. Weanticipate that international sales will continue to account for asignificant portion of our total revenues for the foreseeable futurewith a significant portion of the international revenue coming fromdeveloping countries, including countries in areas of conflict likeAfghanistan. There are a number of risks inherent in conducting ourbusiness internationally, including:

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

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

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

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

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

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

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|  | •  | 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; |

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

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

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|  | •  | 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 asubstantial portion of our revenues from fixed-price projects, underwhich we assume greater financial risk if we fail to accuratelyestimate the costs of the projects. 

We derive asubstantial portion of our revenues from fixed-price projects. Weassume greater financial risks on a fixed-price project than on atime-and-expense based project. If we miscalculate the resources ortime we need for these fixed-price projects, the costs of completingthese projects may exceed our original estimates, which wouldnegatively impact our results ofoperations.

If GNSC does not continue toexecute its business strategy or if the market for its services failsto develop or develops more slowly than we expect, our results ofoperations will be harmed. 

GNSC’s futurerevenues and results of operations are dependent on its execution ofits business strategy and development of the market for its current andfuture services. GNSC has had, and we expect will continue to have,cash requirements, which have decreased and will continue to decreaseour cash resources. If GNSC does not efficiently and substantiallyutilize its transponder space capacity and increase its level oforders, its cash requirements may increase and our results ofoperations will be harmed. In addition, significant capitalexpenditures have been required as we have built our content deliveryand telephony service offerings. If our content delivery and telephonyservice offerings are not 

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accepted, or if the market fails to grow, wecannot assure you that we will be able to realize an appropriate returnon these capital expenditures.

In the eventof a catastrophic loss affecting our operations in Hauppauge, New Yorkour results of operations would be harmed.

GNSC revenues andresults of operations are dependant on the infrastructure of theNetwork Operations Center and the 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 financialcondition.

Our markets are highly competitiveand we have many established competitors, and we may lose market shareas a result. 

The markets in which we operate arehighly competitive and this competition could harm our ability to sellour products and services on prices and terms favorable to us. Ourprimary competitors in the satellite ground segment systems andnetworks market generally fall into two groups: (1) system integrators,like Thales, Data Path, and SED Systems, and (2) equipmentmanufacturers who also provide integrated systems, like GeneralDynamics, Andrew Corporation, Viasat, Alcatel and ND Satcom AG.

In the end-to-end satellite-based enterprise solutions andbroadcast services markets, we compete with other satellitecommunication companies who provide similar services, like AscentMedia, Globecast, and Convergent Media Systems. In addition, in managednetwork services we may compete with other communications serviceproviders like Segovia and satellite owners like SES Americom andIntelsat. We anticipate that our competitors may develop or acquireservices that provide functionality that is similar to that provided byour services and that those services may be offered at significantlylower prices or bundled with other services. These competitors may havethe financial resources to withstand substantial price competition, maybe in a better position to endure difficult economic conditions ininternational markets and may be able to respond more quickly than wecan to new or emerging technologies and changes in customerrequirements. Moreover, many of our competitors have more extensivecustomer bases, broader customer relationships and broader industryalliances than we do that they could use to their advantage incompetitive situations.

The markets in which we operatehave limited barriers to entry, and we expect that we will faceadditional competition from existing competitors and new marketentrants in the future. Moreover, our current and potential competitorshave established or may establish strategic relationships amongthemselves or with third parties to increase the ability of theirproducts and services to address the needs of our current andprospective customers. The potential strategic relationships ofexisting and new competitors may rapidly acquire significant marketshare, which would harm our business and financialcondition.

If our products and services arenot accepted in developing countries with emerging markets, ourrevenues will be impaired. 

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

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

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|  | •  | the effectiveness of our localresellers and sales representatives in marketing and selling ourproducts and services; and |

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|  | •  | theacceptance of our products and services by customers. |

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

We have had a history ofoperating losses and negative cash flow. Our negative cash flows mayincrease as we pursue our business plan and our losses may reoccur,which may strain our capital resources. 

Although we haverecently been profitable, we had incurred significant net losses in thepast and continue to recognize negative cash flows from operations. Ourability to maintain profitability will depend upon our ability togenerate significant revenues through new profitable customer contractsand the expansion of our existing products and services, including ourdata communications services. We cannot assure you that we will be ableto obtain new profitable customer contracts or generate significantadditional revenues from those contracts or any new products orservices that we introduce. In the past, we have incurred significantnegative cash flows, which may reoccur if our business plan is notsuccessful. Also, if we are unable to sustain or increase our profitson a quarterly or annual basis in the future or if our businessundergoes a period of rapid growth, our operating cash flows may benegatively impacted.

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 toreturn from recent depressed levels, the demand for our satelliteground segment systems and networks may decline or grow more slowlythan we expect. As a result, we may not be able to grow our business,our revenues may decline from current levels and our results ofoperations may be harmed. The demand for communications networks andthe products used in these networks is affected by various factors,many of which are beyond our control. For example, the uncertaingeneral economic conditions have affected the overall rate of capitalspending by many of our customers. Also, many companies have found itdifficult to raise capital to finish building their communicationsnetworks and, therefore, have placed fewer orders. Past economicslowdowns resulted in a softening of demand from our customers. Wecannot predict the extent to which demand will increase. Further,increased competition among satellite ground segment systems andnetwork manufacturers has increased pricing pressures. A futurereduction in opportunities from U.S. Government and government relatedagencies would also negatively impact our results ofoperations.

We depend upon certain key personnel andmay not be able to retain these employees. If we lose the services ofthese individuals or cannot hire additional qualified personnel, ourbusiness will be harmed.

Our success also depends to asubstantial degree on our ability to attract, motivate and retainhighly-qualified personnel. There is considerable competition for theservices of highly-qualified technical and engineering personnel. Wemay not be able either to retain our current personnel or hireadditional qualified personnel if and when needed.

Our futureperformance depends on the continued service of our key technical,managerial and marketing personnel; in particular, David Hershberg andKenneth Miller are key to our success based upon their individualknowledge of the markets in which we operate. The employment of any ofour key personnel could cease at any time.

Satellites uponwhich we rely may malfunction or be damaged or lost. 

Inthe delivery of our data communications services, we lease spacesegment from various satellite transponder vendors. The damage or lossof any of the satellites used by us, or the temporary or permanentmalfunction of any of the satellites upon which we rely, would likelyresult in the interruption of our satellite-based communicationsservices. This interruption could have a material adverse effect on ourbusiness, results of operations and financialcondition.

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

We currently obtain mostof our critical components and services from limited sources andgenerally do not maintain significant inventories or have long-term orexclusive supply contracts with our vendors. 

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We have from time to time experienced delaysin receiving products from vendors due to lack of availability, qualitycontrol or manufacturing problems, shortages of materials or componentsor product design difficulties. We may experience delays in the futureand replacement services or products may not be available when needed,or at all, or at commercially reasonable rates or prices. If we were tochange some of our vendors, we would have to perform additional testingprocedures on the service or product supplied by the new vendors, whichwould prevent or delay the availability of our products and services.Furthermore, our costs could increase significantly if we need tochange vendors. If we do not receive timely deliveries of qualityproducts and services, or if there are significant increases in theprices of these products or services, it could have a material adverseeffect on our business, results of operations and financialcondition.

Our network may experience securitybreaches, which could disrupt our services.

Our networkinfrastructure may be vulnerable to computer viruses, break-ins, denialof service attacks and similar disruptive problems caused by ourcustomers or other Internet users. Computer viruses, break-ins, denialof service attacks or other problems caused by third parties could leadto interruptions, delays or cessation in service to our customers.There currently is no existing technology that provides absolutesecurity. We may face liability to customers for such securitybreaches. Furthermore, these incidents could deter potential customersand adversely affect existing customerrelationships.

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

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

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

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

We may be unable to raise additional fundsto meet 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 leastJune  30,  2007. However, our future liquidity and capitalrequirements are difficult to predict, as they depend on numerousfactors, including the success of our existing product and serviceofferings, as well as competing technological and market developments.We may need to raise additional funds in order to meet additionalworking capital requirements and to support additional capitalexpenditures or acquisition of assets or a business. Should this needarise, additional funds may not be available when needed and, even ifadditional funds are available, we may not find the terms favorable orcommercially reasonable. If adequate funds are unavailable, we may berequired to delay, scale back or eliminate some of our operatingactivities, including, without limitation, the timing and extent of ourmarketing programs, capital expenditures and research and developmentactivities and we may be required to reduce headcount. If we raiseadditional funds by issuing equity securities, our existingstockholders will own a smaller percentage of our capital stock and newinvestors may pay less on average for their securities than, and couldhave rights superior to, existingstockholders.

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

We regardour trademarks, trade secrets and other intellectual property asbeneficial to our success. Unauthorized use of our intellectualproperty by third parties may damage our business. We rely on

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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 Internet protocols. We alsointend to seek further patents on our technology, if appropriate. Wecannot assure you that patents will be issued for any of our pending orfuture patent applications or that any claims allowed from suchapplications will be of sufficient scope, or be issued in all countrieswhere our products and services can be sold, to provide meaningfulprotection or any commercial advantage to us. Also, our competitors maybe able to design around our patents. The laws of some foreigncountries in which our products and services are or may be developed,manufactured or sold may not protect our products and services orintellectual property rights to the same extent as do the laws of theUnited States and thus make the possibility of piracy of our technologyand products and services more likely.

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

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

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

Risks Related to the Securities Markets and Ownershipof Our Common Stock

Our stock price isvolatile.

From July  1,  2005 throughJune  30,  2006, our stock price ranged from a low of $5.77per share to a high of $8.44 per share. The market price of our commonstock, like that of the securities of many telecommunications and hightechnology industry companies, could be subject to significantfluctuations and is likely to remain volatile based on many factors,including the following:

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|  | •  | quarterlyvariations in operatingresults; |

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

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

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|  | •  | general market conditions;or |

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

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

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

Becauseour common stock is thinly traded, it may be difficult to sell sharesof our 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 common stock without experiencingsignificant price volatility. We cannot guarantee that an activetrading market will develop, that our common stock will have a highertrading volume than it has historically had or that it will maintainits current market price. This illiquidity could have a materialadverse effect on the market price of our stock.

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

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

Wehave not paid dividends in the past and do not expect to pay dividendsin the future, and any return on investment may be limited to the valueof our stock.

We have never paid cash dividends on ourcommon stock and do not anticipate paying cash dividends on our commonstock in the foreseeable future. The payment of dividends on our commonstock will depend on our future earnings, capital requirements,financial condition, future prospects and other factors as the board ofdirectors might deem relevant. If we do not pay dividends our stock maybe less valuable because a return on your investment will only occur ifour stock price appreciates.

Risks Related to GovernmentApprovals

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

Operations and Use of Satellites

Weare subject to various federal laws and regulations, which may havenegative effects on our business. We operate FCC licensed earthstations in Hauppauge, New York, subject to the Communications Act of1934, as amended (the ‘‘FCC Act’’), and therules and regulations of FCC. Pursuant to the FCC Act and rules, wehave obtained and are required to maintain radio transmission licensesfrom the FCC for both domestic and foreign operations of our earthstations. We have also obtained and are required to maintainauthorization issued under Section 214 of the FCC Act to act as atelecommunications carrier, which authorization also extends to GNSC.These licenses should be renewed by the FCC in the normal course aslong as we remain incompliance with FCC rules and regulations. However,we cannot guarantee that the FCC will grant additional licenses whenour existing licenses expire, nor are we assured that the FCC will notadopt new or modified technical requirements that will require us toincur expenditures to modify or upgrade our equipment as a condition ofretaining our licenses. We are also required to comply with FCCregulations regarding the exposure of humans to radio frequencyradiation from our earth stations. These regulations, as well as localland use regulations, restrict our freedom to choose where to locateour earth stations. In addition, prior to a third party acquisition ofus, we would need to seek approval from the FCC to transfer the radiotransmission licenses we have obtained to the third party upon theconsummation of the acquisition. However, we cannot assure you that theFCC will permit the transfer of these licenses. These approvals maymake it more difficult for a third party to acquireus.

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Foreign Regulations

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

Regulationof the Internet 

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

Telecommunications Taxation, SupportRequirements, and Access Charges 

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

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

19

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Export of TelecommunicationsEquipment 

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

Foreign Ownership 

Wemay, in the future, be required to seek FCC or other governmentapproval if foreign ownership of our stock exceeds certain specifiedcriteria. Failure to comply with these policies could result in anorder to divest the offending foreign ownership, fines, denial oflicense renewal and/or license revocation proceedings against thelicensee by the FCC, or denial of certain contracts from other UnitedStates Government Agencies.

Item 1B.    Unresolved Staffcomments.

None.

Item 2.    Properties

We own afacility containing approximately 122,000 square feet of space onapproximately seven acres located at 45 Oser Avenue, Hauppauge, NewYork. This facility houses our principal offices, teleport facility andproduction facilities, as well as the offices and network operationscenter of GNSC. We lease office space at monthly rates of $4,300 inWashington D.C., $2,600 in the United Kingdom, $2,500 in Afghanistan,$1,800 in United Arab Emirates, and $1,300 in Hong Kong.

Item3.    Legal proceedings

None.

Item 4.    Submissionof Matters to a Vote of Security Holders

None.

20

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PARTII

|               |                                                                                                            |
|---------------|------------------------------------------------------------------------------------------------------------|
| Item 5.  | Market for Registrant'sCommon Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities |

Our common stock is quoted on the NasdaqGlobal Market (formerly the Nasdaq National Market) under the symbol‘‘GCOM.’’ The fiscal 2006 and 2005 high andlow sales prices are as follows:

|                                 |  |  |      |   |        |     |  |  |  |   |        |  |
|---------------------------------|--|--|------|---|--------|-----|--|--|--|---|--------|--|
|                            |  |  | High |   |        | Low |
| 2006                            |  |  |      |   |   |     |  |  |  |   |   |  |
| Quarterended September  30,2005 |  |  |      | $ | 8.44   |     |  |  |  | $ | 5.77   |  |
| Quarter endedDecember  31,2005  |  |  |      |   | 8.35   |     |  |  |  |   | 5.89   |  |
| Quarter endedMarch  31,2006     |  |  |      |   | 7.98   |     |  |  |  |   | 5.88   |  |
| Quarter endedJune  30,2006      |  |  |      |   | 8.15   |     |  |  |  |   | 6.38   |  |
| 2005                            |  |  |      |   |   |     |  |  |  |   |   |  |
| Quarterended September  30,2004 |  |  |      | $ | 7.58   |     |  |  |  | $ | 4.81   |  |
| Quarter endedDecember  31,2004  |  |  |      |   | 6.80   |     |  |  |  |   | 5.08   |  |
| Quarter endedMarch  31,2005     |  |  |      |   | 7.23   |     |  |  |  |   | 5.31   |  |
| Quarter endedJune  30,2005      |  |  |      |   | 6.34   |     |  |  |  |   | 5.09   |  |
|                                 |

At September11,  2006, there were approximately 3,900 stockholders of recordof our common stock, as shown in the records of our transfer agent.

At the close of the Nasdaq Global Market on September11,  2006, our market price per share was $7.50.

As ofJune  30,  2006, we had not declared or paid dividends onour common stock since inception and we do not expect to pay dividendsin the foreseeable future.

The table below sets forth securitieswe have authorized for issuance under our equity compensationplans.

Equity Compensation Plan Information as of June30,2006

|                                                          |  |  |                                                                                      |  |           |                                                                        |  |  |                                                                                                                                    |   |      |  |  |  |  |  |           |  |
|----------------------------------------------------------|--|--|--------------------------------------------------------------------------------------|--|-----------|------------------------------------------------------------------------|--|--|------------------------------------------------------------------------------------------------------------------------------------|---|------|--|--|--|--|--|-----------|--|
| PLANCATEGORY                                             |  |  | Number ofsecuritiesto beissued upon exerciseof outstandingoptions,warrantsand rights |  |           | Weighted-averageexercisepriceof outstandingoptions, warrantsand rights |  |  | Number of securitiesremaining availableforfutureIsssuance underequity compensationplans(excludingsecurities reflectedin column(a)) |
|                                                     |  |  | (a)                                                                                  |  |           | (b)                                                                    |  |  | (c)                                                                                                                                |
| Equitycompensation plan approved by securityholders      |  |  |                                                                                      |  | 2,808,921 |                                                                        |  |  |                                                                                                                                    | $ | 7.55 |  |  |  |  |  | 1,286,961 |  |
| Equitycompensation plans not approved by securityholders |  |  |                                                                                      |  | 55,825    |                                                                        |  |  |                                                                                                                                    | $ | 8.07 |  |  |  |  |  | —   |  |
| Total                                                    |  |  |                                                                                      |  | 2,864,746 |                                                                        |  |  |                                                                                                                                    | $ | 7.56 |  |  |  |  |  | 1,286,961 |  |
|                                                          |

Theequity compensation plans that were adopted without the approval of thesecurity holders relate to outstanding warrants. During November1996, we issued ten-year warrants to five consultants to purchase anaggregate of 64,125 shares of common stock at a price per share of$8.07 in consideration for services rendered.

21

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|               |                        |
|---------------|------------------------|
| Item 6.  | SelectedFinancial Data |

Our selected consolidated financial data as ofand for each of the five years in the period ended June30,  2006 have been derived from our audited consolidatedfinancial statements. EBITDA represents net income (loss) beforeinterest income, interest expense, provision for income taxes,depreciation and amortization expense, a gain on sale of investment anda gain on sale of available-for-sale securities and a gain onliquidation of foreign subsidiary. EBITDA does not represent cash flowsdefined by accounting principles generally accepted in the UnitedStates and does not necessarily indicate that our cash flows aresufficient to fund all of our cash needs. We disclose EBITDA since itis a financial measure commonly used in our industry. EBITDA is notmeant to be considered a substitute or replacement for net income(loss) as prepared in accordance with accounting principles generallyaccepted in the United States. EBITDA may not be comparable to othersimilarly titled measures of other companies. We record an order inbacklog when we receive a firm contract or purchase order, whichidentifies product quantities, sales price, service dates and deliverydates. Backlog represents the amount of unrecorded revenue onundelivered orders and services to be provided and a percentage ofrevenues from sales of products that have been shipped whereinstallation has not been completed and final acceptance has not beenreceived from the customer. Our backlog at any given time is notnecessarily indicative of future period revenues.

