UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-K/A


(Amendment
No. 3 )




ý
            
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31, 2007ORo
            
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
transition period from ______ to ______


Commission
file number: 001-33546





TERRESTAR
CORPORATION


(Exact
name of Registrant as Specified in Its Charter)





Delaware
            
            93-0976127(State
      or Other Jurisdiction of
            
            (I.R.S.
      EmployerIncorporation
      or Organization)
            
            Identification
      No.)12010
      Sunset Hills Road, 9th Floor, Reston, VA
            
            20190(Address
      of Principal Executive Offices)
            
            (Zip
      Code)





(Registrant’s
telephone number, including area code):(703) 483-7800





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


Common
      Stock, $0.01 par value
            
            The
      NASDAQ Global Market(Title
      of Each Class)
            
            (Name
      of Each Exchange on Which
Registered)




Securities
registered pursuant to Section 12(g) of the Act:  None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  o
Yes   þ  No





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.  o  Yes  
þ  No





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. þ
Yes  o
No





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. þ




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check
one).




Large
      accelerated filer  o
            Accelerated
      filer  þNon-accelerated
      filer  o
            Smaller
      reporting company  o(Do
      not check if smaller reporting company)




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o
Yes    þ  No





The
aggregate market value of TerreStar Corporation Common Stock held by
non-affiliates as of June 30, 2007 (the last business day of the most recently
completed second quarter) was approximately $651.5 million.  For
purposes of this calculation, affiliates represent only holders of more than 10%
of TerreStar Corporation Common Stock.





There
were 90,977,073 shares of TerreStar Corporation Common Stock outstanding as of
May 2 , 2008.













TABLE
OF CONTENTS
   PART
      ICautionary
      Note Regarding Forward-Looking StatementsPART
      IIItem
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              
              1PART
      IIIItem 15.
              Signatures
              
              
              31Certifications
              
              
              32
 
 
 
 
  
  EXPLANATORY
NOTE
  TerreStar
Corporation (“TerreStar” or the “Company”) is filing this Amendment No. 3 to its
Annual Report on Form 10-K/A (“Amendment No. 3”) for the year ended
December 31, 2007 to restate Item 7 to our Annual Report on Form 10-K
(“Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on
March 31, 2008 to include the amended portions of Item 7
contained in Amendment No. 2 to Annual Report on Form 10-K/A (“Amendment
No. 2”) filed with the SEC May 13, 2008.  This Amendment No. 3
includes the original disclosures included in Item 7 of the Form 10-K and
additional disclosures set forth in Amendment No. 2 but does not include any
additional information not previously filed.  This Amendment No. 3
does not reflect events occurring after the filing of the Form 10-K on March 31,
2008 nor does it modify or update those disclosures presented therein, expect
with regard to the specific modifications described in this Explanatory
Note.
 
 Pursuant
to Rule 12b-15 under the Securities Exchange Act of 1934, as a result of this
Amendment No. 3, the certifications pursuant to Section 302 and Section 906 of
the Sarbanes-Oxley Act of 2002, filed and furnished, respectively, as exhibits
to the Form 10-K Amendment No. 1 to Annual Report on From 10-K and Amendment No.
2, have been re-executed and re-filed as of the date of this Amendment No. 3 and
are included as Exhibits 31.5, 31.6 and 32 hereto.  Therefore, Part IV
Item 15 of the original filing has been amended to reflect the new
certifications described above.
  
  i
  PART
II
 
 Item 7.   Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
  The
following discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes thereto included elsewhere in this report. This
discussion contains forward-looking statements. Please see the “Cautionary Note
Regarding Forward-Looking Information” and “Risk Factors” herein for a
discussion of the uncertainties, risks and assumptions associated with these
statements.
  The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations is intended to help the reader understand TerreStar
Corporation, formerly Motient Corporation. It is provided as a supplement to,
and should be read in conjunction with, our consolidated financial statements
and the accompanying notes to the financial statements contained in this annual
report.
  Restatement
to Previously Issued Financial Statements
  As
previously announced on February 20, 2008, TerreStar Corporation and its
Audit Committee concluded that our consolidated financial statements for the
year ended December 31, 2006 and the quarters ended September 30,
2006, March 31, 2007, June 30, 2007, and September 30,
2007, would be restated for the correction of errors resulting from its
historical accounting associated with the Exchange Agreement (the “MSV Exchange
Agreement”) with SkyTerra Communications, Inc. (“SkyTerra”) which was entered in
on May 6, 2006 and consummated on September 25, 2006. Details
surrounding the nature of the corrections are as follows:
  Under
the MSV Exchange Agreement, we agreed to exchange all of our shares of common
stock of Mobile Satellite Ventures GP Inc. (“MSV GP”) and all of our limited
partnership interests of Mobile Satellite Ventures LP (“MSV”) for approximately
44.3 million shares of non-voting common stock of SkyTerra in one or more
closings. As part of the exchange, we agreed to use our commercially
reasonable efforts to distribute approximately 25.5 million SkyTerra shares
to our common stockholders. To date, we have been unable to distribute these
shares to our stockholders because of questions surrounding our Series A
Cumulative Convertible Preferred Stock (the “Series A Preferred
Stock”). Until such time as the Series A Preferred Stock is no longer
outstanding or questions regarding the Series A Preferred Stock have been
resolved, we are unable to pay this dividend. After discussions with our
Audit Committee, external auditors and the staff of the SEC, we determined that
we should have recorded a liability for this dividend and shall continue to
record this liability until such time as we are able to distribute these shares
to our common stockholders. The error correction resulted in a decrease to
additional paid in capital and a corresponding increase to establish the
dividend liability at September 30, 2006. Subsequent to this change, we
analyzed the value of the SkyTerra shares on a quarterly basis as prescribed
under APB 18 to determine if an other than temporary impairment on the cost
basis of the shares had occurred. To the extent that we recognized an impairment
charge relative to the shares reserved for the dividend liability, we adjusted
the dividend liability accordingly.
  We
also determined, and the Audit Committee approved, that we should have used the
historical cost basis of our interests in MSV and MSV GP immediately preceding
the exchange to record our investment in SkyTerra as of September 30,
2006. Our historical accounting recognized a gain on the exchange which was
subsequently written down to below our cost basis as a result of other than
temporary impairment charges associated with this investment. The error
correction resulted in a decrease to our investment in SkyTerra and a reversal
of the gain recorded on the exchange of MSV interests for SkyTerra shares in the
quarter ended September 30, 2006. In addition, our investment in SkyTerra
was originally accounted for in accordance with SFAS 115, Accounting for Certain Investments
in Debt and Equity Securities, and is now accounted for under the cost
method as prescribed by APB 18, The Equity Method of Accounting
for Investments in Common Stock. The impact of this change in accounting
resulted in the reversal of several “mark to market” adjustments recorded in
other comprehensive income (loss) for certain of the periods restated. In
addition, in the original exchange transaction approximately $9 million of deal
costs were reported as a reduction of the gain in our Statement of Operations as
of September 30, 2006. As we have now determined that the gain was recorded
in error, the $9 million deal costs are reflected in general and administrative
expenses as a period cost. During the fourth quarter of 2006, we concluded that
we were improperly reducing our basis in our investment of MSV by our
proportional share of stock compensation expense, which was recorded in our line
item Equity in losses of MSV. This adjustment was not material and was reflected
in our Investment in MSV balance at December 31, 2006. We made this
adjustment in the quarter ended September 30, 2006 to properly reflect our
Investment in MSV and dividend liability as a result of the MSV Exchange
Agreement.
  Subsequent
to our previous announcement dated February 20, 2008, we identified an
error in our previously issued financial statements related to the calculation
of the stock-based compensation expense during the quarter ended June 30,
2007 related to the one-time May 23, 2007 stock option exchange transaction
between TerreStar Corporation and TerreStar Networks, in which we overstated
expense by $8 million.
  1
   The
following table presents the effect of the restatement adjustments upon our
previously reported Consolidated Statement of Operations (in thousands, except
per share amounts):
  For the
      Year Ended December 31, 2006As Reported
              
              
              Adjustments
              
              
              RestatedOperating
      ExpensesGeneral
      and administrative
              
              $
              75,395
              
              
              $
              8,858
              
              
              $
              84,253Research
      and development
              
              
              10,549
              
              
              
              —
              
              
              
              10,549Depreciation
      and amortization
              
              
              6,796
              
              
              
              —
              
              
              
              6,796Loss
      on impairment of intangibles
              
              
              4,909
              
              
              
              —
              
              
              
              4,909Total
      operating expenses
              
              
              97,649
              
              
              
              8,858
              
              
              
              106,507Operating
      loss from continuing operations
              
              
              (97,649
              )
              
              
              (8,858
              )
              
              
              (106,507
              )Interest
      expense
              
              
              (2,608
              )
              
              
              —
              
              
              
              (2,608
              )Interest
      and other income
              
              
              7,948
              
              
              
              —
              
              
              
              7,948Equity
      in losses of MSV
              
              
              (30,079
              )
              
              
              —
              
              
              
              (30,079
              )Minority
      interests in losses of TerreStar Networks
              
              
              20,655
              
              
              
              —
              
              
              
              20,655Minority
      interests in losses of TerreStar Global
              
              
              654
              
              
              
              —
              
              
              
              654Gain
      on investments
              
              
              41,422
              
              (1)
              
              (30,162
              )
              
              
              11,260Decrease
      in dividend liability
              
              
              —
              
              
              
              —
              
              
              
              —Other
      than temporary impairment-SkyTerra
              
              
              —
              
              
              
              —
              
              
              
              —Loss
      from continuing operations before income taxes
              
              
              (59,657
              )
              
              
              (39,020
              )
              
              
              (98,677
              )Income
      tax benefit (expense)
              
              
              (4,535
              )
              
              
              —
              
              
              
              (4,535
              )Net
      loss from continuing operations
              
              
              (64,192
              )
              
              
              (39,020
              )
              
              
              (103,212
              )Loss
      from discontinued operations
              
              
              (30,422
              )
              
              
              —
              
              
              
              (30,422
              )Net
      loss
              
              
              (94,614
              )
              
              
              (39,020
              )
              
              
              (133,634
              )Less:Dividends
      on Series A and Series B Cumulative Convertible Preferred
      Stock
              
              
              (23,627
              )
              
              
              —
              
              
              
              (23,627
              )Accretion
      of issuance costs associated with Series A and Series
B
              
              
              (4,029
              )
              
              
              —
              
              
              
              (4,029
              )Net
      loss available to Common Stockholders
              
              $
              (122,270
              )
              
              $
              (39,020
              )
              
              $
              (161,290
              )Basic &
      Diluted Loss Per Share—Continuing Operations
              
              $
              (1.41
              )
              
              $
              (0.60
              )
              
              $
              (2.01
              )Basic &
      Diluted Loss Per Share—Discontinued Operations
              
              $
              (0.47
              )
              
              $
              —
              
              
              $
              (0.47
              )Basic &
      Diluted Loss Per Share
              
              $
              (1.88
              )
              
              $
              (0.60
              )
              
              $
              (2.48
              )Basic &
      Diluted Weighted-Average Common Shares Outstanding
              
              
              64,966
              
              
              
              —
              
              
              
              64,966
  (1) The table below
presents a reconciliation of the gain recognized on our SkyTerra investment as
reported in accordance with FAS 115 for the periods ended September 30, 2006
through December 31, 2006.
 
 Gain
      on exchange recognized as of Sept. 30, 2006
                
                $
                196,904,681Realized
      loss on sale of 3,573,216 shares in October, 2006
                
                
                (13,399,552
                )Recognition
      of “other than temporary impairment” as of Dec. 31, 2006
                
                
                (142,084,129
                )Gain
      recognized for the year ended Dec. 31, 2006
                
                $
                41,421,000
 The
decrease in the gain reported for the year ended December 31, 2006 of $155.5
million as compared to the gain reported on September 30, 2006 was primarily due
to a combination of a loss on the sale of 3.5 million shares of common stock of
SkyTerra Communications Inc. in the fourth quarter and the recognition of an
other than temporary impairment on our investment.  In October, 2006,
we sold 3.6 million shares of SkyTerra common stock in the open market and
realized a loss of $13.4 million on the sale.  The recognition of an
“other than temporary impairment” as of December 31, 2006 was due to a
significant decline in the publicly traded stock price of SkyTerra from $15.10
at September 30, 2006 to $11.52 per share at December 31, 2006.  We
also reported a balance of $52.2 in other comprehensive income as of September
30, 2006 which represented an unrealized loss on our SkyTerra investment under
FAS 115.  This loss was subsequently realized in the quarter ended
December 31, 2006 as part of the recognition of the “other than temporary
impairment,” and the balance in other comprehensive income was zero as of
December 31, 2006.
 
 2
  We did
not specifically disclose this table in our original filing because we believed
that the sale of the 3.6 million shares of SkyTerra common stock within 30 days
of the closing of the transaction was part of the original intent of the
exchange transaction andthe gain should be reported as a “net” gain as
of year end.  The sale was an open market transaction which was
publicly reported at the time of sale.  The decline in the price of
SkyTerra’s common stock was generally available on a daily basis because they
are a publicly traded company.  In addition, as we set forth in Part
I, Item IA “Risk Factors” of our Annual Report on Form 10-K for the year ended
December 31, 2006, the value of our investment in SkyTerra is subject to their
successful execution of their business strategy, over which we have no control,
and the value of our investment could be materially and adversely
impacted.
 
 The
following table presents the effect of the restatement adjustments upon our
previously reported Consolidated Balance Sheet (in thousands):
  December 31,
      2006As
      Reported
              
              
              Adjustments
              
              
              RestatedASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              171,665
              
              
              $
              —
              
              
              $
              171,665Cash
      committed for satellite construction costs
              
              
              24,486
              
              
              
              —
              
              
              
              24,486Restricted
      cash for Series A and Series B Cumulative convertible preferred stock
      dividends
              
              
              10,723
              
              
              
              —
              
              
              
              10,723Restricted
      cash for Senior Secured Notes
              
              
              13,087
              
              
              
              —
              
              
              
              13,087Deferred
      issuance costs associated with Series A and Series B Cumulative
      convertible preferred stock
              
              
              4,255
              
              
              
              —
              
              
              
              4,255Deferred
      issuance costs associated with Senior Secured Notes
              
              
              5,708
              
              
              
              —
              
              
              
              5,708Assets
      held for sale
              
              
              367
              
              
              
              —
              
              
              
              367Other
      current assets
              
              
              2,602
              
              
              
              —
              
              
              
              2,602Total
      current assets
              
              
              232,893
              
              
              
              —
              
              
              
              232,893Restricted
      investments
              
              
              6,255
              
              
              
              —
              
              
              
              6,255Property
      and equipment, net
              
              
              259,169
              
              
              
              —
              
              
              
              259,169Intangible
      assets, net
              
              
              144,265
              
              
              
              —
              
              
              
              144,265Investment
      in MSV
              
              
              184,665
              
              
              
              —
              
              
              
              184,665Investment
      in SkyTerra
              
              
              293,510
              
              
              
              (293,510
              )
              
              
              —Investment
      in SkyTerra—Restricted
              
              
              —
              
              
              
              254,490
              
              
              
              254,490Deferred
      issuance costs associated with Series A and Series B Cumulative
      convertible preferred stock
              
              
              10,692
              
              
              
              —
              
              
              
              10,692Total
      assets
              
              $
              1,131,449
              
              
              $
              (39,020
              )
              
              $
              1,092,429LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Accounts
      payable and accrued expenses
              
              $
              12,415
              
              
              $
              —
              
              
              $
              12,415Accounts
      payable to Loral for satellite construction contract
              
              
              9,073
              
              
              
              —
              
              
              
              9,073Accrued
      income taxes payable
              
              
              4,641
              
              
              
              —
              
              
              
              4,641Deferred
      rent and other current liabilities
              
              
              1,199
              
              
              
              —
              
              
              
              1,199Series
      A and Series B Cumulative Convertible Preferred Stock dividends
      payable
              
              
              8,174
              
              
              
              —
              
              
              
              8,174Senior
      Secured Notes and accrued interest, thereon
              
              
              202,267
              
              
              
              —
              
              
              
