Globecomm Systems (GCOM)

telecommunications laws and regulations that do not currently contemplate technical advances in telecommunications technology like Internet/intranet transmission by satellite. We cannot assure you that the present regulatory environment in any of those countries will not be changed in a manner which may have a material adverse impact on our business. Either we or our local sales representatives typically must obtain authorization for each country in which we provide our satellite-delivered services. Although we believe that we or our local sales representatives will be able to obtain the requisite licenses and approvals from the countries in which we intend to provide products and services, the regulatory schemes in each country are different, and thus there may be instances of noncompliance of which we are not aware. Although we believe these regulatory schemes will not prevent us from pursuing our business plan, we cannot assure you that our licenses and approvals are or will remain sufficient in the view of foreign regulatory authorities. In addition, we cannot assure you that necessary licenses and approvals will be granted on a timely basis, or at all, in all jurisdictions in which we wish to offer our products and services or that the applicable restrictions will not be unduly burdensome.

Regulation of the Internet

Our Internet operations (other than the operation of a teleport) are not currently subject to direct government regulation in the United States or most other countries, and there are currently few laws or regulations directly applicable to access to or commerce on the Internet. However, due to the increasing popularity and use of the Internet it is possible that a number of laws and regulations may be adopted at the local, national or international levels with respect to the Internet, covering issues like user privacy and expression, pricing of products and services, taxation, advertising, intellectual property rights, information security or the convergence of traditional communication services with Internet communications.

We anticipate that a substantial portion of our Internet operations will be carried out in countries which may impose greater regulation of the content of information coming into their country than that which is generally applicable in the United States. Examples of this include privacy regulations in Europe and content restrictions in countries, such as the People’s Republic of China. To the extent that we provide content as a part of our Internet services, it will be subject to laws regulating content. Moreover, the adoption of laws or regulations may decrease the growth of the Internet, which could in turn decrease the demand for our Internet services, or increase our cost of doing business or otherwise negatively affect our business. In addition, the applicability to the Internet of existing laws governing issues including property ownership, copyrights and other intellectual property issues, taxation, libel and personal privacy is uncertain. The vast majority of these laws were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. Changes to these laws intended to address these issues, including some recently proposed changes, could create uncertainty in the marketplace. These changes could reduce demand for our products and services or could increase our cost of doing business as a result of costs of litigation or increased product development costs.

Telecommunications Taxation, Support Requirements and Access Charges

Telecommunications carriers providing domestic services in the United States are required to contribute a portion of their gross revenues for the support of universal telecommunications services, telecommunications relay services for the deaf, and/or other regulatory fees. We are subject to some of these fees and we may be subject to other fees or to new or increased taxes and contribution requirements that could affect our profitability, particularly if we are not able to pass them through to customers for either competitive or regulatory reasons.

Broadband Internet access services provided by telephone companies are currently classified as information services under the Communications Act and therefore not considered a telecommunications service subject to payment of access charges to local telephone companies in the United States. Should this situation change or other charges be imposed, the increased cost to our customers who use telephone-company provided facilities to connect with our satellite facilities could discourage the demand for our services. Likewise, the demand for our services in other countries could be affected by the availability and cost of local telephone or other telecommunications services required to connect with our facilities in those countries.

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Export of Telecommunications Equipment

The sale of our infrastructure solutions services outside the United States is subject to compliance with the regulations of the United States Export Administration and, in certain instances, with International Traffic in Arms regulations. The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position. In addition, in order to ship our products into or implement our services in some countries, these products or services must satisfy the technical requirements of the particular country. If we were unable to comply with these requirements with respect to a significant quantity of our products, our sales in those countries could be restricted, which could have a material adverse effect on our business, financial condition and results of operations.

Employees

As of June 30, 2007, we had 282 full-time employees, including 155 in engineering and program management, 71 in the manufacturing, operations support and network operations, 16 in sales and marketing and 40 in management and administration. Our employees are not covered by any collective bargaining agreements. We believe that our relations with our employees are good.

Financial Information About Geographic Areas

Revenues from foreign sales as a percentage of total revenues for each of the three years in the period ended June 30, 2007 are set forth in Note 15 of the Notes to Consolidated Financial Statements.

Financial Information About Business Segments

The sales and operating profits of each business segment and the identifiable assets attributable to each business segment for each of the three years in the period ended June 30, 2007 are set forth in Note 14 of the Notes to Consolidated Financial Statements.

Available information

We maintain an Internet website at www.globecommsystems.com where our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, any amendments to these reports and all other SEC documents are available without charge, as soon as reasonably practicable following the time that they are filed with or furnished to the SEC. Information contained on our website does not constitute a part of this Annual Report on Form 10-K.

Item 1A.    Risk Factors

Risks Related to Our Business

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

We rely on a small number of customer contracts for a large portion of our revenue. Specifically, we have agreements with three customers to provide equipment and services, from which we expect to generate a significant portion of our revenues. We derived 17% and 11% of our revenues in the year ended June 30, 2007 from the Department of State’s Diplomatic Telecommunications Systems — Program Office and another U.S. Government agency, respectively. If any key customer is unable to implement its business plan, the market for these customers’ services declines, political or military conditions make performance impossible or if all or any of the major customers modifies or terminates its agreement with us, and we are unable to replace these contracts, our results of operations, business and financial condition would be materially harmed.

We derive a substantial portion of our revenues from the government marketplace.

We derive a substantial portion of our revenues from government marketplace. In the year ended June 30, 2007, we derived 68% of our consolidated revenues from the government marketplace. This

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business tends to have higher gross margins than other markets of our business. A future reduction in the proportion of our business from government marketplace would negatively impact our results of operations.

We may not realize all of the anticipated benefits of our acquisition of the GlobalSat business.

The success of our recent acquisition of the GlobalSat business depends, in part, on our ability to realize the anticipated synergies, cost savings and growth opportunities from integrating the GlobalSat business with our business, and the failure to realize these anticipated benefits could cause our business to be materially adversely affected.

Our success in realizing these benefits and the timing of this realization depends upon our successful integrations of the operations of the GlobalSat business. The integration of two independent businesses is a complex, costly and time-consuming processes. The difficulties of combining the operations of the businesses include among others:

	•	retaining key employees;

	•	bridging possible differences in cultures and management philosophies;

	•	consolidating corporate and administrative infrastructures and systems;

	•	coordinating sales and marketing functions;

	•	preserving our and the GlobalSat business’ customer, supplier and other important relationships;

	•	aligning and executing on new product roadmaps;

	•	minimizing the diversion of management’s attention from ongoing business concerns; and

	•	coordinating geographically separate organizations.

We acquired the GlobalSat business for $18.5 million and entered into a five-year $16 million acquisition term loan. We plan for the future cash flow of the GlobalSat division business to fund the principal and interest payments of the acquisition term loan, unless it is repaid from other financing proceeds. The GlobalSat business is generally dependant upon agreements with three customers to provide equipment and services, from which we expect to generate a significant portion of revenues relating to the GlobalSat business. If any of these three customers modifies or terminates its agreement with GlobalSat, and we are unable to replace these contracts, our results of operations, business and financial condition would be materially harmed.

We cannot assure you that our integration of the GlobalSat business will result in the realization of the full benefits that we anticipate will result from the acquisition. Any inability to integrate successfully, or a delay in integrating, the GlobalSat business could have a material adverse effect on us.