22

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Selected Financial Data(Inthousands, except per sharedata)

|                                                                                                                       |  |  |                     |   |         |      |  |  |      |   |         |      |  |  |      |   |         |   |  |  |  |   |         |   |  |  |  |   |         |   |
|-----------------------------------------------------------------------------------------------------------------------|--|--|---------------------|---|---------|------|--|--|------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                                                                                                                  |  |  | Years Ended June30, |
|                                                                                                                  |  |  | 2006                |   |         | 2005 |  |  | 2004 |   |         | 2003 |  |  | 2002 |
| Statementsof OperationsData:                                                                                          |  |  |                     |   |    |      |  |  |      |   |    |      |  |  |      |   |    |   |  |  |  |   |    |   |  |  |  |   |    |   |
| Revenuesfrom ground segment systems, networks and enterprisesolutions                                                 |  |  |                     | $ | 97,967  |      |  |  |      | $ | 90,656  |      |  |  |      | $ | 73,305  |   |  |  |  | $ | 40,125  |   |  |  |  | $ | 64,101  |   |
| Revenuesfrom data communicationsservices                                                                              |  |  |                     |   | 28,069  |      |  |  |      |   | 18,928  |      |  |  |      |   | 13,931  |   |  |  |  |   | 13,903  |   |  |  |  |   | 22,478  |   |
| Totalrevenues                                                                                                         |  |  |                     |   | 126,036 |      |  |  |      |   | 109,584 |      |  |  |      |   | 87,236  |   |  |  |  |   | 54,028  |   |  |  |  |   | 86,579  |   |
| Costsand operatingexpenses:                                                                                           |  |  |                     |   |    |      |  |  |      |   |    |      |  |  |      |   |    |   |  |  |  |   |    |   |  |  |  |   |    |   |
| Costsfrom ground segment systems, networks and enterprisesolutions                                                    |  |  |                     |   | 81,410  |      |  |  |      |   | 75,357  |      |  |  |      |   | 63,282  |   |  |  |  |   | 39,447  |   |  |  |  |   | 57,083  |   |
| Costsfrom data communicationsservices                                                                                 |  |  |                     |   | 23,605  |      |  |  |      |   | 15,527  |      |  |  |      |   | 12,992  |   |  |  |  |   | 17,796  |   |  |  |  |   | 26,705  |   |
| Sellingandmarketing                                                                                                   |  |  |                     |   | 7,029   |      |  |  |      |   | 5,821   |      |  |  |      |   | 4,808   |   |  |  |  |   | 6,042   |   |  |  |  |   | 6,735   |   |
| Researchanddevelopment                                                                                                |  |  |                     |   | 1,052   |      |  |  |      |   | 1,021   |      |  |  |      |   | 1,328   |   |  |  |  |   | 800     |   |  |  |  |   | 1,185   |   |
| Generalandadministrative                                                                                              |  |  |                     |   | 9,589   |      |  |  |      |   | 7,596   |      |  |  |      |   | 6,529   |   |  |  |  |   | 9,423   |   |  |  |  |   | 11,970  |   |
| Assetimpairmentcharge                                                                                                 |  |  |                     |   | — |      |  |  |      |   | — |      |  |  |      |   | — |   |  |  |  |   | — |   |  |  |  |   | 237     |   |
| Totalcosts and operatingexpenses                                                                                      |  |  |                     |   | 122,685 |      |  |  |      |   | 105,322 |      |  |  |      |   | 88,939  |   |  |  |  |   | 73,508  |   |  |  |  |   | 103,915 |   |
| Income(loss) fromoperations                                                                                           |  |  |                     |   | 3,351   |      |  |  |      |   | 4,262   |      |  |  |      |   | (1,703  | ) |  |  |  |   | (19,480 | ) |  |  |  |   | (17,336 | ) |
| Otherincome(expense):                                                                                                 |  |  |                     |   |    |      |  |  |      |   |    |      |  |  |      |   |    |   |  |  |  |   |    |   |  |  |  |   |    |   |
| Interestincome                                                                                                        |  |  |                     |   | 965     |      |  |  |      |   | 444     |      |  |  |      |   | 271     |   |  |  |  |   | 422     |   |  |  |  |   | 1,030   |   |
| Interestexpense                                                                                                       |  |  |                     |   | — |      |  |  |      |   | — |      |  |  |      |   | — |   |  |  |  |   | (539    | ) |  |  |  |   | (957    | ) |
| Gainon liquidation of foreignsubsidiary                                                                               |  |  |                     |   | 264     |      |  |  |      |   | — |      |  |  |      |   | — |   |  |  |  |   | — |   |  |  |  |   | — |   |
| Gainon sale of available-for-salesecurities                                                                           |  |  |                     |   | — |      |  |  |      |   | 132     |      |  |  |      |   | 91      |   |  |  |  |   | — |   |  |  |  |   | — |   |
| Gainon sale ofinvestment                                                                                              |  |  |                     |   | — |      |  |  |      |   | 40      |      |  |  |      |   | — |   |  |  |  |   | — |   |  |  |  |   | — |   |
| Income(loss) before incometaxes                                                                                       |  |  |                     |   | 4,580   |      |  |  |      |   | 4,878   |      |  |  |      |   | (1,341  | ) |  |  |  |   | (19,597 | ) |  |  |  |   | (17,263 | ) |
| Provisionfor incometaxes                                                                                              |  |  |                     |   | 88      |      |  |  |      |   | 64      |      |  |  |      |   | — |   |  |  |  |   | — |   |  |  |  |   | — |   |
| Netincome (loss) from continuingoperations                                                                            |  |  |                     | $ | 4,492   |      |  |  |      | $ | 4,814   |      |  |  |      | $ | (1,341  | ) |  |  |  | $ | (19,597 | ) |  |  |  | $ | (17,263 | ) |
| Basicnet income (loss) from continuing operations per commonshare                                                     |  |  |                     | $ | 0.30    |      |  |  |      | $ | 0.33    |      |  |  |      | $ | (0.10   | ) |  |  |  | $ | (1.56   | ) |  |  |  | $ | (1.36   | ) |
| Dilutednet income (loss) from continuing operations per commonshare                                                   |  |  |                     | $ | 0.29    |      |  |  |      | $ | 0.32    |      |  |  |      | $ | (0.10   | ) |  |  |  | $ | (1.56   | ) |  |  |  | $ | (1.36   | ) |
| Weighted-averageshares used in the calculation of basic net income (loss) fromcontinuing operations per commonshare   |  |  |                     |   | 15,001  |      |  |  |      |   | 14,422  |      |  |  |      |   | 13,346  |   |  |  |  |   | 12,565  |   |  |  |  |   | 12,707  |   |
| Weighted-averageshares used in the calculation of diluted net income (loss) fromcontinuing operations per commonshare |  |  |                     |   | 15,608  |      |  |  |      |   | 14,966  |      |  |  |      |   | 13,346  |   |  |  |  |   | 12,565  |   |  |  |  |   | 12,707  |   |
|                                                                                                                       |

23

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|                                                     |  |  |                     |   |        |      |  |  |      |   |        |      |  |  |      |   |         |   |  |  |  |   |         |   |  |  |  |   |         |   |
|-----------------------------------------------------|--|--|---------------------|---|--------|------|--|--|------|---|--------|------|--|--|------|---|---------|---|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                                                |  |  | Years Ended June30, |
|                                                |  |  | 2006                |   |        | 2005 |  |  | 2004 |   |        | 2003 |  |  | 2002 |
| Other OperatingData:                                |  |  |                     |   |   |      |  |  |      |   |   |      |  |  |      |   |    |   |  |  |  |   |    |   |  |  |  |   |    |   |
| Netincome(loss)                                     |  |  |                     | $ | 4,492  |      |  |  |      | $ | 4,814  |      |  |  |      | $ | (1,341  | ) |  |  |  | $ | (19,597 | ) |  |  |  | $ | (17,263 | ) |
| Otherincome (expense),net                           |  |  |                     |   | 1,229  |      |  |  |      |   | 616    |      |  |  |      |   | 362     |   |  |  |  |   | (117    | ) |  |  |  |   | 73      |   |
| Provisionfor incometaxes                            |  |  |                     |   | 88     |      |  |  |      |   | 64     |      |  |  |      |   | — |   |  |  |  |   | — |   |  |  |  |   | — |   |
| Depreciationandamortization                         |  |  |                     |   | 3,023  |      |  |  |      |   | 2,695  |      |  |  |      |   | 3,097   |   |  |  |  |   | 3,532   |   |  |  |  |   | 3,661   |   |
| EBITDA                                              |  |  |                     | $ | 6,374  |      |  |  |      | $ | 6,957  |      |  |  |      | $ | 1,394   |   |  |  |  | $ | (15,948 | ) |  |  |  | $ | (13,675 | ) |
| Cashflows (used in) provided by operatingactivities |  |  |                     | $ | (1,129 | )    |  |  |      | $ | (3,926 | )    |  |  |      | $ | 1,613   |   |  |  |  | $ | (14,714 | ) |  |  |  | $ | (2,942  | ) |
| Cashflows used in investingactivities               |  |  |                     |   | (2,484 | )    |  |  |      |   | (1,070 | )    |  |  |      |   | (1,871  | ) |  |  |  |   | (1,712  | ) |  |  |  |   | (2,387  | ) |
| Cashflows provided by (used in) financingactivities |  |  |                     |   | 2,531  |      |  |  |      |   | 2,347  |      |  |  |      |   | 6,421   |   |  |  |  |   | (310    | ) |  |  |  |   | (1,018  | ) |
| Capitalexpenditures                                 |  |  |                     |   | 2,484  |      |  |  |      |   | 3,303  |      |  |  |      |   | 1,267   |   |  |  |  |   | 1,732   |   |  |  |  |   | 1,687   |   |
| Backlogat end ofyear                                |  |  |                     |   | 90,930 |      |  |  |      |   | 76,268 |      |  |  |      |   | 75,444  |   |  |  |  |   | 58,006  |   |  |  |  |   | 80,269  |   |
|                                                     |

|                                |  |  |         |   |        |      |  |  |      |   |        |      |  |  |      |   |        |  |  |  |  |   |        |  |  |  |  |   |         |  |
|--------------------------------|--|--|---------|---|--------|------|--|--|------|---|--------|------|--|--|------|---|--------|--|--|--|--|---|--------|--|--|--|--|---|---------|--|
|                           |  |  | June30, |
|                           |  |  | 2006    |   |        | 2005 |  |  | 2004 |   |        | 2003 |  |  | 2002 |
| Balance SheetData:             |  |  |         |   |   |      |  |  |      |   |   |      |  |  |      |   |   |  |  |  |  |   |   |  |  |  |  |   |    |  |
| Cashand cashequivalents        |  |  |         | $ | 24,512 |      |  |  |      | $ | 25,609 |      |  |  |      | $ | 28,252 |  |  |  |  | $ | 22,016 |  |  |  |  | $ | 38,708  |  |
| Workingcapital                 |  |  |         |   | 43,695 |      |  |  |      |   | 36,520 |      |  |  |      |   | 30,052 |  |  |  |  |   | 22,040 |  |  |  |  |   | 43,702  |  |
| Totalassets                    |  |  |         |   | 93,234 |      |  |  |      |   | 86,378 |      |  |  |      |   | 73,475 |  |  |  |  |   | 70,344 |  |  |  |  |   | 100,297 |  |
| Long-termliabilities           |  |  |         |   | 353    |      |  |  |      |   | 670    |      |  |  |      |   | 987    |  |  |  |  |   | 1,303  |  |  |  |  |   | 12,693  |  |
| Totalstockholders’equity |  |  |         |   | 67,016 |      |  |  |      |   | 60,137 |      |  |  |      |   | 52,806 |  |  |  |  |   | 47,437 |  |  |  |  |   | 67,040  |  |
|                                |

|              |                                                                                      |
|--------------|--------------------------------------------------------------------------------------|
| Item7.  | Management's Discussion and Analysis ofFinancial Condition and Results of Operations |

You should readthe following discussion of our financial condition and results ofoperations with the consolidated financial statements and related notesincluded elsewhere in this Annual Report on Form 10-K. This discussioncontains, in addition to historical information, forward-lookingstatements, within the meaning of the Private Securities LitigationReform Act of 1995, based on our current expectations, assumptions,estimates and projections. These forward-looking statements involverisks and uncertainties. Our actual results could differ materiallyfrom those anticipated in these forward-looking statements as a resultof certain factors, such as, among others, our dependence on a limitednumber of contracts for a high percentage of our revenues and the risksassociated with operating in international markets. These risks andothers are more fully described in the ‘‘RiskFactors’’ section and elsewhere in this Annual Report onForm 10-K. We undertake no obligation to update publicly anyforward-looking statements for any reason, even if new informationbecomes available or other events occur in the future.

Overview

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

Our business had been adversely affected by the globaleconomic slowdown from 2000 – 2004 and, in particular, thesignificant challenges facing the telecommunications industryworldwide. We continue to see improvement in the segments we serve, inparticular within the U.S. Government and government related entitiesmarketplace.

Since our products and services are often sold intoareas of the world which do not have fiber optic land-based networks, asubstantial portion of our revenues are derived from, and are expectedto continue to be derived from, developing countries. These countriescarry with them more enhanced risks of doing business than in developedareas of the world, including the possibility of armed conflicts or therisk that more advanced land-based telecommunications will beimplemented over time.

24

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Revenues related to contracts for groundsegment systems, networks and enterprise solutions and datacommunications services have been fixed-price contracts in a majorityof cases. Profitability of such 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, terms of existing contracts, our observance of trends inthe industry, information provided by our customers, and informationavailable from other outside sources, as appropriate. Actual resultsmay differ from these judgments under different assumptions orconditions. Our accounting policies that require management to applysignificant judgment include:

Revenue Recognition

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 

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equal to the fair value of the installationservices. Payments received in advance by customers are deferred untilshipment and are presented as deferred revenues.

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

In accordance with SFAS No.142, Goodwill and Other Intangible Assets, goodwill and otherindefinite life intangible assets are no longer amortized, but insteadare tested for impairment at least annually. The impairment test forgoodwill uses a two-step approach, which is performed at the reportingunit level. Step one compares the fair value of the reporting unit(calculated using a discounted cash flow method) to its carrying value.If the carrying value exceeds the fair value, there is a potentialimpairment and step two must be performed. Step two compares thecarrying value of the reporting unit’s goodwill to its impliedfair value (i.e., fair value of the reporting unit less the fair valueof the unit’s assets and liabilities, including identifiableintangible assets). If the carrying value of goodwill exceeds itsimplied fair value, the excess is required to be recorded as animpairment charge. The impairment test is dependent upon estimatedfuture cash flows based upon management estimates of the datacommunication services segment. Our impairment test as of April1,  2006 indicated that no impairmentexisted.

Allowances for Doubtful Accounts 

Wemaintain allowances for doubtful accounts for estimated lossesresulting 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 

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trends. If the financial condition of ourcustomers were to deteriorate in the future, resulting in an impairmentof their ability to 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

FiscalYears Ended June  30,  2006 and 2005

Revenues from Ground Segment Systems, Networks andEnterprise Solutions.    Revenues from ground segment systems,networks and enterprise solutions increased by $7.3  million, or8.1%, to $98.0  million for the fiscal year endedJune  30,  2006 from $90.7  million for the fiscalyear ended June  30,  2005. The increase in revenues wasprimarily the result of increased infrastructure sales in the U.S.Government and government related entities marketplace coupled withincreased sales due to an overall improvement in the telecommunicationsindustry segments we serve offset by a decrease in sales at GlobecommSystems Europe Limited. Due to this decrease in revenues and ourassessment of our UK subsidiary, we liquidated Globecomm Systems EuropeLimited on June  30,  2006 and have continued our UKpresence through our UK representative office.

Revenues fromData Communications Services.    Revenues from datacommunications services increased by $9.1  million, or48.3%, to $28.1  million for the fiscal year endedJune  30,  2006 from $18.9  million for the fiscalyear ended June  30,  2005. In our managed network serviceofferings we had increases of 73% in telephony, 28% inInternet and Data and 39% in VSAT multi-mode, coupled with an84% increase in life cycle support in fiscal 2006 as compared tofiscal 2005. The increase in revenue and corresponding increase ingross margin in the data communication services segment has been a keydriver in the increase in our consolidated income from operations. Thefuture relationship between the revenue growth of our operatingsegments will depend on a variety of factors, including the timing ofmajor contracts, which are difficult to predict.

Costs fromGround Segment Systems, Networks and EnterpriseSolutions.    Costs from ground segment systems, networks andenterprise solutions increased by $6.1  million, or 8.0%,to $81.4  million for the fiscal year ended June30,  2006 from $75.4  million for the fiscal year endedJune  30,  2005. The increase was attributable to thehigher revenue base. The gross margin remained consistent at16.9% for the fiscal years ended June  30,  2006 and2005. Although the gross margin remained consistent, the gross marginin fiscal 2005 included a non-recurring cost recovery related to asettlement with a large customer of $0.9  million. Excluding thiscost recovery, the gross margin actually increased in 2006 due torevenue related to the U.S. Government and government related entitiesprojects.

Costs from Data CommunicationsServices.    Costs from data communications services increasedby $8.1  million, or 52.0%, to $23.6  million forthe fiscal year ended June  30,  2006 from $15.5million for the fiscal year ended June  30,  2005. Grossmargin decreased to 15.9% for the fiscal year ended June30,  2006 compared to 18.0% for the fiscal year endedJune  30,  2005. The decrease in the margin was primarily aresult of increased termination costs in the telephony serviceoffering.

Selling and Marketing.    Selling andmarketing expenses increased by $1.2  million, or 20.8%,to $7.0  million for the fiscal year ended June  30,2006 from $5.8  million for the fiscal year ended June30,  2005. The increase in selling and marketing costs was aresult of an increase in consulting fees and increased salary andsalary related expenses for additional marketing personnel pursuingbusiness in Europe, Asia, and U.S Government and government relatedentities and marketing of our next generation networkservices.

Research and Development.    Research anddevelopment expenses remained consistent for the fiscal years endedJune  30,  2006 and 2005.

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General andAdministrative.    General and administrative expensesincreased by $2.0  million, or 26.2%, to $9.6million for the fiscal year ended June  30,  2006 from$7.6  million for the fiscal year ended June  30,2005. The increase in general and administrative expenses for thefiscal year ended June  30,  2006 was primarily due to abad debt recovery of $1.5  million related to a settlementagreement reached with a customer in the fiscal year ended June30,  2005, which did not recur in fiscal 2006, an increase in theprovision for doubtful accounts due to increased business levels indata communication services, compensation expense related to the annualautomatic director option grant based on the adoption of SFAS 123R, andan increase in salary and related fringes due to an increase inheadcount and the reinstatement of the 401k match by the Company inJanuary  2005.

Interest Income.    Interestincome increased by $0.5  million, or 117.3%, to$1.0  million for the fiscal year ended June  30,2006 from $0.4  million for the fiscal year ended June30,  2005, as a result of increased interest rates.

Gain on liquidation of foreign subsidiary.    Gain onliquidation of foreign subsidiary for the fiscal year ended June30,  2006 was due to the realization of the previously unrealizedforeign exchange gain reported in other comprehensive income upon theliquidation of our UK subsidiary.

Fiscal Years EndedJune  30,  2005 and 2004 

Revenues fromGround Segment Systems, Networks and EnterpriseSolutions.    Revenues from ground segment systems, networksand enterprise solutions increased by $17.3  million, or23.7%, to $90.7  million for the fiscal year endedJune  30,  2005 from $73.3  million for the fiscalyear ended June  30,  2004. The increase in revenues wasprimarily the result of increased infrastructure sales in the U.S.Government and government related entities marketplace, primarilydriven by sales to Ministry of Communication of the IslamicTransitional State of Afghanistan, coupled with increased sales due toan overall improvement in the telecommunications industry segments weserve and the achievement of shipment milestones associated withprojects currently in progress offset by a decrease in sales atGlobecomm Systems Europe Limited.

Revenues from DataCommunications Services.    Revenues from data communicationsservices increased by $5.0  million, or 35.9%, to$18.9  million for the fiscal year ended June  30,2005 from $13.9  million for the fiscal year ended June30,  2004. The increase was due to the increase in videobroadcast and VoIP service offerings.

Costs from GroundSegment Systems, Networks and Enterprise Solutions.    Costsfrom ground segment systems, networks and enterprise solutionsincreased by $12.1  million, or 19.1%, to $75.4million for the fiscal year ended June  30,  2005 from$63.3  million for the fiscal year ended June  30,2004. The increase is attributable to a higher revenue base. Costs as apercentage of related revenues decreased to 83.1% for the fiscalyear ended June  30,  2005 from 86.3% for the fiscalyear ended June  30,  2004. The decrease was mainlyattributable to a non-recurring cost recovery related to a settlementwith a large customer of $0.9  million for the year endedJune  30,  2005 and increased margin on revenues related tothe U.S. Government and government related entities projects in fiscal2005.

Costs from Data CommunicationsServices.    Costs from data communications services increasedby $2.5  million, or 19.5%, to $15.5  million forthe fiscal year ended June  30,  2005 from $13.0million for the fiscal year ended June  30,  2004. Theincrease is a result of additional space segment costs required for thevideo broadcast service and the voice termination costs for the VoIPservice.

Selling and Marketing.    Selling andmarketing expenses increased by $1.0  million, or 21.1%,to $5.8  million for the fiscal year ended June  30,2005 from $4.8  million for the fiscal year ended June30,  2004. The increase in selling and marketing costs was aresult of increased salary and salary related expenses, increasedinternational travel related to marketing efforts primarily in theMiddle East, and consulting fees related to our Hosted Switch serviceoffering.

Research and Development.    Research anddevelopment expenses decreased by $0.3  million, or 23.1%,to $1.0  million for the fiscal year ended June  30,2005 from $1.3  million for the fiscal year ended June30,  2004. The decrease was principally due to non-recurrence ofcosts associated with product research and development associated withprojects in process in the fiscal year ended June  30,2004.