              202,267Current
      liabilities of discontinued operations
              
              
              45
              
              
              
              —
              
              
              
              45Total
      current liabilities
              
              
              237,814
              
              
              
              —
              
              
              
              237,814Deferred
      rent and other long-term liabilities
              
              
              3,049
              
              
              
              —
              
              
              
              3,049SkyTerra
      investment dividends payable
              
              
              —
              
              
              
              254,490
              
              
              
              254,490Total
      liabilities
              
              
              240,863
              
              
              
              254,490
              
              
              
              495,353Commitments
      and ContingenciesMinority
      interest in TerreStar Networks
              
              
              68,617
              
              
              
              —
              
              
              
              68,617Minority
      interest in TerreStar Global
              
              
              1,633
              
              
              
              —
              
              
              
              1,633Series
      A cumulative convertible preferred stock
              
              
              90,000
              
              
              
              —
              
              
              
              90,000Series
      B cumulative convertible preferred stock
              
              
              318,500
              
              
              
              —
              
              
              
              318,500STOCKHOLDERS’
      EQUITY:Common
      stock
              
              
              737
              
              
              
              —
              
              
              
              737Additional
      paid-in capital
              
              
              886,463
              
              
              
              (254,490
              )
              
              
              631,973Common
      stock purchase warrants
              
              
              73,200
              
              
              
              —
              
              
              
              73,200Less:
      3,951,202 common shares held in treasury stock at December 31, 2007
      and December 31, 2006
              
              
              (73,877
              )
              
              
              —
              
              
              
              (73,877
              )Accumulated
      deficit
              
              
              (474,687
              )
              
              
              (39,020
              )
              
              
              (513,707
              )Total
      stockholders’ equity
              
              
              411,836
              
              
              
              (293,510
              )
              
              
              118,326Total
      liabilities and stockholders’ equity
              
              $
              1,131,449
              
              
              $
              (39,020
              )
              
              $
              1,092,429
  3
  The
following table presents the effect of the restatement adjustments upon our
previously reported Consolidated Statement of Cash Flows (in
thousands):
  For the
      Year Ended December 31, 2006As Reported
              
              
              Adjustments
              
              
              RestatedCASH
      FLOWS FROM CONTINUING OPERATING ACTIVITIES:Net
      loss
              
              $
              (94,614
              )
              
              $
              (39,020
              )
              
              $
              (133,634
              )Adjustments
      to reconcile net loss to net cash used in continuing operating
      activities:Income
      from discontinued operations
              
              
              30,422
              
              
              
              —
              
              
              
              30,422Depreciation
      and amortization
              
              
              6,796
              
              
              
              —
              
              
              
              6,796Equity
      in losses of MSV
              
              
              30,079
              
              
              
              —
              
              
              
              30,079Minority
      interests in losses of TerreStar Global
              
              
              (654
              )
              
              
              —
              
              
              
              (654
              )Minority
      interests in losses of TerreStar Networks
              
              
              (20,655
              )
              
              
              —
              
              
              
              (20,655
              )Gain
      (loss) on investments
              
              
              (41,422
              )
              
              
              30,162
              
              
              
              (11,260
              )Amortization
      of deferred financing costs
              
              
              538
              
              
              
              —
              
              
              
              538Non-cash
      401(k) match
              
              
              156
              
              
              
              —
              
              
              
              156Stock-based
      compensation
              
              
              35,756
              
              
              
              —
              
              
              
              35,756Loss
      on impairment of intangibles
              
              
              4,909
              
              
              
              —
              
              
              
              4,909Changes
      in assets and liabilities:Other
      current assets
              
              
              (345
              )
              
              
              —
              
              
              
              (345
              )Accounts
      payable and accrued expenses
              
              
              9,155
              
              
              
              —
              
              
              
              9,155Accrued
      interest
              
              
              2,267
              
              
              
              —
              
              
              
              2,267Deferred
      rent and other liabilities
              
              
              4,242
              
              
              
              —
              
              
              
              4,242Net
      cash used in continuing operating activities
              
              $
              (33,370
              )
              
              $
              (8,858
              )
              
              $
              (42,228
              )CASH
      FLOWS FROM CONTINUING INVESTING ACTIVITIES:Proceeds
      of restricted cash and investments
              
              $
              61,511
              
              
              $
              —
              
              
              $
              61,511Proceeds
      from the sale of investments
              
              
              46,951
              
              
              
              —
              
              
              
              46,951Proceeds
      from TerreStar Global rights offering
              
              
              672
              
              
              
              —
              
              
              
              672Accounts
      payable to Loral for satellite construction contract
              
              
              (59,771
              )
              
              
              —
              
              
              
              (59,771
              )Additions
      to property and equipment
              
              
              (175,808
              )
              
              
              —
              
              
              
              (175,808
              )Net
      cash used in continuing investing activities
              
              $
              (126,445
              )
              
              $
              —
              
              
              $
              (126,445
              )CASH
      FLOWS FROM CONTINUING FINANCING ACTIVITIES:Proceeds
      from issuance of Senior Secured Notes
              
              $
              200,000
              
              
              $
              —
              
              
              $
              200,000Proceeds
      from issuance of equity securities
              
              
              9,388
              
              
              
              8,858
              
              
              
              18,246Purchase
      of treasury stock
              
              
              (6,791
              )
              
              
              —
              
              
              
              (6,791
              )Dividends
      paid on Series A and B Cumulative Convertible Preferred
      Stock
              
              
              (21,446
              )
              
              
              —
              
              
              
              (21,446
              )Debt
      issuance costs and other charges
              
              
              (6,245
              )
              
              
              —
              
              
              
              (6,245
              )Net
      cash provided by continuing financing activities
              
              $
              174,906
              
              
              $
              8,858
              
              
              $
              183,764Net
      cash provided by continuing operations
              
              $
              15,091
              
              
              $
              —
              
              
              $
              15,091Net
      cash used in discontinued operating activities
              
              $
              (18,435
              )
              
              $
              —
              
              
              $
              (18,435
              )Net
      cash used in discontinued investing activities
              
              $
              (4,515
              )
              
              $
              —
              
              
              $
              (4,515
              )Net
      cash used in discontinued operations
              
              
              (22,950
              )
              
              
              —
              
              
              
              (22,950
              )Net
      decrease in cash and cash equivalents
              
              
              (7,859
              )
              
              
              —
              
              
              
              (7,859
              )CASH
      AND CASH EQUIVALENTS, beginning of period
              
              
              179,524
              
              
              
              —
              
              
              
              179,524CASH
      AND CASH EQUIVALENTS, end of period
              
              $
              171,665
              
              
              $
              —
              
              
              $
              171,665
 4
  The
following table presents the effect of the restatement adjustments upon our
previously reported quarterly (unaudited) Consolidated Statement of Operations
(in thousands, except per share amounts):
  Three
      Months Ended September 30, 2006As Reported
              
              
              Adjustments
              
              
              RestatedOperating
      ExpensesGeneral
      and administrative
              
              $
              30,605
              
              
              $
              9,000
              
              
              $
              39,605Research
      and development
              
              
              2,399
              
              
              
              —
              
              
              
              2,399Depreciation
      and amortization
              
              
              1,454
              
              
              
              —
              
              
              
              1,454Loss
      on impairment of intangibles
              
              
              —
              
              
              
              —
              
              
              
              —Gain
      on asset disposal
              
              
              —
              
              
              
              —
              
              
              
              —Total
      operating expenses
              
              
              34,458
              
              
              
              9,000
              
              
              
              43,458Operating
      loss from continuing operations
              
              
              (34,458
              )
              
              
              (9,000
              )
              
              
              (43,458
              )Interest
      expense
              
              
              —
              
              
              
              —
              
              
              
              —Other
      expense
              
              
              —
              
              
              
              —
              
              
              
              —Interest
      and other income
              
              
              1,441
              
              
              
              —
              
              
              
              1,441Equity
      in losses of MSV
              
              
              (8,423
              )
              
              
              1,283
              
              
              
              (7,140
              )Minority
      interests in losses of TerreStar Networks
              
              
              9,397
              
              
              
              —
              
              
              
              9,397Minority
      interests in losses of TerreStar Global
              
              
              —
              
              
              
              —
              
              
              
              —Gain
      (Loss) on investments
              
              
              196,905
              
              
              
              (196,905
              )
              
              
              —Decrease
      in dividend liability
              
              
              —
              
              
              
              —
              
              
              
              —Other
      than temporary impairment-SkyTerra
              
              
              —
              
              
              
              —
              
              
              
              —Loss
      from continuing operations before income taxes
              
              
              164,862
              
              
              
              (204,622
              )
              
              
              (39,760
              )Income
      tax benefit (expense)
              
              
              (17,100
              )
              
              
              —
              
              
              
              (17,100
              )Net
      loss from continuing operations
              
              
              147,762
              
              
              
              (204,622
              )
              
              
              (56,860
              )Loss
      from discontinued operations
              
              
              (9,600
              )
              
              
              —
              
              
              
              (9,600
              )Net
      income (loss)
              
              
              138,162
              
              
              
              (204,622
              )
              
              
              (66,460
              )Less:Dividends
      on Series A and Series B Cumulative Convertible Preferred
      Stock
              
              
              (5,960
              )
              
              
              —
              
              
              
              (5,960
              )Accretion
      of issuance costs associated with Series A and Series
B
              
              
              (1,020
              )
              
              
              —
              
              
              
              (1,020
              )Net
      income (loss) available to Common Stockholders
              
              $
              131,182
              
              
              $
              (204,622
              )
              
              $
              (73,440
              )Basic
      Loss Per Share—Continuing Operations
              
              $
              2.21
              
              
              $
              (3.21
              )
              
              $
              (1.00
              )Basic
      Loss Per Share—Discontinued Operations
              
              $
              (0.15
              )
              
              $
              —
              
              
              $
              (0.15
              )Basic
      Loss Per Share
              
              $
              2.06
              
              
              $
              (3.21
              )
              
              $
              (1.15
              )Basic
      Weighted-Average Common Shares Outstanding
              
              
              63,782
              
              
              
              —
              
              
              
              63,782
 5
  The
following table presents the effect of the restatement adjustments upon our
previously reported quarterly (unaudited) Consolidated Balance Sheet (in
thousands):
  September 30,
      2006As Reported
              
              
              Adjustments
              
              
              RestatedASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              46,471
              
              
              $
              —
              
              
              $
              46,471Cash
      committed for satellite construction costs
              
              
              33,709
              
              
              
              —
              
              
              
              33,709Restricted
      cash for Series A and Series B Cumulative convertible preferred stock
      dividends
              
              
              21,446
              
              
              
              —
              
              
              
              21,446Deferred
      issuance costs associated with Series A and Series B Cumulative
      convertible preferred stock
              
              
              4,197
              
              
              
              —
              
              
              
              4,197Deferred
      issuance costs associated with Senior Secured Notes
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      issuance costs associated with TerreStar Notes
              
              
              —
              
              
              
              —
              
              
              
              —Assets
      held for sale
              
              
              628
              
              
              
              —
              
              
              
              628Other
      current assets
              
              
              822
              
              
              
              —
              
              
              
              822Total
      current assets
              
              
              107,273
              
              
              
              —
              
              
              
              107,273Restricted
      investments
              
              
              7,505
              
              
              
              —
              
              
              
              7,505Property
      and equipment, net
              
              
              177,769
              
              
              
              —
              
              
              
              177,769Intangible
      assets, net
              
              
              138,162
              
              
              
              —
              
              
              
              138,162Investment
      in MSV
              
              
              185,340
              
              
              
              3,326
              
              
              
              188,666Investment
      in SkyTerra
              
              
              438,677
              
              
              
              (148,496
              )
              
              
              290,181Deferred
      issuance costs associated with Series A and Series B Cumulative
      convertible preferred stock
              
              
              11,785
              
              
              
              —
              
              
              
              11,785Deferred
      issuance costs associated with TerreStar Notes
              
              
              —
              
              
              
              —
              
              
              
              —Notes
      receivable and accrued interest, thereon
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      issuance costs associated with Senior Secured PIK
Notes
              
              
              —
              
              
              
              —
              
              
              
              —Total
      assets
              
              $
              1,066,511
              
              
              $
              (145,170
              )
              
              $
              921,341LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Accounts
      payable and accrued expenses
              
              $
              36,218
              
              
              $
              —
              
              
              $
              36,218Accounts
      payable to Loral for satellite construction contract
              
              
              17,671
              
              
              
              —
              
              
              
              17,671Accrued
      income taxes payable
              
              
              —
              
              
              
              —
              
              
              
              —Obligations
      under capital leases
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      rent and other current liabilities
              
              
              91
              
              
              
              —
              
              
              
              91Series
      A and Series B Cumulative Convertible Preferred Stock dividends
      payable
              
              
              12,924
              
              
              
              —
              
              
              
              12,924Current
      liabilities of discontinued operations
              
              
              3,177
              
              
              
              —
              
              
              
              3,177Total
      current liabilities
              
              
              70,081
              
              
              
              —
              
              
              
              70,081Obligations
      under capital leases
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      rent and other long-term liabilities
              
              
              108
              
              
              
              —
              
              
              
              108SkyTerra
      investment dividends payable
              
              
              —
              
              
              
              254,490
              
              
              
              254,490TerreStar
      Notes and accrued interest, thereon
              
              
              —
              
              
              
              —
              
              
              
              —Total
      liabilities
              
              
              70,189
              
              
              
              254,490
              
              
              
              324,679Commitments
      and ContingenciesMinority
      interest in TerreStar Networks
              
              
              75,922
              
              
              
              —
              
              
              
              75,922Minority
      interest in TerreStar Global
              
              
              —
              
              
              
              —
              
              
              
              —Series
      A cumulative convertible preferred stock
              
              
              90,000
              
              
              
              —
              
              
              
              90,000Series
      B cumulative convertible preferred stock
              
              
              318,500
              
              
              
              —
              
              
              
              318,500STOCKHOLDERS’
      EQUITY:Common
      stock
              
              
              735
              
              
              
              —
              
              
              
              735Additional
      paid-in capital
              
              
              860,879
              
              
              
              (247,331
              )
              
              
              613,548Common
      stock purchase warrants
              
              
              73,487
              
              
              
              —
              
              
              
              73,487Less:
      3,951,202 common shares held in treasury stock
              
              
              (73,877
              )
              
              
              —
              
              
              
              (73,877
              )Accumulated
      other comprehensive income
              
              
              (52,293
              )
              
              
              52,293
              
              
              
              —Accumulated
      deficit
              
              
              (297,031
              )
              
              
              (204,622
              )
              
              
              (501,653
              )Total
      stockholders’ equity
              
              
              511,900
              
              
              
              (399,660
              )
              
              
              112,240Total
      liabilities and stockholders’ equity
              
              $
              1,066,511
              
              
              $
              (145,170
              )
              
              $
              921,341
 6
  The
following table presents the effect of the restatement adjustments upon our
previously reported quarterly (unaudited) Consolidated Statement of Operations
(in thousands, except per share amounts):
  Three
      Months Ended March 31, 2007As Reported
              
              
              Adjustments
              
              
              RestatedOperating
      ExpensesGeneral
      and administrative
              
              $
              18,306
              
              
              $
              —
              
              
              $
              18,306Research
      and development
              
              
              11,158
              
              
              
              —
              
              
              
              11,158Depreciation
      and amortization
              
              
              3,298
              
              
              
              —
              
              
              
              3,298Loss
      on impairment of intangibles
              
              
              6,200
              
              
              
              —
              
              
              
              6,200Gain
      on asset disposal
              
              
              —
              
              
              
              —
              
              
              
              —Total
      operating expenses
              
              
              38,962
              
              
              
              —
              
              
              
              38,962Operating
      loss from continuing operations
              
              
              (38,962
              )
              
              
              —
              
              
              
              (38,962
              )Interest
      expense
              
              
              (19,155
              )
              
              
              —
              
              
              
              (19,155
              )Other
      expense
              
              
              —
              
              
              
              —
              
              
              
              —Interest
      and other income
              
              
              5,360
              
              
              
              —
              
              
              
              5,360Equity
      in losses of MSV
              
              
              (3,016
              )
              
              
              —
              
              
              