Risks associated with operating in international markets could restrict our ability to expand globally and harm our business and prospects.

We market and sell a substantial portion of our products and services internationally. We anticipate that international sales will continue to account for a significant portion of our total revenues for the foreseeable future with a significant portion of the international revenue coming from developing countries, including countries in areas of conflict like Afghanistan. There are a number of risks inherent in conducting our business internationally, including:

	•	general political and economic instability in international markets, including the hostilities in Iraq and Afghanistan, could impede our ability to deliver our products and services to customers and harm our results of operations;

	•	difficulties in collecting accounts receivable could adversely affect our results of operations;

	•	changes in regulatory requirements could restrict our ability to deliver services to our international customers; including the addition of a country to the list of sanctioned countries under the International Emergency Economic Powers Act or similar legislation;

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	•	export restrictions, tariffs, licenses and other trade barriers could prevent us from adequately equipping our network facilities;

	•	differing technology standards across countries may impede our ability to integrate our products and services across international borders;

	•	protectionist laws and business practices favoring local competition may give unequal bargaining leverage to key vendors in countries where competition is scarce, significantly increasing our operating costs;

	•	increased expenses associated with marketing services in foreign countries could affect our ability to compete;

	•	relying on local subcontractors for installation of our products and services could adversely impact the quality of our products and services;

	•	difficulties in staffing and managing foreign operations could affect our ability to compete;

	•	complex foreign laws and treaties could affect our ability to compete; and

	•	potentially adverse taxes could affect our results of operations.

These and other risks could impede our ability to manage our international operations effectively, limit the future growth of our business, increase our costs and require significant management attention.

We derive a substantial portion of our revenues from fixed-price projects, under which we assume greater financial risk if we fail to accurately estimate the costs of the projects.

We derive a substantial portion of our revenues from fixed-price projects. We assume greater financial risks on a fixed-price project than on a time-and-expense based project. If we miscalculate the resources or time we need for these fixed-price projects, the costs of completing these projects may exceed our original estimates, which would negatively impact our financial condition and results of operations.

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

GNSC’s future revenues and results of operations are dependent on its execution of its business strategy and development of the market for its current and future services. GNSC has had, and we expect will continue to have, cash requirements, which have decreased and will continue to decrease our cash resources. If GNSC does not efficiently and substantially utilize its transponder space capacity and increase its level of orders, its cash requirements may increase and our results of operations will be harmed. In addition, significant capital expenditures have been required as we have built our content delivery and telephony service offerings. If our content delivery and telephony service offerings are not accepted, or if the market fails to grow, we cannot assure you that we will be able to realize an appropriate return on these capital expenditures.

In the event of a catastrophic loss affecting our operations in Hauppauge, New York or Laurel, Maryland, our results of operations would be harmed.

GNSC’s revenues and results of operations are dependant on the infrastructure of the network operations center and the International Teleport at our headquarters in Hauppauge, New York. Similarly, GSM’s revenues and results of operations are dependant on the infrastructure of the network operations center and teleport at our Laurel, Maryland facility. A catastrophic event to either of these facilities or to the infrastructure of the surrounding areas would result in significant delays in restoring a majority of the services capabilities. These capabilities permit us to offer an integrated suite of products and services and the incapacity of our communications infrastructure would negatively impact our ability to sell our infrastructure solutions. This would result in the loss of revenues and adversely affect our business, results of operations and financial condition.

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

The markets in which we operate are highly competitive and this competition could harm our ability to sell our products and services on prices and terms favorable to us. Our primary competitors in the

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infrastructure solutions market generally fall into two groups: (1) system integrators, like Thales, Data Path, and SED Systems, and (2) equipment manufacturers who also provide integrated systems, like General Dynamics SATCOM Technologies, Andrew Corporation, Viasat, Alcatel and ND Satcom AG.

In the end-to-end satellite-based enterprise solutions and broadcast services markets, we compete with other satellite communication companies who provide similar services, like Ascent Media, Globecast, and Convergent Media Systems. In addition, in managed network services we may compete with other communications service providers like Segovia and satellite owners like SES Americom and Intelsat. We anticipate that our competitors may develop or acquire services that provide functionality that is similar to that provided by our services and that those services may be offered at significantly lower prices or bundled with other services. These competitors may have the financial resources to withstand substantial price competition, may be in a better position to endure difficult economic conditions in international markets and may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements. Moreover, many of our competitors have more extensive customer bases, broader customer relationships and broader industry alliances than we do that they could use to their advantage in competitive situations.

The markets in which we operate have limited barriers to entry, and we expect that we will face additional competition from existing competitors and new market entrants in the future. Moreover, our current and potential competitors have established or may establish strategic relationships among themselves or with third parties to increase the ability of their products and services to address the needs of our current and prospective customers. The potential strategic relationships of existing and new competitors may rapidly acquire significant market share, which would harm our business and financial condition.

If our products and services are not accepted in developing countries with emerging markets, our revenues will be impaired.

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

	•	the speed at which communications infrastructure, including terrestrial microwave, coaxial cable and fiber optic communications systems, which compete with satellite-based services, is built;

	•	the effectiveness of our local resellers and sales representatives in marketing and selling our products and services; and

	•	the acceptance of our products and services by customers.

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

We have had a history of operating losses and negative cash flow. Negative cash flows may occur as we pursue our business plan and our losses may reoccur, which may strain our capital resources.

Although we have been profitable, we had incurred significant net losses in the past and may incur negative cash flows from operations. Our ability to maintain profitability will depend upon our ability to generate significant revenues through new profitable customer contracts and the expansion of our existing products and services. We cannot assure you that we will be able to obtain new profitable customer contracts or generate significant additional revenues from those contracts or any new products or services that we introduce. In the past, we have incurred significant negative cash flows, which may reoccur if our business plan is not successful. Also, if we are unable to sustain or increase our profits on a quarterly or annual basis in the future or if our business undergoes a period of rapid growth, our operating cash flows may be negatively impacted.

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Since sales of satellite communications equipment are dependent on the growth of communications networks, if market demand for these networks declines, our revenue and profitability are likely to decline.

We derive, and expect to continue to derive, a significant amount of revenues from the sale of satellite infrastructure solutions. If the long-term growth in demand for communications networks does not continue to return from recent depressed levels, the demand for our infrastructure solutions may decline or grow more slowly than we expect. As a result, we may not be able to grow our business, our revenues may decline from current levels and our results of operations may be harmed. The demand for communications networks and the products used in these networks is affected by various factors, many of which are beyond our control. For example, the uncertain general economic conditions have affected the overall rate of capital spending by many of our customers. Also, many companies have found it difficult to raise capital to finish building their communications networks and, therefore, have placed fewer orders. Past economic slowdowns resulted in a softening of demand from our customers. We cannot predict the extent to which demand will increase. Further, increased competition among satellite ground segment systems and network manufacturers has increased pricing pressures.

We depend upon certain key personnel and may not be able to retain these employees. If we lose the services of these individuals or cannot hire additional qualified personnel, our business will be harmed.

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

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

Satellites upon which we rely may malfunction or be damaged or lost.

In the delivery of our services, we lease space segment from various satellite transponder vendors. The damage or loss of any of the satellites used by us, or the temporary or permanent malfunction of any of the satellites upon which we rely, would likely result in the interruption of our satellite-based communications services. This interruption could have a material adverse effect on our business, results of operations and financial condition.