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General andAdministrative.    General and administrative expensesincreased by $1.1  million, or 16.3%, to $7.6million for the fiscal year ended June  30,  2005 from$6.5  million for the fiscal year ended June  30,2004. The increase in general and administrative expenses for thefiscal year ended June  30,  2005 was primarily due to acollective increase of $1.6  million for increased salary andsalary related expenses, an increase in fees related to theimplementation of Section 404 of the Sarbanes-Oxley Act of 2002, anincrease in the accounts receivable allowance at our data communicationservices business, and termination costs. The increase of $1.6million was offset by $0.5  million net bad debt recovery whichconsisted of a $1.5  million settlement reached with a customerin the fiscal year ended June  30,  2005 compared to a$1.0  million recovery in the fiscal year ended June30,  2004.

Gain on Sale of Available-for-SaleSecurities.    The gain on sale of available-for-sale securitiesof $0.1  million for the fiscal years ended June30,  2005 and 2004 related to the sale of investments thatresulted in proceeds of $0.3  million and $0.4  million inthe fiscal years ended June  30,  2005 and 2004,respectively.

Interest Income.    Interest incomeincreased by $0.2  million, or 63.8%, to $0.4million for the fiscal year ended June  30,  2005 from$0.3  million for the fiscal year ended June  30,2004, as a result of increased interest rates coupled with an increasein the balance of cash and cash equivalents.

QuarterlyResults

The following tables set forth unaudited consolidatedfinancial information for each of the eight fiscal quarters in theperiod ended June  30,  2006. This information has beenpresented on the same basis as the audited consolidated financialstatements appearing elsewhere in the Annual Report on Form 10-K, andwe believe all necessary adjustments, consisting only of normalrecurring adjustments, have been included in the amounts stated belowto present fairly the unaudited quarterly results of operations whenread in conjunction with our audited consolidated financial statementsand related notes included elsewhere in this Annual Report on Form10-K. The operating results for any quarter are not necessarilyindicative of the operating results for any future period.

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|                                                                                      |  |  |                                     |   |         |              |  |  |             |   |         |               |  |  |             |   |         |              |  |  |             |   |         |              |  |  |  |   |         |  |  |  |  |   |         |  |  |  |  |   |         |  |  |  |  |   |         |  |
|--------------------------------------------------------------------------------------|--|--|-------------------------------------|---|---------|--------------|--|--|-------------|---|---------|---------------|--|--|-------------|---|---------|--------------|--|--|-------------|---|---------|--------------|--|--|--|---|---------|--|--|--|--|---|---------|--|--|--|--|---|---------|--|--|--|--|---|---------|--|
|                                                                                 |  |  | ThreeMonths Ended,                  |
|                                                                                 |  |  | June30,2006                         |   |         | Mar. 31,2006 |  |  | Dec.31,2005 |   |         | Sept. 30,2005 |  |  | June30,2005 |   |         | Mar. 31,2005 |  |  | Dec.31,2004 |   |         | Sept.30,2004 |
|                                                                                 |  |  | (Inthousands, except per sharedata) |
| Statement of OperationsData:                                                         |  |  |                                     |   |    |              |  |  |             |   |    |               |  |  |             |   |    |              |  |  |             |   |    |              |  |  |  |   |    |  |  |  |  |   |    |  |  |  |  |   |    |  |
| Revenuesfrom ground segment systems, networks and enterprisesolutions                |  |  |                                     | $ | 28,609  |              |  |  |             | $ | 23,735  |               |  |  |             | $ | 22,604  |              |  |  |             | $ | 23,019  |              |  |  |  | $ | 20,934  |  |  |  |  | $ | 23,443  |  |  |  |  | $ | 24,693  |  |  |  |  | $ | 21,586  |  |
| Revenuesfrom data communicationsservices                                             |  |  |                                     |   | 6,898   |              |  |  |             |   | 7,306   |               |  |  |             |   | 7,308   |              |  |  |             |   | 6,557   |              |  |  |  |   | 5,779   |  |  |  |  |   | 4,741   |  |  |  |  |   | 4,535   |  |  |  |  |   | 3,873   |  |
| Totalrevenues                                                                        |  |  |                                     |   | 35,507  |              |  |  |             |   | 31,041  |               |  |  |             |   | 29,912  |              |  |  |             |   | 29,576  |              |  |  |  |   | 26,713  |  |  |  |  |   | 28,184  |  |  |  |  |   | 29,228  |  |  |  |  |   | 25,459  |  |
| Costsand operatingexpenses:                                                          |  |  |                                     |   |    |              |  |  |             |   |    |               |  |  |             |   |    |              |  |  |             |   |    |              |  |  |  |   |    |  |  |  |  |   |    |  |  |  |  |   |    |  |  |  |  |   |    |  |
| Costsfrom ground segment systems, networks and enterprisesolutions                   |  |  |                                     |   | 23,568  |              |  |  |             |   | 19,616  |               |  |  |             |   | 18,701  |              |  |  |             |   | 19,525  |              |  |  |  |   | 16,762  |  |  |  |  |   | 19,520  |  |  |  |  |   | 21,013  |  |  |  |  |   | 18,062  |  |
| Costsfrom data communicationsservices                                                |  |  |                                     |   | 6,021   |              |  |  |             |   | 5,873   |               |  |  |             |   | 6,143   |              |  |  |             |   | 5,568   |              |  |  |  |   | 4,433   |  |  |  |  |   | 4,186   |  |  |  |  |   | 3,714   |  |  |  |  |   | 3,194   |  |
| Sellingandmarketing                                                                  |  |  |                                     |   | 2,029   |              |  |  |             |   | 1,871   |               |  |  |             |   | 1,615   |              |  |  |             |   | 1,514   |              |  |  |  |   | 1,793   |  |  |  |  |   | 1,476   |  |  |  |  |   | 1,383   |  |  |  |  |   | 1,169   |  |
| Researchanddevelopment                                                               |  |  |                                     |   | 514     |              |  |  |             |   | 268     |               |  |  |             |   | 161     |              |  |  |             |   | 109     |              |  |  |  |   | 318     |  |  |  |  |   | 231     |  |  |  |  |   | 174     |  |  |  |  |   | 298     |  |
| Generalandadministrative                                                             |  |  |                                     |   | 2,402   |              |  |  |             |   | 2,379   |               |  |  |             |   | 2,552   |              |  |  |             |   | 2,256   |              |  |  |  |   | 2,431   |  |  |  |  |   | 2,463   |  |  |  |  |   | 2,074   |  |  |  |  |   | 628     |  |
| Totalcosts and operatingexpenses                                                     |  |  |                                     |   | 34,534  |              |  |  |             |   | 30,007  |               |  |  |             |   | 29,172  |              |  |  |             |   | 28,972  |              |  |  |  |   | 25,737  |  |  |  |  |   | 27,876  |  |  |  |  |   | 28,358  |  |  |  |  |   | 23,351  |  |
| Incomefromoperations                                                                 |  |  |                                     |   | 973     |              |  |  |             |   | 1,034   |               |  |  |             |   | 740     |              |  |  |             |   | 604     |              |  |  |  |   | 976     |  |  |  |  |   | 308     |  |  |  |  |   | 870     |  |  |  |  |   | 2,108   |  |
| Otherincome:                                                                         |  |  |                                     |   |    |              |  |  |             |   |    |               |  |  |             |   |    |              |  |  |             |   |    |              |  |  |  |   |    |  |  |  |  |   |    |  |  |  |  |   |    |  |  |  |  |   |    |  |
| Interestincome                                                                       |  |  |                                     |   | 262     |              |  |  |             |   | 247     |               |  |  |             |   | 227     |              |  |  |             |   | 229     |              |  |  |  |   | 158     |  |  |  |  |   | 121     |  |  |  |  |   | 92      |  |  |  |  |   | 73      |  |
| Gainon liquidation of foreign subsidiary                                             |  |  |                                     |   | 264     |              |  |  |             |   | — |               |  |  |             |   | — |              |  |  |             |   | — |              |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |   | — |  |
| Gainon sale ofinvestment                                                             |  |  |                                     |   | — |              |  |  |             |   | — |               |  |  |             |   | — |              |  |  |             |   | — |              |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |   | 40      |  |  |  |  |   | — |  |
| Gainon sale of available-for- sale securities                                        |  |  |                                     |   | — |              |  |  |             |   | — |               |  |  |             |   | — |              |  |  |             |   | — |              |  |  |  |   | — |  |  |  |  |   | 132     |  |  |  |  |   | — |  |  |  |  |   | — |  |
| Incomebefore incometaxes                                                             |  |  |                                     |   | 1,499   |              |  |  |             |   | 1,281   |               |  |  |             |   | 967     |              |  |  |             |   | 833     |              |  |  |  |   | 1,134   |  |  |  |  |   | 561     |  |  |  |  |   | 1,002   |  |  |  |  |   | 2,181   |  |
| (Benefit)provision for incometaxes                                                   |  |  |                                     |   | (4      | )            |  |  |             |   | 42      |               |  |  |             |   | 30      |              |  |  |             |   | 20      |              |  |  |  |   | 64      |  |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |   | — |  |
| Netincome                                                                            |  |  |                                     | $ | 1,503   |              |  |  |             | $ | 1,239   |               |  |  |             | $ | 937     |              |  |  |             | $ | 813     |              |  |  |  | $ | 1,070   |  |  |  |  | $ | 561     |  |  |  |  | $ | 1,002   |  |  |  |  | $ | 2,181   |  |
| Basicnet income per commonshare                                                      |  |  |                                     | $ | 0.10    |              |  |  |             | $ | 0.08    |               |  |  |             | $ | 0.06    |              |  |  |             | $ | 0.06    |              |  |  |  | $ | 0.07    |  |  |  |  | $ | 0.04    |  |  |  |  | $ | 0.07    |  |  |  |  | $ | 0.15    |  |
| Dilutednet income per commonshare                                                    |  |  |                                     | $ | 0.10    |              |  |  |             | $ | 0.08    |               |  |  |             | $ | 0.06    |              |  |  |             | $ | 0.05    |              |  |  |  | $ | 0.07    |  |  |  |  | $ | 0.04    |  |  |  |  | $ | 0.07    |  |  |  |  | $ | 0.15    |  |
| Weighted-averageshares used in the calculation of basic net income per commonshare   |  |  |                                     |   | 15,184  |              |  |  |             |   | 15,098  |               |  |  |             |   | 15,005  |              |  |  |             |   | 14,719  |              |  |  |  |   | 14,593  |  |  |  |  |   | 14,517  |  |  |  |  |   | 14,396  |  |  |  |  |   | 14,180  |  |
| Weighted-averageshares used in the calculation of diluted net income per commonshare |  |  |                                     |   | 15,791  |              |  |  |             |   | 15,682  |               |  |  |             |   | 15,606  |              |  |  |             |   | 15,336  |              |  |  |  |   | 15,048  |  |  |  |  |   | 15,143  |  |  |  |  |   | 14,975  |  |  |  |  |   | 14,705  |  |
|                                                                                      |

Netincome for the Company’s fiscal 2005 fourth quarter ofapproximately $1.1  million included a net non-recurring gain ofapproximately $0.3  million, which represented a $0.4million gain included in costs from data communications servicesrelated to the reversal of previously recorded fixed assetdepreciation, offset by a $0.1  million charge for theaccelerated vesting of options.

We may experience significantquarter-to-quarter fluctuations in our consolidated results ofoperations, which may result in volatility in the price of our commonstock. See section entitled ‘‘RiskFactors.’’

Liquidity and Capital Resources

At June  30,  2006, we had working capital of$43.7  million, including cash and cash equivalents of$24.5  million, net accounts receivable of $30.8  million,inventories of $13.1  million and prepaid expenses and othercurrent assets of $1.2  million, offset by $19.0  millionin accounts payable, $1.7  million in deferred revenue and$5.2  million in accrued expenses and other currentliabilities.

Net cash used in operating activities during thefiscal year ended June  30,  2006 was $1.1  million,which primarily related to an increase in accounts receivable of$8.6  million due to the increase in revenues, a decrease indeferred revenues of $3.9  million due to timing differencesbetween project billings and revenue recognition milestones resultingfrom specific customer contracts offset by net income of 

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$4.5  million, an increase in accountspayable of $3.5  million relating to the increase in revenue andtiming of vendor payments, and a non-cash item representingdepreciation and amortization expense of $3.0  million primarilyrelated to the network operations center and satellite earth stationequipment.

Net cash used in investing activities during fiscalyear ended June  30,  2006 was $2.5  million, whichrelated to the purchase of $2.5  million of fixed assetsprimarily for our network operations center and teleport primarilyrelated to the content delivery and telephony service offerings.

Net cash provided by financing activities during fiscal year endedJune  30,  2006 was $2.5  million which related to$2.1  million of proceeds from the exercise of stock options and$0.4  million of proceeds from the exercise of warrants.

We have a credit agreement in place which provides for a workingcapital line of credit of up to $20.0  million, which expires inNovember  2006. The line of credit bears interest at the primerate and is collateralized by a first security interest on all of ourpersonal property. The credit agreement allows us to borrow and applyletters of credit against the availability under the line of credit. Inaddition, the credit agreement contains certain financial and othercovenants, deposit requirements, monthly reporting provisions and otherrequirements, as defined in the credit agreement, with which we were incompliance at June  30,  2006. As of June  30,2006, no borrowings were outstanding under this credit facility,however, there were standby letters of credit of approximately$16.4  million, which were applied against and reduced theamounts available under this credit facility.

We lease satellitespace segment services and other equipment under various operatinglease agreements, which expire in various years through fiscal 2011.Future minimum lease payments due on these leases through June30,  2007 are approximately $7.1  million.

We expectthat our cash and working capital requirements for operating activitieswill increase as we continue to implement our business strategy.Management anticipates additional working capital requirements for workin progress for orders as obtained and that we may periodicallyexperience negative cash flows due to variances in quarter to quarteroperating performance. In particular, we have been awarded a largeprogram that will require significant capital expenditures for theteleport and network operations center during the year endingJune  30,  2007. We anticipate this program will be inservice in July  2007. We will use existing working capitaland/or obtain external financing 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 June  30,  2007. However, we cannot assure you thatthere will be no unforeseen events or circumstances that would consumeavailable resources significantly before that time. For example, futureevents occurring in response to the hostilities in Iraq andAfghanistan, or in connection with any armed conflict, including,without limitation, future terrorist attacks against the United Statesor its allies or military or trade or travel disruptions impacting ourability to sell and market our products and services in the UnitedStates and internationally may impact our results of operations.Unexpected events negatively impacting international commerce,including additional conflicts in the Middle East, could defer ourability to close contracts with internationalcustomers.

Additional funds may not be available when needed and,even if available, additional funds may be raised through financingarrangements and/or the issuance of preferred or common stock orconvertible securities on terms and prices significantly more favorablethan those of the currently outstanding common stock, which could havethe effect of diluting or adversely affecting the holdings or rights ofour existing stockholders. If adequate funds are unavailable, we may berequired to delay, scale back or eliminate some of our operatingactivities, including, without limitation, the timing and extent of ourmarketing programs, capital expenditures and research and developmentactivities and we may be required to reduce headcount. We cannot assureyou that additional financing will be available to us on acceptableterms, or at all.

31

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Contractual Obligations and CommercialCommitments

At June  30,  2006, we had contractualobligations and commercial commitments as follows (in thousands):

|                                  |  |  |        |   |        |                      |  |  |           |   |       |           |  |  |             |   |       |  |  |  |  |   |     |  |  |  |  |   |                           |  |
|----------------------------------|--|--|--------|---|--------|----------------------|--|--|-----------|---|-------|-----------|--|--|-------------|---|-------|--|--|--|--|---|-----|--|--|--|--|---|---------------------------|--|
|                             |  |  |   |   |        | PaymentsDue byPeriod |
|                             |  |  | Total  |   |        | Lessthan1 year       |  |  | 1-3 years |   |       | 4-5 years |  |  | After5years |
| ContractualObligations           |  |  |   |   |        |                 |  |  |      |   |       |      |  |  |        |
| Operatingleases                  |  |  |        | $ | 11,450 |                      |  |  |           | $ | 7,117 |           |  |  |             | $ | 3,957 |  |  |  |  | $ | 376 |  |  |  |  | $ |    — |  |
| Totalcontractual cashobligations |  |  |        | $ | 11,450 |                      |  |  |           | $ | 7,117 |           |  |  |             | $ | 3,957 |  |  |  |  | $ | 376 |  |  |  |  | $ | —                   |  |
|                                  |

|                             |  |  |                        |   |        |                                          |  |  |           |   |       |          |  |  |            |   |       |  |  |  |  |   |                           |  |  |  |  |   |                           |  |
|-----------------------------|--|--|------------------------|---|--------|------------------------------------------|--|--|-----------|---|-------|----------|--|--|------------|---|-------|--|--|--|--|---|---------------------------|--|--|--|--|---|---------------------------|--|
|                        |  |  |                   |   |        | Amountof Commitment Expiration PerPeriod |
|                        |  |  | Total AmountsCommitted |   |        | Less than1 year                          |  |  | 1-3 years |   |       | 4-5years |  |  | Over5years |
| OtherCommercial Commitments |  |  |                   |   |        |                                     |  |  |      |   |       |     |  |  |       |
| Standby letters ofcredit    |  |  |                        | $ | 16,426 |                                          |  |  |           | $ | 6,790 |          |  |  |            | $ | 9,636 |  |  |  |  | $ |    — |  |  |  |  | $ |    — |  |
| Totalcommercialcommitments  |  |  |                        | $ | 16,426 |                                          |  |  |           | $ | 6,790 |          |  |  |            | $ | 9,636 |  |  |  |  | $ | —                   |  |  |  |  | $ | —                   |  |
|                             |

RelatedParty Transactions

During January  2003, pursuant to aletter agreement, we combined the then outstanding loan and advancesreceivable from an individual who is a former executive officer and acurrent employee into a $0.3  million promissory note. Under theterms of the letter agreement we will forgive the outstanding principaland interest amounts due on the promissory note in five annualinstallments beginning in January  2004 so long as the formerexecutive officer remains an employee, subject to the terms of theletter agreement. In March  2006, the Company forgave the thirdinstallment under the promissory note.

|               |                                                           |
|---------------|-----------------------------------------------------------|
| Item7A.  | Quantitative and Qualitative Disclosures AboutMarket Risk |

We are subject to a variety of risks, includingforeign currency exchange rate fluctuations relating to certainpurchases from foreign vendors. In the normal course of business, weassess these risks and have established policies and procedures tomanage our exposure to fluctuations in foreign currency values.

Our objective in managing our exposure to foreign currency exchangerate fluctuations is to reduce the impact of adverse fluctuations inearnings and cash flows associated with foreign currency exchangerates. Accordingly, we may utilize from time to time foreign currencyforward contracts to hedge our exposure on firm commitments denominatedin foreign currency. At June  30,  2006, we had nooutstanding foreign exchange contracts.

Our results of operationsand cash flows are subject to fluctuations due to changes in interestrates primarily from our investment of available cash balances in moneymarket funds with portfolios of investment grade corporate andgovernment securities. Under our current positions, we do not useinterest rate derivative instruments to manage exposure to interestrate changes.

|               |                                            |
|---------------|--------------------------------------------|
| Item 8.  | FinancialStatements and Supplementary Data |

The information required bythis item is incorporated by reference to the Consolidated FinancialStatements listed in Item 15(a) of Part IV of this Annual Report onForm 10-K.

|               |                                                                                    |
|---------------|------------------------------------------------------------------------------------|
| Item 9.  | Changes in andDisagreements with Accountants on Accounting and FinancialDisclosure |

None

|               |                         |
|---------------|-------------------------|
| Item9A.  | Controls and Procedures |

Evaluation ofDisclosure Controls and Procedures.    Our disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended (the‘‘Exchange Act’’)) are designed to ensurethat information required to be disclosed in the reports that we

32

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file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periodsspecified in the rules and forms of the Securities and ExchangeCommission. Our Chief Executive Officer and the Chief Financial Officerhave reviewed the effectiveness of our disclosure controls andprocedures as of June  30,  2006 and, based on theirevaluation, have concluded that the disclosure controls and procedureswere effective as of such date.