              (3,016
              )Minority
      interests in losses of TerreStar Networks
              
              
              7,529
              
              
              
              —
              
              
              
              7,529Minority
      interests in losses of TerreStar Global
              
              
              368
              
              
              
              —
              
              
              
              368Gain
      (Loss) on investments
              
              
              (99,575
              )
              
              
              99,575
              
              
              
              —Decrease
      in dividend liability
              
              
              —
              
              
              
              40,473
              
              
              
              40,473Other
      than temporary impairment-SkyTerra
              
              
              —
              
              
              
              (58,937
              )
              
              
              (58,937
              )Loss
      from continuing operations before income taxes
              
              
              (147,451
              )
              
              
              81,111
              
              
              
              (66,340
              )Income
      tax benefit (expense)
              
              
              (1,250
              )
              
              
              —
              
              
              
              (1,250
              )Net
      loss from continuing operations
              
              
              (148,701
              )
              
              
              81,111
              
              
              
              (67,590
              )Loss
      from discontinued operations
              
              
              —
              
              
              
              —
              
              
              
              —Net
      income (loss)
              
              
              (148,701
              )
              
              
              81,111
              
              
              
              (67,590
              )Less:Dividends
      on Series A and Series B Cumulative Convertible Preferred
      Stock
              
              
              (5,856
              )
              
              
              —
              
              
              
              (5,856
              )Accretion
      of issuance costs associated with Series A and Series
B
              
              
              (1,030
              )
              
              
              —
              
              
              
              (1,030
              )Net
      income (loss) available to Common Stockholders
              
              $
              (155,587
              )
              
              $
              81,111
              
              
              $
              (74,476
              )Basic
      Loss Per Share—Continuing Operations
              
              $
              (2.11
              )
              
              $
              1.10
              
              
              $
              (1.01
              )Basic
      Loss Per Share—Discontinued Operations
              
              $
              —
              
              
              $
              —
              
              
              $
              —Basic
      Loss Per Share
              
              $
              (2.11
              )
              
              $
              1.10
              
              
              $
              (1.01
              )Basic
      Weighted-Average Common Shares Outstanding
              
              
              73,622
              
              
              
              —
              
              
              
              73,622
   7
  The
following table presents the effect of the restatement adjustments upon our
previously reported quarterly (unaudited) Consolidated Balance Sheet (in
thousands):
  March 31,
      2007As Reported
              
              
              Adjustments
              
              
              RestatedASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              343,427
              
              
              $
              —
              
              
              $
              343,427Cash
      committed for satellite construction costs
              
              
              12,682
              
              
              
              —
              
              
              
              12,682Restricted
      cash for Series A and Series B Cumulative convertible preferred stock
      dividends
              
              
              10,723
              
              
              
              —
              
              
              
              10,723Deferred
      issuance costs associated with Series A and Series B Cumulative
      convertible preferred stock
              
              
              4,305
              
              
              
              —
              
              
              
              4,305Deferred
      issuance costs associated with Senior Secured Notes
              
              
              2,059
              
              
              
              —
              
              
              
              2,059Deferred
      issuance costs associated with TerreStar Notes
              
              
              —
              
              
              
              —
              
              
              
              —Assets
      held for sale
              
              
              367
              
              
              
              —
              
              
              
              367Other
      current assets
              
              
              3,723
              
              
              
              —
              
              
              
              3,723Total
      current assets
              
              
              377,286
              
              
              
              —
              
              
              
              377,286Restricted
      investments
              
              
              5,897
              
              
              
              —
              
              
              
              5,897Property
      and equipment, net
              
              
              378,621
              
              
              
              —
              
              
              
              378,621Intangible
      assets, net
              
              
              200,948
              
              
              
              —
              
              
              
              200,948Investment
      in MSV
              
              
              40,704
              
              
              
              1,618
              
              
              
              42,322Investment
      in SkyTerra
              
              
              335,039
              
              
              
              —
              
              
              
              335,039Deferred
      issuance costs associated with Series A and Series B Cumulative
      convertible preferred stock
              
              
              9,612
              
              
              
              —
              
              
              
              9,612Deferred
      issuance costs associated with TerreStar Notes
              
              
              —
              
              
              
              —
              
              
              
              —Notes
      receivable and accrued interest, thereon
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      issuance costs associated with Senior Secured PIK
Notes
              
              
              12,097
              
              
              
              —
              
              
              
              12,097Total
      assets
              
              $
              1,360,204
              
              
              $
              1,618
              
              
              $
              1,361,822LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Accounts
      payable and accrued expenses
              
              $
              15,103
              
              
              $
              —
              
              
              $
              15,103Accounts
      payable to Loral for satellite construction contract
              
              
              20,758
              
              
              
              —
              
              
              
              20,758Accrued
      income taxes payable
              
              
              1,339
              
              
              
              —
              
              
              
              1,339Obligations
      under capital leases
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      rent and other current liabilities
              
              
              1,029
              
              
              
              —
              
              
              
              1,029Series
      A and Series B Cumulative Convertible Preferred Stock dividends
      payable
              
              
              14,030
              
              
              
              —
              
              
              
              14,030Current
      liabilities of discontinued operations
              
              
              36
              
              
              
              —
              
              
              
              36Total
      current liabilities
              
              
              52,295
              
              
              
              —
              
              
              
              52,295Obligations
      under capital leases
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      rent and other long-term liabilities
              
              
              3,060
              
              
              
              —
              
              
              
              3,060SkyTerra
      investment dividends payable
              
              
              —
              
              
              
              214,017
              
              
              
              214,017TerreStar
      Notes and accrued interest, thereon
              
              
              509,414
              
              
              
              —
              
              
              
              509,414Total
      liabilities
              
              
              564,769
              
              
              
              214,017
              
              
              
              778,786Commitments
      and ContingenciesMinority
      interest in TerreStar Networks
              
              
              30,222
              
              
              
              —
              
              
              
              30,222Minority
      interest in TerreStar Global
              
              
              1,264
              
              
              
              —
              
              
              
              1,264Series
      A cumulative convertible preferred stock
              
              
              90,000
              
              
              
              —
              
              
              
              90,000Series
      B cumulative convertible preferred stock
              
              
              318,500
              
              
              
              —
              
              
              
              318,500STOCKHOLDERS’
      EQUITY:Common
      stock
              
              
              864
              
              
              
              —
              
              
              
              864Additional
      paid-in capital
              
              
              985,828
              
              
              
              (254,490
              )
              
              
              731,338Common
      stock purchase warrants
              
              
              72,908
              
              
              
              —
              
              
              
              72,908Less:
      3,951,202 common shares held in treasury stock
              
              
              (73,877
              )
              
              
              —
              
              
              
              (73,877
              )Accumulated
      other comprehensive income
              
              
              —
              
              
              
              —
              
              
              
              —Accumulated
      deficit
              
              
              (630,274
              )
              
              
              42,091
              
              
              
              (588,183
              )Total
      stockholders’ equity
              
              
              355,449
              
              
              
              (212,399
              )
              
              
              143,050Total
      liabilities and stockholders’ equity
              
              $
              1,360,204
              
              
              $
              1,618
              
              
              $
              1,361,822
 8
  The
following table presents the effect of the restatement adjustments upon our
previously reported quarterly (unaudited) Consolidated Statement of Operations
(in thousands, except per share amounts):
  Three
      Months Ended June 30, 2007As Reported
              
              
              Adjustments
              
              
              RestatedOperating
      ExpensesGeneral
      and administrative
              
              $
              42,212
              
              
              $
              (5,639
              )
              
              $
              36,573Research
      and development
              
              
              9,907
              
              
              
              (1,324
              )
              
              
              8,583Depreciation
      and amortization
              
              
              4,643
              
              
              
              —
              
              
              
              4,643Loss
      on impairment of intangibles
              
              
              499
              
              
              
              —
              
              
              
              499Gain
      on asset disposal
              
              
              —
              
              
              
              —
              
              
              
              —Total
      operating expenses
              
              
              57,261
              
              
              
              (6,963
              )
              
              
              50,298Operating
      loss from continuing operations
              
              
              (57,261
              )
              
              
              6,963
              
              
              
              (50,298
              )Interest
      expense
              
              
              (11,905
              )
              
              
              —
              
              
              
              (11,905
              )Other
      expense
              
              
              (507
              )
              
              
              —
              
              
              
              (507
              )Interest
      and other income
              
              
              2,226
              
              
              
              —
              
              
              
              2,226Equity
      in losses of MSV
              
              
              (1,594
              )
              
              
              —
              
              
              
              (1,594
              )Minority
      interests in losses of TerreStar Networks
              
              
              4,744
              
              
              
              —
              
              
              
              4,744Minority
      interests in losses of TerreStar Global
              
              
              346
              
              
              
              —
              
              
              
              346Gain
      (Loss) on investments
              
              
              —
              
              
              
              —
              
              
              
              —Decrease
      in dividend liability
              
              
              —
              
              
              
              —
              
              
              
              —Other
      than temporary impairment-SkyTerra
              
              
              —
              
              
              
              —
              
              
              
              —Loss
      from continuing operations before income taxes
              
              
              (63,951
              )
              
              
              6,963
              
              
              
              (56,988
              )Income
      tax benefit (expense)
              
              
              820
              
              
              
              —
              
              
              
              820Net
      loss from continuing operations
              
              
              (63,131
              )
              
              
              6,963
              
              
              
              (56,168
              )Loss
      from discontinued operations
              
              
              —
              
              
              
              —
              
              
              
              —Net
      income (loss)
              
              
              (63,131
              )
              
              
              6,963
              
              
              
              (56,168
              )Less:Dividends
      on Series A and Series B Cumulative Convertible Preferred
      Stock
              
              
              (5,933
              )
              
              
              —
              
              
              
              (5,933
              )Accretion
      of issuance costs associated with Series A and Series
B
              
              
              (1,054
              )
              
              
              —
              
              
              
              (1,054
              )Net
      income (loss) available to Common Stockholders
              
              $
              (70,118
              )
              
              $
              6,963
              
              
              $
              (63,155
              )Basic
      Loss Per Share—Continuing Operations
              
              $
              (0.83
              )
              
              $
              0.08
              
              
              $
              (0.75
              )Basic
      Loss Per Share—Discontinued Operations
              
              $
              —
              
              
              $
              —
              
              
              $
              —Basic
      Loss Per Share
              
              $
              (0.83
              )
              
              $
              0.08
              
              
              $
              (0.75
              )Basic
      Weighted-Average Common Shares Outstanding
              
              
              84,581
              
              
              
              —
              
              
              
              84,581
 9
 The
following table presents the effect of the restatement adjustments upon our
previously reported quarterly (unaudited) Consolidated Balance Sheet (in
thousands):
  June 30,
      2007As Reported
              
              
              Adjustments
              
              
              RestatedASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              267,762
              
              
              $
              —
              
              
              $
              267,762Cash
      committed for satellite construction costs
              
              
              2,748
              
              
              
              —
              
              
              
              2,748Restricted
      cash for Series A and Series B Cumulative convertible preferred stock
      dividends
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      issuance costs associated with Series A and Series B Cumulative
      convertible preferred stock
              
              
              4,346
              
              
              
              —
              
              
              
              4,346Deferred
      issuance costs associated with Senior Secured Notes
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      issuance costs associated with TerreStar Notes
              
              
              2,030
              
              
              
              —
              
              
              
              2,030Assets
      held for sale
              
              
              317
              
              
              
              —
              
              
              
              317Other
      current assets
              
              
              3,940
              
              
              
              —
              
              
              
              3,940Total
      current assets
              
              
              281,143
              
              
              
              —
              
              
              
              281,143Restricted
      investments
              
              
              3,516
              
              
              
              —
              
              
              
              3,516Property
      and equipment, net
              
              
              441,014
              
              
              
              —
              
              
              
              441,014Intangible
      assets, net
              
              
              217,353
              
              
              
              —
              
              
              
              217,353Investment
      in MSV
              
              
              39,157
              
              
              
              1,618
              
              
              
              40,775Investment
      in SkyTerra
              
              
              347,005
              
              
              
              (11,966
              )
              
              
              335,039Deferred
      issuance costs associated with Series A and Series B Cumulative
      convertible preferred stock
              
              
              8,517
              
              
              
              —
              
              
              
              8,517Deferred
      issuance costs associated with TerreStar Notes
              
              
              11,419
              
              
              
              —
              
              
              
              11,419Notes
      receivable and accrued interest, thereon
              
              
              757
              
              
              
              —
              
              
              
              757Deferred
      issuance costs associated with Senior Secured PIK
Notes
              
              
              —
              
              
              
              —
              
              
              
              —Total
      assets
              
              $
              1,349,881
              
              
              $
              (10,348
              )
              
              $
              1,339,533LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Accounts
      payable and accrued expenses
              
              $
              20,299
              
              
              $
              —
              
              
              $
              20,299Accounts
      payable to Loral for satellite construction contract
              
              
              3,125
              
              
              
              —
              
              
              
              3,125Accrued
      income taxes payable
              
              
              89
              
              
              
              —
              
              
              
              89Obligations
      under capital leases
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      rent and other current liabilities
              
              
              1,044
              
              
              
              —
              
              
              
              1,044Series
      A and Series B Cumulative Convertible Preferred Stock dividends
      payable
              
              
              9,240
              
              
              
              —
              
              
              
              9,240Current
      liabilities of discontinued operations
              
              
              34
              
              
              
              —
              
              
              
              34Total
      current liabilities
              
              
              33,831
              
              
              
              —
              
              
              
              33,831Obligations
      under capital leases
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      rent and other long-term liabilities
              
              
              2,884
              
              
              
              —
              
              
              
              2,884SkyTerra
      investment dividends payable
              
              
              —
              
              
              
              214,017
              
              
              
              214,017TerreStar
      Notes and accrued interest, thereon
              
              
              528,757
              
              
              
              —
              
              
              
              528,757Total
      liabilities
              
              
              565,472
              
              
              
              214,017
              
              
              
              779,489Commitments
      and ContingenciesMinority
      interest in TerreStar Networks
              
              
              23,890
              
              
              
              —
              
              
              
              23,890Minority
      interest in TerreStar Global
              
              
              432
              
              
              
              —
              
              
              
              432Series
      A cumulative convertible preferred stock
              
              
              90,000
              
              
              
              —
              
              
              
              90,000Series
      B cumulative convertible preferred stock
              
              
              318,500
              
              
              
              —
              
              
              
              318,500STOCKHOLDERS’
      EQUITY:Common
      stock
              
              
              899
              
              
              
              —
              
              
              
              899Additional
      paid-in capital
              
              
              1,048,892
              
              
              
              (261,453
              )
              
              
              787,439Common
      stock purchase warrants
              
              
              64,097
              
              
              
              —
              
              
              
              64,097Less:
      3,951,202 common shares held in treasury stock
              
              
              (73,877
              )
              
              
              —
              
              
              
              (73,877
              )Accumulated
      other comprehensive income
              
              
              11,968
              
              
              
              (11,968
              )
              
              
              —Accumulated
      deficit
              
              
              (700,392
              )
              
              
              49,056
              
              
              
              (651,336
              )Total
      stockholders’ equity
              
              
              351,587
              
              
              
              (224,365
              )
              
              
              127,222Total
      liabilities and stockholders’ equity
              
              $
              1,349,881
              
              
              $
              (10,348
              )
              
              $
              1,339,533
   10
  The
following table presents the effect of the restatement adjustments upon our
previously reported quarterly (unaudited) Consolidated Statement of Operations
(in thousands, except per share amounts):
  Three
      Months Ended September 30, 2007As Reported
              
              
              Adjustments
              
              
              RestatedOperating
      ExpensesGeneral
      and administrative
              
              $
              29,594
              
              
              $
              (1,327
              )
              
              $
              28,267Research
      and development
              
              
              1,405
              
              
              
              —
              
              
              
              1,405Depreciation
      and amortization
              
              
              5,018
              
              
              
              —
              
              
              
              5,018Loss
      on impairment of intangibles
              
              
              —
              
              
              
              —
              
              
              
              —Gain
      on asset disposal
              
              
              (133
              )
              
              
              —
              
              
              
              (133
              )Total
      operating expenses
              
              
              35,884
              
              
              