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

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

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Our network may experience security breaches, which could disrupt our services.

Our network infrastructure may be vulnerable to computer viruses, break-ins, denial of service attacks and similar disruptive problems caused by our customers or other Internet users. Computer viruses, break-ins, denial of service attacks or other problems caused by third parties could lead to interruptions, delays or cessation in service to our customers. There currently is no existing technology that provides absolute security. We may face liability to customers for such security breaches. Furthermore, these incidents could deter potential customers and adversely affect existing customer relationships.

If the satellite communications industry fails to continue to develop or new technology makes it obsolete, our business and financial condition will be harmed.

Our business is dependent on the continued success and development of satellite communications technology, which competes with terrestrial communications transport technologies like terrestrial microwave, coaxial cable and fiber optic communications systems. Fiber optic communications systems have penetrated areas in which we have traditionally provided services. If the satellite communications industry fails to continue to develop, or if any technological development significantly improves the cost or efficiency of competing terrestrial systems relative to satellite systems, then our business and financial condition would be materially harmed.

We may not be able to keep pace with technological changes, which would make our products and services become non-competitive and obsolete.

The telecommunications industry, including satellite-based communications services, is characterized by rapidly changing technologies, frequent new product and service introductions and evolving industry standards. If we are unable, for technological or other reasons, to develop and introduce new products and services or enhancements to existing products and services in a timely manner or in response to changing market conditions or customer requirements, our products and services would become non-competitive and obsolete, which would harm our business, results of operations and financial condition.

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

We believe that our available cash resources will be sufficient to meet our working capital and capital expenditure requirements through at least June 30, 2008. However, our future liquidity and capital requirements are difficult to predict, as they depend on numerous factors, including the success of our existing product and service offerings, as well as competing technological and market developments. We may need to raise additional funds in order to meet additional working capital requirements and to support additional capital expenditures or acquisition of assets or a business. Should this need arise, additional funds may not be available when needed and, even if additional funds are available, we may not find the terms favorable or commercially reasonable. If adequate funds are unavailable, we may be required to delay, scale back or eliminate some of our operating activities, including, without limitation, the timing and extent of our marketing programs, capital expenditures and research and development activities and we may be required to reduce headcount. If we raise additional funds by issuing equity securities, our existing stockholders will own a smaller percentage of our capital stock and new investors may pay less on average for their securities than, and could have rights superior to, existing stockholders.

Unauthorized use of our intellectual property by third parties may damage our business.

We regard our trademarks, trade secrets and other intellectual property as beneficial to our success. Unauthorized use of our intellectual property by third parties may damage our business. We rely on trademark, trade secret and patent protection and contracts, including confidentiality and license agreements 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 obtain and use our intellectual property without our authorization.

We currently have been granted six patents in the United States, one for remote access to the Internet using satellites, one for satellite communication with automatic frequency control, one for a monitor and

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control system for satellite communications networks and the like, one for implementing facsimile and data communications using Internet protocols and two for a dish antenna kit including alignment tool. We have one other patent pending in the United States for a distributed satellite-based cellular network. We currently have one Patent Cooperation Treaty patent application pending for implementing facsimile and data communications using Internet protocols. We also intend to seek further patents on our technology, if appropriate. We cannot assure you that patents will be issued for any of our pending or future patent applications or that any claims allowed from such applications will be of sufficient scope, or be issued in all countries where our products and services can be sold, to provide meaningful protection or any commercial advantage to us. Also, our competitors may be able to design around our patents. The laws of some foreign countries in which our products and services are or may be developed, manufactured or sold may not protect our products and services or intellectual property rights to the same extent as do the laws of the United States and thus make the possibility of piracy of our technology and products and services more likely.

We have filed applications for trademark registration of Globecomm Systems Inc., Globecomm and GSI in the United States and various other countries, and have been granted registrations for some of these terms in the United States, Europe and Russia. We have various other trademarks and service marks registered or pending for registration in the United States and in other countries and may seek registration of other trademarks and service marks in the future. We cannot assure you that registrations will be granted from any of our pending or future applications, or that any registrations that are granted will prevent others from using similar trademarks in connection with related goods and services.

Defending against intellectual property infringement claims could be time consuming and expensive, and if we are not successful, could cause substantial expenses and disrupt our business.

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

Risks Related to the Securities Markets and Ownership of Our Common Stock

Our stock price is volatile.

From July 1, 2006 through June 30, 2007, our stock price ranged from a low of $6.30 per share to a high of $15.05 per share. The market price of our common stock, like that of the securities of many telecommunications and high technology industry companies, could be subject to significant fluctuations and is likely to remain volatile based on many factors, including the following:

	•	quarterly variations in operating results;

	•	announcements of new technology, products or services by us or any of our competitors;

	•	changes in financial estimates or recommendations by securities analysts;

	•	general market conditions; or

	•	domestic and international economic factors unrelated to our performance.

Additionally, numerous factors relating to our business may cause fluctuations or declines in our stock price.

The stock markets in general and the markets for telecommunications stocks in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.

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Because our common stock is thinly traded, it may be difficult to sell shares of our common stock into the markets without experiencing significant price volatility.

Our common stock is currently traded on the Nasdaq Global Market. Because of the relatively small number of shares that are traded, it may be difficult for an investor to find a purchaser for shares of our common stock without experiencing significant price volatility. We cannot guarantee that an active trading market will develop, that our common stock will have a higher trading volume than it has historically had or that it will maintain its current market price. This illiquidity could have a material adverse effect on the market price of our stock.

A third party could be prevented from acquiring shares of our stock at a premium to the market price because of our anti-takeover provisions.

Various provisions with respect to votes in the election of directors, special meetings of stockholders, and advance notice requirements for stockholder proposals and director nominations of our amended and restated certificate of incorporation, by-laws and Section 203 of the General Corporation Law of the State of Delaware could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. In addition, we have a poison pill in place and employment provisions with our senior executives that have change of control provisions that could make an acquisition of us by a third party more difficult.

We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.

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

Risks Related to Government Approvals

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

Operations and Use of Satellites

We are subject to various federal laws and regulations, which may have negative effects on our business. We operate FCC licensed earth stations in Hauppauge, New York, and Laurel, Maryland subject to the Communications Act of 1934, as amended (the ‘‘FCC Act’’), and the rules and regulations of FCC. Pursuant to the FCC Act and rules, we have obtained and are required to maintain radio transmission licenses from the FCC for both domestic and foreign operations of our earth stations. We have also obtained and maintain authorization issued under Section 214 of the FCC Act to act as a telecommunications carrier, which authorization also extends to GNSC. These licenses should be renewed by the FCC in the normal course as long as we remain in compliance with FCC rules and regulations. Additionally, we have applied to the FCC, in cooperation with Lyman Bros., Inc., for the transfer of the FCC licenses for our Laurel, Maryland teleport facility. This transfer should be approved by the FCC in the normal course. However, we cannot guarantee that the FCC will grant additional licenses when our existing licenses expire or approve the transfer of the licenses for our Laurel, Maryland facility, nor are we assured that the FCC will not adopt new or modified technical requirements that will require us to incur expenditures to modify or upgrade our equipment as a condition of retaining our licenses. We are also required to comply with FCC regulations regarding the exposure of humans to radio frequency radiation from our earth stations. These regulations, as well as local land use regulations, restrict our freedom to choose where to locate our earth stations. In addition, prior to a third party acquisition of us, we would need to seek approval from the FCC to transfer the radio transmission licenses we have obtained to the third party upon the consummation of the acquisition. However, we cannot assure you that the FCC will permit the transfer of these licenses. These approvals may make it more difficult for a third party to acquire us.