Management’sReport on Internal Control Over Financial Reporting.    UnderSection 404 of the Sarbanes-Oxley Act of 2002, management is requiredto assess the effectiveness of the Company’s internal controlover financial reporting as of the end of each fiscal year and report,based on that assessment, whether the Company’s internal controlover financial reporting is effective.

Management ofthe Company is responsible for establishing and maintaining adequateinternal control over financial reporting. The Company’sinternal control over financial reporting is designed to providereasonable assurance as to the reliability of the Company’sfinancial reporting and the preparation of financial statements inaccordance with generally accepted accounting principles.

Internal controls over financial reporting, no matter howwell designed, have inherent limitations. Therefore, internal controlover financial reporting determined to be effective can provide onlyreasonable assurance with respect to financial statement preparationand may not prevent or detect all misstatements. Moreover, projectionsof any evaluation of effectiveness to future periods are subject to therisk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies orprocedures may deteriorate.

The Company’smanagement has assessed the effectiveness of the Company’sinternal control over financial reporting as of June  30,2006. In making this assessment, the Company used the criteriaestablished by the Committee of Sponsoring Organizations of theTreadway Commission (COSO) in ’’InternalControl-Integrated Framework.’’ These criteria are in theareas of control environment, risk assessment, control activities,information and communication, and monitoring. The Company’sassessment included extensive documenting, evaluating and testing thedesign and operating effectiveness of its internal control overfinancial reporting.

Based on the Company’sprocesses and assessment, as described above, management has concludedthat, as of June  30,  2006, the Company’s internalcontrol over financial reporting was effective.

Management’s assessment of the effectiveness of theCompany’s internal control over financial reporting as ofJune  30,  2006 has been audited by our independentauditors, as stated in their report, which appears in the‘‘Report of Independent Registered Public AccountingFirm’’ on page F-2 of this Annual Report on Form10-K.

Changes in Internal Control Over FinancialReporting.    There have been no changes in our internalcontrol over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) of the Exchange Act) that occurred during the three monthsended June 30, 2006 that has materially affected, or isreasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

|               |                  |
|---------------|------------------|
| Item9B.  | OtherInformation |

None

33

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PART III

|               |                                                   |
|---------------|---------------------------------------------------|
| Item10.  | Directors and Executive Officers of theRegistrant |

Certain information in response to this item isincorporated herein by reference to ‘‘Election ofDirectors’’ and ‘‘ExecutiveOfficers’’ in Globecomm Systems Inc.'s ProxyStatement to be filed with the Securities and Exchange Commission (the‘‘SEC’’). Information on compliance withSection 16(a) of the Exchange Act is incorporated herein by referenceto ‘‘Section 16(a) Beneficial Ownership ReportingCompliance’’ in the Registrant's Proxy Statement tobe filed with the SEC.

|                |                       |
|----------------|-----------------------|
| Item 11.  | ExecutiveCompensation |

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

|                |                                                               |
|----------------|---------------------------------------------------------------|
| Item 12.  | Security Ownership of CertainBeneficial Owners and Management |

Information in response tothis item is incorporated herein by reference to‘‘Security Ownership of Certain Beneficial Owners andManagement’’ in the Registrant's Proxy Statement tobe filed with the SEC.

|                |                                               |
|----------------|-----------------------------------------------|
| Item 13.  | CertainRelationships and Related Transactions |

Information in responseto this item is incorporated herein by reference to‘‘Certain Transactions’’ in theRegistrant's Proxy Statement to be filed with the SEC.

|                |                                       |
|----------------|---------------------------------------|
| Item 14.  | Principal Accounting Fees andServices |

Information in response to this item is incorporatedherein by reference to ‘‘Report of the Audit Committee ofthe Board of Directors’’ in the Registrant’s ProxyStatement to be filed with the SEC.

34

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PARTIV

Item 15.    Exhibits,Financial Statement Schedules

(A) (1)   Index toConsolidated Financial Statements

|                                                                                                                 |  |  |  |  |     |  |
|-----------------------------------------------------------------------------------------------------------------|--|--|--|--|-----|--|
| Reportsof Independent Registered Public AccountingFirm                                                          |  |  |  |  | F-1 |  |
| ConsolidatedBalance Sheets as of June  30,  2006 and2005                                                        |  |  |  |  | F-3 |  |
| Consolidated Statements ofOperations for the years ended June  30,  2006,  2005and 2004                         |  |  |  |  | F-4 |  |
| Consolidated Statements ofChanges in Stockholders’ Equity for the years ended June30,  2006, 2005 and2004 |  |  |  |  | F-5 |  |
| Consolidated Statements of CashFlows for the years ended June  30,  2006, 2005 and2004                          |  |  |  |  | F-6 |  |
| Notes to Consolidated FinancialStatements                                                                       |  |  |  |  | F-7 |  |
|                                                                                                                 |

        (2)   Indexto Consolidated Financial StatementSchedule

|                                                     |  |  |  |  |     |  |
|-----------------------------------------------------|--|--|--|--|-----|--|
| ScheduleII — Valuation and QualifyingAccounts |  |  |  |  | S-1 |  |
|                                                     |

All otherschedules for which provision is made in the applicable accountingregulation from the SEC are not required under the related instructionsor are inapplicable and therefore have been omitted.

35

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        (3)    Index ofExhibits

|            |    |     |        |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|------------|----|-----|--------|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNo. |    |     |   |
|            | 3  | .1  |        |  |  | Amendedand Restated Certificate of Incorporation (incorporated by reference toExhibit 3.1 of the Registrant’s Annual Report on Form 10-K forthe fiscal year ended June  30,1998).                                                                                                                                                                                                                                                                                                |
|            | 3  | .2  |        |  |  | Amended and Restated By-laws ofthe Registrant (incorporated by reference to Exhibit 3.2 of theRegistrant’s Annual Report on Form 10-K for the fiscal yearended June  30,  1998).                                                                                                                                                                                                                                                                                                 |
|            | 4  | .2  |        |  |  | SeeExhibits 3.1 and 3.2 for provisions of the Amended and RestatedCertificate of Incorporation and Amended and Restated By-laws of theRegistrant defining rights of holders of Common Stock of the Registrant(incorporated by reference to Exhibit 4.2 of the Registrant'sRegistration Statement on Form S-1, File No. 333-22425 (the‘‘RegistrationStatement’’)).                                                                                              |
|            | 10 | .1  |        |  |  | EmploymentAgreement dated as of October  9,  2001 by and between theRegistrant and David E. Hershberg (incorporated by reference to Exhibit10.9 of the Registrant’s Quarterly Report on Form 10-Q, for thequarter ended September  30,2001).                                                                                                                                                                                                                                     |
|            | 10 | .2  |        |  |  | Employment Agreement dated as ofOctober  9,  2001 by and between the Registrant and KennethA. Miller (incorporated by reference to Exhibit 10.10 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended September  30,2001).                                                                                                                                                                                                                                     |
|            | 10 | .3  |        |  |  | The Amended and Restated 1997Stock Incentive Plan (incorporated by reference to Exhibit 99 of theRegistrant’s Registration Statement on Form S-8 Registration,File No. 333-112351).                                                                                                                                                                                                                                                                                              |
|            | 10 | .4  |        |  |  | 1999 EmployeeStock Purchase Plan (incorporated by reference to Exhibit 99.8 of theRegistrant’s Registration Statement on Form S-8, File No.333-70527).                                                                                                                                                                                                                                                                                                                           |
|            | 10 | .5  |        |  |  | Rights Agreement, dated asof December  3,  1998, between the Registrant and AmericanStock Transfer and Trust Company, which includes the form ofCertificate of Designation for the Series A Junior ParticipatingPreferred Stock as Exhibit A, the form of Rights Certificate as ExhibitB and the Summary of Rights to Purchase Series A Preferred Shares asExhibit C (incorporated by reference to Exhibit 4 ofRegistrant’s Current Report on Form 8-K, dated December3,  1998). |
|            | 10 | .6  |        |  |  | Negotiable PromissoryNote, dated April  1,  2001, between the Registrant andDonald Woodring (incorporated by reference to Exhibit 10.19 of theRegistrant’s Annual Report on Form 10-K for the year endedJune  30,2001).                                                                                                                                                                                                                                                          |
|            | 10 | .7  |        |  |  | Employment Agreement, dated asof October  9,  2001, by and between Stephen C. Yablonskiand the Registrant (incorporated by reference to Exhibit 10.20 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended September  30,2001).                                                                                                                                                                                                                                |
|            | 10 | .8  |        |  |  | Employment Agreement, dated asof October  9,  2001, by and between Andrew C. Melfi andthe Registrant (incorporated by reference to Exhibit 10.21 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended September  30,2001).                                                                                                                                                                                                                                     |
|            | 10 | .9  |        |  |  | Employment Agreement, dated asof October  9,  2001, by and between Donald G. Woodring andthe Registrant (incorporated by reference to Exhibit 10.22 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended September  30,2001).                                                                                                                                                                                                                                  |
|            | 10 | .10 |        |  |  | Employment Agreement, dated asof October  9,  2001, by and between Paul J. Johnson andthe Registrant (incorporated by reference to Exhibit 10.23 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended September  30,2001).                                                                                                                                                                                                                                     |
|            | 10 | .11 |        |  |  | Employment Agreement, dated asof October  9,  2001, by and between Paul Eterno and theRegistrant (incorporated by reference to Exhibit 10.24 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended September  30,  2001).                                                                                                                                                                                                                                       |
|            |

36

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|            |    |      |        |  |  |                                                                                                                                                                                                                                                                                             |
|------------|----|------|--------|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNo. |    |      |   |
|            | 10 | .12  |        |  |  | Promissory NoteSecured By Stock Pledge Agreement, dated September  4,2001, by and between Kenneth A. Miller and the Registrant (incorporatedby reference to Exhibit 10.26 of the Registrant’s QuarterlyReport on Form 10-Q, for the quarter ended September  30,2001).                |
|            | 10 | .13* |        |  |  | Settlement Agreement, dated asof October  1,  2002, by and between Loral Skynet*, adivision of Loral SpaceCom Corporation and the Registrant (incorporatedby reference to Exhibit 10.28 of the Registrant’s QuarterlyReport on Form 10-Q, for the quarter ended September  30,2002).  |
|            | 10 | .14  |        |  |  | Letter Agreement, dated as ofJanuary  31,  2003, by and between Donald G. Woodring andthe Registrant (incorporated by reference to Exhibit 10.30 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended December  31,2002).                                           |
|            | 10 | .15  |        |  |  | Loan and Security Agreement,dated as of September  15,  2003, by and between SiliconValley Bank and the Registrant (incorporated by reference to Exhibit10.31 of the Registrant’s Annual Report on Form 10-K for theyear ended June  30,2003).                                        |
|            | 10 | .16  |        |  |  | Loan Modification Agreement,dated as of October  8,  2003, by and between SiliconValley Bank and the Registrant (incorporated by reference to Exhibit10.17 of the Registrant’s Annual Report on Form 10-K for theyear ended June  30,2004).                                           |
|            | 10 | .17  |        |  |  | Second Loan ModificationAgreement, dated as of March  2,  2004, by and betweenSilicon Valley Bank and the Registrant (incorporated by reference toExhibit 10.18 of the Registrant’s Annual Report on Form 10-K forthe year ended June  30,2004).                                      |
|            | 10 | .18  |        |  |  | Third Loan ModificationAgreement, dated as of June  2,  2004, by and betweenSilicon Valley Bank and the Registrant (incorporated by reference toExhibit 10.19 of the Registrant’s Annual Report on Form 10-K forthe year ended June  30,2004).                                        |
|            | 10 | .19  |        |  |  | Fourth Loan ModificationAgreement, dated as of September  24,  2004, by and betweenSilicon Valley Bank and the Registrant (incorporated by reference toExhibit 10.20 of the Registrant’s Annual Report on Form 10-K forthe year ended June  30,2004).                                 |
|            | 10 | .20  |        |  |  | Fifth Loan ModificationAgreement, dated as of October  29,  2004, by and betweenSilicon Valley Bank and the Registrant (incorporated by reference toExhibit 10.1 of the Registrant’s Registration Statement on Form8-K, File No. 000-22839).                                          |
|            | 10 | .21  |        |  |  | Sixth LoanModification Agreement, dated as of November  2,  2005, byand between Silicon Valley Bank and the Registrant (incorporated byreference to Exhibit 10.1 of the Registrant’s RegistrationStatement on Form 8-K, File No.000-22839).                                           |
|            | 10 | .22  |        |  |  | Form of SecuritiesPurchase Agreement, dated as of December  31,  2003, by andbetween the Registrant and each of the purchasers listed on Exhibit Athereto (incorporated herein by reference to Exhibit 4.5 of theRegistrant’s Registration Statement on Form S-3, File No.333-112024. |
|            | 10 | .23  |        |  |  | Form of Warrant, dated asof December  31,  2003, by and between the Registrant andeach of the purchasers listed on Exhibit A thereto (incorporated hereinby reference to Exhibit 4.5 of the Registrant’s RegistrationStatement on Form S-3, File No.333-112024).                      |
|            | 14 |      |        |  |  | Registrant’s Code ofEthics and Business Conduct (incorporated by reference to Exhibit 14 ofthe Registrant’s Annual Report on Form 10-K for the year endedJune  30,2004).                                                                                                        |
|            | 21 |      |        |  |  | Subsidiaries of the Registrant(filed herewith).                                                                                                                                                                                                                                             |
|            | 23 |      |        |  |  | Consent of IndependentRegistered Public Accounting Firm (filedherewith).                                                                                                                                                                                                                    |
|            | 31 | .1   |        |  |  | Chief Executive OfficerCertification required by Rules 13a-14 and 15d-14 under the SecuritiesExchange Act of 1934, as amended (filedherewith).                                                                                                                                              |
|            |

37

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|            |    |    |        |  |  |                                                                                                                                                              |
|------------|----|----|--------|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNo. |    |    |   |
|            | 31 | .2 |        |  |  | Chief Financial OfficerCertification required by Rules 13a− 14 and 15d− 14 underthe Securities Exchange Act of 1934, as amended (filedherewith). |
|            | 32 |    |        |  |  | Certification Pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of SarbanesOxley Act of 2002 (filedherewith).                            |
|            |

|  |
|--|
|  |  |
|  |

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

(B)    Exhibits

Theresponse to this portion of Item 15 is submitted as a separate sectionof this report.

(C)    Financial StatementSchedules

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

38

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SIGNATURES

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.

|                                                                         |  |  |                      |  |  |                          |
|-------------------------------------------------------------------------|--|--|----------------------|--|--|--------------------------|
|                                                                    |  |  | GLOBECOMMSYSTEMSINC. |
|         Date:September  13,2006 |  |  | By:                  |  |  | /s/ DAVID E.HERSHBERG    |
|                                                                    |  |  |                 |  |  | David E.Hershberg,       |
|                                                                    |  |  |                 |  |  | Chairman of the Boardand |
|                                                                    |  |  |                 |  |  | Chief ExecutiveOfficer   |
|                                                                         |

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

|                            |  |                                                                                                  |  |         |
|----------------------------|--|--------------------------------------------------------------------------------------------------|--|---------|
| SIGNATURE                  |  | TITLE                                                                                            |  | DATE    |
|                            |
| /s/ DAVID E.HERSHBERG      |  | Chairman ofthe Board and Chief Executive Officer(Principal ExecutiveOfficer)                     |  | 9/13/06 |
|                            |
| David E. Hershberg         |
|                            |
| /s/ ANDREW C.MELFI         |  | Vice President,Chief Financial Officer and Treasurer (Principal Financialand Accounting Officer) |  | 9/13/06 |
|                            |
| Andrew C. Melfi            |
|                            |
| /s/ KENNETH A. MILLER      |  | President andDirector                                                                            |  | 9/13/06 |
|                            |
| Kenneth A.Miller           |
|                            |
| /s/ RICHARD E.CARUSO       |  | Director                                                                                         |  | 9/13/06 |
|                            |
| Richard E. Caruso          |
|                            |
| /s/HARRY L. HUTCHERSON Jr. |  | Director                                                                                         |  | 9/13/06 |
|                            |
| Harry L. HutchersonJr.     |
|                            |
| /s/ BRIANT. MALONEY        |  | Director                                                                                         |  | 9/13/06 |
|                            |
| Brian T. Maloney           |
|                            |
| /s/ JACKA. SHAW            |  | Director                                                                                         |  | 9/13/06 |
|                            |
| Jack A. Shaw               |
|                            |
| /s/ A.ROBERT TOWBIN        |  | Director                                                                                         |  | 9/13/06 |
|                            |
| A. Robert Towbin           |
|                            |
| /s/ C.J.WAYLAN             |  | Director                                                                                         |  | 9/13/06 |
|                            |
| C.J. Waylan                |
|                            |

39

----

REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

To the Board of Directors and Stockholdersof Globecomm Systems Inc.

We have audited the accompanyingconsolidated balance sheets of Globecomm Systems Inc. (the‘‘Company’’) as of June  30,2006 and 2005 and the related consolidated statements of operations,changes in stockholders' equity and cash flows for each of thethree years in the period ended June  30,  2006. Our auditsalso included the financial statement schedule listed in the index atItem 15(a). These consolidated financial statements and schedule arethe responsibility of the Company's management. Ourresponsibility is to express an opinion on these consolidated financialstatements and schedule based on our audits.

We conducted ouraudits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion, theconsolidated financial statements referred to above present fairly, inall material respects, the financial position of Globecomm Systems Inc.at June  30,  2006 and 2005, and the consolidated resultsof its operations and its cash flows for each of the three years in theperiod ended June  30,  2006, in conformity with U.S.generally accepted accounting principles. Also, in our opinion, therelated financial statement schedule, when considered in relation tothe basic financial statements taken as a whole, presents fairly, inall material respects, the information set forth therein.

Asdiscussed in Note 2 to the financial statements, in 2006 the Companychanged its method of accounting for stock-based compensation.

Wealso have audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), the effectivenessof the Company’s internal control over financial reporting as ofJune  30,  2006, based on criteria established in InternalControl-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report datedAugust  30,  2006 expressed an unqualified opinionthereon.

|                   |  |  |                          |
|-------------------|--|--|--------------------------|
|              |  |  | /s/ERNST & YOUNG LLP |
| Melville, NewYork |  |  |                     |
| August  30,2006   |  |  |                     |
|                   |

F-1

----

REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM ONINTERNAL CONTROL OVER FINANCIALREPORTING

To the Board of Directors andStockholders of Globecomm Systems Inc.

We have auditedmanagement's assessment, included in the accompanyingManagement's Report on Internal Controls that Globecomm SystemsInc. maintained effective internal control over financial reporting asof June  30,  2006, based on criteria established inInternal Control — Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO).Globecomm Systems Inc.’s management is responsible formaintaining effective internal control over financial reporting and forits assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express an opinion onmanagement's assessment and an opinion on the effectiveness ofthe Company's internal control over financial reporting based onour audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal controlover financial reporting was maintained in all material respects. Ouraudit included obtaining an understanding of internal control overfinancial reporting, evaluating management's assessment, testingand evaluating the design and operating effectiveness of internalcontrol, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company's internalcontrol over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. Acompany's internal control over financial reporting includesthose policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures ofthe company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company's assets thatcould have a material effect on the financial statements. Because ofits inherent limitations, internal control over financial reporting maynot prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

In our opinion, management's assessment thatGlobecomm Systems Inc. maintained effective internal control overfinancial reporting as of June  30,  2006, is fairlystated, in all material respects, based on criteria established inInternal Control — Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO). Also, inour opinion, Globecomm Systems Inc. maintained, in all materialrespects, effective internal control over financial reporting as ofJune  30,  2006, based on the COSO criteria.