              (1,327
              )
              
              
              34,557Operating
      loss from continuing operations
              
              
              (35,884
              )
              
              
              1,327
              
              
              
              (34,557
              )Interest
      expense
              
              
              (11,333
              )
              
              
              —
              
              
              
              (11,333
              )Other
      expense
              
              
              (518
              )
              
              
              —
              
              
              
              (518
              )Interest
      and other income
              
              
              2,893
              
              
              
              —
              
              
              
              2,893Equity
      in losses of MSV
              
              
              (1,595
              )
              
              
              —
              
              
              
              (1,595
              )Minority
      interests in losses of TerreStar Networks
              
              
              4,513
              
              
              
              —
              
              
              
              4,513Minority
      interests in losses of TerreStar Global
              
              
              375
              
              
              
              —
              
              
              
              375Gain
      (Loss) on investments
              
              
              (47,863
              )
              
              
              47,863
              
              
              
              —Decrease
      in dividend liability
              
              
              —
              
              
              
              30,574
              
              
              
              30,574Other
      than temporary impairment-SkyTerra
              
              
              —
              
              
              
              (47,863
              )
              
              
              (47,863
              )Loss
      from continuing operations before income taxes
              
              
              (89,412
              )
              
              
              31,901
              
              
              
              (57,511
              )Income
      tax benefit (expense)
              
              
              3,376
              
              
              
              —
              
              
              
              3,376Net
      loss from continuing operations
              
              
              (86,036
              )
              
              
              31,901
              
              
              
              (54,135
              )Loss
      from discontinued operations
              
              
              —
              
              
              
              —
              
              
              
              —Net
      income (loss)
              
              
              (86,036
              )
              
              
              31,901
              
              
              
              (54,135
              )Less:Dividends
      on Series A and Series B Cumulative Convertible Preferred
      Stock
              
              
              (6,011
              )
              
              
              —
              
              
              
              (6,011
              )Accretion
      of issuance costs associated with Series A and Series
B
              
              
              (1,078
              )
              
              
              —
              
              
              
              (1,078
              )Net
      income (loss) available to Common Stockholders
              
              $
              (93,125
              )
              
              $
              31,901
              
              
              $
              (61,224
              )Basic
      Loss Per Share—Continuing Operations
              
              $
              (1.08
              )
              
              $
              0.37
              
              
              $
              (0.71
              )Basic
      Loss Per Share—Discontinued Operations
              
              $
              —
              
              
              $
              —
              
              
              $
              —Basic
      Loss Per Share
              
              $
              (1.08
              )
              
              $
              0.37
              
              
              $
              (0.71
              )Basic
      Weighted-Average Common Shares Outstanding
              
              
              86,128
              
              
              
              —
              
              
              
              86,128
 11
  The
following table presents the effect of the restatement adjustments upon our
previously reported quarterly (unaudited) Consolidated Balance Sheet (in
thousands):
  September 30,
      2007As Reported
              
              
              Adjustments
              
              
              RestatedASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              197,558
              
              
              $
              —
              
              
              $
              197,558Cash
      committed for satellite construction costs
              
              
              2,783
              
              
              
              —
              
              
              
              2,783Restricted
      cash for Series A and Series B Cumulative convertible preferred stock
      dividends
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      issuance costs associated with Series A and Series B Cumulative
      convertible preferred stock
              
              
              4,388
              
              
              
              —
              
              
              
              4,388Deferred
      issuance costs associated with Senior Secured Notes
              
              
              —
              
              
              
              —
              
              
              
              —Deferred
      issuance costs associated with TerreStar Notes
              
              
              2,032
              
              
              
              —
              
              
              
              2,032Assets
      held for sale
              
              
              —
              
              
              
              —
              
              
              
              —Other
      current assets
              
              
              18,617
              
              
              
              —
              
              
              
              18,617Total
      current assets
              
              
              225,378
              
              
              
              —
              
              
              
              225,378Restricted
      investments
              
              
              3,569
              
              
              
              —
              
              
              
              3,569Property
      and equipment, net
              
              
              507,068
              
              
              
              —
              
              
              
              507,068Intangible
      assets, net
              
              
              215,797
              
              
              
              —
              
              
              
              215,797Investment
      in MSV
              
              
              37,606
              
              
              
              1,618
              
              
              
              39,224Investment
      in SkyTerra
              
              
              287,176
              
              
              
              —
              
              
              
              287,176Deferred
      issuance costs associated with Series A and Series B Cumulative
      convertible preferred stock
              
              
              7,397
              
              
              
              —
              
              
              
              7,397Deferred
      issuance costs associated with TerreStar Notes
              
              
              —
              
              
              
              —
              
              
              
              —Notes
      receivable and accrued interest, thereon
              
              
              787
              
              
              
              —
              
              
              
              787Deferred
      issuance costs associated with Senior Secured PIK
Notes
              
              
              10,923
              
              
              
              —
              
              
              
              10,923Total
      assets
              
              $
              1,295,701
              
              
              $
              1,618
              
              
              $
              1,297,319LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Accounts
      payable and accrued expenses
              
              $
              27,289
              
              
              $
              —
              
              
              $
              27,289Accounts
      payable to Loral for satellite construction contract
              
              
              19,791
              
              
              
              —
              
              
              
              19,791Accrued
      income taxes payable
              
              
              89
              
              
              
              —
              
              
              
              89Obligations
      under capital leases
              
              
              288
              
              
              
              —
              
              
              
              288Deferred
      rent and other current liabilities
              
              
              1,060
              
              
              
              —
              
              
              
              1,060Series
      A and Series B Cumulative Convertible Preferred Stock dividends
      payable
              
              
              15,252
              
              
              
              —
              
              
              
              15,252Current
      liabilities of discontinued operations
              
              
              25
              
              
              
              —
              
              
              
              25Total
      current liabilities
              
              
              63,794
              
              
              
              —
              
              
              
              63,794Obligations
      under capital leases
              
              
              316
              
              
              
              —
              
              
              
              316Deferred
      rent and other long-term liabilities
              
              
              2,685
              
              
              
              —
              
              
              
              2,685SkyTerra
      investment dividends payable
              
              
              —
              
              
              
              183,444
              
              
              
              183,444TerreStar
      Notes and accrued interest, thereon
              
              
              547,790
              
              
              
              —
              
              
              
              547,790Total
      liabilities
              
              
              614,585
              
              
              
              183,444
              
              
              
              798,029Commitments
      and ContingenciesMinority
      interest in TerreStar Networks
              
              
              18,610
              
              
              
              —
              
              
              
              18,610Minority
      interest in TerreStar Global
              
              
              105
              
              
              
              —
              
              
              
              105Series
      A cumulative convertible preferred stock
              
              
              90,000
              
              
              
              —
              
              
              
              90,000Series
      B cumulative convertible preferred stock
              
              
              318,500
              
              
              
              —
              
              
              
              318,500STOCKHOLDERS’
      EQUITY:Common
      stock
              
              
              903
              
              
              
              —
              
              
              
              903Additional
      paid-in capital
              
              
              1,056,285
              
              
              
              (262,781
              )
              
              
              793,504Common
      stock purchase warrants
              
              
              64,097
              
              
              
              —
              
              
              
              64,097Less:
      3,951,202 common shares held in treasury stock
              
              
              (73,877
              )
              
              
              —
              
              
              
              (73,877
              )Accumulated
      other comprehensive income
              
              
              10
              
              
              
              —
              
              
              
              10Accumulated
      deficit
              
              
              (793,517
              )
              
              
              80,955
              
              
              
              (712,562
              )Total
      stockholders’ equity
              
              
              253,901
              
              
              
              (181,826
              )
              