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Foreign Regulations

Regulatory schemes in countries in which we may seek to provide our satellite-delivered services may impose impediments on our operations. Some countries in which we intend to operate have telecommunications laws and regulations that do not currently contemplate technical advances in telecommunications technology like Internet/intranet transmission by satellite. We cannot assure you that the present regulatory environment in any of those countries will not be changed in a manner that may have a material adverse impact on our business. Either we or our local partners typically must obtain authorization from each country in which we provide our satellite-delivered services. The regulatory schemes in each country are different, and thus there may be instances of noncompliance of which we are not aware. We cannot assure you that our licenses and approvals are or will remain sufficient in the view of foreign regulatory authorities, or that necessary licenses and approvals will be granted on a timely basis in all jurisdictions in which we wish to offer our products and services or that restrictions applicable thereto will not be unduly burdensome.

Regulation of the Internet

Due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted at the local, national or international levels with respect to the Internet, covering issues including user privacy and expression, pricing of products and services, taxation, advertising, intellectual property rights, information security or the convergence of traditional communication services with Internet communications. It is anticipated that a substantial portion of our Internet operations will be carried out in countries that may impose greater regulation of the content of information coming into the country than that which is generally applicable in the United States, including but not limited to privacy regulations in numerous European countries and content restrictions in countries such as the People’s Republic of China. To the extent that we provide content as a part of our Internet services, it will be subject to laws regulating content. Moreover, the adoption of laws or regulations may decrease the growth of the Internet, which could in turn decrease the demand for our Internet services or increase our cost of doing business or in some other manner have a material adverse effect on our business, operating results and financial condition. In addition, the applicability of existing laws governing issues including property ownership, copyrights and other intellectual property issues, taxation, libel, court jurisdiction and personal privacy to the Internet is uncertain. The vast majority of these laws were adopted prior to the advent of the Internet and related technologies and, as a result, the laws do not contemplate or address the unique issues of the Internet and related technologies. Changes to these laws intended to address these issues, including some recently proposed changes, could create uncertainty in the marketplace which could reduce demand for our products and services, could increase our cost of doing business as a result of costs of litigation or increased product development costs, or could in some other manner have a material adverse effect on our business, financial condition and results of operations.

Telecommunications Taxation, Support Requirements, and Access Charges

Telecommunications carriers providing domestic services in the United States are required to contribute a portion of their gross revenues for the support of universal telecommunications services, telecommunications relay services for the deaf, and/or other regulatory fees. We are subject to some of these fees, and we may be subject to other fees or new or increased taxes and contribution requirements that could affect our profitability, particularly if we are not able to pass them through to customers for either competitive or regulatory reasons.

Internet services are currently exempt from charges that long distance telephone companies pay for access to the networks of local telephone companies in the United States. Efforts have been made from time to time, and may be made again in the future, to eliminate this exemption. If these access charges are imposed on telephone lines used to reach Internet service providers and/or if flat rate telephone services for Internet access are eliminated or curtailed, the cost to customers who access our satellite facilities using telephone company-provided facilities could increase to an extent that could discourage the demand for our services. Likewise, the demand for our services in other countries may be affected by the availability and cost of local telephone or other telecommunications facilities to reach our facilities.

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Export of Telecommunications Equipment

The sale of our infrastructure solutions outside the United States is subject to compliance with the regulations of the United States Export Administration and, in certain circumstances, with International Traffic in Arms regulations. The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position. In addition, in order to ship our products into and implement our services in some countries, the products must satisfy the technical requirements of that particular country. If we were unable to comply with such requirements with respect to a significant quantity of our products, our sales in those countries could be restricted, which could have a material adverse effect on our business, results of operations and financial condition.

Foreign Ownership

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

Item 1B.    Unresolved Staff comments.

None.

Item 2.    Properties

We own a facility containing approximately 122,000 square feet of space on approximately seven acres located at 45 Oser Avenue, Hauppauge, New York. This facility houses our principal offices, teleport facility and production facilities, as well as the offices and network operations center of GNSC. We also own a facility containing approximately 20,000 square feet of space on approximately 3 acres located in Laurel, Maryland, which houses the teleport facility, teleport and network operations center of GSM. We lease warehouse space in Hauppauge, New York and rent office space in Laurel, Maryland, Washington D.C., the United Kingdom, United Arab Emirates, Hong Kong and Afghanistan.

Item 3.    Legal proceedings

None.

Item 4.    Submission of Matters to a Vote of Security Holders

None.

22

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PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on the Nasdaq Global Market under the symbol ‘‘GCOM.’’ The fiscal 2007 and 2006 high and low sales prices are as follows:

			High						Low
2007
Quarter ended September 30, 2006				$	8.91					$	6.30
Quarter ended December 31, 2006					9.70						8.02
Quarter ended March 31, 2007					11.63						8.85
Quarter ended June 30, 2007					15.05						10.17
2006
Quarter ended September 30, 2005					8.44						5.77
Quarter ended December 31, 2005					8.35						5.89
Quarter ended March 31, 2006					7.98						5.88
Quarter ended June 30, 2006					8.15						6.38

At September 10, 2007, there were approximately 5,000 stockholders of record of our common stock, as shown in the records of our transfer agent.

At the close of the Nasdaq Global Market on September 10, 2007, our market price per share was $14.22.

As of June 30, 2007, we had not declared or paid dividends on our common stock since inception and we do not expect to pay dividends in the foreseeable future.

The table below sets forth securities we have authorized for issuance under our equity compensation plans.

Equity Compensation Plan Information as of June 30, 2007

Plan Category

Number of securities to be issued upon exercise of outstanding options, warrants and rights

Weighted-average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

(a)

(b)

(c)

Equity compensation plan approved by security holders

1,863,340

$

8.32

738,800

Item 6.	Selected Financial Data

Our selected consolidated financial data as of and for each of the five years in the period ended June 30, 2007 have been derived from our audited consolidated financial statements. EBITDA represents net income (loss) before interest income, interest expense, provision for income taxes, depreciation and amortization expense, gain on sale of investment, gain on sale of available-for-sale securities and gain on liquidation of foreign subsidiary. EBITDA does not represent cash flows defined by accounting principles generally accepted in the United States and does not necessarily indicate that our cash flows are sufficient to fund all of our cash needs. We disclose EBITDA since it is a financial measure commonly used in our industry. EBITDA is not meant to be considered a substitute or replacement for net income (loss) as prepared in accordance with accounting principles generally accepted in the United States. EBITDA may not be comparable to other similarly titled measures of other companies. We record an order in backlog

23

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when we receive a firm contract or purchase order, which identifies product quantities, sales price, service dates and delivery dates. Backlog represents the amount of unrecorded revenue on undelivered orders and services to be provided and a percentage of revenues from sales of products that have been shipped where installation has not been completed and final acceptance has not been received from the customer. Our backlog at any given time is not necessarily indicative of future period revenues.