We havealso audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balancesheets of Globecomm Systems Inc. as of June  30,  2006 and2005 and the related consolidated statements of operations, changes instockholders' equity and cash flows for each of the three yearsin the period ended June  30,  2006 and our report datedAugust  30,  2006 expressed an unqualified opinionthereon.

|                   |  |  |                          |
|-------------------|--|--|--------------------------|
|              |  |  | /s/ERNST & YOUNG LLP |
| Melville, NewYork |  |  |                     |
| August  30,2006   |  |  |                     |
|                   |

F-2

----

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

|                                                                                                                                               |  |  |              |   |         |              |  |  |  |   |         |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--|--|--------------|---|---------|--------------|--|--|--|---|---------|---|
|                                                                                                                                          |  |  | June30, 2006 |   |         | June 30,2005 |
| Assets                                                                                                                                        |  |  |              |   |    |              |  |  |  |   |    |   |
| Currentassets:                                                                                                                                |  |  |              |   |    |              |  |  |  |   |    |   |
| Cash and cashequivalents                                                                                                                      |  |  |              | $ | 24,512  |              |  |  |  | $ | 25,609  |   |
| Accountsreceivable,net                                                                                                                        |  |  |              |   | 30,837  |              |  |  |  |   | 22,700  |   |
| Inventories                                                                                                                                   |  |  |              |   | 13,058  |              |  |  |  |   | 12,886  |   |
| Prepaidexpenses and other currentassets                                                                                                       |  |  |              |   | 1,131   |              |  |  |  |   | 858     |   |
| Deferredincometaxes                                                                                                                           |  |  |              |   | 22      |              |  |  |  |   | 38      |   |
| Totalcurrent assets                                                                                                                           |  |  |              |   | 69,560  |              |  |  |  |   | 62,091  |   |
| Fixedassets,net                                                                                                                               |  |  |              |   | 15,510  |              |  |  |  |   | 16,050  |   |
| Goodwill                                                                                                                                      |  |  |              |   | 7,204   |              |  |  |  |   | 7,204   |   |
| Otherassets                                                                                                                                   |  |  |              |   | 960     |              |  |  |  |   | 1,033   |   |
| Totalassets                                                                                                                                   |  |  |              | $ | 93,234  |              |  |  |  | $ | 86,378  |   |
| Liabilitiesand Stockholders’Equity                                                                                                      |  |  |              |   |    |              |  |  |  |   |    |   |
| Currentliabilities:                                                                                                                           |  |  |              |   |    |              |  |  |  |   |    |   |
| Accountspayable                                                                                                                               |  |  |              | $ | 19,020  |              |  |  |  | $ | 15,550  |   |
| Deferredrevenues                                                                                                                              |  |  |              |   | 1,691   |              |  |  |  |   | 5,563   |   |
| Accruedpayroll and related fringebenefits                                                                                                     |  |  |              |   | 2,872   |              |  |  |  |   | 2,172   |   |
| Otheraccruedexpenses                                                                                                                          |  |  |              |   | 1,966   |              |  |  |  |   | 1,970   |   |
| Deferredliabilities                                                                                                                           |  |  |              |   | 316     |              |  |  |  |   | 316     |   |
| Totalcurrentliabilities                                                                                                                       |  |  |              |   | 25,865  |              |  |  |  |   | 25,571  |   |
| Deferredliabilities, less current portion                                                                                                     |  |  |              |   | 353     |              |  |  |  |   | 670     |   |
|                                                                                                                                          |  |  |              |   |    |              |  |  |  |   |    |   |
| Commitments andcontingencies                                                                                                                  |  |  |              |   |    |              |  |  |  |   |    |   |
|                                                                                                                                          |  |  |              |   |    |              |  |  |  |   |    |   |
| Stockholders’equity:                                                                                                                    |  |  |              |   |    |              |  |  |  |   |    |   |
| Series A JuniorParticipating, shares authorized, shares issued and outstanding: nonein 2006 and2005                                           |  |  |              |   | — |              |  |  |  |   | — |   |
| Commonstock, $.001 par value, shares authorized: 50,000,000 at June30,  2006 and 2005; shares issued: 15,660,524 in 2006 and15,103,587 in2005 |  |  |              |   | 16      |              |  |  |  |   | 15      |   |
| Additional paid-incapital                                                                                                                     |  |  |              |   | 135,673 |              |  |  |  |   | 133,003 |   |
| Accumulateddeficit                                                                                                                            |  |  |              |   | (65,892 | )            |  |  |  |   | (70,384 | ) |
| Accumulatedother comprehensiveincome                                                                                                          |  |  |              |   | — |              |  |  |  |   | 284     |   |
| Treasurystock, at cost, 465,351 shares in 2006 and2005                                                                                        |  |  |              |   | (2,781  | )            |  |  |  |   | (2,781  | ) |
| Totalstockholders’equity                                                                                                                |  |  |              |   | 67,016  |              |  |  |  |   | 60,137  |   |
| Totalliabilities and stockholders’equity                                                                                                |  |  |              | $ | 93,234  |              |  |  |  | $ | 86,378  |   |
|                                                                                                                                               |

Seeaccompanying notes.

F-3

----

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

|                                                                                             |  |  |                      |   |         |      |  |  |      |   |         |  |  |  |  |   |         |   |
|---------------------------------------------------------------------------------------------|--|--|----------------------|---|---------|------|--|--|------|---|---------|--|--|--|--|---|---------|---|
|                                                                                        |  |  | YearsEnded June  30, |
|                                                                                        |  |  | 2006                 |   |         | 2005 |  |  | 2004 |
| Revenuesfrom ground segment systems, networksand enterprisesolutions                        |  |  |                      | $ | 97,967  |      |  |  |      | $ | 90,656  |  |  |  |  | $ | 73,305  |   |
| Revenuesfrom data communicationsservices                                                    |  |  |                      |   | 28,069  |      |  |  |      |   | 18,928  |  |  |  |  |   | 13,931  |   |
|                                                                                        |  |  |                      |   |    |      |  |  |      |   |    |  |  |  |  |   |    |   |
| Totalrevenues                                                                               |  |  |                      |   | 126,036 |      |  |  |      |   | 109,584 |  |  |  |  |   | 87,236  |   |
|                                                                                        |  |  |                      |   |    |      |  |  |      |   |    |  |  |  |  |   |    |   |
| Costsand operatingexpenses:                                                                 |  |  |                      |   |    |      |  |  |      |   |    |  |  |  |  |   |    |   |
| Costsfrom ground segment systems, networksand enterprisesolutions                           |  |  |                      |   | 81,410  |      |  |  |      |   | 75,357  |  |  |  |  |   | 63,282  |   |
| Costsfrom data communicationsservices                                                       |  |  |                      |   | 23,605  |      |  |  |      |   | 15,527  |  |  |  |  |   | 12,992  |   |
| Sellingandmarketing                                                                         |  |  |                      |   | 7,029   |      |  |  |      |   | 5,821   |  |  |  |  |   | 4,808   |   |
| Researchanddevelopment                                                                      |  |  |                      |   | 1,052   |      |  |  |      |   | 1,021   |  |  |  |  |   | 1,328   |   |
| Generalandadministrative                                                                    |  |  |                      |   | 9,589   |      |  |  |      |   | 7,596   |  |  |  |  |   | 6,529   |   |
|                                                                                        |  |  |                      |   |    |      |  |  |      |   |    |  |  |  |  |   |    |   |
| Totalcosts and operatingexpenses                                                            |  |  |                      |   | 122,685 |      |  |  |      |   | 105,322 |  |  |  |  |   | 88,939  |   |
|                                                                                        |  |  |                      |   |    |      |  |  |      |   |    |  |  |  |  |   |    |   |
| Income(loss) fromoperations                                                                 |  |  |                      |   | 3,351   |      |  |  |      |   | 4,262   |  |  |  |  |   | (1,703  | ) |
|                                                                                        |  |  |                      |   |    |      |  |  |      |   |    |  |  |  |  |   |    |   |
| Otherincome:                                                                                |  |  |                      |   |    |      |  |  |      |   |    |  |  |  |  |   |    |   |
| Interestincome                                                                              |  |  |                      |   | 965     |      |  |  |      |   | 444     |  |  |  |  |   | 271     |   |
| Gainon liquidation of foreignsubsidiary                                                     |  |  |                      |   | 264     |      |  |  |      |   | — |  |  |  |  |   | — |   |
| Gainon sale of available-for-salesecurities                                                 |  |  |                      |   | — |      |  |  |      |   | 132     |  |  |  |  |   | 91      |   |
| Gainon sale ofinvestment                                                                    |  |  |                      |   | — |      |  |  |      |   | 40      |  |  |  |  |   | — |   |
|                                                                                        |  |  |                      |   |    |      |  |  |      |   |    |  |  |  |  |   |    |   |
| Income(loss) before incometaxes                                                             |  |  |                      |   | 4,580   |      |  |  |      |   | 4,878   |  |  |  |  |   | (1,341  | ) |
|                                                                                        |  |  |                      |   |    |      |  |  |      |   |    |  |  |  |  |   |    |   |
| Provisionfor incometaxes                                                                    |  |  |                      |   | 88      |      |  |  |      |   | 64      |  |  |  |  |   | — |   |
|                                                                                        |  |  |                      |   |    |      |  |  |      |   |    |  |  |  |  |   |    |   |
| Netincome(loss)                                                                             |  |  |                      | $ | 4,492   |      |  |  |      | $ | 4,814   |  |  |  |  | $ | (1,341  | ) |
| Basicnet income (loss) per commonshare                                                      |  |  |                      | $ | 0.30    |      |  |  |      | $ | 0.33    |  |  |  |  | $ | (0.10   | ) |
| Dilutednet income (loss) per commonshare                                                    |  |  |                      | $ | 0.29    |      |  |  |      | $ | 0.32    |  |  |  |  | $ | (0.10   | ) |
| Weighted-averageshares used in the calculation of basic net income (loss) per commonshare   |  |  |                      |   | 15,001  |      |  |  |      |   | 14,422  |  |  |  |  |   | 13,346  |   |
| Weighted-averageshares used in the calculation of diluted net income (loss) per commonshare |  |  |                      |   | 15,608  |      |  |  |      |   | 14,966  |  |  |  |  |   | 13,346  |   |
|                                                                                             |

Seeaccompanying notes.

F-4

----

GLOBECOMM SYSTEMS INC.CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYYEARS ENDEDJUNE 30, 2006, 2005 AND 2004(Inthousands)

|                                                                                                       |  |  |                                     |  |         |                          |  |  |                    |   |         |                                              |  |  |                |   |         |                                |  |  |  |   |         |   |  |  |  |   |         |   |  |  |  |  |         |  |  |  |  |   |         |   |  |  |  |   |        |   |
|-------------------------------------------------------------------------------------------------------|--|--|-------------------------------------|--|---------|--------------------------|--|--|--------------------|---|---------|----------------------------------------------|--|--|----------------|---|---------|--------------------------------|--|--|--|---|---------|---|--|--|--|---|---------|---|--|--|--|--|---------|--|--|--|--|---|---------|---|--|--|--|---|--------|---|
|                                                                                                  |  |  |     CommonStock |  |         | AdditionalPaid-inCapital |  |  | AccumulatedDeficit |   |         | Accumulated Other ComprehensiveIncome (Loss) |  |  | Treasury Stock |   |         | TotalStockholders’Equity |
|                                                                                                  |  |  | Shares                              |  |         | Amount                   |  |  | Shares             |   |         | Amount                                       |
| Balance at June30,2003                                                                                |  |  |                                     |  | 12,980  |                          |  |  |                    |   | 13      |                                              |  |  |                |   | 123,739 |                                |  |  |  |   | (73,857 | ) |  |  |  |   | (10     | ) |  |  |  |  | 404     |  |  |  |  |   | (2,448  | ) |  |  |  |   | 47,437 |   |
| Proceedsfrom exercise of stockoptions                                                                 |  |  |                                     |  | 111     |                          |  |  |                    |   | — |                                              |  |  |                |   | 464     |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 464    |   |
| Issuanceof common stock in connection with employee stock purchaseplan                                |  |  |                                     |  | 38      |                          |  |  |                    |   | — |                                              |  |  |                |   | 123     |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 123    |   |
| Purchasesof treasurystock                                                                             |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | — |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | 61      |  |  |  |  |   | (333    | ) |  |  |  |   | (333   | ) |
| Issuanceof stock options forservices                                                                  |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | 12      |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 12     |   |
| Issuanceof common stock and warrants in connection with privateplacement,net of issuance costs of$583 |  |  |                                     |  | 1,500   |                          |  |  |                    |   | 2       |                                              |  |  |                |   | 6,165   |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 6,167  |   |
| Comprehensiveloss:                                                                                    |  |  |                                     |  |    |                          |  |  |                    |   |    |                                              |  |  |                |   |    |                                |  |  |  |   |    |   |  |  |  |   |    |   |  |  |  |  |    |  |  |  |  |   |    |   |  |  |  |   |   |   |
| Netloss                                                                                               |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | — |                                |  |  |  |   | (1,341  | ) |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | (1,341 | ) |
| Gainfrom foreign currencytranslation                                                                  |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | — |                                |  |  |  |   | — |   |  |  |  |   | 81      |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 81     |   |
| Gainfrom available-for-salesecurities                                                                 |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | — |                                |  |  |  |   | — |   |  |  |  |   | 196     |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 196    |   |
| Totalcomprehensiveloss                                                                                |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | — |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | (1,064 | ) |
| Balanceat June  30,2004                                                                               |  |  |                                     |  | 14,629  |                          |  |  |                    |   | 15      |                                              |  |  |                |   | 130,503 |                                |  |  |  |   | (75,198 | ) |  |  |  |   | 267     |   |  |  |  |  | 465     |  |  |  |  |   | (2,781  | ) |  |  |  |   | 52,806 |   |
| Proceedsfrom exercise of stockoptions                                                                 |  |  |                                     |  | 200     |                          |  |  |                    |   | — |                                              |  |  |                |   | 863     |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 863    |   |
| Issuanceof common stock in connection with employee stock purchaseplan                                |  |  |                                     |  | 38      |                          |  |  |                    |   | — |                                              |  |  |                |   | 178     |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 178    |   |
| Issuanceof stock options forservices                                                                  |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | 6       |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 6      |   |
| Stockoptionacceleration                                                                               |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | 147     |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 147    |   |
| Proceedsfrom exercise ofwarrants                                                                      |  |  |                                     |  | 237     |                          |  |  |                    |   | — |                                              |  |  |                |   | 1,306   |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 1,306  |   |
| Comprehensiveincome:                                                                                  |  |  |                                     |  |    |                          |  |  |                    |   |    |                                              |  |  |                |   |    |                                |  |  |  |   |    |   |  |  |  |   |    |   |  |  |  |  |    |  |  |  |  |   |    |   |  |  |  |   |   |   |
| Netincome                                                                                             |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | — |                                |  |  |  |   | 4,814   |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 4,814  |   |
| Gainfrom foreign currencytranslation                                                                  |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | — |                                |  |  |  |   | — |   |  |  |  |   | 17      |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 17     |   |
| Totalcomprehensiveincome                                                                              |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | — |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 4,831  |   |
| Balanceat June  30,2005                                                                               |  |  |                                     |  | 15,104  |                          |  |  |                    |   | 15      |                                              |  |  |                |   | 133,003 |                                |  |  |  |   | (70,384 | ) |  |  |  |   | 284     |   |  |  |  |  | 465     |  |  |  |  |   | (2,781  | ) |  |  |  |   | 60,137 |   |
| Proceedsfrom exercise of stockoptions                                                                 |  |  |                                     |  | 477     |                          |  |  |                    |   | 1       |                                              |  |  |                |   | 2,090   |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 2,091  |   |
| Stockcompensationexpense                                                                              |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | 115     |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 115    |   |
| Proceedsfrom exercise ofwarrants                                                                      |  |  |                                     |  | 80      |                          |  |  |                    |   | — |                                              |  |  |                |   | 440     |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 440    |   |
| Taxbenefit from stockcompensationplan                                                                 |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | 25      |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 25     |   |
| Comprehensiveincome:                                                                                  |  |  |                                     |  |    |                          |  |  |                    |   |    |                                              |  |  |                |   |    |                                |  |  |  |   |    |   |  |  |  |   |    |   |  |  |  |  |    |  |  |  |  |   |    |   |  |  |  |   |   |   |
| Netincome                                                                                             |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | — |                                |  |  |  |   | 4,492   |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 4,492  |   |
| Lossfrom foreigncurrencytranslation                                                                   |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | — |                                |  |  |  |   | — |   |  |  |  |   | (20     | ) |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | (20    | ) |
| Realizedgain on liquidation of foreignsubsidiary                                                      |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | — |                                |  |  |  |   | — |   |  |  |  |   | (264    | ) |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | (264   | ) |
| Totalcomprehensiveincome                                                                              |  |  |                                     |  | — |                          |  |  |                    |   | — |                                              |  |  |                |   | — |                                |  |  |  |   | — |   |  |  |  |   | — |   |  |  |  |  | — |  |  |  |  |   | — |   |  |  |  |   | 4,208  |   |
| Balanceat June  30,2006                                                                               |  |  |                                     |  | 15,661  |                          |  |  |                    | $ | 16      |                                              |  |  |                | $ | 135,673 |                                |  |  |  | $ | (65,892 | ) |  |  |  | $ | — |   |  |  |  |  | 465     |  |  |  |  | $ | (2,781  | ) |  |  |  | $ | 67,016 |   |
|                                                                                                       |

Seeaccompanying notes.

F-5

----

GLOBECOMM SYSTEMS INC.CONSOLIDATEDSTATEMENTS OF CASH FLOWS(Inthousands)