              
              72,075Total
      liabilities and stockholders’ equity
              
              $
              1,295,701
              
              
              $
              1,618
              
              
              $
              1,297,319
 12
  Business
Overview
  TerreStar
Corporation was incorporated in 1988 under the laws of the State of Delaware.
TerreStar Corporation is in the integrated satellite wireless communications
business through its ownership of TerreStar Networks Inc., its principal
operating entity, and TerreStar Global Ltd. We changed our name from Motient
Corporation to TerreStar Corporation in August 2007.
  Our
primary business is TerreStar Networks, a Reston, Virginia based future provider
of advanced mobile satellite services for the North American market. Previously,
we operated a two-way terrestrial wireless data communications service. On
September 14, 2006, we sold most of the assets and liabilities relating to
that business. Our historical financial statements present this terrestrial
wireless business as a discontinued operation. Pursuant to such presentation,
our current period continuing operations are reflected as a single operating
unit.
  As of
December 31, 2007, we had two wholly-owned subsidiaries, MVH Holdings Inc.
and Motient Holdings Inc., an 86% interest in TerreStar Networks and an 85%
interest in TerreStar Global. Additionally, we held approximately 42% non-voting
interest in SkyTerra, a mobile satellite communications company. As of
December 31, 2007, SkyTerra owned approximately 11% of TerreStar Networks
common stock.
  Overview
  TerreStar
Networks Inc.
  TerreStar
Networks is our principal operating entity. In cooperation with its Canadian
partner, 4371585 Communications and Company, Limited Partnership (“4371585
Communications”), formerly TMI Communications and Company, Limited Partnership,
we plan to launch an innovative wireless communications system to provide mobile
coverage throughout the U.S. and Canada using small, lightweight and inexpensive
handsets similar to today’s mobile devices. This system build out will be based
on an integrated satellite and ground-based technology which will provide
service in most hard-to-reach areas and will provide a nationwide interoperable,
survivable and critical communications infrastructure.
  By
offering mobile satellite service (“MSS”) using frequencies in the 2GHz band,
which are part of what is often known as the “S-band”, in conjunction with
ancillary terrestrial components (“ATC”), we can effectively deploy an
integrated satellite and terrestrial wireless communications network. Our
network would allow a user to utilize a mobile device that would communicate
with a traditional land-based wireless network when in range of that network,
but communicate with a satellite when not in range of such a land-based network.
We intend to provide multiple communications applications, including voice, data
and video services. TerreStar Networks is in the process of building its first
satellite pursuant to a construction contract with Space Systems/Loral, Inc.
(“Loral”). Once launched, our TerreStar-1 satellite, with an antenna
approximately sixty feet across, will be able to communicate with standard
wireless devices.
  Our
ability to offer these services depends on TerreStar Networks’ right to receive
certain regulatory authorizations allowing it to provide MSS/ATC in the S-band.
These authorizations are subject to various regulatory milestones relating to
the construction, launch and operational date of the satellite system required
to provide this service. We may be required to obtain additional approvals from
national and local authorities in connection with the services that we wish to
provide in the future. For example, in order to provide ATC in the United States
and Canada we must file additional applications separately from our satellite
authorizations. In addition, the manufacturers of our ATC user terminals and
base stations will need to obtain FCC equipment certifications and similar
certifications in Canada.
  TerreStar
Networks was initially created as a subsidiary of MSV established to, among
other things, develop a satellite communications system using the S-band. On
May 11, 2005, we acquired our ownership interest in TerreStar Networks
when, in conjunction with a spin-off of TerreStar Networks to the owners of MSV,
we purchased an additional $200 million of newly issued TerreStar Networks
common stock. In conjunction with this transaction, TerreStar Networks also
entered into an agreement with MSV’s wholly-owned subsidiary, ATC Technologies,
LLC (“ATC Technologies”) pursuant to which TerreStar Networks has a perpetual,
royalty-free license to utilize ATC Technologies’ patent portfolio in the
S-band, including those patents related to ATC, which we anticipate will allow
us to deploy a communications network that seamlessly integrates satellite and
terrestrial communications, giving a user ubiquitous wireless coverage in the
U.S. and Canada.
  Since
May 11, 2005, we have consolidated TerreStar Networks financial results in
our financial statements.
  Through
TerreStar Networks, we plan to develop, build and operate an all IP-based 4G
integrated satellite and terrestrial communications network to provide mobile
communication services throughout the United States and Canada. Our network will
address the growing demand for wireless mobile services across the government,
commercial, and consumer segments. We plan to market these services on a
wholesale basis to government agencies and commercial
enterprises.
  We
have the right to use two 10 MHz blocks of contiguous and unshared MSS
S-band spectrum covering a population of over 330 million throughout the
United States and Canada. Our entire spectrum is eligible for ATC status. ATC
authorization provides the ability to integrate terrestrial mobile services with
MSS. We anticipate using this ATC authorization to create a two-way wireless
communications network providing coverage, services and applications to mobile
and portable wireless users. Our planned network is designed
to allow an end user to seamlessly communicate with a terrestrial wireless
network or our satellite through a conventional mobile device, optimizing
service quality, continuity and geographic coverage.
  13
  We
believe our planned all IP-based 4G network design will improve on existing
network architecture and components to deliver greater network capacity, more
efficiently and at a lower cost, than existing wireless networks. In December
2008, we plan to launch our first multi-spot beam geostationary satellite,
TerreStar-1, which is designed so that the beams can be refocused dynamically.
We are also currently developing a next-generation terrestrial network, which we
believe will enable us to offer our integrated satellite/terrestrial service by
the end of 2009. We are working with several vendors to develop a universal
chipset architecture that can be incorporated into a wide range of mobile
devices, including small, lightweight and inexpensive handsets.
  We
believe our network’s satellite and terrestrial mobile capabilities will serve
the needs of various users, such as U.S. and Canadian government and emergency
first responder personnel who require reliable, uninterrupted and interoperable
connectivity that can be provided by an integrated satellite and terrestrial
network. In October 2006, we entered into a Cooperative Research and Development
Agreement (“CRADA”) with the U.S. Defense Information System Agency (“DISA”) to
jointly develop a North American emergency response communications network. We
expect the CRADA to result in the development of products that will mutually
benefit us and the U.S. government. We also believe that our planned network
will appeal to a broad base of potential end users, customers and strategic
partners, including those in the media, technology and communications sectors,
logistics and distribution sectors and other sectors requiring uninterrupted
wireless service.
  Our
Relationship with TerreStar Canada and 4371585 Communications
  MSV
formed TerreStar Networks in 2002 as a wholly-owned subsidiary and subsequently
spun TerreStar Networks off to MSV’s owners, which included TMI Communications
and Company, Limited Partnership (now known as “4371585 Communications”) and
TerreStar Corporation or entities controlled by each. As part of the spin-off of
TerreStar Networks, TMI Communications became contractually obligated to assign,
subject to necessary regulatory approvals, its Industry Canada approval in
principle to TerreStar Networks, or to an entity designated by TerreStar
Networks that is eligible under Canadian law to hold the approval in principle.
TerreStar Networks negotiated and committed, pursuant to a master agreement, to
enter into the Transfer Agreements with TMI Communications (TMI Communications’
outstanding obligations under the Transfer Agreements were assumed by 4371585
Communications on December 20, 2007 as the transferee of TMI
Communications’ interest in TerreStar Canada Holdings), TerreStar Canada,
TerreStar Canada Holdings and certain other related parties (the “Transfer
Agreements”) pursuant to which TerreStar will transfer TerreStar-1 to TerreStar
Canada and TMI Communications effectuated the transfer of its Industry Canada
approval in principle to TerreStar Canada and FCC authorization to TerreStar
Networks. TMI Communications’ assignment of its Industry Canada approval to
TerreStar Networks was authorized by Industry Canada on April 27, 2007.
This authorization transferred the necessary approvals for TerreStar Canada to
launch and operate a satellite at the 111.1 degrees west longitude orbital
position in order to provide MSS in Canada. On October 10, 2007, Industry
Canada clarified that the authorization as transferred included the authority to
operate at 111.0 degrees west longitude. In order to comply with Canada’s
telecommunications foreign ownership rules, title to TerreStar-1 is expected to
be transferred to TerreStar Canada at the time that title would have otherwise
transferred to TerreStar Networks under the terms of its satellite construction
contract with Loral, as amended.
  The
Transfer Agreements also provide for, among other things, the license of certain
intellectual property rights to TerreStar Canada, the grant to TerreStar
Networks of an indefeasible right to use capacity on TerreStar-1, and the
provision by TerreStar Networks to TerreStar Canada of various consulting and
other services.
  TerreStar
Networks owns 20% of the voting equity of TerreStar Canada as well as 33 1/3% of
the voting equity of TerreStar Canada Holdings, TerreStar Canada’s parent
company. The remaining 80% of the voting equity of TerreStar Canada is held by
TerreStar Canada Holdings and the remaining 66 2/3% of the voting equity of
TerreStar Canada Holdings is held by 4371585 Communications. TerreStar Networks’
interests in TerreStar Canada and TerreStar Canada Holdings reflect the maximum
ownership levels currently permitted by applicable Canadian telecommunications
foreign ownership rules.
  Upon
the receipt of approval from Industry Canada to transfer the Industry Canada
approval in principle from TMI Communications to TerreStar Canada on
April 27, 2007, (1) TerreStar Networks entered into a Shareholders’
Agreement, or the TerreStar Canada Shareholders’ Agreement, a Rights and
Services Agreement, or the Rights and Services Agreement, a Guarantee and Share
Pledge Agreement, or the TMI Guarantee and certain other Transfer Agreements,
(2) TerreStar Canada executed a Guarantee in favor of TerreStar Networks,
referred to as the TerreStar Canada Guarantee, and (3) TerreStar Networks
and certain other parties entered into certain other Transfer Agreements. Set
out below is a description of certain of the Transfer
Agreements.
  Effective
December 20, 2007, BCE completed a restructuring which resulted in TMI
Communications transferring all of its shares of TerreStar Canada Holdings to
4371585 Communications. 4371585 Communications is a wholly-owned subsidiary of
BCE.
  In
connection with the restructuring, TMI Communications entered into an Agreement
to be Bound and Release dated December 20, 2007 pursuant to which TMI
Communications agreed to transfer to 4371585 Communications its 66 2/3% interest in TerreStar Canada
Holdings and 4371585 Communications agreed to become bound by the terms and
conditions of the TerreStar Canada Shareholders’ Agreement. Further, pursuant to
the Agreement to be Bound and Release, each of the parties to the TerreStar
Canada
Shareholders’ Agreement released and discharged TMI Communications from its
obligations under the TerreStar Canada Shareholders’
Agreement.
  14
  TMI
Communications also entered into a Joinder Agreement dated December 20,
2007 with 4371585 Communications, TerreStar Networks, TerreStar Canada and
TerreStar Corporation, pursuant to which 4371585 Communications agreed to be
bound by the terms and conditions of the Transfer Agreements to which TMI
Communications was a party including, but not limited to, the TMI Guarantee, and
the parties thereto agreed to release and discharge TMI Communications from its
obligations under such Transfer Agreements.
  On
May 29, 2007 and June 15, 2007, pursuant to our Master Services
Agreement with TerreStar Canada, we loaned TerreStar Canada $0.4 million and
$0.35 million, respectively. Each note pays interest at 15.15%, and both mature
on January 1, 2009.
  TerreStar
Global Ltd.
  TerreStar
Global was initially formed in 2005 as a wholly-owned subsidiary of TerreStar
Networks. We have consolidated the financial results of TerreStar Global since
its inception. In late 2006, TerreStar Networks spun-off TerreStar Global to its
stockholders. As a result, TerreStar Corporation became the indirect majority
holder of TerreStar Global. In connection with the spin-off, TerreStar Networks
made capital contributions to TerreStar Global of $5 million. In late 2006,
TerreStar Global also raised an additional $5 million through a rights
offering from its shareholders, in proportion to their holdings, the majority of
which came from TerreStar Corporation. As of December 31, 2007, TerreStar
Corporation owned approximately 85% of the outstanding shares of TerreStar
Global.
  Through
TerreStar Global, our goal is to build, own and operate a Pan-European
integrated mobile satellite and terrestrial communications network to address
public safety and disaster relief as well as provide broadband connectivity in
rural regions to help narrow the digital divide. As Europe’s first
next-generation integrated mobile satellite and terrestrial communication
network, TerreStar Global plans to deliver universal access and tailored
applications over a fully-optimized IP network.
  On
August 13, 2007, TerreStar Global issued a press release announcing that it
intends to offer securities in a private offering. Neither the terms of the
securities nor the amount of the proposed financing have been determined. As of
December 31, 2007 this financing has not been completed. There can be no
assurance that the financing will be completed. TerreStar Global intends to use
the net proceeds from the offering to commence the construction of its
satellite, to secure European 2GHz MSS S-band spectrum, and for general
corporate purposes.
  Current
Year’s Developments
  At the
TerreStar Corporation 2007 Annual Meeting of Stockholders held on July 12,
2007, the stockholders of TerreStar Corporation approved an amendment to the
Certificate of Incorporation of Motient Corporation to change its name to
TerreStar Corporation. On August 10, 2007, we filed the amendment to our
Certificate of Incorporation with the Secretary of State of the State of
Delaware to effectuate the name change. On August 7, 2007, our Board of
Directors approved our Amended and Restated Bylaws, which was effective upon
filing the amendment to the Certificate of Incorporation.
  As a
result of our name change from Motient Corporation to TerreStar Corporation, our
new trading symbol is “TSTR” on the NASDAQ Global Market. Prior to June 20,
2007, our common stock traded on the Pink Sheets under the trading symbol
“MNCP”.
  Acquisitions
and Dispositions
  Since
January 2007, we have exchanged approximately 15 million shares of our
common stock for approximately 9 million shares of TerreStar Networks
common stock and approximately 2 million shares of TerreStar Global common
stock with holders of TerreStar Networks common stock or options to purchase
shares of TerreStar Networks common stock that were exercised immediately prior
to the exchange. On June 12, 2007, we filed a resale registration statement
with the SEC to register the resale of these shares.
  The
exchange transactions resulted in an allocation of $83 million to intangible
assets and an impairment of $7 million for the year ended December 31,
2007. As of December 31, 2007, our ownership interests in TerreStar
Networks and TerreStar Global was approximately 86% and 85%, respectively, on a
non-diluted basis.
  On
February 12, 2007, we exchanged approximately 5 million limited
partnership units of MSV for approximately 14.4 million shares of SkyTerra
non-voting common stock. As a result, a basis of $140 million transferred from
our investment in MSV to our investment in SkyTerra.
  15
  On
July 26, 2007, we sold our spectrum frequency assets held for sale to
Nextel Communications for approximately $0.5 million pursuant to an asset
purchase agreement executed between Motient Communications Inc., Motient License
Inc., and Nextel dated April 13, 2007. We recognized a $0.1 million gain
for the year ended December 31, 2007.
  On
November 30, 2007, we exchanged all of our remaining MSV ownership
interests representing approximately 1.6 million limited partnership units
for approximately 4.4 million SkyTerra non-voting common shares pursuant to
an exchange agreement dated May 6, 2006. As a result, a basis of $38
million transferred from our investment in MSV to our investment in
SkyTerra.
  As of
December 31, 2007, we have restricted $222 million of our SkyTerra
investment to represent the portion of our SkyTerra shares we plan to distribute
as a dividend to our common shareholders and a reservation in the event that our
preferred holders convert to common stock. The remaining unrestricted portion of
our SkyTerra investment represented $104 million as of December 31,
2007.
  High
Yield Offering
  On
February 14, 2007, TerreStar Networks issued $500 million aggregate
principal amount of Senior Secured PIK Notes due 2014 (the “TerreStar Notes”)
pursuant to an Indenture (the “Indenture”), dated as of February 14, 2007,
among TerreStar Networks, as issuer, the guarantors from time to time party
thereto (the “Guarantors”) and U.S. Bank National Association, as
trustee.
  The
TerreStar Notes bear interest from the date of issue at a rate of 15% per
annum. If certain milestones are not met, additional interest of up to
1.5% per annum will accrue on the TerreStar Notes. These milestones are as
follows:
  •
              entry
      into a bona fide binding agreement with the U.S. government to which
      TerreStar Networks will provide telecommunications services during a
      multi-year period and receive
compensation;
  •
              entry
      into a bona fide binding agreement with a non-governmental entity to which
      TerreStar Networks will provide telecommunications services during a
      multi-year period and receive compensation;
  and
  •
              authorization
      by the FCC for TerreStar Networks to provide ATC in combination with our
      MSS by December 31, 2008.
  Until
and including February 15, 2011, interest on the TerreStar Notes will be
payable in additional TerreStar Notes on each February 15 and
August 15, starting August 15, 2007. Thereafter, interest on the
TerreStar Notes will be payable in cash on February 15 and August 15,
starting August 15, 2011. The TerreStar Notes are scheduled to mature on
February 15, 2014.
  The
TerreStar Notes are secured by a first priority security interest in the assets
of TerreStar Networks, subject to certain exceptions, pursuant to a U.S.
Security Agreement (the “Security Agreement”), dated as of February 14,
2007, among TerreStar Networks, as issuer, and any entities that may become
Guarantors (as defined in the Indenture) in the future under the Indenture in
favor of U.S. Bank National Association, as collateral agent.
  In
connection with the issuance of the TerreStar Notes, TerreStar Corporation (then
Motient Corporation) and its indirect wholly-owned subsidiary, Motient Venture
Holdings Inc. (“MVH”), and TerreStar Networks entered into a letter agreement
dated February 14, 2007 (the “Motient Funding Agreement”), pursuant to
which MVH agreed to contribute to TerreStar Networks, at MVH’s option, either
(i) 8.6 million shares of common stock issued by SkyTerra (such shares, the
“SkyTerra Shares”) or (ii) cash in an amount equal to the proceeds (net of
selling expenses and taxes) from the sale of the SkyTerra Shares to one or more
third party buyers, in either case in exchange for a number of shares of common
stock of TerreStar Networks equal to the product of (A) (x) the
average of the bid and ask prices for one SkyTerra Share at the close of trading
on the last trading day prior to the day of such contribution divided by
(y) the fair market value of one share of TerreStar Networks common stock
at the close of trading on such last trading day prior to the day of such
contribution (as determined in good faith by the Board of Directors of TerreStar
Networks) multiplied by (B) 8,644,406. Such contribution will be made
either (i) upon TerreStar Networks’ demand at any time after the earlier of
the date on which MVH’s equity interest in TerreStar Networks equals or exceeds
80% or October 31, 2007 or (ii) at any time at MVH’s
option.
  The
Motient Funding Agreement also provides for the grant by MVH of a security
interest in the SkyTerra Shares and the proceeds thereof to TerreStar Networks.
TerreStar Networks’ interest under the Motient Funding Agreement is pledged
under the U.S. Security Agreement.
  The
TerreStar Notes are guaranteed (the “Guarantees”) on a senior secured basis by
TerreStar Canada Holdings and TerreStar Canada. The Guarantees are secured
by a first priority security interest in the assets of TerreStar Canada Holdings
and TerreStar Canada, subject to certain exceptions, pursuant to a Canadian
Security Agreement, dated as of February 14, 2007, among TerreStar Canada
Holdings, TerreStar Canada and U.S. Bank National Association, as collateral
agent.
  16
  The
TerreStar Notes are the senior secured obligations of TerreStar Networks and
will rank senior to its future debt that is expressly subordinated in right of
payment to the TerreStar Notes. The TerreStar Notes rank equally with all of
TerreStar Networks’ future liabilities, and would be structurally subordinated
to all the liabilities of any of TerreStar Networks’ future subsidiaries that do
not guarantee the TerreStar Notes.
  The
Guarantees are the senior secured obligations of TerreStar Canada Holdings and
TerreStar Canada and rank senior to all of their existing and future debt that
is expressly subordinated in right of payment to the Guarantees. The Guarantees
rank equally with all of the existing and future liabilities of TerreStar Canada
Holdings and TerreStar Canada that are not so subordinated.
  Other
Agreements and Contracts
  On
August 28, 2007, TerreStar Networks entered into a Network Equipment and
Services Agreement with Nokia Siemens Networks US LLC. The agreement has an
effective date of August 22, 2007 and expires on December 31, 2010.
The agreement allows TerreStar Networks, its affiliates and certain other
entities the right to purchase terrestrial network equipment from Nokia Siemens
Networks. The network equipment offered under the agreement includes the Nokia
Siemens Networks Flexi WCDMA base station, as part of an integrated Internet
High Speed Packet Access (I-HSPA) flat architecture solution. Nokia Siemens will
also provide engineering, design and optimization services for the TerreStar
Network deployment.
  TerreStar
Networks expects to purchase approximately 5,500 base stations for an aggregate
price of approximately $400 million. TerreStar Networks has a minimum purchase
commitment of 700 base stations and the right to terminate the agreement for
convenience following the purchase of the initial 700 base stations upon the
payment of an agreed amount. The cost of the minimum purchase commitment and
termination fee is approximately $78 million.
  On
September 19, 2007, TerreStar Networks signed a Statement of Work under a
Master Development & Licensing Agreement entered into by TerreStar
Networks and Elektrobit, Inc. on August 10, 2007. Under this Statement of
Work, Elektrobit will assign a multi-disciplined engineering team to perform
reference design and development programs, software development for satellite
and terrestrial chipset integration, and provide reference design for production
handsets. Elektrobit is performing the work on a time and materials basis and
the anticipated value of the contract is approximately $54 million over three
years. TerreStar Networks can terminate the Agreement and the Statement of Work
at any time during the Agreement by paying for the work completed plus an early
termination fee. TerreStar and Elektrobit will jointly own the technology
developed under this Statement of Work.
  On
October 22, 2007, TerreStar Networks entered into a Master Services
Agreement with Bechtel Communications, Inc. (“Bechtel”). Under the agreement,
Bechtel will provide services related to site acquisition and construction of
TerreStar Networks’ terrestrial network (“Radio Access Network” or “RAN”) in the
Baltimore, Maryland and Washington, District of Columbia area. Bechtel will also
provide program management services coordinating the overall installation and
commissioning activities of TerreStar Networks’ other vendors involved in the
RAN deployment. As of December 31, 2007, TerreStar Networks expects to
purchase approximately $72 million worth of Bechtel’s services under this
agreement over the next 24 months. TerreStar Networks has the right to terminate
this agreement at anytime by paying for the work completed at the time of
termination and reimbursing Bechtel certain out-of-pocket
expenses.
  Recent
Financing
  On
February 5, 2008, TerreStar Corporation and TerreStar Networks entered into
a Master Investment Agreement (the “EchoStar Investment Agreement”), with
EchoStar Corporation (“EchoStar”). In addition, TerreStar Corporation and
TerreStar Networks entered into a Master Investment Agreement (the “Harbinger
Investment Agreement”), with certain affiliates of Harbinger Capital Partners
(“Harbinger”).
  The
EchoStar Investment Agreement provides for, among other things,
  •
              purchase
      by EchoStar of $50 million of TerreStar
  Notes,
  •
              purchase
      by EchoStar of $50 million of TerreStar Networks’ newly issued 6.5% Senior
      Exchangeable PIK Notes due 2014, exchangeable for TerreStar Corporation
      common stock, at a conversion price of $5.57 per share (the “Exchangeable
      Notes”) and
  •
              a
      commitment to lend $50 million to TerreStar Networks pursuant to the
      Credit Agreement described
below.
  The
Harbinger Investment Agreement provides for, among other things, purchase by
Harbinger of $50 million of Exchangeable Notes and a commitment to lend $50
million to TerreStar Networks pursuant to the Credit Agreement described
below.
  In
connection with the foregoing transactions, certain of our existing investors
entered into separate investment agreements (“Shareholder Investment
Agreements”) to purchase in the aggregate $50 million of the Exchangeable
Notes.
  On
February 5, 2008, EchoStar, TerreStar Corporation and TerreStar Networks
also entered into a Spectrum Agreement (the “EchoStar Agreement”), which
provides for the lease to TerreStar Corporation of EchoStar’s current holdings
of 1.4GHz spectrum with an
option to acquire the special purpose company through which EchoStar holds these
licenses in exchange for the issuance of 30 million shares of common stock
of TerreStar Corporation.
  17
  On
February 5, 2008, we also entered into a Spectrum Contribution Agreement
(the “Harbinger Contribution Agreement”), with Harbinger, which provides that,
following shareholder approval, Harbinger will assign to TerreStar Corporation
its rights to certain 1.4GHz spectrum with an option to purchase these licenses
in exchange for the issuance of 1.2 million of TerreStar Corporation’s
Series E Junior Participating Preferred Stock, par value $0.01 per share,
convertible into 30 million shares of TerreStar Corporation common stock
(the “Junior Preferred”).
  As a
result of this transaction, the Boards of Directors of both TerreStar
Corporation and TerreStar Networks were expanded to eight members and, depending
on stock holdings, EchoStar and Harbinger each have the right to nominate up to
two members of each board.
  The
EchoStar Investment Agreement, Harbinger Investment Agreement, Shareholder
Investment Agreements, EchoStar Agreement and the Harbinger Contribution
Agreement contain representations, warranties, covenants and indemnities by
TerreStar Corporation and TerreStar Networks customary for transactions of this
nature.
  TerreStar
Corporation, TerreStar Networks, EchoStar, Harbinger and the certain existing
investors entered into a Registration Rights Agreement (the “Registration Rights
Agreement”), dated February 5, 2008, containing customary terms and
conditions providing for the registration of common stock to be issued in these
transactions.
  Aggregate
gross proceeds to TerreStar Networks from these transactions are expected to be
$297 million in cash, of which approximately $197 million was made available at
closing and the balance of which will be dedicated to funding the TerreStar-2
satellite under the Purchase Money Credit Agreement (defined
below).
  In
addition to shareholder approval, the spectrum transactions are also subject to
certain government approvals.
  On
February 5, 2008, we entered into a $100 million Purchase Money Credit
Agreement (the “Credit Agreement”), among TerreStar Networks, as the borrower,
the guarantors party thereto from time to time, U.S. Bank National Association,
as collateral agent, and Harbinger and EchoStar, as lenders.
  The
indentures governing our Exchangeable Notes and Credit Agreement require certain
shareholder approvals by July 23, 2008 or we may be forced to accelerate
repayment of these notes.
  In
connection with the closing of the transaction, we obtained required shareholder
consents approving the issuance of Common Stock and Junior Preferred (and the
common stock issuable upon conversion of such Junior Preferred) issuable in
connection with the EchoStar Agreement and Harbinger Contribution Agreement and
upon exchange of the Exchangeable Notes and to increase the number of shares of
common stock authorized under our Certificate of Incorporation from
200 million shares to 240 million shares. Such shareholder approvals
are not effective until 20 days after the mailing of an information statement to
our shareholders.
  Amounts
outstanding under the Credit Agreement will bear interest at a rate of
14% per annum. Such interest rate will be increased by 1% from May 1,
2008 until the necessary shareholder approvals are effective if TerreStar
Corporation does not mail an information statement in connection with obtaining
shareholder approval to the shareholders on or prior to April 30, 2008.
This information statement was filed with the SEC on February 29,
2008.
  The
Credit Agreement contains several restrictive covenants customary for credit
facilities of this type, including, but not limited to the following:
limitations on incurrence of additional indebtedness, limitation on liens,
limitation on asset sales of collateral and limitation on transactions with
affiliates. The Credit Agreement also contains certain events of default
customary for credit facilities of this type (with customary grace periods, as
applicable). If any events of default occur and are not cured within the
applicable grace periods or waived, the outstanding loans may be accelerated.
The financing will be advanced as required and used to fund the completion of
the TerreStar-2 satellite.
  On
February 6, 2008, TerreStar Corporation, MVH and Harbinger Capital Partners
Fund I, L.P. entered into a Stock Purchase Agreement pursuant to which TerreStar
Corporation sold 14.4 million shares of non-voting common stock of SkyTerra
to Harbinger Capital Partners Fund I, L.P. for an aggregate sale price of $76.4
million. TerreStar Corporation received the proceeds on February 28, 2008.
Following this transaction, we hold approximately 30 million shares of
SkyTerra non-voting common stock.
  18
  In
connection with the foregoing transactions, we also issued one share of our
Series C Preferred Stock and Series D Preferred Stock (the “Series C and D
Preferred Stock”) to EchoStar and Harbinger, respectively. By virtue of
their ownership of shares of the Series C and D Preferred Stock, EchoStar and
Harbinger have consent rights for, among other things, certain sales of assets,
making any material change in our line of business, amending or permitting the
amendment of our certificate of incorporation, by-laws, or our other
organizational documents or any of our subsidiaries, certain acquisitions of
assets, certain capital expenditures and consolidations and mergers and rights
to appoint directors. Each share of Series C and D Preferred Stock has a
$1,000 liquidation preference. The Series C and D Preferred Stock rank
junior to the Series A Preferred Stock and Series B Preferred Stock, on a parity
basis with one another and senior to both our junior preferred and our common
shares. The Series C and D Preferred Stock are
non-transferable.
  Investments
  We
have historically accounted for our investment in MSV using the equity method.
The Company has analyzed the impairment and has concluded that an impairment of
$106.8 million has occurred for the year ended December 31,
2007.
  In
2007, we exchanged approximately 6.7 million limited partnership units of
MSV for approximately 18.8 million shares of SkyTerra non-voting common
stock. As a result of this exchange the historical cost basis of $177.6 million
transferred from our investment in MSV to our investment in SkyTerra in
accordance with APB 29.
  As of
December 31, 2007, we have restricted $221.6 million of our SkyTerra
investment to represent the portion of our SkyTerra shares we plan to distribute
as a dividend to our shareholders. The remaining unrestricted portion of our
SkyTerra investment represented $103.7 million as of December 31, 2007. On
February 6, 2008 we sold 14.4 million shares of non-voting common
stock of SkyTerra to Harbinger Capital Fund I L.P. for an aggregate sales price
of $76.4 million.
  As of
December 31, 2007, our SkyTerra and MSV ownership interests were 42% and
zero, respectively.
  Discontinued
Operations—Two-Way Terrestrial Wireless Data Communications
Business
  In
September 2006, various wholly-owned subsidiaries of TerreStar Corporation sold,
pursuant to an asset purchase agreement (the “Agreement”) with Geologic
Solutions, Inc.(“GeoLogic”) and Logo Acquisition Corporation, a wholly-owned
subsidiary of GeoLogic (“Logo”), to Logo most of the assets relating to
TerreStar Corporation’s terrestrial DataTac network and its TerreStar
Corporation platform (the “Terrestrial Wireless Business”). Logo assumed most of
the post-closing liabilities relating to the Terrestrial Wireless Business. The
assets and liabilities being transferred were limited to those that relate to
the current operations of TerreStar Corporation’s terrestrial wireless network,
and do not include any assets or liabilities related to TerreStar Networks or
MSV. Under the Agreement, Logo paid TerreStar Corporation the sum of $1 in cash,
plus assumed most of the post-closing liabilities associated with the purchased
assets, as well as certain of the costs of the employees that Logo transitioned
from TerreStar Corporation Also, GeoLogic guaranteed Logo’s performance of any
indemnification obligations to TerreStar Corporation under the Agreement. Our
historical financial statements reflect this business as a discontinued
operation.
  Critical
Accounting Policies and Significant Estimates
  The
preparation of financial statements requires management to use judgment and make
estimates. The level of uncertainty in estimates and assumptions increases with
the length of time until the underlying transactions are completed. Actual
results could ultimately differ from those estimates. The accounting policies
that are most critical in the preparation of the Company’s Consolidated
Financial Statements are those that are both important to the presentation of
the Company’s financial condition and results of operations and require
significant or complex judgments and estimates on the part of
management.
  Valuation
of Long-lived Assets Including Intangible Assets
  A
significant portion of our total assets are long-lived assets primarily
consisting of property and equipment and intangible assets. Property and
equipment, or P&E, consists of network, lab, office and computer equipment,
internal use software and leasehold improvements. Intangible assets consists of
definite lived intangible assets related to Federal Communications Commission
(“FCC”) spectrum clearing frequencies and other intellectual property that were
obtained in connection with several exchange transactions of the Company’s
common stock for TerreStar Networks common stock with shareholders pursuant to
an exchange agreement entered into in 2006.
  19
  As of
December 31, 2007, property and equipment and intangibles represented $571
million and $212 million, respectively, of our total assets of $1.2
billion. We calculate depreciation and amortization on long-lived assets using
the straight-line method based on the estimated economic useful lives as
follows:
  Long Lived
      Assets
                