Selected Financial Data
(In thousands, except per share data)

			Years Ended June 30,
			2007						2006						2005						2004						2003
Statements of Operations Data:>
Revenues from infrastructure solutions				$	114,612					$	97,967					$	90,656					$	73,305					$	40,125
Revenues from services					36,133						28,069						18,928						13,931						13,903
Total revenues					150,745						126,036						109,584						87,236						54,028
Costs and operating expenses:
Costs from infrastructure solutions					92,197						81,410						75,357						63,282						39,447
Costs from services					29,052						23,605						15,527						12,992						17,796
Selling and marketing					8,376						7,029						5,821						4,808						6,042
Research and development					1,451						1,052						1,021						1,328						800
General and administrative					12,297						9,589						7,596						6,529						9,423
Total costs and operating expenses					143,373						122,685						105,322						88,939						73,508
Income (loss) from operations					7,372						3,351						4,262						(1,703	)					(19,480	)
Other income (expense):
Interest income					1,370						965						444						271						422
Interest expense					(205	)					—						—						—						(539	)
Gain on liquidation of foreign subsidiary					—						264						—						—						—
Gain on sale of available-for-sale securities					—						—						132						91						—
Gain on sale of investment					—						—						40						—						—
Income (loss) before income taxes					8,537						4,580						4,878						(1,341	)					(19,597	)
Provision for income taxes					211						88						64						—						—
Net income (loss) from continuing operations				$	8,326					$	4,492					$	4,814					$	(1,341	)				$	(19,597	)
Basic net income (loss) from continuing operations per common share				$	0.53					$	0.30					$	0.33					$	(0.10	)				$	(1.56	)
Diluted net income (loss) from continuing operations per common share				$	0.50					$	0.29					$	0.32					$	(0.10	)				$	(1.56	)
Weighted-average shares used in the calculation of basic net income (loss) from continuing operations per common share					15,795						15,001						14,422						13,346						12,565
Weighted-average shares used in the calculation of diluted net income (loss) from continuing operations per common share					16,672						15,608						14,966						13,346						12,565

24

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			Years Ended June 30,
			2007						2006						2005						2004						2003
Other Operating Data:>
Net income (loss)				$	8,326					$	4,492					$	4,814					$	(1,341	)				$	(19,597	)
Other (income) expense, net					(1,165	)					(1,229	)					(616	)					(362	)					117
Provision for income taxes					211						88						64						—						—
Depreciation and amortization					3,333						3,023						2,695						3,097						3,532
EBITDA				$	10,705					$	6,374					$	6,957					$	1,394					$	(15,948	)
Cash flows provided by (used in) operating activities				$	14,357					$	(1,129	)				$	(3,926	)				$	1,613					$	(14,714	)
Cash flows used in investing activities					(36,877	)					(2,484	)					(1,070	)					(1,871	)					(1,712	)
Cash flows provided by (used in) financing activities					23,566						2,531						2,347						6,421						(310	)
Capital expenditures					17,808	(a)					2,484						3,303						1,267						1,732
Backlog at end of year					141,198						90,930						76,268						75,444						58,006

			June 30,
			2007						2006						2005						2004						2003
Balance Sheet Data:>
Cash and cash equivalents				$	25,558					$	24,512					$	25,609					$	28,252					$	22,016
Working capital					37,251						43,695						36,520						30,052						22,040
Total assets					142,883						93,234						86,378						73,475						70,344
Long-term liabilities					13,568	(b)					353						670						987						1,303
Total stockholders’ equity					83,513						67,016						60,137						52,806						47,437

(a)

Capital expenditures of $17.8 million primarily related to the purchase of network operations center and teleport assets primarily for a large program with Showtime Network Inc. which service began on July 1, 2007. In addition, we upgraded our facility to meet the requirements of our increase in business levels.

(b)	The increase in long term liabilities in fiscal 2007 is primarily due to Acquisition Loan used to partially fund the acquisition of GlobalSat.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains, in addition to historical information, forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, based on our current expectations, assumptions, estimates and projections. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as, among others, our dependence on a limited number of contracts for a high percentage of our revenues and a significant reduction in revenues from the government marketplace. These risks and others are more fully described in the ‘‘Risk Factors’’ section and elsewhere in this Annual Report on Form 10-K. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Overview

Our business is global and subject to technological and business trends in the telecommunications marketplace. We derive much of our revenue from government and government related entities (‘‘government marketplace’’) and developing countries. Our business is therefore affected by geopolitical developments involving areas of the world in which our customers are located, particularly in developing countries and areas of the world involved in armed conflicts.

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The products and services we offer include: pre-engineered systems, systems design and integration services, managed network services and life cycle support services. To provide these products and services, we engineer all the necessary satellite and terrestrial facilities as well as provide the integration services required to implement those facilities. We also operate and maintain managed networks and provide life cycle support services on an ongoing basis. Our customers generally have network service requirements that include point-to-point or point-to-multipoint connections via a hybrid network of satellite and terrestrial facilities. In addition to the government marketplace, these customers are communications service providers, commercial enterprises, and media and content broadcasters.

Since our products and services are often sold into areas of the world which do not have fiber optic land-based networks, a substantial portion of our revenues are derived from, and are expected to continue to be derived from, developing countries. These countries carry with them more enhanced risks of doing business than in developed areas of the world, including the possibility of armed conflicts or the risk that more advanced land-based telecommunications will be implemented over time.

In the year ended June 30, 2007, 28% of our revenues were generated by two customers in the government marketplace. Although the identity of customers and contracts may vary from period to period, we have been, and expect to continue to be, dependent on revenues from a small number of customers or contracts in each period in order to meet our financial goals. From time to time these customers are located in developing countries or otherwise subject to unusual risks.

Revenues related to contracts for infrastructure solutions and services have been fixed-price contracts in a majority of cases. Profitability of such contracts is subject to inherent uncertainties as to the cost of performance. In addition to possible errors or omissions in making initial estimates, cost overruns may be incurred as a result of unforeseen obstacles, including both physical conditions and unexpected problems encountered in engineering design and testing. Since our business is frequently concentrated in a limited number of large contracts, a significant cost overrun on any contract could have a material adverse effect on our business, financial condition and results of operations.

Contract costs generally include purchased material, direct labor, overhead and other direct costs. Anticipated contract losses are recognized, as they become known. Costs from infrastructure solutions consist primarily of the costs of purchased materials (including shipping and handling costs), direct labor and related overhead expenses, project-related travel and living costs and subcontractor salaries. Costs from services consist primarily of satellite space segment charges, voice termination costs, network operations expenses and Internet connectivity fees. Satellite space segment charges consist of the costs associated with obtaining satellite bandwidth (the measure of capacity) used in the transmission of services to and from the satellites leased from operators. Network operations expenses consist primarily of costs associated with the operation of the network operations center on a twenty-four hour a day, seven day a week basis, including personnel and related costs and depreciation. Selling and marketing expenses consist primarily of salaries, travel and living costs for sales and marketing personnel. Research and development expenses consist primarily of salaries and related overhead expenses. General and administrative expenses consist of expenses associated with our management, finance, contract and administrative functions.