|                                                                                                 |  |  |                    |   |         |      |  |  |      |   |         |   |  |  |  |   |         |   |
|-------------------------------------------------------------------------------------------------|--|--|--------------------|---|---------|------|--|--|------|---|---------|---|--|--|--|---|---------|---|
|                                                                                            |  |  | YearsEnded June30, |
|                                                                                            |  |  | 2006               |   |         | 2005 |  |  | 2004 |
| OperatingActivities:                                                                            |  |  |                    |   |    |      |  |  |      |   |    |   |  |  |  |   |    |   |
| Netincome(loss)                                                                                 |  |  |                    | $ | 4,492   |      |  |  |      | $ | 4,814   |   |  |  |  | $ | (1,341  | ) |
| Adjustmentsto reconcile net income (loss) to net cash (used in) provided byoperatingactivities: |  |  |                    |   |    |      |  |  |      |   |    |   |  |  |  |   |    |   |
| Depreciationandamortization                                                                     |  |  |                    |   | 3,023   |      |  |  |      |   | 2,695   |   |  |  |  |   | 3,097   |   |
| Changein deferredliabilities                                                                    |  |  |                    |   | (317    | )    |  |  |      |   | (317    | ) |  |  |  |   | (523    | ) |
| Provision(benefit) for doubtfulaccounts                                                         |  |  |                    |   | 426     |      |  |  |      |   | 104     |   |  |  |  |   | (966    | ) |
| Deferredincometaxes                                                                             |  |  |                    |   | 16      |      |  |  |      |   | 45      |   |  |  |  |   | 42      |   |
| Stockcompensationexpense                                                                        |  |  |                    |   | 115     |      |  |  |      |   | 153     |   |  |  |  |   | 12      |   |
| Gainon sale of available-for-salesecurities                                                     |  |  |                    |   | — |      |  |  |      |   | (132    | ) |  |  |  |   | (91     | ) |
| Gainon sale ofinvestment                                                                        |  |  |                    |   | — |      |  |  |      |   | (40     | ) |  |  |  |   | — |   |
| Taxbenefit from stock compensationplan                                                          |  |  |                    |   | 25      |      |  |  |      |   | — |   |  |  |  |   | — |   |
| Gainon liquidation of foreignsubsidiary                                                         |  |  |                    |   | (264    | )    |  |  |      |   | — |   |  |  |  |   | — |   |
| Changesin operating assets andliabilities:                                                      |  |  |                    |   |    |      |  |  |      |   |    |   |  |  |  |   |    |   |
| Accountsreceivable                                                                              |  |  |                    |   | (8,569  | )    |  |  |      |   | (8,464  | ) |  |  |  |   | (5,412  | ) |
| Inventories                                                                                     |  |  |                    |   | (174    | )    |  |  |      |   | (9,119  | ) |  |  |  |   | 7,465   |   |
| Prepaidexpenses and other currentassets                                                         |  |  |                    |   | (273    | )    |  |  |      |   | 416     |   |  |  |  |   | 671     |   |
| Otherassets                                                                                     |  |  |                    |   | 73      |      |  |  |      |   | 63      |   |  |  |  |   | 564     |   |
| Accountspayable                                                                                 |  |  |                    |   | 3,471   |      |  |  |      |   | 63      |   |  |  |  |   | 4,656   |   |
| Deferredrevenues                                                                                |  |  |                    |   | (3,870  | )    |  |  |      |   | 4,482   |   |  |  |  |   | (6,585  | ) |
| Accruedpayroll and related fringebenefits                                                       |  |  |                    |   | 699     |      |  |  |      |   | 1,019   |   |  |  |  |   | 37      |   |
| Otheraccruedexpenses                                                                            |  |  |                    |   | (2      | )    |  |  |      |   | 292     |   |  |  |  |   | (13     | ) |
| Netcash (used in) provided by operatingactivities                                               |  |  |                    |   | (1,129  | )    |  |  |      |   | (3,926  | ) |  |  |  |   | 1,613   |   |
| InvestingActivities:                                                                            |  |  |                    |   |    |      |  |  |      |   |    |   |  |  |  |   |    |   |
| Purchasesof fixedassets                                                                         |  |  |                    |   | (2,484  | )    |  |  |      |   | (3,303  | ) |  |  |  |   | (1,267  | ) |
| Repaymentof promissory note from a relatedparty                                                 |  |  |                    |   | — |      |  |  |      |   | — |   |  |  |  |   | 300     |   |
| Restrictedcash                                                                                  |  |  |                    |   | — |      |  |  |      |   | 1,903   |   |  |  |  |   | (1,295  | ) |
| Proceedsfrom the sale of available-for-salesecurities                                           |  |  |                    |   | — |      |  |  |      |   | 330     |   |  |  |  |   | 391     |   |
| Netcash used in investingactivities                                                             |  |  |                    |   | (2,484  | )    |  |  |      |   | (1,070  | ) |  |  |  |   | (1,871  | ) |
| FinancingActivities:                                                                            |  |  |                    |   |    |      |  |  |      |   |    |   |  |  |  |   |    |   |
| Proceedsfrom exercise of stockoptions                                                           |  |  |                    |   | 2,091   |      |  |  |      |   | 863     |   |  |  |  |   | 464     |   |
| Proceedsfrom exercise ofwarrants                                                                |  |  |                    |   | 440     |      |  |  |      |   | 1,306   |   |  |  |  |   | — |   |
| Proceedsfrom privateplacement                                                                   |  |  |                    |   | — |      |  |  |      |   | — |   |  |  |  |   | 6,167   |   |
| Proceedsfrom sale of common stock in connection with employee stockpurchase plan                |  |  |                    |   | — |      |  |  |      |   | 178     |   |  |  |  |   | 123     |   |
| Purchasesof treasurystock                                                                       |  |  |                    |   | — |      |  |  |      |   | — |   |  |  |  |   | (333    | ) |
| Netcash provided by financingactivities                                                         |  |  |                    |   | 2,531   |      |  |  |      |   | 2,347   |   |  |  |  |   | 6,421   |   |
| Effectof foreign currency translation oncash                                                    |  |  |                    |   | (15     | )    |  |  |      |   | 6       |   |  |  |  |   | 73      |   |
| Net(decrease) increase in cash and cashequivalents                                              |  |  |                    |   | (1,097  | )    |  |  |      |   | (2,643  | ) |  |  |  |   | 6,236   |   |
| Cashand cash equivalents at beginning ofyear                                                    |  |  |                    |   | 25,609  |      |  |  |      |   | 28,252  |   |  |  |  |   | 22,016  |   |
| Cashand cash equivalents at end ofyear                                                          |  |  |                    | $ | 24,512  |      |  |  |      | $ | 25,609  |   |  |  |  | $ | 28,252  |   |
| SupplementalDisclosure of Cash FlowInformation:                                                 |  |  |                    |   |    |      |  |  |      |   |    |   |  |  |  |   |    |   |
| Cash paidfor incometaxes                                                                        |  |  |                    | $ | 198     |      |  |  |      | $ | 5       |   |  |  |  | $ | 2       |   |
|                                                                                                 |

Seeaccompanying notes.

F-6

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJune30, 2006

1.    Organization andDescription of Business

Globecomm Systems Inc.(‘‘Globecomm’’) was incorporated in theState of Delaware on August  17,  1994. The Company'score business provides end-to-end, value-added satellite-basedcommunications solutions. This business supplies ground segment systemsand networks for satellite-based communications including hardware andsoftware to support a wide range of satellite systems. TheCompany's wholly-owned subsidiary, Globecomm Network ServicesCorporation (‘‘GNSC’’) provides satellitecommunication services capabilities.

2.    Significant Accounting Policies

Principles of Consolidation

The consolidated financialstatements include the accounts of the Company and its wholly-ownedsubsidiaries, GNSC and Globecomm Systems Europe Limited (collectively,the ‘‘Company’’). On June  30,2006, the Company liquidated the Globecomm Systems Europe Limitedentity. All significant intercompany balances and transactions havebeen eliminated in consolidation.

Accounting Estimates

The preparation of financial statements in conformity withaccounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the amountsreported in the consolidated financial statements and accompanyingnotes. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue inaccordance with Staff Accounting Bulletin No. 104(‘‘SAB 104’’), RevenueRecognition, for its 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. 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 customers' 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 the Company has 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, the Company will defer recognition of revenues,determined on a contract-by-contract basis equal to the fair value ofthe installation services. Payments received in advance by customersare deferred until shipment and are presented as deferred revenues inthe accompanying consolidated balance sheets.

F-7

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GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

2.    SignificantAccounting Policies (continued)

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

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

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

Costs from Ground Segment Systems, Networks andEnterprise Solutions

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

Costs from DataCommunications Services

Costs from data communications servicesrelating to Internet-based services consist primarily of satellitespace segment charges, Internet connectivity fees, voice terminationcosts and network operations expenses. Satellite space segment chargesconsist of the costs associated with obtaining satellite bandwidth (themeasure of capacity) used in the transmission of services to and fromthe satellite leased from operators. Network operations expensesconsist primarily of costs associated with the operation of the NetworkOperation Center (the ‘‘NOC’’), on atwenty-four hour a day, seven-day a week basis, including personnel andrelated costs and depreciation.

Research and Development

Research and development expenditures are expensed as incurred.

Inventories

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

Cash Equivalents

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

F-8

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

2.    Significant Accounting Policies(continued)

Restricted Cash

Restricted cash includescertificates of deposit used as cash collateral for bid proposals andcontract performance guarantees.

Fixed Assets

Fixedassets are stated at cost less accumulated depreciation andamortization. Major improvements are capitalized and repairs andmaintenance costs are expensed as incurred. Depreciation is calculatedusing the straight-line method over the estimated useful lives of theassets ranging from three to twenty-five years. Amortization ofleasehold improvements and leased equipment is calculated using thestraight-line method over the shorter of the lease term or estimateduseful life of the asset.

Fair Value of FinancialInstruments

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

Stock-BasedCompensation

In December  2004, the Financial AccountingStandards Board (FASB) issued SFAS No. 123R (revised 2004), Share-BasedPayment, which is a revision of SFAS 123 (‘‘SFAS123R’’). SFAS 123R eliminates the ability to account forshare-based compensation under the intrinsic value method permitted byAccounting Principles Board Opinion No. 25 (‘‘APB25’’), Accounting for Stock Issued to Employees. Thisrequires the Company to adopt the fair value model for recognizingcompensation expense for employee stock options, and has the effect ofreducing the Company’s reported net income and net income pershare.

On July  1,  2005, the Company adoptedSFAS 123R using a modified prospective application, as permittedunder SFAS 123R. Accordingly, prior period amounts have not beenrestated. Under this application, the Company is required torecord compensation expense for all awards granted after the date ofadoption and for the unvested portion of previously granted awards thatremain outstanding at the date of adoption. Before the adoption of SFAS123R, the Company applied APB 25 to account for its stock-basedawards. Under APB 25, the Company was not required to recognizecompensation expense for the cost of stock options. 

Thefair value of options granted under the Company's 1997 Plan wasestimated at date of grant using a Black-Scholes option pricing modelwith the following assumptions for the years ended June30,  2006, 2005 and 2004: weighted average risk-free interestrate of 4.6% (2006), 3.6% (2005) and 3.2% (2004),weighted average volatility factor of the expected market price of theCompany's common stock of .65 (2006), .41 (2005) and .79 (2004),no dividend yields and a weighted-average expected life of the optionsof four years for the year ended June  30,  2006 and fiveyears for the years ended June  30,  2005 and 2004.

The Black-Scholes option valuation model was developed for use inestimating the fair value of traded options, which have no vestingrestrictions. In addition, option valuation models require the input ofhighly subjective assumptions, including the expected stock pricevolatility. Because the Company's stock options havecharacteristics significantly different from those of traded options,and because changes in the subjective input assumptions can materiallyaffect the fair value estimate, in management's opinion, theexisting models do not necessarily provide a reliable single measure ofthe fair value of its stock options under the Black-Scholes optionvaluation model.

F-9

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GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

2.    Significant Accounting Policies(continued)

The following table details the effect on netincome (loss) and net income (loss) per share had stock-basedcompensation expense for the stock options been recorded in the yearsended June  30,  2005 and 2004 based on the fair-valuemethod under SFAS 123.

|                                                              |  |  |                                      |   |        |      |  |  |  |   |        |   |
|--------------------------------------------------------------|--|--|--------------------------------------|---|--------|------|--|--|--|---|--------|---|
|                                                         |  |  | YearsEnded June30,                   |
|                                                         |  |  | 2005                                 |   |        | 2004 |
|                                                         |  |  | (inthousands, except per share data) |
| Reported netincome (loss)                                    |  |  |                                      | $ | 4,814  |      |  |  |  | $ | (1,341 | ) |
| Stockcompensation expense included in net income asreported  |  |  |                                      |   | 153    |      |  |  |  |   | 12     |   |
| Stock compensationexpense determined under fair valuemethod  |  |  |                                      |   | (2,909 | )    |  |  |  |   | (2,216 | ) |
| Pro-formanet income(loss)                                    |  |  |                                      | $ | 2,058  |      |  |  |  | $ | (3,545 | ) |
| Reportedbasic net income (loss) per commonshare              |  |  |                                      | $ | 0.33   |      |  |  |  | $ | (0.10  | ) |
| Reporteddiluted net income (loss) per commonshare            |  |  |                                      | $ | 0.32   |      |  |  |  | $ | (0.10  | ) |
| Pro-formabasic and diluted net income (loss) per commonshare |  |  |                                      | $ | 0.14   |      |  |  |  | $ | (0.27  | ) |
|                                                              |

Asof June  30,  2006, there was approximately $183,000 ofunrecognized compensation cost related to non-vested stock-basedcompensation. The cost is expected to be recognized over aweighted-average period of 3.7 years.

In May  2005, inresponse to FAS 123R, the Board of Directors of the Company, uponrecommendation of its Compensation Committee, approved an accelerationof all unvested options granted to employees and directors under theCompany’s Amended and Restated 1997 Stock Incentive Plan. As aresult of the acceleration, options to acquire 863,165 shares of theCompany’s common stock became immediately exercisable. In orderto prevent unintended personal benefit to directors and executiveofficers, the Board of Directors, upon recommendation of itsCompensation Committee, imposed restrictions on any shares receivedthrough the exercise of accelerated options held by those individuals.These restrictions prevent their sale of stock obtained throughexercise of an accelerated option prior to the earlier of the originalvesting date or the individual’s termination of employment. Therestrictions applied to 306,220 options. A one-time non-cashcompensation charge of approximately $147,000 was recorded in thefourth quarter of 2005 as a result of the acceleration.

Goodwill and Other Intangible Assets

Goodwill representsthe excess of the purchase price of businesses over the fair value ofthe identifiable 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.

The netcarrying value of goodwill is approximately $7,204,000 at June30,  2006 and 2005, which relates to the data communicationsservices reporting unit. The Company performs the goodwill impairmenttest annually in the fourth quarter. No impairment was noted atJune  30,  2006.

F-10

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

2.    Significant Accounting Policies(continued)

Long-Lived Assets

For other than goodwilland indefinite life intangibles, when impairment indicators arepresent, the Company reviews the carrying value of its assets indetermining the ultimate recoverability of their unamortized valuesusing future undiscounted cash flows expected to be generated by theassets in accordance with the provisions of SFAS No. 144, Accountingfor the Impairment or Disposal of Long-Lived Assets. If such assets areconsidered impaired, the impairment recognized is measured by theamount by which the carrying amount of the asset exceeds the futurediscounted cash flows. Assets to be disposed of are reported at thelower of the carrying amount or fair value, less cost to sell.

The Company evaluates the periods of amortization in determiningwhether later events and circumstances warrant revised estimates ofuseful lives. If estimates are changed, the unamortized cost will beallocated to the increased or decreased number of remaining periods inthe revised lives.

Comprehensive Income

Accumulatedother comprehensive income for the years ended June  30,2005 and 2004 of approximately $284,000 and $267,000, respectively,represented an unrealized gain from foreign currency translationrelated to a foreign subsidiary.

Product Warranties

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

Reclassifications

Certain prior year amountshave been reclassified to conform with the current yearpresentation.

Recent Accounting Pronouncements

InJune  2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes — aninterpretation of FASB Statement No. 109 (‘‘FIN48’’), which clarifies the accounting for uncertainty inincome tax positions. FIN 48 requires that the Company recognize in itsfinancial statements the benefits of tax return positions if that taxposition is more likely than not of being sustained on audit, based onits technical merits. The provisions of FIN 48 are effective as of thebeginning of the Company’s 2008 fiscal year, with the cumulativeeffect of the change in accounting principle recorded as an adjustmentto opening retained earnings.  The Company is currentlyevaluating the impact of adopting FIN 48 on its financialstatements.

3.    AccountsReceivable

Accounts receivable include amounts billed but notpaid by customers pursuant to retainage provisions in connection withground segment systems, networks and enterprise solutions contracts. AtJune  30,  2006 and 2005, there was approximately$1,438,000 and $460,000 respectively, billed but not paid by customersunder retainage provisions in connection with long-term contracts. Suchbalances are included in accounts receivable in the accompanyingconsolidated balance sheets. Based on the Company's experiencewith similar contracts in recent years, billed receivables relating tolong-term contracts are expected to be collected within oneyear.

F-11

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

4.    Inventories

Inventories consist of the following:

|                                  |  |  |               |   |        |              |  |  |  |   |        |  |
|----------------------------------|--|--|---------------|---|--------|--------------|--|--|--|---|--------|--|
|                             |  |  | June30,2006   |   |        | June 30,2005 |
|                             |  |  | (Inthousands) |
| Raw materials and componentparts |  |  |               | $ | 110    |              |  |  |  | $ | 111    |  |
| Work-in-progress                 |  |  |               |   | 14,564 |              |  |  |  |   | 15,485 |  |
|                             |  |  |               |   | 14,674 |              |  |  |  |   | 15,596 |  |
| Lessprogress payments            |  |  |               |   | 1,616  |              |  |  |  |   | 2,710  |  |
|                             |  |  |               | $ | 13,058 |              |  |  |  | $ | 12,886 |  |
|                                  |

5.    FixedAssets

Fixed assets consist of the following:

|                                              |  |  |               |   |        |              |  |  |  |   |        |  |
|----------------------------------------------|--|--|---------------|---|--------|--------------|--|--|--|---|--------|--|
|                                         |  |  | June30,2006   |   |        | June 30,2005 |
|                                         |  |  | (Inthousands) |
| Land                                         |  |  |               | $ | 1,750  |              |  |  |  | $ | 1,750  |  |
| Buildingandimprovements                      |  |  |               |   | 6,606  |              |  |  |  |   | 6,310  |  |
| Computerequipment                            |  |  |               |   | 3,373  |              |  |  |  |   | 3,260  |  |
| Machinery andequipment                       |  |  |               |   | 3,487  |              |  |  |  |   | 3,061  |  |
| NetworkOperationsCenter                      |  |  |               |   | 10,747 |              |  |  |  |   | 9,779  |  |
| Satellite earthstationequipment              |  |  |               |   | 8,808  |              |  |  |  |   | 8,180  |  |
| Furniture andfixtures                        |  |  |               |   | 1,336  |              |  |  |  |   | 1,361  |  |
|                                         |  |  |               |   | 36,107 |              |  |  |  |   | 33,701 |  |
| Lessaccumulated depreciation andamortization |  |  |               |   | 20,597 |              |  |  |  |   | 17,651 |  |
|                                         |  |  |               | $ | 15,510 |              |  |  |  | $ | 16,050 |  |
|                                              |

6.    CommonStock

Warrants Issued to Consultants

DuringNovember  1996, the Company issued a ten-year warrant to fiveconsultants for services to purchase an aggregate of 64,125 shares ofcommon stock at a price per share of $8.07, equal to the fair marketvalue of the shares at the date of issuance. At June  30,2006, warrants to purchase 55,825 shares of the Company's commonstock noted above are outstanding and exercisable.

TreasuryStock

In June  2005, the Company terminated its stockrepurchase program. Pursuant to this plan, the Company repurchasedapproximately 61,000 shares in fiscal 2004 at an aggregate cost ofapproximately $333,000, which included 61,000 shares acquired from theCompany’s President at a fair market price of $5.41 per share(see Note 10). The repurchase program allowed for purchases to be madeintermittently, through open market and privately negotiatedtransactions. Timing, price, quantity and manner of purchases were atthe discretion of the Company's management, depending on marketconditions and other factors, subject to compliance with the applicablesecurities laws.

F-12

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

6.    CommonStock (continued)

Private Placement

OnDecember  31,  2003, the Company completed a privateplacement transaction of equity securities and issued 1,500,000 sharesof common stock at a price of $4.50 per share for an aggregate price of$6,750,000 and issued warrants to purchase up to 750,000 shares ofcommon stock at an exercise price of $5.50 per share. The warrantsbecame exercisable on July  1,  2004 and will expire onDecember  31,  2008. The Company incurred total expenses ofapproximately $583,000, of which approximately $456,000 representedplacement agent commissions and approximately $127,000 representedother expenses. After deducting total expenses, the net proceedsreceived by the Company in January  2004 were approximately$6,167,000. At June  30,  2006, warrants to purchase432,500 shares of the Company's common stock noted above areoutstanding andexercisable.

7.    StockOption and Stock Purchase Plans

On February  26,1997, the Company's Board of Directors authorized, and thestockholders subsequently approved, the 1997 Stock Incentive Plan(‘‘1997 Plan’’), which authorized thegranting to employees, directors and consultants of the Company optionsto purchase an aggregate of 2,280,000 shares of the Company'scommon stock. In November  2000 and 2001, the Company'sstockholders approved amendments to the 1997 Plan whereby the number ofshares authorized for issuance under the 1997 Plan increased by 800,000shares in fiscal 2001 and 2002. In November  2004, theCompany's stockholders approved amendments to the 1997 Planwhereby the number of shares authorized for issuance under the 1997Plan increased by 1,000,000 shares.

Options granted under the1997 Plan may be either incentive or non-qualified stock options. Theexercise price of an option shall be determined by the Company'sBoard of Directors or compensation committee of the board at the timeof grant, however, in the case of an incentive stock option theexercise price may not be less than 100% of the fair marketvalue of such stock at the time of the grant, or less than 110%of such fair market value in the case of options granted to a10% owner of the Company's stock.

Employee optionsgenerally vest annually in equal installments over a four-year periodand expire on the tenth anniversary of the date of grant. Directoroptions granted upon initial election to the Board of Directorsgenerally vest one third on the grant date and an additional one thirdon each of the next two succeeding anniversaries of the date of grant.Each additional annual grant vests immediately. All Director optionsexpire the earlier of ten years from the date of grant or one year fromconcluding service as a director of the Company. In May  2005 (asdiscussed in Note 2), in response to FAS 123R, the Board of Directorsof the Company approved an acceleration of all unvested options grantedto employees and directors under the 1997 Plan.

The 1997 Planprovides for an automatic increase to the number of options authorizedfor grant by an amount equal to 1% of the shares of common stockoutstanding on the last trading day of each calendar year. Duringfiscal 2005 and 2004 the Company increased the number of optionsauthorized for grant under the 1997 Plan pursuant to the automatic1% provision by 144,390 and 140,763, respectively. AtJune  30,  2006, the number of remaining options availablefor grant under the 1997 Plan was 1,286,961.