                Estimated
                  Useful
      LifeNetwork,
      lab and office equipment
                
                5
      yearsComputers,
      software and equipment
                
                3
      yearsLeasehold
      improvements
                
                Lesser of lease
                  term
      or
                  estimated
                  useful
      lifeDefinite
      lived intangible assets
                
                15
      yearsSatellite
      and Terrestrial Network AssetsUnder
      Construction
                
                15
      years
                (to begin at launch)
  We
evaluate whether long-lived assets have been impaired when circumstances
indicate the carrying value of those assets may not be recoverable. For such
long-lived assets, impairment exists when its carrying value exceeds the sum of
estimates of the undiscounted cash flows expected to result from the use and
eventual disposition of the asset. When alternative courses of action to recover
the carrying amount of a long-lived asset are under consideration, a
probability-weighted approach is used for developing estimates of future
undiscounted cash flows. If the carrying value of the long-lived asset is not
recoverable based on these estimated future undiscounted cash flows, the
impairment is measured as the excess of the asset’s carrying value over its fair
value, such that the asset’s carrying value is adjusted to its estimated fair
value.
  We
utilized numerous assumptions and estimates in applying our valuation
methodologies and in projecting future operating characteristics for our
business enterprise. In general, we considered population, market penetration,
products and services offered, unit prices, operating expenses, depreciation,
taxes, capital expenditures and working capital. We also considered competition,
satellite and wireless communications industry projections and trends,
regulations and general economic conditions. In the application of our valuation
methodologies, we apply certain royalty and discount rates that are based on
analyses of public company information, assessment of risk and other factors and
estimates.
  Our
initial valuation of our intellectual property rights was determined utilizing a
form of the income approach referred to as the relief from royalty valuation
method. We assumed a 10% to 12% royalty rate applied to a projected revenue
stream generated by a hypothetical licensee utilizing such intellectual property
rights. The projected revenue was based on a business case for the operations
and consisted of the following principal assumptions and estimates:
 
 ·
              A
      20 year forecast period.
 ·
              Specific
      cash outflows in the first four years of the forecast period to account
      for our portion of satellite design, construction and launch
      expenditures.
 ·
              Annual
      population growth of 1.6% based on U.S. Census Bureau estimates of the
      U.S. population in 2004.
 ·
              Market
      penetration assumptions of zero to 7% to 12% over the forecast period,
      depending on the specific market and when the market is
      launched.
 ·
              Average
      monthly revenue per customer of $40.00 when services are launched,
      increasing to $44.50 over the forecast period. This increase equates to a
      compound annual growth rate of 0.6%. A substantial portion of this revenue
      is generated by the terrestrial component (rather than the satellite
      component) of the ATC network.
 ·
              Tax
      rate of 40% after the consumption of net operating
  losses.
 ·
              A
      25% discount rate based on a weighted average cost of capital (WACC)
      determined by analyzing and weighting the cost of capital for a peer group
      of publicly traded satellite service providers, wireless communications
      companies and telecommunications companies in
  general.
  Our
initial valuation of our spectrum assets is based on a form of the income
approach known as the "Build-Out Method". The method applies a discounted cash
flow framework to our "build-out" business case. This build-out approach is
intended to incorporate all of historical and future development costs, as well
as projected revenues, operating expenses and cash flows generated from the
build-out of a hybrid satellite and terrestrial communications systems utilizing
our frequency assets. This "build-out method" business case and the applied
discounted cash flow valuation consisted of the following principal assumptions
and estimates:
 
 ·
              A
      20-year forecast period, comprised of a high growth period for the first
      10 years and a declining growth period beginning in year 11, and a
      terminal period to perpetuity.
 ·
              Development
      cash outflows and capital expenditures related to the design and
      construction of two satellites in the first 3 years of the forecast period
      and the launch of one of these satellites in the fourth year of the
      forecast period. Replacement costs
      for the construction and launch of one satellite are included in the
      declining growth period.
  20
   ·
              Satellite
      only revenues based on market size data for traditional satellite segments
      (maritime, fleet management, public safety, telematics and aeronautical)
      compiled generally by third party research groups and penetration
      estimates of 10% to 40% of our potential customer base, depending on the
      specific market segment addressed over the 20 year forecast
      period.
 ·
              Terrestrial
      revenues calculated as eleven percent of the total revenues generated by a
      joint or strategic partner with whom TerreStar would intend to deploy a
      terrestrial infrastructure and launch terrestrial services. Total
      partnership revenues are based on (i) market penetration assumptions of
      zero to 7 to 12% over the forecast period depending on the specific city
      and when the city is launched, (ii) average monthly revenue per customer
      of $40.00 when services are launched, increasing to $44.50 over the
      forecast period. This increase equates to a compound annual growth rate of
      0.6%.
 ·
              Operating
      expenses covering the operation of satellite facilities. These include a
      network operations center, tracking, telemetry and command systems,
      interconnect costs, in-orbit insurance, technical staff, and general and
      administrative personnel Under the projected expense structure, EBITDA
      margins grow to 60% early in the forecast period and expand to 70% later
      in the forecast period.
 ·
              All
      capital expenditures required to design and construct two satellites and
      launch one satellite during the first four years of the forecast period.
      Additional capital expenditures for constructing ground station segments
      and investing in handset
development.
 ·
              Tax
      rate of 40% after the consumption of net operating losses generated in the
      early years of the forecast period.
 ·
              A
      19 to 21% discount rate based on a weighted average cost of capital, or
      WACC, determined by analyzing and weighting the cost of capital for a peer
      group of publicly traded satellite service providers, wireless
      communications companies and telecommunications companies in general, with
      more weight given to traditional satellite service providers. A terminal
      value calculated using a WACC of 12% and a perpetuity growth rate of
      2.5%.
  As we
stated in the footnotes to our consolidated financial statements we evaluate
whether long-lived and intangible assets, excluding goodwill, have been impaired
when circumstances indicate the carrying value of those assets may not be
recoverable.  For such assets, an impairment exists when its carrying
value exceeds the sum of estimates of the undiscounted cash flows expense to
result from the use and eventual disposition of the assets.  When
alternative course of action to recover the carrying value amount of an assets
under consideration, a probability-weighted approach is used for developing
estimates of future undiscounted cash flows.
  We
continue to rely on our “build-out” business case for the purpose of determining
fair value as it relates to our property and equipment and our intangible
assets.  This build-out methodology incorporates historical and
currently estimated future development costs, as well as projected revenues,
operating expenses and cash flows generated from an integrated satellite and
terrestrial communications systems utilizing the Company's frequency
assets.  Our future estimates are evolving with our understanding of
market conditions, vendor platform availability, changes in product offerings,
and industry standards.  These projections continue to take into
account general mobile communications business factors such as population,
market penetration, product features, unit prices, operating expenses,
depreciation, taxes, capital expenditures, and working capital, as well as
general economic factors such as wireless industry trends and macroeconomic
conditions.
  We have
also incorporated a number of company-specific factors in our current
analysis.  These include prospects for a wider and more rapid
acceptance of our satellite only product offering, investments in our handset
allowing a more gradual roll-out of our next-generation terrestrial network, and
the ability to partner with carriers to leverage existing terrestrial network
infrastructure.  In addition, the dominance of incumbent wireless
carriers in the recently concluded 700MHz auction changes the nature and scope
of partnership discussions with companies seeking to enter the mobile
communications market.
  We have
historically accounted for our investment in MSV using the equity method, and
our investment in SkyTerra under APB 18 using the cost method.  At
each reporting period, we evaluate our investment in SkyTerra and the related
dividend liability for other than temporary impairment.  Although our
investment in common stock of SkyTerra is non-voting, we determine fair value of
our investment based on the trading prices of SkyTerra shares as listed on the
OTC Bulletin Board (“OTCBB: SKYT”).  If an “other than temporary
impairment” is found to exist at the end of each reporting period, we reduce the
carrying value of both our investment in SkyTerra and the amount of the
liability that we have recorded for the dividend of those shares.
  Recently
Issued Accounting Pronouncements
  In
September 2006, the FASB issues SFAS No. 157, “Fair Value Measurements.”
SFAS 157 defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. The FASB agreed to issue as
a final FSP FAS 157-b, “Effective Date of FASB Statement 157” at its
February 6, 2008 meeting. The FSP provided a one-year deferral of the
effective date of Statement 157 for non-financial assets and non-financial
liabilities, except those that are recognized or disclosed in financial
statements at fair value at least annually. For non-financial assets and
non-financial liabilities subject to the deferral, Statement 157 will be
effective in fiscal years beginning after November 15, 2008 and in interim
periods within those fiscal years.
  21
  Since
SFAS 157 was deferred until January 1, 2009 for non-financial assets and
liabilities, there will be no impact on any fair value measurement related to
recurring impairment tests on these non-financial assets for the year ending
December 31, 2007.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities—including an amendment of FASB
Statement No. 115.” SFAS 159 provides companies with an option to report
selected financial assets and liabilities at fair value. Furthermore, SFAS 159
establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for
similar types of assets and liabilities. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. At the effective date, an entity may
elect the fair value option for eligible items that exist at that date. The
effect of the re-measurement is reported as a cumulative-effect adjustment to
opening retained earnings. SFAS 159 is not applicable to the Company’s financial
statements for the year ending December 31, 2007.
  In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements—An Amendment of ARB No. 51”. SFAS
No. 160 requires the recognition of a non-controlling interest (minority
interest) as equity in the consolidated financial statements and separate from
the parent’s equity. The amount of net income attributable to the
non-controlling interest will be included in consolidated net income on the face
of the income statement. SFAS No. 160 clarifies that changes in a parent’s
ownership interest in a subsidiary that do not result in deconsolidation are
equity transactions if the parent retains its controlling financial interest. In
addition, this statement requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss will be measured
using the fair value of the non-controlling equity investment on the
deconsolidation date. SFAS No. 160 also includes expanded disclosure
requirements regarding the interests of the parent and its non-controlling
interest. SFAS No. 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008. Early
adoption is prohibited. The potential impact, if any, of the adoption of SFAS
No. 160 on our consolidated financial statements is currently not
determined.
  22
  In
December 2007, the FASB issued Statement No. 141 (revised), “Business
Combinations” which replaces FASB Statement No. 141, and applies to all
business entities, including mutual entities that previously used the
pooling-of-interests method of accounting for certain business combinations.
This Statement makes significant amendments to other Statements and other
authoritative guidance, and applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity
may not apply it before that date. This statement is not expected to have a
material impact on the Company’s consolidated financial
statements.
  Results
of Operations—Consolidated
  Years
Ended December 31, 2007 and 2006
  Operating
Expenses
  Year Ended
      December 31,2007
              