Critical Accounting Policies

Certain of our accounting policies require judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate. Actual results may differ from these judgments under different assumptions or conditions. Our accounting policies that require management to apply significant judgment include:

Revenue Recognition

We recognize revenue in accordance with Staff Accounting Bulletin No. 104 (‘‘SAB 104’’), Revenue Recognition, for our production-type contracts that are sold separately as standard satellite ground

26

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segment systems when persuasive evidence of an arrangement exists, the selling price is fixed or determinable, collectibility is reasonably assured, delivery has occurred and the contractual performance specifications have been met. Our standard satellite ground segment systems produced in connection with these contracts are typically short-term (less than twelve months in term) and manufactured using a standard modular production process. Such systems require less engineering, drafting and design efforts than our long-term complex production-type projects. Revenue is recognized on our standard satellite ground segment systems upon shipment and acceptance of factory performance testing which is when title transfers to the customer. The amount of revenues recorded on each standard production-type contract is reduced by the customer’s contractual holdback amount, which typically requires 10% to 30% of the contract value to be retained by the customer until installation and final acceptance is complete. The customer generally becomes obligated to pay 70% to 90% of the contract value upon shipment and acceptance of factory performance testing. Installation is not deemed to be essential to the functionality of the system since installation does not require significant changes to the features or capabilities of the equipment, does not require complex software integration and interfacing and we have not experienced any difficulties installing such equipment. In addition, the customer or other third party vendors can install the equipment. The estimated relative fair value of the installation services is determined by management, which is typically less than the customer’s contractual holdback percentage. If the holdback is less than the fair value of installation, we will defer recognition of revenues, determined on a contract-by-contract basis equal to the fair value of the installation services. Payments received in advance by customers are deferred until shipment and are presented as deferred revenues.

We recognize revenue using the percentage-of-completion method of accounting upon the achievement of certain contractual milestones in accordance with Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, for our non-standard, complex production-type contracts for the production of satellite ground segment systems and equipment that are generally integrated into the customer’s satellite ground segment network. The equipment and systems produced in connection with these contracts are typically long-term (in excess of twelve months in term) and require significant customer-specific engineering, drafting and design effort in order to effectively integrate all of the customizable earth station equipment into the customer’s ground segment network. These contracts generally have larger contract values, greater economic risks and substantive specific contractual performance requirements due to the engineering and design complexity of such systems and related equipment. Progress payments received in advance by customers are netted against the inventories balance.

The timing of our revenue recognition is primarily driven by achieving shipment, final acceptance or other contractual milestones. Project risks including project complexity, political and economic instability in certain regions in which we operate, export restrictions, tariffs, licenses and other trade barriers which may result in the delay of the achievement of revenue milestones. A delay in achieving a revenue milestone may negatively impact our results of operations.

Costs from Infrastructure Solutions

Costs related to our production-type contracts and our non-standard, complex production-type contracts rely on estimates based on total expected contract costs. Typically, these contracts are fixed price projects. We use estimates of the costs applicable to various elements which we believe are reasonable. Our estimates are assessed continually during the term of these contracts and costs are subject to revisions as the contract progresses to completion. These estimates are subjective based on management assessment of project risk. These risks may include project complexity and political and economic instability in certain regions in which we operate. Revisions in cost estimates are reflected in the period in which they become known. A significant revision in an estimate may negatively impact our results of operations. In the event an estimate indicates that a loss will be incurred at completion, we record the loss as it becomes known.

Goodwill Impairment

Goodwill represents the excess of the purchase price of businesses over the fair value of the identifiable net assets acquired. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets,

27

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goodwill and other indefinite life intangible assets are no longer amortized, but instead tested for impairment at least annually. The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit 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 potential impairment and step two must be performed. Step two compares the carrying value of the reporting unit’s goodwill to its implied fair value (i.e., fair value of the reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets). If the carrying value of goodwill exceeds its implied fair value, the excess is required to be recorded as an impairment charge. The impairment test is dependent upon estimated future cash flows of the services segment. There have been no events during the year ended June 30, 2007 that would have resulted in any goodwill impairment.

Deferred tax assets

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income prior to the expiration of any net operating loss carryforwards. Due to the uncertainty regarding our ability to utilize the net operating losses in the future, we have provided a valuation allowance against the operating losses and temporary differences.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (‘‘FIN 48’’), which clarifies the accounting for uncertainty in income tax positions.  FIN 48 requires that we recognize in our financial statements the benefits of tax return positions if that tax position is more likely than not of being sustained on audit, based on its technical merits. The provisions of FIN 48 are effective as of the beginning of our 2008 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings.  We are currently evaluating the impact of adopting FIN 48 on its financial statements.

Allowances for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We assess the customer’s ability to pay based on a number of factors, including our past transaction history with the customer and the creditworthiness of the customer. An assessment of the inherent risks in conducting our business with foreign customers is also made since a significant portion of our revenues is international. Management specifically analyzes accounts receivable, historical bad debts, customer concentrations, customer creditworthiness and current economic trends. If the financial condition of our customers were to deteriorate in the future, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories

Inventories consist primarily of work-in-progress from costs incurred in connection with specific customer contracts, which are stated at the lower of cost or market value. In assessing the realizability of inventories, we are required to make estimates of the total contract costs based on the various elements of the work-in-progress. It is possible that changes to these estimates could cause a reduction in the net realizable value of our inventories.

Results of Operations

Fiscal Years Ended June 30, 2007 and 2006

Our Consolidated results of operations for the fiscal year ended June 30, 2007 include two months of results (May and June 2007) related to the acquisition of the GlobalSat business which are included in the services segment.

Revenues from Infrastructure Solutions.    Revenues from infrastructure solutions increased by $16.6 million, or 17.0%, to $114.6 million for the fiscal year ended June 30, 2007 from $98.0 million for the

28

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fiscal year ended June 30, 2006. The increase in revenues was primarily driven by the increase in the pre-engineered systems product line revenue in the government marketplace.

Revenues from Services.    Revenues from services increased by $8.1 million, or 28.7%, to $36.1 million for the fiscal year ended June 30, 2007 from $28.1 million for the fiscal year ended June 30, 2006. The increase in revenue was primarily due to $5.1 million of sales due to the acquisition of GlobalSat along with an increase in revenue within the life cycle support services due to an increase in the government marketplace and the sale of equipment and services to a major U.S. enterprise customer offset by a decrease in telephony services due to increased competition.

Costs from Infrastructure Solutions.    Costs from infrastructure solutions increased by $10.8 million, or 13.3%, to $92.2 million for the fiscal year ended June 30, 2007 from $81.4 million for the fiscal year ended June 30, 2006. The increase was attributable to the higher revenue base. The gross margin increase to 19.6% for the fiscal year ended June 30, 2007 compared to 16.9% for the fiscal year ended June 30, 2006 was mainly attributable to the increased revenue in the pre-engineered systems product line in the government marketplace, due to contracts with two customers with higher than our usual gross margins.

Costs from Services.    Costs from services increased by $5.4 million, or 23.1%, to $29.1 million for the fiscal year ended June 30, 2007 from $23.6 million for the fiscal year ended June 30, 2006. Gross margin increased to 19.6% for the fiscal year ended June 30, 2007 compared to 15.9% for the fiscal year ended June 30, 2006. The increase in the margin was primarily driven by the acquisition of GlobalSat along with in an increase in revenue within the life cycle support services which has higher margin than the other service offerings, partially offset by a decrease in the margin in telephony services due to increased competition. The increase in gross margin in the services segment has been a key driver in the increase in our consolidated income from operations. The future relationship between the revenue and margin growth of our operating segments will depend on a variety of factors, including the timing of major contracts, which are difficult to predict.