On September23,  1998, the Board of Directors adopted, and the stockholderssubsequently approved, the 1999 Employee Stock Purchase Plan(‘‘1999 Plan’’). Pursuant to the 1999 Plan,400,000 shares of the Company's common stock will be reserved forissuance. The 1999 Plan is intended to provide eligible employees ofthe Company, and its participating affiliates, the opportunity toacquire an interest in the Company at the lesser of 85% of fairmarket value at date of grant or date of purchase through participationin the payroll-deduction based employee stock purchase plan. During theyears ended June  30,  2005 and 2004, the Company issued37,961 and 37,684 shares of its common stock to participating employeesin connection with the 1999 Plan. The Board of Directors suspended the1999 Plan effective 

F-13

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

7.    StockOption and Stock Purchase Plans (continued)

July  1,  2005 due to the impacton the Company’s operating results due to the adoption of SFAS123R. At June  30,  2006, the number of remaining sharesavailable for issuance under the 1999 Plan was 121,321.

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

|                                                           |  |  |                    |  |        |                               |  |  |                   |   |       |                               |  |  |                   |  |        |                               |  |  |  |   |      |  |  |  |  |  |        |   |  |  |  |   |      |  |
|-----------------------------------------------------------|--|--|--------------------|--|--------|-------------------------------|--|--|-------------------|---|-------|-------------------------------|--|--|-------------------|--|--------|-------------------------------|--|--|--|---|------|--|--|--|--|--|--------|---|--|--|--|---|------|--|
|                                                      |  |  | YearsEnded June30, |
|                                                      |  |  | 2006               |  |        | 2005                          |  |  | 2004              |
|                                                      |  |  | SharesUnderOption  |  |        | Weighted-AverageExercisePrice |  |  | SharesUnderOption |   |       | Weighted-AverageExercisePrice |  |  | SharesUnderOption |  |        | Weighted-AverageExercisePrice |
| Balance,beginning ofyear                                  |  |  |                    |  | 3,258  |                               |  |  |                   | $ | 7.16  |                               |  |  |                   |  | 3,359  |                               |  |  |  | $ | 7.05 |  |  |  |  |  | 3,127  |   |  |  |  | $ | 7.51 |  |
| Grants                                                    |  |  |                    |  | 79     |                               |  |  |                   |   | 6.90  |                               |  |  |                   |  | 206    |                               |  |  |  |   | 6.34 |  |  |  |  |  | 470    |   |  |  |  |   | 3.55 |  |
| Exercised                                                 |  |  |                    |  | (477   | )                             |  |  |                   |   | 4.38  |                               |  |  |                   |  | (200   | )                             |  |  |  |   | 4.31 |  |  |  |  |  | (111   | ) |  |  |  |   | 4.19 |  |
| Canceled                                                  |  |  |                    |  | (51    | )                             |  |  |                   |   | 11.58 |                               |  |  |                   |  | (107   | )                             |  |  |  |   | 7.20 |  |  |  |  |  | (127   | ) |  |  |  |   | 8.09 |  |
| Balance,end ofyear                                        |  |  |                    |  | 2,809  |                               |  |  |                   |   | 7.55  |                               |  |  |                   |  | 3,258  |                               |  |  |  |   | 7.16 |  |  |  |  |  | 3,359  |   |  |  |  |   | 7.05 |  |
| Exercisable,end ofyear                                    |  |  |                    |  | 2,760  |                               |  |  |                   | $ | 7.55  |                               |  |  |                   |  | 3,258  |                               |  |  |  | $ | 7.16 |  |  |  |  |  | 2,149  |   |  |  |  | $ | 8.51 |  |
| Weighted-averagefair value options granted during theyear |  |  |                    |  |   |                               |  |  |                   | $ | 3.77  |                               |  |  |                   |  |   |                               |  |  |  | $ | 4.16 |  |  |  |  |  |   |   |  |  |  | $ | 2.35 |  |
|                                                           |

Thefollowing table summarizes information about stock options outstandingat June  30,  2006 (in thousands, except per shareamounts):

|                                      |  |  |                    |  |       |                                                 |  |  |                               |  |     |                   |  |  |                               |   |       |  |  |  |  |  |       |  |  |  |  |   |       |  |
|--------------------------------------|--|--|--------------------|--|-------|-------------------------------------------------|--|--|-------------------------------|--|-----|-------------------|--|--|-------------------------------|---|-------|--|--|--|--|--|-------|--|--|--|--|---|-------|--|
|                                 |  |  | OptionsOutstanding |  |       | OptionsExercisable                              |
| Range ofExercisePrice                |  |  | NumberOutstanding  |  |       | Weighted-AverageRemainingContractualLife(Years) |  |  | Weighted-AverageExercisePrice |  |     | NumberExercisable |  |  | Weighted-AverageExercisePrice |
| $  1.47 -$  1.47 |  |  |                    |  | 2     |                                                 |  |  |                               |  | 7.5 |                   |  |  |                               | $ | 1.47  |  |  |  |  |  | 2     |  |  |  |  | $ | 1.47  |  |
| $  3.14-$  4.68  |  |  |                    |  | 849   |                                                 |  |  |                               |  | 6.3 |                   |  |  |                               | $ | 3.83  |  |  |  |  |  | 849   |  |  |  |  | $ | 3.83  |  |
| $  5.06-$  7.49  |  |  |                    |  | 1,098 |                                                 |  |  |                               |  | 5.6 |                   |  |  |                               | $ | 6.57  |  |  |  |  |  | 1,060 |  |  |  |  | $ | 6.55  |  |
| $  7.63-$10.69             |  |  |                    |  | 493   |                                                 |  |  |                               |  | 2.0 |                   |  |  |                               | $ | 8.91  |  |  |  |  |  | 482   |  |  |  |  | $ | 8.94  |  |
| $11.50-$17.13                        |  |  |                    |  | 200   |                                                 |  |  |                               |  | 2.7 |                   |  |  |                               | $ | 13.30 |  |  |  |  |  | 200   |  |  |  |  | $ | 13.30 |  |
| $18.38-$25.25                        |  |  |                    |  | 149   |                                                 |  |  |                               |  | 3.4 |                   |  |  |                               | $ | 21.24 |  |  |  |  |  | 149   |  |  |  |  | $ | 21.24 |  |
| $28.00-$28.00                        |  |  |                    |  | 18    |                                                 |  |  |                               |  | 3.6 |                   |  |  |                               | $ | 28.00 |  |  |  |  |  | 18    |  |  |  |  | $ | 28.00 |  |
|                                 |  |  |                    |  | 2,809 |                                                 |  |  |                               |  | 4.8 |                   |  |  |                               | $ | 7.55  |  |  |  |  |  | 2,760 |  |  |  |  | $ | 7.55  |  |
|                                      |

TheCompany has reserved approximately 4,584,000 shares of its common stockfor issuance upon exercise of all available and outstanding options andwarrants at June  30,  2006.

8.    Basicand Diluted Net Income (Loss) Per Common Share

The Companycomputes net income (loss) per share in accordance with the provisionsof SFAS No. 128, Earnings Per Share. Basic and diluted net income(loss) per common share is computed by dividing the net income (loss)for the period by the weighted-average number of common sharesoutstanding for the period. The weighted average shares include theincremental common shares issuable upon the exercise of stock optionsand warrants (using the treasury stock method). The incremental commonshares 

F-14

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GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

8.    Basicand Diluted Net Income (Loss) Per Common Share (continued)

for stock options and warrants are excludedfrom the calculation of diluted net income (loss) per share, if theireffect is anti-dilutive. Diluted net income (loss) per share for theyears ended June  30,  2006, 2005 and 2004, excludes theeffect of approximately 1,407,000, 2,577,000, and 4,972,000 stockoptions and warrants in the calculation of the incremental commonshares, respectively, as their effect would have beenanti-dilutive.

9.    RetirementPlan

The Company maintains a 401(k) plan, which coverssubstantially all employees of the Company. Participants may elect tocontribute from 1% to 75% of their pre-tax compensation,subject to elective deferral limitations under Section 403 of theInternal Revenue Code. The plan allows for a matching contributionequal to the discretionary percentage of a participating employee notto exceed 4% of their compensation by the Company. The Board ofDirectors did not authorize a matching contribution for the year endedJune  30,  2004 as part of the Company’s costcutting initiatives. Effective January  1,  2005, the Boardof Directors reinstated the matching contribution. The Companycontributed approximately $547,000, $236,000, and $0 to the 401(k) planduring the years ended June  30,  2006, 2005 and 2004,respectively. As of June  30,  2006, the Company hasaccrued $292,000 included in accrued payroll and related fringebenefits in the accompanying balance sheet. In addition, the plan alsoprovides for discretionary profit sharing contributions by the Company.There were no discretionary profit sharing contributions made by theCompany during the years ended June  30,  2006, 2005 and2004.

10.    RelatedParty Transactions

During fiscal 2001, the Company advanced$200,000 to a former executive officer of the Company. The Companyreceived a promissory note payable on December  31,  2002for this advance, which bore interest at an annual rate of 5.0%payable quarterly. During fiscal 2002, the Company increased the$200,000 loan to $300,000 and amended the promissory note accordingly.During fiscal 2003, this former executive officer resigned from theboard of directors and pursuant to a letter agreement (the‘‘agreement’’) the Company consolidated thethen outstanding loan and advances receivable from this formerexecutive officer and current employee of the Company into a $321,000promissory note. Under the terms of the letter agreement the Companywill forgive the outstanding principal and interest amounts due on thepromissory note in five annual installments beginning in January2004 so long as the former executive officer remains an employee of theCompany, subject to the terms of the agreement. At June30,  2006 and 2005, the annual installment to be forgiven withinone year along with accrued interest outstanding under this promissorynote was included in other current assets in the accompanyingconsolidated balance sheet. The remaining principal balance outstandingat June  30,  2006 and 2005 was approximately $130,000 and$195,000, respectively.

During fiscal 2002, the Company advanced$300,000 to an officer of the Company. The Company received apromissory note payable on September  30,  2004, whichbears interest at an annual rate of 5.0% payable quarterly, andis secured by a stock pledge agreement. On November  12,2003, the officer sold approximately 61,000 shares of theCompany’s common stock at a fair market price of $5.41 per shareto the Company in connection with its stock repurchase program. OnNovember  12,  2003, the officer paid approximately$333,000 to the Company to satisfy all amounts outstanding on thepromissory note, together with accrued interestthereon.

11.    IncomeTaxes

The Company computes income taxes using the liabilitymethod. Accordingly, deferred tax assets and liabilities are recognizedfor estimated future tax consequences attributable to the differencesbetween the carrying amount of the assets and liabilities for financialstatement and income tax purposes. The deferred 

F-15

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GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

11.    IncomeTaxes (continued)

tax assets and liabilities are determined byusing enacted tax laws and rates in effect when the differences areexpected to reverse. Net deferred tax assets are recorded when it ismore likely than not that such tax benefits will be realized.

During fiscal 2006 and 2005, the Company recorded a tax provision ofapproximately $88,000 and $64,000.

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

|                                           |  |  |               |   |         |             |  |  |  |   |         |   |
|-------------------------------------------|--|--|---------------|---|---------|-------------|--|--|--|---|---------|---|
|                                      |  |  | June30,2006   |   |         | June30,2005 |
|                                      |  |  | (Inthousands) |
| Deferred taxassets:                       |  |  |               |   |    |             |  |  |  |   |    |   |
| Net operating losscarryforwards           |  |  |               | $ | 26,972  |             |  |  |  | $ | 28,892  |   |
| Accrualsandreserves                       |  |  |               |   | 1,003   |             |  |  |  |   | 1,273   |   |
| Write-downof investments                  |  |  |               |   | 426     |             |  |  |  |   | 426     |   |
| Stateinvestment tax creditcarryforwards   |  |  |               |   | 22      |             |  |  |  |   | 38      |   |
| AMT taxcredit                             |  |  |               |   | 150     |             |  |  |  |   | 82      |   |
| Capital losscarryforwards                 |  |  |               |   | 1,062   |             |  |  |  |   | 920     |   |
| Projectsinprogress                        |  |  |               |   | 340     |             |  |  |  |   | 279     |   |
|                                      |  |  |               |   | 29,975  |             |  |  |  |   | 31,910  |   |
| Valuationallowance for deferred taxassets |  |  |               |   | (28,958 | )           |  |  |  |   | (30,926 | ) |
|                                      |  |  |               |   | 1,017   |             |  |  |  |   | 984     |   |
| Deferredtaxliabilities:                   |  |  |               |   |    |             |  |  |  |   |    |   |
| Depreciationandamortization               |  |  |               |   | (995    | )           |  |  |  |   | (946    | ) |
| Netdeferred taxassets                     |  |  |               | $ | 22      |             |  |  |  | $ | 38      |   |
|                                           |

Inassessing the realizability of deferred tax assets, managementconsiders whether it is more likely than not that some portion or allof the deferred tax assets will be realized. The ultimate realizationof deferred tax assets is dependent upon the generation of futuretaxable income prior to the expiration of any net operating losscarryforwards. Due to the uncertainty regarding the Company'sability to utilize its net operating losses in the future, the Companyhas provided a valuation allowance against its operating losses andtemporary differences except for approximately $22,000 representingstate investment tax credit carryforwards that will be utilized tooffset state capital taxes on the Company's state tax return.

For the years ended June  30,  2006, 2005 and 2004, thevaluation allowance (decreased) increased by approximately($1,968,000), $(1,887,000) and $5,239,000, respectively. Approximately$4,930,000 of the deferred tax asset, if recognized, will be allocateddirectly to stockholders' equity relating to non-qualifieddispositions of stock option exercises.

At June  30,2006, the Company had federal net operating loss carryforwards ofapproximately $67,400,000 of which approximately $21,100,000 may besubject to certain utilization limitations provided by the InternalRevenue Code. The net operating loss carryforwards will expire atvarious dates beginning in 2010 through 2024, if not utilized.

At June  30,  2006, the Company also had federalalternative minimum tax credit carryforwards of approximately $150,000,which may be carried forward indefinitely.

F-16

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GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

11.    IncomeTaxes (continued)

The reconciliations of tax provision(benefit) computed at the U.S. federal statutory tax rates to theeffective income tax rates on pre-tax income (losses) are asfollows:

|                                  |  |  |                    |  |         |      |  |  |      |  |         |   |  |  |  |  |         |    |
|----------------------------------|--|--|--------------------|--|---------|------|--|--|------|--|---------|---|--|--|--|--|---------|----|
|                             |  |  | YearsEnded June30, |
|                             |  |  | 2006               |  |         | 2005 |  |  | 2004 |
| Taxat U.S. Federal statutoryrate |  |  |                    |  | 34      | %    |  |  |      |  | 34      | % |  |  |  |  | (34     | )% |
| ForeignIncome at varyingrates    |  |  |                    |  | — |      |  |  |      |  | 7       |   |  |  |  |  | — |    |
| Other                            |  |  |                    |  | 3       |      |  |  |      |  | — |   |  |  |  |  | — |    |
| Changein valuationallowance      |  |  |                    |  | (35     | )    |  |  |      |  | (40     | ) |  |  |  |  | 34      |    |
|                             |  |  |                    |  | 2       | %    |  |  |      |  | 1       | % |  |  |  |  | — | %  |
|                                  |

12.    Segment Information

The Company operates through twobusiness segments. Its ground segment systems, networks and enterprisesolutions segment, through Globecomm Systems Inc. is engaged in thedesign, assembly and installation of ground segment systems andnetworks. Its data communications services segment, through GNSC,provides satellite communication services capabilities.

TheCompany's reportable segments are business units that offerdifferent products and services. The reportable segments are eachmanaged separately because they provide distinct products andservices.

The following is the Company's business segmentinformation as of and for the years ended June  30,  2006,2005 and 2004:

|                                                         |
|---------------------------------------------------------|
|                                                         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                    |  |  | YearsEnded June30, |
|                                                    |  |  | 2006 |  |  | 2005 |  |  | 2004 |
|                                                    |  |  | (Inthousands) |
| Revenues:                                               |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |
| Groundsegment systems, networks and enterprisesolutions |  |  |  | $ | 99,136 |  |  |  |  | $ | 91,613 |  |  |  |  | $ | 75,908 |  |
| Datacommunicationsservices                              |  |  |  |  | 29,273 |  |  |  |  |  | 21,875 |  |  |  |  |  | 16,196 |  |
| Intercompanyeliminations                                |  |  |  |  | (2,373 | ) |  |  |  |  | (3,904 | ) |  |  |  |  | (4,868 | ) |
| Totalrevenues                                           |  |  |  | $ | 126,036 |  |  |  |  | $ | 109,584 |  |  |  |  | $ | 87,236 |  |
| Income(loss) fromoperations:                            |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |
| Groundsegment systems, networks and enterprisesolutions |  |  |  | $ | 2,370 |  |  |  |  | $ | 4,229 |  |  |  |  | $ | (870 | ) |
| Datacommunicationsservices                              |  |  |  |  | 837 |  |  |  |  |  | (296 | ) |  |  |  |  | (849 | ) |
| Interestincome                                          |  |  |  |  | 965 |  |  |  |  |  | 444 |  |  |  |  |  | 271 |  |
| Gain onsale ofinvestment                                |  |  |  |  | — |  |  |  |  |  | 40 |  |  |  |  |  | — |  |
| Gainon sale of available-for-salesecurities             |  |  |  |  | — |  |  |  |  |  | 132 |  |  |  |  |  | 91 |  |
| Gainon liquidation of foreignsubsidiary                 |  |  |  |  | 264 |  |  |  |  |  | — |  |  |  |  |  | — |  |
| Intercompanyeliminations                                |  |  |  |  | 144 |  |  |  |  |  | 329 |  |  |  |  |  | 16 |  |
| Income(loss) before incometaxes                         |  |  |  | $ | 4,580 |  |  |  |  | $ | 4,878 |  |  |  |  | $ | (1,341 | ) |
| Depreciationandamortization:                            |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |
| Groundsegment systems, networks and enterprisesolutions |  |  |  | $ | 1,201 |  |  |  |  | $ | 1,153 |  |  |  |  | $ | 1,402 |  |
| Datacommunicationsservices                              |  |  |  |  | 1,893 |  |  |  |  |  | 1,871 |  |  |  |  |  | 1,711 |  |
| Intercompanyeliminations                                |  |  |  |  | (71 | ) |  |  |  |  | (329 | ) |  |  |  |  | (16 | ) |
| Totaldepreciation andamortization                       |  |  |  | $ | 3,023 |  |  |  |  | $ | 2,695 |  |  |  |  | $ | 3,097 |  |
|                                                         |

F-17

----

GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

12.    Segment Information (continued)

|                                                         |
|---------------------------------------------------------|
|                                                         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                    |  |  | YearsEnded June30, |
|                                                    |  |  | 2006 |  |  | 2005 |  |  | 2004 |
|                                                    |  |  | (Inthousands) |
| Expenditures forlong-livedassets:                       |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |
| Groundsegment systems, networks and enterprisesolutions |  |  |  | $ | 1,410 |  |  |  |  | $ | 887 |  |  |  |  | $ | 354 |  |
| Datacommunicationsservices                              |  |  |  |  | 1,074 |  |  |  |  |  | 2,458 |  |  |  |  |  | 915 |  |
| Intercompanyeliminations                                |  |  |  |  | — |  |  |  |  |  | (42 | ) |  |  |  |  | (2 | ) |
| Totalexpenditures for long-livedassets                  |  |  |  | $ | 2,484 |  |  |  |  | $ | 3,303 |  |  |  |  | $ | 1,267 |  |
|                                                         |

|                                                         |
|---------------------------------------------------------|
|                                                         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                    |  |  | June30,2006 |  |  | June 30,2005 |  |  | June30,2004 |
|                                                    |  |  | (Inthousands) |
| Assets:                                                 |  |  |  |  |   |  |  |  |  |  |   |  |  |  |  |  |   |  |
| Groundsegment systems, networks and enterprisesolutions |  |  |  | $ | 145,125 |  |  |  |  | $ | 139,117 |  |  |  |  |  | 125,534 |  |
| Datacommunicationsservices                              |  |  |  |  | 13,256 |  |  |  |  |  | 13,712 |  |  |  |  |  | 11,501 |  |
| Intercompanyeliminations                                |  |  |  |  | (65,147 | ) |  |  |  |  | (66,451 | ) |  |  |  |  | (63,560 | ) |
| Totalassets                                             |  |  |  | $ | 93,234 |  |  |  |  | $ | 86,378 |  |  |  |  | $ | 73,475 |  |
|                                                         |

AtJune  30,  2006, 2005 and 2004, the Company had totalassets of approximately $53,000, $1,137,000 and $2,547,000, andlong-lived assets of approximately $46,000, $80,000 and $100,000,respectively, located in the UnitedKingdom.