              
              2006
                Restated
              
              
              Change
                2007 vs. 2006
              
              
              %
      Change
                2007 vs. 2006(in
      thousands)General
      and administrative (1)
              
              $
              114,848
              
              
              $
              84,253
              
              
              $
              30,595
              
              
              
              36.3
              %Research
      and development
              
              
              43,067
              
              
              
              10,549
              
              
              
              32,518
              
              
              
              308.3
              %Depreciation
      and amortization
              
              
              18,222
              
              
              
              6,796
              
              
              
              11,426
              
              
              
              168.1
              %Loss
      on impairment of intangibles
              
              
              6,699
              
              
              
              4,909
              
              
              
              1,790
              
              
              
              36.5
              %Gain
      on asset disposal
              
              
              (123
              )
              
              
              —
              
              
              
              (123
              )
              
              NMTotal
      operating expenses
              
              $
              182,713
              
              
              $
              106,507
              
              
              $
              76,206
              
              
              
              71.6
              %
 NM:
              Not
      Meaningful
  (1)
              For
      the year ended December 31, 2007, general and administrative expense
      includes $20.6 million and $3.2 million of stock compensation expense
      related to employee stock options and director’s compensation expense,
      respectively.
  General and administrative:
Our general and administrative expenses increased by $30.6 million or 36.3% for
the year ended December 31, 2007 as compared to the same period in 2006.
The change is attributed to an increase of $23.4 million in consulting fees
related to engineering, marketing and systems development costs, an increase of
$13.0 million related to salaries and benefits, and other employee related
costs, an increase of $2.1 million in network deployment costs, an increase of
$1.5 million in audit, taxes and accounting fees, and an increase of $1.6
million in legal costs, offset by a decrease of approximately $12 million of
stock based compensation expense.
  Research and development
costs: Research and development costs increased by $32.5 million or
308.3% for the year ended December 31, 2007 as compared to the same period
in 2006. The increase is primarily to support the development of our satellite
and terrestrial systems. In addition, $1.3 million relates to stock based
compensation expense. We expect these costs to increase as we continue to
develop our handset, satellite, and terrestrial capabilities.
  Depreciation and
amortization: Depreciation and amortization increased by $11.4 million or
168.1% for the year ended December 31, 2007 as compared to the same period
in 2006. Since January 2007, we engaged in several exchange transactions of our
common stock for TerreStar Networks common stock with minority interest
shareholders. The common stock exchanges resulted in an allocation of $82.9
million to intangible assets, including the tax effect. Thus, amortization
expense increased by $9.0 million for the year ended December 31,
2007.
  Loss on impairment of
intangibles: The loss on impairment of intangibles increased by $1.8
million or 36.5% for the year ended December 31, 2007 as compared to the
same period in 2006. For the year ended December 31, 2007, we increased our
ownership in TerreStar Networks to 85.9% from 69.5% at December 31, 2006
through exchange transactions of our common stock for TerreStar Networks common
stock with minority shareholders. The amounts invested in TerreStar Networks’
intangible assets exceeded the fair value of the assets. As a result, we
recognized a $6.7 million loss on impairment of intangibles for the year ended
December 31, 2007.
  23
  Years
Ended December 31, 2007 and 2006
  Other
Expenses and Income
  Year Ended
      December 31,2007
              
              
              2006
                Restated
              
              
              Change
                2007 vs. 2006
              
              
              %
      Change
                2007 vs. 2006(in
      thousands)Interest
      expense
              
              $
              (45,098
              )
              
              $
              (2,608
              )
              
              $
              (42,490
              )
              
              
              1629.2
              %Other
      expense
              
              
              (7,543
              )
              
              
              —
              
              
              
              (7,543
              )
              
              NMInterest
      and other income
              
              
              12,597
              
              
              
              7,948
              
              
              
              4,649
              
              
              
              58.5
              %Equity
      in losses of MSV
              
              
              (7,338
              )
              
              
              (30,079
              )
              
              
              22,741
              
              
              
              -75.6
              %Minority
      interests in losses of TerreStar Networks
              
              
              23,262
              
              
              
              20,655
              
              
              
              2,607
              
              
              
              12.6
              %Minority
      interests in losses of TerreStar Global
              
              
              1,198
              
              
              
              654
              
              
              
              544
              
              
              NMGain
      on investments
              
              
              —
              
              
              
              11,260
              
              
              
              (11,260
              )
              
              
              -100.0
              %Decrease
      in dividend liability
              
              
              71,046
              
              
              
              —
              
              
              
              71,046
              
              
              NMOther
      than temporary impairment-SkyTerra
              
              
              (106,800
              )
              
              
              —
              
              
              
              (106,800
              )
              
              NM
 NM:
              Not
      Meaningful
  Interest expense: Interest
expense increased by $42.5 million for the year ended December 31, 2007 as
compared to the same period in 2006. The increase is related to the $500.0
million TerreStar Notes issued in February 2007, our $200.0 million aggregate
principal amount of Senior Secured Notes issued in November 2006 and the
write-off of financing fees related to the payoff of the $200.0
million.
  Other expense: Other expense
increased by $7.5 million for the year ended December 31, 2007 as compared
to the same period in 2006. The change is attributed to $5.7 million in the
write-off of financing fees related to the Company’s repayment of its Senior
Secured Notes and $1.7 million of financing fees related to our TerreStar
Notes.
  Interest and other income:
Interest and other income increased by $4.6 million for the year ended
December 31, 2007 as compared to the same period in 2006. The increase
primarily relates to interest earned on our cash and cash equivalent
accounts.
  Equity in losses of MSV:
Equity losses of MSV decreased by $22.7 million for the year ended
December 31, 2007 as compared to the same period in 2006. As of
December 31, 2007, our ownership interest in MSV represented 0% as compared
to 19.1% as of December 31, 2006. On February 12, 2007, we exchanged
approximately 5.1 million limited partnership units of our MSV investment
for approximately 14.4 million shares of our SkyTerra investment non-voting
common stock. Additionally, on November 30, 2007, we exchanged all of our
remaining MSV ownership interests representing approximately 1.6 million
limited partnership units for approximately 4.4 million SkyTerra non-voting
common shares pursuant to an exchange agreement dated May 6,
2006.
  Minority interest in losses of
TerreStar Networks: For the year ended December 31, 2007, we
recorded approximately $162 million net loss for TerreStar Networks. The $23.3
million minority interest in TerreStar Networks represents the 30.8% to 14.0%
investment in TerreStar Networks that was not owned by us throughout
2007.
  Gain on sale of investments:
The gain on sale of investments decreased by $11.3 million for the year ended
December 31, 2007 as compared to the same period in 2006. In October 2006,
we sold 3.6 million SkyTerra shares in the open market. As a result, we
recognized a gain of $11.3 million for the year ended December 31,
2006.
  Decrease in dividend
liability: The decrease in dividend liability represents $71.0 million
for the year ended December 31, 2007, as compared to zero for the same
period in 2006. This change is reflective of the decrease in the historical cost
basis of our SkyTerra investment, as also discussed in more detail below, in the
Caption titled “Other than temporary impairment-SkyTerra”.
  Other than temporary
impairment-SkyTerra: The other than temporary impairment-SkyTerra
increased by $106.8 million for the year ended December 31, 2007 as
compared to the same period in 2006. We apply SFAS No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets”, to measure impairment of our
investments. For the year ended December 31, 2007, we experienced declines
in the fair value of our SkyTerra investment. We consider these declines to be
other than temporary based on the extent and length of time the fair values have
been less than cost. We recognized an impairment of $106.8 million for the year
ended December 31, 2007.
  24
  Years
Ended December 31, 2006 and 2005
  Operating
Expenses
  Year Ended
      December 31,2006
                Restated
              
              
              2005
              
              
              Change
                2006 vs. 2005
              
              
              %
      Change
                2006 vs. 2005(in
      thousands)General
      and administrative (1)
              
              $
              84,253
              
              
              $
              29,265
              
              
              $
              54,988
              
              
              
              187.9
              %Research
      and development
              
              
              10,549
              
              
              
              2,456
              
              
              
              8,093
              
              
              
              329.5
              %Depreciation
      and amortization
              
              
              6,796
              
              
              
              3,480
              
              
              
              3,316
              
              
              
              95.3
              %Loss
      on impairment of intangibles
              
              
              4,909
              
              
              
              —
              
              
              
              4,909
              
              
              NMTotal
      operating expenses
              
              $
              106,507
              
              
              $
              35,201
              
              
              $
              71,306
              
              
              
              202.6
              %
 (1)
              For
      the year ended December 31, 2006, general and administrative expense
      include $32.1 million and $3.6 million of stock compensation expense
      related to employee stock options and directors and consultants
      compensation expense,
respectively.
 For
      the year ended December 31, 2005, general and administrative expense
      include $0.2 million and $11.7 million of stock compensation expense
      related to employee stock options and directors and consultants
      compensation expense,
respectively.
  General and Administrative:
Our aggregate expenses, including corporate and TerreStar Networks expenses, in
this area increased $55.0 million or 187.9%, including an increase of non-cash
stock-based compensation expense of $23.8 million. The change in general and
administrative expenses was primarily attributable to:
  •
              An
      increase in TerreStar Networks expenses of $45.3 million in 2006,
      consisting of a $7.7 million increase in salaries, benefits and employee
      related expenses as TerreStar Networks employees increased from 5 at
      December 31, 2005 to 83 employees at December 31, 2006, $26.9
      million in non-cash stock based compensations expense due to the vesting
      of all outstanding TerreStar Networks stock options upon the closing of
      the exchange transaction in September 2006, an increase in travel and
      related expenses of $1.3 million, an increase in consulting fees of $2.9
      million, an increase in office supplies and equipment of $1.1 million,
      increased legal fees of $3.5 million, a $1.0 million increase attributable
      to facilities and related expenses, $0.2 million in auditor fees, $0.3
      million for communications and $0.4 million for other miscellaneous
      expenses.
  •
              General
      corporate expenses increased $9.7 million primarily due to $9.0 million in
      deal costs associated with the MSV Exchange Agreement, an increase in
      legal fees of $2.8 million as a result of our corporate finance and
      mergers and acquisitions activity, our litigation support requirements,
      increased salary and bonus expense of $0.7 million related to the
      retention of key corporate employees and an increase of $0.7 million
      related to the continuing operations portion of our Lincolnshire facility
      which was expensed under FASB 146, offset by lower stock-based
      compensation expense of $3.1 million and a decrease in audit fees of $0.1
      million.
  Research and Development:
Research and development related entirely to our TerreStar Networks business.
These costs have increased due to development efforts on its satellite and
terrestrial systems.
  Depreciation and
Amortization: Depreciation and amortization expense related entirely to
our TerreStar Networks business. The 95% increase consists of $6.7 million of
intangible asset amortization related to TerreStar Networks’ 2GHz licenses and
intellectual property rights and $0.1 million of depreciation.
  Loss on Impairment of Intangible
Assets: During 2006 our ownership of TerreStar Networks increased
approximately 10% through cash and stock investments. The amounts invested in
TerreStar Networks’ intangible assets exceeded the fair value of the assets.
Therefore we recognized a $4.9 million loss on impairment of intangibles for the
year ended December 31, 2006.
  25
  Years
Ended December 31, 2006 and 2005
  Other
Income and Expenses
  Year Ended
      December 31,2006
                Restated
              
              
              2005
              
              
              Change
                2006 vs. 2005
              
              
              %
      Change
                2006 vs. 2005(in
      thousands)Gain
      on sale of investments
              
              $
              11,260
              
              
              $
              —
              
              
              
              11,260
              
              
              NMInterest
      and other income
              
              
              7,948
              
              
              
              7,582
              
              
              
              366
              
              
              
              4.8
              %Interest
      expense
              
              
              (2,608
              )
              
              
              —
              
              
              
              (2,608
              )
              
              NMEquity
      in losses of MSV
              
              
              (30,079
              )
              
              
              (25,059
              )
              
              
              (5,020
              )
              
              
              20.0
              %Minority
      interests in losses of TerreStar Networks
              
              
              20,655
              
              
              
              3,263
              
              
              
              17,392
              
              
              
              533.0
              %Minority
      interests in losses of TerreStar Global
              
              
              654
              
              
              
              —
              
              
              
              654
              
              
              NMDiscontinued
      operations
              
              
              (30,422
              )
              
              
              (89,866
              )
              
              
              59,444
              
              
              