Selling and Marketing.    Selling and marketing expenses increased by $1.3 million, or 19.2%, to $8.4 million for the fiscal year ended June 30, 2007 from $7.0 million for the fiscal year ended June 30, 2006. The increase is a result of an increase in salary and salary related expenses for additional marketing personnel pursuing business in the government marketplace, travel and living expenses related to marketing efforts exploring new markets and expenses related to the sales office in Afghanistan along with selling and marketing expenses incurred at GSM.

Research and Development.    Research and development expenses increased by $0.4 million, or 37.9%, to $1.5 million for the fiscal year ended June 30, 2007 from $1.1 million for the fiscal year ended June 30, 2006. The increase was principally due to costs associated with developing the next version of AxxSys^® Network Management System on the ‘‘.Net’’ operating system called AxxSys^® Orion and additional efforts enhancing the cellular hosted switch offering.

General and Administrative.    General and administrative expenses increased by $2.7 million, or 28.2%, to $12.3 million for the fiscal year ended June 30, 2007 from $9.6 million for the fiscal year ended June 30, 2006. The increase in general and administrative expenses for the fiscal year ended June 30, 2007 was due to an increase in fringes primarily due to the increase in the Company’s pay for performance plan, the acquisition of GlobalSat and salary increases due to an increase in headcount.

Interest Income.    Interest income increased by $0.4 million, or 42.0%, to $1.4 million for the fiscal year ended June 30, 2007 from $1.0 million for the fiscal year ended June 30, 2006, as a result of increased interest rates.

Interest Expense.    Interest expense of $0.2 million for the fiscal year ended June 30, 2007 is a result of the term loan used to partially fund the acquisition of GlobalSat.

Gain on liquidation of foreign subsidiary.    Gain on liquidation of foreign subsidiary for the fiscal year ended June 30, 2006 was due to the realization of the previously unrealized foreign exchange gain reported in other comprehensive income upon the liquidation of our UK subsidiary.

Fiscal Years Ended June 30, 2006 and 2005

Revenues from Infrastructure Solutions.    Revenues from infrastructure solutions increased by $7.3 million, or 8.1%, to $98.0 million for the fiscal year ended June 30, 2006 from $90.7 million for the

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fiscal year ended June 30, 2005. The increase in revenues was primarily the result of increased infrastructure sales in the U.S. Government and government related entities marketplace coupled with increased sales due to an overall improvement in the telecommunications industry segments we serve offset by a decrease in sales at Globecomm Systems Europe Limited. Due to this decrease in revenues and our assessment of our UK subsidiary, we liquidated Globecomm Systems Europe Limited on June 30, 2006 and have continued our UK presence through our UK representative office.

Revenues from Services.    Revenues from services increased by $9.1 million, or 48.3%, to $28.1 million for the fiscal year ended June 30, 2006 from $18.9 million for the fiscal year ended June 30, 2005. In our managed network service offerings we had increases of 73% in telephony, 28% in Internet and Data and 39% in VSAT multi-mode, coupled with an 84% increase in life cycle support in fiscal 2006 as compared to fiscal 2005. The increase in revenue and corresponding increase in gross margin in the data communication services segment has been a key driver in the increase in our consolidated income from operations. The future relationship between the revenue growth of our operating segments will depend on a variety of factors, including the timing of major contracts, which are difficult to predict.

Costs from Infrastructure Solutions.    Costs from infrastructure solutions increased by $6.1 million, or 8.0%, to $81.4 million for the fiscal year ended June 30, 2006 from $75.4 million for the fiscal year ended June 30, 2005. The increase was attributable to the higher revenue base. The gross margin remained consistent at 16.9% for the fiscal years ended June 30, 2006 and 2005. Although the gross margin remained consistent, the gross margin in fiscal 2005 included a non-recurring cost recovery related to a settlement with a large customer of $0.9 million. Excluding this cost recovery, the gross margin actually increased in 2006 due to revenue related to the U.S. Government and government related entities projects.

Costs from Services.    Costs from services increased by $8.1 million, or 52.0%, to $23.6 million for the fiscal year ended June 30, 2006 from $15.5 million for the fiscal year ended June 30, 2005. Gross margin decreased to 15.9% for the fiscal year ended June 30, 2006 compared to 18.0% for the fiscal year ended June 30, 2005. The decrease in the margin was primarily a result of increased termination costs in the telephony service offering.

Selling and Marketing.    Selling and marketing 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 June 30, 2005. The increase in selling and marketing costs was a result of an increase in consulting fees and increased salary and salary related expenses for additional marketing personnel pursuing business in Europe, Asia, and U.S Government and government related entities and marketing of our next generation network services.

Research and Development.    Research and development expenses remained consistent for the fiscal years ended June 30, 2006 and 2005.

General and Administrative.    General and administrative expenses increased by $2.0 million, or 26.2%, to $9.6 million 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 the fiscal year ended June 30, 2006 was primarily due to a bad debt recovery of $1.5 million related to a settlement agreement reached with a customer in the fiscal year ended June 30, 2005, which did not recur in fiscal 2006, an increase in the provision for doubtful accounts due to increased business levels in services, compensation expense related to the annual automatic director option grant based on the adoption of SFAS 123R, and an increase in salary and related fringes due to an increase in headcount and the reinstatement of the 401k match by the Company in January 2005.

Interest Income.    Interest income 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 June 30, 2005, as a result of increased interest rates.

Gain on liquidation of foreign subsidiary.    Gain on liquidation of foreign subsidiary for the fiscal year ended June 30, 2006 was due to the realization of the previously unrealized foreign exchange gain reported in other comprehensive income upon the liquidation of our UK subsidiary.

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Quarterly Results

The following tables set forth unaudited consolidated financial information for each of the eight fiscal quarters in the period ended June 30, 2007. This information has been presented on the same basis as the audited consolidated financial statements appearing elsewhere in the Annual Report on Form 10-K, and we believe all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the unaudited quarterly results of operations when read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The operating results for any quarter are not necessarily indicative of the operating results for any future period.

			Three Months Ended,
			June 30, 2007						Mar. 31, 2007						Dec. 31, 2006						Sept. 30, 2006						June 30, 2006						Mar. 31, 2006						Dec. 31, 2005						Sept. 30, 2005
			(In thousands, except per share data)
Statement of Operations Data:>
Revenues from infrastructure solutions				$	36,982					$	31,818					$	28,351					$	17,461					$	28,609					$	23,735					$	22,604					$	23,019
Revenues from services					12,206						7,299						8,370						8,258						6,898						7,306						7,308						6,557
Total revenues					49,188						39,117						36,721						25,719						35,507						31,041						29,912						29,576
Costs and operating expenses:
Costs from infrastructure solutions					29,695						25,225						23,202						14,075						23,568						19,616						18,701						19,525
Costs from services					9,358						6,131						6,976						6,587						6,021						5,873						6,143						5,568
Selling and marketing					2,545						2,290						1,766						1,775						2,029						1,871						1,615						1,514
Research and development					488						440						323						200						514						268						161						109
General and administrative					3,899						3,033						2,951						2,414						2,402						2,379						2,552						2,256
Total costs and operating expenses					45,985						37,119						35,218						25,051						34,534						30,007						29,172						28,972
Income from operations					3,203						1,998						1,503						668						973						1,034						740						604
Other income (expense):
Interest income					363						391						348						268						262						247						227						229
Interest expense					(205	)					—						—						—						—						—						—						—
Gain on liquidation of foreign subsidiary					—						—						—						—						264						—						—						—
Income before income taxes					3,361						2,389						1,851						936						1,499						1,281						967						833
Provision (benefit) for income taxes					89						57						45						20						(4	)					42						30						20
Net income				$	3,272					$	2,332					$	1,806					$	916					$	1,503					$	1,239					$	937					$	813
Basic net income per common share				$	0.20					$	0.15					$	0.12					$	0.06					$	0.10					$	0.08					$	0.06					$	0.06
Diluted net income per common share				$	0.19					$	0.14					$	0.11					$	0.06					$	0.10					$	0.08					$	0.06					$	0.05
Weighted-average shares used in the calculation of basic net income per common share					16,324						16,045						15,601						15,219						15,184						15,098						15,005						14,719
Weighted-average shares used in the calculation of diluted net income per common share					17,332						16,954						16,489						15,834						15,791						15,682						15,606						15,336

We may experience significant quarter-to-quarter fluctuations in our consolidated results of operations, which may result in volatility in the price of our common stock. See section entitled ‘‘Risk Factors.’’