13.    SignificantCustomers and Concentrations of Credit Risk

The Companydesigns, assembles and installs satellite ground segment systems,networks and enterprise solutions for customers in diversifiedgeographic locations. Credit risk with respect to accounts receivableis concentrated due to the limited number of customers. The timing ofcash realization is determined based upon the contract or serviceagreements with the customers. The Company performs ongoing creditevaluations of its customers' financial condition and in somecases requires a letter of credit or cash in advance for foreigncustomers. The Company evaluates the collectibility of accountsreceivable based on numerous factors, including past transactionhistory with customers and their credit worthiness. TheCompany’s estimate of its allowance for doubtful accounts isperiodically adjusted when the Company becomes aware of a specificcustomer’s inability to meet its financial obligations, or as aresult of changes in the overall aging of accounts receivable.Allowances related to accounts receivable at June  30,2006, 2005 and 2004, were approximately $825,000, $815,000 and$2,618,000, respectively. The decrease in the allowance ofapproximately $1,803,000 from June  30,  2004 to 2005 wasprimarily the result of a bad debt recovery of approximately $1,500,000based on a settlement reached with a customer in July  2004; thisrecovery was recorded as a reduction to general and administrativeexpenses for the year ended June  30,  2005.

TheCompany’s consolidated revenues for the years ended June30,  2006 and 2004 included one customer which accounted for15% and 11% of the Company’s consolidated revenue.For the year ended June  30,  2005 three customersaccounted for 20%, 13% and 13%, respectively, ofthe Company's consolidated revenues.

F-18

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GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

13.    SignificantCustomers and Concentrations of Credit Risk (continued)

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

|                       |  |  |                    |  |    |      |  |  |      |  |    |   |  |  |  |  |    |   |
|-----------------------|--|--|--------------------|--|----|------|--|--|------|--|----|---|--|--|--|--|----|---|
|                  |  |  | YearsEnded June30, |
|                  |  |  | 2006               |  |    | 2005 |  |  | 2004 |
| Africa                |  |  |                    |  | 13 | %    |  |  |      |  | 8  | % |  |  |  |  | 9  | % |
| Northand SouthAmerica |  |  |                    |  | 5  | %    |  |  |      |  | 4  | % |  |  |  |  | 3  | % |
| Asia                  |  |  |                    |  | 8  | %    |  |  |      |  | 4  | % |  |  |  |  | 13 | % |
| Europe                |  |  |                    |  | 17 | %    |  |  |      |  | 25 | % |  |  |  |  | 18 | % |
| MiddleEast            |  |  |                    |  | 22 | %    |  |  |      |  | 32 | % |  |  |  |  | 19 | % |
|                  |  |  |                    |  | 65 | %    |  |  |      |  | 73 | % |  |  |  |  | 62 | % |
|                       |

Financialinstruments, which potentially subject the Company to concentrations ofcredit risk, consist principally of cash and trade receivables. TheCompany places its cash and cash equivalents with high qualityfinancial institutions. Substantially all cash and cash equivalents areheld in one financial institution at June  30,  2006 and2005. Cash equivalents are comprised of short-term debt instruments andcertificates of deposit of direct or guaranteed obligations of theUnited States, which are held to maturity and approximate fair marketvalue. At times, cash may be in excess of Federal Deposit InsuranceCompany insurance limits.

14.    Commitmentsand Contingencies

Line of Credit

At June30,  2006, the Company maintained a $20,000,000 working capitalline of credit with a bank, which bore interest atthe prime rate, andis collateralized by a first security interest on all personal propertyof the Company. The credit facility, which expires in November2006, contains certain financial covenants, with which the Company wasin compliance at June  30,  2006. As of June30,  2006, no amounts were outstanding under this creditfacility, however, there were outstanding standby letters of credit,bid proposals and performance guarantees of approximately $16,426,000,which were applied against and reduced the amounts available under theworking capital line of credit.

Lease Commitments

TheCompany currently leases satellite space segment services, officespace, teleport services and other equipment under various operatingleases, which expire in various years through 2011. As leases expire,it can be expected that in the normal course of business they will berenewed or replaced.

F-19

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GLOBECOMMSYSTEMS INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

14.    Commitmentsand Contingencies (continued)

Future minimum lease payments undernon-cancelable operating leases with terms of one year or more consistof the following at June  30,  2006 (in thousands):

|        |  |  |  |   |        |  |
|--------|--|--|--|---|--------|--|
| 2007   |  |  |  | $ | 7,117  |  |
| 2008   |  |  |  |   | 3,009  |  |
| 2009   |  |  |  |   | 948    |  |
| 2010   |  |  |  |   | 282    |  |
| 2011   |  |  |  |   | 94     |  |
|   |  |  |  | $ | 11,450 |  |
|        |

Rentexpense for satellite space segment services, office space, teleportservices, and other equipment was approximately $7,356,000, $7,138,000and $5,343,000 years ended June  30,  2006, 2005 and 2004,respectively.

Employment Agreements

DuringOctober  2001, the Company entered into three-year employmentagreements with six officers and one former officer for an aggregateamount of approximately $1,214,000 per year. The Company will havecertain obligations to these individuals if they are terminated. Eachemployment agreement renews automatically for additional terms of oneyear, unless either party provides written notice to the other party ofits intention to terminate the agreement. During fiscal 2006, the Boardof Directors approved increases bringing the aggregate amount toapproximately $1,728,000 per year.

F-20

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GLOBECOMMSYSTEMS INC.

SCHEDULE II — VALUATION AND QUALIFYINGACCOUNTS

|                                                     |  |  |                              |   |            |                             |  |  |                         |   |            |            |  |  |                       |   |           |     |  |  |  |   |            |      |  |  |  |   |            |  |
|-----------------------------------------------------|--|--|------------------------------|---|------------|-----------------------------|--|--|-------------------------|---|------------|------------|--|--|-----------------------|---|-----------|-----|--|--|--|---|------------|------|--|--|--|---|------------|--|
|                                                |  |  |                         |   |            | Additions                   |  |  |                    |   |            |       |
| Description                                         |  |  | Balanceat Beginning ofPeriod |   |            | Charged to CostsandExpenses |  |  | Charged toOtherAccounts |   |            | Deductions |  |  | Balance atEndofPeriod |
| Year ended June30,2006:                             |  |  |                              |   |       |                             |  |  |                         |   |       |            |  |  |                       |   |      |     |  |  |  |   |       |      |  |  |  |   |       |  |
| Reservesand allowances deducted from assetaccounts: |  |  |                              |   |       |                             |  |  |                         |   |       |            |  |  |                       |   |      |     |  |  |  |   |       |      |  |  |  |   |       |  |
| Reservefor estimated doubtful accountsreceivable    |  |  |                              | $ | 815,000    |                             |  |  |                         | $ | 426,000    |            |  |  |                       | $ | —   |     |  |  |  | $ | (416,000   | )(c) |  |  |  | $ | 825,000    |  |
| Valuationallowance on deferred taxassets            |  |  |                              |   | 30,926,000 |                             |  |  |                         |   | —    |            |  |  |                       |   | —   |     |  |  |  | $ | (1,968,000 | )(b) |  |  |  |   | 28,958,000 |  |
|                                                |  |  |                              | $ | 31,741,000 |                             |  |  |                         | $ | 426,000    |            |  |  |                       | $ | —   |     |  |  |  | $ | (2,384,000 | )    |  |  |  | $ | 29,783,000 |  |
| Yearended June  30,2005:                            |  |  |                              |   |       |                             |  |  |                         |   |       |            |  |  |                       |   |      |     |  |  |  |   |       |      |  |  |  |   |       |  |
| Reservesand allowances deducted from assetaccounts: |  |  |                              |   |       |                             |  |  |                         |   |       |            |  |  |                       |   |      |     |  |  |  |   |       |      |  |  |  |   |       |  |
| Reservefor estimated doubtful accountsreceivable    |  |  |                              | $ | 2,618,000  |                             |  |  |                         | $ | (1,350,000 | )(a)       |  |  |                       | $ | —   |     |  |  |  | $ | (453,000   | )(c) |  |  |  | $ | 815,000    |  |
| Valuationallowance on deferred taxassets            |  |  |                              |   | 32,813,000 |                             |  |  |                         |   | —    |            |  |  |                       |   | —   |     |  |  |  | $ | (1,887,000 | )(b) |  |  |  |   | 30,926,000 |  |
|                                                |  |  |                              | $ | 35,431,000 |                             |  |  |                         | $ | (1,350,000 | )          |  |  |                       | $ | —   |     |  |  |  | $ | (2,340,000 | )    |  |  |  | $ | 31,741,000 |  |
| Yearended June  30,2004:                            |  |  |                              |   |       |                             |  |  |                         |   |       |            |  |  |                       |   |      |     |  |  |  |   |       |      |  |  |  |   |       |  |
| Reservesand allowances deducted from assetaccounts: |  |  |                              |   |       |                             |  |  |                         |   |       |            |  |  |                       |   |      |     |  |  |  |   |       |      |  |  |  |   |       |  |
| Reservefor estimated doubtful accountsreceivable    |  |  |                              | $ | 4,805,000  |                             |  |  |                         | $ | (966,000   | )(a)       |  |  |                       | $ | —   |     |  |  |  | $ | (1,221,000 | )(c) |  |  |  | $ | 2,618,000  |  |
| Valuationallowance ondeferred taxassets             |  |  |                              |   | 27,574,000 |                             |  |  |                         |   | —    |            |  |  |                       |   | 5,239,000 | (b) |  |  |  |   | —    |      |  |  |  |   | 32,813,000 |  |
|                                                |  |  |                              | $ | 32,379,000 |                             |  |  |                         | $ | (966,000   | )          |  |  |                       | $ | 5,239,000 |     |  |  |  | $ | (1,221,000 | )    |  |  |  | $ | 35,431,000 |  |
|                                                     |

|  |
|--|
|  |  |
|  |

|     |                                                                   |
|-----|-------------------------------------------------------------------|
| (a) | Includesrecovery of accounts receivable balances (net ofcharges). |

|     |                                                                        |
|-----|------------------------------------------------------------------------|
| (b) | (Reduction) increase invaluation allowance for net deferred taxassets. |

|     |                                                                                          |
|-----|------------------------------------------------------------------------------------------|
| (c) | Reduction in allowance due towrite-off of accounts receivable balances (net ofrecovery). |

S-1

----

Indexof Exhibits

|            |    |     |        |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|------------|----|-----|--------|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNo. |    |     |   |
|            | 3  | .1  |        |  |  | Amendedand Restated Certificate of Incorporation (incorporated by reference toExhibit 3.1 of the Registrant’s Annual Report on Form 10-K forthe fiscal year ended June  30,1998).                                                                                                                                                                                                                                                                                                |
|            | 3  | .2  |        |  |  | Amended and Restated By-laws ofthe Registrant (incorporated by reference to Exhibit 3.2 of theRegistrant’s Annual Report on Form 10-K for the fiscal yearended June  30,  1998).                                                                                                                                                                                                                                                                                                 |
|            | 4  | .2  |        |  |  | SeeExhibits 3.1 and 3.2 for provisions of the Amended and RestatedCertificate of Incorporation and Amended and Restated By-laws of theRegistrant defining rights of holders of Common Stock of the Registrant(incorporated by reference to Exhibit 4.2 of the Registrant'sRegistration Statement on Form S-1, File No. 333-22425 (the‘‘RegistrationStatement’’)).                                                                                              |
|            | 10 | .1  |        |  |  | EmploymentAgreement dated as of October  9,  2001 by and between theRegistrant and David E. Hershberg (incorporated by reference to Exhibit10.9 of the Registrant’s Quarterly Report on Form 10-Q, for thequarter ended September  30,2001).                                                                                                                                                                                                                                     |
|            | 10 | .2  |        |  |  | Employment Agreement dated as ofOctober  9,  2001 by and between the Registrant and KennethA. Miller (incorporated by reference to Exhibit 10.10 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended September  30,2001).                                                                                                                                                                                                                                     |
|            | 10 | .3  |        |  |  | The Amended and Restated 1997Stock Incentive Plan (incorporated by reference to Exhibit 99 of theRegistrant’s Registration Statement on Form S-8 Registration,File No. 333-112351).                                                                                                                                                                                                                                                                                              |
|            | 10 | .4  |        |  |  | 1999 EmployeeStock Purchase Plan (incorporated by reference to Exhibit 99.8 of theRegistrant’s Registration Statement on Form S-8, File No.333-70527).                                                                                                                                                                                                                                                                                                                           |
|            | 10 | .5  |        |  |  | Rights Agreement, dated asof December  3,  1998, between the Registrant and AmericanStock Transfer and Trust Company, which includes the form ofCertificate of Designation for the Series A Junior ParticipatingPreferred Stock as Exhibit A, the form of Rights Certificate as ExhibitB and the Summary of Rights to Purchase Series A Preferred Shares asExhibit C (incorporated by reference to Exhibit 4 ofRegistrant’s Current Report on Form 8-K, dated December3,  1998). |
|            | 10 | .6  |        |  |  | Negotiable PromissoryNote, dated April  1,  2001, between the Registrant andDonald Woodring (incorporated by reference to Exhibit 10.19 of theRegistrant’s Annual Report on Form 10-K for the year endedJune  30,2001).                                                                                                                                                                                                                                                          |
|            | 10 | .7  |        |  |  | Employment Agreement, dated asof October  9,  2001, by and between Stephen C. Yablonskiand the Registrant (incorporated by reference to Exhibit 10.20 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended September  30,2001).                                                                                                                                                                                                                                |
|            | 10 | .8  |        |  |  | Employment Agreement, dated asof October  9,  2001, by and between Andrew C. Melfi andthe Registrant (incorporated by reference to Exhibit 10.21 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended September  30,2001).                                                                                                                                                                                                                                     |
|            | 10 | .9  |        |  |  | Employment Agreement, dated asof October  9,  2001, by and between Donald G. Woodring andthe Registrant (incorporated by reference to Exhibit 10.22 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended September  30,2001).                                                                                                                                                                                                                                  |
|            | 10 | .10 |        |  |  | Employment Agreement, dated asof October  9,  2001, by and between Paul J. Johnson andthe Registrant (incorporated by reference to Exhibit 10.23 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended September  30,2001).                                                                                                                                                                                                                                     |
|            | 10 | .11 |        |  |  | Employment Agreement, dated asof October  9,  2001, by and between Paul Eterno and theRegistrant (incorporated by reference to Exhibit 10.24 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended September  30,  2001).                                                                                                                                                                                                                                       |
|            |

----

|            |    |      |        |  |  |                                                                                                                                                                                                                                                                                             |
|------------|----|------|--------|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNo. |    |      |   |
|            | 10 | .12  |        |  |  | Promissory Note SecuredBy Stock Pledge Agreement, dated September  4,  2001, byand between Kenneth A. Miller and the Registrant (incorporated byreference to Exhibit 10.26 of the Registrant’s Quarterly Reporton Form 10-Q, for the quarter ended September  30,2001).               |
|            | 10 | .13* |        |  |  | Settlement Agreement, dated asof October  1,  2002, by and between Loral Skynet*, adivision of Loral SpaceCom Corporation and the Registrant (incorporatedby reference to Exhibit 10.28 of the Registrant’s QuarterlyReport on Form 10-Q, for the quarter ended September  30,2002).  |
|            | 10 | .14  |        |  |  | Letter Agreement, dated as ofJanuary  31,  2003, by and between Donald G. Woodring andthe Registrant (incorporated by reference to Exhibit 10.30 of theRegistrant’s Quarterly Report on Form 10-Q, for the quarterended December  31,2002).                                           |
|            | 10 | .15  |        |  |  | Loanand Security Agreement, dated as of September  15,  2003,by and between Silicon Valley Bank and the Registrant (incorporated byreference to Exhibit 10.31 of the Registrant’s Annual Report onForm 10-K for the year ended June  30,2003).                                        |
|            | 10 | .16  |        |  |  | Loan Modification Agreement,dated as of October  8,  2003, by and between SiliconValley Bank and the Registrant (incorporated by reference to Exhibit10.17 of the Registrant’s Annual Report on Form 10-K for theyear ended June  30,2004).                                           |
|            | 10 | .17  |        |  |  | Second Loan ModificationAgreement, dated as of March  2,  2004, by and betweenSilicon Valley Bank and the Registrant (incorporated by reference toExhibit 10.18 of the Registrant’s Annual Report on Form 10-K forthe year ended June  30,2004).                                      |
|            | 10 | .18  |        |  |  | Third Loan ModificationAgreement, dated as of June  2,  2004, by and betweenSilicon Valley Bank and the Registrant (incorporated by reference toExhibit 10.19 of the Registrant’s Annual Report on Form 10-K forthe year ended June  30,2004).                                        |
|            | 10 | .19  |        |  |  | Fourth Loan ModificationAgreement, dated as of September  24,  2004, by and betweenSilicon Valley Bank and the Registrant (incorporated by reference toExhibit 10.20 of the Registrant’s Annual Report on Form 10-K forthe year ended June  30,2004).                                 |
|            | 10 | .20  |        |  |  | Fifth Loan ModificationAgreement, dated as of October  29,  2004, by and betweenSilicon Valley Bank and the Registrant (incorporated by reference toExhibit 10.1 of the Registrant’s Registration Statement on Form8-K, File No. 000-22839).                                          |
|            | 10 | .21  |        |  |  | Sixth LoanModification Agreement, dated as of November  2,  2005, byand between Silicon Valley Bank and the Registrant (incorporated byreference to Exhibit 10.1 of the Registrant’s RegistrationStatement on Form 8-K, File No.000-22839).                                           |
|            | 10 | .22  |        |  |  | Form of SecuritiesPurchase Agreement, dated as of December  31,  2003, by andbetween the Registrant and each of the purchasers listed on Exhibit Athereto (incorporated herein by reference to Exhibit 4.5 of theRegistrant’s Registration Statement on Form S-3, File No.333-112024. |
|            | 10 | .23  |        |  |  | Form of Warrant, dated asof December  31,  2003, by and between the Registrant andeach of the purchasers listed on Exhibit A thereto (incorporated hereinby reference to Exhibit 4.5 of the Registrant’s RegistrationStatement on Form S-3, File No.333-112024).                      |
|            | 14 |      |        |  |  | Registrant’s Code ofEthics and Business Conduct (incorporated by reference to Exhibit 14 ofthe Registrant’s Annual Report on Form 10-K for the year endedJune  30,2004).                                                                                                        |
|            | 21 |      |        |  |  | Subsidiaries of the Registrant(filed herewith).                                                                                                                                                                                                                                             |
|            | 23 |      |        |  |  | Consent of IndependentRegistered Public Accounting Firm (filedherewith).                                                                                                                                                                                                                    |
|            | 31 | .1   |        |  |  | Chief Executive OfficerCertification required by Rules 13a-14 and 15d-14 under the SecuritiesExchange Act of 1934, as amended (filedherewith).                                                                                                                                              |
|            |

----

|            |    |    |        |  |  |                                                                                                                                                              |
|------------|----|----|--------|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNo. |    |    |   |
|            | 31 | .2 |        |  |  | Chief Financial OfficerCertification required by Rules 13a− 14 and 15d− 14 underthe Securities Exchange Act of 1934, as amended (filedherewith). |
|            | 32 |    |        |  |  | Certification Pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of SarbanesOxley Act of 2002 (filedherewith).                            |
|            |

|  |
|--|
|  |  |
|  |

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

----