              -66.1
              %
 NM:
              Not
      Meaningful
  Gain on Sale of Investments:
The gain on sale of investments increased by $11.3 million for the year ended
December 31, 2006 as compared to the same period in 2005. In October 2006,
we sold 3.6 million SkyTerra shares in the open market. As a result, we
recognized a gain of $11.3 million for the year ended December 31,
2006.
  Interest and Other Income:
Interest and other income increased in 2006, as compared to 2005 as a result of
increased cash balances primarily due to increased cash balances throughout the
year and an increase in the rate of return on our invested
balances.
  Interest Expense: Interest
expense in 2006, related entirely to our Senior Secured Notes issued in
November, 2006.
  Equity in Losses of Mobile Satellite
Ventures: Effective May 1, 2002 we were required to reflect our
equity share of the losses of MSV. We recorded equity in losses of MSV of $30.1
million and $25.1 million for the years ended December 31, 2006 and 2005.
The MSV losses for the year ended December 31, 2006 are our 48.84% share
for the period January 1 through September 24, 2006 and our 19.1%
share of MSV’s losses for the period September 25 through December 31,
2006. The MSV losses for the year ended December 31, 2005 are our 38.60%
share for the period January 1 through February 8, 2005 and 48.84%
share of MSV’s losses for the period February 9 through December 31,
2005. Our equity in losses of MSV increased in 2006 as MSV’s expenditures on its
next generation network increased.
  Minority Interest in Losses of
TerreStar Networks: For the year ended December 31, 2006, we
recorded approximately a $56.5 million net loss for TerreStar Networks. The
$20.7 million minority interest in TerreStar Networks represents the 39.4% to
30.8% investment in TerreStar Networks that was not owned by us throughout
2006.
  Minority Interest in Losses of
TerreStar Global: For the year ended December 31, 2006, we recorded
approximately a $2.9 million net loss for TerreStar Global. The $0.7 million
minority interest in TerreStar Global represents the 32.3% to 22.9% investment
in TerreStar Global that was not owned by us throughout 2006.
  Discontinued Operations:
Discontinued operations include revenues from our DataTac and iMotient networks
of $5.6 million for 2006, as compared to $13.8 million for 2005. Loss from
discontinued operations decreased $59.4 million for the comparative year,
primarily due to $36.2 million of lower impairment charges to our 800 MHz
frequencies, $4.8 million in lower telecommunications and site lease costs
related to our base stations, $8.6 million in lower depreciation and
amortization expenses as a result of a reduced number of base stations and lower
frequency value, $14.4 million less in asset disposals due to the base stations
taken out of service in 2005, $5.7 million less of network rationalization
restructuring expense and approximately $2.3 million of reduced selling, general
and administrative costs. These decreases were partially offset by lower
revenues of $8.2 million and an increase in non-cash stock compensation expense
of approximately $4.4 million as a result of the vesting of all outstanding
employee stock options upon the closing of the asset sale
transaction.
  26
  Liquidity
and Capital Resources
  In
assessing our liquidity, we monitor and analyze our cash on-hand, after-tax
liquidation value of our investment securities, and our operating and capital
expenditure commitments. Our principal liquidity needs are to meet our working
capital requirements, operating expenses and capital expenditure obligations.
Based on our current business plan, we believe that we have sufficient liquidity
required to conduct operations through December 31, 2008 and into the first
quarter of 2009. The Company will likely face a cash deficit in the first
quarter of 2009 unless it obtains additional capital. The Company cannot
guarantee that financing sources will be available or available on favorable
terms.
  Our
principal sources of liquidity consist of our existing cash on hand, the cash
proceeds of recently completed capital raising transactions, and our recently
secured $100 million Credit Agreement. As of December 31, 2007, including
restricted cash; we had $92 million of cash on hand. After giving effect to the
net proceeds from the offering of the newly issued TerreStar Notes, Exchangeable
Notes, and the Credit Agreement, which were completed on February 5, 2008;
as well as the sale of SkyTerra common stock on February 6, 2008, we have
approximately $459 million of liquidity resources available to fund
operations.
  Our
principal short-term liquidity needs will depend on: (i) The successful and
timely completion of our satellite system construction contracts; (ii) the
development of certain related ground infrastructure; (iii) the design and
development of our first generation handset and chipset; and (iv) the
initial roll-out of our terrestrial network. As of December 31, 2007, we
had contractual obligations of $341 million due within one year, consisting of
approximately $173 million related to our satellite system, $160 million related
our handset, chipset, and terrestrial network, and $8 million for operating
leases. We have the ability to preserve cash by deferring certain operating and
capital expenditures related to the deployment of our satellite and terrestrial
network into future periods. We have identified in excess of $100 million of
these contractual obligations that can be eliminated or deferred beyond
2008.
  Our
principal long-term liquidity needs are to fund the deployment and expansion of
our terrestrial network, the design of our second generation handset and
chipset, and orbital incentive payments related to our satellite contracts. In
addition, we will need funds for working capital purposes, which we anticipate
will grow as our operations expand. As of December 31, 2007, we had
aggregate contractual payment obligations of approximately $753 million,
consisting of approximately $186 million for the TerreStar Networks’ satellites,
approximately $21 million for our operating leases in Reston, Virginia,
Lincolnshire, Illinois, Richardson Park, Texas, data centers, site hosting
agreements and approximately $546 million for obligations related to the build
out of our terrestrial network. However, we have identified in excess of $400
million of these contractual obligations that can be eliminated or deferred. We
intend to fund our long-term liquidity needs related to operations and ongoing
network deployment through proceeds from the sale of investment securities, the
incurrence of indebtedness, equity financings or a combination of these
potential sources of liquidity. Although we believe that these sources will
provide sufficient liquidity for us to meet our future liquidity and capital
obligations, our ability to fund these needs will depend on our future
performance, which will be subject in part to general economic, financial,
regulatory and other factors that are beyond our control, including trends in
our industry and technology developments. However, we may not be able to obtain
this additional financing on terms acceptable to us or at all.
  Historically,
we have relied on external funding through the issuance of debt and equity
securities to fund operations. The existing indentures relating to our
outstanding debt securities contain covenants that may impact our liquidity
needs or limit our ability to incur future indebtedness. Specifically, the
indentures governing our Exchangeable Notes and Credit Agreement, which were
completed in early February 2008, require certain shareholder approvals by late
July 2008 or we may be forced to accelerate repayment of the
notes.
  As
part of the closing conditions of the sales of the Exchangeable Notes, we
obtained the requisite shareholder consents to approve the required corporate
actions in connection with the foregoing transactions from Harbinger and the
other institutional investors who purchased the notes. As of February 7,
2008 Harbinger and such institutional investors who were also our shareholders
held 53.4% of our common shares. We believe that such shareholder approval will
be effective on or before the July 23, 2008 milestone
date.
 27
  Summary
of Cash Flows:
  Year Ended
      December 31,2007
              
              
              2006
                Restated(in
      thousands)Net
      cash used in Operating Activities
              
              $
              (119,162
              )
              
              $
              (42,228
              )Net
      cash used in Investing Activities
              
              
              (246,172
              )
              
              
              (126,445
              )Cash
      flows from Financing Activities:Net
      proceeds from issuance of debt and equity securities
              
              
              506,708
              
              
              
              218,246Repayments
      of the Senior Secured Notes
              
              
              (200,000
              )
              
              
              —Dividends
      paid on Series A and B Cumulative Convertible Preferred
      Stock
              
              
              (13,086
              )
              
              
              (21,446
              )Debt
      and Equity issuance costs and other charges
              
              
              (14,458
              )
              
              
              (6,245
              )Purchase
      of treasury stock
              
              
              —
              
              
              
              (6,791
              )Net
      cash provided by Financing Activities
              
              
              279,164
              
              
              
              183,764Net
      cash provided by (used in) continuing operations
              
              
              (86,170
              )
              
              
              15,091Net
      cash used in discontinued operating activities
              
              
              (28
              )
              
              
              (18,435
              )Net
      cash provided by (used in) discontinued investing
      activities
              
              
              3,667
              
              
              
              (4,515
              )Net
      cash provided by (used in) discontinued operations
              
              
              3,639
              
              
              
              (22,950
              )Net
      decrease in cash and cash equivalents
              
              
              (82,531
              )
              
              
              (7,859
              )Cash
      and Cash Equivalents, beginning of period
              
              
              171,665
              
              
              
              179,524Cash
      and Cash Equivalents, end of period
              
              $
              89,134
              
              
              $
              171,665
  Operating
Activities
  Net
cash used in operating activities totaled $119.2 million for the year ended
December 31, 2007 as compared to $42.2 million for the same period in 2006.
The $77.0 million increase in net cash used in operating activities is primarily
due to an increase of $23.4 million in consulting fees related to engineering,
marketing and systems development, an increase of $32.5 million in research and
development, and an increase of $13.0 million in salaries and
benefits.
  Investing
Activities
  Net
cash used for investing activities for the year ended December 31, 2007
totaled $246.2 million as compared to $126.4 million for the same period in
2006. The increase of $119.8 million in net cash used for investing activities
was primarily attributable to capital expenditures related to the satellite
construction and equipment for our Dallas laboratory.
  Financing
Activities
  Net
cash provided by financing activities totaled $279.2 million for the twelve
months ended December 31, 2007 as compared to $183.8 million for the same
period in 2006. The increase of $95.4 million in net cash provided by financing
activities is primarily a result of the issuance of TerreStar Notes for $500.0
million in 2007 and $200 million in 2006 offset by our repayment of the $200.0
million Senior Secured Notes which were issued in November
2006.
  Discontinued
Operations
  Net
cash provided from discontinued operations for the twelve months ended 2007 was
$3.6 million attributable to the release of restricted cash related to the asset
sale between TerreStar Corporation and GeoLogic which occurred in September
2006.
  Debt
Obligations
  On
February 14, 2007, TerreStar Networks issued $500.0 million aggregate
principal amount of Senior Secured PIK Notes due 2014 (the “TerreStar Notes”)
pursuant to an Indenture (the “Indenture”), dated as of February 14, 2007,
among TerreStar Networks, as issuer, the guarantors from time to time party
thereto (the “Guarantors”) and U.S. Bank National Association, as
trustee.
  The
TerreStar Notes bear interest from the date of issue at a rate of 15% per
annum. If certain milestones are not met, additional interest of up to
1.5% per annum will accrue on the TerreStar Notes. Until and including
February 15, 2011, interest on the TerreStar Notes will be payable in
additional TerreStar Notes on each February 15 and August 15, starting
August 15, 2007. Thereafter, interest on the TerreStar Notes will be
payable in cash on February 15 and August 15, starting August 15,
2011. The TerreStar Notes are scheduled to mature on February 15,
2014.
  The
TerreStar Notes are secured by a first priority security interest in the assets
of TerreStar Networks, subject to certain exceptions, pursuant to a U.S.
Security Agreement (the “Security Agreement”), dated as of February 14,
2007, among TerreStar Networks, as issuer, and any entities that may become
Guarantors (as defined in the Indenture) in the future under the Indenture in
favor of U.S. Bank National Association, as collateral
agent.
  28
  On
August 15, 2007, $37.7 million of interest was converted into additional
TerreStar Notes in accordance with the Indenture agreement. As of
December 31, 2007, the carrying value of the TerreStar Notes was $568.0
million including accrued interest.
  Contractual
Cash Obligations
  As of
December 31, 2007, TerreStar Corporation had no outstanding debt or
preferred stock obligations, other than obligations with respect to the
repayment of its Series A and B Preferred Stock. If not converted or repaid, the
entire preferred stock amount of $408.5 million will be due on April 15,
2010. On April 15, 2007, TerreStar Corporation paid the remaining portion
of the dividends that were required to be placed in escrow. Additional dividend
payments after April 15, 2007, will be due bi-annually in April and
October, payable at TerreStar Corporation’s option in cash (at a 5.25%
annual interest rate) or common stock (at a 6.25% annual interest rate) through
April 15, 2010. Currently, we are unable to pay the Series A dividend in
common stock due to our ongoing litigation with certain investors. We anticipate
paying the Series A dividend in cash and the Series B in common stock until such
time that the Series A litigation is resolved and we satisfy the conditions
required to pay the Series A dividend in common stock.
  The
Company leases office space and equipment under operating leases expiring
through 2012.
  Our
corporate headquarters is located in Reston, Virginia. We lease approximately
45,000 square feet of office space for which the lease terms expire in 2009 and
2011. Additionally, we lease approximately 1,066 square feet of office space in
Washington, District of Columbia for which the lease term expires in 2008 and
includes a one year renewal option. We lease our network operations center and
engineering laboratory facility located in Richardson Park, Texas, totaling
31,031 square feet under a lease term that expires in 2012 and includes two
five-year renewal options. In addition, we lease our network testing facility
located in Salt Lake City, Utah, totaling approximately 7,000 square feet of
office and warehouse space under a lease term that expires in 2012. We also
lease approximately 67,000 square feet of office space in Lincolnshire, IL, our
former corporate headquarters, for which the lease term expires in 2010. We
currently sublease approximately 18,000 square feet of office space in
Lincolnshire for which the sublease terms expire in 2008 and 2010. For the years
ended December 31, 2007, 2006 and 2005, the income related to the sublease
agreements represented $0.2 million, zero and zero, respectively. Approximately
49,000 square feet of office space in Lincolnshire is currently underutilized
capacity. We plan to sublease the underutilized space in the future as demand
develops.
  Rent
expense represented $2.9 million, $1.2 million and $1.3 million for the years
ended December 31, 2007, 2006 and 2005, respectively. Rent expense is
recognized on a straight-line basis over the term of the lease agreement. Future
lease obligations under the aforementioned lease agreements are more fully
described in the table below.
  The
following are contractual commitments as of December 31,
2007:
  TOTAL
              
              
              < 1
      yr
              
              
              1 - 3
      yrs
              
              
              3 - 5
      yrs
              
              
              5+ yrs(in
      thousands)TerreStar
      Networks Satellites
              
              $
              186,596
              
              
              $
              172,412
              
              
              $
              14,184
              
              
              $
              —
              
              
              $
              —Operating
      Leases
              
              
              20,864
              
              
              
              7,683
              
              
              
              9,131
              
              
              
              3,666
              
              
              
              384Network
      Equipment and Services
              
              
              545,709
              
              
              
              160,476
              
              
              
              207,887
              
              
              
              177,346
              
              
              
              —$
              753,169
              
              
              $
              340,571
              
              
              $
              231,202
              
              
              $
              181,012
              
              
              $
              384
  Other
  On
August 16, 2005, Highland Equity Focus Fund, L.P., Highland Crusader
Offshore Partners, L.P., Highland Capital Management Services, Inc., and
Highland Capital Management, L.P., affiliates of James Dondero (the “Dondero
Affiliates”), a former director of the Company, filed a lawsuit in Dallas
County, Texas, (the “Rescission Litigation”), against us challenging the
validity of the Series A Preferred Stock on the basis of the confusion regarding
the voting rights of our Series A Preferred Stock and seeking rescission of
their purchase of shares of Series A Preferred Stock. These entities acquired
90,000 shares of Series A Preferred Stock for a purchase price of $90.0 million
in the April 2005 private placement. Later, the Dondero Affiliates amended their
suit to assert other grounds for rescission and damages. On November 30,
2007, the court granted TerreStar Corporation’s motion for summary judgment and
dismissed the suit. The Dondero Affiliates have appealed the dismissal. We
intend to vigorously contest the Dondero Affiliates’ efforts to reinstate the
rescission litigation through the appeal process.
  29
  On
February 1, 2008, the same four of Mr. Dondero’s Highland affiliates
who filed the Rescission Litigation filed suit against TerreStar Corporation in
the Commercial Division of the Supreme Court of the State of New York. In this
most recent suit, the Dondero Affiliates contend that the September 2005
exchange offer by virtue of which TerreStar Corporation exchanged TerreStar
Corporation’s outstanding Series A Preferred Stock for a new class of Series B
Preferred Stock caused the occurrence of a Senior Security Trigger Date,
supposedly requiring the Company to issue a Senior Security Notice entitling the
Dondero Affiliates to redeem their Series A Preferred Stock. The Company intends
to vigorously defend this action.
  Please
see Part I, Item 3—“Legal Proceedings”.
  Off-Balance
Sheet Financing
  As of
December 31, 2007, we did not have any material off-balance sheet
arrangements as defined in Item 303(a)(4)(ii) under Regulation
S-K.
  
 30
 SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
  TERRESTAR
      CORPORATIONBy:
              /s/ Neil
      L. HazardNeil
      L. HazardExecutive
      Vice President, Chief Financial OfficerDate:   May
      12 , 2008
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities as of May 12 , 2008.
  /s/
      Jeffrey W. Epstein
              
              PresidentJeffrey
      W. Epstein
              
              (principal
      executive officer)/s/
      Neil Hazard
              
              Executive
      Vice President, Chief Financial OfficerNeil
      Hazard
              
              (principal
      financial officer)*
              
              DirectorDavid
      Andonian*
              
              DirectorEugene
      Davis*
              
              DirectorWilliam
      Freeman*
              
              DirectorJacques
      Leduc*
              
              DirectorDavid
      B. Meltzer*
              
              DirectorDean
      Olmstead*
              
              DirectorDavid
      Rayner
 
  *      By
Power of Attorney.
  
  EXHIBIT
INDEX
 
 
 31.5
                -
                Certification
      of the principal executive officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.6
                -
                Certification
      of the principal financial officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232
                -
                Certification
      of the principal financial officer and principal executive officer
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002