Liquidity and Capital Resources

At June 30, 2007, we had working capital of $37.3 million, including cash and cash equivalents of $25.6 million, net accounts receivable of $38.4 million, inventories of $16.3 million and prepaid expenses

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and other current assets of $2.8 million, offset by $24.2 million in accounts payable, $9.8 million in deferred revenue, $3.3 million in current portion of long term debt and $8.5 million in accrued expenses and other current liabilities.

Net cash provided by operating activities during the fiscal year ended June 30, 2007 was $14.4 million, which primarily related to: net income of $8.3 million; an increase in accounts payable of $4.3 million relating to the increase in revenue and timing of vendor payments; a non-cash item representing depreciation and amortization expense of $3.3 million primarily related to the network operations center and satellite earth station equipment; an increase in accrued payroll and related fringe benefits of $3.0 million primarily due to an increase in the Company’s pay for performance plan; an increase in deferred revenues of $1.2 million due to timing differences between project billings and revenue recognition milestones resulting from specific customer contracts; offset by an increase in accounts receivable of $4.6 million due to the increase in revenues and an increase in inventories of $2.8 million due to the increased business levels and the timing of shipments on certain contracts.

Net cash used in investing activities during fiscal year ended June 30, 2007 was $36.9 million, which consisted of $19.1 million related to the acquisition of GlobalSat and capital expenditures of $17.8 million which primarily related to the purchase of network operations center and teleport assets primarily for a large program with Showtime Network Inc. for which service began on July 1, 2007. In addition, we upgraded our Hauppauge facility to meet the requirements of our increase in business levels.

Net cash provided by financing activities during fiscal year ended June 30, 2007 was $23.6 million which primarily related to $16.0 million of borrowings from the term note used to partially fund the acquisition of GlobalSat, $6.4 million of proceeds from the exercise of stock options and $1.4 million of proceeds from the exercise of warrants.

On May 2, 2007, we acquired the GlobalSat business for a purchase price of $18.5 million in cash. The purchase price was funded, in part, through a five-year $16.0 million acquisition term loan (‘‘Acquisition Loan’’) provided by Citibank, N.A. The Acquisition Loan bears interest at the prime rate or LIBOR plus 225 basis points, at our discretion, and is collateralized by a first priority security interest on all of our assets, including the GSM assets. In addition, the credit facility contains certain financial and other covenants, monthly reporting provisions and other requirements, with which we were in compliance with at June 30, 2007. The remaining principal balance as of June 30, 2007 was $15.7 million.

We have a credit facility in place with Citibank, N.A, which expires on November 30, 2007. The credit facility is comprised of: (1) a $25 million borrowing base line of credit (the ‘‘Line’’), which is available for standby letters of credit, commercial letters of credit and loans; (2) a bridge line of credit in the amount of $7 million, which is to support equipment purchases; and (3) a foreign exchange line in the amount of $10 million. If there are direct borrowings under the Line, the commercial letters of credit and direct borrowings may not be drawn in amounts in excess of $20 million. The Line bears interest at the prime rate or LIBOR plus 225 basis points, at our discretion, and is collateralized by a first priority security interest on all of our assets. We can be advanced up to 80% of eligible accounts receivable and 100% of unrestricted cash. The credit facility provides that we may borrow and apply letters of credit against the availability under the Line. In addition, the credit facility contains certain financial and other covenants, deposit requirements, monthly reporting provisions and other requirements. The credit facility is uncommitted and advances are subject to Citibank, N.A.’s approval. As of June 30, 2007, no borrowings were outstanding under the credit facility; however, there were standby letters of credit of approximately $13.4 million, which were applied against and reduced the amounts available under the facility.

We lease satellite space segment services and other equipment under various operating lease agreements, which expire in various years through fiscal 2013. Future minimum lease payments due on these leases through June 30, 2008 are approximately $13.6 million.

We expect that our cash and working capital requirements for operating activities will increase as we continue to implement our business strategy. Management anticipates additional working capital requirements for work in progress for orders as obtained and that we may periodically experience negative cash flows due to variances in quarter to quarter operating performance and if cash is used to fund any future acquisitions of complementary businesses, technologies and intellectual property. No

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acquisitions are currently at a stage which are probable of completion. We will use existing working capital and, if required, use our credit facility to meet these additional working capital requirements.

On August 17, 2007, we completed an offering of equity securities totaling $33,750,000 in gross proceeds. We sold 3,000,000 shares of common stock at a price of $11.25 per share and granted to the underwriters an overallotment option of 450,000 additional shares at the same terms. On August 21, 2007, we received $31,893,750 after deducting underwriting discounts and commissions. As of the date of this report, the underwriters overallotment option of 450,000 additional shares has not been exercised.

Our future capital requirements will depend upon many factors, including the success of our marketing efforts in the infrastructure solutions and services business, the nature and timing of customer orders and the level of capital requirements related to the expansion of our service offerings. Based on current plans, we believe that our existing capital resources will be sufficient to meet working capital requirements at least through June 30, 2008. However, we cannot assure you that there will be no unforeseen events or circumstances that would consume available resources significantly before that time.

Additional funds may not be available when needed and, even if available, additional funds may be raised through financing arrangements and/or the issuance of preferred or common stock or convertible securities on terms and prices significantly more favorable than those of the currently outstanding common stock, which could have the effect of diluting or adversely affecting the holdings or rights of our existing stockholders. If adequate funds are unavailable, we may be required to delay, scale back or eliminate some of our operating activities, including, without limitation, capital expenditures, research and development activities, the timing and extent of our marketing programs, and we may be required to reduce headcount. We cannot assure you that additional financing will be available to us on acceptable terms, or at all.

Contractual Obligations and Commercial Commitments

At June 30, 2007, we had contractual obligations and commercial commitments as follows (in thousands):

			Payments Due by Period
Contractual Obligations			Total						Less than 1 year						1-3 years						4-5 years						More than 5 years
Operating leases				$	20,872					$	13,553					$	6,263					$	1,042					$	14
Long term debt				$	15,845					$	3,312					$	6,400					$	6,133					$	—
Total contractual cash obligations				$	36,717					$	16,865					$	12,663					$	7,175					$	14

									Amount of Commitment Expiration Per Period
Other Commercial Commitments			Total Amounts Committed						Less than 1 year						1-3 years						4-5 years						More than 5 years
Standby letters of credit				$	13,420					$	12,621					$	799					$	—					$	—
Total commercial commitments